##### 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 December 28, 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)


P.O. Box 19109  7201 West Friendly Avenue Greensboro, NC
    
    27419(Address of principal executive offices)
    
    (Zip Code)


(336) 294-4410


þ o




Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o


o þ












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##### 













INDEX


PagePart I
    
    Item 1.
    
    Financial Statements:Financial 
Information
    
    
    
    Condensed Consolidated Balance Sheets as of
December 28, 2008 and June 29, 2008
    
    
    3Condensed Consolidated Statements of Operations
for the Quarters and Six-Months Ended December 28, 2008
and December 23, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows
for the Six-Months Ended December 28, 2008 and
December 23, 2007
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    26Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    49Item 4.
    
    Controls and Procedures
    
    
    50Part IIOther 
Information
    
    Item 1.
    
    Legal Proceedings
    
    
    51Item 1A.
    
    Risk Factors
    
    
    51Item 2.
    
    Unregistered Sales of Equity Securities and
Use of Proceeds
    
    
    51Item 3.
    
    Defaults Upon Senior Securities
    
    
    51Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    52Item 5.
    
    Other Information
    
    
    52Item 6.
    
    Exhibits
    
    
    52EX-10.3EX-31.1EX-31.2EX-32.1EX-32.2




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December 28,
    
    
    June 29,2008
    
    
    2008(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,619
    
    
    $
    20,248Receivables, net
    
    
    68,611
    
    
    
    103,272Inventories
    
    
    127,107
    
    
    
    122,890Deferred income taxes
    
    
    1,417
    
    
    
    2,357Assets held for sale
    
    
    1,700
    
    
    
    4,124Restricted cash
    
    
    5,970
    
    
    
    9,314Other current assets
    
    
    5,330
    
    
    
    3,693Total current assets
    
    
    222,754
    
    
    
    265,898Property, plant and equipment
    
    
    782,227
    
    
    
    855,324Less accumulated depreciation
    
    
    (619,932
    )
    
    
    (678,025
    )162,295
    
    
    
    177,299Investments in unconsolidated affiliates
    
    
    71,094
    
    
    
    70,562Restricted cash
    
    
    13,817
    
    
    
    26,048Goodwill
    
    
    18,579
    
    
    
    18,579Intangible assets, net
    
    
    19,328
    
    
    
    20,386Other noncurrent assets
    
    
    10,841
    
    
    
    12,759Total assets
    
    $
    518,708
    
    
    $
    591,531LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    28,505
    
    
    $
    44,553Accrued expenses
    
    
    17,475
    
    
    
    25,531Income taxes payable
    
    
    41
    
    
    
    681Current maturities of long-term debt and other
current liabilities
    
    
    6,313
    
    
    
    9,805Total current liabilities
    
    
    52,334
    
    
    
    80,570Long-term debt and other liabilities
    
    
    195,502
    
    
    
    204,366Deferred income taxes
    
    
    477
    
    
    
    926Commitments and contingenciesShareholders equity:Common stock
    
    
    6,206
    
    
    
    6,069Capital in excess of par value
    
    
    29,447
    
    
    
    25,131Retained earnings
    
    
    244,750
    
    
    
    254,494Accumulated other comprehensive income (loss)
    
    
    (10,008
    )
    
    
    19,975270,395
    
    
    
    305,669Total liabilities and shareholders equity
    
    $
    518,708
    
    
    $
    591,531




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For the Quarters Ended
    
    
    For the Six-Months EndedDecember 28,
    
    
    December 23,
    
    
    December 28,
    
    
    December 23,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    125,727
    
    
    $
    183,369
    
    
    $
    294,736
    
    
    $
    353,905Cost of sales
    
    
    123,415
    
    
    
    175,049
    
    
    
    278,999
    
    
    
    334,592Selling, general & administrative expenses
    
    
    9,304
    
    
    
    12,008
    
    
    
    19,849
    
    
    
    26,462Provision (recovery) for bad debts
    
    
    501
    
    
    
    (189
    )
    
    
    1,059
    
    
    
    65Interest expense
    
    
    5,748
    
    
    
    6,578
    
    
    
    11,713
    
    
    
    13,290Interest income
    
    
    (680
    )
    
    
    (746
    )
    
    
    (1,593
    )
    
    
    (1,580
    )Other (income) expense, net
    
    
    (5,212
    )
    
    
    (2,192
    )
    
    
    (5,773
    )
    
    
    (3,190
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    (162
    )
    
    
    21
    
    
    
    (3,644
    )
    
    
    (157
    )Restructuring charges
    
    
    
    
    
    
    4,205
    
    
    
    
    
    
    
    6,837Write down of long-lived assets
    
    
    
    
    
    
    2,247
    
    
    
    
    
    
    
    2,780Write down of investment in unconsolidated affiliates
    
    
    1,483
    
    
    
    
    
    
    
    1,483
    
    
    
    4,505Loss from continuing operations before income taxes
    
    
    (8,670
    )
    
    
    (13,612
    )
    
    
    (7,357
    )
    
    
    (29,699
    )Provision (benefit) from income taxes
    
    
    614
    
    
    
    (5,757
    )
    
    
    2,499
    
    
    
    (12,688
    )Loss from continuing operations
    
    
    (9,284
    )
    
    
    (7,855
    )
    
    
    (9,856
    )
    
    
    (17,011
    )Income from discontinued operations  net of tax
    
    
    216
    
    
    
    109
    
    
    
    112
    
    
    
    77Net loss
    
    $
    (9,068
    )
    
    $
    (7,746
    )
    
    $
    (9,744
    )
    
    $
    (16,934
    )Losses per common share (basic and diluted):Net loss  continuing operations
    
    $
    (.15
    )
    
    $
    (.13
    )
    
    $
    (.16
    )
    
    $
    (.28
    )Net income  discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss  basic and diluted
    
    $
    (.15
    )
    
    $
    (.13
    )
    
    $
    (.16
    )
    
    $
    (.28
    )Weighted average outstanding shares of
common stock (basic and diluted)
    
    
    62,030
    
    
    
    60,553
    
    
    
    61,582
    
    
    
    60,545




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For the Six-Months EndedDecember 28,
    
    
    December 23,2008
    
    
    2007Cash and cash equivalents at beginning of year
    
    $
    20,248
    
    
    $
    40,031Operating activities:Net loss
    
    
    (9,744
    )
    
    
    (16,934
    )Adjustments to reconcile net loss to net cash used in continuing operating activities:Income from discontinued operations
    
    
    (112
    )
    
    
    (77
    )(Earnings) losses of unconsolidated equity affiliates, net of distributions
    
    
    (1,579
    )
    
    
    303Depreciation
    
    
    15,832
    
    
    
    18,850Amortization
    
    
    2,137
    
    
    
    2,324Stock-based compensation expense
    
    
    622
    
    
    
    392Deferred compensation expense (recovery), net
    
    
    (69
    )
    
    
    173Net gain on asset sales
    
    
    (5,910
    )
    
    
    (1,413
    )Non-cash write down of long-lived assets
    
    
    
    
    
    
    2,780Non-cash write down of investment in unconsolidated affiliate
    
    
    1,483
    
    
    
    4,505Non-cash portion of restructuring charges
    
    
    
    
    
    
    6,837Deferred income tax expense (benefit)
    
    
    35
    
    
    
    (14,699
    )Provision for bad debts
    
    
    1,059
    
    
    
    65Other
    
    
    256
    
    
    
    (568
    )Change in assets and liabilities, excluding effects of
acquisitions and foreign currency adjustments
    
    
    (11,962
    )
    
    
    (8,124
    )Net cash used in continuing operating activities
    
    
    (7,952
    )
    
    
    (5,586
    )Investing activities:Capital expenditures
    
    
    (7,829
    )
    
    
    (3,827
    )Acquisition
    
    
    (500
    )
    
    
    Change in restricted cash
    
    
    10,118
    
    
    
    (14,810
    )Proceeds from sale of capital assets
    
    
    6,950
    
    
    
    10,560Proceeds from sale of equity affiliate
    
    
    
    
    
    
    8,750Collection of notes receivable
    
    
    
    
    
    
    267Return of capital from equity affiliate
    
    
    
    
    
    
    234Net cash provided by investing activities
    
    
    8,739
    
    
    
    1,174Financing activities:Borrowings of long-term debt
    
    
    14,600
    
    
    
    Payments of long-term debt
    
    
    (20,578
    )
    
    
    (11,000
    )Proceeds from stock option exercises
    
    
    3,830
    
    
    
    Other
    
    
    37
    
    
    
    (708
    )Net cash used in financing activities
    
    
    (2,111
    )
    
    
    (11,708
    )Cash flows of discontinued operations:Operating cash flow
    
    
    (162
    )
    
    
    (201
    )Net cash used in discontinued operations
    
    
    (162
    )
    
    
    (201
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (6,143
    )
    
    
    2,065Net decrease in cash and cash equivalents
    
    
    (7,629
    )
    
    
    (14,256
    )Cash and cash equivalents at end of period
    
    $
    12,619
    
    
    $
    25,775




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1.
    
    Basis of PresentationThe Condensed Consolidated Balance Sheet of Unifi, Inc. (the Company) at June 29, 2008 has
been derived from the audited financial statements at that date but does not include all of the
information and footnotes required by United States generally accepted accounting principles
(U.S. GAAP) for complete financial statements. Except as noted with respect to the balance
sheet at June 29, 2008, this information is unaudited and reflects all adjustments which are, in
the opinion of management, necessary to present fairly the financial position at December 28,
2008, and the results of operations and cash flows for the periods ended December 28, 2008 and
December 23, 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 29, 2008. 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 65 to 71 of
the Companys Annual Report on Form 10-K for the fiscal year ended June 29, 2008.2.
    
