Unifi(UFI) - 2023 Q4 - Annual Report

Part I Business UNIFI manufactures recycled and synthetic products, facing significant fiscal 2023 downturns due to weak textile demand and inventory destocking - UNIFI manufactures and sells innovative recycled and synthetic products from polyester and nylon to customers in the apparel, hosiery, home furnishings, automotive, and industrial markets[20] - The company operates through three reportable segments: Americas, Brazil, and Asia, with direct manufacturing in four countries and participation in joint ventures in Israel and the U.S[21][22][25] - Fiscal 2023 financial performance was adversely impacted by a significant decrease in textile product demand, inventory destocking by brands and retailers, inflation, and rising interest rates[28] REPREVE® Fiber Sales Performance (FY2021-2023) | Fiscal Year | REPREVE® Fiber Sales (Thousands of USD) | % of Consolidated Net Sales | | :--- | :--- | :--- | | 2023 | $186,161 | 30% | | 2022 | $293,080 | 36% | | 2021 | $245,832 | 37% | - The decline in REPREVE® Fiber sales in fiscal 2023 was primarily driven by weak global demand and lower sales volume in the Asia Segment[44] - UNIFI successfully petitioned for antidumping and countervailing duties on polyester textured yarn imports from China, India, Indonesia, Malaysia, Thailand, and Vietnam to normalize competition in the U.S. market[72][73][75] Fiscal 2023 Consolidated Net Sales by End Market | End Market | % of Consolidated Net Sales | | :--- | :--- | | Apparel (including hosiery and footwear) | ~65% | | Industrial | ~11% | | Furnishings | ~9% | | Automotive | ~4% | | All other markets | ~11% | Risk Factors The company faces strategic, financial, operational, and general risks, including intense competition, raw material price volatility, foreign currency exposure, and supply chain disruptions - Strategic risks include intense competition from domestic and foreign producers, dependency on a limited number of large brand partners, and significant price volatility of raw materials[122][124][126] - Financial risks are associated with significant foreign operations, including currency exchange rate fluctuations (BRL, RMB), trade barriers, and changes in tax laws[131][132][134] - Operational risks involve dependence on a limited number of suppliers for key raw materials (like POY and Chip), potential disruptions at manufacturing facilities, and cybersecurity threats[137][139][140] - General risks include unfavorable changes in trade policies (as a significant portion of Americas sales are 'Compliant Yarns'), the challenge of attracting and retaining qualified employees, and disruptions from catastrophic events like the COVID-19 pandemic[146][148][149] Unresolved Staff Comments None - There are no unresolved staff comments[153] Properties UNIFI's properties include headquarters, domestic manufacturing sites in North Carolina, and foreign facilities in El Salvador, Colombia, and Brazil, with Americas segment operating below capacity in fiscal 2023 - The company's corporate headquarters are located in Greensboro, North Carolina. Major domestic manufacturing and warehouse facilities are in Yadkinville, Reidsville, and Madison, NC[154] - Foreign properties include manufacturing facilities in El Salvador (leased), Colombia (owned), and Brazil (owned), along with various sales offices and warehouses[154] - In fiscal 2023, the Americas Segment manufacturing facilities operated below capacity, primarily due to a decline in demand throughout the apparel supply chains[154] Legal Proceedings The company is involved in various ordinary course legal proceedings, none expected to have a material adverse effect on its financial position - The company is involved in various lawsuits and claims arising in the ordinary course of business, none of which are expected to be materially adverse[155] Mine Safety Disclosures Not applicable - This item is not applicable to the company[156] Information about our Executive Officers This section lists key executive officers, including the CEO and Executive Chairman, noting the resignation of the EVP & CFO - Key executive officers include Edmund M. Ingle (CEO), Albert P. Carey (Executive Chairman), and Craig A. Creaturo (EVP & CFO)[158][159][160] - Craig A. Creaturo, the Executive Vice President & Chief Financial Officer, resigned from the company effective August 25, 2023[160] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities UNIFI's common stock trades on NYSE, with no dividends paid or planned, and no share repurchases in fiscal 2023 despite remaining authorization - UNIFI's common stock is traded on the New York Stock Exchange under the symbol 'UFI'[165] - No dividends were paid in the last two fiscal years, and the company does not plan to pay cash dividends in the foreseeable future[166] - As of July 2, 2023, $38.9 million remained available for repurchase under the 2018 Share Repurchase Program. No shares were repurchased during fiscal 2023[168][52] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2023 saw a 23.6% decline in net sales to $623.5 million and a net loss of $46.3 million, driven by weak demand and inventory destocking, though operating cash flow remained positive Consolidated Financial Performance (FY2023 vs. FY2022) | Metric | Fiscal 2023 (Thousands of USD) | Fiscal 2022 (Thousands of USD) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $623,527 | $815,758 | (23.6)% | | Gross Profit | $14,241 | $80,485 | (82.3)% | | Operating (Loss) Income | ($40,871) | $28,599 | nm | | Net (Loss) Income | ($46,344) | $15,171 | nm | | Diluted (Loss) EPS | ($2.57) | $0.80 | nm | Adjusted EBITDA Reconciliation (Thousands of USD) | | Fiscal 2023 (Thousands of USD) | Fiscal 2022 (Thousands of USD) | | :--- | :--- | :--- | | Net (loss) income | $ (46,344) | $ 15,171 | | Interest, Taxes, D&A | 33,389 | 39,204 | | EBITDA | (12,955) | 54,375 | | Asset abandonment & other adjustments | 8,870 | 815 | | Adjusted EBITDA | $ (4,085) | $ 55,190 | - The decrease in net sales was primarily due to a 25.3% decrease in consolidated sales volumes, driven by lower global demand and inventory destocking by major brands and retailers[206] - Gross profit declined significantly due to weak fixed cost absorption in the Americas Segment, the impact of high-priced raw material inventory, and competitive pricing pressures[211][215] - The