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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 March 27, 2011

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  
incorporation or organization)            
 (I.R.S. Employer
Identification No.)
   
P.O. Box 19109 - 7201 West Friendly Avenue Greensboro, NC   
(Address of principal executive offices)     
27419
(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 May 2, 2011 was 20,071,653.
 
 


 
 
 
 
 
UNIFI, INC.
Form 10-Q for the Quarterly Period Ended March 27, 2011

Table of Contents
 

 
   
Page
  Part I.  Financial Information  
Item 1.
Financial Statements:
 
 
Condensed Consolidated Balance Sheets as of
 
 
March 27, 2011 and June 27, 2010
3
 
   
 
Condensed Consolidated Statements of Operations for the Quarters and Nine-Months Ended
 
March 27, 2011 and March 28, 2010
4
     
 
Condensed Consolidated Statements of Cash Flows for the Nine-Months Ended
 
 
March 27, 2011 and March 28, 2010
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
52
     
     
     
  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)

   
March 27,
2011
   
June 27,
 2010
 
   
(Unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 19,142     $ 42,691  
Receivables, net of allowances of $2.9 million and $3.5 million, respectively
    104,665       91,243  
Inventories
    136,715       111,007  
Income taxes receivable
    383        
Deferred income taxes
    2,126       1,623  
Other current assets
    6,216       6,119  
Total current assets
    269,247       252,683  
                 
Property, plant and equipment
    749,580       747,857  
Less accumulated depreciation
    (596,735 )     (596,358 )
      152,845       151,499  
Intangible assets, net
    12,235       14,135  
Investments in unconsolidated affiliates
    89,854       73,543  
Other non-current assets
    9,051       12,605  
Total assets
  $ 533,232     $ 504,465  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 48,352     $ 40,662  
Accrued expenses
    18,473       21,725  
Income taxes payable
    709       505  
Current portion of notes payable
          15,000  
Current maturities of long-term debt and other liabilities
    459       327  
Total current liabilities
    67,993       78,219  
                 
Notes payable, less current portion
    133,722       163,722  
Long-term debt and other liabilities
    40,619       2,531  
Deferred income taxes
    384       97  
Commitments and contingencies
               
Shareholders’ equity:
               
Common stock
    2,007       2,006  
Capital in excess of par value
    32,318       31,579  
Retained earnings
    227,758       216,183  
Accumulated other comprehensive income
    28,431       10,128  
      290,514       259,896  
Total liabilities and shareholders’ equity
  $ 533,232     $ 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 Nine-Months Ended
 
   
March 27, 2011
   
March 28, 2010
   
March 27, 2011
   
March 28, 2010
 
Summary of Operations:
                       
Net sales
  $ 178,164     $ 154,687     $ 512,986     $ 439,793  
Cost of sales
    163,017       138,177       457,595       386,541  
Restructuring charges
    9       254       1,555       254  
Write down of long-lived assets
                      100  
Selling, general and administrative expenses
    10,344       11,252       32,223       34,568  
Provision (benefit) for bad debts
    41       (105 )     86       (93 )
Other operating expense (income), net
    158       (346 )     417       (542 )
                                 
Non-operating (income) expense:
                               
Interest income
    (584 )     (775 )     (1,995 )     (2,355 )
Interest expense
    5,016       5,697       15,347       16,412  
Other non-operating expense
    78             528        
Loss (gain) on extinguishment of debt
    2,193             3,337       (54 )
Equity in losses (earnings) of unconsolidated affiliates
    2,103       (2,175 )     (11,887 )     (5,847 )
                                 
Income (loss) from operations before income taxes
    (4,211 )     2,708       15,780       10,809  
Provision (benefit) for income taxes
    (166 )     1,937       4,205       5,596  
Net income (loss)
  $ (4,045 )   $ 771     $ 11,575     $ 5,213  
                                 
Income (loss) per common share:
                               
