UNIFI INC, 10-K, 2000-09-25

UNIFI INC
10-K, 2000-09-25
TEXTILE MILL PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

----------------

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 25, 2000 - Commission File Number 1-10542

----------------

Unifi, Inc.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
New York 11-2165495
------------------------------------------- -------------------------------------------
(State or other jurisdiction of (I.R.S. Employer identification no.)
incorporation or organization)

7201 West Friendly Avenue
Greensboro, North Carolina 27410
------------------------------------------- -------------------------------------------
(Address of principal executive offices) (Zip code)

(336) 294-4410
-------------------------------------------
(Registrant's telephone no., including area
code)
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
<S> <C>
Common Stock, par value $.10 per share New York Stock Exchange
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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 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. [_]

Aggregate market value of the voting stock held by non-affiliated of the
registrant as of August 24, 2000 based on a closing price of $11.3125 per
share: $580,331,182

Number of shares outstanding as of August 24, 2000: 54,526,659

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders of Unifi, Inc., to be held on October 26, 2000, are incorporated
by reference into Part III.

Exhibits, Financial Statement Schedules and Reports on Form 8-K index is
located on pages 32 and 33.

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<PAGE>

PART I

Item 1. BUSINESS

Unifi, Inc., a New York corporation formed in 1969, together with its sub-
sidiaries, hereinafter set forth, (the "Company" or "Unifi"), is one of the
largest and most diversified producers and processors of textile yarns in the
world. The Company is primarily engaged in the processing of synthetic yarns in
two primary business segments, polyester and nylon. The polyester segment is
comprised of textured, dyed, twisted and beamed yarns with sales to knitters
and weavers that produce fabrics for the apparel, automotive and furniture up-
holstery, home furnishings, industrial and other end use markets. The nylon
segment is comprised of textured nylon and covered spandex products with sales
to knitters and weavers that produce fabrics for the apparel, hosiery, socks
and other end use markets. See the Consolidated Financial Statements Footnote 2
("Acquisitions and Alliances") on pages 20 and 21 and Consolidated Financial
Statements Footnote 11 ("Investment in Unconsolidated Affiliates") on page 28
of this Report for information concerning recent mergers, acquisitions, alli-
ances and consolidations of the Company's business, which is incorporated
herein by reference.

Texturing polyester and nylon filament fiber involves the processing of par-
tially oriented yarn ("POY"), which is either raw polyester or nylon filament
fiber purchased from chemical manufacturers or produced internally, to give it
greater bulk, strength, stretch, consistent dyeability and a softer feel,
thereby making it suitable for use in knitting and weaving of fabrics. The
texturing process involves the use of high-speed machines to draw, heat and
twist the POY to produce yarn having various physical characteristics, depend-
ing on its ultimate end use.

During the fourth quarter of fiscal year 1999, the Company formed Unifi
Technology Group, LLC ("UTG"), to provide consulting services focused on inte-
grated manufacturing, factory automation and electronic commerce solutions to
other domestic manufacturers. Effective June 1, 1999, UTG acquired the assets
of Cimtec, Inc. ("Cimtec"), a manufacturing automation solutions provider, for
$10.5 million. Subsequently, ownership interest in the new entity was sold to
certain former Cimtec shareholders and former Unifi executives. See Consoli-
dated Financial Statements Footnote 2 ("Acquisitions and Alliances") on pages
20 and 21 of this Report for additional information on UTG.

SOURCES AND AVAILABILITY OF RAW MATERIALS

The primary third party suppliers of POY to the Company's polyester segment
are E. I. DuPont de Nemours and Company ("DuPont"), Nanya Plastics Corp. of
America ("Nanya"), Kosa (formerly Hoechst Celanese Corporation), Wellman Indus-
tries, Reliance Industries, LTD. Korteks and P.T. Indorama Synthetics TBK, with
the majority of the Company's polyester POY being supplied by DuPont. In addi-
tion, the Company has polyester POY manufacturing facilities in Yadkinville,
North Carolina (which provides approximately 35% of its total domestic polyes-
ter POY supply needs) and in Ireland. The production of POY is comprised of two
primary processes, polymerisation (performed in Ireland only) and spinning
(performed in both Ireland and Yadkinville). The polymerisation process is the
production of polymer by a chemical reaction involving terephthalic acid and
ethylene glycol, which are combined to form chip. The spinning process involves
the extrusion and melting of chip to form molten polymer. The molten polymer is
then extruded through spinnerettes to form continuous multi-filament raw yarn
(POY). Substantially all of the raw materials for such manufactured POY are
supplied by Nanya for domestic production and by DuPont and Bayer AG for our
Irish operation. The primary suppliers of POY to the Company's nylon segment
are DuPont, Universal Premier Fibers LLC (formerly Cookson Fibers, Inc.), and
Nilit, Ltd. with the majority of the Company's nylon POY being supplied by
DuPont.

Effective June 1, 2000, Unifi and DuPont began operating their America's
manufacturing alliance to produce polyester filament yarn. The goal of the al-
liance is to reduce operating costs through collectively planning and operating
both companies' POY facilities as a single production unit. The resulting asset
optimization, along with the sharing of manufacturing technologies, should re-
sult in significant quality and yield improvements and product innovations. See
the Consolidated Financial Statements Footnote 2 ("Acquisitions and Alliances")
on pages 20 and 21 for further information.

2
<PAGE>

Although the Company is heavily dependent upon a limited number of suppli-
ers, the Company has not had and does not anticipate any significant diffi-
culty in obtaining its raw POY or raw materials used to manufacture polyester
POY.

Patents and Licenses: The Company currently has several patents and regis-
tered trademarks, none of which it considers material to its business as a
whole.

Customers: The Company, in fiscal year ended June 25, 2000, sold its poly-
ester yarns to approximately 1,512 customers and its nylon yarns to approxi-
mately 249 customers, one customer's purchases comprised approximately 11% of
net sales for the polyester segment during said period, while another customer
comprised approximately 20% of net sales for the nylon segment for this time
period. The Company does not believe that the loss of any one customer would
have a materially adverse effect on either the polyester or nylon segment.

Backlog: The Company, other than in connection with certain foreign sales
and for textured yarns that are package dyed according to customers' specifi-
cations, does not manufacture to order. The Company's products can be used in
many ways and can be thought of in terms of a commodity subject to the laws of
supply and demand and, therefore, does not have what is considered a backlog
of orders. In addition, the Company does not consider its products to be sea-
sonal ones.

Competitive Conditions: The textile industry in which the Company currently
operates is keenly competitive. The Company processes and sells high-volume
commodity products, pricing is highly competitive with innovation, product
quality and customer service being essential for differentiating the competi-
tors within the industry. Product innovation gives our customers competitive
advantages, while product quality insures manufacturing efficiencies. The
Company's polyester and nylon yarns compete in a worldwide market with a num-
ber of other foreign and domestic producers of such yarns. In the sale of
polyester filament yarns, major domestic competitors are Dillon Yarn Company,
Inc., Spectrum Dyed Yarns, Inc. and Milliken & Company and in the sale of ny-
lon yarns major domestic competitors are Jefferson Mills, Inc. and Worldtex,
Inc. Additionally, there are numerous foreign competitors that sell polyester
and nylon yarns in the United States.

Research and Development: The estimated amount spent during each of the
last three fiscal years on Company-sponsored and customer-sponsored research
and development activities is considered immaterial.

Compliance With Certain Government Regulations: Management of the Company
believes that the operation of the Company's production facilities and the
disposal of waste materials are substantially in compliance with applicable
laws and regulations.

Employees: The number of full-time employees of the Company is approxi-
mately 6,680.

Financial Information About Segments: See the Consolidated Financial State-
ments Footnote 9 ("Business Segments, Foreign Operations and Concentrations of
Credit Risk") on page 25 through page 27 of this Report for the Financial In-
formation About Segments required by Item 101 of Regulation S-K.

Item 2. PROPERTIES

The Company currently maintains a total of 18 manufacturing and warehousing
facilities, one central distribution center and one recycling center in North
Carolina; one manufacturing and related warehousing facility in Staunton, Vir-
ginia; one central distribution center in Fort Payne, Alabama; four manufac-
turing operations in Letterkenny, County of Donegal, Republic of Ireland; two
warehousing locations in Carrickfergus, Ireland; one manufacturing and one of-
fice building in Brazil, one manufacturing and administration building in Man-
chester, England and one manufacturing and administration facility in Bogota,
Colombia. All of these facilities, which contain approximately 8.1 million
square feet of floor space, with the exception of one plant facility leased
from Bank of America Leasing and Capital LLC pursuant to a Sales-leaseback
Agreement entered on May 20, 1997, as amended, two warehouses in
Carrickfergus, Ireland, the office in Brazil and the plant and office location
in Manchester, England are owned in fee simple; and management believes they
are in good condition, well maintained, and are suitable and adequate for
present utilization.

3
<PAGE>

The polyester segment of the Company's business uses 16 manufacturing, five
warehousing and one dedicated office totaling 5.3 million square feet. The ny-
lon segment of the Company's business utilizes six manufacturing and four
warehousing facilities aggregating 2.8 million square feet.

Unifi Technology Group, LLC. ("UTG") leases 9 office locations in four
states from which it conducts business utilizing approximately 80,000 square
feet.

The Company leases sales offices and/or apartments in New York; Coleshill,
England; Oberkotzau, Germany; Lyon, France and Desenzano, Italy.

The Company also leases its corporate headquarters building at 7201 West
Friendly Avenue, Greensboro, North Carolina, which consists of a building con-
taining approximately 121,125 square feet located on a tract of land containing
approximately 8.99 acres. This property is leased from Merrill Lynch Trust Com-
pany of North Carolina, Trustee under the Unifi, Inc. Profit Sharing Plan and
Trust, and Wachovia Bank & Trust Company, N.A., Independent. See the related
information included in the Consolidated Financial Statements Footnote 8
("Leases and Commitments") on page 25 of this Report.

Item 3. LEGAL PROCEEDINGS

The Company is not currently involved in any litigation which is considered
material, as that term is used in Item 103 of Regulation S-K.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter for the fiscal year ended June 25, 2000.

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's common stock is listed for trading on the New York Stock Ex-
change. The following table sets forth the range of high and low sales prices
of the Unifi Common Stock as reported on the NYSE Composite Tape and the regu-
lar cash dividends per share declared by Unifi during the periods indicated.

On July 16, 1998, the Company announced its intention to discontinue the
payment of cash dividends and utilize the cash to purchase shares of the
Company's common stock. Accordingly, effective July 16, 1998, the Board of Di-
rectors of the Company terminated the previously established policy of paying
cash dividends equal to approximately 30% of the Company's after tax earnings
of the previous fiscal year.

As of August 24, 2000, there were approximately 745 holders of record of the
Company's common stock.

<TABLE>
<CAPTION>
High Low Dividends
------ ------ ---------
<S> <C> <C> <C>
Fiscal year 1998:
First quarter ended September 28, 1997.......... $43.63 $35.06 $.14
Second quarter ended December 28, 1997.......... $42.25 $36.38 $.14
Third quarter ended March 29, 1998.............. $42.13 $33.00 $.14
Fourth quarter ended June 28, 1998.............. $39.56 $34.19 $.14

Fiscal year 1999:
First quarter ended September 27, 1998.......... $34.25 $17.13 $ --
Second quarter ended December 27, 1998.......... $20.06 $11.94 $ --
Third quarter ended March 28, 1999.............. $19.56 $10.69 $ --
Fourth quarter ended June 27, 1999.............. $18.56 $11.56 $ --

Fiscal year 2000:
First quarter ended September 26, 1999.......... $21.25 $11.00 $ --
Second quarter ended December 26, 1999.......... $13.50 $10.69 $ --
Third quarter ended March 26, 2000.............. $12.81 $ 7.88 $ --
Fourth quarter ended June 25, 2000.............. $14.94 $ 8.44 $ --
</TABLE>

4
<PAGE>

Item 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
(Amounts in thousands, except per June 25, 2000 June 27, 1999 June 28, 1998 June 29, 1997 June 30, 1996
share data) (52 Weeks) (52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks)
--------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Summary of Earnings:
Net sales............... $1,280,412 $1,251,160 $1,377,609 $1,704,926 $1,603,280
Cost of sales........... 1,116,841 1,076,610 1,149,838 1,473,667 1,407,608
Gross profit............ 163,571 174,550 227,771 231,259 195,672
Selling, general and
administrative
expense................ 58,063 55,338 43,277 46,229 45,084
Provision for bad
debts.................. 8,694 1,129 724 750 --
Interest expense........ 30,294 27,459 16,598 11,749 14,593
Interest income......... (2,772) (2,399) (1,869) (2,219) (6,757)
Other (income) expense.. 1,052 440 (335) 69 (4,390)
Equity in (earnings)
losses of
unconsolidated
affiliates............. 2,989 (4,214) (23,030) 399 --
Minority interest....... 9,543 9,401 723 -- --
Non-recurring charge.... -- -- -- -- 23,826
---------- ---------- ---------- ---------- ----------
Income from continuing
operations before
income taxes and other
items listed below..... 55,708 87,396 191,683 174,282 123,316
Provision for income
taxes.................. 17,675 28,369 62,782 58,617 44,939
---------- ---------- ---------- ---------- ----------
Income before
extraordinary item and
cumulative effect of
accounting change...... 38,033 59,027 128,901 115,665 78,377
---------- ---------- ---------- ---------- ----------
Extraordinary item, net
of tax................. -- -- -- -- 5,898
Cumulative effect of
accounting change, net
of tax................. -- 2,768 4,636 -- --
---------- ---------- ---------- ---------- ----------
Net income.............. 38,033 56,259 124,265 115,665 72,479
========== ========== ========== ========== ==========

