<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 September 24, 2000
[ ] 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 October 29, 2000
-------------------------------------- -------------------------------
Common stock, par value $.10 per share 53,824,699 Shares
<PAGE> 2
Part I. Financial Information
UNIFI, INC.
Condensed Consolidated Balance Sheets
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<TABLE>
<CAPTION>
September 24, June 25,
2000 2000
----------- -----------
(Unaudited) (Note)
(Amounts in Thousands)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 10,485 $ 18,778
Receivables 200,551 214,001
Inventories:
Raw materials and supplies 57,000 49,449
Work in process 16,704 16,981
Finished goods 97,455 81,210
Other current assets 3,334 2,958
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Total current assets 385,529 383,377
----------- -----------
Property, plant and equipment 1,251,075 1,250,470
Less: accumulated depreciation 605,051 592,083
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646,024 658,387
----------- -----------
Equity investments in unconsolidated affiliates 207,109 208,918
----------- -----------
Other noncurrent assets 109,066 104,082
----------- -----------
Total assets $ 1,347,728 $ 1,354,764
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 92,126 $ 97,875
Accrued expenses 37,097 50,160
Income taxes payable 5,305 2,430
Current maturities of long-term debt and other
current liabilities 247,895 217,308
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Total current liabilities 382,423 367,773
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Long-term debt and other liabilities 263,102 261,830
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Deferred income taxes 86,107 86,046
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Minority interests 17,272 16,677
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Shareholders' equity:
Common stock 5,382 5,516
Retained earnings 636,900 649,444
Unearned compensation (1,722) (1,260)
Accumulated other comprehensive loss (41,736) (31,262)
----------- -----------
Total shareholders' equity 598,824 622,438
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Total liabilities and shareholders' equity $ 1,347,728 $ 1,354,764
=========== ===========
</TABLE>
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Note: The balance sheet at June 25, 2000, 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 Statements of Income
(Unaudited)
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For the Quarters Ended
-----------------------------
September 24, September 26,
2000 1999
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(Amounts in Thousands)
Net sales $315,215 $ 304,714
Cost of goods sold 278,362 270,455
Selling, general & admin. expense 16,032 14,422
Provision for bad debts 2,476 750
Interest expense 8,307 7,445
Interest income 1,928 684
Other (income) expense 2,036 (1,082)
Equity in losses of unconsolidated
affiliates 1,431 4,364
Minority interests 2,759 2,394
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Income before income taxes 5,740 6,650
Provision for income taxes 2,857 3,318
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Net income $ 2,883 $ 3,332
======== =========
Earnings per common share - basic $ .05 $ .06
======== =========
Earnings per common share -
assuming dilution $ .05 $ .06
======== =========
--------------
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 Quarters Ended
------------------------------
September 24, September 26,
2000 1999
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(Amounts in Thousands)
<S> <C> <C>
Cash and cash equivalents provided by
operating activities $ 1,920 $ 21,117
-------- --------
Investing activities:
Capital expenditures (12,028) (12,345)
Acquisitions (2,466) --
Investments in unconsolidated equity affiliates (1,254) (17,976)
Investment of foreign restricted cash (4,881) --
Sale of capital assets 89 46
Other (521) 1,061
-------- --------
Net investing activities (21,061) (29,214)
-------- --------
Financing activities:
Borrowing of long-term debt 61,391 10,000
Repayment of long-term debt (30,922) (127)
Issuance of Company common stock -- 14
Purchase and retirement of Company
common stock (16,494) --
Distributions to minority interest shareholders (3,000) (3,000)
Other (1,438) --
-------- --------
Net financing activities 9,537 6,887
-------- --------
Currency translation adjustment 1,311 (617)
-------- --------
Net increase (decrease) in cash and cash
equivalents (8,293) (1,827)
-------- --------
Cash and cash equivalents - beginning 18,778 44,433
-------- --------
Cash and cash equivalents - ending $ 10,485 $ 42,606
======== ========
</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 September 24, 2000, and the results of operations and
cash flows for the periods ended September 24, 2000, and September 26,
1999. Such adjustments consisted of normal recurring items. 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.
(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
that are taxed at rates typically lower than the U.S. statutory rates
thereby distorting the effective tax rate for our consolidated operations.
