UNIFI, INC. The following is management's discussion and analysis of certain significant factors that have affectedUNIFI's operations, along with material changes in financial condition, during the periods included in the accompanying condensed consolidated financial statements. A reference to a "note" in this section refers to the accompanying notes to condensed consolidated financial statements. A reference to the "current period" refers to the three-month period endedSeptember 26, 2021 , while a reference to the "prior period" refers to the three-month period endedSeptember 27, 2020 . Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks. Our discussions in this Item 2 focus on our results during, or as of, the three months endedSeptember 26, 2021 andSeptember 27, 2020 , and, to the extent applicable, any material changes from the information discussed in the 2021 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the 2021 Form 10-K for more detailed and background information about our business, operations and financial condition. Discussion of foreign currency translation is primarily associated with the weakening of the Brazilian Real ("BRL") and changes in the Chinese Renminbi ("RMB") versus theU.S. Dollar ("USD"). In discussion of operating results in this report, we refer to our operations in the "NACA" region, which is the region comprised of the trade zones covered by USMCA,NAFTA and CAFTA-DR.
All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.
Overview and Significant
UNIFI focuses on delivering products and solutions to direct customers and brand partners throughout the world, leveraging our internal manufacturing capabilities and an enhanced global supply chain that delivers a diverse range of synthetic and recycled fibers and polymers. This strategic and synergistic focus includes three supporting pillars: (1) engaging in strategic relationships with like-minded entities, (2) growing our existing portfolio of technologies and capabilities, and (3) expanding our supply chain to best serve our direct and indirect customers.UNIFI remains committed to this strategy, which we believe will increase profitability and generate improved cash flows from operations.UNIFI has four reportable segments for its operations - the Polyester Segment, the Asia Segment, the Brazil Segment and the Nylon Segment - as well as certain ancillary operations that include for-hire transportation services, which comprise an All Other category. The ancillary operations classified within All Other are insignificant for all periods presented; therefore,UNIFI's discussion and analysis of those activities is generally limited to their impact on consolidated results, where appropriate.
COVID-19 Pandemic
The COVID-19 pandemic adversely impacted our operating results for the prior period as a result of global demand declines that pressured our sales and profitability performance. Despite the lingering effects and uncertainty of the COVID-19 pandemic, our operating results have improved significantly from the prior period to the current period, primarily due to the restoration of global demand levels and consumer spending.
Recent Trade Initiatives
UNIFI remains committed to pursuing relief from the elevated levels of low-cost and subsidized polyester textured yarn ("Subject Imports ") entering the U.S. market from foreign countries. Trade petition efforts to slowSubject Imports fromChina andIndia were successful during calendar 2019. Due to the continued pressure fromSubject Imports on our Polyester Segment revenues and gross margins in the U.S. market,UNIFI is again a petitioner to theUnited States Department of Commerce ("Commerce Department ") and theUnited States International Trade Commission ("ITC") relating toSubject Imports fromIndonesia ,Malaysia ,Thailand , andVietnam (the "Subject Countries"). For such countries, preliminary antidumping duty rates are currently in effect. OnOctober 19, 2021 , theCommerce Department announced final antidumping duty deposit rates on imports of polyester textured yarn from the Subject Countries. The ITC is expected to announce its final determination onNovember 30, 2021 . We believe both trade petitions onSubject Imports are necessary to normalize theU.S. polyester market for fair pricing and competition, and a positive outcome in the ongoing petition will aid in generating incremental revenue for the Polyester Segment.
Adverse Impacts of Elevated Input Costs and Global Production Volatility
The prior period benefited from stable, low raw material costs, although suppressed global demand levels preventedUNIFI from generating meaningful operating results. As fiscal 2021 concluded, global economic recovery, domestic weather events, supply constraints and general inflationary pressures have led to higher input costs in fiscal 2022. For the majority of our portfolio, we have been able to implement selling price adjustments to protect gross margins in the current period, and we have navigated the higher cost environment better than in recent prior years. However, the acceleration of input costs and the current elevated levels remain headwinds to our underlying performance. In addition to the recent pressures from input costs,UNIFI is experiencing inefficiencies in the global supply chain in connection with (i) freight and logistics slowdowns in foreign markets; (ii) a tighter labor pool in theU.S. ; and (iii) suppressed productivity resulting from (a) pandemic-related lockdowns in certain regions ofAsia and (b) energy management measures taken inChina during September andOctober 2021 . While our businesses are not currently materially impacted by these adverse events and circumstances, the existing challenges could worsen and/or occur for prolonged periods and eventually become material impacts to ourAsia and Polyester segments.
