FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 1999
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10542
UNIFI, INC.
(Exact name of registrant as specified its charter)
New York 11-2165495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 19109 - 7201 West Friendly Avenue
Greensboro, NC 27419
(Address of principal executive offices) (Zip Code)
(336) 294-4410
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at May 2, 1999
Common Stock, par value $.10 per share 59,756,986 Shares
<PAGE>
UNIFI, INC.
Condensed Consolidated Balance Sheets
March 28, June 28,
1999 1998
(Unaudited) (Note)
(Amounts in Thousands)
ASSETS:
Current assets:
Cash and cash equivalents $34,926 $8,372
Receivables 167,159 222,310
Inventories:
Raw materials and supplies 41,237 45,044
Work in process 15,040 14,800
Finished goods 71,502 77,357
Other current assets 1,136 1,308
Total current assets 331,000 369,191
Property, plant and equipment 1,208,030 1,145,622
Less: accumulated depreciation 528,740 497,042
679,290 648,580
Equity investments in unconsolidated
affiliates 207,325 212,448
Other noncurrent assets 98,116 108,585
Total assets $1,315,731 $1,338,804
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $67,643 $93,922
Accrued expenses 50,073 43,939
Income taxes payable 3,975 5,218
Current maturities of long-term
debt and other current liabilities 16,238 16,234
Total current liabilities 137,929 159,313
Long-term debt and other liabilities 443,363 463,967
Deferred income taxes 75,626 62,970
Minority interests 15,544 16,357
Shareholders' equity:
Common stock 6,003 6,163
Capital in excess of par value - 22,454
Retained earnings 650,752 618,128
Accumulated other comprehensive loss (13,486) (10,548)
Total shareholders' equity 643,269 636,197
Total liabilities and shareholders'
equity $1,315,731 $1,338,804
Note: The balance sheet at June 28, 1998, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
UNIFI, INC.
Condensed Consolidated Statement of Income
(Unaudited)
(Amounts in Thousands Except Per Share Data)
For the Quarters Ended For the Nine Months Ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
Net sales $294,805 $345,986 $943,474 $1,018,924
Cost of goods sold 264,835 287,852 815,567 852,267
Selling, general &
admin. expense 19,649 11,286 42,631 31,776
Operating income 10,321 46,848 85,276 134,881
Interest expense 6,983 4,287 20,122 10,843
Interest income (536) (579) (1,728) (1,451)
Other (income) expense (17) (93) 1,275 166
Equity in (earnings) losses
of unconsolidated affiliates 2,241 (5,870) (4,398) (15,007)
Minority interests (114) - 4,686 -
Income before income taxes 1,764 49,103 65,319 140,330
Provision for income taxes 671 15,817 20,698 46,500
Income before cumulative
effect of accounting change 1,093 33,286 44,621 93,830
Cumulative effect of
accounting change,
net of tax - - 2,768 4,636
Net income $1,093 $33,286 $41,853 $89,194
Earnings per common share:
Income before cumulative
effect of accounting change $.02 $.54 $.73 $1.53
Cumulative effect of
accounting change,
net of tax - - .04 .08
Net income per common
share $.02 $.54 $.69 $1.45
Earnings per common share -
assuming dilution:
Income before
cumulative effect of
accounting change $.02 $.54 $.73 $1.52
Cumulative effect of
accounting change,
net of tax - - .04 .08
Net income per common
share - assuming
dilution $.02 $.54 $.69 $1.44
Cash dividends per share $- $.14 $- $.42
See Accompanying Notes to Condensed Consolidated Financial Statements.
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UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
March 28, March 29,
1999 1998
(Amounts in Thousands)
Cash and cash equivalents provided by
operating activities $174,651 $134,957
Investing activities:
Capital expenditures (98,279) (206,984)
Acquisitions - (25,776)
Investments in unconsolidated
equity affiliates (10,000) (35,152)
Sale of capital assets 726 2,412
Other (395) (1,060)
Net investing activities (107,948) (266,560)
Financing activities:
Borrowing of long-term debt 43,387 430,503
Repayment of long-term debt (45,090) (252,386)
Issuance of Company common stock 641 1,952
Stock option tax benefit - 1,443
Purchase and retirement of Company
common stock (32,483) (20,187)
Cash dividends paid - (25,692)
Distributions to minority interest
shareholders (6,000) -
Other 367 (7)
Net financing activities (39,178) 135,626
Currency translation adjustment (971) (952)
Net increase (decrease) in cash and cash
equivalents 26,554 3,071
Cash and cash equivalents - beginning 8,372 9,514
Cash and cash equivalents - ending $34,926 $12,585
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
UNIFI, INC.
