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 24, 1995  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 Road 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 January 28, 1996 Common Stock, par value $.10 per share 65,085,684 Shares
Part I. Financial Information UNIFI, INC. Condensed Consolidated Balance Sheets December 24, June 25, 1995 1995 (Unaudited) (Audited) (Amounts in Thousands) ASSETS Current Assets: Cash and Cash Equivalents $16,672 $60,350 Short-Term Investments 63,891 85,844 Receivables 197,370 209,432 Inventories: Raw Materials and Supplies 53,302 58,959 Work in Process 13,044 14,296 Finished Goods 75,316 66,123 Other Current Assets 2,562 8,017 Total Current Assets 422,157 503,021 Property, Plant and Equipment (Notes e and f) 980,673 910,383 Less: Accumulated Depreciation 432,797 394,168 547,876 516,215 Investment in Affiliates 11 173 Other Assets 41,096 21,493 Total Assets $1,011,140 $1,040,902 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts Payable $98,208 $100,165 Accrued Expenses 61,792 54,338 Income Taxes 11,559 15,161 Total Current Liabilities 171,559 169,664 Long-Term Debt 230,000 230,000 Deferred Income Taxes 31,354 37,736 Shareholders' Equity: Common Stock 6,560 6,714 Capital in Excess of Par Value 80,272 117,277 Retained Earnings 487,550 473,962 Cumulative Translation Adjustment 2,223 4,415 Unrealized Gains on Certain Investments 1,622 1,134 Total Shareholders' Equity 578,227 603,502 Total Liabilities $1,011,140 $1,040,902 and Shareholders' Equity See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> UNIFI, INC. Condensed Consolidated Statements of Income (Unaudited) For the Quarters For the Six Months Ended Ended Dec. 24, Dec. 25, Dec. 24, Dec. 25, 1995 1994 1995 1994 (Amounts in Thousands Except Per Share Data) Net Sales $401,437 $387,297 $788,806 $746,491 Costs and Expenses: Cost of Goods Sold $352,182 $332,182 $694,622 $643,042 Selling, General & Administrative Expense 11,433 10,287 21,505 19,961 Interest Expense 3,760 3,935 7,437 7,873 Interest Income (1,981) (2,401) (4,618) (5,053) Other (Income) Expense (1,308) (2,259) (1,738) (2,838) Non-Recurring Charge -- -- 23,826 -- (Note e) $364,086 $341,744 $741,034 $662,985 Income Before Income Taxes $37,351 $45,553 $47,772 $83,506 Provisions for Income 13,233 17,433 16,887 32,697 Taxes Net Income $24,118 $28,120 $30,885 $50,809 Earnings Per Share: $.36 $.40 $.46 $.72 Primary Fully Diluted $.36 $.39 $.46 $.70 Cash Dividends Per Share $.13 $.10 $.26 $.20 See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> UNIFI, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended December 24, December 25, 1995 1994 (Amounts in Thousands) Cash and Cash Equivalents Provided by Operating Activities, Net of Acquisitions $86,695 $64,313 Investing Activities: Capital Expenditures $(62,326) $(45,161) Acquisitions (48,444) -- Sale of Capital Assets -- 623 Proceeds from Notes Receivable 539 4,702 Proceeds from Sale of Subsidiary and Equity Investment 10,436 13,798 Sale of Short-Term Investments 79,845 49,661 Purchase of Short-Term Investments (55,782) (40,455) Net Investing Activities $(75,732) $(16,832) Financing Activities: Issuance of Common Stock $27 $410 Cash Dividends Paid (17,297) (14,056) Purchase and Retirement of Common Stock (37,185) (56,219) Net Financing Activities $(54,455) $(69,865) Currency Translation Adjustment $(186) $(36) Increase (Decrease) in Cash $(43,678) $(22,420) Cash and Cash Equivalents - Beginning 60,350 80,653 Cash and Cash Equivalents - Ending $16,672 $58,233 See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE> 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 24, 1995 and the results of operations and cash flows for the periods ended December 24, 1995 and December 25, 1994. Such adjustments consisted of normal recurring items for all periods presented and, for the current 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 results of foreign subsidiaries which are taxed at rates below those of U.S. operations. The current periods' pre-tax income from the Company's foreign operations represented a higher percentage of the Company's consolidated results than the corresponding periods of the prior year and the current periods effective tax rates for foreign operations were lower than prior year periods. Additionally, the Company's effective tax rate for U.S. operations is lower in the current periods due to the realization of increased tax credits. These factors contributed to the decline in the lower effective tax rates for the consolidated Company. (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. The effect of the convertible subordinated notes was antidilutive for the quarter and six months ended December 24,1995. Accordingly, fully diluted earnings per share for these periods has been reported consistent with the primary earnings per share results.
