unifi_10q-032512.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 March 25, 2012

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 [ X ] 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 1, 2012 was 20,090,094.
 
 
 

 

UNIFI, INC.
Form 10-Q for the Quarterly Period Ended March 25, 2012

Table of Contents

 
    Page
Part I.  Financial Information
     
Item 1.
Financial Statements:
 
     
  Condensed Consolidated Balance Sheets as of March 25, 2012 and June 26, 2011 3
 
 
 
  Condensed Consolidated Statements of Operations for the Three Months Ended and Nine Months Ended March 25, 2012 and March 27, 2011 4
     
 
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months and Nine Months Ended March 25, 2012 and March 27, 2011
5
     
  Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended March 25, 2012 6
 
 
 
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 25, 2012 and March 27, 2011 7
     
 
Notes to Condensed Consolidated Financial Statements
8
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
39
     
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
53
     
Item 4.
Controls and Procedures
54
     
Part II.  Other Information
     
Item 1.
Legal Proceedings
55
     
Item 1A.
Risk Factors
55
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
55
     
Item 3.
Defaults Upon Senior Securities
55
     
Item 4.
Mine Safety Disclosures
55
     
Item 5.
Other Information
55
     
Item 6.
Exhibits
56
 
 
2

 

Part I.         Financial Information

Item 1.         Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(amounts in thousands, except share and per share amounts)

 
   
March 25, 2012
   
June 26, 2011
 
ASSETS
           
Cash and cash equivalents                                                                                                 
  $ 35,820     $ 27,490  
Receivables, net                                                                                                 
    100,713       99,815  
Inventories                                                                                                 
    112,417       134,883  
Income taxes receivable                                                                                                 
    122       578  
Deferred income taxes                                                                                                 
    4,061       5,712  
Other current assets                                                                                                 
    6,376       5,591  
Total current assets                                                                                            
    259,509       274,069  
                 
Property, plant and equipment, net                                                                                                 
    134,523       151,027  
Deferred income taxes                                                                                                 
    627        
Intangible assets, net                                                                                                 
    10,364       11,612  
Investments in unconsolidated affiliates                                                                                                 
    97,883       91,258  
Other non-current assets                                                                                                 
    10,006       9,410  
Total assets
  $ 512,912     $ 537,376  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Accounts payable                                                                                                 
  $ 42,589     $ 42,842  
Accrued expenses                                                                                                 
    15,451       17,495  
Income taxes payable                                                                                                 
    1,254       421  
Current portion of long-term debt                                                                                                 
    37       342  
Total current liabilities                                                                                            
    59,331       61,100  
Long-term debt                                                                                                 
    158,722       168,322  
Other long-term liabilities                                                                                                 
    4,261       4,007  
Deferred income taxes                                                                                                 
    2,943       4,292  
Total liabilities                                                                                            
    225,257       237,721  
Commitments and contingencies
               
                 
Common stock, $0.10 par (500,000,000 shares authorized, 20,090,094 and 20,080,253 shares outstanding)
    2,009       2,008  
Capital in excess of par value
    34,328       32,599  
Retained earnings
    241,485       241,272  
Accumulated other comprehensive income
    8,947       23,776  
Total Unifi, Inc. shareholders’ equity
    286,769       299,655  
Non-controlling interest
    886        
Total shareholders’ equity
    287,655       299,655  
Total liabilities and shareholders’ equity
  $ 512,912     $ 537,376  
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
3

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(amounts in thousands, except per share amounts)
 
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
March 25, 2012
   
March 27, 2011
   
March 25, 2012
   
March 27, 2011
 
Net sales
  $ 179,037     $ 179,390     $ 517,160     $ 516,621  
Cost of sales
    165,447       163,789       480,858       459,984  
Gross profit
    13,590       15,601       36,302       56,637  
Selling, general and administrative expenses
    11,148       10,798       32,505       33,469  
(Benefit) provision for bad debts
    (144 )     41       418       86  
Restructuring charges
          9             1,555  
Other operating expenses, net
    669       158       1,118       417  
Operating income
    1,917       4,595       2,261       21,110  
Interest income
    (571 )     (584 )     (1,713 )     (1,995 )
Interest expense
    4,189       5,016       12,791       15,347  
Loss on extinguishment of debt
          2,193       462       3,337  
Other non-operating (income) expenses
    (9 )     78       (1,488 )     528  
Equity in (earnings) losses of unconsolidated affiliates
    (9,863 )     2,103       (14,166 )     (11,887 )
Loss on previously held equity interest
                3,656        
Income (loss) before income taxes
    8,171       (4,211 )     2,719       15,780  
Provision (benefit) for income taxes
    861       (166 )     2,940       4,205  
Net income (loss) including non-controlling interest
  $ 7,310     $ (4,045 )   $ (221 )   $ 11,575  
Less: net (loss) attributable to non-controlling interest
    (225 )           (434 )      
Net income (loss) attributable to Unifi, Inc.
  $ 7,535     $ (4,045 )   $ 213     $ 11,575  
                                 
Net income (loss) per common share:
                               
Basic
  $ 0.38     $ (0.20 )   $ 0.01     $ 0.58  
                                 
Diluted
  $ 0.37     $ (0.20 )   $ 0.01     $ 0.57  

See accompanying notes to Condensed Consolidated Financial Statements.
 
 
4

 
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
(amounts in thousands)


   
For the Three Months Ended
   
For the Nine Months Ended
 
   
March 25, 2012
   
March 27, 2011
   
March 25, 2012
   
March 27, 2011
 
Net income (loss) including non-controlling interest
  $ 7,310     $ (4,045 )   $ (221 )   $ 11,575  
Other comprehensive income (loss) (net of tax):
                               
Foreign currency translation adjustments
    2,793       2,277       (15,539 )     10,430  
Gain on cash flow hedges
    713       1,146       710       7,873  
Other comprehensive income (loss)
    3,506       3,423       (14,829 )     18,303  
                                 
Comprehensive income (loss) including non-controlling interest
  $ 10,816     $ (622 )   $ (15,050 )   $ 29,878  
Less: comprehensive (loss) attributable to non-controlling interest
    (225 )           (434 )      
Comprehensive income (loss) attributable to Unifi, Inc.
  $ 11,041     $ (622 )   $ (14,616 )   $ 29,878  
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
5

 

