UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

o		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 (State or other jurisdiction of incorporation or organization)		11-2165495 (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 þ  No o

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 o  No o

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 o		Accelerated filer þ		Non-accelerated filer o		Smaller Reporting Company o
				(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 o No þ

The number of shares outstanding of the issuer’s common stock, par value $.10 per share, as of February 2, 2010 was 60,172,300.

 

 

UNIFI, INC.
Form 10-Q for the Quarterly Period Ended December 27, 2009

INDEX

						Page
Part I		Item 1.		Financial Statements:
Financial Information				Condensed Consolidated Balance Sheets as of December 27, 2009 and June 28, 2009			3
				Condensed Consolidated Statements of Operations for the Quarters and Six-Months Ended December 27, 2009 and December 28, 2008			4
				Condensed Consolidated Statements of Cash Flows for the Six-Months Ended December 27, 2009 and December 28, 2008			5
				Notes to Condensed Consolidated Financial Statements			6
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
		Item 3.		Quantitative and Qualitative Disclosures about Market Risk			52
		Item 4.		Controls and Procedures			53
Part II
Other Information		Item 1.		Legal Proceedings			54
		Item 1A.		Risk Factors			54
		Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			54
		Item 3.		Defaults Upon Senior Securities			54
		Item 4.		Submission of Matters to a Vote of Security Holders			55
		Item 5.		Other Information			55
		Item 6.		Exhibits			55
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part.1 Financial Information

Item.1 Financial Statements

UNIFI, INC.

Condensed Consolidated Balance Sheets

(Amounts in thousands)

		December 27,				June 28,
		2009				2009
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	54,442			$	42,659
Receivables, net			69,354				77,810
Inventories			103,012				89,665
Deferred income taxes			1,294				1,223
Assets held for sale			—				1,350
Restricted cash			3,609				6,477
Other current assets			5,887				5,464
Total current assets			237,598				224,648
Property, plant and equipment			746,341				744,253
Less accumulated depreciation			(589,817	)			(583,610	)
			156,524				160,643
Restricted cash			—				453
Intangible assets, net			15,821				17,603
Investments in unconsolidated affiliates			62,959				60,051
Other noncurrent assets			13,035				13,534
Total assets		$	485,937			$	476,932
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	27,619			$	26,050
Accrued expenses			15,871				15,269
Income taxes payable			445				676
Current maturities of long-term debt and other current liabilities			3,977				6,845
Total current liabilities			47,912				48,840
Notes payable			178,722				179,222
Other long-term debt and liabilities			2,981				3,485
Deferred income taxes			371				416
Commitments and contingencies
Shareholders’ equity:
Common stock			6,017				6,206
Capital in excess of par value			26,716				30,250
Retained earnings			209,940				205,498
Accumulated other comprehensive income			13,278				3,015
			255,951				244,969
Total liabilities and shareholders’ equity		$	485,937			$	476,932

See accompanying notes to condensed consolidated financial statements.

UNIFI, INC.

Condensed Consolidated Statements of Operations

(Unaudited) (Amounts in thousands, except per share data)

		For the Quarters Ended								For the Six-Months Ended
		December 27,				December 28,				December 27,				December 28,
		2009				2008				2009				2008
Summary of Operations:
Net sales		$	142,255			$	125,727			$	285,106			$	294,736
Cost of sales			124,919				123,415				248,364				278,999
Write down of long-lived assets			—				—				100				—
Selling, general & administrative expenses			12,152				9,304				23,316				19,849
Provision (benefit) for bad debts			(564	)			501				12				1,059
Other operating (income) expense, net			(109	)			(5,212	)			(196	)			(5,773	)
Non-operating (income) expense:
Interest income			(834	)			(680	)			(1,580	)			(1,593	)
Interest expense			5,223				5,748				10,715				11,713
Gain on extinguishment of debt			—				—				(54	)			—
Equity in earnings of unconsolidated affiliates			(1,609	)			(162	)			(3,672	)			(3,644	)
Write down of investment in unconsolidated affiliate			—				1,483				—				1,483
Income (loss) from continuing operations before income taxes			3,077				(8,670	)			8,101				(7,357	)
Provision for income taxes			1,124				614				3,659				2,499
Income (loss) from continuing operations			1,953				(9,284	)			4,442				(9,856	)
Income from discontinued operations — net of tax			—				216				—				112
Net income (loss)		$	1,953			$	(9,068	)		$	4,442			$	(9,744	)
Earnings (loss) per share from continuing operations and net income:
Income (loss) per common share — basic		$	.03			$	(.15	)		$	.07			$	(.16	)
Income (loss) per common share — diluted		$	.03			$	(.15	)		$	.07			$	(.16	)

See accompanying notes to condensed consolidated financial statements.

