##### Table of Contents



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 23, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 1-10542
 UNIFI, INC.
  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)
 (336) 294-4410
 þ o
  Large accelerated filer: o
    
    Accelerated filer: þ
    
    Non-accelerated filer: o
    
    Smaller reporting company: o(Do not check if a smaller reporting company)
 o þ




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##### 



INDEX
 PagePart I Financial Information
    
    Item 1.
    
    Financial Statements:
Condensed Consolidated Balance Sheets at
March 23, 2008 and June 24, 2007
    
    
    3Condensed Consolidated Statements of Operations
for the Quarters and Nine-Months Ended March 23, 2008
and March 25, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Nine-Months Ended March 23, 2008 and
March 25, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    27Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    44Item 4.
    
    Controls and Procedures
    
    
    46Part II Other Information
    
    Item 1.
    
    Legal Proceedings
    
    
    47Item 1A.
    
    Risk Factors
    
    
    47Item 2.
    
    Unregistered Sales of Equity Securities and
Use of Proceeds
    
    
    47Item 3.
    

Defaults
Upon Senior Securities
    
    
    47Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    48Item 5.
    

Other
Information
    
    
    48Item 6.
    

Exhibits
    
    
    48Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  2




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##### Table of Contents



March 23,
    
    
    June 24,2008
    
    
    2007(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,187
    
    
    $
    40,031Receivables, net
    
    
    99,123
    
    
    
    93,989Inventories
    
    
    128,903
    
    
    
    132,282Deferred income taxes
    
    
    2,078
    
    
    
    9,923Assets held for sale
    
    
    
    
    
    
    7,880Restricted cash
    
    
    16,374
    
    
    
    4,036Other current assets
    
    
    12,774
    
    
    
    11,973Total current assets
    
    
    285,439
    
    
    
    300,114Property, plant and equipment
    
    
    886,306
    
    
    
    913,144Less accumulated depreciation
    
    
    (703,037
    )
    
    
    (703,189
    )183,269
    
    
    
    209,955Investments in unconsolidated affiliates
    
    
    79,390
    
    
    
    93,170Intangible assets, net
    
    
    39,837
    
    
    
    42,290Other noncurrent assets
    
    
    20,349
    
    
    
    20,424Total assets
    
    $
    608,284
    
    
    $
    665,953LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    45,465
    
    
    $
    61,620Accrued expenses
    
    
    31,559
    
    
    
    28,278Income taxes payable
    
    
    1,343
    
    
    
    247Current maturities of long-term debt and other
current liabilities
    
    
    11,218
    
    
    
    11,198Total current liabilities
    
    
    89,585
    
    
    
    101,343Long-term debt and other liabilities
    
    
    221,281
    
    
    
    236,149Deferred income taxes
    
    
    858
    
    
    
    23,507Commitments and contingenciesShareholders equity:Common stock
    
    
    6,059
    
    
    
    6,054Capital in excess of par value
    
    
    24,569
    
    
    
    23,723Retained earnings (Note 2)
    
    
    253,723
    
    
    
    270,800Accumulated other comprehensive income
    
    
    12,209
    
    
    
    4,377296,560
    
    
    
    304,954Total liabilities and shareholders equity
    
    $
    608,284
    
    
    $
    665,953
  3




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##### Table of Contents



For the Quarters Ended
    
    
    For the Nine-Months EndedMar. 23,
    
    
    Mar. 25,
    
    
    Mar. 23,
    
    
    Mar. 25,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    169,836
    
    
    $
    178,202
    
    
    $
    523,741
    
    
    $
    505,041Cost of sales
    
    
    156,404
    
    
    
    164,814
    
    
    
    490,996
    
    
    
    481,207Selling, general & administrative expenses
    
    
    10,080
    
    
    
    11,177
    
    
    
    36,542
    
    
    
    32,854Provision for bad debts
    
    
    87
    
    
    
    2,274
    
    
    
    152
    
    
    
    2,872Interest expense
    
    
    6,308
    
    
    
    6,610
    
    
    
    19,598
    
    
    
    18,786Interest income
    
    
    (651
    )
    
    
    (707
    )
    
    
    (2,231
    )
    
    
    (2,217
    )Other (income) expense, net
    
    
    (897
    )
    
    
    (2,462
    )
    
    
    (4,087
    )
    
    
    (2,705
    )Equity in (earnings) losses of unconsolidated
affiliates
    
    
    (757
    )
    
    
    (352
    )
    
    
    (914
    )
    
    
    4,473Restructuring (recoveries) charges
    
    
    (2,199
    )
    
    
    
    
    
    
    4,638
    
    
    
    Write down of long-lived assets
    
    
    
    
    
    
    12,870
    
    
    
    2,780
    
    
    
    16,072Write down of investment in unconsolidated
affiliate
    
    
    
    
    
    
    
    
    
    
    4,505
    
    
    
    Income (loss) from continuing operations
before
income taxes
    
    
    1,461
    
    
    
    (16,022
    )
    
    
    (28,238
    )
    
    
    (46,301
    )Provision (benefit) for income taxes
    
    
    1,394
    
    
    
    (2,099
    )
    
    
    (11,294
    )
    
    
    (4,238
    )Income (loss) from continuing operations
    
    
    67
    
    
    
    (13,923
    )
    
    
    (16,944
    )
    
    
    (42,063
    )Income (loss) from discontinued operations 
net of tax
    
    
    (55
    )
    
    
    666
    
    
    
    22
    
    
    
    463Net income (loss)
    
    $
    12
    
    
    $
    (13,257
    )
    
    $
    (16,922
    )
    
    $
    (41,600
    )Losses per common share (basic and diluted):Net income (loss)  continuing operations
    
    $
    
    
    
    $
    (.23
    )
    
    $
    (.28
    )
    
    $
    (.77
    )Net income  discontinued operations
    
    
    
    
    
    
    .01
    
    
    
    
    
    
    
    .01Net income (loss)  basic and diluted
    
    $
    
    
    
    $
    (.22
    )
    
    $
    (.28
    )
    
    $
    (.76
    )Weighted average outstanding shares of
common stock (basic and diluted)
    
    
    60,589
    
    
    
    59,803
    
    
    
    60,560
    
    
    
    54,733
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##### Table of Contents



For the Nine-Months EndedMarch 23,
    
    
    March 25,2008
    
    
    2007Cash and cash equivalents at beginning of year
    
    $
    40,031
    
    
    $
    35,317Operating activities:Net loss
    
    
    (16,922
    )
    
    
    (41,600
    )Adjustments to reconcile net loss to net cash provided by (used in)
continuing operating activities:Income from discontinued operations
    
    
    (22
    )
    
    
    (463
    )(Earnings) losses of unconsolidated equity affiliates, net of
distributions
    
    
    262
    
    
    
    4,473Depreciation
    
    
    27,568
    
    
    
    31,701Amortization
    
    
    3,486
    
    
    
    1,967Stock-based compensation expense
    
    
    724
    
    
    
    1,433Deferred compensation expense
    
    
    (425
    )
    
    
    1,540Net gain on asset sales
    
    
    (1,872
    )
    
    
    (1,593
    )Non-cash write down of long-lived assets
    
    
    2,780
    
    
    
    16,072Non-cash write down of investment in unconsolidated affiliate
    
    
    4,505
    
    
    
    Non-cash portion of restructuring charges, net
    
    
    4,638
    
    
    
    Deferred income tax benefit
    
    
    (14,951
    )
    
    
    (5,832
    )Provision for bad debts
    
    
    152
    
    
    
    2,872Split dollar life insurance proceeds, net
    
    
    
    
    
    
    1,761Other
    
    
    (263
    )
    
    
    93Change in assets and liabilities, excluding effects of
acquisitions and foreign currency adjustments
    
    
    (11,083
    )
    
    
    (16,035
    )Net cash used in continuing operating activities
    
    
    (1,423
    )
    
    
    (3,611
    )Investing activities:Capital expenditures
    
    
    (7,310
    )
    
    
    (5,502
    )Acquisition
    
    
    
    
    
    
    (42,222
    )Proceeds from sale of equity affiliate
    
    
    8,750
    
    
    
    Change in restricted cash
    
    
    (12,338
    )
    
    
    (1,000
    )Collection of notes receivable
    
    
    269
    
    
    
    766Proceeds from sale of capital assets
    
    
    15,797
    
    
    
    2,399Return of capital from equity affiliates
    
    
    
    
    
    
    229Split dollar life insurance premiums
    
    
    (217
    )
    
    
    (217
    )Other
    
    
    (793
    )
    
    
    (669
    )Net cash provided by (used in) investing activities
    
    
    4,158
    
    
    
    (46,216
    )Financing activities:Borrowing of long-term debt
    
    
    
    
    
    
    40,000Payment of long-term debt
    
    
    (16,000
    )
    
    
    Other
    
    
    (2,142
    )
    
    
    (1,168
    )Net cash provided by (used in) financing activities
    
    
    (18,142
    )
    
    
    38,832Cash flows of discontinued operations:Operating cash flow
    
    
    (230
    )
    
    
    463Net cash provided by (used in) discontinued operations
    
    
    (230
    )
    
    
    463Effect of exchange rate changes on cash and cash equivalents
    
    
    1,793
    
    
    
    1,995Net decrease in cash and cash equivalents
    
    
    (13,844
    )
    
    
    (8,537
    )Cash and cash equivalents at end of period
    
    $
    26,187
    
    
    $
    26,780
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##### Table of Contents



1.
    
    Basis of PresentationThe Condensed Consolidated Balance Sheet of Unifi, Inc. (The Company) at June 24, 2007 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 24, 2007, this information is unaudited and reflects all adjustments which are, in the
opinion of management, necessary to present fairly the financial position at March 23, 2008, and
the results of operations and cash flows for the periods ended March 23, 2008 and March 25,
2007. 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 24, 2007. 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 62 to 68 of
the Companys Annual Report on Form 10-K for the fiscal year ended June 24, 2007.2.
    
