UNIFI INC

Previous wording

The following is management’s discussion and analysis of certain significant factors that have affected UNIFI’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 ended December 31, 2023, while a reference to the “prior period” refers to the three-month period ended January 1, 2023. A reference to the “current six-month period” refers to the six-month period ended December 31, 2023, while a reference to the “prior six-month period” refers to the six-month period ended January 1, 2023. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks. The current six-month period and the prior six-month period each consisted of 26 weeks.

Current wording

The following is management’s discussion and analysis of certain significant factors that have affected UNIFI’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 ended March 31, 2024, while a reference to the “prior period” refers to the three-month period ended April 2, 2023. A reference to the “current nine-month period” refers to the nine-month period ended March 31, 2024, while a reference to the “prior nine-month period” refers to the nine-month period ended April 2, 2023. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks. The current nine-month period and the prior nine-month period each consisted of 39 weeks.

Previous wording

The current economic environment and significant decrease in textile product demand adversely impacted our consolidated sales and profitability in fiscal 2023 and the first half of fiscal 2024. In addition to the current unfavorable economic environment and the inventory destocking measures taken by brands and retailers, the following pressures have been present: (i) the impact of inflation on consumer spending, (ii) rising interest rates for consumers and customers, including the impact on the carrying costs of customer inventories, (iii) the Russia-Ukraine conflict, and (iv) the conflict in the Middle East and the potential impacts to petroleum pricing and geopolitics. UNIFI will continue to monitor these and other aspects of the current economic environment and work closely with stakeholders to ensure business continuity and liquidity.

Current wording

The current economic environment and significant decrease in textile product demand adversely impacted our consolidated sales and profitability in fiscal 2023 and the first nine months of fiscal 2024. In addition to the current unfavorable economic environment and the inventory destocking measures taken by brands and retailers, the following pressures have been present: (i) the impact of inflation on consumer spending, (ii) rising interest rates for consumers and customers, including the impact on the carrying costs of customer inventories, (iii) the Russia-Ukraine conflict, and (iv) the conflict in the Middle East and the potential impacts to petroleum pricing and geopolitics. UNIFI will continue to monitor these and other aspects of the current economic environment and work closely with stakeholders to ensure business continuity and liquidity.

Previous wording

We recognize the disruption to global markets and supply chains caused by (i) Russia’s invasion of Ukraine and (ii) the conflict in the Middle East. While we had a raw material supplier based in Israel for which the recent supply levels have been insignificant, we have not been directly impacted by either conflict. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our global raw material costs or unforeseen adverse impacts.

Current wording

While we recognize the disruption to global markets and supply chains caused by (i) Russia’s invasion of Ukraine and (ii) the conflict in the Middle East, we have not been directly impacted by either conflict. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our global raw material costs or unforeseen adverse impacts.

Previous wording

During fiscal 2023, certain regional bank crises and failures generated additional uncertainty and volatility in the financial and credit markets. UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and management maintains the ability to repatriate cash to the U.S. relatively quickly when presently available. Accordingly, UNIFI has not modified its mix of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current events to ensure any increase in concentration or credit risk is appropriately and timely addressed. If any of our lending counterparties are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to perform their commitments.

Current wording

UNIFI currently holds the vast majority of its cash deposits with large foreign banks in our associated operating regions, and management maintains the ability to repatriate cash to the U.S. Accordingly, UNIFI has not modified its mix of financial institutions holding cash deposits, but UNIFI will continue to monitor the environment and current events to ensure any increase in concentration or credit risk is appropriately and timely addressed. If any of our lending counterparties are unable to perform on their commitments, our liquidity could be impacted. We actively monitor all lending counterparties, and none have indicated that they may be unable to perform on their commitments. In addition, we periodically review our lending counterparties, considering the stability of the institutions and other aspects of the relationships. Based on our monitoring activities, we currently believe our lending counterparties will be able to perform their commitments.