Basic
  $ (.20 )   $ .04     $ .58     $ .26  
                                 
Diluted
  $ (.20 )   $ .04     $ .57     $ .25  
                                 
Weighted average outstanding shares of common stock (a):
                               
Basic
    20,069       20,057       20,062       20,414  
                                 
Diluted
    20,069       20,274       20,477       20,518  

(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 Nine-Months Ended
 
   
March 27,
 2011
   
March 28,
 2010
 
             
Cash and cash equivalents at beginning of year
  $ 42,691     $ 42,659  
Operating activities:
               
Net income
    11,575       5,213  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
               
Earnings of unconsolidated affiliates, net of distributions
    (7,568 )     (4,236 )
Depreciation
    17,664       17,204  
Amortization
    2,636       3,454  
Stock-based compensation expense
    624       1,836  
Deferred compensation expense
    504       463  
Loss on asset sales
    242       953  
Loss (gain) on extinguishment of debt
    3,337       (54 )
Write down of long-lived assets
          100  
Restructuring charges
          254  
Deferred income tax
    (63 )     (449 )
Provision (benefit) for bad debts
    86       (93 )
Other
    157       268  
Change in assets and liabilities, excluding effects of foreign currency adjustments
    (30,607 )     (4,089 )
Net cash (used in) provided by operating activities
    (1,413 )     20,824  
                 
Investing activities:
               
Capital expenditures
    (17,334 )     (7,963 )
Investment in unconsolidated affiliates
    (707 )     (550 )
Return of capital from unconsolidated affiliate
    500        
Change in restricted cash
          5,776  
Proceeds from sale of capital assets
    189       1,393  
Proceeds from split dollar life insurance surrenders
    3,241        
Other
          (246 )
Net cash used in investing activities
    (14,111 )     (1,590 )
                 
Financing activities:
               
Payments of notes payable
    (47,588 )      
Payments of other long-term debt
    (105,325 )     (6,211 )
Borrowings of other long-term debt
    143,125        
Proceeds from stock option exercises
    118        
Purchase and retirement of Company stock
    (2 )     (4,995 )
Debt refinancing fees
    (825 )     (381 )
Other
    (364 )      
Net cash used in financing activities
    (10,861 )     (11,587 )
                 
Effect of exchange rate changes on cash and cash equivalents
    2,836       2,190  
Net (decrease) increase in cash and cash equivalents
    (23,549 )     9,837  
Cash and cash equivalents at end of period
  $ 19,142     $ 52,496  

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 March 27, 2011, and the results of operations and cash flows for the periods ended March 27, 2011 and March 28, 2010.  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.

The significant accounting policies followed by the Company including a consolidation policy 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):
 
   
March 27,
2011
   
June 27,
 2010
 
             
Raw materials and supplies
  $ 64,834     $ 51,255  
Work in process
    7,022       6,726  
Finished goods
    64,859       53,026  
    $ 136,715     $ 111,007  

3.   Other Current Assets

Other current assets are comprised of the following (amounts in thousands):
 
   
March 27,
2011
   
June 27,
 2010
 
             
Prepaid expenses:
           
Insurance
  $ 746     $ 862  
Value added tax
    2,754       2,286  
Information technology services
    116       223  
Other
    569       368  
Deposits
    2,031       2,380  
    $ 6,216     $ 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 March 27, 2011 and June 27, 2010 for these intangible assets was $13.8 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 March 27, 2011 and June 27, 2010 and summarized income statement information for the quarters and year-to-date periods ended March 27, 2011 and March 28, 2010 of the combined unconsolidated equity affiliates are as follows (amounts in thousands):
 
   
March 27,
 2011
   
June 27,
 2010
 
   
(Unaudited)
   
(Unaudited)
 
Current assets
  $ 342,532     $ 211,220  
Non-current assets
    168,975       127,081  
Current liabilities
    92,678       53,458  
Non-current liabilities
    106,139       27,621  
Shareholders’ equity and capital accounts
    312,690       257,222  

 
7

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
 
 
For the Quarters Ended
 
 
March 27,
 2011
 
March 28,
 2010
 
 
(Unaudited)
 
