FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 1996
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10542
UNIFI, INC.
(Exact name of registrant as specified its charter)
New York 11-2165495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 19109 - 7201 West Friendly Avenue
Greensboro, NC 27419
(Address of principal executive offices) (Zip Code)
(910) 294-4410
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at February 2, 1997
Common Stock, par value $.10 per share 62,771,038 Shares
Part I. Financial Information
UNIFI, INC.
Condensed Consolidated Balance Sheets
December 29, June 30,
1996 1996
(Unaudited) (Audited)
(Amounts in Thousands)
ASSETS:
Current assets:
Cash and cash equivalents $19,407 $24,473
Receivables 208,180 199,361
Inventories:
Raw materials and supplies 43,046 59,260
Work in process 12,237 13,294
Finished goods 68,061 60,392
Other current assets 4,532 5,095
Total current assets 355,463 361,875
Property, plant and equipment 1,089,518 1,027,128
Less: accumulated depreciation 513,356 477,752
576,162 549,376
Other noncurrent assets 39,532 39,833
Total assets $971,157 $951,084
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $94,684 $110,107
Accrued expenses 34,412 39,895
Income taxes 16,630 15,651
Total current liabilities 145,726 165,653
Long-term debt 225,000 170,000
Deferred income taxes 37,800 32,225
Shareholders' equity:
Common stock 6,277 6,483
Capital in excess of par value -- 62,255
Retained earnings 550,274 512,253
Cumulative translation adjustment 6,080 2,215
Total shareholders' equity 562,631 583,206
Total liabilities and shareholders'equity $971,157 $951,084
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Condensed Consolidated Statements of Income
(Unaudited)
For the Quarters For the Six Months
Ended Ended
Dec. 29, Dec. 24, Dec. 29, Dec. 24,
1996 1995 1996 1995
(Amounts in Thousands Except Per Share Data)
Net sales $419,345 $401,437 $834,060 $788,806
Costs and expenses:
Cost of sales 360,487 352,182 725,257 694,622
Selling, general &
administrative expense 11,247 11,433 22,077 21,505
Interest expense 2,958 3,760 5,880 7,437
Interest income (562) (1,981) (1,094) (4,618)
Other (income)expense 1,133 (1,308) 935 (1,738)
Non-recurring charge(note e) -- -- -- 23,826
375,263 364,086 753,055 741,034
Income before income taxes 44,082 37,351 81,005 47,772
Provision for income taxes 15,292 13,233 28,260 16,887
Net income $28,790 $24,118 $52,745 $30,885
Earnings per share:
Primary $.44 $.36 $.81 $.46
Fully diluted $.44 $.36 $.81 $.46
Cash dividends paid per share $.11 $.13 $.22 $.26
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
Dec. 29, Dec. 24,
1996 1995
(Amounts in Thousands)
Cash and cash equivalents provided by
operating activities, net of acquisitions $82,924 $86,695
Investing activities:
Capital expenditures (66,983) (62,326)
Acquisitions -- (48,444)
Proceeds from notes receivable 525 539
Proceeds from sale of subsidiary and
equity investment -- 10,436
Purchase of short-term investments -- (55,782)
Sale ofshort-term investments -- 79,845
Other 379 --
Net investing activities (66,079) (75,732)
Financing activities:
Issuance of Company common stock 790 27
Purchase and retirement of Company common
Company common stock (63,783) (37,185)
Borrowing of long-term debt 95,000 --
Payments of long-term debt (40,000) --
Cash dividends paid (14,191) (17,297)
Net financing activities (22,184) (54,455)
Currency translation adjustment 273 (186)
Increase(decrease) in cash and cash equivalents (5,066) (43,678)
Cash and cash equivalents - beginning 24,473 60,350
Cash and cash equivalents - ending $19,407 $16,672
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Notes to Condensed Consolidated Financial Statements
(a)Basis of Presentation
The information furnished is unaudited and reflects all adjustments which
are, in the opinion of Management, necessary to present fairly the
financial position at December 29, 1996, and the results of operations and
cash flows for the periods ended December 29, 1996, and December 24, 1995.
Such adjustments consisted of normal recurring items for all periods
presented and, for the prior year-to-date, the non-recurring charge
described in Note (e). Interim results are not necessarily indicative of
results for a full year. It is suggested that the condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's latest annual report on Form 10-K.
(b)Income Taxes
Deferred income taxes have been provided for the temporary differences
between financial statement carrying amounts and tax basis of existing
assets and liabilities.
