Unifi(UFI) - 2023 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements UNIFI's unaudited condensed consolidated financial statements, including balance sheets, operations, comprehensive income, equity, and cash flows, are presented with detailed notes Condensed Consolidated Balance Sheets | Metric | Jan 1, 2023 (in thousands) | Jul 3, 2022 (in thousands) | Change | | :-------------------------- | :------------------------- | :------------------------- | :----- | | Total Assets | $528,233 | $588,718 | (10.3%) | | Total Liabilities | $193,354 | $227,269 | (14.9%) | | Total Shareholders' Equity | $334,879 | $361,449 | (7.3%) | | Cash and cash equivalents | $50,781 | $53,290 | (4.7%) | | Receivables, net | $64,980 | $106,565 | (39.0%) | | Inventories | $147,253 | $173,295 | (15.0%) | | Accounts payable | $33,784 | $73,544 | (54.0%) | Condensed Consolidated Statements of Operations | Metric (Three Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | Change | | :-------------------- | :------------------------- | :-------------------------- | :----- | | Net sales | $136,212 | $201,410 | (32.4%) | | Gross (loss) profit | $(8,000) | $16,890 | (147.4%) | | Operating (loss) income | $(19,818) | $4,591 | nm | | Net (loss) income | $(18,037) | $929 | nm | | Basic EPS | $(1.00) | $0.05 | nm | | Metric (Six Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | Change | | :------------------ | :------------------------- | :-------------------------- | :----- | | Net sales | $315,731 | $397,402 | (20.6%) | | Gross (loss) profit | $(1,437) | $42,987 | (103.3%) | | Operating (loss) income | $(24,513) | $17,842 | nm | | Net (loss) income | $(25,871) | $9,609 | nm | | Basic EPS | $(1.44) | $0.52 | nm | Condensed Consolidated Statements of Comprehensive (Loss) Income | Metric (Three Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | | :-------------------- | :------------------------- | :-------------------------- | | Net (loss) income | $(18,037) | $929 | | Foreign currency translation adjustments | $3,447 | $(1,162) | | Comprehensive (loss) income | $(14,590) | $(26) | | Metric (Six Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | | :------------------ | :------------------------- | :-------------------------- | | Net (loss) income | $(25,871) | $9,609 | | Foreign currency translation adjustments | $(2,461) | $(8,088) | | Comprehensive (loss) income | $(28,332) | $1,984 | Condensed Consolidated Statements of Shareholders' Equity | Metric | Jan 1, 2023 (in thousands) | Jul 3, 2022 (in thousands) | Change | | :-------------------------- | :------------------------- | :------------------------- | :----- | | Total Shareholders' Equity | $334,879 | $361,449 | (7.3%) | | Retained Earnings | $327,265 | $353,136 | (7.3%) | | Accumulated Other Comprehensive Loss | $(62,066) | $(59,605) | (4.1%) | - Net loss for the six months ended January 1, 2023, was $25,871 thousand, contributing to the decrease in retained earnings[22] Condensed Consolidated Statements of Cash Flows | Metric (Six Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | Change | | :------------------------------------ | :------------------------- | :-------------------------- | :----- | | Net cash provided (used) by operating activities | $7,272 | $(3,950) | nm | | Net cash used by investing activities | $(24,526) | $(19,085) | (28.5%) | | Net cash provided (used) by financing activities | $15,396 | $(6,794) | nm | | Net decrease in cash and cash equivalents | $(2,509) | $(30,633) | 91.8% | | Cash and cash equivalents at end of period | $50,781 | $47,620 | 6.6% | Notes to Condensed Consolidated Financial Statements 1. Background - UNIFI manufactures and sells innovative recycled and synthetic products (polyester and nylon) to direct customers (yarn manufacturers, knitters, weavers) and indirect customers (brand partners) for apparel, hosiery, home furnishings, automotive, industrial, and other markets[28] - The company has direct manufacturing operations in four countries and joint ventures in Israel and the U.S., with principal geographic markets in North America, Central America, South America, Asia, and Europe[29] 2. Basis of Presentation; Condensed Notes - Financial statements are unaudited and prepared under U.S. GAAP for interim reporting, with condensed disclosures[30] - Interim results are based on management estimates and assumptions and are not necessarily indicative of full-year performance[31] 3. Recent Accounting Pronouncements - No newly issued or applicable accounting pronouncements are expected to materially impact UNIFI's consolidated financial statements[34] 4. Revenue | Revenue Type (Three Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | Change | | :-------------------------- | :------------------------- | :-------------------------- | :----- | | Third-party