Key Performance Indicators and Non-GAAP Financial Measures
UNIFI continuously reviews performance indicators to measure its success. These performance indicators form the basis of management's discussion and analysis included below:
• sales volume and revenue for
• gross profit and gross margin for
17
--------------------------------------------------------------------------------• net income and diluted EPS;
• Segment Profit, which equals segment gross profit plus segment depreciation
expense;
• unit conversion margin, which represents unit net sales price less unit raw
material costs, for
• working capital, which represents current assets less current liabilities;
• Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"),
which represents Net income before net interest expense, income tax expense
and depreciation and amortization expense;
• Adjusted EBITDA, which represents EBITDA adjusted to exclude, from time to
time, certain other adjustments necessary to understand and compare the
underlying results of
• Adjusted Net Income, which represents net income calculated under GAAP,
adjusted to exclude certain amounts which management believes do not reflect
the ongoing operations and performance of
may be necessary to understand and compare the underlying results of
• Adjusted EPS, which represents Adjusted Net Income divided by
diluted weighted average common shares outstanding;
•
other current assets, less accounts payable and other current liabilities;
and
• Net Debt, which represents debt principal less cash and cash equivalents.
EBITDA, Adjusted EBITDA,Adjusted Working Capital and Net Debt (collectively, the "non-GAAP financial measures") are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management's belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management's discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures. We believe that these non-GAAP financial measures better reflectUNIFI's underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets, among otherwise comparable companies. Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of (a) items directly related to our asset base (primarily depreciation and amortization) and (b) items that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio. Management uses Adjusted Net Income and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions. Management usesAdjusted Working Capital as an indicator ofUNIFI's production efficiency and ability to manage inventories and receivables.Adjusted Working Capital is a metric used in the determination of variable compensation. Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.
Review of Results of Operations
Three Months Ended
Consolidated Overview The below tables provide:
• the components of net income and the percentage increase or decrease over
the prior fiscal year amounts, and
• a reconciliation from net income to EBITDA and Adjusted EBITDA.
Following the tables is a discussion and analysis of the significant components of net income.
18
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Net income
For the Three Months Ended
September 26, 2021 September 27, 2020
% of % of %
Net Sales Net Sales Change
Net sales $ 195,992 100.0 $ 141,505 100.0 38.5
Cost of sales 169,895 86.7 126,944 89.7 33.8
Gross profit 26,097 13.3 14,561 10.3 79.2
SG&A 12,670 6.4 11,364 8.0 11.5
Benefit for bad debts (80 ) - (887 ) (0.6 ) (91.0 )
Other operating expense, net 256 0.1 1,178 0.8 (78.3 )
Operating income 13,251 6.8 2,906 2.1 nm
Interest expense, net 438 0.2 746 0.5 (41.3 )
Equity in earnings of
unconsolidated affiliates (280 ) (0.1 ) (93 ) - 201.1
Income before income taxes 13,093 6.7 2,253 1.6 nm
Provision (benefit) for
income taxes 4,413 2.3 (1,179 ) (0.8 ) nm
Net income $ 8,680 4.4 $ 3,432 2.4 152.9
nm - Not meaningful
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net income to EBITDA and Adjusted EBITDA were as follows:
For the Three Months Ended
September 26, 2021 September 27, 2020
Net income $ 8,680 $ 3,432
Interest expense, net 438 746
Provision (benefit) for income taxes 4,413 (1,179 )
Depreciation and amortization expense (1) 6,308 6,052
EBITDA 19,839 9,051
Other adjustments (2) - -
Adjusted EBITDA $ 19,839 $ 9,051
(1) Within this reconciliation, depreciation and amortization expense excludes
the amortization of debt issuance costs, which are reflected in interest
expense, net. Within the accompanying condensed consolidated statements of
cash flows, amortization of debt issuance costs is reflected in depreciation
and amortization expense.
(2) For the periods presented, there were no other adjustments necessary to
reconcile Net income to Adjusted EBITDA.
Adjusted Net Income and Adjusted EPS (Non-GAAP Measures)
For the current and the prior period, there were no adjustments necessary to reconcile Net income to Adjusted Net Income or Adjusted EPS.
