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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.
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.
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.
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.
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.
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
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.
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.)