(Unaudited)
 
Net sales
  $ 313,543     $ 194,546  
Gross profit
    10,889       15,552  
Income from operations
    6,791       10,991  
Net (loss) income
    (3,068 )     10,980  
     

 
For the Nine-Months Ended
 
 
March 27,
 2011
 
March 28,
 2010
 
 
(Unaudited)
 
(Unaudited)
 
Net sales
  $ 757,852     $ 411,758  
Gross profit
    58,867       35,289  
Income from operations
    46,528       21,329  
Net income
    37,201       22,411  

The Company included in its equity in losses (earnings) of unconsolidated affiliates $1.2 million of additional losses for PAL related to PAL’s January 1, 2011 year end.   The Company evaluated the effect of this adjustment on its current and prior quarter and determined the adjustment to be immaterial to both its balance sheets and statements of operations.  Certain prior period amounts in the table above have been changed to reflect PAL’s final reported financial results.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Codification No. 810-10, Consolidation of Variable Interest Entities (“ASC 810-10”), and issued Accounting Standards Update (“ASU”) No. 2009-17,  Consolidations: Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities (“ASU 2009-17” which amends the ASC to include SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”.  This amendment requires that an analysis be performed to determine whether a company has a controlling financial interest in a variable interest entity.  This analysis identifies the primary beneficiary of a variable interest entity (“VIE”) as the enterprise that has the power to direct the activities of a VIE.  The statement requires an ongoing assessment of whether a company is the primary beneficiary of a VIE when the holders of the entity, as a group, lose power, through voting or similar rights, to direct the actions that most significantly affect the entity's economic performance.   ASC 810-10 and ASU 2009-17 are effective for annual reporting beginning after November 15, 2009. The Company adopted ASC 810-10 and ASU 2009-17 as of June 28, 2010 and the adoption of these ASUs did not have a material effect on the Company’s financial position or results of operations.

6.   Other Non-current Assets

Other non-current assets are comprised of the following (amounts in thousands):
 
   
March 27,
 2011
   
June 27,
2010
 
             
Cash surrender value of life insurance of former key employees
  $ 374     $ 3,615  
Bond issue costs and debt refinancing fees
    2,924       3,585  
Long-term deposits
    5,591       5,281  
Other
    162       124  
    $ 9,051     $ 12,605  

Bond issue costs and refinancing fees have been amortized on the straight-line method over the life of the corresponding debt. 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 entered into with Bank of America, N.A. (as both Administrative Agent and Lender thereunder) (as amended, “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 write off of related bond issue costs.
 
 
8

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
 
On February 16, 2011, the Company redeemed an additional aggregate principal amount of $30 million of the 2014 notes at a redemption price of 105.75% of the principal amount of the redeemed 2014 notes in accordance with the indenture.  As a result, the Company recorded a $2.2 million charge for the early extinguishment of debt in the March 2011 quarter of which $1.7 million related to the premium paid to redeem the bonds and $0.5 million related to the write off of related bond issuance costs.

As of March 27, 2011 and June 27, 2010, accumulated amortization for bond issue costs and refinancing fees was $5.4 million and $4.6 million, respectively.

7.   Accrued Expenses

Accrued expenses are comprised of the following (amounts in thousands):
 
   
March 27,
 2011
   
June 27,
2010
 
Payroll and fringe benefits
  $ 8,852     $ 14,127  
Severance
          301  
Interest
    5,785       2,429  
Utilities
    1,928       2,539  
Retiree reserve
    153       165  
Property  taxes
    426       876  
Other
    1,329       1,288  
    $ 18,473     $ 21,725  

8.   Income Taxes

The Company’s income tax provision for the quarter ended March 27, 2011 resulted in tax benefit at an effective rate of 4.0% compared to the quarter ended March 28, 2010 which resulted in tax expense at an effective rate of 71.5%.  The Company’s income tax provision for the year-to-date period ended March 27, 2011 resulted in tax expense at an effective rate of 26.7% compared to the year-to-date period ended March 28, 2010 which resulted in tax expense at an effective rate of 51.8%.

