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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 26, 2000
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[ ] 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
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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 April 30, 2000
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Common stock, par value $.10 per share 56,882,493 shares
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Part I. Financial Information
UNIFI, INC.
Condensed Consolidated Balance Sheets
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<TABLE>
<CAPTION>
March 26, June 27,
2000 1999
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<S> <C> <C>
(Unaudited) (Note)
(Amounts in Thousands)
ASSETS:
Current assets:
Cash and cash equivalents $ 27,827 $ 44,433
Receivables 209,114 185,784
Inventories:
Raw materials and supplies 58,001 45,584
Work in process 18,109 14,584
Finished goods 74,139 69,749
Other current assets 1,448 2,015
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Total current assets 388,638 362,149
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Property, plant and equipment 1,245,256 1,231,013
Less: accumulated depreciation 582,322 541,275
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662,934 689,738
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Equity investments in unconsolidated affiliates 212,210 207,142
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Other noncurrent assets 112,447 106,811
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Total assets $ 1,376,229 $ 1,365,840
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 89,195 $ 68,716
Accrued expenses 39,851 52,889
Income taxes payable 15,792 7,392
Current maturities of long-term debt and other
current liabilities 4,907 16,255
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Total current liabilities 149,745 145,252
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Long-term debt and other liabilities 478,037 478,898
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Deferred income taxes 84,305 78,369
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Minority interests 17,505 17,183
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Shareholders' equity:
Common stock 5,876 5,955
Capital in excess of par value -- 13
Retained earnings 666,981 658,353
Accumulated other comprehensive loss (26,220) (18,183)
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Total shareholders' equity 646,637 646,138
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Total liabilities and shareholders' equity $ 1,376,229 $ 1,365,840
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</TABLE>
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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.
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UNIFI, INC.
Condensed Consolidated Statements of Income
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(Unaudited)
<TABLE>
<CAPTION>
For the Quarters Ended For the Nine Months Ended
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March 26, March 28, March 26, March 28,
2000 1999 2000 1999
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(Amounts in Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Net sales $ 319,302 $ 294,805 $ 941,605 $ 943,474
Cost of goods sold 276,432 264,835 822,734 815,567
Selling, general & admin. expense 14,645 19,649 43,071 42,631
Interest expense 7,522 6,983 22,474 20,122
Interest income (590) (536) (2,122) (1,728)
Other (income) expense 130 (17) 995 1,275
Equity in (earnings) losses of
unconsolidated affiliates (2,321) 2,241 2,907 (4,398)
Minority interests 2,380 (114) 7,184 4,686
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Income before income taxes 21,104 1,764 44,362 65,319
Provision for income taxes 7,868 671 17,621 20,698
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Income before cumulative effect of
accounting change 13,236 1,093 26,741 44,621
Cumulative effect of accounting
change, net of tax -- -- -- 2,768
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Net income $ 13,236 $ 1,093 $ 26,741 $ 41,853
========= ========= ========= =========
Earnings per common share - basic:
Income before cumulative effect
of accounting change $ .23 $ .02 $ .45 $ .73
Cumulative effect of accounting
change, net of tax -- -- -- .04
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Net income per common share $ .23 $ .02 $ .45 $ .69
========= ========= ========= =========
Earnings per common share -
assuming dilution:
Income before cumulative effect
of accounting change $ .23 $ .02 $ .45 $ .73
Cumulative effect of accounting
change, net of tax -- -- -- .04
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Net income per common share -
assuming dilution $ .23 $ .02 $ .45 $ .69
========= ========= ========= =========
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
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UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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<TABLE>
<CAPTION>
For the Nine Months Ended
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March 26, March 28,
2000 1999
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(Amounts in Thousands)
<S> <C> <C>
Cash and cash equivalents provided by
operating activities $ 81,025 $ 174,651
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Investing activities:
Capital expenditures (42,173) (98,279)
Acquisitions (7,986) --
Investments in unconsolidated equity
affiliates (16,070) (10,000)
Sale of capital assets 2,634 726
Other (1,825) (395)
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Net investing activities (65,420) (107,948)
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Financing activities:
Borrowing of long-term debt 39,089 43,387
Repayment of long-term debt (37,645) (45,090)
Issuance of Company common stock 14 641
Purchase and retirement of Company
common stock (18,387) (32,483)
Distributions to minority interest
shareholders (9,000) (6,000)
Other (4,529) 367
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Net financing activities (30,458) (39,178)
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Currency translation adjustment (1,753) (971)
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Net increase (decrease) in cash and cash
equivalents (16,606) 26,554
Cash and cash equivalents - beginning 44,433 8,372
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Cash and cash equivalents - ending $ 27,827 $ 34,926
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</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
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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 March 26, 2000, and the results of operations and
cash flows for the periods ended March 26, 2000, and March 28, 1999. 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 earnings and losses of foreign
subsidiaries that are taxed at rates different than the U.S. statutory
rates.