    InventoriesInventories are comprised of the following (amounts in thousands):


December 28,
    
    
    June 29,2008
    
    
    2008Raw materials and supplies
    
    $
    55,013
    
    
    $
    51,407Work in process
    
    
    4,861
    
    
    
    7,021Finished goods
    
    
    67,233
    
    
    
    64,462$
    127,107
    
    
    $
    122,890


3.
    
    Accrued ExpensesAccrued expenses are comprised of the following (amounts in thousands):


December 28,
    
    
    June 29,2008
    
    
    2008Payroll and fringe benefits
    
    $
    6,064
    
    
    $
    11,101Severance
    
    
    1,562
    
    
    
    1,935Interest
    
    
    2,705
    
    
    
    2,813Utilities
    
    
    1,443
    
    
    
    3,114Closure reserve
    
    
    619
    
    
    
    1,414Retiree benefits
    
    
    1,617
    
    
    
    1,733Property taxes
    
    
    2,383
    
    
    
    1,132Other
    
    
    1,082
    
    
    
    2,289$
    17,475
    
    
    $
    25,531


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4.
    
    Other (Income) Expense, Net


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


For the Quarters Ended
    
    
    For the Six-Months EndedDecember 28,
    
    
    December 23,
    
    
    December 28,
    
    
    December 23,2008
    
    
    2007
    
    
    2008
    
    
    2007Gain on sale of fixed assets
    
    $
    (5,594
    )
    
    $
    (1,271
    )
    
    $
    (5,910
    )
    
    $
    (1,413
    )Gain from sale of nitrogen credits
    
    
    
    
    
    
    (807
    )
    
    
    
    
    
    
    (1,614
    )Technology fee from China joint venture
    
    
    
    
    
    
    (250
    )
    
    
    
    
    
    
    (688
    )Currency losses
    
    
    380
    
    
    
    131
    
    
    
    77
    
    
    
    458Other, net
    
    
    2
    
    
    
    5
    
    
    
    60
    
    
    
    67Other (income) expense, net
    
    $
    (5,212
    )
    
    $
    (2,192
    )
    
    $
    (5,773
    )
    
    $
    (3,190
    )


5.
    
    Goodwill and Other Intangible Assets, NetThe Company accounts for its goodwill and other intangibles under the provisions of Statements
of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets (SFAS
142). SFAS 142 requires that these assets be reviewed for impairment annually, unless specific
circumstances indicate that a more timely review is warranted. This impairment test involves
estimates and judgments that are critical in determining whether any impairment charge should be
recorded and the amount of such charge if an impairment loss is deemed to be necessary. As a
result of the significant decline in the Companys market capitalization during the second
quarter, the Company determined that it was appropriate to perform an interim impairment
analysis. Accordingly, the Company conducted an impairment test of its goodwill during the
second quarter of fiscal year 2009 and concluded that no impairment was necessary.Other intangible assets subject to amortization consisted of customer relationships of $22.0
million and non-compete agreements of $4.0 million which were entered in connection with an
asset acquisition consummated in fiscal year 2007. The customer list is being amortized in a
manner which reflects the expected economic benefit that will be received over its twelve year
life and the non-compete agreement is being amortized using the straight-line method over six
years. There are no residual values related to these intangible assets. Accumulated
amortization at December 28, 2008 and June 29, 2008 for these intangible assets was $7.2 million
and $5.6 million, respectively.In addition, the Company allocated $0.5 million to customer relationships arising from a
transaction that closed in the second quarter of fiscal year 2009. This customer list will be
amortized using the straight-line method over a period of one and a half years.The intangible assets discussed above both relate to the polyester segment.The following table represents the expected intangible asset amortization for the next five
fiscal years (amounts in thousands):


Aggregate Amortization Expenses2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    2014Customer list
    
    $
    2,993
    
    
    $
    2,173
    
    
    $
    2,022
    
    
    $
    1,837
    
    
    $
    1,481Non-compete contract
    
    
    571
    
    
    
    571
    
    
    
    571
    
    
    
    571
    
    
    
    286$
    3,564
    
    
    $
    2,744
    
    
    $
    2,593
    
    
    $
    2,408
    
    
    $
    1,767


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6.
    
    Recent Accounting PronouncementsIn September 2006, the Financial Accounting Standards Board (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 February 12, 2008, the FASB issued Staff Position (FSP) FAS 157-2 which
delays 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 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 adopted SFAS No. 157 except as it applies to those nonfinancial assets and
nonfinancial liabilities as noted in FSP FAS 157-2 and the adoption of this standard did not
have a material effect on its consolidated financial statements.7.
    
    Comprehensive Income (Loss)Comprehensive losses amounted to $23.2 million and $39.7 million for the second quarter and
year-to-date periods of fiscal year 2009, respectively, compared to comprehensive losses of $4.7
million and $10.4 million for the second quarter and the year-to-date periods of fiscal year
2008. Comprehensive losses were comprised of net losses of $9.1 million and $9.7 million for
the second quarter and year-to-date periods of fiscal year 2009, respectively, and negative
cumulative translation adjustments of $14.1 million and $30.0 million, respectively.
Comparatively, comprehensive losses for the corresponding periods in the prior fiscal year were
derived from net losses of $7.7 million and $16.9 million, and positive cumulative translation
adjustments of $3.0 million and $6.5 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.8.
    
    Investments in Unconsolidated AffiliatesThe following table represents the Companys investments in unconsolidated affiliates:


PercentAffiliate Name
    
    Date Acquired
    
    Location
    
    OwnershipYihua Unifi Fibre Company Limited
    
    August 2005 (1)
    
    Yizheng, Jiangsu Province, Peoples Republic of China
    
    50%Parkdale America, LLC
    
    June 1997
    
    North and South Carolina
    
    34%Unifi-SANS Technical Fibers, LLC
    
    September 2000 (2)
    
    Stoneville, North Carolina
    
    50%U.N.F. Industries, LLC
    
    September 2000
    
    Migdal Ha  Emek, Israel
    
    50%





| |     |  |                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) |  | The Company is currently negotiating the sale of YUFI and therefore the Company did not
record its share of equity losses in YUFI for the year-to-date period ended December 28,
2008 since the carrying value of its investment reflects the lower fair value of $9.0
million after impairment charges. See Footnote 12  Impairment Charges for further
discussion.
|
| | (2) |  | Sold in the second quarter of fiscal year 2008                                                                                                                                                                                                                                                                                                                         

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| |  |                                                                                                                                                                                                                                                                                                                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Condensed income statement information for the quarters and six-months ended December 28, 2008
and December 23, 2007, of the combined unconsolidated equity affiliates, Yihua Unifi Fibre
Company Limited (YUFI), UNIFI-SANS Technical Fibers, LLC (USTF), Parkdale America, LLC
(PAL), and U.N.F. Industries Ltd (UNF) are as follows (amounts in thousands):

For the Quarter Ended December 28, 2008YUFI
    
    PAL
    
    UNF
    
    TotalNet sales
    
    $
    30,950
    
    
    $
    97,194
    
    
    $
    6,543
    
    
    $
    134,687Gross profit (loss)
    
    
    (1,528
    )
    
    
    5,825
    
    
    
    (877
    )
    
    
    3,420Depreciation and amortization
    
    
    1,325
    
    
    
    5,447
    
    
    
    474
    
    
    
    7,246Income (loss) from operations
    
    
    (2,783
    )
    
    
    2,546
    
    
    
    (1,374
    )
    
    
    (1,611
    )Net income (loss)
    
    
    (2,949
    )
    
    
    1,794
    
    
    
    (1,268
    )
    
    
    (2,423
    )


For the Six-Months Ended December 28, 2008YUFI
    
    PAL
    
    UNF
    
    TotalNet sales
    
    $
    70,830
    
    
    $
    219,278
    
    
    $
    12,435
    
    
    $
    302,543Gross profit (loss)
    
    
    (3,575
    )
    
    
    12,072
    
    
    
    (1,667
    )
    
    
    6,830Depreciation and amortization
    
    
    2,720
    
    
    
    9,904
    
    
    
    948
    
    
    
    13,572Income (loss) from operations
    
    
    (6,939
    )
    
    
    6,024
    
    
    
    (2,625
    )
    
    
    (3,540
    )Net income (loss)
    
    
    (7,566
    )
    
    
    11,940
    
    
    
    (2,411
    )
    
    
    1,963


For the Quarter Ended December 23, 2007YUFI
    
    PAL
    
    UNF
    
    TotalNet sales
    
    $
    36,051
    
    
    $
    104,944
    
    
    $
    4,467
    
    
    $
    145,462Gross profit (loss)
    
    
    (227
    )
    
    
    5,827
    
    
    
    (163
    )
    
    
    5,437Depreciation and amortization
    
    
    1,294
    
    
    
    4,760
    
    
    
    316
    
    
    
    6,370Income (loss) from operations
    
    
    (1,856
    )
    
    
    2,532
    
    
    
    (277
    )
    
    
    399Net income (loss)
    
    
    (2,431
    )
    
    
    3,213
    
    
    
    (231
    )
    
    
    551


For the Six-Months Ended December 23, 2007USTF
    
    YUFI
    
    PAL
    
    UNF
    
    TotalNet sales
    
    $
    6,455
    
    
    $
    73,120
    
    
    $
    215,539
    
    
    $
    11,830
    
    
    $
    306,944Gross profit (loss)
    
    
    571
    
    
    
    (534
    )
    
    
    10,449
    
    
    
    155
    
    
    
    10,641Depreciation and amortization
    
    
    578
    
    
    
    2,618
    
    
    
    9,670
    
    
    
    790
    
    
    
    13,656Income (loss) from operations
    
    
    188
    
    
    
    (3,628
    )
    
    
    3,590
    
    
    
    (142
    )
    
    
    8Net income (loss)
    
    
    148
    
    
    
    (4,845
    )
    
    
    4,566
    
    
    
    (88
    )
    
    
    (219
    )


9.
    