The difference between the statutory federal income tax rate and the
effective tax rate is primarily due to the realization of state and federal
tax credits and the results of foreign subsidiaries which are taxed at
rates below those of U.S. operations.
(c)Per Share Information
Earnings per common and common equivalent share are computed on the basis
of the weighted average number of common shares outstanding, plus to the
extent applicable, common stock equivalents.
Computation of average shares outstanding (in 000's):
Quarters Ended Six Months Ended
Dec. 29, Dec. 24, Dec. 29, Dec. 24,
1996 1995 1996 1995
Average Shares Outstanding 64,377 66,279 64,457 66,582
Add: Dilutive Options 772 439 704 463
Primary Average Shares 65,149 66,718 65,161 67,045
Incremental Shares Arising from
Full Dilution Assumption 133 -- 68 --
Average Shares Assuming
Full Dilution 65,282 66,718 65,229 67,045
Conversion of the $230 million, 6% convertible subordinated notes which
were outstanding at December 24, 1995, was not considered for the
computation of fully diluted earnings per share because its effect was
antidilutive for both prior year periods presented. Accordingly, fully
diluted earnings per share for these periods have been reported consistent
with the primary earnings per share result. These notes were redeemed in
the fourth quarter of fiscal 1996.
(d)Common Stock
On January 23, 1997, the Company's Board of Directors declared a cash
dividend of $.11 per share payable on February 14, 1997, to shareholders of
record on February 7, 1997.
(e)Non-Recurring Charge
During the fiscal 1996 first quarter, the Company recognized a non-
recurring charge to earnings of $23.8 million ($14.9 million after-tax or
$0.22 per share) related to restructuring plans to further reduce the
Company's cost structure and improve productivity through the consolidation
of certain manufacturing operations and the disposition of underutilized
assets. The restructuring plan focused on the consolidation of production
facilities acquired via mergers during the preceding four years. As part
of the restructuring action, the Company closed its spun cotton
manufacturing facilities in Edenton and Mount Pleasant, North Carolina with
the majority of the manufacturing production being transferred to other
facilities. The significant components of the non-recurring charge include
$2.4 million of severance and other employee-related costs from the
termination of employees and a $21.4 million write-down to estimated fair
value less the cost of disposal of underutilized assets and consolidated
facilities to be disposed. Costs associated with the relocation of
equipment or personnel are being expensed as incurred.
In connection with the plan of restructuring and corporate consolidation,
the Company has incurred as of December 29, 1996, severance and other
employee-related costs of $2.0 million associated with the termination of
574 employees. All aspects of the consolidation plan associated with the
termination of employees has been accomplished. The remaining reserve of
$0.4 million associated with severance and other employee related costs has
been reclassified to the reserve for estimated losses from the disposal of
assets and consolidated facilities. Through December 29, 1996, the Company
has charged $17.3 million against the reserve established for anticipated
losses from the disposal of underutilized assets and consolidated
facilities. The remaining reserve at December 29, 1996, amounts to $4.5
million. The balance sheet at December 29, 1996, reflects primarily in
property, plant and equipment, the net book value of the remaining assets
to be disposed amounting to approximately $8.8 million net of the
anticipated losses to be sustained of $4.5 million. The Company
anticipates no material differences in actual charges compared to its
original estimates.
(f)Results of "Dutch Auction" Tender Offer
On October 30, 1996, Unifi announced plans for a "Dutch Auction" tender
offer for a minimum of 4,000,000 and a maximum of 6,000,000 shares of its
common stock, representing approximately 6.2% to 9.3% of its then currently
outstanding shares. The offer was conditional on a minimum of 4,000,000
shares being tendered; however, the Company reserved the right to purchase
a lesser number of properly tendered shares. Under terms of the offer, the
Company invited shareholders to tender their shares at prices within a
range of $28 to $31 per share as specified by the tendering shareholders.
The offer expired on Friday, December 13, 1996, and was not extended by the
Company. The Company purchased the 1,755,365 shares properly tendered and
not withdrawn at a price of $31 per share. The shares purchased
represented approximately 2.7% of the Company's shares of common stock
outstanding immediately prior to the offer.
(g)Stock-Based Compensation
In October 1995, the FASB issued Statement No. 123, "Stock-Based
Compensation," (SFAS 123) which became effective beginning with the
Company's quarter ended September 29, 1996. The Company has adopted FAS
123 and will continue to measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." In
addition, the Company will provide at fiscal year end pro forma disclosures
of net income and earnings per share as if the fair value-based method
prescribed by SFAS 123 had been applied in measuring compensation expense.
