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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
Form---------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 25, 2000 - Commission File NumberFOR THE FISCAL YEAR ENDED JUNE 24, 2001 -- COMMISSION FILE NUMBER 1-10542
----------------
Unifi, Inc.---------------------
UNIFI, INC.
(Exact name of registrant as specified in its charter)
New York 11-2165495
------------------------------------------- -------------------------------------------
(State or other jurisdiction of (I.R.S. Employer identification no.)
incorporation or organization)
7201 West Friendly Avenue
Greensboro, North CarolinaNEW YORK 11-2165495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7201 WEST FRIENDLY AVENUE
GREENSBORO, NORTH CAROLINA 27410
------------------------------------------- -------------------------------------------
(Address of principal executive offices) (Zip code)
(Registrant's telephone no., including area code): (336) 294-4410
-------------------------------------------
(Registrant's telephone no., including area
code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.10 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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[X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_][ ]
Aggregate market value of the voting stock held by non-affiliated of the
registrant as of August 24, 2000September 4, 2001 based on a closing price of $11.3125$9.98 per share:
$580,331,182$495,884,783.
Number of shares outstanding as of August 24, 2000: 54,526,659September 4, 2001: 53,811,533
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders of Unifi, Inc., to be held on October 26, 2000,25, 2001, are incorporated by
reference into Part III.
Exhibits, Financial Statement Schedules and Reports on Form 8-K index is
located on pages 32 and 33.
-42 through 44.
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2
PART I
ItemITEM 1. BUSINESS
Unifi, Inc., a New York corporation formed in 1969, together with its
sub-
sidiaries,subsidiaries, hereinafter set forth, (the "Company" or "Unifi"), is one of the
largest and most diversified producers and processors of textile yarns in the
world. The Company is primarily engaged in the processing of synthetic yarns in
two primary business segments, polyester and nylon. The polyester segment is
comprised of textured, dyed, twisted and beamed yarns with sales to knitters and
weavers that produce fabrics for the apparel, automotive and furniture
up-
holstery,upholstery, home furnishings, industrial and other end use markets. The nylon
segment is comprised of textured nylon and covered spandex products with sales
to knitters and weavers that produce fabrics for the apparel, hosiery, sockssock and
other end use markets. See the Consolidated Financial Statements Footnote 2
("Acquisitions, Alliances and Alliances"Divestures") on pages 2026 and 2127 and Consolidated
Financial Statements Footnote 11 ("Investment in Unconsolidated Affiliates") on
page 28pages 35 and 36 of this Report for information concerning recent mergers,
acquisitions, alli-
ancesalliances and consolidations of the Company's business, which is
incorporated herein by reference.
Texturing polyester and nylon filament fiber involves the processing of
par-
tiallypartially oriented yarn ("POY"), which is either raw polyester or nylon filament
fiber purchased from chemical manufacturers or produced internally, to give it
greater bulk, strength, stretch, consistent dyeability and a softer feel,
thereby making it suitable for use in knitting and weaving of fabrics. The
texturing process involves the use of high-speed machines to draw, heat and
twist the POY to produce yarn having various physical characteristics, depend-
ingdepending
on its ultimate end use.
During the fourth quarter of fiscal year 1999, the Company formed Unifi
Technology Group, LLC ("UTG"), to provide consulting services focused on inte-
grated manufacturing, factory automation and electronic commerce solutions to
other domestic manufacturers.SOURCES AND AVAILABILITY OF RAW MATERIALS
Effective June 1, 1999, UTG acquired2000, Unifi and E. I. DuPont de Nemours and Company
("DuPont"), began operating their America's manufacturing alliance (the
"Alliance") to produce polyester filament yarn. The objective of the assetsAlliance is
to reduce operating costs through collectively planning and operating both
companies' POY facilities as a single production unit, although Unifi and DuPont
continue to own their respective manufacturing facilities. Unifi's manufacturing
facility is located in Yadkinville, North Carolina and DuPont's remaining
facility is in Kinston, North Carolina. The resulting asset optimization, along
with the sharing of Cimtec, Inc. ("Cimtec"), a manufacturing automation solutions provider, for
$10.5 million. Subsequently, ownership interesttechnologies, are intended to result in
significant quality and yield improvements and product innovations. See the
new entity was sold to
certain former Cimtec shareholders and former Unifi executives. See Consoli-
datedConsolidated Financial Statements Footnote 2 ("Acquisitions, Alliances and
Alliances"Divestures") on pages 2026 and 21 of this Report27 for additional information on UTG.
SOURCES AND AVAILABILITY OF RAW MATERIALSfurther information.
The primary third party suppliers of POY to the Company's polyester segment
are E. I. DuPont, de Nemours and Company ("DuPont"), Nanya Plastics Corp. of America ("Nanya"), Kosa (formerly Hoechst
Celanese Corporation), Wellman Indus-
tries,Industries, Reliance Industries, LTD. KorteksLtd. and
P.T. Indorama Synthetics TBK, with
theKorteks. The majority of the Company's polyesterCompany POY being suppliedfor domestic use is produced by DuPont.the
Alliance. In addi-
tion,addition, the Company has a polyester POY manufacturing facilities in Yadkinville,
North Carolina (which provides approximately 35% of its total domestic polyes-
ter POY supply needs) andfacility in
Ireland. The production of POY is comprised of two primary processes,
polymerisation (performed in Ireland only) and spinning (performed in both
Ireland and Yadkinville). The polymerisation process is the production of
polymer by a chemical reaction involving terephthalic acid and ethylene glycol,
which are combined to form chip. The spinning process involves the extrusion and
melting of chip to form molten polymer. The molten polymer is then extruded
through spinnerettes to form continuous multi-filament raw yarn (POY).
Substantially all of the raw materials for suchPOY manufactured POYin Yadkinville are
supplied by Nanya for domestic production and by DuPont and Bayer AG for our
Irish operation.
On September 27, 2000, Unifi and Nilit Ltd., located in Israel formed a
50/50 joint venture called U.N.F. Industries Ltd. (U.N.F.). The joint venture
will produce approximately 25.0 million pounds of nylon POY at Nilit's
manufacturing facility in Migdal Ha - Emek, Israel. Production and shipping of
POY from this facility began in March 2001. The nylon POY will be utilized in
the Company's nylon texturing and covering operations. The primary suppliers of
POY to the Company's nylon segment are DuPont, Universal Premier Fibers LLC
(formerly Cookson Fibers, Inc.), and
Nilit, Ltd., and U.N.F. Industries with the
majority of the Company's nylon POY being supplied by DuPont.
Effective June 1, 2000, UnifiDuPont and DuPont began operating their America's
manufacturing alliance to produce polyester filament yarn. The goal of the al-
liance is to reduce operating costs through collectively planning and operating
both companies' POY facilities as a single production unit. The resulting asset
optimization, along with the sharing of manufacturing technologies, should re-
sult in significant quality and yield improvements and product innovations. See
the Consolidated Financial Statements FootnoteU.N.F.
Industries.
2
("Acquisitions and Alliances")
on pages 20 and 21 for further information.
2
3
Although the Company is heavily dependent upon a limited number of
suppli-
ers,suppliers, the Company has not had and does not anticipate any significant
diffi-
cultydifficulty in obtaining its raw POY or raw materials used to manufacture
polyester or nylon POY.
Patents and Licenses: The Company currently has several patents and
regis-
teredregistered trademarks, none of which it considers material to its business as a
whole.
Customers: The Company, in fiscal year ended June 25, 2000,24, 2001, sold its
poly-
esterpolyester yarns to approximately 1,5121,350 customers and its nylon yarns to
approxi-
mately 249approximately 190 customers, one customer's purchases comprised approximately
11% of net sales for the polyester segment during said period, while another
customer comprised approximately 20%16% of net sales for the nylon segment for this
time period. The Company does not believe that the loss of any one customer
would have a materially adverse effect on either the polyester or nylon segment.
Backlog: The Company, other than in connection with certain foreign sales
and for textured yarns that are package dyed according to customers'
specifi-
cations,specifications, does not manufacture to order. The Company's products can be
used in many ways and can be thought of in terms of a commodity subject to the
laws of supply and demand and, therefore, does not have what is considered a
backlog of orders. In addition, the Company does not consider its products to be
sea-
sonalseasonal ones.
Competitive Conditions: The textile industry in which the Company
currently operates is keenly competitive. The Company processes and sells
high-volume commodity products, pricing is highly competitive with innovation,
product quality and customer service being essential for differentiating the
competi-
torscompetitors within the industry. Product innovation gives our customers
competitive advantages, while product quality insures manufacturing
efficiencies. The Company's polyester and nylon yarns compete in a worldwide
market with a num-
bernumber of other foreign and domestic producers of such yarns. In
the sale of polyester filament yarns, major domestic competitors are Dillon Yarn
Company, Inc., Spectrum Dyed Yarns, Inc. and Milliken & Company and in the sale
of ny-
lonnylon yarns major domestic competitors are Jefferson Mills, Inc. and
Worldtex, Inc. Additionally, there are numerous foreign competitors that sell
polyester and nylon yarns in the United States.
Research and Development: The estimated amount spent during each of the
last three fiscal years on Company-sponsored and customer-sponsored research and
development activities is considered immaterial.
Compliance Withwith Certain Government Regulations: Management of the Company
believes that the operation of the Company's production facilities and the
disposal of waste materials are substantially in compliance with applicable laws
and regulations.
Employees: The number of full-time active employees of the Company is
approxi-
mately 6,680.approximately 5,400.
Financial Information About Segments: See the Consolidated Financial
State-
mentsStatements Footnote 9 ("Business Segments, Foreign Operations and Concentrations
of Credit Risk") on page 25pages 31 through page 2734 of this Report for the Financial
In-
formationInformation About Segments required by Item 101 of Regulation S-K.
ItemITEM 2. PROPERTIES
The Company currently maintains a total of 18 manufacturing and warehousing
facilities, one central distribution center and one recycling center in North
Carolina; one manufacturing and related warehousing facility in Staunton,
Vir-
ginia;Virginia; one central distribution center in Fort Payne, Alabama; four
manufac-
turingmanufacturing operations in Letterkenny, County of Donegal, Republic of Ireland;
two warehousing locations in Carrickfergus, Ireland; one manufacturing, one
warehousing and one of-
ficeoffice building in Brazil and one manufacturing and
administration building in Man-
chester, England and one manufacturing and administration facility in Bogota,
Colombia.Manchester, England. All of these facilities, which
contain approximately 8.1 million square feet of floor space are owned in fee
simple, with the exception of two United States plants, one plant facilityof which is leased
from Bank of America Leasing and Capital LLC pursuant to a Sales-leaseback
Agreement entered on May 20, 1997, as amended, the second of which is leased
pursuant to a lease agreement entered into with Glen Raven, two warehouses in
Carrickfergus, Ireland, the office in Brazil and the plant and office location
in Manchester, England are owned in fee simple;England; and management believes they are in good condition, well
maintained, and are suitable and adequate for present utilization.
3
4
The polyester segment of the Company's business uses 1617 manufacturing, fivesix
warehousing and one dedicated office totaling 5.35.4 million square feet. The ny-
lonnylon
segment of the Company's business utilizes sixfour manufacturing and four
warehousing facilities aggregating 2.82.7 million square feet.
Unifi Technology Group, LLC. ("UTG") leases 95 office locations in fourthree
states from which it conducts business utilizing approximately 80,00035,000 square
feet.
The Company leases sales offices and/or apartments in New York; Coleshill,
England; Oberkotzau, Germany; Lyon, France and Desenzano, Italy.
The Company also leases its corporate headquarters building at 7201 West
Friendly Avenue, Greensboro, North Carolina, which consists of a building
con-
tainingcontaining approximately 121,125 square feet located on a tract of land
containing approximately 8.99 acres. This property is leased from Merrill Lynch
Trust Com-
panyCompany of North Carolina, Trustee under the Unifi, Inc. Profit Sharing
Plan and Trust, and Wachovia Bank & Trust Company, N.A., Independent. See the
related information included in the Consolidated Financial Statements Footnote 8
("Leases and Commitments") on page 2531 of this Report. ItemThe Company also leases
two manufacturing facilities to others, one of which is affiliated with the
Company as a joint venture.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any litigation which is considered
material, as that term is used in Item 103 of Regulation S-K.
ItemITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter for the fiscal year ended June 25, 2000.24, 2001.
4
5
PART II
ItemITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed for trading on the New York Stock
Ex-
change.Exchange. The following table sets forth the range of high and low salesclosing
prices of the UnifiUnifi's Common Stock as reported on the NYSE Composite Tape and the regu-
lar cash dividends per share declared by Unifi during the periods indicated.
On July 16, 1998, the Company announced its intention to discontinue the
payment of cash dividends and utilize the cash to purchase shares of the
Company's common stock. Accordingly, effectiveTape.
Effective July 16, 1998, the Board of Di-
rectorsDirectors of the Company terminated
the previously established policy of paying cash dividends equal to
approximately 30% of the Company's after tax earnings of the previous fiscal
year.
As of August 24, 2000,September 4, 2001, there were approximately 745712 holders of record of the Company's
common stock.
High Low DividendsHIGH LOW
------ ------
---------
Fiscal year 1998:
First quarter ended September 28, 1997.......... $43.63 $35.06 $.14
Second quarter ended December 28, 1997.......... $42.25 $36.38 $.14
Third quarter ended March 29, 1998.............. $42.13 $33.00 $.14
Fourth quarter ended June 28, 1998.............. $39.56 $34.19 $.14
Fiscal year 1999:
First quarter ended September 27, 1998..........1998.................... $34.25 $17.13 $ --
Second quarter ended December 27, 1998..........1998.................... $20.06 $11.94 $ --
Third quarter ended March 28, 1999..............1999........................ $19.56 $10.69 $ --
Fourth quarter ended June 27, 1999..............1999........................ $18.56 $11.56 $ --
Fiscal year 2000:
First quarter ended September 26, 1999..........1999.................... $21.25 $11.00 $ --
Second quarter ended December 26, 1999..........1999.................... $13.50 $10.69 $ --
Third quarter ended March 26, 2000..............2000........................ $12.81 $ 7.88 $ --
Fourth quarter ended June 25, 2000..............2000........................ $14.94 $ 8.44
Fiscal year 2001:
First quarter ended September 24, 2000.................... $13.38 $10.31
Second quarter ended December 24, 2000.................... $10.38 $ --7.13
Third quarter ended March 25, 2001........................ $ 9.31 $ 6.25
Fourth quarter ended June 24, 2001........................ $ 8.33 $ 5.65
45
Item6
ITEM 6. SELECTED FINANCIAL DATA
(Amounts in thousands, except per JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999 JuneJUNE 28, 1998 JuneJUNE 29, 1997
June 30, 1996
share data) (52 Weeks)WEEKS) (52 Weeks)WEEKS) (52 Weeks)WEEKS) (52 Weeks) (53 Weeks)
- ---------------------------------WEEKS) (52 WEEKS)
------------- ------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Summary of Earnings:Operations:
Net sales............... $1,280,412 $1,251,160 $1,377,609 $1,704,926 $1,603,280sales............................ $1,131,157 $1,291,435 $1,262,278 $1,390,497 $1,716,215
Cost of sales........... 1,116,841 1,076,610 1,149,838 1,473,667 1,407,608sales........................ 1,034,044 1,127,864 1,087,728 1,162,726 1,484,956
---------- ---------- ---------- ---------- ----------
Gross profit............profit......................... 97,113 163,571 174,550 227,771 231,259
195,672
Selling, general and administrative
expense................expense............................ 62,786 58,063 55,338 43,277 46,229
45,084
Provision for bad debts..................debts.............. 8,697 8,694 1,129 724 750
--
Interest expense........expense..................... 30,123 30,294 27,459 16,598 11,749
14,593
Interest income.........income...................... (2,549) (2,772) (2,399) (1,869) (2,219)
(6,757)
Other (income) expense..expense............... 7,582 1,052 440 (335) 69 (4,390)
Equity in (earnings) losses of
unconsolidated affiliates.............affiliates.......... (2,930) 2,989 (4,214) (23,030) 399
--
Minority interest.......interest.................... 2,590 9,543 9,401 723 --
--
Non-recurring charge....Alliance plant closure costs......... 15,000 -- -- -- --
23,826Asset impairments and write downs.... 24,541 -- -- -- --
Employee severance and related
charges............................ 7,545 -- -- -- --
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations before income taxes and
other
items listed below.....cumulative effect of accounting
change............................. (56,272) 55,708 87,396 191,683 174,282
123,316
Provision (benefit) for income
taxes..................taxes.............................. (11,598) 17,675 28,369 62,782 58,617 44,939
---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary item and cumulative
effect of accounting change......change........ (44,674) 38,033 59,027 128,901 115,665 78,377
---------- ---------- ---------- ---------- ----------
Extraordinary item, net
of tax................. -- -- -- -- 5,898
Cumulative effect of accounting
change, net of tax................. -- -- 2,768 4,636 -- --
---------- ---------- ---------- ---------- ----------
Net income..............income (loss)............. $ (44,674) $ 38,033 $ 56,259 $ 124,265 $ 115,665 72,479
========== ========== ========== ========== ==========
Per Share of Common Stock:
Income (loss) before
extraordinary item and cumulative
effect of accounting change
(diluted)........................................ $ (.83) $ .65 $ .97 $ 2.08 $ 1.81
$ 1.18
Extraordinary item
(diluted).............. -- -- -- -- (.09)
Cumulative effect of accounting
change (diluted)................................. -- -- (.04) (.07) --
------------ ---------- ---------- ---------- ----------
Net income (loss) (diluted)....... $ (.83) $ .65 $ .93 $ 2.01 $ 1.81
1.09========== ========== ========== ========== ==========
Cash dividends..........Dividends......................... $ -- $ -- $ -- $ .56 $ .44 .52
Financial Data:
Working capital.........capital...................... $ 63,708 $ 15,604 $ 216,897 $ 209,878 $ 216,145
$ 196,222
Gross property, plant and
equipment..........equipment.......................... 1,209,927 1,250,470 1,231,013 1,145,622 1,147,148
1,027,128
Total assets............assets......................... 1,137,319 1,354,764 1,365,840 1,333,814 1,018,703
951,084
Long-term debt and other
obligations............obligations........................ 259,188 261,830 478,898 458,977 255,799
170,000
Shareholders' equity....equity................. 540,543 622,438 646,138 636,197 548,531 583,206
Fiscal year 1996 and 1997 amounts include the spun cotton yarn operations that were
contributed to Parkdale America, LLC on June 30, 1997. The operating results of
our 34% ownership in Parkdale are accounted for as equity in (earn-
ings)(earnings) losses
of unconsolidated affiliates for fiscal 1998, 1999years presented thereafter.
Fiscal years 1997 through 2000 net sales and 2000.cost of sales have been
restated to reflect the reclassification of freight expense from net sales to
cost of sales to conform with the current year presentation.
The Workingworking capital and Long-termlong-term debt and other liabilities line items at
June 25, 2000, reflect the classification of the outstanding balance under the
revolving line of credit of $211.5 million as a current liability. The revolv-
ingliability as this
facility was scheduled to mature in April 2001. This line of credit matureswas
subsequently refinanced in April 2001.December 2000.
The Company intends to refinance thisworking capital and long-term debt on a long-term basis prior to maturity, however, no commitments or agree-
ments were in place to do soand other liabilities line items at
June 25, 2000. When24, 2001, reflect the Company does refinanceclassification of the debt, amounts owed beyond one year from that date will once again be clas-
sifiedoutstanding balance under the
revolving line of credit of $6.5 million and the accounts receivables
securitization of $70.1 million as long-term debt.
5current liabilities, pending renegotiation or
refinancing of these obligations, which is expected to occur by October 31,
2001.