Notes to Condensed Consolidated Financial Statements
(a)Basis of Presentation
The information furnished is unaudited and reflects all adjustments which
are, in the opinion of management, necessary to present fairly the
financial position at March 28, 1999, and the results of operations and
cash flows for the periods ended March 28, 1999, and March 29, 1998. Such
adjustments consisted of normal recurring items in the current year except
for the cumulative effect of accounting change recorded in the first fiscal
quarter as described further in Note (e). Interim results are not
necessarily indicative of results for a full year. It is suggested that
the condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's latest
annual report on Form 10-K. The Company has reclassified the presentation
of certain prior year information to conform with the current presentation
format.
(b)Income Taxes
Deferred income taxes have been provided for the temporary differences
between financial statement carrying amounts and tax basis of existing
assets and liabilities.
The difference between the statutory federal income tax rate and the
effective tax rate is primarily due to the realization of state and federal
tax credits and the results of foreign subsidiaries which are taxed at
rates below those of U.S. operations.
(c)Earnings per share
The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations
(amounts in thousands):
For the Quarters Ended For the Nine Months Ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
Numerator:
Income before
cumulative effect
of Accounting
change $1,093 $33,286 $44,621 $93,830
Cumulative effect of
accounting change,
net of tax - - 2,768 4,636
Net income $1,093 $33,286 $41,853 $89,194
<PAGE>
For the Quarters Ended For the Nine Months Ended
March 28, March 29, March 28, March 29,
1999 1998 1999 1998
Denominator:
Denominator for
basic earnings per
share - weighted
average shares 60,218 61,577 60,851 61,231
Effect of dilutive
securities:
Stock options - 438 2 572
Dilutive potential
Common shares
Denominator for
diluted earnings
per share -
adjusted weighted
average shares and
assumed
conversions 60,218 62,015 60,853 61,803
(d) Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," (SFAS 130) which the Company
adopted in the first quarter of fiscal 1999. This Statement has no impact
on the Company's net income or shareholders' equity. 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, among others, foreign currency translation
adjustments, unrealized gains and losses on available-for-sale securities
and certain minimum pension liabilities. Prior year statements have been
reclassified to conform to SFAS 130.
Comprehensive income (loss) amounted to ($7.4) million for the third
quarter of fiscal 1999 and $27.8 million for the third quarter of fiscal
1998, and was comprised of net income and foreign currency translation
adjustments. For the respective year-to-date periods, comprehensive income
totaled $38.9 million and $80.0 million and was comprised of net income and
foreign currency translation adjustments. The Company does not provide
income taxes on the impact of currency translations as earnings from
foreign subsidiaries are deemed to be permanently invested.
(e) Cumulative Effect of Accounting Change
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," (SOP 98-5) which requires start-up costs, as
defined, to be expensed as incurred. In accordance with this SOP, any
<PAGE>
previously capitalized start-up costs are required to be written-off as a
cumulative effect of a change in accounting principle. The Company, upon
adoption of this SOP in the first quarter of fiscal 1999, has written off
the unamortized balance of such previously capitalized start-up costs as of
June 29, 1998, of $4.5 million ($2.8 million after tax) or $.04 per diluted
share as a cumulative catch-up adjustment.
(f) Recent Accounting Pronouncements
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 is required to be adopted 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 adoption of SFAS 131 will not
affect consolidated results of operations or financial position. The
Company, however, anticipates that the adoption of this standard will
include disclosures segregated by its two primary product offerings,
polyester and nylon yarns. This presentation is consistent with the
operating and reporting structure the Company's chief operating decision
maker utilizes to assess performance and allocate resources.