    InventoriesThe Companys significant accounting policies are listed in Note 1 Summary of Significant
Accounting Policies of the Notes to Consolidated Financial Statements section of the Companys
Form 10-K for the fiscal year ended June 24, 2007. As of the date hereof, there has been no
significant developments with respect to significant accounting policies since June 24, 2007,
other than the following:Inventories are stated at lower of cost or market. Cost is determined by the first-in,
first-out method.Inventories are comprised of the following (amounts in thousands):
 March 23,
    
    
    June 24,2008
    
    
    2007Raw materials and supplies
    
    $
    54,469
    
    
    $
    49,690Work in process
    
    
    7,469
    
    
    
    8,171Finished goods
    
    
    66,965
    
    
    
    74,421$
    128,903
    
    
    $
    132,282
 
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##### Table of Contents



March 23,
    
    March 25,
    
    March 23,
    
    March 25,2008
    
    2007
    
    2008
    
    2007
    
    June 24, 2007
    
    June 25, 2006
    
    June 26, 2005Increase / (Decrease)
    
    (13 Weeks)
    
    (13 Weeks)
    
    (39 Weeks)
    
    (39 Weeks)
    
    (52 Weeks)
    
    (52 Weeks)
    
    (52 Weeks)Balance Sheets:Inventories
    
    $
    3,907
    
    
    $
    6,047
    
    
    $
    3,907
    
    
    $
    6,047
    
    
    $
    8,155
    
    
    $
    7,323
    
    
    $
    3,492Current deferred taxes
    
    
    (1,500
    )
    
    
    (2,322
    )
    
    
    (1,500
    )
    
    
    (2,322
    )
    
    
    (3,132
    )
    
    
    (2,812
    )
    
    
    (1,372
    )Noncurrent deferred taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32Retained earnings
    
    
    2,407
    
    
    
    3,725
    
    
    
    2,407
    
    
    
    3,725
    
    
    
    5,023
    
    
    
    4,511
    
    
    
    2,152Statements of Operations:Cost of sales
    
    
    2,638
    
    
    
    62
    
    
    
    4,248
    
    
    
    1,276
    
    
    
    (832
    )
    
    
    (3,831
    )
    
    
    (2,924
    )Income (loss) from
continuing
operations
    
    
    (2,638
    )
    
    
    (62
    )
    
    
    (4,248
    )
    
    
    (1,276
    )
    
    
    832
    
    
    
    3,831
    
    
    
    2,924Provision (benefit) for
income
taxes
    
    
    (1,013
    )
    
    
    (24
    )
    
    
    (1,631
    )
    
    
    (490
    )
    
    
    320
    
    
    
    1,472
    
    
    
    1,122Net income (loss)
    
    
    (1,625
    )
    
    
    (38
    )
    
    
    (2,617
    )
    
    
    (786
    )
    
    
    512
    
    
    
    2,359
    
    
    
    1,802Per share of common stock:
(basic and diluted)Net income (loss) per share
    
    
    (.03
    )
    
    
    (.00
    )
    
    
    (.04
    )
    
    
    (.01
    )
    
    
    .01
    
    
    
    .05
    
    
    
    .03Cash Flow Statements:Net income (loss)
    
    
    (1,625
    )
    
    
    (38
    )
    
    
    (2,617
    )
    
    
    (786
    )
    
    
    512
    
    
    
    2,359
    
    
    
    1,802Change in inventories
    
    
    2,638
    
    
    
    62
    
    
    
    4,248
    
    
    
    1,276
    
    
    
    (832
    )
    
    
    (3,831
    )
    
    
    (2,924
    )Deferred income tax
    
    
    (1,013
    )
    
    
    (24
    )
    
    
    (1,631
    )
    
    
    (490
    )
    
    
    320
    
    
    
    1,472
    
    
    
    1,122Net cash provided by
operating activities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Note:
    
    The disclosure is selective in nature and only addresses the specific accounting
impact from the change in inventory accounting methods. The disclosure does not address
other potential effects (whether financial or operational) that could have impacted the
Companys results of operations or financial position if the Company had elected to remain
on the LIFO accounting method for inventories during the thirteen weeks and thirty-nine
weeks ended March 23, 2008. As a result of the accounting change, retained earnings as of June 24, 2007 increased $5.0
million from $265.8 million, as originally reported using the LIFO method for certain
inventories, to $270.8 million using the FIFO method. 3.
    
    Accrued ExpensesAccrued expenses are comprised of the following (amounts in thousands):
 March 23,
    
    
    June 24,2008
    
    
    2007Payroll and fringe benefits
    
    $
    9,568
    
    
    $
    8,256Severance
    
    
    2,416
    
    
    
    877Interest
    
    
    8,032
    
    
    
    2,849Utilities
    
    
    2,394
    
    
    
    4,324Restructuring
    
    
    3,428
    
    
    
    5,685Retiree benefits
    
    
    2,377
    
    
    
    2,470Property taxes
    
    
    763
    
    
    
    1,514Other
    
    
    2,581
    
    
    
    2,303$
    31,559
    
    
    $
    28,278
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##### Table of Contents



4.
    
    Income TaxesThe Companys income tax expense for the quarter ended March 23, 2008 resulted in an effective
tax rate of 95.4 % compared to the quarter ended March 25, 2007 which resulted in an effective
tax rate of negative 13.1%. The Companys income tax benefit for the year-to-date period ended
March 23, 2008 resulted in an effective tax rate of negative 40.0% compared to the year-to-date
period ended March 25, 2007 which resulted in an effective tax rate of negative 9.2%. The
primary differences between the Companys income tax expense and the U.S. statutory rate for the
quarter ended March 23, 2008 were losses from certain foreign operations taxed at a lower
effective rate, stock based compensation, and an increase in the valuation allowance. The
primary differences between the Companys income tax benefit and the U.S. statutory rate for the
year-to-date period ended March 23, 2008 were losses from certain foreign operations taxed at a
lower effective rate, state income tax benefit, and a decrease in the valuation allowance.Deferred income taxes have been provided for the temporary differences between financial
statement carrying amounts and the tax basis of existing assets and liabilities. The Company
has established a valuation allowance to completely offset its U.S. net deferred tax asset. The
valuation allowance increased $0.2 million and decreased $6.7 million in the quarter and year-to
date periods ended March 23, 2008, respectively, compared to increases of $2.9 million and $8.0
million in the quarter and year-to-date periods ended March 25, 2007, respectively. The increase
in the valuation allowance for the quarter ended March 23, 2008 was primarily due to lower
estimates of future realization of U.S. loss carryforwards and other deductible items. The
decrease in the valuation allowance for the year-to-date period ended March 23, 2008 was
primarily due to derecognition of unrealized tax benefits with respect to North Carolina income
tax credit carryforwards, a reduction in estimated capital losses related to certain property,
plant, and equipment, and lower estimates of future realization of U.S. loss carryforwards and
other deductible items.On June 25, 2007, the Company adopted Financial Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes
(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with Financial Accounting Standards Board
(FASB) Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim periods,
disclosures and transition. There was a $0.2 million cumulative adjustment to retained earnings
on adoption of FIN 48.The Company had unrecognized tax benefits of $4.5 million as of the June 25, 2007 adoption date.
Of the total, $0.4 million represents amounts that, if recognized, would favorably affect the
effective income tax rate in any future period, and $1.5 million represents North Carolina
income tax credit carryforwards that will expire if not utilized within twelve months.The Company has elected upon adoption of FIN 48 to classify interest and penalties recognized in
accordance with FIN 48 as income tax expense. The Company had $0.1 million of accrued interest
and no penalties related to uncertain tax positions as of June 25, 2007.There was no change in the amount of unrecognized tax benefits or related interest and penalties
during the quarter and year-to-date periods ended March 23, 2008.The Company is subject to income tax examinations for U.S. federal income taxes for fiscal years
2003 through 2007, for non-U.S. income taxes for tax years 2000 through 2007, and for state and
local income taxes for fiscal years 2001 through 2007. The Companys U.S. federal income tax
return for fiscal year 2006 is currently under examination.
 8




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##### Table of Contents



5.
    
    Comprehensive Income (Loss)Comprehensive income (loss) amounted to $1.3 million for the third quarter of fiscal year 2008
and comprehensive loss of $9.1 million for the year-to-date periods of fiscal year 2008,
respectively, compared to comprehensive losses of $10.5 million and $37.2 million for the third
quarter and the year-to-date periods of fiscal year 2007. Comprehensive losses were comprised
of net income of $0.0 million and net losses of $16.9 million for the third quarter and
year-to-date periods of fiscal year 2008, respectively, and foreign translation gains of $1.3
million and $7.8 million, respectively. Comparatively, comprehensive losses for the
corresponding periods in the prior fiscal year were derived from net losses of $13.3 million and
$41.6 million, and foreign translation gains of $2.8 million and $4.4 million, respectively.
The Company does not provide income taxes on the impact of currency translations as earnings
from foreign subsidiaries are deemed to be permanently invested.6.
    