<PAGE> Computation of average shares outstanding (in 000's): Quarters Ended Six Months Ended Dec. 24, Dec. 25, Dec. 24, Dec. 25, 1995 1994 1995 1994 Average Shares Outstanding 66,279 69,706 66,582 70,077 Add: Dilutive Options 439 510 463 507 Primary Average Shares 66,718 70,216 67,045 70,584 Incremental Shares Arising from Full Dilution Assumption 7,754 7,753 Average Shares Assuming Full Dilution 77,970 78,337 Computation of net income for per share data (in 000's): Quarters Ended Six Months Ended Dec. 24, Dec. 25, Dec. 24, Dec. 25, 1995 1994 1995 1994 Net Income - Primary $24,118 $28,120 $30,885 $50,809 Add: Convertible Subordinated Interest Net of Tax 2,168 4,337 Net Income Assuming Full Dilution $30,288 $55,146 (d)Common Stock On January 18, 1996 the Company's Board of Directors declared a cash dividend of 13 cents per share payable on February 9, 1996 to shareholders of record on February 2, 1996. (e)Non-Recurring Charge As disclosed in the Company's 10-K for the year ended June 25, 1995 the Company announced on September 18, 1995 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 and reflects the Company's continued efforts to streamline operations. As part of the restructuring action, the Company closed its spun cotton manufacturing facilities in Edenton and Mount Pleasant, North Carolina on November 17, 1995 with the majority of the manufacturing production being transferred to other facilities. Approximately 275 jobs, primarily wage-level positions, were affected. 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 significant components of the non-recurring charge included $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 24, 1995 severance and other employee-related costs of $1.7 million. Additionally, the Company has charged against the reserve costs associated with the plant closures of $.4 million and losses incurred from the disposal of assets of $3.0 million. The Company anticipates that all significant aspects of the consolidation plan 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 December 24, 1995, reflects primarily in property, plant and equipment, the net book value of the remaining assets to be disposed amounting to approximately $23.6 million for which net recoveries of $5.6 million are expected. (f)Accounting for 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 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 (e). (g)Nylon Machinery Purchase The acquisition of the Norlina Division of Glen Raven Mills, Inc., announced on October 2, 1995, 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 was allocated to the net assets acquired with the excess of cost over fair value of the net assets acquired being approximately $28 million. The excess of cost over fair value of net assets acquired is being amortized on a straight-line basis over 15 years.