    Income TaxesThe Companys income tax provision for the quarter ended December 28, 2008 resulted in tax
expense at an effective rate of 7.1% as compared to the quarter ended December 23, 2007, which
resulted in tax benefit at an effective rate of 42.3%. The Companys income tax provision for
the year-to-date period ended December 28, 2008 resulted in tax expense at an effective rate of
33.5% compared to the year-to-date period ended December 23, 2007 which resulted in a tax
benefit at an effective rate of 42.7%. The primary differences between the Companys effective
tax rate and the U.S. statutory rate for the quarter and year-to-date period ended December 28,
2008 were attributable to state income tax benefits, foreign income taxed at rates less than the
U.S. statutory rate and an increase in the valuation allowance. The primary differences between
the Companys effective tax rate and the U.S. statutory rate for the quarter ended December 23,
2007 were losses from certain foreign operations taxed at a lower effective rate, state income
tax benefits, and a decrease in the valuation allowance.


9



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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
continued to record a valuation allowance against its net domestic deferred tax assets, and
certain foreign deferred tax assets related to net operating losses, as those net deferred tax
assets are more likely than not to be unrealizable for income tax purposes. The valuation
allowance increased to $3.5 million and $4.1 million in the quarter and year-to-date period
ended December 28, 2008, respectively, compared to a $1.7 million and $6.8 million decrease in
the quarter and year-to-date period ended December 23, 2007. The net increase in the valuation
allowance for the quarter ended December 28, 2008 primarily consisted of a $2.8 million increase
for net operating losses generated this quarter (federal and state), and an increase of $0.7
million related to other temporary differences this quarter. The net increase in the valuation
allowance for the year-to-date period ended December 28, 2008 primarily consisted of a $3.7
million increase for net operating losses generated year-to-date (federal and state), and an
increase of $0.4 million related to other temporary differences.There was no change in the amount of interest and penalties during the quarter and year-to-date
period ended December 28, 2008 due to the companys federal and state net operating loss
carryforwards.The Company is subject to income tax examinations for U.S. federal income taxes for fiscal years
2007 and 2008. The Internal Revenue Service (IRS) recently concluded its exam for fiscal
years 2003 through 2006. The Company is also subject to income tax examinations for non-U.S.
income taxes for tax years 2000 through 2008, and for state and local income taxes for fiscal
years 2001 through 2008.10.
    
    Stock-Based CompensationDuring the second quarter of fiscal year 2008, the Compensation Committee (Committee) of the
Board of Directors (Board) authorized the issuance of 1,570,000 stock options from the 1999
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.On October 29, 2008, the shareholders of the Company approved the 2008 Unifi, Inc. Long-Term
Incentive Plan (2008 Long-Term Incentive Plan). The plan authorized the issuance of up to
6,000,000 shares of Common Stock pursuant to the grant or exercise of stock options, including
Incentive Stock Options (ISO), Non-Qualified Stock Options (NQSO) and restricted stock, but
not more than 3,000,000 shares may be issued as restricted stock. Option awards are granted with
an exercise price not less than the market price of the Companys stock at the date of grant.During the second quarter of fiscal year 2009, the Committee of the Board authorized the
issuance of 280,000 stock options from the 2008 Long-Term Incentive Plan to certain key
employees. The stock options are subject to a market condition which vests the options on the
date that the closing price of the Companys common stock shall have been at least $6.00 per
share for thirty consecutive trading days. The exercise price is $4.16 per share. The Company
used a Monte Carlo stock option model to estimate the fair value of $2.49 per share and the
derived vesting period of 1.2 years.


10



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##### Table of Contents





The Company incurred $0.3 million in the second quarter of both fiscal years 2009 and 2008,
and $0.6 million and $0.4 million for the year-to-date periods, respectively, in stock-based
compensation charges which were recorded as selling, general and administrative (SG&A)
expenses with the offset to capital in excess of par value.The Company issued 100,000 shares of common stock and 1,368,300 shares of common stock during
the second quarter of fiscal year 2009 and the 2009 fiscal year-to-date period, respectively, as
a result of the exercise of an equivalent number of stock options.11.
    
    Assets Held for SaleAs of June 29, 2008, the Company had assets held for sale related to the consolidation of its
polyester manufacturing capacity, which included the remaining assets and structures at the
Kinston site which have a carrying value of $1.7 million and certain real property and related
assets located in Yadkinville, North Carolina which have a carrying value of $2.4 million.During the first quarter of fiscal year 2009, the Company reclassified as held and used $0.4
million of machines located in Yadkinville, North Carolina. During the second quarter of fiscal
year 2009, the Company sold $0.6 million of the assets in Yadkinville, North Carolina to its
Brazilian subsidiary.On September 29, 2008, the Company entered into an agreement to sell the assets located in
Yadkinville, North Carolina for $7.0 million. On December 19, 2008, the Company completed the
sale which resulted in net proceeds of $6.6 million and a net pre-tax gain of $5.2 million in
the second quarter of fiscal year 2009.The following table summarizes by category assets held for sale (amounts in thousands):


December 28,
    
    
    June
29,2008
    
    
    2008Land
    
    $
    
    
    
    $
    30Building
    
    
    
    
    
    
    1,348Machinery and equipment
    
    
    1,700
    
    
    
    2,746$
    1,700
    
    
    $
    4,124


12.
    
    Impairment ChargesWrite down of long-lived assetsDuring 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 transferred from the Companys domestic polyester division.
As a result, the Company recognized $0.5 million in non-cash impairment charges 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 and determined that a
$1.6 million non-cash impairment charge was required.In addition, the Company negotiated with a third party to sell the manufacturing facility
located in Kinston, North Carolina. 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 in the second quarter of fiscal year 2008.


11



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Write down of investment
in unconsolidated  affiliatesDuring the first quarter of fiscal year 2008, the Company performed a review of the fair value
of USTF as part of the negotiations related to the sale. The Company determined that the
carrying value exceeded its fair value and recorded a non-cash impairment charge of $4.5
million. The investment was sold in the second quarter of fiscal year 2008.During the second quarter of fiscal year 2009, the Company and Sinopec Yizheng Chemical Fiber
Co., Ltd, (YCFC) renegotiated the proposed agreement to sell the Companys interest in YUFI to
YCFC for $9.0 million, pending final negotiation and execution of definitive agreements and the
receipt of Chinese regulatory approvals. As a result, the Company recorded an additional
impairment charge of $1.5 million due to the decline in the value of its investment and other
related assets.13.
    
    Severance and Restructuring ChargesSeveranceIn the first quarter of fiscal year 2008, the Company announced the closure of its polyester
facility in Kinston, North Carolina. The Kinston facility produced partially oriented yarn
(POY) for internal consumption and third party sales. The Company now purchases its commodity
POY needs from external suppliers for conversion in its texturing operations. The Company
continues to produce POY in its Yadkinville, North Carolina facility for specialty and premier
valued-added (PVA) yarns and certain other commodity yarns. During the first quarter of fiscal
year 2008, the Company recorded $0.8 million for severance related to its Kinston consolidation
which was reflected on the Cost of sales line item in the Consolidated Statements of
Operations. Approximately 231 employees, which included 31 salaried positions and 200 wage
positions, were affected as a result of the reorganization.In the second quarter of fiscal year 2008, the Company recorded an additional $0.4 million in
severance costs related to Kinston employees who were associated with providing site services.The Company recorded severance of $2.4 million for its former President and Chief Executive
Officer during the first quarter of fiscal year 2008 and $1.7 million for severance related to
its former Chief Financial Officer during the second quarter of fiscal year 2008 which were
reflected on the Selling, general, & administrative expense line item in the Consolidated
Statements of Operations.On May 14, 2008, the Company announced the closure of its Staunton, Virginia facility and the
transfer of all its production to its facility in Yadkinville, North Carolina which was
completed in November 2008. During the first quarter of fiscal year 2009, the Company recorded
$0.1 million for severance related to its Staunton consolidation. Approximately 6 salaried
employees and 35 wage employees were affected by this reorganization. The expenses were
reflected on the Cost of sales line item in the Consolidated Statements of Operations.RestructuringIn the first quarter of fiscal year 2008, the Company recorded $1.5 million for restructuring
charges related to unfavorable Kinston contracts for continued services after the closing of the
facility.In fiscal year 2007, the Company recorded a $2.9 million unfavorable contract reserve
related to a portion of the sales and service contract which it entered into with Dillon for
continued support of the Dillon business through December 2008. A portion of the sales and
service contract was deemed to be unfavorable, after the Company announced its plan to
consolidate the Dillon capacity into its other facilities.


12



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##### Table of Contents





The table below summarizes changes to the accrued severance and accrued restructuring accounts
for the period ended December 28, 2008 (amounts in thousands):


Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atJune 29, 2008
    
    Charges
    
    Adjustments
    
    Amounts Used
    
    December 28, 2008Accrued severance
    
    $
    3,668
    
    
    
    146
    
    
    
    5
    
    
    
    (1,280
    )
    
    $
    2,539
    (1)Accrued restructuring
    
    $
    1,414
    
    
    
    
    
    
    
    245
    
    
    
    (1,040
    )
    
    $
    619





| |     |  |                                                                                                          
| | --- |  | ---------------------------------------------------------------------------------------------------------
| | (1) |  | As of December 28, 2008, the Company classified $1.0 million of accrued executive severance
as long term.

14.
    
    Discontinued OperationsThe manufacturing facilities in Ireland ceased operations on October 31, 2004. The Company is
in the process of closing the business which should be completed by the end of the third quarter
of fiscal year 2009. The Company does not anticipate significant future cash flow activity from
its discontinued operations. The Company recorded income of $0.2 million and $0.1 million for
the second quarter of fiscal years 2009 and 2008, respectively, and income of $0.1 million and
$0.1 million for the year-to-date periods, respectively.15.
    