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
For the Nine Months Ended March 25, 2012
(amounts in thousands)


   
Common
Stock
   
Capital in
Excess of
Par Value
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income
   
Total
Unifi, Inc.
Shareholders’
Equity
   
Non-
controlling
Interest
   
Total
Shareholders’
Equity
 
Balance June 26, 2011
  $ 2,008     $ 32,599     $ 241,272     $ 23,776     $ 299,655     $     $ 299,655  
Options exercised
    1       48                   49             49  
Stock-based compensation
          368                   368             368  
Other comprehensive loss
                      (18,194 )     (18,194 )           (18,194 )
Net income
                286             286             286  
Balance September 25, 2011
  $ 2,009     $ 33,015     $ 241,558     $ 5,582     $ 282,164     $     $ 282,164  
Options exercised
          11                   11             11  
Stock-based compensation
          895                   895             895  
Other comprehensive loss
                      (141 )     (141 )           (141 )
Acquisition, cost
                                  1,000       1,000  
Contributions from non-controlling interest
                                  120       120  
Net (loss)
                (7,608 )           (7,608 )     (209 )     (7,817 )
Balance December 25, 2011
  $ 2,009     $ 33,921     $ 233,950     $ 5,441     $ 275,321     $ 911     $ 276,232  
Options exercised
          11                   11             11  
Stock-based compensation
          396                   396             396  
Other comprehensive income
                      3,506       3,506             3,506  
Contributions from non-controlling interest
                                  200       200  
Net income (loss)
                7,535             7,535       (225 )     7,310  
Balance March 25, 2012
  $ 2,009     $ 34,328     $ 241,485     $ 8,947     $ 286,769     $ 886     $ 287,655  
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
6

 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(amounts in thousands)
 
 
   
For the Nine Months Ended
 
   
March 25, 2012
   
March 27, 2011
 
Cash and cash equivalents at beginning of year                                                                                                   
  $ 27,490     $ 42,691  
Operating activities:
               
Net (loss) income including non-controlling interest                                                                                                   
    (221 )     11,575  
Adjustments to reconcile net (loss) income including non-controlling interest to net cash provided by (used in) operating activities:
               
Equity in earnings of unconsolidated affiliates                                                                                                   
    (14,166 )     (11,887 )
Dividends received from unconsolidated affiliates   
    4,150       4,319  
Depreciation and amortization expense          
    20,384       20,300  
Net loss on sale of assets             
    212       242  
Loss on extinguishment of debt      
    462       3,337  
Non-cash compensation expense, net       
    2,070       1,128  
Loss on previously held equity interest     
    3,656        
Deferred income taxes  
    (505 )     (63 )
Other                                                                                                   
    27       157  
Changes in assets and liabilities, excluding effects of foreign currency adjustments:
               
Receivables, net     
    (4,009 )     (11,533 )
Inventories       
    16,784       (22,882 )
Other current assets and income taxes receivable   
    (859 )     361  
Accounts payable and accrued expenses   
    (1,574 )     3,742  
Income taxes payable      
    843       (209 )
Net cash provided by (used in) operating activities    
    27,254       (1,413 )
Investing activities:
               
Capital expenditures        
    (5,329 )     (17,334 )
Investments in unconsolidated affiliates           
    (360 )     (707 )
Acquisition, net of cash acquired            
    (356 )      
Return of capital from unconsolidated affiliate       
          500  
Proceeds from sale of assets                                 
    224       189  
Proceeds from return of split dollar life insurance premiums       
    14       3,241  
Net cash used in investing activities                                                                                                   
    (5,807 )     (14,111 )
Financing activities:
               
Payments of notes payable                          
    (10,288 )     (47,588 )
Payments on revolving credit facility                         
    (95,200 )     (105,325 )
Proceeds from borrowings on revolving credit facility      
    95,600       143,125  
Proceeds from stock option exercises                                                                                                   
    71       118  
Purchase and retirement of Company stock            
          (2 )
Debt financing fees                              
    (194 )     (825 )
Contributions from non-controlling interest         
    320        
Other                                                                                                   
    (319 )     (364 )
Net cash used in financing activities    
    (10,010 )     (10,861 )
                 
Effect of exchange rate changes on cash and cash equivalents
    (3,107 )     2,836  
Net increase (decrease) in cash and cash equivalents         
    8,330       (23,549 )
Cash and cash equivalents at end of period    
  $ 35,820     $ 19,142  
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
7

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements
(amounts in thousands, except per share amounts)
 
 
1. Background
Unifi, Inc., a New York corporation formed in 1969 (together with its subsidiaries, the “Company” or “Unifi”) is a publicly-traded, multi-national manufacturing company.  The Company processes and sells high-volume commodity yarns, specialized yarns designed to meet certain customer specifications and premier value-added (“PVA”) yarns with enhanced performance characteristics and higher expected gross margin percentages.  The Company sells its polyester and nylon products primarily to other yarn manufacturers, knitters and weavers that produce fabric for the apparel, hosiery, sock, home furnishings, automotive upholstery, industrial and other end-use markets.  The Company’s polyester products include recycled polyester polymer beads (“Chip”), partially oriented yarn (“POY”), textured, solution and package dyed, twisted and beamed yarns.  The Company’s nylon products include textured, solution dyed and covered spandex yarns.  The Company maintains one of the industry’s most comprehensive product offerings and has ten manufacturing operations in four countries and participates in joint ventures in Israel and the United States (“U.S.”).  In addition, the Company has a wholly-owned subsidiary in the People’s Republic of China (“China”) focused on the sale and promotion of the Company’s specialty and PVA products in the Asian textile market, primarily in China.
 
2. Basis of Presentation
The Company’s current fiscal quarter ended on Sunday, March 25, 2012.  However, the Company’s Brazilian, Colombian, and Chinese subsidiaries’ fiscal quarter ended on March 31, 2012.  No significant transactions or events have occurred between the date of the Company’s financial statements and these dates.  The three months ended March 25, 2012 and the three months ended March 27, 2011 each consist of thirteen week periods.  The nine months ended March 25, 2012 and the nine months ended March 27, 2011 each consist of thirty-nine week periods.
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included.  The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the amounts reported and certain financial statement disclosures.  Actual results may vary from these estimates.
 