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 3.7% to $401.4 million in the second quarter of fiscal 1996 and for the six month period, sales increased 5.7% to $788.8 million. The increases in net sales were achieved despite volume decreases of 5.4% for the quarter and 2.1% for the year-to-date over the corresponding prior year periods. The decreases are reflective of an overall softness in virtually all textile and apparel markets served by the Company. To offset the volume declines and increased costs of raw materials and manufacturing, the Company has increased its average unit sales price, based on overall product mix, 9.5% for the quarter and 7.9% for the year -to-date period compared to the corresponding periods of the prior fiscal year. Consistent with the results of consolidated operations, the U.S. operations experienced modest gains in sales dollars of 1.0% and 3.0% for the quarter and year-to-date periods. The U.S. operations continued to see the weakness at the retail level translate into reduced unit demand for our polyester and spun yarn products, while our nylon product volume remained level. The average unit sales price in all three product lines has increased during the quarter and year-to-date periods in response to higher raw material, packaging and manufacturing costs. The effect of the acquisition of the Norlina Division of Glen Raven Mills on November 17, 1995 did not significantly impact the net sales of the nylon operations. Our Irish operations have experienced volume increases of 37.0% and 39.3% for the quarter and year-to-date periods, respectively, when compared to the corresponding periods of the prior year. Average selling prices, based on overall product mix have increased for both periods in the current year to partially offset the effects of higher raw material costs. The increased volume results from the addition of 20 new polyester texturing machines. Cost of goods sold as a percentage of net sales for the quarter increased from 85.8% last year to 87.7% this year. For the respective year-to-date periods, cost of goods sold as a percentage of net sales has increased from 86.1% to 88.1%. The increase in cost of sales as a percentage of net sales is attributable to the increase in average selling prices only partially offsetting the effects of reduced unit volume and increases in raw material, packaging, and manufacturing costs. Selling, general and administrative expenses as a percentage of net sales increased from 2.7% in the prior year quarter to 2.8% in the current quarter. Our year-to-date results as a percentage of net sales have remained stable at 2.7%. Selling, general and administrative expenses increased $1.1 million in the current quarter to $11.4 million and $1.5 million to $21.5 million for the six months year-to-date. These increases primarily reflect 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 decreased $.2 million to $3.8 million in the current quarter and $.4 million to $7.4 million for the year-to-date period. Interest income has decreased from $2.4 million in last year's second quarter to $2.0 million in the current quarter. For the six month period, interest income has decreased from $5.1 million to $4.6 million in the current period. The decline in interest income for the quarter and year-to-date periods reflects lower levels of invested funds. Other income, net decreased $1.0 million to $1.3 million in the current quarter and $1.1 million to $1.7 million for the year-to-date period. As disclosed in Note (e) in this Form 10-Q, the Company recorded in its quarter ended September 24, 1995 a non-recurring charge of $23.8 million, or an after-tax charge to earnings of $14.9 million ($.22 per share). The significant components of the non-recurring charge include $2.4 million of severance and other employee-related costs and a $21.4 million write-down to estimated fair value less the cost of disposal for underutilized assets. This 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 effective tax rate has decreased from 38.3% to 35.4% in the current quarter and has decreased from 39.2% to 35.3% for the year-to-date period. The lower rates in the current periods are primarily due to the pretax earnings of foreign subsidiaries, which are taxed at rates lower than U.S. rates, representing a larger contribution of total consolidated pre-tax income. Additionally, the Company will realize the benefit of certain increased tax credits during fiscal 1996. As a result of the above, the Company realized during the current quarter net income of $24.1 million, or $.36 per primary share compared to $28.1 million, or $.40 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 $30.9 million, or $.46 per share compared to corresponding totals in the prior year -to-date period of $50.8 million, or $.72 per share. Before the effects of the non-recurring charge to earnings during the current six month year-to-date, the Company had income of $45.8 million or $.68 per share. Liquidity and Capital Resources We ended the current quarter with working capital of $250.6 million which included cash and short-term investments of $80.6 million. Cash and short- term investments have decreased $65.6 million since June 25, 1995 resulting primarily from the utilization of existing cash to fund the costs of acquisitions and capital expansions. Our primary source of cash and cash equivalents continues to be generated from operating activities. Cash generated from operations increased to $86.7 million for the six month period ended December 24, 1995 compared to $64.3 million for the corresponding period of the prior year. This improvement was achieved despite a decrease in net income through the improved management of working capital and adjustments for non-cash items including depreciation and amortization, which increased $5.1 million during the current six month year-to-date period, and the non-recurring charge of $23.8 million. The Company utilized $75.7 million and $54.5 million for net investing and financing activities, respectively, during the six months ended December 24, 1995. These net investing and financing activities were primarily comprised of $35.0 million generated from the sale of short-term investments offset by $110.8 million used for capacity expansions, upgrades and acquisitions, $17.3 million for the payment of the Company's cash dividends and $37.2 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. Approximately 5.0 million shares have been repurchased as of December 24, 1995, pursuant to this Board authorization. At December 24, 1995, the Company has committed approximately $93.6 million for the purchase and upgrade of equipment and facilities, which is scheduled to be expended during the remainder of fiscal years 1996 and 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 the initial phases of production in this texturing facility which is scheduled for completion in December 1996. 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.
