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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 March 24, 1996
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10542
UNIFI, INC.
(Exact name of registrant as specified its charter)
New York 11-2165495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 19109 - 7201 West Friendly 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 April 28, 1996
Common Stock, par value $.10 per share 64,843,987 Shares
Part I. Financial Information
UNIFI, INC.
Condensed Consolidated Balance Sheets
March 24, June 25,
1996 1995
(Unaudited) (Audited)
(Amounts in Thousands)
ASSETS
Current Assets:
Cash and Cash Equivalents $20,025 $60,350
Short-Term Investments 57,656 85,844
Accounts Receivable, Net 201,849 209,432
Inventories:
Raw Materials and Supplies 54,283 58,959
Work in Process 12,665 14,296
Finished Goods 61,914 66,123
Other Current Assets 3,106 8,017
Total Current Assets 411,498 503,021
Property, Plant and Equipment(Notes e and f) 1,001,361 910,383
Less: Accumulated Depreciation 446,841 394,168
554,520 516,215
Other Assets (Note g) 47,197 21,666
Total Assets $1,013,215 $1,040,902
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $107,881 $100,165
Accrued Expenses 55,759 54,338
Income Taxes 10,910 15,161
Total Current Liabilities 174,550 169,664
Long-Term Debt 230,000 230,000
Deferred Income Taxes 36,021 37,736
Shareholders' Equity:
Common Stock 6,485 6,714
Capital in Excess of Par Value 63,138 117,277
Retained Earnings 499,835 473,962
Cumulative Translation Adjustment 1,428 4,415
Unrealized Gains on Certain Investments 1,758 1,134
Total Shareholders' Equity 572,644 603,502
Total Liabilities and Shareholders'Equity $1,013,215 $1,040,902
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Condensed Consolidated Statements of Income
(Unaudited)
For the Quarters For the Nine Months
Ended Ended
March 24, March 26, March 24, March 26,
1996 1995 1996 1995
(Amounts in Thousands Except Per Share Data)
Net Sales $375,509 $403,001 $1,164,315 $1,149,492
Costs and Expenses:
Cost of Goods Sold 329,965 344,699 1,024,587 987,741
Selling, General &
Administrative Expense 10,403 11,055 31,908 31,016
Interest Expense 3,841 3,983 11,278 11,856
Interest Income (1,120) (2,507) (5,738) (7,560)
Other (Income) Expense (544) (4,526) (2,282) (7,364)
Non-Recurring Charge(Note e) -- -- 23,826 --
342,545 352,704 1,083,579 1,015,689
Income Before Income Taxes 32,964 50,297 80,736 133,803
Provision for Income Taxes 12,217 19,247 29,104 51,944
Net Income $20,747 $31,050 $51,632 $81,859
Earnings Per Share:Primary $.32 $.45 $.78 $1.17
Fully Diluted $.32 $.43 $.78 $1.14
Cash Dividends Per Share $.13 $.10 $.39 $.30
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
March 24, March 26,
1996 1995
(Amounts in Thousands)
Cash and Cash Equivalents Provided by
Operating Activities, Net of Acquisitions $144,673 $92,716
Investing Activities:
Capital Expenditures (100,114) (64,175)
Acquisitions (48,444) --
Sale of Capital Assets 1,523 2,078
Proceeds from Notes Receivable 785 4,983
Proceeds from Sale of Subsidiary and
Equity Investment 10,436 13,798
Sale of Short-Term Investments 91,072 80,460
Purchase of Short-Term Investments (59,808) (64,659)
Net Investing Activities (104,550) (27,515)
Financing Activities:
Issuance of Common Stock 27 410
Cash Dividends Paid (25,758) (20,867)
Purchase and Retirement of Common Stock (54,395) (58,748)
Net Financing Activities (80,126) (79,205)
Currency Translation Adjustment (322) 282
Increase (Decrease) in Cash (40,325) (13,722)
Cash and Cash Equivalents - Beginning 60,350 80,653
Cash and Cash Equivalents - Ending $20,025 $66,931
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 March 24, 1996 and the results of operations and cash
flows for the periods ended March 24, 1996 and March 26, 1995. 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 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 nine months ended March 24, 1996. 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 Nine Months Ended
March 24, March 26, March 24, March 26,
1996 1995 1996 1995
Average Shares
Outstanding 65,068 68,127 66,020 69,427
Add: Dilutive Options 436 572 454 528
Primary Average Shares 65,504 68,699 66,474 69,955
Incremental Shares Arising
from Full Dilution Assumption 7,771 7,760
Average Shares Assuming
Full Dilution 76,470 77,715
Computation of net income for per share data (in 000's):
Quarters Ended Nine Months Ended
March 24, March 26, March 24, March 26,
1996 1995 1996 1995
