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EX-10.1 - EXHIBIT 10.1 - UNIFI INCex10-1.htm
EX-32.1 - EXHIBIT 32.1 - UNIFI INCex32-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 26, 2010

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to         

Commission File Number: 1-10542

UNIFI, INC.
(Exact name of registrant as specified in its charter)
 
New York 11-2165495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization)  Identification No.)
   
 P.O. Box 19109 - 7201 West Friendly Avenue Greensboro, NC 27419
(Address of principal executive offices) (Zip Code)
 
Registrant’s telephone number, including area code:   (336) 294-4410
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files).  Yes [  ] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer   [ ]  Accelerated filer   [X]  Non-accelerated filer  [ ]  Smaller Reporting Company   [ ]
    (Do not check if a smaller reporting company)  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The number of shares outstanding of the issuer’s common stock, par value $.10 per share, as of February 1, 2011 was 20,066,765.
 


 
 
 

 

UNIFI, INC.
Form 10-Q for the Quarterly Period Ended December 26, 2010

Table of Contents

 
Page
Part I.  Financial Information
Item 1.
Financial Statements:
 
 
Condensed Consolidated Balance Sheets as of
 
 
December 26, 2010 and June 27, 2010
3
 
   
 
Condensed Consolidated Statements of Operations for the Quarters and Six-Months Ended
 
 
December 26, 2010 and December 27, 2009
4
     
 
Condensed Consolidated Statements of Cash Flows for the Six-Months Ended
 
 
December 26, 2010 and December 27, 2009
5
     
 
Notes to Condensed Consolidated Financial Statements
6
     
Item 2.
Management’s Discussion and Analysis of Financial Condition
 
 
and Results of Operations
27
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
51
 
   
Item 4.
Controls and Procedures
53
     
     
     
Part II.  Other Information
Item 1.
Legal Proceedings
53
     
Item 1A.
Risk Factors
53
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
54
     
Item 3.
Defaults Upon Senior Securities
54
     
Item 4.
[Removed and Reserved.]
54
     
Item 5.
Other Information
54
 
   
Item 6.
Exhibits
54
 
 
2

 
 
Part I. Financial Information
Item 1. Financial Statements

UNIFI, INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands)

   
December 26,
2010
   
June 27,
 2010
 
   
(Unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 33,185     $ 42,691  
Receivables, net
    82,015       91,243  
Inventories
    123,054       111,007  
Deferred income taxes
    1,771       1,623  
Other current assets
    5,943       6,119  
Total current assets
    245,968       252,683  
                 
Property, plant and equipment
    763,965       747,857  
Less accumulated depreciation
    (609,509 )     (596,358 )
      154,456       151,499  
Intangible assets, net
    12,857       14,135  
Investments in unconsolidated affiliates
    91,873       73,543  
Other non-current assets
    9,644       12,605  
Total assets
  $ 514,798     $ 504,465  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 39,779     $ 40,662  
Accrued expenses
    14,908       21,725  
Income taxes payable
    1,562       505  
Current portion of notes payable
          15,000  
Current maturities of long-term debt and other liabilities
    743       327  
Total current liabilities
    56,992       78,219  
                 
Notes payable, less current portion
    163,722       163,722  
Long-term debt and other liabilities
    2,878       2,531  
Deferred income taxes
    362       97  
Commitments and contingencies
               
Shareholders’ equity:
               
Common stock
    2,007       2,006  
Capital in excess of par value
    32,027       31,579  
Retained earnings
    231,803       216,183  
Accumulated other comprehensive income
    25,007       10,128  
      290,844       259,896  
Total liabilities and shareholders’ equity
  $ 514,798     $ 504,465  

See accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
UNIFI, INC.
Condensed Consolidated Statements of Operations
(Unaudited) (Amounts in thousands, except per share data)

   
For the Quarters Ended
   
For the Six-Months Ended
 
   
December 26, 2010
   
December 27, 2009
   
December 26, 2010
   
December 27, 2009
 
Summary of Operations:
                       
Net sales
  $ 160,802     $ 142,255     $ 334,822     $ 285,106  
Cost of sales
    141,721       124,919       294,578       248,364  
Restructuring charges
    1,183             1,546        
Write down of long-lived assets
                      100  
Selling, general and administrative expenses
    10,752       12,152       21,879       23,316  
Provision (benefit) for bad debts
    86       (564 )     45       12  
Other operating expense (income), net
    16       (109 )     259       (196 )
                                 
Non-operating (income) expense:
                               
Interest income
    (668 )     (834 )     (1,411 )     (1,580 )
Interest expense
    5,062       5,223       10,331       10,715  
Other non-operating expense
    450             450        
Loss (gain) on extinguishment of debt
                1,144       (54 )
Equity in earnings of unconsolidated affiliates
    (5,039 )     (1,609 )     (13,990 )     (3,672 )
Income from operations before income taxes
    7,239       3,077       19,991       8,101  
Provision for income taxes
    1,854       1,124       4,371       3,659  
Net income
  $ 5,385     $ 1,953     $ 15,620     $ 4,442  
                                 
Income per common share:
                               
Basic
  $ .27     $ .10     $ .78     $ .22  
                                 
Diluted
  $ .26     $ .09     $ .76     $ .22  
                                 
Weighted average outstanding shares of common stock (a):
                               
Basic
    20,059       20,499       20,058       20,592  
                                 
Diluted
    20,467       20,595       20,426       20,640  

(a)    All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the November 3, 2010 1-for-3 reverse stock split.
 
See accompanying notes to condensed consolidated financial statements.
 
