On September 30, 2004, the Company completed its acquisition of the polyester filament manufacturing assets located atin Kinston, North Carolina 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 U.S. Environmental Protection Agency (“EPA”) and the North Carolina Department of Environment and Natural Resources (“DENR”) pursuant to the Resource Conservation and Recovery Act Corrective Action program. The Corrective Action program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containmentcontamination at the identified AOCs and clean it up to comply with applicable regulatory standards. Effective March 20, 2008, the Company entered into a Lease Termination Agreement associated with conveyance of certain assets at Kinston to DuPont. This agreement terminated the Ground Lease and relieved the Company of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to the Company’s period of operation of the Kinston site. However, the Company continues to own a satellite service facility acquired in the INVISTA transaction that has contamination from DuPont’s operations and is monitored by DENR. This site has been remediated by DuPont and DuPont has received authority from DENR to discontinue remediation, other than natural attenuation. DuPont’s duty to monitor and report to DENR will be transferred to the Company in the future, at which time DuPont must pay the Company for seven years of monitoring and reporting costs and the Company will assume responsibility for any future remediation and monitoring of the site. At this time, the Company has no basis to determine if and when it will have any responsibility or obligation with respect to the AOCs or the extent of any potential liability for the same.
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements –- (Continued)
(amounts in thousands, except per share amounts)
The FASB has issued ASU 2010-29, “Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information$57 and $158 difference between total capital expenditures for Business Combinations”. This ASU reflectslong-lived assets and the decision reached in EITF Issue No. 10-G. The amendments in this ASU affect any public entity, as defined by Topic 805 Business Combinations, that enters into business combinations that are material on an individual or aggregate basis. The amendments in this ASU specify that if a public entity presents comparative financial statements,segment total for the entity should disclose revenuethree months ended September 25, 2011 and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosuresSeptember 26, 2010, respectively, relates to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company does not expect this ASU will have a material effect on its financial position or results of operations.various, unallocated corporate projects.
In July 2010, the FASB issued Accounting Standards Update No. 2010-20 “Receivables (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”Reconciliations from segment data to amend the disclosure requirements related to financing receivables. The guidance requires additional disclosures about the nature of an entity’s credit riskconsolidated reporting data are as it relates to its receivables, how that risk is analyzed for purposes of providing a credit loss provision, and the reasons for changes in the loss provision. These disclosures are intended to provide financial statement users with more transparency related to an entity’s credit risk practices and the related allowances for credit losses. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Accordingly, the Company adopted the guidance for period-end disclosures effective as of the end of its second quarter of fiscal year 2011 with the guidance for period activity disclosures to be implemented during its third quarter of fiscal year 2011. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Segment operating profit | | $ | 1,459 | | | $ | 9,673 | |
(Benefit) provision for bad debts | | | 205 | | | | (41 | ) |
Other operating (income) expense, net | | | (41 | ) | | | 243 | |
Operating income | | | 1,295 | | | | 9,471 | |
Interest income | | | (647 | ) | | | (743 | ) |
Interest expense | | | 4,380 | | | | 5,269 | |
Loss on extinguishment of debt | | | 462 | | | | 1,144 | |
Equity in earnings of unconsolidated affiliates | | | (3,459 | ) | | | (8,951 | ) |
Income before income taxes | | $ | 559 | | | $ | 12,752 | |
19. | | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Segment depreciation and amortization | | $ | 6,555 | | | | 6,486 | |
Depreciation included in other operating (income) expense | | | 6 | | | | 3 | |
Amortization included in interest expense | | | 221 | | | | 254 | |
Consolidated depreciation and amortization | | $ | 6,782 | | | $ | 6,743 | |
| | September 25, 2011 | | | September 26, 2010 | |
Segment assets | | $ | 405,799 | | | $ | 412,281 | |
Other current corporate assets | | | 4,080 | | | | 2,429 | |
Unallocated corporate PP&E | | | 9,854 | | | | 10,248 | |
Other non-current assets | | | 3,272 | | | | 3,870 | |
Investments in unconsolidated affiliates | | | 92,340 | | | | 80,494 | |
Consolidated assets | | $ | 515,345 | | | $ | 509,322 | |
27. Subsequent Events
The Company evaluated all events and material transactions for potential recognition or disclosure through such time as these statements were filed with the Securities and Exchange Commission (“SEC”) and determined there were no other items deemed reportable.
20. Condensed Consolidated Guarantor28. Supplemental Cash Flow Information
Cash payments for interest and Non-Guarantor Financial Statements
The guarantor subsidiaries presented below represent the Company’s subsidiaries that are subject to the terms and conditions outlined in the indenture governing the Company’s issuance of the 2014 notes and the guarantees, jointly and severally, on a senior secured basis. The non-guarantor subsidiaries presented below represent the foreign subsidiaries which do not guarantee the notes. Each subsidiary guarantor is 100% owned, directly or indirectly, by Unifi, Inc. and all guarantees are full and unconditional.
Supplemental financial information for the Company and its guarantor subsidiaries and non-guarantor subsidiaries of the 2014 notes is presented below.taxes were as follows:
Notes to Condensed Consolidated Financial Statements – (Continued)
Balance Sheet Information as of March 27, 2011 (amounts in thousands):
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | |
ASSETS | |
Current assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 126 | | | $ | 160 | | | $ | 18,856 | | | $ | — | | | $ | 19,142 | |
Receivables, net | | | — | | | | 72,180 | | | | 32,485 | | | | — | | | | 104,665 | |
Intercompany accounts receivable | | | 522,254 | | | | (514,038 | ) | | | 831 | | | | (9,047 | ) | | | — | |
Inventories | | | — | | | | 86,725 | | | | 49,889 | | | | 101 | | | | 136,715 | |
Income taxes receivable | | | 353 | | | | — | | | | 30 | | | | — | | | | 383 | |
Deferred income taxes | | | — | | | | — | | | | 2,126 | | | | — | | | | 2,126 | |
Other current assets | | | 126 | | | | 883 | | | | 5,207 | | | | — | | | | 6,216 | |
Total current assets | | | 522,859 | | | | (354,090 | ) | | | 109,424 | | | | (8,946 | ) | | | 269,247 | |
| | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment | | | 11,348 | | | | 627,304 | | | | 110,928 | | | | — | | | | 749,580 | |
Less accumulated depreciation | | | (2,400 | ) | | | (510,061 | ) | | | (84,274 | ) | | | — | | | | (596,735 | ) |
| | | 8,948 | | | | 117,243 | | | | 26,654 | | | | — | | | | 152,845 | |
| | | | | | | | | | | | | | | | | | | | |
Intangible assets, net | | | — | | | | 12,235 | | | | — | | | | — | | | | 12,235 | |
Investments in unconsolidated affiliates | | | — | | | | 81,263 | | | | 8,591 | | | | — | | | | 89,854 | |
Investments in consolidated subsidiaries | | | 422,838 | | | | — | | | | — | | | | (422,838 | ) | | | — | |
Other non-current assets | | | 3,298 | | | | 3,048 | | | | 19,094 | | | | (16,389 | ) | | | 9,051 | |
| | $ | 957,943 | | | $ | (140,301 | ) | | $ | 163,763 | | | $ | (448,173 | ) | | $ | 533,232 | |
| | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 142 | | | $ | 39,676 | | | $ | 8,534 | | | $ | — | | | $ | 48,352 | |
Intercompany accounts payable | | | 490,986 | | | | (490,382 | ) | | | 8,443 | | | | (9,047 | ) | | | — | |
Accrued expenses | | | 6,060 | | | | 9,102 | | | | 3,311 | | | | — | | | | 18,473 | |
Income taxes payable | | | (1,537 | ) | | | — | | | | 2,246 | | | | — | | | | 709 | |
Current maturities of long-term debt and other liabilities | | | — | | | | 459 | | | | — | | | | — | | | | 459 | |
Total current liabilities | | | 495,651 | | | | (441,145 | ) | | | 22,534 | | | | (9,047 | ) | | | 67,993 | |
| | | | | | | | | | | | | | | | | | | | |
Notes payable | | | 133,722 | | | | — | | | | — | | | | — | | | | 133,722 | |
Long-term debt and other liabilities | | | 38,056 | | | | 2,563 | | | | — | | | | — | | | | 40,619 | |
Deferred income taxes | | | — | | | | — | | | | 384 | | | | — | | | | 384 | |
Shareholders’/ invested equity | | | 290,514 | | | | 298,281 | | | | 140,845 | | | | (439,126 | ) | | | 290,514 | |
| | $ | 957,943 | | | $ | (140,301 | ) | | $ | 163,763 | | | $ | (448,173 | ) | | $ | 533,232 | |
Notes to Condensed Consolidated Financial Statements – (Continued)
Balance Sheet Information as of June 27, 2010 (amounts in thousands):
| Parent | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated | |
ASSETS | |
Current assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 9,938 | | | $ | 1,832 | | | $ | 30,921 | | | $ | — | | | $ | 42,691 | |
Receivables, net | | | — | | | | 67,979 | | | | 23,264 | | | | — | | | | 91,243 | |
Intercompany accounts receivable | | | 221,670 | | | | (209,991 | ) | | | 720 | | | | (12,399 | ) | | | — | |
Inventories | | | — | | | | 69,930 | | | | 41,077 | | | | — | | | | 111,007 | |
Deferred income taxes | | | — | | | | — | | | | 1,623 | | | | — | | | | 1,623 | |
Other current assets | | | 79 | | | | 1,052 | | | | 4,988 | | | | — | | | | 6,119 | |
Total current assets | | | 231,687 | | | | (69,198 | ) | | | 102,593 | | | | (12,399 | ) | | | 252,683 | |
| | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment | | | 11,348 | | | | 643,930 | | | | 92,579 | | | | — | | | | 747,857 | |
Less accumulated depreciation | | | (2,185 | ) | | | (523,771 | ) | | | (70,402 | ) | | | — | | | | (596,358 | ) |
| | | 9,163 | | | | 120,159 | | | | 22,177 | | | | — | | | | 151,499 | |
| | | | | | | | | | | | | | | | | | | | |
Intangible assets, net | | | — | | | | 14,135 | | | | — | | | | — | | | | 14,135 | |
Investments in unconsolidated affiliates | | | — | | | | 65,446 | | | | 8,097 | | | | — | | | | 73,543 | |
Investments in consolidated subsidiaries | | | 407,605 | | | | — | | | | — | | | | (407,605 | ) | | | — | |
Other non-current assets | | | 7,200 | | | | 2,999 | | | | 7,446 | | | | (5,040 | ) | | | 12,605 | |
| | $ | 655,655 | | | $ | 133,541 | | | $ | 140,313 | | | $ | (425,044 | ) | | $ | 504,465 | |
| | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 218 | | | $ | 33,158 | | | $ | 7,286 | | | $ | — | | | $ | 40,662 | |
Intercompany accounts payable | | | 214,087 | | | | (213,457 | ) | | | 11,769 | | | | (12,399 | ) | | | — | |
Accrued expenses | | | 2,732 | | | | 15,699 | | | | 3,294 | | | | — | | | | 21,725 | |
Income taxes payable | | | — | | | | (44 | ) | | | 549 | | | | — | | | | 505 | |
Current portion of notes payable | | | 15,000 | | | | — | | | | — | | | | — | | | | 15,000 | |
Current maturities of long-term debt and other liabilities | | | — | | | | 327 | | | | — | | | | — | | | | 327 | |
Total current liabilities | | | 232,037 | | | | (164,317 | ) | | | 22,898 | | | | (12,399 | ) | | | 78,219 | |
| | | | | | | | | | | | | | | | | | | | |
Notes payable, less current portion | | | 163,722 | | | | — | | | | — | | | | — | | | | 163,722 | |
Long-term debt and other liabilities | | | — | | | | 2,531 | | | | 5,040 | | | | (5,040 | ) | | | 2,531 | |
Deferred income taxes | | | — | | | | — | | | | 97 | | | | — | | | | 97 | |
Shareholders’/ invested equity | | | 259,896 | | | | 295,327 | | | | 112,278 | | | | (407,605 | ) | | | 259,896 | |
| | $ | 655,655 | | | $ | 133,541 | | | $ | 140,313 | | | $ | (425,044 | ) | | $ | 504,465 | |
Notes to Condensed Consolidated Financial Statements – (Continued)
Statement of Operations Information for the Quarter Ended March 27, 2011 (amounts in thousands):
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Summary of Operations: | | | | | | | | | | | | | | | |
Net sales | | $ | — | | | $ | 126,051 | | | $ | 52,676 | | | $ | (563 | ) | | $ | 178,164 | |
Cost of sales | | | — | | | | 119,023 | | | | 44,870 | | | | (876 | ) | | | 163,017 | |
Restructuring charges | | | — | | | | 9 | | | | — | | | | — | | | | 9 | |
Equity in subsidiaries | | | 6,292 | | | | — | | | | — | | | | (6,292 | ) | | | — | |
Selling, general and administrative expenses | | | — | | | | 7,563 | | | | 2,781 | | | | — | | | | 10,344 | |
(Benefit) provision for bad debts | | | — | | | | (357 | ) | | | 398 | | | | — | | | | 41 | |
Other operating (income) expense, net | | | (7,244 | ) | | | 7,322 | | | | 100 | | | | (20 | ) | | | 158 | |
| | | | | | | | | | | | | | | | | | | | |
Non-operating (income) expenses: | | | | | | | | | | | | | | | | | | | | |
Interest income | | | — | | | | (63 | ) | | | (670 | ) | | | 149 | | | | (584 | ) |
Interest expense | | | 4,873 | | | | 9 | | | | 283 | | | | (149 | ) | | | 5,016 | |
Other non-operating expenses | | | 78 | | | | — | | | | — | | | | — | | | | 78 | |
Loss on extinguishment of debt | | | 2,193 | | | | — | | | | — | | | | — | | | | 2,193 | |
Equity in (earnings) losses of unconsolidated affiliates | | | — | | | | 2,450 | | | | (419 | ) | | | 72 | | | | 2,103 | |
(Loss) income from operations before income taxes | | | (6,192 | ) | | | (9,905 | ) | | | 5,333 | | | | 6,553 | | | | (4,211 | ) |
(Benefit) provision for income taxes | | | (2,147 | ) | | | — | | | | 1,981 | | | | — | | | | (166 | ) |
Net (loss) income | | $ | (4,045 | ) | | $ | (9,905 | ) | | $ | 3,352 | | | $ | 6,553 | | | $ | (4,045 | ) |
Notes to Condensed Consolidated Financial Statements – (Continued)
Statement of Operations Information for the Quarter Ended March 28, 2010 (amounts in thousands):
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Summary of Operations: | | | | | | | | | | | | | | | |
Net sales | | $ | — | | | $ | 117,116 | | | $ | 38,063 | | | $ | (492 | ) | | $ | 154,687 | |
Cost of sales | | | — | | | | 107,416 | | | | 31,294 | | | | (533 | ) | | | 138,177 | |
Restructuring charges | | | — | | | | 254 | | | | — | | | | — | | | | 254 | |
Equity in subsidiaries | | | (905 | ) | | | — | | | | — | | | | 905 | | | | — | |
Selling, general and administrative expenses | | | — | | | | 9,050 | | | | 2,197 | | | | 5 | | | | 11,252 | |
Benefit for bad debts | | | — | | | | (11 | ) | | | (94 | ) | | | — | | | | (105 | ) |
Other operating (income) expense, net | | | (5,782 | ) | | | 5,380 | | | | 56 | | | | — | | | | (346 | ) |
| | | | | | | | | | | | | | | | | | | | |
Non-operating (income) expenses: | | | | | | | | | | | | | | | | | | | | |
Interest income | | | (11 | ) | | | 1 | | | | (765 | ) | | | — | | | | (775 | ) |
Interest expense | | | 5,681 | | | | 16 | | | | — | | | | — | | | | 5,697 | |
Equity in (earnings) losses of unconsolidated affiliates | | | — | | | | (1,994 | ) | | | (197 | ) | | | 16 | | | | (2,175 | ) |
Income (loss) from operations before income taxes | | | 1,017 | | | | (2,996 | ) | | | 5,572 | | | | (885 | ) | | | 2,708 | |
Provision for income taxes | | | 246 | | | | 4 | | | | 1,687 | | | | — | | | | 1,937 | |
Net income (loss) | | $ | 771 | | | $ | (3,000 | ) | | $ | 3,885 | | | $ | (885 | ) | | $ | 771 | |
Notes to Condensed Consolidated Financial Statements – (Continued)
Statement of Operations Information for the Nine-Months Ended March 27, 2011 (amounts in thousands):
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Summary of Operations: | | | | | | | | | | | | | | | |
Net sales | | $ | — | | | $ | 360,748 | | | $ | 153,591 | | | $ | (1,353 | ) | | $ | 512,986 | |
Cost of sales | | | — | | | | 326,791 | | | | 132,765 | | | | (1,961 | ) | | | 457,595 | |
Restructuring charges | | | — | | | | 1,555 | | | | — | | | | — | | | | 1,555 | |
Equity in subsidiaries | | | (10,711 | ) | | | — | | | | — | | | | 10,711 | | | | — | |
Selling, general and administrative expenses | | | — | | | | 23,526 | | | | 8,697 | | | | — | | | | 32,223 | |
(Benefit) provision for bad debts | | | — | | | | (559 | ) | | | 645 | | | | — | | | | 86 | |
Other operating (income) expense, net | | | (19,311 | ) | | | 17,238 | | | | 660 | | | | 1,830 | | | | 417 | |
| | | | | | | | | | | | | | | | | | | | |
Non-operating (income) expenses: | | | | | | | | | | | | | | | | | | | | |
Interest income | | | — | | | | (193 | ) | | | (2,154 | ) | | | 352 | | | | (1,995 | ) |
Interest expense | | | 15,147 | | | | 43 | | | | 509 | | | | (352 | ) | | | 15,347 | |
Other non-operating expenses | | | 528 | | | | — | | | | — | | | | — | | | | 528 | |
Loss on extinguishment of debt | | | 3,337 | | | | — | | | | — | | | | — | | | | 3,337 | |
Equity in (earnings) losses of unconsolidated affiliates | | | — | | | | (10,607 | ) | | | (1,614 | ) | | | 334 | | | | (11,887 | ) |
Income (loss) from operations before income taxes | | | 11,010 | | | | 2,954 | | | | 14,083 | | | | (12,267 | ) | | | 15,780 | |
(Benefit ) provision for income taxes | | | (565 | ) | | | — | | | | 4,770 | | | | — | | | | 4,205 | |
Net income (loss) | | $ | 11,575 | | | $ | 2,954 | | | $ | 9,313 | | | $ | (12,267 | ) | | $ | 11,575 | |
Notes to Condensed Consolidated Financial Statements – (Continued)
Statement of Operations Information for the Nine-Months Ended March 28, 2010 (amounts in thousands):
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Summary of Operations: | | | | | | | | | | | | | | | |
Net sales | | $ | — | | | $ | 327,350 | | | $ | 112,994 | | | $ | (551 | ) | | $ | 439,793 | |
Cost of sales | | | — | | | | 296,923 | | | | 90,186 | | | | (568 | ) | | | 386,541 | |
Restructuring charges | | | — | | | | 254 | | | | — | | | | — | | | | 254 | |
Write down of long-lived assets | | | — | | | | 100 | | | | — | | | | — | | | | 100 | |
Equity in subsidiaries | | | (5,479 | ) | | | — | | | | — | | | | 5,479 | | | | — | |
Selling, general and administrative expenses | | | (16 | ) | | | 27,619 | | | | 7,019 | | | | (54 | ) | | | 34,568 | |
Benefit for bad debts | | | — | | | | (74 | ) | | | (19 | ) | | | — | | | | (93 | ) |
Other operating (income) expense, net | | | (16,919 | ) | | | 16,540 | | | | (163 | ) | | | — | | | | (542 | ) |
| | | | | | | | | | | | | | | | | | | | |
Non-operating (income) expenses: | | | | | | | | | | | | | | | | | | | | |
Interest income | | | (28 | ) | | | (138 | ) | | | (2,189 | ) | | | — | | | | (2,355 | ) |
Interest expense | | | 16,657 | | | | (254 | ) | | | 9 | | | | — | | | | 16,412 | |
Gain on extinguishment of debt | | | (54 | ) | | | — | | | | — | | | | — | | | | (54 | ) |
Equity in (earnings) losses of unconsolidated affiliates | | | — | | | | (6,070 | ) | | | (515 | ) | | | 738 | | | | (5,847 | ) |
Income (loss) from operations before income taxes | | | 5,839 | | | | (7,550 | ) | | | 18,666 | | | | (6,146 | ) | | | 10,809 | |
Provision for income taxes | | | 626 | | | | 12 | | | | 4,958 | | | | — | | | | 5,596 | |
Net income (loss) | | $ | 5,213 | | | $ | (7,562 | ) | | $ | 13,708 | | | $ | (6,146 | ) | | $ | 5,213 | |
| For the Three Months Ended | |
| September 25, 2011 | | September 26, 2010 | |
Interest, net of capitalized interest | $ | | 778 | | $ | | 380 | |
Income taxes, net of refunds | | | 793 | | | | 1,742 | |
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements –- (Continued)
(amounts in thousands, except per share amounts)
29. Condensed Consolidating Financial StatementsIn accordance with the Indenture governing the Company’s 2014 notes, certain of the Company’s subsidiaries have guaranteed the notes, jointly and severally, on a senior secured basis.
Statements of Cash Flows InformationThe following presents the condensed consolidating financial statements separately for:
| · | Parent company, the issuer of the guaranteed obligations; |
| · | Guarantor subsidiaries, on a combined basis, as specified in the Indenture; |
| · | Non-guarantor subsidiaries, on a combined basis; |
| · | Consolidating entries and eliminations representing adjustments to (a) eliminate intercompany transactions, (b) eliminate intercompany profit in inventory, (c) eliminate investments in its subsidiaries and (d) record consolidating entries; and |
| · | Parent company, on a consolidated basis. |
Each subsidiary guarantor is 100% owned by Unifi, Inc. or its wholly-owned subsidiary, Unifi Manufacturing, Inc. and all guarantees are full and unconditional. The non-guarantor subsidiaries predominantly represent the foreign subsidiaries which do not guarantee the 2014 notes. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements. Supplemental financial information for the Nine-Months Ended March 27, 2011 (amounts in thousands):Company and its guarantor subsidiaries and non-guarantor subsidiaries for the 2014 notes is presented below.