UNIFI, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited) (Amounts in thousands)

		For the Six-Months Ended
		December 27,				December 28,
		2009				2008
Cash and cash equivalents at beginning of year		$	42,659			$	20,248
Operating activities:
Net income (loss)			4,442				(9,744	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) continuing operating activities:
Income from discontinued operations			—				(112	)
Earnings of unconsolidated affiliates, net of distributions			(2,062	)			(1,579	)
Depreciation			11,563				15,832
Amortization			2,334				2,137
Stock-based compensation expense			1,273				622
Deferred compensation expense (recovery), net			343				(69	)
Net gain on asset sales			(57	)			(5,910	)
Gain on extinguishment of debt			(54	)			—
Write down of long-lived assets			100				—
Write down of investment in unconsolidated affiliate			—				1,483
Deferred income tax			(19	)			35
Provision for bad debts			12				1,059
Other			301				256
Change in assets and liabilities, excluding effects of foreign currency adjustments			565				(11,962	)
Net cash provided by (used in) continuing operating activities			18,741				(7,952	)
Investing activities:
Capital expenditures			(4,965	)			(7,829	)
Investment in joint venture			(550	)			—
Acquisition of intangible asset			—				(500	)
Change in restricted cash			4,158				10,118
Proceeds from sale of capital assets			1,358				6.950
Other			(79	)			—
Net cash (used in) provided by investing activities			(78	)			8,739
Financing activities:
Payments of long-term debt			(4,594	)			(20,578	)
Borrowings of long-term debt			—				14,600
Proceeds from stock option exercises			—				3,830
Purchase and retirement of Company stock			(4,995	)			—
Other			—				37
Net cash used in financing activities			(9,589	)			(2,111	)
Cash flows of discontinued operations:
Operating cash flows			—				(162	)
Effect of exchange rate changes on cash and cash equivalents			2,709				(6,143	)
Net increase (decrease) in cash and cash equivalents			11,783				(7,629	)
Cash and cash equivalents at end of period		$	54,442			$	12,619

     See accompanying notes to condensed consolidated financial statements.

UNIFI, INC.

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 28, 2009 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 28, 2009, this information is unaudited and reflects all adjustments which are, in the opinion of management, necessary to present fairly the financial position at December 27, 2009, and the results of operations and cash flows for the periods ended December 27, 2009 and December 28, 2008. 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 28, 2009. Certain prior period amounts have been reclassified to conform to current year presentation.

The significant accounting policies followed by the Company are presented on pages 74 to 80 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 28, 2009.

2.

Inventories

Inventories are comprised of the following (amounts in thousands):

		December 27,				June 28,
		2009				2009
Raw materials and supplies		$	45,052			$	42,351
Work in process			4,755				5,936
Finished goods			53,205				41,378
		$	103,012			$	89,665

3.

Accrued Expenses

Accrued expenses are comprised of the following (amounts in thousands):

		December 27,				June 28,
		2009				2009
Payroll and fringe benefits		$	9,403			$	6,957
Severance			977				1,385
Interest			2,471				2,496
Utilities			1,762				2,085
Retiree reserve			196				190
Property taxes			6				1,094
Other			1,056				1,062
		$	15,871			$	15,269

4.

Earnings Per Common Share

The following table sets forth the reconciliation of basic and diluted per share computations (amounts in thousands, except per share data):

		For the Quarters Ended								For the Six-Months Ended
		December 27,				December 28,				December 27,				December 28,
		2009				2008				2009				2008
Determination of shares:
Weighted average common shares outstanding			61,498				62,030				61,778				61,582
Assumed conversion of dilutive stock options			286				—				143				—
Diluted weighted average common shares outstanding			61,784				62,030				61,921				61,582
Income (loss) per common share — basic		$	.03			$	(.15	)		$	.07			$	(.16	)
Income (loss) per common share — diluted		$	.03			$	(.15	)		$	.07			$	(.16	)

The number of options to purchase shares of common stock which were not included in the calculation of diluted per share amounts because they were anti-dilutive was 892,388 at December 27, 2009. For the quarter and year-to-date periods ended December 28, 2008, no options were included in the computation of diluted loss per share because the Company reported net losses from continuing operations.

5.

Other Operating (Income) Expense, Net

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

		For the Quarters Ended								For the Six-Months Ended
		December 27,				December 28,				December 27,				December 28,
		2009				2008				2009				2008
(Gain) loss on sale of fixed assets		$	37			$	(5,594	)		$	(57	)		$	(5,910	)
Currency (gains) losses			(133	)			380				(120	)			77
Other, net			(13	)			2				(19	)			60
Other operating (income) expense, net		$	(109	)		$	(5,212	)		$	(196	)		$	(5,773	)

6.

Intangible Assets, Net

Other intangible assets subject to amortization consisted of customer relationships of $22.0 million and non-compete agreements of $4.0 million which were entered 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 agreement is being amortized using the straight-line method. The non-compete agreement had an original amortizable life of five years plus the term of the original Sales and Service Agreement (the “Agreement”) with Dillon Yarn Company (“Dillon”) which was two years as discussed in “Footnote 16. Related Party Transactions”. The Agreement was extended for a one year period two times, effective as of January 1, 2009 and January 1, 2010. There are no estimated residual values related to these intangible assets. Accumulated amortization at December 27, 2009 and June 28, 2009 for these intangible assets was $10.3 million and $8.7 million, respectively. These intangible assets relate to the polyester segment.

In addition, the Company allocated $0.5 million to customer relationships arising from a transaction that closed in the second quarter of fiscal year 2009. This customer list is being amortized using the straight-line method over a period of one and a half years. Accumulated amortization at December 27, 2009 and June 28, 2009 was $0.3 million and $0.2 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
		2011				2012				2013				2014				2015
Customer lists		$	2,173			$	2,022			$	1,837			$	1,481			$	1,215
Non-compete contract			381				381				381				381				381
		$	2,554			$	2,403			$	2,218			$	1,862			$	1,596

7.