 
4

 
 
UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited) (Amounts in thousands)
 
   
For the Six-Months Ended
 
   
December 26,
 2010
   
December 27,
 2009
 
             
Cash and cash equivalents at beginning of year
  $ 42,691     $ 42,659  
Operating activities:
               
Net income
    15,620       4,442  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Earnings of unconsolidated affiliates, net of distributions
    (11,458 )     (2,062 )
Depreciation
    11,688       11,563  
Amortization
    1,778       2,334  
Stock-based compensation expense
    383       1,273  
Deferred compensation expense
    354       343  
Loss (gain) on asset sales
    53       (57 )
Loss (gain) on extinguishment of debt
    1,144       (54 )
Write down of long-lived assets
          100  
Deferred income tax
    234       (19 )
Provision for bad debts
    45       12  
Other
    (20 )     301  
Change in assets and liabilities, excluding effects of foreign currency adjustments
    (5,300 )     565  
Net cash provided by operating activities
    14,521       18,741  
                 
Investing activities:
               
Capital expenditures
    (13,324 )     (4,965 )
Investment in joint ventures
    143       (550 )
Change in restricted cash
          4,158  
Proceeds from sale of capital assets
    185       1,358  
Proceeds from split dollar life insurance surrenders
    3,241        
Other
          (79 )
Net cash used in investing activities
    (9,755 )     (78 )
                 
Financing activities:
               
Payments of notes payable
    (15,863 )      
Payments of other long-term debt
    (77,225 )     (4,594 )
Borrowings of other long-term debt
    77,225        
Proceeds from stock option exercises
    68        
Purchase and retirement of Company stock
    (1 )     (4,995 )
Debt refinancing fees
    (825 )      
Net cash used in financing activities
    (16,621 )     (9,589 )
                 
Effect of exchange rate changes on cash and cash equivalents
    2,349       2,709  
Net (decrease) increase in cash and cash equivalents
    (9,506 )     11,783  
Cash and cash equivalents at end of period
  $ 33,185     $ 54,442  
 
See accompanying notes to condensed consolidated financial statements.
 
 
5

 
 
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation

The Condensed Consolidated Balance Sheet of Unifi, Inc. together with its subsidiaries (the “Company”) at June 27, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by United States (“U.S.”) generally accepted accounting principles (“GAAP”) for complete financial statements.  Except as noted with respect to the balance sheet at June 27, 2010, this information is unaudited and reflects all adjustments which are, in the opinion of management, necessary to present fairly the financial position at December 26, 2010, and the results of operations and cash flows for the periods ended December 26, 2010 and December 27, 2009.  Such adjustments consisted of normal recurring items necessary for fair presentation in conformity with U.S. GAAP.  Preparing financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results may differ from these estimates.  Interim results are not necessarily indicative of results for a full year.  The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010, as recast in its Current Report on Form 8-K filed January 7, 2011 to reflect the reverse stock split of the Company’s Common Stock at a reverse stock split ratio of 1-for-3, which became effective November 3, 2010. All share and per share computations have been retroactively adjusted for all periods presented to reflect the decrease in shares as a result of the reverse stock split.  Certain prior period amounts have been reclassified to conform to current year presentation.

The significant accounting policies followed by the Company are presented on pages 67 to 73 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010, as recast as discussed above.

2. Inventories

Inventories are comprised of the following (amounts in thousands):
 
   
December 26,
2010
   
June 27, 
2010
 
             
Raw materials and supplies
  $ 56,236     $ 51,255  
Work in process
    4,325       6,726  
Finished goods
    62,493       53,026  
    $ 123,054     $ 111,007  

3. Other Current Assets

Other current assets are comprised of the following (amounts in thousands):
 
   
December 26,
2010
   
June 27, 
2010
 
             
Prepaid expenses:
           
Insurance
  $ 960     $ 823  
Value added tax
    2,105       2,281  
Information technology services
    123       222  
Other
    535       360  
Deposits
    2,220       2,433  
    $ 5,943     $ 6,119  
 
 
6

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
4. Intangible Assets, Net

Intangible assets subject to amortization consist of a customer list of $22.0 million and non-compete agreement of $4.0 million which were entered into in connection with an asset acquisition consummated in fiscal year 2007.  The customer list is being amortized in a manner which reflects the expected economic benefit that will be received over its thirteen year life.  The non-compete agreements are being amortized using the straight-line method over ten years, which is equal to the term of the agreement and its extensions.  There are no residual values related to these intangible assets.  Accumulated amortization at December 26, 2010 and June 27, 2010 for these intangible assets was $13.1 million and $11.9 million, respectively.  These intangible assets relate to the polyester segment.

The following table represents the expected intangible asset amortization for the next five fiscal years (amounts in thousands):
 
   
Aggregate Amortization Expenses
 
   
2012
   
2013
   
2014
   
2015
   
2016
 
                               
Customer list
  $ 2,022     $ 1,837     $ 1,481     $ 1,215     $ 969  
Non-compete agreements
    317       317       317       317       317  
    $ 2,339     $ 2,154     $ 1,798     $ 1,532     $ 1,286  

5. Investments in Unconsolidated Affiliates

The following table represents the Company’s investments in unconsolidated affiliates:
 
Affiliate Name
Date Acquired
Locations
 
Percent Ownership
 
Parkdale America, LLC (“PAL”)
Jun-97
North Carolina, South Carolina, Virginia, and Georgia
    34%  
             
U.N.F. Industries, LLC (“UNF”)
Sep-00
Migdal Ha – Emek, Israel
    50%  
             
UNF America, LLC (“UNF America”)
Oct-09
Ridgeway, Virginia
    50%  
             
Repreve Renewables, LLC (“Repreve Renewables”)
Apr-10
Soperton, Georgia
    40%  

Summarized balance sheet information as of December 26, 2010 and June 27, 2010 and summarized income statement information for the quarters and year-to-date periods ended December 26, 2010 and December 27, 2009 of the combined unconsolidated equity affiliates are as follows (amounts in thousands):
 
   
December 26,
 2010
   
June 27,
 2010
 
   
(Unaudited)
   
(Unaudited)
 
Current assets
  $ 281,846     $ 211,220  
Non-current assets
    163,176       127,081  
Current liabilities
    78,537       53,458  
Non-current liabilities
    55,599       27,621  
Shareholders’ equity and capital accounts
    310,886       257,222  

 
For the Quarters Ended
 
 
December 26,
 2010
 
December 27,
 2009
 
 
(Unaudited)
 
(Unaudited)
 
Net sales
  $ 222,932     $ 117,766  
Gross profit
    10,480       9,161  
Income from operations
    14,565       4,927  
Net income
    13,890       3,914  
 
 
7

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
 
For the Six-Months Ended
 
 
December 26,
 2010
 
December 27,
 2009
 
 
(Unaudited)
 
(Unaudited)
 
Net sales
  $ 444,309     $ 217,212  
Gross profit
    20,291       17,358  
Income from operations
    39,737       10,339  
Net income
    40,269       11,433  

PAL.  PAL receives benefits under the Food, Conservation, and Energy Act of 2008 (“2008 U.S. Farm Bill”) which extended the existing upland cotton and extra long staple cotton programs (the “Program”), including economic adjustment assistance provisions for ten years.  Beginning August 1, 2008, the Program provided textile mills a subsidy of four cents per pound on eligible upland cotton consumed during the first four years and three cents per pound for the last six years.  The economic assistance received under this Program must be used to acquire, construct, install, modernize, develop, convert or expand land, plant, buildings, equipment, or machinery.  Capital expenditures must be directly attributable to the purpose of manufacturing upland cotton into eligible cotton products in the U.S.  The recipients have the marketing year from August 1 to July 31, plus eighteen months to make the capital expenditures.  Under the Program, the subsidy payment is received from the U.S. Department of Agriculture (“USDA”) the month after the eligible cotton is consumed.  However, the economic assistance benefit is not recognized by PAL into operating income until the period when both criteria have been met; i.e. eligible upland cotton has been consumed, and qualifying capital expenditures under the Program have been made.

