unifi_10q-092610.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-10542
UNIFI, INC.
(Exact name of registrant as specified in its charter)
|
New York
|
11-2165495 |
|
(State or other jurisdiction of
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(I.R.S. Employer
|
|
incorporation or organization)
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Identification No.)
|
|
P.O. Box 19109 - 7201 West Friendly Avenue Greensboro, NC
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27419 |
|
(Address of principal executive offices)
|
(Zip Code)
|
Registrant’s telephone number, including area code: (336) 294-4410
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller Reporting Company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares outstanding of the issuer’s common stock, par value $.10 per share, as of November 4, 2010 was 20,059,544.
UNIFI, INC.
Form 10-Q for the Quarterly Period Ended September 26, 2010
Table of Contents
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Page |
| |
Part I. Financial Information |
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|
Item 1.
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Financial Statements:
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|
| |
Condensed Consolidated Balance Sheets as of
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|
| |
September 26, 2010 and June 27, 2010
|
3
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|
|
|
|
| |
Condensed Consolidated Statements of Operations for the Quarters Ended
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|
| |
September 26, 2010 and September 27, 2009
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4
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| |
|
|
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Condensed Consolidated Statements of Cash Flows for the Quarters Ended
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|
| |
September 26, 2010 and September 27, 2009
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5
|
| |
|
|
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Notes to Condensed Consolidated Financial Statements
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6
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| |
|
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Item 2.
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Management’s Discussion and Analysis of Financial Condition
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|
| |
and Results of Operations
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23
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| |
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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38
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Item 4.
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Controls and Procedures
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40
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| |
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| |
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| |
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Part II. Other Information
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|
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Item 1.
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Legal Proceedings
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40
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| |
|
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Item 1A.
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Risk Factors
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40
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| |
|
|
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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41
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| |
|
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Item 3.
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Defaults Upon Senior Securities
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41
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| |
|
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Item 4.
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[Removed and Reserved.]
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41
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| |
|
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Item 5.
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Other Information
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41
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Item 6.
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Exhibits
|
41
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Part I. Financial Information
Item 1. Financial Statements
UNIFI, INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
| |
|
September 26,
2010
|
|
|
June 27,
2010
|
|
| |
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
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Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
26,274 |
|
|
$ |
42,691 |
|
|
Receivables, net
|
|
|
95,404 |
|
|
|
91,243 |
|
|
Inventories
|
|
|
120,410 |
|
|
|
111,007 |
|
|
Deferred income taxes
|
|
|
1,647 |
|
|
|
1,623 |
|
|
Other current assets
|
|
|
9,465 |
|
|
|
6,119 |
|
|
Total current assets
|
|
|
253,200 |
|
|
|
252,683 |
|
| |
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
757,069 |
|
|
|
747,857 |
|
|
Less accumulated depreciation
|
|
|
(604,732 |
) |
|
|
(596,358 |
) |
| |
|
|
152,337 |
|
|
|
151,499 |
|
|
Intangible assets, net
|
|
|
13,496 |
|
|
|
14,135 |
|
|
Investments in unconsolidated affiliates
|
|
|
80,494 |
|
|
|
73,543 |
|
|
Other non-current assets
|
|
|
9,795 |
|
|
|
12,605 |
|
|
Total assets
|
|
$ |
509,322 |
|
|
$ |
504,465 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
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Current liabilities:
|
|
|
|
|
|
|
|
|
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Accounts payable
|
|
$ |
45,093 |
|
|
$ |
40,662 |
|
|
Accrued expenses
|
|
|
18,827 |
|
|
|
21,725 |
|
|
Income taxes payable
|
|
|
1,368 |
|
|
|
505 |
|
|
Current portion of notes payable
|
|
|
— |
|
|
|
15,000 |
|
|
Current maturities of long-term debt and other liabilities
|
|
|
327 |
|
|
|
327 |
|
|
Total current liabilities
|
|
|
65,615 |
|
|
|
78,219 |
|
| |
|
|
|
|
|
|
|
|
|
Notes payable, less current portion
|
|
|
163,722 |
|
|
|
163,722 |
|
|
Long-term debt and other liabilities
|
|
|
2,700 |
|
|
|
2,531 |
|
|
Deferred income taxes
|
|
|
255 |
|
|
|
97 |
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Common stock (a)
|
|
|
2,006 |
|
|
|
2,006 |
|
|
Capital in excess of par value (a)
|
|
|
31,770 |
|
|
|
31,579 |
|
|
Retained earnings
|
|
|
226,418 |
|
|
|
216,183 |
|
|
Accumulated other comprehensive income
|
|
|
16,836 |
|
|
|
10,128 |
|
| |
|
|
277,030 |
|
|
|
259,896 |
|
|
Total liabilities and shareholders’ equity
|
|
$ |
509,322 |
|
|
$ |
504,465 |
|
(a) All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the November 3, 2010 1-for-3 reverse stock split.
See accompanying notes to condensed consolidated financial statements.
UNIFI, INC.
Condensed Consolidated Statements of Operations
(Unaudited) (Amounts in thousands, except per share data)
| |
|
For the Quarters Ended
|
|
| |
|
September 26,
2010
|
|
|
September 27,
2009
|
|
| |
|
|
|
|
|
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
174,020 |
|
|
$ |
142,851 |
|
|
Cost of sales
|
|
|
152,857 |
|
|
|
123,445 |
|
|
Restructuring charges
|
|
|
363 |
|
|
|
— |
|
|
Write down of long-lived assets
|
|
|
— |
|
|
|
100 |
|
|
Selling, general and administrative expenses
|
|
|
11,127 |
|
|
|
11,164 |
|
|
(Benefit) provision for bad debts
|
|
|
(41 |
) |
|
|
576 |
|
|
Other operating expense (income), net
|
|
|
243 |
|
|
|
(87 |
) |
| |
|
|
|
|
|
|
|
|
|
Non-operating (income) expense:
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(743 |
) |
|
|
(746 |
) |
|
Interest expense
|
|
|
5,269 |
|
|
|
5,492 |
|
|
Loss (gain) on extinguishment of debt
|
|
|
1,144 |
|
|
|
(54 |
) |
|
Equity in earnings of unconsolidated affiliates
|
|
|
(8,951 |
) |
|
|
(2,063 |
) |
|
Income from operations before income taxes
|
|
|
12,752 |
|
|
|
5,024 |
|
|
Provision for income taxes
|
|
|
2,517 |
|
|
|
2,535 |
|
|
Net income
|
|
$ |
10,235 |
|
|
$ |
2,489 |
|
| |
|
|
|
|
|
|
|
|
|
Income per common share:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
.51 |
|
|
$ |
.12 |
|
| |
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
.50 |
|
|
$ |
.12 |
|
| |
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock (a):
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
20,057 |
|
|
|
20,686 |
|
| |
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
20,379 |
|
|
|
20,686 |
|
(a) All outstanding share amounts and computations using such amounts have been retroactively adjusted to reflect the November 3, 2010 1-for-3 reverse stock split.
See accompanying notes to condensed consolidated financial statements.
UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited) (Amounts in thousands)
| |
|
For the Quarters Ended
|
|
| |
|
September 26,
2010
|
|
September 27,
2009
|
|
| |
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
$ |
42,691 |
|
|
$ |
42,659 |
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
10,235 |
|
|
|
2,489 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Earnings of unconsolidated affiliates, net of distributions
|
|
|
(6,419 |
) |
|
|
(452 |
) |
|
Depreciation
|
|
|
5,850 |
|
|
|
5,805 |
|
|
Amortization
|
|
|
893 |
|
|
|
1,168 |
|
|
Stock-based compensation expense
|
|
|
192 |
|
|
|
593 |
|
|
Deferred compensation expense
|
|
|
155 |
|
|
|
177 |
|
|
Net gain on asset sales
|
|
|
(65 |
) |
|
|
(94 |
) |
|
Loss (gain) on extinguishment of debt
|
|
|
1,144 |
|
|
|
(54 |
) |
|
Write down of long-lived assets
|
|
|
— |
|
|
|
100 |
|
|
Deferred income tax
|
|
|
225 |
|
|
|
63 |
|
|
(Benefit) provision for bad debts
|
|
|
(41 |
) |
|
|
576 |
|
|
Other
|
|
|
7 |
|
|
|
40 |
|
|
Change in assets and liabilities, excluding effects of foreign currency adjustments
|
|
|
(8,165 |
) |
|
|
2,811 |
|
|
Net cash provided by operating activities
|
|
|
4,011 |
|
|
|
13,222 |
|
| |
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(5,495 |
) |
|
|
(2,106 |
) |
|
Investment in unconsolidated affiliate
|
|
|
(225 |
) |
|
|
— |
|
|
Change in restricted cash
|
|
|
— |
|
|
|
1,763 |
|
|
Proceeds from sale of capital assets
|
|
|
180 |
|
|
|
107 |
|
|
Net cash used in investing activities
|
|
|
(5,540 |
) |
|
|
(236 |
) |
| |
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
Payments of notes payable
|
|
|
(15,863 |
) |
|
|
— |
|
|
Payments of other long-term debt
|
|
|
(40,525 |
) |
|
|
(2,198 |
) |
|
Borrowings of other long-term debt
|
|
|
40,525 |
|
|
|
— |
|
|
Debt refinancing fees
|
|
|
(821 |
) |
|
|
— |
|
|
Net cash used in financing activities
|
|
|
(16,684 |
) |
|
|
(2,198 |
) |
| |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
1,796 |
|
|
|
2,253 |
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(16,417 |
) |
|
|
13,041 |
|
|
Cash and cash equivalents at end of period
|
|
$ |
26,274 |
|
|
$ |
55,700 |
|
See accompanying notes to condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The Condensed Consolidated Balance Sheet of Unifi, Inc. together with its subsidiaries (the “Company”) at June 27, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by United States (“U.S.”) generally accepted accounting principles (“GAAP”) for complete financial statements. Except as noted with respect to the balance sheet at June 27, 2010, this information is unaudited and reflects all adjustments which are, in the opinion of management, necessary to present fairly the financial position at September 26, 2010, and the results of operations and cash flows for the periods ended September 26, 2010 and September 27, 2009. Such adjustments consisted of normal recurring items necessary for fair presentation in conformity with U.S. GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates. Interim results are not necessarily indicative of results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010. Certain prior period amounts have been reclassified to conform to current year presentation.
The significant accounting policies followed by the Company are presented on pages 67 to 73 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010.
2. Inventories
Inventories are comprised of the following (amounts in thousands):
| |
|
September 26,
2010
|
|
|
June 27,
2010
|
|
| |
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$ |
53,242 |
|
|
$ |
51,255 |
|
|
Work in process
|
|
|
6,452 |
|
|
|
6,726 |
|
|
Finished goods
|
|
|
60,716 |
|
|
|
53,026 |
|
| |
|
$ |
120,410 |
|
|
$ |
111,007 |
|
3. Other Current Assets
Other current assets are comprised of the following (amounts in thousands):
| |
|
September 26,
2010
|
|
|
June 27,
2010
|
|
| |
|
|
|
|
|
|
|
Prepaid expenses:
|
|
|
|
|
|
|
|
Insurance
|
|
$ |
1,053 |
|
|
$ |
823 |
|
|
Value added tax
|
|
|
2,250 |
|
|
|
2,281 |
|
|
Information technology services
|
|
|
201 |
|
|
|
222 |
|
|
Cash surrender value of life insurance of former key employees (a)
|
|
|
3,241 |
|
|
|
— |
|
|
Other
|
|
|
973 |
|
|
|
360 |
|
|
Deposits
|
|
|
1,747 |
|
|
|
2,433 |
|
| |
|
$ |
9,465 |
|
|
$ |
6,119 |
|
|
(a)
|
The Company has reclassified $3.2 million as current as of September 26, 2010 due to the expected surrender of certain policies during the second quarter of fiscal year 2011.
|
Notes to Condensed Consolidated Financial Statements – (Continued)
4. Intangible Assets, Net
Intangible assets subject to amortization consist of a customer list of $22.0 million and non-compete 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 agreements are being amortized using the straight-line method over seven years, which is equal to the term of the agreement and its extensions. There are no residual values related to these intangible assets. Accumulated amortization at September 26, 2010 and June 27, 2010 for these intangible assets was $12.5 million and $11.9 million, respectively. These intangible assets relate to the polyester segment.
The following table represents the expected intangible asset amortization for the next five fiscal years (amounts in thousands):
| |
|
Aggregate Amortization Expenses
|
|
| |
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer list
|
|
$ |
2,022 |
|
|
$ |
1,837 |
|
|
$ |
1,481 |
|
|
$ |
1,215 |
|
|
$ |
969 |
|
|
Non-compete contract
|
|
|
381 |
|
|
|
381 |
|
|
|
381 |
|
|
|
381 |
|
|
|
190 |
|
| |
|
$ |
2,403 |
|
|
$ |
2,218 |
|
|
$ |
1,862 |
|
|
$ |
1,596 |
|
|
$ |
1,159 |
|
5. Investments in Unconsolidated Affiliates
The following table represents the Company’s investments in unconsolidated affiliates:
|
Affiliate Name
|
Date
Acquired
|
Locations
|
Percent
Ownership
|
|
Parkdale America, LLC (“PAL”)
|
Jun-97
|
North Carolina, South Carolina, Virginia, and Georgia
|
34%
|
| |
|
|
|
|
U.N.F. Industries, LLC (“UNF”)
|
Sep-00
|
Migdal Ha – Emek, Israel
|
50%
|
| |
|
|
|
|
UNF America, LLC (“UNF America”)
|
Oct-09
|
Ridgeway, Virginia
|
50%
|
| |
|
|
|
|
Repreve Renewables, LLC (“Repreve Renewables”)
|
Apr-10
|
Soperton, Georgia
|
40%
|
Condensed balance sheet information as of September 26, 2010 and June 27, 2010 and income statement information for the quarters ended September 26, 2010 and September 27, 2009 of the combined unconsolidated equity affiliates are as follows (amounts in thousands):
| |
|
September 26,
2010
|
|
|
June 27,
2010
|
|
| |
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Current assets
|
|
$ |
212,130 |
|
|
$ |
211,220 |
|
|
Non-current assets
|
|
|
155,382 |
|
|
|
127,081 |
|
|
Current liabilities
|
|
|
57,641 |
|
|
|
53,458 |
|
|
Non-current liabilities
|
|
|
33,879 |
|
|
|
27,621 |
|
|
Shareholders’ equity and capital accounts
|
|
|
275,992 |
|
|
|
257,222 |
|
| |
For the Quarters Ended
|
|
| |
September 26,
2010
|
|
September 27,
2009
|
|
| |
(Unaudited)
|
|
(Unaudited)
|
|
|
Net sales
|
|
$ |
221,377 |
|
|
$ |
99,446 |
|
|
Gross profit
|
|
|
29,099 |
|
|
|
8,655 |
|
|
Depreciation and amortization
|
|
|
6,865 |
|
|
|
5,026 |
|
|
Income from operations
|
|
|
25,172 |
|
|
|
5,411 |
|
|
Net income
|
|
|
26,379 |
|
|
|
7,518 |
|
Notes to Condensed Consolidated Financial Statements – (Continued)
PAL. PAL receives benefits under the Food, Conservation, and Energy Act of 2008 (“2008 U.S. Farm Bill”) which extended the existing upland cotton and extra long staple cotton programs (the “Program”), including economic adjustment assistance provisions for ten years. Beginning August 1, 2008, the Program provided textile mills a subsidy of four cents per pound on eligible upland cotton consumed during the first four years and three cents per pound for the last six years. The economic assistance received under this Program must be used to acquire, construct, install, modernize, develop, convert or expand land, plant, buildings, equipment, or machinery. Capital expenditures must be directly attributable to the purpose of manufacturing upland cotton into eligible cotton products in the U.S. The recipients have the marketing year from August 1 to July 31, plus eighteen months to make the capital expenditures. Under the Program, the subsidy payment is received from the U.S. Department of Agriculture (“USDA”) the month after the eligible cotton is consumed. However, the economic assistance benefit is not recognized by PAL into operating income until the period when both criteria have been met; i.e. eligible upland cotton has been consumed, and qualifying capital expenditures under the Program have been made.
During the Company’s first quarter of fiscal year 2011, PAL received $7.1 million of economic assistance and recognized $19.3 million of economic assistance in its operating income in accordance with the provisions of the Program. As a result of the timing of qualified capital expenditures, PAL’s deferred revenue relating to this Program decreased from $13.4 million as of June 27, 2010 to $1.2 million as of September 26, 2010. PAL expects the remaining deferred revenue balance to be fully realized through the completion of qualifying capital expenditures within the timelines prescribed by the Program.