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K.  There were no changes in the nature of the Company’s significant accounting policies or the application of its accounting policies from those reported in its most recent Annual Report on Form 10-K.  Certain prior period information has been reclassified to conform to the current period presentation.
 
The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full fiscal year.
 
All amounts and share amounts, except per share amounts, are presented in thousands, except as otherwise noted.
 
3. Accounting Pronouncements
Recently Adopted Accounting Pronouncements
There were no new accounting pronouncements adopted during the period.
 
Recently Issued Accounting Pronouncements
There have been no newly issued or newly applicable accounting pronouncements that have or are expected to have a significant impact on the Company's financial statements.
 
4. Acquisition of Controlling Interest in Repreve Renewables, LLC
In April 2010, the Company entered into an agreement with two other unaffiliated entities to form Repreve Renewables, LLC (“Renewables”) and received a 40% ownership interest for its $4,000 contribution.  Renewables is a development stage enterprise formed to cultivate, grow and sell dedicated energy crops, including biomass feedstock intended for use as a fuel in the production of energy as well as to provide value added processes for cultivating, harvesting or using biomass crops.  Renewables has the exclusive license to commercialize FREEDOMGiant Miscanthus (“FGM”).  FGM is a miscanthus grass strain, which is a C4 plant that was developed by Mississippi State University to be a dedicated energy crop with high biomass yield from minimal input requirements.  Renewables’ success will depend in part on its ability to license individual growers to produce FGM and to sell feedstock to those growers.  The Company’s investment in Renewables is anticipated to provide a unique revenue stream and support its strategy to grow the REPREVE® brand and related sustainability initiatives.
 
On October 6, 2011, the Company and one other existing Renewables shareholder each acquired an additional 20% ownership interest for $500 from the third Renewables shareholder.  The additional ownership interest purchased by the Company was financed with available cash.  Using the amounts paid per membership unit in the October 6th transaction as a basis, the Company determined that the acquisition date fair value of Renewables was $2,500.  This resulted in the Company’s previously held 40% equity interest being valued at $1,000.  As a result of remeasuring its existing 40% interest to this estimated fair value, the Company recorded a loss of $3,656 during the three months ended December 25, 2011.
 
Fair value of consideration transferred
  $ 500  
Fair value of the previously held equity interest
    1,000  
      1,500  
Fair value of the non-controlling interest
    1,000  
Total fair value of Renewables
  $ 2,500  
 
 
8

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
 
 
Fair value of previously held equity interest
  $ 1,000  
Less: Investment in Renewables
    4,656  
Loss on previously held equity interest in Renewables
  $ (3,656 )
 
The total fair value of Renewables was allocated to the tangible assets, liabilities and intangible assets acquired as follows:
Cash
  $ 144  
Inventory
    45  
Other current assets
    197  
Biomass foundation and feedstock
    1,611  
Property, plant and equipment
    114  
Intangible assets
    536  
Total assets
    2,647  
Current liabilities
    (147 )
Total net assets acquired
  $ 2,500  
 
The intangible assets acquired and their respective estimated average remaining useful lives over which each asset will be amortized on a straight line basis, are as follows:
 
 
Amortization
 Period
   
Estimated
Value
 
Non-compete agreements
5 years
    $ 243  
License to grow FGM
8 years
      261  
Sub-licenses
4 years
      32  
Total
      $ 536  
 
The acquisition of the additional 20% ownership interest has given the Company a 60% ownership interest in Renewables.  Beginning with the second quarter of fiscal year 2012, the Company’s consolidated financial statements include the financial position and results of operations of Renewables. Prior to the acquisition, the Company’s share of Renewables’ losses were recorded as Equity in (earnings) losses of unconsolidated affiliates.  As Renewables is a development stage enterprise and has no revenues and limited operating activities, the results of Renewables’ operations since the acquisition are shown within Other Operating Expenses, net in the Condensed Consolidated Statement of Operations.
 
Renewables’ operating expenses are funded through contributions from its members.
 
5. Receivables, net
Receivables, net consist of the following:
   
March 25, 2012
   
June 26, 2011
 
Customer receivables
  $ 102,214     $ 100,893  
Allowance for uncollectible accounts
    (1,416 )     (1,147 )
Reserves for yarn quality claims
    (542 )     (1,101 )
Net customer receivables
    100,256       98,645  
Related party receivables
    155       512  
Other receivables
    302       658  
Total receivables, net
  $ 100,713     $ 99,815  
 
Other receivables consist primarily of receivables for duty drawback, interest and vendor refunds due to the Company.
 
 
9

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
 
 
The changes in the Company’s allowance for uncollectible accounts and reserves for yarn quality claims were as follows:
   
Allowance for
Uncollectible
Accounts
   
Reserves for
Yarn Quality
Claims
 
Balance at June 26, 2011
  $ (1,147 )   $ (1,101 )
Charged to costs and expenses
    (418 )     (527 )
Charged to other accounts
    67       19  
Deductions
    82       1,067  
Balance at March 25, 2012
  $ (1,416 )   $ (542 )
 
Amounts charged to costs and expenses for the allowance for uncollectible accounts are reflected in the (Benefit) provision for bad debts line and amounts charged to costs and expenses for the reserves for yarn quality claims are primarily reflected as a reduction in the Net sales line of the Condensed Consolidated Statements of Operations.  Amounts charged to other accounts primarily include the impact of translating the activity of the Company’s foreign affiliates from their respective local currencies to the U.S. dollar.  For the allowance for uncollectible accounts, deductions represent amounts written off which were deemed to not be collectible, net of any recoveries.  For the reserve for yarn quality claims, deductions represent adjustments to either increase or decrease claims based on negotiated amounts or actual versus estimated claim differences.
 
6.  Inventories
Inventories consist of the following:
   
March 25, 2012
   
June 26, 2011
 
Raw materials
  $ 44,855     $ 52,387  
Supplies
    5,355       6,016  
Work in process
    7,294       7,000  
Finished goods
    57,657       74,399  
Gross inventories
    115,161       139,802  
Inventory reserves
    (2,744 )     (4,919 )
Total inventories
  $ 112,417     $ 134,883  
 
The cost for the majority of the Company’s inventories are determined using the first-in, first-out method, while certain foreign inventories of $31,794 and $43,734 as of March 25, 2012 and June 26, 2011, respectively, were valued under the average cost method.  The change in these foreign inventories from the beginning of the year was due to declining raw material costs, lower quantities on-hand, as well as the weakening of the Brazilian Real versus the U.S. dollar.  Consigned goods were $129 and $164 as of March 25, 2012 and June 26, 2011, respectively, which are located in El Salvador.
 