Per Share of Common
Stock:
Income before
extraordinary item and
cumulative effect of
accounting change
(diluted).............. $ .65 $ .97 $ 2.08 $ 1.81 $ 1.18
Extraordinary item
(diluted).............. -- -- -- -- (.09)
Cumulative effect of
accounting change
(diluted).............. -- (.04) (.07) -- --
Net income (diluted).... .65 .93 2.01 1.81 1.09
Cash dividends.......... -- -- .56 .44 .52

Financial Data:
Working capital......... $ 15,604 $ 216,897 $ 209,878 $ 216,145 $ 196,222
Gross property, plant
and equipment.......... 1,250,470 1,231,013 1,145,622 1,147,148 1,027,128
Total assets............ 1,354,764 1,365,840 1,333,814 1,018,703 951,084
Long-term debt and other
obligations............ 261,830 478,898 458,977 255,799 170,000
Shareholders' equity.... 622,438 646,138 636,197 548,531 583,206
</TABLE>

Fiscal year 1996 and 1997 amounts include the spun cotton yarn operations
that were contributed to Parkdale America, LLC on June 30, 1997. The operating
results of our 34% ownership in Parkdale are accounted for as equity in (earn-
ings) losses of unconsolidated affiliates for fiscal 1998, 1999 and 2000.

The Working capital and Long-term debt and other liabilities line items at
June 25, 2000, reflect the classification of the outstanding balance under the
revolving line of credit of $211.5 million as a current liability. The revolv-
ing line of credit matures in April 2001. The Company intends to refinance this
debt on a long-term basis prior to maturity, however, no commitments or agree-
ments were in place to do so at June 25, 2000. When the Company does refinance
the debt, amounts owed beyond one year from that date will once again be clas-
sified as long-term debt.

5
<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FISCAL 2000

Following is a summary of operating income by segment for fiscal years 2000
and 1999, as reported regularly to the Company's management:

<TABLE>
<CAPTION>
All
(Amounts in thousands) Polyester Nylon Other Total
---------------------- --------- -------- ------- ----------
<S> <C> <C> <C> <C>
Fiscal 2000
Net sales............................... $852,202 $408,481 $31,917 $1,292,600
Cost of sales........................... 747,917 352,379 21,024 1,121,320
Selling, general and administrative..... 37,713 15,103 9,952 62,768
-------- -------- ------- ----------
Segment operating income................ $ 66,572 $ 40,999 $ 941 $ 108,512
======== ======== ======= ==========
Fiscal 1999
Net sales............................... $822,763 $449,009 $ 1,561 $1,273,333
Cost of sales........................... 719,535 384,772 1,090 1,105,397
Selling, general and administrative..... 38,518 16,271 533 55,322
-------- -------- ------- ----------
Segment operating income (loss)......... $ 64,710 $ 47,966 $ (62) $ 112,614
======== ======== ======= ==========
</TABLE>

As described in Consolidated Financial Statements Footnote 9, the adjust-
ments to revenues and expenses required to reconcile the operating segments to
consolidated results are comprised primarily of intersegment sales and cost of
sales eliminations, the provision for bad debts and various expenses reported
internally at a consolidated level.

Polyester operations

In fiscal 2000, polyester net sales increased $29.4 million, or 3.6% com-
pared to fiscal 1999. The increase over fiscal year 1999 is primarily attrib-
utable to the acquisition of our Brazilian operation in the fourth fiscal
quarter of 1999 and the acquisition of our dyed yarn operation in England at
the end of our fiscal third quarter. Net domestic sales increased slightly
over fiscal 1999 due to strength in our dyeing and twisting operations, offset
slightly by pricing pressures in our natural textured business. International-
ly, sales in local currency of our Irish Operation declined 5.4% for the year
due to lower average selling prices. Volume for our Irish operations increased
approximately 2.1% for the year. The currency exchange rate change from the
prior year to the current year adversely effected sales translated to U.S.
dollars for this operation by $13.0 million.

As described in the Consolidated Financial Statements Footnote 10 ("Deriva-
tive Financial Instruments and Fair Value of Financial Instruments"), the Com-
pany utilizes foreign currency forward contracts to hedge exposure for sales
in foreign currencies based on anticipated sales orders. Also, the purchases
and borrowings in those foreign currencies in which the Company has exchange
rate exposure provide a natural hedge and mitigate the effect of adverse fluc-
tuations in exchange rates.

Gross profit on sales for our polyester operations increased $1.0 million
over fiscal year 1999. Gross margin (gross profit as a percentage of net
sales) declined from 12.5% in fiscal year 1999 to 12.2% in fiscal year 2000.
In the prior year, gross margin for this segment was adversely impacted by a
$4.0 million charge for an early retirement package offered to employees.
Gross margin in fiscal 2000 declined primarily as a function of higher fiber
prices. Offsetting the effects of higher fiber prices were lower manufacturing
costs and increased sales for this segment.

Selling, general and administrative expenses for this segment declined $0.8
million from 1999 to 2000. In the prior year, this segment was allocated $5.7
million in selling, general and administrative expenses for the above men-
tioned early retirement package. Absent this charge, the current year selling,
general and adminis-

6
<PAGE>

trative expenses for this segment would have increased $4.9 million. This in-
crease is primarily attributable to the start-up of our Brazilian operation,
which was only in operation two months of the prior year as well as the in-
crease in this segment's share of increased expenses incurred by our majority-
owned subsidiary, UTG. This subsidiary was formed in May 1999 and is a domestic
automation solutions provider.

Nylon operations

In fiscal 2000, nylon net sales decreased $40.5 million, or 9.0% compared to
fiscal 1999. Unit volumes for fiscal 2000 decreased by 5.3%, while average
sales prices, based on product mix, decreased 3.9%. The reductions in sales
volume and price are primarily attributable to the continuing softness of the
ladies hosiery market.

Nylon gross profit decreased $8.1 million and gross margin decreased from
14.3% in 1999 to 13.7% in 2000. This segment's share of the prior year early
retirement plan costs impacting gross profit was $2.6 million. Before the ef-
fect of the prior year early retirement expense, gross profit from 1999 to 2000
declined $10.7 million. This was primarily attributable to lower sales volume
and the shift in product mix caused by softness in the hosiery market.

Selling, general and administrative expense allocated to the nylon segment
decreased $1.2 million in fiscal 2000. The nylon segment selling, general and
administrative expenses in fiscal 1999 included a charge of $2.5 million for
the aforementioned early retirement plan. Before the effect of this charge,
selling general and administrative expenses for this segment would have in-
creased $1.3 million. This increase is primarily attributable to this segment's
share of increased selling, general and administrative expenses generated by
UTG.

The "All Other" segment primarily reflects the Company's majority owned sub-
sidiary, UTG established in May 1999. UTG is a domestic automation solutions
provider.

Consolidated operations

In the current year, the Company recorded an $8.0 million provision for bad
debts resulting from the general decline of industry conditions.

Interest expense increased $2.8 million, from $27.5 million in fiscal 1999
to $30.3 million in fiscal 2000. The increase in interest expense reflects
higher levels of interest-bearing debt outstanding at higher average interest
rates during fiscal 2000 and a $1.4 million reduction in capitalized interest
for major construction projects. The weighted average interest rate of our debt
outstanding at June 25, 2000 was 6.6%.

Interest income improved by $373 thousand from 1999 to 2000 primarily as a
result of higher levels of invested funds generated by our Irish operation.
Other expense increased from $440 thousand to $1.1 million from 1999 to 2000.
Other income and expense was negatively impacted in the current year by a $2.6
million write-off related to the abandonment of certain equipment associated
with domestic plant consolidations and $1.7 million in currency losses. These
amounts were offset, in part, by a $1.1 million gain recognized for insurance
proceeds recovered for a claim filed for property damage sustained by a tornado
and a $0.6 million gain recognized on the sale of an investment.

Earnings (losses) from our equity affiliates, Parkdale America, LLC. (the
"LLC") and Micell Technologies, Inc. ("Micell") totaled $(3.0) million in fis-
cal 2000 compared with $4.2 million in fiscal 1999. The decline in earnings is
primarily attributable to the reduced earnings of the LLC and higher start-up
expenses at Micell.

Minority interest expense for fiscal 2000 was $9.5 million compared to $9.4
million in the prior year. This charge primarily relates to the minority inter-
est share of the earnings of Unifi Textured Polyester LLP formed with Burling-
ton Industries on May 29, 1998. Unifi, Inc. has an 85.42% ownership interest in
this entity and Burlington has a 14.58% interest. However, for the first five
years of the Partnership, Burlington is entitled to receive the first $9.4 mil-
lion in earnings. After the first five years, earnings of the partnership will
be allocated based an ownership percentages.

7
<PAGE>

The effective tax rate decreased from 32.5% in 1999 to 31.7% in 2000. The
difference between the statutory and effective tax rate in fiscal 2000 is pri-
marily due to a reduction of income taxes achieved through the resolution of
outstanding issues with taxing authorities.

In the first quarter of fiscal 1999, the Company recognized a cumulative
effect of an accounting change of $4.5 million ($2.8 million after tax) or
$.04 per diluted share as a result of changing its accounting policy regarding
start-up costs. Pursuant to the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-Up Activities," any previously capitalized start-up costs were re-
quired to be written-off as a cumulative effect of an accounting change. Ac-
cordingly, the Company has written-off the unamortized balance of the previ-
ously capitalized start-up costs.

As a result of the above, the Company realized during the current year net
income of $38.0 million, or $0.65 per diluted share, compared to $56.3 mil-
lion, or $.93 per diluted share for the prior fiscal year period. Before the
previously described cumulative effect of an accounting change in the prior
year, earnings would have been $59.0 million or $0.97 per diluted share.

In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS
133) and in June 1999, the FASB issued Statement of Financial Accounting Stan-
dards No. 137 "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133," which delayed the
effective date the Company is required to adopt SFAS 133 until its fiscal year
2001. In June 2000, the FASB issued Statement of Financial Accounting Stan-
dards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment to FASB Statement No. 133." This statement
amended certain provisions of SFAS 133. SFAS 133 requires the Company to rec-
ognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the deriva-
tive is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or recog-
nized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will
be immediately recognized in earnings. The Company does not enter into deriva-
tive financial instruments for trading purposes. As discussed in Footnote 10
to the Consolidated Financial Statements, the Company enters into forward con-
tracts to hedge certain transactions and commitments in foreign currency. Upon
adoption of SFAS 133 in the first fiscal quarter of 2001, these activities
will be recognized on the Consolidated Balance Sheet. The Company anticipates
that adoption of SFAS 133 will not have a material effect on the Company's
earnings.

On March 8, 2000, the Company acquired Intex Yarns Limited (Intex) located
in Manchester, England for approximately $8.0 million plus assumed debt. This
acquisition adds high quality, package-dyeing capabilities in Europe and com-
pliments the Company's yarn production facility in Letterkenny, Ireland. The
acquisition, which is not considered significant to the Company's consolidated
net assets or results of operations, was accounted for by the purchase method
of accounting.

Effective June 1, 2000, the Company and E.I. DuPont De Nemours and Company
(DuPont) initiated a manufacturing alliance to produce polyester filament
yarn. The alliance is expected to optimize Unifi's and DuPont's partially ori-
ented yarn (POY) manufacturing facilities, increase manufacturing efficiency
and improve product quality. Under its terms, DuPont and Unifi will coopera-
tively run their polyester filament manufacturing facilities as a single oper-
ating unit. This consolidation will shift commodity yarns from our Yadkinville
facility to DuPont's Kinston plant, and bring high-end specialty production to
Yadkinville from Kinston and Cape Fear. The companies will split equally the
costs to complete the necessary plant consolidation and the benefits gained
through asset optimization. Additionally, the companies will collectively at-
tempt to increase profitability through the development of new products. Like-
wise, the costs incurred and benefits derived from the product innovations
will be split equally. DuPont and Unifi will continue to own and operate their
respective sites and employees will remain with their respective employers.
DuPont will continue to provide POY to the marketplace and will use DuPont
technology to expand the specialty product range at each company's sites.
Unifi will continue to provide textured yarn to the marketplace.

