<PAGE> 1
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 December 26, 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.
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(Exact name of registrant as specified its charter)
New York 11-2165495
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(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
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(Address of principal executive offices) (Zip Code)
(336) 294-4410
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(Registrant's telephone number, including area code)
Same
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(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 January 30, 2000
- -------------------------------------- -------------------------------
Common stock, par value $.10 per share 59,102,293 shares
<PAGE> 2
Part I. Financial Information
UNIFI, INC.
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 26, June 27,
1999 1999
----------- -----------
(Unaudited) (Note)
(Amounts in Thousands)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 34,347 $ 44,433
Receivables 188,243 185,784
Inventories:
Raw materials and supplies 48,895 45,584
Work in process 17,270 14,584
Finished goods 78,932 69,749
Other current assets 1,254 2,015
----------- -----------
Total current assets 368,941 362,149
----------- -----------
Property, plant and equipment 1,239,996 1,231,013
Less: accumulated depreciation 567,341 541,275
----------- -----------
672,655 689,738
----------- -----------
Equity investments in unconsolidated affiliates 209,889 207,142
----------- -----------
Other noncurrent assets 106,385 106,811
----------- -----------
Total assets $ 1,357,870 $ 1,365,840
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 78,954 $ 68,716
Accrued expenses 45,631 52,889
Income taxes payable 9,355 7,392
Current maturities of long-term debt and other
current liabilities 5,581 16,255
----------- -----------
Total current liabilities 139,521 145,252
----------- -----------
Long-term debt and other liabilities 467,089 478,898
----------- -----------
Deferred income taxes 84,343 78,369
----------- -----------
Minority interests 18,131 17,183
----------- -----------
Shareholders' equity:
Common stock 5,915 5,955
Capital in excess of par value 51 13
Retained earnings 668,210 658,353
Accumulated other comprehensive loss (25,390) (18,183)
----------- -----------
Total shareholders' equity 648,786 646,138
----------- -----------
Total liabilities and shareholders' equity $ 1,357,870 $ 1,365,840
=========== ===========
</TABLE>
- ----------------
Note: The balance sheet at June 27, 1999, 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> 3
UNIFI, INC.
Condensed Consolidated Statement of Income
(Unaudited)
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<TABLE>
<CAPTION>
For the Quarters Ended For the Six Months Ended
------------------------- -------------------------
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
1999 1998 1999 1998
-------- --------- -------- ---------
(Amounts in Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Net sales $317,589 $ 319,854 $622,303 $ 648,669
Cost of goods sold 275,847 269,394 546,302 550,732
Selling, general & admin. expense 14,004 11,419 28,426 22,982
Interest expense 7,507 6,553 14,952 13,139
Interest income 848 716 1,532 1,192
Other (income) expense 1,197 741 865 1,292
Equity in (earnings) losses of
unconsolidated affiliates 864 (2,545) 5,228 (6,639)
Minority interests 2,410 2,450 4,804 4,800
-------- --------- -------- ---------
Income before income taxes 16,608 32,558 23,258 63,555
Provision for income taxes 6,435 10,060 9,753 20,027
-------- --------- -------- ---------
Income before cumulative effect of
accounting change 10,173 22,498 13,505 43,528
Cumulative effect of accounting
change, net of tax -- -- -- 2,768
-------- --------- -------- ---------
Net income $ 10,173 $ 22,498 $ 13,505 $ 40,760
======== ========= ======== =========
Earnings per common share - basic:
Income before cumulative effect
of accounting change $ .17 $ .37 $ .23 $ .71
Cumulative effect of accounting
change, net of tax -- -- -- .04
-------- --------- -------- ---------
Net income per common share $ .17 $ .37 $ .23 $ .67
======== ========= ======== =========
Earnings per common share -
assuming dilution:
Income before cumulative effect
of accounting change $ .17 $ .37 $ .23 $ .71
Cumulative effect of accounting
change, net of tax -- -- -- .04
-------- --------- -------- ---------
Net income per common share -
assuming dilution $ .17 $ .37 $ .23 $ .67
======== ========= ======== =========
</TABLE>
- ----------------
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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<TABLE>
<CAPTION>
For the Six Months Ended
------------------------------
December 26, December 27,
1999 1998
-------- ---------
(Amounts in Thousands)
<S> <C> <C>
Cash and cash equivalents provided by
operating activities $ 58,744 $ 130,204
-------- ---------
Investing activities:
Capital expenditures (30,874) (74,431)
Investments in unconsolidated equity
affiliates (17,976) (10,000)
Sale of capital assets 867 456
Other 687 1,059
-------- ---------
Net investing activities (47,296) (82,916)
-------- ---------
Financing activities:
Borrowing of long-term debt 10,000 33,357
Repayment of long-term debt (20,132) (25,119)
Issuance of Company common stock 14 641
Purchase and retirement of Company
common stock (3,708) (24,847)
Distributions to minority interest
shareholders (6,000) (3,000)
Other (3,040) 393
-------- ---------
Net financing activities (22,866) (18,575)
-------- ---------
Currency translation adjustment 1,332 276
-------- ---------
Net increase (decrease) in cash and cash
equivalents (10,086) 28,989
Cash and cash equivalents - beginning 44,433 8,372
-------- ---------
Cash and cash equivalents - ending $ 34,347 $ 37,361
======== =========
</TABLE>
- ----------------
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
UNIFI, INC.
