EXHIBIT (13a)
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands) June 30, 1996 June 25, 1995
ASSETS:
Current assets:
Cash and cash equivalents $ 24,473 $ 60,350
Short-term investments --- 85,844
Receivables 199,361 209,432
Inventories 132,946 139,378
Other current assets 5,095 8,017
___________ ____________
Total current assets 361,875 503,021
Property, plant and equipment:
Land 6,249 5,865
Buildings & air conditioning 212,581 203,114
Machinery and equipment 659,678 631,470
Other 148,620 69,934
___________ ____________
1,027,128 910,383
Less:accumulated depreciation 477,752 394,168
___________ ____________
549,376 516,215
Other noncurrent assets 39,833 21,666
___________ ____________
$ 951,084 $ 1,040,902
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 110,107 $ 100,165
Accrued expenses 39,895 54,338
Income taxes 15,651 15,161
___________ ____________
Total current liabilities 165,653 169,664
___________ ____________
Long-term debt 170,000 230,000
___________ ____________
Deferred income taxes 32,225 37,736
___________ ____________
Shareholders' equity:
Common stock 6,483 6,714
Capital in excess of par val. 62,255 117,277
Retained earnings 512,253 473,962
Cumulative translation adj. 2,215 4,415
Unrealized gains (losses)
on certain investments --- 1,134
___________ ____________
583,206 603,502
___________ ____________
$ 951,084 $ 1,040,902
___________ ____________
The accompanying notes are an integral part of the financial statements.
Page 14
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, June 30, 1996 June 25, 1995 June 26, 1994
except per share data)
Net sales $ 1,603,280 $1,554,557 $1,384,797
___________ __________ __________
Costs and expenses:
Cost of sales 1,407,608 1,330,410 1,185,386
Selling, general and
administrative expense 45,084 43,116 40,429
Interest expense 14,593 15,452 18,241
Interest income (6,757) (10,372) (8,290)
Other income (4,390) (9,659) (1,238)
Non-recurring charge 23,826 --- 13,433
___________ __________ __________
1,479,964 1,368,947 1,247,961
___________ __________ _________
Income before income taxes 123,316 185,610 136,836
and extraordinary item
Provision for income taxes 44,939 69,439 60,344
___________ __________ __________
Income before extraordinary
item 78,377 116,171 76,492
___________ __________ __________
Extraordinary item (net of
applicable income taxes
of $3,692) 5,898 --- ---
___________ __________ __________
Net income $ 72,479 $ 116,171 $ 76,492
___________ __________ __________
Per share data:
Primary earnings per share:
Income before
extraordinary item $ 1.18 $ 1.67 $ 1.08
Extraordinary item .09 --- ---
___________ __________ __________
Net income $ 1.09 $ 1.67 $ 1.08
___________ __________ __________
Fully diluted net $ 1.09 $ 1.62 $ 1.08
income per share
___________ __________ __________
The accompanying notes are an integral part of the financial statements.
Page 15
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in thousands, except per share data)
Cap in Ex- Cumul Unrlzd Gns
Shares Com cess of Retained Transl (Losses) on
Outsdg Stk ParVal Earnings Adj Cert Invtmts
Bal Jun 27, 1993 70,340 $7,034 $196,133 $348,821 $(5,515) $ (920)
______ ______ ________ ________ ________ _______
Purchase of stk (98) (10) (2,051) --- --- ---
Options exer.d 191 19 899 --- --- ---
Cash dividends---
$.56 per share --- --- --- (39,053) --- ---
Net contributions
and tax benefits
from (to) S Corp
shareholders --- --- 4,562 (372) --- ---
Currency trans- --- --- --- --- 2,455 ---
lation adjs
Change in unrealzd
gains(losses) on
certain invmts --- --- --- --- --- 28
Net income --- --- --- 76,492 --- ---
Reclass of S Corp
net earnings to
capital in excess
of par value --- --- 416 (416) --- ---
______ ______ ________ ________ _______ _______
Bal Jun 26, 1994 70,433 7,043 199,959 385,472 (3,060) (892)
______ ______ ________ ________ _______ _______
Purch. of stk. (3,362) (336) (83,414) --- --- ---
Options exer.d 69 7 732 --- --- ---
Cash dividends---
$.40 per share --- --- --- (27,681) --- ---
Currency trans-
lation adjs --- --- --- --- 7,475 ---
Change in unrealzd
gains(losses) on
certain invtmts --- --- --- --- --- 2,026
Net income --- --- --- 116,171 --- ---
______ ______ ________ ________ ________ ________
Bal Jun 25, 1995 67,140 6,714 117,277 473,962 4,415 1,134
_______ ______ ________ ________ ________ ________
Purch. of stk. (2,347) (235) (55,315) --- --- ---
Options exer.d 36 4 242 --- --- ---
Conversion of 6%
subord.d notes 2 --- 51 --- --- ---
Cash dividends---
$.52 per share --- --- --- (34,188) --- ---
Currency trans-
lation adjs --- --- --- --- (2,200) ---
Change in unrealzd
gains(losses) on
certain invtmts --- --- --- --- --- (1,134)
Net income --- --- --- 72,479 --- ---
_______ ______ ________ ________ ________ ________
Bal Jun 30, 1996 64,831 $6,483 $62,255 $512,253 $ 2,215 $ ---
_______ ______ ________ ________ ________ ________
The accompanying notes are an integral part of the financial statements.
