Income Taxes

12 Months Ended

Jun. 29, 2025

Income Tax Disclosure [Abstract]

Income Taxes

14. Income Taxes

Components of Loss Before Income Taxes

The components of loss before income taxes consist of the following:

	Fiscal 2025			Fiscal 2024			Fiscal 2023
U.S.	$	(27,131	)	$	(63,602	)	$	(63,773	)
Foreign		8,502			18,065			18,330
Loss before income taxes	$	(18,629	)	$	(45,537	)	$	(45,443	)

Components of Provision for Income Taxes

Provision for income taxes consists of the following:

	Fiscal 2025			Fiscal 2024			Fiscal 2023
Current:
Federal	$	—		$	(2,860	)	$	309
State		3			203			(7	)
Foreign		2,391			8,053			3,385
Total current tax expense		2,394			5,396			3,687
Deferred:
Federal		(112	)		(123	)		41
State		(50	)		(162	)		71
Foreign		(513	)		(3,253	)		(2,898	)
Total deferred tax expense		(675	)		(3,538	)		(2,786	)
Provision for income taxes	$	1,719		$	1,858		$	901

On December 22, 2017, the U.S. government enacted comprehensive tax legislation H.R. 1, formerly known as the Tax Cuts and Jobs Act. The Global Intangible Low-Taxed Income (“GILTI”) provisions included in H.R. 1 require that certain income earned by foreign subsidiaries must be currently included in the gross income of the U.S. shareholder. UNIFI has elected to recognize GILTI as a current-period expense. Under this policy, UNIFI has not provided deferred taxes related to temporary differences that, upon their reversal, will affect the amount of income subject to GILTI in the period.

Utilization of Net Operating Loss Carryforwards

Domestic deferred tax expense includes the utilization of federal net operating loss (“NOL”) carryforwards of $0, $0, and $200 for fiscal 2025, 2024, and 2023, respectively. Foreign deferred tax expense includes the utilization of NOL carryforwards of $941, $896, and $166 for fiscal 2025, 2024, and 2023, respectively. State deferred tax expense includes the utilization of NOL carryforwards of $1, $0, and $109 for fiscal 2025, 2024, and 2023, respectively.

Effective Tax Rate

Reconciliation from the federal statutory tax rate to the effective tax rate is as follows:

	Fiscal 2025			Fiscal 2024			Fiscal 2023
Federal statutory tax rate		21.0	%		21.0	%		21.0	%
Change in valuation allowance		(27.3	)		(24.6	)		(30.8	)
Foreign income taxed at different rates		(11.0	)		(3.3	)		(1.9	)
Repatriation of foreign earnings and withholding taxes		(10.4	)		(7.6	)		(7.4	)
Change in uncertain tax positions		(3.4	)		(1.5	)		(4.1	)
Nondeductible expenses and other		(2.6	)		(0.4	)		(0.4	)
Nondeductible compensation		(1.8	)		(1.0	)		(0.8	)
Revaluation of deferred balances due to tax law changes		(1.6	)		(0.1	)		(0.1	)
U.S. tax on GILTI		(1.5	)		(2.4	)		(1.5	)
Nontaxable income		7.6			1.2			2.5
Foreign tax credits		6.5			3.0			2.3
Research and other business tax credits		5.1			2.7			3.6
Recovery of income taxes in Brazil		4.8			—			9.2
Tax on unremitted foreign earnings		3.2			3.4			3.0
Interest on income taxes		1.8			1.8			—
State income taxes, net of federal tax benefit		0.4			3.5			3.4
IRS RAR adjustment		—			0.2			—
Effective tax rate		(9.2	)%		(4.1	)%		(2.0	)%

Deferred Income Taxes

The significant components of UNIFI’s deferred tax assets and liabilities consist of the following:

	June 29, 2025			June 30, 2024
Deferred tax assets:
Capital loss carryforwards	$	3,628		$	16,442
NOL carryforwards		29,159			22,351
Tax credits		11,584			11,002
Research and development costs		12,191			11,845
Accrued compensation		2,174			1,575
Disallowed interest deduction carryforwards		5,895			3,939
Other items		4,531			4,564
Total gross deferred tax assets		69,162			71,718
Valuation allowance		(55,208	)		(55,250	)
Total deferred tax assets		13,954			16,468
Deferred tax liabilities:
PP&E		(7,792	)		(10,624	)
Unremitted earnings		(1,691	)		(2,300	)
Other		(160	)		(21	)
Total deferred tax liabilities		(9,643	)		(12,945	)
Net deferred tax assets	$	4,311		$	3,523

Deferred Income Taxes – Valuation Allowance

In assessing its ability to realize deferred tax assets, UNIFI considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. UNIFI considers the scheduled reversal of taxable temporary differences, taxable income in carryback years, cumulative losses in recent years, projected future taxable income, and tax planning strategies in making this assessment. Since UNIFI operates in multiple jurisdictions, the assessment is made on a jurisdiction-by-jurisdiction basis, taking into account the effects of local tax law. Based on consideration of these items, management believes that UNIFI will be able to utilize a portion of foreign tax credits claimed by one of its non-U.S. subsidiaries in the foreseeable future, and has released $86 of the valuation allowance previously applied to this deferred tax asset. Management has also determined that there is not enough positive evidence to support the realization of its deferred income tax asset balances of its U.S. consolidated group and certain foreign subsidiaries, and that a full valuation allowance against these deferred tax assets is warranted as of June 29, 2025.