    Recent Accounting PronouncementsIn March 2008, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB
Statement No. 133 requiring enhancements to the SFAS No.133 disclosure requirements for
derivative and hedging activities. The objective of the enhanced disclosure requirement is to
provide the user of financial statements with a clearer understanding of how the entity uses
derivative instruments; how derivatives are accounted for; and how derivatives affect an
entitys financial position, cash flows and performance. The statement applies to all derivative
and hedging instruments. SFAS No.161 is effective for all fiscal years and interim periods
beginning after November 15, 2008. The Company is evaluating its current disclosures of
derivative and hedging instruments and the impact SFAS No.161 will have on its future
disclosures.In December 2007, the FASB issued SFAS No.141R, Business Combinations-Revised. This new
standard replaces SFAS No.141 Business Combinations. SFAS No.141R requires that the
acquisition method of accounting, instead of the purchase method, be applied to all business
combinations and that an acquirer is identified in the process. The statement requires that
fair market value be used to recognize assets and assumed liabilities instead of the cost
allocation method where the costs of an acquisition are allocated to individual assets based on
their estimated fair values. Goodwill would be calculated as the excess purchase price over the
fair value of the assets acquired; however, negative goodwill will be recognized immediately as
a gain instead of being allocated to individual assets acquired. Costs of the acquisition will
be recognized separately from the business combination. The end result is that the statement
improves the comparability, relevance and completeness of assets acquired and liabilities
assumed in a business combination. SFAS No.141R is effective for business combinations which
occur in fiscal years beginning on or after December 15, 2008.In December 2007, the FASB issued SFAS No.160, Noncontrolling Interests in Consolidated
Financial Statements-an amendment of ARB No. 51. This new standard requires that ownership
interests held by parties other than the parent be presented separately within equity in the
statement of financial position; the amount of consolidated net income be clearly identified and
presented on the statements of income; all transactions resulting in a change of ownership
interest whereby the parent retains control to be accounted for as equity transactions; and when
controlling interest is not retained by the parent, any retained equity investment will be
valued at fair market value with a gain or loss being recognized on the transaction. SFAS No.160
is effective for business combinations which occur in fiscal years beginning on or after
December 15, 2008. The Company does not expect this statement to have an impact on its results
of operations or financial condition.
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In February 2007, the FASB issued SFAS No. 159, Fair Value Option for Financial Assets and
Financial 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
provides 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. The
Company continues to evaluate the provisions of SFAS No. 159 and has not determined if it will
make any elections for fair value reporting of its assets.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
addresses how companies should measure fair value when they are required to use a fair value
measure for recognition or disclosure purposes under generally accepted accounting principles.
As a result of SFAS No. 157 there is now a common definition of fair value to be used throughout
GAAP. The FASB believes that the new standard will make the measurement of fair value more
consistent and comparable and improve disclosures about those measures. The provisions of SFAS
No. 157 were to be effective for fiscal years beginning after November 15, 2007. On December 14,
2007, the FASB issued proposed Staff Position (FSP) FAS 157-b which would delay the effective
date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a recurring basis (at
least annually). This proposed FSP partially defers the effective date of SFAS No. 157 to fiscal
years beginning after November 15, 2008, and interim periods within those fiscal years for items
within the scope of this FSP. Effective for fiscal year 2009, the Company will adopt SFAS No. 157
except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in
proposed FSP FAS 157-b. The Company is in the process of determining the financial impact of the
partial adoption of SFAS No. 157 on its results of operations and financial condition.7.
    
    Segment DisclosuresThe following is the Companys selected segment information for the
quarter and nine-month periods ended March 23, 2008 and March 25, 2007
(amounts in thousands):
 Polyester
    
    Nylon
    
    TotalQuarter ended March 23, 2008:Net sales to external customers
    
    $
    126,247
    
    
    $
    43,589
    
    
    $
    169,836Intersegment net sales
    
    
    2,718
    
    
    
    718
    
    
    
    3,436Segment operating income
    
    
    3,072
    
    
    
    2,479
    
    
    
    5,551Total assets
    
    
    380,948
    
    
    
    96,884
    
    
    
    477,832Quarter ended March 25, 2007:Net sales to external customers
    
    $
    138,167
    
    
    $
    40,035
    
    
    $
    178,202Intersegment net sales
    
    
    1,421
    
    
    
    587
    
    
    
    2,008Segment operating loss
    
    
    (3,382
    )
    
    
    (7,277
    )
    
    
    (10,659
    )Total assets
    
    
    417,412
    
    
    
    119,888
    
    
    
    537,300
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The following table represents reconciliations from segment data to consolidated reporting data
(amounts in thousands):
 For the Quarters EndedMarch 23,
    
    
    March 25,2008
    
    
    2007Reconciliation of segment operating income (loss) to
income (loss) from continuing operations before income taxes:Reportable segments operating income (loss)
    
    $
    5,551
    
    
    $
    (10,659
    )Provision for bad debts
    
    
    87
    
    
    
    2,274Interest expense, net
    
    
    5,657
    
    
    
    5,903Other (income) expense, net
    
    
    (897
    )
    
    
    (2,462
    )Equity in earnings of unconsolidated affiliates
    
    
    (757
    )
    
    
    (352
    )Income (loss) from continuing operations before income taxes
    
    $
    1,461
    
    
    $
    (16,022
    )
 Polyester
    
    Nylon
    
    TotalNine-Months ended March 23, 2008:Net sales to external customers
    
    $
    390,743
    
    
    $
    132,998
    
    
    $
    523,741Intersegment net sales
    
    
    7,253
    
    
    
    2,592
    
    
    
    9,845Segment operating income (loss)
    
    
    (15,147
    )
    
    
    3,932
    
    
    
    (11,215
    )Nine-Months ended March 25, 2007:Net sales to external customers
    
    $
    387,145
    
    
    $
    117,896
    
    
    $
    505,041Intersegment net sales
    
    
    5,335
    
    
    
    3,683
    
    
    
    9,018Segment operating loss
    
    
    (15,034
    )
    
    
    (8,858
    )
    
    
    (23,892
    )
 The following table represents reconciliations from segment data to consolidated reporting data
(amounts in thousands):
 For the Nine-Months EndedMarch 23,
    
    
    March 25,2008
    
    
    2007Reconciliation of segment operating loss to loss
from continuing operations before income taxes:Reportable segments operating loss
    
    $
    (11,215
    )
    
    $
    (23,892
    )Provision for bad debts
    
    
    152
    
    
    
    2,872Interest expense, net
    
    
    17,367
    
    
    
    16,569Other (income) expense, net
    
    
    (4,087
    )
    
    
    (2,705
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    (914
    )
    
    
    4,473Write down of long-lived assets
    
    
    
    
    
    
    1,200Write down of investment in unconsolidated affiliate
    
    
    4,505
    
    
    
    Loss from continuing operations before income taxes
    
    $
    (28,238
    )
    
    $
    (46,301
    )
 For purposes of internal management reporting, segment operating income (loss) represents net
sales less cost of sales, allocated selling, general and administrative expenses, restructuring
(recoveries) charges, and write down of long-lived assets. 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 are recorded at market.
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The primary differences between the segmented financial information of the operating segments,
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, interest expense, net,
corporate asset impairments, and certain unallocated selling, general and administrative
expenses.Segment operating loss excluded the provision for bad debts of $0.1 million and $2.3 million for
the current and prior year third quarter periods, respectively, and $0.2 million and $2.9
million for the year-to-date periods, respectively.The total assets for the polyester segment decreased from $419.4 million at June 24, 2007 to
$380.9 million at March 23, 2008 due primarily to decreases in property, plant, and equipment,
cash, inventory, deferred taxes, assets held for sale, and other assets of $15.9 million, $10.4
million, $6.1 million, $4.0 million, $3.6 million, and $1.9 million, respectively. These
decreases were offset by increases in other current assets and accounts receivable of $1.8
million and $1.6 million, respectively. The total assets for the nylon segment decreased from
$110.7 million at June 24, 2007 to $96.9 million at March 23, 2008 due primarily to decreases in
property, plant, and equipment, assets held for sale, deferred tax assets, and accounts
receivable of $10.5 million, $3.4 million, $2.6 million, and $0.2 million, respectively. These
decreases were offset by increases in inventory and cash of $2.7 million and $0.2 million,
respectively.8.
    
    Stock-Based CompensationDuring the fourth quarter of fiscal year 2006, the Board of Directors (Board) authorized
the issuance of 150,000 stock options from the 1999 Long-Term Incentive Plan to certain key
employees. These 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.In 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 300,000 stock options granted to the
former Chairman, President and Chief Executive Officer (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.On October 24, 2007, the Board authorized the issuance of approximately 1.6 million stock
options from the Long-Term Incentive Plan of which 120,000 were issued to certain Board members
and the remaining options were issued to certain key employees. The stock options issued to key
employees are subject to a market condition which vests the options on the date that the closing
price of the Companys common stock shall have been at least $6.00 per share for thirty
consecutive trading days. The stock options issued to certain Board members are subject to a
similar market condition in that one half of each members options vest on the date that the
closing price of the Companys common stock shall have been at least $8.00 per share for thirty
consecutive trading days and the remaining one half vest on the date that the closing price of
the Companys common stock shall have been at least $10.00 per share for thirty consecutive
trading days. The Company used a Monte Carlo stock option model to estimate fair value and the
derived vesting periods which range from 2.4 to 3.9 years.As a result of these grants, the Company incurred $0.3 million and $0.2 million in the
third quarters of fiscal years 2008 and 2007, respectively, and $0.7 million and $1.4 million
for the year-to-date periods, respectively, in stock-based compensation charges which were
recorded as selling, general and administrative expense with the offset to additional
paid-in-capital.
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9.
    
    Derivative Financial InstrumentsThe 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 consummated (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, Brazilian, and
North American 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
up to 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 March 2008 and July 2008, respectively.The dollar equivalent of these forward currency contracts and their related fair values are
detailed below (amounts in thousands):
 March 23,
    
    
    June 24,2008
    
    
    2007Foreign currency purchase contracts:Notional amount
    
    $
    1,329
    
    
    $
    1,778Fair value
    
    
    1,312
    
    
    
    1,783Net (gain) loss
    
    $
    17
    
    
    $
    (5
    )Foreign currency sales contracts:Notional amount
    
    $
    1,415
    
    
    $
    397Fair value
    
    
    1,469
    
    
    
    400Net (gain) loss
    
    $
    54
    
    
    $
    3
 For the quarters ended March 23, 2008 and March 25, 2007, 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 pre-tax income of $0.2 million and
pre-tax loss of $0.1 million, respectively. For the year-to-date periods ended March 23, 2008
and March 25, 2007, the total impact of foreign currency related items was pre-tax loss of $0.3
million and pre-tax income of $0.3 million, respectively.
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10.
    