During the Company’s second quarter and year-to-date periods of fiscal year 2011, PAL received $7.2 million and $14.3 million of economic assistance, respectively, and recognized $8.4 million and $27.7 million of economic assistance, respectively, in its operating income in accordance with the provisions of the Program.  As a result of the timing of qualified capital expenditures, PAL’s deferred revenue relating to the Program decreased from $13.4 million as of June 27, 2010 to nil as of December 26, 2010.

On October 28, 2009, PAL acquired certain real property and machinery and equipment, as well as entered into lease agreements for real property and machinery and equipment, that constitute most of the yarn manufacturing operations of Hanesbrands, Inc. (“HBI”). Concurrent with that transaction, PAL entered into a yarn supply agreement with HBI to supply at least 95% of the yarn used in the manufacturing of HBI’s apparel products at any of HBI’s locations in North America, Central America, or the Caribbean Basin for a six-year period with an option for HBI to extend for two additional three-year periods. The yarn supply agreement also covers PAL’s supply of certain yarns used in HBI’s manufacturing in China through December 31, 2011.  As a result of the HBI acquisition and the timing of significantly higher capital expenditures during calendar year 2010, PAL utilized borrowings under its revolving credit facility to fund its operations.  On its January 1, 2011 balance sheet, PAL has $29.4 million in cash and $45.0 million of debt on its revolving credit facility included in current assets and non-current liabilities, respectively.

The Company’s investment in PAL at December 26, 2010 was $82.7 million and the underlying equity in the net assets of PAL at December 26, 2010 was $100.8 million.  The difference between the carrying value of the Company’s investment in PAL and the underlying equity in PAL is attributable to initial excess capital contributions by the Company of $53.4 million, the Company’s share of the settlement cost of an anti-trust lawsuit against PAL in which the Company did not participate of $2.6 million offset by an impairment charge taken by the Company on its investment in PAL of $74.1 million.

UNF.  On September 27, 2000, the Company formed a 50/50 joint venture, UNF, with Nilit Ltd. (“Nilit”), to produce nylon partially oriented yarn (“POY”) at Nilit’s manufacturing facility in Migdal Ha-Emek, Israel.  The Company’s investment in UNF at December 26, 2010 was $3.6 million.

UNF America.  On October 8, 2009, the Company formed a 50/50 joint venture, UNF America, with Nilit for the purpose of producing nylon POY in Nilit’s Ridgeway, Virginia plant. The Company’s initial investment in UNF America was $50 thousand dollars. In addition, the Company loaned UNF America $0.5 million for working capital.  The loan carried interest at London Interbank Offered Rate (“LIBOR”) plus one and one-half percent and both principal and interest would be paid from the future profits of UNF America at such time as deemed appropriate by its members.  The loan was treated as an additional investment by the Company for accounting purposes.  As of December 26, 2010, UNF America had repaid all of the working capital loan plus interest back to the Company.  The Company’s investment in UNF America at December 26, 2010 was $1.2 million.
 
 
8

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)

In conjunction with the formation of UNF America, the Company entered into a supply agreement with UNF and UNF America whereby the Company is committed to purchase its requirements, subject to certain exceptions, of first quality nylon POY for texturing (excluding specialty yarns) from UNF or UNF America.  Pricing under the contract is negotiated every six months and is based on market rates.

Repreve Renewables.  On April 26, 2010, the Company entered into an agreement to form Repreve Renewables, a joint venture in which the Company owns a 40% interest.  This joint venture was established for the purpose of acquiring the assets and the expertise related to the business of cultivating, growing, and selling biomass crops, including feedstock for establishing biomass crops that are intended to be used as a fuel or in the production of fuels or energy in the U.S. and the European Union.  The Company received its ownership interest in the joint venture for an initial contribution of $4.0 million.  As of December 26, 2010, the Company has contributed an additional $0.6 million for its share of working capital and recorded $0.2 million for the Company’s share of accumulated net losses, resulting in an investment balance of $4.4 million.

6. Other Non-Current Assets

Other non-current assets are comprised of the following (amounts in thousands):
 
   
December 26,
 2010
   
June 27,
2010
 
             
Cash surrender value of life insurance of former key employees
  $ 374     $ 3,615  
Bond issue costs and debt refinancing fees
    3,627       3,585  
Long-term deposits
    5,491       5,281  
Other
    152       124  
    $ 9,644     $ 12,605  

Debt related issue costs and refinancing fees have been amortized on the straight-line method over the life of the corresponding debt, which approximates the effective interest method.  On June 30, 2010, the Company redeemed $15 million of the Company’s 11.5% senior secured notes due May 15, 2014 (the “2014 notes”) at a redemption price of 105.75% of the principal amount of the redeemed 2014 notes.  This redemption was financed through a combination of internally generated cash and borrowings under the Company’s senior secured asset-based revolving credit facility.  As a result, the Company recorded a $1.1 million charge for the early extinguishment of debt in the quarter ended September 26, 2010 of which $0.8 million related to the premium paid for the bonds and $0.3 million related to the retirement of related bond issue costs.

On September 9, 2010, the Company and its subsidiary guarantors (as co-borrowers) closed on the First Amendment to the Amended and Restated Credit Agreement with Bank of America, N.A. (the “First Amended Credit Agreement”).  As a result, the Company incurred additional debt refinancing fees in the amount of $0.8 million.  See “Footnote 3.  Long-term Debt and Other Liabilities” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010, as recast in its Current Report on Form 8-K filed January 7, 2011, for a detailed discussion of the terms and covenants of the First Amended Credit Agreement.

