SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 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 Commission File
June 28, 1998 Number 1-10542
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UNIFI, INC.
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(Exact name of Registrant as specified in its charter)
New York 11-2165495
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7201 West Friendly Avenue
Greensboro, North Carolina 27410
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(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code: (336) 294-4410
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Class On Which Registered
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Common Stock, par value $.10 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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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
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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 14, 1998, based on a closing price of $23.875 per
share: $1,427,674,599.87
Number of shares outstanding as of August 14, 1998: 61,355,386
<PAGE>
Documents Incorporated By Reference
Portions of the Annual Report to Shareholders of Unifi, Inc. for the fiscal
year ended June 28, 1998, are incorporated by reference into Parts I and II
hereof.
Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders of Unifi, Inc., to be held on October 22, 1998, are incorporated
by reference into Part III.
Exhibits, Financial Statement Schedules and Reports on Form 8-K index is
located on pages IV-1 through IV-6.
<PAGE>
PART I
Item 1. Business:
Unifi, Inc., a New York corporation formed in 1969, together with its
subsidiaries, hereinafter set forth, (the "Company" or "Unifi"), is one of the
largest and most diversified processors of polyester and nylon yarns in the
world. The Company is engaged in the business of texturing polyester and
nylon filament fiber to produce polyester and nylon yarns, dyed yarns and
spandex yarns covered with nylon and polyester. The Company sells its
products to knitters and weavers that produce fabrics for the apparel,
automotive upholstery, hosiery, home furnishings, industrial and other end use
markets.
Texturing polyester and nylon filament fiber involves the processing of
partially oriented yarn ("POY"), which is either raw polyester or nylon
filament fiber purchased from chemical manufacturers, 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, depending on its
ultimate end use.
On June 30, 1997, the Company and Parkdale Mills, Inc. ("Parkdale")
contributed cash, assets and certain liabilities associated with their
respective open-end and air jet spun cotton yarn operations to a newly formed
joint venture, Parkdale America, LLC ("Parkdale America"). As a result, the
Company and Parkdale own a 34.0% and 66.0% equity interest in Parkdale
America, respectively. Parkdale America is one of the largest and most
diversified processors of spun cotton yarns in the world. The Company
believes that its equity ownership in Parkdale America provides it with an
opportunity to partner with the leading manufacturer in the cotton yarn
industry and to increase the profitability of these operations through
economies of scale and elimination of redundant overhead costs.
On November 14, 1997, the Company completed its $55.8 million acquisition
of SI Holding Company ("SI Holding"), a manufacturer of covered nylon yarns
operating under the "Spanco" name, generating approximately $85.0 million in
annual sales.
On May 29, 1998, the Company and Burlington Industries, Inc. ("BI")
contributed certain assets associated with their respective textured polyester
yarn businesses to a newly formed limited liability company, Unifi Textured
Polyester, LLC ("UTP"). Unifi contributed its textured polyester yarn
facilities in Yarkinville, North Carolina and BI contributed its textured
yarn operation in Mayodan, North Carolina. Unifi is the majority owner of the
new entity (approximately 85%) and manages the business, while BI holds a
minority interest. All yarn products are sold under the Unifi label. The
Company's polyester texturing facility in Reidsville, North Carolina, which
processes textured products for yarn dyeing, was not contributed to UTP.
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The information included under "Year 2000 Compliance Status" on pages 35
and 36 of the Annual Report of the company for fiscal year ended June 28,
1998, is incorporated herein by reference.
SOURCES AND AVAILABILITY OF RAW MATERIALS:
The primary suppliers of POY to the Company are E. I. DuPont de Nemours
and Company, Hoechst Celanese Corporation, Wellman Industries, Cookson Fibers,
Inc., and Nan Ya Plastics Corp. of America with the majority of the Company's
POY being supplied by DuPont. In addition, the Company has POY manufacturing
facilities in Ireland, and recently began full-scale operation in its newly
constructed, state-of-the-art manufacturing facility in Yadkinville, North
Carolina, designed to further vertically integrate the Company's domestic
polyester operations. Management expects this facility to provide
approximately 25% of its total domestic POY supply needs. Management expects
that all polyester fiber manufactured by this facility will be used by the
Company. Although the Company is heavily dependent upon a limited number of
suppliers, the Company has not had and does not anticipate any material
difficulty in obtaining its raw POY.
PATENTS AND LICENSES: The Company currently has several patents and
registered trademarks, none of which it considers material to its business as a
whole.
CUSTOMERS: The Company in fiscal year ended June 28, 1998, sold its
polyester and nylon yarns to approximately 1,260 customers, no one
customer's purchases exceeded 10% of net sales during said period, the ten
largest customers accounted for approximately 32% of total net sales. The
Company does not believe that it is dependent on any one customer.
BACKLOG: The Company, other than in connection with certain foreign
sales and for textured yarns that are package dyed according to customers'
specifications, 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 seasonal 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 product
quality and customer service being essential for differentiating the
competitors within the industry. Product quality insures manufacturing
efficiencies for the customer. The Company's polyester and nylon yarns, dyed
yarns, and covered yarns compete with a number of other domestic producers of
such yarns. In the sale of polyester filament yarns, major competitors are
Dillon Yarn Company, Inc., and Milliken & Company and in the sale of nylon
yarns, dyed yarns, and covered yarns, major competitors are Jefferson Mills,
Inc., Worldtex, Inc., and Spectrum Dyed Yarns, Inc..
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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
Approximately 6,400.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC INTERNATIONAL
OPERATIONS AND EXPORT SALES: The information included under the heading
"Business Segments, Foreign Operations and Concentrations of Credit Risk"
on Page 28 of the Annual Report of the Company to the Shareholders for the
fiscal year ended June 28, 1998, is incorporated herein by reference.
Item 2. Description of Property:
The Company currently maintains a total of 24 manufacturing and
warehousing facilities and one central distribution center in North Carolina,
one manufacturing and related warehousing facility in Staunton, Virginia, one
central distribution center in Fort Payne, Alabama, two manufacturing
operations in Letterkenny, County of Donegal,
Republic of Ireland and two warehousing locations in Carrickfergus, Northern
Ireland. All of these facilities, which contain approximately 7,992,513
square feet of floor space, with the exception of one (1) plant facility
leased from NationsBank Leasing and R.E. Corp. pursuant to a Sales-leaseback
Agreement entered on May 20, 1997, as amended, and two warehouses in
Carrickfergus, Northern Ireland, are owned in fee; and management believes they
are in good condition, well maintained, and are suitable and adequate for
present production.
The Company leases sales offices and/or apartments in New York,
Coleshill, England, Oberkotzau, Germany, and Lyon, France, and has a
representative office in Tokyo, Japan.
The Company also leases its corporate headquarters building at 7201 West
Friendly Avenue, Greensboro, North Carolina, which consists of a building
containing approximately 121,125 square feet located on a tract of land
containing approximately 8.99 acres. This property is leased from
Merrill Lynch Trust Company of North Carolina, Trustee under the Unifi, Inc.
Profit Sharing Plan and Trust, and Wachovia Bank & Trust Company, N.A.,
Independent Trustee. On May 20, 1996, the Company exercised its option to
extend the term of the lease on this property for five (5) years, through
March 13, 2002. Reference is made to a copy of the lease agreement attached
to the Registrant's Annual Report on Form 10-K as Exhibit (10d) for the fiscal
year ended June 28, 1987, which is by reference incorporated herein.
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The information included under "Leases and Commitments"
on Page 27 of the Annual Report of the Company to Shareholders for fiscal
year ended June 28, 1998, is incorporated herein by reference.
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 28, 1998.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
(a)(c) PRICE RANGE OF COMMON STOCK AND DIVIDENDS PAID.
The information included under the heading "Market and Dividend
Information (Unaudited)" on Page 31 of the Annual Report of the Company to
Shareholders for the fiscal year ended June 28, 1998, is incorporated herein
by reference.
(b) Approximate Number of Equity Security Holders:
Title of Class Number of Record Holders
(as of August 14, 1998)
Common Stock, $.10 par value 929
(c) CASH DIVIDEND POLICY. Effective July 16, 1998, the Board of
Directors of the Company terminated its previously-established policy of
April, 1990 of paying cash dividends equal to approximately 30% of the
Company's after tax earnings for the previous year and authorized management
of the Company to utilize cash equal to said 30% of previous year's earnings
to purchase shares of the Company's stock, as, management deems advisable up
to ten (10) million shares. Under said April 1990 cash dividend policy, the
Company paid a quarterly dividend of $.14 per share on its common stock for
each quarter of the 1998 fiscal year.
Item 6. Selected Financial Data:
The financial data for the five fiscal years included under the heading
"Summary of Selected Financial Data" on Page 30 of the Annual Report of the
Company to Shareholders for the fiscal year ended June 28, 1998, is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
The information included under the heading "Management's Review and
Analysis of Operations and Financial Position" beginning on Page 32 and ending
on Page 36 of the Annual Report of the Company to Shareholders for the fiscal
year ended June 28, 1998, is incorporated herein by reference.
II-1
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Item 7A. Quantitative and Qualitative Disclosure About Market Risk
The information included under the heading "Derivative Financial
Instruments and Fair Value of Financial Instruments" on Page 28 of
the Annual Report of the Company to Shareholders for the fiscal year ended
June 28, 1998, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data:
The report of independent auditors, consolidated financial statements and
notes beginning on Page 17 and ending on Page 29 and the information included
under the heading "Quarterly Results (Unaudited)" on Page 31 of the Annual
Report of the Company to Shareholders for the fiscal year ended June 28, 1998,
are incorporated herein by reference.
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.
II-2
<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", "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 6 and on page 12 of the definitive proxy statement filed with
the Commission since the close of the Registrant's fiscal year ended June 28,
1998, 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 68 and has been an Executive Officer
and member of the Board of Directors of the Company since 1971, and served as
President and Chief Executive Officer of the Company, relinquishing these
positions in 1980 and 1985, respectively. 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.
President and Chief Executive Officer
William T. Kretzer Mr. Kretzer is 52 and served as a Vice President or
Executive Vice President from 1971 until 1985. He has been the President and
Chief Executive Officer since 1985. He has been a member of the Board of
Directors since 1985 and has been Chairman of the Executive Committee since
1995.
Executive Vice Presidents
Jerry W. Eller Mr. Eller is 57 and has been a Vice President or
Executive Vice President since 1975. He has been a member of the Board of
Directors since 1985 and is a member of the Executive Committee.
G. Alfred Webster Mr. Webster is 50 and has been a Vice President or
Executive Vice President since 1979. He has been a member of the Board of
Directors since 1986 and is a member of the Executive Committee.
III-1
<PAGE>
Senior Vice Presidents
Kenneth L. Huggins Mr. Huggins is 55, had been an employee of Macfield,
Inc. since 1970 and, at the time of the Macfield merger with Unifi, was
serving as a Vice President of Macfield and President of Macfield's Dyed Yarn
Division. He was a Director of Macfield from 1989 until August 8, 1991, when
Macfield, Inc. merged into and with Unifi. He is Senior Vice President and
also Assistant to the President.
Raymond W. Maynard Mr. Maynard is 55 and has been a Vice President of
the Company since June 27, 1971, and a Senior Vice President since October 22,
1992.
Willis C. Moore, III Mr. Moore is 45 and had been a Partner with Ernst
& Young LLP, or its predecessors from 1985 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, and is
currently serving as a Senior Vice President and Chief Financial Officer.
Vice Presidents
James W. Brown, Jr. Mr. Brown is 46 and was an employee of Macfield
from 1973 until the Macfield merger on August 8, 1991, when he became an
employee of the Company. He became a Vice President of the Company on October
22, 1992, and he is currently serving as President of the Nylon/Covered Yarn
Division of the Company.
Stewart O. Little Mr. Little is 45 and has been a Vice President of
the Company since October 24, 1985. He is currently serving as President of
the Polyester Division of the Company.
Ralph D. Mayes Mr. Mayes is 49 and had been a Vice President and Chief
Information Officer of the Leggett Group from 1992 until September, 1994 when
he became employed by the Company as its Chief Information Officer. Mr. Mayes
was elected as a Vice President on October 20, 1994, and is currently serving
as Vice President and Chief Information Officer.
These officers were elected by the Board of Directors of the Registrant
at the Annual Meeting of the Board of Directors held on October 23, 1997.
Each 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.
Clifford Frazier, Jr., the Secretary of the Registrant, are first cousins.
Except for this relationship, there is no family relation between any of the
Officers.
III-2
<PAGE>
Item 11. Executive Compensation:
The information set forth under the headings "Compensation and Option
Committees Interlocks and Insider Participation in Compensation Decisions",
"Executive Officers and Their Compensation", "Employment and Termination
Agreements", "Options Granted", "Option Exercises and Option/SAR Values", the
"Report of the Compensation and Incentive Stock Option Committees on Executive
Compensation", and the "Performance Graph-Shareholder Return on Common Stock"
beginning on Page 6 and ending on Page 11 of the Company's definitive proxy
statement filed with the Commission since the close of the Registrant's fiscal
year ended June 28, 1998, and within 120 days after the close of said fiscal
year, are incorporated herein by reference.