manufacturer | $135,018 | $199,585 | (32.3%) | | Service | $1,194 | $1,825 | (34.6%) | | Net sales | $136,212 | $201,410 | (32.4%) | | Product Type (Three Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | Change | | :-------------------------- | :------------------------- | :-------------------------- | :----- | | REPREVE® Fiber | $42,866 | $81,524 | (47.4%) | | All other products and services | $93,346 | $119,886 | (22.2%) | | Net sales | $136,212 | $201,410 | (32.4%) | - REPREVE® Fiber sales comprised 31% of consolidated net sales for the current three-month period, down from 40% in the prior period, primarily due to lower volumes and net sales in the Asia Segment[116] 5. Long-Term Debt | Debt Type | Jan 1, 2023 (in thousands) | Jul 3, 2022 (in thousands) | Change | | :-------------------------- | :------------------------- | :------------------------- | :----- | | ABL Revolver | $3,400 | $41,300 | (91.8%) | | ABL Term Loan | $115,000 | $65,000 | 76.9% | | Total debt | $130,391 | $114,290 | 14.1% | - UNIFI entered into a new $230 million senior secured credit facility (2022 ABL Facility) on October 28, 2022, including a $115 million revolving credit facility and a term loan, maturing October 28, 2027[47] - A $273 thousand loss on debt extinguishment was recorded in the second quarter of fiscal 2023 in connection with the new credit agreement[49] 6. Income Taxes | Metric (Three Months) | Jan 1, 2023 | Dec 26, 2021 | | :-------------------- | :---------- | :----------- | | (Benefit) provision for income taxes | $(3,070) | $3,185 | | Effective tax rate | 14.5% | 77.4% | | Metric (Six Months) | Jan 1, 2023 | Dec 26, 2021 | | :------------------ | :---------- | :----------- | | (Benefit) provision for income taxes | $(336) | $7,598 | | Effective tax rate | 1.3% | 44.2% | - The effective tax rate for the current periods varied from the U.S. federal statutory rate primarily due to losses for which UNIFI does not expect to realize a future benefit and a discrete tax benefit related to the recovery of certain Brazilian income taxes paid in prior years[54] 7. Shareholders' Equity - UNIFI has a $50 million share repurchase program (2018 SRP) approved on October 31, 2018, with $38,859 thousand remaining as of January 1, 2023[57][59] - No shares were repurchased under the 2018 SRP in fiscal 2023 through January 1, 2023[59] 8. Stock-Based Compensation | 2020 Plan Share Availability (as of Jan 1, 2023) | Shares (in thousands) | | :----------------------------------------------- | :-------------------- | | Authorized under the 2020 Plan | 850 | | Awards granted to employees | (544) | | Awards granted to non-employee directors | (114) | | Available for issuance under the 2020 Plan | 196 | - The ESPP, approved in October 2021, reserved 100 thousand Company shares and allows eligible employees to purchase shares at a 15% discount[61] 9. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities - UNIFI uses derivative financial instruments to reduce exposure to foreign currency and interest rate fluctuations, but has had no outstanding derivative instruments since June 2022[63] - The fair values of debt obligations and other short-term financial instruments (cash, receivables, payables) approximate their carrying amounts[65] 10. Accumulated Other Comprehensive Loss | Metric | Jan 1, 2023 (in thousands) | Jul 3, 2022 (in thousands) | Change | | :-------------------------------- | :------------------------- | :------------------------- | :----- | | Accumulated Other Comprehensive Loss | $(62,066) | $(59,605) | (4.1%) | | Other comprehensive loss (six months) | $(2,461) | N/A | N/A | 11. Earnings Per Share | Metric (Three Months) | Jan 1, 2023 | Dec 26, 2021 | | :-------------------- | :---------- | :----------- | | Basic EPS | $(1.00) | $0.05 | | Diluted EPS | $(1.00) | $0.05 | | Metric (Six Months) | Jan 1, 2023 | Dec 26, 2021 | | :------------------ | :---------- | :----------- | | Basic EPS | $(1.44) | $0.52 | | Diluted EPS | $(1.44) | $0.51 | 12. Commitments and Contingencies - UNIFI's Brazilian employees are unionized; other subsidiaries are not covered by collective bargaining agreements[69] - UNIFI is involved in environmental remediation at the Kinston and Kentec sites in North Carolina. DuPont is responsible for Kinston, while UNIFI's subsidiary UK assumed sole remediator responsibility for Kentec in 2019, with no expected material costs[70] 13. Related Party Transactions | Related Party Payables (Salem Leasing) | Jan 1, 2023 (in thousands) | Jul 3, 2022 (in thousands) | Change | | :------------------------------------- | :------------------------- | :------------------------- | :----- | | Accounts payable | $333 | $432 | (22.8%) | | Operating