    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. If the derivative is a hedge, depending on the
nature of the hedge, changes in the fair value of derivatives are either offset against the
change in fair value of the hedged assets, liabilities, or firm commitments through earnings or
are recorded in other comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivatives change in fair value is immediately recognized in
earnings. The Company does not enter into derivative financial instruments for trading purposes
nor is it a party to any leveraged financial instruments.The Company conducts its business in various foreign currencies. As a result, it is subject to
the transaction exposure that arises from foreign exchange rate movements between the dates that
foreign currency transactions are recorded and the dates they are consummated. The Company
utilizes some natural hedging to mitigate these transaction exposures. The Company primarily
enters into foreign currency forward contracts for the purchase and sale of European, North
American and Brazilian currencies to 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. Counter-parties for these
instruments are major financial institutions.Currency forward contracts are used to hedge exposure for sales in foreign currencies based on
specific sales orders with customers or for anticipated sales activity for a future time period.
Generally, 50% to 75% of the sales value of these orders is covered by forward contracts.
Maturity dates of the forward contracts are intended to match anticipated receivable
collections. The Company marks the outstanding accounts receivable and forward contracts to
market at month end and any realized and unrealized gains or losses are recorded as other income
and expense. The Company also enters currency forward contracts for committed or anticipated
equipment and inventory purchases. Generally, 50% of the asset cost is covered by forward
contracts although 100% of the asset cost may be covered by contracts in certain instances.
Forward contracts are matched with the anticipated date of delivery of the assets and gains and
losses are recorded as a component of the asset cost for purchase transactions when the Company
is firmly committed. The latest maturity for all outstanding purchase and sales foreign currency
forward contracts are February 2009 and March 2009, respectively.


13



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##### Table of Contents



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


December 28,
    
    
    June 29,2008
    
    
    2008Foreign currency purchase contracts:Notional amount
    
    $
    638
    
    
    $
    492Fair value
    
    
    664
    
    
    
    499Net (gain) loss
    
    $
    (26
    )
    
    $
    (7
    )Foreign currency sales contracts:Notional amount
    
    $
    656
    
    
    $
    620Fair value
    
    
    638
    
    
    
    642Net gain (loss)
    
    $
    18
    
    
    $
    (22
    )


For the quarters ended December 28, 2008 and December 23, 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 a pre-tax loss of $0.4
million and $0.1 million, respectively. For the year-to-date periods ended December 28, 2008
and December 23, 2007, the total impact of foreign currency related items resulted in a pre-tax
loss of $0.1 million and $0.5 million, respectively.16.
    
    ContingenciesOn September 30, 2004, the Company completed its acquisition of the polyester filament
manufacturing assets located at Kinston from INVISTA S.a.r.l. (INVISTA). The land for the
Kinston site was leased pursuant to a 99 year ground lease (Ground Lease) with 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 (DENR) pursuant to the Resource
Conservation and Recovery Act Corrective Action program. The Corrective Action program requires
DuPont to identify all potential areas of environmental concern (AOCs), assess the extent of
containment at the identified AOCs and clean it up to comply with applicable regulatory
standards. 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 assets at Kinston to DuPont.
This agreement terminated the Ground Lease and relieved the Company of any future
responsibility for environmental remediation, other than participation with DuPont, if so called
upon, with regard to the Companys period of operation of the Kinston site. However, the
Company continues to own a satellite service facility acquired in the INVISTA transaction that
has contamination from DuPonts operations and is monitored by DENR. This site has been
remediated by DuPont and DuPont has received authority from DENR to discontinue remediation,
other than natural attenuation. DuPonts duty to monitor and report to DENR will be transferred
to the Company in the future, at which time DuPont must pay the Company for seven years of
monitoring and reporting costs and the Company will assume responsibility for any future
remediation and monitoring of the site. At this time, the Company has no basis to determine if
and when it will have any responsibility or obligation with respect to the AOCs or the extent of
any potential liability for the same.


14



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##### Table of Contents





17.
    
    Related Party TransactionIn fiscal year 2007, the Company purchased the polyester and nylon texturing operations of
Dillon (the Transaction). In connection with the Transaction, the Company and Dillon entered
into a Sales and Services Agreement for a term of two years from January 1, 2007, pursuant to
which the Company agreed to pay Dillon an aggregate amount of $6.0 million in exchange for
certain sales and transitional services to be provided by Dillons sales staff and executive
management, of which $0.8 million was paid during the first and second quarters of both fiscal
year 2009 and fiscal year 2008. On December 1, 2008, the Company entered into an agreement to
extend the Sales and Service agreement for a term of one year effective January 1, 2009 pursuant
to which the Company will pay Dillon an aggregate amount of $1.7
million. Mr. Stephen Wener is the President and Chief Executive Officer of Dillon and is a
director of the Company.18.
    
    Segment DisclosuresThe following is the Companys selected segment information for the
quarters and six-month periods ended December 28, 2008 and December
23, 2007 (amounts in thousands):


Polyester
    
    Nylon
    
    TotalQuarter ended December 28, 2008:Net sales to external customers
    
    $
    93,984
    
    
    $
    31,743
    
    
    $
    125,727Depreciation and amortization
    
    
    5,419
    
    
    
    1,795
    
    
    
    7,214Segment operating profit (loss)
    
    
    (6,735
    )
    
    
    (257
    )
    
    
    (6,992
    )Total assets
    
    
    332,774
    
    
    
    84,505
    
    
    
    417,279Quarter ended December 23, 2007:Net sales to external customers
    
    $
    135,119
    
    
    $
    48,250
    
    
    $
    183,369Intersegment net sales
    
    
    1,422
    
    
    
    752
    
    
    
    2,174Depreciation and amortization
    
    
    6,273
    
    
    
    3,291
    
    
    
    9,564Segment operating profit (loss)
    
    
    (10,845
    )
    
    
    705
    
    
    
    (10,140
    )Total assets
    
    
    381,758
    
    
    
    98,900
    
    
    
    480,658


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


For the Quarters EndedDecember 28,
    
    
    December 23,2008
    
    
    2007Depreciation and amortization:Depreciation and amortization of specific reportable segment assets
    
    $
    7,214
    
    
    $
    9,564Depreciation of allocated assets
    
    
    418
    
    
    
    559Amortization of allocated assets
    
    
    289
    
    
    
    291Consolidated depreciation and amortization
    
    $
    7,921
    
    
    $
    10,414Reconciliation of segment operating loss to
loss from continuing operations before income taxes:Reportable segments operating loss
    
    $
    (6,992
    )
    
    $
    (10,140
    )Provision (recovery) for bad debts
    
    
    501
    
    
    
    (189
    )Interest expense, net
    
    
    5,068
    
    
    
    5,832Other (income) expense, net
    
    
    (5,212
    )
    
    
    (2,192
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    (162
    )
    
    
    21Write down of investment in unconsolidated affiliate
    
    
    1,483
    
    
    
    Loss from continuing operations before income taxes
    
    $
    (8,670
    )
    
    $
    (13,612
    )


15



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##### Table of Contents



Polyester
    
    Nylon
    
    TotalSix-Months ended December 28, 2008:Net sales to external customers
    
    $
    216,963
    
    
    $
    77,773
    
    
    $
    294,736Intersegment net sales
    
    
    
    
    
    
    71
    
    
    
    71Depreciation and amortization
    
    
    12,401
    
    
    
    4,103
    
    
    
    16,504Segment operating profit (loss)
    
    
    (6,925
    )
    
    
    2,813
    
    
    
    (4,112
    )Six-Months ended December 23, 2007:Net sales to external customers
    
    $
    264,498
    
    
    $
    89,407
    
    
    $
    353,905Intersegment net sales
    
    
    3,219
    
    
    
    1,521
    
    
    
    4,740Depreciation and amortization
    
    
    12,883
    
    
    
    6,583
    
    
    
    19,466Segment operating profit (loss)
    
    
    (18,237
    )
    
    
    1,471
    
    
    
    (16,766
    )
  For the Six-Months EndedDecember 28,
    
    
    December 23,2008
    
    
    2007Depreciation and amortization:Depreciation
and amortization of specific reportable segment assets
    
    $
    16,504
    
    
    $
    19,466Depreciation of allocated assets
    
    
    886
    
    
    
    1,127Amortization of allocated assets
    
    
    579
    
    
    
    581Consolidated depreciation and amortization
    
    $
    17,969
    
    
    $
    21,174Reconciliation of segment operating loss to
loss from continuing operations before income taxes:Reportable segments operating loss
    
    $
    (4,112
    )
    
    $
    (16,766
    )Provision for bad debts
    
    
    1,059
    
    
    
    65Interest expense, net
    
    
    10,120
    
    
    
    11,710Other (income) expense, net
    
    
    (5,773
    )
    
    
    (3,190
    )Equity in earnings of unconsolidated affiliates
    
    
    (3,644
    )
    
    
    (157
    )Write down of investment in unconsolidated affiliate
    
    
    1,483
    
    
    
    4,505Loss from continuing operations before income taxes
    
    $
    (7,357
    )
    
    $
    (29,699
    )
 For purposes of internal management reporting, segment operating loss represents segment net
sales less cost of sales, allocated selling, general and administrative expenses, segment
restructuring charges, and segment impairments of long-lived assets. Certain non-segment
manufacturing and unallocated selling, general and administrative costs are allocated to the
operating segments based on activity drivers relevant to the respective costs. In the prior
year, consolidated intersegment sales were recorded at market. Beginning in fiscal year 2009,
the Company changed its domestic intersegment transfer pricing of inventory from a market value
approach to a cost approach. Using the new methodology, no intersegment sales are recorded for
domestic transfers of inventory. The amounts of domestic intersegment sales that were included
in the prior second quarter and year-to-date numbers totaled $1.4 million and $3.2 million,
respectively, for domestic polyester and $0.8 million and $1.5 million, respectively, for
domestic nylon. The remaining intersegment sales relate to sales to the Companys foreign
subsidiaries which are still recorded at market.
 16