7. Other Current Assets
Other current assets consist of the following:
   
March 25, 2012
   
June 26, 2011
 
Value added taxes receivable
  $ 2,238     $ 3,332  
Prepaid expenses
    1,344       1,281  
Vendor deposits
    2,747       921  
Other
    47       57  
Total other current assets
  $ 6,376     $ 5,591  
 
Prepaid expenses consist of advance payments for insurance, public exchange and rating services, professional fees, membership dues, subscriptions and information technology services.  Other includes non-income related tax payments and miscellaneous employee advances.  The change in vendor deposits is related to increased levels of foreign sourced raw materials within the Company’s International segment.
 
 
10

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
 
 
8.  Property, Plant and Equipment, Net
Property, plant and equipment, net consist of the following:
   
March 25, 2012
   
June 26, 2011
 
Land
  $ 3,300     $ 3,454  
Land improvements
    11,735       11,400  
Buildings and improvements
    148,857       151,503  
Assets under capital lease
    9,520       9,520  
Machinery and equipment
    538,643       545,260  
Computers, software and office equipment
    17,423       19,585  
Construction in progress
    3,340       4,583  
Transportation equipment
    4,891       5,162  
Gross property, plant and equipment
    737,709       750,467  
Less: accumulated depreciation
    (594,144 )     (590,878 )
Less: accumulated amortization – capital lease
    (9,042 )     (8,562 )
Total property, plant and equipment, net
  $ 134,523     $ 151,027  
 
Depreciation expense, internal software development costs amortization, repair and maintenance expenses and capitalized interest were as follows:
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
March 25, 2012
   
March 27, 2011
   
March 25, 2012
   
March 27, 2011
 
Depreciation expense
  $ 6,035     $ 5,884     $ 17,734     $ 17,380  
Internal software development costs amortization
    59       92       193       284  
Repair and maintenance expenses
    3,958       4,718       11,947       13,786  
Capitalized interest
                       
 
Internal software development costs classified within property, plant and equipment (“PP&E”) consist of the following:
   
March 25, 2012
   
June 26, 2011
 
Internal software development costs
  $ 2,014     $ 1,900  
Accumulated amortization
    (1,761 )     (1,568 )
Net internal software development costs
  $ 253     $ 332  
 
9.  Intangible Assets, Net
Intangible assets, net consist of the following:
   
March 25, 2012
   
June 26, 2011
 
Customer list
  $ 22,000     $ 22,000  
Non-compete agreements
    4,243       4,000  
Licenses
    293        
Total intangible assets, gross
    26,536       26,000  
                 
Accumulated amortization - customer list
    (13,650 )     (12,134 )
Accumulated amortization - non-compete agreements
    (2,503 )     (2,254 )
Accumulated amortization - licenses
    (19 )      
Total accumulated amortization
    (16,172 )     (14,388 )
Total intangible assets, net
  $ 10,364     $ 11,612  
 
In fiscal year 2007, the Company purchased the texturing operations of Dillon Yarn Corporation (“Dillon”) which are included in the Company’s Polyester segment.  The valuation of the customer list acquired was determined by estimating the discounted net earnings attributable to the customer relationships that were purchased after considering items such as possible customer attrition.  Based on the length and trend of the projected cash flows, an estimated useful life of thirteen years was determined.  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 amortized using the straight line method over the periods covered by the covenants not to compete.  The amortization expense is included within the Polyester segment’s depreciation and amortization expense.
 
 
11

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)

 
During the second quarter of fiscal year 2012, the Company acquired a controlling interest in Renewables.  The non-compete agreement acquired is being amortized using the straight line method over a five year period.  The licenses acquired are being amortized using the straight line method over the estimated useful lives of four to eight years.
 
Amortization expense for intangible assets was as follows:
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
March 25, 2012
   
March 27, 2011
   
March 25, 2012
   
March 27, 2011
 
Customer list amortization expense
  $ 505     $ 543     $ 1,517     $ 1,630  
Non-compete amortization expense
    79       80       249       270  
Licenses amortization expense
    10             19        
Total amortization expense
  $ 594     $ 623     $ 1,785     $ 1,900  
 
The following table presents the expected intangible asset amortization for the next five fiscal years:
   
2013
   
2014
   
2015
   
2016
   
2017
 
Customer list
  $ 1,837     $ 1,481     $ 1,215     $ 969     $ 836  
Non-compete agreements
    313       313       313       313       277  
License agreements
    38       38       38       34       30  
Total intangible amortization
  $ 2,188     $ 1,832     $ 1,566     $ 1,316     $ 1,143  
 
10.   Other Non-Current Assets
Other non-current assets consist of the following:
   
March 25, 2012
   
June 26, 2011
 
Long-term deposits
  $ 5,356     $ 5,709  
Debt financing fees
    2,593       3,245  
Biomass foundation and feedstock
    1,667        
Other
    390       456  
Total other non-current assets
  $ 10,006     $ 9,410  
 
Long-term deposits consist primarily of deposits with utility companies and value added tax deposits.  Biomass foundation and feedstock represents bioenergy foundation and feedstock currently being or expected to be propagated by Renewables.  Other non-current assets primarily consists of premiums on a split dollar life insurance policy which represents the value of the Company’s right of return on premiums paid for a retiree owned insurance contract.
 
11. Accrued Expenses
Accrued expenses consist of the following:
   
March 25, 2012
   
June 26, 2011
 
Payroll and fringe benefits
  $ 6,192     $ 11,119  
Utilities
    2,187       2,237  
Interest
    5,233       1,900  
Property taxes
    467       885  
Retiree medical liability
    140       202  
Derivative instruments
    13       2  
Other
    1,219       1,150  
Total accrued expenses
  $ 15,451     $ 17,495  
 
Other accruals consist primarily of sales taxes, workers compensation and other employee related claims, marketing expenses, freight expenses, rent and other non-income related taxes.  The decreased accrual for payroll and fringe benefits is primarily due to the timing associated with payment of awards previously earned and the amounts expected to be earned under variable compensation programs.  The increase in accrued interest is related to the timing of the Company’s semi-annual interest payment on its 11.5% senior secured notes (“2014 notes”) which is due on May 15, 2012.
 