Page 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands) June 30, 1996 June 25, 1995 June 26, 1994
Cash and cash equivalents
at beginning of year $ 60,350 $ 80,653 $ 76,093
Operating activities:
Net income 72,479 116,171 76,492
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary item (net of applicable
income taxes) 5,898 - -
Income tax effect of extraordinary
item 3,692 - -
Depreciation and amortization 81,889 75,805 70,116
Non-cash portion of non-recurring
charge 21,750 - 13,433
Gain on sale of investments (4,476) (6,697) -
Provision for deferred income
taxes (4,795) 7,505 6,939
Other 4,263 (2,316) (1,492)
Changes in assets and liabilities,
excluding effects of acquisition
and foreign currency adjustments:
Receivables 9,428 (11,665) 374
Inventories 13,640 (42,751) 4,921
Other current assets 987 27 (272)
Payables and accruals (3,789) 19,804 (31,118)
Income taxes 490 (542) (8,605)
_________ _________ _________
Net-operating activities 201,456 155,341 130,788
_________ _________ _________
Investing activities:
Capital expenditures (133,967) (88,941) (104,672)
Purchase of investments (60,474) (93,671) (151,565)
Acquisition (48,444) - -
Sale of capital assets 2,290 3,479 3,611
Sale of investments 149,015 94,379 198,855
Sale of subsidiary - 13,798 -
Proceeds from notes receivable 11,444 5,311 -
Other - 3 (423)
_________ _________ _________
Net-investing activities (80,136) (65,642) (54,194)
_________ _________ _________
Financing activities:
Borrowing of long-term debt 225,000 - -
Repayments of long-term debt (284,949) - (32,221)
Premium paid on early retirement
of debt (7,657) - -
Issuance of Company stock 246 739 898
Purchase and retirement of
Company stock (55,550) (83,750) (2,061)
Cash dividends paid (34,188) (27,681) (39,053)
_________ _________ _________
Net-financing activities (157,098) (110,692) (72,437)
_________ _________ _________
Currency translation adjustment (99) 690 403
_________ _________ _________
Net increase (decrease) in cash
and cash equivalents (35,877) (20,303) 4,560
_________ _________ _________
Cash and cash equivalents
at end of year $ 24,473 $ 60,350 $ 80,653
_________ _________ _________
Cash paid during the year:
Interest $ 18,520 $ 14,777 $ 17,487
Income taxes 38,427 61,495 61,653
Non-cash investing and
financing activities:
Assets acquired by issuance
of debt $ - $ - $ 7,453
Note receivable obtained from
sale of an affiliat - 10,436 -
Redemption of 6% convertible
subordinated notes 1,983 - -
The accompanying notes are an integral part of the financial statements.
Page 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
______
ACCOUNTING POLICIES AND FINANCIAL STATEMENT INFORMATION
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and all subsidiaries. The accounts of all foreign
subsidiaries have been included on the basis of fiscal periods ended three
months or less prior to the dates of the consolidated balance sheets. All
significant intercompany accounts and transactions have been eliminated.
FISCAL YEAR: The Company's fiscal year is the fifty-two or fifty-three weeks
ending the last Sunday in June. The current year ended June 30, 1996, consists
of fifty-three weeks. The years ended June 25, 1995, and June 26, 1994, 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: Substantially all revenue from sales is recognized at the
time shipments are made.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign subsidiaries
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
resulting from translation are accumulated in a separate component of
shareholders' equity. 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.
CASH AND CASH EQUIVALENTS: Cash equivalents are defined as short-term
investments having an original maturity of three months or less.
SHORT-TERM INVESTMENTS: Short-term investments at June 25, 1995, were comprised
primarily of high-quality, highly-liquid, marketable securities with original
maturities greater than three months. These investments were classified as
available-for-sale securities and were carried at fair market value, with the
unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity.
RECEIVABLES: Certain customer accounts receivable are factored without recourse
with respect to credit risk. An allowance for losses is provided for
accounts not factored based on a periodic review of the accounts. Reserve
for such losses was $6.6 million at June 30, 1996, and $6.5 million at June
25, 1995.
INVENTORIES: The Company utilizes the last-in, first-out (LIFO) method for
valuing certain inventories representing 63% of all inventories at June 30,
1996, and the first-in first-out (FIFO) method for all other inventories.
Inventory values computed by the LIFO method are lower than current market
values. Inventories valued at current or replacement cost would have been
approximately $13.1 million and $10.3 million in excess of the LIFO
valuation at June 30, 1996, and June 25, 1995, respectively. Finished goods,
work in process, and raw materials and supplies at June 30, 1996, and June
25, 1995, amounted to $60.4 million and $66.1 million; $13.3 million and
$14.3 million; and $59.2 million and $59.0 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.