Recent Accounting Pronouncements

		In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, a replacement of SFAS 162, “The Hierarchy of Generally Accepted Accounting Principles”. The statement was effective for all financial statements issued for interim and annual periods ending after September 15, 2009. On June 30, 2009 the FASB issued its first Accounting Standard Update (“ASU”) No. 2009-01 “Topic 105 — Generally Accepted Accounting Principles amendments based on No. 168 the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”. Accounting Standards Codification (“ASC”) 105-10 establishes a single source of GAAP which is to be applied by nongovernmental entities. All guidance contained in the ASC carries an equal level of authority; however there are standards that will remain authoritative until such time that each is integrated into the ASC. The Securities and Exchange Commission (“SEC”) also issues rules and interpretive releases that are also sources of authoritative GAAP for publicly traded registrants. The ASC superseded all existing non-SEC accounting and reporting standards. All non-grandfathered accounting literature not included in the ASC will be considered non-authoritative.
		Effective June 29, 2009, the Company adopted ASC 805-20, “Business Combinations — Identifiable Assets, Liabilities and Any Non-Controlling Interest” (“ASC 805-20”). ASC 805-20 amends and clarifies ASC 805 which requires that the acquisition method of accounting, instead of the purchase method, be applied to all business combinations and that an “acquirer” is identified in the process. The guidance requires that fair market value be used to recognize assets and assumed liabilities instead of the cost allocation method where the costs of an acquisition are allocated to individual assets based on their estimated fair values. Goodwill would be calculated as the excess purchase price over the fair value of the assets acquired; however, negative goodwill will be recognized immediately as a gain instead of being allocated to individual assets acquired. Costs of the acquisition will be recognized separately from the business combination. The end result is that the statement improves the comparability, relevance and completeness of assets acquired and liabilities assumed in a business combination. The adoption of this guidance had no material effect on the Company’s financial statements.

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements”, (“ASU 2009-13”) and ASU No. 2009-14, “Certain Arrangements That Include Software Elements”, (“ASU 2009-14”). ASU 2009-13 requires entities to allocate revenues in the absence of vendor-specific objective evidence or third party evidence of selling price for deliverables using a selling price hierarchy associated with the relative selling price method. ASU 2009-14 removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14 should be applied on a prospective basis for revenue arrangements entered into or

materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect that the adoption of ASU 2009-13 or ASU 2009-14 will have a material impact on the Company’s consolidated results of operations or financial condition.

In December 2009, the FASB issued ASU No. 2009-16, “Transfers and Servicing (Topic 860): Accounting for the Transfers of Financial Assets” which amends the ASC to include SFAS No.166, “Accounting for Transfers of Financial Assets — an Amendment of FASB Statement No. 140”. SFAS No. 166 revised SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities — a Replacement of FASB Statement No. 125” requiring additional disclosures about transfers of financial assets, including securitization transactions, and any continuing exposure to the risks related to transferred financial assets. It also eliminates the concept of a “qualifying special-purpose entity”, changes the requirements for derecognizing financial assets, and enhances disclosure requirements. ASU No. 2009-16 is effective prospectively, for annual periods beginning after November 15, 2009, and interim and annual periods thereafter. The Company does not expect the adoption of this guidance will have a material impact on its financial position or results of operations.

In December 2009, the FASB issued ASU No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” which amends the ASC to include SFAS No. 167 “Amendments to FASB Interpretation No. 46(R)”. The amendment requires 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 as the enterprise that has the power to direct the activities of a variable interest entity. The statement requires an ongoing assessment of whether a company is the primary beneficiary of a variable interest entity 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. This statement also enhances disclosures about a company’s involvement in variable interest entities. ASU No. 2009-17 is effective as of the beginning of the first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of this guidance will have a material impact on its financial position or results of operations.

In January 2010, the FASB issued ASU No. 2010-01, “Equity (Topic 505) Accounting for Distributions to Shareholders with Components of Stock and Cash” which clarifies that the stock portion of a distribution to shareholders that allow them to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. This update is effective for the Company’s interim period ended December 27, 2009. The adoption of ASU No. 2010-01 did not have a material impact on the Company’s consolidated financial position or results of operations.

In January 2010, the FASB issued ASU No. 2010-02, “Consolidation (Topic 810) Accounting and Reporting for Decreases in Ownership of a Subsidiary — a Scope Clarification”. ASU 2010-02 clarifies Topic 810 implementation issues relating to a decrease in ownership of a subsidiary that is a business or non-profit activity. This amendment affects entities that have previously adopted Topic 810-10 (formally SFAS 160). This update is effective for the Company’s interim period ended December 27, 2009. The adoption of ASU No. 2010-02 did not have a material impact on the Company’s consolidated financial position or results of operations.

8.

Comprehensive Income (Loss)

Comprehensive income amounted to $3.8 million and $14.7 million for the second quarter and year-to-date periods of fiscal year 2010, respectively, compared to comprehensive losses of $23.2 million and $39.7 million for the second quarter and the year-to-date periods of fiscal year 2009. Comprehensive income is comprised of net income of $2.0 million and $4.4 million for the second quarter and year-to-date periods of fiscal year 2010, respectively, and positive translation adjustments of $1.8 million and $10.3 million, respectively. Comparatively, comprehensive losses were comprised of net losses of $9.1 million and $9.7 million for the second quarter and year-to-date periods of fiscal year 2009, respectively, and negative translation adjustments of $14.1 million and $30.0 million, respectively. The Company does not provide income taxes on the impact of currency translations as earnings from foreign subsidiaries are deemed to be permanently invested.

9.