8
<PAGE>

FISCAL 1999

Following is a summary of operating income by segment for fiscal years 1999
and 1998, as reported regularly to the Company's management:

<TABLE>
<CAPTION>
All
(Amounts in thousands) Polyester Nylon Other Total
---------------------- --------- -------- ------ ----------
<S> <C> <C> <C> <C>
Fiscal 1999
Net sales................................ $822,763 $449,009 $1,561 $1,273,333
Cost of sales............................ 719,535 384,772 1,090 1,105,397
Selling, general and administrative...... 38,518 16,271 533 55,322
-------- -------- ------ ----------
Segment operating income (loss).......... $ 64,710 $ 47,966 $ (62) $ 112,614
======== ======== ====== ==========
Fiscal 1998
Net sales................................ $939,780 $470,994 $ -- $1,410,774
Cost of sales............................ 797,613 387,428 -- 1,185,041
Selling, general and administrative...... 30,223 13,054 -- 43,277
-------- -------- ------ ----------
Segment operating income................. $111,944 $ 70,512 $ -- $ 182,456
======== ======== ====== ==========
</TABLE>

Polyester operations

In fiscal 1999, polyester net sales decreased $117.0 million, or 12.5% com-
pared to fiscal 1998. Year-over-year performance continues to be negatively im-
pacted by the continuing effects of Asian imports of yarns, fabric and apparel,
which have kept sales volumes, sales pricing and gross margins under pressure
both domestically and internationally. The fiscal 1999 over 1998 volume in-
crease of 1.0% was aided by twelve months of sales volume generated by the
business venture with Burlington Industries consummated May 29, 1998 (see Con-
solidated Financial Statements Footnote 13). Average unit sales prices declined
13.5% during fiscal 1999. In addition to the decline in average unit sales
prices created by market pressures, the pricing decline was also influenced by
decreasing fiber costs and the strengthening of the U.S. dollar. As described
in Consolidated Financial Statements Footnote 10, the Company utilizes forward
contracts to hedge exposure for sales in foreign currencies based on specific
sales orders with customers or for anticipated sales activity for a future time
period. Additionally, currency exchange rate risks are mitigated by purchases
and borrowings in local currencies. The Company also enters currency forward
contracts for committed equipment and inventory purchases. The Company does not
enter into derivative financial instruments for trading purposes.

Polyester gross profit decreased $38.9 million during fiscal 1999 and gross
margins declined from 15.1% in 1998 to 12.5% in 1999. Gross profit for fiscal
1999 was reduced by a $4.0 million charge resulting from employee acceptance of
an early retirement plan. The remainder of the decline in gross profit and
gross margin can be attributed to the aforementioned pressures on sales prices
caused by imports.

Selling, general and administrative expense allocated to the polyester seg-
ment increased $8.3 million in fiscal 1999. Of this increase, $5.7 million re-
lated to a charge resulting from employee acceptance of an early retirement
program offered in fiscal 1999. Selling, general and administrative expense, as
a percentage of polyester net sales, increased from 3.2% in fiscal 1998 to 4.7%
in fiscal 1999.

Nylon operations

In fiscal 1999, nylon net sales decreased $22.0 million, or 4.7% compared to
fiscal 1998. Unit volumes for fiscal 1999 decreased by 4.8%, while average
sales prices, based on product mix, increased 0.1%. The reduction in sales vol-
ume is primarily attributable to the continuing decline of the ladies hosiery
market. The sales

9
<PAGE>

price increase was impacted by a minor shift in domestic product mix to lower
volume, higher priced products.

Nylon gross profit decreased $19.3 million and gross margin decreased from
17.7% in 1998 to 14.3% in 1999, due mainly to the previously noted decrease in
net sales and the corresponding lack of volume to cover existing fixed manu-
facturing costs and depreciation. In addition, depreciation increased $8.0
million in fiscal 1999 over 1998 resulting from the completion in fiscal 1999
of a nylon texturing and covering facility, constructed to replace older
equipment and consolidate several of the Company's older nylon facilities.
Gross profit was also reduced by a $2.6 million charge resulting from employee
acceptance of an early retirement plan offered in fiscal 1999.

Selling, general and administrative expense allocated to the nylon segment
increased $3.2 million in fiscal 1999. Of this increase, $2.5 million related
to a charge resulting from employee acceptance of an early retirement program
offered in fiscal 1999. Selling, general and administrative expense, as a per-
centage of nylon net sales, increased from 2.8% in fiscal 1998 to 3.6% in fis-
cal 1999.

The "All Other" segment primarily reflects the Company's majority owned
subsidiary, Unifi Technology Group established in May 1999. Unifi Technology
Group is a domestic automation solutions provider.

Consolidated operations

Interest expense increased $10.9 million, from $16.6 million in fiscal 1998
to $27.5 million in fiscal 1999. The increase in interest expense reflects
higher levels of debt outstanding at higher average interest rates during fis-
cal 1999 and a $4.8 million reduction in capitalized interest for major con-
struction projects, as certain significant projects in process during the
prior year period have been completed. The weighted average interest rate on
debt outstanding at June 27, 1999 was 5.94%.

Interest income improved by $530 thousand from 1998 to 1999 primarily as a
result of higher levels of invested funds. Other expense decreased from $335
thousand income to $440 thousand expense from 1998 to 1999.

Earnings from our equity affiliates, Parkdale America, LLC. (the "LLC") and
Micell Technologies, Inc. ("Micell") totaled $4.2 million in fiscal 1999 com-
pared with $23.0 million in fiscal 1998. The decline in earnings is primarily
attributable to the reduced earnings of the LLC and higher start-up expenses
at Micell. The LLC's operations were negatively impacted by excess capacity in
the markets and reduced sales volumes as imported apparel eroded their custom-
er's business.

Effective May 29, 1998, the Company formed a limited liability company (the
"Partnership") with Burlington Industries, Inc. ("Burlington") to manufacture
and market natural textured polyester. The Company has an 85.42% ownership in-
terest in the Partnership and Burlington has 14.58%. However, for the first
five years of the Partnership, Burlington is entitled to receive the first
$9.4 million of earnings. Subsequent to this five-year period, earnings are to
be allocated based on ownership percentages. Burlington's share of the earn-
ings of the Partnership are reflected as minority interest and amounted to
$9.4 million in fiscal 1999 and $0.7 million in fiscal 1998.

The effective tax rate decreased from 32.8% in 1998 to 32.5% in 1999. The
difference between the statutory and effective tax rate is primarily due to
the realization of state tax credits associated with significant capital ex-
penditures and the operating results of our Irish operations that are taxed at
a 10.0% effective rate.

10
<PAGE>

As a result of the above, the Company realized during the current year net
income of $56.3 million, or $0.93 per diluted share, compared to $124.3 mil-
lion, or $2.01 per diluted share for the prior fiscal year period. Before the
previously described cumulative effect of an accounting change in the current
year, earnings would have been $59.0 million or $0.97 per diluted share.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operations continues to be a primary source of funds to fi-
nance operating needs and capital expenditures. Cash generated from operations
was $126.5 million for fiscal 2000, compared to $209.8 million for fiscal 1999.
The primary sources of cash from operations, other than net income, were an in-
crease in accounts payable and accruals of $27.1 million, and non-cash adjust-
ments aggregating $124.4 million. Depreciation and amortization of $90.5 mil-
lion, the deferred income tax provision of $10.7 million, the provision for
doubtful accounts of $14.9 million and the losses from unconsolidated equity
affiliates, net of distributions of $6.2 million were the primary components of
the non-cash adjustments. Offsetting these sources were increases in accounts
receivable and inventories of $39.3 million and $18.1 million, respectively and
a decrease of income taxes payable of $4.4 million. All working capital changes
have been adjusted to exclude the effects of acquisitions and currency transla-
tion. Working capital levels at June 25, 2000, of $15.6 million reflect the
classification of the outstanding balance under the revolving line of credit of
$211.5 million as a current liability. The revolving line of credit matures in
April 2001. The Company intends to refinance this debt on a long-term basis
prior to maturity, however, no commitment or agreements were in place to do so
at June 25, 2000. When the Company does refinance the debt, amounts owed beyond
one year from that date will once again be classified as long-term debt.

The Company utilized $78.1 million for net investing activities and $69.9
million for net financing activities during fiscal 2000. Significant expendi-
tures during this period included $58.6 million for capacity expansions and up-
grading of facilities and $8.0 million for acquisitions. A significant compo-
nent of capital expenditures includes the initial construction costs for the
Company's Unifi Technical Fabrics nonwoven facility and installment payments
for related equipment. Additionally, $16.1 million was expended for investments
in equity affiliates, $48.9 million for the purchase and retirement of Company
common stock, $12.0 million for distributions to minority interest shareholders
and $9.2 million for net payments under long-term debt agreements. The Company
purchased, effective March 8, 2000, the polyester dyed yarn plant and equipment
of Intex for $8.0 million.

At June 25, 2000, the Company has committed approximately $55.1 million for
the purchase and upgrade of equipment and facilities during fiscal 2001.

The Company periodically evaluates the carrying value of long-lived assets,
including property, plant and equipment and intangibles to determine if impair-
ment exists. If the sum of expected future undiscounted cash flows is less than
the carrying amount of the asset, additional analysis is performed to determine
the amount of loss to be recognized. The Company continues to evaluate for im-
pairment the carrying value of its polyester natural textured operations and
its investment in its spun-yarn partnership. The importation of fiber, fabric
and apparel continues to impair sales volumes and margins for these operations
and has negatively impacted the U.S. textile and apparel industry in general.
The effect of the importation of these products has resulted in downsizing in
the U.S. and relocation of production offshore. These operations have operated
in the most recent 18-month period at close to break-even, which heighten the
focus on impairment issues.

Effective July 26, 2000, the Board of Directors increased the Company's re-
maining authorization to repurchase up to 10.0 million shares of the Company's
common stock. The Company purchased 4.5 million shares in fiscal year 2000 for
a total of $48.9 million. The Company will continue its commitment to repur-
chase shares of the Company's common stock throughout fiscal year 2001, as
deemed appropriate and financially prudent.

Management believes the current financial position of the Company in connec-
tion with its operations and access to debt and equity markets are sufficient
to meet anticipated capital expenditure, strategic acquisition, working capi-
tal, Company common stock repurchases and other financial needs.

11
<PAGE>

EURO CONVERSION

The Company conducts business in multiple currencies, including the curren-
cies of various European countries in the European Union which began partici-
pating in the single European currency by adopting the Euro as their common
currency as of January 1, 1999. Additionally, the functional currency of our
Irish operation and several sales office locations will change before January
1, 2002, from their historical currencies to the Euro. During the period Janu-
ary 1, 1999, to January 1, 2002, the existing currencies of the member coun-
tries will remain legal tender and customers and vendors of the Company may
continue to use these currencies when conducting business. Currency rates dur-
ing this period, however, will no longer be computed from one legacy currency
to another but instead will first be converted into the Euro. The Company con-
tinues to evaluate the Euro conversion and the impact on its business, both
strategically and operationally. At this time, the conversion to the Euro has
not had, nor is expected to have, a material adverse effect on the financial
condition or results of operations of the Company.

FORWARD-LOOKING STATEMENTS

Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this annual report
contain forward-looking statements within the meaning of federal security laws
about the Company's financial condition and results of operations that are
based on management's current expectations, estimates and projections about the
markets in which the Company operates, management's beliefs and assumptions
made by management. Words such as "expects," "anticipates," "believes," "esti-
mates," variations of such words and other similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees
of future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may dif-
fer materially from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's judgment only
as of the date hereof. The Company undertakes no obligation to update publicly
any of these forward-looking statements to reflect new information, future
events or otherwise. Factors that may cause actual outcome and results to dif-
fer materially from those expressed in, or implied by, these forward-looking
statements include, but are not necessarily limited to, availability, sourcing
and pricing of raw materials, pressures on sales prices and volumes due to com-
petition and economic conditions, reliance on and financial viability of sig-
nificant customers, technological advancements, employee relations, changes in
construction spending and capital equipment expenditures (including those re-
lated to unforeseen acquisition opportunities), the timely completion of con-
struction and expansion projects planned or in process, continued availability
of financial resources through financing arrangements and operations, negotia-
tions of new or modifications of existing contracts for asset management and
for property and equipment construction and acquisition, regulations governing
tax laws, other governmental and authoritative bodies' policies and legisla-
tion, the continuation and magnitude of the Company's common stock repurchase
program and proceeds received from the sale of assets held for disposal. In ad-
dition to these representative factors, forward-looking statements could be im-
pacted by general domestic and international economic and industry conditions
in the markets where the Company competes, such as changes in currency exchange
rates, interest and inflation rates, recession and other economic and political
factors over which the Company has no control.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

See the information included in the Consolidated Financial Statements Foot-
note 10 ("Derivative Financial Instruments and Fair Value of Financial Instru-
ments") on pages 27 and 28 of this Report.

Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's report of independent auditors and Consolidated Financial
Statements and related notes follow on subsequent pages of this Report.

