UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 27, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10542
UNIFI, INC.
(Exact name of registrant as specified in its charter)
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New York
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11-2165495 |
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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P.O. Box 19109 - 7201 West Friendly Avenue Greensboro, NC
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27419-9109 |
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (336) 294-4410
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ] Smaller reporting company [ ]
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]
As of December 27, 2009, the aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was $157,631,243. The registrant has no non-voting stock.
As of September 6, 2010, the number of shares of the registrant’s common stock outstanding was 60,172,300.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement filed with the Securities and Exchange Commission (the “SEC”) in connection with the solicitation of proxies for the Annual Meeting of Shareholders of Unifi, Inc., held on October 27, 2010, are incorporated by reference into Part III. (With the exception of those portions which are specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed or incorporated by reference as part of this report.)
Amendment No. 1
Explanatory Note
Unifi, Inc. (the “Company” or the “Registrant”) is filing this Form 10-K/A to amend Item 15 of its Annual Report on Form 10-K (the “Form 10-K”) for the fiscal year ended June 27, 2010, and pursuant to Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, to include the financial statements and related notes of Parkdale America, LLC (“PAL”), an unconsolidated joint venture in which the Company holds a 34% equity ownership interest.
Rule 3-09 of Regulation S-X provides that if a 50%-or-less-owned person accounted for by the equity method meets the first or third condition of the significant subsidiary tests set forth in Rule 1-02(w), substituting 20% for 10%, separate financial statements for such 50%-or-less-owned person shall be filed.
PAL met the significant subsidiary test described above for the Company’s fiscal years ending June 27, 2010 and June 29, 2008 and the Company has included in this Form 10-K/A the required audited financial statements for PAL’s corresponding fiscal years ending January 1, 2011 and January 3, 2009. PAL did not meet the significance test for the Company’s fiscal year ended June 28, 2009, and therefore as permitted by Rule 3-09(b)(1) the corresponding financial statements for PAL’s fiscal year ended January 2, 2010 provided in this Form 10K/A are not required to be audited and as such are not accompanied by an audit opinion. The Company's significance tests are calculated as of the end of its fiscal year and for its fiscal year.
Item 15 is also being amended by this Form 10-K/A to include reference to the PAL financial statements and the related reports of PAL’s independent certified public accounting firms, and to file the consents of the independent certified public accounting firms related to their opinions contained in this filing and certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. This Form 10-K/A does not otherwise update or amend any other items or disclosures as originally filed and does not otherwise reflect events occurring after the original filing date of the Annual Report. Accordingly, this Form 10-K/A should be read in conjunction with the Company’s filings with the Securities and Exchange Commission (“SEC”) subsequent to the original filing. In accordance with Rule 12b-15 of the Securities Exchange Act of 1934, as amended, the text of the amended item (Item 15) is set forth in its entirety in the attached pages hereto.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
The following financial statements of the Registrant and reports of independent registered public accounting firm are filed as a part of this Report.
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Pages |
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Reports of Independent Registered Public Accounting Firm
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+
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Consolidated Balance Sheets at June 27, 2010 and June 28, 2009
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+
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Consolidated Statements of Operations for the Years Ended June 27, 2010, June 28, 2009, and June 29, 2008
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+ |
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Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended June 27, 2010,
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June 28, 2009, and June 29, 2008
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+
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Consolidated Statements of Cash Flows for the Years Ended June 27, 2010, June 28, 2009, and June 29, 2008
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Notes to Consolidated Financial Statements
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+
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2. Financial Statement Schedules
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II — Valuation and Qualifying Accounts
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+
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Parkdale America, LLC Financial Statements as of January 1, 2011 and January 2, 2010 and for the Years Ended
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January 1, 2011, January 2, 2010, and January 3, 2009
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9 |
Schedules other than those above are omitted because they are not required, are not applicable, or the required information is given in the consolidated financial statements or notes thereto.
With the exception of the information herein expressly incorporated by reference, the Proxy Statement is not deemed filed as a part of this Annual Report on Form 10-K.