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Operating activities: | | | | | | | | | | | | | | | |
Net cash (used in) provided by operating activities | | $ | (2,556 | ) | | $ | 4,709 | | | $ | (3,678 | ) | | $ | 112 | | | $ | (1,413 | ) |
| | | | | | | | | | | | | | | | | | | | |
Investing activities: | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | — | | | | (11,935 | ) | | | (5,399 | ) | | | — | | | | (17,334 | ) |
Investment in unconsolidated affiliate | | | — | | | | — | | | | (707 | ) | | | — | | | | (707 | ) |
Return of capital from unconsolidated affiliate | | | — | | | | — | | | | 500 | | | | — | | | | 500 | |
Proceeds from sale of capital assets | | | — | | | | 9 | | | | 180 | | | | — | | | | 189 | |
Proceeds from split dollar life insurance surrenders | | | 3,241 | | | | — | | | | — | | | | — | | | | 3,241 | |
Net cash provided by (used in) investing activities | | | 3,241 | | | | (11,926 | ) | | | (5,426 | ) | | | — | | | | (14,111 | ) |
| | | | | | | | | | | | | | | | | | | | |
Financing activities: | | | | | | | | | | | | | | | | | | | | |
Payments of notes payable | | | (47,588 | ) | | | — | | | | — | | | | — | | | | (47,588 | ) |
Payments of other long-term debt | | | (105,325 | ) | | | — | | | | — | | | | — | | | | (105,325 | ) |
Borrowings of other long-term debt | | | 143,125 | | | | — | | | | — | | | | — | | | | 143,125 | |
Proceeds from stock option exercises | | | 118 | | | | — | | | | — | | | | — | | | | 118 | |
Dividend paid | | | — | | | | 5,909 | | | | (5,909 | ) | | | — | | | | — | |
Purchase and retirement of Company stock | | | (2 | ) | | | — | | | | — | | | | — | | | | (2 | ) |
Debt refinancing fees | | | (825 | ) | | | — | | | | — | | | | — | | | | (825 | ) |
Other | | | — | | | | (364 | ) | | | — | | | | — | | | | (364 | ) |
Net cash (used in) provided by financing activities | | | (10,497 | ) | | | 5,545 | | | | (5,909 | ) | | | — | | | | (10,861 | ) |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 2,948 | | | | (112 | ) | | | 2,836 | |
| | | | | | | | | | | | | | | | | | | | |
Net decrease in cash and cash equivalents | | | (9,812 | ) | | | (1,672 | ) | | | (12,065 | ) | | | — | | | | (23,549 | ) |
Cash and cash equivalents at beginning of period | | | 9,938 | | | | 1,832 | | | | 30,921 | | | | — | | | | 42,691 | |
Cash and cash equivalents at end of period | | $ | 126 | | | $ | 160 | | | $ | 18,856 | | | $ | — | | | $ | 19,142 | |
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements –- (Continued)
(amounts in thousands, except per share amounts)
Statements of Cash Flows Information for the Nine-Months Ended March 28, 2010 (amounts in thousands):
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Operating activities: | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 2,680 | | | $ | 6,101 | | | $ | 12,150 | | | $ | (107 | ) | | $ | 20,824 | |
| | | | | | | | | | | | | | | | | | | | |
Investing activities: | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (12 | ) | | | (6,003 | ) | | | (1,948 | ) | | | — | | | | (7,963 | ) |
Investment in unconsolidated affiliate | | | — | | | | — | | | | (550 | ) | | | — | | | | (550 | ) |
Change in restricted cash | | | — | | | | — | | | | 5,776 | | | | — | | | | 5,776 | |
Proceeds from sale of capital assets | | | — | | | | 1,267 | | | | 126 | | | | — | | | | 1,393 | |
Other | | | (168 | ) | | | — | | | | (78 | ) | | | — | | | | (246 | ) |
Net cash (used in) provided by investing activities | | | (180 | ) | | | (4,736 | ) | | | 3,326 | | | | — | | | | (1,590 | ) |
| | | | | | | | | | | | | | | | | | | | |
Financing activities: | | | | | | | | | | | | | | | | | | | | |
Payments of long-term debt | | | (435 | ) | | | — | | | | (5,776 | ) | | | — | | | | (6,211 | ) |
Purchase and retirement of Company stock | | | (4,995 | ) | | | — | | | | — | | | | — | | | | (4,995 | ) |
Other | | | — | | | | (381 | ) | | | — | | | | — | | | | (381 | ) |
Net cash used in financing activities | | | (5,430 | ) | | | (381 | ) | | | (5,776 | ) | | | — | | | | (11,587 | ) |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 2,083 | | | | 107 | | | | 2,190 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (2,930 | ) | | | 984 | | | | 11,783 | | | | — | | | | 9,837 | |
Cash and cash equivalents at beginning of period | | | 11,509 | | | | (812 | ) | | | 31,962 | | | | — | | | | 42,659 | |
Cash and cash equivalents at end of period | | $ | 8,579 | | | $ | 172 | | | $ | 43,745 | | | $ | — | | | $ | 52,496 | |
Balance Sheet Information as of September 25, 2011: |
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
ASSETS | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 2,029 | | | $ | (1,883 | ) | | $ | 19,675 | | | $ | — | | | $ | 19,821 | |
Receivables | | | — | | | | 69,213 | | | | 26,565 | | | | — | | | | 95,778 | |
Intercompany accounts receivable | | | 125,409 | | | | (118,485 | ) | | | 946 | | | | (7,870 | ) | | | — | |
Inventories | | | — | | | | 96,063 | | | | 39,913 | | | | — | | | | 135,976 | |
Income taxes receivable | | | 575 | | | | — | | | | 194 | | | | — | | | | 769 | |
Deferred income taxes | | | 2,296 | | | | — | | | | 2,094 | | | | — | | | | 4,390 | |
Other current assets | | | 99 | | | | 990 | | | | 3,752 | | | | — | | | | 4,841 | |
Total current assets | | | 130,408 | | | | 45,898 | | | | 93,139 | | | | (7,870 | ) | | | 261,575 | |
| | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | 8,833 | | | | 109,791 | | | | 23,173 | | | | — | | | | 141,797 | |
Intangible assets, net | | | — | | | | 11,027 | | | | — | | | | — | | | | 11,027 | |
Investments in unconsolidated affiliates | | | — | | | | 83,886 | | | | 8,454 | | | | — | | | | 92,340 | |
Investments in consolidated subsidiaries | | | 431,698 | | | | — | | | | — | | | | (431,698 | ) | | | — | |
Intercompany notes receivable | | | — | | | | — | | | | 19,706 | | | | (19,706 | ) | | | — | |
Other non-current assets | | | 3,224 | | | | 3,048 | | | | 2,334 | | | | — | | | | 8,606 | |
Total assets | | $ | 574,163 | | | $ | 253,650 | | | $ | 146,806 | | | $ | (459,274 | ) | | $ | 515,345 | |
| | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Accounts payable | | $ | 84 | | | $ | 40,107 | | | $ | 5,845 | | | $ | — | | | $ | 46,036 | |
Intercompany accounts payable | | | 120,085 | | | | (119,676 | ) | | | 7,456 | | | | (7,865 | ) | | | — | |
Accrued expenses | | | 5,426 | | | | 7,855 | | | | 2,727 | | | | — | | | | 16,008 | |
Income taxes payable | | | — | | | | — | | | | 767 | | | | — | | | | 767 | |
Current portion of long-term debt | | | — | | | | 348 | | | | — | | | | — | | | | 348 | |
Total current liabilities | | | 125,595 | | | | (71,366 | ) | �� | | 16,795 | | | | (7,865 | ) | | | 63,159 | |
| | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | 163,622 | | | | — | | | | — | | | | — | | | | 163,622 | |
Intercompany notes payable | | | — | | | | — | | | | 19,706 | | | | (19,706 | ) | | | — | |
Other long-term liabilities | | | 486 | | | | 2,437 | | | | 1,024 | | | | — | | | | 3,947 | |
Deferred income taxes | | | 2,296 | | | | — | | | | 157 | | | | — | | | | 2,453 | |
Total liabilities | | | 291,999 | | | | (68,929 | ) | | | 37,682 | | | | (27,571 | ) | | | 233,181 | |
Shareholders’/ invested equity | | | 282,164 | | | | 322,579 | | | | 109,124 | | | | (431,703 | ) | | | 282,164 | |
Total liabilities and shareholders’ equity | | $ | 574,163 | | | | 253,650 | | | | 146,806 | | | | (459,274 | ) | | $ | 515,345 | |
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Balance Sheet Information as of June 26, 2011:
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
ASSETS | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 1,656 | | | $ | 323 | | | $ | 25,511 | | | $ | — | | | $ | 27,490 | |
Receivables | | | — | | | | 69,800 | | | | 30,375 | | | | — | | | | 100,175 | |
Intercompany accounts receivable | | | 3 | | | | 6,755 | | | | 500 | | | | (7,258 | ) | | | — | |
Inventories | | | — | | | | 84,193 | | | | 50,690 | | | | — | | | | 134,883 | |
Income taxes receivable | | | 419 | | | | — | | | | 159 | | | | — | | | | 578 | |
Deferred income taxes | | | 3,482 | | | | — | | | | 2,230 | | | | — | | | | 5,712 | |
Other current assets | | | 122 | | | | 588 | | | | 4,521 | | | | — | | | | 5,231 | |
Total current assets | | | 5,682 | | | | 161,659 | | | | 113,986 | | | | (7,258 | ) | | | 274,069 | |
| | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | 8,889 | | | | 114,510 | | | | 27,628 | | | | — | | | | 151,027 | |
Intangible assets, net | | | — | | | | 11,612 | | | | — | | | | — | | | | 11,612 | |
Investments in unconsolidated affiliates | | | — | | | | 82,955 | | | | 8,303 | | | | — | | | | 91,258 | |
Investments in consolidated subsidiaries | | | 456,288 | | | | — | | | | — | | | | (456,288 | ) | | | — | |
Intercompany notes receivable | | | — | | | | — | | | | 16,545 | | | | (16,545 | ) | | | — | |
Other non-current assets | | | 3,619 | | | | 3,048 | | | | 2,743 | | | | — | | | | 9,410 | |
Total assets | | $ | 474,478 | | | $ | 373,784 | | | $ | 169,205 | | | $ | (480,091 | ) | | $ | 537,376 | |
| | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | |
Accounts payable | | $ | 164 | | | $ | 35,207 | | | $ | 7,471 | | | $ | — | | | $ | 42,842 | |
Intercompany accounts payable | | | 409 | | | | — | | | | 6,849 | | | | (7,258 | ) | | | — | |
Accrued expenses | | | 2,037 | | | | 11,717 | | | | 3,741 | | | | — | | | | 17,495 | |
Income taxes payable | | | — | | | | — | | | | 421 | | | | — | | | | 421 | |
Current portion of long-term debt | | | — | | | | 342 | | | | — | | | | — | | | | 342 | |
Total current liabilities | | | 2,610 | | | | 47,266 | | | | 18,482 | | | | (7,258 | ) | | | 61,100 | |
| | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | 168,322 | | | | — | | | | — | | | | — | | | | 168,322 | |
Intercompany notes payable | | | — | | | | — | | | | 16,545 | | | | (16,545 | ) | | | — | |
Other long-term liabilities | | | 409 | | | | 2,562 | | | | 1,036 | | | | — | | | | 4,007 | |
Deferred income taxes | | | 3,482 | | | | — | | | | 810 | | | | — | | | | 4,292 | |
Total liabilities | | | 174,823 | | | | 49,828 | | | | 36,873 | | | | (23,803 | ) | | | 237,721 | |
Shareholders’/ invested equity | | | 299,655 | | | | 323,956 | | | | 132,332 | | | | (456,288 | ) | | | 299,655 | |
Total liabilities and shareholders’ equity | | $ | 474,478 | | | $ | 373,784 | | | $ | 169,205 | | | $ | (480,091 | ) | | $ | 537,376 | |
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Statement of Operations Information for the Three Months Ended September 25, 2011:
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 123,920 | | | $ | 47,093 | | | $ | — | | | $ | 171,013 | |
Cost of sales | | | — | | | | 116,210 | | | | 43,145 | | | | (172 | ) | | | 159,183 | |
Gross profit | | | — | | | | 7,710 | | | | 3,948 | | | | 172 | | | | 11,830 | |
Equity in subsidiaries | | | (36 | ) | | | — | | | | — | | | | 36 | | | | — | |
Selling, general and administrative expenses | | | — | | | | 7,784 | | | | 2,587 | | | | — | | | | 10,371 | |
(Benefit) provision for bad debts | | | — | | | | 238 | | | | (33 | ) | | | — | | | | 205 | |
Other operating (income) expense, net | | | (4,923 | ) | | | 4,937 | | | | (63 | ) | | | 8 | | | | (41 | ) |
Operating income (loss) | | | 4,959 | | | | (5,249 | ) | | | 1,457 | | | | 128 | | | | 1,295 | |
Interest income | | | — | | | | (62 | ) | | | (745 | ) | | | 160 | | | | (647 | ) |
Interest expense | | | 4,363 | | | | 17 | | | | 160 | | | | (160 | ) | | | 4,380 | |
Loss on extinguishment of debt | | | 462 | | | | — | | | | — | | | | — | | | | 462 | |
Equity in earnings (losses) of unconsolidated affiliates | | | — | | | | (3,827 | ) | | | 67 | | | | 301 | | | | (3,459 | ) |
Income (loss) before income taxes | | | 134 | | | | (1,377 | ) | | | 1,975 | | | | (173 | ) | | | 559 | |
(Benefit) provision for income taxes | | | (152 | ) | | | — | | | | 425 | | | | — | | | | 273 | |
Net income (loss) | | $ | 286 | | | $ | (1,377 | ) | | $ | 1,550 | | | $ | (173 | ) | | $ | 286 | |
Statement of Comprehensive Income (Loss) Information for the Three Months Ended September 25, 2011:
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Net income (loss) | | $ | 286 | | | $ | (1,377 | ) | | $ | 1,550 | | | $ | (173 | ) | | $ | 286 | |
| | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | |
Foreign currency adjustments | | | (17,225 | ) | | | — | | | | (17,225 | ) | | | 17,225 | | | | (17,225 | ) |
Loss on cash flow hedges | | | (78 | ) | | | (891 | ) | | | — | | | | — | | | | (969 | ) |
Other comprehensive income | | | (17,303 | ) | | | (891 | ) | | | (17,225 | ) | | | 17,225 | | | | (18,194 | ) |
| | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | $ | (17,017 | ) | | $ | (2,268 | ) | | $ | (15,675 | ) | | $ | 17,052 | | | $ | (17,908 | ) |
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Statement of Operations Information for the Three Months Ended September 26, 2010:
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 122,058 | | | $ | 53,432 | | | $ | (398 | ) | | $ | 175,092 | |
Cost of sales | | | — | | | | 107,371 | | | | 46,648 | | | | (473 | ) | | | 153,546 | |
Gross profit | | | — | | | | 14,687 | | | | 6,784 | | | | 75 | | | | 21,546 | |
Restructuring charges | | | — | | | | 363 | | | | — | | | | — | | | | 363 | |
Equity in subsidiaries | | | (11,328 | ) | | | — | | | | — | | | | 11,328 | | | | — | |
Selling, general and administrative expenses | | | — | | | | 8,190 | | | | 3,320 | | | | — | | | | 11,510 | |
(Benefit) provision for bad debts | | | — | | | | (292 | ) | | | 251 | | | | — | | | | (41 | ) |
Other operating (income) expense, net | | | (6,404 | ) | | | 5,171 | | | | 550 | | | | 926 | | | | 243 | |
Operating income (loss) | | | 17,732 | | | | 1,255 | | | | 2,663 | | | | (12,179 | ) | | | 9,471 | |
Interest income | | | — | | | | (66 | ) | | | (677 | ) | | | — | | | | (743 | ) |
Interest expense | | | 5,156 | | | | 17 | | | | 96 | | | | — | | | | 5,269 | |
Loss on extinguishment of debt | | | 1,144 | | | | — | | | | — | | | | — | | | | 1,144 | |
Equity in earnings (losses) of unconsolidated affiliates | | | — | | | | (8,634 | ) | | | (594 | ) | | | 277 | | | | (8,951 | ) |
Income (loss) before income taxes | | | 11,432 | | | | 9,938 | | | | 3,838 | | | | (12,456 | ) | | | 12,752 | |
Provision for income taxes | | | 1,197 | | | | — | | | | 1,320 | | | | — | | | | 2,517 | |
Net income (loss) | | $ | 10,235 | | | $ | 9,938 | | | $ | 2,518 | | | $ | (12,456 | ) | | $ | 10,235 | |
Statement of Comprehensive Income (Loss) Information for the Three Months Ended September 26, 2010:
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Net income (loss) | | $ | 10,235 | | | $ | 9,938 | | | $ | 2,518 | | | $ | (12,456 | ) | | $ | 10,235 | |
| | | | | | | | | | | | | | | | | | | | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | |
Foreign currency adjustments | | | 6,707 | | | | — | | | | 6,707 | | | | (6,707 | ) | | | 6,707 | |
Loss on cash flow hedges | | | — | | | | — | | | | — | | | | — | | | | — | |
Other comprehensive income (loss) | | | 6,707 | | | | | | | | 6,707 | | | | (6,707 | ) | | | 6,707 | |
| | | | | | | | | | | | | | | | | | | | |
Comprehensive income (loss) | | $ | 16,942 | | | $ | 9,938 | | | $ | 9,225 | | | $ | (19,163 | ) | | $ | 16,942 | |
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Statements of Cash Flows Information for Three Months Ended September 25, 2011:
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Operating activities: | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | (2,093 | ) | | $ | (1,989 | ) | | $ | 5,915 | | | $ | (12 | ) | | $ | 1,821 | |
| | | | | | | | | | | | | | | | | | | | |
Investing activities: | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | 5 | | | | (306 | ) | | | (821 | ) | | | — | | | | (1,122 | ) |
Investments in unconsolidated affiliates | | | — | | | | — | | | | (360 | ) | | | — | | | | (360 | ) |
Proceeds from sale of assets | | | — | | | | 89 | | | | 92 | | | | (8 | ) | | | 173 | |
Net cash provided by (used in) investing activities | | | 5 | | | | (217 | ) | | | (1,089 | ) | | | (8 | ) | | | (1,309 | ) |
| | | | | | | | | | | | | | | | | | | | |
Financing activities: | | | | | | | | | | | | | | | | | | | | |
Payments of notes payable | | | (10,288 | ) | | | — | | | | — | | | | — | | | | (10,288 | ) |
Payments on revolving credit facility | | | (53,500 | ) | | | — | | | | — | | | | — | | | | (53,500 | ) |
Proceeds from borrowings on revolving credit facility | | | 58,800 | | | | — | | | | — | | | | — | | | | 58,800 | |
Proceeds from stock option exercises | | | 49 | | | | — | | | | — | | | | — | | | | 49 | |
Cash dividend paid | | | 7,400 | | | | — | | | | (7,400 | ) | | | — | | | | — | |
Net cash provided by (used in) by financing activities | | | 2,461 | | | | — | | | | (7,400 | ) | | | — | | | | (4,939 | ) |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | (3,262 | ) | | | 20 | | | | (3,242 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 373 | | | | (2,206 | ) | | | (5,836 | ) | | | — | | | | (7,669 | ) |
Cash and cash equivalents at beginning of the year | | | 1,656 | | | | 323 | | | | 25,511 | | | | — | | | | 27,490 | |
Cash and cash equivalents at end of the period | | $ | 2,029 | | | $ | (1,883 | ) | | $ | 19,675 | | | $ | — | | | $ | 19,821 | |
Unifi, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(amounts in thousands, except per share amounts)
Statements of Cash Flows Information for Three Months Ended September 26, 2010:
| | Parent | | | Guarantor Subsidiaries | | | Non-Guarantor Subsidiaries | | | Eliminations | | | Consolidated | |
Operating activities: | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 6,921 | | | $ | 1,149 | | | $ | (4,380 | ) | | $ | 321 | | | $ | 4,011 | |
| | | | | | | | | | | | | | | | | | | | |
Investing activities: | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | — | | | | (3,020 | ) | | | (2,475 | ) | | | — | | | | (5,495 | ) |
Investments in unconsolidated affiliates | | | — | | | | — | | | | (225 | ) | | | — | | | | (225 | ) |
Proceeds from sale of assets | | | — | | | | — | | | | 180 | | | | — | | | | 180 | |
Net cash used in investing activities | | | — | | | | (3,020 | ) | | | (2,520 | ) | | | — | | | | (5,540 | ) |
| | | | | | | | | | | | | | | | | | | | |
Financing activities: | | | | | | | | | | | | | | | | | | | | |
Payments of notes payable | | | (15,863 | ) | | | — | | | | — | | | | — | | | | (15,863 | ) |
Payments on revolving credit facility | | | (40,525 | ) | | | — | | | | — | | | | — | | | | (40,525 | ) |
Proceeds from borrowings on revolving credit facility | | | 40,525 | | | | — | | | | — | | | | — | | | | 40,525 | |
Debt financing fees | | | (821 | ) | | | — | | | | — | | | | — | | | | (821 | ) |
Net cash used in financing activities | | | (16,684 | ) | | | — | | | | — | | | | — | | | | (16,684 | ) |
| | | | | | | | | | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 2,117 | | | | (321 | ) | | | 1,796 | |
| | | | | | | | | | | | | | | | | | | | |
Net decrease in cash and cash equivalents | | | (9,763 | ) | | | (1,871 | ) | | | (4,783 | ) | | | — | | | | (16,417 | ) |
Cash and cash equivalents at beginning of the year | | | 9,938 | | | | 1,832 | | | | 30,921 | | | | — | | | | 42,691 | |
Cash and cash equivalents at end of the period | | $ | 175 | | | $ | (39 | ) | | $ | 26,138 | | | $ | — | | | $ | 26,274 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’sManagement’s discussion and analysis of certain significant factors that have affected the Company’s operations and material changes in financial condition of Unifi, Inc. and its subsidiaries (the “Company”) during the periods included in the accompanying Condensed Consolidated Financial Statements.
Forward-Looking Statements
The following discussion contains certain forward-looking statements about the Company’s financial condition and results of operations.
Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. They may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will,” or words or phrases of similar meaning. They may relate to, among other things, the risks described below:
| ● | 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; |
| ● | the ability to reduce production costs; |
| ● | changes in currency exchange rates, interest and inflation rates; |
| ● | the financial condition of the Company’s customers; |
| ● | the 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 accurate financial reporting of information from equity method investees; |
| ● | the impact of environmental, health and safety regulations; |
| ● | the loss of a material customer(s); |
| ● | the ability to protect intellectual property; |
| ● | 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 strategic business initiatives. |
These forward-looking statements reflect the Company’s current views with respect to future events and are based on assumptions and subject to risks and uncertainties that may cause actual results to differ materially from trends, plans or expectations set forth in the forward-looking statements. These risks and uncertainties may include those discussed above. New risks can emerge from time to time. It is not possible for the Company to predict all of these risks, nor can it assess the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in forward-looking statements. The Company will not update these forward-looking statements, even if its situation changes in the future, except as required by federal securities laws.
