Unifi(US:UFI)2022-08-31 11:01PART I Business Unifi, Inc. manufactures recycled and synthetic polyester and nylon products across Americas, Brazil, and Asia segments, focusing on its REPREVE® brand and efficiency investments - Unifi manufactures and sells recycled and synthetic products (polyester and nylon) to customers in the apparel, hosiery, home furnishings, automotive, and industrial markets23 - The company operates through three reportable segments based on geography: Americas, Brazil, and Asia2528 REPREVE® Fiber Sales Performance (FY2020-2022) | Fiscal Year | REPREVE® Fiber Sales ($ thousands) | % of Consolidated Sales | | :--- | :--- | :--- | | 2022 | $293,080 | 36% | | 2021 | $245,832 | 37% | | 2020 | $186,141 | 31% | - Fiscal 2022 performance was impacted by higher input costs, supply chain challenges, and general inflationary pressures; the company implemented selling price adjustments to protect margins3233 - Unifi is investing approximately $100 million in new eAFK Evo texturing machinery to enhance efficiency, with expected capital expenditures of $35-40 million in fiscal 20235455 - The company actively pursued antidumping and countervailing duty cases against polyester textured yarn imports to normalize competition in the U.S. market777980 Risk Factors Unifi faces strategic, financial, and operational risks including intense competition, raw material price volatility, foreign currency exposure, and supply chain dependencies - The company faces intense competition from domestic and foreign yarn producers, who may have advantages like lower labor costs, government subsidies, and favorable exchange rates127128 - A significant portion of sales depends on demand from a limited number of large brand partners, and the loss of any one could materially harm the business129 - Volatility in petroleum-based raw material prices and energy costs can increase production costs, potentially affecting margins if not passed to customers in a timely manner131 - Foreign operations in Brazil, China, Colombia, El Salvador, and Turkey expose the company to political, economic, tax, and currency exchange rate risks, particularly with the Brazilian Real (BRL)136137 - The business is dependent on limited sources for certain raw materials like POY and Chip, where any supply interruption could increase costs or halt production141 - Catastrophic events, including epidemics like the COVID-19 pandemic, can disrupt global economic activity, consumer spending, and supply chains, negatively impacting financial performance153154 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None158 Properties Unifi owns its corporate headquarters and manufacturing facilities in North Carolina, with additional owned or leased international facilities, operating below capacity in fiscal 2022 - The company owns its corporate headquarters in Greensboro, NC, and multiple manufacturing and warehouse facilities in Yadkinville, Reidsville, and Madison, NC159 - International properties include a leased manufacturing facility in El Salvador, an owned facility in Colombia, and an owned manufacturing facility in Brazil159 - Manufacturing facilities in the Americas Segment operated below capacity for most of fiscal 2022, partly due to labor availability and productivity issues159 Legal Proceedings The company is involved in various ordinary course legal proceedings, none expected to materially affect its financial condition or operations - The company is party to various lawsuits and claims arising in the ordinary course of business, but none are expected to have a material adverse effect160 Mine Safety Disclosures This item is not applicable to the company - Not applicable161 Information about our Executive Officers This section provides biographical information for Unifi's key executive officers as of the report date - Edmund M. Ingle has served as Chief Executive Officer since June 2020163 - Albert P. Carey has served as Executive Chairman of the Board since April 2019164 - Craig A. Creaturo has served as Executive Vice President & Chief Financial Officer since September 2019165 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Unifi's common stock trades on the NYSE under 'UFI', with no dividends paid recently or planned due to debt restrictions, and $38.9 million remaining for share repurchases - Unifi's common stock is listed on the New York Stock Exchange (NYSE) under the symbol 'UFI'170 - No dividends were paid in the last two fiscal years, and the company does not plan to pay cash dividends in the foreseeable future due to restrictions in its debt agreements171 - As of July 3, 2022, $38,859 thousand remains available for repurchase under the $50,000 thousand share repurchase program authorized in 2018173 Management's Discussion and Analysis of Financial Condition and Results of Operations Unifi's fiscal 2022 net sales increased 22.2% to $815.8 million due to higher prices, but gross profit and net income declined significantly due to input cost inflation and labor challenges Results of Operations Fiscal 2022 saw 22.2% net sales growth to $815.8 million driven by pricing, but gross profit fell 13.9% and net income 47.8% due to input costs and labor issues Consolidated Financial Performance (FY2022 vs. FY2021) | Metric | Fiscal 2022 ($ thousands) | Fiscal 2021 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | 815,758 | 667,592 | 22.2% | | Gross Profit | 80,485 | 93,494 | (13.9)% | | Operating Income | 28,599 | 38,611 | (25.9)% | | Net Income | 15,171 | 29,073 | (47.8)% | | Diluted EPS | $0.80 | $1.54 | (48.1)% | Adjusted EBITDA Reconciliation (Non-GAAP) | Metric | Fiscal 2022 ($ thousands) | Fiscal 2021 ($ thousands) | Fiscal 