On October 28, 2009, PAL acquired certain real property and machinery and equipment, as well as entered into lease agreements for real property and machinery and equipment, that constitute most of the yarn manufacturing operations of Hanesbrands, Inc. (“HBI”). Concurrent with the transaction, PAL entered into a yarn supply agreement with HBI to supply at least 95% of the yarn used in the manufacturing of HBI’s apparel products at any of HBI’s locations in North America, Central America, or the Caribbean Basin for a six-year period with an option for HBI to extend for two additional three-year periods. The yarn supply agreement also covers PAL’s supply of certain yarns used in HBI’s manufacturing in China through December 31, 2011.
The Company’s investment in PAL at September 26, 2010 was $71.5 million and the underlying equity in the net assets of PAL at September 26, 2010 was $89.3 million. The difference between the carrying value of the Company’s investment in PAL and the underlying equity in PAL is attributable to initial excess capital contributions by the Company of $53.4 million, the Company’s share of the settlement cost of an anti-trust lawsuit against PAL in which the Company did not participate of $2.6 million, and the Company’s share of other comprehensive income of $0.3 million offset by an impairment charge taken by the Company on its investment in PAL of $74.1 million.
UNF. On September 27, 2000, the Company formed a 50/50 joint venture, UNF, with Nilit Ltd. (“Nilit”), to produce nylon partially oriented yarn (“POY”) at Nilit’s manufacturing facility in Migdal Ha-Emek, Israel. The Company’s investment in UNF at September 26, 2010 was $3.1 million.
UNF America. On October 8, 2009, the Company formed a 50/50 joint venture, UNF America, with Nilit for the purpose of producing nylon POY in Nilit’s Ridgeway, Virginia plant. The Company’s initial investment in UNF America was $50 thousand dollars. In addition, the Company loaned UNF America $0.5 million for working capital. The loan carries interest at London Interbank Offered Rate ("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. The Company’s investment in UNF America at September 26, 2010 was $1.3 million. In October 2010, UNF America repaid $250 thousand of the working capital loan plus interest back to the Company.
In conjunction with the formation of UNF America, the Company entered into a supply agreement with UNF and UNF America whereby the Company is committed to purchase its requirements, subject to certain exceptions, of first quality nylon POY for texturing (excluding specialty yarns) from UNF or UNF America. Pricing under the contract is negotiated every six months and is based on market rates.
Notes to Condensed Consolidated Financial Statements – (Continued)
Repreve Renewables. On April 26, 2010, the Company entered into an agreement to form Repreve Renewables, a joint venture in which the Company owns a 40% interest. This joint venture was established for the purpose of acquiring the assets and the expertise related to the business of cultivating, growing, and selling biomass crops, including feedstock for establishing biomass crops that are intended to be used as a fuel or in the production of fuels or energy in the U.S. and the European Union. The Company received its ownership interest in the joint venture for an initial contribution of $4 million. As of September 26, 2010, the Company has contributed an additional $0.5 million for its share of initial working capital and recorded $0.1 million for the Company’s share of accumulated net losses, resulting in an investment balance of $4.4 million.
6. Other Non-current Assets
Other non-current assets are comprised of the following (amounts in thousands):
| |
|
September 26,
2010
|
|
|
June 27,
2010
|
|
| |
|
|
|
|
|
|
|
Cash surrender value of life insurance of former key employees (a)
|
|
$ |
374 |
|
|
$ |
3,615 |
|
|
Bond issue costs and debt refinancing fees
|
|
|
3,870 |
|
|
|
3,585 |
|
|
Long-term deposits
|
|
|
5,430 |
|
|
|
5,281 |
|
|
Other
|
|
|
121 |
|
|
|
124 |
|
| |
|
$ |
9,795 |
|
|
$ |
12,605 |
|
|
(a)
|
The Company has reclassified $3.2 million as current as of September 26, 2010 due to the expected surrender of certain policies during the second quarter of fiscal year 2011.
|
Debt related issue costs and refinancing fees have been amortized on the straight-line method over the life of the corresponding debt, which approximates the effective interest method. On June 30, 2010, the Company redeemed $15 million of the Company’s 11.5% senior secured notes due May 15, 2014 (the “2014 notes”) at a redemption price of 105.75% of the principal amount of the redeemed 2014 notes. This redemption was financed through a combination of internally generated cash and borrowings under the Company’s senior secured asset-based revolving credit facility. As a result, the Company recorded a $1.1 million charge for the early extinguishment of debt in the quarter ended September 26, 2010 of which $0.8 million related to the premium paid for the bonds and $0.3 million related to the retirement of related bond issue costs.
On September 9, 2010, the Company and its subsidiary guarantors (as co-borrowers) closed on the First Amendment to the Amended and Restated Credit Agreement with Bank of America, N.A. (the “First Amended Credit Agreement”). As a result, the Company incurred additional debt refinancing fees in the amount of $0.8 million. See “Footnote 3. Long-term Debt and Other Liabilities” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010 for a detailed discussion of the terms and covenants of the First Amended Credit Agreement.
At September 26, 2010 and June 27, 2010, accumulated amortization for debt issue costs and refinancing fees was $4.9 million and $4.6 million, respectively. The original amount of issue costs and financing fees that was capitalized for the 2014 notes and the amended senior secured asset-based revolving credit facility ("Amended Credit Agreement") was $7.3 million and $1.2 million, respectively.
Notes to Condensed Consolidated Financial Statements – (Continued)
7. Accrued Expenses
Accrued expenses are comprised of the following (amounts in thousands):
| |
|
September 26,
2010
|
|
|
June 27,
2010
|
|
| |
|
|
|
|
|
|
|
Payroll and fringe benefits
|
|
$ |
7,805 |
|
|
$ |
14,127 |
|
|
Severance
|
|
|
— |
|
|
|
301 |
|
|
Interest
|
|
|
6,964 |
|
|
|
2,429 |
|
|
Utilities
|
|
|
2,476 |
|
|
|
2,539 |
|
|
Retiree reserve
|
|
|
123 |
|
|
|
165 |
|
|
Property taxes
|
|
|
— |
|
|
|
876 |
|
|
Other
|
|
|
1,459 |
|
|
|
1,288 |
|
| |
|
$ |
18,827 |
|
|
$ |
21,725 |
|
8. Income Taxes
The Company’s income tax provision for the quarter ended September 26, 2010 resulted in tax expense at an effective rate of 19.7% compared to the quarter ended September 27, 2009 which resulted in a tax expense at an effective rate of 50.5%. The difference between the Company’s income tax expense and the U.S. statutory rate for the quarter ended September 26, 2010 was primarily due to the utilization of prior losses for which no benefit had been recognized previously, and foreign operations taxed at rates lower than the U.S., partially offset by foreign dividends taxed in the U.S. The difference between the Company’s income tax expense and the U.S. statutory rate for the quarter ended September 27, 2009 was primarily due to losses in the U.S. and other jurisdictions for which no tax benefit could be recognized while operating profit was generated in other taxable jurisdictions.
Deferred income taxes have been provided for the temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. 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, newly generated income tax benefits will be fully reserved.
The Company is subject to income tax examinations for U.S. federal income taxes for fiscal years 2005 through 2010, for non-U.S. income taxes for tax years 2001 through 2010, and for state and local income taxes for fiscal years 2001 through 2010.
9. Shareholders’ Equity
On October 27, 2010, the shareholders of the Company approved a reverse stock split of the Company’s common stock (the “reverse stock split”) at a reverse stock split ratio of 1-for-3. The reverse stock split became effective November 3, 2010 pursuant to a Certificate of Amendment to the Company’s Restated Certificate of Incorporation filed with the Secretary of State of New York. The Company had 20,059,544 shares of common stock issued and outstanding immediately following the completion of the reverse stock split. The Company is authorized in its Restated Certificate of Incorporation to issue up to a total of 500,000,000 shares of common stock at a $.10 par value per share which was unchanged by the amendment. The reverse stock split did not affect the registration of the common stock under the Securities Exchange Act of 1934, as amended or the listing of the common stock on the New York Stock Exchange, under the symbol “UFI”, although the post-split shares are considered a new listing with a new CUSIP number. In the Condensed Consolidated Balance Sheets, the line item Shareholders’ equity has been retroactively adjusted to reflect the reverse stock split for all periods presented by reducing the line item Common stock and increasing the line item Capital in excess of par value, with no change to Shareholders’ equity in the aggregate. All share and per share computations have been retroactively adjusted for all periods presented to reflect the decrease in shares as a result of this transaction except as otherwise noted.