6
Item7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL 2001
Following is a summary of operating income by segment for fiscal years 2001
and 2000, as reported regularly to the Company's management:
ALL
POLYESTER NYLON OTHER TOTAL
--------- -------- ------- ----------
(AMOUNTS IN THOUSANDS)
Fiscal 2001
Net sales.................................. $791,232 $315,114 $33,270 $1,139,616
Cost of sales.............................. 725,351 293,090 21,767 1,040,208
Selling, general and administrative........ 37,451 14,632 13,362 65,445
-------- -------- ------- ----------
Segment operating income (loss)............ $ 28,430 $ 7,392 $(1,859) $ 33,963
======== ======== ======= ==========
Fiscal 2000
Net sales.................................. $861,865 $409,841 $31,917 $1,303,623
Cost of sales.............................. 757,580 353,739 21,024 1,132,343
Selling, general and administrative........ 37,713 15,103 9,952 62,768
-------- -------- ------- ----------
Segment operating income................... $ 66,572 $ 40,999 $ 941 $ 108,512
======== ======== ======= ==========
As described in Consolidated Financial Statements Footnote 9 ("Business
Segments, Foreign Operations and Concentrations of Credit Risk"), the
adjustments to revenues and expenses required to reconcile the operating
segments to consolidated results are comprised primarily of intersegment sales
and cost of sales eliminations, the provision for bad debts and various expenses
reported internally at a consolidated level. The fiscal year 2000 net sales and
cost of sales have been reclassified to conform with the current year
presentation. See Consolidated Financial Statements Footnote 1 ("Recent
Accounting Pronouncements") for further discussion.
Polyester Operations
In fiscal 2001, polyester net sales decreased $70.6 million, or 8.2%
compared to fiscal 2000. The decrease from fiscal year 2000 is primarily
attributable to reduced volumes both in the United States and internationally.
The importation of fabric and apparel has eroded our customers' business and the
slowing economy has prompted our customers to reduce inventories in response to
lower retail orders. Unit prices, based on product mix, were favorable to the
prior year. However, volumes were down approximately 10% from fiscal 2000 to
fiscal 2001. Sales volume for all of our international polyester operations was
down in fiscal 2001 compared to fiscal 2000, with the exception of our European
dyeing operation acquired in the fourth quarter of the prior year. The currency
exchange rate change from the prior year to the current year adversely effected
sales translated to U.S. dollars for our Irish and Brazilian operations.
Gross profit on sales for our polyester operations declined $38.4 million
over fiscal year 2000. Gross margin (gross profit as a percentage of net sales)
declined from 12.1% in fiscal year 2000 to 8.3% in fiscal year 2001. Gross
margin in fiscal 2001 declined primarily as a function of higher per unit raw
material prices and fixed manufacturing costs relative to a lower sales base.
Selling, general and administrative expenses for this segment declined $0.3
million from 2000 to 2001. This decrease was accomplished mainly due to the cost
cutting initiatives implemented at the end of the third quarter and were
achieved despite having only three months of selling, general and administrative
expenses for our European dye-house in the prior year.
Nylon Operations
Nylon net sales decreased $94.7 million, or 23.1% in fiscal 2001 compared
to fiscal 2000. Unit volumes for fiscal 2001 decreased by 15.2%, while average
sales prices, based on product mix, decreased 9.2%. The
7
8
reductions in sales volume and price are primarily attributable to the
continuing softness of the ladies hosiery market, a slow down in seamless
apparel and the sluggishness of the economy in general.
Nylon gross profit decreased $34.1 million and gross margin decreased from
13.7% in 2000 to 7.0% in 2001. This was primarily attributable to the lower
sales volumes and prices and higher per unit fixed manufacturing costs, offset,
in part, by lower average fiber prices per pound.
Selling, general and administrative expense for the nylon segment decreased
$0.5 million in fiscal 2001. This reduction is due mainly to the cost cutting
initiatives implemented at the end of the third fiscal quarter.
All Other
The "All Other" segment primarily reflects the Company's majority owned
subsidiary, UTG established in May 1999. UTG is a domestic automation solutions
provider. This entity was in place for effectively the entire 2001 fiscal year,
however the consulting portion of this business was sold at the end of the
reporting period. The higher selling, general and administrative expenses in the
current year reflect additional costs incurred in early terminating certain
office leases in the second fiscal quarter. The remaining UTG operations are now
conducting business under the name Cimtec Automation, Inc. and involve the sale
and repair of certain computer hardware.
Consolidated Operations
For the year ended June 24, 2001, the Company recorded an $8.7 million
provision for bad debts in response to continued difficult industry conditions.
This amount is consistent with that recorded in the prior year.
Interest expense decreased slightly from $30.3 million in fiscal 2000 to
$30.1 million in fiscal 2001. The weighted average interest rate of our debt
outstanding at June 24, 2001 was 6.6%. Interest income remained consistent
between 2001 and 2000.
Other expense increased from $1.1 million in 2000 to $7.6 million in 2001.
This loss for 2001 includes $9.5 million in losses for foreign currency related
transactions including a loss of $4.7 million on foreign currency derivative
contracts denominated in Euro for which hedge accounting was terminated upon the
cancellation of the proposed project. These losses were offset, in part, by
amounts recovered for an insurance claim, a government grant program associated
with a start-up operation and a duty-drawback claim associated with prior
periods.
Earnings (losses) from our equity affiliates, Parkdale America, LLC. (the
"LLC"), Micell Technologies, Inc. ("Micell"), UNIFI-SANS Technical Fibers, LLC
("UNIFI-SANS") and U.N.F. Industries, Ltd. ("U.N.F.") totaled $2.9 million in
fiscal 2001 compared with $(3.0) million in fiscal 2000. The increase in
earnings is primarily attributable to improved earnings of the LLC and the
recognition of reduced losses for Micell.
Minority interest expense for fiscal 2001 was $2.6 million compared to $9.5
million in the prior year. This charge primarily relates to the minority
interest share of the earnings of Unifi Textured Polyester, LLC ("UTP") formed
with Burlington Industries on May 29, 1998. Unifi, Inc. has an 85.42% ownership
interest in this entity and Burlington has a 14.58% interest. However, for the
first five years, Burlington is entitled to receive the first $9.4 million of
earnings and the first $12.0 million in excess cash flows generated by this
business. After the first five years, earnings and cash flows of UTP will be
allocated based on ownership percentages.
In the fourth quarter of the current fiscal year, the Company recorded its
share of the anticipated costs of closing DuPont's Cape Fear, North Carolina
facility, one of DuPont's facilities involved in the manufacturing alliance (the
"Alliance") between DuPont and Unifi. The Alliance was formed to integrate each
company's polyester partially oriented yarn (POY) manufacturing facilities into
a single production unit and is expected to enable each company to match
production with the best assets available, significantly improving product
quality and yields. On April 4, 2001, DuPont shut its Cape Fear POY facility
allowing for the acceleration of
8
9
the benefits of the Alliance by shutting down older filament manufacturing
operations and transferring production to lower cost, more modern and flexible
assets. As a result of DuPont shutting down the Cape Fear facility, the Company
recognized a $15.0 million charge for its 50% share of the severance and costs
to dismantle the facility. Unifi's share of the cost to close this facility will
be paid over the eighteen-month period commencing July 2001 and ending December
2002. Subsequent to the shut down, the Company will receive from DuPont cash
distributions for its 50% share of the cash fixed costs eliminated as a result
of the Cape Fear shut down. Additionally, it is expected that the Company will
begin realizing other costs savings and synergies from the Alliance.
In the current year, the Company recorded charges of $7.6 million for
severance and employee related costs and $24.5 million for asset impairments and
write-downs. The majority of these charges relate to U.S. and European
operations and include plant closings and consolidations, the reorganization of
administrative functions and the write down of assets for certain operations
determined to be impaired as well as certain non-core businesses that are being
held for sale. The plant closing and consolidations of the manufacturing and
distribution systems are aimed at improving the overall efficiency and
effectiveness of our operations and reducing our fixed cost structure in
response to decreased sales volumes.
The severance and other employee related costs provide for the termination
of approximately 750 people who were terminated as a result of these worldwide
initiatives and included management, production workers and administrative
support located in Ireland, England and in the United States. Notice of the
termination was made to all employees prior to March 24, 2001 and substantially
all affected personnel were terminated by the end of April 2001. Severance will
be paid in accordance with various plan terms, which vary from lump sum to a
payout over a maximum of 21 months ending December 2002. Additionally, this
charge includes costs associated with medical and dental benefits for former
employees no longer providing services to the Company and provisions for certain
consultant agreements for which no future benefit is anticipated.
The charge for impairment and other write-down of assets includes $18.6
million for the write down of duplicate or less efficient property, plant and
equipment to their fair value less disposal cost and the write down of certain
non-core assets which are held for sale. It is anticipated that the remaining
non-core assets and business will be sold prior to the end of calendar 2001.
Additionally, an impairment charge of $5.9 million was recorded for the write
down to fair value of assets, primarily goodwill, associated with the European
polyester dyed yarn operation and Colombian nylon covering operation as the
undiscounted cash flows of the business were not sufficient to cover the
carrying value of these assets. These reviews were prompted by ongoing excess
manufacturing capacity issues and lack of competitiveness of these businesses.
The Company recognized a tax benefit in the current year at a 20.6%
effective tax rate compared to an effective tax rate on the consolidated
provision recorded in fiscal 2000 at 31.7%. The difference between the statutory
and effective tax rate in fiscal 2001 is primarily due to the fact that
substantially no tax benefit has been recognized on losses sustained by foreign
subsidiaries, as the recoverability of such tax benefits through loss
carryforward or carryback is not assured.
As a result of the above, the Company realized during the current year a
net loss of $44.7 million, or $(.83) per diluted share, compared to net income
in fiscal year 2000 of $38.0 million, or $.65 per diluted share.
Effective June 26, 2000, the Company began accounting for derivative
contracts and hedging activities under Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which requires all derivatives to be recorded on the balance sheet
at fair value. There was no cumulative effect adjustment of adopting this
accounting standard. 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 conducts its business in various foreign currencies. As a
result, it is subject to the transaction exposure that arises from foreign
exchange rate movements between the dates that foreign currency transactions are
recorded (export sales and purchases commitments) and the dates they are
9
10
consummated (cash receipts and cash disbursements in foreign currencies). The
Company utilizes some natural hedging to mitigate these transaction exposures.
The Company also enters into foreign currency forward contracts for the purchase
and sale of European, Canadian and other currencies to hedge balance sheet and
income statement currency exposures. These contracts are principally entered
into for the purchase of inventory and equipment and the sale of Company
products into export markets. Counter-parties for these instruments are major
financial institutions. The Company does not enter into derivative financial
instruments for trading purposes.
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 Chief Financial Officer. In no
circumstances does the policy permit entering into derivative contracts for
speculative purposes.
Currency forward contracts are entered to hedge exposure for sales in
foreign currencies based on specific sales orders with customers or for
anticipated sales activity for a future time period. Generally, 60-80% of the
sales value of these orders are covered by forward contracts. Maturity dates of
the forward contracts attempt to match anticipated receivable collections. The
Company marks the outstanding accounts receivable and forward contracts to
market at month end and any realized and unrealized gains or losses are recorded
as other income and expense. The Company also enters currency forward contracts
for committed or anticipated equipment and inventory purchases. Generally 50-75%
of the asset cost is covered by forward contracts although 100% of the asset
cost may be covered by contracts in certain instances. Forward contracts are
matched with the anticipated date of delivery of the assets and gains and losses
are recorded as a component of the asset cost for purchase transactions the
Company is firmly committed. For anticipated purchase transactions, gains or
losses on hedge contracts are accumulated in Other Comprehensive Income (Loss)
and periodically evaluated to assess hedge effectiveness. In the current year,
the Company recorded and subsequently wrote off approximately $4.7 million of
accumulated losses on hedge contracts associated with the anticipated purchase
of machinery that was later canceled. The contracts outstanding for anticipated
purchase commitments that were subsequently canceled were unwound by entering
into sales contracts with identical remaining maturities and contract values.
These purchase and sales contracts continue to be marked to market with
offsetting gain and losses. The latest maturity for all outstanding purchase and
sales foreign currency forward contracts are October 15, 2001 and March 21,
2002, respectively.
In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 140 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
140). SFAS 140 replaces Statement of Financial Accounting Standards No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities (SFAS 125). SFAS 140 revises the standards for accounting and for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but carries over most of SFAS 125's provisions.
SFAS 140 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on a
financial-components approach that focuses on control. This standard is applied
prospectively and was effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after March 31, 2001. The adoption
of this standard did not have any effect on the Company's results of operation
or financial position.
In September 2000, the Emerging Issues Task Force (EITF) issued EITF
Abstract 00-10 "Accounting for Shipping and Handling Fees and Costs." EITF 00-10
requires that any amounts billed to a customer for a sales transaction related
to shipping or handling should be classified as revenues. Costs associated with
providing this service is an accounting policy disclosure and a company may
adopt a policy of including such costs in their cost of sales line item. The
Company was required to adopt EITF 00-10 in the fourth quarter of fiscal year
2001. The Company historically has included revenues earned for shipping and
handling in the net
10
11
sales line item in the Consolidated Results of Operations. Costs to provide this
service were either historically included in net sales, for shipping costs, or
in cost of sales, for handling expenses. Upon the adoption of EITF 00-10 the
Company has reclassified the presentation of shipping costs from net sales to
cost of sales and has restated all prior periods to conform with the current
year format. Adopting EITF 00-10 had no impact on the Company's results of
operations or financial position.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," (SFAS 141) and
No. 142 "Goodwill and Other Intangible Assets (SFAS 142)." SFAS 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method is
prohibited after this date. SFAS 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination completed after June 30, 2001.
SFAS 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually, or more frequently under certain conditions, for impairment in
accordance with this standard. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously required by SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of (SFAS 121)." The amortization of goodwill included in
investments in equity investees will also no longer be recorded upon adoption of
the new rules. Intangible assets that do not have indefinite lives will continue
to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS 121. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company anticipates that it will apply the
new accounting rules beginning June 25, 2001. The Company is currently assessing
the financial impact SFAS 141 and 142 will have on the consolidated financial
statements. In fiscal 2001, the amortization expense associated with remaining
goodwill approximated $3.3 million.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143 "Accounting for Asset Retirement
Obligations" (SFAS 143). This standard applies to all entities and addresses
legal obligations associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development or normal operation
of a long-lived asset. SFAS 143 requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. Additionally, any
associated asset retirement costs are to be capitalized as part of the carrying
amount of the long-lived asset and expensed over the life of the asset. SFAS 143
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. The Company has not yet assessed the financial impact that
adopting SFAS 143 will have on the consolidated financial statements.
11
12
FISCAL 2000
Following is a summary of operating income by segment for fiscal years 2000
and 1999, as reported regularly to the Company's management:management. Note that polyester
and nylon segment net sales and cost of sales amounts and certain associated
dollar and percent changes between fiscal years have been restated to conform
with current year presentation.
All
(Amounts in thousands) Polyester Nylon Other Total
- ----------------------ALL
POLYESTER NYLON OTHER TOTAL
--------- -------- ------- ----------
(AMOUNTS IN THOUSANDS)
Fiscal 2000
Net sales............................... $852,202 $408,481sales.......................................... $861,865 $409,841 $31,917 $1,292,600$1,303,623
Cost of sales........................... 747,917 352,379sales...................................... 757,580 353,739 21,024 1,121,3201,132,343
Selling, general and administrative.....administrative................ 37,713 15,103 9,952 62,768
-------- -------- ------- ----------
Segment operating income................income........................... $ 66,572 $ 40,999 $ 941 $ 108,512
======== ======== ======= ==========
Fiscal 1999
Net sales............................... $822,763 $449,009sales.......................................... $832,642 $450,248 $ 1,561 $1,273,333$1,284,451
Cost of sales........................... 719,535 384,772sales...................................... 729,414 386,011 1,090 1,105,3971,116,515
Selling, general and administrative.....administrative................ 38,518 16,271 533 55,322
-------- -------- ------- ----------
Segment operating income (loss)............................. $ 64,710 $ 47,966 $ (62) $ 112,614
======== ======== ======= ==========
As described in Consolidated Financial Statements Footnote 9 ("Business
Segments, Foreign Operations and Concentrations of Credit Risk"), the
adjust-
mentsadjustments to revenues and expenses required to reconcile the operating
segments to consolidated results are comprised primarily of intersegment sales
and cost of sales eliminations, the provision for bad debts and various expenses
reported internally at a consolidated level.
Polyester operationsOperations
In fiscal 2000, polyester net sales increased $29.4$29.2 million, or 3.6% com-
pared3.5%
compared to fiscal 1999. The increase over fiscal year 1999 is primarily
attrib-
utableattributable to the acquisition of our Brazilian operation in the fourth fiscal
quarter of 1999 and the acquisition of our dyed yarn operation in England at the
end of our fiscal third quarter. Net domestic sales increased slightly over
fiscal 1999 due to strength in our dyeing and twisting operations, offset
slightly by pricing pressures in our natural textured business. International-
ly,Internationally,
sales in local currency of our Irish Operation declined 5.4% for the year due to
lower average selling prices. Volume for our Irish operations increased
approximately 2.1% for the year. The currency exchange rate change from the
prior year to the current year adversely effected sales translated to U.S.
dollars for this operation by $13.0 million.
As described in the Consolidated Financial Statements Footnote 10
("Deriva-
tiveDerivative Financial Instruments and Fair Value of Financial Instruments"),
the Com-
panyCompany utilizes foreign currency forward contracts to hedge exposure for
sales in foreign currencies based on anticipated sales orders. Also, the
purchases and borrowings in those foreign currencies in which the Company has
exchange rate exposure provide a natural hedge and mitigate the effect of
adverse fluc-
tuationsfluctuations in exchange rates.
Gross profit on sales for our polyester operations increased $1.0 million
over fiscal year 1999. Gross margin (gross profit as a percentage of net sales)
declined from 12.5%12.4% in fiscal year 1999 to 12.2%12.1% in fiscal year 2000. In the
prior year, gross margin for this segment was adversely impacted by a $4.0
million charge for an early retirement package offered to employees. Gross
margin in fiscal 2000 declined primarily as a function of higher fiberraw material
prices. Offsetting the effects of higher fiberraw material prices were lower
manufacturing costs and increased sales for this segment.
Selling, general and administrative expenses for this segment declined $0.8
million from 1999 to 2000. In the prior year, this segment was allocated $5.7
million in selling, general and administrative expenses for the above men-
tionedmentioned
early retirement package. Absent this charge, the current year selling, general
and adminis-
6
trativeadministrative expenses for this segment would have increased $4.9 million.
This in-
creaseincrease is primarily attributable to the start-up of our Brazilian
operation, which was only in operation two months of the prior
12
13
year as well as the in-
creaseincrease in this segment's share of increased expenses
incurred by our majority-
ownedmajority-owned subsidiary, UTG. This subsidiary was formed in
May 1999 and is a domestic automation solutions provider.
Nylon operationsOperations
In fiscal 2000, nylon net sales decreased $40.5$40.4 million, or 9.0% compared
to fiscal 1999. Unit volumes for fiscal 2000 decreased by 5.3%, while average
sales prices, based on product mix, decreased 3.9%. The reductions in sales
volume and price are primarily attributable to the continuing softness of the
ladies hosiery market.
Nylon gross profit decreased $8.1 million and gross margin decreased from
14.3% in 1999 to 13.7% in 2000. This segment's share of the prior year early
retirement plan costs impacting gross profit was $2.6 million. Before the ef-
fecteffect
of the prior year early retirement expense, gross profit from 1999 to 2000
declined $10.7 million. This was primarily attributable to lower sales volume
and the shift in product mix caused by softness in the hosiery market.