 
12

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)

 
12.  Long-Term Debt
Long-term debt consists of the following:
   
March 25, 2012
   
June 26, 2011
 
Notes payable
  $ 123,722     $ 133,722  
Revolving credit facility
    35,000       34,600  
Capital lease obligation
    37       342  
Total debt
    158,759       168,664  
Current portion of long-term debt
    (37 )     (342 )
Total long-term debt
  $ 158,722     $ 168,322  
 
Notes Payable
On May 26, 2006, the Company issued $190,000 of 2014 notes due May 15, 2014 with interest payable on May 15 and November 15 of each year. The 2014 notes are guaranteed on a senior, secured basis by each of the Company’s existing and future restricted domestic subsidiaries. The 2014 notes and guarantees are secured by first-priority liens, subject to permitted liens, on substantially all of the Company’s PP&E, domestic capital stock and some foreign capital stock.  Domestic capital stock includes the capital stock of the Company’s domestic subsidiaries and certain of its joint ventures. Foreign capital stock includes up to 65% of the voting stock of the Company’s first-tier foreign subsidiaries. The terms of the 2014 notes do not contain financial maintenance covenants.
 
The Company can currently elect to redeem some or all of the 2014 notes at redemption prices equal to or in excess of par depending on the year the optional redemption occurs.  Beginning in May 2012, the redemption price of the 2014 notes is equal to par.  The Company may also purchase its 2014 notes in open market purchases or in privately negotiated transactions and then retire them or it may refinance all or a portion of the 2014 notes with a new debt offering.
 
See “Footnote 29. Subsequent Events” for a discussion of the Company’s planned debt refinancing and 2014 notes redemption that were announced on April 24, 2012.
 
The following table presents the components of the Company’s partial redemptions of its 2014 notes and the charges for the extinguishment of debt:
Date
 
Principal
Amount
 
Redemption
Price
 
Premium
(Discount)
 
Costs and
Other Fees
 
Loss/
(Gain)
August 5, 2011
 
$
10,000
 
102.875%
 
$
288
 
$
174
 
$
462
Total – FY 2012
 
$
10,000
     
$
288
 
$
174
 
$
462
                             
June 30, 2010
 
$
15,000
 
105.750%
 
$
862
 
$
282
 
$
1,144
February 16, 2011
   
30,000
 
105.750%
   
1,725
   
468
   
2,193
Total – FY 2011
 
$
45,000
     
$
2,587
 
$
750
 
$
3,337
                             
September 15, 2009
 
$
500
 
86.750%
 
$
(66)
 
$
12
 
$
(54)
Total – FY 2010
 
$
500
     
$
(66)
 
$
12
 
$
(54)
                             
April 3, 2009
 
$
8,778
 
100.000%
 
$
 
$
226
 
$
226
June 3, 2009
   
2,000
 
73.750%
   
(525)
   
48
   
(477)
Total – FY 2009
 
$
10,778
     
$
(525)
 
$
274
 
$
(251)
 
Revolving Credit Facility
Concurrent with the issuance of the 2014 notes, the Company amended its senior secured asset-based revolving credit facility (“Amended Credit Agreement”) which, along with revising certain terms and covenants, extended its maturity date to May 15, 2011.  On September 9, 2010, the Company and the Subsidiary Guarantors (as co-borrowers) entered into the First Amendment to the Amended and Restated Credit Agreement ("First Amended Credit Agreement”) with Bank of America, N.A. (as both Administrative Agent and Lender).  The First Amended Credit Agreement provides for a revolving credit facility of $100,000 that matures on September 9, 2015.  However, if the 2014 notes have not been paid in full on or before February 15, 2014, the maturity date of the Company’s revolving credit facility will be automatically adjusted to February 15, 2014.
 
The First Amended Credit Agreement contains customary affirmative and negative covenants for asset-based loans that restrict future borrowings and certain transactions. The covenants include restrictions and limitations on (i) sales of assets, consolidation, merger, dissolution and the issuance of capital stock, (ii) permitted encumbrances on property, (iii) the incurrence of indebtedness, (iv) the making of loans or investments, (v) the declaration of dividends and redemptions and (vi) transactions with affiliates.  As long as pro forma excess availability is at least 27.5% of the total credit facility or, if applicable, other specific conditions are met, the Company can make certain distributions and investments including (i) the payment or making of any dividend, (ii) the redemption or other acquisition of any of the Company’s capital stock, (iii) cash investments in joint ventures, (iv) acquisition of the property and assets or capital stock or a business unit of another entity and (v) loans or other investments to a non-borrower subsidiary.  The First Amended Credit Agreement requires the Company to maintain a trailing twelve month fixed charge coverage ratio of at least 1.0 to 1.0 should borrowing availability decrease below 15% of the total credit facility.  There are no capital expenditure limitations under the First Amended Credit Agreement.  The Company was in compliance with all such covenants at March 25, 2012.
 
 
13

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)


The First Amended Credit Agreement is secured by first-priority liens on the Company’s and its subsidiary guarantors’ inventory, accounts receivable, general intangibles, investment property and certain other property. The Company’s ability to borrow under the First Amended Credit Agreement is limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventory and is subject to other conditions and limitations.  Borrowings under the First Amended Credit Agreement bear interest at rates of LIBOR plus 2.00% to 2.75% and/or prime plus 0.75% to 1.50% depending on the Company’s level of excess availability. The unused line fee under the First Amended Credit Agreement is 0.375% to 0.50% of the unused line amount.
 
The weighted average interest rate for the revolving credit facility borrowings for the nine months ended March 25, 2012, including the effects of all interest rate swaps was 3.6%.  The Company has $2,695 of standby letters of credit at March 25, 2012, none of which have been drawn upon. As of March 25, 2012 and June 26, 2011, the Company had $52,955 and $51,734 of excess availability under the revolving credit facility, respectively.
 