(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 Nine Months Ended
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March 26, March 28, March 26, March 28,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Numerator:
Income before cumulative
effect of accounting change $13,236 $ 1,093 $26,741 $44,621
Cumulative effect of
accounting change, net of tax -- -- -- 2,768
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Net income $13,236 $ 1,093 $26,741 $41,853
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</TABLE>
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<TABLE>
<CAPTION>
For the Quarters Ended For the Nine Months Ended
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March 26, March 28, March 26, March 28,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Denominator:
Denominator for basic
earnings per share -
Weighted average shares 58,687 60,218 59,167 60,851
Effect of dilutive securities:
Stock options -- -- 17 2
Restricted stock awards 7 -- 3 --
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Dilutive potential common
shares denominator for
diluted earnings per
share-Adjusted weighted
average shares and
assumed conversions 58,694 60,218 59,187 60,853
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</TABLE>
(d) Comprehensive Income
Comprehensive income (loss) amounted to $12.4 million for the third quarter
of fiscal 2000 and ($7.4) million for the third quarter of fiscal 1999, and
was comprised primarily of net income and foreign currency translation
adjustments. For the respective year-to-date periods, comprehensive income
totaled $18.7 million and $38.9 million and was comprised primarily 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 March 26, 2000, and
March 28, 1999 (amounts in thousands):
<TABLE>
<CAPTION>
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All
Polyester Nylon Other Total
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<S> <C> <C> <C> <C>
Quarter ended March 26, 2000:
Net sales to external customers $ 212,031 $ 102,210 $ 5,061 $ 319,302
Intersegment net sales -- 117 2,888 3,005
Operating income 18,087 9,626 215 27,928
Depreciation and amortization 15,898 5,540 210 21,648
Total assets 707,605 366,574 15,527 1,089,706
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Quarter ended March 28, 1999:
Net sales to external customers $ 184,611 $ 110,194 $ -- $ 294,805
Intersegment net sales 2,380 1,386 -- 3,766
Operating income (1,345) 7,803 -- 6,458
Depreciation and amortization 14,592 6,129 -- 20,721
Total assets 675,354 213,841 -- 889,195
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</TABLE>
<TABLE>
<CAPTION>
For the Quarters Ended
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March 26, 2000 March 28, 1999
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<S> <C> <C>
Operating income:
Reportable segments operating income $ 27,928 $ 6,458
Net standard cost adjustment to LIFO (246) 3,028
Unallocated operating expense 543 835
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Consolidated operating income $ 28,225 $ 10,321
=======================
</TABLE>
<TABLE>
<CAPTION>
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All
Polyester Nylon Other Total
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<S> <C> <C> <C> <C>
Nine months ended March 26, 2000:
Net sales to external customers $613,826 $312,917 $ 14,862 $941,605
Intersegment net sales 4 408 8,900 9,312
Operating income 46,163 31,953 995 79,111
Depreciation and amortization 43,997 16,332 590 60,919
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</TABLE>
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<TABLE>
<CAPTION>
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All
Polyester Nylon Other Total
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<S> <C> <C> <C> <C>
Nine months ended March 28, 1999:
Net sales to external customers $605,815 $337,659 $ -- $943,474
Intersegment net sales 16,407 3,748 -- 20,155
Operating income 43,683 34,878 -- 78,561
Depreciation and amortization 43,594 16,637 -- 60,231
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</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
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March 26, 2000 March 28, 1999
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<S> <C> <C>
Operating income:
Reportable segments operating income $ 79,111 $ 78,561
Net standard cost adjustment to LIFO (2,592) 7,798
Unallocated operating expense (719) (1,083)
-----------------------
Consolidated operating income $ 75,800 $ 85,276
=======================
</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. For
those components of inventory valued utilizing the last-in, first-out
(LIFO) method, an adjustment is made at the corporate level to record the
difference between standard cost and LIFO. 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 segment reporting.