(c) Comprehensive Income
Comprehensive income (loss) amounted to ($7.6) million for the first
quarter of fiscal 2001 and ($0.8) million for the first quarter of fiscal
2000, and was comprised of net income and foreign currency translation
adjustments for both periods. In addition, the current year period
comprehensive loss also includes unrealized losses on foreign currency
derivative contracts totaling $2.6 million. The Company does not provide
income taxes on the impact of currency translations as earnings from
foreign subsidiaries are deemed to be permanently invested.
(d) Earnings per Share
The following table sets forth the reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations
(amounts in thousands):
For the Quarters Ended
----------------------------------
September 24, September 26,
2000 1999
-------------- ---------------
Numerator:
Net income $ 2,883 $ 3,332
============== ===============
<PAGE> 6
For the Three Months Ended
----------------------------
September 24, September 26,
2000 1999
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Denominator:
Denominator for basic
earnings per share -
Weighted average shares 54,443 59,549
Effect of dilutive securities:
Stock options 11 --
Restricted stock awards 42 --
------ ------
Dilutive potential common
shares denominator for
diluted earnings per
share-Adjusted weighted
average shares and
assumed conversions 54,496 59,549
====== ======
(e) 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 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 quarters ended September 24, 2000, and
September 26, 1999 (amounts in thousands):
<PAGE> 7
<TABLE>
<CAPTION>
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All
Polyester Nylon Other Total
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<S> <C> <C> <C> <C>
Quarter ended September 24, 2000:
Net sales to external customers $ 216,722 $ 92,579 $ 5,914 $ 315,215
Intersegment net sales 41 -- 2,965 3,006
Segment operating income (loss) 16,685 6,261 (1,617) 21,329
Depreciation and amortization 14,914 5,641 274 20,829
Total assets 668,435 379,753 18,740 1,066,928
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Quarter ended September 26, 1999:
Net sales to external customers $ 193,111 $ 106,658 $ 4,945 $ 304,714
Intersegment net sales 4 109 3,009 3,122
Segment operating income 10,564 9,959 481 21,004
Depreciation and amortization 14,675 5,349 156 20,180
Total assets 704,787 364,303 13,768 1,082,858
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</TABLE>
<TABLE>
<CAPTION>
For the Quarters Ended
------------------------------------------------
September 24, 2000 September 26, 1999
-------------------------------------------------------------------- -------------------------
<S> <C> <C>
Operating income:
Reportable segments operating income $ 21,329 $ 21,004
Net standard cost adjustment to LIFO 2 (1,000)
Unallocated operating expense (510) (167)
---------------------- -------------------------
Consolidated operating income $ 20,821 $ 19,837
====================== =========================
</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, the provision for bad debts
and capitalization of property, plant and equipment costs. 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. Segment operating income excludes $2.4 million and
$0.8 million of provision for bad debts in the current and prior year
quarters, respectively. 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 total assets for the polyester segment decreased from $695.4 million at
June 25, 2000 due mainly to reduced accounts receivable and inventories. In
the nylon segment the total assets increased $21.5 million from $358.2
million at June 25, 2000. The significant driver for this increase was the
growth in domestic inventories which were only partially offset by reduced
accounts receivable.
<PAGE> 8
(f) Recent Accounting Pronouncements
Effective June 26, 2000, the Company adopted Financial Accounting Standard
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended, which requires that all derivative instruments be reported on the
balance sheet at fair value and establishes criteria for designation and
effectiveness of hedging relationships. 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
the derivatives are either 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 is immediately recognized in earnings.