12
<PAGE>

Report of Independent Auditors

The Board of Directors and Shareholders of Unifi, Inc.

We have audited the accompanying consolidated balance sheets of Unifi, Inc.
as of June 25, 2000, and June 27, 1999, and the related consolidated statements
of income, changes in shareholders' equity and comprehensive income, and cash
flows for each of the three years in the period ended June 25, 2000. Our audits
also include the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these fi-
nancial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Unifi, Inc. at
June 25, 2000, and June 27, 1999, and the consolidated results of its opera-
tions and its cash flows for each of the three years in the period ended June
25, 2000, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in rela-
tion to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

/s/ Ernst & Young LLP
[Signature of Ernst & Young LLP]

Greensboro, North Carolina
July 18, 2000

13
<PAGE>

Consolidated Balance Sheets

<TABLE>
<CAPTION>
(Amounts in thousands) June 25, 2000 June 27, 1999
---------------------- ------------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents......................... $ 18,778 $ 44,433
Receivables....................................... 214,001 185,784
Inventories....................................... 147,640 129,917
Other current assets.............................. 2,958 2,015
---------- ----------
Total current assets........................... 383,377 362,149
---------- ----------

Property, plant and equipment:
Land.............................................. 5,560 6,973
Buildings and air conditioning.................... 239,245 241,852
Machinery and equipment........................... 853,553 848,701
Other............................................. 152,112 133,487
---------- ----------
1,250,470 1,231,013
Less accumulated depreciation...................... 592,083 541,275
---------- ----------
658,387 689,738
Investment in unconsolidated affiliates............ 208,918 207,142
Other noncurrent assets............................ 104,082 106,811
---------- ----------
$1,354,764 $1,365,840
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable.................................. $ 97,875 $ 68,716
Accrued expenses.................................. 50,160 52,889
Income taxes payable.............................. 2,430 7,392
Current maturities of long-term debt and other
current liabilities.............................. 217,308 16,255
---------- ----------
Total current liabilities...................... 367,773 145,252
---------- ----------
Long-term debt and other liabilities............... 261,830 478,898
---------- ----------
Deferred income taxes.............................. 86,046 78,369
---------- ----------
Minority interests................................. 16,677 17,183
---------- ----------
Shareholders' equity:
Common stock...................................... 5,516 5,955
Capital in excess of par value.................... -- 13
Retained earnings................................. 649,444 658,353
Unearned compensation............................. (1,260) --
Accumulated other comprehensive loss.............. (31,262) (18,183)
---------- ----------
622,438 646,138
---------- ----------
$1,354,764 $1,365,840
========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

14
<PAGE>

Consolidated Statements of Income

<TABLE>
<CAPTION>
(Amounts in thousands, except per
share data) June 25, 2000 June 27, 1999 June 28, 1998
--------------------------------- ------------- ------------- -------------

<S> <C> <C> <C>
Net sales............................ $1,280,412 $1,251,160 $1,377,609
---------- ---------- ----------

Costs and expenses:
Cost of sales....................... 1,116,841 1,076,610 1,149,838
Selling, general and administrative
expense............................ 58,063 55,338 43,277
Provision for bad debts............. 8,694 1,129 724
Interest expense.................... 30,294 27,459 16,598
Interest income..................... (2,772) (2,399) (1,869)
Other (income) expense.............. 1,052 440 (335)
Equity in (earnings) losses of
unconsolidated affiliates.......... 2,989 (4,214) (23,030)
Minority interest................... 9,543 9,401 723
---------- ---------- ----------
1,224,704 1,163,764 1,185,926
---------- ---------- ----------

Income before income taxes and
cumulative effect of accounting
change.............................. 55,708 87,396 191,683
Provision for income taxes........... 17,675 28,369 62,782
---------- ---------- ----------
Income before cumulative effect of
accounting change................... 38,033 59,027 128,901
Cumulative effect of accounting
change (net of applicable income
taxes of $1,696 for June 27, 1999
and $2,902 for June 28, 1998)....... -- 2,768 4,636
---------- ---------- ----------
Net income........................... $ 38,033 $ 56,259 $ 124,265
========== ========== ==========
Earnings per common share:
Income before cumulative effect of
accounting change.................. $ .65 $ .97 $ 2.10
Cumulative effect of accounting
change............................. -- (.04) (.07)
---------- ---------- ----------
Net income per common share......... $ .65 $ .93 $ 2.03
========== ========== ==========

Earnings per common share -- assuming
dilution:
Income before cumulative effect of
accounting change.................. $ .65 $ .97 $ 2.08
Cumulative effect of accounting
change............................. -- (.04) (.07)
---------- ---------- ----------
Net income per common share......... $ .65 $ .93 $ 2.01
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

15
<PAGE>

Consolidated Statements of Changes
in Shareholders' Equity and Comprehensive Income

<TABLE>
<CAPTION>
Capital in Other Total Comprehensive
(Amounts in thousands, Shares Common Excess of Retained Unearned Comprehensive Shareholders' Income
except per share data) Outstanding Stock Par Value Earnings Compensation Income Equity Note 1
---------------------- ----------- ------ ---------- -------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 29, 1997... 61,210 $6,121 $ -- $545,099 $ -- $ (2,689) $548,531 $110,761
====== ====== ======= ======== ======= ======== ======== ========
Purchase of stock....... (539) (54) (618) (19,515) -- -- (20,187) --
Options exercised....... 402 40 2,154 -- -- -- 2,194 --
Stock option tax
benefit................ -- -- -- 2,599 -- -- 2,599 --
Stock issued for
acquisition............ 561 56 20,918 -- -- -- 20,974 --
Cash dividends -- $.56
per share.............. -- -- -- (34,320) -- -- (34,320) --
Currency translation
adjustments............ -- -- -- -- -- (7,859) (7,859) (7,859)
Net income.............. -- -- -- 124,265 -- -- 124,265 124,265
------ ------ ------- -------- ------- -------- -------- --------

Balance June 28, 1998... 61,634 6,163 22,454 618,128 -- (10,548) 636,197 116,406
====== ====== ======= ======== ======= ======== ======== ========
Purchase of stock....... (2,112) (211) (23,092) (16,034) -- -- (39,337) --
Options exercised....... 26 3 651 -- -- -- 654 --
Currency translation
adjustments............ -- -- -- -- -- (7,635) (7,635) (7,635)
Net income.............. -- -- -- 56,259 -- -- 56,259 56,259
------ ------ ------- -------- ------- -------- -------- --------

Balance June 27, 1999... 59,548 5,955 13 658,353 -- (18,183) 646,138 48,624
====== ====== ======= ======== ======= ======== ======== ========
Purchase of stock....... (4,462) (446) (840) (47,623) -- -- (48,909) --
Options exercised....... 1 -- 14 -- -- -- 14 --
Grantor's trust tax
benefit................ -- -- -- 681 -- -- 681 --
Stock forfeited to
satisfy income tax
withholding............ (53) (5) (630) -- -- -- (635) --
Issuance of restricted
stock.................. 129 12 1,443 -- (1,455) -- -- --
Amortization of
restricted stock....... -- -- -- -- 195 -- 195 --
Currency translation
adjustments............ -- -- -- -- -- (13,079) (13,079) (13,079)
Net income.............. -- -- -- 38,033 -- -- 38,033 38,033
------ ------ ------- -------- ------- -------- -------- --------

Balance June 25, 2000... 55,163 $5,516 $ -- $649,444 $(1,260) $(31,262) $622,438 $ 24,954
====== ====== ======= ======== ======= ======== ======== ========
</TABLE>

The accompanying notes are an integral part of the financial statements.

16
<PAGE>

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
(Amounts in thousands) June 25, 2000 June 27, 1999 June 28, 1998
---------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents at
beginning of year................... $ 44,433 $ 8,372 $ 9,514
Operating activities:
Net income.......................... 38,033 56,259 124,265
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effect of accounting
change (net of applicable income
taxes)............................ -- 2,768 4,636
(Earnings) losses of unconsolidated
equity affiliates, net of
distributions..................... 6,200 5,287 (15,282)
Depreciation....................... 83,037 82,993 65,033
Amortization....................... 7,491 6,883 4,677
Deferred income taxes.............. 10,692 4,641 12,201
Provision for bad debts and quality
claims............................ 14,866 6,241 3,917
Other.............................. 2,135 415 (350)
Changes in assets and liabilities,
excluding effects of acquisitions
and foreign currency adjustments:
Receivables....................... (39,257) 28,234 5,711
Inventories....................... (18,088) 16,320 (793)
Other current assets.............. (1,330) (948) 1,556
Payables and accruals............. 27,118 (13,959) (25,213)
Income taxes...................... (4,430) 14,697 1,329
-------- --------- ---------
Net -- operating activities......... 126,467 209,831 181,687
-------- --------- ---------

Investing activities:
Capital expenditures................ (58,609) (118,846) (250,064)
Acquisitions........................ (7,953) (27,112) (25,776)
Investments in unconsolidated equity
affiliates......................... (16,069) (10,000) (39,492)
Sale of capital assets.............. 5,637 847 2,428
Other............................... (1,138) (4,508) (2,755)
-------- --------- ---------
Net -- investing activities......... (78,132) (159,619) (315,659)
-------- --------- ---------

Financing activities:
Borrowing of long-term debt......... 72,342 97,000 440,273
Repayment of long-term debt......... (81,589) (61,596) (252,844)
Issuance of Company stock........... 14 654 2,194
Stock option tax benefit............ -- -- 2,599
Purchase and retirement of Company
stock.............................. (48,909) (39,337) (20,187)
Cash dividends paid................. -- -- (34,320)
Distributions to minority
shareholders....................... (12,000) (9,000) --
Other............................... 287 249 (4,006)
-------- --------- ---------
Net -- financing activities......... (69,855) (12,030) 133,709
-------- --------- ---------
Currency translation adjustment...... (4,135) (2,121) (879)
-------- --------- ---------
Net increase (decrease) in cash and
cash equivalents.................... (25,655) 36,061 (1,142)
-------- --------- ---------
Cash and cash equivalents at end of
year................................ $ 18,778 $ 44,433 $ 8,372
======== ========= =========
</TABLE>

The accompanying notes are an integral part of the financial statements.

17
<PAGE>

Notes to Consolidated Financial Statements

1. Accounting Policies and Financial Statement Information

Principles of Consolidation: The Consolidated Financial Statements include
the accounts of the Company and all majority-owned subsidiaries. The portion
of the income applicable to noncontrolling interests in the majority-owned op-
erations is reflected as minority interests in the Consolidated Statements of
Income. The accounts of all foreign subsidiaries have been included on the ba-
sis of fiscal periods ended three months or less prior to the dates of the
Consolidated Balance Sheets. All significant intercompany accounts and trans-
actions have been eliminated. Investments in 20 to 50% owned companies and
partnerships where the Company is able to exercise significant influence, but
not control, are accounted for by the equity method and, accordingly, consoli-
dated income includes the Company's share of the affiliates' income.

Fiscal Year: The Company's fiscal year is the fifty-two or fifty-three
weeks ending the last Sunday in June. All three fiscal years presented consist
of fifty-two weeks.

Reclassification: The Company has reclassified the presentation of certain
prior year information to conform with the current presentation format.

Revenue Recognition: Revenues from sales are recognized at the time ship-
ments are made.

Foreign Currency Translation: Assets and liabilities of foreign subsidiar-
ies are translated at year-end rates of exchange and revenues and expenses are
translated at the average rates of exchange for the year. Gains and losses re-
sulting from translation are accumulated in a separate component of sharehold-
ers' equity and included in comprehensive income. Gains and losses resulting
from foreign currency transactions (transactions denominated in a currency
other than the subsidiary's functional currency) are included in net income.

Cash and Cash Equivalents: Cash equivalents are defined as short-term in-
vestments having an original maturity of three months or less.

Receivables: Certain customer accounts receivable are factored without re-
course with respect to credit risk. Factored accounts receivable at June 25,
2000, and June 27, 1999, were $42.9 million and $41.6 million, respectively.
An allowance for losses is provided for known and potential losses arising
from yarn quality claims and receivables from customers not factored based on
a periodic review of these accounts. Reserves for such losses were $17.2 mil-
lion at June 25, 2000 and $8.7 million at June 27, 1999.

Inventories: The Company utilizes the last-in, first-out ("LIFO") method
for valuing certain inventories representing 51.3% of all inventories at June
25, 2000, and the first-in, first-out ("FIFO") method for all other invento-
ries. Inventory values computed by the LIFO method are lower than current mar-
ket values. Inventories valued at current or replacement cost would have been
approximately $5.9 million and $0.7 million in excess of the LIFO valuation at
June 25, 2000, and June 27, 1999, respectively. Finished goods, work in proc-
ess, and raw materials and supplies at June 25, 2000, and June 27, 1999,
amounted to $81.2 million and $69.7 million; $17.0 million and $14.6 million;
and $49.4 million and $45.6 million, respectively.

Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is computed for asset groups primarily utilizing the
straight-line method for financial reporting and accelerated methods for tax
reporting. For financial reporting purposes, asset lives have been assigned to
asset categories over periods ranging between three and forty years.

Other Noncurrent Assets: Other noncurrent assets at June 25, 2000, and June
27, 1999, consist primarily of the cash surrender value of key executive life
insurance policies ($7.7 million and $8.1 million); unamortized bond issue
costs ($5.9 million and $6.7 million); and acquisition related assets consist-
ing of the excess cost over fair value of net assets acquired and other intan-
gibles ($83.2 million and $86.3 million), respectively. Bond issue costs are
being amortized on the straight-line method over the life of the bonds, which
approximates the effective interest method. The acquisition related assets are
being amortized on the straight-line method over periods ranging between five
and thirty years. Accumulated amortization at June 25, 2000, and June 27,
1999, for bond issue costs and acquisition related assets was $29.3 million
and $19.2 million, respectively.

18
<PAGE>

Long-Lived Assets: Long-lived assets, including the excess cost over fair
value of net assets acquired, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recover-
able. If undiscounted cashflows are not adequate to cover the asset carrying
value, additional analysis is conducted to determine the amount of loss to be
recognized. The impairment loss is determined by the difference between the
carrying amount of the asset and the fair value measured by future discounted
cashflows. To date, no impairment losses have been recorded.

Income Taxes: The Company and its domestic subsidiaries file a consolidated
federal income tax return. Income tax expense is computed on the basis of
transactions entering into pretax operating results. Deferred income taxes have
been provided for the tax effect of temporary differences between financial
statement carrying amounts and the tax basis of existing assets and liabili-
ties. Income taxes have not been provided for the undistributed earnings of
certain foreign subsidiaries as such earnings are deemed to be permanently in-
vested.

Earnings Per Share: The following table details the computation of basic and
diluted earnings per share:

<TABLE>
<CAPTION>
(Amounts in thousands) June 25, 2000 June 27, 1999 June 28, 1998
---------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Income before cumulative effect of
accounting change.................. $38,033 $59,027 $128,901
Cumulative effect of accounting
change............................. -- 2,768 4,636
------- ------- --------
Net income.......................... $38,033 $56,259 $124,265
======= ======= ========

Denominator:
Denominator for basic earnings per
share--weighted averages shares.... 58,488 60,568 61,331
Effect of dilutive securities:
Stock options...................... 19 2 525
Restricted stock awards............ 4 -- --
------- ------- --------
Diluted potential common shares
denominator for diluted
earnings per share -- adjusted
weighted average shares and
assumed conversions................. 58,511 60,570 61,856
======= ======= ========
</TABLE>

Stock-Based Compensation: With the adoption of SFAS 123, the Company elected
to continue to measure compensation expense for its stock-based employee com-
pensation plans using the intrinsic value method prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees." Had the fair value-based method
encouraged by SFAS 123 been applied, compensation expense would have been re-
corded on the 1,975,570 options granted in fiscal 2000 and the 414,000 options
granted in fiscal 1999 based on their respective vesting schedules. The fiscal
2000 options vest in annual increments over five years and the fiscal 1999 op-
tions vest primarily over two years. No options were granted in fiscal 1998.
Net income in fiscal 2000, 1999 and 1998 restated for the effect would have
been $32.7 million or $0.56 per diluted share, $53.3 million or $0.88 per di-
luted share and $122.8 million or $1.98 per diluted, respectively. The fair
value and related compensation expense of the 2000 and 1999 options were calcu-
lated as of the issuance date using the Black-Scholes model with the following
assumptions:

<TABLE>
<CAPTION>
Options Granted 2000 1999
--------------- ---- ----
<S> <C> <C>
Expected life (years)................ 10.0 10.0
Interest rate........................ 6.00% 6.14%
Volatility........................... 49.5% 49.3%
</TABLE>

Comprehensive Income: Comprehensive income includes net income and other
changes in net assets of a business during a period from non-owner sources,
which are not included in net income. Such non-owner changes may include, for
example, available-for-sale securities and foreign currency translation adjust-
ments. Other than net income, foreign currency translation adjustments pres-
ently represent the only component of comprehensive income for the Company. The
Company does not provide income taxes on the impact of currency translations as
earnings from foreign subsidiaries are deemed to be permanently invested.

19
<PAGE>

Recent Accounting Pronouncements: In June 1998, the FASB issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative Instru-
ments and Hedging Activities," (SFAS 133) and in June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133," which delayed the effective date the Company is required
to adopt SFAS 133 until its fiscal year 2001. In June 2000, the FASB issued
Statement of Financial Accounting Standards No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment to FASB
Statement No. 133." This statement amended certain provisions of SFAS 133.
SFAS 133 requires the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a deriv-
ative's change in fair value will be immediately recognized in earnings. The
Company does not enter into derivative financial instruments for trading pur-
poses. As discussed in Footnote 10 to the Consolidated Financial Statements,
the Company enters into forward contracts to hedge certain transactions and
commitments in foreign currency. Upon adoption of SFAS 133 in the first fiscal
quarter of 2001, these activities will be recognized on the Consolidated Bal-
ance Sheet. The Company anticipates that adoption of SFAS 133 will not have a
material effect on the Company's earnings.

Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those es-
timates.

2. Acquisitions and Alliances

Effective June 1, 2000, the Company and E.I. DuPont De Nemours and Company
(DuPont) initiated a manufacturing alliance. The alliance is expected to opti-
mize Unifi's and DuPont's partially oriented yarn (POY) manufacturing facili-
ties, increase manufacturing efficiency and improve product quality. Under its
terms, DuPont and Unifi will cooperatively run their polyester filament manu-
facturing facilities as a single operating unit. This consolidation will shift
commodity yarns from our Yadkinville facility to DuPont's Kinston plant, and
bring high-end specialty production to Yadkinville from Kinston and Cape Fear.
The companies will split equally the costs to complete the necessary plant
consolidation and the benefits gained through asset optimization. Addition-
ally, the companies will collectively attempt to increase profitability
through the development of new products and related technologies. Likewise,
the costs incurred and benefits derived from the product innovations will be
split equally. DuPont and Unifi will continue to own and operate their respec-
tive sites and employees will remain with their respective employers. DuPont
will continue to provide POY to the marketplace and will use DuPont technology
to expand the specialty product range at each company's sites. Unifi will con-
tinue to provide textured yarn to the marketplace. At termination of the alli-
ance or at any time after June 1, 2005, Unifi has the option to purchase from
DuPont and DuPont has the right to sell to Unifi, DuPont's U.S. polyester fil-
ament business for a price within a predetermined fair market value range.

During fiscal 1999, the Company formed Unifi do Brasil, LTDA to acquire the
assets of Fairway Polyester, LTDA., a Brazilian company, for $16.6 million ef-
fective April 1, 1999. Also, effective June 1, 1999, UNIFI Technology Group
LLC (UTG), a newly formed subsidiary of the Company, acquired the assets of
Cimtec Inc. ("Cimtec"), a manufacturing automation solutions provider, for
$10.5 million. Subsequently, a five-percent interest in the new entity was
sold to certain former Cimtec shareholders and an additional 2.875% was sold
to certain former Unifi executives. The Company also granted an additional
2.875% of its ownership interest in UTG to certain Unifi executives which
vests in annual increments over a five-year period.

During fiscal 1998, the Company completed its Agreement and Plan of Trian-
gular Merger with SI Holding Company and thereby acquired their covered yarn
business for approximately $46.6 million effective November 17, 1997. Addi-
tionally, covenants-not-to-compete were entered into with the principal oper-
ating officers of the acquired company in exchange for $9.2 million, to be
paid generally over the terms of the covenants. After allocation of the pur-
chase price to the net assets acquired, the excess of cost over fair value has
been valued at $25.5 million.

20
<PAGE>

The Intex, Brazilian, Cimtec and SI Holding Company acquisitions were all
accounted for by the purchase method of accounting and accordingly, the net
assets and operations have been included in the Company's Consolidated Finan-
cial Statements beginning on the date the acquisition was consummated. The
transactions are not considered significant to the Company's consolidated net
assets or results of operations.

3. Cumulative Effect of Accounting Change

In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities," which requires start-up costs, as defined, to be expensed as
incurred. In accordance with this SOP, any previously capitalized start-up
costs were required to be written-off as a cumulative effect of a change in
accounting principle. The Company, upon adoption of this SOP in the first
quarter of fiscal 1999, wrote off the unamortized balance of such previously
capitalized start-up costs as of June 29, 1998, of $4.5 million ($2.8 million
after tax) or $.04 per diluted share as a cumulative catch-up adjustment.

Pursuant to Emerging Issues Task Force No. 97-13 issued in November 1997,
the Company changed its accounting policy in the second quarter of fiscal 1998
regarding a project to install an entirely new computer software system which
it began in fiscal 1995. Previously, substantially all direct external costs
relating to the project were capitalized, including the portion related to
business process reengineering. In accordance with this accounting pronounce-
ment, the unamortized balance of these reengineering costs as of September 28,
1997, of $7.5 million ($4.6 million after tax) or $.07 per diluted share was
written off as a cumulative catch-up adjustment in the second quarter of fis-
cal 1998.

4. Long-Term Debt and Other Liabilities

A summary of long-term debt follows:

<TABLE>
<CAPTION>
(Amounts in thousands) June 25, 2000 June 27, 1999
---------------------- ------------- -------------
<S> <C> <C>
Bonds payable...................................... $248,447 $248,242
Revolving credit facility.......................... 211,500 217,000
Sale-leaseback obligation.......................... 3,154 3,355
Other bank debt and other obligations.............. 16,037 26,556
-------- --------
Total debt........................................ 479,138 495,153
Current maturities................................ 217,308 16,255
-------- --------
Total long-term debt and other liabilities........ $261,830 $478,898
======== ========
</TABLE>

On February 5, 1998, the Company issued $250 million of senior, unsecured
debt securities (the "Notes") which bear a coupon rate of 6.50% and mature in
2008. The estimated fair value of the Notes, based on quoted market prices, at
June 25, 2000, and June 27, 1999, was approximately $216.9 million and $229.7
million, respectively.

The Company entered a $400 million revolving credit facility dated April
15, 1996, with a group of financial institutions that extends through April
15, 2001. The outstanding amounts due on the revolving credit facility at June
25, 2000 have been classified as current maturities. Although the Company in-
tends to refinance or negotiate additional borrowings to replace some or all
of the outstanding obligations under the revolving credit facility, no formal
commitments were entered into by fiscal year end. The rate of interest charged
is adjusted quarterly based on a pricing grid, which is a function of the ra-
tio of the Company's debt to earnings before income taxes, depreciation, amor-
tization and other non-cash charges. The credit facility provides the Company
the option of borrowing at a spread over the base rate (as defined) for base
rate loans or the Adjusted London Interbank Offered Rate (LIBOR) for Eurodol-
lar loans. In accordance with the pricing grid, the Company pays a quarterly
facility fee ranging from 0.090%-0.150% of the total amount available under
the revolving credit facility. The weighted average interest rates for fiscal
years 2000 and 1999 were 6.12% and 5.57%, respectively. At June 25, 2000, and
June 27, 1999, the interest rates on the outstanding balances were 6.68% and
5.29%, respectively. As a result of the variable nature of the credit
facility's interest rate, the fair value of the Company's revolving credit
debt approximates its carrying value.

21
<PAGE>

The revolving credit facility also provides the Company the option to borrow
funds competitively from the individual lenders, at their discretion, provided
that the sum of the competitive bid loans and the aggregate funds committed un-
der the revolving credit facility do not exceed the total committed amount. The
revolving credit facility allows the Company to reduce the outstanding commit-
ment in whole or in part upon satisfactory notice up to an amount no less than
the sum of the aggregate competitive bid loans and the total committed loans.
Any such partial termination is permanent. The Company may also elect to prepay
loans in whole or in part. Amounts paid in accordance with this provision may
be re-borrowed.

The terms of the revolving credit facility contain, among other provisions,
requirements for maintaining certain net worth and other financial ratios and
specific limits or restrictions on additional indebtedness, liens and merger
activity. Provisions under this agreement are not considered restrictive to
normal operations.

On May 20, 1997, the Company entered into a sales-leaseback agreement with a
financial institution whereby land, buildings and associated real and personal
property improvements of certain manufacturing facilities were sold to the fi-
nancial institution and will be leased by the Company over a sixteen-year peri-
od. This transaction has been recorded as a direct financing arrangement. On
June 30, 1997, the Company entered into a Contribution Agreement associated
with the formation of Parkdale America, LLC (see Consolidated Financial State-
ment Footnote 11). As a part of the Contribution Agreement, ownership of a sig-
nificant portion of the assets financed under the sales-leaseback agreement and
the related debt ($23.5 million) were assumed by the LLC. Payments for the re-
maining balance of the sales-leaseback agreement are due semi-annually and are
in varying amounts, in accordance with the agreement. Principal payments re-
quired over the next five years are approximately $100 thousand per year. The
interest rate implicit in the agreement is 7.84%.