    Investments in Unconsolidated AffiliatesThe following table represents the Companys investments in unconsolidated affiliates:
 Affiliate Name
    
    Date Acquired
    
    Location
    
    Percent OwnershipYihua Unifi Fibre Company Limited
    
    August 2005
    
    Yizheng, Jiangsu Province,
Peoples Republic of China
    
    
    50
    %Parkdale America, LLC
    
    June 1997
    
    North and South Carolina
    
    
    34
    %U.N.F. Industries, LLC
    
    September 2000
    
    Migdal Ha  Emek, Israel
    
    
    50
    %
 Condensed balance sheet information as of March 23, 2008, and income statement information for
the quarter and year-to-date periods ended March 23, 2008, of the combined unconsolidated equity
affiliates are as follows (amounts in thousands):
 As ofMarch
23, 2008Current assets
    
    $
    172,866Noncurrent assets
    
    
    164,720Current liabilities
    
    
    71,460Noncurrent liabilities
    
    
    Shareholders equity and capital accounts
    
    
    266,127
 For the Quarter Ended
    
    For the Nine-Months EndedMarch 23, 2008
    
    March 23, 2008Net sales
    
    $
    153,623
    
    
    $
    460,567Gross profit
    
    
    3,978
    
    
    
    14,619Loss from operations
    
    
    (676
    )
    
    
    (668
    )Net income
    
    
    3,104
    
    
    
    2,886
 In the second quarter of fiscal year 2008, the Company completed the sale of its 50% interest in
Unifi-SANS Technical Fibers, LLC (USTF). On November 30, 2007, the Company received net
proceeds of $11.9 million from Sans Fibers. The purchase price included $3.0 million for a
manufacturing facility that the Company leased to the joint venture which had a net book value
of $2.1 million. Of the remaining $8.9 million, $8.8 million was allocated to the Companys
equity investment in the joint venture and $0.1 million was attributed to interest income.The Companys management has been aggressively working with Sinopec Yizheng Chemical Fiber Co.,
Ltd, (YCFC) to restructure the joint venture. At this time, the Company believes that the
issues the joint venture is facing in China go beyond difficult market conditions related to raw
material price increases or fluctuations in demand. In light of these concerns, the Company is
exploring all strategic alternatives in China, including the possible re-sizing of the joint
venture and adjusting its product mix or exiting the joint venture all together. There can be
no assurance that such restructuring will be successful and in the event it is not successful,
the Company will consider exiting the joint venture. At this time, the Company does not believe
either alternative will have a material impact on its financial position. Nevertheless, the
Company remains committed to serving its Asian customer base with value-added products produced
in China.
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11.
    
    Severance and Restructuring ChargesDuring the first quarter of fiscal year 2008, the Company recorded $2.4 million in connection
with the termination of its former Chairman, President and CEO, and $1.1 million relating to
other corporate staff and manufacturing support. During the second quarter fiscal 2008, the
Company announced that it entered into a severance agreement which provided for the termination
of the Companys former Vice President, Chief Operating Officer and Chief Financial Officer, and
as a result, the Company recorded an additional severance charge of $1.7 million in the second
quarter of fiscal year 2008. As of March 23, 2008, the Company classified $2.0 million of the
executive severance as long term.During the first quarter of fiscal year 2008, the Company reorganized certain corporate staff
and manufacturing support functions to further reduce costs. On August 2, 2007, the Company
announced the closure of its Kinston, North Carolina facility (Kinston) which produced POY
yarn for both internal consumption and third party sales. Approximately 310 employees including
90 salaried positions and 220 wage positions were included in the reorganization plans. The
Company recorded a severance reserve of $0.8 million and $1.5 million in contract termination
costs relating to the Kinston closure.During the second quarter of fiscal year 2008, the Company further evaluated the contract
termination costs associated with the closure of Kinston and accrued for unfavorable contract
costs of $4.6 million related to site services, including utilities and operational support, the
Company is obligated to provide to a tenant through June 2008. The Company recorded an
additional $0.4 million in severance costs related to Kinston employees who are associated with
providing these services.During the third quarter of fiscal year 2008, the Company settled certain disputed amounts with
the Kinston tenant related to site services reimbursements and as a result reduced the reserve
by a net $2.2 million with an offset to restructuring recoveries.In fiscal year 2004, the Company recorded restructuring charges of $5.7 million in lease related
costs associated with the closure of its facility in Altamahaw, North Carolina. In the second
quarter of fiscal year 2008, the Company negotiated the remaining obligation on the lease and as
a result recorded a $0.4 million favorable adjustment resulting in a remaining lease obligation
of $2.0 million at December 23, 2007. During the third quarter of fiscal year 2008, the Company
paid the remaining $2.0 million related to the cancellation of the lease obligation.Total charges for severance and restructuring were $9.9 million for fiscal year 2008 of which
$4.6 million was recorded as restructuring charges, $4.1 million was recorded as selling,
general and administrative expenses charges, and $1.2 million was recorded as cost of goods
sold. For segment reporting, $9.1 million was reflected in the polyester segment and $0.8
million in the nylon segment.On April 26, 2007, the Company announced a plan to consolidate its domestic polyester capacity
and closed a manufacturing facility located in Dillon, South Carolina. The Company recorded an
assumed liability in purchase accounting of $0.7 million for severance related costs and $2.9
million for unfavorable contracts in the third quarter of fiscal year 2007. Approximately 290
wage employees and 25 salaried employees were affected by this consolidation plan.
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The table below summarizes changes to the accrued severance and accrued restructuring accounts
for the year-to-date period ended March 23, 2008 (amounts in thousands):
 Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atJune 24, 2007
    
    Charges
    
    Adjustments
    
    Amounts Used
    
    March 23, 2008Accrued severance
    
    $
    877
    
    
    
    6,506
    
    
    
    206
    
    
    
    (3,136
    )
    
    $
    4,453Accrued restructuring
    
    $
    5,685
    
    
    
    4,029
    
    
    
    (578
    )
    
    
    (5,708
    )
    
    $
    3,428
 12.
    
    Impairment ChargesDuring the first quarter of fiscal year 2008 in connection with a review of the fair value of
USTF during negotiations related to the sale, the Company determined that a review of the
carrying value of its investment was necessary. As a result of this review, the Company
determined that the carrying value exceeded its fair value. Accordingly, a non-cash impairment
charge of $4.5 million was recorded in the first quarter of fiscal year 2008. See Footnote 10.
Investments in Unconsolidated Affiliates for discussion related to the sale of USTF.During the first quarter of fiscal year 2008, the Companys Brazilian polyester operation
continued the modernization plan for its facilities by abandoning four of its older machines and
replacing them with newer machines purchased from the Companys domestic polyester division. As
a result, the Company recognized a $0.5 million non-cash impairment charge on the older
machines.During the second quarter of fiscal year 2008, the Company evaluated the carrying value of the
remaining machinery and equipment at its Dillon, South Carolina facility. The Company sold
several machines to a foreign subsidiary and also transferred several other machines to its
Yadkinville, North Carolina facility. Six of the remaining machines were leased under an
operating lease to a manufacturer in Mexico at a fair market value substantially less than their
carrying value. The last five remaining machines were scheduled to be scrapped for spare parts
inventory. These eleven remaining machines were written down to fair market value determined by
the lease; and as a result, the Company recorded a non-cash impairment charge of $1.6 million in
the second quarter of fiscal year 2008. The adjusted net book value will be depreciated over a
two year period which is consistent with the life of the lease.In addition, during the second quarter of fiscal year 2008, the Company began negotiations with
a third party to sell Kinston. As a result of these negotiations, management concluded that
the carrying value of the real estate exceeded its fair value. Accordingly, the Company
recorded $0.7 million in non-cash impairment charges. The Company closed on the sale of the
facility in the third quarter of fiscal year 2008. See Footnote 13. Assets Held For Sale for
further discussion of the sale of this facility.During the first quarter of fiscal year 2007, the Company announced its intent to sell a
manufacturing facility that the Company 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, Accounting for the Impairment or
Disposal of Long-Lived Assets. 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.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
segment. These machine purchases allowed the Brazilian facility to produce tailor made products
at higher speeds resulting in lower costs and increased competitiveness. As a result, the
Company recognized a $2.0 million impairment charge on the older machines during the second
quarter of fiscal year 2007.
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13.
    
    Assets Held for SaleAs of June 24, 2007, the Company had assets held for sale which consisted of land of $0.6
million, buildings of $6.6 million, and leasehold improvements of $0.7 million relating to three
manufacturing facilities and one warehouse. During the first quarter of fiscal year 2008, the
Company completed the sale of one property held for sale. On June 25, 2007, the Company sold
its Plant 5 manufacturing facility located in Madison, North Carolina. Net proceeds from this
transaction were $2.1 million.During the second quarter of fiscal year 2008, the Company completed the sale of two properties
held for sale. On September 28, 2007, the Company completed the sale of its Plant 7
manufacturing facility located in Madison, North Carolina. Net proceeds from this transaction
were $1.5 million. On December 19, 2007, the Company completed the sale of an idle
manufacturing facility in Reidsville, North Carolina. Net proceeds from this transaction were
$0.5 million.On March 11, 2008, the Company completed the sale of its idle manufacturing facility in Dillon,
South Carolina. Net proceeds from this transaction were $3.9 million.On March 20, 2008, the Company completed the sale of assets located at Kinston for $3.0 million.
As part of the closing, the Company paid $3.0 million towards dismantlement and recovery work
negotiated by the buyer. The Company retains certain rights to sell idle assets for a period of
two years. If after the two year period the assets have not sold, the Company will convey them
to the buyer for no value. As of March 23, 2008, these assets which have no net book value are
the only assets that the Company has classified as available for sale.14.
    