+ Previously filed
3. Exhibits
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Exhibit
Number
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Description
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3.1(i)(a)
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Restated Certificate of Incorporation of Unifi, Inc., as amended (incorporated by reference to Exhibit 3a to the Company’s Annual Report on Form 10-K for the fiscal year ended June 27, 2004 (Reg. No. 001-10542) filed on September 17, 2004). +
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3.1(i)(b)
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Certificate of Change to the Certificate of Incorporation of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated July 25, 2006). +
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3.1 (ii)
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Restated By-laws of Unifi, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated December 20, 2007). +
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4.1
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Indenture dated May 26, 2006, among Unifi, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.2
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Form of Exchange Note (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.3
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Registration Rights Agreement, dated May 26, 2006, among Unifi, Inc., the guarantors party thereto and Lehman Brothers Inc. and Banc of America Securities LLC, as the initial purchasers (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.4
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Security Agreement, dated as of May 26, 2006, among Unifi, Inc., the guarantors party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.5
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Pledge Agreement, dated as of May 26, 2006, among Unifi, Inc., the guarantors’ party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.6
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Grant of Security Interest in Patent Rights, dated as of May 26, 2006, by Unifi, Inc. in favor of U.S. Bank National Association (incorporated by reference to Exhibit 4.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.7
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Grant of Security Interest in Trademark Rights, dated as of May 26, 2006, by Unifi, Inc. in favor of U.S. Bank National Association (incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.8
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Intercreditor Agreement, dated as of May 26, 2006, among Unifi, Inc., the subsidiaries party thereto, Bank of America N.A. and U.S. Bank National Association (incorporated by reference to Exhibit 4.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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Exhibit
Number
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Description
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4.9
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Amended and Restated Credit Agreement, dated as of May 26, 2006, among Unifi, Inc., the subsidiaries party thereto and Bank of America N.A. (incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.10
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Amended and Restated Security Agreement, dated May 26, 2006, among Unifi, Inc., the subsidiaries party thereto and Bank of America N.A. (incorporated by reference to Exhibit 4.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.11
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Pledge Agreement, dated May 26, 2006, among Unifi, Inc., the subsidiaries party thereto and Bank of America N.A. (incorporated by reference to Exhibit 4.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.12
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Grant of Security Interest in Patent Rights, dated as of May 26, 2006, by Unifi, Inc. in favor of Bank of America N.A. (incorporated by reference to Exhibit 4.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.13
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Grant of Security Interest in Trademark Rights, dated as of May 26, 2006, by Unifi, Inc. in favor of Bank of America N.A. (incorporated by reference to Exhibit 4.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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4.14
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Registration Rights Agreement dated January 1, 2007 between Unifi, Inc. and Dillon Yarn Corporation (incorporated by reference from Exhibit 7.1 to the Company’s Schedule 13D dated January 2, 2007). +
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4.15
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First Amendment to Amended and Restated Credit Agreement, Amended and Restated Security Agreement and Pledge Agreement, dated as of September 9, 2010, among Unifi, Inc., the subsidiaries of Unifi, Inc. from time to time party to the agreement, each lender from time to time party to the agreement and Bank of America N.A. as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 9, 2010). +
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10.1
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Deposit Account Control Agreement, dated as of May 26, 2006, between Unifi Manufacturing, Inc. and Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended June 25, 2006 (Reg. No. 001-10542) filed on September 8, 2006). +
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10.2
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*1999 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference from Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-43158) filed on August 7, 2000). +
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10.3
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*Form of Option Agreement for Incentive Stock Options granted under the 1999 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated July 25, 2006). +
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10.4
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*Unifi, Inc. Supplemental Key Employee Retirement Plan, effective July 26, 2006 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated July 25, 2006). +
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10.5
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*Change of Control Agreement between Unifi, Inc. and Thomas H. Caudle, Jr., effective August 14, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated August 14, 2009). +
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10.6
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*Change of Control Agreement between Unifi, Inc. and Charles F, McCoy, effective August 14, 2009 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated August 14, 2009). +
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| Exhibit
Number
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Description
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10.7
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*Change of Control Agreement between Unifi, Inc. and Ronald L. Smith, effective August 14, 2009 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated August 14, 2009). +
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10.8
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*Change of Control Agreement between Unifi, Inc. and R. Roger Berrier, Jr., effective August 14, 2009 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated August 14, 2009). +
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10.9
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*Change of Control Agreement between Unifi, Inc. and William L. Jasper, effective August 14, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated August 14, 2009). +
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10.10
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Sales and Services Agreement dated January 1, 2007 between Unifi, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-3 (Reg. No. 333-140580) filed on February 9, 2007). +
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10.11
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*Severance Agreement, executed October 4, 2007, by and between the Company and William M. Lowe, Jr. (incorporated by reference from Exhibit 10.1 to the Company’s current report on Form 8-K (Reg. No. 001-10542) dated October 4, 2007). +
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10.12
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First Amendment to Sales and Service Agreement dated January 1, 2007 between Unifi Manufacturing, Inc. and Dillon Yarn Corporation (incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form 8-K (Reg. No. 333-140580) filed on December 3, 2008). +
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10.13
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*2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-140590) filed on December 12, 2008). +
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10.14
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*Form of Option Agreement for Incentive Stock Options granted under the 2008 Unifi, Inc. Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s quarterly report on Form 10-Q for the quarterly period December 28, 2008 (Reg. No. 001-10542) filed on February 6, 2009). +
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10.15
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*Amendment to the Unifi, Inc. Supplemental Key Employee Retirement Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) filed on December 31, 2008). +
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10.16
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Yarn Purchase Agreement between Unifi Manufacturing, Inc. and Hanesbrands, Inc effective November 6, 2009 (incorporated by reference from Exhibit 32.2 to the Company’s current report on Form 8-K (Reg. No. 001-10542) dated November 6, 2009) (portions of the exhibit have been redacted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request). +
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10.17
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Second Amendment to Sales and Service Agreement between Unifi, Inc. and Dillon Yarn Corporation, effective January 1, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (Reg. No. 001-10542) dated December 11, 2009). +
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12.1
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Statement of Computation of Ratios of Earnings to Fixed Charges. +
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14.1
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Unifi, Inc. Ethical Business Conduct Policy Statement as amended July 22, 2004, filed as Exhibit (14a) with the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 2004 (Reg. No. 001-10542), which is incorporated herein by reference. +
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14.2
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Unifi, Inc. Code of Business Conduct & Ethics adopted on July 22, 2004, filed as Exhibit (14b) with the Company's Annual Report on Form 10-K for the fiscal year ended June 27, 2004 (Reg. No. 001-10542), which is incorporated herein by reference. +
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| Exhibit
Number
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Description
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21.1
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List of Subsidiaries. +
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23.1
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Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. +
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23.2
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Consent of PricewaterhouseCoopers LLP, Independent Certified Public Accounting Firm.