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##### Table of Contents



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, and
corporate equity investment and long-lived asset impairments.Segment operating loss excluded the provision (recovery) for bad debts of $0.5 million and
$(0.2) million for the current and prior year second quarter periods, respectively, and $1.1
million and $0.1 million for the year-to-date periods, respectively.The total assets for the polyester segment decreased from $387.0 million at June 29, 2008 to
$332.8 million at December 28, 2008 primarily due to decreases in accounts receivable, property,
plant, and equipment, cash, long-term restricted cash, short-term restricted cash, other
non-current assets, other current assets, and deferred taxes of $23.7 million, $11.5 million,
$5.1 million, $5.1 million, $3.3 million, $2.4 million, $2.2 million, and $0.9 million,
respectively. The total assets for the nylon segment decreased from $92.5 million at June 29,
2008 to $84.5 million at December 28, 2008 due primarily to decreases in accounts receivable and
property, plant, and equipment of $8.9 million and $3.8 million, respectively. These decreases
were offset by increases in inventory and cash of $4.2 million and $0.5 million, respectively.
 19.
    
    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.
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##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,312
    
    
    $
    (159
    )
    
    $
    11,466
    
    
    $
    
    
    
    $
    12,619Receivables, net
    
    
    7
    
    
    
    56,484
    
    
    
    12,120
    
    
    
    
    
    
    
    68,611Inventories
    
    
    
    
    
    
    98,918
    
    
    
    28,189
    
    
    
    
    
    
    
    127,107Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,417
    
    
    
    
    
    
    
    1,417Assets held for sale
    
    
    
    
    
    
    1,700
    
    
    
    
    
    
    
    
    
    
    
    1,700Restricted cash
    
    
    
    
    
    
    
    
    
    
    5,970
    
    
    
    
    
    
    
    5,970Other current assets
    
    
    223
    
    
    
    2,201
    
    
    
    2,906
    
    
    
    
    
    
    
    5,330Total current assets
    
    
    1,542
    
    
    
    159,144
    
    
    
    62,068
    
    
    
    
    
    
    
    222,754Property, plant and equipment
    
    
    11,336
    
    
    
    712,893
    
    
    
    57,998
    
    
    
    
    
    
    
    782,227Less accumulated depreciation
    
    
    (1,758
    )
    
    
    (576,635
    )
    
    
    (41,539
    )
    
    
    
    
    
    
    (619,932
    )9,578
    
    
    
    136,258
    
    
    
    16,459
    
    
    
    
    
    
    
    162,295Investments in unconsolidated affiliates
    
    
    
    
    
    
    58,065
    
    
    
    13,029
    
    
    
    
    
    
    
    71,094Restricted cash
    
    
    
    
    
    
    11,106
    
    
    
    2,711
    
    
    
    
    
    
    
    13,817Investments in consolidated subsidiaries
    
    
    393,553
    
    
    
    
    
    
    
    
    
    
    
    (393,553
    )
    
    
    Goodwill and intangible assets, net
    
    
    
    
    
    
    37,907
    
    
    
    
    
    
    
    
    
    
    
    37,907Other noncurrent assets
    
    
    58,261
    
    
    
    (42,697
    )
    
    
    (4,723
    )
    
    
    
    
    
    
    10,841$
    462,934
    
    
    $
    359,783
    
    
    $
    89,544
    
    
    $
    (393,553
    )
    
    $
    518,708LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and other
    
    $
    139
    
    
    $
    25,211
    
    
    $
    3,155
    
    
    $
    
    
    
    $
    28,505Accrued expenses
    
    
    3,204
    
    
    
    12,129
    
    
    
    2,142
    
    
    
    
    
    
    
    17,475Income taxes payable
    
    
    (804
    )
    
    
    764
    
    
    
    81
    
    
    
    
    
    
    
    41Current maturities of long-term debt and other current
liabilities
    
    
    
    
    
    
    343
    
    
    
    5,970
    
    
    
    
    
    
    
    6,313Total current liabilities
    
    
    2,539
    
    
    
    38,447
    
    
    
    11,348
    
    
    
    
    
    
    
    52,334Long-term debt and other liabilities
    
    
    190,000
    
    
    
    2,791
    
    
    
    2,711
    
    
    
    
    
    
    
    195,502Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    477
    
    
    
    
    
    
    
    477Shareholders/ invested equity
    
    
    270,395
    
    
    
    318,545
    
    
    
    75,008
    
    
    
    (393,553
    )
    
    
    270,395$
    462,934
    
    
    $
    359,783
    
    
    $
    89,544
    
    
    $
    (393,553
    )
    
    $
    518,708
 18




---



##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    689
    
    
    $
    3,377
    
    
    $
    16,182
    
    
    $
    
    
    
    $
    20,248Receivables, net
    
    
    66
    
    
    
    82,040
    
    
    
    21,166
    
    
    
    
    
    
    
    103,272Inventories
    
    
    
    
    
    
    92,581
    
    
    
    30,309
    
    
    
    
    
    
    
    122,890Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    2,357
    
    
    
    
    
    
    
    2,357Assets held for sale
    
    
    
    
    
    
    4,124
    
    
    
    
    
    
    
    
    
    
    
    4,124Restricted cash
    
    
    
    
    
    
    
    
    
    
    9,314
    
    
    
    
    
    
    
    9,314Other current assets
    
    
    26
    
    
    
    733
    
    
    
    2,934
    
    
    
    
    
    
    
    3,693Total current assets
    
    
    781
    
    
    
    182,855
    
    
    
    82,262
    
    
    
    
    
    
    
    265,898Property, plant and equipment
    
    
    11,273
    
    
    
    765,710
    
    
    
    78,341
    
    
    
    
    
    
    
    855,324Less accumulated depreciation
    
    
    (1,616
    )
    
    
    (623,262
    )
    
    
    (53,147
    )
    
    
    
    
    
    
    (678,025
    )9,657
    
    
    
    142,448
    
    
    
    25,194
    
    
    
    
    
    
    
    177,299Investments in unconsolidated affiliates
    
    
    
    
    
    
    60,853
    
    
    
    9,709
    
    
    
    
    
    
    
    70,562Restricted cash
    
    
    
    
    
    
    18,246
    
    
    
    7,802
    
    
    
    
    
    
    
    26,048Investments in consolidated subsidiaries
    
    
    417,503
    
    
    
    
    
    
    
    
    
    
    
    (417,503
    )
    
    
    Goodwill and intangible assets, net
    
    
    
    
    
    
    38,965
    
    
    
    
    
    
    
    
    
    
    
    38,965Other noncurrent assets
    
    
    74,271
    
    
    
    (60,879
    )
    
    
    (633
    )
    
    
    
    
    
    
    12,759$
    502,212
    
    
    $
    382,488
    
    
    $
    124,334
    
    
    $
    (417,503
    )
    
    $
    591,531LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable and other
    
    $
    172
    
    
    $
    39,328
    
    
    $
    5,053
    
    
    $
    
    
    
    $
    44,553Accrued expenses
    
    
    3,371
    
    
    
    18,011
    
    
    
    4,149
    
    
    
    
    
    
    
    25,531Income taxes payable
    
    
    
    
    
    
    
    
    
    
    681
    
    
    
    
    
    
    
    681Current maturities of long-term debt and other current
liabilities
    
    
    
    
    
    
    491
    
    
    
    9,314
    
    
    
    
    
    
    
    9,805Total current liabilities
    
    
    3,543
    
    
    
    57,830
    
    
    
    19,197
    
    
    
    
    
    
    
    80,570Long-term debt and other liabilities
    
    
    193,000
    
    
    
    3,563
    
    
    
    7,803
    
    
    
    
    
    
    
    204,366Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    926
    
    
    
    
    
    
    
    926Shareholders/ invested equity
    
    
    305,669
    
    
    
    321,095
    
    
    
    96,408
    
    
    
    (417,503
    )
    
    
    305,669$
    502,212
    
    
    $
    382,488
    
    
    $
    124,334
    
    
    $
    (417,503
    )
    
    $
    591,531
 19




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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
    
    $
    
    
    
    $
    103,324
    
    
    $
    22,586
    
    
    $
    (183
    )
    
    $
    125,727Cost of sales
    
    
    
    
    
    
    103,756
    
    
    
    19,750
    
    
    
    (91
    )
    
    
    123,415Selling, general and administrative expenses
    
    
    190
    
    
    
    7,669
    
    
    
    1,537
    
    
    
    (92
    )
    
    
    9,304Provision (recovery) for bad debts
    
    
    
    
    
    
    620
    
    
    
    (119
    )
    
    
    
    
    
    
    501Interest expense
    
    
    5,717
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    5,748Interest income
    
    
    (27
    )
    
    
    (2
    )
    
    
    (651
    )
    
    
    
    
    
    
    (680
    )Other (income) expense, net
    
    
    (13
    )
    
    
    (5,242
    )
    
    
    (1
    )
    
    
    44
    
    
    
    (5,212
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    
    
    
    
    (610
    )
    
    
    634
    
    
    
    (186
    )
    
    
    (162
    )Equity in subsidiaries
    
    
    2,640
    
    
    
    
    
    
    
    
    
    
    
    (2,640
    )
    
    
    Write down of investment in unconsolidated affiliate
    
    
    
    
    
    
    483
    
    
    
    1,000
    
    
    
    
    
    
    
