FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1997
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10542
UNIFI, INC.
(Exact name of registrant as specified its charter)
New York 11-2165495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 19109 - 7201 West Friendly Avenue
Greensboro, NC 27419
(Address of principal executive offices) (Zip Code)
(910) 294-4410
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year,
if changed since last report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at May 4, 1997
Common Stock, par value $.10 per share 61,812,860 Shares
<PAGE>
Part I. Financial Information
UNIFI, INC.
Condensed Consolidated Balance Sheets
March 30, June 30,
1997 1996
(Unaudited) (Audited)
(Amounts in Thousands)
ASSETS:
Current assets:
Cash and cash equivalents $22,951 $24,473
Receivables 221,799 199,361
Inventories:
Raw materials and supplies 56,016 59,260
Work in process 14,103 13,294
Finished goods 56,553 60,392
Other current assets 4,420 5,095
Total current assets 375,842 361,875
Property, plant and equipment 1,117,599 1,027,128
Less: accumulated depreciation 531,353 477,752
586,246 549,376
Other noncurrent assets 41,564 39,833
Total assets $1,003,652 $951,084
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $101,761 $110,107
Accrued expenses 38,914 39,895
Income taxes 19,056 15,651
Total current liabilities 159,731 165,653
Long-term debt 235,000 170,000
Deferred income taxes 44,156 32,225
Shareholders' equity:
Common stock 6,228 6,483
Capital in excess of par value -- 62,255
Retained earnings 557,537 512,253
Cumulative translation adjustment 1,000 2,215
Total shareholders' equity 564,765 583,206
Total liabilities and
shareholders' equity $1,003,652 $951,084
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
UNIFI, INC.
Condensed Consolidated Statements of Income
(Unaudited)
For the Quarters For the Nine Months
Ended Ended
March 30, March 24, March 30, March 24,
1997 1996 1997 1996
(Amounts in Thousands Except Per Share Data)
Net sales $438,252 $375,509 $1,272,312 $1,164,315
Costs and expenses:
Cost of sales 376,444 329,965 1,101,701 1,024,587
Selling, general &
administrative expense 11,627 10,403 33,704 31,908
Interest expense 3,020 3,841 8,900 11,278
Interest income (581) (1,120) (1,675) (5,738)
Other (income) expense 844 (544) 1,779 (2,282)
Non-recurring charge -- -- -- 23,826
(note e)
391,354 342,545 1,144,409 1,083,579
Income before income taxes 46,898 32,964 127,903 80,736
Provision for income taxes 15,431 12,217 43,691 29,104
Net income $31,467 $20,747 $84,212 $51,632
Earnings per share:
Primary $.50 $.32 $1.31 $.78
Fully diluted $.50 $.32 $1.31 $.78
Cash dividends paid per share $.11 $.13 $.33 $.39
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months
Ended
March 30, March 24,
1997 1996
(Amounts in Thousands)
Cash and cash equivalents provided by
operating activities, net of acquisition $139,771 $144,673
Investing activities:
Capital expenditures (105,409) (100,114)
Acquisitions -- (48,444)
Proceeds from notes receivable 632 785
Proceeds from sale of subsidiary and
equity investment -- 10,436
Purchase of short-term investments -- (59,808)
Sale of short-term investments -- 91,072
Other 272 1,523
Net investing activities (104,505) (104,550)
Financing activities:
Issuance of Company common stock 2,071 27
Purchase and retirement of Company
common stock (82,419) (54,395)
Borrowing of long-term debt 115,000 --
Payments of long-term debt (50,000) --
Cash dividends paid (21,090) (25,758)
Net financing activities (36,438) (80,126)
Currency translation adjustment (350) (322)
Increase (decrease) in cash and cash
equivalents (1,522) (40,325)
Cash and cash equivalents - beginning 24,473 60,350
Cash and cash equivalents - ending $22,951 $20,025
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
UNIFI, INC.
Notes to Condensed Consolidated Financial Statements
(a)Basis of Presentation
The information furnished is unaudited and reflects all adjustments which
are, in the opinion of Management, necessary to present fairly the
financial position at March 30, 1997, and the results of operations and
cash flows for the periods ended March 30, 1997, and March 24, 1996. Such
adjustments consisted of normal recurring items for all periods presented
and, for the prior year to date, the non-recurring charge described in Note
(e). Interim results are not necessarily indicative of results for a full
year. It is suggested that the condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-K.
(b)Income Taxes
Deferred income taxes have been provided for the temporary differences
between financial statement carrying amounts and tax basis of existing
assets and liabilities.