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23.3
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Consent of Grant Thornton LLP, Independent Certified Public Accounting Firm.
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31.1
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Chief Executive Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Chief Financial Officer’s certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Chief Executive Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Chief Financial Officer’s certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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*NOTE: These Exhibits are management contracts or compensatory plans or arrangements required to be filed as an exhibit to this Form 10-K pursuant to Item 15(b) of this report.
+ Previously filed
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on April 1, 2011.
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UNIFI, Inc.
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By:
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/s/ RONALD L. SMITH |
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Ronald L. Smith
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Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
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1.
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Nature of Business and Summary of Significant Accounting Policies
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Organization
On June 30, 1997, Parkdale Mills, Inc. (“Mills”) and Unifi, Inc. (“Unifi”) entered into a Contribution Agreement (the “Agreement”) that set forth the terms and conditions by which the two companies contributed all of the assets of their spun cotton yarn operations utilizing open-end and air-jet spinning technologies to create Parkdale America, LLC (the “Company”). In exchange for their respective contributions, Mills and Unifi received a 66% and 34% ownership interest in the Company, respectively.
Operations
The Company is a producer of cotton and synthetic yarns for sale to the textile and apparel industries, both foreign and domestic. As of January 1, 2011, the Company has 15 manufacturing facilities located primarily in central and western North Carolina.
Fiscal Year
The Company’s fiscal year end is the Saturday nearest to December 31. The Company’s fiscal years 2010 and 2009 ended on January 1, 2011 and January 2, 2010, respectively, and both contained 52 weeks. The Company's fiscal 2008 year ended on January 3, 2009 and contained 53 weeks.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenues upon shipment of goods, when persuasive evidence of an arrangement exists, the price is fixed and determinable, and collectability is reasonably assured. Revenue for product sales is recognized as risk and title to the product transfer to the customer, which usually occurs at the time shipment is made. Product sales are usually sold free on board shipping point. As such, title to the product passes when the product is delivered to the freight carrier. Revenue is recorded net of estimated sales returns. Accruals are made for sales returns based on the Company’s experience.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents. The Company maintains cash deposits with major banks that may exceed federally insured limits. The Company periodically assesses the financial condition of the institutions and believes the risk of loss to be remote.
Concentration of Credit Risk
Substantially all of the Company’s accounts receivable are due from companies in the textile and apparel markets located primarily throughout North and South America. The Company generally does not require collateral for its accounts receivable. The Company performs ongoing credit evaluations of its customers’ financial condition and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. Allowances provided for doubtful accounts were $7,676,000 and $4,561,000 for the years ended January 1, 2011 and January 2, 2010, respectively.
Sales to five customers accounted for approximately 80% of total gross sales in fiscal year 2010, sales to four customers accounted for approximately 56% of total gross sales in fiscal year 2009, and sales to two customers accounted for approximately 32% of total gross sales in fiscal year 2008. As of January 1, 2011, accounts receivable from five customers composed 75% of total gross accounts receivable outstanding. As of January 2, 2010, accounts receivable from four customers composed 57% of total gross accounts receivable outstanding.
Parkdale America, LLC
(A Limited Liability Company)
Notes to Financial Statements
Years Ended January 1, 2011, January 2, 2010, and January 3, 2009
Fair Value Measurements
The Company follows the guidance in accordance with Accounting Standards Codification ("ASC") 820 to account for fair value measures. The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, the guidance establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair values as follows:
Level 1 – Observable inputs, such as quoted prices in active markets
Level 2 – Inputs, other than quoted prices in active markets, that are observable either directly or indirectly
Level 3 – Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions
The Company’s derivative instruments represent the only balances which are measured at fair value on a recurring basis. The Company’s derivative instruments are listed and traded on an exchange (Level 1 inputs). See Note 7 for separate disclosure of derivatives measured at fair value.