Notes to Condensed Consolidated Financial Statements
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(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 December 26, 1999, and the results of operations and
cash flows for the periods ended December 26, 1999, and December 27, 1998.
Such adjustments consisted of normal recurring items in the current year.
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 losses of foreign subsidiaries
for which no significant tax benefit was recognized thereby distorting the
effective rate for our consolidated 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):
<TABLE>
<CAPTION>
For the Quarters Ended For the Six Months Ended
---------------------- ------------------------
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Income before cumulative
effect of accounting change $10,173 $22,498 $13,505 $43,528
Cumulative effect of
accounting change, net of tax -- -- -- 2,768
------- ------- ------- -------
Net income $10,173 $22,498 $13,505 $40,760
======= ======= ======= =======
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
For the Quarters Ended For the Six Months Ended
---------------------- ------------------------
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Denominator:
Denominator for basic
earnings per share -
Weighted average shares 59,266 60,935 59,407 61,168
Effect of dilutive securities:
Stock options 49 -- 25 3
Restricted stock awards 3 -- 1 --
------ ------ ------ ------
Dilutive potential common
shares denominator for
diluted earnings per
share-Adjusted weighted
average shares and
assumed conversions 59,318 60,935 59,433 61,171
====== ====== ====== ======
</TABLE>
(d) Comprehensive Income
Comprehensive income (loss) amounted to $7.1 million for the second quarter
of fiscal 2000 and $21.8 million for the second quarter of fiscal 1999, and
was comprised of net income and foreign currency translation adjustments.
For the respective year-to-date periods, comprehensive income totaled $6.3
million and $46.3 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 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, wrote off the unamortized
balance of such previously capitalized start-up costs as of June 29, 1998,
of $4.5 million ($2.8 million after tax) or $.04 per diluted share as a
cumulative catch-up adjustment.
(f) Segment Disclosures
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 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
<PAGE> 7
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 did not effect consolidated results of
operations or financial position. Following is the Company's selected segment
information for the quarter and year-to-date periods ended December 26, 1999,
and December 27, 1998 (amounts in thousands):
<TABLE>
<CAPTION>
All
Polyester Nylon Other Total
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Quarter ended December 26, 1999:
Net sales to external customers $208,684 $104,049 $ 4,856 $ 317,589
Intersegment net sales 1 182 3,003 3,186
Operating income 17,512 12,369 299 30,180
Depreciation and amortization 13,425 5,443 224 19,092
Total assets 694,083 354,622 15,609 1,064,314
--------------------------------------------------------------------------------------------------------------------
Quarter ended December 27, 1998:
Net sales to external customers $208,950 $110,904 $ -- $ 319,854
Intersegment net sales 5,800 950 -- 6,750
Operating income 22,160 12,769 -- 34,929
Depreciation and amortization 14,570 5,440 -- 20,010
Total assets 692,201 225,392 -- 917,593
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Quarters Ended
-------------------------------------
December 26, 1999 December 27, 1998
------------------------------------------------------------------------------
<S> <C> <C>
Operating income:
Reportable segments operating income $ 30,180 $34,929
Net standard cost adjustment to LIFO (1,346) 2,953
Unallocated operating expense (1,096) 1,159
================================
Consolidated operating income $ 27,738 $39,041
================================
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------- -------------- --------------- --------------- ---------------
All
Polyester Nylon Other Total
---------------------------------------------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Six months ended December 26, 1999:
Net sales to external customers $ 401,795 $ 210,707 $ 9,801 $ 622,303
Intersegment net sales 4 291 6,012 6,307
Operating income 28,076 22,327 780 51,183
Depreciation and amortization 28,100 10,792 380 39,272
---------------------------------------------------- -------------- --------------- --------------- ---------------
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
--------------------------------------------------- --------------- --------------- -------------- ---------------
All
Polyester Nylon Other Total
--------------------------------------------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Six months ended December 27, 1998:
Net sales to external customers $ 421,204 $ 227,465 $ -- $ 648,669
Intersegment net sales 14,027 2,362 -- 16,389
Operating income 45,028 27,075 -- 72,103
Depreciation and amortization 29,002 10,508 -- 39,510
--------------------------------------------------- --------------- --------------- -------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