Selling, general and administrative expense allocated to the nylon segment
decreased $1.2 million in fiscal 2000. The nylon segment selling, general and
administrative expenses in fiscal 1999 included a charge of $2.5 million for the
aforementioned early retirement plan. Before the effect of this charge, selling
general and administrative expenses for this segment would have in-
creasedincreased $1.3
million. This increase is primarily attributable to this segment's share of
increased selling, general and administrative expenses generated by UTG.
All Other
The "All Other" segment primarily reflects the Company's majority owned
sub-
sidiary,subsidiary, UTG established in May 1999. UTG is a domestic automation solutions
provider.
Consolidated operationsOperations
In the currentfiscal year 2000, the Company recorded an $8.0 million provision for bad
debts resulting from the general decline of industry conditions.
Interest expense increased $2.8 million, from $27.5 million in fiscal 1999
to $30.3 million in fiscal 2000. The increase in interest expense reflects
higher levels of interest-bearing debt outstanding at higher average interest
rates during fiscal 2000 and a $1.4 million reduction in capitalized interest
for major construction projects. The weighted average interest rate of our debt
outstanding at June 25, 2000 was 6.6%.
Interest income improved by $373 thousand from 1999 to 2000 primarily as a
result of higher levels of invested funds generated by our Irish operation.
Other expense increased from $440 thousand to $1.1 million from 1999 to 2000.
Other income and expense was negatively impacted in the currentfiscal year 2000 by a $2.6
million write-off related to the abandonment of certain equipment associated
with domestic plant consolidations and $1.7 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 for property damage sustained by a tornado
and a $0.6 million gain recognized on the sale of an investment.
Earnings (losses) from our equity affiliates, Parkdale America, LLC. (the
"LLC") and Micell Technologies, Inc. ("Micell"), net of related amortization,
totaled $(3.0) million in fis-
calfiscal 2000 compared with $4.2 million in fiscal 1999.
The decline in earnings is primarily attributable to the reduced earnings of the
LLC and higher start-up expenses at Micell.
Minority interest expense for fiscal 2000 was $9.5 million compared to $9.4
million in the prior year. This charge primarily relates to the minority
inter-
estinterest share of the earnings of Unifi Textured Polyester LLPLLC ("UTP) formed
with Burling-
tonBurlington Industries on May 29, 1998. Unifi, Inc. has an 85.42% ownership
interest in this entity and Burlington has a 14.58% interest. However, for the
first five years, of the Partnership, Burlington is entitled to receive the first $9.4 mil-
lionmillion in
earnings.earnings and the first $12.0 in excess cash flows generated by the business.
After the first five years, earnings and cash flows of the partnershipUTP will be allocated
based anon ownership percentages.
713
14
The effective tax rate decreased from 32.5% in 1999 to 31.7% in 2000. The
difference between the statutory and effective tax rate in fiscal 2000 is
pri-
marilyprimarily due to a reduction of income taxes achieved through the reversal of
previously established reserves due to resolution of outstanding issues with
taxing authorities.
In the first quarter of fiscal 1999, the Company recognized a cumulative
effect of an accounting change of $4.5 million ($2.8 million after tax) or $.04
per diluted share as a result of changing its accounting policy regarding
start-up costs. Pursuant to the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-Up Activities," any previously capitalized start-up costs were re-
quiredrequired
to be written-off as a cumulative effect of an accounting change. Ac-
cordingly,Accordingly,
the Company has written-off the unamortized balance of the previ-
ouslypreviously
capitalized start-up costs.
As a result of the above, the Company realized during the currentfiscal year 2000 net
income of $38.0 million, or $0.65 per diluted share, compared to $56.3 mil-
lion,million,
or $.93 per diluted share for the prior fiscal year period. Before the
previously described cumulative effect of an accounting change in the prior
year, earnings would have been $59.0 million or $0.97 per diluted share.
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 Stan-
dards 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. In June 2000, the FASB issued Statement of Financial Accounting Stan-
dards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities - an Amendment to FASB Statement No. 133." This statement
amended certain provisions of SFAS 133. SFAS 133 requires the Company to rec-
ognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the deriva-
tive 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 recog-
nized 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 does not enter into deriva-
tive financial instruments for trading purposes. As discussed in Footnote 10
to the Consolidated Financial Statements, the Company enters into forward con-
tracts to hedge certain transactions and commitments in foreign currency. Upon
adoption of SFAS 133 in the first fiscal quarter of 2001, these activities
will be recognized on the Consolidated Balance Sheet. The Company anticipates
that adoption of SFAS 133 will not have a material effect on the Company's
earnings.
On March 8, 2000, the Company acquired Intex Yarns Limited (Intex) located
in Manchester, England for approximately $8.0 million plus assumed debt. This
acquisition adds high quality, package-dyeing capabilities in Europe and
com-
plimentscompliments 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.
Effective June 1, 2000, the Company and E.I. DuPont De Nemours and Company
(DuPont) initiated a manufacturing alliance to produce polyester filament yarn.
The alliance is expected to optimize Unifi's and DuPont's partially ori-
entedoriented
yarn (POY) manufacturing facilities, increase manufacturing efficiency and
improve product quality. Under its terms, DuPont and Unifi will coopera-
tivelycooperatively
run their polyester filament manufacturing facilities as a single oper-
atingoperating
unit. This consolidation will shift commodity yarns from our Yadkinville
facility to DuPont's Kinston plant, and bring high-end specialty production to
Yadkinville from Kinston and Cape Fear. The companies will split equally the
costs to complete the necessary plant consolidation and the benefits gained
through asset optimization. Additionally, the companies will collectively
at-
temptattempt to increase profitability through the development of new products.
Like-
wise,Likewise, the costs incurred and benefits derived from the product innovations
will be split equally. 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 company's sites. Unifi
will continue to provide textured yarn to the marketplace.
8
FISCAL 1999
Following is a summary of operating income by segment for fiscal years 1999
and 1998, as reported regularly to the Company's management:
All
(Amounts in thousands) Polyester Nylon Other Total
- ---------------------- --------- -------- ------ ----------
Fiscal 1999
Net sales................................ $822,763 $449,009 $1,561 $1,273,333
Cost of sales............................ 719,535 384,772 1,090 1,105,397
Selling, general and administrative...... 38,518 16,271 533 55,322
-------- -------- ------ ----------
Segment operating income (loss).......... $ 64,710 $ 47,966 $ (62) $ 112,614
======== ======== ====== ==========
Fiscal 1998
Net sales................................ $939,780 $470,994 $ -- $1,410,774
Cost of sales............................ 797,613 387,428 -- 1,185,041
Selling, general and administrative...... 30,223 13,054 -- 43,277
-------- -------- ------ ----------
Segment operating income................. $111,944 $ 70,512 $ -- $ 182,456
======== ======== ====== ==========
As described in Consolidated Financial Statements Footnote 9, the adjust-
ments to revenues and expenses required to reconcile the operating segments to
consolidated results are comprised primarily of intersegment sales and cost of
sales eliminations, the provision for bad debts and various expenses reported
internally at a consolidated level.
Polyester operations
In fiscal 1999, polyester net sales decreased $117.0 million, or 12.5% com-
pared to fiscal 1998. Year-over-year performance continues to be negatively im-
pacted by the continuing effects of Asian imports of yarns, fabric and apparel,
which have kept sales volumes, sales pricing and gross margins under pressure
both domestically and internationally. The fiscal 1999 over 1998 volume in-
crease of 1.0% was aided by twelve months of sales volume generated by the
business venture with Burlington Industries consummated May 29, 1998 (see Con-
solidated Financial Statements Footnote 13). Average unit sales prices declined
13.5% during fiscal 1999. In addition to the decline in average unit sales
prices created by market pressures, the pricing decline was also influenced by
decreasing fiber costs and the strengthening of the U.S. dollar. As described
in Consolidated Financial Statements Footnote 10, the Company utilizes forward
contracts to hedge exposure for sales in foreign currencies based on specific
sales orders with customers or for anticipated sales activity for a future time
period. Additionally, currency exchange rate risks are mitigated by purchases
and borrowings in local currencies. The Company also enters currency forward
contracts for committed equipment and inventory purchases. The Company does not
enter into derivative financial instruments for trading purposes.
Polyester gross profit decreased $38.9 million during fiscal 1999 and gross
margins declined from 15.1% in 1998 to 12.5% in 1999. Gross profit for fiscal
1999 was reduced by a $4.0 million charge resulting from employee acceptance of
an early retirement plan. The remainder of the decline in gross profit and
gross margin can be attributed to the aforementioned pressures on sales prices
caused by imports.
Selling, general and administrative expense allocated to the polyester seg-
ment increased $8.3 million in fiscal 1999. Of this increase, $5.7 million re-
lated to a charge resulting from employee acceptance of an early retirement
program offered in fiscal 1999. Selling, general and administrative expense, as
a percentage of polyester net sales, increased from 3.2% in fiscal 1998 to 4.7%
in fiscal 1999.
Nylon operations
In fiscal 1999, nylon net sales decreased $22.0 million, or 4.7% compared to
fiscal 1998. Unit volumes for fiscal 1999 decreased by 4.8%, while average
sales prices, based on product mix, increased 0.1%. The reduction in sales vol-
ume is primarily attributable to the continuing decline of the ladies hosiery
market. The sales
9
price increase was impacted by a minor shift in domestic product mix to lower
volume, higher priced products.
Nylon gross profit decreased $19.3 million and gross margin decreased from
17.7% in 1998 to 14.3% in 1999, due mainly to the previously noted decrease in
net sales and the corresponding lack of volume to cover existing fixed manu-
facturing costs and depreciation. In addition, depreciation increased $8.0
million in fiscal 1999 over 1998 resulting from the completion in fiscal 1999
of a nylon texturing and covering facility, constructed to replace older
equipment and consolidate several of the Company's older nylon facilities.
Gross profit was also reduced by a $2.6 million charge resulting from employee
acceptance of an early retirement plan offered in fiscal 1999.
Selling, general and administrative expense allocated to the nylon segment
increased $3.2 million in fiscal 1999. Of this increase, $2.5 million related
to a charge resulting from employee acceptance of an early retirement program
offered in fiscal 1999. Selling, general and administrative expense, as a per-
centage of nylon net sales, increased from 2.8% in fiscal 1998 to 3.6% in fis-
cal 1999.
The "All Other" segment primarily reflects the Company's majority owned
subsidiary, Unifi Technology Group established in May 1999. Unifi Technology
Group is a domestic automation solutions provider.
Consolidated operations
Interest expense increased $10.9 million, from $16.6 million in fiscal 1998
to $27.5 million in fiscal 1999. The increase in interest expense reflects
higher levels of debt outstanding at higher average interest rates during fis-
cal 1999 and a $4.8 million reduction in capitalized interest for major con-
struction projects, as certain significant projects in process during the
prior year period have been completed. The weighted average interest rate on
debt outstanding at June 27, 1999 was 5.94%.
Interest income improved by $530 thousand from 1998 to 1999 primarily as a
result of higher levels of invested funds. Other expense decreased from $335
thousand income to $440 thousand expense from 1998 to 1999.
Earnings from our equity affiliates, Parkdale America, LLC. (the "LLC") and
Micell Technologies, Inc. ("Micell") totaled $4.2 million in fiscal 1999 com-
pared with $23.0 million in fiscal 1998. The decline in earnings is primarily
attributable to the reduced earnings of the LLC and higher start-up expenses
at Micell. The LLC's operations were negatively impacted by excess capacity in
the markets and reduced sales volumes as imported apparel eroded their custom-
er's business.
Effective May 29, 1998, the Company formed a limited liability company (the
"Partnership") with Burlington Industries, Inc. ("Burlington") to manufacture
and market natural textured polyester. The Company has an 85.42% ownership in-
terest in the Partnership and Burlington has 14.58%. However, for the first
five years of the Partnership, Burlington is entitled to receive the first
$9.4 million of earnings. Subsequent to this five-year period, earnings are to
be allocated based on ownership percentages. Burlington's share of the earn-
ings of the Partnership are reflected as minority interest and amounted to
$9.4 million in fiscal 1999 and $0.7 million in fiscal 1998.
The effective tax rate decreased from 32.8% in 1998 to 32.5% in 1999. The
difference between the statutory and effective tax rate is primarily due to
the realization of state tax credits associated with significant capital ex-
penditures and the operating results of our Irish operations that are taxed at
a 10.0% effective rate.
In the first quarter of fiscal 1999, the Company recognized a cumulative
effect of an accounting change of $4.5 million ($2.8 million after tax) or
$.04 per diluted share as a result of changing its accounting policy regarding
start-up costs. Pursuant to the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-Up Activities," any previously capitalized start-up costs were re-
quired to be written-off as a cumulative effect of an accounting change. Ac-
cordingly, the Company has written-off the unamortized balance of the previ-
ously capitalized start-up costs.
10
As a result of the above, the Company realized during the current year net
income of $56.3 million, or $0.93 per diluted share, compared to $124.3 mil-
lion, or $2.01 per diluted share for the prior fiscal year period. Before the
previously described cumulative effect of an accounting change in the current
year, earnings would have been $59.0 million or $0.97 per diluted share.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations continues to be a primary source of funds to
fi-
nancefinance operating needs and long-term investment requirements, including capital
expenditures. Cash generated from operations was $151.6 million for fiscal 2001,
compared to $126.5 million for fiscal 2000, compared to $209.8 million for fiscal 1999.2000. The primary sources of cash from
operations other than net income, were an in-
crease in accounts payablereduced receivables and inventories of $14.2 million and $17.2
million, respectively, increased payables and accruals of $27.1$3.3 million and
non-cash adjust-
mentsadjustments aggregating $124.4$148.6 million. Depreciation and amortization
of $90.5 mil-
lion, the deferred income tax provision of $10.7$90.1 million, the provision for doubtful accounts of $14.9$15.0 million, and the
losses from unconsolidated equity
affiliates, netnon-cash portion of distributionsnon-recurring charges of $6.2$43.5 million were the primary
components of the non-cash adjustments. The current year cash from operations
was positively impacted by distributions from unconsolidated equity affiliates
of current and prior year earnings of $26.1 million which exceeded the Company's
equity in earnings of unconsolidated subsidiaries by $23.2 million. Offsetting
these sources were increases in accounts
receivable and inventoriesthe net loss for fiscal year 2001 of $39.3$44.7 million and $18.1 million, respectively andas well as
a decrease of income taxes payable of $4.4$10.0 million and a reduction of the
deferred tax liability by $1.6 million. All workingWorking capital changes have been
adjusted to exclude the effects of acquisitions and currency transla-
tion.translation.
Working capital levels at June 25, 2000,24, 2001, of $15.6$63.7 million reflect the classification of
the outstanding balance under the revolving line of credit of $211.5$6.5 million and
the accounts receivable securitization of $70.1 million as a current liability. The revolving lineliabilities,
pending renegotiation or refinancing of credit maturesthese obligations, which is expected to
occur by October 31, 2001, as further discussed in April 2001. The Company intends to refinance this debt on a long-term basis
prior to maturity, however, no commitment or agreements were in place to do so
at June 25, 2000. When the Company does refinance the debt, amounts owed beyond
one year from that date will once again be classified as long-term debt.sixth and seventh
following paragraphs.
14
15
The Company utilized $78.1 million$222 thousand for net investing activities and $69.9$166.4
million for net financing activities during fiscal 2000.2001. Significant
expendi-
turesexpenditures during this period included $58.6$42.3 million for capacity expansions
and up-
gradingupgrading of facilities, $15.5 million for investments in unconsolidated
equity affiliates (including U.N.F. and $8.0UNIFI-SANS) and $2.2 million for
acquisitions. A significant compo-
nentcomponent of capital expenditures includesincluded the
initialremaining construction costs for the Company's Unifi Technical Fabrics nonwoven
facility and installment payments
for related equipment.operation, which was then sold in June 2001. Additionally, $16.1$16.6 million was
expended for investments
in equity affiliates, $48.9 million for the purchase and retirement of Company common stock, $12.0 million
for distributions and advances to minority interest shareholders and $9.2$137.4
million for net payments underretirements of long-term debt agreements.debt. The Company purchased, effective March 8, 2000,obtained $41.7
million from the polyester dyed yarn plantsale of capital assets, including $39.4 million for its
non-wovens business and equipmentthe consulting portion of Intex for $8.0 million.Unifi Technology Group.
At June 25, 2000,24, 2001, the Company has committed approximately $55.1$20.0 million for
the purchase and upgrade of equipment and facilitiescapital expenditures during fiscal 2001.2002.
During the March quarter of 2001 Parkdale America LLC (the"LLC"), an
unconsolidated equity affiliate of the Company, completed the recapitalization
of its balance sheet. Following the completion of this recapitalization, the LLC
distributed cash to the Company and Parkdale Mills, Inc. ("Mills") in the amount
of $49.2 million and $95.5 million, respectively. Of the $49.2 million remitted
to the Company, $23.5 million represents a distribution of current and prior
period earnings and $25.7 million represents a return of capital. Unifi retained
its 34% ownership position and Mills retained its 66% ownership in the LLC
following this distribution.
The Company periodically evaluates the carrying value of long-lived assets,
including property, plant and equipment and intangibles to determine if
impair-
mentimpairment 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 im-
pairmentimpairment the carrying value of its polyester natural textured operations
and its investment in its spun-yarn partnership. Thenylon texturing and covering operations 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 effect of the importation of these products has resulted in downsizing in
the U.S. and relocation of production offshore. These operations have operated
in the most recent 18-month period at close to break-even, which heighten the
focus on impairment issues.
Effective July 26, 2000, the Board of Directors increased the Company's
re-
mainingremaining authorization to repurchase up to 10.0 million shares of the Company's
common stock. The Company purchased 4.51.4 million shares in fiscal year 20002001 for a
total of $48.9$16.6 million. The Company will continue to operate its commitmentstock buy-back
program from time to repur-
chase shares of the Company's common stock throughout fiscal year 2001,time as deemedit deems appropriate and financially prudent.
ManagementHowever, it is anticipated that the Company will not repurchase significant
shares in fiscal year 2002 but instead will continue to focus its efforts on the
repayment of long-term debt.
Effective December 20, 2000, the Company refinanced their $400 million
credit facility with a new unsecured three year $250 million revolving bank
credit facility. Additionally, the Company entered into a $100 million trade
receivables financing agreement (the "Receivables Agreement") that is secured by
its domestic and certain foreign accounts receivable. The Receivables Agreement
does not have a stated maturity but is terminable at the option of the Company
with a five-day written notice. The Company has classified the $70.1 million
outstanding at June 24, 2001, as a current maturity of long-term debt, pending
renegotiation of the revolving credit facility discussed in the following
paragraph, despite the intent of the Company to continue the Receivables
Agreement on a long-term basis. Loans under the new credit facility initially
bear interest at LIBOR plus .825% and advances under the receivables financing
agreement bear interest at the applicable commercial paper rate plus .30%. The
weighted average interest rates for the borrowings made from the revolver and
the accounts receivable securitization from December 20, 2000 through June 24,
2001 were 6.60% and 5.92%, respectively. As of June 24, 2001, the Company had
unused capacity of approximately $243.5 million under the terms of the new
revolving credit facility.
The loans under the new revolving credit facility include financial
covenants that required, at June 24, 2001, tangible net worth of $396.1 million,
a maximum leverage ratio of 3.25 and a minimum interest coverage ratio of 2.50.
The Company was in default of the interest coverage covenant of the new
revolving credit facility at June 24, 2001. As a result, the Company has
obtained a waiver through October 31, 2001, which reduced the facility from $250
million to $150 million and raised the effective interest rate approximately
2.0%. The
15
16
Company is currently in discussions with the lending group and others to secure
a more flexible long-term borrowing arrangement. The outstanding balance of the
revolving credit facility of $6.5 million at June 24, 2001 has been classified
as a current maturity of long-term debt. The Company believes thethat its current
financial position ofas well as its cash flow from operations and available
collateral will allow it to refinance the revolving credit facility on
acceptable terms.