The difference between the Company’s income tax benefit and the U.S. statutory rate for the quarter ended March 27, 2011 and the difference between the Company’s income tax expense and the U.S. statutory rate for the year-to-date period ended March 27, 2011was primarily due to losses from one of its equity affiliates, increases in uncertain tax positions, and foreign operations taxed at rates lower than the U.S., which was 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 March 28, 2010 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.

During the third quarter ended March 27, 2011 the Company changed its indefinite reinvestment assertion related to a portion of the earnings and profits held by Unifi do Brasil, Ltda. (“UDB”).  The Company plans to eventually repatriate approximately $16 million of earnings and profits currently held by UDB.  Therefore the Company has established a deferred tax liability, net of estimated foreign tax credit, of approximately $2.3 million related to the additional income tax that would be due as a result of the current plan to repatriate in future periods.

During the quarter ended March 27, 2011, the Company identified additional uncertain tax positions of $0.4 million and also accrued interest and penalties related to uncertain tax positions of $0.3 million.  The Company did not accrue any interest or penalties related to uncertain tax positions during the quarter or year-to-date period ending March 28, 2010.
 
 
9

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)

 
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. and certain foreign subsidiaries 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.

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

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
 
10.   Income (Loss) 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 Nine-Months Ended
 
   
March 27,
2011
   
March 28,
2010
   
March 27,
2011
   
March 28,
2010
 
Determination of shares:
                       
Weighted average common shares outstanding
    20,069       20,057       20,062       20,414  
Assumed conversion of dilutive stock options and restricted stock awards
          217       415       104  
Diluted weighted average common shares outstanding
    20,069       20,274       20,477       20,518  
                                 
Income (loss) per common share – basic
  $ (.20 )   $ .04     $ .58     $ .26  
                                 
Income (loss) per common share – diluted
  $ (.20 )   $ .04     $ .57     $ .25  

For the quarter ended March 27, 2011, no options or restricted stock awards were included in the computation of diluted loss per share because the Company reported a net loss.  The following table represents the number of stock options to purchase shares of common stock which were not included in the calculation of diluted earnings per share because they were anti-dilutive (amounts in thousands):

   
For the Quarters Ended
   
For the Nine-Months Ended
 
   
March 27,
2011
   
March 28,
2010
   
March 27,
2011
   
March 28,
2010
 
Stock options
    1,121       247       221       247  
Restricted stock units
    25                    
Total
    1,146       247       221       247  

11.   Comprehensive (Loss) Income

The following is the Company’s comprehensive (loss) income for the quarters and year-to-date periods ending March 27, 2011 and March 28, 2010, respectively (amounts in thousands):
 
   
For the Quarters Ended
   
For the Nine-Months Ended
 
   
March 27,
2011
   
March 28,
2010
   
March 27,
2011
   
March 28,
2010
 
                         
Net (loss) income
  $ (4,045 )   $ 771     $ 11,575     $ 5,213  
Translation adjustments
    2,277       (2,013 )     10,430       8,250  
OCI – unconsolidated affiliate
    1,403             8,129        
Loss on hedging contracts
    (256 )           (256 )      
Comprehensive (loss) income
  $ (621 )   $ (1,242 )   $ 29,878     $ 13,463  

Other comprehensive income associated with an unconsolidated affiliate, 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 ensure availability of supply and 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)

 
During the quarter ended March 27, 2011, the Company changed its indefinite reinvestment assertion related to a portion of the earnings and profits held by UDB.  Accordingly, the Company has established an income tax liability, net of estimated foreign tax credit in the amount of $0.4 million, on a portion of its currency translation adjustments.  During the quarter ended March 27, 2011, the Company provided a deferred tax liability of $3.1 million on the other comprehensive income from unconsolidated affiliate.  As discussed in “Footnote 8 - Income Taxes”, the Company currently has a full valuation allowance against its net deferred tax assets in the U.S. and certain foreign subsidiaries.