Investments in Unconsolidated Affiliates

The following table represents the Company’s investments in unconsolidated affiliates:

Affiliate Name

Date Acquired

Location

Percent Ownership

Parkdale America, LLC (“PAL”)

Jun-97

North and South Carolina

34

%

U.N.F. Industries, LLC (“UNF”)

Sep-00

Migdal Ha — Emek, Israel

50

%

UNF America, LLC (“UNF America”)

Oct-09

Ridgeway, Virginia

50

%

Yihua Unifi Fibre Company Limited (“YUFI”) (1)

Aug-05

Yizheng, Jiangsu Province, People’s Republic of China

50

%

Condensed balance sheet information as of December 27, 2009 and June 28, 2009, and income statement information for the quarter and year-to-date periods ended December 27, 2009 and December 28, 2008, of the combined unconsolidated equity affiliates are as follows (amounts in thousands):

		As of				As of
		December 27, 2009				June 28, 2009
Current assets		$	167,531			$	152,288
Noncurrent assets			112,910				101,893
Current liabilities			32,160				22,834
Noncurrent liabilities			15,245				4,294
Shareholders’ equity and capital accounts			233,036				227,053

		For the Quarters Ended
		December 27, 2009				December 28, 2008
Net sales		$	117,766			$	134,687
Gross profit			16,294				3,420
Depreciation and amortization			6,621				7,246
Income (loss) from operations			12,277				(1,611	)
Net income (loss)			11,027				(2,423	)

		For the Six-Months Ended
		December 27, 2009				December 28, 2008
Net sales		$	217,212			$	302,543
Gross profit			24,703				6,830
Depreciation and amortization			11,647				13,572
Income (loss) from operations			17,442				(3,540	)
Net income			18,299				1,963

		PAL receives benefits under the Food, Conservation, and Energy Act of 2008 (“2008 U.S. Farm Bill”) which extended the existing upland cotton and extra long staple cotton programs, including economic adjustment assistance provisions for ten years. Beginning August 1, 2008, the program provided textile mills a subsidy of four cents per pound on eligible upland cotton consumed during the first four years and three cents per pound for the last six years. The economic assistance received under this program must be used to acquire, construct, install, modernize, develop, convert or expand land, plant, buildings, equipment, or machinery. Capital expenditures must be directly attributable to the purpose of manufacturing upland cotton into eligible cotton products in the U.S. The recipients have the marketing year from August 1 to July 31, plus eighteen months to make the capital expenditures. In the period when both criteria have been met; eligible upland cotton has been consumed, and qualifying capital expenditures under the program have been made; the economic assistance is recognized by PAL as reductions to cost of sales. PAL received economic assistance under the program of $14.0 million during the eleven months ended June 28, 2009 and, in accordance with the program provisions, recognized $9.7 million as reductions to costs of sales of which the Company’s share was $3.3 million.
		On October 19, 2009 PAL notified the Company that approximately $8.0 million of the capital expenditures recognized for fiscal year 2009 had been preliminarily disqualified by the U.S. Department of Agriculture (“USDA”). PAL appealed the decision with the USDA. In November 2009, PAL notified the Company that the USDA had denied the appeal. PAL has filed a second appeal at a higher level and a hearing is scheduled during the Company’s third quarter of fiscal year 2010. In the event that PAL’s appeal is unsuccessful, PAL may be required to adjust its prior period earnings which the Company believes would not materially impact its results of operations. From a cash perspective, PAL has informed the Company that it expects there will be sufficient future qualifying capital expenditures to recapture any lost benefit after the appeal process has been completed.
		The Company’s investment in PAL at December 27, 2009 was $59.6 million and the underlying equity in the net assets of PAL at December 27, 2009 was $77.4 million. The difference between the carrying value of the Company’s investment in PAL and the underlying equity in PAL is attributable to initial excess capital contributions by the Company of $53.4 million, settlement cost of an anti-trust lawsuit against PAL in which the Company did not participate of $2.6 million, net income adjustments of $0.3 million related to the expected disallowed expenditures for the cotton rebate program and other comprehensive income of $0.1 million offset by $74.1 million of investment impairment charges.
		On October 8, 2009, a wholly-owned foreign subsidiary of the Company formed a new joint venture, UNF America, with its partner, Nilit Ltd. (“Nilit”), for the purpose of producing nylon POY in Nilit’s Ridgeway, Virginia plant. This new joint venture will allow UNF America to produce Berry Amendment and North American Free Trade Agreement (“NAFTA”) compliant yarns which UNF was not able to produce under the product origination requirements of these trade agreements. The new joint venture will also shorten the Company’s supply chain resulting in expected improvements in the Company’s working capital, flexibility of the Company’s product offerings and the financial performance of the Company’s investments in equity affiliates.