The Company conducts its business in various foreign currencies. As a
result, it is subject to the transaction exposure that arises from foreign
exchange rate movements between the dates the currency transactions are
recorded (export sales and purchases commitments) and the dates they are
consummated (cash receipts and cash disbursements in foreign currencies).
The Company utilizes some natural hedging to mitigate these transaction
exposures. The Company also enters into foreign currency forward contracts
for the purchase and sale of European, Canadian and other currencies to
hedge balance sheet and income statement currency exposures. These
contracts are entered into principally for the purchase of inventory and
equipment and the sale of Company products into export markets.
Counter-parties for these instruments are major financial institutions.
The Company has a risk management policy that authorizes certain designated
individuals to enter into derivative contracts to mitigate economic and
accounting risk associated with currency and interest rate exposures in the
ordinary course of business. This policy permits the use of forward
currency purchase or sales contracts associated with the anticipated
collection of accounts receivable on foreign denominated sales and the
purchase or sale of assets in foreign currencies. This policy also allows
the use of those derivative instruments that hedge the Company's interest
rate exposures associated with fixed or floating rate debt. Any derivative
contract authorized by this risk management policy with notional amounts in
excess of $1 million requires the specific approval of the Treasurer and
the Chief Financial Officer. In no circumstances does the policy permit
entering into derivative contracts for speculative purposes.
The Company maintains forward currency contracts that are designated as
fair value hedges. The derivative contracts in place throughout the first
fiscal quarter that are classified as fair value hedges cover 100% of the
foreign currency exchange rate exposure associated with the purchase of
certain foreign denominated fixed assets. The latest maturity date for such
contracts is January 2002. The ineffective portion of these contracts is
primarily the difference in the spot exchange rates and the forward
contract rates. The loss associated with such contracts in the current
quarter was immaterial and is included in other (income) expense in the
Condensed Consolidated Statements of Income.
The Company utilizes foreign exchange contracts designated as cash flow
hedges. These contracts are entered into to hedge foreign currency exchange
rate exposures on anticipated purchases denominated in various foreign
currencies. Losses associated with such contracts approximated $1.3 million
as of the date of adoption, of which approximately $0.5 million was
reclassified into earnings during the period. The latest maturity date
<PAGE> 9
for such contracts is June 2001. The amount of gain or loss relating to
hedge ineffectiveness is attributable to the differences between the spot
rates and forward contract rates. Such amounts were not material for the
quarter and are included in other (income) expense in the Condensed
Consolidated Statements of Income. Gains and losses on these instruments
are deferred in other comprehensive income until the underlying transaction
is recognized in earnings. As a result of the current quarter determination
that certain anticipated Euro denominated machinery purchases were no
longer expected to occur, the Company recognized a loss of $1.6 million in
the current quarter which is included in other (income) expense in the
Condensed Consolidated Statements of Income. An additional loss of
approximately $0.5 million is anticipated in the next fiscal quarter as the
Euro further weakened prior to unwinding the contracts associated with the
machinery purchases that will no longer materialize. The unrealized losses
included in Accumulated Other Comprehensive Loss will be reclassified into
earnings as depreciation expense for those contracts entered into for
anticipated machinery purchases or will be capitalized on the balance sheet
as an adjustment to long-term investments.
(g) Acquisitions and Alliances
On September 13, 2000, the Company and SANS Fibres of South Africa formed a
50/50 joint venture (UNIFI - SANS Technical Fibers, LLC or UNIFI-SANS) to
produce low-shrinkage high tenacity nylon 6.6 light denier industrial (LDI)
yarns in North Carolina. UNIFI-SANS will also incorporate the two-stage
light denier industrial nylon yarn business of Solutia, Inc. which was
purchased by SANS Fibres. Solutia will exit the two-stage light denier
industrial yarn business transitioning production from its Greenwood, SC
site to the UNIFI-SANS facility in North Carolina. Unifi will manage the
day-to-day production and shipping of the LDI produced in North Carolina
and SANS Fibres will handle technical support and sales. Annual LDI
production capacity from the joint venture is estimated to be approximately
9.6 million pounds.