    1,483Income (loss) from continuing operations before income
taxes
    
    
    (8,507
    )
    
    
    (3,381
    )
    
    
    436
    
    
    
    2,782
    
    
    
    (8,670
    )Provision (benefit) for income taxes
    
    
    561
    
    
    
    (573
    )
    
    
    626
    
    
    
    
    
    
    
    614Income (loss) from continuing operations
    
    
    (9,068
    )
    
    
    (2,808
    )
    
    
    (190
    )
    
    
    2,782
    
    
    
    (9,284
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    216
    
    
    
    
    
    
    
    216Net income (loss)
    
    $
    (9,068
    )
    
    $
    (2,808
    )
    
    $
    26
    
    
    $
    2,782
    
    
    $
    (9,068
    )
 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
    
    $
    
    
    
    $
    149,387
    
    
    $
    34,402
    
    
    $
    (420
    )
    
    $
    183,369Cost of sales
    
    
    
    
    
    
    144,756
    
    
    
    30,506
    
    
    
    (213
    )
    
    
    175,049Selling, general and administrative expenses
    
    
    
    
    
    
    10,076
    
    
    
    2,000
    
    
    
    (68
    )
    
    
    12,008Provision (recovery) for bad debts
    
    
    
    
    
    
    (367
    )
    
    
    178
    
    
    
    
    
    
    
    (189
    )Interest expense
    
    
    6,316
    
    
    
    161
    
    
    
    101
    
    
    
    
    
    
    
    6,578Interest income
    
    
    (184
    )
    
    
    (136
    )
    
    
    (426
    )
    
    
    
    
    
    
    (746
    )Other (income) expense, net
    
    
    (6,239
    )
    
    
    3,602
    
    
    
    201
    
    
    
    244
    
    
    
    (2,192
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    
    
    
    
    (1,342
    )
    
    
    1,331
    
    
    
    32
    
    
    
    21Equity in subsidiaries
    
    
    (5,159
    )
    
    
    
    
    
    
    
    
    
    
    5,159
    
    
    
    Write down of long-lived assets
    
    
    
    
    
    
    2,247
    
    
    
    
    
    
    
    
    
    
    
    2,247Restructuring charges
    
    
    
    
    
    
    4,205
    
    
    
    
    
    
    
    
    
    
    
    4,205Income (loss) from continuing operations before income
taxes
    
    
    5,266
    
    
    
    (13,815
    )
    
    
    511
    
    
    
    (5,574
    )
    
    
    (13,612
    )Provision (benefit) for income taxes
    
    
    13,012
    
    
    
    (19,372
    )
    
    
    603
    
    
    
    
    
    
    
    (5,757
    )Income (loss) from continuing operations
    
    
    (7,746
    )
    
    
    5,557
    
    
    
    (92
    )
    
    
    (5,574
    )
    
    
    (7,855
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    109Net income (loss)
    
    $
    (7,746
    )
    
    $
    5,557
    
    
    $
    17
    
    
    $
    (5,574
    )
    
    $
    (7,746
    )
 21




---



##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedSummary of Operations:Net sales
    
    $
    
    
    
    $
    233,015
    
    
    $
    62,253
    
    
    $
    (532
    )
    
    $
    294,736Cost of sales
    
    
    
    
    
    
    226,235
    
    
    
    53,185
    
    
    
    (421
    )
    
    
    278,999Selling, general and administrative expenses
    
    
    190
    
    
    
    16,239
    
    
    
    3,573
    
    
    
    (153
    )
    
    
    19,849Provision (recovery) for bad debts
    
    
    
    
    
    
    1,074
    
    
    
    (15
    )
    
    
    
    
    
    
    1,059Interest expense
    
    
    11,646
    
    
    
    62
    
    
    
    5
    
    
    
    
    
    
    
    11,713Interest income
    
    
    (46
    )
    
    
    (48
    )
    
    
    (1,499
    )
    
    
    
    
    
    
    (1,593
    )Other (income) expense, net
    
    
    (15
    )
    
    
    (5,222
    )
    
    
    (361
    )
    
    
    (175
    )
    
    
    (5,773
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    
    
    
    
    (4,060
    )
    
    
    1,205
    
    
    
    (789
    )
    
    
    (3,644
    )Equity in subsidiaries
    
    
    (1,251
    )
    
    
    
    
    
    
    
    
    
    
    1,251
    
    
    
    Write down of investment in unconsolidated affiliate
    
    
    
    
    
    
    483
    
    
    
    1,000
    
    
    
    
    
    
    
    1,483Income (loss) from continuing operations before income
taxes
    
    
    (10,524
    )
    
    
    (1,748
    )
    
    
    5,160
    
    
    
    (245
    )
    
    
    (7,357
    )Provision (benefit) for income taxes
    
    
    (780
    )
    
    
    802
    
    
    
    2,477
    
    
    
    
    
    
    
    2,499Income (loss) from continuing operations
    
    
    (9,744
    )
    
    
    (2,550
    )
    
    
    2,683
    
    
    
    (245
    )
    
    
    (9,856
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    112Net income (loss)
    
    $
    (9,744
    )
    
    $
    (2,550
    )
    
    $
    2,795
    
    
    $
    (245
    )
    
    $
    (9,744
    )
 22




---



##### Table of Contents



UNIFI, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
  Guarantor
    
    
    Non-GuarantorParent
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedSummary of Operations:Net sales
    
    $
    
    
    
    $
    290,230
    
    
    $
    64,576
    
    
    $
    (901
    )
    
    $
    353,905Cost of sales
    
    
    
    
    
    
    277,871
    
    
    
    57,419
    
    
    
    (698
    )
    
    
    334,592Selling, general and administrative expenses
    
    
    
    
    
    
    22,876
    
    
    
    3,747
    
    
    
    (161
    )
    
    
    26,462Provision for bad debts
    
    
    
    
    
    
    47
    
    
    
    18
    
    
    
    
    
    
    
    65Interest expense
    
    
    12,878
    
    
    
    315
    
    
    
    97
    
    
    
    
    
    
    
    13,290Interest income
    
    
    (336
    )
    
    
    (136
    )
    
    
    (1,108
    )
    
    
    
    
    
    
    (1,580
    )Other (income) expense, net
    
    
    (12,753
    )
    
    
    8,903
    
    
    
    416
    
    
    
    244
    
    
    
    (3,190
    )Equity in (earnings) losses of unconsolidated affiliates
    
    
    
    
    
    
    (2,251
    )
    
    
    2,466
    
    
    
    (372
    )
    
    
    (157
    )Equity in subsidiaries
    
    
    4,049
    
    
    
    
    
    
    
    
    
    
    
    (4,049
    )
    
    
    Write down of long-lived assets
    
    
    
    
    
    
    2,247
    
    
    
    533
    
    
    
    
    
    
    
    2,780Write down of investment in unconsolidated affiliate
    
    
    
    
    
    
    4,505
    
    
    
    
    
    
    
    
    
    
    
    4,505Restructuring charges
    
    
    
    
    
    
    6,837
    
    
    
    
    
    
    
    
    
    
    
    6,837Income (loss) from continuing operations before income
taxes
    
    
    (3,838
    )
    
    
    (30,984
    )
    
    
    988
    
    
    
    4,135
    
    
    
    (29,699
    )Provision (benefit) for income taxes
    
    
    13,096
    
    
    
    (26,905
    )
    
    
    1,121
    
    
    
    
    
    
    
    (12,688
    )Income (loss) from continuing operations
    
    
    (16,934
    )
    
    
    (4,079
    )
    
    
    (133
    )
    
    
    4,135
    
    
    
    (17,011
    )Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    77Net income (loss)
    
    $
    (16,934
    )
    
    $
    (4,079
    )
    
    $
    (56
    )
    
    $
    4,135
    
    
    $
    (16,934
    )
 23




---



##### 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
activities
    
    $
    4,642
    
    
    $
    (11,129
    )
    
    $
    (1,316
    )
    
    $
    (149
    )
    
    $
    (7,952
    )Investing activities:Capital expenditures
    
    
    (68
    )
    
    
    (6,742
    )
    
    
    (1,769
    )
    
    
    750
    
    
    
    (7,829
    )Acquisition
    
    
    
    
    
    
    (500
    )
    
    
    
    
    
    
    
    
    
    
    (500
    )Change in restricted cash
    
    
    
    
    
    
    7,140
    
    
    
    2,978
    
    
    
    
    
    
    
    10,118Proceeds from sale of capital assets
    
    
    
    
    
    
    7,658
    
    
    
    42
    
    
    
    (750
    )
    
    
    6,950Reclassification of investment to foreign guarantor
    
    
    (4,781
    )
    
    
    
    
    
    
    4,781
    
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (4,849
    )
    
    
    7,556
    
    
    
    6,032
    
    
    
    
    
    
    
    8,739Financing activities:Borrowings of long term debt
    
    
    14,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,600Payments of long term debt
    
    
    (17,600
    )
    
    
    
    
    
    
    (2,978
    )
    
    
    
    
    
    
    (20,578
    )Proceeds from stock exercises
    
    
    3,830
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,830Other
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    37Net cash provided by (used in) financing activities
    
    
    830
    
    
    
    37
    
    
    
    (2,978
    )
    
    
    
    
    
    
    (2,111
    )Cash flows of discontinued operations:Operating cash flow
    
    
    
    
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    (162
    )Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    (162
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (6,292
    )
    
    
    149
    
    
    
    (6,143
    )Net increase (decrease) in cash and cash equivalents
    
    
    623
    
    
    
    (3,536
    )
    
    
    (4,716
    )
    
    
    
    
    
    
    (7,629
    )Cash and cash equivalents at beginning of period
    
    
    689
    
    
    
    3,377
    
    
    
    16,182
    
    
    
    
    
    
    
