Note 17 - Investments in Unconsolidated Affiliates and Variable Interest Entities

9 Months Ended

Mar. 27, 2016

Equity Method Investments and Joint Ventures Disclosure [Text Block]

17. Investments in Unconsolidated Affiliates and Variable Interest Entities

The Company currently maintains investments in three entities classified as unconsolidated affiliates: PAL; U.N.F. Industries Ltd. (“UNF”); and UNF America LLC (“UNFA”). As of March 27, 2016, the Company’s investment in PAL was $113,732 and the Company’s combined investments in UNF and UNFA were $4,220, reflected within investments in unconsolidated affiliates in the consolidated balance sheets.

Parkdale America, LLC

PAL is a limited liability company treated as a partnership for income tax reporting purposes. The Company has a 34% ownership interest in PAL, which is accounted for using the equity method of accounting. PAL is a producer of cotton and synthetic yarns for sale to the textile industry and apparel market, both foreign and domestic. PAL is subject to price risk related to anticipated fixed-price yarn sales. To protect the gross margin of these sales, PAL may enter into cotton futures to manage changes in raw material prices. The derivative instruments used are listed and traded on an exchange and are thus valued using quoted prices classified within Level 1 of the fair value hierarchy. As of March 2016, PAL had no futures contracts designated as cash flow hedges.

As PAL’s fiscal year end is the Saturday nearest to December 31 and its results are considered significant (in accordance with Regulation S-X Rule 3-09), the Company files an amendment to each Annual Report on Form 10-K on or before 90 days subsequent to PAL’s fiscal year end to provide PAL’s audited financial statements for PAL’s most recent fiscal year. The Company filed an amendment to its 2015 Annual Report on Form 10-K for the fiscal year ended June 28, 2015 on March 31, 2016 to provide PAL’s audited financial statements for PAL’s fiscal year ended January 2, 2016. The Company expects to file an amendment to the upcoming 2016 Annual Report on Form 10-K on or before March 31, 2017 to provide PAL’s audited financial statements for PAL’s fiscal year ended December 31, 2016.

On February 27, 2015, PAL purchased two manufacturing facilities, plus inventory, for approximately $13,000 cash, and entered into a yarn supply agreement with the seller. PAL has accounted for the transaction as a business combination under the acquisition method, recognizing the assets acquired and liabilities assumed at their respective fair values as of the acquisition date. The Company and PAL concluded that the acquisition did not represent a material business combination. PAL recognized a bargain purchase gain of approximately $9,381.

The reconciliation between the Company’s share of the underlying equity of PAL and its investment is as follows:

Underlying equity as of March 27, 2016	$	132,021
Initial excess capital contributions		53,363
Impairment charge recorded by the Company in 2007		(74,106	)
Anti-trust lawsuit against PAL in which the Company did not participate		2,652
Cotton rebate program adjustments		(198	)
Investment as of March 27, 2016	$	113,732

U.N.F. Industries Ltd.

Raw material and production services for UNF are provided by the Company’s 50% joint venture partner under separate supply and services agreements. UNF’s fiscal year end is December 31 and it is a registered Israeli private company located in Migdal Ha-Emek, Israel.

UNF America LLC

Raw material and production services for UNFA are provided by the Company’s 50% joint venture partner under separate supply and services agreements. UNFA’s fiscal year end is December 31 and it is a limited liability company treated as a partnership for income tax reporting purposes located in Ridgeway, Virginia.

In conjunction with the formation of UNFA, the Company entered into a supply agreement with UNF and UNFA whereby the Company agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions) from either UNF or UNFA. The agreement has no stated minimum purchase quantities and pricing is negotiated every six months, based on market rates. As of March 27, 2016, the Company’s open purchase orders related to this agreement were $3,364.

The Company’s raw material purchases under this supply agreement consist of the following:

	For the Nine Months Ended
	March 2 7, 201 6		March 2 9 , 201 5
UNF	$	2,465	$	2,578
UNFA		19,039		21,798
Total	$	21,504	$	24,376

As of March 27, 2016 and June 28, 2015, the Company had combined accounts payable due to UNF and UNFA of $2,584 and $4,038, respectively.