As of December 26, 2010 and June 27, 2010, accumulated amortization for debt issue costs and refinancing fees was $5.1 million and $4.6 million, respectively.
 
 
9

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
7. Accrued Expenses

Accrued expenses are comprised of the following (amounts in thousands):
 
   
December 26,
 2010
   
June 27,
2010
 
Payroll and fringe benefits
  $ 9,585     $ 14,127  
Severance
          301  
Interest
    2,253       2,429  
Utilities
    1,684       2,539  
Retiree reserve
    87       165  
Property  taxes
          876  
Other
    1,299       1,288  
    $ 14,908     $ 21,725  

8. Income Taxes

The Company’s income tax provision for the quarter ended December 26, 2010 resulted in tax expense at an effective rate of 25.6% compared to the quarter ended December 27, 2009 which resulted in tax expense at an effective rate of 36.5%.  The Company’s income tax provision for the year-to-date period ended December 26, 2010 resulted in tax expense at an effective rate of 21.9% compared to the year-to-date period ended December 27, 2009 which resulted in tax expense at an effective rate of 45.2%.

The difference between the Company’s income tax expense and the U.S. statutory rate for the quarter and year-to-date period ended December 26, 2010 was primarily due to the utilization of prior losses for which no benefit had been recognized previously, and foreign operations taxed at rates lower than the U.S., partially offset by foreign dividends taxed in the U.S.  The differences between the Company’s income tax expense and the U.S. statutory rate for the quarter and year-to-date period ended December 27, 2009 was primarily due to losses in the U.S. and other jurisdictions for which no tax benefit could be recognized while operating profit was generated in other taxable jurisdictions.

Deferred income taxes have been provided for the temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities.  In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the periods in which those temporary differences reverse. Management considers the scheduled reversal of taxable temporary differences, taxable income in carryback periods, projected future taxable income and tax planning strategies in making this assessment.  The Company currently has a full valuation allowance against its net deferred tax assets in the U.S. due to negative evidence concerning the realization of those deferred tax assets in recent years.  As results of operations improve, the Company continues to evaluate both positive and negative evidence to determine whether and when the valuation allowance, or a portion thereof, should be released.  A release of the valuation allowance could have a material effect on earnings in the period of release.

The Company is subject to income tax examinations for U.S. federal income taxes for fiscal years 2004 through 2010, for non-U.S. income taxes for tax years 2001 through 2010, and for state and local income taxes for fiscal years 2001 through 2010.

9. Shareholders’ Equity

On October 27, 2010, the shareholders of the Company approved a reverse stock split of the Company’s common stock (the “reverse stock split”) at a reverse stock split ratio of 1-for-3.  The reverse stock split became effective November 3, 2010 pursuant to a Certificate of Amendment to the Company’s Restated Certificate of Incorporation filed with the Secretary of State of New York.  The Company had 20,059,544 shares of common stock issued and outstanding immediately following the completion of the reverse stock split. The Company is authorized in its Restated Certificate of Incorporation to issue up to a total of 500,000,000 shares of common stock at a $.10 par value per share which was unchanged by the amendment.  The reverse stock split did not affect the registration of the common stock under the Securities Exchange Act of 1934, as amended or the listing of the common stock on the New York Stock Exchange under the symbol “UFI”, although the post-split shares are considered a new listing with a new CUSIP number.  In the Condensed Consolidated Balance Sheets, the line item Shareholders’ equity has been retroactively adjusted to reflect the reverse stock split for all periods presented by reducing the line item Common stock and increasing the line item Capital in excess of par value, with no change to Shareholders’ equity in the aggregate.
 
 
10

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)

On November 25, 2009, the Company agreed to purchase 628,333 shares (adjusted for the November 2010 reverse stock split) of its common stock at a purchase price of $7.95 per share from Invemed Catalyst Fund, L.P. (based on an approximate 10% discount to the closing price of the common stock on November 24, 2009). The purchase of the shares pursuant to the transaction was not pursuant to the Company’s stock repurchase plan. The transaction closed on November 30, 2009 at a total purchase price of $5 million.

10. Income Per Common Share

The following table sets forth the reconciliation of basic and diluted per share computations (amounts in thousands, except per share data).  All share and per share computations have been retroactively adjusted for all periods presented to reflect the reverse stock split.

   
For the Quarters Ended
   
For the Six-Months Ended
 
   
December 26, 2010
   
December 27, 2009
   
December 26, 2010
   
December 27, 2009
 
Determination of shares:
                       
Weighted average common shares outstanding
    20,059       20,499       20,058       20,592  
Assumed conversion of dilutive stock options and restricted stock awards
    408       96       368       48  
Diluted weighted average common shares outstanding
    20,467       20,595       20,426       20,640  
                                 
Income per common share – basic
  $ .27     $ .10     $ .78     $ .22  
                                 
Income per common share – diluted
  $ .26     $ .09     $ .76     $ .22  

The following table represents the number of stock options to purchase shares of common stock which were not included in the calculation of diluted per share amounts because they were anti-dilutive (amounts in thousands):

   
For the Quarters Ended
   
For the Six-Months Ended
 
   
December 26, 2010
   
December 27, 2009
   
December 26, 2010
   
December 27, 2009
 
Stock options
    221       297       221       801  

11. Comprehensive Income

Comprehensive income amounted to $13.6 million and $30.5 million for the second quarter and year-to-date periods of fiscal year 2011, respectively, compared to comprehensive income of $3.8 million and $14.7 million for the second quarter and year-to-date periods of fiscal year 2010.  Comprehensive income was comprised of net income of $5.4 million and $15.6 million, positive cumulative translation adjustments of $1.5 million and $8.2 million, and the Company’s 34% share of other comprehensive income related to its investment in PAL of $6.7 million for the second quarter and year-to-date periods of fiscal year 2011, respectively. Comparatively, comprehensive income was comprised of net income of $2.0 million and $4.4 million and positive cumulative translation adjustments of $1.8 million and $10.3 million for the second quarter and year-to-date periods of fiscal year 2010, respectively. Other comprehensive income associated with PAL has historically been immaterial to the Company and therefore the Company did not record its share of PAL’s other comprehensive income in its balance sheet in previous periods.  Due to a significant increase in cotton prices and the large percentage of future cotton purchases that PAL has hedged in order to protect the gross margin of its fixed-price yarn sales, PAL’s other comprehensive income has increased considerably.
 