    Related Party TransactionOn March 20, 2008, the Company completed the sale of its manufacturing facility located in
Dillon, South Carolina to a buyer which is managed by Mr. Stephen Wener, the Companys Chairman
of the Board. Mr. Wener also has a 13.5% ownership interest in and is the sole manager of an
entity which owns 50% of the buyer. Net proceeds from this transaction were $3.9 million.15.
    
    Other (Income) ExpenseThe following table summarizes Other (income) expense, net (amounts in thousands):
 For the Quarters Ended
    
    
    For the Nine-Months EndedMar. 23,
    
    
    Mar. 25,
    
    
    Mar. 23,
    
    
    Mar. 25,2008
    
    
    2007
    
    
    2008
    
    
    2007(Gain) loss on sale of assets
    
    $
    (459
    )
    
    $
    (1,833
    )
    
    $
    (1,872
    )
    
    $
    (1,592
    )Gain from sale of nitrogen credits
    
    
    
    
    
    
    
    
    
    
    (1,614
    )
    
    
    Technology fee income
    
    
    (187
    )
    
    
    (664
    )
    
    
    (875
    )
    
    
    (1,039
    )Currency (gain) loss
    
    
    (153
    )
    
    
    65
    
    
    
    305
    
    
    
    (303
    )Other, net
    
    
    (98
    )
    
    
    (30
    )
    
    
    (31
    )
    
    
    229Other (income) expense, net
    
    $
    (897
    )
    
    $
    (2,462
    )
    
    $
    (4,087
    )
    
    $
    (2,705
    )
 16.
    
    Discontinued OperationsOn 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 obligations relating to the closure.
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17.
    
    Commitments and ContingenciesIn February 2007, the Company received notice of a claim from the Employment Security Commission
of North Carolina for the underpayment of state unemployment taxes. The Employment Security
Commissions claim is approximately $1.8 million, including interest and
penalties. During the third quarter of fiscal year 2008, the Company negotiated a settlement of
$0.3 million which is currently in the approval process with the State of North Carolina.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 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 was to pass to the
Company and after seven years of sliding scale shared responsibility with Dupont, the Company would have had sole responsibility for future remediation requirements, if any. Effective March
20, 2008, the Company entered into a Lease Termination Agreement associated with conveyance of
certain of the 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. 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.
    
    Condensed Consolidated Guarantor and Non-Guarantor Financial StatementsThe 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
notes due in 2014 (the 2014 notes) and the guarantees, jointly and severally, on a senior
secured basis. The non-guarantor subsidiaries presented below represent the foreign subsidiaries
which do not guarantee the notes. Each subsidiary guarantor is 100% owned, directly or
indirectly, by Unifi, Inc. and all guarantees are full and unconditional.

Supplemental financial information for the Company and its guarantor subsidiaries and
non-guarantor subsidiaries of the 2014 notes is presented below.
 18




---



##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,571
    
    
    $
    (718
    )
    
    $
    10,334
    
    
    $
    3⁄4
    
    
    $
    26,187Receivables, net
    
    
    3⁄4
    
    
    
    79,749
    
    
    
    19,374
    
    
    
    3⁄4
    
    
    
    99,123Inventories
    
    
    3⁄4
    
    
    
    97,201
    
    
    
    31,702
    
    
    
    3⁄4
    
    
    
    128,903Deferred income taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    2,078
    
    
    
    3⁄4
    
    
    
    2,078Restricted cash
    
    
    3⁄4
    
    
    
    16,374
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    16,374Other current assets
    
    
    3⁄4
    
    
    
    1,272
    
    
    
    11,502
    
    
    
    3⁄4
    
    
    
    12,774Total current assets
    
    
    16,571
    
    
    
    193,878
    
    
    
    74,990
    
    
    
    3⁄4
    
    
    
    285,439Property, plant and equipment
    
    
    11,847
    
    
    
    797,797
    
    
    
    76,662
    
    
    
    3⁄4
    
    
    
    886,306Less accumulated depreciation
    
    
    (2,055
    )
    
    
    (645,738
    )
    
    
    (55,244
    )
    
    
    3⁄4
    
    
    
    (703,037
    )9,792
    
    
    
    152,059
    
    
    
    21,418
    
    
    
    3⁄4
    
    
    
    183,269Investments in unconsolidated affiliates
    
    
    3⁄4
    
    
    
    59,213
    
    
    
    20,177
    
    
    
    3⁄4
    
    
    
    79,390Investments in consolidated subsidiaries
    
    
    423,428
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (423,428
    )
    
    
    3⁄4Intangible assets, net
    
    
    3⁄4
    
    
    
    39,837
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    39,837Other noncurrent assets
    
    
    72,565
    
    
    
    (59,287
    )
    
    
    7,071
    
    
    
    3⁄4
    
    
    
    20,349$
    522,356
    
    
    $
    385,700
    
    
    $
    123,656
    
    
    $
    (423,428
    )
    
    $
    608,284LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and other
    
    $
    464
    
    
    $
    39,115
    
    
    $
    5,886
    
    
    $
    3⁄4
    
    
    $
    45,465Accrued expenses
    
    
    8,453
    
    
    
    19,168
    
    
    
    3,938
    
    
    
    3⁄4
    
    
    
    31,559Income taxes payable
    
    
    6,879
    
    
    
    (6,421
    )
    
    
    885
    
    
    
    3⁄4
    
    
    
    1,343Current maturities of long-term debt
and other current liabilities
    
    
    3⁄4
    
    
    
    315
    
    
    
    10,903
    
    
    
    3⁄4
    
    
    
    11,218Total current liabilities
    
    
    15,796
    
    
    
    52,177
    
    
    
    21,612
    
    
    
    3⁄4
    
    
    
    89,585Long-term debt and other liabilities
    
    
    210,000
    
    
    
    3,924
    
    
    
    7,357
    
    
    
    3⁄4
    
    
    
    221,281Deferred income taxes
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    858
    
    
    
    3⁄4
    
    
    
    858Shareholders/ invested equity
    
    
    296,560
    
    
    
    329,599
    
    
    
    93,829
    
    
    
    (423,428
    )
    
    
    296,560$
    522,356
    
    
    $
    385,700
    
    
    $
    123,656
    
    
    $
    (423,428
    )
    
    $
    608,284
 19




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##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    17,808
    
    
    $
    1,645
    
    
    $
    20,578
    
    
    $
    3⁄4
    
    
    $
    40,031Receivables, net
    
    
    (1
    )
    
    
    75,521
    
    
    
    18,469
    
    
    
    3⁄4
    
    
    
    93,989Inventories
    
    
    3⁄4
    
    
    
    108,945
    
    
    
    23,337
    
    
    
    3⁄4
    
    
    
    132,282Deferred income taxes
    
    
    (3,206
    )
    
    
    11,453
    
    
    
    1,676
    
    
    
    3⁄4
    
    
    
    9,923Assets held for sale
    
    
    3⁄4
    
    
    
    7,880
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    7,880Restricted cash
    
    
    3⁄4
    
    
    
    4,036
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    4,036Other current assets
    
    
    3⁄4
    
    
    
    2,924
    
    
    
    9,049
    
    
    
    3⁄4
    
    
    
    11,973Total current assets
    
    
    14,601
    
    
    
    212,404
    
    
    
    73,109
    
    
    
    3⁄4
    
    
    
    300,114Property, plant and equipment
    
    
    11,847
    
    
    
    832,226
    
    
    
    69,071
    
    
    
    3⁄4
    
    
    
    913,144Less accumulated depreciation
    
    
    (1,841
    )
    
    
    (652,430
    )
    
    
    (48,918
    )
    
    
    3⁄4
    
    
    
    (703,189
    )10,006
    
    
    
    179,796
    
    
    
    20,153
    
    
    
    3⁄4
    
    
    
    209,955Investments in unconsolidated affiliates
    
    
    3⁄4
    
    
    
    68,737
    
    
    
    24,433
    
    
    
    3⁄4
    
    
    
    93,170Investments in consolidated subsidiaries
    
    
    418,848
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    (418,848
    )
    
    
    3⁄4Intangible assets, net
    
    
    3⁄4
    
    
    
    42,290
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    42,290Other noncurrent assets
    
    
    78,432
    
    
    
    (63,608
    )
    
    
    5,600
    
    
    
    3⁄4
    
    
    
    20,424$
    521,887
    
    
    $
    439,619
    
    
    $
    123,295
    
    
    $
    (418,848
    )
    
    $
    665,953LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and other
    
    $
    512
    
    
    $
    54,929
    
    
    $
    6,179
    
    
    $
    3⁄4
    
    
    $
    61,620Accrued expenses
    
    
    3,040
    
    
    
    21,844
    
    
    
    3,394
    
    
    
    3⁄4
    
    
    
    28,278Income taxes payable
    
    
    42
    
    
    
    3⁄4
    
    
    
    205
    
    
    
    3⁄4
    
    
    
    247Current maturities of long-term debt
and other current liabilities
    
    
    1,273
    
    
    
    318
    
    
    
    9,607
    
    
    
    3⁄4
    
    
    
    11,198Total current liabilities
    
    
    4,867
    
    
    
    77,091
    
    
    
    19,385
    
    
    
    3⁄4
    
    
    
    101,343Long-term debt and other liabilities
    
    
    226,000
    
    
    