For additional information regarding executive compensation reference is
made to Exhibits (101), (10m), (10n), (10q) and (10r) 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 4
and Page 5 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 28, 1998, which are hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions:
The information included under the heading "Compensation and Option
Committees Interlocks and Insider Participation In Compensation Decisions",
on Page 6 of the definitive proxy statement filed with the Commission since
the close of the Registrant's fiscal year ended June 28, 1998, and within 120
days after the close of said fiscal year, is incorporated herein by
reference.
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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 28, 1998 BY: WILLIAM T. KRETZER
______________________________
William T. Kretzer, President
(Chief Executive Officer)
September 28, 1998 BY: WILLIS C. MOORE, III
______________________________
Willis C. Moore,III, Sr Vice President
(Chief Financial Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
G. ALLEN MEBANE, IV
September 28, 1998 Chairman __________________________
and Director G. Allen Mebane, IV
WILLIAM T. KRETZER
September 28, 1998 President, Chief __________________________
Executive Officer William T. Kretzer
and Director
ROBERT A. WARD
September 28, 1998 Senior Advisor ___________________________
to President and Robert A. Ward
Director
JERRY W. ELLER
September 28, 1998 Executive Vice ___________________________
President and Jerry W. Eller
Director
G. ALFRED WEBSTER
September 28, 1998 Executive Vice ___________________________
President and G. Alfred Webster
Director
CHARLES R. CARTER
September 28, 1998 Director ___________________________
Charles R. Carter
<PAGE>
KENNETH G. LANGONE
September 28, 1998 Director ___________________________
Kenneth G. Langone
DONALD F. ORR
September 28, 1998 Director ___________________________
Donald F. Orr
J.B. DAVIS
September 28, 1998 Director ___________________________
J. B. Davis
R. WILEY BOURNE, JR.
September 28, 1998 Director ___________________________
R. Wiley Bourne, Jr.
<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 included
in the Annual Report of Unifi, Inc. to its Shareholders for the fiscal year
ended June 28, 1998, are incorporated herein by reference. With the exception
of the aforementioned information and the information incorporated by
reference in Items 1, 2, 5, 6, 7 7A and 8 herein, the 1998 Annual Report to
shareholders is not deemed to be filed as part of this report.
Annual
Report
Pages
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Consolidated Balance Sheets at June 28, 1998
and June 29, 1997 18
Consolidated Statements of Income for the
Years Ended June 28, 1998, June 29, 1997,
and June 30, 1996 19
Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
June 28, 1998, June 29, 1997 and June 30,
1996 20
Consolidated Statements of Cash Flows for
the Years Ended June 28, 1998, June 29,
1997 and June 30, 1996 21
Notes to Consolidated Financial Statements 22 - 29
Management's Review and Analysis of Operations and
Financial Position 32 - 36
Report of Independent Auditors 17
(a) 2. Financial Statement Schedules
Form 10-K
Pages
Schedules for the three years ended June 28, 1998:
II - Valuation and Qualifying Accounts IV-6
IV-1
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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 consolidated financial statements being filed, in the aggregate, do not
have minority equity interest and/or indebtedness to any person other than
the Registrant 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.
(a) 3. Exhibits
(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 as Exhibit (3a) with the Company's Form 10-K for the fiscal year
ended June 26, 1994), which is incorporated herein by reference.
(3b) Restated By-Laws of Unifi, Inc., (filed as Exhibit (3b) with the
Company's Form 10-K for the fiscal year ended June 29, 1997), 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.
(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.
(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.
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(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 as Exhibit (10d)
with the Company's Form 10-K for the fiscal year ended June 28, 1987), which
is incorporated herein by reference.
(10i) Factoring Contract and Security Agreement and a Letter Amendment
thereto, all dated as of May 25, 1994, by and between Unifi, Inc. and the CIT
Group/DCC, Inc., (filed as Exhibit (10g) with the Company's Form 10-K for the
fiscal year ended June 26, 1994), which are incorporated herein by
reference.
(10j) Factoring Contract and Security Agreement, dated as of May 2, 1988,
between Macfield, Inc., and First Factors Corp., and First Amendment thereto,
dated September 28, 1990, (both filed as Exhibit (10g) with the Company's Form
10-K for the fiscal year ended June 30, 1991), and Second Amendment to the
Factoring Contract and Security Agreement, dated March 1, 1992, (filed as
Exhibit (10g) with the Company's Form 10-K for the fiscal year ended June 28,
1992), and Letter Agreement dated August 31, 1993 and Amendment to Factoring
Contract and Security Agreement dated January 5, 1994, (filed as Exhibit (10h)
with the Company's Form 10-K for the fiscal year ended June 26, 1994), which
are incorporated herein by reference.
(10k) Factoring Agreement dated August 23, 1995, and a Letter Amendment
thereto dated October 16, 1995, by and between Unifi, Inc. and Republic
Factors Corp., (filed as Exhibit 10(k) with the Company's Form 10-K for the
fiscal year ended June 30, 1996), which is incorporated herein by reference.
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(10l) *Employment Agreement between Unifi, Inc. and G. Allen Mebane, dated
July 19, 1990, (filed as Exhibit (10h) with the Company's Form 10-K for the
fiscal year ended June 30, 1991), which is incorporated herein by reference.
(10m) *Employment Agreement between Unifi, Inc. and William T. Kretzer,
dated July 19, 1990, (filed as Exhibit (10i) with the Company's Form 10-K for
the fiscal year ended June 30, 1991), and Amendment to Employment Agreement
between Unifi, Inc. and William T. Kretzer, dated October 22, 1992 (filed as
Exhibit (10j) with the Company's Form 10-K for fiscal year ended June 27,
1993), which are incorporated herein by reference.
(10n) *Severance Compensation Agreement between Unifi, Inc. and William T.
Kretzer, dated July 20, 1996, expiring on July 19, 1999 (similar agreements
were signed with G. Allen Mebane, Robert A. Ward, Jerry W. Eller and G. Alfred
Webster)(filed as Exhibit (10n) with the Company's Form 10-K for fiscal year
ended June 30, 1996), which is incorporated herein by reference.
(10o) 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.
(10p) *Deferral Agreement, dated November 21, 1997, by and between Unifi,
Inc. and William T. Kretzer, filed herewith.
.
(10q) *Severance Compensation Agreement between Unifi, Inc. and Willis C.
Moore, III, dated July 16, 1998, expiring on July 20, 2001 (similar agreements
were signed with James W. Brown, Jr., Kenneth L. Huggins, Stewart Q. Little,
Ralph D. Mayes, and Raymond W. Maynard), filed herewith.
(13a) Portions of Unifi, Inc.'s 1998 Annual Report to Shareholders which
are incorporated herein by reference, as a part of this Form 10-K for fiscal
year ended June 28, 1998, filed herewith.
(13b-1)Report of Independent Auditors/Ernst & Young LLP - on the Consolidated
Financial Statements of Unifi, Inc. as of June 28, 1998, and each of the three
years in the period ended June 28, 1998.
(21) Subsidiaries of Unifi, Inc.
(23) Consent of Ernst & Young LLP
(27) Financial Data Schedule
IV-4
<PAGE>
(b) Reports on Form 8-K
None.
* NOTE: These Exhibits are management contracts or compensatory plans or
arrangements required to be filed as an exhibit to this Form 10-K pursuant to
Item 14(c) of this report.
IV-5
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
UNIFI, INC. AND SUBSIDIARIES
JUNE 28, 1998
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------- --------- ----------- ---------- ---------
Additions
-------------------
Balance Charged Charged to Balance
at to Other at
Beginning of Costs and Accounts- Deductions- End of
Description Period Expenses Describe Describe Period
- ----------- ----------- -------- --------- ----------- ---------
Allowance for doubtful accounts:
Year ended
June 28, 1998 $5,462 $3,917 $3,665(a) $(4,819) (b) $ 8,225
Year ended
June 29, 1997 6,595 4,390 - (5,523) (b) 5,462
Year ended
June 30, 1996 6,452 3,660 - (3,517) (b) 6,595
(a) Primarily represents acquisition related adjustment to write-down acquired
accounts receivable to fair market value.
(b) Includes uncollectible accounts written off and customer claims paid, net
of certain recoveries.
Unrealized (gains)/losses on certain investments:
Year ended
June 28, 1998 $ - $ - $ - $ - $ -
Year ended
June 29, 1997 - - - - -
Year ended
June 30, 1996 (1,835) - 1,835 (c) - -
(c) Represents the change in fair market value of the related investment
securities and the entry to reflect the disposition of the underlying
investments.
EXHIBIT (10p)
DEFERRAL AGREEMENT
THIS DEFERRAL AGREEMENT ("Agreement"), effective the 21st day of November,
1997, between Unifi, Inc., a New York Corporation, ("Unifi"), and William T.
Kretzer (hereinafter referred to a the "Executive");
W I T N E S S E T H :
WHEREAS, the Executive is the President and Chief Executive Officer as well
as Chairman of the Executive Committee of Unifi; and,
WHEREAS, the Executive was granted stock options to purchase 163,668 shares
of Unifi Common stock at an option price of $4.80 per share (as adjusted for
stock splits and stock dividends) on January 21, 1988 (the "Stock Option") under
the Unifi, Inc. 1982 Incentive Stock Option Plan ("ISOP"); and,
WHEREAS, the exercise of the Stock Option would result in the Executive
recognizing taxable compensation; and,
WHEREAS, the Executive and Unifi desire to enter into this Deferral
Agreement to defer such taxable compensation as provided herein.
NOW THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, it is agreed as follows:
1. DEFERRAL. Pursuant to the second paragraph of Section 3 of
his Incentive Stock Option Agreement dated January 21, 1988
with Unifi as amended effective November 21, 1997 ("ISOP"
Agreement), the Executive will tender on or before January 20,
1998, to Unifi such number of his previously acquired
outstanding shares of Unifi common stock that has been held
for at least six (6) months and that has a fair market value
equal to the exercise price of the Stock Option in exchange
for an equivalent number of shares of Unifi common stock (the
"Exchange Shares") and the right to receive 163,668 shares less
the amount of Exchange Shares of Unifi common stock in the
future ("Deferral Shares") under the terms of this Agreement.
Unifi shall issue the Deferral Shares to the Trustee of the
Unifi, Inc. Trust for Deferred Compensation Arrangements
("Trust").
2. INCOME ON SHARES. Any and all dividends paid on the Deferral
Shares shall be held as additional deferral compensation for
the Executive's account and distributed as provided in
paragraph 3 hereof. Additionally, as of each January 1st and
July 1st until all accumulated dividends are fully and finally
paid out, Unifi shall pay to the Trust as additional deferral
compensation for the Executive, interest on any accumulated
dividends as heretofore provided in such amounts after
considering the income generated by the Trusts on said
accumulated dividends as is necessary to provide a rate of
return equal to the Prime Rate as hereinafter described for
the last business day preceding the applicable January 1st and
July 1st plus three (3) percentage points (such sum being
referred to as the "Interest Factor"), multiplied by the
balance of said accumulated dividends, including the amount of
Interest previously credited on such accumulated dividends as
of the previous day (i.e., December 31st or June 30th). Said
accumulated dividends and the interest thereon are hereafter
referred to herein as "Accumulated Dividends".
The term "Prime Rate" used in this Agreement shall be the
base rate on the Corporate loans posted by at least seventy-
five (75%) percent of the nation's thirty (30) largest banks
as reported in the Wall Street Journal or, if no longer
published, a similar publication for the last business day
preceding the applicable January 1st and July 1st.
3. DEFERRAL PERIOD. Ten (10) years from the date hereof the
Executive or his designated beneficiary, if the Executive
should die before the expiration of said ten (10) year period,
will be entitled to receive the Deferral Shares and
Accumulated Income in the form of equal annual distributions
over a period of five (5) years.
4. DEATH OF EXECUTIVE. If the Executive should die prior to the
time that all of his Deferral Shares and Accumulated Dividends
(cumulatively referred to as "Deferral Compensation") have been
completely distributed to him, the Executive's designated
beneficiary will be entitled to receive the amount he was
entitled to receive under paragraph 3 in the manner specified
therein.
5. BENEFICIARIES. The Executive shall have the right at any
time to name any person or persons (including his estate or
any trust) as his beneficiary hereunder by filing written
notice with the Compensation Committee. The Executive's last
written designation to the Compensation Committee shall be
deemed his last designated beneficiary. The Executive may
name a contingent beneficiary or beneficiaries to receive
payment in the event of the death of his primary beneficiary.
If the Executive has not designated a beneficiary or his
designated beneficiary is not alive when payments are due
hereunder, the Executive's designated beneficiary shall be
deemed his estate. All designations of the Executive's
beneficiary shall not be effective unless countersigned by a
member of the Compensation Committee.
6. ASSIGNMENT. Except as specifically provided in paragraph 5
herein, relating to the designation of a beneficiary, neither
the Executive nor his designated beneficiary may assign,
transfer, pledge, encumber, or hypothecate this Agreement, or
any rights hereunder, or any part hereof (whether by operation
of law or otherwise), and this Agreement shall not be subject
to the execution, attachment, or similar proceeding. Any
attempted assignment, transfer, pledge, encumbrance,
hypothecation, or other disposition of this agreement,
contrary to the provisions hereof, and the levy of any
attachment or similar proceedings upon this Agreement, shall
be null and void and without effect.