 
11

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)

The Company does not provide income taxes on the impact of currency translations as earnings from foreign subsidiaries are deemed to be permanently invested.

12. Segment Disclosures

The following is the Company’s segment information for the quarters ended December 26, 2010 and December 27, 2009 (amounts in thousands):

   
Polyester
   
Nylon
   
Total
 
Quarter ended December 26, 2010:
                 
Net sales to external customers
  $ 124,222     $ 36,580     $ 160,802  
Depreciation and amortization
    5,636       836       6,472  
Segment operating profit
    4,485       2,661       7,146  
Total assets
    325,842       83,769       409,611  
                         
Quarter ended December 27, 2009:
                       
Net sales to external customers
  $ 104,303     $ 37,952     $ 142,255  
Depreciation and amortization
    5,750       862       6,612  
Segment operating profit
    2,924       2,260       5,184  
Total assets
    322,232       75,462       397,694  

The following table provides reconciliations from segment data to consolidated reporting data (amounts in thousands):

   
For the Quarters Ended
 
   
December 26,
   
December 27,
 
   
2010
   
2009
 
Depreciation and amortization:
           
Depreciation and amortization of specific reportable segment assets
  $ 6,472     $ 6,612  
Depreciation included in other operating (income) expense, net
    5       36  
Amortization included in interest expense, net
    247       276  
Consolidated depreciation and amortization
  $ 6,724     $ 6,924  
                 
Reconciliation of segment operating income to income from  operations before income taxes:
               
Reportable segments operating income
  $ 7,146     $ 5,184  
Provision (benefit) for bad debts
    86       (564 )
Other operating expense (income), net
    16       (109 )
Interest expense, net
    4,394       4,389  
Other non-operating expenses
    450        
Equity in earnings of unconsolidated affiliates
    (5,039 )     (1,609 )
Income from operations before income taxes
  $ 7,239     $ 3,077  
 
 
12

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
The following is the Company’s segment information for the six-month periods ended December 26, 2010 and December 27, 2009 (amounts in thousands):

   
Polyester
   
Nylon
   
Total
 
Six-Months ended December 26, 2010:
                 
Net sales to external customers
  $ 254,078     $ 80,744     $ 334,822  
Depreciation and amortization
    11,268       1,689       12,957  
Segment operating profit
    10,236       6,583       16,819  
                         
Six-Months ended December 27, 2009:
                       
Net sales to external customers
  $ 208,763     $ 76,343     $ 285,106  
Depreciation and amortization
    11,518       1,755       13,273  
Segment operating profit
    7,795       5,531       13,326  

The following table provides reconciliations from segment data to consolidated reporting data (amounts in thousands):

   
For the Six-Months Ended
 
   
December 26,
   
December 27,
 
   
2010
   
2009
 
Depreciation and amortization:
           
Depreciation and amortization of specific reportable segment assets
  $ 12,957     $ 13,273  
Depreciation included in other operating (income) expense, net
    8       71  
Amortization included in interest expense, net
    501       553  
Consolidated depreciation and amortization
  $ 13,466     $ 13,897  
                 
Reconciliation of segment operating income to income from operations before income taxes:
               
Reportable segments operating income
  $ 16,819     $ 13,326  
Provision for bad debts
    45       12  
Other operating expense (income), net
    259       (196 )
Interest expense, net
    8,920       9,135  
Other non-operating expenses
    450        
Loss (gain) on extinguishment of debt
    1,144       (54 )
Equity in earnings of unconsolidated affiliates
    (13,990 )     (3,672 )
Income from operations before income taxes
  $ 19,991     $ 8,101  

For purposes of segment reporting, segment operating profit represents segment net sales less cost of sales, segment restructuring charges, segment impairments of long-lived assets, and allocated selling, general and administrative (“SG&A”) expenses.  Certain non-segment manufacturing and unallocated SG&A costs are allocated to the operating segments based on activity drivers relevant to the respective costs.  This allocation methodology is updated as part of the annual budgeting process.

The primary differences between the segmented financial information of the operating segments, as reported to management and the Company’s consolidated reporting relate to the provision for bad debts, net other operating expense (income), net interest expense, other non-operating expense, and equity in earnings of unconsolidated affiliates and related impairments.

Segment operating profit excluded the provision for bad debts of $86 thousand and the benefit for bad debts of $0.6 million for the second quarter of fiscal years 2011 and 2010, respectively, and the provision for bad debts of $45 thousand and $12 thousand for the year-to-date period of fiscal years 2011 and 2010, respectively.

 
13

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)

The total assets for the polyester segment increased from $322.2 million at June 27, 2010 to $325.8 million at December 26, 2010 primarily due to increases in property, plant and equipment (“PP&E”), inventory, cash, and deferred taxes of $4.0 million, $4.2 million, $1.6 million, and $0.1 million, respectively.  These increases were offset by decreases in accounts receivables, other non-current assets, and other current assets of $4.6 million, $1.0 million, and $0.7 million, respectively.  The total assets for the nylon segment increased from $81.1 million at June 27, 2010 to $83.8 million at December 26, 2010 due primarily to increases in inventory and cash of $8.2 million and $0.3 million, respectively.  These increases were offset by a decrease in accounts receivable and PP&E of $4.6 million and $1.2 million.

13. Stock-Based Compensation

During the first quarter of fiscal year 2010, the Compensation Committee of the Board of Directors (“Board”) authorized the issuance of 566,659 stock options from the 2008 Unifi, Inc. Long-Term Incentive Plan (“2008 Long-Term Incentive Plan”) to certain key employees and certain members of the Board.  The stock options vest ratably over a three year period and have ten year contractual terms.  The Company used the Black-Scholes model to estimate the weighted-average grant date fair value of $3.34 per share.

During the second quarter of fiscal year 2011, the Board authorized the issuance of an aggregate of 25,200 restricted stock units (“RSUs”) under the 2008 Long-Term Incentive Plan to the Company’s non-employee directors.  The RSUs are subject to vesting restriction and convey no rights of ownership in shares of Company stock until such RSUs have vested and been distributed to the grantee in the form of Company stock.  The RSUs will become fully vested on November 27, 2011, provided the grantee remains in continuous service as a member of the Board from the grant date until the vesting date.  The vested RSUs will be converted into an equivalent number of shares of Company common stock and distributed to the grantee following the grantee’s termination of services as a member of the Board.  The Company estimated the grant-date fair value of the award to be $13.89 per RSU.