		The Company’s initial investment in UNF America was fifty thousand dollars. In addition, the Company loaned UNF America $0.5 million for working capital. The loan carries interest at LIBOR plus one and one-half percent and both principal and interest shall be paid from the future profits of UNF America at such time as deemed appropriate by its members. The loan is being treated as an additional investment by the Company for accounting purposes.
		In August 2005, the Company formed YUFI, a 50/50 joint venture with Sinopec Yizheng Chemical Fiber Co., Ltd, (“YCFC”), to manufacture process and market polyester filament yarn in YCFC’s facilities in Yizheng, Jiangsu Province, People’s Republic of China (“China”). During fiscal year 2008, the Company’s management explored strategic options with its joint venture partner in China with the ultimate goal of determining if there was a viable path to profitability for YUFI. The Company’s management concluded that although YUFI had successfully grown its position in high value and premier value-added (“PVA”) products, commodity sales would continue to be a large and unprofitable portion of the joint venture’s business. In addition, the Company believed YUFI had focused too much attention and energy on non-value added issues, distracting management from its primary PVA objectives. Based on these conclusions, the Company decided to exit the joint venture and on July 30, 2008, the Company announced that it had reached a proposed agreement to sell its 50% interest in YUFI to its partner for $10.0 million.
		As a result of the agreement with YCFC, the Company initiated a review of the carrying value of its investment in YUFI and determined that the carrying value of its investment in YUFI exceeded its fair value. Accordingly, the Company recorded a non-cash impairment charge of $6.4 million in the fourth quarter of fiscal year 2008.
		The Company expected to close the transaction in the second quarter of fiscal year 2009 pending negotiation and execution of definitive agreements and Chinese regulatory approvals. The agreement provided for YCFC to immediately take over operating control of YUFI, regardless of the timing of the final approvals and closure of the equity sale transaction. During the first quarter of fiscal year 2009, the Company gave up one of its senior staff appointees and YCFC appointed its own designee as General Manager of YUFI, who assumed full responsibility for the operating activities of YUFI at that time. As a result, the Company lost its ability to influence the operations of YUFI and therefore the Company ceased recording its share of losses commencing in the same quarter.
		In December 2008, the Company renegotiated the proposed agreement to sell its interest in YUFI to YCFC for $9.0 million and recorded an additional impairment charge of $1.5 million, which included approximately $0.5 million related to certain disputed accounts receivable and $1.0 million related to the fair value of its investment, as determined by the re-negotiated equity interest sales price, which was lower than carrying value.
		On March 30, 2009, the Company closed on the sale and received $9.0 million in proceeds related to its investment in YUFI. The Company continues to service customers in Asia through Unifi Textiles Suzhou Co., Ltd. (“UTSC”), a wholly-owned subsidiary based in Suzhou, China, that is focused on the development, sales and service of PVA yarns.

10.

Income Taxes

		The Company’s income tax provision for the quarter ended December 27, 2009 resulted in tax expense at an effective rate of 36.5% compared to the quarter ended December 28, 2008 which resulted in tax expense at an effective rate of 7.1%. The Company’s income tax provision for the year-to-date period ended December 27, 2009 resulted in tax expense at an effective rate of 45.2% compared to the year-to-date period ended December 28, 2008 which resulted in tax expense at an effective rate of 33.5%.
		The differences between the Company’s income tax expense and the U.S. statutory rate for the quarter and year-to-date period ended December 27, 2009 was primarily due to losses in the U.S. and other jurisdictions for which no tax benefit could be recognized while operating profit was generated in other taxable jurisdictions. The difference between the Company’s income tax expense and the U.S. statutory rate for the quarter and year-to-date period ended December 28, 2008 were primarily attributable to state income tax benefits, foreign income taxed at rates less than the U.S. statutory rate and an increase in the valuation allowance.
		Deferred income taxes have been provided for the temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. The valuation allowance on the Company’s net domestic deferred tax assets is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of the valuation allowance. In addition, until such time that the Company determines it is more likely than not that it will generate sufficient taxable income to realize its deferred tax assets, income tax benefits associated with future period losses will be fully reserved. The valuation allowance decreased $1.5 million and increased $0.7 million in the quarter and year-to-date period ended December 27, 2009, respectively, compared to increases of $3.5 million and $4.1 million in the quarter and year-to-date period ended December 28, 2008, respectively. The net increase in the valuation allowance for the year-to-date period ended December 27, 2009 primarily consists of a $0.3 million decrease in the net operating loss generated in the period, and an increase of $1.0 million related to other temporary differences.
		The Company believes it is reasonably possible unrecognized tax benefits will decrease by approximately $1.2 million by the end of fiscal year 2010 as a result of expiring tax credit carry forwards.
		The Company has elected to classify interest and penalties recognized as income tax expense. The Company did not accrue interest or penalties related to uncertain tax positions during fiscal year 2009 or during the quarter or year-to-date period ended December 27, 2009.
		The Company is subject to income tax examinations for U.S. federal income taxes for fiscal years 2004 through 2009, for non-U.S. income taxes for tax years 2001 through 2009, and for state and local income taxes for fiscal years 2001 through 2009.

11.

Stock-Based Compensation

		On October 29, 2008, the shareholders of the Company approved the 2008 Unifi, Inc. Long-Term Incentive Plan (“2008 Long-Term Incentive Plan”). The 2008 Long-Term Incentive Plan authorized the issuance of up to 6,000,000 shares of Common Stock pursuant to the grant or exercise of stock options, including Incentive Stock Options (“ISO”), Non-Qualified Stock Options (“NQSO”) and restricted stock, but not more than 3,000,000 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.
		During the second quarter of fiscal year 2009, the Compensation Committee (“Committee”) of the Board of Directors (“Board”) authorized the issuance of 280,000 stock options from the 2008 Long-Term Incentive Plan to certain key employees. The stock options are subject to a market condition which vests the options on the date that the closing price of the Company’s common stock shall have been at least $6.00 per share for thirty consecutive trading days. The exercise price is $4.16 per share which is equal to the market price of the Company’s stock on the grant date. The Company used a Monte Carlo stock option model to estimate the fair value of $2.49 per share and the derived vesting period of 1.2 years.
		During the first quarter of fiscal year 2010, the Committee authorized the issuance of 1,700,000 stock options from the 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 10-year contractual terms. The Company used the Black-Scholes model to estimate the fair values of the options granted. The following table provides detail of the number of options granted during the first quarter of fiscal year 2010 and the related assumptions used in the valuation of these awards:

