18. 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 December 25, 2016, the Company’s investment in PAL was $112,514 and the Company’s combined investments in UNF and UNFA were $3,327, each of which is reflected within investments in unconsolidated affiliates in the accompanying condensed consolidated balance sheets.

Parkdale America, LLC

PAL is a limited liability company treated as a partnership for income tax reporting purposes. The Company accounts for its investment in PAL using the equity method of accounting. 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 December 25, 2016, PAL had no futures contracts designated as cash flow hedges.

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

Underlying equity as of December 25, 2016	$	130,753
Initial excess capital contributions		53,363
Impairment charge recorded by the Company in fiscal 2007		(74,106	)
Anti-trust lawsuit against PAL in which the Company did not participate		2,652
Cotton rebate program adjustments		(148	)
Investment as of December 25, 2016	$	112,514

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 December 25, 2016, the Company’s open purchase orders related to this agreement were $1,864.

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

	For the Six Months Ended
	December 25, 2016		December 27, 2015
UNF	$	1,250	$	1,356
UNFA		9,579		13,441
Total	$	10,829	$	14,797

As of December 25, 2016 and June 26, 2016, the Company had combined accounts payable due to UNF and UNFA of $1,806 and $3,231, respectively.

The Company has determined that UNF and UNFA are variable interest entities and 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 UNF and UNFA, the two entities’ balance sheets constitute 3% or less of the Company’s 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. PAL is defined as significant and its information is separately disclosed. PAL does not meet the criteria for segment reporting.

	As of December 25, 2016
	PAL		Other		Total
Current assets	$	239,989	$	10,065	$	250,054
Noncurrent assets		190,400		1,132		191,532
Current liabilities		43,213		3,284		46,497
Noncurrent liabilities		2,610		—		2,610
Shareholders’ equity and capital accounts		384,566		7,913		392,479

Unifi’s portion of undistributed earnings		43,950		1,060		45,010

	As of June 26, 2016
	PAL		Other		Total
Current assets	$	244,197	$	12,781	$	256,978
Noncurrent assets		203,251		1,069		204,320
Current liabilities		56,921		4,048		60,969
Noncurrent liabilities		3,057		—		3,057
Shareholders’ equity and capital accounts		387,470		9,802		397,272

	For the Three Months Ended December 25, 2016
	PAL			Other		Total
Net sales	$	153,074		$	5,056	$	158,130
Gross profit		1,765			983		2,748
(Loss) income from operations		(2,849	)		509		(2,340	)
Net (loss) income		(2,238	)		513		(1,725	)
Depreciation and amortization		10,828			45		10,873

Cash received by PAL under cotton rebate program		3,635			—		3,635
Earnings recognized by PAL for cotton rebate program		2,907			—		2,907

Distributions received		—			750		750

	For the Three Months Ended December 27, 2015
	PAL			Other		Total
Net sales	$	183,426		$	7,264	$	190,690
Gross profit		2,917			1,852		4,769
(Loss) income from operations		(1,437	)		1,389		(48	)
Net (loss) income		(1,170	)		1,420		250
Depreciation and amortization		11,169			37		11,206

Cash received by PAL under cotton rebate program		5,676			—		5,676
Earnings recognized by PAL for cotton rebate program		3,574			—		3,574

Distributions received		—			1,000		1,000

	For the Six Months Ended December 25, 2016
	PAL			Other		Total
Net sales	$	358,974		$	11,058	$	370,032
Gross profit		7,261			2,528		9,789
(Loss) income from operations		(1,988	)		1,594		(394	)
Net (loss) income		(1,364	)		1,610		246
Depreciation and amortization		21,270			84		21,354

Cash received by PAL under cotton rebate program		7,762			—		7,762
Earnings recognized by PAL for cotton rebate program		6,796			—		6,796

Distributions received		—			1,500		1,500

	For the Six Months Ended December 27, 2015
	PAL		Other		Total
Net sales	$	407,491	$	16,613	$	424,104
Gross profit		10,304		4,182		14,486
Income from operations		2,124		3,238		5,362
Net income		4,559		3,278		7,837
Depreciation and amortization		20,863		74		20,937

Cash received by PAL under cotton rebate program		8,860		—		8,860
Earnings recognized by PAL for cotton rebate program		7,928		—		7,928

Distributions received		947		2,000		2,947