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. However, as discussed in
"Year 2000 Compliance Status" located in Management's Discussion and
Analysis of Financial Condition and Results of Operations, the Company is
actively implementing an enterprise-wide software solution that is
scheduled to be substantially completed by its current fiscal year ending
June 27, 1999. Consequently, remaining costs associated with obtaining and
modifying this system are not anticipated to be material to the Company's
results of operations or financial position after the date of 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 fiscal year 2000.
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
<PAGE>
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.
(g) Early Retirement and Termination Charge
In the current quarter, the Company recognized a $14.8 million charge
associated with the early retirement and termination of 114 salaried
employees. The charge was recorded as a component of selling, general and
administrative expenses in the amount of $8.2 million and cost of goods
sold in the amount of $6.6 million. Substantially all employees were
terminated effective March 31, 1999, with cash payments expected to be
spread over a period not to exceed three years.
(h) Subsequent Event
The Company purchased, effective April 1, 1999, the polyester texturing and
dyed yarn property, plant and equipment of Fairway Poliester, LTDA located
in Brazil for $14.5 million.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is Management's discussion and analysis of certain significant
factors that have affected the Company's operations and material changes in
financial condition during the periods included in the accompanying Condensed
Consolidated Financial Statements.
Results of Operations
Consolidated net sales decreased 14.8% in the quarter from $346.0 million to
$294.8 million and decreased 7.4% for the year-to-date period from $1,018.9
million to $943.5 million. Unit volume for the quarter decreased 2.0% while
average unit sales prices, based on product mix, declined 12.8%. For the
year to date, unit volumes increased 1.5% while average unit sales prices
declined 8.8%.
Domestically, polyester and nylon yarn net sales declined 14.7% for the
quarter and 8.2% for the year to date due primarily to reductions in unit
price, based on product mix. Our performance year over year continues to be
negatively impacted by the ongoing effects of the Asian financial crisis as
imports of yarns, fabric and apparel have kept pressures on polyester sales
volumes, sales prices and gross margins. Our nylon operations continue to
perform at reasonable gross margin levels and should improve as the nylon
consolidation project nears completion. Internationally, sales in local
currency decreased 22.8% for the quarter and 2.2% for the year to date due to
both lower unit volume and sales prices.
Gross profit decreased 48.4% to $30.0 million for the quarter while gross
margin (gross profit as a percentage of net sales) declined 6.6% to 10.2%.
The decline in gross margin for the quarter was impacted by a $14.8 million
charge recorded for the early retirement and termination of 114 salaried
employees. Of the total expense recognized, $6.6 million was reflected as a
cost of sales charge. Absent this charge, gross margin for the current
quarter would have been 12.4%. The gross margin decline also reflects higher
manufacturing and packaging costs, which were partially offset by lower
average raw material costs. Fixed charges, such as depreciation, were also
higher in both dollars and as a percentage of sales. For the year to date,
gross profit decreased $38.8 million or 23.3% while gross margin declined
2.8% to 13.6%. The declines experienced for the year-to-date period are
attributable to the same factors described in our quarterly comparison.
Selling, general and administrative expenses as a percentage of net sales
increased from 3.3% in last year's quarter to 6.7% this quarter and from 3.1%
in the prior year-to-date period to 4.5% in the current year. On a dollar
basis, selling, general and administrative expense increased $8.4 million to
$19.6 million for the quarter and $10.9 million to $42.6 million for the year
to date. Higher selling, general and administrative expenses for the current
year periods were impacted by the early retirement and termination of the 114
salaried employees discussed above. Of the total $14.8 million charge
recorded in the current quarter, $8.2 million was charged to selling general
and administrative expenses. Absent this charge, selling, general and
<PAGE>
administration expenses as a percentage of net sales would have been 3.9%.
This charge for early retirement and termination substantially accounts for
the increases noted in both the quarterly and year-to-date comparisons over
the prior year.
Interest expense increased $2.7 million to $7.0 million in the current
quarter and $9.3 million to $20.1 million for the year to date. The increase
in interest expense reflects higher levels of outstanding debt at higher
average interest rates and the reduction of interest capitalized for major
construction projects as certain significant projects in process in the prior
year periods have been substantially completed. The average interest rate on
outstanding debt at March 28, 1999, was 6.0%.
