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

For the quarterly period ended March 25, 2007

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

For the transition period from                      to                     

UNIFI, INC.

(Exact name of registrant as specified in its charter)

New York		11-2165495
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
P.O. Box 19109 — 7201 West Friendly Avenue Greensboro, NC (Address of principal executive offices)		27419 (Zip Code)

Registrant’s telephone number, including area code: (336) 294-4410

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso No þ

The number of shares outstanding of the issuer’s common stock, par value $.10 per share, as of May 3, 2007 was 60,541,800.

 

 

UNIFI, INC.
Form 10-Q for the Quarterly Period Ended March 25, 2007

INDEX

		Page
Part I Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 25, 2007 and June 25, 2006			3
Condensed Consolidated Statements of Operations for the Quarters and Nine-Months Ended March 25, 2007 and March 26, 2006			4
Condensed Consolidated Statements of Cash Flows for the Nine-Months Ended March 25, 2007 and March 26, 2006			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			41
Item 4. Controls and Procedures			42
Part II Other Information
Item 1. Legal Proceedings			43
Item 1A. Risk Factors			43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			43
Item 6. Exhibits			44
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Part. 1 Financial Information

Item. 1 Financial Statements

UNIFI, INC.

Condensed Consolidated Balance Sheets

		March 25,				June 25,
		2007				2006
		(Unaudited)
		(Amounts in thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	26,780			$	35,317
Receivables, net			99,442				93,236
Inventories			129,059				116,018
Deferred income taxes			14,060				11,739
Assets held for sale			7,346				17,418
Restricted cash			1,000				—
Other current assets			10,360				9,229
Total current assets			288,047				282,957
Property, plant and equipment			923,765				914,283
Less accumulated depreciation			(694,958	)			(676,586	)
			228,807				237,697
Investments in unconsolidated affiliates			184,249				190,217
Intangible assets, net			31,450				—
Other noncurrent assets			21,699				21,766
Total assets		$	754,252			$	732,637
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	59,922			$	68,916
Accrued expenses			27,897				23,869
Income taxes payable			503				2,303
Current maturities of long-term debt and other current liabilities			9,047				6,330
Total current liabilities			97,369				101,418
Long-term debt and other liabilities			243,593				202,405
Deferred income taxes			43,328				45,861
Commitments and contingencies
Shareholders’ equity:
Common stock			6,054				5,220
Capital in excess of par value			23,478				929
Retained earnings			341,268				382,082
Accumulated other comprehensive loss			(838	)			(5,278	)
			369,962				382,953
Total liabilities and shareholders’ equity		$	754,252			$	732,637

See accompanying notes to condensed consolidated financial statements.

UNIFI, INC.

Condensed Consolidated Statements of Operations
(Unaudited)

		For the Quarters Ended								For the Nine-Months Ended
		Mar. 25,				Mar. 26,				Mar. 25,				Mar. 26,
		2007				2006				2007				2006
		(Amounts in thousands, except per share data)
Net sales		$	178,202			$	181,398			$	505,041			$	555,617
Cost of sales			164,752				168,261				479,931				524,707
Selling, general & administrative expenses			11,177				10,184				32,854				31,132
Provision for bad debts			2,274				218				2,872				1,349
Interest expense			6,610				4,606				18,786				14,063
Interest income			(707	)			(1,542	)			(2,217	)			(5,012	)
Other (income) expense, net			(2,462	)			(589	)			(2,705	)			(1,138	)
Equity in (earnings) losses of unconsolidated affiliates			(352	)			564				4,473				(1,278	)
Write down of long-lived assets			12,870				815				16,072				2,315
Restructuring charges			—				—				—				29
Loss from continuing operations before income taxes			(15,960	)			(1,119	)			(45,025	)			(10,550	)
Provision (benefit) for income taxes			(2,075	)			208				(3,748	)			(1,023	)
Loss from continuing operations			(13,885	)			(1,327	)			(41,277	)			(9,527	)
Income (loss) from discontinued operations - net of tax			666				(790	)			463				556
Net loss		$	(13,219	)		$	(2,117	)		$	(40,814	)		$	(8,971	)
Earnings (losses) per common share (basic and diluted):
Net loss — continuing operations		$	(.23	)		$	(.03	)		$	(.75	)		$	(.18	)
Net income (loss) — discontinued operations			.01				(.01	)			—				.01
Net loss — basic and diluted		$	(.22	)		$	(.04	)		$	(.75	)		$	(.17	)
Weighted average outstanding shares of common stock (basic and diluted)			59,803				52,177				54,733				52,144

See accompanying notes to condensed consolidated financial statements.

UNIFI, INC.

Condensed Consolidated Statements of Cash Flows
(Unaudited) (Amounts in thousands)