7. NO VESTED BENEFIT. Nothing contained herein shall be deemed
to give the Executive any vested interest in any specific
assets of Unifi and no benefits to which the Executive or his
beneficiary is entitled hereunder shall give the Executive any
greater right to receive payment from Unifi than the right of
an unsecured general creditor of Unifi.
8. TERMINATION BY BOARD. The Board of Directors ("Board") of
Unifi, excluding the Executive if he is a member of the Board,
may at any time, in its sole discretion, terminate this
agreement and distribute to the Executive the balance of his
Deferral Compensation at one time.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the Executive and Unifi, and may not be
altered, modified, amended, or rescinded except in writing,
signed by the parties hereto. It is further understood that
this Agreement shall inure to the benefit of the parties,
their successors or assigns.
10. GOVERNING LAW. This Agreement, and the interpretation
thereof, shall be governed by the laws of the State of North
Carolina and shall be deemed to have been made in the State of
North Carolina.
IN WITNESS WHEREOF, the parties have executed this Agreement, on the day
and year first above written.
UNIFI, INC.
____________11/21/97____________ By:_________Willis C. Moore, III___
Date Willis C. Moore, III
Senior Vice-President and
Chief Financial Officer
____________11/21/97_____________ _________William T. Kretzer________
Date William T. Kretzer
EXHIBITY (10q)
SEVERANCE COMPENSATION AGREEMENT
THIS AGREEMENT ("Agreement") between UNIFI, INC., a New York corporation
(the "Company"), and WILLIS C. MOORE, III ("Executive") effective the 16th
day of July, 1998.
WITNESSETH:
WHEREAS, WILLIS C. MOORE, III is presently a Senior Vice President and
Chief Financial Officer for the Company, has been an Officer of the Company
since 1995, and is and has been an integral part of the Company's Management;
and
WHEREAS, the Company's Board of Directors considers the establishment and
maintenance of a sound and vital Management to be essential in protecting and
enhancing the best interests of the Company and its Shareholders, recognizes
that the possibility of a change in control exists and that such possibility,
and the uncertainty and questions which it may raise among Management, may
result in the departure or distraction of Management personnel to the
detriment of the Company and its Shareholders; and
WHEREAS, the Executive desires that in the event of any change in control
he will continue to have the responsibility and status he has earned; and
WHEREAS, the Company's Board of Directors has determined that it is
appropriate to reinforce and encourage the continued attention and dedication
of the Executive, as a member of the Company's Management, to his assigned
duties without distraction in potentially disturbing circumstances arising
from the possibility of a change in control of the Company.
NOW, THEREFORE, in order to induce the Executive to remain in the
employment of the Company and in consideration of the Executive agreeing to
remain in the employment of the Company, subject to the terms and conditions
set out below, the Company agrees it will pay such amount, as provided in
Section 4 of this Agreement, to the Executive, if the Executive's employment
with the Company terminates under one of the circumstances described herein
following a change in control of the Company, as herein defined.
Section 1. Term: This Agreement shall terminate, except to the extent
that any obligation of the Company hereunder remains unpaid as of such time,
upon the earliest of (i) July 20, 2001 if a Change in Control of the Company
has not occurred within such period; (ii) the termination of the Executive's
employment with the Company based on Death, Disability (as defined in Section
3(b), Retirement (as defined in Section 3(c)), Cause (as defined in Section
3(d)) or by the Executive other than for Good Reason (as defined in Section
3(e)); and (iii) two years from the date of a Change in Control of the Company
if the Executive has not voluntarily terminated his employment for Good Reason
as of such time.
Section 2. Change in Control: No compensation shall be payable under
this Agreement unless and until (a) there shall have been a Change in Control
of the Company, while the Executive is still an employee of the Company and (b)
the Executive's employment by the Company thereafter shall have been terminated
in accordance with Section 3. For purposes of this Agreement, a Change in
Control of the Company shall be deemed to have occurred if (i) there shall
be consummated (x) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to which
shares of the Company's Common Stock would be converted into cash, securities
or other property, other than a merger of the Company in which the holders of
the Company's Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (y) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company, or (ii) the Shareholders of
the Company approved any plan or proposal for the liquidation or dissolution
of the Company, or (iii) any person (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of twenty percent (20%) or more of the Company's
outstanding Common Stock, or (iv) during any period of two consecutive years,
individuals who at the beginning of such period constitute the entire Board of
Directors shall cease for any reason to constitute a majority thereof unless
the election, or the nomination for election by the Company's Shareholders, of
each new Director was approved by a vote of at least two-thirds of the
Directors then still in office who were Directors at the beginning of the
period.
Section 3. Termination Following Change in Control: (a) If a Change in
Control of the Company shall have occurred while the Executive is still an
employee of the Company, the Executive shall be entitled to the compensation
provided in Section 4 upon the subsequent termination of the Executive's
employment with the Company by the Executive voluntarily for Good Reason or by
the Company unless such termination by the Company is as a result of (i) the
Executive's Death, (ii) the Executive's Disability (as defined in Section
(3)(b) below); (iii) the Executive's Retirement (as defined in Section 3(c)
below); (iv) the Executive's termination by the Company for Cause(as defined
in Section 3(d) below); or (v) the Executive's decision to terminate
employment other than for Good Reason (as defined in Section 3(e) below).
(b) Disability: If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his
duties with the Company on a full-time basis for six months (including months
before and after the change of control) and within 30 days after written
notice of termination is thereafter given by the Company the Executive shall
not have returned to the full- time performance of the Executive's duties, the
Company may terminate this Agreement for "Disability."
(c) Retirement: The term "Retirement" as used in this Agreement shall mean
termination in accordance with the Company's retirement policy or any
arrangement established with the consent of the Executive.
(d) Cause: The Company may terminate the Executive's employment for Cause.
For purposes of this Agreement only, the Company shall have "Cause" to
terminate the Executive's employment hereunder only on the basis of fraud,
misappropriation or embezzlement on the part of the Executive or malfeasance
or misfeasance by said Executive in performing the duties of his office, as
determined by the Board of Directors. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and
until there shall have been a meeting of the Company's Board of Directors
(after reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the
Board), and the delivery to the Executive of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of
said Board of Directors stating that in the good faith opinion of the Board
the Executive was guilty of conduct set forth in the second sentence of this
Section 3(d) and specifying the particulars thereof in detail.
(e) Good Reason: The Executive may terminate the Executive's employment for
Good Reason at any time during the term of this Agreement. For purposes of
this Agreement "Good Reason" shall mean any of the following (without the
Executive's express written consent):
(i) the assignment to the Executive by the Company of duties inconsistent
with the Executive's position, duties, responsibilities and status with the
Company immediately prior to a Change in Control of the Company; or a change
in the Executive's titles or offices as in effect immediately prior to a
Change in Control of the Company; or any removal of the Executive from or
any failure to reelect the Executive to any of the positions held prior to the
change of control, except in connection with the termination of his employment
for Disability, Retirement, or Cause, or as a result of the Executive's Death;
or by the Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive's base salary as in effect
on the date hereof or as the same may be increased from time to time during
the term of this Agreement or the Company's failure to increase (within 12
months of the Executive's last increase in base salary) the Executive's base
salary after a Change in Control of the Company in an amount which at least
equals, on a percentage basis, the average percentage increase in base salary
for all executive officers of the Company effected in the preceding 12 months;
(iii) any failure by the Company to continue in effect any benefit plan or
arrangement (including, without limitation, the Company's Profit Sharing Plan,
group life insurance plan and medical, dental, accident and disability plans)
in which the Executive is participating at the time of a Change in Control of
the Company (or any other plans providing the Executive with substantially
similar benefits) (hereinafter referred to as "Benefit Plans"), or the taking
of any action by the Company which would adversely affect the Executive's
participation in or materially reduce the Executive's benefits under any such
Benefit Plan or deprive the Executive of any material fringe benefit enjoyed
by the Executive at the time of a Change in Control of the Company;
(iv) any failure by the Company to continue in effect any plan or arrangement
to receive securities of the Company (including, without limitation, Stock
Option Plans or any other plan or arrangement to receive and exercise stock
options, restricted stock or grants thereof) in which the Executive is
participating at the time of a Change in Control of the Company (or plans or
arrangements providing him with substantially similar benefits) (hereinafter
referred to as "Securities Plans") and the taking of any action by the Company
which would adversely affect the Executive's participation in or materially
reduce the Executive's benefits under any such Securities Plan;
(v) any failure by the Company to continue in effect any bonus plan,
automobile allowance plan, or other incentive payment plan in which the
Executive is participating at the time of a Change in Control of the Company,
or said Executive had participated in during the previous calendar year;
(vi) a relocation of the Company's principal executive offices to a location
outside of North Carolina, or the Executive's relocation to any place other
than the location at which the Executive performed the Executive's duties
prior to a Change in Control of the Company, except for required travel by the
Executive on the Company's business to an extent substantially consistent with
the Executive's business travel obligations at the time of a Change in Control
of the Company;
(vii) any failure by the Company to provide the Executive with the number of
paid vacation days to which the Executive is entitled at the time of a Change
in Control of the Company;
(viii) any breach by the Company of any provision of this Agreement;
(ix) any failure by the Company to obtain the assumption of this Agreement by
any successor or assign of the Company; or
(x) any purported termination of the Executive's employment which is not made
pursuant to a Notice of Termination satisfying the requirements of Section
3(f).
(f) Notice of Termination: Any termination by the Company pursuant to
Section 3(b), 3(c) or 3(d) shall be communicated by a Notice of Termination.
For purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate those specific termination provisions in this
Agreement relied upon and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. For purposes of this Agreement,
no such purported termination by the Company shall be effective without such
Notice of Termination.
(g) Date of Termination: "Date of Termination" shall mean (a) if Executive's
employment is terminated by the Company for Disability, 30 days after Notice
of Termination is given to the Executive (provided that the Executive shall
not have returned to the performance of the Executive's duties on a full-time
basis during such 30 day period) or (b) if the Executive's employment is
terminated by the Company for any other reason, the date on which a Notice of
Termination is given; provided that if within 30 days after any Notice of
Termination is given to the Executive by the Company the Executive notifies
the Company that a dispute exists concerning the termination, the Date of
Termination shall be the date the dispute is finally determined, whether by
mutual agreement by the parties or upon final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected) or (c) the date the Executive notifies
the Company in writing that he is terminating his employment and setting forth
the Good Reason (as defined in Section 3(e)).
Section 4. Severance Compensation upon Termination of Employment. If the
Company shall terminate the Executive's employment other than pursuant to
Section 3(b), 3(c) or 3(d) or if the Executive shall voluntarily terminate his
employment for Good Reason, then the Company shall pay to the Executive as
severance pay in a lump sum, in cash, on the fifth day following the Date of
Termination, an amount equal to 2.99 times the annualized aggregate
annual compensation paid to the Executive by the Company or any of its
subsidiaries during the five calendar years preceding the Change in Control of
the Company; provided, however, that if the lump sum severance payment under
this Section 4, either alone or together with other payments which the
Executive has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code")), such lump sum severance payment shall be
reduced to the largest amount as will result in no portion of the lump sum
severance payment under this Section 4 being subject to the excise tax imposed
by Section 4999 of the Code. The determination of any reduction in the lump
sum severance payment under this Section 4 pursuant to the foregoing proviso
shall be made by the Company's Independent Certified Public Accountants, and
their decision shall be conclusive and binding on the Company and the
Executive.
Section 5. No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights: (a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for
under this Agreement be reduced by any compensation earned by the Executive as
the result of employment by another employer after the Date of Termination, or
otherwise.
(b) The provisions of this Agreement, and any payment provided for hereunder,
shall not reduce any amounts otherwise payable, or in any way diminish the
Executive's rights under any employment agreement or
other contract, plan or employment arrangement with the Company.
(c) The Company shall, upon the termination of the Executive's employment
other than by Death, Disability (as defined in Section 3(b)), Retirement (as
defined in Section 3(c)) or Cause (as defined in Section 3(d)), or the
termination of the Executive's employment by the Executive without Good
Reason, maintain in full force and effect, for the Executive's continued
benefit until the earlier of (a) two years after the Date of Termination or
(b) Executive's commencement of full time employment with a new employer, all
life insurance, medical, health and accident, and disability plans, programs
or arrangements in which he was entitled to participate immediately prior to
the Date of Termination, provided that his continued participation is possible
under the general terms and provisions of such plans and programs. In the
event the Executive is ineligible under the terms of such plans or programs to
continue to be so covered, the Company shall provide substantially equivalent
coverage through other sources.
(d) The Executive's account and rights in and under Unifi, Inc.'s Profit
Sharing Plan and Trust, Unifi, Inc.'s Retirement Savings Plan and any other
retirement benefit or incentive plans, shall remain subject to the terms and
conditions of the respective plans as they existed at the time of the
termination of the Executive's employment.