Consolidated net sales for the current period increased by$54,487 , or 38.5%, and consolidated sales volumes increased 12.8%, compared to the prior period. The increases occurred primarily due to (i) a rebound in product demand following the adverse impact of the COVID-19 pandemic on sales volumes in the prior period, (ii) incremental sales growth for the Asia Segment led by REPREVE® branded products, and (iii) opportunistically improved market share and pricing levels inBrazil .
Consolidated average sales prices increased 25.7%, primarily attributable to higher selling prices associated with higher raw material costs.
REPREVE® Fiber products for the current period comprised 37% of consolidated net sales, up from 36% for the prior period.
Gross Profit
Gross profit for the current period increased by$11,536 , or 79.2%, compared to the prior period. Despite input cost and supply chain pressures for each of our segments, gross profit performance was better than anticipated.
• For the Polyester Segment, gross profit benefited from the restoration of
sales mix.
• For the Asia Segment, gross profit increased from the prior period primarily
due to higher sales volumes and a stronger sales mix.
• For the Brazil Segment, gross profit increased significantly from the prior
period primarily due to opportunistically improved market share and pricing
levels.
• For the Nylon Segment, gross profit exhibited no relevant change.
19
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SG&A SG&A increased from the prior period, primarily due to higher amortization from customer list assets acquired in fiscal 2021 and higher discretionary expenses in the current period, following COVID-19 pandemic related restrictions and cost control in the prior period. Benefit for Bad Debts
The current period benefit for bad debts reflects no material activity. The prior period reflects a benefit for general improvement in customer payment frequency following the adverse effects of the COVID-19 pandemic on customer health.
Other Operating Expense, Net
The current period and prior period primarily reflect foreign currency
transaction losses of
Interest Expense, Net
Interest expense, net decreased from the prior period to the current period, primarily attributable to a lower average debt principal and interest rate.
Equity in Earnings of Unconsolidated Affiliates
There was no material activity for the current period or the prior period.
Income Taxes
Provision (benefit) for income taxes and the effective tax rate were as follows:
For the Three Months Ended
September 27,
September 26, 2021 2020
Provision (benefit) for income taxes $ 4,413 $ (1,179 )
Effective tax rate 33.7 % (52.3 )%
The effective tax rate is subject to variation due to a number of factors,
including variability in pre-tax book income, the mix of income by jurisdiction,
changes in deferred tax valuation allowances and changes in statutes,
regulations and case law. Additionally, the impacts of discrete and other rate
impacting items are greater when income before income taxes is lower.
The increase in the effective tax rate from the prior period to the current
period is primarily attributable to a discrete benefit in the prior period for
the retroactive GILTI high-tax exclusion. This increase is partially offset by
an expense recorded in the prior period to increase the valuation allowance for
deferred tax assets.
Net Income
Net income for the current period was
20
--------------------------------------------------------------------------------Adjusted EBITDA (Non-GAAP Financial Measure)
Adjusted EBITDA increased from the prior period to the current period, primarily due to higher gross profit.
Segment Overview
Following is a discussion and analysis of the revenue and profitability
performance of
Polyester Segment
The components of Segment Profit, each component as a percentage of net sales
and the percentage increase or decrease over the prior period amounts for the
Polyester Segment, were as follows:
For the Three Months Ended
September 26, 2021 September 27, 2020
% of % of %
Net Sales Net Sales Change
Net sales $ 89,467 100.0 $ 69,076 100.0 29.5
Cost of sales 81,173 90.7 64,444 93.3 26.0
Gross profit 8,294 9.3 4,632 6.7 79.1
Depreciation expense 4,482 5.0 4,403 6.4 1.8
Segment Profit $ 12,776 14.3 $ 9,035 13.1 41.4
Segment net sales as a
percentage of
consolidated amounts 45.6 % 48.8 %
Segment Profit as a
percentage of
consolidated amounts 40.5 % 45.2 %
The change in net sales for the Polyester Segment was as follows:
Net sales for the prior period$ 69,076
Net change in average selling price and sales mix 15,914 Increase in sales volumes
4,477
Net sales for the current period $ 89,467
The increase in net sales for the Polyester Segment from the prior period to the
current period was primarily attributable to (i) higher average selling prices
associated with higher polyester raw material costs, (ii) a better sales mix,
and (iii) higher sales volumes in connection with demand restoration following
the adverse impacts of the COVID-19 pandemic on the prior period.