Previous wording

the components of net loss and the percentage increase or decrease over the prior period amounts,

Current wording

the components of net loss and the percentage increase or decrease over the prior period amounts, and

Previous wording

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.

Current wording

Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. However, within the accompanying Condensed Consolidated Statements of Cash Flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

Previous wording

REPREVE® Fiber products for the current period comprised 33%, or $45,725, of consolidated net sales, compared to 31%, or $42,866, for the prior period.

Current wording

REPREVE® Fiber products for the current period comprised 31%, or $46,754, of consolidated net sales, compared to 32%, or $49,619, for the prior period.

Previous wording

For the Asia Segment, gross profit increased primarily due to (i) improved underlying margins and sales mix and (ii) higher sales volumes compared to the prior period despite continued weak global demand.

Current wording

For the Asia Segment, gross profit increased primarily due to (i) improved underlying unit margins and sales mix and (ii) higher sales volumes compared to the prior period despite continued weak global demand.

Previous wording

SG&A for the current period increased compared to the prior period, primarily due to (i) higher compensation expenses prior to the cost reduction actions executed in the current period.

Current wording

SG&A for the current period decreased compared to the prior period, primarily due to lower amortization, compensation, and discretionary expenses.

Previous wording

The current period and prior period include foreign currency transaction losses (gains) of $464 and ($78), respectively, with no other meaningful activity.

Current wording

The current period and the prior period include foreign currency transaction (gains) losses of ($35) and $174, respectively, with no other meaningful activity. The prior period also includes $623 paid to a vendor to facilitate an 18-month delay for contracted equipment purchases.

Previous wording

Interest expense, net increased in connection with higher debt principal and higher interest rates.

Current wording

Interest expense, net increased in connection with higher borrowings on the revolving credit facility and higher average interest rates.

Previous wording

Equity in Earnings of Unconsolidated Affiliates

Current wording

Equity in Loss (Earnings) of Unconsolidated Affiliates

Previous wording

Provision (benefit) for income taxes and the effective tax rate were as follows:

Current wording

Provision for income taxes and the effective tax rate were as follows:

Previous wording

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 more pronounced when income (loss) before income taxes is lower.

Current wording

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 more pronounced when loss before income taxes is lower.

Previous wording

The change in net sales for the Americas Segment from the prior six-month period to the current six-month period was primarily attributable to (i) the net change in average selling price and sales mix that reflects both (a) lower input costs and (b) a larger proportion of lower-priced Chip and Flake sales in the current six-month period and (ii) lower fiber sales volumes following weaker global textile demand.

Current wording

The decrease in net sales for the Americas Segment from the prior period to the current period was primarily attributable to the net change in average selling price and sales mix that includes lower raw material input costs, partially offset by an increase in sales volumes in connection with recent commercial efforts. Both periods were unfavorably impacted by the continued weak global textile demand environment.

Previous wording

The improvement in Segment Loss for the Americas Segment from the prior period to the current period was primarily attributable to variable cost management efforts and more stable raw material costs in the current period, along with volume improvements. Segment Loss for the Americas Segment continued to be negatively impacted by weak fixed cost absorption as fiber production remains below historical averages. As fiber products carry a higher selling price and allocation of production costs versus Flake and Chip, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin.

Current wording

The decrease in Segment Profit for the Americas Segment from the prior period to the current period was primarily attributable to (i) higher manufacturing costs related to the timing and extent of the holiday shutdown periods and (ii) lower conversion margins. Segment Profit for the Americas Segment continues to be negatively impacted by weak fixed cost absorption as fiber production remains below historical averages. As fiber products carry a higher selling price and allocation of production costs versus Flake and Chip, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin.

Previous wording

The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to an overall increase in underlying unit margins and improved sales volumes, partially offset by pressure on selling prices from low-priced import competition. We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.

Current wording

The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to (i) an overall increase in conversion margins and (ii) improved sales volumes with recent market share gains. We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.

Previous wording

The increase in net sales for the Asia Segment from the prior period to the current period was primarily attributable to (i) increase in sales volume compared to the prior period despite continued weak global demand during the current period and (ii) improved sales mix compared to the prior period, partially offset by unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD.