OTHER ASSETS: Other assets at June 30, 1996, consist primarily of the cash
surrender value of key executive life insurance policies, long-term notes
receivable, deferred debt expense associated with debt acquired in the current
fiscal year and goodwill related to current year acquisitions. The deferred
debt expense and goodwill are being amortized on a straight-line method over
periods ranging from five to fifteen years. Accumulated amortization at June
30, 1996, was $1.4 million. In the prior year, other assets were also
comprised of marketable equity securities with a fair market value of
$0.3 million. Deferred debt expense associated with the convertible
subordinated notes included in other assets at June 25, 1995, was written off
as part of the extraordinary charge recorded in fiscal 1996 in conjunction
with the debt redemption described in Note 4.
LONG-LIVED ASSETS: In March 1995, the FASB issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," (SFAS 121), which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS
121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The Company adopted SFAS 121 in the first quarter of 1996.
There was no cumulative effect on the Company's financial statements from the
initial adoption of SFAS 121; however, the accounting principles described in
this statement were utilized in estimating the non-recurring charge discussed
in Note 3.
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 bases of existing assets and
liabilities. Income taxes have not been provided on the undistributed
earnings of certain foreign subsidiaries as such earnings are deemed to be
permanently invested.
Page 18
EARNINGS PER SHARE: 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.
Average common and common equivalent shares for primary earnings per share
were 66,211,344, 69,542,155 and 71,020,075 for fiscal years 1996, 1995 and
1994, respectively. Fully diluted earnings per share amounts are based on
72,422,047, 77,302,035 and 71,026,610 shares for 1996, 1995 and 1994,
respectively. The effect of the convertible subordinated notes was
antidilutive for the fiscal years 1996 and 1994. The convertible
subordinated notes were redeemed in the fourth quarter of the current
year.
STOCK-BASED COMPENSATION: In October 1995, the FASB issued Statement No. 123,
"Stock-Based Compensation," (SFAS 123). SFAS 123 becomes effective beginning
with the Company's first quarter of fiscal year 1997, and will not have a
material effect on the Company's financial position or results of operations.
Upon adoption of SFAS 123, the Company 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," and will provide 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.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
NOTE 2
______
ACQUISITION
The acquisition of the Norlina Division of Glen Raven Mills, Inc. was
consummated on November 17, 1995. The acquisition, which is not deemed
significant to the Company's consolidated net assets or the results of
operations, has been accounted for as a purchase and accordingly, the net
assets and operations have been included in the Company's consolidated
financial statements beginning on the date the acquisition was consummated.
The purchase price of $48.4 million was allocated to the net assets acquired
with the excess of cost over fair value of the net assets acquired being
approximately $33.7 million. The excess of cost over fair value of net
assets acquired is being amortized on a straight-line basis over 15 years.
NOTE 3
______
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 $0.23 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 June 30, 1996, severance and other employee-related
costs of $1.7 million associated with the termination of 275 employees.
Additionally, the Company has charged against the reserve costs incurred
associated with the plant closures of $ 0.6 million and losses incurred from the
disposal of assets of $7.4 million. The Company anticipates that all
significant aspects of the consolidation plan associated with the termination
of employees will be accomplished by September 1996. However, the ultimate
disposal of equipment and facilities may take longer due to current market
conditions and the physical locations of the properties. The balance sheet
at June 30, 1996, reflects primarily in property, plant and equipment, the
net book value of the remaining assets to be disposed amounting to
approximately $17.9 million net of the anticipated losses to be sustained of
$13.4 million. The resulting net carrying value of the
Page 19
remaining assets to be disposed is equivalent to the expected recoveries of $4.5
million.
In the fiscal 1994 fourth quarter, the Company recorded a non-recurring
charge of $13.4 million ($14.1 million after-tax or $0.20 per share) related
to the sale of the Company's investment in its wholly-owned French subsidiary,
Unifi Texturing, S.A. (UTSA), and the Company's decision to exit the European
nylon market. Of the non-recurring charge, $3.1 million relates to the loss
from the sale of UTSA, $8.8 million relates to the write-off of goodwill and
other intangibles associated with the Company's European nylon operations and
$1.5 million relates to the write-down of nylon production equipment and
inventories. The sale was consummated during the first fiscal quarter of 1995.
Net cash proceeds from the sale totaled $13.8 million, excluding $4.1 million of
cash remitted to the Company from UTSA coincident with the sale. The results of
operations of UTSA were not significant to the consolidated Company.
NOTE 4
______
EXTRAORDINARY CHARGE
During the fourth quarter of the current year, the Company recognized an
extraordinary after-tax charge of $5.9 million or $0.09 per share as a result of
the redemption of the $230 million in 6% convertible subordinated notes due
2002. The notes were redeemed at 103.33% of principal amount, with accrued
interest to the date of redemption.