On September 27, 2000, Unifi and Nilit Ltd., located in Israel, closed the
previously announced 50/50 joint venture to be called U.N.F. Industries
Ltd. The joint venture will produce approximately 22.0 million pounds of
nylon POY at Nilit's manufacturing facility in Migdal Ha - Emek, Israel.
The nylon POY will be utilized in the Company's nylon texturing and
covering operations.
<PAGE> 10
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 3.4% for the quarter from $304.7 million to
$315.2 million. Unit volume for the quarter increased 1.3% while average unit
sales prices, based on product mix, increased approximately 2.1%.
Domestically, polyester and nylon yarn net sales decreased 2.0% for the quarter
due to reduced volume partially offset by higher average unit prices.
Internationally, sales in local currency of our Irish operation increased 23.4%
for the quarter due to increased volume and sales prices. The currency exchange
rate change from the prior year to the current year adversely effected current
quarter sales translated to U.S. dollars for this operation. U.S. dollar net
sales were $3.2 million less than what sales would have been reported using
prior year translation rates for the quarter. Sales in local currency for our
Brazilian operations increased significantly over the prior period (37.9%)
primarily as a result of a 65% increase in volume.
Gross profit increased by $2.6 million to $36.9 million for the quarter while
gross margin (gross profit as a percentage of net sales) increased from 11.2% in
the prior year quarter to 11.7% this quarter. The improvement over the prior
year quarter is attributable to reduced fiber costs which more than offset
slightly higher conversion costs.
Selling, general and administrative expenses as a percentage of net sales,
increased from 4.7% in last year's quarter to 5.1% this quarter. On a dollar
basis, selling, general and administrative expense increased $1.6 million to
$16.0 million. Higher selling, general and administrative expenses for the
current year are primarily the result of the increasing complexities of the
global sales yarn market and the Company's focused efforts to strategically
expand our world-wide presence through acquisitions and alliances and to better
position our products and serve our customers through more comprehensive
marketing and business-to-business efforts.
Segment Information
Our US and Brazil polyester operations experienced strong growth in operating
profit and net sales. Average selling prices and margins for our domestic
polyester business increased quarter-over-quarter, reflecting a continued
movement toward a richer mix of high-end specialty products. Our Brazilian
operation also achieved significant volume and margin increases due to
increasing market share in the South American polyester market. Our European
operations, however, faced challenges as we made our way through the quarter.
The traditionally slow summer holiday period resulted in low volumes, the Euro
remained very weak, which increased
<PAGE> 11
the cost of raw materials and imported polyester continued to exert pressures on
unit prices. Over the remainder of the fiscal year, we expect continued
difficult operating conditions in Europe as the Euro remains weak. We should see
improvement from our Dyed Yarns operation in England as volume returns to normal
levels.
Our domestic nylon operation also faced challenges as we made our way through
the quarter. Nylon volumes and margins continue to be adversely effected by the
softness of the fine denier nylon hosiery market and were adversely affected in
the quarter by a slowdown of seamless apparel sales. Over the remainder of the
fiscal year, we expect improvements in nylon volumes and margins, as seamless
apparel begins to regain momentum.
Corporate
As a response to the general decline of business conditions in the textured and
apparel industry and tightening credit policies by lenders to the industry, the
Company recognized a provision for potential bad debts of $2.5 million in the
current quarter compared with $0.8 million in the prior year quarter.
Interest expense increased $0.9 million to $8.3 million in the current quarter.
The increase in interest expense reflects higher average interest rates, offset
in part by the increase in interest capitalized for major construction projects,
specifically our non-woven facility. The weighted average interest rate on
outstanding debt at September 24, 2000, was 6.7%.