Business Overview
The Company is a leading North American producerprocesses and processor of multi-filamentsells high-volume commodity yarns, specialized yarns designed to meet certain customer specifications, and PVA yarns with enhanced performance characteristics and higher expected gross margin percentages. The Company sells its polyester and nylon yarns.products to other yarn manufacturers and knitters and weavers that produce fabric for the apparel, hosiery, sock, home furnishings, automotive upholstery, industrial and other end-use markets. The Company maintains one of the industry’s most comprehensive product offerings and emphasizes quality, stylehas ten manufacturing operations in four countries and performanceparticipates in all of its products. The Company manufactures partially oriented, textured, dyed, twistedjoint ventures in Israel and beamed polyester yarns as well as textured nylon and nylon and polyester covered spandex products. The Company adds value to the supply chain through the development and introduction of branded yarns that provide unique eco-friendly, performance, comfort and/or aesthetic characteristics that enhance demand for its products.U.S. In an effort to distinguish its specialty and premier value-added products in the marketplace,addition, the Company has developed an extensive product offering of premier value-added (“PVA”) yarns, commercialized under several brand names, including Repreve®, Sorbtek®, A.M.Y.®, Mynx® UV, Reflexx®, Augusta® and aio®.
The Company sells its products to other yarn manufacturers, knitters and weavers that produce fabrics for the apparel, hosiery, furnishings, automotive, industrial and other end-use markets and operate in the textile and apparel industry. Over the last decade, global trade flows of textile and apparel markets continued their shift to lower-cost production areas. Supply chains from greater China (including Hong Kong and Macau) have taken share globally, and while much of that share came from the United States (“U.S.”) textile producers, recent growth in Central America has offset some of the share losses from the U.S. Significant investment in the region by established industry players has resulted in increased sales volumes and stability within the combined North America and Central America regional market.
Polyester Segment. The polyester segment manufactures partially oriented, textured, dyed, twisted and beamed yarns with sales to other yarn manufacturers, knitters and weavers that produce fabric for the apparel, automotive, hosiery, furnishings, industrial and other end-use markets. The polyester segment primarily manufactures its products in Brazil, El Salvador, and the U.S., which has the Company’s largest operations and number of locations. The polyester segment also includes a wholly-owned subsidiary in China focused on the sale and promotion of the Company’s specialty and PVA products in the Asian textile market, primarily withinin China.
The Company’s operations are managed in three operating segments, each of which is a reportable segment for financial reporting purposes:
Polyester Segment. The polyester segment manufactures recycled Chip, POY, textured, dyed, twisted and beamed yarns with sales to other yarn manufacturers, knitters and weavers that produce yarn and/or fabric for the apparel, automotive upholstery, hosiery, home furnishings, industrial and other end-use markets. The polyester segment consists of manufacturing operations in the U.S. and El Salvador.
Nylon SegmentSegment.. The nylon segment manufactures textured nylon and covered spandex productsyarns with sales to other yarn manufacturers, knitters and weavers that produce fabric for the apparel, hosiery, sock and other end-use markets. The nylon segment consists of manufacturing operations in the U.S. and Colombia.
International Segment. The international segment’s products include textured polyester and various types of resale yarns. The international segment sells its yarns to knitters and weavers that produce fabric for the apparel, automotive upholstery, home furnishings, industrial and other end-use markets primarily in the South American and Asian regions. The international segment includes manufacturing and sales offices in Brazil and a sales office in China.
Recent Developments
Deleveraging Strategy: During the current quarter, the Company redeemed $10,000 of its 2014 notes and Outlookcontinues to expect to generate positive cash flow from operations and working capital cost savings initiatives to further strengthen its balance sheet, (the “Deleveraging Strategy”).
Raw Materials: Despite indications that polyester raw materials would decline in the September 2011 quarter, raw material costs rose slightly and continued to remain at the highest levels in over thirty years. The higher than expected raw material costs were driven by a series of unplanned outages of feedstock production during a period of tight supply across the polyester supply chain. The U.S.-Asia gap in polymer pricing has grown to 9 to 10 cents per pound from 2 to 3 cents per pound earlier this year and made Asian imported yarns more competitive.
Inventory Destocking: While the Company believes that retail sales volumes have remained flat, the overall inventory in the supply chain has increased. Producer and wholesaler inventories, each of which has traditionally averaged about 50 days, reached 58 and 63 days, respectively. Throughout the quarter, producers and wholesalers reacted to the elevated inventory levels by curtailing purchases. As a result of this inventory destocking, the volumes of the Company’s polyester and nylon segment have been negatively impacted.
Brazil: The strengthening of the Brazilian Real has negatively impacted the competitiveness of the local apparel supply chain and resulted in lower sales volumes. The stronger Real has negatively impacted both volume and conversion margin by making imports of the competing fibers, garments and apparel more competitively priced. The Brazil operation, due to the long supply chain for the procurement of its raw materials, was also negatively impacted by the cost of higher priced inventory flowing through the operation during this fiscal quarter.
PVA: The sales of branded products continue to remain in-line with the Company’s targets. Domestically, PVA sales volumes held stronger than the remainder of our business and increased versus the prior year quarter. Internationally, PVA sales volumes were negatively impacted by our results in Brazil and the temporary delay of orders from a large volume customer for our Chinese sales office.
Inflation: The Company continues to be impacted by inflationary increases in areas such as employee costs and benefits, consumables and utility costs. The Company attempts to mitigate the impacts of these rising costs through its operational efficiencies and increased selling prices. Inflation may become a factor that begins to significantly impact the Company’s profitability.
Investment in Central America: The CAFTA region which continues to be a competitive alternative to Asian supply chains, has for the last two and a half years maintained its share of synthetic apparel supply to U.S. retail, and continues to see ongoing investments being made in the region. The Company expects to complete the installation of additional texturing capacity at its plant in El Salvador by the end of this fiscal year.
Repreve Recycling Center: The new recycling facility allows the Company to expand the REPREVE® brand by increasing the amount and types of recyclable material that can be processed through its facilities and to develop and commercialize value-added products that meet the sustainability demands for brands and retailers.
U.S.-South Korean Free Trade Agreement: Even though the agreement was passed and South Korea provides little or no export opportunities for the Company or for U.S. textile manufacturers, the Company foresees limited impact on its business as South Korea is not a low cost provider of textiles in comparison to other Asian countries. The Company believes that the largest potential threats are caused by the failure of the agreement to address the potential damage from the lack of customs enforcement language and the exposure of illegal transshipments from China through South Korea.
Key Performance Indicators
The Company continuously reviews performance indicators to measure its success. The following are the indicators management uses to assess performance of the Company’s business:
| ● | sales volume for the Company and for each of its reportable segments; |
| ● | gross profits and gross margin for the Company and for each of its reportable segments; |
| ● | Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) represents net income or loss before net interest expense, income tax expense and depreciation and amortization expense; |
| ● | Consolidated EBITDA represents EBITDA adjusted to exclude equity in earnings of unconsolidated affiliates; |
| ● | Adjusted EBITDA represents Consolidated EBITDA adjusted to exclude restructuring charges, startup costs, non-cash compensation expense net of distributions, loss on extinguishment of debt, and other adjustments. Other adjustments include gains or losses on sales or disposals of property, plant, or equipment (“PP&E”) and currency and derivative gains or losses. The Company may, from time to time, change the items included within Adjusted EBITDA; |
| ● | Segment Adjusted Profit equals segment gross profit, less segment SG&A expenses, plus segment depreciation and amortization; |
EBITDA, Consolidated EBITDA, Adjusted EBITDA and Segment Adjusted Profit are financial measurements that management uses to facilitate its analysis and understanding of the Company’s business operations. Management believes they are useful to investors because they provide a supplemental way to understand the underlying operating performance and debt service capacity of the Company. The calculation of EBITDA, Consolidated EBITDA, Adjusted EBITDA and Segment Adjusted Profit are subjective measures based on management’s belief as to which items should be included or excluded, in order to provide the most reasonable view of the underlying operating performance of the business. EBITDA, Consolidated EBITDA, Adjusted EBITDA and Segment Adjusted Profit are not considered to be in accordance with generally accepted accounting principles (“non-GAAP measurements”) and should not be considered a substitute for performance measures calculated in accordance with GAAP.
The reconciliations of Net Income to EBITDA to Consolidated EBITDA and Adjusted EBITDA are as follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Net income | | $ | 286 | | | $ | 10,235 | |
Provision for income taxes | | | 273 | | | | 2,517 | |
Interest expense, net | | | 3,733 | | | | 4,526 | |
Depreciation and amortization expense | | | 6,561 | | | | 6,489 | |
EBITDA | | $ | 10,853 | | | $ | 23,767 | |
| | | | | | | | |
Equity in earnings of unconsolidated affiliates | | | (3,459 | ) | | | (8,951 | ) |
Consolidated EBITDA | | $ | 7,394 | | | $ | 14,816 | |
Restructuring charges | | | — | | | | 363 | |
Startup costs (1) | | | — | | | | 1,463 | |
Non-cash compensation, net of distributions | | | 243 | | | | 347 | |
Loss on extinguishment of debt | | | 462 | | | | 1,144 | |
Other | | | 43 | | | | 299 | |
Adjusted EBITDA | | $ | 8,142 | | | $ | 18,432 | |
Certain consolidated items listed below are only allocated to the segment level. The impact of such items are eliminated from Adjusted EBITDA in order to calculate Segment Adjusted Profit. The reconciliations of Adjusted EBITDA to Segment Adjusted Profit are as follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Adjusted EBITDA | | $ | 8,142 | | | $ | 18,432 | |
Depreciation included in other operating (income) expense, net | | | (6 | ) | | | (3 | ) |
Startup costs (1) | | | — | | | | (1,463 | ) |
Non-cash compensation, net of distribution | | | (243 | ) | | | (347 | ) |
Provision (benefit) for bad debts | | | 205 | | | | (41 | ) |
Other, net | | | (84 | ) | | | (56 | ) |
Segment Adjusted Profit | | $ | 8,014 | | | $ | 16,522 | |
(1) During fiscal year 2011, startup costs related to costs associated with UCA operating expenses.
Segment Adjusted Profit by reportable segment is as follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Polyester Segment Adjusted Profit | | $ | 2,426 | | | $ | 5,705 | |
Nylon Segment Adjusted Profit | | | 3,024 | | | | 4,767 | |
International Segment Adjusted Profit | | | 2,564 | | | | 6,050 | |
Total Segment Adjusted Profit | | $ | 8,014 | | | $ | 16,522 | |
The reconciliations of Segment Net Sales to Consolidated Net Sales are as follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Polyester segment net sales | | $ | 92,528 | | | $ | 85,587 | |
Nylon segment net sales | | | 40,961 | | | | 44,173 | |
International segment net sales | | | 37,524 | | | | 45,332 | |
Subtotal segment net sales | | $ | 171,013 | | | $ | 175,092 | |
| | | | | | | | |
Consolidated net sales | | $ | 171,013 | | | $ | 175,092 | |
The reconciliations of Segment Gross Profit to Consolidated Gross Profit are as follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Polyester segment gross profit | | $ | 3,690 | | | $ | 7,662 | |
Nylon segment gross profit | | | 4,351 | | | | 6,196 | |
International segment gross profit | | | 3,789 | | | | 7,688 | |
Subtotal segment gross profit | | $ | 11,830 | | | $ | 21,546 | |
| | | | | | | | |
Consolidated gross profit | | $ | 11,830 | | | $ | 21,546 | |
The reconciliations of Segment SG&A to Consolidated SG&A are as follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Polyester segment SG&A | | $ | 6,063 | | | $ | 6,688 | |
Nylon segment SG&A | | | 2,110 | | | | 2,282 | |
International segment SG&A | | | 2,198 | | | | 2,540 | |
Subtotal segment SG&A | | $ | 10,371 | | | $ | 11,510 | |
| | | | | | | | |
Consolidated SG&A | | $ | 10,371 | | | $ | 11,510 | |
The reconciliations of Segment Depreciation and Amortization to Consolidated Depreciation and Amortization are as follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Polyester segment depreciation and amortization | | $ | 4,799 | | | $ | 4,730 | |
Nylon segment depreciation and amortization | | | 783 | | | | 854 | |
International segment depreciation and amortization | | | 973 | | | | 902 | |
Subtotal segment depreciation and amortization | | $ | 6,555 | | | $ | 6,486 | |
Depreciation included in other operating (income) expense, net | | | 6 | | | | 3 | |
Amortization included in interest expense | | | 221 | | | | 254 | |
Consolidated depreciation and amortization | | $ | 6,782 | | | $ | 6,743 | |
Results of Operations
Review of First Quarter of Fiscal Year 2012 Compared to First Quarter of Fiscal Year 2011
Consolidated Overview
The net income components, each of the net income components as a percentage of total net sales and the percentage increase or decrease of such components over the comparable prior year period are as follows:
| | For the Three Months Ended | | |
| | September 25, 2011 | | September 26, 2010 | | |
| | | | | % to Net Sales | | | | | % to Net Sales | | % Change |
Net sales | | $ | 171,013 | | 100.0 | | $ | 175,092 | | 100.0 | | (2.3) |
Cost of sales | | | 159,183 | | 93.1 | | | 153,546 | | 87.7 | | 3.7 |
Gross profit | | | 11,830 | | 6.9 | | | 21,546 | | 12.3 | | (45.1) |
Restructuring charges | | | — | | — | | | 363 | | 0.2 | | (100.0) |
Selling, general and administrative expenses | | | 10,371 | | 6.0 | | | 11,510 | | 6.6 | | (9.9) |
Provision (benefit) for bad debts | | | 205 | | 0.1 | | | (41) | | — | | 600.0 |
Other operating (income) expense, net | | | (41) | | — | | | 243 | | 0.1 | | (116.9) |
Operating income | | | 1,295 | | 0.8 | | | 9,471 | | 5.4 | | (86.3) |
Interest expense, net | | | 3,733 | | 2.2 | | | 4,526 | | 2.6 | | (17.5) |
Earnings from unconsolidated affiliates | | | (3,459) | | (2.0) | | | (8,951) | | (5.1) | | (61.4) |
Other non-operating (income) expense, net | | | 462 | | 0.3 | | | 1,144 | | 0.6 | | (59.6) |
Income before income taxes | | | 559 | | 0.3 | | | 12,752 | | 7.3 | | (95.6) |
Provision for income taxes | | | 273 | | 0.1 | | | 2,517 | | 1.4 | | (89.2) |
Net income | | $ | 286 | | 0.2 | | $ | 10,235 | | 5.9 | | (97.2) |
Consolidated Net Sales
Net sales for the September 2011 quarter decreased by $4,079, or 2.3%, as compared to the prior year September quarter as the decline in sales volumes in each of the Company’s reportable segments was not offset by higher selling prices as the Company continues to pass on raw material cost increases. Overall, sales volumes decreased 11.0% while the weighted average selling prices increased by 8.7%.
Consolidated Gross Profit
Gross profit for the September 2011 quarter decreased by $9,716, or 45.1%, as compared to the prior year September quarter. Gross profit declines were experienced in each of the Company’s reportable segments due to record-high raw material prices and lower sales volumes as demand decreased for most of the Company’s products due to inventory destocking of the apparel supply chain in order to manage inventory levels. The Company also experienced lower capacity utilization in its manufacturing facilities and related increases in unit costs stemming from production volume declines experienced during the last two quarters as the Company also decreased its inventory levels. In addition, the Company’s operation in Brazil was significantly impacted by higher average raw material costs and by less expensive imports as the strengthening of the Brazilian Real versus the U.S. dollar created a challenging competitive environment for local production.
Polyester Segment Gross Profit
The segment gross profit components, the percent to net sales and the percentage increase or decrease over the prior year for the polyester segment are as follows:
| | For the Three Months Ended | | |
| | September 25, 2011 | | September 26, 2010 | | |
| | | | | % to Net Sales | | | | | % to Net Sales | | % Change |
Net sales | | $ | 92,528 | | 100.0 | | $ | 85,587 | | 100.0 | | 8.1 |
Cost of sales | | | 88,838 | | 96.0 | | | 77,925 | | 91.0 | | 14.0 |
Gross profit | | $ | 3,690 | | 4.0 | | $ | 7,662 | | 9.0 | | (51.8) |
In the first quarter of fiscal year 2012, net sales for the polyester segment increased $6,941 or 8.1% compared to the prior year first quarter continuedwhile sales volume decreased 2.7% and the weighted average selling price increased by 10.8%.
The $4 million gross profit decline was due primarily to show improvementthe unfavorable impacts of lower sales volumes and higher manufacturing costs due to the timing of various production shutdowns (approximately $2.0 million) and due to lower conversion margins (approximately $2.0 million).
The sales volume decline for the segment consists of declines for each of the segment’s products, except for POY and recycled Chip. These volume declines were driven by weak demand due to increased inventory in the U.S. apparel supply chain, a widened U.S.-Asia raw material gap and the decision of the Company to exit certain low-end margin business. While retail inventory continues to remain flat, overall inventory in the supply chain has increased. Throughout the September 2011 quarter, due to the significantly high inventory levels versus historic norms, producers and wholesalers reacted by destocking inventory. This reaction to elevated inventory levels has negatively impacted the company’s sales volumes in most of its end-use markets. In an effort to reduce working capital and on-hand inventory levels, the segment began adjusting down its production rate during the quarter to levels lower than the sales rate. The lower utilization and production levels for the current quarter have had an unfavorable impact on the segment’s manufacturing costs per unit sold which negatively impacted gross profits.
The historic rise in polyester raw material costs, (an increase in the average cost per pound of approximately 50% versus the prior year period), has negatively impacted the segment’s conversion margins during the quarter as not all cost increases were passed along to customers due to early indications that polyester raw materials would decline in the September 2011 quarter.
The polyester segment net sales and gross profit, as a percentage of total consolidated amounts, were 54.1% and 31.2% for the first quarter of fiscal year 2012, compared to 48.9% and 35.6% for the first quarter of fiscal year 2011.
Outlook:
The factors outlined above are expected to continue through the next fiscal quarter. Assuming lower raw material costs, an end to the inventory destocking and the North American region’s ability to maintain its share against Asia, the Company anticipates polyester profitability improvements in the second half of fiscal year 2012.
Nylon Segment Gross Profit
The segment gross profit components, the percent to net sales and the percentage increase or decrease over the prior year for the nylon segment are as follows:
| | For the Three Months Ended | | |
| | September 25, 2011 | | September 26, 2010 | | |
| | | | | % to Net Sales | | | | | % to Net Sales | | % Change |
Net sales | | $ | 40,961 | | 100.0 | | $ | 44,173 | | 100.0 | | (7.3) |
Cost of sales | | | 36,610 | | 89.4 | | | 37,977 | | 86.0 | | (3.6) |
Gross profit | | $ | 4,351 | | 10.6 | | $ | 6,196 | | 14.0 | | (29.8) |
In the first quarter of fiscal year 2012, net sales for the nylon segment decreased $3,212 or 7.3% compared to the prior year first quarter while sales volume decreased 16.3% and the weighted average selling price increased by 9.0%.
The $1.8 million decline in gross profit was due primarily to lower sales volumes (approximately $0.8 million) and higher manufacturing costs (approximately $1.2 million) offset by an improved mix (approximately $0.2 million).
The sales volume decline was a result of lower shipments into the ongoing recoverysock, hosiery and knit apparel applications. This slowdown resulted in a lower percentage of commodity sales but created a positive impact on product mix. The lower production levels and capacity utilization for the quarter as the segment adjusted its inventory levels created an unfavorable change in the global economysegment’s manufacturing costs.
The nylon segment net sales and continued volume growth ingross profit, as a percentage of total consolidated amounts, were 24.0% and 36.8% for the Americas regionfirst quarter of fiscal year 2012, compared to 25.2% and 28.8% for the impact on selling pricesfirst quarter of higher raw material costs. fiscal year 2011.
Outlook:
The revivalfactors outlined above are expected to continue through the next fiscal quarter. The levels of segment sales and production volumes are expected to increase during the second half of fiscal year 2012 assuming an end to the inventory destocking and the North American region’s ability to maintain its share against Asia.
International Segment Gross Profit
The segment gross profit components, the percent to net sales and the percentage increase or decrease over the prior year for the international segment are as follows:
| | For the Three Months Ended | | |
| | September 25, 2011 | | September 26, 2010 | | |
| | | | | % to Net Sales | | | | | % to Net Sales | | % Change |
Net sales | | $ | 37,524 | | 100.0 | | $ | 45,332 | | 100.0 | | (17.2) |
Cost of sales | | | 33,735 | | 89.9 | | | 37,644 | | 83.0 | | (10.4) |
Gross profit | | $ | 3,789 | | 10.1 | | $ | 7,688 | | 17.0 | | (50.7) |
In the first quarter of fiscal year 2012, net sales for the international segment decreased $7,808 or 17.2%, compared to the prior year first quarter, while sales volume decreased 25.0% and weighted average selling price increased by 7.8%.
The $4.0 million decline in gross profit was due primarily to lower sales volumes and conversion margins in Brazil ($3.3 million lower) as well as lower sales volumes in the Company’s Chinese operation. The strengthening of the Brazilian Real versus the U.S. dollar has negatively impacted both sales volumes (down 22.6%) and conversion margins (down 30.2%) by making imports of competing yarn, marketsfabric and garments and apparel more competitive alternatives. In addition, the Company’s Brazilian subsidiary has allowedbeen impacted by a higher average cost of raw materials. Sales volumes at the Company’s Chinese subsidiary were down 41.8% versus the prior year quarter caused by a temporary delay in orders as inventory adjustments were made by the operation’s largest customer, a large performance apparel manufacturer.
The international segment net sales and gross profit, as a percentage of total consolidated amounts, were 21.9% and 32.0% for the first quarter of fiscal year 2012, compared to 25.8% and 35.7% for the first quarter of fiscal year 2011.
Outlook:
Assuming a weakening of the Brazilian Real back to historical norms and the increase in sales volumes for the Company’s Chinese sales office, the Company expects improved segment operating results for the second half of the current fiscal year.
Consolidated Selling General & Administrative Expenses
Consolidated selling, general and administrative expenses (“SG&A”) decreased in total and as a percentage of net sales for the September 2011 quarter as compared to remain healthy, despite rising raw material prices resulting from the tight global supplyprior year quarter. Consolidated SG&A decreased by $1,139 or 9.9%, which was primarily a result of polyester feedstock as increasing global demand exceeded production capacity. Suppliers of key polyester ingredients are workingdecreases in fringe benefit costs, non-cash deferred compensation costs, professional fees, and other employee related costs. The reduction in fringe benefit costs is mainly related to replenish supply chain inventory levels depletedreductions in certain variable compensation programs due to lower operating results during the recession, causing their plantscurrent quarter. These decreases were partially offset by increases in salary costs due to run at or near capacitya higher average cost per employee.
Consolidated Restructuring and further tightening global supply. Beginning inImpairments
During the secondfirst quarter of fiscal year 2011, the Company experienced risingincurred $363 related to the relocation of polyester raw material prices stemmingequipment from increasesYadkinville, North Carolina to El Salvador. These costs were charged to restructuring expense as incurred.