NOTE 5
______
LONG-TERM DEBT
A summary of long-term debt follows:
(Amounts in thousands) June 30, 1996 June 25, 1995
Revolving credit facility $ 170,000 ---
6% convertible subordinated
notes due March 15, 2002 --- $ 230,000
The Company entered a $400 million revolving credit facility dated April 15,
1996, with a group of financial institutions that extends through April 15,
2001. The rate of interest charged is adjusted quarterly based on a pricing
grid which is a function of the ratio of the Company's debt to earnings
before income taxes, depreciation, amortization and other non-cash charges.
The credit facility provides the Company the option of borrowing at a spread
over the base rate (as defined) or the Adjusted London Interbank Offered Rate
(LIBOR). The weighted average interest rate for the period ended June 30, 1996,
was 5.63%. The Company pays a quarterly facility fee ranging from 0.090% -
0.150%, in accordance with the pricing grid, of the total amount available
under the revolving credit facility.
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
under the revolving credit facility do not exceed the total committed amount.
The revolving credit facility allows the Company to reduce the outstanding
commitment 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 terminations are permanent. The Company may also elect
to prepay loans in whole or in part. Amounts paid in accordance with this
provision may be reborrowed.
The terms of the revolving credit facility contain, among other provisions,
requirements for maintaining certain net worth and other financial ratios and
specific limits or restrictions on additional indebtedness, liens and merger
activity. Provisions under this agreement are not considered restrictive to
normal operations or anticipated stockholder dividends.
The 6% convertible subordinated notes due March 15, 2002, were redeemed in
the fourth quarter of the current fiscal year utilizing the proceeds of the $400
million revolving credit facility. The Company recorded an extraordinary
after-tax charge for the early retirement of debt of $5.9 million or $0.09 per
share. In accordance with the debt agreement, the note holders had an option to
convert their notes at a conversion rate of 33.7 shares of common stock for each
$1,000 principal amount of notes. Notes aggregating $51,000 were converted into
1,718 shares of common stock in accordance with this provision. The remaining
notes, totaling $229.9 million, were redeemed at 103.33% of principal amount,
with accrued interest to the date of redemption.
The fair value of the Company's long-term debt at June 30, 1996, approximates
its carrying value.
Page 20
NOTE 6
______
INCOME TAXES
The provision for income taxes before extraordinary item consisted of the
following:
(Amounts in thousands) June 30, June 25, June 26,
1996 1995 1994
Currently payable:
Federal $42,289 $51,597 $45,878
State 6,953 9,501 7,009
Foreign 492 836 518
_______ _______ _______
Total current 49,734 61,934 53,405
_______ _______ _______
Deferred:
Federal (4,080) 6,643 6,389
State (604) 983 835
Foreign (111) (121) (285)
________ ________ ________
Total deferred (4,795) 7,505 6,939
________ ________ ________
Income taxes before
extraordinary item $44,939 $69,439 $60,344
Income taxes were 36.4%, 37.4% and 44.1% of pretax earnings in fiscal 1996,
1995 and 1994, respectively. A reconciliation of the provision for income taxes
before extraordinary item with the amounts obtained by applying the federal
statutory tax rate is as follows:
June 30, June 25, June 26,
1996 1995 1994
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes net of
federal tax benefit 3.3 3.1 3.6
Foreign taxes less than domestic
rate (0.8) (0.7) (0.2)
Foreign Sales Corporation
tax benefit (0.9) (0.6) (0.5)
Research and experimentation
credit (0.6) --- ---
Nondeductible expenses and
other 0.4 0.6 6.2
_____ _____ _____
Effective tax rate 36.4% 37.4% 44.1%
The deferred income taxes reflect the net tax effects of temporary
differences between the bases of assets and liabilities for financial
reporting purposes and their bases for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of June 30,
1996, and June 25, 1995, were as follows:
(Amounts in thousands) June 30, June 25,
1996 1995
Deferred tax liabilities:
Property, plant and equipment $43,172 $51,359
Other items 324 1,596
_______ _______
Total deferred tax liabilities 43,496 52,955
_______ _______
Deferred tax assets:
Accrued liabilities and
valuation reserves 6,683 9,207
Other items 4,588 6,012
_______ _______
Total deferred tax assets 11,271 15,219
_______ _______
Net deferred tax liabilities $32,225 $37,736
NOTE 7
______
COMMON STOCK
Shares authorized were 500 million in 1996 and 1995. Common shares
outstanding at June 30, 1996, and June 25, 1995, were 64,831,366 and
67,140,005, respectively.