The difference between the statutory federal income tax rate and the
effective tax rate is primarily due the realization of state and federal
tax credits and the results of foreign subsidiaries which are taxed at
rates below those of U.S. operations.
(c)Per Share Information
Earnings per common and common equivalent share are computed on the basis
of the weighted average number of common shares outstanding, plus to the
extent applicable, common stock equivalents.
Computation of average shares outstanding (in 000's):
Quarters Ended Nine Months Ended
March 30, March 24, March 30, March 24,
1997 1996 1997 1996
Average Shares Outstanding 62,615 65,068 63,843 66,020
Add: Dilutive Options 616 436 675 454
Primary Average Shares 63,231 65,504 64,518 66,474
Incremental Shares Arising from
Full Dilution Assumption -- 45
Average Shares Assuming
Full Dilution 63,231 64,563
Conversion of the $230 million, 6% convertible subordinated notes which
were outstanding at March 24, 1996, was not considered for the computation
of fully diluted earnings per share because its effect was antidilutive for
both prior year periods presented. Accordingly, fully diluted earnings per
share for these periods have been reported consistent with the primary
earnings per share result. These notes were redeemed in the fourth quarter
of fiscal 1996.
(d)Common Stock
On April 17, 1997, the Company's Board of Directors declared a cash
dividend of $.11 per share payable on May 9, 1997, to shareholders of
record on May 2, 1997.
(e)Non-Recurring Charge
During the fiscal 1996 first quarter, the Company recognized a non-
recurring charge to earnings of $23.8 million ($14.9 million after-tax or
$0.22 per share) related to restructuring plans to further reduce the
Company's cost structure and improve productivity through the consolidation
of certain manufacturing operations and the disposition of underutilized
assets. The restructuring plan focused on the consolidation of production
facilities acquired via mergers during the preceding four years. As part
of the restructuring action, the Company closed its spun cotton
manufacturing facilities in Edenton and Mount Pleasant, North Carolina with
the majority of the manufacturing production being transferred to other
facilities. The significant components of the non-recurring charge include
$2.4 million of severance and other employee-related costs from the
termination of employees and a $21.4 million write-down to estimated fair
value less the cost of disposal of underutilized assets and consolidated
facilities to be disposed. Costs associated with the relocation of
equipment or personnel are being expensed as incurred.
In connection with the plan of restructuring and corporate consolidation,
the Company has incurred as of March 30, 1997, severance and other
employee-related costs of $2.0 million associated with the termination of
574 employees. All aspects of the consolidation plan associated with the
termination of employees has been accomplished. The remaining reserve of
$0.4 million associated with severance and other employee related costs has
been reclassified to the reserve for estimated losses from the disposal of
assets and consolidated facilities. Through March 30, 1997, the Company
has charged $17.1 million against the reserve established for anticipated
losses from the disposal of underutilized assets and consolidated
facilities. The remaining reserve at March 30, 1997, amounts to $4.7
million. The Company has completed the majority of these restructuring
efforts and anticipates no material differences in actual charges compared
to its original estimates.
(f)Stock-Based Compensation
In October 1995, the FASB issued Statement No. 123, "Stock-Based
Compensation," (SFAS 123) which became effective beginning with the
Company's quarter ended September 29, 1996. The Company has adopted SFAS
123 and will continue to measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." In
addition, the Company will provide at fiscal year end pro forma disclosures
of net income and earnings per share as if the fair value-based method
prescribed by SFAS 123 had been applied in measuring compensation expense.
The adoption of the pronouncement has not had and is not expected to have a
material effect on the Company's financial position or results of
operations.
(g)Recent Pronouncements
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," (SFAS 125). SFAS 125 became effective for
transfers and servicing of financial assets and extinguishments of
liabilities beginning with the Company's third quarter of fiscal 1997. The
adoption of this Standard did not and is not expected to impact the
Company's consolidated results of operations, financial position or cash
flows.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per share," (SFAS 128) which is required to be
adopted in the December 1997 fiscal quarter. At that time, the Company
will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock
options will be excluded. The impact of SFAS 128 on the calculation of
primary and fully diluted earning per share for the quarter ended March 30,
1997, and March 24, 1996, is not expected to be material.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is Management's discussion and analysis of certain significant
factors that have affected the Company's operations and material changes in
financial condition during the periods included in the accompanying Condensed
Consolidated Financial Statements.
Results of Operations
Consolidated net sales increased 16.7% to $438.3 million in the third quarter
of fiscal 1997 and for the nine month period, sales increased 9.3% to
$1,272.3 million. Volume increases of 17.8% and 10.0% for the quarter and
year to date, respectively, offset average unit price declines, based on
overall product mix, of 0.8% and 0.6%, respectively. The current quarter was
positively impacted by having one more operating week than the previous
year's quarter due to the timing of the Company's routine holiday shut down.