    20,248Cash and cash equivalents at end of period
    
    $
    1,312
    
    
    $
    (159
    )
    
    $
    11,466
    
    
    $
    
    
    
    $
    12,619
 24




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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
    
    $
    (1,743
    )
    
    $
    (4,820
    )
    
    $
    1,412
    
    
    $
    (435
    )
    
    $
    (5,586
    )Investing activities:Capital expenditures
    
    
    
    
    
    
    (2,464
    )
    
    
    (2,203
    )
    
    
    840
    
    
    
    (3,827
    )Return of capital in equity affiliates
    
    
    
    
    
    
    234
    
    
    
    
    
    
    
    
    
    
    
    234Change in restricted cash
    
    
    
    
    
    
    (14,810
    )
    
    
    
    
    
    
    
    
    
    
    (14,810
    )Proceeds from sale of equity affiliate
    
    
    
    
    
    
    8,750
    
    
    
    
    
    
    
    
    
    
    
    8,750Proceeds from sale of capital assets
    
    
    
    
    
    
    11,288
    
    
    
    112
    
    
    
    (840
    )
    
    
    10,560Other
    
    
    7
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    267Net cash provided by (used in) investing activities
    
    
    7
    
    
    
    3,258
    
    
    
    (2,091
    )
    
    
    
    
    
    
    1,174Financing activities:Payments of long term debt
    
    
    (11,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,000
    )Dividend payment
    
    
    9,494
    
    
    
    
    
    
    
    (9,494
    )
    
    
    
    
    
    
    Other
    
    
    (3
    )
    
    
    34
    
    
    
    (739
    )
    
    
    
    
    
    
    (708
    )Net cash provided by (used in) financing activities
    
    
    (1,509
    )
    
    
    34
    
    
    
    (10,233
    )
    
    
    
    
    
    
    (11,708
    )Cash flows of discontinued operations:Operating cash flow
    
    
    
    
    
    
    
    
    
    
    (201
    )
    
    
    
    
    
    
    (201
    )Net cash used in discontinued operations
    
    
    
    
    
    
    
    
    
    
    (201
    )
    
    
    
    
    
    
    (201
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    
    
    
    
    
    
    
    
    1,630
    
    
    
    435
    
    
    
    2,065Net increase (decrease) in cash and cash equivalents
    
    
    (3,245
    )
    
    
    (1,528
    )
    
    
    (9,483
    )
    
    
    
    
    
    
    (14,256
    )Cash and cash equivalents at beginning of period
    
    
    17,808
    
    
    
    1,645
    
    
    
    20,578
    
    
    
    
    
    
    
    40,031Cash and cash equivalents at end of period
    
    $
    14,563
    
    
    $
    117
    
    
    $
    11,095
    
    
    $
    
    
    
    $
    25,775
 25




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Business Overview
  Polyester Segment.
 Nylon Segment.
 Recent Developments and Outlook
  26




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27




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##### Table of Contents



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.
 Corporate Restructuring
 Severance
     Restructuring
   28




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##### Table of Contents



Balance at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance atJune 29, 2008
    
    Charges
    
    Adjustments
    
    Amounts Used
    
    December 28, 2008Accrued severance
    
    $
    3,668
    
    
    
    146
    
    
    
    5
    
    
    
    (1,280
    )
    
    $
    2,539
    (1)Accrued restructuring
    
    $
    1,414
    
    
    
    
    
    
    
    245
    
    
    
    (1,040
    )
    
    $
    619
 
 (1)
    
    As of December 28, 2008, the Company classified $1.0 million of accrued executive severance as
long term. Joint Ventures and Other Equity Investments
  For the Quarter Ended December 28, 2008YUFI
    
    PAL
    
    UNF
    
    TotalNet sales
    
    $
    30,950
    
    
    $
    97,194
    
    
    $
    6,543
    
    
    $
    134,687Gross profit (loss)
    
    
    (1,528
    )
    
    
    5,825
    
    
    
    (877
    )
    
    
    3,420Depreciation and amortization
    
    
    1,325
    
    
    
    5,447
    
    
    
    474
    
    
    
    7,246Income (loss) from operations
    
    
    (2,783
    )
    
    
    2,546
    
    
    
    (1,374
    )
    
    
    (1,611
    )Net income (loss)
    
    
    (2,949
    )
    
    
    1,794
    
    
    
    (1,268
    )
    
    
    (2,423
    )For the Six-Months Ended December 28, 2008YUFI
    
    PAL
    
    UNF
    
    TotalNet sales
    
    $
    70,830
    
    
    $
    219,278
    
    
    $
    12,435
    
    
    $
    302,543Gross profit (loss)
    
    
    (3,575
    )
    
    
    12,072
    
    
    
    (1,667
    )
    
    
    6,830Depreciation and amortization
    
    
    2,720
    
    
    
    9,904
    
    
    
    948
    
    
    
    13,572Income (loss) from operations
    
    
    (6,939
    )
    
    
    6,024
    
    
    
    (2,625
    )
    
    
    (3,540
    )Net income (loss)
    
    
    (7,566
    )
    
    
    11,940
    
    
    
    (2,411
    )
    
    
    1,963For the Quarter Ended December 23, 2007YUFI
    
    PAL
    
    UNF
    
    TotalNet sales
    
    $
    36,051
    
    
    $
    104,944
    
    
    $
    4,467
    
    
    $
    145,462Gross profit (loss)
    
    
    (227
    )
    
    
    5,827
    
    
    
    (163
    )
    
    
    5,437Depreciation and amortization
    
    
    1,294
    
    
    
    4,760
    
    
    
    316
    
    
    
    6,370Income (loss) from operations
    
    
    (1,856
    )
    
    
    2,532
    
    
    
    (277
    )
    
    
    399Net income (loss)
    
    
    (2,431
    )
    
    
    3,213
    
    
    
    (231
    )
    
    
    551
 For the Six-Months Ended December 23, 2007USTF (1)
    
    YUFI
    
    PAL
    
    UNF
    
    TotalNet sales
    
    $
    6,455
    
    
    $
    73,120
    
    
    $
    215,539
    
    
    $
    11,830
    
    
    $
    306,944Gross profit (loss)
    
    
    571
    
    
    
    (534
    )
    
    
    10,449
    
    
    
    155
    
    
    
    10,641Depreciation and amortization
    
    
    578
    
    
    
    2,618
    
    
    
    9,670
    
    
    
    790
    
    
    
    13,656Income (loss) from operations
    
    
    188
    
    
    
    (3,628
    )
    
    
    3,590
    
    
    
    (142
    )
    
    
    8Net income (loss)
    
    
    148
    
    
    
    (4,845
    )
    
    
    4,566
    
    
    
    (88
    )
    
    
    (219
    )
 
 (1)
    
    Sold in the second quarter of fiscal year 2008 29




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30




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31




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Review of Second Quarter Fiscal Year 2009 compared to Second Quarter Fiscal Year 2008
  For the Quarters EndedDecember 28, 2008
    
    
    December 23, 2007% to Total
    
    
    
    
    
    
    % to Total
    
    
    % ChangeNet salesPolyester
    
    $
    93,984
    
    
    
    74.8
    
    
    $
    135,119
    
    
    
    73.7
    
    
    
    (30.4
    )Nylon
    
    
    31,743
    
    
    
    25.2
    
    
    
    48,250
    
    
    
    26.3
    
    
    
    (34.2
    )Total
    
    $
    125,727
    
    
    
    100.0
    
    
    $
    183,369
    
    
    
    100.0
    
    
    
    (31.4
    )
 % to Sales
    
    
    
    
    
    
    % to SalesGross profitPolyester
    
    $
    559
    
    
    
    0.4
    
    
    $
    5,850
    
    
    
    3.2
    
    
    
    (90.4
    )Nylon
    
    
    1,753
    
    
    
    1.4
    
    
    
    2,470
    
    
    
    1.3
    
    
    
    (29.0
    )Total
    
    
    2,312
    
    
    
    1.8
    
    
    
    8,320
    
    
    
    4.5
    
    
    
    (72.2
    )Selling, general and
administrative expensesPolyester
    
    
    7,294
    
    
    
    5.8
    
    
    
    10,243
    
    
    
    5.6
    
    
    
    (28.8
    )Nylon
    
    
    2,010
    
    
    
    1.6
    
    
    
    1,765
    
    
    
    0.9
    
    
    
    13.9Total
    
    
    9,304
    
    
    
    7.4
    
    
    
    12,008
    
    
    
    6.5
    
    
    
    (22.5
    )Write down of long-lived assets and
investment in unconsolidated
affiliatePolyester
    
    
    
    
    
    
    
    
    
    
    2,247
    
    
    
    1.2
    
    
    
    Nylon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    1,483
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,483
    
    
    
    1.1
    
    
    
    2,247
    
    
    
    1.2
    
    
    
    (34.0
    )Restructuring chargesPolyester
    
    
    
    
    
    
    
    
    
    
    4,205
    
    
    
    2.3
    
    
    
    Nylon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    4,205
    
    
    
    2.3
    
    
    
    Other (income) expense, net
    
    
    195
    
    
    
    0.2
    
    
    
    3,472
    
    
    
    1.9
    
    
    
    (94.4
    )Loss from continuing operations
before income taxes
    
    
    (8,670
    )
    
    
    (6.9
    )
    
    
    (13,612
    )
    
    
    (7.4
    )
    
    
    (36.3
    )Provision (benefit) for income taxes
    
    
    614
    
    
    
    0.5
    
    
    
    (5,757
    )
    
    
    (3.1
    )
    
    
    (110.7
    )Loss from continuing
operations
    
    
    (9,284
    )
    
    
    (7.4
    )
    
    
    (7,855
    )
    
    
    (4.3
    )
    
    
    18.2Income from discontinued
operations, net of tax
    
    
    216
    
    
    