Section 6. Successor to the Company: (a) The Company will require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement expressly, absolutely and unconditionally
to assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession or assignment had taken place. Any failure of the Company to
obtain such agreement prior to the effectiveness of any such succession or
assignment shall be a material breach of this Agreement and shall entitle the
Executive to terminate the Executive's employment for Good Reason. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and
any successor or assign to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 6 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law. If at any time during the term of this Agreement the
Executive is employed by any corporation a majority of the voting securities
of which is then owned by the Company, "Company" as used in Sections 3, 4 and
11 hereof shall in addition include such employer. In such event, the Company
agrees that it shall pay or shall cause such employer to pay any amounts owed
to the Executive pursuant to Section 4 hereof.
(b) If the Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to the Executive's legatee, or
other designee or, if there be no such designee, to the Executive's estate.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives or attorney-in-fact, executors or
administrators, heirs, distributees and legatees.
Section 7. Notice: For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Unifi, Inc.
P. O. Box 19109
Greensboro, NC 27419-9109
ATTENTION: Mr. William T. Kretzer
President and Chief Executive Officer
If to the Executive:
Mr. Willis C. Moore, III
3801 Roundhill Road
Greensboro, NC 27408
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
Section 8. Miscellaneous: (a) The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability
of any other provision of
this Agreement, which shall remain in full force and effect.
(b) Any payment or delivery required under this Agreement
shall be subject to all requirements of the law with regard to withholding
(including FICA tax), filing, making of reports and the like, and Company
shall use its best efforts to satisfy promptly all such requirements.
(c) Prior to the Change in Control of the Company, as herein defined, this
Agreement shall terminate if Executive shall resign, retire, become
permanently and totally disabled, or die. This Agreement shall also terminate
if Executive's employment as an executive officer of the Company shall have
been terminated for any reason by the Board of Directors of the Company as
constituted more than three (3) months prior to any Change in Control of the
Company, as defined in Section 2 of this Agreement.
Section 9. Legal Fees and Expenses: The Company shall pay all legal fees and
expenses which the Executive may incur as a result of the Company's contesting
the validity, enforceability or the executive's interpretation of, or
determinations under, this Agreement.
Section 10. Confidentiality: The Executive shall retain in confidence any
and all confidential information known to the Executive concerning the Company
and its business so long as such information is not otherwise publicly
disclosed.
IN WITNESS WHEREOF, Unifi, Inc. has caused this Agreement to be signed by a
member of the Company's Compensation Committee who is an outside director
pursuant to resolutions duly adopted by the Board of Directors and its seal
affixed hereto and the Executive has hereunto affixed his hand and seal
effective as of the date first above written.
UNIFI, INC.
BY: ROBERT A. WARD (SEAL)
Compensation Committee
WILLIS C. MOORE, III (SEAL)
WILLIS C. MOORE, III
Vice President and Chief Financial Officer
EXHIBIT (13a)
Consolidated balance sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in thousands) June 28, 1998 June 29, 1997
- ------------------------------------------- --------------- --------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 8,372 $ 9,514
Receivables 222,310 224,233
Inventories 137,201 142,263
Other current assets 1,308 3,688
- ------------------------------------------- ----------- -----------
Total current assets 369,191 379,698
- ------------------------------------------- ----------- -----------
Property, plant and equipment:
Land 6,525 6,836
Buildings and air conditioning 206,559 216,441
Machinery and equipment 772,504 739,599
Other 160,034 184,272
- ------------------------------------------- ----------- -----------
1,145,622 1,147,148
Less: accumulated depreciation 497,042 548,775
- ------------------------------------------- ----------- -----------
648,580 598,373
Investment in unconsolidated affiliates 212,448 1,851
Other noncurrent assets 108,585 38,781
- ------------------------------------------- ----------- -----------
$ 1,338,804 $ 1,018,703
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 93,922 $ 119,623
Accrued expenses 43,939 35,854
Income taxes payable 5,218 6,887
Current maturities of long-term debt and
other current liabilities 16,234 1,189
- ------------------------------------------- ----------- -----------
Total current liabilities 159,313 163,553
- ------------------------------------------- ----------- -----------
Long-term debt and other liabilities 463,967 255,799
- ------------------------------------------- ----------- -----------
Deferred income taxes 62,970 50,820
- ------------------------------------------- ----------- -----------
Minority interests 16,357 --
- ------------------------------------------- ----------- -----------
Shareholders' equity:
Common stock 6,163 6,121
Capital in excess of par value 22,454 --
Retained earnings 618,128 545,099
Cumulative translation adjustment (10,548) (2,689)
- ------------------------------------------- ----------- -----------
636,197 548,531
- ------------------------------------------- ----------- -----------
$ 1,338,804 $ 1,018,703
- ------------------------------------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Consolidated Statements of income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data) June 28, 1998 June 29, 1997 June 30, 1996
- -------------------------------------------------------- --------------- --------------- --------------
<S> <C> <C> <C>
Net sales $ 1,377,609 $ 1,704,926 $ 1,603,280
- -------------------------------------------------------- ----------- ----------- -----------
Costs and expenses:
Cost of sales 1,149,838 1,473,667 1,407,608
Selling, general and administrative expense 43,277 46,229 45,084
Interest expense 16,598 11,749 14,593
Interest income (1,869) (2,219) (6,757)
Other (income) expense 389 819 (4,390)
Equity in (earnings) losses of unconsolidated
affiliates (22,307) 399 --
Non-recurring charge -- -- 23,826
- -------------------------------------------------------- ----------- ----------- -----------
1,185,926 1,530,644 1,479,964
- ------- ----------- ----------- -----------
Income before income taxes and other items listed
below 191,683 174,282 123,316
Provision for income taxes 62,782 58,617 44,939
- -------------------------------------------------------- ----------- ----------- -----------
Income before extraordinary item and cumulative
effect of accounting change 128,901 115,665 78,377
Extraordinary item (net of applicable income taxes of
$ 3,692) -- -- 5,898
Cumulative effect of accounting change (net of
applicable income taxes of $2,902) 4,636 -- --
- -------------------------------------------------------- ----------- ----------- -----------
Net income $ 124,265 $ 115,665 $ 72,479
- -------------------------------------------------------- ----------- ----------- -----------
Earnings per common share:
Income before extraordinary item and cumulative
effect of accounting change $ 2.10 $ 1.83 $ 1.19
Extraordinary item -- -- .09
Cumulative effect of accounting change .07 -- --
- -------------------------------------------------------- ----------- ----------- -----------
Net income per common share $ 2.03 $ 1.83 $ 1.10
- -------------------------------------------------------- ----------- ----------- -----------
Earnings per common share -- assuming dilution:
Income before extraordinary item and cumulative
effect of accounting change $ 2.08 $ 1.81 $ 1.18
Extraordinary item -- -- .09
Cumulative effect of accounting change .07 -- --
- -------------------------------------------------------- ----------- ----------- -----------
Net income per common share $ 2.01 $ 1.81 $ 1.09
- -------------------------------------------------------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Consolidated Statements of Changes in shareholders' equity
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital in Cumulative Unrealized Gains
(Amounts in thousands, Shares Common Excess of Retained Translation (Losses) on Certain
except per share data) Outstanding Stock Par Value Earnings Adjustment Investments
- ------------------------- ------------- ---------- ------------ ------------ ------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 25, 1995 67,140 $ 6,714 $ 117,277 $ 473,962 $ 4,415 $ 1,134
- ------------------------- ------ ------- --------- ---------- --------- --------
Purchase of stock (2,347) (235) (55,315) -- -- --
Options exercised 36 4 242 -- -- --
Conversion of 6%
subordinated notes 2 -- 51 -- -- --
Cash dividends --
$.52 per share -- -- -- (34,188) -- --
Currency translation
adjustments -- -- -- -- (2,200) --
Change in unrealized
gains (losses) on
certain investments -- -- -- -- -- (1,134)
Net income -- -- -- 72,479 -- --
- ------------------------- ------ ------- --------- ---------- --------- --------
Balance June 30, 1996 64,831 6,483 62,255 512,253 2,215 --
- ------------------------- ------ ------- --------- ---------- --------- --------
Purchase of stock (3,901) (390) (64,786) (55,824) -- --
Options exercised 280 28 2,531 (1,404) -- --
Stock option tax
benefit -- -- -- 2,307 -- --
Cash dividends --
$.44 per share -- -- -- (27,898) -- --
Currency translation
adjustments -- -- -- -- (4,904) --
Net income -- -- -- 115,665 -- --
- ------------------------- ------ ------- --------- ---------- --------- --------
Balance June 29, 1997 61,210 6,121 -- 545,099 (2,689) --
- ------------------------- ------ ------- --------- ---------- --------- --------
Purchase of stock (539) (54) (618) (19,515) -- --
Options exercised 402 40 2,154 -- -- --
Stock option tax
benefit -- -- -- 2,599 -- --
Stock issued for
acquisition 561 56 20,918 -- -- --
Cash dividends --
$.56 per share -- -- -- (34,320) -- --
Currency translation
adjustments -- -- -- -- (7,859) --
Net income -- -- -- 124,265 -- --
- ------------------------- ------ ------- --------- ---------- --------- --------
Balance June 28, 1998 61,634 $ 6,163 $ 22,454 $ 618,128 $ (10,548) $ --
- ------------------------- ------ ------- --------- ---------- --------- --------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Consolidated Statements of cash flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Amounts in thousands) June 28, 1998 June 29, 1997 June 30, 1996
- -------------------------------------------------------- --------------- --------------- --------------
<S> <C> <C> <C>
Cash and cash equivalents at beginning of year $ 9,514 $ 24,473 $ 60,350
Operating activities:
Net income 124,265 115,665 72,479
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item (net of applicable income
taxes) -- -- 5,898
Cumulative effect of accounting change (net of
applicable income taxes) 4,636 -- --
(Earnings) losses of unconsolidated equity
affiliates, net of distributions (15,282) 399 --
Depreciation 65,033 85,533 79,628
Amortization 4,677 2,366 2,261
Non-cash portion of non-recurring charge -- -- 23,826
Gain on sale of investments -- -- (4,476)
Deferred income taxes 12,201 17,157 (4,795)
Other (350) (85) 4,263
Changes in assets and liabilities, excluding effects of
acquisitions and foreign currency adjustments:
Receivables 9,628 (26,441) 9,428
Inventories (793) (10,032) 13,640
Other current assets 1,556 (462) 987
Payables and accruals (25,213) 9,260 (5,865)
Income taxes 1,329 (9,524) 4,182
- -------------------------------------------------------- ---------- ---------- ----------
Net -- operating activities 181,687 183,836 201,456
- -------------------------------------------------------- ---------- ---------- ----------
Investing activities:
Capital expenditures (250,064) (143,176) (133,967)
Acquisitions (25,776) -- (48,444)
Investments in unconsolidated equity affiliates (39,492) (2,250) --
Sale of capital assets 2,428 3,046 2,290
Purchase of investments -- -- (60,474)
Sale of investments -- -- 149,015
Other (2,755) 768 11,444
- -------------------------------------------------------- ---------- ---------- ----------
Net -- investing activities (315,659) (141,612) (80,136)
- -------------------------------------------------------- ---------- ---------- ----------
Financing activities:
Borrowing of long-term debt 440,273 187,500 225,000
Repayment of long-term debt (252,844) (100,513) (284,949)
Premium paid on early retirement of debt -- -- (7,657)
Issuance of Company stock 2,194 3,462 246
Stock option tax benefit 2,599 2,307 --
Purchase and retirement of Company stock (20,187) (121,000) (55,550)
Cash dividends paid (34,320) (27,898) (34,188)
Other (4,006) -- --
- -------------------------------------------------------- ---------- ---------- ----------
Net -- financing activities 133,709 (56,142) (157,098)
- -------------------------------------------------------- ---------- ---------- ----------
Currency translation adjustment (879) (1,041) (99)
- -------------------------------------------------------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (1,142) (14,959) (35,877)
- -------------------------------------------------------- ---------- ---------- ----------
Cash and cash equivalents at end of year $ 8,372 $ 9,514 $ 24,473
- -------------------------------------------------------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<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 accounts of
all foreign subsidiaries have been included on the basis of fiscal periods ended
three months or less prior to the dates of the consolidated balance sheets. All
significant intercompany accounts and transactions have been eliminated.
Investments in 20 to 50% owned companies and partnerships are reported using the
equity method.
FISCAL YEAR: The Company's fiscal year is the fifty-two or fifty-three
weeks ending the last Sunday in June. The current year ended June 28, 1998, and
the prior year ended June 29, 1997, consisted of fifty-two weeks. The year ended
June 30, 1996, consisted of fifty-three weeks.
RECLASSIFICATION: The Company has reclassified the presentation of certain
prior year information to conform with the current presentation format.
REVENUE RECOGNITION: Substantially all revenue from sales is recognized
at the time shipments are made.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign
subsidiaries 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 resulting from translation are accumulated in a separate component of
shareholders' equity. 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
investments having an original maturity of three months or less.
RECEIVABLES: Certain customer accounts receivable are factored without
recourse with respect to credit risk. Factored accounts receivable at June 28,
1998, and June 29, 1997, were $49.2 million and $55.9 million, respectively. An
allowance for losses is provided for known and potential losses rising from yarn
quality claims and for customers not factored based on a periodic review of
these accounts. Reserve for such losses was $8.2 million at June 28, 1998, and
$5.5 million at June 29, 1997.