The Company incurred $0.2 million and $0.7 million in the second quarter of fiscal years 2011 and 2010 respectively, and $0.4 million and $1.3 million for the year-to-date periods respectively, in stock-based compensation expense which was recorded as SG&A expense with the offset to capital in excess of par value.

During the second quarter of fiscal year 2011, the Company issued 8,888 shares of common stock as a result of the exercise of stock options.   There were no stock options exercised during the first quarter of fiscal year 2011 or during the year-to-date period of fiscal year 2010.

14. Other Operating Expense (Income), Net

The following table summarizes the Company’s other operating expense (income), net (amounts in thousands):

   
For the Quarters Ended
   
For the Six-Months Ended
 
   
December 26, 2010
   
December 27, 2009
   
December 26, 2010
   
December 27, 2009
 
Loss (gain) on sale of PP&E
  $ 118     $ 37     $ 53     $ (57 )
Currency (gains) losses
    (54 )     (133 )     310       (120 )
Other, net
    (48 )     (13 )     (104 )     (19 )
Other operating expense (income), net
  $ 16     $ (109 )   $ 259     $ (196 )
 
 
14

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
15. Derivatives Financial Instruments and Fair Value Measurements

The Company accounts for derivative contracts and hedging activities at fair value. Changes in the fair value of derivative contracts are recorded in the line item Other operating expense (income), net in the Condensed Consolidated Statements of Operations.  The Company does not enter into derivative financial instruments for trading purposes nor is it a party to any leveraged financial instruments.

The Company conducts its business in various foreign currencies.  As a result, it is subject to the transaction exposure that arises from foreign exchange rate movements between the dates that foreign currency transactions are recorded and the dates they are consummated.  The Company utilizes some natural hedging to mitigate these transaction exposures. The Company primarily enters into foreign currency forward contracts for the purchase and sale of European, North American and Brazilian currencies to use as economic hedges against balance sheet and income statement currency exposures.  These contracts are principally entered into for the purchase of inventory and equipment and the sale of Company products into export markets.  Counter-parties for these instruments are major financial institutions.

Currency forward contracts are used as economic hedges for the exposure for sales in foreign currencies based on specific sales made to customers. Generally, approximately 60% to 75% of the sales value of these orders is covered by forward contracts. Maturity dates of the forward contracts are intended to match anticipated receivable collections. The Company marks the forward contracts to market at month end and any realized and unrealized gains or losses are recorded as Other operating expense (income). The Company also enters currency forward contracts for committed machinery and inventory purchases.  Generally up to 5% of inventory purchases made by the Company’s Brazilian subsidiary are covered by forward contracts although 100% of the cost may be covered by individual contracts in certain instances.  As of December 26, 2010, the latest maturity date for all outstanding sales and purchase foreign currency forward contracts is March 2011.

The Company has adopted the guidance issued by the Financial Accounting Standards Board (“FASB”) which established a framework for measuring and disclosing fair value measurements related to financial and non-financial assets. There is a common definition of fair value used and a hierarchy for fair value measurements based on the type of inputs that are used to value the assets or liabilities at fair value.

The levels of the fair value hierarchy are:
 
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date,
 
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, or
 
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The dollar equivalent of these forward currency contracts and their related fair values are detailed below (amounts in thousands):
 
   
December 26,
 2010
   
June 27,
2010
 
   
Level 2
   
Level 2
 
Foreign currency purchase contracts:
           
Notional amount
  $ 829     $ 2,826  
Fair value
    844       2,873  
Net unrealized gain
  $ (15 )   $ (47 )
                 
Foreign currency sales contracts:
               
Notional amount
  $ 1,015     $ 1,231  
Fair value
    1,042       1,217  
Net unrealized (loss) gain
  $ (27 )   $ 14  
 
 
15

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
The fair values of the foreign exchange forward contracts at the respective quarter-end dates are based on discounted quarter-end forward currency rates. The total impact of foreign currency related items that are reported on the line item Other operating expense (income), net in the Condensed Consolidated Statements of Operations, including transactions that were hedged and those unrelated to hedging, was a pre-tax gain of $0.1 million for the quarters ended December 26, 2010 and December 27, 2009, respectively.  For the year-to-date periods ended December 26, 2010 and December 27, 2009, the total impact of foreign currency related items resulted in a pre-tax loss of $0.3 million and a pre-tax gain of $0.1 million, respectively.

The Company’s financial assets include cash and cash equivalents, net receivables, accounts payable, currency forward contracts, and notes payable. The cash and cash equivalents, net receivables, and accounts payable approximate fair value due to their short maturities.  The Company calculates the fair value of its 2014 notes based on the traded price of the 2014 notes on the latest trade date prior to its period end.  These are considered Level 1 inputs in the fair value hierarchy.

The carrying values and approximate fair values of the Company’s financial assets and liabilities excluding the currency forward contracts discussed above as of December 26, 2010 and June 27, 2010 were as follows (amounts in thousands):
 
   
December 26, 2010
   
June 27, 2010
 
   
Carrying Value
 
Fair Value
   
Carrying Value
   
Fair Value
 
Assets:
                       
Cash and cash equivalents
  $ 33,185     $ 33,185     $ 42,691     $ 42,691  
Receivables, net
    82,015       82,015       91,243       91,243  
Liabilities:
                               
Accounts payable
    39,779       39,779       40,662       40,662  
Notes payable
    163,722       170,476       178,722       184,084  

16. Related Party Transaction

In each of December 2008, 2009, and 2010, the Company and Dillon Yarn Company (“Dillon”) extended the polyester services portion of a Sales and Service Agreement, each time for a term of one year.  As a result, the Company recorded $0.3 million and $0.4 million of SG&A expense for the second quarter of fiscal years 2011 and 2010, respectively, related to this contract and the related amendments and $0.7 million and $0.9 million for the year-to-date periods, respectively.  Mr. Stephen Wener is the President and Chief Executive Officer of Dillon.  Mr. Wener has been a member of the Company’s Board since May 24, 2007.  The terms of the Company’s Sales and Service Agreement with Dillon are, in management’s opinion, no less favorable than the Company would have been able to negotiate with an independent third party for similar services.

