17. Investments in Unconsolidated Affiliates and Variable Interest Entities

The Company currently maintains investments in three entities classified as unconsolidated affiliates: Parkdale America, LLC (“PAL”); U.N.F. Industries Ltd. (“UNF”); and UNF America LLC (“UNFA”). As of December 27, 2015, the Company’s investment in PAL was $110,059 and the Company’s combined investments in UNF and UNFA were $3,651, 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 December 2015, 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 2014 Annual Report on Form 10-K for the fiscal year ended June 29, 2014 on April 2, 2015 to provide PAL’s audited financial statements for PAL’s fiscal year ended January 3, 2015. The Company expects to file an amendment to the 2015 Form 10-K on or before April 1, 2016 to provide PAL’s audited financial statements for PAL’s fiscal year ended January 2, 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 provisional fair values as of the acquisition date. The Company and PAL concluded that the acquisition did not represent a material business combination. PAL has recognized a provisional bargain purchase gain of approximately $9,381 in its initial accounting for the acquisition for all identified assets and liabilities. The Company and PAL will continue to review the acquisition accounting during the measurement period, and if new information obtained about facts and circumstances that existed at the acquisition date identifies adjustments to the assets or liabilities initially recognized, as well as any additional assets or liabilities that existed at the acquisition date, the acquisition accounting will be revised to reflect the resulting adjustments to the provisional amounts. The acquisition accounting is incomplete, primarily pending final asset valuations.

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

Underlying equity as of December 27, 2015	$	128,364
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		(214	)
Investment as of December 27, 2015	$	110,059

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 27, 2015, the Company’s open purchase orders related to this agreement were $3,192.

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

	For the Six Months Ended
	Dec ember 2 7, 201 5		Dec ember 2 8 , 2014
UNF	$	1,356	$	1,817
UNFA		13,441		14,274
Total	$	14,797	$	16,091

As of December 27, 2015 and June 28, 2015, the Company had combined accounts payable due to UNF and UNFA of $2,565 and $4,038, respectively.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

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 December 27, 2015
	PAL		Other		Total
Current assets	$	218,948	$	10,070	$	229,018
Noncurrent assets		211,053		1,110		212,163
Current liabilities		43,751		3,937		47,688
Noncurrent liabilities		8,708		—		8,708
Shareholders’ equity and capital accounts		377,542		7,243		384,785

The Company’s portion of undistributed earnings		40,741		1,335		42,076

	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

	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

As of the end of PAL’s fiscal December 2015 period, PAL’s amount of deferred revenues related to the cotton rebate program was $0.

	For the Three Months Ended December 28, 2014
	PAL		Other		Total
Net sales	$	192,243	$	8,955	$	201,198
Gross profit		12,063		1,007		13,070
Income from operations		6,909		655		7,564
Net income		9,039		685		9,724
Depreciation and amortization		8,161		25		8,186

Cash received by PAL under cotton rebate program		4,153		—		4,153
Earnings recognized by PAL for cotton rebate program		3,854		—		3,854

Distributions received		—		—		—

As of the end of PAL’s fiscal December 2014 period, PAL’s amount of deferred revenues related to the cotton rebate program was $0.

Unifi, Inc.

Notes to Condensed Consolidated Financial Statements (Continued)

	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

	For the Six Months Ended December 28, 2014
	PAL		Other		Total
Net sales	$	398,479	$	16,315	$	414,794
Gross profit		23,032		1,662		24,694
Income from operations		13,723		948		14,671
Net income		19,003		1,024		20,027
Depreciation and amortization		15,369		50		15,419

Cash received by PAL under cotton rebate program		8,454		—		8,454
Earnings recognized by PAL for cotton rebate program		8,755		—		8,755

Distributions received		—		—		—