Net Income - Primary $20,747 $31,050 $51,632 $81,859
Add: Convertible
Subordinated
Interest Net of Tax 2,147 6,442
Net Income Assuming Full
Dilution $33,197 $88,301
(d)Common Stock
On April 18, 1996 the Company's Board of Directors declared a cash dividend
of 13 cents per share payable on May 10, 1996 to shareholders of record on
May 3, 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 March 24, 1996 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 $0.5
million and losses incurred from the disposal of assets of $5.0 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 March 24, 1996, reflects primarily in property, plant and equipment, the
net book value of the remaining assets to be disposed amounting to
approximately $20.5 million for which net recoveries of $4.6 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 $37.2 million. The excess of cost over
fair value of net assets acquired is being amortized on a straight-line
basis over 15 years.
(h)Subsequent Event
As disclosed in the Company's Form 8-K filed April 26, 1996, the Company
announced on March 20, 1996 its intention of redeeming the $230 million of
6% convertible Subordinated Notes due 2002 unless otherwise converted in
accordance with the debt agreement prior to the close of business on April
12, 1996. On April 22, 1996 the unconverted balance of the notes was
redeemed at 103.33% of the principal amount with accrued interest through
the date of the redemption. The remaining notes, totaling $51,000, were
converted into shares of Unifi Common Stock on the basis of 33.7 shares of
common stock for each $1,000 principal amount of notes (with cash paid in
lieu of any fractional shares). The redemption was funded by a $400
million five-year revolving credit facility led by NationsBank, N.A. dated
April 15, 1996. $239.0 million of the credit facility has been used to
fund the above-referenced redemption with the balance of the credit
facility to be used for future capital expenditures, stock repurchases,
acquisitions and general corporate purposes. The redemption resulted in an
extraordinary after tax charge that will be recognized in the Company's
fiscal fourth quarter of approximately $6.0 million, or $.09 per share.
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 decreased 6.8% to $375.5 million in the third quarter
of fiscal 1996 and for the nine month period, net sales reflect a slight
increase of 1.3% to $1,164.3 million. The decrease in net sales for the
quarter is the result of an 11.8% decline in unit volume offset partially by
a 5.7% increase in per unit sales price. For the year-to-date, a 7.2%
increase in per unit sales price offset a 5.5% decline in unit volume to
yield a slight increase in net sales. The decreases in unit volume continue
to reflect an overall weakness in retail sales. To counteract the volume
declines and higher per unit raw material and manufacturing costs, the sales
prices, based on overall product mix, were increased as indicated above.
Net sales for our domestic operations declined 9.6% for the quarter as the
overall weakness in retail sales translated into reduced unit demand across
all our yarn products. Increased per unit sales prices, based on overall
product mix, partially offset the effect of the reduced unit demand for the
domestic operations. Net sales for our domestic operations for the year to
date reflect a 1.4% decline as high average per unit sales prices were not
sufficient to completely offset the decline in unit demand.
Our Irish operations have experienced volume increases of 27.0% and 33.3% 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 85.5% last year to 87.9% this year. For the respective year-to-date
periods, cost of goods sold as a percentage of net sales has increased from
85.9% to 88.0%. 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 per unit 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 decreased $0.7 million in
the current quarter to $10.4 million and increased $0.9 million to $31.9
million for the nine 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 $.1 million to $3.8 million in the current quarter
and $.6 million to $11.3 million for the year-to-date period. Interest
income has decreased from $2.5 million in last year's third quarter to $1.1
million in the current quarter. For the nine month period, interest income
has decreased from $7.6 million to $5.7 million in the current period. The
decline in interest income for the quarter and year-to-date periods reflect
lower levels of invested funds.