		For the Nine-Months Ended
		March 25,				March 26,
		2007				2006
Cash and cash equivalents at the beginning of period		$	35,317			$	105,621
Operating activities:
Net loss			(40,814	)			(8,971	)
Adjustments to reconcile net loss to net cash provided by continuing operating activities:
(Income) loss from discontinued operations			(463	)			(556	)
Net (earnings) losses of unconsolidated equity affiliates, net of distributions			4,473				850
Depreciation			31,701				36,911
Amortization			1,967				962
Stock based compensation			1,433				421
Net (gain) loss on asset sales			(1,593	)			(180	)
Non-cash write down of long-lived assets			16,072				2,315
Non-cash portion of restructuring charges			—				29
Deferred income tax			(5,342	)			(3,797	)
Provision for bad debt			2,872				1,349
Split dollar life insurance proceeds, net			1,761				1,661
Other			93				(44	)
Change in assets and liabilities, excluding effects of acquisitions and foreign currency adjustments			(15,771	)			(7,531	)
Net cash provided by (used in) continuing operating activities			(3,611	)			23,419
Investing activities:
Capital expenditures			(5,502	)			(9,767	)
Acquisitions			(42,831	)			(30,188	)
Investment of foreign restricted assets			—				171
Collection of notes receivable			766				—
Change in restricted cash			(1,000	)			2,766
Proceeds from sale of capital assets			2,399				2,395
Return of capital from equity affiliates			229				—
Split dollar life insurance premiums			(217	)			(217	)
Other			(60	)			155
Net cash used in investing activities			(46,216	)			(34,685	)
Financing activities:
Payment of long-term debt			—				(24,407	)
Net borrowings of long-term debt			40,000				—
Other			(1,168	)			277
Net cash provided by (used in) financing activities			38,832				(24,130	)
Cash flows of discontinued operations:
Operating cash flow			463				(9,259	)
Investing cash flow			—				25,987
Net cash provided by discontinued operations			463				16,728
Effect of exchange rate changes on cash and cash equivalents			1,995				1,470
Net decrease in cash and cash equivalents			(8,537	)			(17,198	)
Cash and cash equivalents at end of period		$	26,780			$	88,423

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 at June 25, 2006, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. Except as noted with respect to the balance sheet at June 25, 2006, the information furnished is unaudited and reflects all adjustments which are, in the opinion of management, necessary to present fairly the financial position at March 25, 2007, and the results of operations and cash flows for the periods ended March 25, 2007 and March 26, 2006. 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 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 Form 10-K for the fiscal year ended June 25, 2006. Certain prior year amounts have been reclassified to conform to the current presentation.
		The significant accounting policies followed by the Company are presented on pages 57 to 62 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006. These policies have not changed from the disclosure in that report.
2.		Inventories
		Inventories were comprised of the following (amounts in thousands):

		March 25,				June 25,
		2007				2006
Raw materials and supplies		$	52,189			$	48,594
Work in process			7,781				10,144
Finished goods			69,089				57,280
		$	129,059			$	116,018

3.		Accrued Expenses
		Accrued expenses were comprised of the following (amounts in thousands):

		March 25,				June 25,
		2007				2006
Payroll and fringe benefits		$	9,069			$	11,112
Workers’ compensation			2,170				2,269
Severance			1,102				576
Interest			8,169				1,984
Property taxes			869				1,722
Accrued utilities			4,140				3,225
Other			2,378				2,981
		$	27,897			$	23,869

4.		Income Taxes
		The Company’s income tax benefit for the quarter ended March 25, 2007 resulted in an effective tax rate of 13.0% compared to an 18.6% income tax expense for the quarter ended March 26, 2006. The Company’s income tax benefit for the year-to-date period ended March 25, 2007 resulted in an effective tax rate of 8.3% compared to a 9.7% benefit for the year-to-date period ended March 26, 2006. The primary differences between the Company’s income tax benefit and the U.S. statutory rate for the quarter and year-to-date periods ended March 25, 2007 are due to losses from certain foreign operations taxed at a lower effective rate and an increase in the valuation allowance for capital losses.
		Deferred income taxes have been provided to account for the temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. The Company has established a valuation allowance against deferred tax assets for North Carolina income tax credit carryforwards and capital losses. The valuation allowance had net increases of $2.9 million and $8.0 million for the quarter and year-to-date periods ended March 25, 2007, respectively, compared to increases of $0.0 million and $0.4 million for the quarter and year-to-date periods ended March 26, 2006, respectively. The increases for the quarter and year-to-date periods ended March 25, 2007 resulted from lower estimates of future utilization of North Carolina income tax credit carryforwards as well as a complete offset of deductible temporary differences with respect to certain capital losses.
5.		Comprehensive Income/Loss
		Comprehensive losses amounted to $10.4 million and $36.4 million for the third quarter and year-to-date periods of fiscal year 2007, respectively, compared to a comprehensive income of $2.9 million and $3.9 million for the third quarter and year-to-date periods of fiscal year 2006. Comprehensive losses were comprised of net losses of $13.2 million and $40.8 million for the third quarter and year-to-date periods of fiscal year 2007, respectively, and foreign translation gains of $2.8 million and $4.4 million, respectively. Comprehensive income for the corresponding periods in the prior year was derived from net losses of $2.1 million and $9.0 million, and foreign translation gains of $5.0 million and $12.9 million. The Company does not provide income taxes on the impact of currency translations as earnings from foreign subsidiaries are deemed to be permanently invested.
6.		Recent Accounting Pronouncements
		In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 159, “Fair Value Option for Financial Assets and Financials Liabilities-Including an Amendment to FASB Statement No. 115” that expands the use of fair value measurement of various financial instruments and other items. This statement permits entities the option to record certain financial assets and liabilities, such as firm commitments, non-financial insurance contracts and warranties, and host financial instruments at fair value. Generally, the fair value option may be applied instrument by instrument and is irrevocable once elected. The unrealized gains and losses on elected items would be recorded as earnings. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. While the Company is currently evaluating the provisions of SFAS No. 159, it has not determined if it will make any elections for fair value reporting of its assets.
		In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) which is an interpretation of SFAS No. 109 “Accounting for Income Taxes.” The pronouncement creates a single model to address accounting for uncertainty in tax positions. FIN 48 prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 as of the first day of fiscal year 2008 and it has not determined the impact of FIN 48 on its results of operations and financial condition.