Other obligations consist of acquisition related liabilities due within the
next four years. Maturities of the obligations over the next four years are
$5.8 million, $6.4 million, $3.3 million and $.5 million, respectively.

Interest capitalized during fiscal 2000 and 1999 was $0.6 million and $2.0
million, respectively.

5. Income Taxes

The provision for income taxes for fiscal 2000, 1999 and 1998 consists of
the following:

<TABLE>
<CAPTION>
(Amounts in thousands) June 25, 2000 June 27, 1999 June 28, 1998
---------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Currently payable:
Federal............................ $ 6,629 $20,124 $ 43,245
State.............................. 1,682 2,951 5,704
Foreign............................ (225) 653 1,474
------- ------- --------
Total current...................... 8,086 23,728 50,423
------- ------- --------
Deferred:
Federal............................ 9,772 10,219 23,799
State.............................. (261) (5,718) (11,715)
Foreign............................ 78 140 275
------- ------- --------
Total deferred..................... 9,589 4,641 12,359
------- ------- --------
Income taxes before cumulative
effect of accounting change (1999
and 1998).......................... $17,675 $28,369 $ 62,782
======= ======= ========
</TABLE>

22
<PAGE>

Income taxes were 31.7%, 32.5% and 32.8% of pretax earnings in fiscal 2000,
1999 and 1998, respectively. A reconciliation of the provision for income
taxes (before cumulative effect of accounting changes, in 1999 and 1998) with
the amounts obtained by applying the federal statutory tax rate is as follows:

<TABLE>
<CAPTION>
June 25, 2000 June 27, 1999 June 28, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory tax rate.......... 35.0% 35.0% 35.0%
State income taxes net of federal
tax benefit........................ 3.7 3.1 2.9
State tax credits net of federal tax
benefit............................ (2.1) (5.1) (4.9)
Foreign taxes less than domestic
rate............................... -- (1.8) (1.9)
Foreign tax benefit of losses less
than domestic rate................. 2.5 -- --
Foreign Sales Corporation tax
benefit............................ (1.1) (0.7) (0.4)
Research and experimentation
credit............................. (0.1) (0.1) --
Resolution of tax issues............ (7.4) -- --
Nondeductible expenses and other.... 1.2 2.1 2.1
---- ---- ----
Effective tax rate.................. 31.7% 32.5% 32.8%
==== ==== ====
</TABLE>

The deferred income taxes reflect the net tax effects of temporary differ-
ences between the bases of assets and liabilities for financial reporting pur-
poses and their bases for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of June 25, 2000, and June
27, 1999, were as follows:

<TABLE>
<CAPTION>
(Amounts in thousands) June 25, 2000 June 27, 1999
---------------------- ------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment...................... $ 97,051 $78,241
Investments in equity affiliates................... 19,974 20,883
Other.............................................. 394 --
-------- -------
Total deferred tax liabilities...................... 117,419 99,124
-------- -------
Deferred tax assets:
Accrued liabilities and valuation reserves......... 9,795 1,568
State tax credits.................................. 16,511 17,043
Other items........................................ 5,067 2,144
-------- -------
Total deferred tax assets........................... 31,373 20,755
-------- -------
Net deferred tax liabilities........................ $ 86,046 $78,369
======== =======
</TABLE>

6. Common Stock, Stock Option Plans and Restricted Stock

Common shares authorized were 500 million in 2000 and 1999. Common shares
outstanding at June 25, 2000, and June 27, 1999, were 55,163,193 and
59,547,819, respectively.

On October 21, 1999, the shareholders of the Company approved the 1999
Unifi, Inc. Long-Term Incentive Plan. The plan authorized the issuance of up
to 6,000,000 shares of Common Stock pursuant to the grant or exercise of stock
options, including Incentive Stock Option ("ISO"), Non-Qualified Stock Option
("NQSO") and restricted stock, but not more than 3,000,000 shares may be is-
sued as restricted stock. The 1,975,570 options granted in fiscal 2000 were
all from the 1999 Long-Term Incentive Plan.

23
<PAGE>

In addition, the Company has previous ISO plans with 846,357 shares reserved
and previous NQSO plans with 1,576,007 shares reserved at year end. No addi-
tional options will be issued under any previous ISO or NQSO plan. The transac-
tions for 2000, 1999 and 1998 of all three plans were as follows:

<TABLE>
<CAPTION>
ISO NQSO
------------------------ ------------------------
Options Weighted Options Weighted
Outstanding avg. $/share outstanding avg. $/share
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Fiscal 1998:
Shares under option --
beginning of year.......... 1,446,591 $20.91 1,159,019 $26.75
Exercised................... (504,458) 14.31 (47,852) 25.76
--------- ------ --------- ------
Shares under option -- end
of year.................... 942,133 $24.45 1,111,167 $26.79
========= ====== ========= ======

Fiscal 1999:
Granted..................... 309,000 $16.31 105,000 $17.47
Exercised................... (833) 16.31 (25,000) 25.65
Canceled.................... (12,435) 17.48 (6,668) 31.00
Converted from ISO to NQSO.. (391,508) 23.24 391,508 23.24
--------- ------ --------- ------
Shares under option -- end
of year.................... 846,357 $22.15 1,576,007 $25.29
========= ====== ========= ======

Fiscal 2000:
Granted..................... 1,975,570 $11.90 -- $ --
Exercised................... (833) 16.31 -- --
Canceled.................... (16,500) 22.73 (346,832) 24.74
--------- ------ --------- ------
Shares under option -- end
of year.................... 2,804,594 $14.93 1,229,175 $25.44
========= ====== ========= ======
</TABLE>

<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 1999 Fiscal 1998
------------- ------------- -------------
<S> <C> <C> <C>
ISO:
Exercisable shares under option --
end of year........................ 829,024 685,918 942,133
Option price range.................. $10.19-$25.38 $10.19-$25.38 $10.19-$25.38
Weighted average exercise price for
options exercisable................ $ 22.14 $ 23.52 $ 24.45
Weighted average remaining life of
shares under option................ 4.7 6.4 6.2
Fair value of options granted....... $ 7.58 $ 11.21 $ --

NQSO:
Exercisable shares under option --
end of year........................ 1,229,175 1,542,077 1,021,001
Option price range.................. $16.31-$31.00 $16.31-$31.00 $25.38-$31.00
Weighted average exercise price for
options exercisable................ $ 25.44 $ 25.48 $ 26.42
Weighted average remaining life of
shares under option................ 5.1 6.0 6.8
Fair value of options granted....... $ -- $ 11.21 $ --
</TABLE>

All options granted in fiscal 2000 vest in annual increments over five years
from the grant date. Substantially all options granted in fiscal 1999 vest over
a two year period from the date of grant.

During fiscal 2000 the Company issued a combined total of 129,500 shares of
restricted stock to certain employees under the 1999 Unifi, Inc. Long-Term In-
centive Plan. The stock issued vests in equal annual increments over five years
from the grant dates. Compensation expense will be recognized over the vesting
terms of the shares based on the fair market value at the date of grant.

24
<PAGE>

7. Retirement Plans

The Company has a qualified profit-sharing plan, which provides benefits for
eligible salaried and hourly employees. The annual contribution to the plan,
which is at the discretion of the Board of Directors, amounted to $11.0 million
in both 2000 and 1999 and $13.0 million in 1998. The Company leases its corpo-
rate office building from its profit-sharing plan through an independent trust-
ee.

8. Leases and Commitments

In addition to the direct financing sales-leaseback obligation described in
Consolidated Financial Statements Footnote 4, the Company is obligated under
operating leases consisting primarily of real estate and equipment. Future ob-
ligations for minimum rentals under the leases during fiscal years after June
25, 2000, are $7.3 million in 2001, $6.3 million in 2002, $4.5 million in 2003,
$2.7 million in 2004, $2.2 million in 2005 and $0.9 million in aggregate there-
after. Rental expense was $8.5 million, $7.6 million and $6.8 million for the
fiscal years 2000, 1999 and 1998, respectively. The Company had committed ap-
proximately $55.1 million for the purchase and upgrade of equipment and facili-
ties at June 25, 2000.

9. Business Segments, Foreign Operations and Concentrations of Credit Risk

The Company and its subsidiaries are engaged predominantly in the processing
of yarns by texturing of synthetic filament polyester and nylon fiber with
sales domestically and internationally, mostly to knitters and weavers for the
apparel, industrial, hosiery, home furnishing, automotive upholstery and other
end-use markets. Additionally, during fiscal 1999, the Company formed a limited
liability company to provide integrated manufacturing, factory automation and
electronic commerce solutions to other domestic manufactures. The Company also
maintains investments in several minority-owned affiliates. See Footnote 11 in
these Consolidated Financial Statements for further information on unconsoli-
dated affiliates.

In accordance with Statement of Financial Accounting Standards No. 131,
segmented financial information of the polyester and nylon operating segments,
as regularly reported to management for the purpose of assessing performance
and allocating resources, is detailed below. "All other" primarily represents
the results of the limited liability consulting company in fiscal 2000 and
1999.

<TABLE>
<CAPTION>
All
(Amounts in thousands) Polyester Nylon Other Total
---------------------- --------- -------- ------- ----------
<S> <C> <C> <C> <C>
Fiscal 2000
Net sales to external customers......... $852,179 $408,073 $20,160 $1,280,412
Intersegment net sales.................. 23 408 11,757 12,188
Depreciation and amortization........... 59,435 22,001 767 82,203
Segment operating income................ 66,572 40,999 941 108,512
Total assets............................ 695,363 358,205 17,721 1,071,289
-------- -------- ------- ----------

Fiscal 1999
Net sales to external customers......... $805,749 $443,850 $ 1,561 $1,251,160
Intersegment net sales.................. 17,014 5,159 -- 22,173
Depreciation and amortization........... 58,294 24,142 48 82,484
Segment operating income (loss)......... 64,710 47,966 (62) 112,614
Total assets............................ 710,277 206,661 13,392 930,330
-------- -------- ------- ----------

Fiscal 1998
Net sales to external customers......... $911,704 $465,905 $ -- $1,377,609
Intersegment net sales.................. 28,076 5,089 -- 33,165
Depreciation and amortization........... 46,003 15,030 -- 61,033
Segment operating income................ 111,944 70,512 -- 182,456
Total assets............................ 650,335 249,754 60 900,149
-------- -------- ------- ----------
</TABLE>

25
<PAGE>

Segment operating income for fiscal 1999 was reduced $9.7 million and $5.1
million for polyester and nylon, respectively, as a result of the early retire-
ment and termination charge in the third quarter (see Consolidated Financial
Statements Footnote 14).

Certain indirect manufacturing and selling, general and administrative costs
are allocated to the operating segments based on activity drivers relevant to
the respective costs. The primary differences between the segmented financial
information of the operating segments, as reported to management, and the
Company's consolidated reporting relates to intersegment transfer of yarn, fi-
ber costing and capitalization of property, plant and equipment costs. Prior to
the current fiscal year, substantially all intersegment transfers of yarn were
treated as internal sales at a selling price, which approximated cost plus a
normalized profit margin. In the current year, the majority of intersegment
yarn transfers were treated as inventory transfers, and profit margins recorded
only on intersegment transfers from our dyed operations. Domestic operating di-
visions' fiber costs are valued on a standard cost basis, which approximates
first-in, first-out accounting. For those components of inventory valued util-
izing the last-in, first-out method (see Consolidated Financial Statements
Footnote 1), an adjustment is made at the corporate level to record the differ-
ence between standard cost and LIFO. For significant capital projects, capital-
ization is delayed for management segment reporting until the facility is sub-
stantially complete. However, for consolidated financial reporting, assets are
capitalized into construction in progress as costs are incurred or carried as
unallocated corporate fixed assets if they have been placed in service but not
as yet been moved for management segment reporting.

The increase in nylon total assets is attributable to the reclassification
of property, plant and equipment from unallocated corporate fixed assets. This
reclassification primarily relates to a new facility that was substantially
completed. The change in total assets for the "All Other" segment primarily re-
flects the establishment of the Company's majority owned subsidiary, Unifi
Technology Group in May 1999. Unifi Technology Group is a domestic automation
solutions provider.