Equity in the earnings (losses) of our unconsolidated affiliates, Parkdale
America, LLC (``the LLC'') and Micell Technologies, Inc., (Micell) amounted to
($2.2) million in the third quarter of fiscal 1999 and $4.4 million for the
year to date compared with $5.9 million and $15.0 million for the
corresponding quarter and year-to-date periods in fiscal 1998. The declines
are primarily attributable to the reduced earnings from the LLC and higher
start-up costs associated with Micell. The operating results of the LLC were
impacted by pricing pressures on spun cotton products associated with weaker
demand and excess capacity issues. In addition, a federal government cotton
rebate program expired during the current year which resulted in higher raw
material costs for the current year periods.
In the current fiscal quarter and for the year to date, the minority interest
charge amounted to $(0.1) million and $4.7 million, respectively.
The effective income tax rate has increased from 32.2% to 38.0% in the
current quarter. The current quarter increase reflects the reduction in
earnings of our Irish Operations, which are taxed at a 10.0% effective rate,
over the prior year resulting in an effective tax rate more reflective of our
domestic operations. The difference between the statutory federal income tax
rate and the effective tax rate is primarily due to the realization of state
and federal tax credits and the results of foreign subsidiaries which are
taxed at rates below those of U.S. operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities," (SOP 98-5) which requires start-up costs, as defined, to be
expensed as incurred. In accordance with this SOP, any previously
capitalized start-up costs are required to be written-off as a cumulative
effect of a change in accounting principle. The Company, upon adoption of
this SOP in the first quarter of fiscal 1999, has written off the unamortized
balance of such previously capitalized start-up costs as of June 29, 1998, of
$4.5 million ($2.8 million after tax) or $.04 per diluted share as a
cumulative catch-up adjustment.
As a result of the above, the Company realized during the current quarter net
income of $1.1 million, or diluted earnings per share of $.02, compared to
$33.3 million, or $.54 per share, for the corresponding quarter of the prior
year. Net income and diluted earnings per share for the quarter, before the
effect of the previously described $14.8 million retirement and termination
charge, was $10.8 million and $.18 per share respectively. For the
respective year-to-date periods, net income was $41.9 million, or $.69 per
<PAGE>
diluted share, compared to $89.2 million, or $1.44 per diluted share. For
the current year-to-date period, income before the cumulative effect of the
accounting change was $44.6 million, or $.73 per diluted share, respectively.
For the prior year-to-date period, income and diluted earnings per share
before the cumulative effect of the accounting change were $93.8 million or
$1.52 per diluted share, respectively.
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 is required to be adopted 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
adoption of SFAS 131 will not affect consolidated results of operations or
financial position. The Company, however, anticipates that the adoption of
this standard will include disclosures segregated by its two primary product
offerings, polyester and nylon yarns. This presentation is consistent with
the operating and reporting structure the Company's chief operating decision
maker utilizes to assess performance and allocate resource.
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. However, as discussed in ``Year 2000
Compliance Status' located in Management's Discussion and Analysis of
Financial Condition and Results of Operations, the Company is actively
implementing an enterprise-wide software solution that is scheduled to be
substantially completed by its current fiscal year ending June 27, 1999.
Consequently, remaining costs associated with obtaining and modifying this
system are not anticipated to be material to the Company's results of
operations or financial position after the date of 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 fiscal year 2000. 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
<PAGE>
determined what the effect of Statement 133 will be on the earnings and
financial position of the Company.
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 $174.7 million for the year-to-date period ended March 28,
1999, compared to $135.0 million for the prior year corresponding period.
The primary sources of cash from operations, other than net income, were a
decrease in accounts receivable of $51.8 million, a decrease in inventory of
$9.1 million and non-cash adjustments aggregating $86.2 million.
Depreciation and amortization of $65.5 million, the after-tax cumulative
accounting change of $2.8 million, the deferred income tax provision of $12.7
million, and the undistributed losses of unconsolidated affiliates of $5.1
million, were the primary components of the non-cash adjustments to cash
provided by operations. Offsetting these sources was a decrease in accounts
payable and accruals of $14.7 million. All working capital changes have been
adjusted to exclude the effects of currency translation.