Notes to Condensed Consolidated Financial Statements – (Continued)
On November 25, 2009, the Company agreed to purchase 1,885,000 shares of its common stock at a purchase price of $2.65 per share from Invemed Catalyst Fund, L.P. (based on an approximate 10% discount to the closing price of the common stock on November 24, 2009). The purchase of the shares pursuant to the transaction was not pursuant to the Company’s stock repurchase plan. The transaction closed on November 30, 2009 at a total purchase price of $5 million. This transaction was not adjusted to reflect the reverse stock split discussed above.
10. Income Per Common Share
The following table sets forth the reconciliation of basic and diluted per share computations (amounts in thousands, except per share data).
| |
|
For the Quarters Ended
|
|
| |
|
September 26,
2010
|
|
|
September 27,
2009
|
|
|
Determination of shares:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
20,057 |
|
|
|
20,686 |
|
|
Assumed conversion of dilutive stock options
|
|
|
322 |
|
|
|
0 |
|
|
Diluted weighted average common shares outstanding
|
|
|
20,379 |
|
|
|
20,686 |
|
| |
|
|
|
|
|
|
|
|
|
Income per common share – basic
|
|
$ |
.51 |
|
|
$ |
.12 |
|
|
Income per common share – diluted
|
|
$ |
.50 |
|
|
$ |
.12 |
|
The following table represents the number of stock options to purchase shares of common stock which were not included in the calculation of diluted per share amounts because they were anti-dilutive (amounts in thousands):
| |
For the Quarters Ended
|
|
| |
September 26,
2010
|
|
September 27,
2009
|
|
| |
|
|
|
|
|
Stock options
|
|
|
231 |
|
|
|
1,304 |
|
11. Comprehensive Income (Loss)
Comprehensive income amounted to $16.9 million for the first quarter of fiscal year 2011 compared to comprehensive income of $10.9 million for the first quarter of fiscal year 2010. Comprehensive income was comprised of net income of $10.2 million and positive cumulative translation adjustments of $6.7 million for the first quarter of fiscal year 2011. Comparatively, comprehensive income was comprised of net income of $2.5 million and positive cumulative translation adjustments of $8.4 million for the first quarter of fiscal year 2010. The Company does not provide income taxes on the impact of currency translations as earnings from foreign subsidiaries are deemed to be permanently invested.
Notes to Condensed Consolidated Financial Statements – (Continued)
12. Segment Disclosures
The following is the Company’s segment information for the quarters ended September 26, 2010 and September 27, 2009 (amounts in thousands):
| |
|
Polyester
|
|
|
Nylon
|
|
|
Total
|
|
|
Quarter ended September 26, 2010:
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$ |
129,855 |
|
|
$ |
44,165 |
|
|
$ |
174,020 |
|
|
Depreciation and amortization
|
|
|
5,632 |
|
|
|
854 |
|
|
|
6,486 |
|
|
Segment operating profit
|
|
|
5,750 |
|
|
|
3,923 |
|
|
|
9,673 |
|
|
Total assets
|
|
|
325,733 |
|
|
|
86,548 |
|
|
|
412,281 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended September 27, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to external customers
|
|
$ |
104,460 |
|
|
$ |
38,391 |
|
|
$ |
142,851 |
|
|
Depreciation and amortization
|
|
|
5,768 |
|
|
|
893 |
|
|
|
6,661 |
|
|
Segment operating profit
|
|
|
4,871 |
|
|
|
3,271 |
|
|
|
8,142 |
|
|
Total assets
|
|
|
325,162 |
|
|
|
78,761 |
|
|
|
403,923 |
|
The following table provides reconciliations from segment data to consolidated reporting data (amounts in thousands):
| |
|
For the Quarters Ended
|
|
| |
|
September 26,
|
|
|
September 27,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
Depreciation and amortization of specific reportable segment assets
|
|
$ |
6,486 |
|
|
$ |
6,661 |
|
|
Depreciation included in other operating (income) expense, net
|
|
|
3 |
|
|
|
36 |
|
|
Amortization included in interest expense, net
|
|
|
254 |
|
|
|
276 |
|
|
Consolidated depreciation and amortization
|
|
$ |
6,743 |
|
|
$ |
6,973 |
|
| |
|
|
|
|
|
|
|
|
|
Reconciliation of segment operating income to income from operations before income taxes:
|
|
|
|
|
|
|
|
|
|
Reportable segments operating income
|
|
$ |
9,673 |
|
|
$ |
8,142 |
|
|
(Benefit) provision for bad debts
|
|
|
(41 |
) |
|
|
576 |
|
|
Other operating expense (income), net
|
|
|
243 |
|
|
|
(87 |
) |
|
Interest expense, net
|
|
|
4,526 |
|
|
|
4,746 |
|
|
Loss (gain) on extinguishment of debt
|
|
|
1,144 |
|
|
|
(54 |
) |
|
Equity in earnings of unconsolidated affiliates
|
|
|
(8,951 |
) |
|
|
(2,063 |
) |
|
Income from operations before income taxes
|
|
$ |
12,752 |
|
|
$ |
5,024 |
|
For purposes of internal management reporting, segment operating profit represents segment net sales less cost of sales, segment restructuring charges, segment impairments of long-lived assets, and allocated selling, general and administrative (“SG&A”) expenses. Certain non-segment manufacturing and unallocated SG&A costs are allocated to the operating segments based on activity drivers relevant to the respective costs. This allocation methodology is updated as part of the annual budgeting process.
The primary differences between the segmented financial information of the operating segments, as reported to management and the Company’s consolidated reporting relate to the provision for bad debts, other operating expense (income), net, interest expense, net and equity in earnings of unconsolidated affiliates and related impairments.
Segment operating profit excluded the benefit for bad debts of $41 thousand for the first quarter of fiscal year 2011 and the provision for bad debts of $0.6 million for the first quarter of fiscal year 2010.
Notes to Condensed Consolidated Financial Statements – (Continued)
The total assets for the polyester segment increased from $322.2 million at June 27, 2010 to $325.7 million at September 26, 2010 primarily due to increases in inventory, accounts receivable, and property, plant and equipment ("PP&E") of $5.0 million, $3.2 million, and $1.5 million, respectively. These increases were offset by decreases in cash, other current assets and other non-current assets of $4.9 million, $0.8 million, and $0.5 million, respectively. The total assets for the nylon segment increased from $81.1 million at June 27, 2010 to $86.6 million at September 26, 2010 due primarily to increases in inventory, accounts receivable, cash, and other current assets of $4.7 million, $1.0 million, $0.1 million, and $0.1 million, respectively. These increases were offset by a decrease in PP&E of $0.4 million.
13. 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 2,000,000 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 1,000,000 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 first quarter of fiscal year 2010, the Compensation Committee (“Committee”) of the Board of Directors (“Board”) authorized the issuance of 566,659 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 ten year contractual terms. The Company used the Black-Scholes model to estimate the weighed-average grant date fair value of $3.34 per post-split share.
There were no stock options issued during the first quarter of fiscal year 2011.
The Company incurred $0.2 million and $0.6 million in the first quarter of fiscal years 2011 and 2010 respectively, in stock-based compensation expense which was recorded as SG&A expenses with the offset to capital in excess of par value.
There were no stock options exercised during the first quarter of fiscal years 2011 and 2010.
14. Other Operating Expense (Income), Net
The following table summarizes the Company’s other operating expense (income), net (amounts in thousands):
| |
|
For the Quarters Ended
|
|
| |
|
September 26,
2010
|
|
|
September 27,
2009
|
|
|
Net gain on sale of PP&E
|
|
$ |
(65 |
) |
|
$ |
(94 |
) |
|
Currency losses
|
|
|
364 |
|
|
|
13 |
|
|
Other, net
|
|
|
(56 |
) |
|
|
(6 |
) |
|
Other operating expense (income), net
|
|
$ |
243 |
|
|
$ |
(87 |
) |
15. Derivatives Financial Instruments and Fair Value Measurements
The Company accounts for derivative contracts and hedging activities at fair value. Changes in the fair value of derivative contracts are recorded in the line item Other operating (income) expense, net in the Condensed Consolidated Statements of Operations. The Company does not enter into derivative financial instruments for trading purposes nor is it a party to any leveraged financial instruments.