The following table presents the scheduled maturities of the Company’s long-term debt on a fiscal year basis:
2012
   
2013
   
2014
   
2015
   
2016
   
Thereafter
   
Total
 
$ 37     $     $ 123,722     $     $ 35,000     $     $ 158,759  
 
Amortization charged to interest expense related to debt financing fees was as follows:
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
March 25, 2012
   
March 27, 2011
   
March 25, 2012
   
March 27, 2011
 
Interest expense
  $ 227     $ 235     $ 672     $ 736  
 
13.  Other Long-Term Liabilities
Other long-term liabilities consist of the following:
   
March 25, 2012
   
June 26, 2011
 
Supplemental post-employment plan
  $ 2,212     $ 1,866  
Retiree medical liability
    696       696  
Derivative instruments
    353       408  
Long-term portion of foreign taxes payable
    834       868  
Other non-income related taxes
    166       169  
Total other long-term liabilities
  $ 4,261     $ 4,007  
 
The Company maintains an unfunded supplemental post-employment plan for a select group of management employees.  Each participant’s account is credited annually based upon a percentage of their base salary with each participant’s balance adjusted quarterly to reflect returns based upon a stock market index.  The amounts of net expense recorded for this plan within Selling, General and Administrative (“SG&A”) expenses for the three months ended March 25, 2012 and March 27, 2011 were $280 and $151, respectively and for the nine months ended March 25, 2012 and March 27, 2011 were $411 and $505, respectively.  Amounts are paid to participants only after termination of their employment.  The retiree medical liability relates to a frozen plan that consists of the discounted future claims the Company expects to pay for certain retiree benefits based on claims history and the terms of the benefit agreements.
 
14. Income Taxes
The Company’s income tax provision for the quarter ended March 25, 2012 resulted in tax expense of $861 at an effective rate of 10.5%.  The Company’s income tax provision for the year-to-date period ended March 25, 2012 resulted in tax expense of $2,940 at an effective rate of 108.1%.  The income tax rate for the quarter and year-to-date periods ended March 25, 2012 is different from the U.S. statutory rate due to losses in tax jurisdictions for which no tax benefit could be recognized, foreign dividends taxed in the U.S. and abroad, and earnings attributable to foreign operations which are taxed at rates lower than the U.S. statutory rate.  The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from U.S. operations and foreign sources versus annual projections and changes in foreign currencies in relation to the U.S. dollar.  As a result, the Company’s effective tax rate may fluctuate significantly on a quarterly basis.
 
The Company’s income tax provision for the quarter ended March 27, 2011 resulted in tax benefit of $166 at an effective tax rate of 3.9%.  The Company’s income tax provision for the year-to-date period ended March 27, 2011 resulted in tax expense of $4,205 at an effective rate of 26.6%.  The income tax rate for the quarter and year-to-date periods ended March 27, 2011 is different from the U.S. statutory rate due to losses from one of the Company’s equity affiliates, increases in uncertain tax positions, and foreign operations taxed at rates lower than in the U.S., which was partially offset by foreign dividends taxed in the U.S.
 
 
14

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)


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 future 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.  The projected benefits of the planned refinancing (see “Footnote 29. Subsequent Events”) on the Company’s future taxable income have not been considered as the refinancing is contingent upon the future actions of other parties that are not under the Company’s control, and any such benefits should only be recognized when incurred.  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 the Company’s income tax expense and the resulting net earnings in the period of release.
 
During the fiscal year ended June 26, 2011, the Company changed its indefinite reinvestment assertion related to approximately $26,630 of the earnings and profits held by Unifi do Brasil, Ltda. (“UDB”).  During the current fiscal year, the Company has had a net increase in the assertion to $30,360 including a net decrease of $2,490 during the third quarter of fiscal year 2012.  The Company has adjusted the deferred tax liability to reflect the additional income tax that would be due as a result of the current plan to repatriate in future periods.  All remaining undistributed earnings are deemed to be indefinitely reinvested and accordingly, no provision for U.S. federal and state income taxes is required to be provided.
 
The Company is subject to income tax examinations for U.S. federal income taxes for fiscal years 2005 through 2011, for non-U.S. income taxes for tax years 2002 through 2011, and for state and local income taxes for fiscal years 2001 through 2011.
 
There have been no significant changes in the Company’s liability for uncertain tax positions since June 26, 2011.  The Company’s estimate for the potential outcome for any uncertain tax issue is highly judgmental.  Management believes that any reasonably foreseeable outcomes related to these matters have been adequately provided for.  However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire.
 
15.  Shareholders’ Equity
No dividends have been paid during the last two fiscal years. The Indenture governing the 2014 notes and the First Amended Credit Agreement restricts the Company’s ability to pay dividends or make distributions on its common stock.
 
Effective July 26, 2000, the Company’s Board of Directors (“Board”) authorized the repurchase of up to 3,333 shares of its common stock of which approximately 1,064 shares were subsequently repurchased.  The repurchase program was suspended in November 2003.  There is remaining authority for the Company to repurchase approximately 2,269 shares of its common stock under the repurchase plan.  The repurchase plan has no stated expiration or termination date.
 
16. Stock Based Compensation
On October 29, 2008, the shareholders of the Company approved the 2008 Unifi, Inc. Long-Term Incentive Plan (“2008 LTIP”). The 2008 LTIP authorized the issuance of up to 2,000 shares of common stock pursuant to the grant or exercise of stock options, including incentive stock options, non-qualified stock options and restricted stock, but not more than 1,000 shares may be issued as restricted stock. Option awards are granted with an exercise price not less than the market price of the Company’s stock at the date of grant.  The 2008 LTIP replaced the 1999 Unifi, Inc. Long-Term Incentive Plan (“1999 LTIP”).  The 2008 LTIP is the Company’s sole share-based compensation plan, except that prior grants under the 1999 LTIP remain subject to that plan’s provisions.
 
