EX-99.1 9 ufi-ex991_108.htm EX-99.1

Exhibit 99.1

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Consolidated Financial Statements

As of April 29, 2020 (Unaudited) and December 28, 2019 and for the period ended April 29, 2020 (Unaudited) and the two years ended December 28, 2019

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Index

| Page(s)
Report of Independent Auditors | 3
Consolidated Financial Statements |
Balance Sheets | 4
Statements of Operations | 5
Statements of Comprehensive (Loss) Income | 6
Statements of Members’ Equity | 7
Statements of Cash Flows | 8
Notes to Consolidated Financial Statements | 9 – 18

2

Report of Independent Auditors

To the Management and the Board of Managers of
Parkdale America, LLC

We have audited the accompanying consolidated financial statements of Parkdale America, LLC and its subsidiaries, which comprise the consolidated balance sheet as of December 28, 2019 and the related consolidated statements of operations, comprehensive (loss) income, members’ equity, and cash flows for each of the two years in the period ended December 28, 2019.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Parkdale America, LLC and its subsidiaries as of December 28, 2019, and the results of their operations and their cash flows for each of the two years in the period ended December 28, 2019 in accordance with accounting principles generally accepted in the United States of America.

/s/ PricewaterhouseCoopers LLP

Charlotte, North Carolina

March 27, 2020

3

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Consolidated Balance Sheets

April 29, 2020 (unaudited) and December 28, 2019

|  |  |  |  |  |  | Unaudited April 29, |  | December 28, |
|  |  |  |  |  |  | 2020 |  | 2019 |
Assets |  |  |  |  |  |  |
Current assets |  |  |  |
| Cash and cash equivalents | $ 57,550,000 |  | $ 46,159,000 |
| Trade accounts receivable (less allowance of |  |  |  |
| $2,067,000 and $2,041,000 in 2020 and 2019) | 79,918,000 |  | 100,320,000 |
| Other receivables | 680,000 |  | 1,022,000 |
| Due from affiliates | 15,000 |  | 91,000 |
| Inventories, net | 84,575,000 |  | 112,375,000 |
| Prepaid expenses and other assets | 4,854,000 |  | 3,320,000 |
| Due from broker | 2,605,000 |  | 96,000 |
| Derivative assets | 700,000 |  | 1,469,000 |
|  |  |  |  | Total current assets | 230,897,000 |  | 264,852,000 |
Property, plant and equipment, net | 145,803,000 |  | 155,007,000 |
Assets held for sale | 2,531,000 |  | 1,480,000 |
Deferred financing costs, net | 272,000 |  | 319,000 |
Other noncurrent assets | 322,000 |  | 451,000 |
|  |  |  |  | Total assets | $ 379,825,000 |  | $ 422,109,000 |
Liabilities and Members' Equity |  |  |  |
| Current liabilities |  |  |  |
|  | Trade accounts payable | $ 19,361,000 |  | $ 55,069,000 |
|  | Accrued expenses | 7,787,000 |  | 8,895,000 |
|  | Due to affiliates | 3,076,000 |  | 5,354,000 |
|  | Derivative liabilities | 1,790,000 |  | 1,262,000 |
|  |  |  |  | Total current liabilities | 32,014,000 |  | 70,580,000 |
Other long-term liabilities | 2,542,000 |  | 3,097,000 |
|  |  |  |  | Total liabilities | 34,556,000 |  | 73,677,000 |
Commitments and contingencies (Note 11) |  |  |  |
Accumulated other comprehensive loss | (10,612,000) |  | (5,209,000) |
Members' equity | 355,881,000 |  | 353,641,000 |
Total members' equity | 345,269,000 |  | 348,432,000 |
|  |  |  |  | Total liabilities and members' equity | $ 379,825,000 |  | $ 422,109,000 |

The accompanying notes are an integral part of these consolidated financial statements.

4

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Consolidated Statements of Operations

Period Ended April 29, 2020 (unaudited) and Years Ended December 28, 2019 and December 29, 2018

|  |  |  |  |  |  | Unaudited Period from December 29, 2019 to |  | Fiscal Year |  | Fiscal Year
|  |  |  |  |  |  | April 29, 2020 |  | 2019 |  | 2018
Net sales |  |  | $ 183,278,000 |  | $ 795,540,000 |  | $ 817,271,000
Cost of goods sold | 176,636,000 |  | 779,490,000 |  | 792,360,000
|  |  |  |  | Gross profit | 6,642,000 |  | 16,050,000 |  | 24,911,000
General and administrative expenses | 6,418,000 |  | 17,363,000 |  | 17,788,000
Loss (gain) on disposals of property, plant |  |  |  |  |
and equipment, net | 8,000 |  | (56,000) |  | (212,000)
Impairment and realignment costs | 2,000 |  | 651,000 |  | 482,000
|  |  |  |  | Income (loss) from operations | 214,000 |  | (1,908,000) |  | 6,853,000
Interest expense | 47,000 |  | 139,000 |  | 136,000
Interest income | (185,000) |  | (1,184,000) |  | (791,000)
Foreign exchange (gain) loss | (2,627,000) |  | 673,000 |  | (91,000)
Other income, net | (44,000) |  | (3,509,000) |  | (310,000)
|  |  |  |  | Income before provision for income taxes | 3,023,000 |  | 1,973,000 |  | 7,909,000
Provision for income taxes | 783,000 |  | 880,000 |  | 509,000
Net income |  | $ 2,240,000 |  | $ 1,093,000 |  | $ 7,400,000

The accompanying notes are an integral part of these consolidated financial statements.