The Company conducts its business in various foreign currencies. As a result, it is subject to the transaction exposure that arises from foreign exchange rate movements between the dates that foreign currency transactions are recorded and the dates they are consummated. The Company utilizes some natural hedging to mitigate these transaction exposures. The Company primarily enters into foreign currency forward contracts for the purchase and sale of European, North American and Brazilian currencies to use as economic hedges against balance sheet and income statement currency exposures. These contracts are principally entered into for the purchase of inventory and equipment and the sale of Company products into export markets. Counter-parties for these instruments are major financial institutions.
Notes to Condensed Consolidated Financial Statements – (Continued)
Currency forward contracts are used as economic hedges for the exposure for sales in foreign currencies based on specific sales made to customers. Generally, approximately 60% to 75% of the sales value of these orders is covered by forward contracts. Maturity dates of the forward contracts are intended to match anticipated receivable collections. The Company marks the forward contracts to market at month end and any realized and unrealized gains or losses are recorded as Other operating (income) expense. The Company also enters currency forward contracts for committed machinery and inventory purchases. Generally up to 5% of inventory purchases made by the Company’s Brazilian subsidiary are covered by forward contracts although 100% of the cost may be covered by individual contracts in certain instances. The latest maturity date for all outstanding sales and purchase foreign currency forward contracts is December 2010.
The Company has adopted the guidance issued by the Financial Accounting Standards Board (“FASB”) which established a framework for measuring and disclosing fair value measurements related to financial and non-financial assets. There is a common definition of fair value used and a hierarchy for fair value measurements based on the type of inputs that are used to value the assets or liabilities at fair value.
The levels of the fair value hierarchy are:
|
●
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date,
|
|
●
|
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, or
|
|
●
|
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
|
The dollar equivalent of these forward currency contracts and their related fair values are detailed below (amounts in thousands):
| |
|
September 26,
2010
|
|
|
June 27,
2010
|
|
| |
|
Level 2
|
|
|
Level 2
|
|
|
Foreign currency purchase contracts:
|
|
|
|
|
|
|
|
Notional amount
|
|
$ |
3,328 |
|
|
$ |
2,826 |
|
|
Fair value
|
|
|
3,510 |
|
|
|
2,873 |
|
|
Net gain
|
|
$ |
(182 |
) |
|
$ |
(47 |
) |
| |
|
|
|
|
|
|
|
|
|
Foreign currency sales contracts:
|
|
|
|
|
|
|
|
|
|
Notional amount
|
|
$ |
1,115 |
|
|
$ |
1,231 |
|
|
Fair value
|
|
|
1,141 |
|
|
|
1,217 |
|
|
Net (loss) gain
|
|
$ |
(26 |
) |
|
$ |
14 |
|
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 Condensed Consolidated Statements of Operations, including transactions that were hedged and those unrelated to hedging, was a pre-tax loss of $0.4 million and $13 thousand for the quarters ended September 26, 2010 and September 27, 2009, respectively.
The Company’s financial assets include cash and cash equivalents, net receivables, accounts payable, currency forward contracts, and notes payable. The cash and cash equivalents, net receivables, and accounts payable approximate fair value due to their short maturities. The Company calculates the fair value of its 2014 notes based on the traded price of the 2014 notes on the latest trade date prior to its period end. These are considered Level 1 inputs in the fair value hierarchy.
Notes to Condensed Consolidated Financial Statements – (Continued)
The carrying values and approximate fair values of the Company’s financial assets and liabilities excluding the currency forward contracts discussed above as of September 26, 2010 and June 27, 2010 were as follows (amounts in thousands):
| |
|
September 26, 2010
|
|
|
June 27, 2010
|
|
| |
|
Carrying Value
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
26,274 |
|
|
$ |
26,274 |
|
|
$ |
42,691 |
|
|
$ |
42,691 |
|
|
Receivables, net
|
|
|
95,404 |
|
|
|
95,404 |
|
|
|
91,243 |
|
|
|
91,243 |
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
45,093 |
|
|
|
45,093 |
|
|
|
40,662 |
|
|
|
40,662 |
|
|
Notes payable
|
|
|
163,722 |
|
|
|
167,815 |
|
|
|
178,722 |
|
|
|
184,084 |
|
Impairment charges were recognized for certain assets measured at fair value on a non-recurring basis as the decline in their respective fair values below their cost was determined to be other than temporary in all instances. During the first quarter of fiscal years 2011 and 2010, the Company recorded impairment charges of nil and $0.1 million, respectively, for the write down of long-lived assets. The valuation techniques used to determine the fair values for these assets are considered Level 3 inputs in the fair value hierarchy.
16. Related Party Transaction
In each of December 2008 and 2009, the Company and Dillon Yarn Company (“Dillon”) extended the polyester services portion of a Sales and Service Agreement, each time for a term of one year. As a result, the Company recorded $0.3 million and $0.4 million of SG&A expense for the first quarter of fiscal years 2011 and 2010, respectively, related to this contract and the related amendments. Mr. Stephen Wener is the President and Chief Executive Officer of Dillon. Mr. Wener has been a member of the Company’s Board since May 24, 2007. The terms of the Company’s Sales and Service Agreement with Dillon are, in management’s opinion, no less favorable than the Company would have been able to negotiate with an independent third party for similar services.
17. Commitments and Contingencies
At the end of fiscal year 2010, the Company had obligations for the purchase of two extrusion lines and for the construction of a recycled polyester chip facility located in Yadkinville, North Carolina. The Company will purchase machinery and equipment for the recycling of post-consumer flake and post-industrial waste fiber and fabrics to be installed in the new facility. As of September 26, 2010, the Company had made a deposit of $1.2 million for the first down payment on the extruders. The Company is obligated to make three additional payments upon the completion of the installation of the machinery totaling $2.8 million. The delivery date for the equipment is scheduled for December 2010 with production beginning in February 2011. The Company has also contracted for the construction of the new facility in the amount of $1.5 million. Related to the building of the facility, if the Company terminates the construction of the building without cause, the Company is obligated to pay the total of costs incurred by the contractor at such time along with an additional surcharge. The construction is scheduled for completion by December 2010.
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.
Notes to Condensed Consolidated Financial Statements – (Continued)
The Company is aware of certain claims and potential claims against it for the alleged use of non-compliant “Berry Amendment” nylon POY in yarns that the Company sold which may have ultimately been used to manufacture certain U.S. military garments (the “Military Claims”). As of June 27, 2010, the Company recorded an accrual for the Military Claims of which $0.3 million was paid or settled during the quarter ended September 26, 2010.
18. Recent Accounting Pronouncements
In July 2010, the FASB issued Accounting Standards Update No. 2010-20 “Receivables (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” to amend the disclosure requirements related to financing receivables. The guidance requires additional disclosures about the nature of an entity’s credit risk as it relates to its receivables, how that risk is analyzed for purposes of providing a credit loss provision, and the reasons for changes in the loss provision. These disclosures are intended to provide financial statement users with more transparency related to an entity’s credit risk practices and the related allowances for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Accordingly, the Company will implement the guidance for period-end disclosures effective as of the end of its second quarter of fiscal year 2011 with the guidance for period activity disclosures to be implemented during its third quarter of fiscal year 2011. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
19. Subsequent Events
Effective November 3, 2010, the Company filed a Certificate of Amendment to the Company’s Restated Certificate of Incorporation with the Secretary of State of New York to effect a 1-for-3 reverse stock split of the Company’s common stock. See “Footnote 9. Shareholders’ Equity” for further discussion.
The Company evaluated all events and material transactions for potential recognition or disclosure through such time as these statements were filed with the SEC and determined there were no other items deemed reportable.
20. Condensed Consolidated Guarantor and Non-Guarantor Financial Statements
The guarantor subsidiaries presented below represent the Company’s subsidiaries that are subject to the terms and conditions outlined in the indenture governing the Company’s issuance of the 2014 notes and the guarantees, jointly and severally, on a senior secured basis. The non-guarantor subsidiaries presented below represent the foreign subsidiaries which do not guarantee the notes. Each subsidiary guarantor is 100% owned, directly or indirectly, by Unifi, Inc. and all guarantees are full and unconditional.
Supplemental financial information for the Company and its guarantor subsidiaries and non-guarantor subsidiaries of the 2014 notes is presented below.