lease obligations | $651 | $811 | (19.7%) | | Finance lease obligations | $4,311 | $4,933 | (12.6%) | | Total related party payables | $5,295 | $6,176 | (14.2%) | | Transaction Type (Salem Leasing) | Jan 1, 2023 (3 months, in thousands) | Dec 26, 2021 (3 months, in thousands) | Jan 1, 2023 (6 months, in thousands) | Dec 26, 2021 (6 months, in thousands) | | :------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | :--------------------------------- | | Payments for transportation equipment costs and finance lease debt service | $1,184 | $1,059 | $2,383 | $2,087 | 14. Business Segment Information - UNIFI realigned its operating segments in Q4 fiscal 2022 into Americas, Brazil, and Asia, with comparative prior period disclosures updated[75] - Segment operating performance is evaluated based on Segment Profit, defined as segment gross (loss) profit plus segment depreciation expense[77] - The Americas Segment includes operations in the U.S., El Salvador, and Colombia, selling synthetic and recycled textile products primarily in North and Central America. The Brazil Segment focuses on polyester-based products in Brazil. The Asia Segment sources and sells textile products primarily in Asia and Europe, with sales offices in China, Turkey, and Hong Kong[79] 15. Investments in Unconsolidated Affiliates - UNIFI has equity investments in unconsolidated affiliates, U.N.F. Industries, Ltd. (Israel) and UNF America LLC (U.S.), which are treated as equity investments despite UNIFI being the primary beneficiary and purchasing substantially all their output[82][88] | Raw Material Purchases from Affiliates (Six Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | Change | | :------------------------------------------------ | :------------------------- | :-------------------------- | :----- | | UNFA | $12,791 | $12,582 | 1.7% | | UNF | $37 | $146 | (74.6%) | | Total | $12,828 | $12,728 | 0.8% | 16. Supplemental Cash Flow Information | Cash Payments (Six Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | | :------------------------- | :------------------------- | :-------------------------- | | Interest, net | $2,739 | $1,280 | | Income tax payments, net | $4,064 | $9,520 | - Non-cash financing activities included a $52.5 million transfer of revolving credit facility borrowings to the term loan in October 2022[93] 17. Other Financial Data | Metric | Jan 1, 2023 (in thousands) | Jul 3, 2022 (in thousands) | Change | | :-------------------------------- | :------------------------- | :------------------------- | :----- | | Net customer receivables | $59,288 | $97,605 | (39.2%) | | Total inventories | $147,253 | $173,295 | (15.0%) | | Total property, plant and equipment, net | $226,279 | $216,338 | 4.6% | | Total other non-current assets | $13,222 | $8,788 | 50.5% | | Total other current liabilities | $11,345 | $19,806 | (42.7%) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses UNIFI's financial performance and condition, detailing results for the three and six months ended January 1, 2023, segment performance, and liquidity Overview and Significant General Matters - UNIFI's strategic initiatives include growing market share, expanding REPREVE® products into non-apparel markets, advancing sustainable solutions, and increasing REPREVE® brand awareness[100] - The current economic environment, characterized by decreased textile product demand, inflation, rising interest rates, the Russia-Ukraine conflict, global input cost volatility, and supply chain disruption, has adversely impacted consolidated sales and profitability in fiscal 2023[101] Current Economic Environment - Lower global demand, inventory destocking by brands and retailers, inflation, rising interest rates, and the Russia-Ukraine conflict have negatively impacted UNIFI's sales and profitability[101] Input Costs and Global Production Volatility - Despite improvements in input and freight costs and a more stable labor pool, global demand volatility and uncertainty continue due to recession threats, potentially impacting sales and gross profit[102] - Future selling price adjustments due to inflationary costs could affect the ability to retain customers and compete for new programs[102] Key Performance Indicators and Non-GAAP Financial Measures - UNIFI uses key performance indicators such as sales volume, revenue, gross profit, net income, diluted EPS, Segment Profit, unit conversion margin, working capital, EBITDA, and various adjusted non-GAAP financial measures[103][108] - Non-GAAP financial measures like Adjusted EBITDA, Adjusted Net (Loss) Income, Adjusted EPS, Adjusted Working Capital, and Net Debt are used to better reflect underlying operations and performance, aiding in consistent comparisons and planning[104][105][106][107] Review