		In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS No. 158 amends SFAS No. 87, “Employers” Accounting for Pensions,” SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,” SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions” and SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” The amendments retain most of the existing measurement and disclosure guidance and will not change the amounts recognized in the Company’s statements of operations. SFAS No. 158 requires companies to recognize a net asset or liability with an offset to equity relating to post retirement obligations. This aspect of SFAS No. 158 is effective for fiscal years ended after December 15, 2006. The Company currently does not expect that SFAS No. 158 will have a material effect on its consolidated balance sheet.
		In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This new standard provides guidance for measuring the fair value of assets and liabilities and is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards. SFAS No. 157 also expands financial statement disclosure requirements about a company’s use of fair value measurements, including the effect of such measures on earnings. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. While the Company is currently evaluating the provisions of SFAS No. 157 it has not determined the impact it will have on its results of operations or financial condition.
7.		Segment Disclosures
		The following is the Company’s selected segment information for the quarters and nine-month periods ended March 25, 2007 and March 26, 2006 (amounts in thousands):

		Polyester				Nylon				Total
Quarter ended March 25, 2007:
Net sales to external customers		$	138,167			$	40,035			$	178,202
Intersegment net sales			1,421				587				2,008
Write down of long-lived assets			4,927				7,943				12,870
Segment operating loss			(3,740	)			(6,857	)			(10,597	)
Total assets			415,465				118,110				533,575
Quarter ended March 26, 2006:
Net sales to external customers		$	141,626			$	39,772			$	181,398
Intersegment net sales			1,346				1,984				3,330
Write down of long-lived assets			—				815				815
Segment operating income (loss)			3,977				(1,839	)			2,138
Total assets			375,025				134,509				509,534

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

		For the Quarters Ended
		March 25,				March 26,
		2007				2006
Reconciliation of segment operating income (loss) to net loss from continuing operations before income taxes:
Reportable segments operating income (loss)		$	(10,597	)		$	2,138
Provision for bad debts			2,274				218
Interest expense, net			5,903				3,064
Other (income) expense, net			(2,462	)			(589	)
Equity in (earnings) losses of unconsolidated affiliates			(352	)			564
Loss from continuing operations before income taxes		$	(15,960	)		$	(1,119	)

		Polyester				Nylon				Total
Nine-Months ended March 25, 2007:
Net sales to external customers		$	387,145			$	117,896			$	505,041
Intersegment net sales			5,335				3,683				9,018
Write down of long-lived assets			6,929				7,943				14,872
Segment operating loss			(14,359	)			(8,257	)			(22,616	)
Nine-Months ended March 26, 2006:
Net sales to external customers		$	422,581			$	133,036			$	555,617
Intersegment net sales			4,103				4,390				8,493
Write down of long-lived assets			—				2,315				2,315
Restructuring charges (recovery)			47				(18	)			29
Segment operating income (loss)			2,500				(5,066	)			(2,566	)

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

		For the Nine-Months Ended
		March 25,				March 26,
		2007				2006
Reconciliation of segment operating loss to net loss from continuing operations before income taxes:
Reportable segments operating loss		$	(22,616	)		$	(2,566	)
Provision for bad debts			2,872				1,349
Interest expense, net			16,569				9,051
Other (income) expense, net			(2,705	)			(1,138	)
Equity in (earnings) losses of unconsolidated affiliates			4,473				(1,278	)
Write down of long-lived assets			1,200				—
Loss from continuing operations before income taxes		$	(45,025	)		$	(10,550	)

		For purposes of internal management reporting, segment operating loss represents net sales less cost of sales and allocated selling, general and administrative expenses. Certain indirect manufacturing and selling, general and administrative costs are allocated to the operating segments based on activity drivers relevant to the respective costs. Intersegment sales of the Company’s polyester partially orientated yarn (“POY”) business are recorded at market value whereas all other intersegment sales are recorded at cost.
		The primary differences between the segmented financial information of the operating segment as reported to management and the Company’s consolidated reporting relate to intersegment sales of yarn and the associated fiber costs, the provision for bad debts, an d certain unallocated selling, general and administrative expenses.
		Fiber costs of the Company’s domestic operating divisions are valued on a standard cost basis, which approximates first-in, first-out accounting. For those components of inventory valued utilizing the last-in, first-out (“LIFO”) method, an adjustment is made at the segment level to record the difference between standard cost and LIFO. Segment operating loss excluded the provision for bad debts of $2.3 million and $0.2 million for the current and prior year third quarter periods, respectively, and a provision of $2.9 million and $1.3 million for the current and prior year-to-date periods, respectively.
		The total assets for the polyester segment increased from $359.2 million at June 25, 2006 to $415.5 million at March 25, 2007 due primarily to increases in other assets, inventory, accounts receivable, fixed assets, cash, other current assets, and deferred taxes of $33.4 million, $8.0 million, $7.7 million, $4.0 million, $2.2 million, $1.7 million, and $0.4 million, respectively. The increase is primarily attributable to the Dillon acquisition discussed in Footnote 14 “Asset Acquisition.” These increases were offset by decreases in assets held for sale of $1.1 million. The total assets for the nylon segment decreased from $128.2 million at June 25, 2006 to $118.1 million at March 25, 2007 due primarily to decreases in fixed assets and assets held for sale of $10.1 million and $7.6 million, respectively. These decreases were offset by increases in inventory, accounts receivable, deferred income taxes, cash, and other current assets of $4.9 million, $1.5 million, $0.7 million, $0.4 million, and $0.1 million, respectively.
8.		Stock-Based Compensation
		During the fourth quarter of fiscal year 2006, the Board authorized the issuance of one hundred fifty thousand stock options from the 1999 Long-Term Incentive Plan. During the first half of fiscal year 2005, the Board authorized the issuance of approximately 2.1 million stock options from the 1999 Long-Term Incentive Plan to certain key employees. The stock options granted in fiscal years 2006 and 2005 vest in three equal installments: the first one-third at the time of grant, the next one-third on the first anniversary of the grant and the final one-third on the second anniversary of the grant.
		During the first quarter of fiscal year 2007, the Board authorized the issuance of approximately 1.1 million stock options from the 1999 Long-Term Incentive Plan to certain key employees. With the exception of the immediate vesting of three hundred thousand stock options granted to the CEO, the remaining stock options vest in three equal installments: the first one-third at the time of grant, the next one-third on the first anniversary of the grant and the final one-third on the second anniversary of the grant. As a result of these grants, the Company incurred $0.2 million in the third quarter and $1.4 million for the year-to-date period in stock-based compensation charges which were recorded as selling, general and administrative expense with the offset to additional paid-in-capital.