company delayed approximately $25 million of capital expenditures for 18 months to improve short- and mid-term liquidity in response to the weak demand environment[48][257] - Net cash provided by operating activities increased to $4.7 million in FY2023 from $0.4 million in FY2022, primarily due to a reduction in working capital (inventories and receivables) which offset the significant net loss[290][291] Segment Overview All three segments experienced significant downturns in fiscal 2023, with Americas facing a gross loss, Brazil impacted by import prices, and Asia severely hit by weak global demand Segment Performance (FY2023 vs. FY2022) | Segment | Net Sales FY2023 (Millions of USD) | % Change vs FY22 | Segment Profit FY2023 (Millions of USD) | % Change vs FY22 | | :--- | :--- | :--- | :--- | :--- | | Americas | $389.7 | (19.3)% | $7.4 | (83.8)% | | Brazil | $119.1 | (5.6)% | $14.2 | (50.4)% | | Asia | $114.8 | (44.4)% | $16.7 | (42.0)% | - The Americas Segment's decline was primarily due to lower production volumes driving weaker fixed cost absorption, resulting in a gross loss of $14.7 million[237][239] - The Brazil Segment's profitability decreased due to lower selling prices to compete with low-priced imports and the impact of higher raw material costs in beginning inventory[241][243] - The Asia Segment's significant drop in sales and profit was attributed to weaker global demand and pandemic-related lockdowns driving lower sales volumes[245][247] Liquidity and Capital Resources UNIFI maintained $102.7 million in liquidity as of July 2, 2023, with total debt increasing to $140.9 million, while actively managing capital expenditures and repatriating funds Liquidity Position as of July 2, 2023 (Thousands of USD) | Component | Amount (Thousands of USD) | | :--- | :--- | | Cash and cash equivalents | $46,960 | | Borrowings available under financing arrangements | $55,735 | | Total Liquidity | $102,695 | Debt Position (Thousands of USD) | | July 2, 2023 (Thousands of USD) | July 3, 2022 (Thousands of USD) | | :--- | :--- | :--- | | Debt principal | $140,899 | $114,290 | | Less: cash and cash equivalents | (46,960) | (53,290) | | Net Debt | $93,939 | $61,000 | - Capital expenditures were $36.4 million in fiscal 2023. The company expects to invest a reduced amount, between $14 million and $16 million, in fiscal 2024[280][283] - In fiscal 2023, the company repatriated approximately $19 thousand from its operations in Asia to the U.S. to reduce outstanding revolver borrowings and increase availability[256] Quantitative and Qualitative Disclosures About Market Risk UNIFI faces market risks including interest rate volatility on variable-rate debt, significant foreign currency exposure, and raw material cost fluctuations with a pricing adjustment lag - A 50-basis point increase in the SOFR interest rate would result in an approximate $700 thousand increase in annual interest expense[306] - The company is exposed to foreign currency exchange rate risk, particularly with the Brazilian Real (BRL) and Chinese Renminbi (RMB). As of July 2, 2023, 98% of the company's cash and cash equivalents were held by subsidiaries outside the U.S[308][309] - Raw material costs are volatile and derived from petroleum-based chemicals. The company manages this risk by adjusting customer prices, but there is typically a time lag of one to two fiscal quarters, which can adversely affect margins[311] Financial Statements and Supplementary Data This section presents audited consolidated financial statements with an unqualified auditor's opinion, highlighting inventory net realizable value as a critical audit matter - The Report of Independent Registered Public Accounting Firm (KPMG LLP) provides an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[358][359] - A Critical Audit Matter was identified concerning the 'Evaluation of the net realizable value of raw material and finished goods inventories,' due to the complex judgment required to evaluate recovery rates[362][364] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None - There were no changes in or disagreements with accountants on accounting and financial disclosure[317] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective, with KPMG LLP issuing an unqualified opinion - Management concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year[319] - Management assessed internal control over financial reporting as effective, based on the COSO 2013 framework. The independent auditor, KPMG, also issued an unqualified opinion on the effectiveness of internal control[322][323] Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 trading arrangements during the fourth quarter of fiscal 2023 - During the three months ended July 2, 2023, no directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement[325] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 proxy statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement[328] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2023 proxy statement - Information regarding executive compensation is incorporated by reference from the definitive proxy statement[331] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2023 proxy statement - Information regarding security ownership and related matters is incorporated by reference from the definitive proxy statement[332] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2023 proxy statement - Information regarding related transactions and director independence is incorporated by reference from the definitive proxy statement[333] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2023 proxy statement - Information regarding principal accountant fees and services is incorporated by reference from the definitive proxy statement[334] Part IV Exhibits and Financial Statement Schedules This section lists filed financial statements and a comprehensive array of exhibits, including corporate governance documents, material contracts, and certifications - The financial statements listed in the Index to Consolidated Financial Statements are filed as part of this report[336] - A comprehensive list of exhibits is provided, including corporate governance documents, material contracts like the Second Amended and Restated Credit Agreement, and management compensation plans[340][341] Form 10-K Summary None - No Form 10-K summary is provided[347]