5

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Consolidated Statements of Comprehensive (Loss) Income

Period Ended April 29, 2020 (unaudited) and Years Ended December 28, 2019 and December 29, 2018

|  |  |  |  |  |  | Unaudited Period from December 29, 2019 to |  | Fiscal Year |  | Fiscal Year
|  |  |  |  |  |  | April 29, 2020 |  | 2019 |  | 2018
Net income |  | $ 2,240,000 |  | $ 1,093,000 |  | $ 7,400,000
Other comprehensive (loss) income |  |  |  |  |
| Foreign currency translation | (5,403,000) |  | 928,000 |  | (43,000)
|  |  |  |  | Other comprehensive (loss) income | (5,403,000) |  | 928,000 |  | (43,000)
|  |  |  |  | Comprehensive (loss) income | $ (3,163,000) |  | $ 2,021,000 |  | $ 7,357,000

The accompanying notes are an integral part of these consolidated financial statements.

6

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Consolidated Statements of Members’ Equity

Period Ended April 29, 2020 (unaudited) and Years Ended December 28, 2019 and December 29, 2018

|  |  |  |  |  |  | Accumulated |  |  |  |
|  |  |  |  |  |  | Other |  |  |  | Total
|  |  |  |  |  |  | Comprehensive |  | Members' |  | Members'
|  |  |  |  |  |  | (Loss) |  | Equity |  | Equity
Balance at December 30, 2017 | $ (6,094,000) |  | $ 383,800,000 |  | $ 377,706,000
Net income |  | - |  | 7,400,000 |  | 7,400,000
Foreign currency translation | (43,000) |  | - |  | (43,000)
Dividends paid | - |  | (6,435,000) |  | (6,435,000)
Balance at December 29, 2018 | (6,137,000) |  | 384,765,000 |  | 378,628,000
Net income |  | - |  | 1,093,000 |  | 1,093,000
Foreign currency translation | 928,000 |  | - |  | 928,000
Dividends paid | - |  | (32,217,000) |  | (32,217,000)
Balance at December 28, 2019 | (5,209,000) |  | 353,641,000 |  | 348,432,000
Net income (unaudited) | - |  | 2,240,000 |  | 2,240,000
Foreign currency translation (unaudited) | (5,403,000) |  | - |  | (5,403,000)
Balance at April 29, 2020 (unaudited) | $ (10,612,000) |  | $ 355,881,000 |  | $ 345,269,000

The accompanying notes are an integral part of these consolidated financial statements.

7

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Consolidated Statements of Cash Flows

Period Ended April 29, 2020 (unaudited) and Years Ended December 28, 2019 and December 29, 2018

|  |  |  |  |  |  | Unaudited Period from December 29, 2019 to |  | Fiscal Year |  | Fiscal Year
|  |  |  |  |  |  | April 29, 2020 |  | 2019 |  | 2018
Cash flows from operating activities |  |  |  |  |
Net income |  | $ 2,240,000 |  | $ 1,093,000 |  | $ 7,400,000
Adjustments to reconcile net income to net |  |  |  |  |
cash provided by operating activities |  |  |  |  |
| Depreciation and amortization | 11,063,000 |  | 40,584,000 |  | 39,447,000
| Loss on impairment | - |  | 406,000 |  | 99,000
| Loss (gain) on disposals of property, plant |  |  |  |  |
| and equipment | 8,000 |  | (56,000) |  | (212,000)
| Amortization of deferred financing costs | 47,000 |  | 135,000 |  | 136,000
| Deferred income taxes | 4,000 |  | (143,000) |  | (197,000)
| Net change in derivative instruments | (1,212,000) |  | 320,000 |  | 886,000
| Changes in operating assets and liabilities |  |  |  |  |
|  | Trade accounts receivable, net | 19,210,000 |  | 25,532,000 |  | (20,006,000)
|  | Other receivables | 729,000 |  | 2,003,000 |  | (1,526,000)
|  | Due to/from affiliates, net | (3,892,000) |  | (1,043,000) |  | 701,000
|  | Inventories | 27,758,000 |  | 5,228,000 |  | (12,098,000)
|  | Prepaid expenses and other assets | (1,611,000) |  | 1,721,000 |  | (1,821,000)
|  | Other noncurrent assets | 42,000 |  | 210,000 |  | 197,000
|  | Trade accounts payable | (35,270,000) |  | 812,000 |  | 17,017,000
|  | Accrued expenses and other liabilities | (1,780,000) |  | (649,000) |  | (15,000)
|  | Other noncurrent liabilities | (332,000) |  | (216,000) |  | 81,000
|  |  |  |  | Net cash provided by operating activities | 17,004,000 |  | 75,937,000 |  | 30,089,000
Cash flows from investing activities |  |  |  |  |
| Purchases of property, plant and equipment | (5,345,000) |  | (43,112,000) |  | (27,329,000)
| Proceeds from disposal of property, |  |  |  |  |
| plant and equipment | 53,000 |  | 448,000 |  | 1,143,000
|  |  |  |  | Net cash used in investing activities | (5,292,000) |  | (42,664,000) |  | (26,186,000)
Cash flows from financing activities |  |  |  |  |
| Dividends paid | - |  | (32,217,000) |  | (6,435,000)
|  |  |  |  | Net cash used in financing activities | - |  | (32,217,000) |  | (6,435,000)
Effect of exchange rate on cash and |  |  |  |  |
cash equivalents | (321,000) |  | 64,000 |  | (4,000)
Net increase (decrease) in cash and |  |  |  |  |
cash equivalents | 11,391,000 |  | 1,120,000 |  | (2,536,000)
Cash and cash equivalents |  |  |  |  |
| Beginning of period | 46,159,000 |  | 45,039,000 |  | 47,575,000
| End of period | $ 57,550,000 |  | $ 46,159,000 |  | $ 45,039,000
Supplemental disclosures of cash flow information |  |  |  |  |
Cash paid during the year for |  |  |  |  |
| Interest |  |  | $ - |  | $ - |  | $ -
| Taxes |  |  | 247,000 |  | 927,000 |  | 938,000
Accrued purchases of property, plant and equipment | 1,101,000 |  | 1,317,000 |  | 2,592,000

The accompanying notes are an integral part of these consolidated financial statements.