INVENTORIES: The Company utilizes the last-in, first-out (LIFO) method for
valuing certain inventories representing 62.9% of all inventories at June 28,
1998, and the first-in, first-out (FIFO) method for all other inventories.
Inventory values computed by the LIFO method are lower than current market
values. Inventories valued at current or replacement cost would have been
approximately $8.9 million and $13.9 million in excess of the LIFO valuation at
June 28, 1998, and June 29, 1997, respectively. Finished goods, work in process,
and raw materials and supplies at June 28, 1998, and June 29, 1997, amounted to
$77.4 million and $72.0 million; $14.8 million and $11.8 million; and $45.0
million and $58.5 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 28, 1998, and
June 29, 1997, consist primarily of the cash surrender value of key executive
life insurance policies ($7.1 million and $6.5 million, respectively);
unamortized bond issue costs ($7.5 million at June 28, 1998); and acquisition
related assets consisting of the excess cost over fair value of net assets
acquired and other intangibles ($83.9 million and $32.1 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 28, 1998
and June 29, 1997, for bond issue costs and acquisition related assets was $11.2
million and $3.7 million, respectively.
LONG-LIVED ASSETS: Long-lived assets, including goodwill, are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of expected future
undiscounted cash flows is less than the carrying amount of the asset, a loss is
recognized for the difference between fair value and the carrying amount of the
asset.
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 bases of existing assets and
liabilities. Income taxes have not been provided for the undistributed earnings
of certain foreign subsidiaries as such earnings are deemed to be permanently
invested.
EARNINGS PER SHARE: In February 1997, the FASB issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS 128) which
was required to be adopted in the December 1997 fiscal quarter. The Company
adopted SFAS 128 at such time and restated all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options is excluded. Diluted earnings per share continues to reflect the
assumed conversion of all potentially diluted securities. The effect of the
convertible subordinated notes, which were redeemed in April 1996, was
anti-dilutive for fiscal 1996. Accordingly, diluted weighted average shares for
1996 exclude the convertible effect of these notes.
22
<PAGE>
The following table details the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
June 28, June 29, June 30,
(Amounts in thousands) 1998 1997 1996
- --------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Numerator:
Income before
extraordinary item
and cumulative effect
of accounting change $128,901 $115,665 $78,377
Extraordinary item -- -- 5,898
Cumulative effect of
accounting change 4,636 -- --
- --------------------------- -------- -------- -------
Net income $124,265 $115,665 $72,479
- --------------------------- -------- -------- -------
Denominator:
Denominator for basic
earnings per
share -- weighted
average shares 61,331 63,294 65,727
Effect of dilutive
securities:
Stock options 525 641 484
- --------------------------- -------- -------- -------
Diluted potential
common shares
denominator for
diluted earnings per
share -- adjusted
weighted average
shares and assumed
conversions 61,856 63,935 66,211
- --------------------------- -------- -------- -------
</TABLE>
STOCK-BASED COMPENSATION: FASB Statement No. 123, "Stock-Based
Compensation," (SFAS 123) became effective beginning with the Company's first
quarter of fiscal 1997. With adoption of SFAS 123, the Company elected to
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." Had the fair value-based
method encouraged by SFAS 123 been applied, compensation expense would have been
recorded on 270,500 options granted in fiscal 1997 (which vest over a two year
period) and 283,000 options granted in fiscal 1996. No options were granted in
fiscal 1998. Net income in fiscal 1998, 1997 and 1996 restated for the effect
would have been $122.8 million or $1.98 per diluted share, $115.1 million or
$1.80 per diluted share and $70.1 million or $1.06 per diluted share,
respectively. The fair value and related compensation expense of the 1997 and
1996 options were calculated as of the issuance date using the Black-Scholes
model with the following assumptions:
<TABLE>
<CAPTION>
Options Granted 1997 1996
- ------------------------ --------- ---------
<S> <C> <C>
Expected life (years) 10.0 10.0
Interest rate 6.18% 6.87%
Volatility 31.1% 34.0%
Dividend yield 1.72% 1.93%
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
(SFAS 130) which the Company is required to adopt in the first quarter of fiscal
1999. SFAS 130 requires the reporting of comprehensive income and its components
in complete general purpose financial statements as well as requires certain
interim comprehensive income information be disclosed. Comprehensive income
represents the change in net assets of a business during a period from non-owner
sources. Such non-owner changes in net assets that are not included in net
income include foreign currency translation adjustments, unrealized gains and
losses on available-for-sale securities and certain minimum pension liabilities.
Foreign currency translation adjustments presently represent the primary
component of comprehensive income for the Company. The Company expects to
reflect comprehensive income in its consolidated statement of changes in
shareholders' equity when this standard is adopted. Results of operations and
financial position, however, will be unaffected by the implementation of this
standard.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," (SFAS 131) which the Company is required to adopt in the fourth
quarter of fiscal 1999. SFAS 131 establishes standards for public companies for
the reporting of financial information from operating segments in annual and
interim financial statements as well as establishes standards for related
disclosures about products and services, geographic areas and major customers.
Operating segments are defined in SFAS 131 as components of an enterprise about
which separate financial information is available to the chief operating
decision maker for purposes of assessing performance and allocating resources.
The Company has not completed its analysis of the effect that the adoption of
this standard will have on its financial statement disclosure; however, the
adoption of SFAS 131 will not affect consolidated results of operations or
financial position.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Cost of
Computer Software Developed for or Obtained for Internal Use," (SOP 98-1). This
SOP is effective for the Company in the first quarter of fiscal year 2000, if
not previously adopted. SOP 98-1 will require the capitalization of certain
costs incurred after the date of adoption in connection with developing or
obtaining software for internal use. The Company currently expenses certain of
these internal costs when incurred. The Company has not yet assessed what the
impact of the SOP will be on the Company's future earnings or financial
position.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," (SOP 98-5) which is effective for the Company in fiscal
year 2000, if not previously adopted. SOP 98-5 requires
23
<PAGE>
start-up costs, as defined, to be expensed as incurred. Upon adoption of SOP
98-5, any previously capitalized start-up costs net of accumulated depreciation
will be required to be written-off as a cumulative effect of a change in
accounting principle. The Company has not yet determined what the impact of SOP
98-5 will be on its financial statements upon adoption of this SOP.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS
133) which the Company is required to adopt in years beginning after June 15,
1999. SFAS 133 permits early adoption as of the beginning of any fiscal quarter
after its issuance. SFAS 133 will require 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 derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what the effect of
SFAS 133 will be on the earnings and financial position of the Company.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2 Acquisitions
On November 14, 1997, the Company completed its Agreement and Plan of Triangular
Merger with SI Holding Company and thereby acquired their covered yarn business
for approximately $46.6 million. Additionally, covenants-not-to-compete were
entered into with the principal operating officers of the acquired company in
exchange for $9.2 million, to be paid generally over the terms of the covenants.
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 and accordingly, the net assets and operations
have been included in the Company's consolidated financial statements beginning
on the date the acquisition was consummated. After allocation of the purchase
price to the net assets acquired, the excess of cost over fair value has been
preliminarily valued at $31.2 million.
The acquisition of the Norlina Division of Glen Raven Mills, Inc. was
consummated on November 17, 1995. The acquisition, which was not deemed
significant to the Company's consolidated net assets or the results of
operations, has been accounted for as a purchase. The purchase price of $48.4
million was allocated to the net assets acquired with the excess of cost over
fair value of the net assets acquired approximating $35.7 million after giving
effect to all purchase adjustments.
3 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 $0.23 per
diluted 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 included $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 were expensed as
incurred. The Company has completed substantially all of these restructuring
efforts and anticipates no material differences in actual charges compared to
its original estimates.
4 Cumulative Effect of Accounting Change and Extraordinary Charge
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
pronouncement, 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 were written off as a cumulative catch-up adjustment in the second quarter
of fiscal 1998.
During the fiscal 1996 fourth quarter, the Company recognized an
extraordinary after-tax charge of $5.9 million or $0.09 per diluted share as a
result of the redemption of the $230 million in 6% convertible subordinated
notes due 2002. In accordance with the debt agreement, the note holders had an
option to convert their notes at a conversion rate of 33.7 shares of common
stock for each $1,000 principal amount of notes. Notes aggregating $51,000 were
converted into
24
<PAGE>
1,718 shares of common stock in accordance with this provision. The remaining
notes, totaling $229.9 million, were redeemed at 103.33% of principal amount,
with accrued interest to the date of redemption.
5 Long-Term Debt and Other Liabilities
A summary of long-term debt follows:
<TABLE>
<CAPTION>
(Amounts in thousands) June 28, 1998 June 29, 1997
- ---------------------------- --------------- --------------
<S> <C> <C>
Bonds payable $ 248,038 $ --
Revolving credit facility 180,000 230,000
Sale-leaseback obligation 3,444 26,988
Other bank debt and other
obligations 48,719 --
- ---------------------------- ------------ --------
Total debt 480,201 256,988
Current maturities 16,234 1,189
- ---------------------------- ------------ --------
Total long-term debt
and other liabilities $ 463,967 $255,799
- ---------------------------- ------------ --------
</TABLE>
In February 5, 1998, the Company issued $250 million of senior, unsecured
debt securities (the "Notes") to qualified institutional buyers. The net
proceeds from the sale were used to repay a portion of the Company's bank credit
facility. The Notes, which were registered with the Securities and Exchange
Commission on April 2, 1998, 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 28,
1998, was approximately $247.4 million.
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 rate of interest charged is adjusted quarterly based on a pricing grid
which is a function of the ratio of the Company's debt to earnings before income
taxes, depreciation, amortization 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 Eurodollar 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 1998 and 1997, were 5.89% and 5.75%,
respectively. At June 28, 1998, and June 29, 1997, the interest rates on the
outstanding balances were 5.92% and 5.87%, 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.
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 under the revolving credit facility do not exceed the total committed
amount. The revolving credit facility allows the Company to reduce the
outstanding commitment 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
financial institution and will be leased by the Company over a sixteen year
period. Sales proceeds aggregated $27.5 million. The terms of the agreement
provide for an early purchase option at the end of year nine. If the agreement
has not been terminated before the end of the lease term, by exercising the
early purchase option or otherwise, the Company is required to purchase the
leased properties at the end of the lease term for an amount equal to the fair
market value as defined in the agreement. 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. As a part of the
Contribution Agreement, ownership of a significant 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 remaining balance of the
sales-leaseback agreement are due semi-annually and are in varying amounts, in
accordance with the agreement. Principal payments required over the next five
years are approximately $100 thousand per year. The interest rate implicit in
the agreement is 7.84%, and the fair value of the long-term obligation at June
28, 1998, approximates its carrying value.
Other bank debt and other obligations consist of non-domestic borrowings
of approximately $1.8 million, acquisition related liabilities due within the
next five years of $41.9 million and a liability for a deferred compensation
plan of approximately $5.0 million. Maturities of the acquisition obligations
for the next five years are $16.1 million, $16.0 million, $4.0 million, $3.0
million, and $2.8 million, respectively.
Interest capitalized during fiscal 1998 and 1997 was $6.8 million and $0.9
million, respectively.
25
<PAGE>
6 Income Taxes
The provision for income taxes before the extra-ordinary item in fiscal 1996 and
cumulative effect of accounting change in fiscal 1998 consisted of the
following:
<TABLE>
<CAPTION>
June 28, June 29, June 30,
(Amounts in thousands) 1998 1997 1996
- ------------------------ ------------ ---------- -----------
<S> <C> <C> <C>
Currently payable:
Federal $43,245 $34,235 $42,289
State 5,704 6,074 6,953
Foreign 1,474 1,151 492
- ------------------------ ------- ------- -------
Total current 50,423 41,460 49,734
- ------------------------ ------- ------- -------
Deferred:
Federal 23,799 18,929 (4,080)
State (11,715) (1,994) (604)
Foreign 275 222 (111)
- ------------------------ ------- ------- -------
Total deferred 12,359 17,157 (4,795)
- ------------------------ ------- ------- -------
Income taxes before
extraordinary
item and
cumulative effect
of accounting
change $62,782 $58,617 $44,939
- ------------------------ ------- ------- -------
</TABLE>
Income taxes were 32.8%, 33.6% and 36.4% of pretax earnings in fiscal
1998, 1997 and 1996, respectively. A reconciliation of the provision for income
taxes (before extraordinary item and cumulative effect of accounting change,
where applicable) with the amounts obtained by applying the federal statutory
tax rate is as follows:
<TABLE>
<CAPTION>
June 28, June 29, June 30,
1998 1997 1996
-------------- ---------- ---------
<S> <C> <C> <C>
Federal statutory tax
rate 35.0% 35.0% 35.0%
State income taxes net
of federal tax benefit 2.9 3.2 3.3
State tax credits net of
federal tax benefit (4.9) (1.7) --
Foreign taxes less than
domestic rate (1.9) (1.8) (0.8)
Foreign Sales
Corporation tax
benefit (0.4) (0.5) (0.9)
Research and
experimentation
credit -- -- (0.6)
Nondeductible
expenses and other 2.1 (0.6) 0.4
- --------------------------- -------- ---- -----
Effective tax rate 32.8% 33.6% 36.4%
- --------------------------- -------- ---- -----
</TABLE>
The deferred income taxes reflect the net tax effects of temporary
differences between the bases of assets and liabilities for financial reporting
purposes and their bases for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of June 28, 1998, and June 29,
1997, were as follows:
<TABLE>
<CAPTION>
June 28, June 29,
(Amounts in thousands) 1998 1997
- -------------------------------- ---------- ---------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and
equipment $75,184 $62,899
Investments in equity
affiliates 7,257 --
- -------------------------------- ------- -------
Total deferred tax liabilities 82,441 62,899
- -------------------------------- ------- -------
Deferred tax assets:
Accrued liabilities and
valuation reserves 2,684 4,421
State tax credits 12,379 2,963
Other items 4,408 4,695
- -------------------------------- ------- -------
Total deferred tax assets 19,471 12,079
- -------------------------------- ------- -------
Net deferred tax liabilities $62,970 $50,820
- -------------------------------- ------- -------
</TABLE>
7 Common Stock and Stock Option Plans
Shares authorized were 500 million in 1998 and 1997. Common shares outstanding
at June 28, 1998, and June 29, 1997, were 61,634,386 and 61,209,588,
respectively.
