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 March 26, 2017, the Company’s investment in PAL was $114,343 and the Company’s combined investments in UNF and UNFA were $3,567, 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 March 26, 2017, 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 March 26, 2017	$	132,565
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		(131	)
Investment as of March 26, 2017	$	114,343

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 26, 2017, the Company’s open purchase orders related to this agreement were $1,830.

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

	For the Nine Months Ended
	March 26, 2017		March 27, 2016
UNF	$	1,676	$	2,465
UNFA		14,910		19,039
Total	$	16,586	$	21,504

As of March 26, 2017 and June 26, 2016, the Company had combined accounts payable due to UNF and UNFA of $2,650 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 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. PAL is defined as significant and its information is separately disclosed. PAL does not meet the criteria for segment reporting. Depreciation and amortization for PAL for the periods presented includes amounts for PAL’s foreign subsidiaries.

	As of March 26, 2017
	PAL		Other		Total
Current assets	$	265,207	$	8,965	$	274,172
Noncurrent assets		185,541		1,086		186,627
Current liabilities		57,529		3,057		60,586
Noncurrent liabilities		3,321		—		3,321
Shareholders’ equity and capital accounts		389,898		6,994		396,892

Unifi’s portion of undistributed earnings		45,278		1,448		46,726

	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 March 26, 2017
	PAL		Other		Total
Net sales	$	202,216	$	5,403	$	207,619
Gross profit		8,728		1,118		9,846
Income from operations		6,102		680		6,782
Net income		3,905		581		4,486
Depreciation and amortization		9,612		46		9,658

Cash received by PAL under cotton rebate program		3,163		—		3,163
Earnings recognized by PAL for cotton rebate program		3,592		—		3,592

Distributions received		—		—		—

	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		11,160		38		11,198

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 Nine Months Ended March 26, 2017
	PAL		Other		Total
Net sales	$	561,190	$	16,461	$	577,651
Gross profit		15,989		3,646		19,635
Income from operations		4,114		2,274		6,388
Net income		2,541		2,191		4,732
Depreciation and amortization		32,796		130		32,926

Cash received by PAL under cotton rebate program		10,925		—		10,925
Earnings recognized by PAL for cotton rebate program		10,388		—		10,388

Distributions received		—		1,500		1,500

	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		34,749		112		34,861

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