8

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

1. | Summary of Significant Accounting Policies

Nature of Busi ness

On June 30, 1997, Parkda le M i l l s, Inc. (“M i l l s”) and Uni f i, Inc. (“U n ifi”) e ntered i nto a Contr i bu t i on Agree m ent (the “Agre e m ent”) that s ets f orth the te r ms and cond iti ons by w h ich the two co m pa n i es contri buted a ll of the a ss ets of th e ir s pun cotton yarn o perati ons util izi ng ope n-end and a ir-j et s p i nn i ng techno l o g i es to create Parkd a le A m erica, LLC (the “C o m pany”). In e xchange f or the ir re s pecti ve contr i bu t i on s, Mil ls and U n ifi rece i v ed a 66% and 34% o w ne r s h ip i ntere st in the Co m pany, re s pecti v ely.

On January 1, 2012, M i lls contr i buted its i ntere st in the Co m pany to its ne w ly f o r m ed parent co m pany, Parkd a l e, Incorporated (“Parkd a le, Inc.” or the “Parent”).

On April 29, 2020, Unifi sold its 34% ownership interest in the Company to Parent for $60,000,000.

Princ iples of Consolida tion

The acco m panyi ng con s o li dated fi nanci al state m e nts i ncl ude the con s o li dated accounts of the Co m pany and its w ho lly-o w ned s u b s i d i ari es Summit Yarn, LLC (“Summit Yarn”) and Summit Yarn Ho l d i ng I, Inc. (“Summit H o l d i ng”) and its s u b s i d i ary Gr upo Burl park, S.A. de C.V. (“Grupo”), a Mexican c o m pan y. Summit Yarn and Summit Ho l d i ng are col l ect i v e ly re f err ed to as the “Summit Entiti e s.”

All interco mpany transact ions and accounts ha ve been eliminated in consolidat ion.

Fiscal Year and Short Period (Unaudited) Financial Statements

The Co mpany’s fi scal year end is the Saturday nearest to December 31. The Co mpany’s fi scal years 2019 and 2018 ended on December 28, 2019 and December 29, 2018, re s pecti v e l y. Such fi scal years conta i ned 52 w eeks.

Due to the sale of Unifi’s 34% ownership interest in the Company on April 29, 2020, the associated short-period financial statements are prepared to provide the relevant financial amounts and disclosures for Unifi’s period of ownership. References to “2020” refer to April 29, 2020 or the period of Unifi’s minority ownership ending on April 29, 2020.

In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of April 29, 2020, and its results of operations, and cash flows for the four months ended April 29, 2020.

Operations

The Co mpany is a producer of cotton and synthetic yarns for sale to the te x tile and apparel industries, both fore ign and do m e sti c. As of April 29, 2020, the Co mpany had 10 manu facturing fac ilities located in North A mer ica. The Company incurred $2,000, $245,000 and $383,000 during 2020 and fi scal years 2019 and 2018, respectively, in fac ility costs concurrent w ith rea lign ing and consolidating manu factur ing facilities. The costs relate primar ily to relocation of manu factur ing equipment and are recorded as a co mponent of impai r ment and realign ment costs.

Use of Est imates

The preparation of financ ial state ments in con formity with account ing princ i p les generally accepted in the United States of A mer ica (“U.S. GAAP”) requires manage ment to m ake es timates and assumptions that affect the reported a mounts of assets and liabili t ies, and di sclosure of cont ingent assets and liabilities at the date of the financi al state m ents, and the reported a mounts of re venues and expenses during the reporting per iod. Actual resul ts could differ from those esti m ates.

Revenue Reco g n iti on

The Company’s primary performance obligation is the distribution and sale of its cotton and synthetic yarns. Revenue is recognized when performance obligations under the terms of the contract with the customer are satisfied and are recognized at a point in time, which occurs when control of a good promised in a contract is transferred to a customer. Control is obtained when the customer has the ability to direct the use of and obtain substantially all of the remaining

9

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

benefits from that good, which generally occurs either on shipment or delivery based on the contractual terms. See Note 2 to the consolidated financial statements for additional information regarding the Company’s revenue recognition policy.

Cash and Cash Eq uiva lents

The Co mpany cons iders all high ly liquid i n ves t ments w ith an ori g inal maturity of three months or less to be cash equiv a lents. The carrying value of these cash equiv a lents approximates the ir f a ir v a lues. The Co mpany m a inta ins cash depo s its w ith major banks that m ay e xceed federa lly insured limits. The Co mpany period ically as s ess es the financ ial condi t ion of the institut ions and beli e ves the ri sk of l o ss to be re m ote.

Concentrat i on of Cred it R isk

Subs tant ially all of the Co mpany’s accounts receivable is due from co mpanies in the t extile and apparel markets loca ted primar ily throughout North America. The Co mpany generally does not require collateral for i ts accounts recei vab le. The Co m pany perfor ms ongoing credit e v a luat ions of i ts cus tomers’ f inanci al condi t ion and es tabli shes an allow ance for doubt ful accounts based upon fac tors surrounding the credit r i sk of specif ic cus tomers, hi s tor ical trends, and other i n for m a t ion. Allowances pro v ided for doubt f ul accounts were $2,067,000 and $2,041,000 as of April 29, 2020 and December 28, 20 19, re s p ect i v ely.