The adoption of the pronouncement has not had and is not expected to have a
material effect on the Company's financial position or results of
operations.
(h)Recent Pronouncements
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," (SFAS 125). SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, (the Company's third quarter
of fiscal 1997). The adoption of this Standard is not expected to impact
the Company's consolidated results of operations, financial position or
cash flows.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is Management's Discussion and Analysis of certain significant
factors that have affected the Company's operations and material changes in
financial condition during the periods included in the accompanying Condensed
Consolidated Financial Statements.
Results of Operations
Consolidated net sales increased 4.5% to $419.3 million in the second quarter
of fiscal 1997 and for the six month period, sales increased 5.7% to $834.1
million. Volume increases of 7.0% and 6.4% for the quarter and year-to-date,
respectively, offset average unit price declines, based on overall product
mix, of 2.4% and 0.4%, respectively.
Results for our domestic operations reflect sales growth of 3.8% for the
quarter and 5.9% for the year-to-date as we experienced increases in unit
sales in all yarn areas for both current year periods over year ago levels.
Sales growth of 11.8% for the quarter and 15.6% for the year-to-date in our
international operations reflects increased capacity due to expansion.
Gross margin as a percentage of net sales for the quarter increased 1.7% from
12.3% to 14.0%. For the respective year-to-date periods, gross margin as a
percentage of net sales increased 1.1% from 11.9% to 13.0%. Increases for
both periods reflect decreases in raw material and manufacturing costs, based
on product mix, as a percentage of net sales.
Selling, general and administrative expenses as a percentage of net sales
decreased from 2.8% in last year's quarter to 2.7% this quarter. On a year-
to-date basis, selling, general and administration expense as a percentage of
net sales has declined from 2.7% last year to 2.6% this year. On a dollar
basis, selling, general and administrative expense declined $186 thousand to
$11.2 million, or 1.6%, for the quarter and increased $572 thousand to $22.1
million, or 2.7%, for the year-to-date.
Interest expense decreased $0.8 million to $3.0 million in the current
quarter and $1.6 million to $5.9 million for the year-to-date period. The
decline in interest expense for both current year periods reflects lower
levels of outstanding debt and a lower effective interest rate. Interest
income has decreased from $2.0 million in last year's second quarter to $0.6
million in the current quarter. For the six month period, interest income
has decreased from $4.6 million last year to $1.1 million in the current
period. The decline in interest income for the quarter and year-to-date
periods reflects lower levels of invested funds due to the use of such funds
for capital expenditures, acquisitions, long-term debt extinguishment and the
purchase and retirement of Company common stock.
Net other income and expense moved unfavorably $2.4 million in the current
quarter from $1.3 million of income in the prior year quarter to $1.1 million
of expense in the current year quarter. For the year-to-date, net other
income and expense reflects an unfavorable change of $2.7 million from $1.7
million of income in the prior year to $0.9 million of expense for the
current year period. Losses on the sale of property and equipment (not
associated with the assets included in the prior year restructuring charge)
and currency transaction losses were the primary components of other expense
for both current year periods.
In the first quarter of the prior fiscal year, the Company announced
restructuring plans to further reduce the Company's cost structure and
improve productivity through the consolidation of certain manufacturing
operations and the disposition of underutilized assets. The estimated cost
of restructuring resulted in a first quarter fiscal 1996 non-recurring charge
to earnings of $23.8 million or an after-tax charge to earnings of $14.9
million ($.22 per share). The Company anticipates no material differences in
actual charges compared to its original estimates.
The effective tax rate has decreased from 35.4% to 34.7% in the current
quarter and from 35.3% to 34.9% for the year-to-date period. The difference
between the statutory federal income tax rate and the effective tax rate is
primarily due to the realization of state and federal tax credits and the
results of foreign subsidiaries which are taxed at rates below those of U.S.
operations.
As a result of the above, the Company realized during the current quarter net
income of $28.8 million, or $.44 per primary share, compared to $24.1
million, or $.36 per primary share, during the corresponding quarter of the
prior year. Net income and primary earnings per share for the current six
month year-to-date period amounted to $52.7 million, or $.81 per share,
compared to corresponding totals in the prior year-to-date period of $30.9
million, or $.46 per share. Earnings for the prior year-to-date period were
adversely affected by the non-recurring charge to earnings of $23.8 million
or an after tax charge to earnings of $14.9 million ($.22 per share).