of Results of Operations (Three Months Ended January 1, 2023 Compared to Three Months Ended December 26, 2021) Consolidated Overview (Three Months) | Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :-------------------------- | :------------------------- | :-------------------------- | :------- | | Net sales | $136,212 | $201,410 | (32.4%) | | Cost of sales | $144,212 | $184,520 | (21.8%) | | Gross (loss) profit | $(8,000) | $16,890 | (147.4%) | | Operating (loss) income | $(19,818) | $4,591 | nm | | Net (loss) income | $(18,037) | $929 | nm | - Consolidated net sales decreased by 32.4% due to lower volumes in the Americas and Asia Segments, driven by lower global demand and inventory de-stocking, partially offset by higher selling prices[115] - Gross profit decreased by 147.4% to a loss of $8.0 million, primarily due to declining net sales and weak fixed cost absorption in the Americas Segment[117] | Non-GAAP Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | | :---------------- | :------------------------- | :-------------------------- | | EBITDA | $(13,039) | $10,921 | | Adjusted EBITDA | $(13,039) | $10,921 | Segment Overview (Three Months) - Americas Segment gross profit decreased due to weaker global demand, weak fixed cost absorption from lower production, and higher priced raw material inventory[124] - Brazil Segment gross profit decreased due to high-priced raw material inventory and decreasing market prices from lower cost import competition[124] - Asia Segment gross profit decreased due to lower sales volumes from weaker global demand and pandemic-related lockdowns[124] Americas Segment (Three Months) | Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :---------------- | :------------------------- | :-------------------------- | :------- | | Net sales | $85,242 | $114,697 | (25.7%) | | Gross (loss) profit | $(13,084) | $853 | nm | | Segment (Loss) Profit | $(7,542) | $5,998 | nm | - The decrease in Segment (Loss) Profit was primarily attributable to lower production volumes driving weaker fixed cost absorption in connection with lower sales volumes[130] Brazil Segment (Three Months) | Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :---------------- | :------------------------- | :-------------------------- | :------- | | Net sales | $25,687 | $27,601 | (6.9%) | | Gross profit | $1,330 | $7,526 | (82.3%) | | Segment Profit | $1,721 | $7,803 | (77.9%) | - The decrease in Segment Profit was primarily attributable to an overall decrease in gross margin mainly due to pressure on selling prices from low-priced import competition and higher raw material costs[133] Asia Segment (Three Months) | Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :---------------- | :------------------------- | :-------------------------- | :------- | | Net sales | $25,283 | $59,112 | (57.2%) | | Gross profit | $3,754 | $8,511 | (55.9%) | | Segment Profit | $3,754 | $8,511 | (55.9%) | - The decrease in net sales was primarily attributable to weaker global demand and pandemic-related lockdowns driving lower sales volumes[134] Review of Results of Operations (Six Months Ended January 1, 2023 Compared to Six Months Ended December 26, 2021) Consolidated Overview (Six Months) | Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :-------------------------- | :------------------------- | :-------------------------- | :------- | | Net sales | $315,731 | $397,402 | (20.6%) | | Cost of sales | $317,168 | $354,415 | (10.5%) | | Gross (loss) profit | $(1,437) | $42,987 | (103.3%) | | Operating (loss) income | $(24,513) | $17,842 | nm | | Net (loss) income | $(25,871) | $9,609 | nm | - Consolidated net sales decreased by 20.6% due to lower volumes in the Americas and Asia Segments, driven by lower global demand and inventory de-stocking, partially offset by higher selling prices[142] - Gross (loss) profit decreased by 103.3% to a loss of $1.4 million, primarily due to declining net sales and weak fixed cost absorption in the Americas Segment[145] | Non-GAAP Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | | :---------------- | :------------------------- | :-------------------------- | | EBITDA | $(10,742) | $30,760 | | Adjusted EBITDA | $(10,742) | $30,760 | Segment Overview (Six Months) - Americas Segment gross profit decreased due to weaker global demand and weak fixed cost absorption from lower production[149] - Brazil Segment gross profit decreased primarily due to high priced raw material inventory and decreasing market prices from lower cost import competition[149] - Asia Segment gross profit decreased primarily due to lower sales volumes in connection with weaker global demand and pandemic-related lockdowns in Asia[149] Americas Segment (Six