The increase in nylon total assets is attributable to the reclassification
of property, plant and equipment from unallocated corporate fixed assets.
This reclassification primarily relates to a new facility that was
substantially completed. The change in total assets for the "All Other"
segment primarily 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 March 26, 2000, there
remained a liability of $7.6 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.
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(i) Acquisition
On March 8, 2000, the Company acquired Intex Yarns Limited located in
Manchester, England for approximately $8.0 million plus assumed debt. This
acquisition adds high quality, package-dyeing capabilities in Europe and
compliments the Company's yarn production facility in Letterkenny, Ireland.
The acquisition, which is not considered significant to the Company's
consolidated net assets or results of operations, was accounted for by the
purchase method of accounting.
(j) Subsequent Event
On April 3, 2000, the Company and E.I. Du Pont De Nemours & Company
(DuPont) announced their intention to form a manufacturing alliance to
produce polyester filament yarn. The alliance is expected to optimize
Unifi's and DuPont's partially oriented yarn (POY) manufacturing
facilities, increase productivity and improve product quality. The alliance
is expected to become effective June 1, 2000.
The alliance will involve manufacturing production only. Under its terms,
DuPont and Unifi will cooperatively run their polyester filament
manufacturing facilities, with a combined capacity of 800 million pounds,
as a single unit. Production will be realigned among DuPont's Dacron(R)
polyester filament plants in Wilmington, N.C. and Kinston, N.C. and Unifi's
plant in Yadkinville, N.C. to take advantage of the unique capabilities at
each site. DuPont's Dacron(R) POY business and Unifi's textured yarn
business will remain separate entities.
DuPont and Unifi will continue to own and operate their respective sites
and employees will remain with their respective employers. DuPont will
continue to provide POY to the marketplace and will use DuPont technology
to expand the specialty product range at each of the company's sites. Unifi
will continue to provide textured yarn to the marketplace.
<PAGE> 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations
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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 increased 8.3% for the quarter from $294.8 million to
$319.3 million. Unit volume for the quarter increased 10.5% while average unit
sales prices, based on product mix, declined approximately 2.0%. For the
year-to-date period, net sales declined $1.9 million to $941.6 million. Unit
volume for the year-to-date period increased 7.6% while average unit sales
prices declined 6.8%. Unit volumes are up for both current year periods due
primarily to the Brazilian acquisition in April, 1999. Pricing has continued to
improve on a quarter-to-quarter basis during the current year as a result of a
richer product mix.
Domestically, polyester and nylon yarn net sales increased 3.0% for the quarter
due to improvements in both volume and unit price, based on product mix. Our
polyester dyed yarn business for furniture and automotive customers had a strong
quarter and our home furnishings business remained positive. The apparel market
continues to be the weakest end-use market for our domestic polyester business.
On the nylon side of our domestic business, the weakness in the hosiery market
continues to adversely impact our fine-denier nylon business while our
value-added covered yarn business did well for the quarter. Going forward, we
anticipate growth opportunities developing in the domestic nylon business
relating to the new seamless apparel market. For the year to date, nylon net
sales declined 4.0% as a result of reduced unit prices. Internationally, sales
in local currency of our Irish operation increased 6.1% for the quarter due to
increased volume and decreased 14.7% for the year to date as a function of 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 $3.7 million and $9.1 million less than what sales would have
been reported using prior year translation rates for the quarter and year to
date, respectively.
Gross profit increased by $12.9 million to $42.9 million for the quarter while
gross margin (gross profit as a percentage of net sales) increased from 10.2% in
the prior year quarter to 13.4%. Gross margin in the prior year's quarter
excluding the effects of a $6.6 million early retirement charge was 12.4%. The
improvement over the prior year quarterly is attributable to increases in
domestic polyester sales prices and a shift to a more value-added product mix.