Liquidity and Capital Resources
Cash provided by operations continues to be the Company's primary source of
funds to finance operating needs and capital expenditures. Cash generated
from operations was $82.9 million for the six month period ended December 29,
1996, compared to $86.7 million for the corresponding period of the prior
fiscal year. Increases in working capital reduced cash flow from operating
activities by $17.5 million for the six month period ended December 29, 1996.
The primary components of this working capital increase, excluding the
effects of currency translation, were an increase in accounts receivables of
$7.4 million and a decline in accounts payable and accruals of $21.8 million.
These amounts were partially offset by a decline in inventory of $10.2
million and $1.5 million from other assets. The increase in accounts
receivable since the fiscal year ended June 30, 1996, is attributable, in
part, to a higher proportion of export sales as a percentage of total sales
throughout this time period. Export sales payment terms are generally longer
than those of domestic sales. Impacting the decline in accounts payable and
accruals for the six months ended December 29, 1996, was the Company's
reduction of inventories, the funding in the current year of its employee
profit sharing plan liability recognized in the prior fiscal year and a
reduction of short-term obligations of our Irish operation.
Working capital levels are more than adequate to meet the operating
requirements of the Company. We ended the current quarter with working
capital of $209.7 million which included cash and cash equivalents of $19.4
million. Cash and short-term investments have decreased $5.1 million since
June 30, 1996, resulting primarily from the utilization of cash to fund
capacity expansions and upgrading of facilities, the payment of cash
dividends and the purchase and retirement of Company common stock. These
amounts exceeded cash flows provided by operations and net borrowings under
the revolving credit facility.
The Company utilized $66.1 million and $22.2 million for net investing and
financing activities, respectively, during the six months ended December 29,
1996. Significant expenditures during this period included $67.0 million for
capacity expansions and upgrading of facilities, $14.2 million for the
payment of the Company's cash dividends and $63.8 million for the purchase
and retirement of Company common stock. The Company utilized proceeds from
net borrowings under its long-term debt agreement of $55.0 million and
$1.7 million from other sources to offset these cash expenditures.
At December 29, 1996, the Company has committed approximately $159.0 million
for the purchase and upgrade of equipment and facilities, which is scheduled
to be expended during fiscal years 1997 and 1998. A significant component of
these committed funds, as well as a major component of the year to date
capital expenditures, is the continuing construction of a highly automated,
state-of-the-art texturing facility in Yadkinville, North Carolina. We have
reached approximately 70% of productive capacity in this texturing facility
which is scheduled for completion in the first quarter of fiscal 1998.
Estimated costs associated with the construction of our previously announced
polyester fiber production facility are also included in the $159.0 million
commitment. However, the costs of various construction and machinery phases
of the polyester fiber production facility project are still under
negotiation.
On October 21, 1993, the Board of Directors authorized Management to
repurchase up to 15 million shares of Unifi's common stock from time to time
at such prices as Management feels advisable and in the best interest of the
Company. Through December 29, 1996, 7.9 million shares have been
repurchased, including those repurchased under the previously announced Dutch
Auction described further below, at a total cost of $205.1 million pursuant
to this Board authorization.
On October 30, 1996, Unifi announced plans for a "Dutch Auction" tender offer
for a minimum of 4,000,000 and a maximum of 6,000,000 shares of its common
stock, representing approximately 6.2% to 9.3% of its then currently
outstanding shares. The offer was conditional on a minimum of 4,000,000
shares being tendered; however, the Company reserved the right to purchase a
lesser number of properly tendered shares. Under terms of the offer, the
Company invited shareholders to tender their shares at prices within a range
of $28 to $31 per share as specified by the tendering shareholders. The
offer expired on Friday, December 13, 1996, and was not extended by the
Company. The Company purchased the 1,755,365 shares properly tendered and
not withdrawn at a price of $31 per share. The shares purchased represented
approximately 2.7% of the Company's shares of common stock outstanding
immediately prior to the offer.
Management believes the current financial position of the Company in
connection with its operations and its access to debt and equity markets are
sufficient to meet anticipated capital expenditure, strategic acquisition,
working capital, Company common stock repurchases and other financial needs.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and Results
of Operations and other sections of this Quarterly Report contain forward-
looking statements about the Company's financial condition and results of
operations that are based on current expectations, estimates and projections
about the markets in which the Company operates, Management's beliefs and
assumptions made by Management. Words such as "expects," "anticipates,"
"believes," "estimates," variations of such words and other similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which reflect Management's judgment only as of the date hereof. The Company
undertakes no obligation to update publicly any of these forward-looking
statements to reflect new information, future events or otherwise.