Results for our domestic operations reflect sales growth of 16.9% for the
quarter and 8.7% for the year to date as we experienced increases in unit
sales in all yarn areas for both current year periods over year ago levels.
Sales growth of 17.3% for the quarter and 16.3% for the year to date in our
international operations reflects increased capacity due to expansion.
Gross margin as a percentage of net sales for the quarter increased 2.0% from
12.1% to 14.1%. For the respective year-to-date periods, gross margin as a
percentage of net sales increased 1.4% from 12.0% to 13.4%. Increases for
both periods reflect decreases in raw material and manufacturing costs, based
on product mix, as a percentage of net sales.
Selling, general and administrative expenses as a percentage of net sales
decreased from 2.8% in last year's quarter to 2.7% this quarter. On a year-
to-date basis, selling, general and administration expense as a percentage of
net sales decreased from 2.7% to 2.6%. On a dollar basis, selling, general
and administrative expense increased $1.2 million to $11.6 million, or 11.8%,
for the quarter and increased $1.8 million to $33.7 million, or 5.6%, for the
year to date. Increased selling, general and administrative expenses are
primarily attributable to higher professional fees and information systems'
costs associated with various corporate reengineering and technology
improvement efforts.
Interest expense decreased $0.8 million to $3.0 million in the current
quarter and $2.4 million to $8.9 million for the year-to-date period. The
decline in interest expense for both current year periods reflects a lower
effective interest rate and lower levels of debt throughout the periods.
Interest income has decreased from $1.1 million in last year's third quarter
to $0.6 million in the current quarter. For the nine month period, interest
income has decreased from $5.7 million last year to $1.7 million in the
current period. The decline in interest income for the quarter and
year-to-date periods reflects lower levels of invested funds due to the use
of such funds for capital expenditures, long-term debt extinguishment and the
purchase and retirement of Company common stock.
Net other income and expense moved unfavorably $1.4 million in the current
quarter from $0.5 million of income in the prior year quarter to $0.8 million
of expense in the current year quarter. For the year to date, net other
income and expense reflects an unfavorable change of $4.1 million from $2.3
million of income in the prior year to $1.8 million of expense for the
current year period. These unfavorable changes reflect currency transaction
losses and other non-operating expenses incurred during the current year
periods compared to gains on the sale of investments and equipment in the
prior year periods.
In the first quarter of the prior fiscal year, the Company announced
restructuring plans to further reduce the Company's cost structure and
improve productivity through the consolidation of certain manufacturing
operations and the disposition of underutilized assets. The estimated cost
of restructuring resulted in a first quarter fiscal 1996 non-recurring charge
to earnings of $23.8 million or an after-tax charge to earnings of $14.9
million ($.22 per share). The Company has completed the majority of these
restructuring efforts and anticipates no material differences in actual
charges compared to its original estimates.
The effective tax rate has decreased from 37.1% to 32.9% in the current
quarter and from 36.0% to 34.2% for the year-to-date period. The improvement
in the effective tax rates is primarily due to the realization of state tax
credits during the current year and the operating results of foreign
subsidiaries which are taxed at rates below those of U.S. operations.
As a result of the above, the Company realized during the current quarter net
income of $31.5 million, or $.50 per primary share, compared to $20.7
million, or $.32 per primary share, during the corresponding quarter of the
prior year. Net income and primary earnings per share for the current nine
month year-to-date period amounted to $84.2 million, or $1.31 per share,
compared to corresponding totals in the prior year-to-date period of $51.6
million, or $.78 per share. Earnings for the prior year-to-date period were
adversely affected by the non-recurring charge to earnings of $23.8 million
or an after tax charge to earnings of $14.9 million ($.22 per share).
Liquidity and Capital Resources
Cash provided by operations continues to be the Company's primary source of
funds to finance operating needs and capital expenditures. Cash generated
from operations was $139.8 million for the nine month period ended March 30,
1997, compared to $144.7 million for the corresponding period of the prior
fiscal year. Increases in working capital reduced cash flow from operating
activities by $21.0 million for the nine month period ended March 30, 1997.
The primary components of this working capital increase, excluding the
effects of currency translation, were an increase in accounts receivables of
$22.8 million and a decline in accounts payable and accruals of $8.2 million.
These amounts were partially offset by declines in inventory of $6.1 million
and in other net current assets of $3.9 million. The increase in accounts
receivable since the fiscal year ended June 30, 1996, is attributable to
higher sales volume and, specifically, export sales which comprised a higher
percentage of total sales throughout this period.