The Company has Incentive Stock Option Plans with 1,915,561 shares
reserved at June 30, 1996. There remain 122,183 options available for grant
at year end. The transactions for 1996, 1995 and 1994 were as follows:
Page 21
1996 1995 1994
Shrs under option---beginng of yr 1,739,968 1,122,694 1,305,095
Granted 165,500 773,317 176,500
Exercised (55,500) (68,110) (189,890)
Canceled (from $10.19 to $24.38) (56,590) (87,933) (169,011)
___________ ___________ ___________
Shrs under option---end of yr 1,793,378 1,739,968 1,122,694
___________ ___________ ___________
Opts exercisable---end of yr 1,687,018 1,328,900 1,067,055
____________ ____________ ____________
Option price range $3.80-$25.38 $3.80-$25.25 $1.62-$24.67
____________ ____________ ____________
Option price range for
options exercised $10.19-$24.67 $10.19-$23.88 $1.62-$24.67
_____________ _____________ ____________
The Company also has a Non-Qualified Stock Option Plan with 702,935 shares
reserved at June 30, 1996. There remain 9,416 options available for grant at
year end. Transactions for 1996, 1995 and 1994 were as follows:
1996 1995 1994
Shrs under option---beginng of yr 738,519 331,033 330,000
Granted --- 408,519 2,065
Exercised --- (1,033) (1,032)
Canceled ($25.83) (45,000) --- ---
___________ ___________ ___________
Shrs under option---end of yr 693,519 738,519 331,033
___________ ___________ ___________
Opts exercisable---end of yr 693,519 338,519 331,033
___________ ___________ ___________
Option price range $23.88-$25.83 $10.57-$25.83 $10.57-25.83
_____________ _____________ ____________
Option price range for
options exercised $ 10.57 $ 10.57
_______ _______
Additionally, the Company has granted in fiscal 1996 non-qualified stock
options on 195,000 shares, subject to shareholder approval of the 1996
Non-Qualified Stock Option Plan at the annual meeting of shareholders to be held
October 24, 1996.
NOTE 8
______
RETIREMENT 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 $17.0 million
in 1996, $17.0 million in 1995 and $15.8 million in 1994. The Company leases its
corporate office building from its profit-sharing plan through an independent
trustee.
NOTE 9
______
LEASES, COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company is obligated under operating leases consisting primarily of real
estate and equipment. Future obligations for minimum rentals under the leases
during fiscal years after June 30, 1996, are $4.5 million in 1997, $4.7 million
in 1998, $4.1 million in 1999, $4.0 million in 2000, and $4.1 million
in 2001.
Rental expense was $4.4 million, $3.7 million and $3.2 million for the fiscal
years 1996, 1995 and 1994, respectively.
Page 22
The Company had committed approximately $59.5 million for the purchase of
equipment and facilities at June 30, 1996.
The Company had sales to one customer of approximately 12% in 1996, 11% in
1995 and 12% in 1994.
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 its factoring arrangements.
NOTE 10
_______
BUSINESS SEGMENTS AND FOREIGN OPERATIONS
The Company and its subsidiaries are engaged predominantly in the processing
of yarns by: texturing of synthetic filament polyester and nylon fiber, and
spinning of cotton and cotton blend fibers with sales domestically and
internationally, mostly to knitters and weavers for the apparel, industrial,
hosiery, home furnishing, automotive upholstery and other end-use markets.
The Company's foreign operations are comprised primarily of its manufacturing
facility in Ireland along with its Foreign Sales Corporation and had net sales
of $282.7 million, $231.1 million and $178.5 million; pretax income, before the
non-recurring charge in 1994, of $8.9 million, $10.4 million and $4.4 million;
and identifiable assets of $150.9 million, $129.9 million and $132.0 million
in 1996, 1995 and 1994, respectively.
NOTE 11
_______
DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company enters into commodity futures contracts as considered appropriate
to reduce the risk of future price increases in connection with the purchase of
cotton for projected manufacturing requirements. These forward contracts
are accounted for as hedges and, accordingly, gains and losses are deferred and
recognized in cost of sales as a component of the product cost. At June 30,
1996, and June 25, 1995, there were no significant futures contracts
outstanding.
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) and the dates they are consummated
(cash receipts and cash disbursements in foreign currencies). The Company
utilizes some natural hedging to mitigate these transaction exposures. The
Company also enters into foreign currency forward contracts for the purchase
and sale of European, Canadian and other currencies to hedge balance sheet and
income statement currency exposures. These contracts are principally entered
into for the purchase of inventory and equipment and sale of Company products
into export markets. Counterparties for these instruments are major financial
institutions. The Company does not engage in speculative or trading derivative
activities. At June 30, 1996, and June 25, 1995, the U.S. dollar equivalent of
the contract value of these forward currency exchange agreements was $21.6
million and $7.3 million, respectively. The agreements at June 30, 1996, mature
through June 1997. Gains and losses on these contracts are deferred and
generally recognized as offsets to losses and gains on the foreign currency
denominated receivables and payables, thereby reducing exchange rate risk.
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---The
carrying amounts approximate fair value because of the short maturity of these
instruments.
SHORT-TERM INVESTMENTS---The fair value of these instruments are based on
quoted market prices.
LONG-TERM 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.
FOREIGN CURRENCY CONTRACTS---The fair value is based on quotes obtained from
brokers or reference to publicly available market information. As of June 30,
1996, and June 25, 1995, the fair value of foreign currency forward contracts
approximated contract value.
COMMODITY FUTURES CONTRACTS---The fair value is based on quotes obtained from
brokers.