9.		Derivative Financial Instruments
		The Company accounts for derivative contracts and hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” which requires all derivatives to be recorded on the balance sheet at fair value. 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 (export sales and purchase commitments) and the dates they are settled (cash receipts and cash disbursements in foreign currencies). The Company utilizes some natural hedging to mitigate these transaction exposures. The Company also enters into foreign currency forward contracts for the purchase and sale of European, Canadian, Brazilian and other currencies to hedge 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. Counterparties for these instruments are major financial institutions.
		Currency forward contracts are entered into to hedge exposure for sales in foreign currencies based on specific sales orders with customers or for anticipated sales activity for a future time period. Generally, 50% of the sales value of these orders is covered by forward contracts. Maturity dates of the forward contracts attempt to match anticipated receivable collections. The Company marks the outstanding accounts receivable and forward contracts to market at month end and any realized and unrealized gains or losses are recorded as other income and expense. The Company also enters currency forward contracts for committed or anticipated equipment and inventory purchases. Generally, 50% of the asset cost is covered by forward contracts although 100% of the asset cost may be covered by contracts in certain instances. Forward contracts are matched with the anticipated date of delivery of the assets and gains and losses are recorded as a component of the asset cost for purchase transactions when the Company is firmly committed. The latest maturity date for all outstanding purchase and sales foreign currency forward contracts is June 2007.
		The dollar equivalent of these forward currency contracts and their related fair values are detailed below (amounts in thousands):

		March 25,				June 25,
		2007				2006
Foreign currency purchase contracts:
Notional amount		$	870			$	526
Fair value			882				535
Net (gain) loss		$	(12	)		$	(9	)
Foreign currency sales contracts:
Notional amount		$	576			$	833
Fair value			588				878
Net (gain) loss		$	12			$	45

For the quarters ended March 25, 2007 and March 26, 2006, the total impact of foreign currency related items on the Condensed Consolidated Statements of Operations, including transactions that were hedged and those that were not hedged, resulted in null and a pre-tax loss of $0.2 million, respectively. For the year-to-date periods ended March 25, 2007 and March 26, 2006, the total impact of foreign currency related items was pre-tax gain of $0.1 million and a pre-tax loss of $0.3 million, respectively.

10.		Investments in Unconsolidated Affiliates
		The following table represents the Company’s investments in unconsolidated affiliates:

Affiliate Name		Year Acquired		Location		Percent Ownership
Yihua Unifi Fibre Company Limited		June 2005		Yizheng, Jiangsu Province, Peoples Republic of China			50	%
Parkdale America, LLC		June 1997		North and South Carolina			34	%
Unifi-SANS Technical Fibers, LLC		September 2000		Stoneville, North Carolina			50	%
U.N.F. Industries, LLC		September 2000		Migdal Ha - Emek, Israel			50	%

Condensed balance sheet information as of March 25, 2007, and income statement information for the quarter and year-to-date periods ended March 25, 2007, of the combined unconsolidated equity affiliates is as follows (amounts in thousands):

		As of
		March 25, 2007
Current assets		$	168,000
Noncurrent assets			195,073
Current liabilities			50,379
Noncurrent liabilities			14,105
Shareholders’ equity and capital accounts			298,589

		For the Quarter Ended				For the Nine-Months Ended
		March 25, 2007				March 25, 2007
Net sales		$	151,636			$	446,993
Gross profit			7,113				9,131
Income (loss) from operations			1,859				(7,097	)
Net income (loss)			1,909				(8,850	)

11.		Severance and Restructuring Charges
		On April 20, 2006, the Company re-organized its domestic business operations, and as a result, recorded a restructuring charge for severance of approximately $0.8 million in the fourth quarter of fiscal year 2006. Approximately 45 management level salaried employees were affected by this reorganization.
		Accrued restructuring relates to lease costs associated with the closure of a facility in Altamahaw, North Carolina. The lease payments are due on a quarterly basis with a final balloon payment due May 2008.
		On April 26, 2007 the Company announced it would be consolidating its capacity and therefore will close its recently acquired Dillon facility which resulted in an assumed liability of $0.9 million for severance related costs in accordance with purchase accounting. Approximately 321 wage employees and 34 salaried employees will be affected by this consolidation. See Footnote 18 “Subsequent Events” for further discussion.