    2,882
    
    
    
    7,267
    
    
    
    3⁄4
    
    
    
    236,149Deferred income taxes
    
    
    (13,934
    )
    
    
    36,256
    
    
    
    1,185
    
    
    
    3⁄4
    
    
    
    23,507Shareholders/ invested equity
    
    
    304,954
    
    
    
    323,390
    
    
    
    95,458
    
    
    
    (418,848
    )
    
    
    304,954$
    521,887
    
    
    $
    439,619
    
    
    $
    123,295
    
    
    $
    (418,848
    )
    
    $
    665,953
 20




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##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedSummary of Operations:Net sales
    
    $
    
    
    
    $
    137,176
    
    
    $
    33,428
    
    
    $
    (768
    )
    
    $
    169,836Cost of sales
    
    
    
    
    
    
    127,829
    
    
    
    29,391
    
    
    
    (816
    )
    
    
    156,404Selling, general and administrative expenses
    
    
    
    
    
    
    8,509
    
    
    
    1,863
    
    
    
    (292
    )
    
    
    10,080Provision (recovery) for bad debts
    
    
    
    
    
    
    98
    
    
    
    (11
    )
    
    
    
    
    
    
    87Interest expense
    
    
    6,176
    
    
    
    108
    
    
    
    24
    
    
    
    
    
    
    
    6,308Interest income
    
    
    (229
    )
    
    
    (1
    )
    
    
    (421
    )
    
    
    
    
    
    
    (651
    )Other (income) expense, net
    
    
    6,055
    
    
    
    (6,499
    )
    
    
    (243
    )
    
    
    (210
    )
    
    
    (897
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    
    
    
    
    (2,933
    )
    
    
    2,226
    
    
    
    (50
    )
    
    
    (757
    )Equity in subsidiaries
    
    
    (10,290
    )
    
    
    
    
    
    
    
    
    
    
    10,290
    
    
    
    Restructuring recoveries
    
    
    
    
    
    
    (2,199
    )
    
    
    
    
    
    
    
    
    
    
    (2,199
    )Income (loss) from continuing operations before income
taxes
    
    
    (1,712
    )
    
    
    12,264
    
    
    
    599
    
    
    
    (9,690
    )
    
    
    1,461Provision (benefit) for income taxes
    
    
    (1,724
    )
    
    
    1,977
    
    
    
    1,141
    
    
    
    
    
    
    
    1,394Income (loss) from continuing operations
    
    
    12
    
    
    
    10,287
    
    
    
    (542
    )
    
    
    (9,690
    )
    
    
    67Loss from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (55
    )
    
    
    
    
    
    
    (55
    )Net income (loss)
    
    $
    12
    
    
    $
    10,287
    
    
    $
    (597
    )
    
    $
    (9,690
    )
    
    $
    12
 21




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##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedSummary of Operations:Net sales
    
    $
    
    
    
    $
    148,998
    
    
    $
    28,872
    
    
    $
    332
    
    
    $
    178,202Cost of sales
    
    
    
    
    
    
    137,996
    
    
    
    26,496
    
    
    
    322
    
    
    
    164,814Selling, general and administrative expenses
    
    
    
    
    
    
    9,714
    
    
    
    1,525
    
    
    
    (62
    )
    
    
    11,177Provision (recovery) for bad debts
    
    
    
    
    
    
    2,252
    
    
    
    22
    
    
    
    
    
    
    
    2,274Interest expense
    
    
    6,444
    
    
    
    165
    
    
    
    1
    
    
    
    
    
    
    
    6,610Interest income
    
    
    (36
    )
    
    
    
    
    
    
    (671
    )
    
    
    
    
    
    
    (707
    )Other (income) expense, net
    
    
    (4,254
    )
    
    
    429
    
    
    
    (25
    )
    
    
    1,388
    
    
    
    (2,462
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    
    
    
    
    (2,134
    )
    
    
    1,520
    
    
    
    262
    
    
    
    (352
    )Equity in subsidiaries
    
    
    5,205
    
    
    
    
    
    
    
    
    
    
    
    (5,205
    )
    
    
    Write down of long-lived assets
    
    
    
    
    
    
    12,870
    
    
    
    
    
    
    
    
    
    
    
    12,870Income (loss) from continuing operations before
income taxes
    
    
    (7,359
    )
    
    
    (12,294
    )
    
    
    4
    
    
    
    3,627
    
    
    
    (16,022
    )Provision (benefit) for income taxes
    
    
    5,898
    
    
    
    (8,507
    )
    
    
    510
    
    
    
    
    
    
    
    (2,099
    )Income (loss) from continuing operations
    
    
    (13,257
    )
    
    
    (3,787
    )
    
    
    (506
    )
    
    
    3,627
    
    
    
    (13,923
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    666
    
    
    
    
    
    
    
    666Net income (loss)
    
    $
    (13,257
    )
    
    $
    (3,787
    )
    
    $
    160
    
    
    $
    3,627
    
    
    $
    (13,257
    )
 22




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##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedSummary of Operations:Net sales
    
    $
    
    
    
    $
    427,406
    
    
    $
    98,004
    
    
    $
    (1,669
    )
    
    $
    523,741Cost of sales
    
    
    
    
    
    
    405,700
    
    
    
    86,810
    
    
    
    (1,514
    )
    
    
    490,996Selling, general and administrative expenses
    
    
    
    
    
    
    31,385
    
    
    
    5,610
    
    
    
    (453
    )
    
    
    36,542Provision for bad debts
    
    
    
    
    
    
    145
    
    
    
    7
    
    
    
    
    
    
    
    152Interest expense
    
    
    19,054
    
    
    
    423
    
    
    
    121
    
    
    
    
    
    
    
    19,598Interest income
    
    
    (565
    )
    
    
    (137
    )
    
    
    (1,529
    )
    
    
    
    
    
    
    (2,231
    )Other (income) expense, net
    
    
    (6,698
    )
    
    
    2,404
    
    
    
    173
    
    
    
    34
    
    
    
    (4,087
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    
    
    
    
    (5,184
    )
    
    
    4,692
    
    
    
    (422
    )
    
    
    (914
    )Equity in subsidiaries
    
    
    (6,241
    )
    
    
    
    
    
    
    
    
    
    
    6,241
    
    
    
    Write down of long-lived assets
    
    
    
    
    
    
    2,247
    
    
    
    533
    
    
    
    
    
    
    
    2,780Write down of investment in unconsolidated affiliate
    
    
    
    
    
    
    4,505
    
    
    
    
    
    
    
    
    
    
    
    4,505Restructuring charges, net
    
    
    
    
    
    
    4,638
    
    
    
    
    
    
    
    
    
    
    
    4,638Income (loss) from continuing operations before income
taxes
    
    
    (5,550
    )
    
    
    (18,720
    )
    
    
    1,587
    
    
    
    (5,555
    )
    
    
    (28,238
    )Provision (benefit) for income taxes
    
    
    11,372
    
    
    
    (24,928
    )
    
    
    2,262
    
    
    
    
    
    
    
    (11,294
    )Income (loss) from continuing operations
    
    
    (16,922
    )
    
    
    6,208
    
    
    
    (675
    )
    
    
    (5,555
    )
    
    
    (16,944
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22Net income (loss)
    
    $
    (16,922
    )
    
    $
    6,208
    
    
    $
    (653
    )
    
    $
    (5,555
    )
    
    $
    (16,922
    )
 23




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##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedSummary of Operations:Net sales
    
    $
    
    
    
    $
    417,955
    
    
    $
    88,135
    
    
    $
    (1,049
    )
    
    $
    505,041Cost of sales
    
    
    
    
    
    
    404,058
    
    
    
    78,189
    
    
    
    (1,040
    )
    
    
    481,207Selling, general and administrative expenses
    
    
    
    
    
    
    28,321
    
    
    
    4,677
    
    
    
    (144
    )
    
    
    32,854Provision (recovery) for bad debts
    
    
    
    
    
    
    2,795
    
    
    
    77
    
    
    
    
    
    
    
    2,872Interest expense
    
    
    18,311
    
    
    
    474
    
    
    
    1
    
    
    
    
    
    
    
    18,786Interest income
    
    
    (308
    )
    
    
    
    
    
    
    (1,909
    )
    
    
    
    
    
    
    (2,217
    )Other (income) expense, net
    
    
    (12,977
    )
    
    
    8,268
    
    
    
    (132
    )
    
    
    2,136
    
    
    
    (2,705
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    
    
    
    
    (1,627
    )
    
    
    6,083
    
    
    
    17
    
    
    
    4,473Equity in subsidiaries
    
    
    29,770
    
    
    
    
    
    
    
    
    
    
    
    (29,770
    )
    
    
    Write down of long-lived assets
    
    
    
    
    
    
    14,070
    
    
    
    2,002
    
    
    
    
    
    
    
    16,072Income (loss) from continuing operations before income
taxes
    
    
    (34,796
    )
    
    
    (38,404
    )
    
    
    (853
    )
    
    
    27,752
    
    
    
    (46,301
    )Provision (benefit) for income taxes
    
    
    6,804
    
    
    
    (12,791
    )
    
    
    1,749
    
    
    
    
    
    
    
    (4,238
    )Income (loss) from continuing operations
    
    
    (41,600
    )
    
    
    (25,613
    )
    
    
    (2,602
    )
    
    
    27,752
    
    
    
    (42,063
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    463
    
    
    
    
    
    
    
    463Net income (loss)
    
    $
    (41,600
    )
    
    $
    (25,613
    )
    
    $
    (2,139
    )
    
    $
    27,752
    
    
    $
    (41,600
    )
 24




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##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activities:Net cash provided by (used in) continuing operating
    
    $
    6,623
    
    
    $
    (9,437
    )
    