<TABLE>
<CAPTION>
(Amounts in Thousands) June 25, 2000 June 27, 1999 June 28, 1998
---------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Depreciation and amortization:
Depreciation and amortization of
specific reportable segment
assets............................. $ 82,203 $ 82,484 $ 61,033
Depreciation of unallocated assets.. 7,146 6,362 6,138
Amortization of unallocated assets.. 3,841 3,373 2,539
---------- ---------- ----------
Consolidated depreciation and
amortization....................... $ 93,190 $ 92,219 $ 69,710
========== ========== ==========
Profit:
Reportable segments operating
income............................. $ 108,512 $ 112,614 $ 182,456
Net standard cost (income) expense
adjustment to LIFO................. 4,444 (8,040) (2,038)
Unallocated operating (income)
expense project adjustment......... (1,440) 1,442 --
Provision for bad debts............. 8,694 1,129 724
Interest expense.................... 30,294 27,459 16,598
Interest income..................... (2,772) (2,399) (1,869)
Other (income) expense.............. 1,052 440 (335)
Equity in (earnings) losses of
unconsolidated affiliates.......... 2,989 (4,214) (23,030)
Minority interests.................. 9,543 9,401 723
---------- ---------- ----------
Income before income taxes and
cumulative effect of accounting
change............................. $ 55,708 $ 87,396 $ 191,683
========== ========== ==========
Total assets:
Reportable segments total assets.... $1,071,289 $ 930,330 $ 900,149
Cash, receivables and other current
assets............................. 16,254 17,661 2,604
Unallocated corporate fixed assets.. 44,159 176,161 188,311
Other non-current corporate assets.. 38,834 41,085 34,112
Investments in equity affiliates.... 208,918 207,142 212,488
Intersegment notes and receivables.. (24,690) (6,539) (3,850)
---------- ---------- ----------
Consolidated assets................. $1,354,764 $1,365,840 $1,333,814
========== ========== ==========
</TABLE>

26
<PAGE>

The Company's domestic operations serve customers principally located in the
southeastern United States as well as international customers located primarily
in Canada, Mexico, Europe and South America. During fiscal 2000, 1999 and 1998
the Company did not have sales to any one customer in excess of 10% of consoli-
dated revenues. Export sales, excluding those to the Company's international
operations, aggregated $182.8 million in 2000, $153.9 million in 1999 and,
$185.5 million in 1998. The concentration of credit risk for the Company with
respect to trade receivables is mitigated due to the large number of customers,
dispersion across different industries and geographic regions and its factoring
arrangements.

The Company's foreign operations primarily consist of manufacturing opera-
tions in Ireland, England, Brazil and Columbia. Net sales, pre-tax operating
income and total assets of the Company's foreign and domestic operations are as
follows:

<TABLE>
<CAPTION>
(Amounts in Thousands) June 25, 2000 June 27, 1999 June 28, 1998
---------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Foreign operations:
Net sales....................... $ 158,174 $ 130,766 $ 136,573
Pre-tax income (loss)........... (4,456) 6,804 15,107
Total assets.................... 193,860 173,298 127,586
Domestic operations:
Net sales....................... $1,122,238 $1,120,394 $1,241,036
Pre-tax income.................. 60,164 80,592 176,576
Total assets.................... 1,160,904 1,192,542 1,206,228
</TABLE>

10. Derivative Financial Instruments and Fair Value of Financial Instruments

The Company conducts its business in various foreign currencies. As a re-
sult, it is subject to the transaction exposure that arises from foreign ex-
change rate movements between the dates that foreign currency transactions are
recorded (export sales and purchases commitments) and the dates they are con-
summated (cash receipts and cash disbursements in foreign currencies). The Com-
pany 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, Canadian and other currencies to hedge balance sheet and
income statement currency exposures. These contracts are principally entered
into for the purchase of inventory and equipment and the sale of Company prod-
ucts into export markets. Counter-parties for these instruments are major fi-
nancial institutions.

Currency forward contracts are entered to hedge exposure for sales in for-
eign currencies based on specific sales orders with customers or for antici-
pated sales activity for a future time period. Generally, 60-80% of the sales
value of these orders are covered by forward contracts. Maturity dates of the
forward contracts attempt to match anticipated receivable collections. The Com-
pany marks the outstanding accounts receivable and forward contracts to market
at month end and any realized and unrealized gains or losses are recorded as
other income and expense. The Company also enters currency forward contracts
for committed equipment and inventory purchases. Generally 50-75% of the asset
cost is covered by forward contracts although 100% of the asset cost may be
covered by contracts in certain instances. Forward contracts are matched with
the anticipated date of delivery of the assets and gains and losses are re-
corded as a component of the asset cost. The outstanding hedge agreements as of
June 25, 2000 mature through October 2001.

The dollar equivalent of these forward currency contracts and their related
fair values are detailed below:

<TABLE>
<CAPTION>
(Amounts in thousands) June 25, 2000 June 27, 1999 June 28, 1998
---------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Foreign currency purchase
contracts:
Notational amount......... $49,343 $ 2,842 $29,184
Fair value................ 46,760 3,250 31,418
------- ------- -------
Net unrecognized (gain)
loss.................... $ 2,583 $ (408) $(2,234)
======= ======= =======

Foreign currency sales
contracts:
Notational amount......... $26,303 $28,024 $28,446
Fair value................ 26,474 27,826 28,646
------- ------- -------
Net unrecognized (gain)
loss.................... $ 171 $ (198) $ 200
======= ======= =======
</TABLE>

27
<PAGE>

The following methods were used by the Company in estimating its fair value
disclosures for financial instruments:

Cash and cash equivalents, trade receivables and trade payables -- The car-
rying amounts approximate fair value because of the short maturity of these
instruments.

Long-term debt -- The fair value of the Company's borrowings is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities
(see Consolidated Financial Statements Footnote 4).

Foreign currency contracts -- The fair value is based on quotes obtained
from brokers or reference to publicly available market information.

11. Investment in Unconsolidated Affiliates

Investments in affiliates consist of a 34% interest in Parkdale America,
LLC (the "LLC") and a 45.27% interest in Micell Technologies, Inc. ("Micell").
The LLC was created on June 30, 1997, when the Company and Parkdale Mills,
Inc. ("Parkdale") of Gastonia, North Carolina entered into a Contribution
Agreement (the "Agreement") that set forth the terms and conditions whereby
each entity's open-end and air jet spun cotton yarn assets and certain long-
term debt obligations were contributed to the LLC. In accordance with the
Agreement, each entity's inventory, owned real and tangible personal property
and improvements thereon and the Company's leased real property associated
with the operations were contributed to the LLC. Additionally, the Company
contributed $32.9 million in cash to the LLC on June 30, 1997, $10.0 million
in cash on June 30, 1998, and $10.0 million on June 30, 1999, whereas Parkdale
contributed cash of $51.6 million on June 30, 1997. The LLC assumed certain
long-term debt obligations of the Company and Parkdale in the amounts of
$23.5 million and $46.0 million, respectively. In exchange for the assets con-
tributed to the LLC and the liabilities assumed by the LLC, the Company re-
ceived a 34% interest in the LLC and Parkdale received a 66% interest in the
LLC.

Condensed balance sheet and income statement information as of June 25,
2000, June 27, 1999 and June 28, 1998 and for the fiscal years ended June 25,
2000, June 27, 1999 and June 28, 1998, of the combined LLC and Micell is as
follows:

<TABLE>
<CAPTION>
(Amounts in thousands) June 25, 2000 June 27, 1999 June 28, 1998
---------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Current assets.............. $223,068 $282,004 $260,358
Noncurrent assets........... 234,093 256,513 264,194
Current liabilities......... 37,632 125,730 134,110
Shareholders' equity and
capital accounts........... 398,113 390,935 390,442

Net sales................... $507,950 $594,445 $652,097
Gross profit................ 33,524 57,915 108,649
Income from operations...... 988 27,653 80,546
Net income.................. 2,453 21,262 75,788
</TABLE>

The LLC is organized as a partnership for tax purposes. Taxable income is
passed through the LLC to the shareholders in accordance with the Operating
Agreement of the LLC. For the fiscal years ended June 25, 2000, June 27, 1999
and June 28, 1998, distributions received by the Company from the LLC amounted
to $3.2 million, $9.5 million and $7.7 million, respectively.

12. Supplemental Cash Flow Information

Supplemental cash flow information is summarized below:

<TABLE>
<CAPTION>
(Amounts in thousands) June 25, 2000 June 27, 1999 June 28, 1998
---------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Cash payments for:
Interest, net of amounts
capitalized................. $28,978 $25,396 $16,521
Income taxes, net of
refunds..................... 9,315 8,225 47,488
Stock issued for SI Holding
Company acquisition.......... -- -- 21,000
</TABLE>

28
<PAGE>

13. Minority Interest

Effective May 29, 1998, the Company formed a limited liability company (the
"Partnership") with Burlington Industries, Inc. ("Burlington") to manufacture
and market natural textured polyester yarns. The Company has an 85.42% interest
in the Partnership and Burlington has 14.58%. For the first five years of the
Partnership, Burlington is entitled to the first $9.4 million of earnings. Sub-
sequent to this five-year period, earnings are to be allocated based on owner-
ship percentages. The Partnership's assets, liabilities and earnings are con-
solidated with those of the Company and Burlington's interest in the Partner-
ship is included in the Company's financial statements as minority interest.
Burlington's share of the Partnership earnings in fiscal 2000, 1999 and 1998
amounted to $9.4 million, $9.4 million and $0.7 million, respectively.

14. Early Retirement and Termination Charge

During the third quarter of fiscal 1999, the Company recognized a $14.8 mil-
lion charge associated with the early retirement and termination of 114 sala-
ried employees. The charge was recorded as a component of selling, general and
administrative expenses in the amount of $8.2 million and cost of goods sold in
the amount of $6.6 million. Substantially all employees were terminated effec-
tive March 31, 1999, with cash payments expected to be spread over a period not
to exceed three years. At June 25, 2000, there remained a reserve of $7.4 mil-
lion that is expected to equal the future cash expenditures to such terminated
employees.

15. Quarterly Results (Unaudited)

Quarterly financial data for the years ended June 27, 1999, and June 25,
2000, is presented below:

<TABLE>
<CAPTION>
(Amounts in thousands, First Quarter Second Quarter Third Quarter Fourth Quarter
except per share data) (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
---------------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
1999:
Net sales............... $328,815 $319,854 $294,805 $307,686
Gross profit............ 47,477 50,460 29,970 46,643
Income before cumulative
effect of accounting
change................. 21,030 22,498 1,093 14,406
Cumulative effect of
accounting change...... 2,768
Net income.............. 18,262 22,498 1,093 14,406
Income before cumulative
effect of accounting
change (basic)......... .34 .37 .02 .24
Income before cumulative
effect of accounting
change (diluted)....... .30 .37 .02 .24
Earnings per share
(basic)................ .34 .37 .02 .24
Earnings per share
(diluted).............. .30 .37 .02 .24

2000:
Net sales............... $304,714 $317,589 $319,302 $338,807
Gross profit............ 34,259 41,742 42,870 44,700
Net income.............. 3,332 10,173 13,236 11,292
Earnings per share
(basic)................ .06 .17 .23 .20
Earnings per share
(diluted).............. .06 .17 .23 .20
</TABLE>

Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

The Company has not changed accountants nor are there any disagreements with
its accountants, Ernst & Young LLP, on accounting and financial disclosure that
should be reported pursuant to Item 304 of Regulation S-K.

29
<PAGE>

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT AND COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT

(a) Directors of Registrant: The information included under the headings
"Election of Directors", "Nominees for Election as Directors", "Directors
Remaining in Office", "Security Holding of Directors, Nominees, and Executive
Officers", "Directors' Compensation", "Committees of the Board of Directors",
and compliance with Section 16(a) of The Securities and Exchange Act, beginning
on page 2 and ending on page 7 and on page 14 of the definitive proxy statement
filed with the Commission since the close of the Registrant's fiscal year ended
June 25, 2000, and within 120 days after the close of said fiscal year, are
incorporated herein by reference.

(b) Identification of Executive Officers:

Chairman of The Board of Directors

G. Allen Mebane, IV Mr. Mebane is 70 and has been an Executive Officer and
member of the Board of directors of the Company since 1971, serving as Presi-
dent and Chief Executive Officer of the Company until 1980 and 1985, respec-
tively. He was the Chairman of the Board of Directors for many years, Chairman
of the Executive Committee from 1974 to 1995, and was elected as one of the
three members of the Office of Chairman on August 8, 1991. On October 22,
1992, Mr. Mebane was again elected as Chairman of the Board of Directors and
on January 20, 1999 resumed the positions of Chief Executive Officer (which he
held until January 26, 2000). Mr. Mebane has announced that he will retire as
an Executive Officer and Chairman of the Board of Directors effective after
the Company's annual meeting of shareholders on October 26, 2000.

President and Chief Executive Officer

Brian R. Parke Mr. Parke is 52 and had been the Manager or President of the
Company's Irish subsidiary (Unifi Textured Yarns Europe) from its acquisition
by the Company in 1984 to January 20, 1999, when he was elected President and
Chief Operating Officer of the Company. On January 26, 2000, Mr. Parke was
elected Chief Executive Officer of the Company. Additionally, Mr. Parke has
been a Vice President of the Company since October 21, 1993 and on July 22,
1999 was elected to the Company's Board of Directors.