The current business climate for U.S. based textile manufactures in
extremely challenging due to disparate worldwide production capacity and demand.
This situation does not appear that it will reverse in the foreseeable future.
This highly competitive environment has resulted in a declining market for the
Company, domestically and abroad. Consequently, management took certain
consolidation and cost reduction actions during the year to align our capacity
with current market demands. Management feels confident that a long-term, stable
financing arrangement will be negotiated which will continue to enable the
Company, in connec-
tioncombination with its operations and access to debt and equity markets are sufficientcurrent financial position, the ability to meet
anticipatedworking capital expenditure,and long-term investment needs and pursue strategic acquisition, working capi-
tal, Company common stock repurchases and other financial needs.
11
business
opportunities.
EURO CONVERSION
The Company conducts business in multiple currencies, including the
curren-
ciescurrencies of various European countries in the European Union which began
partici-
patingparticipating 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
Janu-
aryJanuary 1, 1999, to January 1, 2002, the existing currencies of the member
coun-
triescountries will remain legal tender and customers and vendors of the Company may
continue to use these currencies when conducting business. Currency rates dur-
ingduring
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 con-
tinuescontinues
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 annual
report contain forward-looking statements within the meaning of federal security
laws about the Company's financial condition and results of operations that are
based on management's current expectations, estimates and projections about the
markets in which the Company operates, management's beliefs and assumptions made
by management. Words such as "expects," "anticipates," "believes," "esti-
mates,"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 dif-
ferdiffer
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 dif-
ferdiffer
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
com-
petitioncompetition and economic conditions, reliance on and financial viability of
sig-
nificantsignificant customers, technological advancements, employee relations, changes
in construction spendingcapital expenditures and capital equipment expenditureslong-term investments (including those re-
latedrelated to
unforeseen acquisition opportunities), the timely completion of con-
struction and expansion projects planned or in process, continued availability of financial
resources through financing arrangements and operations, negotia-
tionsnegotiations 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 legisla-
tion,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 ad-
ditionaddition to
these representative factors, forward-looking statements could be im-
pactedimpacted by
general domestic and international economic and industry conditions in the
markets where the Company competes, such as
16
17
changes in currency exchange rates, interest and inflation rates, recession and
other economic and political factors over which the Company has no control.
ItemITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See the information included in the Consolidated Financial Statements
Foot-
noteFootnote 10 ("Derivative Financial Instruments and Fair Value of Financial
Instru-
ments"Instruments") on pages 2734 and 2835 of this Report.
ItemITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's report of independent auditors and Consolidated Financial
Statementsconsolidated financial
statements and related notes follow on subsequent pages of this Report.
1217
Report of Independent Auditors18
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of Unifi, Inc.
We have audited the accompanying consolidated balance sheets of Unifi, Inc.
as of June 25, 2000,24, 2001, and June 27, 1999,25, 2000, and the related consolidated statements
of income,operations, changes in shareholders' equity and comprehensive income, and
cash flows for each of the three years in the period ended June 25, 2000.24, 2001. Our
audits also include the financial statement schedule listed in the Indexindex at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
fi-
nancialfinancial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted auditing stan-
dards.in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of mate-
rialmaterial misstatement. An audit includes examining, on a test basis,
evidence sup-
portingsupporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement pre-
sentation.presentation. We believe that our audits provide a reasonable basis
for our opin-
ion.opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Unifi, Inc. at
June 25, 2000,24, 2001 and June 27, 1999,25, 2000, and the consolidated results of its opera-
tionsoperations
and its cash flows for each of the three years in the period ended June 25, 2000,24,
2001, in conformity with accounting principles generally accepted accounting principles.in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in rela-
tionrelation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
[Signature of Ernst & Young LLP]
Greensboro, North Carolina
July 19, 2001
18
2000
13
Consolidated Balance Sheets19
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) JuneJUNE 24, 2001 JUNE 25, 2000
June 27, 1999
- ---------------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
ASSETS:ASSETS
Current assets:
Cash and cash equivalents.........................equivalents................................. $ 6,634 $ 18,778
$ 44,433
Receivables.......................................Receivables............................................... 171,744 214,001
185,784
Inventories.......................................Inventories............................................... 124,434 147,640 129,917
Other current assets..............................assets...................................... 6,882 2,958 2,015
---------- ----------
Total current assets...........................assets.............................. 309,694 383,377 362,149
---------- ----------
Property, plant and equipment:
Land..............................................Land...................................................... 5,712 5,560 6,973
Buildings and air conditioning....................conditioning............................ 237,767 239,245 241,852
Machinery and equipment...........................equipment................................... 821,100 853,553
848,701
Other.............................................Other..................................................... 145,348 152,112 133,487
---------- ----------
1,209,927 1,250,470 1,231,013
Less accumulated depreciation......................depreciation............................... 647,614 592,083 541,275
---------- ----------
562,313 658,387 689,738
Investment in unconsolidated affiliates............affiliates..................... 173,502 208,918 207,142
Other noncurrent assets............................assets..................................... 91,810 104,082 106,811
---------- ----------
$1,137,319 $1,354,764 $1,365,840
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:EQUITY
Current liabilities:
Accounts payable..................................payable.......................................... $ 100,086 $ 97,875
$ 68,716
Accrued expenses..................................expenses.......................................... 59,866 50,160 52,889
Income taxes payable..............................payable...................................... 72 2,430 7,392
Current maturities of long-term debt and other current
liabilities..............................liabilities............................................ 85,962 217,308 16,255
---------- ----------
Total current liabilities......................liabilities......................... 245,986 367,773 145,252
---------- ----------
Long-term debt and other liabilities...............liabilities........................ 259,188 261,830 478,898
---------- ----------
Deferred income taxes..............................taxes....................................... 80,307 86,046 78,369
---------- ----------
Minority interests.................................interests.......................................... 11,295 16,677 17,183
---------- ----------
Shareholders' equity:
Common stock......................................stock.............................................. 5,382 5,516 5,955
Capital in excess of par value....................value............................ -- 13--
Retained earnings.................................earnings......................................... 589,360 649,444
658,353
Unearned compensation.............................compensation..................................... (1,203) (1,260) --
Accumulated other comprehensive loss..............loss...................... (52,996) (31,262) (18,183)
---------- ----------
540,543 622,438 646,138
---------- ----------
$1,137,319 $1,354,764 $1,365,840
========== ==========
The accompanying notes are an integral part of the financial statements.
1419
Consolidated Statements of Income20
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per
share data) JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999
June 28, 1998
- --------------------------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales............................ $1,280,412 $1,251,160 $1,377,609sales.............................................. $1,131,157 $1,291,435 $1,262,278
---------- ---------- ----------
Costs and expenses:
Cost of sales....................... 1,116,841 1,076,610 1,149,838sales.......................................... 1,034,044 1,127,864 1,087,728
Selling, general and administrative expense............................expense............ 62,786 58,063 55,338 43,277
Provision for bad debts.............debts................................ 8,697 8,694 1,129
724
Interest expense....................expense....................................... 30,123 30,294 27,459
16,598
Interest income.....................income........................................ (2,549) (2,772) (2,399)
(1,869)
Other (income) expense..............expense................................. 7,582 1,052 440 (335)
Equity in (earnings) losses of unconsolidated
affiliates..........affiliates........................................... (2,930) 2,989 (4,214)
(23,030)
Minority interest...................interest...................................... 2,590 9,543 9,401
723Alliance plant closure costs........................... 15,000 -- --
Asset impairments and write downs...................... 24,541 -- --
Employee severance and related charges................. 7,545 -- --
---------- ---------- ----------
1,224,704 1,163,764 1,185,926
---------- ---------- ----------
Income (loss) before income taxes and cumulative effect
of accounting change..............................change................................. (56,272) 55,708 87,396
191,683
Provision (benefit) for income taxes...........taxes................... (11,598) 17,675 28,369 62,782
---------- ---------- ----------
Income (loss) before cumulative effect of accounting
change...................change............................................... (44,674) 38,033 59,027 128,901
Cumulative effect of accounting change (net of
applicable income taxes of $1,696 for June 27,
1999
and $2,902 for June 28, 1998).......1999)................................................ -- -- 2,768 4,636
---------- ---------- ----------
Net income...........................income (loss)............................ $ (44,674) $ 38,033 $ 56,259
$ 124,265
========== ========== ==========
Earnings (losses) per common share:
Income (loss) before cumulative effect of accounting
change..................change............................................ $ (.83) $ .65 $ .97
$ 2.10
Cumulative effect of accounting change.............................change............... -- -- (.04) (.07)
---------- ---------- ----------
Net income (loss) per common share.........share........... $ (.83) $ .65 $ .93
$ 2.03
========== ========== ==========
Earnings (losses) per common share -- assuming
dilution:
Income (loss) before cumulative effect of accounting
change..................change............................................ $ (.83) $ .65 $ .97
$ 2.08
Cumulative effect of accounting change.............................change............... -- -- (.04) (.07)
---------- ---------- ----------
Net income (loss) per common share.........share........... $ (.83) $ .65 $ .93 $ 2.01
========== ========== ==========
The accompanying notes are an integral part of the financial statements.
1520
Consolidated Statements of Changes
in Shareholders' Equity and Comprehensive Income21
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
Capital in Other Total Comprehensive
(Amounts in thousands, Shares Common Excess of Retained Unearned Comprehensive Shareholders' Income
except per share data) Outstanding Stock Par Value Earnings Compensation Income Equity Note 1
- ----------------------CAPITAL IN OTHER
SHARES COMMON EXCESS OF RETAINED UNEARNED COMPREHENSIVE
OUTSTANDING STOCK PAR VALUE EARNINGS COMPENSATION INCOME (LOSS)
----------- -------------- ---------- ----------------- ------------ -------------
------------- -------------(AMOUNTS IN THOUSANDS,
Balance June 29, 1997... 61,210 $6,12128,
1998................. 61,634 $6,163 $ 22,454 $618,128 $ -- $545,099 $ -- $ (2,689) $548,531 $110,761$(10,548)
====== ====== =============== ======== ======= ========
======== ========
Purchase of stock....... (539) (54) (618) (19,515) -- -- (20,187) --
Options exercised....... 402 40 2,154 -- -- -- 2,194 --
Stock option tax
benefit................ -- -- -- 2,599 -- -- 2,599 --
Stock issued for
acquisition............ 561 56 20,918 -- -- -- 20,974 --
Cash dividends -- $.56
per share.............. -- -- -- (34,320) -- -- (34,320) --
Currency translation
adjustments............ -- -- -- -- -- (7,859) (7,859) (7,859)
Net income.............. -- -- -- 124,265 -- -- 124,265 124,265
------ ------ ------- -------- ------- -------- -------- --------
Balance June 28, 1998... 61,634 6,163 22,454 618,128 -- (10,548) 636,197 116,406
====== ====== ======= ======== ======= ======== ======== ========
Purchase of stock.......stock.... (2,112) (211) (23,092) (16,034) -- --
(39,337) --
Options exercised.......exercised.... 26 3 651 -- -- --
654 --
Currency translation
adjustments............adjustments........ -- -- -- -- -- (7,635)
(7,635) (7,635)
Net income..............income........... -- -- -- 56,259 -- --
56,259 56,259
------ ------ --------------- -------- ------- -------- -------- --------
Balance June 27,
1999...1999................. 59,548 5,955 13 658,353 -- (18,183)
646,138 48,624
====== ====== =============== ======== ======= ========
======== ========
Purchase of stock.......stock.... (4,462) (446) (840) (47,623) -- --
(48,909) --
Options exercised.......exercised.... 1 -- 14 -- -- --
14 --
Grantor's trust tax
benefit................benefit............ -- -- -- 681 -- --
Stock forfeited to
satisfy income tax
withholding........ (53) (5) (630) -- -- --
Issuance of
restricted stock... 129 12 1,443 -- (1,455) --
Amortization of
restricted stock... -- -- -- -- 195 --
Currency translation
adjustments........ -- -- -- -- -- (13,079)
Net income........... -- -- -- 38,033 -- --
------ ------ -------- -------- ------- --------
Balance June 25,
2000................. 55,163 5,516 -- 649,444 (1,260) (31,262)
====== ====== ======== ======== ======= ========
Purchase of stock.... (1,436) (144) (1,020) (15,410) -- --
Issuance of
restricted stock... 104 10 1,020 -- (1,030) --
Amortization of
restricted stock... -- -- -- -- 1,087 --
Currency translation
adjustments........ -- -- -- -- -- (21,734)
Net income (loss).... -- -- -- (44,674) -- --
------ ------ -------- -------- ------- --------
Balance June 24,
2001................. 53,831 $5,382 $ -- $589,360 $(1,203) $(52,996)
====== ====== ======== ======== ======= ========
TOTAL COMPREHENSIVE
SHAREHOLDERS' INCOME(LOSS)
EQUITY NOTE 1
------------- -------------
(AMOUNTS IN THOUSANDS,
Balance June 28,
1998................. $636,197 $116,406
======== ========
Purchase of stock.... (39,337) --
Options exercised.... 654 --
Currency translation
adjustments........ (7,635) (7,635)
Net income........... 56,259 56,259
-------- --------
Balance June 27,
1999................. 646,138 48,624
======== ========
Purchase of stock.... (48,909) --
Options exercised.... 14 --
Grantor's trust tax
benefit............ 681 --
Stock forfeited to
satisfy income tax
withholding............ (53) (5) (630) -- -- --withholding........ (635) --
Issuance of
restricted stock.................. 129 12 1,443 -- (1,455) --stock... -- --
Amortization of
restricted stock....... -- -- -- -- 195 --stock... 195 --
Currency translation
adjustments............ -- -- -- -- -- (13,079)adjustments........ (13,079) (13,079)
Net income.............. -- -- --income........... 38,033 -- -- 38,033 38,033
------ ------ ------- -------- ------- --------
-------- --------
Balance June 25,
2000... 55,163 $5,516 $2000................. 622,438 24,954
======== ========
Purchase of stock.... (16,574) --
$649,444 $(1,260) $(31,262) $622,438 $ 24,954
====== ====== ======= ======== ======= ========Issuance of
restricted stock... -- --
Amortization of
restricted stock... 1,087 --
Currency translation
adjustments........ (21,734) (21,734)
Net income (loss).... (44,674) (44,674)
-------- --------
Balance June 24,
2001................. $540,543 $(66,408)
======== ========
The accompanying notes are an integral part of the financial statements.
1621
Consolidated Statements of Cash Flows22
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999
June 28, 1998
- ---------------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Cash and cash equivalents at beginning of year...................year........... $ 44,43318,778 $44,433 $ 8,372 $ 9,514
Operating activities:
Net income..........................income (loss)...................................... (44,674) 38,033 56,259 124,265
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change (net of
applicable income taxes)...................................................... -- -- 2,768 4,636
(Earnings) losses of unconsolidated equity
affiliates, net of distributions.....................distributions.................. 23,204 6,200 5,287
(15,282)
Depreciation....................... 83,037 82,993 65,033
Amortization....................... 7,491 6,883 4,677Depreciation........................................ 81,114 82,750 82,945
Amortization........................................ 9,035 7,778 6,931
Non-cash portion of non-recurring charges........... 43,478 -- --
Deferred income taxes..............taxes............................... (1,554) 10,692 4,641 12,201
Provision for bad debts and quality claims............................claims.......... 14,985 14,866 6,241
3,917
Other..............................Other............................................... 72 2,135 415 (350)
Changes in assets and liabilities, excluding effects
of acquisitions and foreign currency adjustments:
Receivables.......................Receivables....................................... 14,223 (39,257) 28,234
5,711
Inventories.......................Inventories....................................... 17,221 (18,088) 16,320
(793)
Other current assets..............assets.............................. 1,214 (1,330) (948)
1,556
Payables and accruals.............accruals............................. 3,285 27,118 (13,959)
(25,213)
Income taxes......................taxes...................................... (9,971) (4,430) 14,697
1,329
-------- --------- ------- ---------
Net -- operating activities.........activities.................... 151,632 126,467 209,831
181,687
-------- --------- ------- ---------
Investing activities:
Capital expenditures................expenditures................................... (42,337) (58,609) (118,846)
(250,064)
Acquisitions........................Acquisitions........................................... (2,159) (7,953) (27,112) (25,776)
Investments in unconsolidated equity affiliates.........................affiliates........ (15,537) (16,069) (10,000)
(39,492)Return of capital from equity affiliates............... 25,743 -- --
Investment of foreign restricted assets................ (6,770) -- --
Sale of capital assets..............assets................................. 41,725 5,637 847
2,428
Other...............................Other.................................................. (887) (1,138) (4,508)
(2,755)
-------- --------- ------- ---------
Net -- investing activities.........activities.................... (222) (78,132) (159,619)
(315,659)
-------- --------- ------- ---------
Financing activities:
Borrowing of long-term debt.........debt............................ 355,009 72,342 97,000 440,273
Repayment of long-term debt.........debt............................ (492,450) (81,589) (61,596) (252,844)
Issuance of Company stock...........stock.............................. -- 14 654 2,194
Stock option tax benefit............ -- -- 2,599
Purchase and retirement of Company stock..............................stock............... (16,574) (48,909) (39,337)
(20,187)
Cash dividends paid................. -- -- (34,320)
Distributions and advances to minority shareholders.......................shareholders.... (12,000) (12,000) (9,000)
--
Other...............................Other.................................................. (375) 287 249
(4,006)
-------- --------- ------- ---------
Net -- financing activities.........activities.................... (166,390) (69,855) (12,030)
133,709
-------- --------- ------- ---------
Currency translation adjustment......adjustment.......................... 2,836 (4,135) (2,121)
(879)
-------- --------- ------- ---------
Net increase (decrease) in cash and cash equivalents....................equivalents..... (12,144) (25,655) 36,061
(1,142)
-------- --------- ------- ---------
Cash and cash equivalents at end of year................................year................. $ 18,7786,634 $18,778 $ 44,433
$ 8,372
======== ========= ======= =========
The accompanying notes are an integral part of the financial statements.
1722
Notes to Consolidated Financial Statements23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies and Financial Statement InformationACCOUNTING POLICIES AND FINANCIAL STATEMENT INFORMATION
Principles of Consolidation: The Consolidated Financial Statements include
the accounts of the Company and all majority-owned subsidiaries. The portion of
the income applicable to noncontrolling interests in the majority-owned
op-
erationsoperations is reflected as minority interests in the Consolidated Statements of
Income.Operations. The accounts of all foreign subsidiaries have been included on the
ba-
sisbasis of fiscal periods ended three months or less prior to the dates of the
Consolidated Balance Sheets. All significant intercompany accounts and
trans-
actionstransactions have been eliminated. Investments in 20 to 50% owned companies and
partnerships where the Company is able to exercise significant influence, but
not control, are accounted for by the equity method and, accordingly,
consoli-
datedconsolidated income includes the Company's share of the affiliates' income.income or
losses.
Fiscal Year: The Company's fiscal year is the fifty-two or fifty-three
weeks ending the last Sunday in June. All three fiscal years presented consist
of fifty-two weeks.
Reclassification: The Company has reclassified the presentation of certain
prior year information to conform with the current presentation format.
Revenue Recognition: Revenues from sales are recognized at the time
ship-
mentsshipments are made.made and include amounts billed to customers for shipping and
handling. Costs associated with shipping and handling are included in cost of
sales in the Consolidated Statements of Operations.
Foreign Currency Translation: Assets and liabilities of foreign
subsidiar-
iessubsidiaries are translated at year-end rates of exchange and revenues and
expenses are translated at the average rates of exchange for the year. Gains and
losses re-
sultingresulting from translation are accumulated in a separate component of
sharehold-
ers'shareholders' equity and included in comprehensive income.income (loss). Gains and
losses resulting from foreign currency transactions (transactions denominated in
a currency other than the subsidiary's functional currency) are included in
net income.other income or expense in the Consolidated Statements of Operations.