Working capital levels are more than adequate to meet the operating
requirements of the Company. The Company ended the current quarter with
working capital of $193.1 million, which included cash and cash equivalents
of $34.9 million.
The Company utilized $107.9 million for net investing activities and $39.2
million for net financing activities during the year-to-date period ended
March 28, 1999. Significant expenditures during this period included $98.3
million for capacity expansions and upgrading of facilities, $10.0 for
investments in equity affiliates, $32.5 million for the purchase and
retirement of Company common stock and $6.0 million for distributions to
minority interest shareholders. The Company expended $1.7 million for net
payments under its long-term debt agreements.
At March 28, 1999, the Company has committed approximately $34.3 million for
the purchase and upgrade of equipment and facilities, which is scheduled to
be expended during the remainder of fiscal year 1999 and in fiscal year 2000.
A significant component of these committed funds as well as a major component
of the year-to-date capital expenditures is the continuing construction of a
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.
In the current quarter, the Company recognized a $14.8 million charge
associated with the early retirement and termination of 114 salaried
employees. The charge was recorded as a component of selling, general and
administrative expenses in the amount of $8.2 million and cost of goods sold
in the amount of $6.6 million. Substantially all employees were terminated
effective March 31, 1999, with cash payments expected to be spread over a
period not to exceed three years.
<PAGE>
The Company purchased, effective April 1, 1999, the polyester texturing and
dyed yarn property, plant and equipment of Fairway Poliester, LTDA located in
Brazil for $14.5 million.
The Company periodically evaluates the carrying value of long-lived assets,
including property, plant and equipment and intangibles to determine if
impairment exists. If the sum of expected future undiscounted cash flows is
less than the carrying amount of the asset, an impairment loss is required to
be recognized for the difference between the fair value or the discounted
future cash flows and the carrying amount of the asset. As discussed in the
current and prior periods, the performance of our polyester operations
continues to be negatively impacted by the ongoing effects of the Asian
financial crisis and other foreign excess capacity issues that have given
rise to increased imports of fiber, fabric and apparel which have reduced
polyester sales volumes and gross margins. Additionally, in response to the
pressures caused by the importation of fabric and apparel, many U.S. textile
and apparel manufacturers are downsizing their domestic operations and moving
production capacity offshore. Taken together, it is possible that the full
amount of certain long-lived assets associated with the Company's polyester
operations may not be ultimately recoverable. In light of these current
trends, the company has undertaken an assessment of whether the projected
future cash flows of these operations will be sufficient to recover the
carrying amount of the related assets. The company expects to complete this
analysis in the fourth quarter of fiscal 1999. If recent trends continue,
forecasted cash flows may be insufficient to recover the total asset carrying
value and accordingly the company would be required to recognize an
impairment charge by reducing the carrying amount of the assets to estimated
fair values. Such a charge, if required, may be material.
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 authorized management to utilize cash equal
to the same 30% of previous year's earnings to purchase shares of the
Company's stock as management deems advisable. The Board of Directors also
increased the remaining authorization pursuant to a resolution originally
adopted on October 21, 1993, to purchase 10 million shares of Unifi's common
stock. During the current year, the Company has purchased 1.6 million
shares. Accordingly, there remains an authorization to repurchase
approximately 8.4 million shares. 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.
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
<PAGE>
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
enterprises-wide software is anticipated to be completed in the necessary
time frame. At present, the Company estimates it is approximately 80%
complete with its enterprise-wide software implementation efforts and
approximately 85% complete with respect to manufacturing plant floor
applications. Additionally, upgrades are ongoing and are on schedule for
certain applications where the Company has elected to postpone enterprise
software conversion. Embedded technology devices are also being reviewed in
conjunction with the manufacturing plant floor compliance procedures.
The Company is also dependent upon its customers' and vendors' compliance
with the year 2000 problem and could face disruption of business in the event
these efforts are unsuccessful. 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. Face-to-face meetings have been conducted and will continue
in order to plan and execute appropriate follow-up activities with its more
critical suppliers. The Company has sent surveys to its major customers and
is presently evaluating responses as they are submitted to plan and perform
necessary follow-up activities. Conversion plans have been established for
the Company's EDI customers and vendors and procedures have begun. Efforts
are underway to convert the remaining customers in the next fiscal quarter.