Notes to Condensed Consolidated Financial Statements – (Continued)
Balance Sheet Information as of September 26, 2010 (amounts in thousands):
| |
|
Parent |
|
|
Guarantor Subsidiaries |
|
|
Non-Guarantor Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
| ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
175 |
|
|
$ |
(39 |
) |
|
$ |
26,138 |
|
|
$ |
— |
|
|
$ |
26,274 |
|
|
Receivables, net
|
|
|
— |
|
|
|
64,820 |
|
|
|
30,584 |
|
|
|
— |
|
|
|
95,404 |
|
|
Intercompany accounts receivable
|
|
|
348,005 |
|
|
|
(338,440 |
) |
|
|
840 |
|
|
|
(10,405 |
) |
|
|
— |
|
|
Inventories
|
|
|
— |
|
|
|
78,911 |
|
|
|
41,499 |
|
|
|
— |
|
|
|
120,410 |
|
|
Deferred income taxes
|
|
|
— |
|
|
|
— |
|
|
|
1,647 |
|
|
|
— |
|
|
|
1,647 |
|
|
Other current assets
|
|
|
107 |
|
|
|
4,819 |
|
|
|
4,539 |
|
|
|
— |
|
|
|
9,465 |
|
|
Total current assets
|
|
|
348,287 |
|
|
|
(189,929 |
) |
|
|
105,247 |
|
|
|
(10,405 |
) |
|
|
253,200 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
11,348 |
|
|
|
644,366 |
|
|
|
101,355 |
|
|
|
— |
|
|
|
757,069 |
|
|
Less accumulated depreciation
|
|
|
(2,257 |
) |
|
|
(526,059 |
) |
|
|
(76,416 |
) |
|
|
— |
|
|
|
(604,732 |
) |
| |
|
|
9,091 |
|
|
|
118,307 |
|
|
|
24,939 |
|
|
|
— |
|
|
|
152,337 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
— |
|
|
|
13,496 |
|
|
|
— |
|
|
|
— |
|
|
|
13,496 |
|
|
Investments in unconsolidated affiliates
|
|
|
— |
|
|
|
71,547 |
|
|
|
8,947 |
|
|
|
— |
|
|
|
80,494 |
|
|
Investments in consolidated subsidiaries
|
|
|
425,641 |
|
|
|
— |
|
|
|
— |
|
|
|
(425,641 |
) |
|
|
— |
|
|
Other non-current assets
|
|
|
7,485 |
|
|
|
(242 |
) |
|
|
12,676 |
|
|
|
(10,124 |
) |
|
|
9,795 |
|
| |
|
$ |
790,504 |
|
|
$ |
13,179 |
|
|
$ |
151,809 |
|
|
$ |
(446,170 |
) |
|
$ |
509,322 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
300 |
|
|
$ |
36,778 |
|
|
$ |
8,015 |
|
|
$ |
— |
|
|
$ |
45,093 |
|
|
Intercompany accounts payable
|
|
|
341,028 |
|
|
|
(340,398 |
) |
|
|
9,775 |
|
|
|
(10,405 |
) |
|
|
— |
|
|
Accrued expenses
|
|
|
7,235 |
|
|
|
8,550 |
|
|
|
3,042 |
|
|
|
— |
|
|
|
18,827 |
|
|
Income taxes payable
|
|
|
1,189 |
|
|
|
(44 |
) |
|
|
223 |
|
|
|
— |
|
|
|
1,368 |
|
|
Current maturities of long-term debt and other liabilities
|
|
|
— |
|
|
|
327 |
|
|
|
— |
|
|
|
— |
|
|
|
327 |
|
|
Total current liabilities
|
|
|
349,752 |
|
|
|
(294,787 |
) |
|
|
21,055 |
|
|
|
(10,405 |
) |
|
|
65,615 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
|
163,722 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
163,722 |
|
|
Long-term debt and other liabilities
|
|
|
— |
|
|
|
2,700 |
|
|
|
— |
|
|
|
— |
|
|
|
2,700 |
|
|
Deferred income taxes
|
|
|
— |
|
|
|
— |
|
|
|
255 |
|
|
|
— |
|
|
|
255 |
|
|
Shareholders’/ invested equity
|
|
|
277,030 |
|
|
|
305,266 |
|
|
|
130,499 |
|
|
|
(435,765 |
) |
|
|
277,030 |
|
| |
|
$ |
790,504 |
|
|
$ |
13,179 |
|
|
$ |
151,809 |
|
|
$ |
(446,170 |
) |
|
$ |
509,322 |
|
Notes to Condensed Consolidated Financial Statements – (Continued)
Balance Sheet Information as of June 27, 2010 (amounts in thousands):
| |
|
Parent
|
|
|
Guarantor Subsidiaries
|
|
|
Non-Guarantor Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
| ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
9,938 |
|
|
$ |
1,832 |
|
|
$ |
30,921 |
|
|
$ |
— |
|
|
$ |
42,691 |
|
|
Receivables, net
|
|
|
— |
|
|
|
67,979 |
|
|
|
23,264 |
|
|
|
— |
|
|
|
91,243 |
|
|
Intercompany accounts receivable
|
|
|
221,670 |
|
|
|
(209,991 |
) |
|
|
720 |
|
|
|
(12,399 |
) |
|
|
— |
|
|
Inventories
|
|
|
— |
|
|
|
69,930 |
|
|
|
41,077 |
|
|
|
— |
|
|
|
111,007 |
|
|
Deferred income taxes
|
|
|
— |
|
|
|
— |
|
|
|
1,623 |
|
|
|
— |
|
|
|
1,623 |
|
|
Other current assets
|
|
|
79 |
|
|
|
1,052 |
|
|
|
4,988 |
|
|
|
— |
|
|
|
6,119 |
|
|
Total current assets
|
|
|
231,687 |
|
|
|
(69,198 |
) |
|
|
102,593 |
|
|
|
(12,399 |
) |
|
|
252,683 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
11,348 |
|
|
|
643,930 |
|
|
|
92,579 |
|
|
|
— |
|
|
|
747,857 |
|
|
Less accumulated depreciation
|
|
|
(2,185 |
) |
|
|
(523,771 |
) |
|
|
(70,402 |
) |
|
|
— |
|
|
|
(596,358 |
) |
| |
|
|
9,163 |
|
|
|
120,159 |
|
|
|
22,177 |
|
|
|
— |
|
|
|
151,499 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
— |
|
|
|
14,135 |
|
|
|
— |
|
|
|
— |
|
|
|
14,135 |
|
|
Investments in unconsolidated affiliates
|
|
|
— |
|
|
|
65,446 |
|
|
|
8,097 |
|
|
|
— |
|
|
|
73,543 |
|
|
Investments in consolidated subsidiaries
|
|
|
407,605 |
|
|
|
— |
|
|
|
— |
|
|
|
(407,605 |
) |
|
|
— |
|
|
Other non-current assets
|
|
|
7,200 |
|
|
|
2,999 |
|
|
|
7,446 |
|
|
|
(5,040 |
) |
|
|
12,605 |
|
| |
|
$ |
655,655 |
|
|
$ |
133,541 |
|
|
$ |
140,313 |
|
|
$ |
(425,044 |
) |
|
$ |
504,465 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
218 |
|
|
$ |
33,158 |
|
|
$ |
7,286 |
|
|
$ |
— |
|
|
$ |
40,662 |
|
|
Intercompany accounts payable
|
|
|
214,087 |
|
|
|
(213,457 |
) |
|
|
11,769 |
|
|
|
(12,399 |
) |
|
|
— |
|
|
Accrued expenses
|
|
|
2,732 |
|
|
|
15,699 |
|
|
|
3,294 |
|
|
|
— |
|
|
|
21,725 |
|
|
Income taxes payable
|
|
|
— |
|
|
|
(44 |
) |
|
|
549 |
|
|
|
— |
|
|
|
505 |
|
|
Current portion of notes payable
|
|
|
15,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,000 |
|
|
Current maturities of long-term debt and other liabilities
|
|
|
— |
|
|
|
327 |
|
|
|
— |
|
|
|
— |
|
|
|
327 |
|
|
Total current liabilities
|
|
|
232,037 |
|
|
|
(164,317 |
) |
|
|
22,898 |
|
|
|
(12,399 |
) |
|
|
78,219 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable, less current portion
|
|
|
163,722 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
163,722 |
|
|
Long-term debt and other liabilities
|
|
|
— |
|
|
|
2,531 |
|
|
|
5,040 |
|
|
|
(5,040 |
) |
|
|
2,531 |
|
|
Deferred income taxes
|
|
|
— |
|
|
|
— |
|
|
|
97 |
|
|
|
— |
|
|
|
97 |
|
|
Shareholders’/ invested equity
|
|
|
259,896 |
|
|
|
295,327 |
|
|
|
112,278 |
|
|
|
(407,605 |
) |
|
|
259,896 |
|
| |
|
$ |
655,655 |
|
|
$ |
133,541 |
|
|
$ |
140,313 |
|
|
$ |
(425,044 |
) |
|
$ |
504,465 |
|
Notes to Condensed Consolidated Financial Statements – (Continued)
Statement of Operations Information for the Quarter Ended September 26, 2010 (amounts in thousands):
| |
|
Parent
|
|
|
Guarantor Subsidiaries
|
|
|
Non-Guarantor Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
— |
|
|
$ |
121,220 |
|
|
$ |
53,198 |
|
|
$ |
(398 |
) |
|
$ |
174,020 |
|
|
Cost of sales
|
|
|
— |
|
|
|
106,707 |
|
|
|
46,623 |
|
|
|
(473 |
) |
|
|
152,857 |
|
|
Restructuring charges
|
|
|
— |
|
|
|
363 |
|
|
|
— |
|
|