---------------------------------------------------
December 26, 1999 December 27, 1998
--------------------------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Operating income:
Reportable segments operating income $ 51,183 $ 72,103
Net standard cost adjustment to LIFO (2,346) 4,770
Unallocated operating expense (1,262) (1,918)
========================= =========================
Consolidated operating income $ 47,575 $ 74,955
========================= =========================
</TABLE>
Certain indirect manufacturing and selling, general and administrative
costs are allocated to the operating segments based on activity drivers
relevant to the respective costs. The primary differences between the
segmented financial information of the operating segments, as reported to
management, and the Company's consolidated reporting relates to
intersegment transfer of yarn, fiber costing and capitalization of
property, plant and equipment costs. Prior to the current fiscal year,
substantially all intersegment transfers of yarn were treated as internal
sales at a selling price which approximated cost plus a normalized profit
margin. In the current quarter and for the year to date, intersegment
transfers of yarn were treated as inventory transfers, and profit margins
recorded only on intersegment transfers from our Unifi Textured Polyester
joint venture. Domestic operating divisions' fiber costs are valued on a
standard cost basis, which approximates first-in, first-out accounting.
Subsequently, for those components of inventory valued utilizing the
last-in, first-out method, an adjustment is made at the corporate level.
For significant capital projects, capitalization is delayed for management
segment reporting until the facility is substantially complete. However,
for consolidated management financial reporting, assets are capitalized
into construction in progress as costs are incurred or carried as
unallocated corporate fixed assets if they have been placed in service but
have not as yet been moved for management reporting.
The increase in Nylon total assets is attributable to the reclassification
of property, plant and equipment from unallocated corporate fixed assets.
This reclassification primarily relates to a new facility that had become
substantially completed. The change in total assets for the "All Other"
segment primarily reflects the establishment of the Company's majority
owned subsidiary, Unifi Technology Group in May 1999. Unifi Technology
Group is a domestic automation solutions provider.
<PAGE> 9
(g) Early Retirement and Termination Charge
During the third quarter of fiscal 1999, 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. At December 26, 1999 there
remained a reserve of $8.9 million that is expected to equal the future
cash expenditures to such terminated employees.
(h) Recent Accounting Pronouncements
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 became effective for the Company in the first quarter of fiscal
year 2000. SOP 98-1 provides guidance on accounting for costs of developing
or obtaining computer software for internal use. In summary, costs incurred
in the preliminary project stage (formulation, evaluation and selection of
alternatives and assessment of existence of required technology) or
post-implementation stage (training and maintenance) should be expensed as
incurred while application development costs should be capitalized or
expensed depending on their nature. Application development costs include
external direct costs of materials and services. Examples of application
development costs are designing the chosen path, coding, testing and
installing the software product to hardware. The Company previously
expensed certain of these internal costs when incurred. The adoption of
this standard did not have, nor is it expected to have, a material effect
on the Company's results of operations or financial position.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
(SFAS 133) and in June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," which delayed the effective date the Company is required to adopt
SFAS 133 until its fiscal year 2001. 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.
<PAGE> 10
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
General
Consolidated net sales decreased slightly for the quarter from $319.9 million to
$317.6 million. Unit volume for the quarter increased 9.6% while average unit
sales prices, based on product mix, declined 9.4%. For the year-to-date period,
net sales declined $26.4 million to $622.3 million, or 4.1%. Unit volume for the
year-to-date period increased 6.6% while average unit sales prices declined
approximately 10.0%. Unit volumes are up for both current year periods due
primarily to the Brazilian acquisition in April, 1999. Overall pricing has
continued to be adversely impacted by Asian imports of fiber, fabric and
apparel. However, several favorable trends developed in the second quarter. One
positive factor was our ability to pass along raw material price increases to
our customers for our polyester and some of our nylon products. In addition, a
more profitable mix of products was sold strengthening our margins. These
favorable developments were offset, in part, by volumes lost due to the price
increases which the Company will attempt to recover.