Cash and Cash Equivalents: Cash equivalents are defined as short-term
in-
vestmentsinvestments having an original maturity of three months or less.
Receivables: Certain customer accounts receivable are factored without
re-
courserecourse with respect to credit risk. Factored accounts receivable at June 24,
2001, and June 25, 2000, and June 27, 1999, were $42.9$34.7 million and $41.6$42.9 million, respectively. An
allowance for losses is provided for known and potential losses arising from
yarn quality claims and receivables from customers not factored based on a
periodic review of these accounts. Reserves for such losses were $9.9 million at
June 24, 2001 and $17.2 mil-
lionmillion at June 25, 2000 and $8.7 million at June 27, 1999.2000.
Inventories: The Company utilizes the last-in, first-out ("LIFO") method
for valuing certain inventories representing 51.3%47.0% of all inventories at June
25, 2000,24, 2001, and the first-in, first-out ("FIFO") method for all other invento-
ries.inventories.
Inventory values computed by the LIFO method are lower than current mar-
ketmarket
values. Inventories valued at current or replacement cost would have been
approximately $5.9$5.0 million and $0.7$5.9 million in excess of the LIFO valuation at
June 24, 2001, and June 25, 2000, and June 27, 1999, respectively. The Company experienced a LIFO
liquidation in the current fiscal year resulting in the recognition of
approximately $0.4 million in pre-tax income. Finished goods, work in proc-
ess,process,
and raw materials and supplies at June 24, 2001, and June 25, 2000, and June 27, 1999,
amounted to
$81.2$64.5 million and $69.7$81.2 million; $17.0$12.5 million and $14.6$17.0 million; and $49.4$47.4
million and $45.6$49.4 million, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at
cost. Depreciation is computed for asset groups primarily utilizing the
straight-line method for financial reporting and accelerated methods for tax
reporting. For financial reporting purposes, asset lives have been assigned to
asset categories over periods ranging between three and forty years.
Other Noncurrent Assets: Other noncurrent assets at June 25, 2000,24, 2001, and
June 27, 1999,25, 2000, consist primarily of the cash surrender value of key executive
life insurance policies ($7.79.3 million and $8.1$7.7 million); unamortized bond issue
costs and debt origination fees ($5.96.1 million and $6.7$5.9 million); and acquisition
related assets consist-
ingconsisting of the excess cost over fair value of net assets
acquired and other intan-
giblesintangibles ($83.264.6 million
23
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and $86.3$82.6 million), respectively. Bond issueDebt related origination costs are
beinghave been
amortized on the straight-line method over the life of the bonds,corresponding debt,
which approximates the effective interest method. The acquisition related assets
are
beinghave been amortized on the straight-line method over periods ranging between
five and thirty years. See Recent Accounting Pronouncements in this footnote for
anticipated changes in amortizing and impairment testing of acquisition related
assets for periods beginning after fiscal year 2001. Accumulated amortization at
June 24, 2001, and June 25, 2000, and June 27,
1999, for bond issuedebt origination costs and acquisition
related assets was $29.3$29.9 million and $19.2$26.6 million, respectively. 18
See Footnote
15 "Consolidation and Cost Reduction Efforts" for further discussion on current
year activity impacting noncurrent assets.
Long-Lived Assets: Long-lived assets, including the excess cost over fair
value of net assets acquired, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recover-
able.recoverable. If undiscounted cashflows are not adequate to cover the asset
carrying value, additional analysis is conducted to determine the amount of loss
to be recognized. The impairment loss is determined by the difference between
the carrying amount of the asset and the fair value measured by future
discounted cashflows. To date, noSee Recent Accounting Pronouncements in this footnote for
anticipated changes in amortizing and impairment losses have been recorded.testing of acquisition related
assets for periods beginning after fiscal year 2001.
Income Taxes: The Company and its domestic subsidiaries file a
consolidated federal income tax return. Income tax expense is computed on the
basis of transactions entering into pretax operating results. Deferred income
taxes have been provided for the tax effect of temporary differences between
financial statement carrying amounts and the tax basis of existing assets and
liabili-
ties.liabilities. Income taxes have not been provided for the undistributed earnings
of certain foreign subsidiaries as such earnings are deemed to be permanently
in-
vested.invested.
Earnings (Losses) Per Share: The following table details the computation
of basic and diluted earnings (losses) per share:
(Amounts in thousands) JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999
June 28, 1998
- ---------------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Numerator:
Income (loss) before cumulative effect of
accounting change..................change........................... $(44,674) $38,033 $59,027 $128,901
Cumulative effect of accounting change.............................change......... -- -- 2,768
4,636-------- ------- -------
--------
Net income..........................income (loss).............................. $(44,674) $38,033 $56,259
$124,265======== ======= ======= ========
Denominator:
Denominator for basic earnings (losses) per
share--weighted averages shares....share -- weighted average shares............ 53,868 58,488 60,568 61,331
Effect of dilutive securities:
Stock options......................options............................... -- 19 2
525
Restricted stock awards............awards..................... -- 4 --
---------- ------- ------- --------
Diluted potential common shares denominator for
diluted earnings (losses) per
share -- adjusted weighted average shares
and assumed conversions.................conversions..................... 53,868 58,511 60,570
61,856======== ======= ======= ========
Stock-Based Compensation: With the adoption of SFAS 123, the Company
elected to continue to measure compensation expense for its stock-based employee
com-
pensationcompensation plans using the intrinsic value method prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Had the fair value-based
method encouraged by SFAS 123 been applied, compensation expense would have been
re-
cordedrecorded on the 230,805 options granted in fiscal 2001, the 1,975,570 options
granted in fiscal 2000 and the 414,000 options granted in fiscal 1999 based on
their respective vesting schedules. The fiscal 2001 and 2000 options vest in
annual increments over five years and the fiscal 1999 op-
tionsoptions vest primarily
over two years. No options were grantedNet income (loss) in fiscal 1998.
Net income in fiscal2001, 2000 1999 and 19981999 restated for the
effect would have been $(49.4) million or $(0.92) per diluted
24
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share, $32.7 million or $0.56 per diluted share and $53.3 million or $0.88 per di-
luted share and $122.8 million or $1.98 per
diluted, respectively. The fair value and related compensation expense of the
2001, 2000 and 1999 options were calcu-
latedcalculated as of the issuance date using the
Black-Scholes model with the following assumptions:
Options GrantedOPTIONS GRANTED 2001 2000 1999
--------------- ---- ---- ----
Expected life (years)...................................................... 10.0 10.0 10.0
Interest rate........................rate.............................................. 6.00% 6.00% 6.14%
Volatility...........................Volatility................................................. 47.7% 49.5% 49.3%
Dividend yield............................................. -- -- --
Comprehensive Income: Comprehensive income includes net income and other
changes in net assets of a business during a period from non-owner sources,
which are not included in net income. Such non-owner changes may include, for
example, available-for-sale securities and foreign currency translation
adjust-
ments.adjustments. Other than net income, foreign currency translation adjustments
pres-
entlypresently represent the only component of comprehensive income for the Company.
The Company does not provide income taxes on the impact of currency translations
as earnings from foreign subsidiaries are deemed to be permanently invested.
19
Recent Accounting Pronouncements: In June 1998,September 2000, the FASBFinancial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133,140 "Accounting for Derivative Instru-
mentsTransfers and Hedging Activities,Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS 140). SFAS 140 replaces Statement of
Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities (SFAS 125). SFAS 140
revises the standards for accounting and for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but carries
over most of SFAS 125's provisions. SFAS 140 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on a financial-components approach that focuses on control.
This standard is applied prospectively and was effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. The adoption of this standard did not have any effect on the
Company's results of operation or financial position.
In September 2000, the Emerging Issues Task Force (EITF) issued EITF
Abstract 00-10 "Accounting for Shipping and Handling Fees and Costs." EITF 00-10
requires that any amounts billed to a customer for a sales transaction related
to shipping or handling should be classified as revenues. Costs associated with
providing this service is an accounting policy disclosure and a company may
adopt a policy of including such costs in their cost of sales line item. The
Company was required to adopt EITF 00-10 in the fourth quarter of fiscal year
2001. The Company historically has included revenues earned for shipping and
handling in the net sales line item in the Consolidated Results of Operations.
Costs to provide this service were either historically included in net sales,
for shipping costs, or in cost of sales, for handling expenses. Upon the
adoption of EITF 00-10 the Company has reclassified the presentation of shipping
costs from net sales to cost of sales and has restated all prior periods to
conform with the current year format. Adopting EITF 00-10 had no impact on the
Company's results of operations or financial position.
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations," (SFAS 133)141) and
No. 142 "Goodwill and Other Intangible Assets (SFAS 142)." SFAS 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method is
prohibited after this date. SFAS 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination completed after June 1999,30, 2001.
SFAS 142 no longer permits the FASBamortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually, or more frequently under certain conditions, for impairment in
accordance with this standard. This impairment test uses a fair value approach
rather than the undiscounted cash flows approach previously required by SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of (SFAS 121)." The amortization of goodwill included in
25
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
investments in equity investees will also no longer be recorded upon adoption of
the new rules. Intangible assets that do not have indefinite lives will continue
to be amortized over their useful lives and reviewed for impairment in
accordance with SFAS 121. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company anticipates that it will apply the
new accounting rules beginning June 25, 2001. The Company is currently assessing
the financial impact SFAS 141 and 142 will have on the consolidated financial
statements. In fiscal 2001, the amortization expense associated with remaining
goodwill approximated $3.3 million.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137143 "Accounting for Derivative
InstrumentsAsset Retirement
Obligations" (SFAS 143). This standard applies to all entities and Hedging Activities - Deferraladdresses
legal obligations associated with the retirement of tangible long-lived assets
that result from the Effective Dateacquisition, construction, development or normal operation
of FASB
Statement No. 133," which delayed the effective date the Company is required
to adopta long-lived asset. SFAS 133 until its fiscal year 2001. In June 2000, the FASB issued
Statement of Financial Accounting Standards No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment to FASB
Statement No. 133." This statement amended certain provisions of SFAS 133.
SFAS 133143 requires 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 eithera liability for
an asset retirement obligation be offset
againstrecognized in the changeperiod in which it is
incurred if a reasonable estimate of fair value can be made. Additionally, any
associated asset retirement costs are to be capitalized as part of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income untilcarrying
amount of the hedged itemlong-lived asset and expensed over the life of the asset. SFAS 143
is recognized in earnings. The ineffective portion of a deriv-
ative's change in fair value will be immediately recognized in earnings.effective for financial statements issued for fiscal years beginning after
June 15, 2002. The Company doeshas not enter into derivativeyet assessed the financial instruments for trading pur-
poses. As discussed in Footnote 10 to the Consolidated Financial Statements,
the Company enters into forward contracts to hedge certain transactions and
commitments in foreign currency. Upon adoption ofimpact that
adopting SFAS 133 in the first fiscal
quarter of 2001, these activities143 will be recognizedhave on the Consolidated Bal-
ance Sheet. The Company anticipates that adoption of SFAS 133 will not have a
material effect on the Company's earnings.consolidated financial statements.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
es-
timatesestimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
es-
timates.estimates.
2. AcquisitionsACQUISITIONS, ALLIANCES AND DIVESTURES
On May 22, 2001, the Company assumed operating control of Glen Raven's
(Glen Raven) air jet texturing assets located in Altamahaw, North Carolina. This
location is capable of producing an estimated 13.0 million pounds of air jet
texturing volume making Unifi the United States market leader in the production
of air jet textured yarn. The agreement between Glen Raven and Alliancesthe Company is
structured as an operating lease whereby the air texturing equipment and
manufacturing location will be leased from Glen Raven over a seven-year term.
The Glen Raven employees at the Altamahaw plant became Unifi employees.
On June 22, 2001, the Company completed the previously announced sale of
the assets of its wholly owned subsidiary, Unifi Technical Fabrics, LLC, to
Avgol Nonwovens Industries of Holon, Israel. There were substantially no sales
or other operating activities associated with these assets prior to the date of
sale.
In June 2001, the consulting operations of the Company's majority-owned
subsidiary, Unifi Technology Group (UTG) were sold to Camstar Technology Group,
Inc. UTG was formed in the fourth quarter of fiscal year 1999 to provide
consulting services focused on integrated manufacturing, factory automation and
electronic commerce solutions to other domestic manufacturers. Effective June 1,
1999, UTG acquired the assets of Cimtec, Inc. ("Cimtec"), a manufacturing
automation solutions provider, for $10.5 million and a minority-ownership
interest in the newly combined entity was subsequently sold to certain former
Cimtec shareholders and former Unifi executives. The remaining UTG operations,
now conducting business under the name Cimtec Automation, Inc., involves the
sale and repair of certain computer hardware which was part of the Cimtec
business acquired on June 1, 1999.
The combined sales proceeds from the divestures described in the preceding
two paragraphs totaled approximately $39.4 million.
Effective June 1, 2000, the Company and E.I. DuPont De Nemours and Company
(DuPont) initiated a manufacturing alliance. The alliance is expected to
opti-
mizeoptimize Unifi's and DuPont's partially oriented yarn (POY) manufacturing
facili-
ties,facilities, increase manufacturing efficiency and improve product quality. Under
its terms, DuPont and Unifi will cooperatively run their polyester filament
manu-
facturingmanufacturing facilities as a single operating unit. This consolidation involves
the closing of the DuPont Cape Fear, North Carolina plant and will
26
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shift commodity yarns from our Yadkinville, North Carolina facility to DuPont's
Kinston, North Carolina plant, and bring high-end specialty production to
Yadkinville from Kinston and Cape Fear. The companies will split equally the
costs to complete the necessary plant consolidation and the benefits gained
through asset optimization. Addition-
ally,Additionally, the companies will collectively
attempt to increase profitability through the development of new products and
related technologies. Likewise, the costs incurred and benefits derived from the
product innovations will be split equally. DuPont and Unifi will continue to own
and operate their respec-
tiverespective 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
company's sites. Unifi will con-
tinuecontinue to provide textured yarn to the
marketplace. At termination of the alli-
ancealliance or at any time after June 1, 2005,
Unifi has the option to purchase from DuPont and DuPont has the right to sell to
Unifi, DuPont's U.S. polyester fil-
amentfilament business for a price within a
predetermined fair market value range.range involving this manufacturing alliance. See
Footnote 16 "Alliance Plant Closure Costs" on pages 37 and 38 for additional
information involving this alliance.
On March 8, 2000, the Company acquired Intex Yarns Limited (Intex) located
in Manchester, England for approximately $8.0 million plus assumed debt. This
acquisition addsadded high quality, package-dyeing capabilities in Europe and
com-
plimentscompliments the Company's yarn production facility in Letterkenny, Ireland.
During fiscal 1999, the Company formed Unifi do Brasil, LTDA to acquire the
assets of Fairway Polyester, LTDA., a Brazilian company, for $16.6 million
ef-
fectiveeffective April 1, 1999.
Also, effective June 1, 1999, UNIFI Technology Group
LLC (UTG), a newly formed subsidiary of the Company, acquired the assets of
Cimtec Inc. ("Cimtec"), a manufacturing automation solutions provider, for
$10.5 million. Subsequently, a five-percent interest in the new entity was
sold to certain former Cimtec shareholders and an additional 2.875% was sold
to certain former Unifi executives. The Company also granted an additional
2.875% of its ownership interest in UTG to certain Unifi executives which
vests in annual increments over a five-year period.
During fiscal 1998, the Company completed its Agreement and Plan of Trian-
gular Merger with SI Holding Company and thereby acquired their covered yarn
business for approximately $46.6 million effective November 17, 1997. Addi-
tionally, covenants-not-to-compete were entered into with the principal oper-
ating officers of the acquired company in exchange for $9.2 million, to be
paid generally over the terms of the covenants. After allocation of the pur-
chase price to the net assets acquired, the excess of cost over fair value has
been valued at $25.5 million.
20
TheGlen Raven, Intex, Brazilian Cimtec and SI Holding CompanyCimtec acquisitions were all accounted
for by the purchase method of accounting and accordingly, the net assets and
operations have been included in the Company's Consolidated Finan-
cialFinancial Statements
beginning on the date the acquisition was consummated. The transactions are not
considered significant to the Company's consolidated net assets or results of
operations.
3. Cumulative Effect of Accounting ChangeCUMULATIVE EFFECT OF ACCOUNTING CHANGE
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-
UpStart-Up Activities," which requires start-up costs, as defined, to be expensed
as incurred. In accordance with this SOP, any previously capitalized start-up
costs were 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.
Pursuant to Emerging Issues Task Force No. 97-13 issued in November 1997,
the Company changed its accounting policy in the second quarter of fiscal 1998
regarding a project to install an entirely new computer software system which
it began in fiscal 1995. Previously, substantially all direct external costs
relating to the project were capitalized, including the portion related to
business process reengineering. In accordance with this accounting pronounce-
ment, the unamortized balance of these reengineering costs as of September 28,
1997, of $7.5 million ($4.6 million after tax) or $.07 per diluted share was
written off as a cumulative catch-up adjustment in the second quarter of fis-
cal 1998.
4. Long-Term Debt and Other LiabilitiesLONG-TERM DEBT AND OTHER LIABILITIES
A summary of long-term debt follows:
(Amounts in thousands) JuneJUNE 24, 2001 JUNE 25, 2000
June 27, 1999
---------------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Bonds payable......................................payable............................................... $248,651 $248,447 $248,242
Revolving credit facility..........................facility dated April 15, 1996.............. -- 211,500
217,000Revolving credit facility dated December 20, 2000........... 6,500 --
Accounts receivable securitization.......................... 70,085 --
Sale-leaseback obligation..........................obligation................................... 3,020 3,154
3,355
Other bank debt and other obligations..............obligations........................................... 16,894 16,037 26,556
-------- --------
Total debt........................................ 345,150 479,138
495,153
Current maturities................................maturities.......................................... 85,962 217,308 16,255
-------- --------
Total long-term debt and other liabilities........ $259,188 $261,830 $478,898
======== ========
On February 5, 1998, the Company issued $250 million of senior, unsecured
debt securities (the "Notes") which bear a coupon rate of 6.50% and mature in
2008. The estimated fair value of the Notes, based
27
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on quoted market prices, at June 24, 2001, and June 25, 2000, and June 27, 1999, was approximately
$216.9$195.0 million and $229.7$216.9 million, respectively.
The Company entered a $400 million revolving credit facility dated April 15, 1996 with a group of financial institutions that extends throughwas
scheduled to mature April 15, 2001.2001 was refinanced in December 2000. The outstanding amounts due on the revolving credit facility at June 25,
2000 have beenoutstanding balance was classified as current maturities. Althoughshort term due to the Company in-
tends to refinance or negotiate additional borrowings to replace some or allscheduled
maturity falling within 12 months of the outstanding obligations under the revolving credit facility, no formal
commitments were entered into byprior fiscal year end. The rate of
interest that was charged isunder this facility was adjusted quarterly based on a
pricing grid which is a function ofconsidered the ra-
tioratio of the Company's debt to earnings before
income taxes, depreciation, amor-
tizationamortization and other non-cash charges. The credit
facility providesprovided the Company the option of borrowing at a spread over the base
rate (as defined) for base rate loans or the Adjusted London Interbank Offered
Rate (LIBOR) for Eurodol-
larEurodollar loans. In accordance with the pricing grid, the
Company payspaid a quarterly facility fee ranging from 0.090%-0.150% of the total
amount available under the revolving credit facility. The weighted average
interest rates for the period this debt was outstanding in the current fiscal
yearsyear was 6.91% and was 6.12% for the prior fiscal year.