The Company has Incentive Stock Option Plans with 1,942,133 shares
reserved at June 28, 1998. There remain 1,000,000 options available for grant at
year end. The Company also has a Non-Qualified Stock Option Plan with 1,645,667
shares reserved at June 28, 1998. There remain 534,500 options available for
grant at year end. The transactions for 1998, 1997 and 1996 were as follows:
26
<PAGE>
<TABLE>
<CAPTION>
ISO NQSO
------------------------------ -----------------------------
Options Weighted Options Weighted
outstanding avg. $/share outstanding avg. $/share
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Fiscal 1996:
Shares under option -- beginning of year 1,739,968 $ 18.13 738,519 $ 25.49
Granted 165,500 24.67 -- --
Exercised (55,500) 13.66 -- --
Canceled (56,590) 21.66 (45,000) 25.83
- ------------------------------------------ --------- -------- ------- -------
Shares under option -- end of year 1,793,378 $ 18.76 693,519 $ 25.47
- ------------------------------------------ --------- -------- ------- -------
Fiscal 1997:
Granted -- $ -- 465,500 $ 28.64
Exercised (346,787) 9.79 -- --
Canceled -- -- -- --
- ------------------------------------------ --------- -------- ------- -------
Shares under option -- end of year 1,446,591 $ 20.91 1,159,019 $ 26.75
- ------------------------------------------ --------- -------- --------- -------
Fiscal 1998:
Granted -- $ -- -- $ --
Exercised (504,458) 14.31 (47,852) 25.76
Canceled -- -- -- --
- ------------------------------------------ --------- -------- --------- -------
Shares under option -- end of year 942,133 $ 24.45 1,111,167 $ 26.79
- ------------------------------------------ --------- -------- --------- -------
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
------------------ ----------------- -----------------
<S> <C> <C> <C>
ISO:
Exercisable shares under option -- end of year 942,133 1,446,591 1,687,018
Option price range $ 10.19-$25.38 $ 4.80-$25.38 $ 3.80-$25.38
Weighted average exercise price for options excerciseable $ 24.45 $ 20.91 $ 18.51
Weighted average remaining life of shares under option 6.2 6.0 6.3
Fair value of options granted $ -- $ -- $ 11.43
NQSO:
Exercisable shares under option -- end of year 1,021,001 888,519 693,519
Option price range $ 25.38-$31.00 $ 23.88-$31.00 $ 23.88-$25.83
Weighted average exercise price for options excercisable $ 26.42 $ 25.45 $ 25.47
Weighted average remaining life of shares under option 6.8 7.8 7.8
Fair value of options granted $ -- $ 13.32 $ --
</TABLE>
All options granted vest on the date of issuance except 270,500 of the
non-qualified options awarded in fiscal 1997 which have a two-year vesting
schedule. The first one-third were exercisable as of October 17, 1997, the
second one-third were exercisable on April 17, 1998, and the remaining one-third
are exercisable on April 17, 1999.
8 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 $13.0 million
in 1998 and $17.0 million in each of 1997 and 1996. The Company leases its
corporate office building from its profit-sharing plan through an independent
trustee.
9 Leases and Commitments
In addition to the direct financing sales-leaseback obligation described in note
5 above, the Company is obligated under operating leases consisting primarily of
real estate and equipment. Future obligations for minimum rentals under the
leases during fiscal years after June 28, 1998, are $5.8 million in 1999, $5.0
million in 2000, $4.8 million in 2001, $1.9 million in 2002 and $1.2 million in
2003. Rental expense was $6.8 million, $5.0 million and $4.4 million for the
fiscal years 1998, 1997 and 1996, respectively. The Company had committed
approximately $127.2 million for the purchase of equipment and facilities at
June 28, 1998.
27
<PAGE>
10 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. In fiscal years 1997 and 1996, the Company was also directly
involved with the spinning of cotton and cotton blend fibers. These operations
were contributed to a limited liability company on June 30, 1997, of which the
Company has a 34% ownership interest (see note 12).
The Company's domestic operations serve customers principally located the
southeastern United States as well as international customers located primarily
in Canada, eastern Europe, and South America. During fiscal 1998 and 1997 the
Company did not have sales to any one customer in excess of 10% of consolidated
revenues; however, the Company had sales to one customer of approximately 12% in
1996. Export sales, excluding those to the Company's international operations in
Ireland, aggregated $185.5 million in 1998, $203.8 million in 1997 and $173.1
million in 1996. 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 a manufacturing
operation in Ireland. Net sales, pre-tax operating income and total assets of
the Company's foreign and domestic operations are as follows:
<TABLE>
<CAPTION>
(Amounts in June 28, June 29, June 30,
thousands) 1998 1997 1996
- --------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Foreign operations:
Net sales $ 136,573 $ 140,102 $ 129,246
Pre-tax income 15,107 12,683 4,015
Total assets 127,586 112,203 117,578
Domestic operations:
Net sales $1,241,036 $1,564,824 $1,474,034
Pre-tax income 176,576 161,599 119,301
Total assets 1,211,218 906,500 833,506
</TABLE>
11 Derivative Financial Instruments and Fair Value of Financial Instruments
The Company conducts its business in various foreign currencies. As a result, it
is subject to the transaction exposure that arises from foreign exchange rate
movements between the dates that foreign currency transactions are recorded
(export sales and purchases) and the dates they are consummated (cash receipts
and cash disbursements in foreign currencies). The Company utilizes some natural
hedging to mitigate these transaction exposures. The Company also enters into
foreign currency forward contracts for the purchase and sale of European,
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 products into export
markets. Counter-parties for these instruments are major financial institutions.
Currency forward contracts are entered to hedge exposure for sales in
foreign currencies based on specific sales orders with customers or for
anticipated sales activity for a future time period. Generally, 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
Company marks the outstanding accounts receivable and forward contracts to
market at month end and any realized and unrealized gains or losses are recorded
as other income and expense. The Company also enters currency forward contracts
for committed equipment and inventory purchases. Generally 50-75% of the asset
cost is covered by forward contracts. Forward contracts are matched with the
anticipated date of delivery of the assets and gains and losses are recorded as
a component of the asset cost. The outstanding hedge agreements as of June 28,
1998, mature through April 1999.
The dollar equivalent of these forward currency contracts and their
related fair values are detailed below:
<TABLE>
<CAPTION>
June 28,
(Amounts in thousands) 1998
- -------------------------------------- ------------
<S> <C>
Foreign currency purchase contracts:
Notational amount $29,184
Fair value 31,418
- -------------------------------------- -------
Net unrecognized (gain) loss $(2,234)
- -------------------------------------- -------
Foreign currency sales contracts:
Notational amount $28,446
Fair value 28,646
- -------------------------------------- -------
Net unrecognized (gain) loss $ 200
- -------------------------------------- -------
</TABLE>
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
carrying 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 note 5).
Foreign currency contracts -- The fair value is based on quotes obtained
from brokers or reference to publicly available market information.
28
<PAGE>
12 Investment in Unconsolidated Affiliates
Investments in affiliates consist of a 34% interest in Parkdale America, LLC
(the LLC) and a 48.4% interest in Micell Technologies, Inc. (Micell(R)).
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, and is required to contribute $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 contributed
to the LLC and the liabilities assumed by the LLC, the Company received a 34%
interest in the LLC and Parkdale received a 66% interest in the LLC. The excess
of the Company's investment over its equity in the underlying net assets of the
LLC approximates $67.9 million and is being amortized on a straight-line basis
over 30 years as a component of the equity in earnings of unconsolidated
affiliates. The pro forma consolidated statement of income of the Company for
fiscal 1997, assuming that the spun cotton yarn assets were contributed to the
LLC as of first day of fiscal 1997, results in net sales, pre-tax income, net
income and net income per diluted share of $1.4 billion, $186.3 million, $123.1
million and $1.93, respectively.
Condensed balance sheet and income statement information as of June 28,
1998, and for the fiscal year ended June 28, 1998, of the combined LLC and
Micell is as follows:
<TABLE>
<CAPTION>
June 28,
(Amounts in thousands) 1998
- ------------------------------------------- -------------
<S> <C>
Current assets $ 260,358
Noncurrent assets 264,194
Current liabilities 134,110
Shareholders' equity and capital accounts 390,442
Net sales $ 652,097
Gross profit 108,649
Income from operations 80,546
Net income 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 year ended June 28, 1998, distributions
received by the Company from the LLC aggregated $7.7 million.
13 Supplemental Cash Flow Information
Supplemental cash flow information is summarized below:
<TABLE>
<CAPTION>
June 28, June 29, June 30,
(Amounts in thousands) 1998 1997 1996
- ------------------------ ---------- ---------- ---------
<S> <C> <C> <C>
Cash payments for:
Interest, net of
amounts
capitalized $16,521 $12,064 $18,520
Income taxes, net
of refunds 47,488 45,726 38,427
Stock issued for SI
Holding
Company
acquisition $21,000 $ -- $ --
Redemption of 6%
convertible
subordinated
notes -- -- 1,983
</TABLE>
14 Polyester Business Venture
On April 23, 1998, the Company announced that it agreed to form a limited
liability company with Burlington Industries, Inc. (Burlington) of Greensboro,
North Carolina, to manufacture and market natural textured polyester yarns. The
limited liability company commenced operations on May 29, 1998. The Company has
the majority ownership (approximately 85%) and is managing the business, while
Burlington owns a minority interest.
29
<PAGE>
Summary of selected financial data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 28, 1998 June 29, 1997 June 30, 1996 June 25, 1995 June 26, 1994
(Amounts in thousands, except per share data) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks) (52 Weeks)
- ----------------------------------------------- --------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Summary of Earnings:
Net sales $1,377,609 $1,704,926 $1,603,280 $1,554,557 $1,384,797
Cost of sales 1,149,838 1,473,667 1,407,608 1,330,410 1,185,386
Gross profit 227,771 231,259 195,672 224,147 199,411
Selling, general and administrative
expense 43,277 46,229 45,084 43,116 40,429
Interest expense 16,598 11,749 14,593 15,452 18,241
Interest income (1,869) (2,219) (6,757) (10,372) (8,290)
Other (income) expense 389 819 (4,390) (9,659) (1,238)
Equity in (earnings) losses of
unconsolidated affiliates (22,307) 399 -- -- --
Non-recurring charge -- -- 23,826 -- 13,433
Income from continuing operations
before income taxes and other
items listed below 191,683 174,282 123,316 185,610 136,836
Provision for income taxes 62,782 58,617 44,939 69,439 60,344
Income before extraordinary item
and cumulative effect of
accounting change 128,901 115,665 78,377 116,171 76,492
Extraordinary item, net of tax -- -- 5,898 -- --
Cumulative effect of accounting
change, net of tax 4,636 -- -- -- --
Net income 124,265 115,665 72,479 116,171 76,492
Per Share of Common Stock:
Income before extraordinary item
and cumulative effect of
accounting change (diluted) $ 2.08 $ 1.81 $ 1.18 $ 1.62 $ 1.07
Extraordinary item (diluted) -- -- .09 -- --
Cumulative effect of accounting
change (diluted) .07 -- -- -- --
Net income (diluted) 2.01 1.81 1.09 1.62 1.07
Cash dividends .56 .44 .52 .40 .56
Financial Data:
Working capital $ 209,878 $ 216,145 $ 196,222 $ 333,357 $ 304,274
Gross property, plant and
equipment 1,145,622 1,147,148 1,027,128 910,383 848,637
Total assets 1,338,804 1,018,703 951,084 1,040,902 1,003,252
Long-term debt and other
obligations 463,967 255,799 170,000 230,000 230,000
Shareholders' equity 636,197 548,531 583,206 603,502 588,522
</TABLE>
Fiscal year 1994 through 1997 amounts include the spun cotton yarn
operations that were contributed to Parkdale America, LLC on June 30, 1997.