Domestically, polyester and nylon yarn net sales declined 3.1% for the quarter
due primarily to reductions in unit price, based on product mix. Price increases
were instituted at the beginning of the quarter for our polyester products and
some of our nylon yarns. Volumes domestically experienced moderate growth for
the quarter over the prior year. For the year to date, net sales declined 7.1%
as a result of both lower volume and reduced unit prices. Internationally, sales
in local currency of our Irish operation decreased 20.1% for the quarter and
23.3% for the year to date due to both lower unit volume and sales prices. The
currency exchange rate change from the prior year to the current year adversely
effected current quarter and year-to-date sales translated to U.S. dollars for
this operation. U.S. dollar net sales were $3.8 million and $5.4 million less
than what sales would have been reported using prior year translation rates for
the quarter and year to date, respectively.
Gross profit decreased by $8.7 million to $41.7 million for the quarter while
gross margin (gross profit as a percentage of net sales) declined from 15.8% in
the prior year quarter to 13.1%. For the year-to-date period, gross profit
declined $21.9 million, while gross margin declined from 15.1% to 12.2%. Reduced
volume and sales prices in the European market have adversely impacted our Irish
operations and margins in our Brazilian operations, while improving, have not
reached acceptable levels. Domestically, our margins have improved over the
September 1999 quarter and over year ago levels.
Selling, general and administrative expenses as a percentage of net sales
increased from 3.6% in last year's quarter to 4.4% this quarter. On a dollar
basis, selling, general and administrative expense increased $2.6 million to
$14.0. For the year to date, selling general
<PAGE> 11
and administrative expenses as a percentage of net sales increased from 3.5% to
4.6%. On a dollar basis, selling general and administrative expense increased
$5.4 million to $28.4 million. Higher selling, general and administrative
expenses for the current year are primarily the result of our new business
venture in Brazil, acquired in April 1999, and the formation of Unifi Technology
Group in May 1999.
Segment Information
Net sales to external customers for our Polyester segment have remained
virtually unchanged for the quarter compared to year ago levels as our
acquisition in Brazil has resulted in higher volume offsetting decreased unit
prices. Gross profit has declined as reduced sales prices and higher raw
material prices have more than offset lower manufacturing and fixed charges. For
the year-to-date period the results have been consistent with the quarter.
Selling general and administrative expenses for this segment have increased
primarily due to our acquisition in Brazil.
Net sales to external customers for our Nylon segment were 6.2% lower in the
current quarter versus the prior year quarter and 7.4% for the year to date as a
result of both lower volume and sales prices, based on product mix. Gross margin
declines for this segment reflects lower sales prices and higher production
costs. Selling, general and administrative costs have also increased over the
prior year amounts negatively impacting operating margins.
Corporate
Interest expense increased $1.0 million to $7.5 million in the current quarter
and $1.8 million to $15.0 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.
The weighted average interest rate on outstanding debt at December 26, 1999, was
6.3%.
Other income and expense was negatively impacted in the current year by a $2.6
million write-off of fixed assets related to the abandonment of certain
equipment associated with domestic plant consolidations. The asset write-off was
offset, in part, by a $0.6 million gain recognize for insurance proceeds
recovered for a claim filed for property damage sustained by a tornado.
Equity in the earnings (losses) of our unconsolidated affiliates, Parkdale
America, LLC ("the LLC") and Micell Technologies, Inc., ("Micell") amounted to a
$0.9 million loss in the second quarter of fiscal 2000 compared with $2.5
million profit for the corresponding prior year quarter. For the respective
year-to-date period, the loss in the current year was $5.2 million compared to a
$6.6 million profit in the prior year, or an unfavorable change of $11.9
million. The declines are attributable to the reduced earnings from the LLC and
higher start-up costs associated with Micell. The cotton spinning operations of
the LLC have been negatively impacted by lower volumes and excess capacity in
the spun cotton markets. Operating results for the LLC did, however, improve
considerably in the second quarter of the current year over the first quarter
largely as a result of the re-institution of the U.S.D.A. cotton
<PAGE> 12
rebate program near the beginning of the second quarter. We are expecting
continuing improvements in the LLC operations over the remainder of the fiscal
year.