The table below summarizes changes to the accrued severance and accrued restructuring accounts for the year-to-date period ended March 25, 2007 (amounts in thousands):

		Balance at																Balance at
		June 25, 2006				Charges				Adjustments				Amounts Used				March 25, 2007
Accrued severance		$	576				—				1,073				(547	)		$	1,102
Accrued restructuring		$	3,550				—				175				(748	)		$	2,977

12.		Impairment Charges
		The Company operated two polyester dye facilities which are located in Mayodan, North Carolina (the “Mayodan facility”) and Reidsville, North Carolina (the “Reidsville facility”). On March 22, 2007, the Company committed to a plan to idle the Mayodan facility and consolidate all of its dyed operations into the Reidsville facility. The consolidation process is expected to be completed by the end of June 2007 and at that time the Company will begin to explore the sale of such facility. Pursuant to this determination, the Company performed an impairment review in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and received an appraisal relating to the Mayodan facility. The appraisal indicated that the carrying amount of the Mayodan facility exceeded its fair value. Accordingly, the Company recorded in the quarter ended March 25, 2007, a pre-tax impairment charge of $4.4 million. The facility is not classified as held for sale at this time.
		In November 2006, the Company’s Brazilian operation decided to modernize its facilities by replacing ten of its older machines with newer machines purchased from the domestic polyester division. These machine purchases will allow the Brazilian facility to produce tailor made products at higher speeds resulting in lower costs and increased competitiveness. The Company recognized a $2.0 million impairment charge on the older machines in the second quarter of fiscal 2007 related to the book value of the machines and the related dismantling and removal costs.
		On October 26, 2006 the Company announced its intent to sell a manufacturing facility that the Company had leased to a tenant since 1999. The lease expired in October 2006 and the Company decided to sell the property upon expiration of the lease. Pursuant to this determination, the Company received appraisals relating to the property and performed an impairment review in accordance with SFAS No. 144. The Company evaluated the recoverability of the long-lived asset and determined that the carrying amount of the property exceeded its fair value. Accordingly, the Company recorded a non-cash impairment charge of $1.2 million during the first quarter of fiscal year 2007, which included $0.1 million in estimated selling costs that will be paid from the proceeds of the sale when it occurs.
		During the quarter ended September 25, 2005, management decided to consolidate its domestic nylon operations to improve overall operating efficiencies. This initiative included closing Plant 1 in Mayodan, North Carolina and moving its operations and offices to Plant 3 in Madison, North Carolina which is the Nylon division’s largest facility with over one million square feet of production space. As a part of the consolidation plan, three nylon facilities (the “Madison facilities”) were vacated and classified as held for sale later in fiscal year 2006. The Company received appraisals on the three properties, and after reviewing the reports, determined that one of the facility’s carrying value exceeded its appraised value. As a result of this determination, the Company recorded a non-cash impairment charge of $1.5 million in the first quarter of fiscal year 2006 which included $0.2 million of estimated selling costs. During the quarter, the Company reviewed the Madison facilities as the facilities have been classified as “held for sale” for a one year period and have not been sold. The Company completed its SFAS 144 review relating to the Madison facilities and recorded an additional pre-tax impairment charge of $3.0 million which included $0.3 million

		in estimated selling expenses in the quarter ended March 25, 2007. As a result, the Company has reduced its offering price for the Madison facilities and will continue to actively market these facilities. In addition, the Madison facilities stored idle equipment relating to their operations. This equipment has also been classified as “held for sale” for the past year and the Company has determined that a sale is not possible. Consequently, the Company has determined to write such equipment down to its scrap value of $0.2 million. The Company completed its SFAS 144 review and recorded an impairment charge of $5.5 million relating to the idle equipment in the third quarter.
		On March 13, 2006, the Company entered into a contract to sell the central distribution center (the “CDC”) and related land located in Mayodan, North Carolina. The terms of the contract call for a sale price of $2.7 million, which was approximately $0.7 million below the property’s carrying value. In accordance with SFAS No. 144, the Company recorded an impairment charge of approximately $0.8 million during the third quarter of fiscal year 2006 which included selling costs of $0.1 million. The sale of the CDC closed in the fourth quarter of fiscal year 2006 with no further expense to the Company.
13.		Assets Held for Sale
		On October 26, 2006 the Company announced its intent to sell a manufacturing facility that the Company had leased to a tenant since 1999. The lease expired in October 2006 and the Company decided to sell the property upon expiration of the lease. During the current quarter the Company listed the property for sale with a broker and as a result the property has been reclassified as held for sale.
		The Company announced in the quarter ended September 25, 2005 that the nylon division decided to consolidate its operating facilities in Mayodan and Madison, North Carolina. As a result, Plant 1, Plant 5, Plant 7, and the CDC were completely vacated as of March 2006 and listed for sale. In addition, unrelated to the nylon restructuring plan, the Company decided to market other properties in Yadkinville, North Carolina and Staunton, Virginia as well as related idle machinery and equipment. The listing contract for real property was signed in December 2005 and was extended to expire in June 2007. The sale of the CDC and the Staunton, Virginia properties closed in the fourth quarter of fiscal year 2006.
		The following table summarizes by category assets held for sale (amounts in thousands):

		March 25,				June 25,
		2007				2006
Land		$	656			$	656
Building			6,173				12,007
Machinery and equipment			—				4,238
Leasehold improvements			517				517
		$	7,346			$	17,418

14.		Asset Acquisition
		Effective January 1, 2007, Unifi Manufacturing, Inc. (“UMI”), one of the Company’s wholly owned subsidiaries, completed its acquisition of certain assets, including inventories, fixed assets, and intangible assets, consisting of a customer list and non-compete contracts, from Dillon Yarn Corporation (“Dillon”), related to or used in Dillon’s textured nylon and polyester yarn businesses. The aggregate consideration paid in connection with the Dillon acquisition was $64.2 million, including post closing adjustments for inventories; consisting of a combination of $42.2 million in cash, and 8.3 million shares of the Company’s common stock valued at $22.0 million. The allocation of the purchase price is preliminary as the Company is in the process of obtaining third party appraisals for the fixed assets acquired. The operational results of Dillon were included in the Company’s consolidated results for the period January