|
— |
|
|
|
363 |
|
|
Equity in subsidiaries
|
|
|
(11,328 |
) |
|
|
— |
|
|
|
— |
|
|
|
11,328 |
|
|
|
— |
|
|
Selling, general and administrative expenses
|
|
|
— |
|
|
|
8,016 |
|
|
|
3,111 |
|
|
|
— |
|
|
|
11,127 |
|
|
(Benefit) provision for bad debts
|
|
|
— |
|
|
|
(292 |
) |
|
|
251 |
|
|
|
— |
|
|
|
(41 |
) |
|
Other operating (income) expense, net
|
|
|
(6,404 |
) |
|
|
5,171 |
|
|
|
550 |
|
|
|
926 |
|
|
|
243 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
— |
|
|
|
(66 |
) |
|
|
(677 |
) |
|
|
— |
|
|
|
(743 |
) |
|
Interest expense
|
|
|
5,156 |
|
|
|
17 |
|
|
|
96 |
|
|
|
— |
|
|
|
5,269 |
|
|
Loss on extinguishment of debt
|
|
|
1,144 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,144 |
|
|
Equity in (earnings) losses of unconsolidated affiliates
|
|
|
— |
|
|
|
(8,634 |
) |
|
|
(594 |
) |
|
|
277 |
|
|
|
(8,951 |
) |
|
Income (loss) from operations before income taxes
|
|
|
11,432 |
|
|
|
9,938 |
|
|
|
3,838 |
|
|
|
(12,456 |
) |
|
|
12,752 |
|
|
Provision for income taxes
|
|
|
1,197 |
|
|
|
— |
|
|
|
1,320 |
|
|
|
— |
|
|
|
2,517 |
|
|
Net income (loss)
|
|
$ |
10,235 |
|
|
$ |
9,938 |
|
|
$ |
2,518 |
|
|
$ |
(12,456 |
) |
|
$ |
10,235 |
|
Notes to Condensed Consolidated Financial Statements – (Continued)
Statement of Operations Information for the Quarter Ended September 27, 2009 (amounts in thousands):
| |
|
Parent
|
|
|
Guarantor Subsidiaries
|
|
|
Non-Guarantor Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Summary of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
— |
|
|
$ |
104,547 |
|
|
$ |
38,358 |
|
|
$ |
(54 |
) |
|
$ |
142,851 |
|
|
Cost of sales
|
|
|
— |
|
|
|
93,783 |
|
|
|
29,630 |
|
|
|
32 |
|
|
|
123,445 |
|
|
Write down of long-lived assets
|
|
|
— |
|
|
|
100 |
|
|
|
— |
|
|
|
— |
|
|
|
100 |
|
|
Equity in subsidiaries
|
|
|
(2,356 |
) |
|
|
— |
|
|
|
— |
|
|
|
2,356 |
|
|
|
— |
|
|
Selling, general and administrative expenses
|
|
|
(10 |
) |
|
|
8,891 |
|
|
|
2,337 |
|
|
|
(54 |
) |
|
|
11,164 |
|
|
Provision for bad debts
|
|
|
— |
|
|
|
481 |
|
|
|
95 |
|
|
|
— |
|
|
|
576 |
|
|
Other operating (income) expense, net
|
|
|
(5,474 |
) |
|
|
5,517 |
|
|
|
(130 |
) |
|
|
— |
|
|
|
(87 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(62 |
) |
|
|
— |
|
|
|
(684 |
) |
|
|
— |
|
|
|
(746 |
) |
|
Interest expense
|
|
|
5,467 |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
5,492 |
|
|
Gain on extinguishment of debt
|
|
|
(54 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(54 |
) |
|
Equity in (earnings) losses of unconsolidated affiliates
|
|
|
— |
|
|
|
(2,352 |
) |
|
|
(177 |
) |
|
|
466 |
|
|
|
(2,063 |
) |
|
Income (loss) from operations before income taxes
|
|
|
2,489 |
|
|
|
(1,898 |
) |
|
|
7,287 |
|
|
|
(2,854 |
) |
|
|
5,024 |
|
|
Provision for income taxes
|
|
|
— |
|
|
|
— |
|
|
|
2,535 |
|
|
|
— |
|
|
|
2,535 |
|
|
Net income (loss)
|
|
$ |
2,489 |
|
|
$ |
(1,898 |
) |
|
$ |
4,752 |
|
|
$ |
(2,854 |
) |
|
$ |
2,489 |
|
Notes to Condensed Consolidated Financial Statements – (Continued)
Statements of Cash Flows Information for the Three-Months Ended September 26, 2010 (amounts in thousands):
| |
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$ |
6,921 |
|
|
$ |
1,149 |
|
|
$ |
(4,380 |
) |
|
$ |
321 |
|
|
$ |
4,011 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
— |
|
|
|
(3,020 |
) |
|
|
(2,475 |
) |
|
|
— |
|
|
|
(5,495 |
) |
|
Investment in unconsolidated affiliate
|
|
|
— |
|
|
|
— |
|
|
|
(225 |
) |
|
|
— |
|
|
|
(225 |
) |
|
Proceeds from sale of capital assets
|
|
|
— |
|
|
|
— |
|
|
|
180 |
|
|
|
— |
|
|
|
180 |
|
|
Net cash used in investing activities
|
|
|
— |
|
|
|
(3,020 |
) |
|
|
(2,520 |
) |
|
|
— |
|
|
|
(5,540 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of notes payable
|
|
|
(15,863 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,863 |
) |
|
Payments of long-term debt
|
|
|
(40,525 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(40,525 |
) |
|
Borrowings of long-term debt
|
|
|
40,525 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40,525 |
|
|
Debt refinancing fees
|
|
|
(821 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(821 |
) |
|
Net cash used in financing activities
|
|
|
(16,684 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,684 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
— |
|
|
|
— |
|
|
|
2,117 |
|
|
|
(321 |
) |
|
|
1,796 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
(9,763 |
) |
|
|
(1,871 |
) |
|
|
(4,783 |
) |
|
|
— |
|
|
|
(16,417 |
) |
|
Cash and cash equivalents at beginning of period
|
|
|
9,938 |
|
|
|
1,832 |
|
|
|
30,921 |
|
|
|
— |
|
|
|
42,691 |
|
|
Cash and cash equivalents at end of period
|
|
$ |
175 |
|
|
$ |
(39 |
) |
|
$ |
26,138 |
|
|
$ |
— |
|
|
$ |
26,274 |
|
Notes to Condensed Consolidated Financial Statements – (Continued)
Statements of Cash Flows Information for the Three-Months Ended September 27, 2009 (amounts in thousands):
| |
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$ |
5,758 |
|
|
$ |
2,460 |
|
|
$ |
5,050 |
|
|
$ |
(46 |
) |
|
$ |
13,222 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(12 |
) |
|
|
(1,734 |
) |
|
|
(360 |
) |
|
|
— |
|
|
|
(2,106 |
) |
|
Change in restricted cash
|
|
|
— |
|
|
|
— |
|
|
|
1,763 |
|
|
|
— |
|
|
|
1,763 |
|
|
Proceeds from sale of capital assets
|
|
|
— |
|
|
|
1 |
|
|
|
106 |
|
|
|
— |
|
|
|
107 |
|
|
Net cash provided by (used in) investing activities
|
|
|
(12 |
) |
|
|
(1,733 |
) |
|
|
1,509 |
|
|
|
— |
|
|
|
(236 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
|
(435 |
) |
|
|
— |
|
|
|
(1,763 |
) |
|
|
— |
|
|
|
(2,198 |
) |
|
Net cash used in financing activities
|
|
|
(435 |
) |
|
|
— |
|
|
|
(1,763 |
) |
|
|
— |
|
|
|
(2,198 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
— |
|
|
|
— |
|
|
|
2,207 |
|
|
|
46 |
|
|
|
2,253 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
5,311 |
|
|
|
727 |
|
|
|
7,003 |
|
|
|
— |
|
|
|
13,041 |
|
|
Cash and cash equivalents at beginning of period
|
|
|
11,509 |
|
|
|
(812 |
) |
|
|
31,962 |
|
|
|
— |
|
|
|
42,659 |
|
|
Cash and cash equivalents at end of period
|
|
$ |
16,820 |
|
|
$ |
(85 |
) |
|
$ |
38,965 |
|
|
$ |
— |
|
|
$ |
55,700 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is Management’s discussion and analysis of certain significant factors that have affected Unifi, Inc.’s together with its subsidiaries (the “Company”) operations and material changes in financial condition during the periods included in the accompanying Condensed Consolidated Financial Statements.
