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 September 25, 2016, the Company’s investment in PAL was $113,538 and the Company’s combined investments in UNF and UNFA were $3,701, 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 September 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 September 25, 2016	$	131,794
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		(165	)
Investment as of September 25, 2016	$	113,538

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 September 25, 2016, the Company’s open purchase orders related to this agreement were $2,248.

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

	For the Three Months Ended
	September 25, 2016		September 27, 2015
UNF	$	778	$	1,021
UNFA		5,388		7,142
Total	$	6,166	$	8,163

As of September 25, 2016 and June 26, 2016, the Company had combined accounts payable due to UNF and UNFA of $2,462 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 September 25, 2016
	PAL		Other		Total
Current assets	$	253,137	$	11,215	$	264,352
Noncurrent assets		196,580		1,030		197,610
Current liabilities		59,138		3,346		62,484
Noncurrent liabilities		2,951		—		2,951
Shareholders’ equity and capital accounts		387,628		8,899		396,527
Unifi’s portion of undistributed earnings		44,711		1,433		46,144

	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 September 25, 2016
	PAL		Other		Total
Net sales	$	205,900	$	6,002	$	211,902
Gross profit		5,496		1,545		7,041
Income from operations		861		1,085		1,946
Net income		874		1,097		1,971
Depreciation and amortization		10,442		39		10,481
Cash received by PAL under cotton rebate program		4,127		—		4,127
Earnings recognized by PAL for cotton rebate program		3,889		—		3,889
Distributions received		—		750		750

	For the Three Months Ended September 27, 2015
	PAL		Other		Total
Net sales	$	224,065	$	9,349	$	233,414
Gross profit		7,387		2,330		9,717
Income from operations		3,561		1,849		5,410
Net income		5,729		1,858		7,587
Depreciation and amortization		9,694		37		9,731
Cash received by PAL under cotton rebate program		3,184		—		3,184
Earnings recognized by PAL for cotton rebate program		4,354		—		4,354
Distributions received		947		1,000		1,947