30
<PAGE>
quarterly Results (Unaudited)
- --------------------------------------------------------------------------------
Quarterly financial data for the years ended June 28, 1998, and June 27,
1997, is presented below:
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
(Amounts in thousands, except per share data) (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks)
- ----------------------------------------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
1997:
Net sales $ 414,715 $ 419,345 $ 438,252 $ 432,614
Gross profit 49,945 58,858 61,808 60,648
Net income 23,955 28,790 31,467 31,453
Earnings per share (basic) .37 .45 .50 .51
Earnings per share (diluted) .37 .44 .50 .51
1998:
Net sales $ 329,842 $ 343,096 $ 345,986 $ 358,685
Gross profit 49,518 59,005 58,134 61,114
Income before cumulative effect of accounting
change 27,525 33,019 33,286 35,071
Cumulative effect of accounting change -- 4,636 -- --
Net income 27,525 28,383 33,286 35,071
Income before cumulative effect of accounting
change (basic) .45 .54 .54 .57
Income before cumulative effect of accounting
change (diluted) .45 .54 .54 .57
Earnings per share (basic) .45 .46 .54 .57
Earnings per share (diluted) .45 .46 .54 .57
</TABLE>
market and dividend Information (Unaudited)
- --------------------------------------------------------------------------------
The Company's common stock is listed for trading on the New York Stock
Exchange. 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 regular
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
Directors 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 14, 1998, there were approximately 929 holders of record of
the Company's common stock.
<TABLE>
<CAPTION>
High Low Dividends
<S> <C> <C> <C>
Fiscal year 1996:
First quarter ended September 24, 1995 $ 26.63 $ 23.50 $ .13
Second quarter ended December 24, 1995 $ 25.00 $ 21.88 $ .13
Third quarter ended March 24, 1996 $ 25.75 $ 21.25 $ .13
Fourth quarter ended June 30, 1996 $ 28.50 $ 23.00 $ .13
Fiscal year 1997:
First quarter ended September 29, 1996 $ 28.88 $ 26.00 $ .11
Second quarter ended December 29, 1996 $ 33.13 $ 26.63 $ .11
Third quarter ended March 30, 1997 $ 33.88 $ 30.13 $ .11
Fourth quarter ended June 29, 1997 $ 36.88 $ 29.63 $ .11
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
</TABLE>
31
<PAGE>
MANAGEMENT'S REVIEW
and Analysis of Operations and Financial Position
- --------------------------------------------------------------------------------
FISCAL 1998
Following is a Summary of operating income for fiscal years 1998 and 1997
and related percentages of net sales for each period:
<TABLE>
<CAPTION>
(Dollar amounts in thousands) June 28, 1998 June 29, 1997
- ------------------------------------- --------------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net sales $ 1,377,609 100.0% $1,704,926 100.0%
Cost of sales 1,149,838 83.5 1,473,667 86.4
- ------------------------------------- ------------- --------- ---------- ------
Gross margin 227,771 16.5 231,259 13.6
Selling, general and administrative 43,277 3.1 46,229 2.7
- ------------------------------------- ------------- --------- ---------- ------
Operating income $ 184,494 13.4% $ 185,030 10.9%
- ------------------------------------- ------------- --------- ---------- ------
</TABLE>
Consolidated net sales decreased $327.3 million from fiscal year 1997 to
1998, or 19.2%, before giving effect to the contribution of our spun cotton yarn
operations to Parkdale America, LLC on June 30, 1997. Net sales for our spun
cotton yarn operations were $304.4 million in fiscal year 1997. After giving
effect to the removal of the net sales for the 1997 fiscal year attributable to
the spun cotton operations, consolidated net sales decreased $22.9 million, or
1.6%. The comparison of sales was positively impacted by the acquisition on
November 14, 1997, of SI Holding Company (Spanco) and the formation of a limited
liability company with Burlington Industries, Inc. on May 29, 1998. The benefit
of these ventures on sales was offset by various factors including: the
strengthening of the U.S. dollar in 1998 that adversely impacted export sales
and the translation of our Irish operation sales from the functional Irish punt
currency to the U.S. dollar, the decline in unit prices and the increase of
imported fiber, fabric and apparel.
Domestically, unit prices, based on product mix, declined 1.4% while unit
volumes remained relatively stable after giving effect to the removal of our
spun cotton yarn operations in the prior fiscal year. Unit volumes increased in
the fourth quarter due, in part, to the sales generated by the business venture
with Burlington Industries.
Internationally, unit prices declined 7.4% while unit volumes increased
6.2%. Sales from foreign operations are denominated in local currencies and are
hedged in part by the purchase of raw materials and services in those same
currencies. As described in note 11 to the consolidated financial statements,
currency exchange rate risk is mitigated by the utilization of foreign currency
forward contracts. Additionally, the net asset exposure is hedged by borrowings
in local currencies which minimizes the risk of currency fluctuations. The
Company does not enter into derivative financial instruments for trading
purposes.
Gross Margins improved from 15.5% in the prior year to 16.5% in the
current year after eliminating the net operating results of our spun cotton yarn
operations described above. The increase in gross margin primarily reflects raw
material cost reductions based on product mix, which were partially offset by
higher manufacturing costs as a percentage of net sales.
Selling, general and administrative expense decreased $3.0 million from
1997 to 1998; however, as a percentage of net sales these costs increased from
2.7% in the prior fiscal year to 3.1% in the current year. The increase reflects
the lower sales base in the current year associated with the contribution of our
spun cotton yarn operations at the beginning of the fiscal year.
Interest expense increased $4.8 million, or 41.3%, from $11.7 million in
1997 to $16.6 million in 1998. The increase is associated with both higher
levels of debt outstanding during the current year and higher average interest
rates during this period. In February 1998, the Company issued $250.0 million of
debt securities, the proceeds of which were used to repay a portion of the
revolving credit facility. The coupon rate of the new securities is 6.50%. Debt
levels increased during the year as a result of capital expenditures,
investments in equity affiliates, stock repurchases and an acquisition.
Interest income declined $350 thousand from 1997 to 1998 primarily as a
result of lower levels of invested funds. Other expense decreased from $819
thousand to $389 thousand from 1997 to 1998.
Earnings from our equity affiliates, net of related amortization, totaled
$22.7 million in the current year. The effective tax rate decreased from 33.6%
in 1997 to 32.8% in 1998. The improvement in the effective tax rate is primarily
due to the realization of state tax credits in the current year associated with
significant capital expenditures and improved operating results of our Irish
operations that are taxed at a 10.0% effective rate.
In the second quarter of fiscal 1998, the Company recognized a write-off
of $7.5 million ($4.5 million after tax) or $.07 per diluted share as a result
of changing its accounting policy regarding business reengineering costs.
Previously, substantially all direct external costs associated with installing a
new computer software system were capitalized, including those costs related to
business process reengineering. Pursuant to Emerging Issues Task Force 97-13
issued in November 1997, these costs were written off as a cumulative catch-up
adjustment.
As a result of the above, the Company realized during the current year net
income of $124.3 million, or $2.01 per diluted share, compared to $115.7 million
32
<PAGE>
or $1.81 per diluted share for the prior fiscal year period. Before the effect
of the accounting change in the current year, earnings would have been $128.9
million or $2.08 per diluted share.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," (SFAS 130) which the Company is
required to adopt in the first quarter of fiscal 1999. SFAS 130 requires the
reporting of comprehensive income and its components in complete general purpose
financial statements as well as requires certain interim comprehensive income
information be disclosed. Comprehensive income represents the change in net
assets of a business during a period from non-owner sources. Such non-owner
changes in net assets that are not included in net income include foreign
currency translation adjustments, unrealized gains and losses on
available-for-sale securities and certain minimum pension liabilities. Foreign
currency translation adjustments presently represent the primary component of
comprehensive income for the Company. The Company expects to reflect
comprehensive income in its consolidated statement of changes in shareholders'
equity when this standard is adopted. Results of operations and financial
position, however, will be unaffected by the implementation of this standard.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," (SFAS 131) which the Company is required to adopt in the fourth
quarter of fiscal 1999. SFAS 131 establishes standards for public companies for
the reporting of financial information from operating segments in annual and
interim financial statements as well as establishes standards for related
disclosures about products and services, geographic areas and major customers.
Operating segments are defined in SFAS 131 as components of an enterprise about
which separate financial information is available to the chief operating
decision maker for purposes of assessing performance and allocating resources.
The Company has not completed its analysis of the effect that the adoption of
this standard will have on its financial statement disclosure; however, the
adoption of SFAS 131 will not affect consolidated results of operations or
financial position.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Cost of
Computer Software Developed for or Obtained for Internal Use," (SOP 98-1). This
SOP is effective for the Company in the first quarter of fiscal year 2000, if
not previously adopted. SOP 98-1 will require the capitalization of certain
costs incurred after the date of adoption in connection with developing or
obtaining software for internal use. The Company currently expenses certain of
these internal costs when incurred. The Company has not yet assessed what the
impact of the SOP will be on the Company's future earnings or financial
position.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," (SOP 98-5) which is effective for the Company in fiscal
year 2000, if not previously adopted. SOP 98-5 requires start-up costs, as
defined, to be expensed as incurred. Upon adoption of SOP 98-5, any previously
capitalized start-up costs net of accumulated depreciation will be required to
be written-off as a cumulative effect of a change in accounting principle. The
Company has not yet determined what the impact of SOP 98-5 will be on its
financial statements upon adoption of this SOP.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS
133) which the Company is required to adopt in years beginning after June 15,
1999. SFAS 133 permits early adoption as of the beginning of any fiscal quarter
after its issuance. SFAS 133 will require 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 derivative's change in fair value will be immediately
recognized in earnings. The Company has not yet determined what the effect of
Statement 133 will be on the earnings and financial position of the Company.
FISCAL 1997
Consolidated net sales increased 6.3% from $1.603 billion in 1996 to
$1.705 billion in 1997. The current fiscal year included fifty-two weeks
compared to the previous year's fifty-three weeks. Growth in net sales was
achieved by a 7.2% increase in unit volume offset slightly by a modest decline
in per unit average sales prices.
Domestically, unit volumes increased 6.3% while average per unit sales
prices remained stable. Increased unit volumes were experienced across all of
our sales-yarn operations. Fiscal 1997 unit sales growth benefited from
phased-in production of our new polyester texturing facility in Yadkinville,
North Carolina, which was substantially completed at year end, and from
realizing a full year's sales activity after purchasing the texturing operations
of Glen Raven Mills, Inc.'s Norlina Division in November 1995. In addition,
growth in export sales was experienced year-over-year contributing to the
increase in unit volume.
Internationally, increased unit growth was offset by lower per unit
average sales prices resulting in a net 8.3% increase in sales. Sales from
foreign operations are denominated in local currencies and are hedged in part by
the purchases of raw materials and services in
33
<PAGE>
those same currencies. As described in note 11 to the consolidated financial
statements, currency exchange rate risk is mitigated by the utilization of
foreign currency forward contracts. Additionally, the net asset exposure is
hedged by borrowings in local currencies which minimize the risk of currency
fluctuations.
Gross margin increased from 12.2% last year to 13.6% this year. The
increased gross margin of 1.4% reflects lower operating costs due to improved
efficiency and volume increases and raw material cost reductions based on
product mix, as a percentage of net sales.
Selling, general and administrative expense as a percentage of net sales
decreased from 2.8% last year to 2.7% this year. On a dollar-basis, selling,
general and administrative expense increased $1.1 million to $46.2 million, or
2.5%. Increased selling, general and administrative expenses are primarily
attributable to higher information systems' costs and professional fees
associated with various technology and corporate reengineering improvement
efforts.
Interest expense declined $2.8 million or 19.5%, from $14.6 million in
1996 to $11.7 million in 1997. In the fourth quarter of the prior year, $230
million of 6% convertible subordinated notes were redeemed utilizing the
proceeds from a $400 million, five year, revolving credit facility. The
effective interest rate of the revolving credit facility has remained below the
convertible debt interest rate and the average debt level outstanding throughout
fiscal 1997 has also been lower than the prior year resulting in reduced
interest expense. Interest income declined $4.5 million from $6.8 million in
1996 to $2.2 million in 1997. This change reflects lower levels of invested
funds which were primarily used for capital expenditures and the purchase and
retirement of Company common stock.
Net other income and expense changed unfavorably by $5.6 million from $4.4
million of income in 1996 to $1.2 million of expense in 1997. In the prior year,
gains were recorded from the sale of capital assets and investments in excess of
current year amounts.
In the first quarter of fiscal 1996, 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 non-recurring charge to earnings of $23.8 million or an after-tax
charge to earnings of $14.9 million ($.23 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 decreased from 36.4% in 1996 to 33.6% in 1997. The
improvement in the effective tax rate is primarily due to the realization of
state tax credits during the current year and the improved 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 year net
income of $115.7 million, or $1.81 per share, compared to $72.5 million, or
$1.18 per share, for the corresponding prior fiscal year. Before the effects of
the non-recurring and the extraordinary charges recognized in the prior year,
earnings would have been $93.3 million or $1.41 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations continues to be a primary source of funds to
finance operating needs and capital expenditures. Cash generated from operations
was $181.7 million for fiscal 1998 compared to $183.8 million for fiscal 1997.