12.   Segment Disclosures

The following is the Company’s segment information for the quarters ended March 27, 2011 and March 28, 2010 (amounts in thousands):

   
Polyester
   
Nylon
   
Total
 
Quarter ended March 27, 2011:
                 
Net sales to external customers
  $ 137,914     $ 40,250     $ 178,164  
Depreciation and amortization
    5,789       804       6,593  
Segment operating profit
    3,138       1,656       4,794  
                         
Quarter ended March 28, 2010:
                       
Net sales to external customers
  $ 112,604     $ 42,083     $ 154,687  
Depreciation and amortization
    5,591       860       6,451  
Segment operating profit
    2,721       2,283       5,004  

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

   
For the Quarters Ended
 
   
March 27,
   
March 28,
 
   
2011
   
2010
 
Depreciation and amortization:
           
Depreciation and amortization of specific reportable segment assets
  $ 6,593     $ 6,451  
Depreciation included in other operating (income) expense, net
    6       34  
Amortization included in interest expense, net
    235       276  
Consolidated depreciation and amortization
  $ 6,834     $ 6,761  
                 
Reconciliation of segment operating income to (loss) income from operations before income taxes:
               
Reportable segments operating income
  $ 4,794     $ 5,004  
Provision (benefit) for bad debts
    41       (105 )
Other operating expense (income), net
    158       (346 )
Interest expense, net
    4,432       4,922  
Other non-operating expenses
    78        
Loss on extinguishment of debt
    2,193        
Equity in losses (earnings) of unconsolidated affiliates
    2,103       (2,175 )
(Loss) income from operations before income taxes
  $ (4,211 )   $ 2,708  

 
12

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
 
The following is the Company’s segment information for the nine-month periods ended March 27, 2011 and March 28, 2010 (amounts in thousands):

   
Polyester
   
Nylon
   
Total
 
Nine-Months ended March 27, 2011:
                 
Net sales to external customers
  $ 391,991     $ 120,995     $ 512,986  
Depreciation and amortization
    17,057       2,493       19,550  
Segment operating profit
    13,373       8,240       21,613  
                         
Nine-Months ended March 28, 2010:
                       
Net sales to external customers
  $ 321,340     $ 118,453     $ 439,793  
Depreciation and amortization
    17,109       2,615       19,724  
Segment operating profit
    10,509       7,821       18,330  

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

   
For the Nine-Months Ended
 
   
March 27,
   
March 28,
 
   
2011
   
2010
 
Depreciation and amortization:
           
Depreciation and amortization of specific reportable segment assets
  $ 19,550     $ 19,724  
Depreciation included in other operating (income) expense, net
    14       105  
Amortization included in interest expense, net
    736       829  
Consolidated depreciation and amortization
  $ 20,300     $ 20,658  
                 
Reconciliation of segment operating income to income from operations before income taxes:
               
Reportable segments operating income
  $ 21,613     $ 18,330  
Provision (benefit) for bad debts
    86       (93 )
Other operating expense (income), net
    417       (542 )
Interest expense, net
    13,352       14,057  
Other non-operating expenses
    528        
Loss (gain) on extinguishment of debt
    3,337       (54 )
Equity in earnings of unconsolidated affiliates
    (11,887 )     (5,847 )
Income from operations before income taxes
  $ 15,780     $ 10,809  

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.

Restructuring charges in fiscal year 2011 include the cost of dismantling and relocating polyester machinery to UCA and the reinstallation of previously dismantled polyester texturing machines in Yadkinville, North Carolina.
 
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 (benefit) for bad debts, net other operating expense (income), net interest expense, other non-operating expenses, and equity in (earnings) losses of unconsolidated affiliates and related impairments.
 
 
13

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
 
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 a 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. If prior to the vesting date, the grantee dies or has a separation from service as a result of disability, the grantee’s RSUs will become fully vested. 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 $0.6 million in the third quarter of fiscal years 2011 and 2010 respectively, and $0.6 million and $1.8 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.