art 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 19th day of October, 1995, considered and voted upon the elections of four (4) Class 1 Directors of the Company. The Shareholders elected management's nominees for the four (4) Class 1 Directors to serve until the Annual Meeting of the Shareholders in 1998, or until their successors are elected and qualified, as follows: Votes in Votes Names of Directors Favor Against Abstaining Donald F. Orr 55,451,604 0 456,300 Timotheus R. Pohl 55,426,536 0 481,368 Robert A. Ward 55,430,349 0 477,555 G. Alfred Webster 55,430,349 0 476,955 The information set forth under the heading ``Election of Directors'' on pages 2-5 of the Definitive Proxy Statement was filed with the Commission since the close of the registrant's fiscal year ending June 25, 1995, and is incorporated herein by reference. The Shareholders at their Annual Meetings in 1993 elected as Class 2 Directors and in 1994 elected as Class 3 Directors to serve until the Annual Meeting of the Shareholders in 1996 and 1997 respectively, or until their successors are elected and qualified, the following persons: Class 2 Class 3 Charles R. Carter William J. Armfield, IV Jerry W. Eller William T. Kretzer Kenneth G. Langone G. Allen Mebane George R.Perkins,Jr.
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27)Financial Data Schedule (b) No reports on Form 8-K have been filed during the quarter ended December 24, 1995.
<PAGE> 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. WILLIS C. MOORE,III Date: FEBRUARY 6, 1996 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.)
<TABLE> <S> <C> <ARTICLE> 5 <LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S QUARTERLY REPORT FOR THE SIX MONTH PERIOD ENDED DECEMBER 24, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. </LEGEND> <MULTIPLIER> 1000 <S> <C> <PERIOD-TYPE> 6-MOS <FISCAL-YEAR-END> JUN-30-1996 <PERIOD-END> DEC-24-1995 <CASH> 16,672 <SECURITIES> 63,891 <RECEIVABLES> 203,612 <ALLOWANCES> 6,242 <INVENTORY> 141,662 <CURRENT-ASSETS> 422,157 <PP&E> 980,673 <DEPRECIATION> 432,797 <TOTAL-ASSETS> 1,011,140 <CURRENT-LIABILITIES> 171,559 <BONDS> 230,000 <PREFERRED-MANDATORY> 0 <PREFERRED> 0 <COMMON> 6,560 <OTHER-SE> 571,667<F1> <TOTAL-LIABILITY-AND-EQUITY> 1,011,140 <SALES> 788,806 <TOTAL-REVENUES> 788,806 <CGS> 694,622 <TOTAL-COSTS> 694,622 <OTHER-EXPENSES> 23,826 <LOSS-PROVISION> 0 <INTEREST-EXPENSE> 7,437 <INCOME-PRETAX> 47,772 <INCOME-TAX> 16,887 <INCOME-CONTINUING> 30,885 <DISCONTINUED> 0 <EXTRAORDINARY> 0 <CHANGES> 0 <NET-INCOME> 30,885 <EPS-PRIMARY> .46 <EPS-DILUTED> .46 <FN> <F1>OTHER STOCKHOLDERS EQUITY OF $571,667 IS COMPRISED OF CAPITAL IN EXCESS OF PAR VALUE OF $80,272, RETAINED EARNINGS OF $487,550, CUMULATIVE TRANSLATION ADJUSTMENT OF $2,223 AND UNREALIZED GAINS ON CERTAIN INVESTMENTS OF $1,622. </FN> </TABLE>