    (0.2
    )
    
    
    109
    
    
    
    0.1
    
    
    
    98.2Net loss
    
    $
    (9,068
    )
    
    
    (7.2
    )
    
    $
    (7,746
    )
    
    
    (4.2
    )
    
    
    17.1
 32




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33




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##### Table of Contents



For the Quarters EndedDecember 28,
    
    
    December 23,2008
    
    
    2007Gain on sale of fixed assets
    
    $
    (5,594
    )
    
    $
    (1,271
    )Gain from sale of nitrogen credits
    
    
    
    
    
    
    (807
    )Technology fee from China joint venture
    
    
    
    
    
    
    (250
    )Currency (gains) losses
    
    
    380
    
    
    
    131Other, net
    
    
    2
    
    
    
    5Other (income) expense, net
    
    $
    (5,212
    )
    
    $
    (2,192
    )
     Polyester Operations
  34




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Nylon Operations
    Corporate
   35




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##### Table of Contents



36




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##### Table of Contents



Review of Year-To-Date Fiscal Year 2009 compared to Year-To-Date Fiscal Year 2008
  For the Six-Months EndedDecember 28, 2008
    
    
    December 23, 2007% to Total
    
    
    
    
    
    
    % to Total
    
    
    % ChangeNet salesPolyester
    
    $
    216,963
    
    
    
    73.6
    
    
    $
    264,498
    
    
    
    74.7
    
    
    
    (18.0
    )Nylon
    
    
    77,773
    
    
    
    26.4
    
    
    
    89,407
    
    
    
    25.3
    
    
    
    (13.0
    )Total
    
    $
    294,736
    
    
    
    100.0
    
    
    $
    353,905
    
    
    
    100.0
    
    
    
    (16.7
    )% to Sales
    
    
    
    
    
    
    % to SalesGross profitPolyester
    
    $
    8,729
    
    
    
    2.9
    
    
    $
    13,738
    
    
    
    3.9
    
    
    
    (36.5
    )Nylon
    
    
    7,008
    
    
    
    2.4
    
    
    
    5,575
    
    
    
    1.5
    
    
    
    25.7Total
    
    
    15,737
    
    
    
    5.3
    
    
    
    19,313
    
    
    
    5.4
    
    
    
    (18.5
    )Selling, general and
administrative expensesPolyester
    
    
    15,654
    
    
    
    5.3
    
    
    
    22,576
    
    
    
    6.4
    
    
    
    (30.7
    )Nylon
    
    
    4,195
    
    
    
    1.4
    
    
    
    3,886
    
    
    
    1.1
    
    
    
    8.0Total
    
    
    19,849
    
    
    
    6.7
    
    
    
    26,462
    
    
    
    7.5
    
    
    
    (25.0
    )Write down of long-lived assets and
investment in unconsolidated
affiliatePolyester
    
    
    
    
    
    
    
    
    
    
    2,780
    
    
    
    0.8
    
    
    
    Nylon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    1,483
    
    
    
    0.5
    
    
    
    4,505
    
    
    
    1.3
    
    
    
    (67.1
    )Total
    
    
    1,483
    
    
    
    0.5
    
    
    
    7,285
    
    
    
    2.1
    
    
    
    (79.6
    )Restructuring chargesPolyester
    
    
    
    
    
    
    
    
    
    
    6,619
    
    
    
    1.8
    
    
    
    Nylon
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    6,837
    
    
    
    1.8
    
    
    
    Other (income) expense, net
    
    
    1,762
    
    
    
    0.6
    
    
    
    8,428
    
    
    
    2.4
    
    
    
    (79.1
    )Loss from continuing operations
before income taxes
    
    
    (7,357
    )
    
    
    (2.5
    )
    
    
    (29,699
    )
    
    
    (8.4
    )
    
    
    (75.2
    )Provision (benefit) for income taxes
    
    
    2,499
    
    
    
    0.8
    
    
    
    (12,688
    )
    
    
    (3.6
    )
    
    
    (119.7
    )Loss from continuing
operations
    
    
    (9,856
    )
    
    
    (3.3
    )
    
    
    (17,011
    )
    
    
    (4.8
    )
    
    
    (42.1
    )Income from discontinued
operations, net of tax
    
    
    112
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    45.5Net loss
    
    $
    (9,744
    )
    
    
    (3.3
    )
    
    $
    (16,934
    )
    
    
    (4.8
    )
    
    
    (42.5
    )
 37




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38




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##### Table of Contents



For the Six-Months EndedDecember 28,
    
    
    December 23,2008
    
    
    2007Gain on sale of fixed assets
    
    $
    (5,910
    )
    
    $
    (1,413
    )Gain from sale of nitrogen credits
    
    
    
    
    
    
    (1,614
    )Technology fee from China joint venture
    
    
    
    
    
    
    (688
    )Currency (gains) losses
    
    
    77
    
    
    
    458Other, net
    
    
    60
    
    
    
    67Other (income) expense, net
    
    $
    (5,773
    )
    
    $
    (3,190
    )
    39




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##### Table of Contents



Polyester Operations
     Nylon Operations
    40




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##### Table of Contents



Corporate
   Liquidity and Capital Resources
 Liquidity Assessment
   Capital Expenditures
 Joint Venture Investments
 41




---



##### Table of Contents



Cash Provided by Continuing Operations
    42




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##### Table of Contents



Cash Provided By (Used in) Investing Activities and Financing Activities
   Other Factors Affecting Liquidity
 Asset Sales.
   43




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##### Table of Contents



1.
    
    The Company must receive fair market value for the Collateral sold or disposed of;2.
    
    Fair market value must be certified by the Companys Chief Executive Officer or Chief
Financial Officer and for sales of Collateral in excess of $5.0 million, by the Companys
Board of Directors;3.
    
    At least 75% of the consideration for the sale of the Collateral must be in the form of
cash or cash equivalents and 100% of the proceeds must be deposited by the Company into a
specified account designated under the Indenture (the Collateral Account); and4.
    
    Any remaining consideration from an asset sale that is not cash or cash equivalents
must be pledged as Collateral.
    1.
    
    The Company must receive fair market value for the Non-Collateral sold or disposed of;2.
    
    Fair market value must be certified by the Companys Chief Executive Officer or Chief
Financial Officer and for asset sales in excess of $5.0 million, by the Companys Board of
Directors; and,3.
    
    At least 75% of the consideration for the sale of Non-Collateral must be in the form of
cash or cash equivalents.
  pari
passu
 pari passu pari passu
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##### Table of Contents



Other Potential Resources
  Stock Repurchase Program.
 Environmental Liabilities.
 Market Conditions.
 45




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##### Table of Contents



Long-Term Debt
      46




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Recent Accounting Pronouncements
  47




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##### Table of Contents



Off Balance Sheet Arrangements
  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;
    
    its ability to sell excess assets;
    
    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;
    
    the loss of a material customer;
    
    employee relations;
    
    volatility of financial and credit markets;
    
    the continuity of the Companys leadership;
    
    availability of and access to credit on reasonable terms; and
    
    the success of the Companys consolidation initiatives.
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Interest Rate Risk:
 Currency Exchange Rate Risk:
  49




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##### Table of Contents



December 28,
    
    
    June 29,2008
    
    
    2008Foreign currency purchase contracts:Notional amount
    
    $
    638
    
    
    $
    492Fair value
    
    
    664
    
    
    
    499Net (gain) loss
    
    $
    (26
    )
    
    $
    (7
    )Foreign currency sales contracts:Notional amount
    
    $
    656
    
    
    $
    620Fair value
    
    
    638
    
    
    
    642Net gain (loss)
    
    $
    18
    
    
    $
    (22
    )
  Inflation and Other Risks:
 
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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
    
    Programs09/29/08 - 10/26/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,807,24110/27/08 - 11/26/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,807,24111/27/08 - 12/28/08
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,807,241Total
    
    
    
    
    
    
    
    
    
    
    
  
   51




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##### Table of Contents



Votes
    
    VotesName of Director
    
    in Favor
    
    WithheldWilliam J. Armfield, IV
    
    
    54,878,393
    
    
    
    2,263,940R. Roger Berrier, Jr.
    
    
    55,913,399
    
    
    
    1,228,934Archibald Cox, Jr.
    
    
    55,687,540
    
    
    
    1,454,793William L. Jasper
    
    
    55,913,099
    
    
    
    1,229,234Kenneth G. Langone
    
    
    55,566,605
    
    
    
    1,575,728Chiu Cheng Anthony Loo
    
    
    55,281,923
    
    
    
    1,860,410George R. Perkins, Jr.
    
    
    55,478,393
    
    
    
    1,663,940William M. Sams
    
    
    55,478,393
    
    
    
    1,663,940G. Alfred Webster
    
    
    55,532,778
    
    
    
    1,609,555Stephen Wener
    
    
    55,913,539
    
    
    
    1,228,794
  For
    
    Against
    
    Abstained
    
    Broker Non-votes2008 Unifi, Inc.
Long-Term Incentive
Plan
    
    
    38,063,841
    
    
    
    2,475,415
    
    
    
    2,417,738
    
    
    
    14,185,339
 
   
  10.1
    
    First Amendment to Manufacturing Agreement dated January 1, 2007 between Unifi Manufacturing,
Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 99.2 to the Companys
Registration Statement on Form 8-K (Reg. No. 333-140580) filed on December 3, 2008).10.2
    
    2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 to the
Companys Registration Statement on Form S-8 (Reg. No. 333-140590) filed on December 12,
2008).10.3
    
    Form of Option Agreement for Incentive Stock Options granted under the 2008 Unifi, Inc.
Long-Term Incentive Plan.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:  February 6, 2009
    /s/    RONALD L. SMITHRonald L. SmithVice President and Chief Financial Officer 53