In the current year fiscal quarter and corresponding prior year period the
minority interest charge amounted to $2.4 million. For both of the respective
year to date periods, the minority interest charge was $4.8 million.
The effective income tax rate has increased from 30.9% to 38.7% in the current
quarter and from 31.5% to 41.9% for the year to date period. The increases for
the current periods reflect the reduction in earnings of our Irish operations,
which are taxed at a 10.0% effective tax rate, and losses in our Brazilian
operations for which no tax benefit has been recognized.
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 adopting this SOP in the first
quarter of fiscal 1999, wrote off the unamortized balance of such previously
capitalized start-up costs as of June 29, 1998, of $4.5 million ($2.8 million
after tax) or $.04 per diluted share as a cumulative catch-up adjustment.
As a result of the above, the Company realized during the current quarter net
income of $10.2 million, or diluted earnings per share of $.17, compared to
$22.5 million, or $.37 per share, for the corresponding quarter of the prior
year. For the year-to-date period, the Company realized net income of $13.5
million, or $.23 per share on a diluted basis compared to $40.8 million or $.67
per share in the prior year. For the prior year to date, income before the
cumulative effect of the accounting change was $43.5 million, or $.71 per
diluted share, respectively.
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
became effective for the Company in the first quarter of fiscal year 2000. SOP
98-1 provides guidance on accounting for costs of developing or obtaining
computer software for internal use. In summary, costs incurred in the
preliminary project stage (formulation, evaluation and selection of alternatives
and assessment of existence of required technology) or post-implementation stage
(training and maintenance) should be expensed as incurred while application
development costs should be capitalized or expensed depending on their nature.
Application development costs include external direct costs of materials and
services. Examples of application development costs are designing the chosen
path, coding, testing and installing the software product to hardware. The
Company previously expensed certain of these internal costs when incurred. The
adoption of this standard did not have, nor is it expected to have, a material
effect on the Company's results of operations or financial position.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133)
and in June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB
<PAGE> 13
Statement No. 133," which delayed the effective date the Company is required to
adopt SFAS 133 until its fiscal year 2001. 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.
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
$58.7 million for the year-to-date period ended December 26, 1999, compared to
$130.2 million for the prior year corresponding period. The primary sources of
cash from operations, other than net income, was an increase in accounts
payable, accruals and income taxes of $11.9 million and non-cash adjustments
aggregating $57.0 million. Depreciation and amortization of $43.3 million, the
deferred income tax provision of $6.0 million, the undistributed losses of
unconsolidated affiliates of $5.2 million and the loss on the sale of assets of
$2.5 million were the components of the non-cash adjustments to cash provided by
operations. Offsetting these sources were increases in accounts receivable and
inventory of $3.5 million and $18.4 million, respectively. 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
$229.4 million, which included cash and cash equivalents of $34.3 million.
The Company utilized $47.3 million for net investing activities and $22.9
million for net financing activities during the current quarter. Significant
expenditures during this period included $30.9 million for capital expenditures
consisting of initial construction costs for the Company's Unifi Technical
Fabrics nonwoven facility and installment payments for related equipment and for
upgrading other machinery and facilities. Additionally, $18.0 million was
expended for investments in equity affiliates, $6.0 million for distributions to
minority interest shareholders, $10.1 million for net payments under long-term
debt agreements and $3.7 for repurchases of the Company's common stock.
At December 26, 1999, the Company has committed approximately $40.6 million for
costs related to the construction of its nonwoven facility and related equipment
and the purchase and upgrade of equipment at other locations. The majority of
these committed costs are scheduled to be expended during the remainder of
fiscal year 2000.
The Board of Directors, effective July 16, 1998, increased the remaining
authorization pursuant to a resolution originally adopted on October 21, 1993,
to purchase 10 million shares
<PAGE> 14
of Unifi's common stock. There remains an authorization to repurchase
approximately 7.5 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.
The Company's $400.0 million revolving credit facility is scheduled to mature on
April 15, 2001. At December 26, 1999 the outstanding balance under this credit
facility was $207.0 million. The Company is currently in the process of
evaluating its options regarding the refinancing of the revolving credit
facility.
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 did not experience any interruption in its business operations as a
result of problems associated with the year 2000 for either its information
technology systems or non-information technology systems (i.e., embedded
technology). In addition, no disruption in business was experienced between the
Company and its customers or vendors as a consequence of the year 2000 issue.