		1, 2007 to March 25, 2007. The purchase of Dillon is consistent with the Company’s long range plan for consolidating capacity in the domestic markets which management believes is an effective strategy to create long-term shareholder value. See Footnote 18 “Subsequent Events” for further discussion.
15.		Long-Term Debt
		In May 2006, the Company amended its asset-based revolving credit facility with a senior secured asset-based revolving credit facility (the “Amended Credit Agreement”) to provide a $100 million revolving borrowing base (with an option to increase borrowing capacity up to $150 million), to extend its maturity from 2006 to 2011, and to revise some of its other terms and covenants. The Amended Credit Agreement is secured by first-priority liens on the Company’s and its subsidiary guarantors’ inventory, accounts receivable, general intangibles (other than uncertificated capital stock of subsidiaries and other persons), investment property (other than capital stock of subsidiaries and other persons), chattel paper, documents, instruments, supporting obligations, letter of credit rights, deposit accounts and other related personal property and all proceeds relating to any of the above, and by second-priority liens, subject to permitted liens, on the Company’s and its subsidiary guarantors’ assets securing its 11.5% senior secured notes and guarantees on a first-priority basis, in each case other than certain excluded assets. The Company’s ability to borrow under the Company’s 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.
		On January 2, 2007, the Company borrowed $43.0 million under the Amended Credit Agreement to finance the purchase of the Dillon assets located in Dillon, South Carolina. See Footnote 14 “Asset Acquisition.” The borrowings were derived from two separate LIBOR rate revolving loans; a $15.0 million, 6.58%, thirty day loan and a $28.0 million, 6.60%, 60 day loan. As of March 25, 2007, the Company had replaced these loans with three separate LIBOR rate revolving loans, a $4.0 million, 6.57%, thirty day loan, a $16.0 million, 6.59%, sixty day loan and a $20.0 million, 6.60%, ninety day loan. The Company intends to renew the loans as they come due and reduce the outstanding borrowings as cash generated from operations becomes available. The Company had remaining availability of $53.7 million under the terms of the Amended Credit Agreement. Borrowings under the Amended Credit Agreement bear interest at rates selected periodically by the Company of LIBOR plus 1.50% to 2.25% and/or prime plus 0.00% to 0.50%. The interest rate matrix is based on the Company’s excess availability under the Amended Credit Agreement. The interest rate in effect at March 25, 2007 was 6.6%. Under the Amended Credit Agreement, the Company pays an unused line fee ranging from 0.25% to 0.35% per annum of the borrowing base.
		The Amended Credit Agreement contains affirmative and negative customary covenants for asset based loans that restrict future borrowings and capital spending. Such covenants include, without limitation, restrictions and limitations on (i) sales of assets, consolidation, merger, dissolution and the issuance of our capital stock, each subsidiary guarantor and any domestic subsidiary thereof, (ii) permitted encumbrances on our property, each subsidiary guarantor and any domestic subsidiary thereof, (iii) the incurrence of indebtedness by the Company, any subsidiary guarantor or any domestic subsidiary thereof, (iv) the making of loans or investments by the Company, any subsidiary guarantor or any domestic subsidiary thereof, (v) the declaration of dividends and redemptions by the Company or any subsidiary guarantor and (vi) transactions with affiliates by the Company or any subsidiary guarantor. As of March 25, 2007, the Company was in compliance with the loan covenants.
		On May 26, 2006, the Company issued $190 million of 11.5% senior secured notes (“2014 notes”) which mature on May 15, 2014. These notes were issued to substantially replace $250 million of senior, unsecured debt securities that were due February 2008. The 2014 notes and guarantees are secured by first-priority liens, subject to permitted liens, on substantially all of the Company’s and the Company’s

		subsidiary guarantors’ assets (other than the assets securing the Company’s obligations under the Company’s Amended Credit Agreement on a first-priority basis, which consist primarily of accounts receivable and inventory), including, but not limited to, property, plant and equipment, the capital stock of the Company’s domestic subsidiaries and certain of the Company’s joint ventures and up to 65% of the voting stock of the Company’s first-tier foreign subsidiaries, whether now owned or hereafter acquired, except for certain excluded assets. The 2014 notes are unconditionally 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 second-priority liens, subject to permitted liens, on the Company and its subsidiary guarantors’ assets that will secure the notes and guarantees on a first-priority basis. The Company may redeem some or all of the 2014 notes on or after May 15, 2010. In addition, prior to May 15, 2009, the Company may redeem up to 35% of the principal amount of the 2014 notes with the proceeds of certain equity offering. The estimated fair value of the 2014 notes, based on quoted market prices, at March 25, 2007 and June 25, 2006, was approximately $188.1 million and $182.4 million, respectively. The Company makes semi-annual interest payments of $10.9 million on the fifteenth business day of November and May of each year.
16.		Discontinued Operations
		On July 28, 2005, the Company announced that it would discontinue the operations of the Company’s external sourcing business, Unimatrix Americas. As of March 26, 2006, management’s plan to exit the business was successfully completed resulting in the reclassification of the segment’s losses as discontinued operations for all periods presented.
		On July 28, 2004, the Company announced its decision to close its European Division. The manufacturing facilities in Ireland ceased operations on October 31, 2004. The Company is in the process of settling its final obligations at this time.
		Results of operations for the sourcing segment and European Division for the third quarter and year-to-date periods of fiscal years 2007 and 2006 are as follows (amounts in thousands):

		For the Quarters Ended								For the Nine-Months Ended
		March 25,				March 26,				March 25,				March 26,
		2007				2006				2007				2006
Net sales		$	—			$	418			$	—			$	3,940
Income (loss) from discontinued operations before income taxes			666				(1,315	)			463				(691	)
Income tax benefit			—				(525	)			—				(1,247	)
Net income (loss) from discontinued operations, net of tax		$	666			$	(790	)		$	463			$	556