Sales to five cus tomers accounted for approxim a tely 69%, 75% and 74%, of total sales during 2020 and f i scal years 2019 and 2018, respectiv e l y. As of April 29, 2020 and December 28, 2019, accounts receivab le from f i ve cus t o mers comprised 68% and 79%, respectiv e ly, of tot al gross accounts receivab le out s tanding.

Fair Value Measurements

The Co mpany f ollows the guidance in Account ing Standards Codificat ion (“ASC”) 820, F air Value Measuremen t, to account for f a ir value measurements. The guidance e mphas izes that f a ir value is a market-based measurement, not an ent i ty-specific measurement. There fore, a fair v a lue measurement should be determined based on a ssumpt ions that market part i c ipants would use in pri c ing an as set or liability. As a bas is for cons idering market part i c ipant assumptions in f a ir v a lue measurements, the gui dance establi shes a fair v a lue hierarchy, which pr ioritizes the inputs used in measuring f a ir v a lues as f ollow s:

Le vel 1 – Obs e r vable input s, such as quoted prices in active markets

Le vel 2 – Inputs, other than quoted prices in active market s, that are obser vable e i ther d irec t ly or ind irect ly

Le vel 3 – Unobser vable inputs for which there is li tt le or no market data, which requ ire the report ing ent i ty to de v e lop i ts own assumpt ions

The C o m pany’s deri v ati ve i n stru m ents repre s ent the o n ly b a l ances w h ich are m ea s ured at f a ir v a l ue on a recurr i ng ba s i s. The fair v a l ue of deri v a t i ve in stru m ents is ba s ed on quoted prices in acti ve m ark ets (L e v el 1 f or co tton f utures contracts). See Note 8 f or s eparate d i scl o s ure of deri v a t i v es m ea s ured at f a ir v a l u e.

The carry ing a mount of cash equivalents, receivables, and accounts payable approxim ate f a ir v a lue because of the short-term matur ity of such instruments.

Se lf-I n s u ra n ce

The Co mpany is sel f-ins ured for certain los s es relating to workers’ compensation, medical and dental c laim s. The Co mpany has stop-loss co verage to limit the e xposure ari s ing from these cl ai m s. Se l f-i n s urance cl ai ms fi l ed and c l a i ms i ncurred but not reported are a ccrued ba s ed u p on m anag e m ent’s e sti m ates of the ulti m ate co st f or s el f-i n s ured cl ai ms i ncurred u s i ng actuari al ass u m pti ons f o ll o w ed in the i n s urance i ndu stry and h i s t orical e x peri ence. Accrua ls f or w orkers’ co m pen s ati on are reported on a d i scounted ba s i s.

Basis of Fore i gn C urrency Tra nslation

The funct ional currency for Grupo is the Me x ican peso. The reporting currency is U.S. dollars. Grupo’s financ ial state ments are trans lated into U.S. dollars for consolidation purposes. In ves t ment and equity accounts are trans lated at hi storical

10

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

v a l ue s. All o t her a ss et a nd li a b i li t y accoun t s a re t ran s l a t ed at quo t ed year end ra t e s. R e v enue and e x p e n s e s are t ran s l a t ed on a m on t h l y b a s i s at t he a v erage ra t es o f e x change i n e ff e ct d u r i n g t h e p e r i od s. G a i n s an d l o ss e s o n t r an s l a t i o n a re r e c o r de d i n a cc u m u l a t e d o t he r c o m p r ehen s i v e l o s s a s a c o m ponen t o f m e m be r s’ equ i t y o n t h e a cc o m pan y i n g c on s o li da t e d ba l an ce s hee t s.

Pr op erty, Pl a n t, a nd Eq u i p me nt

Property, p lant, and equi p ment are recorded at cos t. Repairs and m a intenance that do not extend the life of the applicable as sets are expensed. Pro v i s i ons for deprec iat ion are de termined principally by an accelera ted method o ver the es tim a t ed us e ful lives of the asset s.

As s ets He ld f or Sa le

Assets held for sale represent those assets that are not in use and management is act i v e ly marke t ing for sale. Deprec iat ion of such assets has ceased. The Company assesses the criteria for classification for assets held for sale in accordance with ASC 360, Property, Plant, and Equipment. At April 29, 2020, such assets consisted of two manufacturing buildings held for sale. At December 28, 2019, such assets cons i s ted pri marily of one manufacturing building that was also pre v iou s ly held for sale in the prior year.

Impairment of Long-Lived Assets

The Co mpany e valuates long-lived assets to determ ine impa i r ment whenever e vents or changes in circu m stances indicate that the carry ing a mount of an asset may not be reco verab le. Reco verability of assets to be held and used is measured by a co mpari son of the carrying a mount of an asset to undi scounted future net cash flows expected to be ge nerated by the as s et. If such assets are cons idered to be impa ired, the impair ment to be recogn ized is measured by the a mount by which the carry ing a mount of the assets exceeds the fair v a lue of the assets. In 2020 and fi scal years 2019 and 2018, loss on impairment w as $0, $406,000 and $99,000, respectively.

