14. Income Taxes

Components of Loss Before Income Taxes

Components of Provision for Income Taxes

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.

On July 4, 2025, the U.S. government enacted The One Big Beautiful Bill Act of 2025 (“Act”), making significant changes to the U.S. corporate income tax system including, among other provisions, the immediate expensing of research and development expenditures, and 100 percent bonus depreciation on qualified property. The impacts of the Act are reflected in our results for the fiscal year ended June 28, 2026, and there was no material impact to our income tax expense. As of the fiscal year ended June 28, 2026, certain provisions of the Act have impacted the expected timing of deferred tax asset utilization, and the distribution of valuation allowance balances on those assets.

Utilization of Net Operating Loss Carryforwards

Domestic deferred tax expense includes the utilization of federal net operating loss (“NOL”) carryforwards of $0, $0, and $0 for fiscal 2026, 2025, and 2024, respectively. Foreign deferred tax expense includes the utilization of NOL carryforwards of $636, $941, and $896 for fiscal 2026, 2025, and 2024, respectively. State deferred tax expense includes the utilization of NOL carryforwards of $0, $1, and $0 for fiscal 2026, 2025, and 2024, respectively.

Effective Tax Rate

Cash Paid for Income Taxes, Net

Deferred Income Taxes

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 $174 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 28, 2026.

During fiscal 2026, UNIFI’s valuation allowance increased by $5,156. The increase was primarily driven by an increase in the valuation allowance on federal NOL and R&D credit carryforwards. This increase was partially offset by decreases in the valuation allowances for i) capital loss carryforwards that expired during the year, and ii) disallowed interest carryforwards.

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.

Unrecognized Tax Benefits

Unrecognized tax benefits would generate a favorable impact of $1,996 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 $136, $120, and $(657) for fiscal 2026, 2025, and 2024, respectively. UNIFI had $558, $422, and $302 accrued for interest and/or penalties related to uncertain tax positions as of June 28, 2026, June 29, 2025, and June 30, 2024, respectively.

Expiration of NOL Carryforwards and Tax Credit Carryforwards

As of June 28, 2026, UNIFI had U.S. federal capital loss carryforwards of $50, U.S. federal NOL carryforwards of $29,216, U.S. state NOL carryforwards of $4,844, and foreign NOL carryforwards of $4,133. The state NOL carryforwards begin expiring in varying amounts in fiscal 2028. As of June 28, 2026, UNIFI had the following carryforward attributes held outside of the U.S. consolidated tax filing group: U.S. federal NOL carryforwards of $553 and U.S. state NOL carryforwards of $573. The NOL carryforwards held outside of the U.S. consolidated tax filing group begin expiring in fiscal 2028. As of June 28, 2026, UNIFI had U.S. federal foreign tax credit carryforwards of $226 and foreign tax credit carryforwards in foreign jurisdictions of $2,254. The U.S. federal foreign tax credit carryforwards begin expiring in varying amounts in fiscal 2028. As of June 28, 2026, UNIFI had U.S. federal and state research and other business tax credit carryforwards of $10,456, with state tax credits beginning to expire in fiscal 2027 and federal tax credits beginning to expire in fiscal 2039. As of June 28, 2026, UNIFI had U.S. federal disallowed interest deduction carryforwards of $7,243.

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 2023 through 2025 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 2021 through 2025 are open for examination. Statues related to material US state jurisdictions are open from filing dates of state tax returns ended on June 30, 2022. 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. Additionally, certain carryforward tax attributes generated in years prior remain subject to examination and could change in subsequent tax years.

Indefinite Reinvestment Assertion

UNIFI considers $44,110 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 $13,728.