The Company issued 5,443 and 14,331 shares of common stock during the third quarter and year-to-date periods of fiscal year 2011 respectively, as a result of the exercise of stock options.   There were no stock options exercised during the third quarter or the year-to-date periods of fiscal year 2010.

All share and per share amounts have been retroactively adjusted for all periods presented to reflect the decrease in shares as a result of the reverse stock split which became effective November 3, 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 Nine-Months Ended
 
   
March 27, 2011
   
March 28, 2010
   
March 27, 2011
   
March 28, 2010
 
Loss on sale or disposal of PP&E
  $ 189     $ 1,010     $ 242     $ 953  
Currency (gains) losses
    (13 )     61       297       (59 )
Gain from sale of nitrogen credits
          (1,400 )           (1,400 )
Other, net
    (18 )     (17 )     (122 )     (36 )
Other operating expense (income), net
  $ 158     $ (346 )   $ 417     $ (542 )

 
14

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)

 
15.   Derivatives Financial Instruments and Fair Value Measurements

The Company conducts a portion of 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 also 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 forward 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.  The Company accounts for foreign currency forward contracts at fair value. Changes in the fair value of these contracts are recorded in the line item other operating expense (income), net in the Condensed Consolidated Statements of Operations.

Foreign 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 March 27, 2011, the latest maturity date for all outstanding sales and purchase foreign currency forward contracts is June 2011.

The Company also, on occasion, enters into derivative instruments that it designates as a hedge, for a forecasted transaction, of the variability of cash flows to be received (“cash flow hedge”).  The Company utilizes derivative financial instruments to hedge its exposure to changes in interest rates.  All derivatives financial instruments are recorded on the balance sheet at their respective fair value.  The Company does not use financial instruments or derivatives for any trading or other speculative purposes.

During the third quarter of fiscal year 2011, the Company adopted a strategy to utilize a combination of internally generated cash and borrowings on its revolving credit facility to repurchase and retire portions of its 11.5% 2014 notes.  The Company’s policy to mitigate its exposure to the interest rate risk associated with the variable London Interbank Offered Rate (“LIBOR”) rate borrowings on its revolving credit facility while benefiting from a reduced fixed rate on its 2014 notes was effected through its entering a 27-month interest rate swap on the first $25 million of revolving credit facility borrowings as further discussed below.

On February 15, 2011, the Company entered into a 27-month, $25 million interest rate swap with Bank of America, N.A. to provide a hedge against the variability of cash flows (monthly interest expense payments) on the first $25 million of LIBOR-based variable rate borrowings under the Company’s revolving credit facility due to fluctuations in the LIBOR benchmark interest rate.  The Company intends to maintain at least $25 million of LIBOR-based variable rate borrowings in place for the duration of the interest rate swap.  The interest rate swap allows the Company to pay a fixed interest rate of 1.39% on such borrowings.  The Company designated the swap as a cash flow hedge and formally documented all aspects of the relationship between the hedging instrument (the interest rate swap) and the item being hedged (the LIBOR-based variable rate borrowings).   The Company assesses, both at the inception of the hedge and on an ongoing basis, whether derivatives designated as hedging instruments are highly effective in offsetting the changes in the cash flow of the hedge items.  If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective, the Company will discontinue hedge accounting prospectively.

At inception and through the end of the March 2011 quarter, the interest rate swap was determined to be highly effective and the change in its fair value was reported on the balance sheet.  For the quarter ended March 27, 2011, the Company recognized other comprehensive loss of $0.3 million based on the change in fair value of the interest rate swap; no hedge ineffectiveness was recognized in interest income or interest expense over the same period.  The Company expects the interest rate swap to continue to be highly effective through its termination date and have no impact on future period earnings.
 