Ec o n o m ic A ss i sta n ce Pr og ram

During August 2008, a federal go vern ment program commenced pro v i d ing econo mic adjus t ment ass i s tance to domes tic users of up land cotton. A cotton sub s idy is paid to manu fac turers for co tton consumed in do mes tic product ion. The subs idy must be used w i thin 18 mon ths after the market ing year earned to purchase qualif y ing cap i t al e xpenditures in the United S tates for product ion of goods from upland cotton. The m arket ing year is from August 1 to July 31. E f f ective August 1, 2012, t he v a l ue of t he a ss i s t ance is t hree cen ts per pound of con s u m ed co t t on.

The Co mpany recognizes inco me for the cotton subs idy when the cotton has been consumed and the qualify ing assets have been acquired. The Co mpany recognized inco me of $3,343,000, $13,000,000 and $13,138,000, f or the cotton con s u m p t i on port i on of the s ub s i dy earned duri ng 2020 and fi scal years 2019 and 2018, re s pecti v ely, as a re ducti on to co st of goods s o ld in the acco m pan y i ng con s o li dated state m ents of operati on s.

The Co mpany records the port ion of the cotton subs idy dee med to be associated w ith the qualifying capital e xpenditures as a reduction of the co st of the equi p ment purchased. The port ion of the subs idy earned associated w ith the qualify ing capital e xpenditures for 2020, 2019 and 2018 w as $134,000, $445,000 and $426,000, respectively. These amounts are a mort ized o ver the nine year useful life of the corresponding assets on a double declining methodology.

The Co mpany had recei vab les tota ling $134,000 and $855,000 related to the subs idy program as of April 29, 2020 and December 28, 2019, res pectiv e l y, which is inc luded as a component of other receivab les on the acco mpanying consolidated balance sheets.

Sh i p p i ng C o sts

The costs to ship products to custo mers of approxim ate ly $5,679,000, $22,306,000 and $25,583,000 duri ng 2020 and fi scal years 2019 and 2018, re s pecti v e l y, are i n c l uded as a co m ponent of co st of goods so ld in the acco m pan y i ng con s o li dated state m e nts of operati on s.

11

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

Other Income, Net

In 2019, the Company received a credit relating to previously overstated utility billings, of which $2,800,000 was recorded in other income relating to prior years' operations.

Adoption of New Accounting Pronouncements

In May 2014, the FASB issued Reven u e From Contr a cts With C u sto m ers (ASU 2014-09) (“Topic 606”), that outlin e s a si n gle co m preh e nsive model for entities to u s e in a c co u nting for rev e nue ar i s i n g from contrac t s with cust o mers a nd s u pers e d e s m o st curr en t revenue recognition g ui d ance. Topic 606 is based o n the pri n cip l e that an entity should r ecognize revenue to depict the tran s fer of goods or s e rvices to c u s tomers in an amount that r e flects the co n s i d eration to wh i ch the entity expects to be entitled in excha n ge for those go o ds or s e rvic e s. As ame n d e d by Reven u e From Contracts With C u st om ers: Def e rr a l of the Effective Date (ASU 2015-14), Topic 606 is effective for fiscal years beg i nning a fter December 15, 2018. The Company adopted Topic 606 on December 30, 2018, using the modified retrospective approach and applied this approach to contracts not completed as of that date. The adoption of Topic 606 did not result in an adjustment to the Company’s opening balance of retained earnings. The adoption of Topic 606 did not have a material impact to the Company’s consolidated financial statements. Refer to Note 2 for additional information regarding the Company’s adoption of Topic 606.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU is intended to improve and simplify the rules around hedge accounting, reduce complexity for certain hedging concepts and better align financial reporting with an entity’s risk management activities. The Company adopted Topic 815 on December 30, 2018. The adoption of Topic 815 did not have a material impact to the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, that eliminates the probable initial recognition threshold in current U.S. GAAP and, instead, reflects an entity's current estimate of all expected credit losses. The pronouncement is effective for fiscal years beginning after December 31, 2019. The Company adopted Topic 326 on December 29, 2019. The adoption of Topic 326 did not have a material impact to the Company’s consolidated financial statements.

Recent Acc ounti ng Pro n o uncements

In February 2016, the FASB i ss ued ASU 2016-02, Le a s e s, requiring c o mpa n i es t o r e c og n i z e lease asse t s and le a s e li a biliti e s by lesse e s for all o perati n g le a ses. In June 2020, the FASB issued Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities to defer the effective date for non-public companies by one additional year. The pronouncement is effective for fiscal years beginning after December 15, 2021. The Com p any is currently eval u ating the impact th i s new guidance will have on its consol id ated fina n c ial statemen t s.

COVID-19

In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. As a result of this pandemic, many of our manufacturing facilities were impacted and continue to be impacted by temporary closures due to reduced customer demand and borders being closed for shipments. The Company has experienced a decline in sales, a furloughed workforce, and reductions in variable costs (such as materials, utilities, and repairs and maintenance). While the disruption is expected to be temporary, there is considerable uncertainty around the duration and severity of the impact. Therefore, while the Company expects this matter to negatively impact its operating results, the related financial impact and duration cannot be reasonably estimated at this time.

The Company assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, its allowance for credit losses and the carrying value of the Company's long-lived assets in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of April 29, 2020 and through the date of this report. As a result of these assessments, there were no impairments or material increases in credit allowances that impacted the Company's consolidated financial statements as of and for the period ended April 29, 2020. However, the Company's future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the consolidated financial statements in future reporting periods.

12

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

2. | Revenue Recognition

The Company adopted ASC 606 Revenue from Contracts with Customers on December 30, 2018, using the modified retrospective approach for all contracts not completed at the date of initial adoption. Upon adoption of this guidance, there was no material impact to the Company’s consolidated financial statements.