Other income and expense was impacted in the current quarter by a charge of $1.6
million in currency losses associated with the partial cancellation of a
Euro-based hedge originally secured to purchase machinery.
Unifi Technology Group, our majority-held information system consulting
operation, ramped up its hiring in the quarter, as it deemed necessary to enter
the web-based design and consulting market. Unfortunately, the intense
competition across all of its service offerings resulted in a shortfall of
anticipated revenues and a pre-tax loss in the current quarter on a consolidated
basis of approximately $2.2 million. Consequently, Unifi Technology Group did
not meet its operating targets for the quarter and has been scaled down to a
level consistent with anticipated demands.
Equity in the earnings (losses) of our unconsolidated affiliates, Parkdale
America, LLC ("the LLC") and Micell Technologies, Inc., ("Micell") amounted to
$(1.4) million in the first quarter of fiscal 2001 compared with ($4.4) million
for the corresponding prior year quarter. Although earnings of Parkdale America
were below our expectations for the quarter, they were significantly above the
losses of the prior years quarter largely due to the re-instatement of the USDA
cotton rebate program and slightly improved volumes. Going forward, we expect
the operating results of Parkdale America to improve as we move through the
fiscal year due mainly to volume growth achieved through recently announced
spinning contracts with verticals agreeing to outsource their production.
The minority interest charge was $2.8 million in the current year fiscal quarter
compared to $2.4 million in the prior year quarter.
<PAGE> 12
The effective income tax rate has decreased slightly from 49.9% to 49.8% in the
current quarter. The difference between the statutory federal income tax rate
and the effective tax rate is primarily due to the earning and losses of foreign
subsidiaries being taxed at rates typically lower than the U.S. statutory rates,
thereby distorting the effective tax rate for our consolidated operations.
As a result of the above, the Company realized during the current quarter net
income of $2.9 million, or diluted earnings per share of $.05, compared to $3.3
million, or $.06 per share, for the corresponding quarter of the prior year.
Effective June 26, 2000, the Company adopted Financial Accounting Standard No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
which requires that all derivative instruments be reported on the balance sheet
at fair value and establishes criteria for designation and effectiveness of
hedging relationships. 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 the derivatives are either 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 is immediately recognized in earnings.
The Company conducts its business in various foreign currencies. As a result, it
is subject to the transaction exposure that arises from foreign exchange rate
movements between the dates the currency transactions are recorded (export sales
and purchases commitments) and the dates they are consummated (cash receipts and
cash disbursements in foreign currencies). The Company utilizes some natural
hedging to mitigate these transaction exposures. The Company also enters into
foreign currency forward contracts for the purchase and sale of European,
Canadian and other currencies to hedge balance sheet and income statement
currency exposures. These contracts are entered into principally for the
purchase of inventory and equipment and the sale of Company products into export
markets. Counter-parties for these instruments are major financial institutions.
The Company has a risk management policy that authorizes certain designated
individuals to enter into derivative contracts to mitigate economic and
accounting risk associated with currency and interest rate exposures in the
ordinary course of business. This policy permits the use of forward currency
purchase or sales contracts associated with the anticipated collection of
accounts receivable on foreign denominated sales and the purchase or sale of
assets in foreign currencies. This policy also allows the use of those
derivative instruments that hedge the Company's interest rate exposures
associated with fixed or floating rate debt. Any derivative contract authorized
by this risk management policy with notional amounts in excess of $1 million
requires the specific approval of the Treasurer and the Chief Financial Officer.
In no circumstances does the policy permit entering into derivative contracts
for speculative purposes.
The Company maintains forward currency contracts that are designated as fair
value hedges. The derivative contracts in place throughout the first fiscal
quarter that are classified as fair value hedges cover 100% of the foreign
currency exchange rate exposure associated with the purchase of certain foreign
denominated fixed assets. The latest maturity date for such
<PAGE> 13
contracts is January 2002. The ineffective portion of these contracts is
primarily the difference in the spot exchange rates and the forward contract
rates. The loss associated with such contracts in the current quarter was
immaterial and is included in other (income) expense in the Condensed
Consolidated Statements of Income.