 
15

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
 
Assets and Liabilities Measured at Fair Value on a Recurring Basis

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 fair value of the Company’s derivative instruments as of March 27, 2011 and June 27, 2010 were as follows (amounts in thousands):

   
March 27,
2011
   
June 27,
2010
 
   
Level 2
   
Level 2
 
Derivatives designated as cash flow hedges:
           
Interest rate swap (loss)
  $ (256 )   $  
                 
Derivatives not designated as hedging instruments:
               
                 
Foreign currency purchase contracts:
               
Notional amount
  $     $ 2,826  
Fair value
          2,873  
Net unrealized gain
  $     $ (47 )
                 
Foreign currency sales contracts:
               
Notional amount
  $ 739     $ 1,231  
Fair value
    747       1,217  
Net unrealized (loss) gain
  $ (8 )   $ 14  

The fair value of the interest rate swap held by the Company is based on using market expectations for future LIBOR rates at the measurement date to convert future cash flows to a single present value amount and is reported in the line item long-term debt and other liabilities in the Condensed Consolidated Balance Sheets.  The fair values of the foreign exchange forward contracts held by the Company at the respective quarter-end dates are based on discounted quarter-end forward currency rates and are reported in line item receivables in the Condensed Consolidated Balance Sheet. 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 $13 thousand and a pre-tax loss of $0.1 million for the quarters ended March 27, 2011 and March 28, 2010, respectively.  For the year-to-date periods ended March 27, 2011 and March 28, 2010, 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.  These are considered Level 2 inputs in the fair value hierarchy.

The fair value of the Company’s 2014 notes is based on their traded price, in privately negotiated transactions, on the latest trade date prior to period end.  The fair value of the Company’s 2014 notes was $139.4 million and $184.1 million as of the quarters ended March 27, 2011 and June 27, 2010, respectively.  These are considered Level 1 inputs in the fair value hierarchy.  The fair value of certain financial instruments held by the Company, including cash equivalents, trade receivables, accounts payable and accrued liabilities approximate the amounts recorded in the balance sheet because of the relatively short term nature of these financial instruments.  The carrying amount of the revolving credit facility included in the line item long-term debt and other liabilities in the Condensed Consolidated Balance Sheets approximates fair value because the facility has a floating interest rate.  These are considered Level 1 inputs in the fair value hierarchy.
 
 
16

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 

There were no transfers into or out of Level 1 or Level 2 for the periods ended March 27, 2011 and June 27, 2010.

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 an agreement for sales and services, each time for a term of one year.  As a result, the Company recorded $0.3 million and $0.3 million of SG&A expense for the third quarter of fiscal years 2011 and 2010, respectively, related to this contract and the related amendments and $1.0 million and $1.2 million for the year-to-date period of fiscal year 2011 and 2010, respectively.  On March 9, 2011, the Company appointed Mr. Mitchel Weinberger, the President and Chief Operating Officer of Dillon, to its Board following the unexpected death of Mr. Stephen Wener, the former President and Chief Executive Officer of Dillon.  Mr. Wener had 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

On September 30, 2004, the Company completed its acquisition of the polyester filament manufacturing assets located at Kinston, North Carolina 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 E.I. DuPont de Nemours (“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.

 
17

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 
 
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.

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 a material impact on the Company’s financial position or results of operations.

19.   Subsequent Events

The Company evaluated all events and material transactions for potential recognition or disclosure through such time as these statements were filed with the Securities and Exchange Commission (“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 March 27, 2011 (amounts in thousands):

 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
ASSETS
 
Current assets:
                             
Cash and cash equivalents
  $ 126     $ 160     $ 18,856     $     $ 19,142  
Receivables, net
          72,180       32,485             104,665  
Intercompany accounts receivable
    522,254       (514,038 )     831       (9,047 )      
Inventories
          86,725       49,889       101       136,715  
Income taxes receivable
    353             30             383  
Deferred income taxes
                2,126             2,126  
Other current assets
    126       883       5,207             6,216  
Total current assets
    522,859       (354,090 )     109,424       (8,946 )     269,247  
                                         
Property, plant and equipment
    11,348       627,304       110,928             749,580  
Less accumulated depreciation
    (2,400 )     (510,061 )     (84,274 )           (596,735 )
      8,948       117,243       26,654             152,845  
                                         