In connection with the Company’s impairment testing of long-lived assets and certain identifiable intangible assets as of January 1, 2011 and January 2, 2010, the Company determined that the carrying amount of certain assets exceeded the undiscounted future cash flows of the assets. The Company recorded an impairment charge for certain idled equipment to reduce the carrying value of such idled equipment to net realizable value. The fair values of the equipment were determined based on unobservable inputs (Level 3).
The carrying amount of money market funds, receivables, accounts payable, and accrued expenses approximate fair value because of the short-term maturity of such instruments.
Self Insurance
The Company is self-insured for certain losses relating to workers’ compensation, and medical and dental claims. The Company has stop-loss coverage to limit the exposure arising from these claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon management’s estimates of the ultimate cost for self-insured claims incurred using actuarial assumptions followed in the insurance industry and historical experience. Accruals for workers’ compensation are reported on a discounted basis.
Property, Plant, and Equipment
Additions to property, plant, and equipment are recorded at cost. Repairs and maintenance, which do not extend the life of the applicable assets, are expensed. Provisions for depreciation are determined principally by an accelerated method over the estimated useful lives of the assets. Assets under capital lease are amortized over the lease term. A summary of property, plant, and equipment as of January 1, 2011 and January 2, 2010, is as follows:
Parkdale America, LLC
(A Limited Liability Company)
Notes to Financial Statements
Years Ended January 1, 2011, January 2, 2010, and January 3, 2009
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Useful
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Lives in
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Years
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2010
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2009
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Land and land improvements
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15 |
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$ |
9,812,000 |
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$ |
6,594,000 |
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Buildings
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15-39 |
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83,608,000 |
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73,572,000 |
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Machinery and equipment
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5-9 |
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429,465,000 |
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405,192,000 |
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Office furniture and fixtures
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3-7 |
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11,136,000 |
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13,791,000 |
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534,021,000 |
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499,149,000 |
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Less: Accumulated depreciation
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(394,397,000 |
) |
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(401,293,000 |
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Construction in progress
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10,550,000 |
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2,330,000 |
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| Property, plant and equipment, net |
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$ |
150,174,000 |
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|
$ |
100,186,000 |
|
Depreciation expense for the years ended January 1, 2011, January 2, 2010, and January 3, 2009, was $25,213,000, $19,398,000, and $17,944,000, respectively.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets to determine impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
In fiscal years 2010 and 2009, the Company recorded impairment charges of approximately $461,000 and $130,000, respectively, related to idled equipment whose carrying value was greater than its estimated fair value.
Economic Assistance Program
During August 2008, a federal government program commenced providing economic adjustment assistance to domestic users of upland cotton. The cotton subsidy is for cotton consumed in domestic production. The subsidy must be used within 18 months after the marketing year earned to purchase qualifying capital expenditures in the United States for production of goods from upland cotton. The marketing year is from August 1 to July 31. During the period beginning on August 1, 2008, and ending on July 31, 2012, the value of the assistance will be four cents per pound of consumed cotton. Effective beginning on August 1, 2012, the value of the assistance will be three cents per pound of consumed cotton.
The Company recognizes income for the cotton subsidy when the cotton has been consumed and the qualifying assets have been acquired. The Company recognized income of $42,942,000, $1,072,000, and $6,073,000 for the cotton subsidy earned during the fiscal years ended January 1, 2011, January 2, 2010, and January 3, 2009, respectively, which is included as a reduction to cost of goods sold in the accompanying consolidated statement of operations.
The Company had receivables totaling $4,948,000 and $4,364,000 and deferred income totaling $0 and $15,855,000 related to the subsidy program as of January 1, 2011 and January 2, 2010, respectively. Deferred income has been classified as a long-term liability, consistent with the terms of the government program and uncertainty around the timing of qualifying asset purchases.
Shipping Costs
The costs to ship products to customers of approximately $18,251,000, $6,200,000, and $4,400,000 during the years ended January 1, 2011, January 2, 2010, and January 3, 2009, respectively, are included as a component of cost of goods sold in the accompanying statements of operations.
Parkdale America, LLC
(A Limited Liability Company)
Notes to Financial Statements
Years Ended January 1, 2011, January 2, 2010, and January 3, 2009
Accumulated Other Comprehensive Income
At January 1, 2011 and January 2, 2010, the Company's accumulated other comprehensive income was comprised of gains related to futures contracts totaling $23,034,000 and $369,000, respectively.