Page 23
MANAGEMENT'S REVIEW AND ANALYSIS OF OPERATIONS AND FINANCIAL POSITION
FISCAL 1996
Consolidated net sales increased 3.1% from $1.555 billion in 1995 to $1.603
billion in 1996. The growth in net sales was accomplished by a 6.4% increase in
per unit average sales price slightly offset by a decline in unit volume of
3.1%. The decline in unit volume corresponds with the general softness
experienced by the retail sector during the current year.
Our domestic operations experienced an overall decline in unit volume of 6.2%
in 1996. Average per unit sales price for these operations increased
approximately 7.5% during this period reflecting a change in product mix to
lower-volume, higher-priced products and in response to increased raw material
costs. Domestic polyester texturing capacity will increase through the 1997
fiscal year as the Company's construction of a new texturing plant in
Yadkinville, North Carolina comes on line.
Sales growth of 45.4% in our international operations reflects increased
capacity due to expansion and higher average unit sales prices. Sales from
foreign operations are denominated in local currencies and are hedged in part by
the purchase of raw materials and services in those same currencies. The
net asset exposure is hedged by borrowings in local currencies which minimize
the risk of currency fluctuations. In addition, currency exchange rate risk is
mitigated by the utilization of foreign currency forward contracts.
Cost of goods sold as a percentage of net sales increased from 85.6% last
year to 87.8% this year. On a per unit basis, increases in raw material,
packaging and manufacturing costs and depreciation expense together with
reduced unit volume offset the effect of higher average sales prices.
Selling, general and administrative expenses as a percentage of net sales in
1996 remained consistent with the prior year at 2.8%. On a dollar basis,
selling, general and administrative expenses increased 4.6% from $43.1 million
in 1995 to $45.1 million in 1996. This increase primarily reflects our ongoing
efforts to enhance our information systems to improve the operating performance
throughout the Company and the level of service to our customers.
Interest expense declined $0.9 million or 5.6%, from $15.5 million in 1995 to
$14.6 million in 1996. In the fourth quarter of the current year the $230
million of 6% convertible subordinated notes were redeemed. The redemption was
funded by the proceeds from a $400 million, five-year revolving credit facility,
which resulted in a lower effective interest rate than the convertible notes.
The decrease in the interest rate in combination with the reduction in the debt
level to $170 million at June 30, 1996, contributed to the decline in interest
expense. Interest income declined from $10.4 million in 1995 to $6.8 million in
1996. This change reflects lower levels of invested funds which were used for
capital expenditures, acquisitions, long-term debt extinguishment and the
purchase and retirement of Company common stock. Other income declined $5.3
million from $9.7 million in 1995 to $4.4 million in 1996. In the prior year,
gains were recognized from the sale of equity affiliates and capital assets in
excess of current year gains from the sale of short-term investments and capital
assets.
In the first quarter of the current year, the Company recorded a
non-recurring charge of $23.8 million, or an after-tax charge to earnings of
$14.9 million ($0.23 per share). The significant components of the
non-recurring charge included $2.4 million of severance and other
employee-related costs ($1.7 million incurred through June 30, 1996, associated
with the termination of 275 employees) and a $21.4 million write-down to
estimated fair value less the cost of disposal of underutilized or consolidated
assets ($7.4 million realized as of June 30, 1996). The charge resulted from
the plan to restructure and further reduce the Company's cost structure and
improve productivity through the consolidation of certain manufacturing
facilities and the disposition of underutilized assets. As part of the
restructuring plan, the Company has closed, effective November 17, 1995, the
spun yarn manufacturing facilities in Edenton and Mount Pleasant, North
Carolina. The Company anticipates no material differences in charges remaining
compared to its original estimates.
The effective tax rate has decreased from 37.4% in 1995 to 36.4% in 1996.
The decline in the effective tax rate is attributed to the increase in earnings
of foreign subsidiaries taxed at rates below the domestic rate and increased
federal tax benefits of the Company's Foreign Sales Corporation and research and
experimentation tax credits.
During the fourth quarter of the current year, the Company recognized an
extraordinary after-tax charge of $5.9 million or $0.09 per share as a result of
the premium paid for the early retirement of the $230 million of 6% convertible
subordinated notes due 2002.
As a result of the above, the Company realized during the current year net
income of $72.5 million, or $1.09 per share compared to corresponding totals in
the prior year of $116.2 million or $1.67 per share. Before the effects of the
non-recurring and the extraordinary charges recognized in the current year, the
Company had net earnings of $93.3 million, or $1.41 per share.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
(SFAS 121). The Company adopted SFAS 121 in the first quarter of 1996. There
was no cumulative effect on the Company's financial statements from the initial
adoption of SFAS 121; however,
Page 24
the accounting principles described in this statement were utilized in
estimating the above described non-recurring charge.
In October 1995, the FASB issued Statement No. 123, "Stock Based
Compensation," (SFAS 123). SFAS 123 becomes effective beginning with the
Company's first quarter of fiscal 1997, and will not have a material effect on
the Company's financial position or results of operations. Upon adoption of
SFAS 123, the Company will continue to measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by APB No. 25 "Accounting for Stock Issued to Employees."