17. Commitments and Contingencies

At the end of fiscal year 2010, the Company had obligations for the purchase of two extrusion lines and for the construction of a recycled polyester chip facility located in Yadkinville, North Carolina.  The Company will purchase machinery and equipment for the recycling of post-consumer flake and post-industrial waste fiber and fabrics to be installed in the new facility.  As of December 26, 2010, the Company had made deposits of $1.2 million and $2.4 million for the first and second down payments on the extruders.  The Company is obligated to make two additional payments upon the completion of the installation of the machinery totaling $0.6 million.  The Company received the first extruder (post-industrial waste fiber and fabrics) in December 2010 and expects the extruder to be in production by the end of February 2011.  The Company received the second extruder (post consumer flake) in January 2011, with production beginning in March 2011.  The Company also contracted for the construction of the new facility in the amount of $1.5 million.  The construction of the building was completed in January 2011.

 
16

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)

On September 30, 2004, the Company completed its acquisition of the polyester filament manufacturing assets located at Kinston from INVISTA S.a.r.l. (“INVISTA”).  The land for the Kinston site was leased pursuant to a 99 year ground lease (“Ground Lease”) with DuPont.  Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency (“EPA”) and the North Carolina Department of Environment and Natural Resources (“DENR”) pursuant to the Resource Conservation and Recovery Act Corrective Action program.  The Corrective Action program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and clean it up to comply with applicable regulatory standards.  Effective March 20, 2008, the Company entered into a Lease Termination Agreement associated with conveyance of certain assets at Kinston to DuPont.  This agreement terminated the Ground Lease and relieved the Company of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to the Company’s period of operation of the Kinston site.  However, the Company continues to own a satellite service facility acquired in the INVISTA transaction that has contamination from DuPont’s operations and is monitored by DENR.  This site has been remediated by DuPont and DuPont has received authority from DENR to discontinue remediation, other than natural attenuation.  DuPont’s duty to monitor and report to DENR will be transferred to the Company in the future, at which time DuPont must pay the Company for seven years of monitoring and reporting costs and the Company will assume responsibility for any future remediation and monitoring of the site.  At this time, the Company has no basis to determine if and when it will have any responsibility or obligation with respect to the AOCs or the extent of any potential liability for the same.

The Company is aware of certain claims and potential claims against it for the alleged use of non-compliant “Berry Amendment” nylon POY in yarns that the Company sold which may have ultimately been used to manufacture certain U.S. military garments (the “Military Claims”).  As of June 27, 2010, the Company recorded an accrual for the Military Claims of which $0.3 million was paid or settled during the quarter ended September 26, 2010.

18. Recent Accounting Pronouncements

The FASB has issued ASU No. 2010-28, “Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts”. This ASU reflects the decision reached in EITF Issue No. 10-A. The amendments in this ASU modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.  The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010.  The Company does not expect that this ASU will have a material effect on its financial position or its results of operations.

The FASB has issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations”. This ASU reflects the decision reached in EITF Issue No. 10-G. The amendments in this ASU affect any public entity, as defined by Topic 805 Business Combinations, that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  The Company does not expect this ASU will have a material effect on its financial position or results of operations.

 
17

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)

In July 2010, the FASB issued Accounting Standards Update No. 2010-20 “Receivables (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” to amend the disclosure requirements related to financing receivables. The guidance requires additional disclosures about the nature of an entity’s credit risk as it relates to its receivables, how that risk is analyzed for purposes of providing a credit loss provision, and the reasons for changes in the loss provision.  These disclosures are intended to provide financial statement users with more transparency related to an entity’s credit risk practices and the related allowances for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010.  The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.  Accordingly, the Company adopted the guidance for period-end disclosures effective as of the end of its second quarter of fiscal year 2011 with the guidance for period activity disclosures to be implemented during its third quarter of fiscal year 2011.  The adoption of this guidance did not have and is not expected to have a material impact on the Company’s financial position or results of operations.

19.  Subsequent Events

On December 28, 2010, the Company announced its commencement of a cash tender offer for any and all of its outstanding 2014 notes conditioned on the successful receipt of proceeds of at least $140.0 million from a new debt financing on terms satisfactory to the Company.  On January 11, 2011, the Company announced its termination of the cash tender offer due to the condition of the debt capital markets which made the estimated cost savings generated from a new debt financing insufficient to offset the costs of conducting such a transaction.  Concurrently, the Company announced that it is calling for redemption on February 16, 2011 an aggregate principal amount of $30 million of the 2014 notes in accordance with the Indenture. Pursuant to the terms of the Indenture, the redemption price for the 2014 notes will be 105.75% of the principal amount of the redeemed notes, plus accrued and unpaid interest. Following completion of the redemption, the aggregate principal amount of the 2014 notes that will remain outstanding will be $133.7 million.

The Company evaluated all events and material transactions for potential recognition or disclosure through such time as these statements were filed with the SEC and determined there were no other items deemed reportable.

20.  Condensed Consolidated Guarantor and Non-Guarantor Financial Statements

The guarantor subsidiaries presented below represent the Company’s subsidiaries that are subject to the terms and conditions outlined in the indenture governing the Company’s issuance of the 2014 notes and the guarantees, jointly and severally, on a senior secured basis. The non-guarantor subsidiaries presented below represent the foreign subsidiaries which do not guarantee the notes. Each subsidiary guarantor is 100% owned, directly or indirectly, by Unifi, Inc. and all guarantees are full and unconditional.
 
Supplemental financial information for the Company and its guarantor subsidiaries and non-guarantor subsidiaries of the 2014 notes is presented below.
 
 
18

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
Balance Sheet Information as of December 26, 2010 (amounts in thousands):

   
Parent
   
Guarantor Subsidiaries
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
ASSETS
                             
Current assets:
                             
Cash and cash equivalents
  $ 3,022     $ (2,669 )   $ 32,832     $     $ 33,185  
Receivables, net
          58,539       23,476             82,015  
Intercompany accounts receivable
    446,282       (439,660 )     1,607       (8,229 )      
Inventories
          82,406       40,557       91       123,054  
Deferred income taxes
                1,771             1,771  
Other current assets
    78       1,332       4,533             5,943  
Total current assets
    449,382       (300,052 )     104,776       (8,138 )     245,968  
                                         
Property, plant and equipment
    11,348       642,237       105,446       4,934       763,965  
Less accumulated depreciation
    (2,328 )     (523,372 )     (78,099 )     (5,710 )     (609,509 )
      9,020       118,865       27,347       (776 )     154,456  
                                         