Consolidated (Benefit) Provision for Bad Debts
During the first quarter of fiscal year 2012, there were no significant changes in crude oil prices, the returnCompany’s allowance for uncollectible accounts and certain risk accounts remained relatively unchanged. The provision for bad debt expense was $205 for the three months ended September 25, 2011, as compared to a benefit of post-recession demand$41 recorded for all fibersthe prior year quarter.
Consolidated Other Operating (Income) Expense, Net
The components of other operating (income) expense, net are as follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Net (gain) loss on sale of assets | | $ | 64 | | | $ | (65 | ) |
Foreign currency transaction (gains) losses | | | (21 | ) | | | 364 | |
Other, net | | | (84 | ) | | | (56 | ) |
Other operating (income) expense, net | | $ | (41 | ) | | $ | 243 | |
Other, net includes rental income and miscellaneous charges.
Consolidated Interest Expense, Net
Net interest expense decreased from $4,526 in the September 2010 quarter to $3,733 in the September 2011 quarter. The favorable decline in interest expense for the Company was primarily due to the lower average outstanding debt balance of the 2014 notes as a result of the redemption of $55,000 of its 2014 notes since June 30, 2010. These redemptions have been financed through a mix of cash generated from operations and borrowings under the Company’s revolving credit facility which carries a lower average interest rate. The weighted average interest rate of Company debt for the September 2011 quarter and the unplanned temporary slowdown in production in paraxlyeneSeptember 2010 quarter was 9.7% and monoethylene glycol (“MEG”) plants in Asia. Additionally, cotton prices reached historical highs in the March 2011 quarter due to weather-related and other supply disruptions, which when combined with robust global demand, particularly in Asia, has created concerns about availability. This has caused an increase in demand for polyester staple as11.1%, respectively.
Outlook:
As a substitute for cotton resulting in higher polyester ingredient costs. Over the long term,result of its recent redemptions, the Company expects feedstock supplies to remain tightincur approximately $850 less net interest expense in fiscal year 2012 versus fiscal year 2011. As the Company executes its Deleveraging Strategy, the trend for declining interest expense is expected to continue.
Consolidated Non-Operating (Income) Expenses, net
For the three months ended September 25, 2011, non-operating (income) expense consists of losses from extinguishment of debt of $462 due to the Company’s redemption of $10,000 of its 2014 notes under the terms of the indenture governing the 2014 notes (the "Indenture") at 102.875%. For the three months ended September 26, 2010, non-operating (income) expense consists of loss from extinguishment of debt of $1,144 due to the Company’s redemption of $15,000 of its 2014 notes pursuant to the Indenture terms at 105.75%.
Consolidated Income Taxes
The Company’s income tax provision for the next twenty-fourquarter ended September 25, 2011 resulted in tax expense of $273 at an effective rate of 48.8%. The income tax rate for the period is different from the U.S. statutory rate due to thirty-six months, until planned expansionlosses in tax jurisdictions for which no tax benefit could be recognized, foreign dividends taxed in the U.S. and earnings attributable to foreign operations which are taxed at rates lower than the U.S. statutory rate. The effective income tax rate can be affected over the fiscal year by the mix and timing of purified terephthalic acid (“PTA”)actual earnings from our U.S. operations and MEG capacity improves supplyforeign sources versus annual projections and brings ingredient costs backchanges in foreign currencies in relation to more normalized levels. In the meantime, the Company has worked with the supply chain to pass along these raw material price increases to its customers both during the quarter and subsequent to quarter end.U.S. dollar.
Sales dollarsThe Company’s income tax provision for the quarter ended September 26, 2010 resulted in tax expense of $2,517 at an effective rate of 19.7%. The income tax rate for the period is different from the U.S. statutory rate due to the utilization of prior losses for which no benefit had been previously recognized, foreign dividends taxed in the U.S., and earnings attributable to foreign operations which are taxed at rates lower than the U.S. statutory rate.
The Company currently has a full valuation allowance against its net deferred tax assets in the U.S. and certain foreign subsidiaries due to negative evidence concerning the realization of those deferred tax assets in recent years. The Company continues to evaluate both positive and negative evidence to determine whether and when the valuation allowance, or a portion thereof, should be released. A release of the valuation allowance could have a material effect on net earnings in the period of release.
Consolidated Equity in Earnings of Unconsolidated Affiliates
The Company participates in joint ventures in the U.S. and in Israel. As of September 25, 2011, the Company has $92,340 invested in these unconsolidated affiliates. For the three months ended September 25, 2011, $3,459 of the Company’s $559 of income before income taxes was generated from its investments in these four unconsolidated affiliates. See “Footnote 22. Investments in Unconsolidated Affiliates and Variable Interest Entities” to the Condensed Consolidated Financial Statements included in this Form 10-Q for a detailed discussion of the Company’s investments in these joint ventures.
For the three months ended September 25, 2011, earnings from the Company’s unconsolidated equity affiliates was $3,459 compared to $8,951 for the three months ended September 26, 2010. During these periods, the Company’s 34% share of PAL’s earnings decreased from $8,633 to $3,827 primarily due to the timing of revenue recognition under the terms of the cotton rebate program. During the prior year quarter, PAL recognized (within its cost of sales) a higher level of rebates due to the timing of capital expenditures. The increase in PAL’s net sales is primarily due to higher average selling prices due to the significant rise in cotton costs. The remaining decrease in the earnings of equity affiliates relates primarily to lower operating results of UNF and UNF America which was primarily driven by decreased sales volumes are upand lower capacity utilization.
Outlook:
The Company expects the rebates to be recognized by PAL during the remainder of fiscal year 2012 to be similar to those recorded during the first quarter of fiscal year 2012. The Company also expects its equity affiliates to continue to be impacted by lower sales volumes over the short-term with a return to more normalized sales volumes and profitability during the second half of fiscal year 2012.
Consolidated Net Income
Net income for the September 2011 quarter was $286, or $0.01 per basic share, compared to net income of $10,235, or $0.51 per basic share, for the prior year quarter. The Company’s decreased profitability was due primarily to lower sales volumes over the prior year quarter, higher manufacturing costs and a decrease in earnings from the Company’s unconsolidated affiliates partially offset by 15% and 5%a favorable decline in SG&A expenses.
Consolidated Adjusted EBITDA
Adjusted EBITDA for the fiscal MarchSeptember 2011 quarter decreased $10,290 versus the prior year quarter. As discussed above, consolidated gross profit decreased $9,716 partially offset by a favorable decline in SG&A costs of $1,139. The primary differences between the aforementioned changes in gross profit and 17%SG&A expenses and 10%, respectively,the Company’s key performance Adjusted EBITDA metric are primarily start-up costs, non-cash compensation charges, provision (benefit) for bad debts and other operating (income) expense items.
Liquidity and Capital Resources
The Company’s primary capital requirements are for working capital, capital expenditures, debt repayment and service of indebtedness. The Company’s primary sources of capital are cash generated from operations and amounts available under its revolving credit facility. As of September 25, 2011, cash generated from operations was $1,821 and availability under the revolving credit facility was $54,598.
Historically, the Company has met its working capital, capital expenditures and service of indebtedness requirements from its cash flows from operations. For fiscal year 2011 and the first quarter of fiscal year 2012, cash generated from operations did not cover the Company’s working capital needs, capital expenditures and service of indebtedness. The Company used borrowings from its revolving credit facility to supplement cash flows from operations.
The following table presents a summary of the Company’s cash, working capital, debt obligations and liquidity for its U.S. and foreign operations as of September 25, 2011:
| | U.S. | | | Brazil | | | All Others | | | Total | |
Working capital | | $ | 115,389 | | | $ | 57,452 | | | $ | 25,575 | | | $ | 198,416 | |
Long-term debt, including current portion | | $ | 163,970 | | | $ | — | | | $ | — | | | $ | 163,970 | |
| | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 146 | | | $ | 11,184 | | | $ | 8,491 | | | $ | 19,821 | |
Borrowings available revolving credit facility | | | 54,598 | | | | — | | | | — | | | | 54,598 | |
Liquidity | | $ | 54,744 | | | $ | 11,184 | | | $ | 8,491 | | | $ | 74,419 | |
During fiscal year 2011, the Company changed its indefinite reinvestment assertion related to $26,630 of the earnings and profits held by UDB. During fiscal year 2012, the Company increased the assertion related to the future repatriation of UDB earnings and profits by an additional $13,415. The Company has established a deferred tax liability, net of estimated foreign tax credits, of approximately $3,756 related to the additional income tax that would be due as a result of the current plan to repatriate earnings in future periods. During fiscal year 2012, the Company repatriated current foreign earnings of $7,400. All other remaining undistributed earnings are deemed to be indefinitely reinvested.
Working capital decreased by $14,553 from $212,969 as of June 26, 2011 to $198,416 as of September 25, 2011. This decrease includes a $12,425 currency effect related to the weakening of the Brazilian Real to the U.S. dollar of which $3,242 relates to the effect of currency rate changes on a fiscal year-to-date basis. However, increasescash and cash equivalents. Adjusted for the changes due to currency, the changes in the Company’s polyester raw materialsworking capital as compared to June 26, 2011 were comprised of increases for domestic operations and lower nylon volumes placed pressure on margins during the quarter and negatively impacted operating results.decreases for international businesses. The Company’s nylonincrease in working capital for domestic operations declined mainlyis primarily due to inventory reduction programs at certain of its customers. The Company’s PVA business continues to grow on a global basis and the Company has developed plans to regain lost margins caused by thean increase in polyesterinventories, partially offset by an increase in accounts payable and nylona decrease in cash. The decrease in cash is primarily impacted by capital expenditures and debt reduction. Domestic inventories increased as a result of higher inventory units and rising raw material costs. These pricing plans startedDomestic accounts payable increased due to the timing of payments made to suppliers for raw material purchases. The decline in working capital for international businesses is primarily driven by a decrease in inventory and cash, partially offset by decreases in accounts payable and accrued expenses. A decline in inventory units at the firstCompany’s Brazilian subsidiary accounts for the majority of April 2011the decline in international inventories and are expectedthe decrease in accounts payable is reflective of a lower level of purchases.
Assuming lower raw material costs, an end to the inventory destocking and improvements in the Company’s inventory and working capital turns, the Company expects working capital to be fully implemented by mid-May 2011, as some customers are under order-by-order pricing arrangements, while other customers have monthly or quarterly pricing, with various starting and ending dates.a source for cash for the 2012 fiscal year.
The competitivenessCompany currently believes that its existing cash balances and cash generated by operations, together with its available credit capacity, will enable the Company to comply with the terms of its indebtedness and meet the U.S.-Dominican Republic-Central America Free Trade Agreement (“CAFTA”) region has continuedforeseeable liquidity requirements. Domestically, the Company’s cash balances, cash generated by operations and borrowings available under the revolving credit facility continue to improvebe sufficient to fund its domestic operating activities and cash commitments for its investing and financing activities. For its foreign businesses, the Company’s existing cash balances and cash generated by operations should provide the needed liquidity to fund its foreign operating activities and any foreign investing activities, including future capital expenditures.
Cash Provided by Operations
Net cash provided by operations was as follows:
| | For the Three Months Ended | |
| | September 25, 2011 | | | September 26, 2010 | |
Plus cash receipts: | | | | | | |
Receipts from customers | | $ | 171,615 | | | $ | 172,063 | |
Dividends from unconsolidated affiliates | | | 2,005 | | | | 2,532 | |
Other receipts | | | 551 | | | | 895 | |
Less cash payments: | | | | | | | | |
Payments to suppliers and other operating cost | | | 136,031 | | | | 133,555 | |
Payments for salaries, wages, and benefits | | | 34,748 | | | | 35,138 | |
Payments for restructuring and severance | | | — | | | | 664 | |
Payments for interest | | | 778 | | | | 380 | |
Payments for taxes | | | 793 | | | | 1,742 | |
Net cash provided by operations | | $ | 1,821 | | | $ | 4,011 | |
Cash received from customers decreased slightly during the September 2011 quarter over the September 2010 quarter as a result of declines in sales volumes. Selling prices increased on a per unit basis, however, this increase did not offset the sales volume decline. Payments to suppliers increased as raw material prices exceeded historic highs and reduced demand for textile products in the U.S. Polyester raw material prices increased approximately 50% in the September 2011 quarter as compared to Asia, which has resultedthe same prior year quarter. These per unit increases were partially offset by lower production volumes. Salary, wage and benefit payments decreased slightly as a result of reduced variable compensation payments offset by an increase in increased CAFTA production of apparel using synthetic fibers. Rising manufacturing, transportation and capital costs in China coupled with the CAFTA region’s shorter lead times have made the region an attractive supply chain for U.S brands and retailers. Synthetic apparel imports from the CAFTA region increased 20% in the March 2011 quarter compared toemployee costs. The Company had 200 additional wage level employees versus the prior year quarter, and the Company currently estimates volume from CAFTA will increase by approximately 18% for the 2011 calendar year compared to 2010. The Company’s new manufacturing facility, Unifi Central America, Ltda. DE C.V. (“UCA”), located in El Salvador has allowed the Company to maintain market share in the region, while also positioning the Company for additional volume opportunities as global apparel sourcing continues to move to the CAFTA region from Asia and other areas.
Over the past year, the Company expanded its efforts in manufacturing and statistical process control in all of its operations aiming for measurable improvements in the cost of operations. These efforts, coupled with strategic capital investments designed to grow the Company’s PVA product capabilities, are expected to result in continued improvement of its financial performance over the next several years. One investment includes a capital projectprimarily related to the backward supply chain integrationcompletion of UCA and the Repreve recycling center. The increased borrowings under the Company’s revolving credit facility versus the prior year quarter caused an increase in the frequency of required interest payments. Restructuring and severance payments decreased as the Company completed its equipment reinstallation involving certain of its polyester facilities. Taxes paid by the Company decreased from $1,742 to $793 primarily as a result of a decline in tax liabilities related to the Company’s Brazilian subsidiary. The Company’s cash dividends from unconsolidated affiliates remained relatively flat. Other receipts include rental income and interest income.
Cash Used in Investing Activities and Financing Activities
Investing and Financing Activities
The Company utilized $1,309 in net investing activities and utilized $4,939 in net financing activities during the September 2011 quarter. The primary cash expenditures for investing and financing activities during the September 2011 quarter included $10,288 to repurchase a portion of the 2014 notes with a face value of $10,000, $1,122 in capital expenditures and $360 for investment in an unconsolidated affiliate offset by $173 in proceeds from the sale of assets.
The Company utilized $5,540 in net investing activities and utilized $16,684 in net financing activities during the September 2010 quarter. The primary cash expenditures for investing and financing activities during the September 2010 quarter included $15,863 to repurchase a portion of the 2014 notes with a face value of $15,000, $5,495 in capital expenditures, $821 for debt refinancing fees and $225 for investment in an unconsolidated affiliate offset by $180 in proceeds from the sale of capital assets.
Capital Expenditures
In addition to its normal working capital requirements, the Company requires cash to fund capital expenditures. During the first quarter of fiscal year 2012, the Company spent $1,122 on capital expenditures compared to $5,495 in the prior year quarter. The Company estimates its fiscal year 2012 capital expenditures will be approximately $7,000 to $8,000, which primarily consists of routine, on-going capital expenditures to extend the useful life of certain assets. As of September 25, 2011, the Company had no restricted cash funds that are required to be used for domestic capital expenditures under the Indenture. The Company may incur additional capital expenditures as it pursues new opportunities to expand its production capabilities or to further streamline its manufacturing processes.
Note Repurchases
The Company may, from time to time, seek to retire or purchase its outstanding debt in open market purchases, in privately negotiated transactions or by calling a portion of the 2014 notes under the terms of the Indenture. Such retirement or purchase of debt may come from the operating cash flows of the business or other sources and will depend upon the Company’s 100% recycled Repreve® product. By being more vertically integrated,strategy, prevailing market conditions, liquidity requirements, contractual restrictions and other factors and the amounts involved may be material. The Company continues to execute its plan to utilize a combination of internally generated cash and excess availability on its revolving credit facility to repurchase and retire portions of its 2014 notes. The Company expects to maintain a continuous balance outstanding under its revolving credit facility and hedge a substantial amount of the interest rate risk in order to ensure its interest savings. As a result of the utilization of cash on hand to reduce outstanding debt and the lower rate under the revolving credit facility, the Company expects to improvea significant reduction of its annual fixed carrying cost between the availabilitycommencement of recycled raw materialsthis debt reduction strategy during the 2010 fiscal year and significantly increasethe final repayment of the 2014 notes.
Long-Term Debt
Long-term debt consists of the following:
| | September 25, 2011 | | | June 26, 2011 | |
Notes payable | | $ | 123,722 | | | $ | 133,722 | |
Revolving credit facility | | | 39,900 | | | | 34,600 | |
Capital lease obligation | | | 348 | | | | 342 | |
Total debt | | | 163,970 | | | | 168,664 | |
Current portion of long-term debt | | | (348 | ) | | | (342 | ) |
Total long-term debt | | $ | 163,622 | | | $ | 168,322 | |
Notes Payable
On May 26, 2006, the Company issued $190,000 of its product capabilities2014 notes with interest payable on May 15 and ability to compete effectively in this growing segment.November 15 of each year. The Company expects this will also make it an even stronger partner in the development and commercialization of value-added products that meet sustainability demands of today’s brands and retailers. In addition, the Company has invested in new working capitalcan currently elect to support the higher sales volumes as retail sales continue to recover and additional production capacity in El Salvador.
In Brazil and China, the Company expects to profitably grow the contribution of each of these operations by focusing on gaining market share and expanding volumes in its premier value-added products. The Company is encouraged by the level of interest and opportunities in China for Repreve and other PVA products.
In order to improve long-term performance, the Company will continue to focus on sustaining and continuously improving operations and profitability, and increasing its net sales and earnings in global markets. While the Company continues to explore global growth opportunities and diversify its portfolio, the Company’s top priority remains growing and continuously improving its core business. The Company will strive to create additional value through mix enrichment, share gain, process improvement throughout the organization, and expanding the number of customers and programs using its high value and PVA yarns.
On December 28, 2010, the Company announced its commencement of a cash tender offer for any andredeem some or all of the Company’s 11.5% senior secured notes due May 15, 2014 (the “2014 notes”). Subsequently, on January 11, 2011, the Company announced its termination of the cash tender offer due to the condition of the debt capital markets which made the estimated cost savings generated from a new debt financing insufficient to offset the estimated costs of conducting such a transaction. Concurrently, the Company announced that it was calling for the redemption of $30.0 million of the 2014 notes at redemption prices equal to or in excess of par depending on the year the optional redemption occurs. The Company may also purchase its 2014 notes in open market purchases or in privately negotiated transactions and then retire them or it may refinance all or a redemption price of 105.75%portion of the principal amount of the redeemed notes. 2014 notes with a new debt offering.
On February 16,August 5, 2011, the Company completed the transaction for a totalredemption of an aggregate redemption priceprincipal amount of approximately $32.6 million which included accrued interest. This$10,000 of its 2014 notes at 102.875%. The Company financed the redemption was financed through borrowings under the Company’s senior secured asset-basedits revolving credit facility entered intofacility. In connection with Bank of America, N.A. (as both Administrative Agent and Lender thereunder) (as amended, “revolving credit facility”) which carries a much lower rate than the 2014 notes.
On February 15, 2011,redemption, the Company entered into a 27-month, $25 milliontwenty-one month, $10,000 interest rate swap with Bank of America, N.A. to provide a hedge against the variability of cash flows (monthly interest expense payments) on the first $25 million of London Interbank Offered Rate (“LIBOR”)-based variable rate borrowings under the Company’s revolving credit facility due to fluctuations in the LIBOR benchmark interest rate. The Company intends to maintain at least $25 million of LIBOR-based variable rate borrowings in place for the duration of the interest rate swap. Theflows. This interest rate swap allows the Company to payfix the LIBOR rate at 0.75%.
Revolving Credit Facility
The Company’s First Amended Credit Agreement provides for a fixed interest raterevolving credit facility of 1.39% on such borrowings. The Company designated$100,000 (with the swap as a cash flow hedge and formally documented all aspectsability of the relationship betweenCompany to request that the hedging instrument (the interest rate swap)borrowing capacity be increased up to $150,000) and matures on September 9, 2015. However, if the item being hedged (the LIBOR-based variable rate borrowings)2014 notes have not been paid in full on or before February 15, 2014, the maturity date of the Company’s revolving credit facility will be automatically adjusted to February 15, 2014. As of September 25, 2011, the Company’s availability under the revolving credit facility was $54,598.
Contingencies
Environmental Liabilities
On September 30, 2004, the Company completed its acquisition of the polyester filament manufacturing assets located in Kinston, North Carolina from INVISTA S.a.r.l. (“INVISTA”). The Company assesses, bothland for the Kinston site was leased pursuant to a 99 year Ground Lease with DuPont. Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the EPA and DENR pursuant to the Resource Conservation and Recovery Act Corrective Action program. The Corrective Action program requires DuPont to identify all potential AOC, assess the extent of contamination at the inceptionidentified AOCs and clean them up to comply with applicable regulatory standards. Effective March 20, 2008, the Company entered into a Lease Termination Agreement associated with conveyance of certain of the hedgeassets at Kinston to DuPont. This agreement terminated the Ground Lease and on an ongoing basis, whether derivatives designated as hedging instruments are highly effective in offsettingrelieved the changesCompany 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 cash flowINVISTA 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 with respect to this site will be transferred to the Company in the future, at which time DuPont must pay the Company seven years of the hedge items. If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective,monitoring and reporting costs and the Company will discontinue hedge accounting prospectively.assume responsibility for any future remediation and monitoring of this 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.
On February 10, 2011,Litigation
The Company is aware of certain claims against it for the alleged use of non-compliant Berry Amendment nylon POY in yarns that the Company announced the appointment of Ms. Suzanne M. Presentsold which may have ultimately been used to its Board of Directors (the “Board”). On February 25, 2011,manufacture certain U.S. military garments. Although the Company announcedbelieves it has certain potential defenses to the claims, the estimate of possible losses, before considering any potential salvage values for the garments, ranges from $200 to $2,100. The Company has appropriately accrued for this contingency. It is reasonably possible that its Board appointed Mr. William L. Jasper as the Company’s Chairmanestimate may differ from the actual claim amount; however, the Company believes any change would not be material to the financial statements.