Effective December 20, 2000, the Company refinanced the above described
$400 million credit facility with a new unsecured three year $250 million
revolving bank credit facility. Additionally, the Company entered into a $100
million trade receivables financing agreement (the "Receivables Agreement") that
is secured by its domestic and 1999 were 6.12% and 5.57%, respectively. At June 25, 2000, and
June 27, 1999,certain foreign accounts receivable. The
Receivables Agreement does not have a stated maturity but is terminable at the
interest rates on the outstanding balances were 6.68% and
5.29%, respectively. As a resultoption of the variable nature of the credit
facility's interest rate, the fair value of the Company's revolving credit
debt approximates its carrying value.
21
The revolving credit facility also provides the Company the option to borrow
funds competitively from the individual lenders, at their discretion, provided
that the sum of the competitive bid loans and the aggregate funds committed un-
der the revolving credit facility do not exceed the total committed amount. The
revolving credit facility allows the Company to reduce the outstanding commit-
ment in whole or in part upon satisfactory notice up to an amount no less than
the sum of the aggregate competitive bid loans and the total committed loans.
Any such partial termination is permanent.with a five-day written notice. The Company may also elect to prepay
loans in whole or in part. Amounts paid in accordance with this provision may
be re-borrowed.
The termshas classified
the $70.1 million outstanding at June 24, 2001, as a current maturity of
long-term debt, pending renegotiation of the revolving credit facility contain, among other provisions,
requirementsdiscussed
in the following paragraph, despite the intent of the Company to continue the
Receivables Agreement on a long-term basis. Loans under the new credit facility
initially bear interest at LIBOR plus .825% and advances under the receivables
financing agreement bear interest at the applicable commercial paper rate plus
.30%. The weighted average interest rates for maintaining certainthe borrowings made from the
revolver and the accounts receivable securitization from December 20, 2000
through June 24, 2001 were 6.60% and 5.92%, respectively. As of June 24, 2001,
the Company had unused capacity of approximately $243.5 million under the terms
of the new revolving credit facility.
The loans under the new revolving credit facility include financial
covenants that required, at June 24, 2001, tangible net worth of $396.1 million,
a maximum leverage ratio of 3.25 and othera minimum interest coverage ratio of 2.50.
The Company was in default of the interest coverage covenant of the new
revolving credit facility at June 24, 2001. As a result, the Company has
obtained a waiver through October 31, 2001, which reduced the facility from $250
million to $150 million and raised the effective interest rate approximately
2.0%. The Company is currently in discussions with the lending group and others
to secure a more flexible long-term borrowing arrangement. The outstanding
balance of the revolving credit facility of $6.5 million at June 24, 2001 has
been classified as a current maturity of long-term debt. The Company believes
that its current financial ratiosposition as well as its cash flow from operations and
specific limits or restrictionsavailable collateral will allow it to refinance the revolving credit facility on
additional indebtedness, liens and merger
activity. Provisions under this agreement are not considered restrictive to
normal operations.acceptable terms.
On May 20, 1997, the Company entered into a sales-leaseback agreement with
a financial institution whereby land, buildings and associated real and personal
property improvements of certain manufacturing facilities were sold to the
fi-
nancialfinancial institution and will be leased by the Company over a sixteen-year
peri-
od.period. This transaction has been recorded as a direct financing arrangement. On
June 30, 1997, the Company entered into a Contribution Agreement associated with
the formation of Parkdale America, LLC (see Consolidated Financial State-
mentStatement
Footnote 11). As a part of the Contribution Agreement, ownership of a
sig-
nificantsignificant portion of the assets financed under the sales-leaseback agreement
and the related debt ($23.5 million) were assumed by the LLC. Payments for the
re-
mainingremaining balance of the sales-leaseback agreement are due semi-annually and are
in varying amounts, in accordance with the agreement. PrincipalAverage annual principal
payments re-
quired over the next five years are approximately $100 thousand per year.$179 thousand. The interest
rate implicit in the agreement is 7.84%.
Other obligations consist primarily of acquisition relatedacquisition-related liabilities due withinand
advances from the next four years.Brazilian government. Maturities of the obligations over the next fourthree years are
$5.8$9.3 million, $6.4$7.1 million, $3.3 million and $.5$0.5 million, respectively.
Interest capitalized during fiscal 2001 and 2000 was $2.4 million and 1999 was $0.6
million, and $2.0
million, respectively.
28
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. Income TaxesINCOME TAXES
The provision for income taxes for fiscal 2001, 2000 1999 and 19981999 consists of
the following:
(Amounts in thousands) JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999
June 28, 1998
- ---------------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Currently payable:
Federal............................payable (recoverable):
Federal........................................ $ (6,005) $ 6,629 $20,124
$ 43,245
State..............................State.......................................... 666 1,682 2,951
5,704
Foreign............................Foreign........................................ 108 (225) 653
1,474-------- ------- -------
--------
Total current......................current.......................... (5,231) 8,086 23,728
50,423-------- ------- -------
--------
Deferred:
Federal............................Federal........................................ (4,239) 9,772 10,219
23,799
State..............................State.......................................... (1,325) (261) (5,718)
(11,715)
Foreign............................Foreign........................................ (803) 78 140
275-------- ------- -------
--------
Total deferred.....................deferred......................... (6,367) 9,589 4,641
12,359-------- ------- -------
--------
Income taxes (benefit) before cumulative effect
of accounting change (1999
and 1998)..........................(1999).................... $(11,598) $17,675 $28,369
$ 62,782
=============== ======= ===============
22
Income taxestaxes/(benefit) were 31.7%(20.6%), 32.5%31.7% and 32.8%32.5% of pretax
earningsearnings/(losses) in fiscal 2001, 2000 1999 and 1998,1999, respectively. A reconciliation
of the provision for income taxestaxes/(benefits) (before cumulative effect of
accounting changes in 1999 and 1998)1999) with the amounts obtained by applying the federal
statutory tax rate is as follows:
JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999 June 28, 1998
------------- ------------- -------------
Federal statutory tax rate.......... 35.0%rate....................... (35.0%) 35.0% 35.0%
State income taxes net of federal tax benefit........................benefit.... (0.5) 3.7 3.1 2.9
State tax credits net of federal tax benefit............................benefit..... (0.4) (2.1) (5.1) (4.9)
Foreign taxes less than domestic rate...............................rate............ -- -- (1.8) (1.9)
Foreign tax benefit of losses less than domestic
rate.................rate........................................... 16.8 2.5 -- --
Foreign Sales Corporation tax benefit............................benefit............ (0.8) (1.1) (0.7) (0.4)
Research and experimentation credit.............................credit.............. (0.1) (0.1) --
Resolution(0.1)
Reversal of tax issues............reserves......................... -- (7.4) -- --
Nondeductible expenses and other....other................. (0.6) 1.2 2.1
2.1
---------- ---- ----
Effective tax rate..................rate............................... (20.6%) 31.7% 32.5%
32.8%
========== ==== ====
29
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The deferred income taxes reflect the net tax effects of temporary
differ-
encesdifferences between the bases of assets and liabilities for financial reporting
pur-
posespurposes and their bases for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of June 25, 2000,24, 2001, and June 27, 1999,25,
2000, were as follows:
(Amounts in thousands) JuneJUNE 24, 2001 JUNE 25, 2000
June 27, 1999
- ---------------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Deferred tax liabilities:
Property, plant and equipment......................equipment............................. $100,676 $ 97,051 $78,241
Investments in equity affiliates...................affiliates.......................... 19,297 19,974
20,883
Other..............................................Other..................................................... 1,021 394
--
-------- ---------------
Total deferred tax liabilities...................... 117,419 99,124
-------- -------liabilities.................... $120,994 $117,419
======== ========
Deferred tax assets:
Accrued liabilities and valuation reserves.........reserves................ 15,397 9,795 1,568
State tax credits..................................credits......................................... 16,608 16,511
17,043
Other items........................................items............................................... 8,682 5,067
2,144
-------- ---------------
Total deferred tax assets...........................assets......................... 40,687 31,373
20,755
-------- ---------------
Net deferred tax liabilities........................liabilities...................... $ 80,307 $ 86,046
$78,369
======== ===============
6. Common Stock, Stock Option Plans and Restricted StockCOMMON STOCK, STOCK OPTION PLANS AND RESTRICTED STOCK
Common shares authorized were 500 million in 20002001 and 1999.2000. Common shares
outstanding at June 24, 2001, and June 25, 2000, were 53,825,533 and June 27, 1999, were 55,163,193, and
59,547,819,
respectively.
On October 21, 1999, the shareholders of the Company approved the 1999
Unifi, Inc. Long-Term Incentive Plan. The plan authorized the issuance of up to
6,000,000 shares of Common Stock pursuant to the grant or exercise of stock
options, including Incentive Stock OptionOptions ("ISO"), Non-Qualified Stock OptionOptions
("NQSO") and restricted stock, but not more than 3,000,000 shares may be is-
suedissued
as restricted stock. The 230,805 and 1,975,570 options granted in fiscal 2001
and 2000, respectively were all from the 1999 Long-Term Incentive Plan.
23
In
addition, the Company has previous ISO plans with 846,357 shares reserved and
previous NQSO plans with 1,576,007 shares reserved at year end. No addi-
tionaladditional
options will be issued under any previous ISO or NQSO plan. The transac-
tionstransactions for
2001, 2000 1999 and 19981999 of all three plans were as follows:
ISO NQSO
------------------------ ------------------------
Options Weighted Options Weighted
Outstanding avg.-------------------------- --------------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AVG. $/share outstanding avg.SHARE OUTSTANDING AVG. $/shareSHARE
----------- ------------ ----------- ------------
Fiscal 1998:
Shares under option --
beginning of year.......... 1,446,591 $20.91 1,159,019 $26.75
Exercised................... (504,458) 14.31 (47,852) 25.76
--------- ------ --------- ------
Shares under option -- end
of year.................... 942,133 $24.45 1,111,167 $26.79
========= ====== ========= ======
Fiscal 1999:
Granted.....................Granted........................................ 309,000 $16.31 105,000 $17.47
Exercised...................Exercised...................................... (833) 16.31 (25,000) 25.65
Canceled....................Canceled....................................... (12,435) 17.48 (6,668) 31.00
Converted from ISO to NQSO..NQSO..................... (391,508) 23.24 391,508 23.24
--------- ------ --------- ------
Shares under option -- end of year....................year............... 846,357 $22.15 1,576,007 $25.29
========= ====== ========= ======
Fiscal 2000:
Granted.....................Granted........................................ 1,975,570 $11.90 -- $ --
Exercised...................Exercised...................................... (833) 16.31 -- --
Canceled....................Canceled....................................... (16,500) 22.73 (346,832) 24.74
--------- ------ --------- ------
Shares under option -- end of year....................year............... 2,804,594 $14.93 1,229,175 $25.44
========= ====== ========= ======
Fiscal 2001:
Granted........................................ 230,805 $ 9.11 -- $ --
Canceled....................................... (177,477) 17.32 (40,000) 29.24
--------- ------ --------- ------
Shares under option -- end of year............... 2,857,922 $14.31 1,189,175 $25.31
========= ====== ========= ======
30
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FiscalFISCAL 2001 FISCAL 2000 FiscalFISCAL 1999 Fiscal 1998
------------- ------------- -------------
ISO:
Exercisable shares under option -- end of
year........................year......................................... 1,609,931 829,024 685,918
942,133
Option price range.................. $10.19-range.............................. $11.19-$25.38 $10.19-$25.38 $10.19-$25.38
Weighted average exercise price for options
exercisable................exercisable.................................. $ 16.46 $ 22.14 $ 23.52 $ 24.45
Weighted average remaining life of shares under
option................option....................................... 7.4 4.7 6.4 6.2
Fair value of options granted.......granted................... $ 5.59 $ 7.58 $ 11.21 $ --
NQSO:
Exercisable shares under option -- end of
year........................year......................................... 1,189,175 1,229,175 1,542,077
1,021,001
Option price range..................range.............................. $16.31-$31.00 $16.31-$31.00 $25.38-$16.31-$31.00
Weighted average exercise price for options
exercisable................exercisable.................................. $ 25.31 $ 25.44 $ 25.48 $ 26.42
Weighted average remaining life of shares under
option................option....................................... 4.1 5.1 6.0 6.8
Fair value of options granted.......granted................... $ -- $ 11.21-- $ --11.21
All options granted in fiscal 2001 and 2000 vest in annual increments over
five years from the grant date.
Substantially all options granted inDuring fiscal 1999 vest over
a two year period from the date of grant.
During fiscal2001 and 2000, the Company issued a combined total of 104,366
shares and 129,500 shares, respectively of restricted stock to certain employees
under the 1999 Unifi, Inc. Long-Term In-
centiveIncentive Plan. The stock issued vests in
equal annual increments overranging from two to five years from the grant dates.
Compensation expense will be recognized over the vesting terms of the shares
based on the fair market value at the date of grant.
24
7. Retirement PlansRETIREMENT PLANS
The Company has a qualified profit-sharing plan, which provides benefits
for eligible salaried and hourly employees. The annual contribution to the plan,
which is at the discretion of the Board of Directors, amounted to $5.0 million
in 2001 and $11.0 million in both 2000 and 1999 and $13.0 million in 1998.1999. The Company leases its
corpo-
ratecorporate office building from its profit-sharing plan through an independent
trust-
ee.trustee.
8. Leases and CommitmentsLEASES AND COMMITMENTS
In addition to the direct financing sales-leaseback obligation described in
Consolidated Financial Statements Footnote 4, the Company is obligated under
operating leases consisting primarily of real estate and equipment. Future
ob-
ligationsobligations for minimum rentals under the leases during fiscal years after June
25, 2000,24, 2001, are $7.3 million in 2001, $6.3$6.4 million in 2002, $4.5$5.4 million in 2003, $2.7$5.8 million in 2004,
$2.2$4.6 million in 2005, $3.5 million in 2006 and $0.9$5.7 million in aggregate
there-
after.thereafter. Rental expense was $7.9 million, $8.5 million $7.6 million and $6.8$7.6 million for
the fiscal years 2001, 2000 1999 and 1998,1999, respectively. The Company had committed
ap-
proximately $55.1approximately $20.0 million for the purchase and upgrade of equipment and
facili-
tiesfacilities at June 25, 2000.24, 2001.
9. Business Segments, Foreign Operations and Concentrations of Credit RiskBUSINESS SEGMENTS, FOREIGN OPERATIONS AND CONCENTRATIONS OF CREDIT RISK
The Company and its subsidiaries are engaged predominantly in the
processing of yarns by texturing of synthetic filament polyester and nylon fiber
with sales domestically and internationally, mostly to knitters and weavers for
the apparel, industrial, hosiery, home furnishing, automotive upholstery and
other end-use markets. Additionally, during fiscal 1999, the Company formed a
limited liability company to provide integrated manufacturing, factory
automation and electronic commerce solutions to other domestic manufactures. The
consulting operations of this business was sold at the end of the current fiscal
year. This operation comprises the majority of the amounts included in the "All
Other" column for all three years presented. The Company also maintains
investments in several minority-owned and jointly owned affiliates. See Footnote
11 in these Consolidated Financial Statements for further information on
unconsoli-
datedunconsolidated affiliates.
31
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with Statement of Financial Accounting Standards No. 131,
segmented financial information of the polyester and nylon operating segments,
as regularly reported to management for the purpose of assessing performance and
allocating resources, is detailed below.
"All other" primarily represents
the results of the limited liability consulting company in fiscal 2000 and
1999.
All
(Amounts in thousands) Polyester Nylon Other Total
- ----------------------ALL
POLYESTER NYLON OTHER TOTAL
--------- -------- ------- ----------
(AMOUNTS IN THOUSANDS)
Fiscal 20002001:
Net sales to external customers......... $852,179 $408,073 $20,160 $1,280,412customers............ $791,169 $315,114 $24,106 $1,130,389
Intersegment net sales..................sales..................... 63 -- 9,164 9,227
Depreciation and amortization.............. 57,159 22,616 1,048 80,823
Segment operating income (loss)............ 28,430 7,392 (1,859) 33,963
Total assets....................... 608,594 292,369 5,076 906,039
-------- -------- ------- ----------
Fiscal 2000:
Net sales to external customers............ $861,842 $409,433 $20,160 $1,291,435
Intersegment net sales..................... 23 408 11,757 12,188
Depreciation and amortization...........amortization.............. 59,435 22,001 767 82,203
Segment operating income................income................... 66,572 40,999 941 108,512
Total assets............................ 695,363assets....................... 695,675 358,205 17,721 1,071,2891,071,601
-------- -------- ------- ----------
Fiscal 19991999:
Net sales to external customers......... $805,749 $443,850customers............ $815,628 $445,089 $ 1,561 $1,251,160$1,262,278
Intersegment net sales..................sales..................... 17,014 5,159 -- 22,173
Depreciation and amortization...........amortization.............. 58,294 24,142 48 82,484
Segment operating income (loss)..................... 64,710 47,966 (62) 112,614
Total assets............................assets....................... 710,277 206,661 13,392 930,330
-------- -------- ------- ----------
Fiscal 1998
Net sales to external customers......... $911,704 $465,905 $ -- $1,377,609
Intersegment net sales.................. 28,076 5,089 -- 33,165
Depreciation and amortization........... 46,003 15,030 -- 61,033
Segment operating income................ 111,944 70,512 -- 182,456
Total assets............................ 650,335 249,754 60 900,149
-------- -------- ------- ----------
25
Segment operating incomeNet sales to external customers for fiscal 1999year 2001 does not include $768
thousand of net sales associated with the Company's non-woven start-up
operation. This operation was reduced $9.7 millionsubstantially selling off-quality product during
its ramp-up phase and $5.1
million for polyester and nylon, respectively,had not yet been classified internally as a resultseparate
operational segment for purposes of the early retire-
ment and termination charge in the third quarter (see Consolidated Financial
Statements Footnote 14).management evaluation.
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, fi-
berfiber
costing and capitalization of property, plant and equipment costs. Prior to
the currentIn fiscal
year 1999, 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 year and for fiscal year 2000, the majority of
intersegment yarn transfers were treated as inventory transfers, and profit
margins recorded only on intersegment transfers from our dyed operations.
Domestic operating di-
visions'divisions' fiber costs are valued on a standard cost basis,
which approximates first-in, first-out accounting. For those components of
inventory valued util-
izingutilizing the last-in, first-out method (see ConsolidatedFootnote 1
"Accounting Polices and Financial Statements
Footnote 1)Statement Information"), an adjustment is made
at the corporate level to record the differ-
encedifference between standard cost and LIFO.
For significant capital projects, capital-
izationcapitalization is delayed for management
segment reporting until the facility is sub-
stantiallysubstantially complete. However, for
consolidated 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 not as yet been moved for management
segment reporting.
Segment operating income for fiscal 1999 was reduced $9.7 million and $5.1
million for polyester and nylon, respectively, as a result of the early
retirement and termination charge in the third quarter. See Footnote 14 "Early
Retirement and Termination Charge" for additional information.
The increasechange in nylonthe polyester segment total assets between fiscal year end
2000 and 2001 reflects reduced working capital of $38.1 million and lower fixed
assets of $51.2 million. The fixed asset reduction is attributable toprimarily
32
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
associated with current year depreciation. The change in the reclassificationnylon segment total
assets for this period is a result of lower working capital of $44.6 million,
decreased property plant and equipment from unallocated corporate fixed assets. This
reclassificationof $16.5 million and lower noncurrent assets of
approximately $3.3 million. The reduction in long-term assets is primarily
relates to a new facility that was substantially
completed.associated with depreciation and amortization recorded during the current year.
The change in total assets for the "All Other" segment primarily re-
flectsreflects the
establishmentsale of the consulting operations of the Company's majority owned subsidiary,
Unifi Technology Group in May 1999. Unifi Technology Group is a domestic automation
solutions provider.at the end of the current fiscal year.