Months) | Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :---------------- | :------------------------- | :-------------------------- | :------- | | Net sales | $192,886 | $225,523 | (14.5%) | | Gross (loss) profit | $(17,953) | $10,039 | nm | | Segment (Loss) Profit | $(6,931) | $20,259 | (134.2%) | - The decrease in Segment (Loss) Profit was primarily attributable to lower production volumes driving weaker fixed cost absorption along with lower sales volumes[158] Brazil Segment (Six Months) | Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :---------------- | :------------------------- | :-------------------------- | :------- | | Net sales | $64,566 | $61,339 | 5.3% | | Gross profit | $8,117 | $17,466 | (53.5%) | | Segment Profit | $8,978 | $18,126 | (50.5%) | - The decrease in Segment Profit was primarily attributable to an overall decrease in gross margin mainly due to pressure on selling prices from low-priced import competition and higher raw material costs[160] Asia Segment (Six Months) | Metric | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | % Change | | :---------------- | :------------------------- | :-------------------------- | :------- | | Net sales | $58,279 | $110,540 | (47.3%) | | Gross profit | $8,399 | $15,482 | (45.7%) | | Segment Profit | $8,399 | $15,482 | (45.7%) | - The decrease in net sales was primarily attributable to weaker global demand and pandemic-related lockdowns driving lower sales volumes[162] Liquidity and Capital Resources - UNIFI's primary capital requirements are for working capital, capital expenditures, debt service, and share repurchases, funded by cash from operations and ABL Revolver borrowings[165] | Metric (as of Jan 1, 2023) | Domestic (in thousands) | Foreign (in thousands) | Total (in thousands) | | :------------------------- | :---------------------- | :--------------------- | :------------------- | | Cash and cash equivalents | $19 | $50,762 | $50,781 | | Borrowings available under financing arrangements | $64,694 | $0 | $64,694 | | Liquidity | $64,713 | $50,762 | $115,475 | | Working capital | $88,370 | $130,975 | $219,345 | | Total debt obligations | $130,391 | $0 | $130,391 | - As of January 1, 2023, 99% of UNIFI's cash and cash equivalents were held by foreign subsidiaries, but the company employs strategies to ensure worldwide cash availability[166] Liquidity Considerations - UNIFI's cash and liquidity positions are sufficient to sustain operations and meet growth needs, supported by the 2022 Credit Agreement[169] - Further macroeconomic degradation could require limiting capital expenditures and discretionary activities or utilizing additional credit[169] - UNIFI has not taken advantage of rent/debt deferrals or relied on supply chain financing since the COVID-19 pandemic[169] Liquidity Summary - UNIFI believes its existing cash, operating cash flows, and credit facility will meet foreseeable liquidity requirements for domestic and foreign operations[174] - As of January 1, 2023, UNIFI was in compliance with all financial covenants of the 2022 Credit Agreement, with $64,694 thousand in excess availability under the ABL Revolver[176] Net Debt (Non-GAAP Financial Measure) | Metric | Jan 1, 2023 (in thousands) | Jul 3, 2022 (in thousands) | Change | | :-------------------------- | :------------------------- | :------------------------- | :----- | | Debt principal | $130,391 | $114,290 | 14.1% | | Less: cash and cash equivalents | $(50,781) | $(53,290) | 4.7% | | Net Debt | $79,610 | $61,000 | 30.5% | - Net Debt remained relatively unchanged from October 2, 2022, to January 1, 2023[175] Working Capital and Adjusted Working Capital (Non-GAAP Financial Measures) | Metric | Jan 1, 2023 (in thousands) | Jul 3, 2022 (in thousands) | Change | | :-------------------------- | :------------------------- | :------------------------- | :----- | | Working capital | $219,345 | $243,474 | (9.9%) | | Adjusted Working Capital | $180,307 | $205,466 | (12.3%) | - The decrease in working capital was primarily due to decreases in receivables (due to lower sales and banker's acceptance notes), inventories (due to lower raw material purchases), and other current assets, offset by a decrease in accounts payable[178] Operating Cash Flows | Metric (Six Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | Change | | :------------------------------------ | :------------------------- | :-------------------------- | :----- | | Net cash provided (used) by operating activities | $7,272 | $(3,950) | nm | - The increase in operating cash flows was primarily due to reducing working capital associated with a decline in overall business activity, which was primarily offset by significantly weaker earnings[180] Investing Cash Flows - Investing activities primarily included $23,950 thousand