Contractual Obligations
The Company has assumed various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the BoardCompany is required to make under existing contractual arrangements, such as debt and also appointed Mr. R. Roger Berrier, Jr. aslease agreements. Except for the Company’s President and Chief Operating Officer. Mr. Jasper continues to serve as the Company’s Chief Executive Officer. Prior to this announcement, Mr. Berrier, a member of the Board, served as Executive Vice President of Sales, Marketing, and Asian Operations. These announcements were the result of the unexpected death of Mr. Stephen Wener, the Company’s former Chairman of the Board, on February 21, 2011. Mr. Wener had served as a member of the Board since 2007 and was a member$10,000 redemption of the Company’s Executive Committee. Mr. Wener had2014 notes discussed above, there have been no material changes in the President and Chief Executive Officer of Dillon Yarn Company (“Dillon”). On March 9, 2011, the Company appointed Mr. Mitchel Weinberger to its Board. Mr. Weinberger is the President and Chief Operating Officer of Dillon.
On October 27, 2010, the shareholders of the Company approved a reverse stock splitscheduled maturities of the Company’s common stock (the “reverse stock split”) at a reverse stock split ratio of 1-for-3. The reverse stock split became effective November 3, 2010 pursuant to a Certificate of Amendment tocontractual obligations as disclosed in the table under the heading “Contractual Obligations” in the Company’s Restated Certificate of Incorporation filed withAnnual Report on Form 10-K for the Secretary of State of New York. The Company had 20,059,544 shares of common stock issued and outstanding immediately following the completion of the reverse stock split. fiscal year ended June 26, 2011.
Off Balance Sheet Arrangements
The Company is authorized in its Restated Certificate of Incorporationnot a party to issue upany off-balance sheet arrangements that have, or are reasonably likely to have, a total of 500,000,000 shares of common stock at a $.10 par value per share which was unchanged by the amendment. The reverse stock split did not affect the registration of the common stock under the Securities Exchange Act of 1934, as amendedcurrent or the listing of the common stockfuture material effect on the New York Stock Exchange under the symbol “UFI”, although the post-split shares are considered a new listing with a new CUSIP number. In the Condensed Consolidated Balance Sheets, the line item shareholders’ equity has been retroactively adjusted to reflect the reverse stock split for all periods presented by reducing the line item common stock and increasing the line itemCompany’s financial condition, results of operations, liquidity or capital in excess of par value, with no change to shareholders’ equity in the aggregate. All share and per share computations have been retroactively adjusted for all periods presented to reflect the decrease in shares as a result of this transaction.expenditures.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”)GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The SEC has defined a company’s most critical accounting policies as those involving accounting estimates that require management to make assumptions about matters that are highly uncertain at the time and where different reasonable estimates or changes in the accounting estimate from quarter to quarter could materially impact the presentation of the financial statements. The following discussion provides further information about theCompany’s critical accounting policy related to the Company’s valuation allowance for deferred tax assets and is an addition to the Company’s “Critical Accounting Policies”policies are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’sour most recent Annual Report on Form 10-K for the fiscal year ended June 27, 2010, as recast for the effect of the 1-for-3 reverse stock split on November 3, 2010 in its Current Report on Form 8-K filed January 7, 2011.
Valuation Allowance for Deferred Tax Assets. The Company maintains a valuation allowance against certain of its deferred tax assets as the Company has determined that it is more likely than not that it will not be able to realize these deferred tax assets. The Company’s realization of its deferred tax assets is based on several factors that require continued assessment. One of the factors is the existence of future taxable income within a certain time period and is therefore uncertain and judgmental. Other factors include the potential for carryback and carryforward of various tax attributes, the possibility of reasonable tax planning, and the reversal of taxable temporary differences. On a quarterly basis, the Company reviews these factors in determining the likelihood of realizability of its deferred tax assets. The valuation allowance on the Company’s net deferred tax assets in certain jurisdictions is reviewed quarterly and will be maintained until sufficient positive evidence exists to support the reversal of the valuation allowance. A release of the valuation allowance could have a material effect on earnings in the period of release.
Key Performance Indicators
The Company continuously reviews performance indicators to measure its success. The following are the indicators management uses to assess performance of the Company’s business:
· | sales volume, which is an indicator of demand; |
· | gross margin, which is an indicator of product mix and profitability; |
· | adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“adjusted EBITDA”), which the Company defines as net income or loss before income tax expense (benefit), net interest expense, and depreciation and amortization expense (excluding interest portion of amortization), adjusted to exclude equity in earnings and losses of unconsolidated affiliates, write down of long-lived assets, non-cash compensation expense net of distributions, gains or losses on sales or disposals of property, plant and equipment (“PP&E”), currency and derivative gains or losses, gains or losses on extinguishment of debt and other non-operating refinancing costs, restructuring charges, gain from sale of nitrogen credits, and startup costs, as revised from time to time, which the Company believes is a supplemental measure of its operating performance and debt service capacity; and
|
· | adjusted working capital (accounts receivable plus inventory less accounts payable and accruals) as a percentage of sales, which is an indicator of the Company’s production efficiency and ability to manage its inventory and receivables. |
Consolidated net sales for the third quarter of fiscal year 2011 were $178.2 million, an increase of $23.5 million, or 15.2%, as compared to the same quarter in the prior year. This improvement was a result of improved volumes and higher selling prices related to higher raw material costs. Sales volumes increased 5% in the third quarter of fiscal year 2011 as compared to the third quarter of fiscal year 2010, primarily driven by gains in the Company’s domestic business as well as improvements derived from the Company’s Chinese and Central American operations. PVA net sales increased by 41% in the current quarter over the prior year third quarter. These improvements in PVA sales dollars and volumes are a leading factor in the Company’s overall improved sales results. Other factors include volume growth in the Company’s China and Central America operations and price improvements in its Brazilian operations.
Consolidated gross profit decreased $1.3 million to $15.2 million for the third quarter of fiscal year 2011 as compared to the prior year third quarter. This decrease in gross profit was primarily attributable to increased raw material prices and manufacturing costs. During the Company’s fiscal December 2010 and March 2011 quarters, raw material prices increased 19% and 25%, respectively. Consolidated variable manufacturing costs increased by $2.6 million and consolidated fixed manufacturing costs increased by $1.4 million. Offsetting this increase is an improvement in conversion (net sales less raw material cost) of $2.7 million for the March 2011 fiscal quarter when compared to the March 2010 fiscal quarter.
The Company’s adjusted EBITDA for the quarter-to-date period of fiscal year 2011 was $12.3 million, which is a decline of $0.4 million from the prior year quarter. Adjusted EBITDA for the year-to-date period of fiscal year 2011 was $46.4 million, which is an improvement of $5.3 million over the same period of fiscal year 2010, as described in more detail below. The increase in year-to-date adjusted EBITDA over the prior year period is due in part to improved sales volumes, a higher proportion of PVA sales, and increased selling prices, which allowed the Company to regain conversion margin lost as a result of rising raw material prices during the latter half of fiscal year 2010 and cover raw material price increases experienced in the second quarter of fiscal year 2011. The Company’s positive results were due to a combination of continuous efforts to improve its manufacturing processes and expand its market share.
Adjusted EBITDA
Adjusted EBITDA is a financial measurement that management uses to facilitate its analysis and understanding of the Company’s business operations. Management believes it is useful to investors because it provides a supplemental way to understand the underlying operating performance of the Company. The calculation of adjusted EBITDA is a subjective measure based on management’s belief as to which items should be included or excluded, in order to provide the most reasonable view of the underlying operating performance of the business. Adjusted EBITDA is not considered to be in accordance with GAAP and should not be considered a substitute for performance measures calculated in accordance with GAAP.
The following table presents the Company’s calculation of adjusted EBITDA beginning with Net (loss) income:
| | For the Quarters Ended | | | For the Nine-Months Ended | |
| | March 27, 2011 | | | March 28, 2010 | | | March 27, 2011 | | | March 28, 2010 | |
| | (Amounts in thousands) | |
Net (loss) income | | $ | (4,045 | ) | | $ | 771 | | | $ | 11,575 | | | $ | 5,213 | |
Interest expense, net | | | 4,432 | | | | 4,922 | | | | 13,352 | | | | 14,057 | |
Provision (benefit) for income taxes | | | (166 | ) | | | 1,937 | | | | 4,205 | | | | 5,596 | |
Depreciation and amortization expense | | | 6,599 | | | | 6,485 | | | | 19,564 | | | | 19,829 | |
Equity in losses (earnings) of unconsolidated affiliates | | | 2,103 | | | | (2,175 | ) | | | (11,887 | ) | | | (5,847 | ) |
Non-cash compensation expense, net of distributions | | | 392 | | | | 683 | | | | 1,095 | | | | 2,299 | |
Loss on sales or disposals of PP&E | | | 189 | | | | 1,010 | | | | 242 | | | | 953 | |
Currency and derivative (gains) losses | | | (14 | ) | | | 61 | | | | 296 | | | | (59 | ) |
Write down of long-lived assets | | | — | | | | — | | | | — | | | | 100 | |
Loss (gain) on extinguishment of debt and other non-operating expense | | | 2,271 | | | | — | | | | 3,865 | | | | (54 | ) |
Restructuring charges | | | 9 | | | | 254 | | | | 1,555 | | | | 254 | |
Gain from sale of nitrogen credits | | | — | | | | (1,400 | ) | | | — | | | | (1,400 | ) |
Startup costs (a) | | | 502 | | | | 167 | | | | 2,540 | | | | 167 | |
Adjusted EBITDA | | $ | 12,272 | | | $ | 12,715 | | | $ | 46,402 | | | $ | 41,108 | |
(a) | Initial UCA operating expenses incurred during fiscal year 2011 related to pre-operating expenses including the hiring and training of new employees and the costs of operating personnel to initiate the new operations. Start-up expenses also include losses incurred in the period subsequent to when UCA assets became available for use but prior to the achievement of a reasonable level of production. In addition, beginning in the third quarter of fiscal year 2011, the Company also incurred pre-operating expenses related to its new recycling center located in Yadkinville, North Carolina. The Company expects the recycling center to be fully operational by June 2011. |
Joint Ventures and Other Equity Investments
The following table represents the Company’s investments in unconsolidated affiliates:
Affiliate Name
| Date
Acquired
| Locations
| Percent
Ownership
|
Parkdale America, LLC (“PAL”) | Jun-97 | North Carolina, South Carolina, Virginia, and Georgia | 34% |
| | | |
U.N.F. Industries, LLC (“UNF”) | Sep-00 | Migdal Ha – Emek, Israel | 50% |
| | | |
UNF America, LLC (“UNF America”) | Oct-09 | Ridgeway, Virginia | 50% |
| | | |
Repreve Renewables, LLC (“Repreve Renewables”) | Apr-10 | Soperton, Georgia | 40% |
Summarized balance sheet information as of March 27, 2011 and March 28, 2010 and summarized income statement information for the quarter and year-to-date periods ended March 27, 2011 and March 28, 2010 of the combined unconsolidated equity affiliates are as follows (amounts in thousands):
| | March 27, 2011 | |
| | (Unaudited) | |
| | PAL | | | Other | | | Total | |
| | | | | | | | | |
Current assets | | $ | 326,872 | | | $ | 15,660 | | | $ | 342,532 | |
Non-current assets | | | 159,288 | | | | 9,687 | | | | 168,975 | |
Current liabilities | | | 87,806 | | | | 4,872 | | | | 92,678 | |
Non-current liabilities | | | 106,139 | | | | ― | | | | 106,139 | |
Shareholders’ equity and capital accounts | | | 292,215 | | | | 20,475 | | | | 312,690 | |
| | June 27, 2010 | |
| | (Unaudited) | |
| | PAL | | | Other | | | Total | |
| | | | | | | | | |
Current assets | | $ | 198,958 | | | $ | 12,262 | | | $ | 211,220 | |
Non-current assets | | | 120,380 | | | | 6,701 | | | | 127,081 | |
Current liabilities | | | 48,220 | | | | 5,238 | | | | 53,458 | |
Non-current liabilities | | | 25,621 | | | | 2,000 | | | | 27,621 | |
Shareholders’ equity and capital accounts | | | 245,497 | | | | 11,725 | | | | 257,222 | |
| | For the Quarter Ended March 27, 2011 | |
| | (Unaudited) | |
| | PAL | | | Other | | | Total | |
| | | | | | | | | |
Net sales | | $ | 303,964 | | | $ | 9,579 | | | $ | 313,543 | |
Gross profit | | | 9,304 | | | | 1,585 | | | | 10,889 | |
EAP revenues | | | 7,290 | | | | ― | | | | 7,290 | |
Depreciation and amortization | | | 8,257 | | | | 343 | | | | 8,600 | |
Income from operations | | | 5,963 | | | | 828 | | | | 6,791 | |
Net (loss) income | | | (3,743 | ) | | | 675 | | | | (3,068 | ) |
| | For the Quarter Ended March 28, 2010 | |
| | (Unaudited) | |
| | PAL | | | Other | | | Total | |
| | | | | | | | | |
Net sales | | $ | 189,021 | | | $ | 5,525 | | | $ | 194,546 | |
Gross profit | | | 14,729 | | | | 823 | | | | 15,552 | |
EAP revenues | | | 3,408 | | | | ― | | | | 3,408 | |
Depreciation and amortization | | | 5,154 | | | | 342 | | | | 5,496 | |
Income from operations | | | 10,728 | | | | 263 | | | | 10,991 | |
Net income | | | 10,587 | | | | 393 | | | | 10,980 | |
| | For the Nine-Months Ended March 27, 2011 | |
| | (Unaudited) | |
| | PAL | | | Other | | | Total | |
| | | | | | | | | |
Net sales | | $ | 726,122 | | | $ | 31,730 | | | $ | 757,852 | |
Gross profit | | | 53,267 | | | | 5,600 | | | | 58,867 | |
EAP revenues | | | 34,977 | | | | ― | | | | 34,977 | |
Depreciation and amortization | | | 23,090 | | | | 1,026 | | | | 24,116 | |
Income from operations | | | 43,216 | | | | 3,312 | | | | 46,528 | |
Net income | | | 34,660 | | | | 2,541 | | | | 37,201 | |
| | For the Nine-Months Ended March 28, 2010 | |
| | (Unaudited) | |
| | PAL | | | Other | | | Total | |
| | | | | | | | | |
Net sales | | $ | 396,718 | | | $ | 15,040 | | | $ | 411,758 | |
Gross profit | | | 33,094 | | | | 2,195 | | | | 35,289 | |
EAP revenues | | | 5,788 | | | | ― | | | | 5,788 | |
Depreciation and amortization | | | 15,895 | | | | 1,257 | | | | 17,152 | |
Income from operations | | | 20,410 | | | | 919 | | | | 21,329 | |
Net income | | | 21,382 | | | | 1,029 | | | | 22,411 | |
PAL. PAL receives benefits under the Food, Conservation, and Energy Act of 2008 (“2008 U.S. Farm Bill”) which extended the existing upland cotton and extra long staple cotton programs (the “Program”), including economic adjustment assistance provisions for ten years. Beginning August 1, 2008, the Program provided textile mills a subsidy of four cents per pound on eligible upland cotton consumed during the first four years and three cents per pound for the last six years. The economic assistance received under this Program must be used to acquire, construct, install, modernize, develop, convert or expand land, plant, buildings, equipment, or machinery. Capital expenditures must be directly attributable to the purpose of manufacturing upland cotton into eligible cotton products in the U.S. The recipients have the marketing year from August 1 to July 31, plus eighteen months to make the capital expenditures. Under the Program, the subsidy payment is received from the U.S. Department of Agriculture (“USDA”) the month after the eligible cotton is consumed. However, the economic assistance benefit is not recognized by PAL into operating income until the period when both criteria10-K. There have been met; i.e. eligible upland cotton has been consumed, and qualifying capital expenditures under the Program have been made.
During the Company’s third quarter and year-to-date periods of fiscal year 2011, PAL received $7.3 million and $21.6 million of economic assistance, respectively, and recognized $7.3 million and $35.0 million of economic assistance, respectively, in its operating income in accordance with the provisions of the Program. As a result of the timing of qualified capital expenditures, PAL’s deferred revenue relatingno material changes to the Program decreased from $13.4 million as of June 27, 2010 to nil as of March 27, 2011.
The Company recorded a loss of $2.4 million from PAL for the quarter ended March 27, 2011 as compared to income of $2.0 million in the same prior year quarter. The Company has been informed that PAL’s loss in the current quarter was primarily driven by the timing of a price index stipulated in a long-term supply contract with a large customer and the accounting for PAL’s cotton hedging activity.
The Company included in the line item equity in losses (earnings) of unconsolidated affiliates in the Condensed Consolidated Statements of Operations $1.2 million of additional losses for PAL related to PAL’s January 1, 2011 year end. The Company evaluated the effect of this adjustment on its current and prior quarter and determined the adjustment to be immaterial to both its balance sheets and statements of operations. Certain prior period amounts in the table above have been changed to reflect PAL’s final reported financial results.
On October 28, 2009, PAL acquired certain real property and machinery and equipment, as well as entered into lease agreements for real property and machinery and equipment, that constitute most of the yarn manufacturing operations of Hanesbrands, Inc. (“HBI”). Concurrent with that transaction, PAL entered into a yarn supply agreement with HBI to supply at least 95% of the yarn used in the manufacturing of HBI’s apparel products at any of HBI’s locations in North America, Central America, or the Caribbean Basin for a six-year period with an option for HBI to extend for two additional three-year periods. The yarn supply agreement also covers PAL’s supply of certain yarns used in HBI’s manufacturing in China through December 31, 2011. As a result of the HBI acquisition and the timing of significantly higher capital expenditures during calendar year 2010, PAL utilized borrowings under its revolver to fund its operations. On its April 2, 2011 balance sheet, PAL included in its current assets and non-current liabilities $23.9 million in cash and $95.0 million of debt on its revolver, respectively.
The Company’s investment in PAL at March 27, 2011 was $81.3 million and the underlying equity in the net assets of PAL at March 27, 2011 was $99.4 million. The difference between the carrying value of the Company’s investment in PAL and the underlying equity in PAL is attributable to initial excess capital contributions by the Company of $53.4 million, the Company’s share of the settlement cost of an anti-trust lawsuit against PAL in which the Company did not participate of $2.6 million offset by an impairment charge taken by the Company on its investment in PAL of $74.1 million. For the quarter and year-to-date periods ended March 27, 2011, the Company received $0.4 million and $2.9 million in dividends, respectively.
UNF. On September 27, 2000, the Company formed a 50/50 joint venture, UNF, with Nilit Ltd. (“Nilit”), to produce nylon partially oriented yarn (“POY”) at Nilit’s manufacturing facility in Migdal Ha-Emek, Israel. The Company’s investment in UNF at March 27, 2011 was $2.9 million. For the quarter and year-to-date periods ended March 27, 2011, the Company received $0.9 million in dividends from UNF.
UNF America. On October 8, 2009, the Company formed a 50/50 joint venture, UNF America, with Nilit for the purpose of producing nylon POY in Nilit’s Ridgeway, Virginia plant. The Company’s initial investment in UNF America was $50 thousand dollars. In addition, the Company loaned UNF America $0.5 million for working capital. The loan carried interest at LIBOR plus one and one-half percent and both principal and interest would be paid from the future profits of UNF America at such time as deemed appropriate by its members. The loan was treated as an additional investment by the Company for accounting purposes. As of March 27, 2011, UNF America had repaid all of the working capital loan plus interest back to the Company. The Company’s investment in UNF America at March 27, 2011 was $1.1 million. For the quarter and year-to-date periods ended March 27, 2011, the Company received $0.5 million in dividends from UNF America.
In conjunction with the formation of UNF America, the Company entered into a supply agreement with UNF and UNF America whereby the Company is committed to purchase its requirements, subject to certain exceptions, of first quality nylon POY for texturing (excluding specialty yarns) from UNF or UNF America. Pricing under the contract is negotiated every six months and is based on market rates.
Repreve Renewables. On April 26, 2010, the Company entered into an agreement to form Repreve Renewables, a joint venture in which the Company owns a 40% interest. This joint venture was established for the purpose of acquiring the assets and the expertise related to the business of cultivating, growing, and selling biomass crops, including feedstock for establishing biomass crops that are intended to be used as a fuel or in the production of fuels or energy in the U.S. and the European Union. The Company received its ownership interest in the joint venture for an initial contribution of $4.0 million. As of March 27, 2011, the Company has contributed an additional $0.9 million for its share of working capital and recorded $0.3 million for the Company’s share of accumulated net losses, resulting in an investment balance of $4.6 million.
Review of Third Quarter Fiscal Year 2011 compared to Third Quarter Fiscal Year 2010
The following table sets forth the net income components for each of the Company’s business segments for the fiscal quarters ended March 27, 2011 and March 28, 2010. The table also sets forth each of the segments’ net sales as a percent to total net sales, the net income components as a percent to total net sales and the percentage increase or decrease of such components over the comparable prior year period (amounts in thousands, except percentages):
| | For the Quarters Ended | | | |
| | March 27, 2011 | | March 28, 2010 | | | |
| | | | | | | | | | | | | |
| | | | | % to Total | | | | | % to Total | | % Change | |
Net sales | | | | | | | | | | | | | |
Polyester | | $ | 137,914 | | 77.4 | | $ | 112,604 | | 72.8 | | 22.5 | |
Nylon | | | 40,250 | | 22.6 | | | 42,083 | | 27.2 | | (4.4) | |
Total | | $ | 178,164 | | 100.0 | | $ | 154,687 | | 100.0 | | 15.2 | |
| | | | | | | | | | | | | |
| | | | | % to Net Sales | | | | | % to Net Sales | | | |
Cost of sales | | | | | | | | | | | | | |
Polyester | | $ | 126,383 | | 70.9 | | $ | 100,744 | | 65.1 | | 25.4 | |
Nylon | | | 36,634 | | 20.6 | | | 37,433 | | 24.2 | | (2.1) | |
Total | | | 163,017 | | 91.5 | | | 138,177 | | 89.3 | | 18.0 | |
| | | | | | | | | | | | | |
Restructuring charges | | | | | | | | | | | | | |
Polyester | | | 9 | | ― | | | 254 | | 0.1 | | (96.5) | |
Nylon | | | ― | | ― | | | ― | | ― | | ― | |
Total | | | 9 | | ― | | | 254 | | 0.1 | | (96.5) | |
| | | | | | | | | | | | | |
Selling, general and administrative expenses | | | | | | | | | | | | | |
Polyester | | | 8,384 | | 4.7 | | | 8,885 | | 5.8 | | (5.6) | |
Nylon | | | 1,960 | | 1.1 | | | 2,367 | | 1.5 | | (17.2) | |
Total | | | 10,344 | | 5.8 | | | 11,252 | | 7.3 | | (8.1) | |
| | | | | | | | | | | | | |
Provision (benefit) for bad debts | | | 41 | | ― | | | (105) | | (0.1) | | (139.0) | |
Other operating expense (income), net | | | 158 | | 0.1 | | | (346) | | (0.2) | | (145.7) | |
Non-operating (income) expense, net | | | 8,806 | | 5.0 | | | 2,747 | | 1.8 | | 220.6 | |
(Loss) income from operations before income taxes | | | (4,211) | | (2.4) | | | 2,708 | | 1.8 | | (255.5) | |
Provision (benefit) for income taxes | | | (166) | | (0.1) | | | 1,937 | | 1.3 | | (108.6) | |
Net (loss) income | | $ | (4,045) | | (2.3) | | $ | 771 | | 0.5 | | (624.6) | |
Consolidated net sales from operations increased $23.5 million, or 15.2% for the third quarter of fiscal year 2011 compared to the prior year third quarter. Consolidated unit sales volumes increased by 5.0% for the third quarter of fiscal year 2011 reflecting improvements in most of the Company’s operations as demand for retail apparel and home furnishings continue to improve. The weighted-average selling price increased by 10.1% compared to the same quarter of the prior fiscal year as improved market conditions allowed for the recovery of increased raw material costs experienced in the second quarter of fiscal year 2011. Net sales of the Company’s PVA products increased by 41% in the current quarter over the prior year third quarter, with the average selling price per pound increasing by 3.0% primarily driven by a change in sales mix. PVA sales volumes improved by 36% when comparing the same periods. These improvements in PVA sales dollars and volumes are a leading factor in the Company’s overall improved sales results.