FISCAL 1995
Net sales increased 12.3% from $1.385 billion in 1994 to $1.555 billion in
1995. The growth was accomplished by an increase in unit volume for the
consolidated domestic and international operations. The increase in unit sales
volume was predominantly in our lower average priced, natural textured and spun
yarn products. The volume increase was supplemented by a slight increase in per
unit sales price.
Our domestic operations experienced increased sales volume of approximately
12.4% during 1995 with significant gains noted in natural polyester and spun
yarn products. Domestic volume growth was achieved primarily through capacity
expansions, acquisitions and ongoing modernization projects. Domestic polyester
texturing productive capacity will be increased throughout the 1996 fiscal year
as the Company continues with a modernization project in process in its
Reidsville, North Carolina facility and completes construction of a new
texturing plant in Yadkinville, North Carolina.
The growth in sales in our international polyester operations was
accomplished through increased capacity gained from fiscal 1995 expansions at
our Irish facility, higher average unit sales prices which were raised to
partially offset escalating raw material costs and to the further weakening of
the U.S. dollar compared to the prior year. Texturing capacity will be increased
approximately 30% during the upcoming fiscal year due to the installation of
new texturing equipment. Sales from foreign operations are denominated in
local currencies and are hedged in part by the purchase of raw materials and
services in those same currencies. The net asset exposure is hedged by
borrowings in local currencies which minimize the risk of currency fluctuations.
Cost of sales as a percentage of sales remained stable at 85.6% for both the
1995 and 1994 fiscal years. On a consolidated basis for fiscal 1995, slight
increases in per unit raw material and packaging costs were offset by lower
manufacturing costs per unit. Increased sales volume and a shift in product mix
to higher-volume, lower-cost items resulted in improved manufacturing costs on a
per unit basis. These improvements reflect management's continued efforts to
improve operating efficiency and reduce manufacturing cost.
Selling, general and administrative expenses as a percentage of net sales
decreased to 2.8% in 1995 from 2.9% in 1994 primarily as a result of further
consolidations of operations relating to the previous mergers and an increase in
the net sales base.
Interest expense declined $2.8 million from $18.3 million in 1994 to $15.5
million in 1995. The decline was attributable to the retirement of debt acquired
in prior year mergers throughout fiscal 1994. The only long-term debt remaining
at June 25, 1995, is the $230 million in convertible subordinate notes issued in
March 1992. Interest income increased $2.1 million from 1994 to 1995 as a
result of increased short-term investment levels. Other income increased $8.4
million from 1994 to 1995 mainly as a result of the recognition of gains from
the sale of equity affiliates and capital assets.
The effective income tax rate decreased from 44.1% in 1994 to 37.4% in 1995.
This decrease was mainly due to the non-deductible, non-recurring charge in the
prior year while no such charge was incurred in 1995. Also contributing to the
current year's lower effective tax rate was the increase in the earnings of
foreign operations, which are taxed at rates lower than the domestic federal tax
rate.
Net income increased 51.9% from $76.5 million in 1994 to $116.2 million in
1995. Earnings per share increased from $1.08 per share from fiscal 1994 to
$1.67 for fiscal 1995, an increase of 54.6%. Net income and net income per share
in 1994 before the non-recurring charge were $90.6 million or $1.28 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 increased to $201.5 million for fiscal 1996 compared to $155.3
million for fiscal 1995. This improvement was achieved through the improved
management of working capital and increases in non-cash items including
depreciation and amortization, which increased $6.1 million during fiscal 1996.
Additionally, $21.8 million of the non-recurring charge of $23.8 million
recognized in 1996 for the restructuring and consolidation of certain
manufacturing facilities represented non-cash items.
Working capital levels are more than adequate to meet the operating
requirements of the Company. We ended the current year with working capital of
$196.2 million which included cash and cash equivalents of $24.5 million. Cash
and short-term investments have decreased $121.7 million since June 25, 1995,
resulting primarily from the
Page 25
utilization of existing cash to fund the costs of acquisitions, capital
expansions, long-term debt extinguishment and the purchase and retirement of
Company common stock.
The Company utilized $80.1 million and $157.1 million for net investing and
financing activities, respectively, during the year ended June 30, 1996.
Significant expenditures during fiscal 1996 included $182.4 million for capacity
expansions, upgrades and acquisitions, $34.2 million for the payment of the
Company's cash dividends, $60.0 million for the net retirement of long-term
debt, and $55.6 million for the purchase and retirement of Company common stock.
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 June 30, 1996, 5.8 million shares have been repurchased at a
total cost of $141.4 million pursuant to this Board authorization.
At June 30, 1996, the Company has committed approximately $59.5 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 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 one-fourth of productive capacity in this texturing
facility which is scheduled for completion in fiscal 1997.
On April 18, 1996, the Board of Directors approved Unifi's entrance into
polyester fiber production in the United States. The facility, to be located in
Yadkinville, North Carolina will be capable of producing approximately 150
million pounds of polyester fiber or one-third of the Company's annual
domestic need. Expected start-up is in 1998. This new productive capacity
will support continued growth opportunities in textured polyester and will
increase the Company's long-term competitiveness. The cost of the equipment
and the facilities is currently being negotiated and is not included in the
$59.5 million commitment identified in the preceding paragraph.