Other income, net decreased $4.0 million to $0.5 million in the current
quarter and $5.1 million to $2.3 million for the year-to-date period. The
decline in the current quarter and year-to-date is primarily due to the
recognition of gains on the sale of equity investments in the prior year
quarter and year-to-date periods of $2.7 million and $5.8 million,
respectively.
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 37.1% in the current
quarter and has decreased from 38.8% to 36.0% 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 $20.7 million, or $.32 per primary share compared to $31.1 million,
or $.45 per primary share during the corresponding quarter of the prior year.
Net income and primary earnings per share for the current nine month
year-to-date period amounted to $51.6 million, or $.78 per share compared to
corresponding totals in the prior year-to-date period of $81.9 million, or
$1.17 per share. Before the effects of the non-recurring charge to earnings
during the current nine month year-to-date, the Company had income of $66.5
million or $1.02 per share.
Liquidity and Capital Resources
We ended the current quarter with working capital of $236.9 million which
included cash and short-term investments of $77.7 million. Cash and short-
term investments have decreased $68.5 million since June 25, 1995 resulting
primarily from the utilization of existing cash to fund the costs of
acquisitions, capital expansions and the purchase and retirement of Company
common stock.
Our primary source of cash and cash equivalents continues to be generated
from operating activities. Cash generated from operations increased to
$144.7 million for the nine month period ended March 24, 1996 compared to
$92.7 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 $4.7 million during
the current nine month year-to-date period, and the non-recurring charge of
$23.8 million of which $21.8 million represents non-cash items through March
1996.
The Company utilized $104.6 million and $80.1 million for net investing and
financing activities, respectively, during the nine months ended March 24,
1996. These net investing and financing activities were primarily comprised
of $42.5 million generated from the net purchase and collection of
investments offset by $148.6 million used for capacity expansions, upgrades
and acquisitions, $25.8 million for the payment of the Company's cash
dividends and $54.4 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 5.8 million shares have been repurchased as of March
24, 1996, pursuant to this Board authorization.
At March 24, 1996, the Company has committed approximately $61.7 million for
the purchase and upgrade of equipment and facilities, which is scheduled to
be expended during the remainder of fiscal year 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.
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 production 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
$61.7 million commitment identified in the preceding paragraph.
As disclosed in the Company's Form 8-K filed April 26, 1996, the Company
announced on March 20, 1996 its intention of redeeming the $230 million of 6%
convertible Subordinated Notes due 2002 unless otherwise converted in
accordance with the debt agreement prior to the close of business on April
12, 1996. On April 22, 1996 the unconverted balance of the notes was
redeemed at 103.33% of the principal amount with accrued interest through the
date of the redemption. The remaining notes, totaling $51,000, were
converted into shares of Unifi Common Stock on the basis of 33.7 shares of
common stock for each $1,000 principal amount of notes (with cash paid in
lieu of any fractional shares). The redemption was funded by a $400 million
five-year revolving credit facility led by NationsBank, N.A. dated April 15,
1996. $239.0 million of the credit facility has been used to fund the above-
referenced redemption with the balance of the credit facility to be used for
future capital expenditures, stock repurchases, acquisitions and general
corporate purposes. The redemption resulted in an extraordinary after tax
charge that will be recognized in the Company's fiscal fourth quarter of
approximately $6.0 million, or $.09 per share.
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 5. Other Information
Effective midnight, December 31, 1995, Mr. William J. Armfield, IV
resigned as a member of the Company's Board of Directors and
effective January 18, 1996, Mr. Timotheus R. Pohl resigned as a
member of the Company's Board of Directors. Neither Mr. Armfield
nor Mr. Pohl resigned as a Director of the Company because of
disagreements with the Company on any matters relating to the
Company's operations, policies or practices. Successor directors
have not been elected.
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
March 24, 1996.
UNIFI, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIFI, INC.
Date: May 7, 1996 WILLIS C. MOORE, III
Willis C. Moore, III
Vice President and Chief
Financial Officer (Mr. Moore is
the Principal Financial and
Accounting Officer and has been
duly authorized to sign on behalf
of the Registrant.)