The Company utilizes foreign exchange contracts designated as cash flow hedges.
These contracts are entered into to hedge foreign currency exchange rate
exposures on anticipated purchases denominated in various foreign currencies.
Losses associated with such contracts approximated $1.3 million as of the date
of adoption, of which approximately $0.5 million was reclassified into earnings
during the period. The latest maturity date for such contracts is June 2001. The
amount of gain or loss relating to hedge ineffectiveness is attributable to the
differences between the spot rates and forward contract rates. Such amounts were
not material for the quarter and are included in other (income) expense in the
Condensed Consolidated Statements of Income. Gains and losses on these
instruments are deferred in other comprehensive income until the underlying
transaction is recognized in earnings. As a result of the current quarter
determination that certain anticipated Euro denominated machinery purchases were
no longer expected to occur, the Company recognized a loss of $1.6 million in
the current quarter which is included in other (income) expense in the Condensed
Consolidated Statements of Income. An additional loss of approximately $0.5
million is anticipated in the next fiscal quarter as the Euro further weakened
prior to unwinding the contracts associated with the machinery purchases that
will no longer materialize. The unrealized losses included in Accumulated Other
Comprehensive Loss will be reclassified into earnings as depreciation expense
for those contracts entered into for anticipated machinery purchases or will be
capitalized on the balance sheet as an adjustment to long-term investments.
On September 13, 2000, the Company and SANS Fibres of South Africa formed a
50/50 joint venture (UNIFI - SANS Technical Fibers, LLC or UNIFI-SANS) to
produce low-shrinkage high tenacity nylon 6.6 light denier industrial (LDI)
yarns in North Carolina. UNIFI-SANS will also incorporate the two-stage light
denier industrial nylon yarn business of Solutia, Inc. which was purchased by
SANS Fibres. Solutia will exit the two-stage light denier industrial yarn
business transitioning production from its Greenwood, SC site to the UNIFI-SANS
facility in North Carolina. Unifi will manage the day-to-day production and
shipping of the LDI produced in North Carolina and SANS Fibres will handle
technical support and sales. Annual LDI production capacity from the joint
venture is estimated to be approximately 9.6 million pounds.
On September 27, 2000, Unifi and Nilit Ltd., located in Israel, closed the
previously announced 50/50 joint venture to be called U.N.F. Industries Ltd. The
joint venture will produce approximately 22.0 million pounds of nylon POY at
Nilit's manufacturing facility in Migdal Ha - Emek, Israel. The nylon POY will
be utilized in the Company's nylon texturing and covering operations.
Liquidity and Capital Resources
Cash generated from operations was $1.9 million for the period ended September
24, 2000, compared to $21.1 million for the prior year corresponding period. The
primary sources of cash from operations, other than net income, were a decrease
in accounts receivable of $11.3 million, an increase in income taxes payable of
$3.7 million and non-cash adjustments aggregating $25.0 million. Depreciation
and amortization of $23.3 million, and losses of unconsolidated affiliates of
$1.8 million were the primary components of the non-cash adjustments to cash
provided by operations. Offsetting these sources were an increase in inventory
and a decrease in accounts payable and accruals of $25.5 million and $17.2
million,
<PAGE> 14
respectively. All working capital changes have been adjusted to exclude the
effects of acquisitions and currency translation.
The Company ended the current quarter with working capital of $3.1 million,
which included cash and cash equivalents of $10.5 million. Included in the
working capital amount is $240.0 million in debt classified as short-term that
is expected to be refinanced before its April 2001 maturity date.
The Company utilized $21.1 million for net investing activities and obtained
$9.5 million from net financing activities during the current year. Significant
expenditures during this period included $12.0 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 and $2.5 million in acquisitions.