The change in Segment Profit for the Polyester Segment was as follows:
Segment Profit for the prior period
586
Segment Profit for the current period
The increase in Segment Profit for the Polyester Segment from the prior period
to the current period was primarily attributable to (i) the adverse impact of
the COVID-19 pandemic on cost absorption and facility utilization following
lower sales volumes during the prior period and (ii) a better sales and
production mix in the current period.
21
--------------------------------------------------------------------------------Asia Segment
The components of Segment Profit, each component as a percentage of net sales
and the percentage increase or decrease over the prior period amounts for the
Asia Segment, were as follows:
For the Three Months Ended
September 26, 2021 September 27, 2020
% of % of %
Net Sales Net Sales Change
Net sales $ 51,428 100.0 $ 37,723 100.0 36.3
Cost of sales 44,457 86.4 33,145 87.9 34.1
Gross profit 6,971 13.6 4,578 12.1 52.3
Depreciation expense - - - - -
Segment Profit $ 6,971 13.6 $ 4,578 12.1 52.3
Segment net sales as a
percentage of
consolidated amounts 26.2 % 26.7 %
Segment Profit as a
percentage of
consolidated amounts 22.1 % 22.9 %
The change in net sales for the Asia Segment was as follows:
Net sales for the prior period$ 37,723 Net increase in sales volumes 11,191
Favorable foreign currency translation effects 2,420 Change in average selling price and sales mix 94 Net sales for the current period
$ 51,428 The increase in net sales for the Asia Segment from the prior period to the current period was primarily attributable to the continued momentum of REPREVE®-branded products contributing to underlying sales growth, in addition to the adverse impacts of the COVID-19 pandemic on global demand in the prior period.
The RMB weighted average exchange rate was
The change in Segment Profit for the Asia Segment was as follows:
Segment Profit for the prior period$ 4,578 Increase in sales volumes 1,358 Change in underlying margins and sales mix 742
Favorable foreign currency translation effects 293 Segment Profit for the current period
$ 6,971 The increase in Segment Profit for the Asia Segment from the prior period to the current period was primarily attributable to higher sales volumes and a stronger sales mix in the current period.
Brazil Segment
The components of Segment Profit, each component as a percentage of net sales
and the percentage increase or decrease over the prior period amounts for the
Brazil Segment, were as follows:
For the Three Months Ended
September 26, 2021 September 27, 2020
% of % of %
Net Sales Net Sales Change
Net sales $ 33,738 100.0 $ 22,606 100.0 49.2
Cost of sales 23,798 70.5 17,993 79.6 32.3
Gross profit 9,940 29.5 4,613 20.4 115.5
Depreciation expense 383 1.1 430 1.9 (10.9 )
Segment Profit $ 10,323 30.6 $ 5,043 22.3 104.7
Segment net sales as a
percentage of
consolidated amounts 17.2 % 16.0 %
Segment Profit as a
percentage of
consolidated amounts 32.7 % 25.2 %
22
--------------------------------------------------------------------------------
The change in net sales for the Brazil Segment was as follows:
Net sales for the prior period$ 22,606
Increase in average selling price and change in sales mix 11,397 Favorable foreign currency translation effects
620
Decrease in sales volumes (885 )
Net sales for the current period $ 33,738
The increase in net sales for the Brazil Segment from the prior period to the
current period was primarily attributable to higher selling prices in connection
with (i) higher input costs and (ii) a better competitive position.
The BRL weighted average exchange rate was
The change in Segment Profit for the Brazil Segment was as follows:
Segment Profit for the prior period$ 5,043 Increase in underlying margins 5,343
Favorable foreign currency translation effects 135 Decrease in sales volumes
(198 )
Segment Profit for the current period $ 10,323 The increase in Segment Profit for the Brazil Segment from the prior period to
the current period was primarily attributable to an improved sales mix and
conversion margin stemming from an improved competitive position in
Nylon Segment
The components of Segment Profit, each component as a percentage of net sales
and the percentage increase or decrease over the prior period amounts for the
Nylon Segment, were as follows:
For the Three Months Ended
September 26, 2021 September 27, 2020
% of % of %
Net Sales Net Sales Change
Net sales $ 20,159 100.0 $ 11,029 100.0 82.8
Cost of sales 19,433 96.4 10,364 94.0 87.5
Gross profit 726 3.6 665 6.0 9.2
Depreciation expense 435 2.2 442 4.0 (1.6 )
Segment Profit $ 1,161 5.8 $ 1,107 10.0 4.9
Segment net sales as a
percentage of
consolidated amounts 10.3 % 7.8 %
Segment Profit as a
percentage of
consolidated amounts 3.7 % 5.5 %
The change in net sales for the Nylon Segment was as follows:
Net sales for the prior period$ 11,029 Increase in sales volumes 8,100
Net change in average selling price and sales mix 1,030 Net sales for the current period
$ 20,159 The increase in net sales for the Nylon Segment from the prior period to the current period was primarily attributable to an increase in sales volumes in the current period following the adverse impacts of the COVID-19 pandemic on sales volumes in the prior period, in addition to higher selling prices in connection with higher raw material costs.