The Company recognizes revenue when performance obligations under the terms of the contract with the customer are satisfied. The Company’s contracts are derived from manufacturing supply agreements and customer orders. Performance obligations associated with manufacturing supply agreements are tied to orders submitted by customers. All orders have a duration of less than one year, performance obligations are related to orders submitted at a point in time, and payment terms are generally 30-90 days. Performance obligations are satisfied when control of a good promised in a contract is transferred to a customer. Control is obtained when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits from that good. The Company measures revenue as the amount of consideration for which it expects to be entitled in exchange for transferring goods at a point in time as control is transferred at a distinct point per the terms of a contract. This transfer occurs upon shipment or delivery based on the contract terms. In some cases, the Company must apply judgment, including contractual rates and historical payment trends, when estimating variable consideration. Certain customers may receive cash and or noncash incentives such as prompt pay discounts, which are accounted for as variable consideration. Revenue is recognized net of variable consideration when the performance obligation has been satisfied. When incentives are paid in arrears, the Company accrues the estimated amount to be paid based on the program’s contractual terms.

3. | Inventories, Net

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method for raw materials, yarn-in-process, and finished yarn inventories. The Company performs periodic assessments to determine the existence of obsolete and slow-moving inventories and records necessary provisions to reduce such inventories to net realizable value, if needed. Inventories, net as of April 29, 2020 and December 28, 2019, consist of the following:

|  |  |  |  |  |  | Unaudited 2020 |  | 2019 |
Cotton and synthetics | $ 38,914,000 |  | $ 54,196,000 |
Yarn in process | 6,350,000 |  | 8,615,000 |
Finished yarn | 39,287,000 |  | 49,227,000 |
Supplies |  |  | 1,699,000 |  | 1,766,000 |
|  |  |  |  |  |  | 86,250,000 |  | 113,804,000 |
Less: Inventory reserves | (1,675,000) |  | (1,429,000) |
|  |  |  |  |  |  | $ 84,575,000 |  | $ 112,375,000 |

13

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

4. | Property, Plant and Equipment, Net

A summary of property, p lant and equi p ment, net as of April 29, 2020 and December 28, 2019, is as f o l l o w s:

|  |  |  |  |  |  | Useful |  |  |  |
|  |  |  |  |  |  | Lives in |  | Unaudited |  |
|  |  |  |  |  |  | Years |  | 2020 |  | 2019
Land and land improvements | 15 |  | $ 9,892,000 |  | $ 10,032,000
Buildings |  |  | 15 - 39 |  | 122,297,000 |  | 125,518,000
Machinery and equipment | 5 - 9 |  | 592,757,000 |  | 592,607,000
Office furniture and fixtures | 3 - 7 |  | 10,279,000 |  | 12,102,000
|  |  |  |  |  |  |  |  | 735,225,000 |  | 740,259,000
Less: accumulated depreciation |  |  | (594,386,000) |  | (589,992,000)
Construction in progress |  |  | 4,964,000 |  | 4,740,000
Property, plant and equipment, net |  |  | $ 145,803,000 |  | $ 155,007,000

Depreciat ion expense for 2020 and fiscal years 2019 and 2018, was $11,063,000, $40,584,000 and $39,447,000, res pectivel y.

5. | Income Taxes

The Co mpany is a limited liability co mpany treated as a partnership for federal and state inco me tax report i ng purpo s e s. As a re s u lt, the C o m pany’s resu lts of opera t i ons are i n c l uded in the i nco me tax returns of its i ndi v idual m e m bers. Accord i n g ly, i nco me ta x es are accounted f or at the i ndi v idual m e m ber l e v e l. There f ore, the C o m p a ny has not recorded a s eparate pro v i s i on for i nco me ta x e s.

The Co mpany, through Grupo, co mputes deferred ta x es ba sed on the after tax effects of te mporary differences between the bas is of assets and liabilities for financi al report ing purposes and the bas is for inco me tax report ing purpos e s, us ing the applicable statutory tax rates.

The pro v i s ion for inco me ta xes for 2020 and fiscal years 2019 and 2018, is co m pri s ed of the f o ll o w i ng:

|  |  |  |  |  |  | Unaudited |  |  |  |
|  |  |  |  |  |  | 2020 |  | 2019 |  | 2018
Current income tax | $ 779,000 |  | $ 1,023,000 |  | $ 706,000
Deferred income tax | 4,000 |  | (143,000) |  | (197,000)
Total income tax | $ 783,000 |  | $ 880,000 |  | $ 509,000

Summit Ho lding mai n tains that the undi s t r ibuted earni ngs of Grupo w ill be inde f initely re i n ves ted in fore ign juri sdi c t ions; there fore, no de ferred t ax liabili ty has been recorded w i th res pect to t h is sub s idiary’s earnings. The Co mpany cont inues to believe that these earnings are indef i n i t e ly rei n ves ted; however, the Co mpany may change this assert ion in a future period.

In December 2017, H.R.1, fo r m e r ly kno wn as the Tax Cuts and Jobs Act (the “2017 Tax Act”) w as enacted. The 2017 Tax Act i n c l ud ed a n u m ber of changes to exi sti ng U.S. tax l a w s. The 2017 Tax Act e limi nated the d e f erral of U.S. i nco me tax on the h i storical unrepatr i ated earn i ngs by i m po s i ng the Tran s i t i on Toll Ta x, w h ich w as a on e-ti me m andato ry dee m ed repatri ati on tax on un d i stri buted f ore i gn earn i ng s. The Tran s i t i on Toll Tax w as ass ess ed on a U.S. s hareho l der's s hare of

14

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

f o r e i g n c o r po r a t i on's a cc u m u l a t e d f o r e i g n ea r n i ng s t ha t ha d n o t p r e v i ou s l y bee n t a x e d i n t h e U.S. E a r n i ng s i n t h e f o r m o f c a s h an d c a s h equi v a l en t s w e re t a x e d a t a r a t e o f 15.5% an d a l l o t he r ea r n i ng s we re t a x e d a t a r a t e o f 8.0%.