Additionally, $3.0 million was expended for distributions to minority interest
shareholders, $1.3 million for investment in unconsolidated equity affiliates
and $16.5 for repurchases of the Company's common stock. Also, the Company
obtained $30.5 million in net borrowings under its existing debt agreements
during this period and invested, on a long-term basis, $4.7 million of
restricted cash from the Brazilian government.
At September 24, 2000, the Company has committed approximately $31.0 million for
capital expenditures including the construction of its nonwoven facility and
purchase of related equipment. The majority of these committed costs are
scheduled to be expended during fiscal year 2001.
The Company periodically evaluates the carrying value of long-lived assets,
including property, plant and equipment and intangibles to determine if
impairment exists. If the sum of expected future undiscounted cash flows is less
than the carrying amount of the asset, additional analysis is performed to
determine the amount of loss to be recognized. The Company continues to evaluate
for impairment the carrying value of its polyester natural textured operations
and its investment in its spun-yarn partnership as the importation of fiber,
fabric and apparel continues to impair sales volumes and margins for these
operations and has negatively impacted the U.S. textile and apparel industry in
general.
The Board of Directors, effective July 26, 2000, increased the remaining
authorization to repurchase up to 10.0 million shares of Unifi's common stock.
The Company purchased 1.4 million shares in the first fiscal quarter for a total
of $16.5 million. As of October 29, 2000, there remains an authorization to
repurchase approximately 8.8 million shares. The Company will continue to
operate its stock buy-back program from time to time as it deems appropriate and
financially prudent.
The Company's $400.0 million revolving credit facility is scheduled to mature on
April 15, 2001. At September 24, 2000, the outstanding balance under this credit
facility was $240.0 million. The Company is currently in the process of
evaluating its options regarding the refinancing of the revolving credit
facility. It is anticipated that the interest rate on the refinanced revolving
credit facility will be higher than the rate under the current debt agreement.
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> 15
expenditure, strategic acquisition, working capital, Company common stock
repurchases and other financial needs.
Euro Conversion
The Company conducts business in multiple currencies, including the currencies
of various European countries in the European Union which began participating in
the single European currency by adopting the Euro as their common currency as of
January 1, 1999. Additionally, the functional currency of our Irish operation
and several sales office locations will change before January 1, 2002, from
their historical currencies to the Euro. During the period January 1, 1999, to
January 1, 2002, the existing currencies of the member countries will remain
legal tender and customers and vendors of the Company may continue to use these
currencies when conducting business. Currency rates during this period, however,
will no longer be computed from one legacy currency to another but instead will
first be converted into the Euro. The Company continues to evaluate the Euro
conversion and the impact on its business, both strategically and operationally.
At this time, the conversion to the Euro has not had, nor is expected to have, a
material adverse effect on the financial condition or results of operations of
the Company.
Forward Looking Statements
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this quarterly report
contain forward-looking statements within the meaning of federal security laws
about the Company's financial condition and results of operations that are based
on management's current expectations, estimates and projections about the
markets in which the Company operates, management's beliefs and assumptions made
by management. Words such as "expects," "anticipates," "believes," "estimates,"
variations of such words and other similar expressions are intended to identify
such forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions, which are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's judgment only as of
the date hereof. The Company undertakes no obligation to update publicly any of
these forward-looking statements to reflect new information, future events or
otherwise.
Factors that may cause actual outcome and results to differ materially from
those expressed in, or implied by, these forward-looking statements include, but
are not necessarily limited to, availability, sourcing and pricing of raw
materials, pressures on sales prices and volumes due to competition and 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
<PAGE> 16
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> 17
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
September 24, 2000
<PAGE> 18
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: November 8, 2000 /s/ Willis C. Moore, III
-------------------- --------------------------------------------
Willis C. Moore, III
Executive 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.)