The change in Segment Profit for the Nylon Segment was as follows:
Segment Profit for the prior period$ 1,107 Increase in sales volumes 814 Net decrease in underlying margins (760 ) Segment Profit for the current period$ 1,161
Nylon Segment Profit was essentially unchanged due to the offsetting impacts of higher volumes of a less favorable sales and production mix.
23
--------------------------------------------------------------------------------Liquidity and Capital Resources
UNIFI's primary capital requirements are for working capital, capital expenditures, debt service and share repurchases.UNIFI's primary sources of capital are cash generated from operations and borrowings available under the ABL Revolver of its credit facility. For the current period, cash used by operations was$15,808 , and, atSeptember 26, 2021 , excess availability under the ABL Revolver was$73,693 . As ofSeptember 26, 2021 , all ofUNIFI's $84,312 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while 76% ofUNIFI's cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries may not be presently available to fundUNIFI's domestic capital requirements, including its domestic debt obligations.UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed. The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital and total debt obligations as ofSeptember 26, 2021 for domestic operations compared to foreign operations: Domestic Foreign Total Cash and cash equivalents$ 12,051 $ 37,505 $ 49,556 Borrowings available under financing arrangements 73,693 - 73,693 Liquidity$ 85,744 $ 37,505 $ 123,249 Working capital$ 85,254 $ 134,426 $ 219,680 Total debt obligations$ 84,312 $ -$ 84,312
COVID-19 Pandemic Liquidity Considerations
Throughout the COVID-19 pandemic,
• We have not accessed public or private capital markets for recent liquidity
needs.
• We do not currently expect our cost of or access to existing capital and
funding sources to materially change as a result of the COVID-19 pandemic;
however, new capital and funding sources (if any) may carry higher costs
than our current structure.
• We have not taken advantage of rent, lease or debt deferrals, forbearance
periods or other concessions, nor have we modified any material agreements
to provide concessions.
• We have not relied on supply chain financing, structured trade payables or
vendor financing.
• We are not at material risk of not meeting our financial covenants.
• We continue to maintain significant borrowing availability on our existing
credit facility.
Now that global demand pressures are less severe and the textile supply chain appears to be recovering, we expect our significant cash balances and available borrowings to continue to provide adequate liquidity during the lingering pressures of the COVID-19 pandemic. Accordingly, and because of the global demand recovery that has occurred thus far, we do not currently anticipate any adverse events or circumstances will place critical pressure on our liquidity position and/or ability to fund our operations, capital expenditures, and expected business growth during fiscal 2022. Should global demand and economic activity decline beyond the short-term,UNIFI maintains the ability to (i) seek additional credit or financing arrangements or extensions of existing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the business and operations. As we anticipate further business recovery to occur throughout fiscal 2022, we expect the majority of our capital will be deployed to upgrade the machinery in ourAmericas manufacturing facilities via capital expenditures.
Debt Obligations
The following table presents the total balances outstanding forUNIFI's debt obligations, their scheduled maturity dates and the weighted average interest rates for borrowings as well as the applicable current portion of long-term debt: Weighted Average Scheduled Interest Rate as of Principal Amounts as of Maturity Date September 26, 2021 September 26, 2021 June 27, 2021 ABL Revolver December 2023 0.0 % $ - $ - ABL Term Loan December 2023 3.2 % (1) 75,000 77,500 Finance lease obligations (2) 3.6 % 7,548 8,475 Construction financing (3) 2.3 % 1,764 882 Total debt 84,312 86,857 Current ABL Term Loan (12,500 ) (12,500 ) Current portion of finance lease obligations (2,928 ) (3,545 ) Unamortized debt issuance costs (419 ) (476 ) Total long-term debt $ 68,465$ 70,336 24
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(1) Includes the effects of interest rate swaps.