in capital expenditures for the six months ended January 1, 2023[181] - Capital expenditures were mainly for eAFK Evo texturing machinery, production capabilities and technology enhancements in the Americas, and routine annual maintenance[182] Financing Cash Flows - Financing activities primarily included scheduled payments against the ABL Term Loan and finance leases, proceeds and payments on the ABL Revolver, and proceeds from construction financing[184] | Metric (Six Months) | Jan 1, 2023 (in thousands) | Dec 26, 2021 (in thousands) | | :------------------------------------ | :------------------------- | :-------------------------- | | Net cash provided (used) by financing activities | $15,396 | $(6,794) | Share Repurchase Program - No share repurchases were completed in fiscal 2023 through January 1, 2023[185] Contractual Obligations - No material changes in scheduled maturities of contractual obligations since the 2022 Form 10-K, after accounting for the 2022 Credit Agreement[187] Off-Balance Sheet Arrangements - UNIFI is not a party to any off-balance sheet arrangements likely to have a material adverse effect on its financial condition, results of operations, liquidity, or capital expenditures[188] Critical Accounting Policies - No changes to UNIFI's critical accounting policies in fiscal 2023[189] Item 3. Quantitative and Qualitative Disclosures About Market Risk UNIFI faces market risks from interest rates, foreign currency, and raw material costs, avoiding speculative derivative use - UNIFI is exposed to market risks from interest rates, foreign currency exchange rates, and raw material/commodity costs[190] - UNIFI does not enter into derivative financial instruments for trading purposes[190] Interest Rate Risk - UNIFI had $118,400 thousand in ABL Facility borrowings as of January 1, 2023, exposing it to interest rate risk[191] - A 50-basis point interest rate increase would lead to an approximate $600 thousand increase in annual interest expense[191] Foreign Currency Exchange Rate Risk | Metric (as of Jan 1, 2023) | Amount/Percentage | | :------------------------------------------------------------------------------------------------ | :---------------- | | Percentage of total consolidated assets held by foreign subsidiaries (non-USD functional currency) | 30.6% | | Total cash and cash equivalents held outside the U.S. | $48,576 | | Percentage of total cash and cash equivalents held outside the U.S. | 95.7% | | Cash and cash equivalents held outside U.S. denominated in RMB | $27,648 | | Cash and cash equivalents held outside U.S. denominated in BRL | $9,879 | - UNIFI had no outstanding foreign currency forward contracts as of January 1, 2023[193] Raw Material and Commodity Cost Risks - Raw material costs declined in fiscal 2023 due to global demand deterioration, and UNIFI implemented responsive selling price adjustments[196] - Input costs remain volatile, and unexpected increases or worsening textile demand could adversely impact UNIFI's results of operations and cash flows[196] Other Risks - UNIFI is exposed to political risks, including changes in international trade laws and regulations (quotas, tariffs, tax laws), with unpredictable impacts[197] Item 4. Controls and Procedures Management affirmed effective disclosure controls and procedures as of January 1, 2023, with no material changes in internal control - UNIFI's disclosure controls and procedures were deemed effective as of January 1, 2023[198] - No material changes in internal control over financial reporting occurred during the three months ended January 1, 2023[199] PART II—OTHER INFORMATION Item 1. Legal Proceedings UNIFI is involved in ordinary course legal proceedings, with no anticipated material adverse effects on financial condition or operations - UNIFI is a party to various lawsuits and claims in the ordinary course of business[201] - The company does not believe any current legal proceedings would have a material adverse effect on its financial condition, results of operations, or cash flows[201] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is not applicable to the current report - This item is not applicable[202] Item 6. Exhibits Various exhibits, including corporate governance documents, executive certifications, and Inline XBRL documents, are listed - The exhibits include Restated Certificate of Incorporation, Amended and Restated By-laws, certifications of Principal Executive Officer and Principal Financial Officer, and Inline XBRL documents[203] Signatures The report was signed by Craig A. Creaturo, Executive Vice President & Chief Financial Officer, on February 8, 2023 - The report was signed by Craig A. Creaturo, Executive Vice President & Chief Financial Officer, on February 8, 2023[207]