Domestic net sales increased $8.9 million or 7.6% primarily due to improvements in demand in the retail markets. Correspondingly, domestic volumes improved 2.9%. Retail sales of apparel increased 4.3% compared to the prior year third quarter. Retail sales of home furnishings increased 0.8%.
Net sales for the Company’s Brazilian subsidiary, Unifi do Brasil, Ltda. (“UDB”), on a U.S. dollar basis increased by $4.4 million or 14.2% in the March 2011 quarter compared to the March 2010 quarter, which includes an increase of $2.6 million in positive currency exchange impact. On a local currency basis, the Brazilian real, net sales improved R$3.1 million or 5.6% in the March 2011 quarter which was primarily driven by an increase in sales prices intended to cover higher raw material prices. However, UDB sales volumes were negatively impacted in the current quarter as a result of increased competition from imported yarns due to the strengthening of the Brazilian real against the U.S. dollar and, as a result, volumes decreased by 13.2% for the current quarter compared to the same prior year quarter.
The Company’s Chinese subsidiary, Unifi Textiles Suzhou Co., Ltd. (“UTSC”), had net sales of $7.0 million in the current quarter as compared to $4.0 million in the prior year third quarter, an improvement of 75.0%. This is primarily a result of the Company improving its sales and promotion of PVA products in the Asian region. UTSC volumes increased 34.0% over the prior year third quarter.
The Company’s subsidiary in El Salvador, UCA, increased its net sales to $8.2 million in the third quarter of fiscal year 2011 as compared to $1.7 million in the prior year third quarter as the Company completed the start-up of its manufacturing facility and strategically improved its sales opportunities in the Central American region.
The Company’s Colombian subsidiary, Unifi Latin America, S.A. (“ULA”), had an increase in net sales of $0.7 million while sales volumes increased by 28.3% for the March 2011 quarter compared to the same quarter of the prior year.
Consolidated gross profit decreased $1.3 million to $15.2 million for the third quarter of fiscal year 2011 as compared to the prior year third quarter. This decrease in gross profit was primarily attributable to an increase in consolidated manufacturing costs of $4.0 million offset partially by an improvement in conversion dollars (net sales less raw material cost) of $2.7 million. The increase in conversion was primarily related to the Company’s foreign operations. On a local currency basis, UDB’s conversion increased 23.0% on a per unit basis due to an increase in sales pricing to cover raw material price increases while still selling lower priced inventorythese policies during the current quarter. Sales prices increased by 21.6% which was offset by increases in per unit raw material costs of 20.8%. On a U.S. dollar basis, UDB’s conversion increased 33.1% on a per unit basis increasing $1.8 million overall primarily due to improved sales mix. The remaining net increase in conversion is related to UCA’s, UTSC’s, and ULA’s contributions of $1.5 million, $0.4 million, and $0.3 million, respectively, to the Company’s consolidated conversion. Domestic conversion decreased by $1.4 million primarily as a result of higher priced raw materials that the Company experienced in the March 2011 quarter and were unable to pass along to its customers. Offsetting the improvements in conversion, consolidated manufacturing costs increased $4.0 million, or 2.4% on a per unit basis, for the March 2011 quarter over the March 2010 quarter. Consolidated variable manufacturing costs increased by $2.6 million or 1.6% on a per unit basis due primarily to packaging costs, wages and fringe benefits, utility costs, warehousing, and other variable expenses offset by an increase in the amount of variable expenses capitalized to inventory. Consolidated fixed manufacturing costs increased $1.4 million, or 4.3% on a per unit basis, primarily as a result of depreciation expenses, other manufacturing costs, salaries and fringe benefits, and a decrease in the amount of fixed expenses capitalized to inventory.
Selling, General, and Administrative Expenses
Consolidated selling, general, and administrative (“SG&A”) expense decreased $0.9 million during the third quarter of fiscal year 2011 as compared to the prior year third quarter. The decrease was primarily a result of decreases of $0.8 million in salary and other fringe benefit expenses, $0.3 million in depreciation and amortization expenses, and $0.3 million in non-cash deferred compensation costs offset by increases in sales and marketing of $0.2 million, professional fees of $0.2 million, and other expenses of $0.1 million.
Other Operating Expense (Income), Net
The following table shows the components of other operating expense (income), net (amounts in thousands):
| | For the Quarters Ended | |
| | March 27, 2011 | | | March 28, 2010 | |
| | | | | | |
Loss on sale or disposal of PP&E | | $ | 189 | | | $ | 1,010 | |
Currency (gains) losses | | | (13 | ) | | | 61 | |
Gain from sale of nitrogen credits | | | ― | | | | (1,400 | ) |
Other, net | | | (18 | ) | | | (17 | ) |
Other operating expense (income), net | | $ | 158 | | | $ | (346 | ) |
Non-operating (Income) Expense, net
Net non-operating expenses were $8.8 million in the current quarter as compared to net non-operating expenses of $2.7 million in the prior year third quarter primarily due to decreased earnings from the Company’s equity affiliates of $4.3 million and losses on extinguishments of debt of $2.2 million. In addition, the Company incurred $0.1 million of costs related to its decision to abandon the refinancing of its 2014 notes. See “Recent Developments and Outlook” and “Joint Ventures and Other Equity Investments” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion.
Income from Operations Before Income Taxes
As reflected in the tables and discussions above, the Company recognized $4.2 million of loss from operations before income taxes compared to income of $2.7 million in the prior year third quarter. The decrease in income from operations was primarily attributable to decreased gross profit in the domestic operations as a result of increased raw material costs and a decrease in nylon volumes, a decrease in earnings from the Company’s unconsolidated affiliates, and losses on extinguishments of debt. However, the Company experienced improvements in polyester volumes as a result of increased retail demand in the Company’s core markets and a decrease in consolidated SG&A expenses.
Income Taxes
The Company’s income tax provision for the quarter ended March 27, 2011 resulted in tax benefit at an effective rate of 4.0% compared to the quarter ended March 28, 2010, which resulted in tax expense at an effective rate of 71.5%. The difference between the Company’s income tax benefit and the U.S. statutory rate for the quarter ended March 27, 2011 was primarily due to the losses from one of its equity affiliates, increases in uncertain tax positions, and foreign operations taxed at rates lower than the U.S., which was partially offset by foreign dividends taxed in the U.S. The differences between the Company’s income tax expense and the U.S. statutory rate for the quarter ended March 28, 2010 was primarily due to losses in the U.S. and other jurisdictions for which no tax benefit could be recognized, while operating profit was generated in other taxable jurisdictions.
During the quarter ended March 27, 2011, the Company changed its indefinite reinvestment assertion related to a portion of the earnings and profits held by UDB. The Company plans to eventually repatriate approximately $16 million of earnings and profits currently held by UDB. Therefore the Company has established a deferred tax liability, net of estimated foreign tax credit, of approximately $2.3 million related to the additional income tax that would be due as a result of the current plan to repatriate in future periods.
During the quarter ended March 27, 2011, the Company identified additional uncertain tax positions of $0.4 million and also accrued interest and penalties related to uncertain tax positions of $0.3 million. The Company did not accrue any interest or penalties related to uncertain tax positions during the quarter ended March 28, 2010.
Deferred income taxes have been provided for the temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the periods in which those temporary differences reverse. Management considers the scheduled reversal of taxable temporary differences, taxable income in carryback periods, projected future taxable income and tax planning strategies in making this assessment. The Company currently has a full valuation allowance against its net deferred tax assets in the U.S. and certain foreign subsidiaries due to negative evidence concerning the realization of those deferred tax assets in recent years. As results of operations improve, the Company continues to evaluate both positive and negative evidence to determine whether and when the valuation allowance, or a portion thereof, should be released. A release of the valuation allowance could have a material effect on earnings in the period of release.
The Company is subject to income tax examinations for U.S. federal income taxes for fiscal years 2004 through 2010, for non-U.S. income taxes for tax years 2001 through 2010, and for state and local income taxes for fiscal years 2001 through 2010.
Polyester Operations
Consolidated polyester unit volumes increased by 7.7% for the quarter ended March 27, 2011, while weighted-average net selling prices increased by 14.8% as compared to the quarter ended March 28, 2010 primarily due to improvements in core markets, retail apparel and retail home furnishings. Net sales for the polyester segment for the third quarter of fiscal year 2011 increased by $25.3 million or 22.5% as compared to the same quarter in the prior year. Net sales and sales volumes of the Company’s polyester PVA products increased by 49% and 41%, respectively in the current quarter over the prior year third quarter. The improvements in polyester PVA sales dollars and volumes are a leading factor in the Company’s overall improved polyester sales results.
Domestically, polyester net sales increased by $12.0 million, or 15.7%, for the third quarter of fiscal year 2011 as compared to the third quarter of fiscal year 2010. The Company increased its sales prices across all polyester products, increasing the weighted-average selling price by 9.3%. Domestic unit volumes increased by 6.4% as a result of the increase in consumer demand.
On a U.S. dollar basis, net sales for UDB increased by $4.4 million or 14.2% in the March 2011 quarter compared to the prior year third quarter which includes an increase of $2.6 million in positive currency exchange impact. On a local currency basis, net sales increased by R$3.1 million or 5.6%. Brazilian polyester sales volumes decreased by 13.2% for the third quarter of fiscal year 2011 versus the third quarter of the prior fiscal year. Average net sales price on a local currency basis increased 21.6% as a result of increased raw material costs.
The Company’s Chinese subsidiary, UTSC, had an increase in its polyester net sales to $6.5 million in the third quarter of fiscal year 2011 as compared to $4.0 million in the prior year third quarter as the Company improved its sales and promotion of PVA products in the Asian region.
The Company’s subsidiary in El Salvador, UCA, had an increase in its polyester net sales to $7.5 million in the third quarter of fiscal year 2011 as compared to $1.1 million in the prior year third quarter as the Company completed the start-up of its manufacturing facility and strategically improved its sales opportunities in the Central American region.
Gross profit for the consolidated polyester segment decreased $0.3 million, or 2.8%, for the third quarter of fiscal year 2011 over the third quarter of fiscal year 2010. On a per unit basis, gross profit decreased 9.7%. During the third quarter of fiscal year 2011, conversion increased 1.7% on a per unit basis compared to the same quarter of the prior year. This increase is primarily attributable to improvements in the Company’s Brazilian subsidiary. Consolidated per unit manufacturing costs increased 3.3%, which consisted of a 3.0% increase in per unit variable manufacturing costs and a 3.9% increase in per unit fixed manufacturing costs, as discussed further below.
Domestic gross profit decreased by $1.3 million, or 24.7%, for the third quarter of fiscal year 2011 over the third quarter of fiscal year 2010 primarily as a result of a decline in conversion dollars and an increase in converting costs. Domestic polyester conversion dollars remained flat, however on a per unit basis conversion declined 5.9% due to increased raw material prices. Domestic variable manufacturing costs increased by $0.8 million due primarily to packaging costs, wages and fringe benefits, other variable, and variable costs capitalized to inventory offset by decreased utilities and warehousing. However, variable manufacturing costs decreased 1.6% on a per unit basis as a result of improved volumes and operational efficiencies. Domestic fixed manufacturing costs increased $0.5 million, or 4.0% on a per unit basis, primarily as a result of increase in depreciation expenses, other fixed costs, and a decrease in the amount of fixed expenses capitalized to inventory offset by a decrease in salaries and fringes and allocated manufacturing costs.
On a local currency basis (the Brazilian real), gross profit for UDB increased by R$0.5 million, or 20.4% on a per unit basis, for the March 2011 quarter as compared to the prior year third quarter. On a local currency basis, UDB’s conversion increased 23.0% on a per unit basis due to an increase in sales pricing to cover raw material price increases while still selling lower priced inventory during the current quarter. Sales prices on a per unit basis increased by 21.6% which was offset by increases in per unit raw material costs of 20.8%. Brazilian volumes were negatively impacted in the current quarter as a result of increased competition from imported yarns due to the strengthening of the Brazilian real against the U.S. dollar. Variable manufacturing costs increased by R$0.7 million and fixed manufacturing costs increased by R$0.2 million. On a U.S. dollar basis, gross profit increased by $0.8 million, or 30.4% on a per unit basis which includes a $0.5 million positive currency exchange impact.
Consolidated polyester SG&A expenses for the third quarter of fiscal year 2011 were $8.4 million compared to $8.9 million in the same quarter in the prior year. The polyester segment’s SG&A expenses consist of polyester foreign subsidiaries’ costs and allocated domestic costs. The percentage of domestic SG&A costs allocated to each segment is determined at the beginning of every fiscal year using specific budgeted cost drivers. See the “Selling, General, and Administrative Expenses” discussion above for further details regarding the Company’s SG&A expenses.
Nylon Operations
Consolidated nylon unit volumes decreased by 12.4% in the third quarter of fiscal year 2011 compared to the prior year quarter while average net selling prices increased by 8.0%. Net sales for the nylon segment in the third quarter of fiscal year 2011 decreased by $1.8 million, or 4.4%, as compared to the third quarter of fiscal year 2010. The decrease in nylon net sales and sales volumes were primarily driven by a reduction of consumer demand for shape wear and hosiery and inventory reduction initiatives by two of the Company’s large nylon customers.
Gross profit for the nylon segment decreased by $1.0 million, or 22.2%, in the third quarter of fiscal year 2011 compared to the prior year quarter. Conversion margin for the nylon segment decreased by $1.0 million. On a per unit basis, conversion increased by 6.8%. Total manufacturing costs remained flat.
The Company’s subsidiary in El Salvador, UCA, had an increase in its nylon net sales to $0.7 million in the third quarter of fiscal year 2011 as compared to $0.6 million in the prior year third quarter.
The Company’s Colombian subsidiary, ULA, had an increase in net sales of $0.7 million while sales volumes increased 28.3% for the March 2011 quarter compared to the same quarter of the prior year.
Consolidated nylon SG&A expenses for the third quarter of fiscal year 2011 were $2.0 million compared to $2.4 million in the same quarter in the prior year. The nylon segment’s SG&A expenses consist of nylon foreign subsidiary costs and allocated domestic costs. The percentage of domestic SG&A costs allocated to each segment is determined at the beginning of every fiscal year using specific budgeted cost drivers. See the “Selling, General, and Administrative Expenses” discussion above for further details regarding the Company’s SG&A expenses.
Corporate
On January 11, 2011, the Company announced the termination of its cash tender offer for any and all of the Company’s 2014 notes due to the condition of the debt capital markets which made the estimated cost savings generated from a new debt financing insufficient to offset the estimated costs of conducting such a transaction. As a result of this transaction, the Company recorded $78 thousand in professional fees related to the unsuccessful debt financing.
On February 16, 2011, the Company redeemed an aggregate principal amount of $30 million of the 2014 notes at a redemption price of 105.75% of the principal amount of the redeemed 2014 notes in accordance with the indenture. As a result, the Company recorded a $2.2 million charge for the early extinguishment of debt in the March 2011 quarter of which $1.7 million related to the premium paid to redeem the bonds and $0.5 million related to the write off of related bond issuance costs.
Review of Year-To-Date Fiscal Year 2011 compared to Year-To-Date Fiscal Year 2010
The following table sets forth the net income components for each of the Company’s business segments for the year-to-date periods ended March 27, 2011 and March 28, 2010. The table also sets forth each of the segments’ net sales as a percent to total net sales, the net income components as a percent to total net sales and the percentage increase or decrease of such components over the comparable prior year period (amounts in thousands, except percentages):
| | For the Nine-Months Ended | | | |
| | March 27, 2011 | | March 28, 2010 | | | |
| | | | | | | | | | | | | |
| | | | | % to Total | | | | | % to Total | | % Change | |
Net sales | | | | | | | | | | | | | |
Polyester | | $ | 391,991 | | 76.4 | | $ | 321,340 | | 73.1 | | 22.0 | |
Nylon | | | 120,995 | | 23.6 | | | 118,453 | | 26.9 | | 2.1 | |
Total | | $ | 512,986 | | 100.0 | | $ | 439,793 | | 100.0 | | 16.6 | |
| | | | | | | | | | | | | |
| | | | | % to Net Sales | | | | | % to Net Sales | | | |
Cost of sales | | | | | | | | | | | | | |
Polyester | | $ | 350,946 | | 68.4 | | $ | 283,186 | | 64.4 | | 23.9 | |
Nylon | | | 106,649 | | 20.8 | | | 103,355 | | 23.5 | | 3.2 | |
Total | | | 457,595 | | 89.2 | | | 386,541 | | 87.9 | | 18.4 | |
| | | | | | | | | | | | | |
Restructuring charges | | | | | | | | | | | | | |
Polyester | | | 1,555 | | 0.3 | | | 254 | | ― | | 512.2 | |
Nylon | | | ― | | ― | | | ― | | ― | | ― | |
Total | | | 1,555 | | 0.3 | | | 254 | | ― | | 512.2 | |
| | | | | | | | | | | | | |
Write down of long-lived assets | | | | | | | | | | | | | |
Polyester | | | ― | | ― | | | 100 | | ― | | ― | |
Nylon | | | ― | | ― | | | ― | | ― | | ― | |
Total | | | ― | | ― | | | 100 | | ― | | ― | |
| | | | | | | | | | | | | |
Selling, general and administrative expenses | | | | | | | | | | | | | |
Polyester | | | 26,117 | | 5.1 | | | 27,291 | | 6.2 | | (4.3) | |
Nylon | | | 6,106 | | 1.2 | | | 7,277 | | 1.7 | | (16.1) | |
Total | | | 32,223 | | 6.3 | | | 34,568 | | 7.9 | | (6.8) | |
| | | | | | | | | | | | | |
Provision (benefit) for bad debts | | | 86 | | 0.0 | | | (93) | | ― | | (192.5) | |
Other operating expense (income), net | | | 417 | | 0.1 | | | (542) | | (0.1) | | (176.9) | |
Non-operating expense (income), net | | | 5,330 | | 1.0 | | | 8,156 | | 1.8 | | (34.6) | |
Income from operations before income taxes | | | 15,780 | | 3.1 | | | 10,809 | | 2.5 | | 46.0 | |
Provision for income taxes | | | 4,205 | | 0.8 | | | 5,596 | | 1.3 | | (24.9) | |
Net income | | $ | 11,575 | | 2.3 | | $ | 5,213 | | 1.2 | | 122.0 | |
Consolidated net sales from operations increased $73.2 million, or 16.6%, for the year-to-date period of fiscal year 2011 compared to the prior year-to-date period. Consolidated unit sales volumes increased by 9.8% for the year-to-date period of fiscal year 2011 reflecting improvements in all operations as demand for retail apparel and other segments improved. The weighted-average selling price increased by 6.8% compared to the same period of the prior fiscal year as improved market conditions allowed for some recovery of increased raw material costs. Net sales of the Company’s PVA products increased by 41% in the current year-to-date period over the prior year-to-date period, although the average selling price per pound remained flat due to sales mix. PVA sales volumes improved 41% when comparing the same periods. These improvements in PVA sales dollars and volumes are a leading factor in the Company’s overall improved sales results.
On a year-over-year basis, domestic net sales increased $33.4 million, or 10.2%, from improvements in demand in the retail markets. Correspondingly, domestic volumes improved 6.8%. Retail sales of apparel increased 4.4% compared to the prior year-to-date period. Retail sales of home furnishings increased 1.8% over the prior year year-to-date period.
Net sales for UDB on a U.S. dollar basis increased by $10.9 million, or 11.4%, for the March 2011 year-to-date period compared to the March 2010 year-to-date period, which includes an increase of $5.6 million in positive currency exchange impact. On a local currency basis, net sales improved R$9.0 million or 5.2% primarily driven by increases in sales prices intended to cover increases in raw material prices. UDB sales volumes were negatively impacted as a result of increased competition from imported yarns due to the strengthening of the Brazilian real against the U.S. dollar and as a result decreased by 7.6% for the current year-to-date period compared to the same prior year period.Recent Accounting Pronouncements
The Company’s Chinese subsidiary, UTSC, had net sales of $20.6 million in the March 2011 year-to-date period as compared to $10.4 million in the same prior year-to-date period, an improvement of 98.1%. This is a result of the Company improving its sales and promotion of PVA products in the Asian region. UTSC volumes increased 61.3% over the same prior year-to-date period.
The Company’s subsidiary in El Salvador, UCA, had an increase in its net sales to $20.6 million for the March 2011 year-to-date period as compared to $2.5 million in the same prior year-to-date period as the Company completed the start-up of its manufacturing facility and strategically improved its sales opportunities in the Central American region.
The Company’s Colombian subsidiary, ULA, had an increase in net sales of $0.6 million while sales volumes remained flat for the March 2011 year-to-date period compared to the same prior year-to-date period.
Consolidated gross profit increased $2.1 million to $55.4 million for the year-to-date period of fiscal year 2011 as compared to the prior year-to-date period. This increase in gross profit was primarily attributable to improved conversion of $14.8 million of which $8.7 million is related to the Company’s domestic operations. This increase was a result of improved sales volumes, mix, and pricing, which allowed the Company to recover previously lost margins due to higher raw material costs experienced in prior quarters. On a local currency basis, UDB’s conversion increased 2.9% on a per unit basis as a result of improved margins on its manufactured products compared to the same prior period. On a U.S. dollar basis, UDB’s conversion increased 9.1% on a per unit basis or $0.3 million overall primarily due as a result of sales price increases related to increased POY prices. The remaining net increase in conversion is related to the Company’s other foreign subsidiaries. Offsetting the improvements in conversion, consolidated manufacturing costs increased $12.7 million, or 1% on a per unit basis, for the March 2011 year-to-date period over the March 2010 year-to-date period. Consolidated variable manufacturing costs increased by $7.9 million primarily due to packaging costs, wages and fringe benefits, utility costs, warehousing, transportation and other variable offset by increases in variable expenses capitalized to inventory. Consolidated fixed manufacturing costs increased $4.8 million primarily as a result of an increase in depreciation expenses, other fixed manufacturing costs, allocated manufacturing costs, and salaries and fringe benefits offset by higher fixed costs capitalized to inventory.