(Amounts in Thousands) JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999
June 28, 1998
- ---------------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Depreciation and amortization:
Depreciation and amortization of specific
reportable segment assets.............................assets................... $ 80,823 $ 82,203 $ 82,484
$ 61,033
Depreciation of unallocated assets..assets............. 7,271 7,146 6,362 6,138
Amortization of unallocated assets..assets............. 2,108 3,841 3,373 2,539
---------- ---------- ----------
Consolidated depreciation and amortization.......................amortization..... $ 90,202 $ 93,190 $ 92,219
$ 69,710
========== ========== ==========
Profit:Operating income (loss):
Reportable segments operating income.............................income........... $ 33,963 $ 108,512 $ 112,614
$ 182,456Unallocated start-up operating losses.......... 2,078 -- --
Net standard cost (income) expense adjustment
to LIFO.................LIFO..................................... (2,781) 4,444 (8,040) (2,038)
Unallocated operating (income) expense project
adjustment.........adjustment.................................. 339 (1,440) 1,442 --
Provision for bad debts.............debts........................ 8,697 8,694 1,129
724
Interest expense....................expense............................... 30,123 30,294 27,459
16,598
Interest income.....................income................................ (2,549) (2,772) (2,399)
(1,869)
Other (income) expense..............expense......................... 7,582 1,052 440 (335)
Equity in (earnings) losses of unconsolidated
affiliates..........affiliates.................................. (2,930) 2,989 (4,214)
(23,030)
Minority interests..................interests............................. 2,590 9,543 9,401
723Alliance plant closure costs................... 15,000 -- --
Asset impairments and write downs.............. 24,541 -- --
Employee severance and related charges......... 7,545 -- --
---------- ---------- ----------
Income (loss) before income taxes and
cumulative effect of accounting change.............................change...... $ (56,272) $ 55,708 $ 87,396 $ 191,683
========== ========== ==========
Total assets:
Reportable segments total assets.... $1,071,289assets............... $ 930,330906,039 $1,071,601 $ 900,149930,330
Cash, receivables and other current assets.............................assets..... 24,720 16,254 17,661 2,604
Unallocated corporate fixed assets..assets............. 16,603 44,159 176,161 188,311
Other non-current corporate assets.. 38,834assets............. 36,010 38,522 41,085 34,112
Investments in equity affiliates....affiliates............... 173,502 208,918 207,142 212,488
Intersegment notes and receivables..receivables............. (19,555) (24,690) (6,539) (3,850)
---------- ---------- ----------
Consolidated assets.................assets.............................. $1,137,319 $1,354,764 $1,365,840 $1,333,814
========== ========== ==========
26
The Company's domestic operations serve customers principally located in
the southeastern United States as well as international customers located
primarily in Canada, Mexico, Europe and South America. During fiscal 2001, 2000
1999 and 19981999 the Company did not have sales to any one customer in excess of 10% of
consoli-
datedconsolidated revenues. Export sales, excluding those to the Company's
international operations, aggregated $143.4 million in 2001, $182.8 million in
2000 and, $153.9 million in 1999 and,
$185.5 million in 1998.1999. The concentration of credit risk for the
Company with respect to trade receivables is mitigated due to the large number
of customers, dispersion across different industries and geographic regions and
its factoring arrangements.
33
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's foreign operations primarily consist of manufacturing
opera-
tionsoperations in Ireland, England, Brazil and Columbia.Colombia. Net sales, pre-tax
operating income and total assets of the Company's foreign and domestic
operations are as follows:
(Amounts in Thousands) JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999
June 28, 1998
---------------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Foreign operations:
Net sales.......................sales...................................... $190,763 $ 158,174182,326 $ 130,766 $ 136,573141,310
Pre-tax income (loss)..................................... (28,430) (4,456) 6,804
15,107
Total assets.................... 193,860 173,298 127,586assets........................... 160,190 193,746 174,146
Domestic operations:
Net sales....................... $1,122,238 $1,120,394 $1,241,036sales...................................... $940,394 $1,109,109 $1,120,968
Pre-tax income..................income (loss).......................... (27,842) 60,164 80,592
176,576
Total assets.................... 1,160,904 1,192,542 1,206,228assets........................... 977,129 1,161,018 1,191,694
10. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective June 26, 2000, the Company began accounting for derivative
contracts and hedging activities under Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Financial Instruments and Fair ValueHedging
Activities" which requires all derivatives to be recorded on the balance sheet
at fair value. There was no cumulative effect adjustment of Financial Instrumentsadopting this
accounting standard. 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 does not enter into derivative financial instruments for trading
purposes.
The Company conducts its business in various foreign currencies. As a
re-
sult,result, it is subject to the transaction exposure that arises from foreign
ex-
changeexchange rate movements between the dates that foreign currency transactions are
recorded (export sales and purchases commitments) and the dates they are
con-
summatedconsummated (cash receipts and cash disbursements in foreign currencies). The
Com-
panyCompany utilizes some natural hedging to mitigate these transaction exposures.
The Company also enters into foreign currency forward contracts for the purchase
and sale of European, Canadian and other currencies to hedge balance sheet and
income statement currency exposures. These contracts are principally entered
into for the purchase of inventory and equipment and the sale of Company
prod-
uctsproducts into export markets. Counter-parties for these instruments are major
fi-
nancialfinancial institutions.
Currency forward contracts are entered to hedge exposure for sales in
for-
eignforeign currencies based on specific sales orders with customers or for
antici-
patedanticipated sales activity for a future time period. Generally, 60-80% of the
sales value of these orders are covered by forward contracts. Maturity dates of
the forward contracts attempt to match anticipated receivable collections. The
Com-
panyCompany marks the outstanding accounts receivable and forward contracts to
market at month end and any realized and unrealized gains or losses are recorded
as other income and expense. The Company also enters currency forward contracts
for committed or anticipated equipment and inventory purchases. Generally 50-75%
of the asset cost is covered by forward contracts although 100% of the asset
cost may be covered by contracts in certain instances. Forward contracts are
matched with the anticipated date of delivery of the assets and gains and losses
are re-
cordedrecorded as a component of the asset cost.cost for purchase transactions the
Company is firmly committed. For anticipated purchase transactions, gains or
losses on hedge contracts are accumulated in Other Comprehensive Income (Loss)
and periodically evaluated to assess hedge effectiveness. In the current year,
the Company recorded and subsequently wrote off approximately $4.7 million of
accumulated losses on hedge contracts associated with the anticipated purchase
of machinery that was later canceled. The contracts outstanding hedge agreements as of
June 25, 2000 mature throughfor anticipated
purchase commitments that were subsequently canceled were unwound by entering
into sales contracts with identical remaining maturities and contract values.
These purchase and sales contracts continue to be marked
34
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to market with offsetting gain and losses. The latest maturity for all
outstanding purchase and sales foreign currency forward contracts are October
2001.15, 2001 and March 21, 2002, respectively.
The dollar equivalent of these forward currency contracts and their related
fair values are detailed below:
(Amounts in thousands) JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999
June 28, 1998
---------------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Foreign currency purchase contracts:
Notational amount.........Notional amount................................ $14,400 $49,343 $ 2,842
$29,184
Fair value................value..................................... 12,439 46,760 3,250 31,418
------- ------- -------
Net unrecognized (gain) loss....................loss........................ $ 1,961 $ 2,583 $ (408) $(2,234)
======= ======= =======
Foreign currency sales contracts:
Notational amount.........Notional amount................................ $28,820 $26,303 $28,024
$28,446
Fair value................value..................................... 29,369 26,474 27,826 28,646
------- ------- -------
Net unrecognized (gain) loss....................loss........................ $ 549 $ 171 $ (198)
$ 200
======= ======= =======
27
For the fiscal year ended June 24, 2001, the total impact of foreign
currency related items on the Consolidated Statements of Operations, including
transaction that were hedged and those that were not hedged, was a pre-tax loss
of $9.5 million.
The following methods were used by the Company in estimating its fair value
disclosures for financial instruments:
Cash and cash equivalents, trade receivables and trade payables --payables. The
car-
ryingcarrying amounts approximate fair value because of the short maturity of these
instruments.
Long-term debt --debt. The fair value of the Company's borrowings is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities
(see Consolidated Financial Statements Footnote 4)4 "Long-Term Debt and Other Liabilities").
Foreign currency contracts --contracts. The fair value is based on quotes obtained
from brokers or reference to publicly available market information.
11. InvestmentINVESTMENT IN UNCONSOLIDATED AFFILIATES
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
Unconsolidated Affiliates
InvestmentsNorth Carolina. Sales from this entity are expected to be primarily to customers
in affiliates consistthe NAFTA and CBI markets. 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
Stoneville, North Carolina facility, a former Unifi manufacturing location. The
Unifi-Sans facility is scheduled to begin production in November 2001. Until
such time, UNIFI-SANS will continue to purchase yarn from Solutia to meet market
demand. 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, formed a
50/50 joint venture to be called U.N.F. Industries Ltd. (U.N.F.). The joint
venture will produce approximately 25.0 million pounds of nylon POY at Nilit's
manufacturing facility in Migdal Ha - Emek, Israel. Production and shipping of
POY from this facility began in March 2001. The nylon POY will be utilized in
the Company's nylon texturing and covering operations.
35
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the Company continues to maintain a 34% interest in Parkdale
America, LLC (the "LLC") and a 45.27%has reduced its equity interest in Micell
Technologies Inc. ("Micell").
The LLC was created on June 30, 1997, when from 45.27% to 32.71% during the Company and Parkdale Mills,
Inc. ("Parkdale") of Gastonia, North Carolina entered into a Contribution
Agreement (the "Agreement") that set forth the terms and conditions whereby
each entity's open-end and air jet spun cotton yarn assets and certain long-
term debt obligations were contributed to the LLC. In accordance with the
Agreement, each entity's inventory, owned real and tangible personal property
and improvements thereon and the Company's leased real property associated
with the operations were contributed to the LLC. Additionally, the Company
contributed $32.9 million in cash to the LLC on June 30, 1997, $10.0 million
in cash on June 30, 1998, and $10.0 million on June 30, 1999, whereas Parkdale
contributed cash of $51.6 million on June 30, 1997. The LLC assumed certain
long-term debt obligations of the Company and Parkdale in the amounts of
$23.5 million and $46.0 million, respectively. In exchange for the assets con-
tributed to the LLC and the liabilities assumed by the LLC, the Company re-
ceived a 34% interest in the LLC and Parkdale received a 66% interest in the
LLC.current year.
Condensed balance sheet and income statement information of the combined
unconsolidated equity affiliates as of and for the twelve-month periods ended
June 24, 2001, June 25, 2000 and June 27, 1999 and June 28, 1998 and for the fiscal years ended June 25,
2000, June 27, 1999 and June 28, 1998, of the combined LLC and Micell isare as follows:
(Amounts in thousands) JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999
June 28, 1998
---------------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Current assets..............assets................................... $258,679 $223,068 $282,004
$260,358
Noncurrent assets...........assets................................ 216,760 234,093 256,513
264,194
Current liabilities.........liabilities.............................. 145,963 37,632 125,730 134,110
Shareholders' equity and capital accounts...........accounts........ 294,411 398,113 390,935
390,442
Net sales...................sales........................................ $493,012 $507,950 $594,445
$652,097
Gross profit................profit..................................... 27,229 33,524 57,915
108,649
Income from operations......operations........................... 4,224 988 27,653
80,546
Net income..................income....................................... 6,642 2,453 21,262 75,788
TheUNIFI-SANS and the LLC isare organized as a partnershippartnerships for U.S. tax purposes.
Taxable income is passed through UNIFI-SANS and the LLC to the shareholdersmembers in
accordance with the Operating AgreementAgreements of UNIFI-SANS and the LLC. For the
fiscal years ended June 24, 2001, June 25, 2000 and June 27, 1999,
and June 28, 1998, distributions
received by the Company from the LLC amounted to $51.9 million, $3.2 million and
$9.5 million, and $7.7 million, respectively. Included in the above net sales amount for the June
24, 2001 period are sales to Unifi of approximately $12.5 million. This amount
represents sales of nylon POY from U.N.F. for use in the production of nylon
textured yarn in the ordinary course of business.
12. Supplemental Cash Flow InformationSUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is summarized below:
(Amounts in thousands) JuneJUNE 24, 2001 JUNE 25, 2000 JuneJUNE 27, 1999
June 28, 1998
---------------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS)
Cash payments for:
Interest, net of amounts capitalized.................capitalized........... $28,362 $28,978 $25,396 $16,521
Income taxes, net of refunds.....................refunds................... 1,392 9,315 8,225 47,488
Stock issued for SI Holding
Company acquisition.......... -- -- 21,000
28
13. Minority InterestMINORITY INTEREST
Effective May 29, 1998, the Company formed a limited liability company (the
"Partnership") Unifi Textured Polyester, LLC
(UTP)with Burlington Industries, Inc. ("Burlington") to manufacture and market
natural textured polyester yarns. The Company has an 85.42% interest in the PartnershipUTP and
Burlington has 14.58%. For the first five years, of the
Partnership, Burlington is entitled to the
first $9.4 million of earnings. Sub-
sequentearnings and the first $12.0 million of excess cash flow
of the business. Subsequent to this five-year period, earnings and cash flows
are to be allocated based on owner-
shipownership percentages. The Partnership'sUTP's assets, liabilities
and earnings are con-
solidatedconsolidated with those of the Company and Burlington's
interest in the Partner-
shipUTP is included in the Company's financial statements as
minority interest. Minority interest for Burlington's share of the Partnership earningsUTP in fiscal
2001, 2000 1999 and 19981999 amounted to $9.4$3.0 million, $9.4 million and $0.7$9.4 million,
respectively.
14. Early Retirement and Termination ChargeEARLY RETIREMENT AND TERMINATION CHARGE
During the third quarter of fiscal 1999, the Company recognized a $14.8
mil-
lionmillion charge associated with the early retirement and termination of 114
sala-
riedsalaried 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
effec-
tiveeffective March 31, 1999, with cash payments for
36
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
severance expected to be spread over a period not to exceed three years. At June
25, 2000, there remained24, 2001, a reserve of $7.4 mil-
lion$5.6 million remained on the Consolidated Balance Sheets
that is expected to equal the future cash expenditures to such terminated
employees.
15. Quarterly Results (Unaudited)CONSOLIDATION AND COST REDUCTION EFFORTS
In the current year, the Company recorded charges of $7.6 million for
severance and employee related costs and $24.5 million for asset impairments and
write-downs. The majority of these charges relate to U.S. and European
operations and include plant closings and consolidations, the reorganization of
administrative functions and the write down of assets for certain operations
determined to be impaired as well as certain non-core businesses that are being
held for sale. The plant closing and consolidations of the manufacturing and
distribution systems are aimed at improving the overall efficiency and
effectiveness of our operations and reducing our fixed cost structure in
response to decreased sales volumes.
The severance and other employee related costs provide for the termination
of approximately 750 people who were terminated as a result of these worldwide
initiatives and included management, production workers and administrative
support located in Ireland, England and in the United States. Notice of the
termination was made to all employees prior to March 24, 2001 and substantially
all affected personnel were terminated by the end of April 2001. Severance will
be paid in accordance with various plan terms, which vary from lump sum to a
payout over a maximum of 21 months ending December 2002. Additionally, this
charge includes costs associated with medical and dental benefits for former
employees no longer providing services to the Company and provisions for certain
consultant agreements for which no future benefit is anticipated.
The charge for impairment and other write down of assets includes $18.6
million for the write down of duplicate or less efficient property, plant and
equipment to their fair value less disposal cost and the write down of certain
non-core assets which are held for sale. It is anticipated that the remaining
non-core assets and business will be sold prior to the end of calendar 2001.
Additionally, an impairment charge of $5.9 million was recorded for the write
down to fair value of assets, primarily goodwill, associated with the European
polyester dyed yarn operation and Colombian nylon covering operation as the
undiscounted cash flows of the business were not sufficient to cover the
carrying value of these assets. These reviews were prompted by ongoing excess
manufacturing capacity issues. Run-out expenses related to the consolidation and
closing of the affected operations, including equipment relocation and other
costs associated with necessary ongoing plant maintenance expenses, were charged
to operations as incurred and were substantially completed by the end of the
current fiscal year.
The table below summarizes the employee severance portion of the
consolidation and cost reduction charge, the amounts paid and the accrual
balance as of June 24, 2001:
Total charges............................................... $ 7,753
Cash payments............................................... (3,547)
Change in estimate.......................................... (209)
-------
Balance at June 24, 2001.................................... $ 3,997
=======
Substantially all costs other than severance associated with the
consolidation and cost reduction charges are non cash.
16. ALLIANCE PLANT CLOSURE COSTS
In the fourth quarter of the current fiscal year, the Company recorded its
share of the anticipated costs of closing DuPont's Cape Fear, North Carolina
facility. The charge totaled $15.0 million and represents 50% of the severance
and dismantlement cost of closing this plant. The Cape Fear plant produced
polyester POY and was one of two DuPont facilities involved in the Alliance
further discussed in Footnote 2 "Acquisitions, Alliances and Divestures."
Payments for this obligation are to be made over the eighteen-month period
37
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commencing July 2001 and ending December 2002. This obligation is included in
accrued liabilities on the Consolidated Balance Sheets.
17. QUARTERLY RESULTS (UNAUDITED)
Quarterly financial data for the years ended June 27, 1999,25, 2000, and June 25,
2000,24,
2001, is presented below:
(Amounts in thousands, First Quarter Second Quarter Third Quarter Fourth Quarter
except per share data)FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
(13 Weeks)WEEKS) (13 Weeks)WEEKS) (13 Weeks)WEEKS) (13 Weeks)
- ----------------------WEEKS)
------------- -------------- ------------- --------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999:2000:
Net sales............... $328,815 $319,854 $294,805 $307,686sales................................. $306,974 $320,207 $322,096 $342,158
Gross profit............ 47,477 50,460 29,970 46,643
Income before cumulative
effect of accounting
change................. 21,030 22,498 1,093 14,406
Cumulative effect of
accounting change...... 2,768profit.............................. 34,259 41,742 42,870 44,700
Net income.............. 18,262 22,498 1,093 14,406
Income before cumulative
effect of accounting
change (basic)......... .34 .37 .02 .24
Income before cumulative
effect of accounting
change (diluted)....... .30 .37 .02 .24income................................ 3,332 10,173 13,236 11,292
Earnings per share (basic)................ .34 .37 .02 .24.06 .17 .23 .20
Earnings per share (diluted).............. .30 .37 .02 .24
2000:
Net sales............... $304,714 $317,589 $319,302 $338,807
Gross profit............ 34,259 41,742 42,870 44,700
Net income.............. 3,332 10,173 13,236 11,292
Earnings per share
(basic)................ .06 .17 .23 .20
2001:
Net sales................................. $319,163 $299,143 $255,223 $257,628
Gross profit.............................. 37,660 28,040 15,975 15,438
Net income (loss)......................... 2,883 (3,428) (28,548) (15,581)
Earnings (loss) per share (basic)......... .05 (.06) (.53) (.29)
Earnings (loss) per share (diluted).............. .06 .17 .23 .20....... .05 (.06) (.53) (.29)
ItemNet sales for the first quarter of fiscal year 2001 have been reclassified
to conform with the presentation for the second, third and fourth quarters. Net
sales for all quarters presented reflect the reclassification of freight expense
from net sales into cost of sales.
38
39
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not changed accountants nor are there any disagreements
with its accountants, Ernst & Young LLP, on accounting and financial disclosure
that should be reported pursuant to Item 304 of Regulation S-K.
2939
40
PART III
ItemITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT AND COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
(a) Directors of Registrant: The information included under the headings
"Election of Directors", "Nominees for Election as Directors", "Directors
Remaining in Office", "Security Holding of Directors, Nominees, and Executive
Officers", "Directors' Compensation", "Committees of the Board of Directors",
and compliance"Compliance with Section 16(a) of The Securities and Exchange Act,Act",
beginning on pagePage 2 and ending on page 7Page 6 and on page 1415 of the definitive proxy
statement filed with the Commission since the close of the Registrant's fiscal
year ended June 25, 2000,24, 2001, and within 120 days after the close of said fiscal
year, are incorporated herein by reference.