As of April 29, 2020 and December 28, 2019, the remaining tax liability is recorded in accrued expenses and other long-term liabilities, in the amounts of $51,000 and $488,000, respectively.

The most s ignificant te mporary difference that gives ri se to de ferred tax liabilit ies is fixed asset s. Grupo has recorded a deferred tax liability rel ated to de ferred tax bas is differences which is inc luded in other long-term liabili t ies. As of April 29, 2020 and December 28, 2019, the liability was $531,000 and $720,000, respectively. For Grupo, the effective tax rate differs from the statutory rates primarily due to i nflat ionary adj u s t ments under the Me xican tax regime and non-deductible e xpenses.

The Co mpany does not beli e ve that it has taken any uncertain tax pos i t ions that would require recogni t ion of a cont ingent liab ility. The tax returns of Summit Ho lding f or tax years 2016 and forward re main subject to e x amination by U.S. tax authori t ies, while the tax years 2005 through 20 15 re m a in s ub j ect to e x ami na t i on by U.S. tax autho r iti es to the e xtent of net opera t i ng l o ss carry f orw ard s, w h ich are not s i gnificant. Grupo’s tax re t urns re m a in s u b j ect to e x a m i n ati on by Mexican tax autho r i t i es f or tax years 2014 and f orw ard.

6. | Deferred F i nanci ng Costs, Net

The Co mpany capitalized financ ing costs of $520,000 in 2017 related to a new re v olv ing credit facility. There were $158,000 in unamortized de ferred financing costs from the pr ior fac ili ty that continue to be associated w ith the new credit fac ili ty. These co s ts are being a mort ized o ver the term of the debt agreement, which m atures on April 26, 2022. A mor t izat ion of these costs totaled $47,000, $135,000 and $136,00 0 f or 2020 and fi scal years 2019 and 2018, re s pecti v e l y, and is i ncl uded as a co m ponent of i ntere st e x pen se in the acc o m pan y i ng con s o li dated state m ents of operati on s. Esti m ated f uture a m ort iza t i on e x pen se of d e f erred fi nan c i ng co sts is s umm arized as f ol l o w s:

Fiscal Year |  |  | Amount
Remainder of Calendar 2020 |  |  | $ 91,000
2021 |  |  |  |  |  |  | 136,000
2022 and thereafter |  |  | 45,000

7. | L o ng-T erm De bt – R e l ated Party

The Company has a $175,000,000 related party re v olv ing credit f acility w ith its Parent. At the Co mpany’s option, borrow ings under the fac ility m ay be m a inta ined as (1) “Prime Rate” loans or (2) “LIBOR” loans, plus applicable margins ranging from 0.25% to 2.25%. The agre e m ent i n c l udes cu sto m ary c o v enants that req u ire the borro w er to m a i nta in a mi n i m um i ntere st co v erage ra t io and re stri ct its l e v erage ra t i o. The Company evaluates compliance with these covenants on a quarterly basis. There w ere no outstand i ng borro w i n gs on the cred it f a c i l ity as of April 29, 2020 and December 28, 2019. The f a c il ity m atures April 26, 2022.

8. | Derivative Instr uments

All derivatives, whether des ignated in hedging re lat ionships or not, are required to be recorded on the balance sheet at f a ir value. Derivatives held by the Company at April 29, 2020 and December 28, 2019 are cons idered non-des ignated. Changes in the fair v a lue of the deri v a tives are recognized in earnings as they occur.

The Co mpany is subject to pr ice r i sk re lated to raw materials pricing. In the nor mal course of bus iness, under procedures e stabli shed by the Company’s f inanc ial r i sk management fra mework, the Co mpany may enter into cotton futures contracts to manage changes in raw m ateri al pr ices in order to protect the gross margin of fixed-pr ice yarn sales. The changes in f a ir

15

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

v a l ue r e l a t ed t o t he s e co tt on f u t ures a re r e f l e c t ed as an o p era t i ng a c t i v i t y i n t he acc o m pany i ng con s o li da t ed s t a t e m e n t s of ca s h f l o w s. As of April 29, 2020 and December 28, 2019, t he Co m pany has recorded t he s e i n s t ru m en t s at t h e i r net f a i r va l ue o f $1,515,000 and $303,000, re s pec t i v e l y, i n t he a c c o m pany i ng con s ol i da t ed ba l an c e s he e t s, as follows:

|  |  |  |  |  |  | Balance Sheet | Unaudited Fair Value |  | Fair Value
|  |  |  |  |  |  | Location | April 29, 2020 |  | December 28, 2019
Derivative assets, commodity contracts |  |  |  |
| Nonhedges | Derivative assets | $ 700,000 |  | $ 1,469,000
Derivative liabilities, commodity contracts |  |  |  |
| Nonhedges | Derivative liabilities | (1,790,000) |  | (1,262,000)
Due from broker |  | 2,605,000 |  | 96,000
Net derivative asset |  | $ 1,515,000 |  | $ 303,000

The Co mpany’s deriv ati ve instruments are li sted and traded on an exchange and are thus v a lued us ing quoted prices class ified w ith in Le v el 1 of the fair v a lue hierarchy. The f a ir value of the derivative instru ments are classif ied as current assets and liabilit ies as of April 29, 2020 and December 28, 2019. The Co mpany did not ha ve any assets or liabili t ies clas sified as Le vel 2 or Le vel 3 at April 29, 2020 and December 28, 2019.