On October 28, 2009, the Company 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. (“Hanesbrands”). Concurrent with the transaction, the Company entered into a yarn supply agreement with Hanesbrands to supply at least 95% of the yarn used in the manufacturing of its apparel products at any of its locations in North America, Central America, or the Caribbean Basin for a six-year period with an option for Hanesbrands to extend for two additional three-year periods. The supply agreement also covers certain yarns used in manufacturing in China through December 31, 2011. The total purchase price was $23,769,000. The Company accounted for the transaction as a business combination and recorded the tangible assets and liabilities at their estimates of fair value.
A summary of the purchase price allocation to the acquired net assets is as follows:
|
Inventories
|
|
$ |
4,141,000 |
|
|
Property, plant and equipment
|
|
|
19,435,000 |
|
|
Other assets
|
|
|
649,000 |
|
|
Total assets
|
|
|
24,225,000 |
|
| Accrued liabilities |
|
|
(456,000 |
) |
| Cash consideration paid |
|
$ |
23,769,000 |
|
In connection with this business combination, the Company received equipment from Hanesbrands in July and September 2010 having a fair value of $12,111,000. This equipment was contributed to the Company by Hanesbrands in connection with a vendor managed inventory program between the Company and Hanesbrands. The Company recorded the equipment received at its fair value at the date acquired, and recorded deferred revenue which is being amortized over the life of the yarn supply agreement. The remaining deferred revenue related to this agreement is $10,098,000 at January 1, 2011.
Parkdale America, LLC
(A Limited Liability Company)
Notes to Financial Statements
Years Ended January 1, 2011, January 2, 2010, and January 3, 2009
Inventories are stated at the lower of cost or market. During fiscal years 2010 and 2009, cost was determined using the specific identification method for raw materials, yarn-in-process, and finished yarn inventories. The Company performs periodic assessments to determine the existence of obsolete, and slow-moving inventories and records necessary provisions to reduce such inventories to net realizable value. Inventories as of January 1, 2011 and January 2, 2010, consist of the following:
| |
|
2010
|
|
|
2009
|
|
|
Cotton and synthetics
|
|
$ |
53,741,000 |
|
|
$ |
22,166,000 |
|
|
Yarn in process
|
|
|
11,076,000 |
|
|
|
7,170,000 |
|
|
Finished yarn
|
|
|
49,763,000 |
|
|
|
38,965,000 |
|
|
Supplies
|
|
|
952,000 |
|
|
|
955,000 |
|
| |
|
$ |
115,532,000 |
|
|
$ |
69,256,000 |
|
Inventories as of January 1, 2011 and January 2, 2010, have been reduced by $906,000 and $783,000, respectively, related to a reduction in the value of finished yarns on hand.
The Company is a limited liability company treated as a partnership for federal and state income tax reporting purposes. As a result, the Company’s results of operations are included in the income tax returns of its individual members. Accordingly, no provision for federal or state income taxes has been recorded in the accompanying financial statements.
|
5.
|
Deferred Financing Costs
|
On April 28, 2008, the Company amended its revolving credit facility (see Note 6). Financing costs consist primarily of commitment fees, legal fees, and other direct costs incurred to amend the Company’s revolving line of credit. Total deferred financing costs capitalized were approximately $388,000. These costs were being amortized over the term of the debt agreement, which matures on April 28, 2011. Amortization expense relating to this credit facility was $108,000 and $97,000 for the years ended January 2, 2010 and January 3, 2009, respectively.
On October 28, 2009, the Company further amended its revolving credit facility (see Note 6). Financing costs consist primarily of commitment fees, legal fees, and other direct costs incurred to amend the Company’s revolving line of credit. Total deferred financing costs capitalized were approximately $705,000. These costs are being amortized over the term of the debt agreement, which matures on October 28, 2012. Amortization expense relating to this credit facility was $244,000 and $58,000 for the years ended January 1, 2011 and January 2, 2010, respectively. In connection with the October 2009 amendment of the revolving credit facility, which included a change in the lending group, the Company wrote off the remaining $183,000 in deferred financing costs related to the April 2008 amendment.
During 2010, the Company capitalized financing costs approximately $95,000 relating to amendments to the revolving credit facility (see Note 6). These costs are being amortized over the term of the debt agreement, which matures on October 28, 2012.
The Company has a revolving credit facility available with maximum borrowings of $100,000,000 through October 28, 2012. The facility was amended December 2010 changing the interest rate charged on outstanding borrowings to a rate per annum equal to either (1) the greater of the sum of the prime rate plus an applicable percentage as defined in the agreement or (2) the greater of the sum of the London InterBank Offered Rate, plus an applicable percentage as defined in the agreement. The amendment also modified the covenants in place by amending the limit on capital expenditures, the minimum fixed-charge coverage ratio and the minimum leverage ratio. As of January 1, 2011, outstanding borrowings on the credit facility were $45,000,000. As of January 2, 2010, there were no outstanding borrowings under the revolving credit facility.