In the fourth quarter of the current year, the Company redeemed its $230
million in 6% convertible subordinated notes utilizing proceeds from a $400
million, five-year revolving credit facility. The combination of the interest
rate environment together with the value of its common stock offered the Company
an opportunity to replace the subordinated notes with bank debt and
simultaneously address the potential dilution of its earnings from conversion
of the notes to common stock. At June 30, 1996, the outstanding balance of
the revolving credit facility was $170 million. The remaining balance of the
revolving credit facility is available to be used for future capital
expenditures, stock repurchases, acquisitions and general corporate purposes.
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 and other financial needs.
Page 26
SUMMARY OF SELECTED FINANCIAL DATA
(Amts in
thousands,
except per
shr data) Jun 30,1996 Jun 25,1995 Jun 26,1994 Jun 27,1993 Jun 28,1992
Summary of
Earnings:
Net sales $1,603,280 $1,554,557 $1,384,797 $1,405,651 $1,322,910
Cost of
sales 1,407,608 1,330,410 1,185,386 1,141,126 1,090,611
Gross
profit 195,672 224,147 199,411 264,525 232,299
Selling,
general
and admn 45,084 43,116 40,429 38,484 38,530
Interest
expense 14,593 15,452 18,241 25,785 16,756
Interest
income (6,757) (10,372) (8,290) (13,537) (5,306)
Other
income (4,390) (9,659) (1,238) (5,775) (1,598)
Non-recurr-
ing chrg 23,826 --- 13,433 --- ---
Merger
expenses --- --- --- --- 24,805
Inc before inc
taxes and
extraordnry
item 123,316 185,610 136,836 219,568 159,112
Provision
for inc
taxes 44,939 69,439 60,344 82,924 62,263
Inc before
extraordnry
item 78,377 116,171 76,492 136,644 96,849
Extraordnry
item 5,898 --- --- --- ---
Net inc 72,479 116,171 76,492 136,644 96,849
Per Shr of
Common Stk:
Inc before
extraordnry
item $ 1.18 $ 1.67 $ 1.08 $ 1.93 $ 1.38
Extraordnry
item .09 --- --- --- ---
Net inc 1.09 1.67 1.08 1.93 1.38
Cash
divids .52 .40 .56 .42 .36
Fin Data:
Working
capital $ 196,222 $ 333,357 $ 304,274 $ 320,215 $ 389,826
Gross prop,
plant and
equipmt 1,027,128 910,383 848,637 750,552 640,963
Total
assets 951,084 1,040,902 1,003,252 1,017,449 989,404
Long-term
debt 170,000 230,000 230,000 250,241 328,685
Sharehldrs'
equity 583,206 603,502 588,522 545,553 463,043
QUARTERLY RESULTS (Unaudited)
_____________________________
Quarterly financial data for the years ended June 30, 1996, and June 25, 1995,
is presented below:
(Amounts in
thousands,
except per
share data) First Quarter Second Quarter Third Quarter Fourth Quarter
1995:
Net sales $359,194 $387,297 $403,001 $405,065
Gross profit 48,334 55,115 58,302 62,396
Net income 22,689 28,120 31,050 34,312
Earnings per shr .32 .40 .45 .50
1996:
Net sales $387,369 $401,437 $375,509 $438,965
Gross profit 44,929 49,255 45,544 55,944
Income before
extraordnry
item 6,767 24,118 20,747 26,745
Extraordnry
item --- --- --- 5,898
Net income 6,767 24,118 20,747 20,847
Income before
extraordnry
item per shr .10 .36 .32 .40
Earnings per shr .10 .36 .32 .32
Page 27
MARKET AND DIVIDEND INFORMATION (Unaudited)
___________________________________________
The Company's common stock is listed for trading on the New York Stock
Exchange.
The following table sets forth the range of high and low sales prices of the
Unifi Common Stock as reported on the NYSE Composite Tape and the regular cash
dividends per share declared by Unifi during the periods indicated.
High Low Dividends
Fiscal year 1994:
First quarter ended September 26, 1993 $34.13 $20.00 $.14
Second quarter ended December 26, 1993 $27.63 $20.88 $.14
Third quarter ended March 27, 1994 $27.00 $21.75 $.14
Fourth quarter ended June 26, 1994 $26.63 $20.50 $.14
Fiscal year 1995:
First quarter ended September 25, 1994 $25.50 $23.38 $.10
Second quarter ended December 25, 1994 $26.63 $23.88 $.10
Third quarter ended March 26, 1995 $29.13 $25.00 $.10
Fourth quarter ended June 25, 1995 $27.75 $22.63 $.10
Fiscal year 1996:
First quarter ended September 24, 1995 $26.63 $23.50 $.13
Second quarter ended December 24, 1995 $25.00 $21.88 $.13
Third quarter ended March 24, 1996 $25.75 $21.25 $.13
Fourth quarter ended June 30, 1996 $28.50 $23.00 $.13
Page 28