17.		Commitments and Contingencies
		In February 2007, the Company received notice of a claim from the Employment Security Commission of North Carolina for the underpayment of unemployment taxes. The Employment Security Commission’s claim is approximately $1.0 million, excluding interest and penalties. The Company is evaluating the validity of this claim and at this time does not know the extent of any potential liability.
		On September 30, 2004, the Company completed its acquisition of the polyester filament manufacturing assets located in Kinston, North Carolina from INVISTA S.a.r.l. (“INVISTA”). The land for the Kinston site is leased pursuant to a 99 year ground lease (“Ground Lease”) with E.I. DuPont de Nemours (“DuPont”). Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the United States Environmental Protection Agency (“EPA”) and the North Carolina

		Department of Environment and Natural Resources 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 contamination at the identified AOCs and clean them up to comply with applicable regulatory standards. Under the terms of the Ground Lease, upon completion by DuPont of required remedial action, ownership of the Kinston site will pass to the Company. Thereafter, the Company will have responsibility for future remediation requirements, if any, at the AOCs previously addressed by DuPont. 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.
18.		Subsequent Events
		On April 26, 2007, the Company announced that it will move all production from the recently acquired facility in Dillon, South Carolina to its facility in Yadkinville, North Carolina, which has both the footprint and equipment to accommodate the volume projected for the Dillon plant. Maximizing its facility utilization rates will better enable the Company to lower its manufacturing costs. Due to automation, Yadkinville is the most cost effective facility to consolidate the Dillon volume. As a result, the Company will be increasing its wage positions in North Carolina by approximately 120 while decreasing its wage positions in South Carolina by 321. The Company does not expect that the consolidation will have any affect on overall production during the transition period. The Company anticipates that cash closure costs for the Dillon plant, including severance and equipment moves, will be approximately $2.1 million, and that it will realize annual savings of approximately $5.0 million as a result of the consolidation. This closure is in line with the Company’s strategic objectives of taking excess capacity out of the market to lower its manufacturing costs. The Company expects to complete this transition by July 2007 with no interruption of service to its customers.
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 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 March 25, 2007 (amounts in thousands):

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	12,067			$	1,225			$	13,488			$	¾			$	26,780
Receivables, net			¾				80,221				19,221				¾				99,442
Inventories			¾				102,125				26,934				¾				129,059
Deferred income taxes			¾				12,316				1,744				¾				14,060
Assets held for sale			¾				7,346				¾				¾				7,346
Restricted cash			¾				1,000				¾				¾				1,000
Other current assets			¾				1,569				8,791				¾				10,360
Total current assets			12,067				205,802				70,178				¾				288,047
Property, plant and equipment			11,806				847,503				64,456				¾				923,765
Less accumulated depreciation			(1,769	)			(647,475	)			(45,714	)			¾				(694,958	)
			10,037				200,028				18,742				¾				228,807
Investments in unconsolidated affiliates			¾				157,983				26,266				¾				184,249
Investments in consolidated subsidiaries			426,111				¾				¾				(426,111	)			¾
Intangible assets, net			¾				31,450				¾				¾				31,450
Other noncurrent assets			140,120				(57,684	)			4,364				(65,101	)			21,699
		$	588,335			$	537,579			$	119,550			$	(491,212	)		$	754,252
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other		$	247			$	52,759			$	6,916			$	¾			$	59,922
Accrued expenses			8,366				16,130				3,401				¾				27,897
Income taxes payable (receivable)			(9,317	)			8,495				1,325				¾				503
Current maturities of long-term debt and other current liabilities			¾				318				8,729				¾				9,047
Total current liabilities			(704	)			77,702				20,371				¾				97,369
Long-term debt and other liabilities			231,761				69,526				7,407				(65,101	)			243,593
Deferred income taxes			(12,684	)			54,812				1,200				¾				43,328
Shareholders’/ invested equity			369,962				335,539				90,572				(426,111	)			369,962
		$	588,335			$	537,579			$	119,550			$	(491,212	)		$	754,252

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

Balance Sheet Information as of June 25, 2006 (amounts in thousands):

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	22,992			$	1,392			$	10,933			$	¾			$	35,317
Receivables, net			1				72,332				20,903				¾				93,236
Inventories			¾				91,840				24,178				¾				116,018
Deferred income taxes			¾				10,473				1,266				¾				11,739
Assets held for sale			¾				17,418				¾				¾				17,418
Other current assets			¾				2,558				6,671				¾				9,229
Total current assets			22,993				196,013				63,951				¾				282,957
Property, plant and equipment			11,806				846,014				56,463				¾				914,283
Less accumulated depreciation			(1,553	)			(637,432	)			(37,601	)			¾				(676,586	)
			10,253				208,582				18,862				¾				237,697
Investments in unconsolidated affiliates			¾				157,741				32,476				¾				190,217
Investments in consolidated subsidiaries			450,655				¾				¾				(450,655	)			¾
Other noncurrent assets			65,713				8,116				8,223				(60,286	)			21,766
		$	549,614			$	570,452			$	123,512			$	(510,941	)		$	732,637
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and other		$	1,698			$	57,315			$	9,903			$	¾			$	68,916
Accrued expenses			2,202				18,011				3,656				¾				23,869
Income taxes payable (receivable)			(10,046	)			11,004				1,345				¾				2,303
Current maturities of long-term debt and other current liabilities			¾				290				6,040				¾				6,330
Total current liabilities			(6,146	)			86,620				20,944				¾				101,418
Long-term debt and other liabilities			191,273				57,557				13,861				(60,286	)			202,405
Deferred income taxes			(18,466	)			63,380				947				¾				45,861
Shareholders’/ invested equity			382,953				362,895				87,760				(450,655	)			382,953
		$	549,614			$	570,452			$	123,512			$	(510,941	)		$	732,637

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

Statement of Operations Information for the Fiscal Quarter Ended March 25, 2007 (amounts in thousands):