Stock options subject to service conditions:
During the first quarter of fiscal year 2012, under the 2008 LTIP the Compensation Committee (“Compensation Committee”) of the Board authorized, and the Company issued, 127 stock options to certain key employees.  The stock options vest ratably over the required three year service period and have ten year contractual terms.  The exercise price of the options is $12.47 per share.  The Company used the Black-Scholes model to estimate the weighted average grant date fair value of $7.88 per share.  The valuation model used the following assumptions for the options granted in fiscal year 2012:
Expected terms (years)
    6.3  
Interest rate
    2.0 %
Volatility
    68.2 %
Dividend yield
     
 
The Company uses historical data to estimate the expected life, volatility and estimated forfeitures of an option.  The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
 
 
15

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)

 
A summary of the Company’s non-vested shares related to options subject to service conditions as of March 25, 2012, and changes during the current fiscal year is as follows:
   
Under the
1999 LTIP
   
Under the
2008 LTIP
   
Total Shares
   
Weighted-Average
Grant-Date Fair Value
 
Non-vested at June 26, 2011
          373       373     $ 3.34  
Granted
          127       127       7.88  
Vested
          (186 )     (186 )     3.34  
Forfeited
          (2 )     (2 )     3.31  
Non-vested at March 25, 2012
          312       312     $ 5.19  
 
The following table sets forth the exercise prices, the number of options outstanding and exercisable, and the remaining contractual lives of the Company’s stock options subject to service conditions for selected price ranges as of March 25, 2012:
     
Options Outstanding
      Options Exercisable  
Exercise Price
   
Number of
Options Outstanding
   
Weighted Average
Exercise Price
   
  Weighted Average
Contractual
Life Remaining (Years)
   
  Number of
Options Exercisable
   
Weighted Average
Exercise Price
 
$ 5.73 - $ 10.00     833     $ 6.27       6.0       648     $ 6.99  
$ 10.01 - $ 20.00     179       11.92       7.8       52       10.59  
$ 20.01 - $ 29.79     20       26.63       0.4       20       26.63  
Totals   
          1,032     $ 8.01      6.2      720     $ 7.79  
 
At March 25, 2012, the remaining unrecognized compensation cost related to the unvested stock options subject to service conditions was $643 which is expected to be recognized over a weighted average period of 2.1 years. The Company recorded $574 and $417 of compensation expense for the stock options subject to service conditions within SG&A expenses for the nine month periods ended March 25, 2012 and March 27, 2011, respectively.
 
Stock options subject to market conditions:
There were no options granted in the nine month period ended March 25, 2012 that contained market condition vesting provisions.  A summary of the Company’s non-vested shares related to options subject to market conditions as of March 25, 2012, and changes during the current fiscal year is as follows:
 
   
Under the
1999 LTIP
   
Under the
2008 LTIP
   
Total
Shares
   
Weighted-Average
Grant-Date Fair Value
 
Non-vested at June 26, 2011
    494       83       577     $ 5.66  
Granted       
                       
Vested        
                       
Forfeited              
          (10 )     (10 )     7.47  
Non-vested at March 25, 2012
    494       73       567     $ 5.63  
 
The following table sets forth the exercise prices, the number of options outstanding and exercisable, and the remaining contractual lives of the Company’s stock options subject to market conditions, for selected price ranges as of March 25, 2012:
     
Options Outstanding
      Options Exercisable  
Exercise Price
   
Number of Options Outstanding
   
Weighted Average
Exercise Price
   
  Weighted Average
Contractual
Life Remaining (Years)
   
  Number of
Options Exercisable
   
Weighted Average
Exercise Price
 
$ 8.00 - $ 10.00     494     $ 8.15       5.6           $  
$ 10.01 - $ 13.00     73       12.48       6.7              
Totals  
          567     $ 8.71      5.7           $  
 
The remaining unrecognized compensation cost related to the stock options subject to market conditions at March 25, 2012 was nil. The Company had $0 and $41 of compensation expense for the stock options subject to market conditions for the nine month periods ended March 25, 2012 and March 27, 2011, respectively.
 
 
16

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)


The stock option activity for the nine month period ended March 25, 2012 for all plans and all vesting conditions is as follows:
   
Options
Outstanding
   
Weighted Average
Exercise Price
 
Shares under option at June 26, 2011
    1,692     $ 9.62  
Granted
    127       12.47  
Exercised
    (10 )     7.24  
Expired
    (198 )     22.36  
Forfeited
    (12 )     11.35  
Shares under option at March 25, 2012
    1,599     $ 8.26  
 
The total intrinsic value of options exercised was $40 and $123 in the year-to-date periods for fiscal years 2012 and 2011, respectively.  The amount of cash received from the exercise of options was $71 and $118 in the year-to-date periods for fiscal years 2012 and 2011, respectively.
 
Restricted stock units – non-employee directors:
During the second quarter of fiscal year 2012, under the 2008 LTIP the Compensation Committee authorized, and the Company issued, 49 restricted stock units (“RSUs”) to the Company’s non-employee directors.  The RSUs became fully vested on the grant date.  The RSUs convey no rights of ownership in shares of Company stock until such RSUs have been distributed to the grantee in the form of Company stock.  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 grantee may elect to defer receipt of the shares of stock in accordance with the deferral options provided under the Unifi, Inc. Director Deferred Compensation Plan.  The Company estimated the fair value of the award to be $9.10 per RSU based on the fair value of the Company’s common stock at the award grant date.
 
A summary of the Company’s RSUs issued to non-employee directors as of March 25, 2012 and changes during the current fiscal year are as follows:
   
Units
   
Weighted-Average
Grant-Date Fair Value
 
Non-vested at June 26, 2011
  21     $ 13.89  
Granted
  49       9.10  
Vested
  (70)       10.56  
Forfeited
         
Non-vested at March 25, 2012
      $  
 
The remaining unrecognized compensation cost related to the unvested RSUs at March 25, 2012 is nil. The Company recorded $566 and $166 of compensation expense for the RSUs within SG&A expenses for the nine month periods ended March 25, 2012 and March 27, 2011, respectively.
 
Restricted stock units – key employees:
During the first quarter of fiscal year 2012, the Compensation Committee authorized, and the Company issued, 64 RSUs from the 2008 LTIP to certain key employees.  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 vest ratably over a three year period.  The RSUs will be converted into an equivalent number of shares of stock on each vesting date and distributed to the grantee, or the grantee may elect to defer the receipt of the shares of stock until separation from service.  If after July 27, 2012 and prior to the final vesting date the grantee has a separation from service without cause, the remaining unvested RSUs will become fully vested and will be converted to an equivalent number of shares of stock and issued to the grantee.  The Company estimated the grant-date fair value of the award to be $12.47 per RSU based on the fair value of the Company’s stock at the award grant date.
 