Intangible assets, net
          12,857                   12,857  
Investments in unconsolidated affiliates
          82,698       9,179       (4 )     91,873  
Investments in consolidated subsidiaries
    439,488                   (439,488 )      
Other non-current assets
    4,001       3,010       16,876       (14,243 )     9,644  
    $ 901,891     $ (82,622 )   $ 158,178     $ (462,649 )   $ 514,798  
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current liabilities:
                                       
Accounts payable
  $ 504     $ 32,478     $ 6,797     $     $ 39,779  
Intercompany accounts payable
    443,707       (443,150 )     7,658       (8,215 )      
Accrued expenses
    2,520       9,559       2,829             14,908  
Income taxes payable
    594       (44 )     1,012             1,562  
Current maturities of long-term debt and other liabilities
          743                   743  
Total current liabilities
    447,325       (400,414 )     18,296       (8,215 )     56,992  
                                         
Notes payable
    163,722                         163,722  
Long-term debt and other liabilities
          2,878                   2,878  
Deferred income taxes
                362             362  
Shareholders’/ invested equity
    290,844       314,914       139,520       (454,434 )     290,844  
    $ 901,891     $ (82,622 )   $ 158,178     $ (462,649 )   $ 514,798  

 
19

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
Balance Sheet Information as of June 27, 2010 (amounts in thousands):

   
Parent
   
Guarantor Subsidiaries
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
ASSETS
                             
Current assets:
                             
Cash and cash equivalents
  $ 9,938     $ 1,832     $ 30,921     $     $ 42,691  
Receivables, net
          67,979       23,264             91,243  
Intercompany accounts receivable
    221,670       (209,991 )     720       (12,399 )      
Inventories
          69,930       41,077             111,007  
Deferred income taxes
                1,623             1,623  
Other current assets
    79       1,052       4,988             6,119  
Total current assets
    231,687       (69,198 )     102,593       (12,399 )     252,683  
                                         
Property, plant and equipment
    11,348       643,930       92,579             747,857  
Less accumulated depreciation
    (2,185 )     (523,771 )     (70,402 )           (596,358 )
      9,163       120,159       22,177             151,499  
                                         
Intangible assets, net
          14,135                   14,135  
Investments in unconsolidated affiliates
          65,446       8,097             73,543  
Investments in consolidated subsidiaries
    407,605                   (407,605 )      
Other non-current assets
    7,200       2,999       7,446       (5,040 )     12,605  
    $ 655,655     $ 133,541     $ 140,313     $ (425,044 )   $ 504,465  
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current liabilities:
                                       
Accounts payable
  $ 218     $ 33,158     $ 7,286     $     $ 40,662  
Intercompany accounts payable
    214,087       (213,457 )     11,769       (12,399 )      
Accrued expenses
    2,732       15,699       3,294             21,725  
Income taxes payable
          (44 )     549             505  
Current portion of notes payable
    15,000                         15,000  
Current maturities of long-term debt and other liabilities
          327                   327  
Total current liabilities
    232,037       (164,317 )     22,898       (12,399 )     78,219  
                                         
Notes payable, less current portion
    163,722                         163,722  
Long-term debt and other liabilities
          2,531       5,040       (5,040 )     2,531  
Deferred income taxes
                97             97  
Shareholders’/ invested equity
    259,896       295,327       112,278       (407,605 )     259,896  
    $ 655,655     $ 133,541     $ 140,313     $ (425,044 )   $ 504,465  
 
 
20

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
Statement of Operations Information for the Quarter Ended December 26, 2010 (amounts in thousands):

   
Parent
   
Guarantor Subsidiaries
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
Summary of Operations:
                             
Net sales
  $     $ 113,477     $ 47,717     $ (392 )   $ 160,802  
Cost of sales
          101,061       41,272       (612 )     141,721  
Restructuring charges
          1,183                   1,183  
Equity in subsidiaries
    (5,675 )                 5,675        
Selling, general and administrative expenses
          7,947       2,805             10,752  
Provision (benefit) for bad debts
          90       (4 )           86  
Other operating (income) expense, net
    (5,663 )     4,745       10       924       16  
                                         
Non-operating (income) expenses:
                                       
Interest income
          (64 )     (807 )     203       (668 )
Interest expense
    5,118       17       130       (203 )     5,062  
Other non-operating expenses
    450                         450  
Equity in earnings of unconsolidated affiliates
          (4,423 )     (601 )     (15 )     (5,039 )
Income (loss) from operations before income taxes
    5,770       2,921       4,912       (6,364 )     7,239  
Provision for income taxes
    385             1,469             1,854  
Net income (loss)
  $ 5,385     $ 2,921     $ 3,443     $ (6,364 )   $ 5,385  
 
 
21

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
Statement of Operations Information for the Quarter Ended December 27, 2009 (amounts in thousands):

   
Parent
   
Guarantor Subsidiaries
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
Summary of Operations:
                             
Net sales
  $     $ 105,687     $ 36,573     $ (5 )   $ 142,255  
Cost of sales
          95,724       29,262       (67 )     124,919  
Equity in subsidiaries
    (2,218 )                 2,218        
Selling, general and administrative expenses
    (6 )     9,678       2,485       (5 )     12,152  
Benefit for bad debts
          (544 )     (20 )           (564 )
Other operating (income) expense, net
    (5,663 )     5,643       (89 )           (109 )
                                         
Non-operating (income) expenses:
                                       
Interest income
    45       (139 )     (740 )           (834 )
Interest expense
    5,509       (295 )     9             5,223  
Equity in (earnings) losses of unconsolidated affiliates
          (1,724 )     (141 )     256       (1,609 )
Income (loss) from operations before income taxes
    2,333       (2,656 )     5,807       (2,407 )     3,077  
Provision for income taxes
    380       8       736             1,124  
Net income (loss)
  $ 1,953     $ (2,664 )   $ 5,071     $ (2,407 )   $ 1,953  
 
 
22

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
Statement of Operations Information for the Six-Months Ended December 26, 2010 (amounts in thousands):

   
Parent
   
Guarantor Subsidiaries
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
Summary of Operations:
                             
Net sales
  $     $ 234,697     $ 100,915     $ (790 )   $ 334,822  
Cost of sales
          207,768       87,895       (1,085 )     294,578  
Restructuring charges
          1,546                   1,546  
Equity in subsidiaries
    (17,003 )                 17,003        
Selling, general and administrative expenses
          15,963       5,916             21,879  
(Benefit) provision for bad debts
          (202 )     247