As of March 29, 2020, UNIFI maintained investments in three entities classified as unconsolidated affiliates: PAL; U.N.F. Industries, Ltd. (“UNF”); and UNF America LLC (“UNFA”). UNIFI’s investment in PAL was $56,641 and UNIFI’s combined investments in UNF and UNFA were $2,213, each of which is reflected within investments in unconsolidated affiliates in the accompanying condensed consolidated balance sheets.

PAL is a limited liability company treated as a partnership for income tax reporting purposes. UNIFI has accounted for this investment 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 valued using quoted prices classified within Level 1 of the fair value hierarchy. As of March 29, 2020, PAL had no futures contracts designated as cash flow hedges.

As of March 29, 2020, UNIFI owned a 34% interest in PAL (the “PAL Investment”) and Parkdale, Incorporated (“Parkdale”) owned the majority 66% interest. During March 2020, UNIFI commenced negotiations to sell the PAL Investment to Parkdale. Such negotiations indicated that the fair value of the PAL Investment was less than UNIFI’s carrying value and UNIFI no longer intended to hold the PAL Investment to allow recovery of the carrying value. UNIFI recorded an other-than-temporary impairment of $45,194 to adjust the PAL Investment to fair value.

In April 2020, UNIFI and Parkdale finalized negotiations to sell UNIFI’s PAL Investment to Parkdale for $60,000. The March 29, 2020 adjusted carrying value, after recording the other-than-temporary impairment of the PAL Investment, was comprised of (i) $56,641 reflected in investments in unconsolidated affiliates and (ii) $3,359 of cumulative translation adjustments reflected in other comprehensive loss, totaling the $60,000 fair value. The transaction closed on April 29, 2020 and UNIFI received $60,000 in cash.

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

UNIFI evaluated the events relating to the PAL Investment under the guidance in ASC 205 – Presentation of Financial Statements. Disposition of the PAL Investment (i) did not represent a strategic shift for UNIFI and (ii) did not meet the criteria to be recorded as a discontinued operation. Accordingly, UNIFI continues to record the financial statement impacts of the PAL Investment in continuing operations.

Raw material and production services for UNF are provided by Nilit Ltd. 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.

Raw material and production services for UNFA are provided by Nilit America Inc. 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, UNIFI entered into a supply agreement with UNF and UNFA whereby UNIFI agreed to purchase all of its first quality nylon POY requirements for texturing (subject to certain exceptions) from either UNF or UNFA. The supply agreement has no stated minimum purchase quantities and pricing is negotiated every six months, based on market rates. As of March 29, 2020, UNIFI’s open purchase orders related to this supply agreement were $807.

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

As of March 29, 2020 and June 30, 2019, UNIFI had combined accounts payable due to UNF and UNFA of $2,724 and $1,728, respectively.

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

Condensed balance sheet and income statement information for UNIFI’s unconsolidated affiliates (including reciprocal balances) is presented in the tables below. PAL was defined as significant and its information is separately disclosed. PAL has not met the criteria for segment reporting.

	As of March 29, 2020						As of June 30, 2019
	PAL		Other		Total		PAL		Other		Total
Current assets	$	258,113	$	6,716	$	264,829	$	299,610	$	7,218	$	306,828
Non-current assets		151,720		583		152,303		158,304		696		159,000
Current liabilities		54,513		2,873		57,386		70,875		4,069		74,944
Non-current liabilities		2,602		—		2,602		3,252		—		3,252
Shareholders’ equity and capital accounts		352,718		4,426		357,144		383,787		3,845		387,632

UNIFI’s portion of undistributed earnings		34,230		1,334		35,564		43,343		821		44,164

	For the Three Months Ended March 29, 2020						For the Three Months Ended March 31, 2019
	PAL		Other		Total		PAL		Other		Total
Net sales	$	170,854	$	4,076	$	174,930	$	225,160	$	6,217	$	231,377
Gross profit		12,182		392		12,574		8,638		1,149		9,787
Income from operations		7,747		8		7,755		3,868		733		4,601
Net income		9,811		74		9,885		4,142		740		4,882
Depreciation and amortization		8,647		23		8,670		9,285		48		9,333

Cash received by PAL under cotton rebate program		3,210		—		3,210		3,053		—		3,053
Earnings recognized by PAL for cotton rebate program		3,215		—		3,215		3,195		—		3,195

Distributions received		—		—		—		—		750		750

	For the Nine Months Ended March 29, 2020								For the Nine Months Ended March 31, 2019
	PAL			Other		Total			PAL		Other		Total
Net sales	$	531,669		$	14,212	$	545,881		$	626,812	$	19,256	$	646,068
Gross profit		13,067			1,745		14,812			18,841		3,587		22,428
(Loss) income from operations		(554	)		497		(57	)		5,663		2,284		7,947
Net income		3,893			581		4,474			6,334		2,381		8,715
Depreciation and amortization		30,671			113		30,784			30,576		143		30,719

Cash received by PAL under cotton rebate program		10,366			—		10,366			8,773		—		8,773
Earnings recognized by PAL for cotton rebate program		9,569			—		9,569			9,444		—		9,444

Distributions received		10,437			—		10,437			130		1,250		1,380