Parkdale America, LLC
(A Limited Liability Company)
Notes to Financial Statements
Years Ended January 1, 2011, January 2, 2010, and January 3, 2009
|
7.
|
Derivative Instruments
|
All derivatives, whether designated in hedging relationships or not, are required to be recorded in the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income or loss and are recognized in earnings when the hedged item affects earnings. Any material ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings as they occur.
The Company is subject to price risk related to anticipated, fixed-price yarn sales. In the normal course of business, under procedures and controls established by the Company’s financial risk management framework, the Company enters into cotton futures to manage changes in raw materials prices in order to protect the gross margin of fixed-price yarn sales. As of January 1, 2011 and January 2, 2010, the Company has recorded these instruments at their fair value of $6,018,000 and $1,025,000, respectively, in the accompanying balance sheets.
| |
Balance Sheet
|
|
Fair Value
|
|
|
Fair Value
|
|
| |
Location
|
|
January 1, 2011
|
|
|
January 2, 2010
|
|
|
Derivative assets, commodity contracts
|
|
|
|
|
|
|
|
|
Hedges
|
Derivative instruments, net
|
|
$ |
9,753,000 |
|
|
$ |
279,000 |
|
|
Nonhedges
|
Derivative instruments, net
|
|
|
6,827,000 |
|
|
|
1,187,000 |
|
|
Total derivative assets
|
|
|
|
16,580,000 |
|
|
|
1,466,000 |
|
|
Derivative liabilities, commodity contracts
|
|
|
|
|
|
|
|
|
|
|
Hedges
|
Derivative instruments, net
|
|
|
(970,000 |
) |
|
|
(37,000 |
) |
|
Nonhedges
|
Derivative instruments, net
|
|
|
(12,252,000 |
) |
|
|
(1,401,000 |
) |
|
Total derivative liability
|
|
|
|
(13,222,000 |
) |
|
|
(1,438,000 |
) |
|
Cash collateral with broker
|
|
|
|
2,660,000 |
|
|
|
997,000 |
|
|
Net derivative asset
|
|
|
$ |
6,018,000 |
|
|
$ |
1,025,000 |
|
The Company’s derivative instruments are listed and traded on an exchange and are thus valued using quoted prices classified within Level 1 of the fair value hierarchy. The total fair value of the derivative instruments is classified as a current asset as of January 1, 2011. The Company did not have any assets or liabilities classified as Level 2 or Level 3 at January 1, 2011 or January 2, 2010.
The Company designates certain futures contracts as cash flow hedges. As of January 1, 2011 and January 2, 2010, the Company had unrealized gains (loss) on futures contracts designated as cash flow hedges of $23,034,000 and $369,000, respectively, recorded in members’ equity. For contracts which were not designated as hedges, or for the ineffective portions of contracts designated as hedges, the Company recorded a decrease (increase) to earnings of approximately $4,118,000, $3,057,000, and $(8,166,000) for the years ended January 1, 2011, January 2, 2010, and January 3, 2009, respectively. The fair value of derivative financial instruments recognized in the accompanying balance sheets was as follows:
Parkdale America, LLC
(A Limited Liability Company)
Notes to Financial Statements
Years Ended January 1, 2011, January 2, 2010, and January 3, 2009
| |
|
|
|
|
|
|
|
Amount of Gain (Loss)
|
|
| |
|
Amount of Gain
|
|
Location of Gain (Loss)
|
|
Reclassified From
|
|
|
Cash Flow Hedging
|
|
in Members' Equity
|
|
Reclassified From
|
|
Members' Equity to Income
|
|
|
Derivatives
|
|
2010
|
|
|
2009 |
|
Members' Equity
|
|
2010 |
|
|
2009 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
$ |
23,034,000 |
|
|
$ |
369,000 |
|
Cost of goods sold
|
|
$ |
510,000 |
|
|
$ |
(5,481,000 |
) |
|
Derivatives not Designated
|
|
Location of Gain (Loss)
|
|
Amount of Loss in Income
|
|
|
as Hedging Instruments
|
|
Recognized in Income
|
|
2010 |
|
|
2009 |
|
| |
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
Loss on commodity contracts
|
|
$ |
(4,118,000 |
) |
|
$ |
(3,057,000 |
) |
The Company on occasion engages in the process of purchasing equipment from foreign vendors at prices denominated in Euros. During fiscal year 2007, to hedge against changes in the fair value of such prices due to changes in foreign currency exchange rates, the Company entered into forward contracts with a bank. The Company purchased the equipment during fiscal year 2008 and the foreign currency contracts were completed and closed. The contracts were not designated as foreign currency fair value hedges by the Company, and as such, the Company recorded an increase to earnings of approximately $1,804,000 for the year ended January 3, 2009.