For the year-to-date period, gross profit declined $9.0 million, while gross
margin declined from 13.6% to 12.6%. Excluding the effects of the early
retirement charge, gross margin in the prior year-to-date period was 14.3%.
Selling, general and administrative expenses as a percentage of net sales,
exclusive of an $8.2 million early retirement charge in the prior year quarter,
increased from 3.9% in last year's
<PAGE> 12
quarter to 4.6% this quarter. On a dollar basis, selling, general and
administrative expense increased $3.2 million to $14.6 million, exclusive of the
previously noted charge. For the year to date, selling general and
administrative expenses as a percentage of net sales increased from 3.7% to 4.6%
excluding the prior year $8.2 million early retirement charge. On a dollar
basis, selling general and administrative expense increased $8.6 million to
$43.1 million excluding the prior year charge for early retirement. 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 increased 14.9%
for the quarter compared to year ago levels as our acquisition in Brazil has
resulted in higher volume. Additionally, we have experienced higher average unit
prices. Gross profit has improved for the quarter due to higher average sales
prices and a shift to a more value-added product mix. In addition, the gross
profit for the prior year quarter was adversely affected by the polyester
segment's share of the cost of sales early retirement charges amounting to $3.9
million. For the year-to-date period the results have been consistent with the
quarter except that average unit prices, while improving throughout the current
year, still lag the prior year-to-date average prices. Selling general and
administrative expenses for this segment have increased, after excluding the
polyester segment's share of the selling, general and administrative early
retirement charge of $5.7 million in the prior year, primarily due to our
acquisition in Brazil.
Net sales to external customers for our nylon segment were 7.2% lower in the
current quarter versus the prior year quarter and 7.3% for the year to date as a
result of both lower volume and sales prices, based on product mix. Gross margin
improvement for this segment reflects increased manufacturing efficiencies
relating to the recent plant consolidation. In addition, the prior year amounts
include $2.7 million for the nylon segment's share of the cost of sales early
retirement charge. Recurring selling, general and administrative costs allocated
to this segment have also increased over the prior year amounts after, excluding
the nylon segment's share of selling general and administrative early retirement
charge of $2.5 million in the prior year, negatively impacting operating
margins.
Corporate
Interest expense increased $0.5 million to $7.5 million in the current quarter
and $2.4 million to $22.5 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 March 26, 2000, was
6.5%.
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 and $0.5 million in
currency losses. These amounts were offset, in part, by a $1.1 million gain
recognized for insurance proceeds recovered for a claim filed
<PAGE> 13
for property damage sustained by a tornado and a $0.6 million gain recognized on
the sale of an investment.
Equity in the earnings (losses) of our unconsolidated affiliates, Parkdale
America, LLC ("the LLC") and Micell Technologies, Inc., ("Micell") amounted to
$2.3 million in the third quarter of fiscal 2000 compared with ($2.2) million
for the corresponding prior year quarter. For the respective year-to-date
period, the loss in the current year was $2.9 million compared to a $4.4 million
profit in the prior year, or an unfavorable change of $7.3 million. The cotton
spinning operations of the LLC have continued to improve in the third quarter of
the current year compared to the previous two quarters. Micell continues to
incur substantial start-up costs.
The minority interest charge was $2.4 million in the current year fiscal quarter
compared to income in the prior year quarter of $0.1 million. For the respective
year-to-date periods, the minority interest charge was $7.2 million and $4.7
million.
The effective income tax rate has decreased from 38.0% to 37.3% in the current
quarter and has increased from 31.7% to 39.7% for the year-to-date period. The
increase for the current year-to-date period reflects 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 $13.2 million, or diluted earnings per share of $.23, compared to $1.1
million, or $.02 per share, for the corresponding quarter of the prior year. For
the year-to-date period, the Company realized net income of $26.7 million, or
$.45 per share on a diluted basis compared to $41.9 million or $.69 per share in
the prior year. For the prior year to date, income before the cumulative effect
of the accounting change was $44.6 million, or $.73 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
<PAGE> 14
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.