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Summary of Operations:
Net sales		$	¾			$	148,998			$	28,872			$	332			$	178,202
Cost of sales			¾				137,934				26,496				322				164,752
Selling, general and administrative expenses			¾				9,714				1,525				(62	)			11,177
Provision for bad debts			¾				2,252				22				¾				2,274
Interest expense			6,444				165				1				¾				6,610
Interest income			(36	)			¾				(671	)			¾				(707	)
Other (income) expense, net			(4,254	)			429				(25	)			1,388				(2,462	)
Equity in (earnings) losses of unconsolidated affiliates			¾				(2,134	)			1,520				262				(352	)
Equity in subsidiaries			5,167				¾				¾				(5,167	)			¾
Write down of long-lived assets			¾				12,870				¾				¾				12,870
Income (loss) from continuing operations before income taxes			(7,321	)			(12,232	)			4				3,589				(15,960	)
Provision (benefit) for income taxes			5,898				(8,483	)			510				¾				(2,075	)
Income (loss) from continuing operations			(13,219	)			(3,749	)			(506	)			3,589				(13,885	)
Income from discontinued operations, net of tax			¾				¾				666				¾				666
Net income (loss)		$	(13,219	)		$	(3,749	)		$	160			$	3,589			$	(13,219	)

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

Statement of Operations Information for the Fiscal Quarter Ended March 26, 2006 (amounts in thousands):

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Summary of Operations:
Net sales		$	¾			$	153,166			$	28,850			$	(618	)		$	181,398
Cost of sales			¾				142,158				26,635				(532	)			168,261
Selling, general and administrative expenses			6				8,899				1,401				(122	)			10,184
Provision for bad debts			¾				203				15				¾				218
Interest expense			4,519				87				¾				¾				4,606
Interest income			(611	)			(29	)			(902	)			¾				(1,542	)
Other (income) expense, net			(4,523	)			3,360				574				¾				(589	)
Equity in (earnings) losses of unconsolidated affiliates			¾				(532	)			1,236				(140	)			564
Write down of long-lived assets			¾				815				¾				¾				815
Equity in subsidiaries			2,517				¾				¾				(2,517	)			¾
Income (loss) from continuing operations before income taxes			(1,908	)			(1,795	)			(109	)			2,693				(1,119	)
Provision (benefit) for income taxes			209				(487	)			486				¾				208
Income (loss) from continuing operations			(2,117	)			(1,308	)			(595	)			2,693				(1,327	)
Income (loss) from discontinued operations, net of tax			¾				(845	)			55				¾				(790	)
Net income (loss)		$	(2,117	)		$	(2,153	)		$	(540	)		$	2,693			$	(2,117	)

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

Statement of Operations Information for the Nine-Months Ended March 25, 2007 (amounts in thousands):

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Summary of Operations:
Net sales		$	¾			$	417,955			$	88,135			$	(1,049	)		$	505,041
Cost of sales			¾				402,782				78,189				(1,040	)			479,931
Selling, general and administrative expenses			¾				28,321				4,677				(144	)			32,854
Provision for bad debts			¾				2,795				77				¾				2,872
Interest expense			18,311				474				1				¾				18,786
Interest income			(308	)			¾				(1,909	)			¾				(2,217	)
Other (income) expense, net			(12,977	)			8,268				(132	)			2,136				(2,705	)
Equity in (earnings) losses of unconsolidated affiliates			¾				(1,627	)			6,083				17				4,473
Equity in subsidiaries			28,984				¾				¾				(28,984	)			¾
Write down of long-lived assets			¾				14,070				2,002				¾				16,072
Income (loss) from continuing operations before income taxes			(34,010	)			(37,128	)			(853	)			26,966				(45,025	)
Provision (benefit) for income taxes			6,804				(12,301	)			1,749				¾				(3,748	)
Income (loss) from continuing operations			(40,814	)			(24,827	)			(2,602	)			26,966				(41,277	)
Income from discontinued operations, net of tax			¾				¾				463				¾				463
Net income (loss)		$	(40,814	)		$	(24,827	)		$	(2,139	)		$	26,966			$	(40,814	)

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

Statement of Operations Information for the Nine-Months Ended March 26, 2006 (amounts in thousands):

						Guarantor				Non-Guarantor
		Parent				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Summary of Operations:
Net sales		$	¾			$	478,214			$	79,875			$	(2,472	)		$	555,617
Cost of sales			¾				451,833				74,983				(2,109	)			524,707
Selling, general and administrative expenses			159				26,927				4,538				(492	)			31,132
Provision for bad debts			¾				1,300				49				¾				1,349
Interest expense			13,593				451				19				¾				14,063
Interest income			(1,434	)			(121	)			(3,457	)			¾				(5,012	)
Other (income) expense, net			(13,770	)			11,435				1,197				¾				(1,138	)
Equity in (earnings) losses of unconsolidated affiliates			¾				(4,039	)			2,982				(221	)			(1,278	)
Equity in subsidiaries			9,577				¾				¾				(9,577	)			¾
Write down of long-lived assets			¾				2,315				¾				¾				2,315
Restructuring charges (recovery)			¾				(53	)			82				¾				29
Income (loss) from continuing operations before income taxes			(8,125	)			(11,834	)			(518	)			9,927				(10,550	)
Provision (benefit) for income taxes			846				(3,739	)			1,870				¾				(1,023	)
Income (loss) from continuing operations			(8,971	)			(8,095	)			(2,388	)			9,927				(9,527	)
Income (loss) from discontinued operations, net of tax			¾				(2,010	)			2,566				¾				556
Net income (loss)		$	(8,971	)		$	(10,105	)		$	178			$	9,927			$	(8,971	)