During fiscal year 2010, to hedge against changes in the fair value of such prices due to changes in foreign currency exchange rates, the Company entered into forward contracts with a bank. The Company purchased the equipment during fiscal year 2010 and the foreign currency contracts were completed and closed. The contracts were not designated as foreign currency fair value hedges by the Company, and as such, the Company recorded a decrease to earnings of $394,000 for the year ended January 1, 2011.
In addition, the Company enters into forward contracts for cotton purchases, which qualify as derivative instruments. However, these contracts meet the applicable criteria to qualify for the “normal purchases or normal sales” exemption. Therefore, the derivative accounting requirements are not applicable to these contracts.
|
8.
|
Investment in Summit Yarn Joint Venture
|
On June 4, 1998, Mills and Burlington Industries, Inc. (“Burlington”) entered into a Joint Venture and Contribution Agreement (the “JV Agreement”) whereby Mills and Burlington agreed to contribute certain assets and cash for the purpose of constructing, operating, and managing a yarn manufacturing facility (the “Joint Venture”), which qualifies under the Maquiladora program in accordance with applicable Mexican law and for the marketing and sale of yarn manufactured by Summit Yarn, LLC (“Summit”). In exchange for their respective contributions, Mills and Burlington each received a 50% ownership interest in Summit. Concurrent with the formation of Summit, Mills and Burlington formed Summit Yarn Holding I, which serves as the holding company for Mills' and Burlington’s investment in various Mexican corporations related to the Joint Venture. Mills and Burlington each received a 50% ownership interest in Summit Yarn Holding I. Effective January 15, 2002, Mills transferred its ownership in Summit to the Company. The investment was transferred at Mills' historical basis of $14,257,000, which included notes receivable from Summit totaling $5,227,000. The JV Agreement expires in 2018 and has stated renewal options. The Company accounts for its investment in Summit and Summit Yarn Holding I, based on the equity method of accounting.
On November 15, 2001, Burlington declared Chapter 11 bankruptcy. On November 10, 2003, the purchase of Burlington by WL Ross & Co. was completed and Burlington emerged from bankruptcy. During March 2004, WL Ross & Co. completed the integration of Burlington and Cone Denim into the newly formed International Textile Group (“ITG”). As part of the new structure, Cone Denim assumed responsibility of Burlington’s Burlmex denim plant in Mexico, which is the ITG affiliated manufacturing facility that receives yarn purchased from Summit Yarn and renders services to ITG pursuant to a maquiladora agreement. Cone Denim and Burlington operate under separate business units of ITG.
Parkdale America, LLC
(A Limited Liability Company)
Notes to Financial Statements
Years Ended January 1, 2011, January 2, 2010, and January 3, 2009
Effective August 2, 2004, Burlington transferred its ownership in Summit Yarn to Cone Denim LLC (“Cone”).
Summarized financial information of Summit as of and for the years ended January 1, 2011, January 2, 2010, and January 3, 2009 are as follows:
| |
|
2010
|
|
|
2009
|
|
|
2008
|
|
| |
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$ |
12,185,000 |
|
|
$ |
10,308,000 |
|
|
|
|
|
Total assets
|
|
|
21,588,000 |
|
|
|
19,166,000 |
|
|
|
|
|
Current liabilities
|
|
|
3,234,000 |
|
|
|
1,388,000 |
|
|
|
|
|
Total liabilities
|
|
|
4,016,000 |
|
|
|
2,107,000 |
|
|
|
|
|
Equity
|
|
|
17,572,000 |
|
|
|
17,058,000 |
|
|
|
|
|
Total liabilities and equity
|
|
|
21,588,000 |
|
|
|
19,166,000 |
|
|
|
|
|
Revenue
|
|
|
60,136,000 |
|
|
|
42,580,000 |
|
|
$ |
50,620,000 |
|
|
Expenses
|
|
|
58,122,000 |
|
|
|
40,850,000 |
|
|
|
51,367,000 |
|
|
Net income (loss)
|
|
|
2,014,000 |
|
|
|
1,730,000 |
|
|
|
(747,000 |
) |
|
9.
|
Defined Contribution Plan
|
The Company maintains a defined contribution retirement plan available to substantially all employees. The Company’s contributions are based on a formula for matching employee contributions. The Company incurred costs for this plan of $659,000, $356,000, and $467,000 during the years ended January 1, 2011, January 2, 2010, and January 3, 2009, respectively.
|
10.
|
Related-Party Transactions
|
Cotton Purchases and Commitments
From time to time, the Company purchases and sells cotton to and from Mills. During fiscal years 2010, 2009, and 2008, the Company sold cotton to Mills at cost, amounting to $489,000, $346,000, and $502,000, respectively. The cost of cotton transferred between the Company and Mills is determined on a specific identification basis for each cotton bale sold or purchased. During fiscal year 2010, the Company purchased cotton from Mills at cost, amounting to $879,000.