A summary of the Company’s RSUs issued to key employees as of March 25, 2012 and changes during the current fiscal year is as follows:
   
Units
   
Weighted-Average
Grant-Date Fair Value
 
Non-vested at June 26, 2011
      $  
Granted
  64       12.47  
Vested
         
Forfeited
         
Non-vested at March 25, 2012
  64     $ 12.47  
 
The remaining unrecognized compensation cost related to the unvested RSUs at March 25, 2012 is $273 which is expected to be recognized over a weighted average period of 0.3 years. The Company recorded $519 and $0 of compensation expense for the RSUs within SG&A expenses for the nine month periods ended March 25, 2012 and March 27, 2011, respectively.
 
 
17

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)

 
The total compensation cost that was charged against income related to all share-based compensation arrangements for the third quarter of fiscal years 2012 and 2011 was $395 and $242, respectively, and was $1,659 and $624 for the year-to-date periods, respectively.  These costs were recorded as SG&A expenses with a corresponding offset to Capital in excess of par value.  The total income tax benefit recognized for share-based compensation was not material for all periods presented.
 
A summary of the number of securities remaining available for future issuance under equity compensation plans is as follows:
   
Shares
 
Authorized under the 2008 LTIP
    2,000  
Less: Market condition options granted
    (93 )
Less: Service condition options granted
    (694 )
Less: RSUs granted to non-employee directors
    (75 )
Less: RSUs granted to key employees
    (64 )
Plus: Options forfeited
    27  
Plus: RSUs forfeited
     
Available for issuance under the 2008 LTIP
    1,101  
 
17. Defined Contribution Plan
The Company matches employee contributions made to the Unifi, Inc. Retirement Savings Plan (the “DC Plan”), an existing 401(k) defined contribution plan, which covers eligible domestic salary and hourly employees. Under the terms of the DC Plan, the Company matches 100% of the first three percent of eligible employee contributions and 50% of the next two percent of eligible contributions.
 
The contribution expenses were as follows:
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
March 25, 2012
   
March 27, 2011
   
March 25, 2012
   
March 27, 2011
 
Matching contribution expenses
  $ 427     $ 547     $ 1,519     $ 1,655  
 
18. Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of the following:
   
March 25, 2012
   
June 26, 2011
 
Foreign currency translation adjustments
  $ 6,736     $ 26,621  
Loss on effective portion of derivative instruments
    (344 )     (1,054 )
Foreign currency gain (loss) on intercompany loan
    2,555       (1,791 )
Accumulated other comprehensive income
  $ 8,947     $ 23,776  
 
Loss on effective portion of derivative instruments includes $9 of other comprehensive income and $646 of other comprehensive loss related to one of the Company’s unconsolidated affiliates at March 25, 2012 and June 26, 2011, respectively.
 
 
18

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
 
 
19. Computation of Earnings Per Share
The computation of basic and diluted earnings per share (“EPS”) was as follows:
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
March 25, 2012
   
March 27, 2011
   
March 25, 2012
   
March 27, 2011
 
Basic EPS:
                       
Net income (loss) attributable to Unifi, Inc.
  $ 7,535     $ (4,045 )   $ 213     $ 11,575  
Weighted average common shares outstanding
    20,089       20,069       20,088       20,062  
                                 
Basic EPS
  $ 0.38     $ (0.20 )   $ 0.01     $ 0.58  
                                 
Diluted EPS:
                               
Net income (loss) attributable to Unifi, Inc.
  $ 7,535     $ (4,045 )   $ 213     $ 11,575  
                                 
Weighted average common shares outstanding
    20,089       20,069       20,088       20,062  
Potential dilutive common shares outstanding
    272             269       415  
Adjusted weighted average common shares outstanding
    20,361       20,069       20,357       20,477  
                                 
Diluted EPS
  $ 0.37     $ (0.20 )   $ 0.01     $ 0.57  
                                 
Excluded from the calculation of common share equivalents:
                               
Anti-dilutive common share equivalents
    213       1,146       199       221  
                                 
Excluded from the calculation of potential diluted common shares:
                               
Unvested options that vest upon achievement of certain market conditions
    567       577       567       577  
 
The calculation of earnings per common share is based on the weighted average number of the Company’s common shares outstanding for the applicable period.  The calculation of diluted earnings per common share presents the effect of all potential dilutive common shares that were outstanding during the respective period, unless the effect of doing so is anti-dilutive.
 
20.   Derivative Instruments and Hedging Activities
The Company may use derivative financial instruments such as foreign currency forward contracts or interest rate swaps for purposes of reducing its ongoing business exposures to fluctuations in foreign currency exchange rates or interest rates.  The Company does not enter into derivative contracts for speculative purposes.
 
Interest rate swaps:
On February 15, 2011, the Company entered into a twenty-seven month, $25,000 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 $25,000 of LIBOR-based variable rate borrowings under the Company’s revolving credit facility.  The interest rate swap allows the Company to fix the LIBOR rate at 1.39%.  On August 5, 2011, the Company entered into a twenty-one month, $10,000 interest rate swap to provide a hedge against the variability of cash flows related to additional variable rate borrowings under the revolving credit facility.  This interest rate swap allows the Company to fix the LIBOR rate at 0.75%.
 
The Company has designated these swaps as cash flow hedges and determined that the hedges have been and still are highly effective.  At March 25, 2012, the amount of loss recognized in accumulated other comprehensive income for the Company’s cash flow hedge derivative instruments was $353.  For the year-to-date period ended March 25, 2012, the Company did not reclassify any gains (losses) from accumulated other comprehensive income to net income and does not expect to do so during the next twelve months.
 
Foreign currency forward contracts:
The Company or its subsidiaries may enter into foreign currency forward contracts as economic hedges for exposures related to certain sales, inventory purchases and equipment purchases which are denominated in currencies that are not its functional currency.  As of March 25, 2012, the latest maturity date for all outstanding foreign currency forward contracts is during May 2012.  These items are not designated as hedges by the Company and are marked-to-market each period and offset by the foreign exchange gains (losses) resulting from the underlying exposures of the foreign currency denominated assets and liabilities.
 
 
19

 
 
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)

 
The fair values of derivative financial instruments were as follows:
As of March 25, 2012:
   
Notional
Amount
   
USD
Equivalent
   
Balance Sheet Location
   
Fair value
 
Foreign exchange contracts
MXN
    4,000     $ 300    
Accrued expenses
    $ (13 )
Interest rate swaps
USD
  $ 35,000     $ 35,000    
Other long-term liabilities
    $ (353 )
                                 
As of June 26, 2011:     Notional
Amount