(2) Scheduled maturity dates for finance lease obligations range from
(3) Refer to the discussion below under the subheading "-Construction Financing"
for further information.
As of
•
• excess availability under the ABL Revolver was$73,693 ,
• the Trigger Level (as defined in the Credit Agreement) was
•
UNIFI currently maintains three interest rate swaps that fix LIBOR at approximately 1.9% on$75,000 of variable-rate debt. Such swaps are scheduled to terminate inMay 2022 . Management will continue to monitor the expected termination of LIBOR and the impact onUNIFI's operations. However, management does not expect (i) significant efforts are necessary to accommodate a termination of LIBOR or (ii) a significant impact toUNIFI's operations upon a termination of LIBOR. In addition to making payments in accordance with the scheduled maturities of debt required under its existing debt obligations,UNIFI may, from time to time, elect to repay additional amounts borrowed under the ABL Facility. Funds to make such repayments may come from the operating cash flows of the business or other sources and will depend uponUNIFI's strategy, prevailing market conditions, liquidity requirements, contractual restrictions and other factors.
Construction Financing
InMay 2021 ,UNIFI entered into an agreement with a third party lender that provides for construction-period financing for certain texturing machinery anticipated in our capital allocation plans.UNIFI will record project costs to construction in progress and the corresponding liability to construction financing (within long-term debt). The agreement provides for monthly, interest-only payments during the construction period, at a rate of LIBOR plus 2.2%, and contains terms customary for a financing of this type. The agreement provides for 60 monthly payments, which will commence upon the completion of the construction period with an interest rate of approximately 2.8%.
Scheduled Debt Maturities
The following table presents the scheduled maturities ofUNIFI's outstanding debt obligations for the remainder of fiscal 2022, the following four fiscal years and thereafter: Fiscal 2022 Fiscal 2023 Fiscal 2024 Fiscal 2025 Fiscal 2026 Thereafter ABL Revolver $ - $ - $ - $ - $ - $ - ABL Term Loan 10,000 10,000 55,000 - - - Finance lease obligations 2,618 1,257 1,301 1,195 733 444 Total (1)$ 12,618 $ 11,257 $ 56,301 $ 1,195 $ 733$ 444
(1) Total reported excludes
Net Debt (Non-GAAP Financial Measure)
The reconciliations for Net Debt are as follows:
September 26, 2021 June 27, 2021
Long-term debt $ 68,465 $ 70,336
Current portion of long-term debt 15,428
16,045
Unamortized debt issuance costs 419
476
Debt principal 84,312
86,857
Less: cash and cash equivalents 49,556 78,253
Net Debt $ 34,756 $ 8,604
25
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Working Capital and
The following table presents the components of working capital and the
reconciliation of working capital to
September 26, 2021 June 27, 2021
Cash and cash equivalents $ 49,556 $ 78,253
Receivables, net 103,031 94,837
Inventories 150,511 141,221
Income taxes receivable 3,368 2,392
Other current assets 12,816 12,364
Accounts payable (57,528 ) (54,259 )
Other current liabilities (19,319 ) (31,638 )
Income taxes payable (5,177 ) (1,625 )
Current operating lease liabilities (2,150 ) (1,856 )
Current portion of long-term debt (15,428 ) (16,045 )
Working capital $ 219,680 $ 223,644
Less: Cash and cash equivalents (49,556 ) (78,253 ) Less: Income taxes receivable (3,368 ) (2,392 ) Less: Income taxes payable 5,177
1,625
Less: Current operating lease liabilities 2,150
1,856
Less: Current portion of long-term debt 15,428 16,045 Adjusted Working Capital $ 189,511$ 162,525 Working capital decreased from$223,644 as ofJune 27, 2021 to$219,680 as ofSeptember 26, 2021 , whileAdjusted Working Capital increased from$162,525 to$189,511 . The decrease in cash and cash equivalents was primarily driven by the increase in receivables and inventories, the routine payment of incentive compensation earned in fiscal 2021, capital expenditures and scheduled debt service. The increase in receivables, net and inventories was primarily attributable to increased sales in the current period along with the impact of increased sales pricing and higher raw material costs. The changes in income taxes receivable and other current assets were insignificant. The increase in accounts payable was consistent with the increase in sales and production activity. The decrease in other current liabilities was primarily attributable to the payment of incentive compensation earned in fiscal 2021. The increase in income taxes payable primarily reflects the impact of the interim tax provision. The changes in current operating lease liabilities and current portion of long-term debt were insignificant. Capital Projects During the current period,UNIFI invested$9,300 in capital projects, primarily relating to (i) eAFK Evo texturing machinery, (ii) further improvements in production capabilities and technology enhancements in theAmericas , and (iii) routine annual maintenance capital expenditures. Maintenance capital expenditures are necessary to supportUNIFI's current operations, capacities and capabilities and exclude expenses relating to repairs and costs that do not extend an asset's useful life. For the remainder of fiscal 2022, we expect to invest up to$34,700 in capital projects for an aggregate annual estimate of$40,000 to$44,000 , to include (i) continuing the purchase and installation of new eAFK Evo texturing machines, (ii) making further improvements in production capabilities and technology enhancements in theAmericas , and (iii) annual maintenance capital expenditures. The total amount ultimately invested for fiscal 2022 could be more or less than the currently estimated amount depending on the timing and scale of contemplated initiatives and is expected to be funded primarily by existing cash and cash equivalents.UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily of machinery and equipment.