Selling, General, and Administrative Expenses
Consolidated SG&A expense decreased $2.3 million during the year-to-date period of fiscal year 2011 as compared to the prior year-to-date period. The decrease was primarily a result of decreases of $1.1 million in salaries and fringes benefit expenses, $1.2 million in non-cash deferred compensation costs, $1.0 million in depreciation and amortization expenses, and $0.2 million in sales and marketing expenses offset by increases of $1.0 million in professional fees and $0.2 million in other expenses.
Other Operating Expense (Income), Net
The following table shows the components of other operating expense (income), net (amounts in thousands):
| | For the Nine-Months Ended | |
| | March 27, 2011 | | | March 28, 2010 | |
| | | | | | |
Loss on sale or disposal of PP&E | | $ | 242 | | | $ | 953 | |
Currency losses (gains) | | | 297 | | | | (59 | ) |
Gain from sale of nitrogen credits | | | ― | | | | (1,400 | ) |
Other, net | | | (122 | ) | | | (36 | ) |
Other operating expense (income), net | | $ | 417 | | | $ | (542 | ) |
Non-operating (Income) Expense, net
Earnings from equity affiliates for the year-to-date period ended March 27, 2011 was $11.9 million, which was an improvement of $6.0 million over the same prior year period. The majority of this improvement came from the Company’s 34% membership interest in PAL, which contributed $10.6 million to the Company’s current year-to-date earnings compared to $6.1 million for the same prior year period. PAL’s improved performance is primarily a result of the timing of revenue recognition related to the EAP cotton rebate program.
As discussed under the caption “Recent Developments and Outlook” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the Company sought to refinance its 2014 notes. Due to market conditions, the Company strategically abandoned the refinancing of its 2014 notes for a preferable, lower cost option to redeem a portion of its 2014 notes utilizing its revolving credit facility. As a result, the Company incurred $0.5 million of costs related to its decision to change its refinancing strategy.
Income from Operations Before Income Taxes
As reflected in the tables and discussions above, the Company recognized $15.8 million of income from operations before income taxes, which was an increase of $5.0 million over the prior year-to-date period. The increase in income from operations was primarily attributable to improved gross profit in the domestic operations and UTSC as a result of increased retail demand in the Company’s core markets, increased earnings from the Company’s unconsolidated affiliates, and a decrease in consolidated SG&A expenses offset by an increase in consolidated restructuring charges and a decline in income from operations before income taxes from its Brazilian operations.
Income Taxes
The Company’s income tax provision for the year-to-date period ended March 27, 2011 resulted in tax expense at an effective rate of 26.7% compared to the year-to-date period ended March 28, 2010, which resulted in tax expense at an effective rate of 51.8%. The difference between the Company’s income tax expense and the U.S. statutory rate for the year-to-date period ended March 27, 2011 was primarily due to the utilization of prior losses for which no benefit had been recognized previously, increases in uncertain tax positions, and foreign operations taxed at rates lower than the U.S., which was partially offset by foreign dividends taxed in the U.S. The differences between the Company’s income tax expense and the U.S. statutory rate for the year-to-date period ended March 28, 2010 was primarily due to losses in the U.S. and other jurisdictions for which not tax benefit could be recognized, while operating profit was generated in other taxable jurisdictions.
During the third quarter ended March 27, 2011 the Company changed its indefinite reinvestment assertion related to a portion of the earnings and profits held by UDB. The Company plans to eventually repatriate approximately $16 million of earnings and profits currently held by UDB. Therefore the Company has established a deferred tax liability, net of estimated foreign tax credit, of approximately $2.3 million related to the additional income tax that would be due as a result of the current plan to repatriate in future periods.
During the year-to-date ended March 27, 2011, the Company identified additional uncertain tax positions of $0.4 million and also accrued interest and penalties related to uncertain tax positions of $0.3 million. The Company did not accrue any interest or penalties related to uncertain tax positions during the quarter or year-to-date periods ended March 28, 2010.
Deferred income taxesThere have been provided for the temporary differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portionno newly issued or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of taxable income during the periods in which those temporary differences reverse. Management considers the scheduled reversal of taxable temporary differences, taxable income in carryback periods, projected future taxable income and tax planning strategies in making this assessment. The Company currently has a full valuation allowance against its net deferred tax assets in the U.S. and certain foreign subsidiaries due to negative evidence concerning the realization of those deferred tax assets in recent years. As results of operations improve, the Company continues to evaluate both positive and negative evidence to determine whether and when the valuation allowance, or a portion thereof, should be released. A release of the valuation allowance could have a material effect on earnings in the period of release.
The Company is subject to income tax examinations for U.S. federal income taxes for fiscal years 2004 through 2010, for non-U.S. income taxes for tax years 2001 through 2010, and for state and local income taxes for fiscal years 2001 through 2010.
Polyester Operations
Consolidated polyester unit volumes increased by 10.7% for the year-to-date period ended March 27, 2011, while weighted-average net selling price increased by 11.3% as compared to the year-to-date period ended March 28, 2010 primarily due to the recovery of core markets, retail apparel and retail home furnishings and increases in raw material costs. Net sales for the polyester segment for the year-to-date period of fiscal year 2011 increased by $70.7 million or 22.0% as compared to the prior year-to-date period. Net sales and sales volumes of the Company’s polyester PVA products increased by 48% and 45%, respectively, in the year-to-date period over the prior year-to-date period. These improvements in polyester PVA sales dollars and volumes are a leading factor in the Company’s overall improved polyester sales results.
Domestically, polyester net sales increased by $33.7 million, or 15.8% for the year-to-date period of fiscal year 2011 as compared to the year-to-date period of fiscal year 2010. The Company increased its sales prices across all polyester products, increasing the weighted-average selling price by 7.9%. Domestic unit volumes increased by 7.9% as a result of the increase in consumer demand in all segments, as discussed above.
Net sales for UDB increased by $10.9 million or 11.4% in the year-to-date period compared to the prior year-to-date period which includes an increase of $5.6 million in positive currency exchange impact. On a local currency basis, UDB’s net sales increased by R$9.0 million or 5.2%. UDB’s polyester sales volume decreased by 7.6% for the year-to-date period of fiscal year 2011 versus the same period of the prior fiscal year.
The Company’s Chinese subsidiary, UTSC, had an increase in its polyester net sales to $19.5 million in the year-to-date period of fiscal year 2011 as compared to $10.3 million in the prior year-to-date period as the Company improved its sales and promotion of PVA products in the Asian region.
The Company’s subsidiary in El Salvador, UCA, had an increase in its polyester net sales to $18.3 million for the year-to-date period of fiscal year 2011 as compared to $1.4 million in the prior year-to-date period as the Company completed the start-up of its manufacturing facility and strategically improved its sales opportunities in the Central American region.
Gross profit for the consolidated polyester segment increased $2.9 million, or 7.6% for the current year-to-date period over the prior year-to-date same period. On a per unit basis, gross profit decreased 2.8%. During the year-to-date period of fiscal year 2011, conversion increased 2.2% on a per unit basis compared to the same period of the prior year. This increase is primarily attributable to improvements in the Company’s domestic conversion as a result of increases in PVA sales and increased selling prices which allowed the Company to recover previously lost margins due to higher raw material costs experienced in prior quarters. Per unit manufacturing costs increased 3.8% which consisted of increased per unit variable manufacturing costs of 2.0% and increased per unit fixed manufacturing costs of 7.8% as discussed further below.
Domestic polyester gross profit increased by $4.6 million, or 28.3%, for the year-to-date period of fiscal year 2011 over the prior year-to-date period primarily as a result of improvement in conversion dollars. Domestic polyester conversion increased by $9.2 million or 3.6% on a per unit basis, due to a higher proportion of PVA sales and improved pricing as the Company regained conversion lost during the second half of fiscal year 2010. Variable manufacturing costs increased by $2.5 million due primarily to packaging costs, wage and fringe benefits, other variable utilities offset by increases in variable expenses capitalized to inventory. However variable manufacturing costs decreased 2.6% on a per unit basis as a result of improved volumes and operational efficiencies. Fixed manufacturing costs increased $2.1 million or 8.4% on a per unit basis primarily as a result of an increase in depreciation costs, allocated manufacturing costs, and other fixed, offset by increases in fixed costs capitalized to inventory and decreases in salaries and fringe benefits.
On a local currency basis, gross profit for the Company’s Brazilian operations decreased by R$5.3 million, or 7.1% on a per pound basis for the current year-to-date period as compared to the prior year-to-date period. UDB’s volumes and conversion margins were negatively impacted in the year-to-date period as a result of increased competition from imported yarns due to the strengthening of the Brazilian real against the U.S. dollar. Variable manufacturing costs increased by R$1.0 million while fixed manufacturing costs increased by R$1.2 million. On a U.S. dollar basis, UDB’s gross profit decreased by $1.9 million or 1.5% on a per unit basis.
Consolidated polyester SG&A expenses for the year-to-date period of fiscal year 2011 were $26.1 million compared to $27.3 million in the same period in the prior year. The polyester segment’s SG&A expenses consist of polyester foreign subsidiaries’ costs and allocated domestic costs. The percentage of domestic SG&A costs allocated to each segment is determined at the beginning of every fiscal year using specific budgeted cost drivers. See the “Selling, General, and Administrative Expenses” discussion above for further details regarding the Company’s SG&A expenses.
Nylon Operations
Consolidated nylon unit volumes increased by 3.0% in the year-to-date period of fiscal year 2011 compared to the prior year-to-date period while average net selling prices decreased by 0.8%. Net sales for the nylon segment in the year-to-date period of fiscal year 2011 increased by $2.5 million, or 2.1%, as compared to the prior year-to-date period. The increase in nylon net sales and the decrease in average selling price were primarily driven by increased sales of lower priced textured products as a percentage of total net sales.
Gross profit for the nylon segment decreased by $0.8 million, or 5.0%, in the year-to-date period of fiscal year 2011 compared to the prior year-to-date period. Conversion margin for the nylon segment decreased by $0.3 million and variable manufacturing costs increased by $0.5 million primarily due to increases in packaging cost, wage and fringe benefits, warehousing, transportation, and other variable costs offset by a decrease in utility costs and an increase in variable costs capitalized to inventory. On a per unit basis, conversion decreased 3.4% offset by a decrease in manufacturing costs of 1.1% due to a lower priced product mix. Fixed manufacturing costs remained flat as compared to the prior year.
The Company’s subsidiary in El Salvador, UCA, had an increase in its nylon net sales to $2.2 million for the March 2011 year-to-date period as compared to $1.0 million in the same prior year-to-date period.
The Company’s Colombian subsidiary, ULA, had an increase in nylon net sales of $0.6 million or 14.4% while sales volumes increased 6.0% for the March 2011 year-to-date period compared to the same prior year-to-date period.
Consolidated nylon SG&A expenses for the year-to-date period of fiscal year 2011 were $6.1 million compared to $7.3 million in the same period in the prior year. The nylon segment’s SG&A expenses consist of nylon foreign subsidiary costs and allocated domestic costs. The percentage of domestic SG&A costs allocated to each segment is determined at the beginning of every fiscal year using specific budgeted cost drivers. See the “Selling, General, and Administrative Expenses” discussion above for further details regarding the Company’s SG&A expenses.
Corporate
On January 11, 2011, the Company announced the termination of its cash tender offer for any and all of the Company’s 2014 notes due to the condition of the debt capital markets which made the estimated cost savings generated from a new debt financing insufficient to offset the estimated costs of conducting such a transaction. For the year-to-date period March 2011, the Company has recorded $0.5 million in professional fees related to the unsuccessful debt financing.
On June 30, 2010, the Company redeemed $15.0 million of its 2014 notes at a redemption price of 105.75% of the principal amount of the redeemed 2014 notes. This redemption was financed through a combination of internally generated cash and borrowings under the Company’s revolving credit facility. As a result, the Company recorded a $1.1 million charge for the early extinguishment of debt in the September 2010 quarter of which $0.8 million related to the premium paid for the bonds and $0.3 million related to the retirement of related bond issue costs.
On February 16, 2011, the Company redeemed an additional aggregate principal amount of $30 million of the 2014 notes at a redemption price of 105.75% of the principal amount of the redeemed 2014 notes in accordance with the indenture. As a result, the Company recorded a $2.2 million charge for the early extinguishment of debt in the March 2011 quarter of which $1.7 million related to the premium paid to redeem the bonds and $0.5 million related to the write off of related bond issuance costs.
Liquidity and Capital Resources
Liquidity Assessment
The Company’s primary capital requirements are for working capital, capital expenditures, debt repayment, and service of indebtedness. Historically, the Company has met its working capital and capital maintenance requirements from its operations. Asset acquisitions and joint venture investments have been financed by asset sales proceeds, cash reserves and borrowing under its financing agreements discussed below.
In addition to its normal operating cash and working capital requirements and service of its indebtedness, the Company will also require cash to reduce debt, fund capital expenditures, and enable cost reductions through restructuring projects as follows:
· | Deleveraging Strategy. During in the third quarter of fiscal year 2011, the Company executed its plan to utilize a combination of internally generated cash and limited borrowings on its revolving credit facility to repurchase and retire portions of its 2014 notes. The Company expects to maintain a continuous balance outstanding under its revolving credit facility and hedge a substantial amount of the interest rate risk in order to ensure its interest savings. As a result of the utilization of cash on hand to reduce outstanding debt and the lower rate under the revolving credit facility, the Company expects a significant reduction of its annual fixed carrying cost between the commencement of this debt reduction strategy and the final repayment of the 2014 notes.
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· | Capital Expenditures. During the first nine months of fiscal year 2011, the Company spent $17.3 million on capital expenditures compared to $8.0 million during the same period in fiscal year 2010. The Company estimates its fiscal year 2011 capital expenditures will be approximately $21.5 million, which includes approximately $17.0 million of strategic capital expenditures focused on modernizing and improving current productivity levels of its plants and equipment. In February 2010, the Board approved a plan to expand its production capabilities to include a new state-of-the art recycled chip facility in Yadkinville, North Carolina. This backward integration of the recycle supply chain will provide opportunities for the Company to recycle both post-consumer and post-industrial waste back into its Repreve® products. This will allow the Company to improve the availability of recycled raw materials, and significantly increase product capabilities and competitiveness in this growing market segment. The Company completed the installation of the machinery during the current quarter and began limited production at the end of March 2011. The Company expects that production will steadily increase through May 2011 as the Company transitions the supply chain to its new internally produced recycled chip. As of March 2011, the total investment in this capital project was $8.4 million. The Company may incur additional capital expenditures as it pursues new opportunities to expand its production capabilities or to further streamline its manufacturing processes.
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· | Joint Venture Investments. During the first nine months of fiscal year 2011, the Company received $4.3 million in dividend distributions from its joint ventures. Historically, the Company has received distributions from certain of its joint ventures every year; however it is unlikely that the Company will receive material distributions from PAL in the near future due to PAL’s current debt levels. In addition, the Company contributed an additional $0.7 million for working capital to its Repreve Renewables joint venture. The Company may strategically increase its interest in its joint ventures, sell its interest in its joint ventures, invest in new joint ventures or transfer idle equipment to its joint ventures.
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Cash Provided by Operations
The following table summarizes the net cash (used in) provided by operations (amounts in millions):
| | For the Nine-Months Ended | |
| | March 27, 2011 | | | March 28, 2010 | |
| | | | | | |
Cash (used in) provided by operations | | | | | | |
Cash receipts: | | | | | | |
Receipts from customers | | $ | 501.6 | | | $ | 435.0 | |
Dividends from unconsolidated affiliates | | | 4.3 | | | | 1.6 | |
Other receipts | | | 2.0 | | | | 3.3 | |
Cash payments: | | | | | | | | |
Payments to suppliers and other operating costs | | | 404.7 | | | | 325.6 | |
Payments for salaries, wages, and benefits | | | 86.1 | | | | 76.4 | |
Payments for restructuring | | | 1.9 | | | | 1.1 | |
Payments for interest | | | 11.4 | | | | 10.3 | |
Payments for taxes | | | 4.9 | | | | 5.4 | |
Other | | | 0.3 | | | | 0.3 | |
Cash (used in) provided by operations | | $ | (1.4 | ) | | $ | 20.8 | |
Cash decreased from $20.8 million of cash provided by operations for the year-to-date period of fiscal year 2010 to $1.4 million cash used by operations in the year-to-date period of fiscal year 2011. Cash received from customers increased from $435.0 million to $501.6 million primarily due to higher net sales volumes. Payments to suppliers and for other operating costs increased from $325.6 million to $404.7 million primarily as a result of higher sales volumes and increased raw material prices. Salary, wage and benefit payments increased from $76.4 million to $86.1 million primarily as a result of payment of the prior year bonuses. Restructuring payments were $1.9 million for the current year-to-date period compared to $1.1 million from the same prior year period. The increase in restructuring payments relates to cost incurred by the Company to dismantle and move machinery to El Salvador and reinstall previously dismantled texturing machines in Yadkinville. Interest expense is higher due to the timing of the early redemption of the $30 million aggregate principal amount of 2014 notes in February 2011. Taxes paid by the Company decreased from $5.4 million to $4.9 million as a result of a decrease in tax liabilities related to the Company’s Brazilian subsidiary. The Company received cash dividends of $4.3 million and $1.6 million from its unconsolidated equity affiliates for the first nine-month periods of fiscal year 2011 and 2010, respectively. Cash received from other miscellaneous sources including interest decreased from $3.3 million in the prior year-to-date period to $2.0 million in the current year-to-date period.
Working capital increased from $174.5 million at June 27, 2010 to $201.3 million at March 27, 2011 due to increases in inventories of $25.7 million, decreases in current portion of notes payable of $15.0 million, increases in accounts receivables of $13.4 million, decreases in accrued expenses of $3.2 million, increases in deferred income tax of $0.5 million, income taxes receivable of $0.4 million, and increases in other current assets of $0.1 million, offset by decreases in cash of $23.5 million, increases in accounts payable of $7.7 million, increases in income tax payable of $0.2 million, and increases in current maturities of long-term debt and other liabilities of $0.1 million. The working capital current ratio was 4.0 at March 27, 2011 and 3.2 at June 27, 2010.
Cash Used In Investing Activities and Financing Activities
The Company utilized $14.1 million in net investing activities and utilized $10.9 million in net financing activities during the nine-month period ended March 27, 2011. The primary cash expenditures for investing and financing activities during the first nine months of fiscal year 2011 included $47.6 million to repurchase a portion of the 2014 notes with a face value of $45.0 million, $17.3 million in capital expenditures, $0.7 million for a working capital investment in an unconsolidated affiliate, $0.8 for debt refinancing fees, and $0.4 million for other financing activities, offset by $37.8 million in net borrowings from the Company’s revolving credit facility, $3.2 million from the proceeds from split dollar life insurance surrenders, $0.2 million in proceeds from the sale of capital assets and $0.5 million related to return of capital from unconsolidated equity affiliates and $0.1 million from the proceeds from stock option exercises.
The Company’s ability to meet its debt service obligations and reduce its total debt will depend upon its ability to generate cash in the future which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond its control. The Company may not be able to generate sufficient cash flow from operations, and future borrowings may not be available to the Company under its revolving credit facility in an amount sufficient to enable it to repay its debt or to fund its other liquidity needs. If its future cash flow from operations and other capital resources are insufficient to pay its obligations as they mature or to fund its liquidity needs, the Company may be forced to reduce or delay its business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of its debt on or before maturity. The Company may not be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of its existing and future indebtedness, including its 2014 notes which mature on May 15, 2014 and its revolving credit facility, may limit its ability to pursue any of these alternatives. See “Item 1A. Risk Factors—The Company will require a significant amount of cash to service its indebtedness and fund capital expenditures, and its ability to generate cash depends on many factors beyond its control” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010. Some risks that could adversely affect its ability to meet its debt service obligations include, but are not limited to, intense domestic and foreign competition in its industry, general domestic and international economic conditions, changes in currency exchange rates, interest and inflation rates, the financial condition of its customers and the operating performance of joint ventures, alliances and other equity investments.
Note Repurchases. The Company may, from time to time, seek to retire or purchase its outstanding debt in open market purchases, in privately negotiated transactions or by calling a portion of the 2014 notes under the terms of the indenture governing the 2014 notes (the “Indenture”). Such retirement or purchase of debt may come from the operating cash flows of the business or other sources and will depend upon prevailing market conditions, liquidity requirements, contractual restrictions and other factors, and the amounts involved may be material. During the third quarter of fiscal year 2011, the Company executed its plan to utilize a combination of internally generated cash and limited borrowings on its revolving credit facility to repurchase and retire portions of its 2014 notes. On February 16, 2011, the Company redeemed an aggregate principal amount of $30 million of the 2014 notes in accordance with the Indenture. Pursuant to the terms of the Indenture, the redemption price for the 2014 notes was 105.75% of the principal amount of the redeemed 2014 notes, plus accrued and unpaid interest. Upon completion of this redemption, the aggregate principal amount of the 2014 notes outstanding was $133.7 million. The Company expects to maintain a continuous balance outstanding under its revolving credit facility and hedge a substantial amount of the interest rate risk in order to ensure its interest savings. As a result of the utilization of cash on hand to reduce outstanding debt and the lower rate under the revolving credit facility, the Company expects a significant reduction of its annual fixed carrying cost between the commencement of this debt reduction strategy and the final repayment of the 2014 notes. See “Long-term Debt” included in the “Liquidity and Capital Resources” section below for a detailed discussion of the interest rates and covenants related to the Company’s revolving credit facility.
Contingencies
Environmental Liabilities. On September 30, 2004, the Company completed its acquisition of the polyester filament manufacturing assets located at Kinston from INVISTA S.a.r.l. (“INVISTA”). The land for the Kinston site was leased pursuant to a 99 year ground lease (“Ground Lease”) with E.I. DuPont de Nemours (“DuPont”). Since 1993, DuPont has been investigating and cleaning up the Kinston site under the supervision of the U.S. Environmental Protection Agency (“EPA”) and the North Carolina Department of Environment and Natural Resources (“DENR”) pursuant to the Resource Conservation and Recovery Act Corrective Action program. The Corrective Action program requires DuPont to identify all potential areas of environmental concern (“AOCs”), assess the extent of containment at the identified AOCs and clean it up to comply withnewly applicable regulatory standards. Effective March 20, 2008, the Company entered into a Lease Termination Agreement associated with conveyance of certain assets at Kinston to DuPont. This agreement terminated the Ground Lease and relieved the Company of any future responsibility for environmental remediation, other than participation with DuPont, if so called upon, with regard to the Company’s period of operation of the Kinston site. However, the Company continues to own a satellite service facility acquired in the INVISTA transaction that has contamination from DuPont’s operations and is monitored by DENR. This site has been remediated by DuPont and DuPont has received authority from DENR to discontinue remediation, other than natural attenuation. DuPont’s duty to monitor and report to DENR will be transferred to the Company in the future, at which time DuPont must pay the Company for seven years of monitoring and reporting costs and the Company will assume responsibility for any future remediation and monitoring of the site. At this time, the Company has no basis to determine if and when it will have any responsibility or obligation with respect to the AOCs or the extent of any potential liability for the same.