		Expected term				Exercise				Interest								Dividend
Options granted		(years)				price				rate				Volatility				yield				Fair value
1,660,000			5.5			$	1.91				2.8	%			63.6	%			—			$	1.10
40,000			5.5			$	2.86				2.5	%			63.9	%			—			$	1.65

		The Company incurred $0.7 million and $0.3 million in the second quarter of fiscal years 2010 and 2009 respectively, and $1.3 million and $0.6 million for the year-to-date periods, respectively, in stock-based compensation charges which were recorded as selling, general and administrative (“SG&A”) expenses with the offset to capital in excess of par value.
		The Company issued 100,000 shares of common stock and 1,368,300 shares of common stock during the second quarter and year-to-date periods of fiscal year 2009, respectively, as a result of the exercise of stock options. There were no options exercised during the second quarter or the year-to-date period of fiscal year 2010.

12.

Assets Held for Sale

		The Company had assets held for sale related to the consolidation of its polyester manufacturing capacity that are comprised of the remaining assets and structures in Kinston, North Carolina (“Kinston”). As of June 28, 2009, the value of the machinery and equipment held for sale was $1.4 million.
		During the first quarter of fiscal year 2010, the Company entered into a contract to sell certain of the assets held for sale and based on the contract price, the Company recorded a $0.1 million non-cash impairment charge in the first quarter of fiscal year 2010. The sale closed during the second quarter of fiscal year 2010. The remaining assets and structures at the Kinston facility have no net book value and will be conveyed back to E.I. DuPont de Nemours (“DuPont”) if the Company is unable to sell the assets by March 20, 2010.

13.

Severance and Restructuring Charges

Severance

		The Company recorded severance expense of $2.4 million for its former President and Chief Executive Officer (“CEO”) during the first quarter of fiscal year 2008 and $1.7 million of severance expense related to its former Chief Financial Officer during the second quarter of fiscal year 2008.
		In the third quarter of fiscal year 2009, the Company reorganized, reducing its workforce due to the economic downturn. Approximately 200 salaried and wage employees were affected by this reorganization related to the Company’s efforts to reduce costs. As a result, the Company recorded $0.3 million in severance charges related to certain allocated salaried corporate and manufacturing support staff.
		The table below summarizes changes to the accrued severance account for the six-month period ended December 27, 2009 (amounts in thousands):

		Balance at																Balance at
		June 28, 2009				Charges				Adjustments				Amounts Used				December 27, 2009
Accrued severance		$	1,687	(1)			—				20				(730	)		$	977

14.

Derivatives and Fair Value Measurements

		The Company accounts for derivative contracts and hedging activities at fair value. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or are recorded in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is immediately recognized in earnings. The Company does not enter into derivative financial instruments for trading purposes nor is it a party to any leveraged financial instruments.
		The Company conducts its business in various foreign currencies. As a result, it is subject to the transaction exposure that arises from foreign exchange rate movements between the dates that foreign currency transactions are recorded and the dates they are consummated. The Company utilizes some natural hedging to mitigate these transaction exposures. The Company primarily enters into foreign currency forward contracts for the purchase and sale of European, North American and Brazilian currencies to use as economic hedges against balance sheet and income statement currency exposures. These contracts are principally entered into for the purchase of inventory and equipment and the sale of Company products into export markets. Counter-parties for these instruments are major financial institutions.
		Currency forward contracts are used to hedge exposure for sales in foreign currencies based on specific sales made to customers. Generally, 60-75% 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 (income) expense. The Company also enters currency forward contracts for committed inventory purchases made by its Brazilian subsidiary. Generally up to 5% of these inventory purchases are covered by forward contracts although 100% of the cost may be covered by individual contracts in certain instances. As of December 27, 2009, the Brazilian subsidiary’s currency risk was minimal and therefore no forward contracts were deemed necessary. The latest maturity for all outstanding foreign currency sales contracts is March 2010.

There is now a common definition of fair value used and a hierarchy for fair value measurements based on the type of inputs that are used to value the assets or liabilities at fair value.

The levels of the fair value hierarchy are:

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

The dollar equivalent of these forward currency contracts and their related fair values are detailed below (amounts in thousands):

		December 27,				June 28,
		2009				2009
Foreign currency purchase contracts:		Level 2				Level 2
Notional amount		$	—			$	110
Fair value			—				130
Net gain		$	—			$	(20	)
Foreign currency sales contracts:
Notional amount		$	1,783			$	1,121
Fair value			1,828				1,167
Net loss		$	(45	)		$	(46	)

The fair values of the foreign exchange forward contracts at the respective quarter-end dates are based on discounted quarter-end forward currency rates. The total impact of foreign currency related items that are reported on the line item other operating (income) expense, net in the Consolidated Statements of Operations, including transactions that were hedged and those unrelated to hedging, was a pre-tax gain of $0.1 million for the quarter ended December 27, 2009 and a pre-tax loss of $0.4 million for the quarter ended December 28, 2008. For the year-to-date periods ended December 27, 2009 and December 28, 2008, the total impact of foreign currency related items resulted in a pre-tax gain of $0.1 million and a pre-tax loss of $0.1 million, respectively.

