UNIFI, Inc. — Fiscal 2020 Form 10-K
Reporting period: Fiscal year ended June 28, 2020 (52 weeks); fiscal 2019 had 53 weeks. The filing is an annual report, not a report for calendar 2019 Q4. Amounts below are in USD millions unless otherwise stated.
Business context
UNIFI manufactures and sells polyester and nylon yarns, fibers and recycled materials to textile manufacturers and other customers. Its four reporting segments are Polyester, Asia, Brazil and Nylon. REPREVE-branded fiber represented 31% of consolidated sales in fiscal 2020, up from 25% in fiscal 2019.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $606.5 | $708.8 |
| Gross profit / gross margin | $39.0 / 6.4% | $66.3 / 9.4% |
| Operating income (loss) | $(8.8) | $11.0 |
| Net income (loss) | $(57.2), or $(3.10) per share | $2.5, or $0.13 per share |
| Adjusted EBITDA (non-GAAP) | $16.6 | $36.3 |
| Cash from operating activities | $52.7 | $7.3 |
| Capital expenditures | $18.5 | $24.9 |
| Cash and cash equivalents at year-end | $75.3 | $22.2 |
| Total debt principal | $98.9 | $128.0 |
| Net debt (non-GAAP) | $23.6 | $105.8 |
Sales fell 14.4%; volume declined 2.0% and average selling prices fell 12.4%. Lower prices for polyester materials, product mix, reduced nylon sales and unfavorable currency translation contributed to the revenue decline. Gross profit fell 41.1%. Operating cash flow improved substantially, supported in part by lower receivables and inventories and $10.4 million of distributions from unconsolidated affiliates.
At year-end, UNIFI reported $56.4 million available under its ABL revolver and total liquidity of $131.7 million, including cash. Working capital was $199.5 million. The ABL term loan principal was $87.5 million, with $11.4 million of finance lease obligations; the facility matures in December 2023. The company reported compliance with its financial covenants. The fixed-charge coverage ratio was 0.23 to 1.00, while the 1.05-to-1.00 covenant applies if revolver availability falls below a $23.4 million trigger.
Material changes and unusual items
- UNIFI sold its 34% interest in Parkdale America for $60.0 million cash on April 29, 2020. It recorded a $45.2 million impairment charge and a $2.3 million gain on sale. Sale proceeds helped reduce debt and increase cash.
- COVID-19 sharply reduced demand and production in the fourth quarter. Fiscal 2020 quarterly sales declined to $86.1 million in the June quarter, from $171.0 million in the prior quarter; the quarter recorded a $9.5 million gross loss and a $20.2 million net loss.
- By segment, fiscal 2020 sales were Polyester $309.2 million, Asia $153.0 million, Brazil $73.3 million and Nylon $67.4 million. Asia sales and segment profit increased, while Nylon recorded a $1.0 million gross loss and segment profit fell to $0.9 million.
- The company’s U.S. and Asia operations had favorable pre-pandemic developments, including REPREVE demand and U.S. trade measures. Final antidumping and countervailing duties on polyester textured yarn imports from China and India were 97% and higher, and 18% and higher, respectively. Management estimated these measures could generate about $20 million in incremental annual sales, excluding pandemic effects.
Outlook, risks and contingencies
Management expected COVID-19 to have a moderate to significant adverse effect on operating and financial results through at least fiscal 2021. It anticipated using cash in fiscal 2021 as business recovery could increase receivables and inventories alongside capital spending, debt service and taxes. Planned fiscal 2021 capital investment was approximately $22 million, subject to adjustment based on pandemic conditions and liquidity priorities.
Key risks include uncertain pandemic duration and recovery, competitive imports and trade-policy changes, volatile raw-material costs and delayed customer price adjustments, foreign exchange movements, customer and brand-partner concentration, and pressure on the Nylon business. UNIFI cited environmental monitoring obligations at the Kentec site but could not estimate possible remediation costs; it said ordinary-course legal proceedings were not expected to have a material adverse effect. The company also reported a $37.4 million deferred-tax valuation allowance. No cash dividends were paid, and none were expected in the foreseeable future.
Important facts for investors to verify
- How much of the fiscal 2020 loss reflects the PAL impairment versus ongoing operating performance; compare GAAP results with management’s non-GAAP adjustments.
- Whether demand, utilization and margins recover in fiscal 2021, particularly in Nylon, Brazil and domestic Polyester operations.
- Actual cash generation, working-capital needs and revolver availability as recovery and capital spending progress; monitor the covenant trigger and fixed-charge coverage.
- Whether the expected sales and margin benefits from duties on Chinese and Indian imports materialize, including any circumvention through third countries.
- Foreign cash availability: the filing gives differing descriptions of foreign-held cash, so reconcile those disclosures and assess accessibility for domestic obligations.