(b) Identification of Executive Officers:
Chairman of The Board of Directors
G. Allen Mebane, IV Mr. Mebane is 70 and has been an Executive Officer and
member of the Board of directors of the Company since 1971, serving as Presi-
dent and Chief Executive Officer of the Company until 1980 and 1985, respec-
tively. He was the Chairman of the Board of Directors for many years, Chairman
of the Executive Committee from 1974 to 1995, and was elected as one of the
three members of the Office of Chairman on August 8, 1991. On October 22,
1992, Mr. Mebane was again elected as Chairman of the Board of Directors and
on January 20, 1999 resumed the positions of Chief Executive Officer (which he
held until January 26, 2000). Mr. Mebane has announced that he will retire as
an Executive Officer and Chairman of the Board of Directors effective after
the Company's annual meeting of shareholders on October 26, 2000.
President and Chief Executive OfficerPRESIDENT AND CHIEF EXECUTIVE OFFICER
Brian R. ParkeParke. Mr. Parke is 5253 and had been the Manager or President of
the Company's Irish subsidiary (Unifi Textured Yarns Europe) from its
acquisition by the Company in 1984 to January 20, 1999, when he was elected
President and Chief Operating Officer of the Company. On January 26, 2000, Mr.
Parke was elected Chief Executive Officer of the Company. Additionally, Mr.
Parke has been a Vice President of the Company since October 21, 1993 and on
July 22, 1999 was elected to the Company's Board of Directors.
Executive Vice PresidentsEXECUTIVE VICE PRESIDENTS
Willis C. Moore, IIIIII. Mr. Moore is 4748 and had been a Partner with Ernst &
Young LLP, or its predecessors from 1975 until December 1994, when he became
employed by the Company as its Chief Financial Officer. Mr. Moore was elected as
a Vice President of the Company on October 19, 1995, Senior Vice President on
October 23, 1997 and Executive Vice President on July 26, 2000. Addition-
ally,Additionally,
Mr. Moore continues to serve as the Company's Chief Financial Officer.
G. Alfred WebsterWebster. Mr. Webster is 5253 and has been a Vice President or
Execu-
tiveExecutive Vice President of the Company since 1979. He has been a member of the
Board of Directors since 1986.
Senior Vice PresidentsSENIOR VICE PRESIDENTS
Thomas H. CaudleCaudle. Mr. Caudle is 4850 and has been an employee of the Company
since 1982. On January 20, 1999, Mr. Caudle was elected as a Vice President of
Manufacturing Services of the Company and on July 26, 2000 he was elected as a
Senior Vice President in charge of Manufacturing for the Company.
Michael E. DelaneyDelaney. Mr. Delaney is 4445 and has been an employee of the
Com-
panyCompany since January 2000, when he joined the Company as Senior Vice President
of Marketing. Prior to coming to the Company, Mr. Delaney was Vice President of
Marketing with Volvo Truck N.A. from July 1997 through December 1999, Vice
President of Marketing with GE Capital Transport International Pool from
De-
cemberDecember 1995 through July 1997 and Vice President of TIP Intermodel Services
from December 1993 through December 1995.
Stewart Q. LittleLittle. Mr. Little is 4648 and has been a Vice President of the
Company since October 24, 1985 and a Senior Vice President since January 20,
1999. He is currently serving as Senior Vice President of North American Yarn
Sales.
30
Customer Development.
Ottis "Lee" GordonGordon. Mr. Gordon is 5455 and has been an employee of the
Company since the Unifi merger with Macfield, Inc. in 1991. Prior to the merger, Mr.
Gordon had been an employee of Macfield since 1973. On January 20, 1999, Mr.
Gordon was elected as a Vice President of Product Development of the Company and
on July 26, 2000 he was elected as a Senior Vice President of Product Develop-
ment.Development.
40
41
These executive officers, unless otherwise noted, were elected by the Board
of Directors of the Registrant at the Annual Meeting of the Board of Directors
held on October 21, 1999.26, 2001. Each executive officer was elected to serve until the
next Annual Meeting of the Board of Directors or until his successor was elected
and qualified.
(c) Family Relationship: Mr. Mebane, Chairman of the Board, and Mr. C. Clif-
ford Frazier, Jr., the Secretary of the Registrant,There are first cousins. Except
for this relationship, there is no family relationrelationship between any of
the Offi-
cers.
ItemOfficers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the headings "Compensation Committee Inter-
locksCommittees
Interlocks and Insider Participation in Compensation Decisions", "Report of the
Compensation Committee on Executive Compensation", "Executive Officers and Theirtheir
Compensation", "Options"Option Grants in Fiscal Year 2000"2001", "Option Exercises and
Option/SAR Values", "Employment and Termination Agreements", and the
"Per-
formance"Performance Graph-Shareholder Return on Common Stock" beginning on pagePage 7 and
ending on pagePage 14 of the Company's definitive proxy statement filed with the
Commission since the close of the Registrant's fiscal year ended June 25,
2000,24, 2001,
and within 120 days after the close of said fiscal year, are incorpo-
ratedincorporated herein
by reference.
For additional information regarding executive compensation reference is
made to Exhibits (10i), (10k), (10l),(10m) and (10m),(10n) of this Form 10-K.
ItemITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners and management is the same
as reported under the heading "Information Relating to Principal Security
Holders" on pagePage 2 of the definitive proxy statement and under the heading
"Security Holding of Directors, Nominees and Executive Officers" on pagePage 5 and
pagePage 6 of the definitive proxy statement filed with the Commission pursuant to
Regulation 14 (a) within 120 days after the close of the fiscal year ended June
25, 2000,24, 2001, which are hereby incorporated by reference.
ItemITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the heading "Compensation Committee
Inter-
locksInterlocks and Insider Participation In Compensation Decisions", on pagePage 7 of
the definitive proxy statement filed with the Commission since the close of the
Registrant's fiscal year ended June 25, 2000,24, 2001, and within 120 days after the
close of said fiscal year, is incorporated herein by reference.
3141
42
PART IV
ItemITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.8-K
(a) 1. Financial Statements
The following financial statements and report of independent auditors are
filed as a part of this Report.
PagesPAGES
-----
Report of Independent Auditors...................................... 13Auditors.............................. 18
Consolidated Balance Sheets at June 24, 2001 and June 25,
2000...................................................... 19
Consolidated Statements of Operations for the Years Ended
June 24, 2001, June 25, 2000, and June 27, 1999...... 14
Consolidated Statements of Income for the Years Ended June 25, 2000,
June 27, 1999, and June 28, 1998................................... 151999........... 20
Consolidated Statements of Changes in Shareholders' Equity
and Comprehensive Income (Loss) for the Years Ended June
24, 2001, June 25, 2000 and June 27, 1999 and June 28, 1998............................................. 161999................. 21
Consolidated Statements of Cash Flows for the Years Ended
June 24, 2001, June 25, 2000 and June 27, 1999 and June 28, 1998.............................. 171999............ 22
Notes to Consolidated Financial Statements.......................... 18Statements.................. 23
2. Financial Statement Schedules
Schedules for the three years ended June 25, 2000:24, 2001:
II -- Valuation and Qualifying Accounts............................ 35Accounts................ 46
Schedules other than those above are omitted because they are not required,
are not applicable, or the required information is given in the Consolidated
Financial Statementsconsolidated
financial statements or notes thereto.
Individual financial statements of the Registrant have been omitted because
it is primarily an operating company and all subsidiaries included in the
Con-
solidated Financial Statementsconsolidated financial statements being filed, in the aggregate, do not have
mi-
norityminority equity interest and/or indebtedness to any person other than the
Regis-
trantRegistrant or its consolidated subsidiaries in amounts which together exceed 5%
of the total assets as shown by the most recent year end Consolidated Balance
Sheet.consolidated balance
sheet.
With the exception of the information herein expressly incorporated by
ref-
erence,reference, the 20002001 Proxy Statement is not deemed filed as a part of this Annual
Report on Form 10-K.
42
43
3. Exhibits
Exhibit No. Description
-----------EXHIBIT
NO. DESCRIPTION
------- -----------
(2a-1) -- Contribution Agreement, dated June 30, 1997, by and between
Parkdale Mills, Inc., Unifi, Inc., UNIFI Manufacturing,
Inc., and Parkdale America, LLC, filed as Exhibit (2) to
Unifi's Form 8-K filed with the Commission on July 15, 1997,
which is incorporated herein by reference.
(3a) -- Restated Certificate of Incorporation of Unifi, Inc., dated
July 21, 1994, filed herewith.
(3b) Restated by-laws of Unifi, Inc., effective July 22, 1999, (filed as Exhibit (3b)3(a) with the Company's
Form 10-K for the fiscal year ended June 27, 1999)25, 2000), which is
incorporated herein by reference.
(3b) -- Restated by-laws of Unifi, Inc., effective August 31, 2001,
filed herewith.
(4a) -- Specimen Certificate of Unifi, Inc.'s common stock, filed as
Exhibit 4(a) to the Registration Statement on Form S-1,
(Registration No. 2-45405), which is incorporated herein by
reference.
(4b) -- Unifi, Inc.'s Registration Statement for the 6 1/2% Notes
due 2008, Series B, filed on Form S-4 (Registration No.
333-49243), which is incorporated herein by reference.
(4c) -- Description of Unifi, Inc.'s common stock, filed on November
5, 1998, as Item 5. (Other Events) on Form 8-K, which is
incorporated herein by reference.
(10a) -- *Unifi, Inc. 1982 Incentive Stock Option Plan, as amended,
filed as Exhibit 28.2 to the Registration Statement on Form
S-8, (Registration No. 33-23201), which is incorporated
herein by reference.
(10b) -- *Unifi, Inc. 1987 Non-Qualified Stock Option Plan, as
amended, filed as amended,
filed as Exhibit 28.3 to the Registration Statement on Form S-8,
(Registration No. 33-23201), which is incorporated herein by
reference.
32
Exhibit 28.3 to the Registration Statement
on Form S-8, (Registration No. Description
----------- -----------
33-23201), which is
incorporated herein by reference.
(10c) -- *Unifi, Inc. 1992 Incentive Stock Option Plan, effective
July 16, 1992, (filed as Exhibit (10c)10(c) with the Company's
Form 10-K for the fiscal year ended June 27, 1993), and
included as Exhibit 99.2 to the Registration Statement on
Form S-8 (Registration No. 33-
53799)33-53799), which are incorporated
herein by reference.
(10d) -- *Unifi, Inc.'s Registration Statement for selling
Shareholders, who are Directors and Officers of the Company,
who acquired the shares as stock bonuses from the Company,
filed on Form S-3 (Registration No. 33-23201), which is
incorporated herein by reference.
(10e) -- Unifi Spun Yarns, Inc.'s 1992 Employee Stock Option Plan
filed as Exhibit 99.3 to the Registration Statement on Form
S-8 (Registration No. 33-53799), which is incorporated
herein by reference.
(10f) -- *Unifi, Inc.'s 1996 Incentive Stock Option Plan (filed as
Exhibit 10(f) with the Company's Form 10-K for the fiscal
year ended June 30, 1996) which is incorporated herein by
reference.
(10g) -- *Unifi, Inc.'s 1996 Non-Qualified Stock Option Plan (filed
as Exhibit 10(g) with the Company's Form 10-K for the fiscal
year ended June 30, 1996) which is incorporated herein by
reference.
(10h) -- Lease Agreement, dated March 2, 1987, between NationsBank,
Trustee under the Unifi, Inc. Profit Sharing Plan and Trust,
Wachovia Bank and Trust Co., N.A., Independent Fiduciary,
and Unifi, Inc., filed
herewith. (filed as Exhibit 10(h) with the Company's
Form 10-K for the fiscal year ended June 25, 2000) which is
incorporated herein by reference.
(10i) -- *Employment Agreement between Unifi, Inc. and G. Allen
Mebane, dated July 19, 1990 filed herewith.(filed as Exhibit 10(i) with the
Company's Form 10-K for the fiscal year ended June 25, 2000)
which is incorporated herein by reference.
43
44
EXHIBIT
NO. DESCRIPTION
------- -----------
(10j) -- Credit Agreement, dated April 15, 1996,December 20, 2000, by and between
Unifi, Inc. and The Several Lenders from Time to Time Party
thereto and NationsBank,Bank of America, N.A. as agent, (filedAdministrative Agent,
Wachovia Bank, N.A. as Exhibit (10o) with the
Company's Form 10-K for the fiscal year ended June 30, 1996) which
is incorporated herein by reference.Syndication Agent, Credit Suisse
First Boston as Documentation Agent and Banc America
Securities LLC as Lead Arranger and Book Manager (the
"Credit Agreement"), filed herewith.
(10k) *Severance Compensation-- First Amendment To Credit Agreement and Waiver dated August
14, 2001, filed herewith.
(10l) -- Receivables Purchase Agreement, dated December 19, 2000,
among Unifi Receivables, LLC, as Seller, Unifi, Inc., as
Initial Servicer, Blue Ridge Asset Funding Corporation and
Wachovia Bank, N.A., as Agent, filed herewith.
(10m) -- *Change of Control Agreement between Unifi, Inc. and Willis
C. Moore, III,G.
Alfred Webster, dated July 16, 1998,October 26, 2000, expiring on July 20, 2001 (a
similar agreement was signed with Stewart Q. Little)(November 1,
2005, filed as
Exhibit (10q) with the Company's Form 10-K for the fiscal year
ended June 28, 1998).
(10l) *Severance Compensation Agreementherewith.
(10n) -- *Agreement, effective February 1, 1999, by and between
Unifi, Inc. and Brian R.
Parke, dated October 1, 1998, expiring on July 20, 2001,Jerry W. Eller, (filed as exhibit (10r)Exhibit 10(s) with
the Company's Form 10-K for the fiscal year ended June 27,
1999) which is incorporated herein by reference.
(10m) *Agreement, effective February 1, 1999, by and between Unifi, Inc.
and Jerry W. Eller, (filed as Exhibit (10s) with the Company's
Form 10-K for the fiscal year ended June 27, 1999).
(10n)(10o) -- *1999 Unifi, Inc. Long-Term Incentive Plan, (filed as
Exhibit 99.1 to the Registration Statement on Form S-8,
(Registration No. 333-
43158)333-48158), which is incorporated herein
by reference.
(10o)(10p) -- Master Agreement POY Manufacturing Alliance between Unifi,
Inc. and E.I. du Pont de Nemours and Company, dated June 1,
2000 filed
herewith.(filed as Exhibit 10(o) with the Company's Form 10-K
for the fiscal year ended June 25, 2000) which is
incorporated herein by reference.
(21) -- Subsidiaries of Unifi, Inc.
(23) -- Consent of Ernst & Young LLP.
(27) Financial Data Schedule.(b) -- Reports on Form 8-K. None
- ----------------------
* NOTE: These Exhibits are management contracts or compensatory plans or
ar-
rangementsarrangements required to be filed as an exhibit to this Form 10-K pursuant to
Item 14(c) of this report.
(b) Reports on Form 8-K.
None
3344
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Unifi, Inc.UNIFI, INC.
September 21, 20002001 By: /s/ BrianBRIAN R. Parke
_______________________________________PARKE
------------------------------------
Brian R. Parke
Chief Executive Officer
September 21, 20002001 By: /s/ WillisWILLIS C. Moore,MOORE, III
_______________________________________------------------------------------
Willis C. Moore, III
Executive Vice President
(Chief Financial Officer)
/s/ G. Allen Mebane, IV Chairman and September 21, 2000
- ---------------------------------- Director
G. Allen Mebane, IV2001 By: /s/ Brian R. Parke President,EDWARD A. IMBROGNO
------------------------------------
Edward A. Imbrogno
Chief September 21, 2000
- ---------------------------------- ExecutiveAccounting Officer
Pursuant to the requirements of the Securities and Brian R. Parke Director
/s/ G. Alfred Webster Executive Vice President September 21, 2000
- ----------------------------------Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ BRIAN R. PARKE President, Chief Executive September 21, 2001
--------------------------------------------------- Officer
Brian R. Parke and Director
/s/ G. ALFRED WEBSTER Executive Vice President and September 21, 2001
--------------------------------------------------- Director
G. Alfred Webster
/s/ WILLIAM J. ARMFIELD, IV Director September 21, 2001
---------------------------------------------------
William J. Armfield, IV
Director September 21, 2001
---------------------------------------------------
R. Wiley Bourne, Jr.
/s/ CHARLES R. CARTER Director September 21, 2001
---------------------------------------------------
Charles R. Carter
/s/ SUE W. COLE Director September 21, 2001
---------------------------------------------------
Sue W. Cole
/s/ J.B. DAVIS Director September 21, 2001
---------------------------------------------------
J.B. Davis
/s/ RICHARD GREENBURY Director September 21, 2001
---------------------------------------------------
Sir Richard Greenbury
Director September 21, 2001
---------------------------------------------------
Kenneth G. Langone
/s/ DONALD F. ORR Director September 21, 2001
---------------------------------------------------
Donald F. Orr
/s/ ROBERT A. WARD Director September 21, 2001
---------------------------------------------------
Robert A. Ward
Director September 21, 2000
- ----------------------------------
Robert A. Ward
/s/ Jerry W. Eller Director September 21, 2000
- ----------------------------------
Jerry W. Eller
/s/ Charles R. Carter Director September 21, 2000
- ----------------------------------
Charles R. Carter
/s/ Kenneth G. Langone Director September 21, 2000
- ----------------------------------
Kenneth G. Langone
/s/ Donald F. Orr Director September 21, 2000
- ----------------------------------
Donald F. Orr
/s/ J.B. Davis Director September 21, 2000
- ----------------------------------
J.B. Davis
/s/ R. Wiley Bourne, Jr. Director September 21, 2000
- ----------------------------------
R. Wiley Bourne, Jr.
/s/ Richard Greenbury Director September 21, 2000
- ----------------------------------
Sir Richard Greenbury
34
45
46
(27)
ScheduleSCHEDULE II - Valuation and Qualifying Accounts
(Amounts in thousands)-- VALUATION AND QUALIFYING ACCOUNTS
ColumnCOLUMN A ColumnCOLUMN B ColumnCOLUMN C ColumnCOLUMN D ColumnCOLUMN E
- ------------------------ ------------ ---------------------------------------------------------------- ---------- ------------------------------ ------------- ---------
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS -- DEDUCTIONS -- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ---------- ----------------- ------------- Additions
----------------------
Charged to
Balance at Charged to Other
Beginning of Costs and Accounts -- Deductions -- Balance at
Description Period Expenses Describe Describe End of Period
- ------------------------ ------------ ---------- ----------- ------------- ----------------------
(AMOUNTS IN THOUSANDS)
Allowance for doubtful accounts (a)accounts(a):
Year ended June 24, 2001................ $17,209 14,985 47(b) (22,352)(c) $ 9,889
Year ended June 25, 2000................... $8,749 $14,866 $2000................ 8,749 14,866 225(b) $(6,631)(6,631)(c) $17,20917,209
Year ended June 27, 1999...................1999................ 8,225 6,241 240(b) (5,957)(c) 8,749
Year ended June 28,
1998................... 5,462 3,917 3,665(b) (4,819)(c) 8,2258,749
---------------
(a) The allowance for doubtful accounts includes amounts estimated not to be
collectible for product quality claims, specific customer credit issues and
a general provision for bad debts due to the decline in industry con-
ditions.conditions.
(b) IncludesMay include acquisition related adjustments to write-down acquired accounts
receivable to fair market value andand/or effects of currency
translation from restating activity of our foreign affiliates from their
respective local currencies to the U.S. dollar.
(c) Includes accounts written off which were deemed not to be collectible and
customer claims paid, net of certain recoveries.
3546