Share Repurchase Program
OnOctober 31, 2018 , the Board approved the 2018 SRP under whichUNIFI is authorized to acquire up to$50,000 of its common stock. Under the 2018 SRP, purchases will be made from time to time in the open market at prevailing market prices or through private transactions or block trades. The timing and amount of repurchases will depend on market conditions, share price, applicable legal requirements and other factors. The share repurchase authorization is discretionary and has no expiration date.
As of
Liquidity Summary
UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements and other operating needs from its cash flows from operations and available borrowings.UNIFI believes that its existing cash balances, cash provided by operating activities and borrowings available under the ABL Revolver will enableUNIFI to comply with the terms of its indebtedness and meet its foreseeable liquidity requirements. Domestically,UNIFI's cash balances, cash provided by operating activities and borrowings available under the ABL Revolver continue to be sufficient to fundUNIFI's domestic operating activities as well as cash commitments for its investing and financing activities. For its foreign operations,UNIFI expects its existing cash balances and cash provided by operating activities will provide the needed liquidity to fund its foreign operating activities and any foreign 26 --------------------------------------------------------------------------------
investing activities, such as future capital expenditures. However, expansion of our foreign operations may require cash sourced from our domestic subsidiaries.
Operating Cash Flows
The significant components of net cash (used) provided by operating activities
are summarized below.
For the Three Months Ended
September 26,
2021 September 27, 2020
Net income $ 8,680 $ 3,432
Equity in earnings of unconsolidated affiliates (280 ) (93 )
Depreciation and amortization expense 6,365 6,112
Non-cash compensation expense 660 509
Deferred income taxes (3,463 ) (2,072 )
Subtotal 11,962 7,888
Receivables, net (9,462 ) (23,499 )
Inventories (12,190 ) 4,853
Accounts payable and other current liabilities (7,393 ) 15,314
Other changes 1,275 3,366
Net cash (used) provided by operating activities
7,922
The decrease in net cash (used) provided by operating activities from the prior
period to the current period was primarily due to an increase in working capital
associated with (i) higher raw material costs and consolidated sales activity
driving higher inventory and accounts receivable balances and (ii) lower other
current liabilities resulting from the payment of incentive compensation earned
in fiscal 2021, partially offset by an increase in net income.
Investing Cash Flows
Investing activities include
Financing Cash Flows
Financing activities include scheduled payments against the ABL Term Loan and finance leases during the current period.
Contractual Obligations
UNIFI has incurred various financial obligations and commitments in its normal course of business. Financial obligations are considered to represent known future cash payments thatUNIFI is required to make under existing contractual arrangements, such as debt and lease agreements.
There have been no material changes in the scheduled maturities of
Off-Balance Sheet Arrangements
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. TheSEC has defined a company's most critical accounting policies as those involving accounting estimates that require management to make assumptions about matters that are highly uncertain at the time and where different reasonable estimates or changes in the accounting estimate from quarter to quarter could materially impact the presentation of the financial statements.UNIFI's critical accounting policies are discussed in the 2021 Form 10-K. There were no material changes to these policies during the current period.
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