Berry Amendment Contingencies. The Company is aware of certain claims and potential claims against it for the alleged use of non-compliant “Berry Amendment” nylon POY in yarns that the Company sold which may have ultimately been used to manufacture certain U.S. military garments (the “Military Claims”). As of June 27, 2010, the Company recorded an accrual for the Military Claims of which $0.3 million was paid or settled during the quarter ended September 26, 2010.
Other Factors Affecting Liquidity
Stock Repurchase Program. Effective July 26, 2000, the Board increased the remaining authorization to repurchase up to 3.3 million shares of the Company’s common stock of which approximately 1.0 million shares were subsequently repurchased. The repurchase program was suspended in November 2003 and the Company has no immediate plans to reinstitute the program. There is remaining authority for the Company to repurchase approximately 2.3 million shares of its common stock under the repurchase plan. The repurchase plan has no stated expiration or termination date. All share amounts and computations using such amounts have been retroactively adjusted to reflect the November 3, 2010 1-for-3 reverse stock split.
Market Conditions. Deterioration of global economic conditions could reduce demand for the Company’s product faster than management’s ability to react through further consolidation of its manufacturing capacity, since the Company is a high volume, high fixed cost business. These conditions could also materially affect the Company’s customers causing reductions or cancellations of existing sales orders and inhibit the collectibility of receivables. In addition, the Company’s suppliers may be unable to fulfill the Company’s outstanding orders or could change credit terms that would negatively affect the Company’s liquidity. All of these factors could adversely impact the Company’s results of operations, financial condition and cash flows.
Long-Term Debt
On May 26, 2006, the Company issued $190 million of 2014 notes. In connection with the issuance, the Company incurred $7.3 million in professional fees and other expenses which are being amortized to expense over the life of the 2014 notes. Interest is payable on the 2014 notes on May 15 and November 15 of each year. The 2014 notes are unconditionally guaranteed on a senior, secured basis by each of the Company’s existing and future restricted domestic subsidiaries. The 2014 notes and guarantees are secured by first-priority liens, subject to permitted liens, on substantially all of the Company’s and the Company’s subsidiary guarantors’ assets other than the assets securing the Company’s obligations under its revolving credit facility as discussed below. The assets include but are not limited to, property, plant and equipment, domestic capital stock and some foreign capital stock. Domestic capital stock includes the capital stock of the Company’s domestic subsidiaries and certain of its joint ventures. Foreign capital stock includes up to 65% of the voting stock of the Company’s first-tier foreign subsidiaries, whether now owned or hereafter acquired, except for certain excluded assets. The 2014 notes and guarantees are secured by second-priority liens, subject to permitted liens, on the Company’s and its subsidiary guarantors’ assets that will secure the 2014 notes and guarantees on a first-priority basis. The estimated fair value of the 2014 notes, based on quoted market prices, as of March 27, 2011 was approximately $139.4 million.
In accordance with the collateral documents and the Indenture, the proceeds from the sale of PP&E (First Priority Collateral) will be deposited into the First Priority Collateral Account whereby the Company may use the restricted funds to purchase additional qualifying assets. From May 26, 2006 through March 27, 2011, the Company sold PP&E secured by first-priority liens in an aggregate amount of $29.5 million and purchased qualifying assets in the same amount, leaving no funds remaining in the First Priority Collateral Account.
The Company can currently elect to redeem some or all of the 2014 notes at redemption prices equal to or in excess of par depending on the year the optional redemption occurs. The Company may also purchase its 2014 notes in open market purchases or in privately negotiated transactions and then retire them or it may refinance all or a portion of the 2014 notes with a new debt offering. Such purchases or refinancing of the 2014 notes will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. On January 11, 2011, the Company announced that it was calling for the redemption of $30.0 million of the 2014 notes at a redemption price of 105.75% of the principal amount of the redeemed notes and on February 16, 2011 the Company completed the transaction. The Company financed this redemption through borrowings under its revolving credit facility discussed below. As a result, the Company recorded a $2.2 million charge for the early extinguishment of debt in the March 2011 quarter which was comprised of $1.7 million of call premiums and a $0.5 million non-cash charge to write off unamortized debt issuance costs.
On September 9, 2010, the Company and its subsidiary guarantors (as co-borrowers) entered into a revolving credit facility with Bank of America, N.A. (as both Administrative Agent and Lender thereunder). The First Amended Credit Agreement provides for a revolving credit facility in an amount of $100 million (with the ability of the Company to request that the borrowing capacity be increased up to $150 million) and matures on September 9, 2015, provided that unless the 2014 notes have been prepaid, redeemed, defeased or otherwise repaid in full on or before February 15, 2014, the maturity date will be adjusted to February 15, 2014. The First Amended Credit Agreement (“revolving cedit facility”) amends a prior senior secured asset-based revolving credit facility which had a stated maturity date of May 15, 2011. See “Footnote 3. Long-term Debt and Other Liabilities” included in the Company’s Annual Report on Form 10-K for fiscal year ended June 27, 2010 for a discussion of the revolving credit facility. As of March 27, 2011, under the terms of the revolving credit facility, the Company had $37.8 million of borrowings and borrowing availability of $54.8 million.
The revolving credit facility is secured by first-priority liens on the Company’s and its subsidiary guarantors’ inventory, accounts receivable, general intangibles (other than uncertificated capital stock of subsidiaries and other persons), investment property (other than capital stock of subsidiaries and other persons), chattel paper, documents, instruments, supporting obligations, letter of credit rights, deposit accounts and other related personal property and all proceeds relating to any of the above, and by second-priority liens, subject to permitted liens, on the Company’s and its subsidiary guarantors’ assets securing the 2014 notes and guarantees on a first-priority basis, in each case other than certain excluded assets. The Company’s ability to borrow under the revolving credit facility is limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventory and is subject to other conditions and limitations.
Borrowings under the revolving credit facility bear interest at rates of LIBOR plus 2.00% to 2.75% and/or prime plus 0.75% to 1.50%. The interest rate matrix is based on the Company’s excess availability under the revolving credit facility. The unused line fee under the revolving credit facility is 0.375% to 0.50% of the unused line amount. In connection with the refinancing of the revolving credit facility, the Company recorded fees and expenses totaling approximately $0.8 million, which were added to the $0.2 million of remaining debt refinancing fees from the prior senior secured asset-based revolving credit facility and are being amortized over the term of the new facility.
The revolving credit facility contains customary affirmative and negative covenants for asset-based loans that restrict future borrowings and certain transactions. Such covenants include restrictions and limitations on (i) sales of assets, consolidation, merger, dissolution and the issuance of the Company’s capital stock, any subsidiary guarantor and any domestic subsidiary thereof, (ii) permitted encumbrances on the Company’s property, any subsidiary guarantor and any domestic subsidiary thereof, (iii) the incurrence of indebtedness by the Company, any subsidiary guarantor or any domestic subsidiary thereof, (iv) the making of loans or investments by the Company, any subsidiary guarantor or any domestic subsidiary thereof, (v) the declaration of dividends and redemptions by the Company or any subsidiary guarantor and (vi) transactions with affiliates by the Company or any subsidiary guarantor. The covenants under the revolving credit facility are, however, generally less restrictive than the prior senior secured asset-based revolving credit facility as the Company is no longer required to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 to make certain distributions and investments so long as pro forma excess availability is at least 27.5% of the total credit facility. These distributions and investments include (i) the payment or making of any dividend, (ii) the redemption or other acquisition of any of the Company’s capital stock, (iii) cash investments in joint ventures, (iv) acquisition of the property and assets or capital stock or a business unit of another entity and (v) loans or other investments to a non-borrower subsidiary. The revolving credit facility requires the Company to maintain a trailing twelve month fixed charge coverage ratio of at least 1.0 to 1.0 should borrowing availability decrease below 15% of the total credit facility. There are no capital expenditure limitations under the revolving credit facility.
On February 15, 2011, the Company entered into a 27-month, $25 million interest rate swap with Bank of America, N.A. to provide a hedge against the variability of cash flows (monthly interest expense payments) on the first $25 million of LIBOR-based variable rate borrowings under the Company’s revolving credit facility due to fluctuations in the LIBOR benchmark interest rate. The Company intends to maintain at least $25 million of LIBOR-based variable rate borrowings in place for the duration of the interest rate swap. The interest rate swap allows the Company to pay a fixed interest rate of 1.39% on such borrowings. The Company designated the swap as a cash flow hedge and formally documented all aspects of the relationship between the hedging instrument (the interest rate swap) and the item being hedged (the LIBOR-based variable rate borrowings). The Company assesses, both at the inception of the hedge and on an ongoing basis, whether derivatives designated as hedging instruments are highly effective in offsetting the changes in the cash flow of the hedge items. If it is determined that a derivative is not highly effective as a hedge or ceases to be highly effective, the Company will discontinue hedge accounting prospectively.
Off Balance Sheet Arrangements
The Company is not a party to any off-balance sheet arrangementspronouncements that have or are reasonably likelyexpected to have a current or future material effectsignificant impact on the Company’sCompany's financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.statements.
Forward-Looking Statements
Forward-looking statements are those that do not relate solely to historical fact. These forward-looking statements reflect the Company’s current views with respect to future events and are based on assumptions and subject to risks and uncertainties that may cause actual results to differ materially from trends, plans or expectations set forth in the forward-looking statements. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. They may contain words such as “believe”, “anticipate”, “expect”, “estimate”, “intend”, “project”, “plan”, “will”, or words or phrases of similar meaning. Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties throughout this report as well as those discussed under “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2010. Factors that may cause actual results to differ from expectations include:
· | 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; |
· | 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. |
New risks can emerge from time to time. It is not possible for the Company to predict all of these risks, nor can it assess the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in forward-looking statements. The Company will not update these forward-looking statements, even if its situation changes in the future, except as required by federal securities laws.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk
The Company is exposed to market risks associated with changes in interest rates, and currency fluctuation rates and raw material and commodity risks which may adversely affect its financial position, results of operations and cash flows. In addition, theThe Company does not enter into derivative financial instruments for trading purposes nor is also exposedit a party to other risks in the operation of its business.any leveraged financial instruments.
Interest Rate RiskRisk:: The Company is exposed to interest rate risk through its various borrowing activities. The majority of the Company’s borrowings are in long-termits 2014 notes which have a fixed rate bonds; however theof interest. The Company does incur interestalso has borrowings on its borrowings under its revolving credit facility at rateswhich have a variable rate of LIBOR plus 2.00% to 2.75% and/or prime plus 0.75% to 1.50%. As of March 27, 2011, theinterest. The Company had $37.8 million of borrowings and had a borrowing availability of $54.8 million undermay hedge its interest rate variability on its revolving credit facility. On February 15, 2011, the Company entered into a 27-month, $25 million interest rate swap with Bank of America, N.A. to provide a hedge against the variability of cash flows (monthly interest expense payments) on the first $25 million of LIBOR-based variable rate borrowings under the Company’s revolving credit facility due to fluctuations in the LIBOR benchmark interest rate. The Company intends to maintain at least $25 million of LIBOR-based variable rate borrowings in place for the duration of theusing an interest rate swap. The interest rate swap allows the Company to pay a fixed interest rate of 1.39% on such borrowings. Therefore, the market rate risk associated with a 100 basis point change inCompany’s principal cash flows and weighted average interest rates would notexpected to be material toincurred through the Company at the present time.debt maturity dates are as follows:
| | Expected Maturity Date on a Fiscal Year Basis | |
| | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | Fair Value | |
Long-term debt: | | | | | | | | | | | | | | | | | | |
2014 notes payable | | $ | — | | | $ | — | | | $ | 123,722 | | | $ | — | | | $ | — | | | $ | 127,267 | |
Fixed interest rate | | | 11.5 | % | | | 11.5 | % | | | 11.5 | % | | | — | | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revolving credit facility | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 39,900 | | | $ | 39,900 | |
Variable interest rate (2.0-2.75% +) | | LIBOR | | | LIBOR | | | LIBOR | | | LIBOR | | | LIBOR | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate derivatives: | | | | | | | | | | | | | | | | | | | | | | | | |
Variable to fixed | | $ | — | | | $ | 25,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | (422 | ) |
Average pay rate (2.0-2.75% +) | | | 1.39 | % | | | 1.39 | % | | | — | | | | — | | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Variable to fixed | | $ | — | | | $ | 10,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | (64 | ) |
Average pay rate (2.0-2.75% +) | | | 0.75 | % | | | 0.75 | % | | | — | | | | — | | | | — | | | | | |
Currency Exchange Rate RiskRisk:: The Company conducts a portion of its business in various foreign countries and in various foreign currencies. As a result, it isEach of the Company’s operations may enter into transactions (sales, purchases, or fixed purchase commitments, etc.) that are denominated in currencies other than the operation’s functional currency and which subject to the transaction exposure that arises from foreign exchange rate movements between the dates thatCompany to foreign currency transactions are recorded and the dates they are consummated.exchange risk. The Company utilizes some natural hedging to mitigate these transaction exposures. The Company also enters into foreign currency forward contracts for the purchase and sale of European, North American and Brazilian currencies to use as economic hedges against balance sheet and income statement currency exposures. These forward 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. The Company accounts for foreign currency forward contracts at fair value. Changes in the fair value of these contracts are recorded in the line item other operating expense (income), net in the Condensed Consolidated Statements of Operations. The Company does notmay enter into forward currency contracts to hedge this exposure. For sales transactions such as these, contracts for speculative or trading purposes and does not designate these contracts as hedge contracts.
Foreign currency forward contracts are used as economicthe Company typically hedges for the exposure for sales in foreign currencies based on specific sales made to customers. Generally, approximately 60% to 75% of the sales value of these orders is covered by using forward currency contracts. MaturityThe maturity dates of the forward contracts are intended to match the anticipated receivable collections.collection dates of the receivables. The Company marks themay also enter into forward currency contracts to market at month end and any realized and unrealized gainshedge its exposure for certain equipment or losses are recorded asinventory purchase commitments. As of September 25, 2011, the Company does not have a significant amount of exposure related to forward currency contracts.
As of September 25, 2011, the Company’s subsidiaries outside the U.S., whose functional currency is other operating expense (income).than the U.S. dollar, held 18.9% of consolidated total assets. The Company also enters currency forward contracts for committed machinery and inventory purchases. Generally up to 5% of inventory purchases made by the Company’s Brazilian subsidiary are covered by forward contracts although 100% of the cost may be covered by individual contracts in certain instances. As of March 27, 2011, the latest maturity date for all outstanding sales and purchasedoes not enter into foreign currency forward contracts is June 2011.derivatives to hedge its net investment in its foreign operations.
AssetsRaw Material and Liabilities Measured at Fair Value on a Recurring Basis
The Company has adopted the guidance issued by the Financial Accounting Standards Board (“FASB”) which established a framework for measuring and disclosing fair value measurements related to financial and non-financial assets. There is a common definition of fair value used and a hierarchy for fair value measurements based on the type of inputs that are used to value the assets or liabilities at fair value.
The levels of the fair value hierarchy are:
· | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date, |
· | Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, or |
· | Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. |
The fair valueCommodity Risks: A significant portion of the Company’s derivative instruments as of March 27, 2011 and June 27, 2010 were as follows (amounts in thousands):
| | March 27, 2011 | | | June 27, 2010 | |
| | Level 2 | | | Level 2 | |
Derivatives designated as cash flow hedges: | | | | | | |
Interest rate swap (loss) | | $ | (256 | ) | | $ | — | |
| | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | |
| | | | | | | | |
Foreign currency purchase contracts: | | | | | | | | |
Notional amount | | $ | — | | | $ | 2,826 | |
Fair value | | | — | | | | 2,873 | |
Net unrealized gain | | $ | — | | | $ | (47 | ) |
| | | | | | | | |
Foreign currency sales contracts: | | | | | | | | |
Notional amount | | $ | 739 | | | $ | 1,231 | |
Fair value | | | 747 | | | | 1,217 | |
Net unrealized (loss) gain | | $ | (8 | ) | | $ | 14 | |
raw materials are derived from petroleum-based chemicals. The fair valuecosts of the interest rate swap held byCompany’s raw materials can be volatile and availability can depend on global supply and demand dynamics, including certain geo-political risks. The Company does not use financial instruments to hedge its exposure to changes in raw material costs. The costs of the primary raw materials that the Company isuses throughout all of its operations are generally traded based on using market expectations for future LIBOR rates at the measurement date to convert future cash flows to a single present value amount. The fair values of the foreign exchange forward contracts held by the Company at the respective quarter-end dates are based on discounted quarter-end forward currency rates. The total impact of foreign currency related items including transactions that were hedged and those unrelated to hedging, was a pre-tax gain of $13 thousand and a pre-tax loss of $0.1 million for the quarters ended March 27, 2011 and March 28, 2010, respectively. For the year-to-date periods ended March 27, 2011 and March 28, 2010, the total impact of foreign currency related items resulted in a pre-tax loss of $0.3 million and a pre-tax gain of $0.1 million, respectively.U.S. dollar pricing.
Inflation and Other RisksRisks: : The inflation rate in most countries in which the Company conducts business has been low in recent years and the impact on the Company’s cost structure has not been significant. The Company is also exposed to political risk, including changing laws and regulations governing international trade such as quotas, and tariffs and tax laws.laws and incentives. The degree of impact and the frequency of these events cannot be predicted.
Market Capitalization versus Book Value: As of the end of the first quarter of fiscal year 2012, the Company’s book value was $14.05 per share. During the September 2011 quarter, the Company’s common shares traded at a high of $14.61 and ended the quarter at a low of $8.51 per share. Due to the disparity between the share values, the Company considered the recoverability of its assets and does not believe any of its assets to be impaired at this time.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of March 27,September 25, 2011, an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act, as amended) was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based on that evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that information required to be disclosed by the Company in the reports the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
There are no pending legal proceedings, other than ordinary routine litigation incidental to the Company’s business, to which the Company is a party or of which any of its property is the subject.
Item 1A. Risk Factors
The Company’s debt reduction strategy will result in the Company maintaining larger balances outstanding under its revolving credit facility and decrease the Company’s excess borrowing availability, which could adversely affect the Company’s financial condition and prevent it from fulfilling its obligations under its debt agreements.
On February 16, 2011, the Company redeemed $30.0 million of the 2014 notes at a redemption price of 105.75% of the principal amount of the redeemed notes (the “Redemption”). The Company financed the Redemption through borrowings under the revolving credit facility. On an ongoing basis, the Company anticipates utilizing its liquidity to continue to redeem portions of its 2014 notes incrementally through a combination of internally generated cash and borrowings under its revolving credit facility. The Company expects to maintain a continuous balance outstanding under its revolving credit facility and hedge a substantial amount of the interest rate risk in order to ensure its interest savings as it executes this debt reduction strategy.
The Company’s revolving credit facility requires the Company to meet a minimum fixed charge coverage ratio test if borrowing capacity is less than 15% of the total credit facility. The consummation of the Redemption and implementation of the debt reduction strategy resulted in the Company maintaining reduced levels of excess availability under the revolving credit facility before the fixed charge coverage ratio test applies. After completion of the Redemption, the Company’s availability under the revolving credit facility decreased to $54.8 million, or 54.8% of the total credit facility as of March 27, 2011. If the Company’s availability under the revolving credit facility falls below 15%, it may not be able to maintain the required fixed charge coverage ratio. Additionally, the revolving credit facility restricts the Company’s ability to make certain distributions and investments should its borrowing capacity decrease to below 27.5% of the total credit facility. These restrictions could limit the Company’s ability to plan for or react to market conditions or meet its capital needs. The Company may not be granted waivers or amendments to its revolving credit facility if for any reason the Company is unable to meet its requirements, or the Company may not be able to refinance its debt on terms acceptable to the Company, or at all.
Any of the foregoing could have a material adverse effect on the Company’s business, financial condition, results of operations, prospects and ability to satisfy the Company’s obligations under its debt agreements.
Other than the risk factor discussed above, thereThere are no other material changes to the Company's risk factors set forth under “Part“Item 1A. Risk Factors” in its Annual Report on Form 10-K for the fiscal year ended June 27, 2010.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Items 2(a) and (b) are not applicable.
| (c) The following table summarizes the Company’s repurchases of its common stock during the quarter ended March 27, 2011. All share amounts have been retroactively adjusted to give effect to the November 3, 2010 1-for-3 reverse stock split. |
(c) The following table summarizes the Company’s repurchases of its common stock during the quarter ended September 25, 2011.
Period | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | Maximum Number of Shares that may Yet Be Purchased Under the Plans or Programs (1) | |
| | | | | | | |
12/27/10 – 01/27/11 | — | | — | | — | | 2,269,080 |
01/28/6/27/11 – 02/27/7/26/11 | — | | — | | — | | 2,269,080 |
02/28/11 – 03/27/11 | — | | — | | — | | 2,269,080 |
Total | — | | — | | — | | |
| (1) Effective July 26, 2000, the Board increased the remaining authorization to repurchase up to 3.3 million shares of the Company’s common stock, of which approximately 1.0 million shares were subsequently repurchased. The repurchase program was suspended in November 2003 and the Company has no immediate plans to reinstitute the program. There is remaining authority for the Company to repurchase approximately 2.3 million shares of its common stock under the repurchase plan. The repurchase plan has no stated expiration or termination date. All share amounts and computations using such amounts have been retroactively adjusted to reflect the November 3, 2010 1-for-3 reverse stock split.— | | | | — | | | | 2,269,080 | |
7/27/11 – 8/26/11 | | | — | | | | — | | | | — | | | | 2,269,080 | |
8/27/11 – 9/25/11 | | | — | | | | — | | | | — | | | | 2,269,080 | |
Total | | | — | | | | — | | | | — | | | | | |
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. [Removed and Reserved.]
Item 5. Other Information
Not applicable.
Item 6. Exhibits
Exhibit Number | | Description |
10.1 | | Form of Restricted Stock Unit Agreement for Employees for restricted stock units 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. |
101 | | The following materials from Unifi, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended September 25, 2011, formatted in eXtensbile Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to the Condensed Consolidated Financial Statements (tagged as blocks of text)* |
* | | Exhibit will be filed within 30 days of the filing of the Form 10-Q, as permitted by Regulation S-T Item 405(a)(2). |
UNIFI, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| UNIFI, INC. (Registrant) | |
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Date: May 6,November 4, 2011 | | /s/ RONALD L. SMITH | |
| | Ronald L. Smith | |
| | Vice President and Chief Financial Officer | |
| | (Principal Financial Officer and PrincipalDuly Authorized Officer) | |