Current wording

The increase in net sales for the Asia Segment from the prior period to the current period was primarily attributable to an increase in sales volumes compared to the prior period, despite continued weak global demand during the current period, partially offset by (i) lower average selling prices compared to the prior period and (ii) unfavorable foreign currency translation effects due to the weakening of the RMB versus the USD.

Previous wording

Six Months Ended December 31, 2023 Compared to Six Months Ended January 1, 2023

Current wording

Nine Months Ended March 31, 2024 Compared to Nine Months Ended April 2, 2023

Previous wording

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.

Current wording

Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. However, within the accompanying Condensed Consolidated Statements of Cash Flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.

Previous wording

Consolidated net sales for the current six-month period decreased by $39,970, or 12.7%, while consolidated sales volumes increased 3.1%, compared to the prior six-month period. Despite modest sales volume improvements in each of the reportable segments, volumes remain depressed, particularly in the Americas and Asia Segments as a result of low global demand in connection with the apparel market.

Current wording

Consolidated net sales for the current nine-month period decreased by $47,712, or 10.1%, while consolidated sales volumes increased 5.7%, compared to the prior nine-month period. Despite modest sales volume improvements in each of the reportable segments, volumes remain depressed, particularly in the Americas and Asia Segments as a result of low global demand in connection with the apparel market.

Previous wording

Consolidated weighted average sales prices decreased 15.8% which drove the decrease in net sales. The decrease in sales price was primarily attributable to lower selling prices in response to lower input costs, along with (a) competitive pricing pressures in Brazil and (b) a greater mix of Chip and Flake product sales in the Americas Segment.

Current wording

Consolidated weighted average sales prices decreased 15.8% which drove the decrease in net sales. The decrease in sales price was primarily attributable to (a) lower selling prices in response to lower raw material input costs and (b) a greater mix of Chip and Flake product sales, both particularly in the Americas Segment, together with (c) competitive pricing pressures in Brazil.

Previous wording

REPREVE® Fiber products for the current six-month period comprised 32%, or $88,186, of consolidated net sales, compared to 29%, or $92,045, for the prior six-month period.

Current wording

REPREVE® Fiber products for the current nine-month period comprised 32%, or $134,940, of consolidated net sales, compared to 30%, or $141,664, for the prior nine-month period.

Previous wording

Gross profit for the current period improved by $9,636, or 120.5%, compared to the prior period. Gross profit improved as a result of (i) increased sales volumes, (ii) cost saving initiatives, and (iii) more stable raw material costs. However, gross profit continues to be negatively impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.

Current wording

Gross profit for the current nine-month period decreased by $2,391, or 29.1%, compared to the prior nine-month period. Gross profit declined primarily due to (i) higher manufacturing costs and (ii) lower conversion margins. These were partially offset by (a) increased sales volumes, (b) variable cost saving initiatives, (c) improved productivity, and (d) more stable raw material costs. However, gross profit continues to be unfavorably impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.

Previous wording

For the Brazil Segment, gross profit decreased primarily due to decreasing market prices in Brazil due to low-cost import competition.

Current wording

For the Brazil Segment, gross profit decreased primarily due to decreasing market prices in Brazil due to low-cost import competition, partially offset by higher sales volume from market share gains and favorable foreign currency translation effects.

Previous wording

For the Asia Segment, gross profit increased primarily due to (i) a strong sales mix and (ii) higher sales volumes compared to the period six-month period despite weak global demand.

Current wording

For the Asia Segment, gross profit increased primarily due to (i) a strong sales mix and (ii) higher sales volumes compared to the prior nine-month period despite continued weak global demand.

Previous wording

SG&A did not change meaningfully from the prior six-month period to the current period, nor did the change include any significant offsetting impacts.

Current wording

SG&A did not change meaningfully from the prior nine-month period to the current nine-month period, nor did the change include any significant offsetting impacts.