Shared Expenses Allocation
The Company and Mills share certain accounting and administrative expenses. Mills and Unifi have agreed to allocate these accounting and administrative expenses based upon a weighted average of certain key indicators, including, but not limited to, pounds of yarn sold and net sales. Amounts charged to the Company for these services were approximately $20,947,000, $15,621,000, and $20,948,000 for the fiscal years ended January 1, 2011, January 2, 2010, and January 3, 2009, respectively.
Due to and from Affiliates
Due to and from affiliates as of January 1, 2011 and January 2, 2010, consists of the following:
Parkdale America, LLC
(A Limited Liability Company)
Notes to Financial Statements
Years Ended January 1, 2011, January 2, 2010, and January 3, 2009
| |
|
2010
|
|
|
2009
|
|
| |
|
|
|
|
|
|
|
Due from U.S. Cotton LLC
|
|
$ |
152,000 |
|
|
$ |
- |
|
|
Due from affiliates
|
|
$ |
152,000 |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
Due to Summit
|
|
|
(476,000 |
) $ |
|
$ |
(367,000 |
) |
|
Due to Mills
|
|
|
(4,586,000 |
) |
|
|
(3,373,000 |
) |
|
Due to Alliance Real Estate III
|
|
|
(2,000 |
) |
|
|
(2,000 |
) |
|
Due to Parkdale Mills de Honduras
|
|
|
- |
|
|
|
(38,000 |
) |
|
Due to U.S. Cotton LLC
|
|
|
(23,000 |
) |
|
|
(50,000 |
) |
|
Due to affiliates
|
|
$ |
(5,087,000 |
) |
|
$ |
(3,830,000 |
) |
Amounts due to affiliates result from intercompany charges related to inventory purchases, accounts receivable collections, and the administrative expense allocation.
Fixed Asset Transfers and Sales
During the fiscal years ended January 1, 2011 and January 2, 2010, Mills transferred to the Company, at net book value, fixed assets of $505,000 and $157,000, respectively, which were settled by cash payment during the year. During the years ended January 1, 2011 and January 2, 2010, the Company transferred to Mills, at net book value, fixed assets of $0 and $27,000, respectively. No gain or loss was recognized on these transfers.
Other
The Company sells waste fibers to Henry Fibers, a company owned by a stockholder of Mills. Total sales amounted to $428,000, $57,000, and $149,000 for the years ended January 1, 2011, January 2, 2010, and January 3, 2009, respectively.
|
11.
|
Commitments and Contingencies
|
Operating Leases
The Company has entered into operating leases for various vehicles and office equipment. Future minimum lease payments during the remaining noncancelable lease terms as of January 1, 2011, are as follows:
|
Fiscal Years
|
|
|
|
|
2011
|
|
$ |
726,000 |
|
|
2012
|
|
|
204,000 |
|
|
2013
|
|
|
40,000 |
|
| Total minimum lease payments |
|
$ |
970,000 |
|
Rent expense for the years ended January 1, 2011, January 2, 2010, and January 3, 2009, was $1,327,000, $827,000, and $550,000, respectively.
Purchase and Sales Commitments
At January 1, 2011 and January 2, 2010, the Company had unfulfilled cotton purchase commitments, at varying prices, for approximately 664,460,000 and 381,250,000 pounds of cotton to be used in the production process, respectively. At January 1, 2011, January 2, 2010, and January 3, 2009, the Company had unfulfilled yarn sales contracts, at varying prices, with various customers.
Parkdale America, LLC
(A Limited Liability Company)
Notes to Financial Statements
Years Ended January 1, 2011, January 2, 2010, and January 3, 2009
Contingencies
The Company is involved in various legal actions and claims arising in the normal course of business. Management believes that the resolution of such matters will not have a material effect on the financial condition, results of operations, or cash flows of the Company.
In 2008, the Company received two lawsuit settlements totaling $8,584,000 for claims filed in prior years. These settlements were from claims against raw material manufacturers in the amount of $7,634,000 and an insurance company in the amount of $950,000. The proceeds from the raw material manufacturers were recorded in the accompanying consolidated financial statements as a reduction of cost of goods sold for the year ended January 3, 2009. The proceeds of $950,000 from the insurance company were recorded separately in the statement of operations as a gain on legal settlement for the year ended January 3, 2009.
The Company evaluated transactions occurring after January 1, 2011 in accordance with ASC Topic 855, Subsequent Events, through April 1, 2011, which is the date the financial statements were available for issuance.
On March 30, 2011, the Company amended its revolving credit facility to increase the maximum borrowing capacity from $100,000,000 to $200,000,000 and extend the maturity date from October 28, 2012 to July 31, 2014.
26