The Company will continue its efforts to gather information from businesses
with whom it conducts business. However, such information is subject to
accurate and voluntary communication. Consequently, the Company cannot
predict the likelihood or impact on its business resulting from noncompliance
by such parties.
Although the Company believes its business critical systems will be compliant
by the end of the current fiscal year, there can be no assurances that all
non-compliant systems will be identified or that all significant suppliers or
customers will be year 2000 capable. A worst-case scenario could include
interruption in the procurement of necessary materials or the disruption in
manufacturing or information systems. Such events would adversely impact the
distribution of product, timelines and accuracy of record-keeping and
collection of revenue among other consequences which could cause a material
impact on the Company's results of operation and financial position.
The Company has begun to develop contingency plans and recovery procedures to
deal with potential problems associated with failures in its own computer
systems as well as disruptions caused by system failures (or further
dependencies) of its critical suppliers. The Company anticipates finalizing
<PAGE>
these plans by the end of its current fiscal year. These plans include,
among others, the modification and upgrading of necessary business systems
for which the enterprise-wide system implementation efforts are not certain.
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-$1.0
million for the fiscal year ending June 27, 1999.
Euro Conversion
The Company conducts business in multiple currencies, including the
currencies of various European countries in the European Union which began
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 when conducting business.
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 continues to evaluate the Euro conversion and the impact
on its business, both strategically and operationally. At this time, the
conversion to the Euro has not had, nor is expected to have, a material
adverse effect on the financial condition or results of operations of the
Company.
Forward Looking Statements
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this quarterly
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 and volumes due to competition and
<PAGE>
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.
<PAGE>
Part II. Other Information
Item 5. Other Information
Effective 5:00 o'clock P.M. on January 31, 1999, William T. Kretzer
resigned as a member of the Company's Board of Directors, as well
as the Company's President and Chief Executive Officer.
Subsequently, Mr. Kretzer died on April 23, 1999. Mr. Kretzer did
not resign as a Director of Company because of disagreements with
the Company on any matters relating to the Company's operations,
policies or practices. A successor director has not yet been
elected.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(27) Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended
March 28, 1999
<PAGE>
UNIFI, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIFI, INC.
Date: May 12, 1999 WILLIS C. MOORE, III
Willis C. Moore, III
Senior-Vice President and Chief
Financial Officer (Mr. Moore is
the Principal Financial and
Accounting Officer and has been
duly authorized to sign on behalf
of the Registrant.)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted the Company's
Quarterly Report for the nine months period ended March 28, 1999, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-END> MAR-28-1999
<CASH> $34,926
<SECURITIES> $0
<RECEIVABLES> $176,361
<ALLOWANCES> $9,202
<INVENTORY> $127,779
<CURRENT-ASSETS> $331,000
<PP&E> $1,208,030
<DEPRECIATION> $528,740
<TOTAL-ASSETS> $1,315,731
<CURRENT-LIABILITIES> $137,929
<BONDS> $443,363
$0
$0
<COMMON> $6,003
<OTHER-SE> $637,266<F1>
<TOTAL-LIABILITY-AND-EQUITY> $1,315,731
<SALES> $943,474
<TOTAL-REVENUES> $943,474
<CGS> $815,567
<TOTAL-COSTS> $815,567
<OTHER-EXPENSES> $0
<LOSS-PROVISION> $5,075
<INTEREST-EXPENSE> $20,122
<INCOME-PRETAX> $65,319
<INCOME-TAX> $20,698
<INCOME-CONTINUING> $44,621
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $2,768
<NET-INCOME> $41,853
<EPS-PRIMARY> $.69<F2>
<EPS-DILUTED> $.69<F2>
<FN>
<PAGE>
<F1>Note 1: Other stockholders Equity of $637,266 is comprised of retained
Earnings of $650,752 and Accumulated Other Comprehensive Loss of $(13,486).
<F2>Note 2: Pursuant to FASB 128, "Earnings per share" which the Company
adopted in the prior fiscal year, 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
current period in the above schedule, has been calculated to conform with the
new pronouncement.
</FN>
</TABLE>