    $
    1,391
    
    
    $
    
    
    
    $
    (1,423
    )Investing activities:Capital expenditures
    
    
    
    
    
    
    (4,878
    )
    
    
    (3,272
    )
    
    
    840
    
    
    
    (7,310
    )Acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of equity affiliate
    
    
    
    
    
    
    8,750
    
    
    
    
    
    
    
    
    
    
    
    8,750Change in restricted cash
    
    
    
    
    
    
    (12,338
    )
    
    
    
    
    
    
    
    
    
    
    (12,338
    )Collection of notes receivable
    
    
    9
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    269Proceeds from sale of capital assets
    
    
    
    
    
    
    16,363
    
    
    
    274
    
    
    
    (840
    )
    
    
    15,797Return of capital in equity affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Split dollar life insurance premiums
    
    
    (217
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217
    )Other
    
    
    4,187
    
    
    
    (793
    )
    
    
    (4,187
    )
    
    
    
    
    
    
    (793
    )Net cash provided by (used in) investing activities
    
    
    3,979
    
    
    
    7,364
    
    
    
    (7,185
    )
    
    
    
    
    
    
    4,158Financing activities:Payment of long term debt
    
    
    (16,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,000
    )Dividend payment
    
    
    5,307
    
    
    
    
    
    
    
    (5,307
    )
    
    
    
    
    
    
    Other
    
    
    (1,146
    )
    
    
    (247
    )
    
    
    (749
    )
    
    
    
    
    
    
    (2,142
    )Net cash provided by (used in) financing activities
    
    
    (11,839
    )
    
    
    (247
    )
    
    
    (6,056
    )
    
    
    
    
    
    
    (18,142
    )Cash flows of discontinued operations:Operating cash flow
    
    
    
    
    
    
    
    
    
    
    (230
    )
    
    
    
    
    
    
    (230
    )Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    (230
    )
    
    
    
    
    
    
    (230
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    (43
    )
    
    
    1,836
    
    
    
    
    
    
    
    1,793Net decrease in cash and cash equivalents
    
    
    (1,237
    )
    
    
    (2,363
    )
    
    
    (10,244
    )
    
    
    
    
    
    
    (13,844
    )Cash and cash equivalents at beginning of period
    
    
    17,808
    
    
    
    1,645
    
    
    
    20,578
    
    
    
    
    
    
    
    40,031Cash and cash equivalents at end of period
    
    $
    16,571
    
    
    $
    (718
    )
    
    $
    10,334
    
    
    $
    
    
    
    $
    26,187
 25




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##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedOperating activities:Net cash provided by (used in) continuing operating
    
    $
    (8,688
    )
    
    $
    4,389
    
    
    $
    688
    
    
    $
    
    
    
    $
    (3,611
    )Investing activities:Capital expenditures
    
    
    
    
    
    
    (2,880
    )
    
    
    (2,622
    )
    
    
    
    
    
    
    (5,502
    )Acquisition
    
    
    (42,222
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,222
    )Change in restricted cash
    
    
    
    
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,000
    )Collection of notes receivable
    
    
    266
    
    
    
    1,112
    
    
    
    (612
    )
    
    
    
    
    
    
    766Investment in foreign restricted assets
    
    
    
    
    
    
    (3,019
    )
    
    
    3,019
    
    
    
    
    
    
    
    Proceeds from the sale of capital assets
    
    
    
    
    
    
    2,287
    
    
    
    112
    
    
    
    
    
    
    
    2,399Return of capital in equity affiliates
    
    
    
    
    
    
    229
    
    
    
    
    
    
    
    
    
    
    
    229Split dollar life insurance premiums
    
    
    (217
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (217
    )Other
    
    
    
    
    
    
    (669
    )
    
    
    
    
    
    
    
    
    
    
    (669
    )Net cash provided by (used in) investing activities
    
    
    (42,173
    )
    
    
    (3,940
    )
    
    
    (103
    )
    
    
    
    
    
    
    (46,216
    )Financing activities:Net borrowings of long-term debt
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Other
    
    
    (64
    )
    
    
    (616
    )
    
    
    (488
    )
    
    
    
    
    
    
    (1,168
    )Net cash provided by (used in) financing activities
    
    
    39,936
    
    
    
    (616
    )
    
    
    (488
    )
    
    
    
    
    
    
    38,832Cash flows of discontinued operations:Operating cash flow
    
    
    
    
    
    
    
    
    
    
    463
    
    
    
    
    
    
    
    463Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    463
    
    
    
    
    
    
    
    463Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    1,995
    
    
    
    
    
    
    
    1,995Net increase (decrease) in cash and cash equivalents
    
    
    (10,925
    )
    
    
    (167
    )
    
    
    2,555
    
    
    
    
    
    
    
    (8,537
    )Cash and cash equivalents at beginning of period
    
    
    22,992
    
    
    
    1,392
    
    
    
    10,933
    
    
    
    
    
    
    
    35,317Cash and cash equivalents at end of period
    
    $
    12,067
    
    
    $
    1,225
    
    
    $
    13,488
    
    
    $
    
    
    
    $
    26,780
 26




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##### Table of Contents



Business Overview
  Polyester Segment
 Nylon Segment
 Recent Developments and Outlook
   27




---



##### Table of Contents




    
    To continue to improve the domestic operations to become profitable using a rigorous
planning process and aggressive execution strategies and continued growth of PVA products.
The Company will also continue to look at growth opportunities throughout the regional
supply chain for related consolidation opportunities.
    
    To improve the Companys business strategy in China and gain market share. Chinas
domestic demand for polyester yarns is increasing at an annual rate of 8% and the specialty
yarn market is growing at an annual rate of 10%. The Companys China joint venture has not
been profitable to date and the Company has been aggressively working with Sinopec Yizheng
Chemical Fiber Co., Ltd, (YCFC) to restructure the joint venture to focus on profitable
product lines. There can be no assurance that such restructuring will be successful and in
the event it is not successful, the Company will consider exiting the joint venture. At
this time, the Company does not believe either alternative will have a material impact on
its financial position. Nevertheless, the Company remains committed to serving its Asian
customer base with value-added products produced in China.
    
    To achieve sustainable and profitable growth and create shareholder value.
    Key Performance Indicators
  
    
    sales volume, which is an indicator of demand;
    
    margins, which are indicators of product mix and profitability;
    
    net income or loss before interest, taxes, depreciation and amortization, and income
or loss from discontinued operations (EBITDA), which are indicators of the Companys
ability to pay debt; and
    
    working capital of each business unit as a percentage of sales, which is an indicator
of the Companys production efficiency and ability to manage its inventory and
receivables.
 28




---



##### Table of Contents



Corporate Restructuring
         29




---



##### Table of Contents



Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atJune 24, 2007
    
    Charges
    
    Adjustments
    
    Amounts Used
    
    March 23, 2008Accrued severance
    
    $
    877
    
    
    
    6,506
    
    
    
    206
    
    
    
    (3,136
    )
    
    $
    4,453Accrued
restructuring
    
    $
    5,685
    
    
    
    4,029
    
    
    
    (578
    )
    
    
    (5,708
    )
    
    $
    3,428
 Joint Ventures and Other Equity Investments
  As of March 23, 2008Parkdale
    
    YUFI
    
    UNF
    
    TotalCurrent assets
    
    $
    140,141
    
    
    $
    25,866
    
    
    $
    6,859
    
    
    $
    172,866Noncurrent assets
    
    
    99,411
    
    
    
    59,506
    
    
    
    5,803
    
    
    
    164,720Current liabilities
    
    
    19,653
    
    
    
    47,999
    
    
    
    3,808
    
    
    
    71,460Noncurrent liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shareholders equity and capital accounts
    
    
    219,899
    
    
    
    37,373
    
    
    
    8,855
    
    
    
    266,127
 For the Quarter Ended March 23, 2008Parkdale
    
    YUFI
    
    UNF
    
    Other
    
    TotalNet sales
    
    $
    116,258
    
    
    $
    30,618
    
    
    $
    6,747
    
    
    $
    
    
    
    $
    153,623Gross profit (loss)
    
    
    6,251
    
    
    
    (1,800
    )
    
    
    (473
    )
    
    
    
    
    
    
    3,978Income (loss) from operations
    
    
    3,242
    
    
    
    (3,275
    )
    
    
    (643
    )
    
    
    
    
    
    
    (676
    )Net income (loss)
    
    
    7,578
    
    
    
    (3,912
    )
    
    
    (562
    )
    
    
    
    
    
    
    3,104
 For the Nine-Months Ended March 23, 2008Parkdale
    
    YUFI
    
    UNF
    
    Other
    
    TotalNet sales
    
    $
    331,797
    
    
    $
    103,738
    
    
    $
    18,577
    
    
    $
    6,455
    
    
    $
    460,567Gross profit (loss)
    
    
    16,700
    
    
    
    (2,334
    )
    
    
    (318
    )
    
    
    571
    
    
    
    14,619Income (loss) from operations
    
    
    6,832
    
    
    
    (6,903
    )
    
    
    (786
    )
    
    
    189
    
    
    
    (668
    )Net income (loss)
    
    
    12,144
    
    
    
    (8,757
    )
    
    
    (649
    )
    
    
    148
    
    
    
    2,886
  ® ® ®
 30




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##### Table of Contents



31




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##### Table of Contents



Review of Third Quarter Fiscal Year 2008 compared to Third Quarter Fiscal Year 2007
  For the Quarters EndedMarch 23, 2008
    
    
    March 25, 2007% to Total
    
    
    
    
    
    
    % to Total
    
    
    % ChangeNet salesPolyester
    
    $
    126,247
    
    
    
    74.3
    
    
    $
    138,167
    
    
    
    77.5
    
    
    
    (8.6
    )Nylon
    
    
    43,589
    
    
    