Components of UNIFI’s deferred tax valuation allowance are as follows:

	Fiscal 2025			Fiscal 2024			Fiscal 2023
Capital loss carryforwards	$	(3,628	)	$	(16,442	)	$	(16,390	)
NOL carryforwards and reversing temporary differences		(36,049	)		(27,231	)		(16,235	)
Disallowed interest deduction carryforwards		(3,838	)		(1,860	)		—
Tax credits		(10,549	)		(9,717	)		(10,800	)
Other deferred tax assets		(1,144	)		—			(485	)
Total deferred tax valuation allowance	$	(55,208	)	$	(55,250	)	$	(43,910	)

During fiscal 2025, UNIFI’s valuation allowance decreased by $42. The decrease was primarily driven by a decrease in the valuation allowance on capital loss carryforwards that were utilized or expired, which was partially offset by an increase in the valuation allowance on federal NOL and disallowed interest carryforwards.

During fiscal 2024, UNIFI’s valuation allowance increased by $11,340. The increase was primarily driven by an increase in the valuation allowance on federal and state NOL carryforwards, partially offset by a decrease in the valuation allowance following the conclusion of the IRS audit.

During fiscal 2023, UNIFI’s valuation allowance increased by $12,243. The increase was primarily driven by an increase in the valuation allowance on federal NOL and research credits carryforwards, partially offset by a decrease in the valuation allowance on foreign tax credits.

Unrecognized Tax Benefits

A reconciliation of beginning and ending gross amounts of unrecognized tax benefits is as follows:

	Fiscal 2025			Fiscal 2024			Fiscal 2023
Balance at beginning of year	$	3,230		$	4,353		$	2,909
Gross increases related to tax positions in prior periods		266			1,145			1,481
Gross decreases related to tax positions in prior periods		(2	)		(1,015	)		(45	)
Gross increases related to current period tax positions		300			300			8
Gross decreases related to settlements with tax authorities		—			(1,553	)		—
Gross decreases related to lapse of applicable statute of limitations		(46	)		—			—
Balance at end of year	$	3,748		$	3,230		$	4,353

Unrecognized tax benefits would generate a favorable impact of $1,686 on UNIFI’s effective tax rate if recognized. UNIFI does not expect material changes in uncertain tax positions within the next 12 months. Expense (benefit) for interest and penalties recognized by UNIFI within the provision for income taxes was $120, $(657), and $400 for fiscal 2025, 2024, and 2023, respectively. UNIFI had $422, $302, and $959 accrued for interest and/or penalties related to uncertain tax positions as of June 29, 2025, June 30, 2024, and July 2, 2023, respectively.

Expiration of NOL Carryforwards and Tax Credit Carryforwards

As of June 29, 2025, UNIFI had U.S. federal capital loss carryforwards of $3,628, U.S. federal NOL carryforwards of $20,459, U.S. state NOL carryforwards of $4,317, and foreign NOL carryforwards of $3,264. The state NOL carryforwards begin expiring in varying amounts in fiscal 2027. As of June 29, 2025, UNIFI had the following carryforward attributes held outside of the U.S. consolidated tax filing group: U.S. federal NOL carryforwards of $521 and U.S. state NOL carryforwards of $565. The NOL carryforwards held outside of the U.S. consolidated tax filing group begin expiring in fiscal 2026. As of June 29, 2025, UNIFI had U.S. federal foreign tax credit carryforwards of $415 and foreign tax credit carryforwards in foreign jurisdictions of $2,407. The U.S. federal foreign tax credit carryforwards begin expiring in varying amounts in fiscal 2028. As of June 29, 2025, UNIFI had U.S. federal and state research and other business tax credit carryforwards of $8,762, which begin expiring in fiscal 2026. As of June 29, 2025, UNIFI had U.S. federal disallowed interest deduction carryforwards of $5,895.

Tax Years Subject to Examination

Unifi, Inc. and its domestic subsidiaries file a consolidated federal income tax return, as well as income tax returns in multiple state and foreign jurisdictions. The tax years subject to examination vary by jurisdiction. UNIFI regularly assesses the outcomes of both completed and ongoing examinations to ensure that UNIFI’s provision for income taxes is sufficient.

In fiscal 2024, the Internal Revenue Service (the “IRS”) concluded the audit of UNIFI's domestic operations for fiscal 2014 through 2019 with a refund of $1,275, which has been received along with $457 of interest on the overpayments. No penalty or interest was assessed by the IRS. Following the conclusion of the IRS audit, UNIFI recorded a tax benefit of $(103) for audit related adjustments to its tax balances and reserves for uncertain tax positions, and a benefit of $853 from related penalties and interest, that have been effectively settled.

The IRS generally has three years after an original return is filed to assess income taxes. Fiscal years 2022 through 2024 are subject to examination. Certain carryforward tax attributes generated in years prior remain subject to examination and could change in subsequent tax years.

UNIFI is also subject to examination by various state and international tax authorities. The tax years subject to examination vary by jurisdiction. The statute of limitations for material foreign jurisdictions is five years, therefore tax years 2020 through 2024 are open for examination. Statues related to material US state jurisdictions are open from filing dates of state tax returns ended on June 30, 2021. Certain carryforward tax attributes generated in years prior remain subject to examination and could change in subsequent tax years.

The IRS audit settlement opened the statute of limitations of certain US state jurisdictions for tax years adjusted by the IRS of fiscal 2014 through 2019.

Indefinite Reinvestment Assertion

UNIFI considers $42,505 of its unremitted foreign earnings to be permanently reinvested to fund working capital requirements and operations abroad, and has therefore not recognized a deferred tax liability for the estimated future taxes that would be incurred upon repatriation. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, UNIFI could be subject to additional tax liabilities of approximately $11,193.