The Co mpany enters into forward contracts for certa in cotton purchases, which qualify as derivative instru ments. However, these contracts meet the applicable criteria to qua lify for the “norm al purchases and normal sales” e x e mpt ion in ASC 815, “Deri v a tives and Hedging”. There fore, the hedge account ing require ments are not applicable to these contracts.

The Co mpany recorded net ga ins on forward contracts and cotton purchase agreements des ignated as derivatives of $2,060,000, $2,041,000 and $2,140,000 for 2020 and years ended December 28, 2019 and December 29, 2018, re s pecti v e l y. The se ga i ns are i ncl uded in co st of goods s o ld in the acco m pan y i ng con s o li dated state m e nts of operati on s.

Collateral is settled daily on these contracts and is shown on the balance sheet as “Due to broker” or “Due from broker”.

9. | Defined Co ntri bu t i on P lan

The Co mpany m a intains a defined contr ibut ion ret irement plan a v a ilab le to substantially a ll em p loyees. The Co mpany’s contribut ions are based on a for m u la f or m atching e m p loyee contribut ions. The Co mpany incurred costs for this plan of $260,000, $1,015,000 and $987,000, during 2020 and fi scal years 2019 and 2018, respectiv e ly.

10. | Related-Party Tra nsacti o ns

Shared Ex pen ses Allocati on

The Co mpany and M ills share certain warehous ing, di stribut ion and manu f a cturing e xpens es that are allocated based on the usages of these serv ices. A mounts charged to the Co mpany for these serv ices were $2,170,000, $6,903,000 and $7,321,000 for 2020 and fi scal years 2019 and 2018, re s pecti v e l y, and are recorded as a co m ponent of co st of g o o ds s o l d.

Parkdale, Inc. incurs cer tain account ing and admini s tra tive e xpens es that are allocated to the Company and Mills based upon a weighted a verage of certain key indica tors, inc luding, but not limited t o, pounds of yarn sold and net sales. A mounts charged to the Co mpany by Parkdal e, Inc. were $4,336,000, $12,155,000 and $11,842,00 0 for 2020 and f i scal years 2019 and 2018, respectiv e ly, and are recorded as a co mponent of general and admi n i s trat i ve e xpens e s.

16

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

D u e to a n d f r o m A f f ili a t e s

Due to and from a ffiliates as of April 29, 2020 and December 28, 2019, cons i s ts of the f ollow ing:

|  |  |  |  |  |  | Unaudited 2020 |  | 2019
Due from U.S. Cotton, LLC | $ 15,000 |  | $ 91,000
Due from affiliates | $ 15,000 |  | $ 91,000
Due to Mills and subsidiary | 884,000 |  | 3,148,000
Due to Alliance | 16,000 |  | -
Due to Parkdale Mills de Honduras | 7,000 |  | 19,000
Due to D'sky DSC S.R.L. | 37,000 |  | 154,000
Due to Parkdale Mills de El Salvador | 4,000 |  | 78,000
Due to Parkdale Inc. | 2,127,000 |  | 1,955,000
Due to Intrinsic Advanced Materials | 1,000 |  | -
Due to affiliates | $ 3,076,000 |  | $ 5,354,000

Amounts due to and from a ffiliates result from intercompany charges related to i n ventory purchases, accounts receivab le co llec t ions, payroll t ax payments, and the ad m i n istrative e xpense alloca t ion.

Other

The C o m pany has a re v o l v ing cre d it f a c i l ity w i th its parent co m pany. See a l so Note 7.

11. | Commitments and Co nti ng e ncies

Operating L ea s es

Rent expense for 2020 and f i scal years 2019 and 2018, w as $232,000, $547,000 and $444,00 0, re s pect i v ely.

Purchase a nd Sa l es C o m m itme nts

At April 29, 2020 and December 28, 2019, the Co mpany had un f ulfilled cot ton purchase commit ment s, at vary ing pr ices, for approximat e ly 465,142,000 and 441,805,000 pounds of cot ton, respectiv e ly, to be used in the product ion process. These contracts are generally e ffec tive for approxim a tely one year. At April 29, 2020 and December 28, 2019, the Company had un f ulfilled yarn sales contract s, at vary ing prices, w i th var ious cus tomers that are not expected to result in any loss to the Company.

Contingencies

The Co mpany is i n vol ved in var ious legal acti ons and c laims ar i s ing in the nor m al course of bus ine ss. Management beli e ves that the resol ution of such matters w ill not ha ve a m ateri al effect on the financi al cond i t ion, results of operations, or cash flows of the Co mpany.

12. | Members’ Eq uity

The annual net inco me of Grupo is subject to the Mexi can legal require ment that 5% thereof be trans ferred to a legal reser ve each year until the reser ve equals 20% of capital stock. This reser ve may not be d i stributed to the members during the exi stence of Grupo, except in the form of stock dividends. The legal reser ve for Grupo has not been met as of April 29, 2020.

17

Parkdale America, LLC and Subsidiaries

(A Limited Liability Company)

Notes to Consolidated Financial Statements

13. | S ub s e qu e n t E ve n ts

The Co mpany e valuated transactions occurr ing after April 29, 2020 in accordance w ith ASC Topic 855, Subsequent E vents, through August 26, 2020, which is the date the acco mpany ing consolidated financi al state ments were a vailab le for i ssuance.

18