Working capital levels are more than adequate to meet the operating
requirements of the Company. We ended the current quarter with working
capital of $216.1 million which included cash and cash equivalents of $23.0
million.
The Company utilized $104.5 million and $36.4 million for net investing and
financing activities, respectively, during the nine months ended March 30,
1997. Significant expenditures during this period included $105.4 million of
capital expenditures for capacity expansions and upgrading of facilities,
$21.1 million for the payment of the Company's cash dividends and $82.4
million for the purchase and retirement of Company common stock. The Company
utilized proceeds from net borrowings under its long-term debt agreement of
$65.0 million and $3.0 million from other sources to offset these cash
expenditures.
At March 30, 1997, the Company has committed approximately $204.6 million for
the purchase, construction and upgrade of equipment and facilities, which is
scheduled to be expended during fiscal years 1997, 1998 and 1999. A
significant component of these committed funds, as well as a major component
of the year-to-date capital expenditures, is the continuing construction of a
highly automated, state-of-the-art texturing facility in Yadkinville, North
Carolina. We have reached approximately 83% of productive capacity in this
texturing facility which is scheduled for completion in the first quarter of
fiscal 1998. Estimated costs associated with the construction of our
previously announced polyester fiber production facility are also included in
the $204.6 million commitment. However, the costs of various construction
and machinery phases of the polyester fiber production facility project are
still under negotiation. In addition, the Company has begun construction of
a new nylon texturing facility in Madison, North Carolina. This plant will
replace capacity at an existing facility and allow for a modest expansion.
Certain construction and auxiliary machinery components of this project are
still being negotiated.
On October 21, 1993, the Board of Directors authorized Management to
repurchase up to 15 million shares of Unifi's common stock from time to time
at such prices as Management feels advisable and in the best interest of the
Company. Through March 30, 1997, 8.5 million shares have been repurchased at
a total cost of $223.6 million pursuant to this Board authorization.
Management believes the current financial position of the Company in
connection with its operations and its access to debt and equity markets are
sufficient to meet anticipated capital expenditure, strategic acquisition,
working capital, Company common stock repurchases and other financial needs.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Quarterly Report contain forward-
looking statements about the Company's financial condition and results of
operations that are based on 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," "estimates," 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 differ materially from what is
expressed or forecasted in 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 differ materially from
these forward-looking statements include availability, sourcing and pricing
of raw materials, pressures on sales prices due to competition and economic
conditions, reliance on and financial viability of significant customers,
technological advancements, changes in construction spending and capital
equipment expenditures (including those related to unforeseen acquisition
opportunities), continued availability of financial resources through
financing arrangements and operations, negotiation 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 legislation, the
continuation and magnitude of the Company's common stock repurchase program
and proceeds received from the sale of assets held for disposal. In addition
to these representative factors, forward-looking statements could be impacted
by general domestic and international economic and industry conditions
including fluctuations in currency exchange, interest and inflation rates.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(27)Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended
March 30, 1997.
<PAGE>
UNIFI, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIFI, INC.
Date: May 14, 1997 WILLIS C. MOORE, III
Willis C. Moore, III
Vice President and Chief
Financial Officer (Mr. Moore is
the Principal Financial and
Accounting Officer and has been
duly authorized to sign on behalf
of the Registrant.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT FOR THE NINE MONTH PERIOD ENDED MARCH 30, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-29-1997
<PERIOD-END> MAR-30-1997
<CASH> 22,951
<SECURITIES> 0
<RECEIVABLES> 229,101
<ALLOWANCES> 7,302
<INVENTORY> 126,672
<CURRENT-ASSETS> 375,842
<PP&E> 1,117,599
<DEPRECIATION> 531,353
<TOTAL-ASSETS> 1,003,652
<CURRENT-LIABILITIES> 159,731
<BONDS> 235,000
0
0
<COMMON> 6,228
<OTHER-SE> 558,537<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,003,652
<SALES> 1,272,312
<TOTAL-REVENUES> 1,272,312
<CGS> 1,101,701
<TOTAL-COSTS> 1,101,701
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,900
<INCOME-PRETAX> 127,903
<INCOME-TAX> 43,691
<INCOME-CONTINUING> 84,212
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,212
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.31
<FN>
<F1>OTHER STOCKHOLDERS' EQUITY OF $558,537 IS COMPRISED OF RETAINED EARNINGS OF
$557,537 AND CUMULATIVE TRANSLATION ADJUSTMENT OF $1,000.
</FN>
</TABLE>