Previous wording

The current six-month period's provision reflects an increase for a specifically identified customer balance originating in the U.S. fiber market.

Current wording

The current nine-month period's provision reflects an increase for a specifically identified customer balance originating in the U.S. fiber market.

Previous wording

Restructuring costs consisted of (i) a loss of $2,750 for the dissolution of UNF and (ii) severance charges of $2,351 in connection with overall cost reduction efforts in the U.S.

Current wording

Restructuring costs consisted of (i) a loss of $2,750 for the dissolution of UNF, our former joint venture partner in Israel, and (ii) severance charges of $2,351 in connection with overall cost reduction efforts in the U.S.

Previous wording

The current six-month period and prior six-month period include foreign currency transaction losses (gains) of $430 and ($803), respectively, with no other meaningful activity.

Current wording

The current nine-month period and the prior nine-month period include foreign currency transaction losses (gains) of $395 and ($629), respectively, with no other meaningful activity. The prior nine-month period also includes $623 paid to a vendor to facilitate an 18-month delay for contracted equipment purchases.

Previous wording

Interest expense, net increased in connection with higher debt principal and higher interest rates.

Current wording

Interest expense, net increased in connection with higher average borrowings on the revolving credit facility combined with higher average interest rates.

Previous wording

Equity in Earnings of Unconsolidated Affiliates

Current wording

Equity in Loss (Earnings) of Unconsolidated Affiliates

Previous wording

There was no material activity for the current six-month period or the prior six-month period.

Current wording

There was no material activity for the current nine-month period or the prior nine-month period.

Previous wording

Benefit for income taxes and the effective tax rate were as follows:

Current wording

Provision for income taxes and the effective tax rate were as follows:

Previous wording

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 more pronounced when income (loss) before income taxes is lower.

Current wording

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 more pronounced when loss before income taxes is lower.

Previous wording

The increase in net loss was primarily attributable to restructuring costs, higher bad debt expense, and higher interest expense, net, partially offset by improved gross profit.

Current wording

The increase in net loss was primarily attributable to lower gross profit, restructuring costs, higher bad debt expense, lower earnings from unconsolidated affiliates, and higher interest expense, net.

Previous wording

Adjusted EBITDA and Adjusted EPS increased primarily due to improved gross profit, partially offset by higher bad debt expense and other operating expenses.

Current wording

Adjusted EBITDA and Adjusted EPS decreased primarily due to lower gross profit, higher bad debt expense, lower earnings from unconsolidated affiliates, and other operating expenses (income), net.

Previous wording

Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current six-month period.

Current wording

Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current nine-month period.

Previous wording

The change in net sales for the Americas Segment from the prior period to the current period was primarily attributable to (i) the net change in average selling price and sales mix that reflects both (a) lower input costs and (b) a larger proportion of lower-priced Chip sales in the current period and (ii) lower proportion of fiber sales volumes following continued weak global textile demand.

Current wording

The decrease in net sales for the Americas Segment from the prior nine-month period to the current nine-month period was primarily attributable to the net change in average selling price and sales mix that includes lower raw material input costs, partially offset by an increase in sales volumes. Both periods were unfavorably impacted by the continued weak global textile demand environment.

Previous wording

The improvement in Segment Loss for the Americas Segment from the prior six-month period to the current six-month period was primarily attributable to variable cost management efforts and more stable raw material costs in the current six-month period. Segment Loss for the Americas Segment continued to be negatively impacted by low fiber sales volumes. As fiber products carry a higher selling price and allocation of production costs versus Chip and Flake, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin.

Current wording

The decrease in Segment Profit for the Americas Segment from the prior nine-month period to the current nine-month period was primarily attributable to (i) higher manufacturing costs and (ii) lower conversion margins. Segment Loss for the Americas Segment continues to be negatively impacted by a lower proportion of fiber sales volumes. As fiber products carry a higher selling price and allocation of production costs versus Chip and Flake, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin. These negative impacts were partially offset by variable cost management efforts and more stable raw material costs in the current nine-month period.