Intangible assets, net
          12,235                   12,235  
Investments in unconsolidated affiliates
          81,263       8,591             89,854  
Investments in consolidated subsidiaries
    422,838                   (422,838 )      
Other non-current assets
    3,298       3,048       19,094       (16,389 )     9,051  
    $ 957,943     $ (140,301 )   $ 163,763     $ (448,173 )   $ 533,232  
                                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current liabilities:
                                       
Accounts payable
  $ 142     $ 39,676     $ 8,534     $     $ 48,352  
Intercompany accounts payable
    490,986       (490,382 )     8,443       (9,047 )      
Accrued expenses
    6,060       9,102       3,311             18,473  
Income taxes payable
    (1,537 )           2,246             709  
Current maturities of long-term debt and other liabilities
          459                   459  
Total current liabilities
    495,651       (441,145 )     22,534       (9,047 )     67,993  
                                         
Notes payable
    133,722                         133,722  
Long-term debt and other liabilities
    38,056       2,563                   40,619  
Deferred income taxes
                384             384  
Shareholders’/ invested equity
    290,514       298,281       140,845       (439,126 )     290,514  
    $ 957,943     $ (140,301 )   $ 163,763     $ (448,173 )   $ 533,232  
 
 
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 March 27, 2011 (amounts in thousands):
 
   
Parent
   
Guarantor
Subsidiaries
   
Non-Guarantor
Subsidiaries
   
Eliminations
   
Consolidated
 
Summary of Operations:
                             
Net sales
  $     $ 126,051     $ 52,676     $ (563 )   $ 178,164  
Cost of sales
          119,023       44,870       (876 )     163,017  
Restructuring charges
          9                   9  
Equity in subsidiaries
    6,292                   (6,292 )      
Selling, general and administrative expenses
          7,563       2,781             10,344  
(Benefit) provision for bad debts
          (357 )     398             41  
Other operating (income) expense, net
    (7,244 )     7,322       100       (20 )     158  
                                         
Non-operating (income) expenses:
                                       
Interest income
          (63 )     (670 )     149       (584 )
Interest expense
    4,873       9       283       (149 )     5,016  
Other non-operating expenses
    78                         78  
Loss on extinguishment of debt
    2,193                         2,193  
Equity in (earnings) losses of unconsolidated affiliates
          2,450       (419 )     72       2,103  
(Loss) income from operations before income taxes
    (6,192 )     (9,905 )     5,333       6,553       (4,211 )
(Benefit) provision for income taxes
    (2,147 )           1,981             (166 )
Net (loss) income
  $ (4,045 )   $ (9,905 )   $ 3,352     $ 6,553     $ (4,045 )
 
 
21

 
 
Notes to Condensed Consolidated Financial Statements – (Continued)
 

Statement of Operations Information for the Quarter Ended March 28, 2010 (amounts in thousands):
 
   
Parent
   
Guarantor Subsidiaries
   
Non-Guarantor Subsidiaries
   
Eliminations
   
Consolidated
 
Summary of Operations:
                             
Net sales
   $     $ 117,116     $ 38,063     $ (492 )   $ 154,687  
Cost of sales
          107,416       31,294       (533 )     138,177  
Restructuring charges
          254                   254  
Equity in subsidiaries
    (905 )                 905        
Selling, general and administrative expenses
          9,050       2,197       5       11,252  
Benefit for bad debts
          (11 )     (94 )           (105 )
Other operating (income) expense, net
    (5,782 )     5,380       56             (346 )
                                         
Non-operating (income) expenses:
                                       
Interest income
    (11 )     1       (765 )           (775 )
Interest expense
    5,681       16                   5,697  
Equity in (earnings) losses of unconsolidated affiliates
          (1,994 )     (197 )     16       (2,175 )
Income (loss) from operations before income taxes
    1,017       (2,996 )     5,572       (885 )     2,708  
Provision for income taxes
    246       4