2020 ($ thousands) | | :--- | :--- | :--- | :--- | | Net income (loss) | 15,171 | 29,073 | (57,237) | | EBITDA | 54,375 | 74,360 | (28,802) | | Adjusted EBITDA | 55,190 | 64,643 | 16,553 | - The 22.2% increase in consolidated net sales was driven by a 19.5% increase in average selling prices, a response to rising raw material costs, and a 2.7% increase in sales volumes204205 - Gross profit decreased by 13.9% primarily due to higher-than-expected input costs for raw materials, labor, and supplies, along with weaker labor productivity in the Americas Segment208211 Segment Overview Americas sales grew 24.9% but profit fell 20.6% due to costs; Brazil sales rose 31.4% but profit declined 13.2% as market normalized; Asia sales increased 11.8% and profit 13.7% driven by REPREVE® Americas Segment Performance (FY2022 vs. FY2021) | Metric | Fiscal 2022 ($ thousands) | Fiscal 2021 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | 483,085 | 386,779 | 24.9% | | Segment Profit | 45,621 | 57,460 | (20.6)% | Brazil Segment Performance (FY2022 vs. FY2021) | Metric | Fiscal 2022 ($ thousands) | Fiscal 2021 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | 126,066 | 95,976 | 31.4% | | Segment Profit | 28,641 | 33,010 | (13.2)% | Asia Segment Performance (FY2022 vs. FY2021) | Metric | Fiscal 2022 ($ thousands) | Fiscal 2021 ($ thousands) | % Change | | :--- | :--- | :--- | :--- | | Net Sales | 206,607 | 184,837 | 11.8% | | Segment Profit | 28,876 | 25,393 | 13.7% | Liquidity and Capital Resources Unifi had $104.7 million in liquidity, with total debt at $114.3 million; operating cash flow significantly decreased to $0.4 million due to working capital increases, while $39.6 million was invested in capital projects Liquidity Position as of July 3, 2022 | Component ($ thousands) | Domestic | Foreign | Total | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 527 | 52,763 | 53,290 | | Borrowings available | 51,409 | — | 51,409 | | Total Liquidity | 51,936 | 52,763 | 104,699 | Debt Obligations as of July 3, 2022 | Obligation ($ thousands) | Principal Amount | | :--- | :--- | | ABL Revolver | 41,300 | | ABL Term Loan | 65,000 | | Finance lease obligations | 7,261 | | Construction financing | 729 | | Total Debt | 114,290 | - Net cash provided by operating activities decreased significantly to $380 thousand in FY2022 from $36.7 million in FY2021, primarily due to an increase in working capital associated with higher raw material costs and sales activity292293 - Capital expenditures were $39.6 million in fiscal 2022, primarily for eAFK Evo texturing machinery and other production enhancements, with $35 million to $40 million planned for fiscal 2023282286 Quantitative and Qualitative Disclosures About Market Risk Unifi faces market risks from interest rates on variable-rate debt, significant foreign currency exposure to BRL and RMB, and volatile petroleum-based raw material costs, managed by pricing adjustments - The company is exposed to interest rate risk on its $106.3 million of variable-rate borrowings; a 50-basis point increase in LIBOR would increase annual interest expense by less than $600 thousand310 - Unifi has significant foreign currency exchange rate risk, particularly from the Brazilian Real (BRL) and Chinese Renminbi (RMB), with 30.2% of consolidated assets held by subsidiaries whose functional currency is not the USD313314 - Raw material costs, derived from volatile petroleum-based chemicals, pose a significant risk, with time lags of one to two fiscal quarters in passing on cost increases to customers potentially affecting margins315 Financial Statements and Supplementary Data This section refers to the consolidated financial statements and related notes, which begin on page F-i of the report - The company's consolidated financial statements and related notes begin on page F-i of the Annual Report322 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None323 Controls and Procedures Unifi's management concluded that disclosure controls and internal control over financial reporting were effective as of July 3, 2022, with an unqualified audit opinion from KPMG LLP - Management, including the CEO and CFO, concluded that as of July 3, 2022, the company's disclosure controls and procedures were effective324 - Management concluded that the company's internal control over financial reporting was effective as of July 3, 2022, an assessment audited by KPMG LLP which issued an unqualified opinion327328 Other Information The company reports no other information for this item - None330 PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the company's 2022 Proxy Statement332 Executive Compensation Information regarding executive and director compensation is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the company's 2022 Proxy Statement335 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the company's 2022 Proxy Statement336 Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the company's 2022 Proxy Statement337 Principal Accountant Fees and Services Information regarding fees paid to and services provided by the principal accountant is incorporated by reference from the 2022 Proxy Statement - Required information is incorporated by reference from the company's 2022 Proxy Statement338 PART IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements and exhibits filed with the report, noting that financial statement schedules are not applicable - The financial statements listed in the Index to Consolidated Financial Statements on page F-i are filed with this report341 - Financial statement schedules are not applicable343 Form 10-K Summary The company provides no summary for this item - None350