On March 8, 2000, the Company acquired Intex Yarns Limited located in
Manchester, England for approximately $8.0 million plus assumed debt. This
acquisition adds high quality, package-dyeing capabilities in Europe and
compliments the Company's yarn production facility in Letterkenny, Ireland. The
acquisition, which is not considered significant to the Company's consolidated
net assets or results of operations, was accounted for by the purchase method of
accounting.
On April 3, 2000, the Company and E.I. Du Pont De Nemours & Company (DuPont)
announced their intention to form a manufacturing alliance to produce polyester
filament yarn. The alliance is expected to optimize Unifi's and DuPont's
partially oriented yarn (POY) manufacturing facilities, increase productivity
and improve product quality. The alliance is expected to become effective June
1, 2000.
The alliance will involve manufacturing production only. Under its terms, DuPont
and Unifi will cooperatively run their polyester filament manufacturing
facilities, with a combined capacity of 800 million pounds, as a single unit.
Production will be realigned among DuPont's Dacron(R) polyester filament plants
in Wilmington, N.C. and Kinston, N.C. and Unifi's plant in Yadkinville, N.C. to
take advantage of the unique capabilities at each site. DuPont's Dacron(R) POY
business and Unifi's textured yarn business will remain separate entities.
DuPont and Unifi will continue to own and operate their respective sites and
employees will remain with their respective employers. DuPont will continue to
provide POY to the marketplace and will use DuPont technology to expand the
specialty product range at each of the company's sites. Unifi will continue to
provide textured yarn to the marketplace.
<PAGE> 15
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
$81.0 million for the year-to-date period ended March 26, 2000, compared to
$174.6 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 $26.5 million and non-cash adjustments
aggregating $78.6 million. Depreciation and amortization of $67.2 million, the
deferred income tax provision of $6.0 million, losses of unconsolidated
affiliates of $2.9 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
$27.1 million and $20.8 million, respectively. All working capital changes have
been adjusted to exclude the effects of acquisitions and 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
$238.9 million, which included cash and cash equivalents of $27.8 million.
The Company utilized $65.4 million for net investing activities and $30.5
million for net financing activities during the current year. Significant
expenditures during this period included $42.2 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, $16.1 million was
expended for investments in equity affiliates, $9.0 million for distributions to
minority interest shareholders, and $18.4 for repurchases of the Company's
common stock.
At March 26, 2000, the Company has committed approximately $45.6 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 and fiscal year 2001.
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 of Unifi's common stock. As of April 30, 2000,
there remains an authorization to repurchase approximately 4.1 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 March 26, 2000 the outstanding balance under this credit
facility was $217.0 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
<PAGE> 16
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.
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
<PAGE> 17
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. Other risks and uncertainties may be
described from time to time in the Company's other reports and filings with the
Securities and Exchange Commission.
<PAGE> 18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(27) Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter
ended March 26, 2000
<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: May 10, 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>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
QUARTERLY REPORT FOR THE NINE MONTH PERIOD ENDED MARCH 26, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-25-2000
<PERIOD-END> MAR-26-2000
<CASH> 27,827
<SECURITIES> 0
<RECEIVABLES> 220,024
<ALLOWANCES> 10,910
<INVENTORY> 150,249
<CURRENT-ASSETS> 388,638
<PP&E> 1,245,256
<DEPRECIATION> 582,322
<TOTAL-ASSETS> 1,376,229
<CURRENT-LIABILITIES> 149,745
<BONDS> 478,037
0
0
<COMMON> 5,876
<OTHER-SE> 640,761<F1>
<TOTAL-LIABILITY-AND-EQUITY> 1,376,229
<SALES> 941,605
<TOTAL-REVENUES> 941,605
<CGS> 822,734
<TOTAL-COSTS> 822,734
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,908
<INTEREST-EXPENSE> 22,474
<INCOME-PRETAX> 44,362
<INCOME-TAX> 17,621
<INCOME-CONTINUING> 26,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,741
<EPS-BASIC> .45
<EPS-DILUTED> .45
<FN>
<F1>OTHER STOCKHOLDERS EQUITY OF $640,761 IS COMPRISED OF RETAINED EARNINGS OF
$666,981 AND ACCUMULATED OTHER COMPREHENSIVE LOSS OF $(26,220).
</FN>
</TABLE>