The Company calculates the fair value of its 11.5% senior secured notes, which mature on May 15, 2014 (the “2014 notes”) based on the traded price of the notes on the latest trade date prior to its period end. These are considered Level 1 inputs in the fair value hierarchy. The following table shows the fair values at December 27, 2009 and June 28, 2009 which were calculated based on the latest trade price on December 17, 2009 and June 19, 2009, respectively (amounts in thousands):

		December 27, 2009								June 28, 2009
		Carrying Value				Fair Value				Carrying Value				Fair Value
2014 Notes Payable		$	178,722			$	170,680			$	179,222			$	112,910

15.

Contingencies

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

16.

Related Party Transactions

		In fiscal 2007, the Company purchased the polyester and nylon texturing operations of Dillon (the “Transaction”). In connection with the Transaction the Company and Dillon entered into the Agreement for a term of two years from January 1, 2007, pursuant to which the Company agreed to pay Dillon for certain sales and transitional services to be provided by Dillon’s sales staff and executive management. On December 1, 2008, the Company entered into an agreement to extend the polyester services portion of the Agreement for a term of one year effective January 1, 2009 pursuant to which the Company agreed to pay Dillon an aggregate amount of $1.7 million. The Company recorded $0.4 million and $0.3 million of SG&A expense for the second quarter of fiscal years 2010 and 2009, respectively, and $0.9 million and $0.5 million for the year-to-date periods of fiscal year 2010 and 2009, respectively, related to this contract and the related amendment.
		On December 11, 2009, the Company and Dillon entered into a Second Amendment (the “Amendment”) to the Agreement. The Amendment provides that effective January 1, 2010, the term of the Agreement will be extended for a one year term which will expire on December 31, 2010 pursuant to which the Company will pay Dillon an aggregate amount of $1.3 million. Mr. Stephen Wener is the President and CEO of Dillon. Mr. Wener is Chairman of the Company’s Board of Directors (“Board”) and has been a member of the Board since May 24, 2007. The terms of the Company’s 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.
		On November 25, 2009, the Company entered into a stock purchase agreement with Invemed Catalyst Fund. L.P. (the “Fund”). Pursuant to the stock purchase agreement, the Company agreed to purchase 1,885,000 shares of its common stock from the Fund for an aggregate purchase price of $5.0 million. The Company and the Fund negotiated the per share purchase price of $2.65 per share based on an approximately 10% discount to the closing price of the Company’s common stock on November 24, 2009.

Mr. Kenneth G. Langone, a member of the Company’s board of directors, is the principal stockholder and CEO of Invemed Securities, Inc., which is a managing member of Invemed Catalyst Gen Par, LLC, the general partner of the Fund. Mr. William M. Sams, another member of the Company’s board of directors, is a limited partner of the Fund. Neither Mr. Langone nor Mr. Sams was involved in any decisions by the board of directors of the Company or any committee thereof with respect to this stock purchase transaction. Following the purchase, Mr. Langone continued to beneficially own 1,757,900 shares of the Company’s common stock, or 2.9% of the total outstanding shares, and Mr. Sams continued to beneficially own 5,420,000 shares of the Company’s common stock, or 9.0% of the total outstanding shares of the Company’s common stock.

17.

Segment Disclosures

The following is the Company’s segment information for the quarters and six-month period ended December 27, 2009 and December 28, 2008 (amounts in thousands):

		Polyester				Nylon				Total
Quarter ended December 27, 2009:
Net sales to external customers		$	104,303			$	37,952			$	142,255
Inter-segment net sales			—				—				—
Depreciation and amortization			5,750				862				6,612
Segment operating profit			2,924				2,260				5,184
Total segment assets			322,232				75,462				397,694
Quarter ended December 28, 2008:
Net sales to external customers		$	93,984			$	31,743			$	125,727
Inter-segment net sales			—				—				—
Depreciation and amortization			5,684				1,912				7,596
Segment operating loss			(6,735	)			(257	)			(6,992	)
Total segment assets			332,994				84,505				417,499

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

		For the Quarters Ended
		December 27,				December 28,
		2009				2008
Depreciation and amortization:
Depreciation and amortization of specific reportable segment assets		$	6,612			$	7,596
Depreciation included in other operating (income) expense, net			36				36
Amortization included in interest expense, net			276				289
Consolidated depreciation and amortization		$	6,924			$	7,921
Reconciliation of segment operating income (loss) to income (loss) from continuing operations before income taxes:
Reportable segments operating income (loss)		$	5,184			$	(6,992	)
Provision (benefit) for bad debts			(564	)			501
Other operating (income) expense, net			(109	)			(5,212	)
Interest expense, net			4,389				5,068
Equity in earnings of unconsolidated affiliates			(1,609	)			(162	)
Write down of investment in unconsolidated affiliate			—				1,483
Income (loss) from continuing operations before income taxes		$	3,077			$	(8,670	)

		Polyester				Nylon				Total
Six-Months ended December 27, 2009:
Net sales to external customers		$	208,763			$	76,343			$	285,106
Intersegment net sales			—				—				—
Depreciation and amortization			11,518				1,755				13,273
Segment operating profit			7,795				5,531				13,326
Six-Months ended December 28, 2008:
Net sales to external customers		$	216,963			$	77,773			$	294,736
Intersegment net sales			—				71				71
Depreciation and amortization			12,973				4,346				17,319
Segment operating profit (loss)			(6,925	)			2,813				(4,112	)