The primary sources of cash from operations, other than net income, were
decreases in accounts receivable and other current assets of $9.6 million and
$1.6 million, respectively and non-cash adjustments aggregating $70.9 million.
Depreciation and amortization of $69.7 million, the after-tax cumulative effect
of accounting change of $4.7 million and the deferred income tax provision of
$12.2 million, offset by undistributed net earnings of unconsolidated affiliates
of $15.3 million, were the primary components of the non-cash adjustments to
cash provided by operations. Offsetting these sources were an increase in
inventory of $0.8 million and a net decrease in income taxes, accounts payable
and accruals of $23.9 million. All working capital changes have been adjusted to
exclude the effect of the current year acquisition and currency translation. The
significant decreases in accounts receivable and accounts payable and accruals
were impacted by the contribution of the spun cotton yarn operations at the
beginning of the fiscal year.
Working capital levels are more than adequate to meet the operating
requirements of the Company. The Company ended the current year with working
capital of $209.9 million, which included cash and cash equivalents of $8.4
million.
The Company utilized $315.7 million for net investing activities and
obtained $133.7 million from net financing activities during fiscal 1998.
Significant expenditures during this period included $250.1 million for capacity
expansions and upgrading of facilities, $25.8 million for acquisitions, $39.5
for investments in equity affiliates, $34.3 million for the payment of the
Company's cash dividends and $20.2 million for the purchase and retirement of
Company common stock. The Company obtained proceeds from net borrowings under
its long-term debt agreements of $187.4 million, which partially offset these
cash expenditures.
As discussed in note 12 to the financial statements, on June 30, 1997, the
Company and Parkdale Mills, Inc. (Parkdale) contributed the inventory and the
owned and leased tangible real and personal property associated with their
open-end and air jet spun cotton yarn operations to Parkdale America, LLC (the
LLC). Additionally, the Company contributed $32.9 million in cash to the LLC on
June 30, 1997, and is required to
34
<PAGE>
contribute $10.0 million 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 contributed to the LLC and the liabilities assumed by the LLC, the
Company received a 34% interest in the LLC and Parkdale received a 66% interest
in the LLC. The LLC distributed dividends of $7.7 million to the Company in
fiscal 1998. It is expected that such distributions will continue. Additionally,
the Company is not obligated to provide the LLC with any further cash
contributions beyond those described herein.
On November 14, 1997, the Company completed its Agreement and Plan of
Triangular Merger with SI Holding Company and thereby acquired their covered
yarn business for approximately $46.6 million. Additionally,
covenants-not-to-compete were entered into with the principal operating officers
of the acquired company in exchange for $9.2 million, to generally be paid over
the terms of the covenants. The acquisition, which is not deemed significant to
the Company's consolidated net assets or results of operations, is being
accounted for by the purchase method of accounting.
On April 23, 1998, the Company announced that it agreed to form a limited
liability company with Burlington Industries, Inc. (Burlington) of Greensboro,
North Carolina, to manufacture and market natural textured polyester yarns. The
Company has the majority ownership (approximately 85.0%) and will manage the
business, while Burlington will own a minority interest (approximately 15.0%).
The Company's natural textured polyester yarn facilities located in Yadkinville,
North Carolina, became part of the limited liability company, along with
Burlington's natural textured yarn manufacturing business located in Mayodan,
North Carolina. The Company's polyester texturing facility in Reidsville, North
Carolina, was not contributed. This facility will continue to be dedicated to
providing textured polyester products for yarn dyeing. The limited liability
company commenced operations on May 29, 1998. Under terms of the agreement, the
Company is not required to contribute any operating funds to the newly created
entity at inception nor will any existing Company debt be assumed by the new
entity. Additionally, there are no future contributions required to be made to
the new entity. However, the Company may, from time to time, loan funds to this
entity under prevailing market conditions as deemed necessary or appropriate
under the circumstances.
At June 28, 1998, the Company has committed approximately $127.2 million
for the purchase and upgrade of equipment and facilities, which is scheduled to
be expended during fiscal year 1999. A significant component of these committed
funds is the construction of a new nylon texturing and covering facility in
Madison, North Carolina. This plant will consolidate the existing capacity at
several locations, replacing older equipment with state-of-the-art technology,
and will provide for additional capacity and expansion capabilities. Certain
construction and machinery components of this project are still under
negotiation.
Effective July 16, 1998, the Board of Directors terminated the
previously-established policy of paying cash dividends equal to approximately
30% of the Company's after tax earnings for the previous year. In lieu of this
cash dividend, the Board of Directors has authorized management to utilize cash
equal to the same 30% of the previous year's earnings to repurchase shares of
the Company's stock as management deems advisable. The Board of Directors also
increased the remaining authorization pursuant to a resolution originally
established on October 21, 1993, to purchase 10 million shares of Unifi's common
stock. The Company will continue to operate its stock buy-back program from time
to time as it deems appropriate, based on prevailing financial and market
conditions.
On February 5, 1998, the Company sold $250 million of senior, unsecured
debt securities to qualified institutional buyers. The net proceeds from the
sale of the Notes were used to repay a portion of the Company's bank credit
facility. The Notes bear a coupon rate of interest of 6.50% and mature in 2008.
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.
YEAR 2000 COMPLIANCE STATUS
The Company continues to actively address the business issues associated
with the year 2000 that impact information technology systems and
non-information technology systems (i.e., embedded technology) both internally
and in relation to our external customers, suppliers and other business
associates. Factors involved in addressing such business issues include the
evaluation, testing and implementation of the Company's enterprise-wide systems;
evaluation, upgrading and certifying of non-information technology systems;
assessing and testing significant customers' and vendors' compliance strategies
and monitoring the status thereof (including electronic commerce with these
companies); and, evaluating and monitoring the compliance plans of businesses in
which the Company maintains investments in their operations.
The Company has created a team of professionals with the responsibility of
addressing business issues associated with the year 2000. The Company does not
believe any material exposures or contingencies exist with respect to its
internal information systems as the installation of the remaining
enterprise-wide software is anticipated to be completed in the necessary time
35
<PAGE>
frame. At present the Company estimates it is approximately one-half to
two-thirds complete with its enterprise-wide software implementation efforts.
Additionally, as a precautionary measure, back-up plans are in process of being
formulated in the event certain enterprise-wide applications are not fully
implemented by the end of the 1999 fiscal year. The Company has requested
information on the year 2000 compliance plans and status from its significant
vendors and equity affiliates and is presently not aware of any material
exposures or contingencies.
The Company is requesting assurances from its major suppliers that they
are addressing the year 2000 issue to avoid disruption of products and services.
Certain suppliers, although not indicating any problems or concerns at the
present time, are unwilling to provide any guarantees or assurances.
Consequently, the Company cannot predict the likelihood or impact on its
business resulting from noncompliance by such parties.
Costs incurred in the Company's year 2000 compliance efforts are being
expensed as incurred. Anticipated expenditures related to year 2000 compliance
readiness, in addition to those associated with the enterprise-wide software
implementation, are expected to be approximately $0.5 million for the fiscal
year ended June 27, 1999.
EURO CONVERSION
As discussed above and in notes 10 and 11 to the consolidated financial
statements, the Company conducts business in multiple currencies, including the
currencies of various European countries in the European Union which will be
participating 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
January 1, 1999, to January 1, 2002, the existing currencies of the member
countries will remain legal tender and customers and vendors of the Company may
continue to use these currencies or the Euro when conducting business (the rules
relating to the conversion to the Euro are outlined in the European Commission
Directorate General XV Exposure Draft "Preparing Information Systems for the
Euro" issued in Brussels September 25, 1997). Currency rates during 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 is currently
evaluating the Euro conversion and the impact on its business, both
strategically and operationally. At this time, management has not completed its
assessment of the impact of the conversion; however, the conversion to the Euro
is not 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," "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, 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 differ 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 due to competition and economic
conditions, reliance on and financial viability of significant customers,
technological advancements, employee relations, changes in construction spending
and capital equipment expenditures (including those related to unforeseen
acquisition opportunities), the timely completion of construction and expansion
projects planned or in process, continued availability of financial resources
through financing arrangements and operations, negotiations 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 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.
36
EXHIBIT (13b-1)
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 28, 1998, and June 29, 1997, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended June 28, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
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 presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Unifi, Inc. at
June 28, 1998, and June 29, 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 28,
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
- ---------------------
Ernst & Young LLP
Greensboro, North Carolina
July 14, 1998
17
(Exhibit 21)
UNIFI, INC.
SUBSIDIARIES
Name Address Incorporation Unifi Percentage of
Voting Securities Owned
Unifi, FSC Ltd. Agana, Guam Guam 100%
Unifi Textured
Yarns Letterkenny, Ireland United Kingdom 100%
Europe, Ltd.
Unifi International Greensboro, NC North Carolina 100%
Services, Inc.
Unifi Manufacturing, Greensboro, NC North Carolina 100%
Inc. ("UMI")
Unifi Sales & Greensboro, NC North Carolina 100%
Distribution, Inc.
Unifi Manufacturing Greensboro, NC North Carolina 95%
Virginia, LLC (5% - UMI)
Unifi Export Sales, Greensboro, NC North Carolina 95%
LLC (5% - UMI)
Unifi Equipment Greensboro, NC North Carolina 100%
Leasing, LLC
Unifi Textured Greensboro, NC North Carolina 85.42% - UMI
Polyester, LLC (14.58% - Burlington
Industries, Inc.)
Spanco Industries, Greensboro, NC North Carolina 100% - UMI
Inc. ("SI")
[ SI owns: 100% Spanco International, Inc., ("SII"), a North
Carolina corporation]
[SII owns: 67% Spanco - Latin America, S.A., a Columbian sociedad
anonime; the remainder of Spanco Latin America is presently owned by:
1% Unifi designees
32% Spanco - Panama, S.A. ]
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Unifi, Inc. of our report dated July 14, 1998, included in the 1998 Annual
Report to Shareholders of Unifi, Inc.
Our audit also included the financial statement schedule of Unifi, Inc. listed
in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
In addition, we consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-23201) pertaining to the Unifi, Inc. 1982 Incentive
Stock Option Plan and the 1987 Non-Qualified Stock Option Plan, and the
Registration Statement (Form S-8 No. 33-53799) pertaining to the Unifi, Inc.
1992 Incentive Stock Option Plan and Unifi Spun Yarns, Inc. 1992 Employee
Stock Option Plan, and Registration Statement (Form S-8 No. 333-35001)
pertaining to the Unifi, Inc. 1996 Incentive Stock Option Plan and the Unifi,
Inc. 1996 Non-Qualified Stock Option Plan of our report dated July 14, 1998,
with respect to the consolidated financial statements and schedule of Unifi,
Inc. incorporated herein by reference in this Annual Report (Form 10-K) for
the year ended June 28, 1998.
Ernst & Young LLP
Greensboro, North Carolina
September 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT FOR THE TWELVE MONTH PERIOD ENDED JUNE 28, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,372
<SECURITIES> 0
<RECEIVABLES> 230,510
<ALLOWANCES> 8,200
<INVENTORY> 137,201
<CURRENT-ASSETS> 369,191
<PP&E> 1,145,622
<DEPRECIATION> 497,042
<TOTAL-ASSETS> 1,338,804
<CURRENT-LIABILITIES> 159,313
<BONDS> 463,967
0
0
<COMMON> 6,163
<OTHER-SE> 630,034<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,338,804
<SALES> 1,377,609
<TOTAL-REVENUES> 1,377,609
<CGS> 1,149,838
<TOTAL-COSTS> 1,149,838
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,917
<INTEREST-EXPENSE> 16,598
<INCOME-PRETAX> 191,683
<INCOME-TAX> 62,782
<INCOME-CONTINUING> 128,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 4,636
<NET-INCOME> 124,265
<EPS-PRIMARY> 2.03<F2>
<EPS-DILUTED> 2.01<F2>
<FN>
<F1>OTHER STOCKHOLDERS EQUITY OF $630,034 IS COMPRISED OF CAPITAL IN EXCESS OF
PAR VALUE OF $22,454, RETAINED EARNINGS OF $618,128 AND CUMULATIVE
TRANSLATION ADJUSTMENT OF $(10,548).
<F2> PURSUANT TO FASB 128, "EARNINGS PER SHARE" WHICH THE COMPANY ADOPTED IN
THE SECOND FISCAL QUARTER, THE COMPANY CHANGED ITS METHOD OF CALCULATING
EARNINGS PER SHARE AND RESTATED ALL PRIOR PERIODS. UNDER THE NEW REQUIREMENTS
FOR CALCULATING BASIC EARNINGS PER SHARE, THE DILUTIVE EFFECT OF STOCK OPTIONS
ARE EXCLUDED. BASIC EARNINGS PER SHARE FOR THE FISCAL YEAR IS REFLECTED
ABOVE UNDER THE "PRIMARY" LINE ITEM. DILUTED EARNINGS PER SHARE AS REFLECTED
IN THE ABOVE SCHEDULE, HAS BEEN CALCULATED TO CONFORM WITH THE NEW
PRONOUNCEMENT.
</FN>
</TABLE>