Factors that may cause actual outcome and results to differ materially from
these forward-looking statements include availability, sourcing and pricing
of raw materials, pressures on sales prices due to competition and economic
conditions, reliance on and financial viability of significant customers,
technological advancements, changes in construction spending and capital
equipment expenditures (including those related to unforeseen acquisition
opportunities), continued availability of financial resources through
financing arrangements and operations, negotiation of new or modifications of
existing contracts for asset management and for property and equipment
construction and acquisition, regulations governing tax laws and the
Company's strategies with respect to such laws, other governmental and
authoritative bodies' policies and legislation, the continuation and
magnitude of the Company's common stock repurchase program and proceeds
received from the sale of assets held for disposal. In addition to these
representative factors, forward-looking statements could be impacted by
general domestic and international economic and industry conditions including
fluctuations in currency exchange, interest and inflation rates.
Part II. Other Information
UNIFI, INC.
Item 4. Submission of Matters to a Vote of Security Holders
The Shareholders of the Company at their Annual Meeting held on the
24th day of October 1996, considered and voted upon the 1996 Incentive
Stock Option Plan, the 1996 Non-Qualified Stock Option Plan, the
Election of three (3) Class 2 Directors of the Company, and the
Election of one (1) Class 3 Director of the Company.
The Unifi, Inc. 1996 Incentive Stock Option Plan under which key
employees of the Company and its subsidiaries may be granted options,
which was adopted previously and recommended to the Shareholders by the
Board of Directors of the Company, said Plan being attached as Exhibit
"A" beginning on page A-1 of the Definitive Proxy Statement filed with
the Securities and Exchange Commission since the close of the
registrant's fiscal year ending June 30, 1996, was adopted by the
Shareholders of the Company with 55,599,461 shares of the 64,503,842
issued and outstanding shares of the Company, being more then fifty
percent (50%) of the shares entitled to vote at the meeting, voting in
favor, 322,497 shares voting against the Plan and 1,402,382 shares
abstaining from the vote.
The Unifi, Inc. 1996 Non-Qualified Stock Option Plan under which
outside members of the Board of Directors and key employees of the
Company and its subsidiaries may be granted options, which was adopted
previously and recommended to the Shareholders by the Board of
Directors of the Company, said Plan being attached as Exhibit "B"
beginning on page B-1 of the Definitive Proxy Statement filed with the
Securities and Exchange Commission since the close of the registrant's
fiscal year ending June 30, 1996, was adopted by the Shareholders of
the Company with 43,736,058 shares of the 64,503,842 issued and
outstanding shares of the Company, being more than fifty percent (50%)
of the shares entitled to vote at the meeting, voting in favor,
12,178,965 shares voting against the Plan and 1,409,317 shares
abstaining from the vote.
The Shareholders elected management's nominees for three (3) Class 2
Directors and one (1) Class 3 Director to serve until the Annual
Meeting of the Shareholders in 1999 and 1997, respectively, or until
their successors are elected and qualified, as follows:
Name of Director Votes in Favor Votes Against Votes Abstaining
Class 2:
Charles R. Carter 56,774,001 0 550,339
Jerry W. Eller 56,680,215 0 644,125
Kenneth G. Langone 56,765,082 0 559,258
Name of Director Votes in Favor Votes Against Votes Abstaining
Class 3:
J. B. Davis 56,776,127 0 548,213
The following persons continue to serve on the Company's Board of
Directors until the Annual Meeting of Shareholders in 1997 for Class 3
and 1998 for Class 1:
Class 3 Class 1
William T. Kretzer Donald F. Orr
G. Allen Mebane Robert A. Ward
G. Alfred Webster
The information set forth under the headings "Election of Directors,"
"Nominees for Election as Directors," and "Security Holding of
Directors, Nominees, and Executive Officers" on Pages 2-5 of the
Definitive Proxy Statement filed with the Commission since the close of
the registrant's fiscal year ending June 30, 1996, is incorporated
herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(27)Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended
December 29, 1996.
UNIFI, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIFI, INC.
Date: February 12, 1997 WILLIS C. MOORE III
Willis C. Moore III
Vice President and Chief
Financial Officer (Mr. Moore is
the Principal Financial and
Accounting Officer and has been
duly authorized to sign on behalf
of the Registrant.)