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

		For the Six-Months Ended
		December 27,				December 28,
		2009				2008
Depreciation and amortization:
Depreciation and amortization of specific reportable segment assets		$	13,273			$	17,319
Depreciation included in other operating (income) expense, net			71				71
Amortization included in interest expense, net			553				579
Consolidated depreciation and amortization		$	13,897			$	17,969
Reconciliation of segment operating income (loss) to income (loss) from continuing operations before income taxes:
Reportable segments operating income (loss)		$	13,326			$	(4,112	)
Provision for bad debts			12				1,059
Other operating (income) expense, net			(196	)			(5,773	)
Interest expense, net			9,135				10,120
Gain on extinguishment of debt			(54	)			—
Equity in earnings of unconsolidated affiliates			(3,672	)			(3,644	)
Write down of investment in unconsolidated affiliate			—				1,483
Income (loss) from continuing operations before income taxes		$	8,101			$	(7,357	)

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

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

Segment operating profit (loss) excludes the benefit for bad debts of $0.6 million and a provision of $0.5 million for the current and prior year second quarter periods, respectively, and a provision of twelve thousand dollars and $1.1 million for the current and prior year-to-date periods, respectively.

The total assets for the polyester segment increased from $314.6 million at June 28, 2009 to $322.2 million at December 27, 2009 primarily due to increases in cash, inventory, and deferred taxes of $13.5 million, $10.3 million, and $0.1 million, respectively. These increases were offset by decreases in accounts receivable, short-term restricted cash, property, plant, and equipment, other long-term assets, other current assets and long-term restricted cash of $7.7 million, $2.9 million, $2.6 million, $1.7 million, $0.9 million, and $0.5 million, respectively. The total assets for the nylon segment increased from $75.0 million at June 28, 2009 to $75.5 million at December 27, 2009 primarily due to increases in inventory and cash of $3.4 million and $0.3 million, respectively. These increases were offset by decreases in accounts receivable and property, plant, and equipment of $2.1 million and $1.1 million, respectively.

18.

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 SEC on February 5, 2010 and has determined there were no items deemed reportable.

19.

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.

UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet Information as of December 27, 2009 (amounts in thousands):

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	11,940			$	(3,266	)		$	45,768			$	—			$	54,442
Receivables, net			—				50,830				18,524				—				69,354
Inventories			—				72,077				32,609				(1,674	)			103,012
Deferred income taxes			—				—				1,294				—				1,294
Restricted cash			—				—				3,609				—				3,609
Other current assets			75				1,701				4,111				—				5,887
Total current assets			12,015				121,342				105,915				(1,674	)			237,598
Property, plant and equipment			11,348				660,266				74,727				—				746,341
Less accumulated depreciation			(2,042	)			(534,582	)			(53,193	)			—				(589,817	)
			9,306				125,684				21,534				—				156,524
Intangible assets, net			—				15,821				—				—				15,821
Investments in unconsolidated affiliates			—				59,572				3,387				—				62,959
Investments in consolidated subsidiaries			412,505				—				—				(412,505	)			—
Other noncurrent assets			3,984				12,857				(3,806	)			—				13,035
		$	437,810			$	335,276			$	127,030			$	(414,179	)		$	485,937
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	49			$	22,611			$	4,959			$	—			$	27,619
Accrued expenses			2,708				10,708				2,455				—				15,871
Income taxes payable			380				—				65				—				445
Current maturities of long-term debt and other current liabilities			—				368				3,609				—				3,977
Total current liabilities			3,137				33,687				11,088				—				47,912
Long-term debt and other liabilities			178,722				2,981				—				—				181,703
Deferred income taxes			—				—				371				—				371
Shareholders’/ invested equity			255,951				298,608				115,571								255,951
		$	437,810			$	335,276			$	127,030			$	(414,179	)		$	485,937

UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

Balance Sheet Information as of June 28, 2009 (amounts in thousands):

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	11,509			$	(813	)		$	31,963			$	—			$	42,659
Receivables, net			100				56,031				21,679				—				77,810
Inventories			—				63,919				25,746				—				89,665
Deferred income taxes			—				—				1,223				—				1,223
Assets held for sale			—				1,350				—				—				1,350
Restricted cash			—				—				6,477				—				6,477
Other current assets			46				2,199				3,219				—				5,464
Total current assets			11,655				122,686				90,307				—				224,648
Property, plant and equipment			11,336				665,724				67,193				—				744,253
Less accumulated depreciation			(1,899	)			(534,297	)			(47,414	)			—				(583,610	)
			9,437				131,427				19,779				—				160,643
Restricted cash			—				—				453				—				453
Intangible assets, net			—				17,603				—				—				17,603
Investments in unconsolidated affiliates			—				57,107				2,944				—				60,051
Investments in consolidated subsidiaries			360,897				—				—				(360,897	)			—
Other noncurrent assets			45,041				(29,214	)			(2,293	)			—				13,534
		$	427,030			$	299,609			$	111,190			$	(360,897	)		$	476,932
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	37			$	19,888			$	6,125			$	—			$	26,050
Accrued expenses			1,690				11,033				2,546				—				15,269
Income taxes payable			—				—				676				—				676
Current maturities of long-term debt and other current Liabilities			—				368				6,477				—				6,845
Total current liabilities			1,727				31,289				15,824				—				48,840
Long-term debt and other liabilities			180,334				1,920				453				—				182,707
Deferred income taxes			—				—				416				—				416
Shareholders’/ invested equity			244,969				266,400				94,497				(360,897	)			244,969
		$	427,030			$	299,609			$	111,190			$	(360,897	)		$	476,932

UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

Statement of Operations Information for the Fiscal Quarter Ended December 27, 2009 (amounts in thousands):

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