    25.7
    
    
    
    40,035
    
    
    
    22.5
    
    
    
    8.9Total
    
    $
    169,836
    
    
    
    100.0
    
    
    $
    178,202
    
    
    
    100.0
    
    
    
    (4.7
    )% to Sales
    
    
    
    
    
    % to SalesGross profitPolyester
    
    $
    9,508
    
    
    
    5.6
    
    
    $
    10,580
    
    
    
    5.9
    
    
    
    (10.1
    )Nylon
    
    
    3,924
    
    
    
    2.3
    
    
    
    2,808
    
    
    
    1.6
    
    
    
    39.7Total
    
    
    13,432
    
    
    
    7.9
    
    
    
    13,388
    
    
    
    7.5
    
    
    
    0.3Selling, general and administrative
expensesPolyester
    
    
    8,635
    
    
    
    5.1
    
    
    
    9,035
    
    
    
    5.1
    
    
    
    (4.4
    )Nylon
    
    
    1,445
    
    
    
    0.8
    
    
    
    2,142
    
    
    
    1.2
    
    
    
    (32.5
    )Total
    
    
    10,080
    
    
    
    5.9
    
    
    
    11,177
    
    
    
    6.3
    
    
    
    (9.8
    )Write down of long-lived assets and
investment in equity affiliatePolyester
    
    
    
    
    
    
    
    
    
    
    4,927
    
    
    
    2.8
    
    
    
    Nylon
    
    
    
    
    
    
    
    
    
    
    7,943
    
    
    
    4.4
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    12,870
    
    
    
    7.2
    
    
    
    Restructuring charges (recoveries)Polyester
    
    
    (2,199
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    
    
    
    
    Nylon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    (2,199
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    
    
    
    
    Other (income) expense, net
    
    
    4,090
    
    
    
    2.4
    
    
    
    5,363
    
    
    
    3.0
    
    
    
    (23.7
    )Income (loss) from continuing operations
before income taxes
    
    
    1,461
    
    
    
    0.9
    
    
    
    (16,022
    )
    
    
    (9.0
    )
    
    
    (109.1
    )Provision (benefit) for income taxes
    
    
    1,394
    
    
    
    0.9
    
    
    
    (2,099
    )
    
    
    (1.2
    )
    
    
    (166.4
    )Income (loss) from continuing
operations
    
    
    67
    
    
    
    
    
    
    
    (13,923
    )
    
    
    (7.8
    )
    
    
    (100.5
    )Income (loss) from discontinued
operations, net of tax
    
    
    (55
    )
    
    
    
    
    
    
    666
    
    
    
    0.4
    
    
    
    (108.3
    )Net income (loss)
    
    $
    12
    
    
    
    
    
    
    $
    (13,257
    )
    
    
    (7.4
    )
    
    
    (100.1
    )
  32




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##### Table of Contents



33




---



##### Table of Contents



Polyester Operations
     Nylon Operations
  34




---



##### Table of Contents



Corporate
   35




---



##### Table of Contents



Review of Year-To-Date Fiscal Year 2008 compared to Year-To-Date Fiscal Year 2007
  For the Nine-Months EndedMarch 23, 2008
    
    
    March 25, 2007% to Total
    
    
    
    
    
    
    % to Total
    
    
    % ChangeNet salesPolyester
    
    $
    390,743
    
    
    
    74.6
    
    
    $
    387,145
    
    
    
    76.7
    
    
    
    0.9Nylon
    
    
    132,998
    
    
    
    25.4
    
    
    
    117,896
    
    
    
    23.3
    
    
    
    12.8Total
    
    $
    523,741
    
    
    
    100.0
    
    
    $
    505,041
    
    
    
    100.0
    
    
    
    3.7% to Sales
    
    
    
    
    
    % to SalesGross profitPolyester
    
    $
    23,263
    
    
    
    4.5
    
    
    $
    17,887
    
    
    
    3.5
    
    
    
    30.1Nylon
    
    
    9,482
    
    
    
    1.8
    
    
    
    5,947
    
    
    
    1.2
    
    
    
    59.4Total
    
    
    32,745
    
    
    
    6.3
    
    
    
    23,834
    
    
    
    4.7
    
    
    
    37.4Selling, general and administrative
expensesPolyester
    
    
    31,210
    
    
    
    6.0
    
    
    
    25,992
    
    
    
    5.1
    
    
    
    20.1Nylon
    
    
    5,332
    
    
    
    1.0
    
    
    
    6,862
    
    
    
    1.4
    
    
    
    (22.3
    )Total
    
    
    36,542
    
    
    
    7.0
    
    
    
    32,854
    
    
    
    6.5
    
    
    
    11.2Write down of long-lived assets and
investment in equity affiliatePolyester
    
    
    2,780
    
    
    
    0.5
    
    
    
    6,929
    
    
    
    1.4
    
    
    
    (59.9
    )Nylon
    
    
    
    
    
    
    
    
    
    
    7,943
    
    
    
    1.6
    
    
    
    Corporate
    
    
    4,505
    
    
    
    0.9
    
    
    
    1,200
    
    
    
    0.2
    
    
    
    275.4Total
    
    
    7,285
    
    
    
    1.4
    
    
    
    16,072
    
    
    
    3.2
    
    
    
    (54.7
    )Restructuring chargesPolyester
    
    
    4,420
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    Nylon
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4,638
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    Other (income) expense, net
    
    
    12,518
    
    
    
    2.4
    
    
    
    21,209
    
    
    
    4.2
    
    
    
    (41.0
    )Loss from continuing operations
before income taxes
    
    
    (28,238
    )
    
    
    (5.4
    )
    
    
    (46,301
    )
    
    
    (9.2
    )
    
    
    (39.0
    )Benefit for income taxes
    
    
    (11,294
    )
    
    
    (2.2
    )
    
    
    (4,238
    )
    
    
    (0.9
    )
    
    
    166.5Loss from continuing operations
    
    
    (16,944
    )
    
    
    (3.2
    )
    
    
    (42,063
    )
    
    
    (8.3
    )
    
    
    (59.7
    )Income from discontinued
operations, net of tax
    
    
    22
    
    
    
    
    
    
    
    463
    
    
    
    0.1
    
    
    
    (95.2
    )Net loss
    
    $
    (16,922
    )
    
    
    (3.2
    )
    
    $
    (41,600
    )
    
    
    (8.2
    )
    
    
    (59.3
    )
  36




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##### Table of Contents



37




---



##### Table of Contents



Polyester Operations
  38




---



##### Table of Contents



Nylon Operations
    39




---



##### Table of Contents



Corporate
   Liquidity and Capital Resources
  Cash Used In Continuing Operations
   Working Capital
    40




---



##### Table of Contents



Cash Provided By (Used In) Investing and Financing Activities
     Long-Term Debt
   41




---



##### Table of Contents



Recent Accounting Pronouncements
   42




---



##### Table of Contents



Off Balance Sheet Arrangements
  43




---



##### Table of Contents



Forward-Looking Statements
  
    
    the competitive nature of the textile industry and the impact of worldwide
competition;
    
    changes in the trade regulatory environment and governmental policies and
legislation;
    
    the availability, sourcing and pricing of raw materials;
    
    general domestic and international economic and industry conditions in markets
where the Company competes, such as recession and other economic and political
factors over which the Company has no control;
    
    changes in consumer spending, customer preferences, fashion trends and end-uses;
    
    its ability to reduce production costs;
    
    changes in currency exchange rates, interest and inflation rates;
    
    the financial condition of its customers;
    
    technological advancements and the continued availability of financial resources
to fund capital expenditures;
    
    the operating performance of joint ventures, alliances and other equity
investments;
    
    the impact of environmental, health and safety regulations;
    
    employee relations;
    
    the continuity of the Companys leadership; and
    
    the success of the Companys consolidation initiatives.
  
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March 23,
    
    
    June 24,2008
    
    
    2007Foreign currency purchase contracts:Notional amount
    
    $
    1,329
    
    
    $
    1,778Fair value
    
    
    1,312
    
    
    
    1,783Net (gain) loss
    
    $
    17
    
    
    $
    (5
    )Foreign currency sales contracts:Notional amount
    
    $
    1,415
    
    
    $
    397Fair value
    
    
    1,469
    
    
    
    400Net (gain) loss
    
    $
    54
    
    
    $
    3
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##### Table of Contents



Total Number of
    
    Maximum NumberTotal Number
    
    Average Price
    
    Shares Purchased as
    
    of Shares that Mayof
    
    Paid
    
    Part of Publicly
    
    Yet Be PurchasedShares
    
    per
    
    Announced Plans
    
    Under the Plans orPeriod
    
    Purchased
    
    Share
    
    or Programs
    
    Programs12/24/07 - 1/23/08
    
    
    
    
    
    
    
    6,807,2411/24/08 - 2/23/08
    
    
    
    
    
    
    
    6,807,2412/24/08 -3/23/08
    
    
    
    
    
    
    
    6,807,241Total
    
    
    
    
    
    
  
 
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##### Table of Contents



10.1
    
    Change of Control Agreement between Unifi, Inc. and Ronald L. Smith, effective February 21,
2008 (incorporated by reference from Exhibit 10.1 to the Companys current report Form 8-K
dated February 20, 2008).10.2
    
    Agreement of Sale, executed on March 11, 2008, by and between Unifi Manufacturing, Inc. and
Buyer (incorporated by reference from Exhibit 10.1 to the Companys current report Form 8-K
dated March 11, 2008).31.1
    
    Chief Executive Officers certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Chief Financial Officers certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Chief Executive Officers certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Chief Financial Officers certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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UNIFI, INC.Date: May 2, 2008
    /s/    RONALD L. SMITHRonald L. SmithVice President and Chief Financial Officer 49