The Company has determined that UNF and UNFA are variable interest entities (“VIEs”) and has also determined that the Company is the primary beneficiary of these entities, based on the terms of the supply agreement. As a result, these entities should be consolidated in the Company’s financial results. As the Company purchases substantially all of the output from the two entities, the two entities’ balance sheets constitute 3% or less of the Company’s current assets, total assets and total liabilities (when excluding reciprocal balances), and because such balances are not expected to comprise a larger portion in the future, the Company has not included the accounts of UNF and UNFA in its consolidated financial statements. The financial results of UNF and UNFA are included in the Company’s financial statements with a one-month lag, using the equity method of accounting and with intercompany profits eliminated in accordance with the Company’s accounting policy. Other than the supply agreement discussed above, the Company does not provide any other commitments or guarantees related to either UNF or UNFA.

Condensed balance sheet and income statement information for the Company’s unconsolidated affiliates (including reciprocal balances) is presented in the following tables. As PAL is defined as significant, its information is separately disclosed.

	As of March 27, 2016
	PAL		Other		Total
Current assets	$	242,917	$	10,735	$	253,652
Noncurrent assets		203,640		1,073		204,713
Current liabilities		54,908		3,368		58,276
Noncurrent liabilities		3,352		—		3,352
Shareholders’ equity and capital accounts		388,297		8,440		396,737

The Company’s portion of undistributed earnings		44,355		1,921		46,276
Deferred revenues related to the cotton rebate program		—		—		—

	As of June 28, 2015
	PAL		Other		Total
Current assets	$	250,699	$	9,273	$	259,972
Noncurrent assets		216,708		3,676		220,384
Current liabilities		61,243		4,985		66,228
Noncurrent liabilities		28,935		—		28,935
Shareholders’ equity and capital accounts		377,229		7,964		385,193
Deferred revenues related to the cotton rebate program		—		—		—

	For the Three Months Ended March 27, 2016
	PAL		Other		Total
Net sales	$	219,611	$	6,493	$	226,104
Gross profit		15,613		1,672		17,285
Income from operations		10,809		1,196		12,005
Net income		10,631		1,198		11,829
Depreciation and amortization		10,194		38		10,232

Cash received by PAL under cotton rebate program		2,505		—		2,505
Earnings recognized by PAL for cotton rebate program		4,111		—		4,111

Distributions received		—		—		—

	For the Three Months Ended March 29, 2015
	PAL		Other		Total
Net sales	$	194,328	$	7,832	$	202,160
Gross profit		18,394		1,246		19,640
Income from operations		13,562		825		14,387
Net income		14,459		1,017		15,476
Depreciation and amortization		8,043		29		8,072

Cash received by PAL under cotton rebate program		3,692		—		3,692
Earnings recognized by PAL for cotton rebate program		4,022		—		4,022

Distributions received		598		—		598

	For the Nine Months Ended March 27, 2016
	PAL		Other		Total
Net sales	$	627,102	$	23,106	$	650,208
Gross profit		25,917		5,854		31,771
Income from operations		12,933		4,434		17,367
Net income		15,190		4,476		19,666
Depreciation and amortization		31,057		112		31,169

Cash received by PAL under cotton rebate program		11,365		—		11,365
Earnings recognized by PAL for cotton rebate program		12,039		—		12,039

Distributions received		947		2,000		2,947

	For the Nine Months Ended March 29, 2015
	PAL		Other		Total
Net sales	$	592,807	$	24,147	$	616,954
Gross profit		41,426		2,908		44,334
Income from operations		27,285		1,773		29,058
Net income		33,462		2,041		35,503
Depreciation and amortization		23,412		79		23,491

Cash received by PAL under cotton rebate program		12,146		—		12,146
Earnings recognized by PAL for cotton rebate program		12,777		—		12,777

Distributions received		598		—		598