Business Overview
The Company is a diversified producer and processor of multi-filament polyester and nylon yarns, including specialty yarns with enhanced performance characteristics. The Company adds value to the supply chain and enhances consumer demand for its products through the development and introduction of branded yarns that provide unique performance, comfort and aesthetic advantages. The Company manufactures partially oriented, textured, dyed, twisted and beamed polyester yarns as well as textured nylon and both nylon and polyester covered spandex products. The Company sells its products to other yarn manufacturers, knitters and weavers that produce fabric for the apparel, hosiery, furnishings, automotive, industrial and other end-use markets. The Company maintains one of the industry’s most comprehensive product offerings and emphasizes quality, style and performance in all of its products.
Polyester Segment. The polyester segment manufactures partially oriented, textured, dyed, twisted and beamed yarns with sales to other yarn manufacturers, knitters and weavers that produce fabric for the apparel, automotive, hosiery, furnishings, industrial and other end-use markets. The polyester segment primarily manufactures its products in Brazil, and the United States (“U.S.”), which has the Company’s largest operations and number of locations. The polyester segment also includes a subsidiary in China focused on the sale and promotion of the Company’s specialty and premier value-added (“PVA”) products in the Asian textile market, primarily within China. The polyester segment also includes a newly established manufacturing facility in El Salvador.
Nylon Segment. The nylon segment manufactures textured nylon and covered spandex products with sales to other yarn manufacturers, knitters and weavers that produce fabric for the apparel, hosiery, sock and other end-use markets. The nylon segment consists of operations in the U.S. and Colombia.
Recent Developments and Outlook
Net income for the first quarter of fiscal year 2011 was $10.2 million compared to net income of $2.5 million for the first quarter of the prior fiscal year. This marks the fifth consecutive quarter of positive net income reported by the Company primarily as a result of sales volumes returning to pre-recession levels and the benefits from the Company’s fundamental business improvements.
The Company’s adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”) for the first quarter of fiscal year 2011 was $18.4 million, which is an improvement of $3.3 million over the first quarter of fiscal year 2010 as described in more detail below. The increase in adjusted EBITDA over the prior year first quarter is due in part to improved gross profit in the domestic operations as a result of increased sales volumes and selling prices, which allowed the Company to regain conversion margin lost as a result of rising raw material prices during the latter half of fiscal year 2010. The Company’s positive results were due to a combination of continuous efforts to improve its manufacturing processes, expanding its market share, and making strategic investments. Going forward, the Company expects to use the strength of its balance sheet to make further strategic capital investments to support its growth initiatives to further enhance its future earnings. See "Results of Operations" section below for the reconciliation of adjusted EBITDA to net income.
Net sales for the first quarter of fiscal year 2011 were $174.0 million, an increase of $31.2 million or 22% over all domestic and foreign operations as compared to the same quarter in the prior year. This improvement was driven by increased market share and improving market conditions in substantially all key segments.
On a consolidated basis, sales volumes increased 13% in the first quarter of fiscal year 2011 as compared to the first quarter of fiscal year 2010 primarily driven by gains in the Company’s domestic business as well as improvements derived from the Company’s China operations. Unifi Textiles Suzhou Co., Ltd. (“UTSC”) reported sales of $7.4 million and net income of $0.6 million in the first quarter of fiscal year 2011 as it continues to make positive contributions to adjusted EBITDA. Overall strong demand in China has created volume growth for UTSC and the Company remains optimistic about UTSC's continued growth.
The Company experienced improvements related to regional sourcing from U.S.-Dominican Republic-Central American Free Trade Agreement (“CAFTA”) as U.S. imports of synthetic apparel increased by approximately 24% for the calendar year-to-date 2010 period over the prior calendar year-to-date period which is slightly higher than China imports and double the increase from all other textile producing countries. U.S. import volumes from the CAFTA region for the calendar year 2010 are slightly below the levels they were in calendar 2008 but above the calendar 2007 level. The Company expects the share of U.S. apparel consumption from the combined U.S., CAFTA, and North American Free Trade Agreement ("NAFTA") region to stabilize at its current level as brands and retailers seek to closely manage inventories while the economy continues to recover. There have been gains in both infrastructure and capacity in the CAFTA region, which when coupled with the region’s shorter lead times, makes the region an attractive supply chain for customers, particularly at a time when Asia is continuing to experience labor, material, and transportation cost increases. The Company has positioned itself to meet the demands expected from the CAFTA region by investing in its new production facility, Unifi Central America, LLC (“UCA”) located in El Salvador. The Company expects UCA to be fully operational by the end of December 2010.
Earnings from equity affiliates during the first quarter of fiscal year 2011 were $9.0 million, which was an improvement of $6.9 million over the prior year same quarter. The majority of this improvement came from the Company’s 34% membership interest in Parkdale America, LLC (“PAL”), which contributed $8.6 million to the Company’s earnings compared to $2.4 million for the prior year first quarter. PAL’s improved performance is a result of the timing of revenue recognition related to the economic adjustment payments (“EAP”) cotton rebate program.
Looking forward, the Company is experiencing rising polyester raw material prices stemming from increases in crude oil prices, the return of post-recession demand for all fibers including polyester and the unplanned temporary slowdown in production in paraxlyene (“PX”) and monoethylene glycol (“MEG”) plants in Asia. As a result of these factors, the Company anticipates an increase in raw materials in the range of 10 to 12 cents per pound during the second quarter of fiscal year 2011 which the Company expects to pass along to its customers.
The Company believes that fiscal year 2011 will be a critical transition year as the Company expects to continue to build upon its success by focusing on sustaining and continuously improving corporate operations and profitability, increasing sales and earnings in global markets, and executing on its strategic growth initiatives to ensure the long-term health of the Company.
Key Performance Indicators
The Company continuously reviews performance indicators to measure its success. The following are the indicators management uses to assess performance of the Company’s business:
|
●
|
sales volume, which is an indicator of demand;
|
|
●
|
gross margin, which is an indicator of product mix and profitability;
|
|
●
|
adjusted EBITDA, which the Company defines as net income or loss before income tax expense (benefit), net interest expense, and depreciation and amortization expense, adjusted to exclude equity in earnings and losses of unconsolidated affiliates, write down of long-lived assets, non-cash compensation expense net of distributions, gains or losses on sales or disposals of property, plant and equipment (“PP&E”), currency and derivative gains or losses, gains or losses on extinguishment of debt, restructuring charges, and foreign subsidiary startup costs, as revised from time to time, which the Company believes is a supplemental measure of its operating performance and debt service capacity; and
|
|
●
|
adjusted working capital (accounts receivable plus inventory less accounts payable and accruals) as a percentage of sales, which is an indicator of the Company’s production efficiency and ability to manage its inventory and receivables.
|
Results of Operations
| |
|
September 26,
2010
|
|
|
September 27,
2009
|
|
| |
|
(Amounts in thousands)
|
|
|
Net sales
|
|
$ |
174,020 |
|
|
$ |
142,851 |
|
|
Cost of sales
|
|
|
152,857 |
|
|
|
123,445 |
|
|
Other operating expenses, net
|
|
|
11,692 |
|
|
|
11,753 |
|
|
Non-operating (income) expenses, net
|
|