Costs incurred for the Company's year 2000 compliance efforts were expensed as
incurred and were funded by cash flows from operations. Expenditures related to
year 2000 compliance readiness were approximately $0.2 million during the
current fiscal year and $1.0 million in total.
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.
<PAGE> 15
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 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> 16
Part II. Other Information
UNIFI, INC.
- --------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
The first item of business to come before the Shareholders of the
Company at their annual Meeting held on the 21st day of October 1999,
was to consider and vote upon the election of one (1) Class 3
Director, one (1) Class 1 Director and three (3) Class 2 Directors of
the Company.
The Shareholders elected management's nominees for the one (1) Class 3
Director, one (1) Class 1 Director and three (3) Class 2 Directors of
the Company to serve until the Annual Meeting of the Shareholders in
2000, 2001 and 2002, respectively or until their successors are
elected and qualified, as follows:
<TABLE>
<CAPTION>
Class Votes Votes Votes
Name of Director of Director in Favor Against Abstaining
---------------- ----------- -------- ------- ----------
<S> <C> <C> <C> <C>
Brian R. Parke 3 50,585,278 0 963,665
Sir Richard Greenbury 1 50,518,146 0 1,030,797
Charles R. Carter 2 50,577,771 0 971,172
Jerry W. Eller 2 50,585,091 0 963,852
Kenneth G. Langone 2 50,572,726 0 976,217
</TABLE>
The following persons will continue to serve on the Company's Board of
Directors until the Annual Meeting of Shareholders in 2000 for Class 3
and 2001 for Class 1:
Class 3 Class 1
------- -------
G. Allen Mebane, IV Donald F. Orr
J.B. Davis Robert A. Ward
R. Wiley Bourne, Jr. G. Alfred Webster
The information set forth under the headings "Election of Directors,"
"Nominees for Election as Directors," and "Security Holding of
Directors, Nominees, and Executive Officers" on Pages 3-5 of the
Definitive Proxy Statement filed with the Commission since the close
of the registrant's fiscal year ending June 27, 1999, is incorporated
herein by reference.
The second item of business to come before the Shareholders of the
Company at their Annual Meeting was to consider and vote upon the
adoption of the 1999 Unifi, Inc. Long-Term Incentive Plan ("Plan").
The Plan reserves 6 million shares of the Company's stock for use in
issuing restricted stock awards and granting stock options to
<PAGE> 17
key employees of the company, which provides an effective means of
retaining, attracting, and motivating such key employees, as more
particularly set forth as Proposal No. 2 on Pages 14-17 and on Exhibit
"A" of the Definitive Proxy filed with the Commission since the close
of the registrant's fiscal year ending June 27, 1999, which is
incorporated herein by reference.
The Shareholders adopted the Plan, with the vote being as follows:
UNIFI, INC. LONG-TERM INCENTIVE PLAN
For Plan Abstaining Against Plan
-------- ---------- ------------
34,366,194 10,112,952 1,853,307
<PAGE> 18
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 December 26, 1999
<PAGE> 19
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: February 9, 2000 /s/ 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.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT FOR THE SIX MONTH PERIOD ENDED DECEMBER 26, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-25-2000
<PERIOD-END> DEC-26-1999
<CASH> 34,347
<SECURITIES> 0
<RECEIVABLES> 197,613
<ALLOWANCES> 9,370
<INVENTORY> 145,097
<CURRENT-ASSETS> 368,941
<PP&E> 1,239,996
<DEPRECIATION> 567,341
<TOTAL-ASSETS> 1,357,870
<CURRENT-LIABILITIES> 139,521
<BONDS> 467,089
0
0
<COMMON> 5,915
<OTHER-SE> 642,871<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,357,870
<SALES> 622,303
<TOTAL-REVENUES> 622,303
<CGS> 546,302
<TOTAL-COSTS> 546,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,197
<INTEREST-EXPENSE> 14,952
<INCOME-PRETAX> 23,258
<INCOME-TAX> 9,753
<INCOME-CONTINUING> 13,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,505
<EPS-BASIC> .23
<EPS-DILUTED> .23
<FN>
<F1>OTHER STOCKHOLDERS EQUITY OF $642,871 IS COMPRISED OF CAPITAL IN EXCESS OF PAR
VALUE OF $51, RETAINED EARNINGS OF $668,210 AND ACCUMULATED OTHER COMPREHENSIVE
LOSS OF $(25,390).
</FN>
</TABLE>