Executive Vice Presidents

Willis C. Moore, III Mr. Moore is 47 and had been a Partner with Ernst &
Young LLP, or its predecessors from 1975 until December 1994, when he became
employed by the Company as its Chief Financial Officer. Mr. Moore was elected
as a Vice President of the Company on October 19, 1995, Senior Vice President
on October 23, 1997 and Executive Vice President on July 26, 2000. Addition-
ally, Mr. Moore continues to serve as the Company's Chief Financial Officer.

G. Alfred Webster Mr. Webster is 52 and has been a Vice President or Execu-
tive Vice President since 1979. He has been a member of the Board of Directors
since 1986.

Senior Vice Presidents

Thomas H. Caudle Mr. Caudle is 48 and has been an employee of the Company
since 1982. On January 20, 1999, Mr. Caudle was elected as a Vice President of
Manufacturing Services of the Company and on July 26, 2000 he was elected as a
Senior Vice President in charge of Manufacturing for the Company.

Michael E. Delaney Mr. Delaney is 44 and has been an employee of the Com-
pany since January 2000, when he joined the Company as Senior Vice President
of Marketing. Prior to coming to the Company, Mr. Delaney was Vice President
of Marketing with Volvo Truck N.A. from July 1997 through December 1999, Vice
President of Marketing with GE Capital Transport International Pool from De-
cember 1995 through July 1997 and Vice President of TIP Intermodel Services
from December 1993 through December 1995.

Stewart Q. Little Mr. Little is 46 and has been a Vice President of the
Company since October 24, 1985 and a Senior Vice President since January 20,
1999. He is currently serving as Senior Vice President of North American Yarn
Sales.

30
<PAGE>

Ottis "Lee" Gordon Mr. Gordon is 54 and has been an employee of the Company
since the Unifi merger with Macfield in 1991. Prior to the merger, Mr. Gordon
had been an employee of Macfield since 1973. On January 20, 1999, Mr. Gordon
was elected as a Vice President of Product Development of the Company and on
July 26, 2000 he was elected as a Senior Vice President of Product Develop-
ment.

These executive officers, unless otherwise noted, were elected by the Board
of Directors of the Registrant at the Annual Meeting of the Board of Directors
held on October 21, 1999. Each executive officer was elected to serve until
the next Annual Meeting of the Board of Directors or until his successor was
elected and qualified.

(c) Family Relationship: Mr. Mebane, Chairman of the Board, and Mr. C. Clif-
ford Frazier, Jr., the Secretary of the Registrant, are first cousins. Except
for this relationship, there is no family relation between any of the Offi-
cers.

Item 11. EXECUTIVE COMPENSATION

The information set forth under the headings "Compensation Committee Inter-
locks and Insider Participation in Compensation Decisions", "Report of the
Compensation Committee on Executive Compensation", "Executive Officers and
Their Compensation", "Options Grants in Fiscal Year 2000", "Option Exercises
and Option/SAR Values", "Employment and Termination Agreements", and the "Per-
formance Graph-Shareholder Return on Common Stock" beginning on page 7 and
ending on page 14 of the Company's definitive proxy statement filed with the
Commission since the close of the Registrant's fiscal year ended June 25,
2000, and within 120 days after the close of said fiscal year, are incorpo-
rated herein by reference.

For additional information regarding executive compensation reference is
made to Exhibits (10i), (10k), (10l), and (10m), of this Form 10-K.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security ownership of certain beneficial owners and management is the same
as reported under the heading "Information Relating to Principal Security
Holders" on page 2 of the definitive proxy statement and under the heading
"Security Holding of Directors, Nominees and Executive Officers" on page 5 and
page 6 of the definitive proxy statement filed with the Commission pursuant to
Regulation 14 (a) within 120 days after the close of the fiscal year ended
June 25, 2000, which are hereby incorporated by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information included under the heading "Compensation Committee Inter-
locks and Insider Participation In Compensation Decisions", on page 7 of the
definitive proxy statement filed with the Commission since the close of the
Registrant's fiscal year ended June 25, 2000, and within 120 days after the
close of said fiscal year, is incorporated herein by reference.

31
<PAGE>

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) 1. Financial Statements

The following financial statements and report of independent auditors are
filed as a part of this Report.

<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Auditors...................................... 13
Consolidated Balance Sheets at June 25, 2000 and June 27, 1999...... 14
Consolidated Statements of Income for the Years Ended June 25, 2000,
June 27, 1999, and June 28, 1998................................... 15
Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income for the Years Ended June 25, 2000, June 27,
1999 and June 28, 1998............................................. 16
Consolidated Statements of Cash Flows for the Years Ended June 25,
2000, June 27, 1999 and June 28, 1998.............................. 17
Notes to Consolidated Financial Statements.......................... 18

2. Financial Statement Schedules

Schedules for the three years ended June 25, 2000:
II -- Valuation and Qualifying Accounts............................ 35
</TABLE>

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.

Individual financial statements of the Registrant have been omitted because
it is primarily an operating company and all subsidiaries included in the Con-
solidated Financial Statements being filed, in the aggregate, do not have mi-
nority equity interest and/or indebtedness to any person other than the Regis-
trant or its consolidated subsidiaries in amounts which together exceed 5% of
the total assets as shown by the most recent year end Consolidated Balance
Sheet.

With the exception of the information herein expressly incorporated by ref-
erence, the 2000 Proxy Statement is not deemed filed as a part of this Annual
Report on Form 10-K.

3. Exhibits

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
(2a-1) Contribution Agreement, dated June 30, 1997, by and between
Parkdale Mills, Inc., Unifi, Inc., UNIFI Manufacturing, Inc., and
Parkdale America, LLC, filed as Exhibit (2) to Unifi's Form 8-K
filed with the Commission on July 15, 1997, which is incorporated
herein by reference.
(3a) Restated Certificate of Incorporation of Unifi, Inc., dated July
21, 1994, filed herewith.
(3b) Restated by-laws of Unifi, Inc., effective July 22, 1999, (filed
as Exhibit (3b) with the Company's Form 10-K for the fiscal year
ended June 27, 1999), which is incorporated herein by reference.
(4a) Specimen Certificate of Unifi, Inc.'s common stock, filed as
Exhibit 4(a) to the Registration Statement on Form S-1,
(Registration No. 2-45405), which is incorporated herein by
reference.
(4b) Unifi, Inc.'s Registration Statement for the 6 1/2% Notes due
2008, Series B, filed on Form S-4 (Registration No. 333-49243),
which is incorporated herein by reference.
(4c) Description of Unifi, Inc.'s common stock, filed on November 5,
1998, as Item 5. (Other Events) on Form 8-K, which is incorporated
herein by reference.
(10a) *Unifi, Inc. 1982 Incentive Stock Option Plan, as amended, filed
as Exhibit 28.2 to the Registration Statement on Form S-8,
(Registration No. 33-23201), which is incorporated herein by
reference.
(10b) *Unifi, Inc. 1987 Non-Qualified Stock Option Plan, as amended,
filed as Exhibit 28.3 to the Registration Statement on Form S-8,
(Registration No. 33-23201), which is incorporated herein by
reference.
</TABLE>

32
<PAGE>

<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
(10c) *Unifi, Inc. 1992 Incentive Stock Option Plan, effective July 16,
1992, (filed as Exhibit (10c) with the Company's Form 10-K for the
fiscal year ended June 27, 1993), and included as Exhibit 99.2 to
the Registration Statement on Form S-8 (Registration No. 33-
53799), which are incorporated herein by reference.
(10d) *Unifi, Inc.'s Registration Statement for selling Shareholders,
who are Directors and Officers of the Company, who acquired the
shares as stock bonuses from the Company, filed on Form S-3
(Registration No. 33-23201), which is incorporated herein by
reference.
(10e) Unifi Spun Yarns, Inc.'s 1992 Employee Stock Option Plan filed as
Exhibit 99.3 to the Registration Statement on Form S-8
(Registration No. 33-53799), which is incorporated herein by
reference.
(10f) *Unifi, Inc.'s 1996 Incentive Stock Option Plan (filed as Exhibit
10(f) with the Company's Form 10-K for the fiscal year ended June
30, 1996) which is incorporated herein by reference.
(10g) *Unifi, Inc.'s 1996 Non-Qualified Stock Option Plan (filed as
Exhibit 10(g) with the Company's Form 10-K for the fiscal year
ended June 30, 1996) which is incorporated herein by reference.
(10h) Lease Agreement, dated March 2, 1987, between NationsBank, Trustee
under the Unifi, Inc. Profit Sharing Plan and Trust, Wachovia Bank
and Trust Co., N.A., Independent Fiduciary, and Unifi, Inc., filed
herewith.
(10i) *Employment Agreement between Unifi, Inc. and G. Allen Mebane,
dated July 19, 1990, filed herewith.
(10j) Credit Agreement, dated April 15, 1996, by and between Unifi, Inc.
and The Several Lenders from Time to Time Party thereto and
NationsBank, N.A. as agent, (filed as Exhibit (10o) with the
Company's Form 10-K for the fiscal year ended June 30, 1996) which
is incorporated herein by reference.
(10k) *Severance Compensation Agreement between Unifi, Inc. and Willis
C. Moore, III, dated July 16, 1998, expiring on July 20, 2001 (a
similar agreement was signed with Stewart Q. Little)(filed as
Exhibit (10q) with the Company's Form 10-K for the fiscal year
ended June 28, 1998).
(10l) *Severance Compensation Agreement between Unifi, Inc. and Brian R.
Parke, dated October 1, 1998, expiring on July 20, 2001, (filed as
exhibit (10r) with the Company's Form 10-K for the fiscal year
ended June 27, 1999) which is incorporated herein by reference.
(10m) *Agreement, effective February 1, 1999, by and between Unifi, Inc.
and Jerry W. Eller, (filed as Exhibit (10s) with the Company's
Form 10-K for the fiscal year ended June 27, 1999).
(10n) *1999 Unifi, Inc. Long-Term Incentive Plan, (filed as Exhibit 99.1
to the Registration Statement on Form S-8, (Registration No. 333-
43158), which is incorporated herein by reference.
(10o) Master Agreement POY Manufacturing Alliance between Unifi, Inc.
and E.I. du Pont de Nemours and Company, dated June 1, 2000, filed
herewith.
(21) Subsidiaries of Unifi, Inc.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule.
</TABLE>

-------
* NOTE: These Exhibits are management contracts or compensatory plans or ar-
rangements required to be filed as an exhibit to this Form 10-K pursuant to
Item 14(c) of this report.

(b) Reports on Form 8-K.

None

33
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.

September 21, 2000 By: /s/ Brian R. Parke
_______________________________________
Brian R. Parke
Chief Executive Officer

September 21, 2000 By: /s/ Willis C. Moore, III
_______________________________________
Willis C. Moore, III
Executive Vice President
(Chief Financial Officer)

/s/ G. Allen Mebane, IV Chairman and September 21, 2000
---------------------------------- Director
G. Allen Mebane, IV

/s/ Brian R. Parke President, Chief September 21, 2000
---------------------------------- Executive Officer and
Brian R. Parke Director

/s/ G. Alfred Webster Executive Vice President September 21, 2000
---------------------------------- and Director
G. Alfred Webster

/s/ Robert A. Ward Director September 21, 2000
----------------------------------
Robert A. Ward

/s/ Jerry W. Eller Director September 21, 2000
----------------------------------
Jerry W. Eller

/s/ Charles R. Carter Director September 21, 2000
----------------------------------
Charles R. Carter

/s/ Kenneth G. Langone Director September 21, 2000
----------------------------------
Kenneth G. Langone

/s/ Donald F. Orr Director September 21, 2000
----------------------------------
Donald F. Orr

/s/ J.B. Davis Director September 21, 2000
----------------------------------
J.B. Davis

/s/ R. Wiley Bourne, Jr. Director September 21, 2000
----------------------------------
R. Wiley Bourne, Jr.

/s/ Richard Greenbury Director September 21, 2000
----------------------------------
Sir Richard Greenbury

34
<PAGE>

(27) Schedule II - Valuation and Qualifying Accounts
(Amounts in thousands)

<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
------------------------ ------------ ---------------------- ------------- -------------
Additions
----------------------
Charged to
Balance at Charged to Other
Beginning of Costs and Accounts -- Deductions -- Balance at
Description Period Expenses Describe Describe End of Period
------------------------ ------------ ---------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts (a):
Year ended June 25,
2000................... $8,749 $14,866 $ 225(b) $(6,631)(c) $17,209
Year ended June 27,
1999................... 8,225 6,241 240(b) (5,957)(c) 8,749
Year ended June 28,
1998................... 5,462 3,917 3,665(b) (4,819)(c) 8,225
</TABLE>

(a) The allowance for doubtful accounts includes amounts estimated not to be
collectible for product quality claims, specific customer credit issues
and a general provision for bad debts due to the decline in industry con-
ditions.

(b) Includes acquisition related adjustments to write-down acquired accounts
receivable to fair market value and effects of currency translation from
restating activity of our foreign affiliates from their respective local
currencies to the U.S. dollar.

(c) Includes accounts written off which were deemed not to be collectible and
customer claims paid, net of certain recoveries.