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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 September 29, 1996
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10542
UNIFI, INC.
(Exact name of registrant as specified its charter)
New York 11-2165495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 19109 - 7201 West Friendly Avenue
Greensboro, NC 27419
(Address of principal executive offices) (Zip Code)
(910) 294-4410
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at November 3, 1996
Common Stock, par value $.10 per share 64,510,842 Shares
UNIFI, INC.
Condensed Consolidated Balance Sheets
September 29, June 30,
1996 1996
(Unaudited) (Audited)
(Amounts in Thousands)
ASSETS:
Current assets:
Cash and cash equivalents $2,648 $24,473
Receivables 223,252 199,361
Inventories:
Raw materials and supplies 55,332 59,260
Work in process 14,505 13,294
Finished goods 59,373 60,392
Other current assets 5,706 5,095
Total current assets 360,816 361,875
Property, plant and equipment 1,061,611 1,027,128
Less: accumulated depreciation 498,043 477,752
563,568 549,376
Other noncurrent assets 39,185 39,833
Total assets $963,569 $951,084
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $113,127 $110,107
Accrued expenses 28,535 39,895
Income taxes 17,495 15,651
Total current liabilities 159,157 165,653
Long-term debt 180,000 170,000
Deferred income taxes 33,221 32,225
Shareholders' equity:
Common stock 6,451 6,483
Capital in excess of par value 53,367 62,255
Retained earnings 529,114 512,253
Cumulative translation adjustment 2,259 2,215
Total shareholders' equity 591,191 583,206
Total liabilities and
shareholders' equity $963,569 $951,084
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Condensed Consolidated Statements of Income
(Unaudited)
For the Quarters Ended
September 29, September 24,
1996 1995
(Amounts in Thousands, Except Per Share Data)
Net Sales $414,715 $387,369
Costs and expenses:
Cost of sales 364,770 342,440
Selling,general & administrative expense 10,830 10,072
Interest expense 2,922 3,677
Interest income (532) (2,637)
Other (income) expense (198) (430)
Non-recurring charge (note e) -- 23,826
377,792 376,948
Income before income taxes 36,923 10,421
Provision for income taxes 12,968 3,654
Net income $23,955 $6,767
Earnings per share: Primary $.37 $.10
Fully diluted $.37 $.10
Cash dividends per share $.11 $.13
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Quarters Ended
September 29, September 24,
1996 1995
(Amounts in Thousands)
Cash and cash equivalents provided by $18,643 $50,059
operating activities
Investing activities:
Capital expenditures (36,090) (25,687)
Sale of capital assets 1,388 --
Proceeds from notes receivable 258 10,693
Purchase of short-term investments -- (47,252)
Sale of short-term investments -- 24,579
Net investing activities (34,444) (37,667)
Financing activities:
Issuance of Company common stock 416 --
Purchase and retirement of Company (9,336) (13,825)
common stock
Borrowing of long-term debt 10,000 --
Cash dividends paid (7,094) (8,685)
Net financing activities (6,014) (22,510)
Currency translation adjustment (10) (1)
Net increase (decrease) in cash and cash (21,825) (10,119)
equivalents
Cash and cash equivalents - beginning 24,473 60,350
Cash and cash equivalents - ending $2,648 $50,231
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 September 29, 1996 and the results of operations and
cash flows for the quarters ended September 29, 1996 and
September 24, 1995. Such adjustments consisted of normal recurring items
for both periods presented and, for the prior fiscal year quarter, 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 consolidated 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 bases of existing
assets and liabilities.
The difference between the statutory federal income tax rate and the
effective tax rate is primarily due to the realization of state and federal
tax credits and the results of foreign subsidiaries which are taxed at
rates below those of U.S. operations.
(c)Per Share Information
Earnings per common and common equivalent share are computed on the basis
of the weighted average number of common shares outstanding plus, to the
extent applicable, common stock equivalents.
Computation of average shares outstanding (in 000's):
Quarters Ended
September 29, September 24,
1996 1995
Weighted average shares 64,537 66,886
outstanding
Add: dilutive options 636 487
Primary shares 65,173 67,373
Incremental shares arising from
full dilution assumption 3 --
Average shares assuming
full dilution 65,176 67,373
Conversion of the $230 million, 6% convertible subordinated notes which
were outstanding at September 24, 1995, was not considered for the
computation of fully diluted earnings per share because its effect is
antidilutive. Accordingly, fully diluted earnings per share for this
period has been reported consistent with the primary earnings per share
result. These notes were redeemed in the fourth quarter of fiscal 1996.
(d)Common Stock
On October 24, 1996, the Company's Board of Directors declared a cash
dividend of 11 cents per share payable on November 15, 1996, to
shareholders of record on November 8, 1996.
(e)Non-Recurring Charge
During the fiscal 1996 first quarter, the Company recognized a non-
recurring charge to earnings of $23.8 million ($14.9 million after-tax or
$0.22 per share) related to restructuring plans to further reduce the
Company's cost structure and improve productivity through the consolidation
of certain manufacturing operations and the disposition of underutilized
assets. The restructuring plan focused on the consolidation of production
facilities acquired via mergers during the preceding four years. As part
of the restructuring action, the Company closed its spun cotton
manufacturing facilities in Edenton and Mount Pleasant, North Carolina with
the majority of the manufacturing production being transferred to other
facilities. The significant components of the non-recurring charge include
$2.4 million of severance and other employee-related costs from the
termination of employees and a $21.4 million write-down to estimated fair
value less the cost of disposal of underutilized assets and consolidated
facilities to be disposed. Costs associated with the relocation of
equipment or personnel are being expensed as incurred.
In connection with the plan of restructuring and corporate consolidation,
the Company has incurred as of September 29, 1996, severance and other
employee-related costs of $1.9 million associated with the termination of
574 employees. All significant aspects of the consolidation plan
associated with the termination of employees has been accomplished.
Additionally, the Company has charged against the reserve costs incurred
associated with the plant closures and losses incurred from the disposal of
assets of $17.2 million. However, the ultimate disposal of equipment and
facilities may take longer due to current market conditions. The balance
sheet at September 29, 1996, reflects primarily in property, plant and
equipment, the net book value of the remaining assets to be disposed
amounting to approximately $6.0 million net of the anticipated losses to be
sustained of $4.2 million. The resulting net carrying value of the
remaining assets to be disposed is equivalent to the expected recoveries of
$1.8 million.
(f)Common Stock Repurchase Offer
On October 30, 1996, Unifi announced plans for a "Dutch Auction" tender
offer for a minimum of 4,000,000 and a maximum of 6,000,000 shares of its
common stock, representing approximately 6.2 to 9.3 percent of its
currently outstanding shares. Under terms of the offer, the Company will
invite shareholders to tender their shares at prices within a range of $28
to $31 per share as specified by the tendering shareholders. The Company
will determine a single per share price within the range that it will pay
for up to the 6,000,000 shares properly tendered. The offer will expire on
Friday, December 13, 1996, unless extended by the Company. Unifi's offer
is conditional on a minimum of 4,000,000 shares being tendered; however,
the Company reserves the right to purchase a lesser number of properly
tendered shares. The Company reserves the right to buy more than 6,000,000
shares, but has no current intention to do so.
The Company will fund substantially all of the share repurchases utilizing
amounts borrowed against its revolving credit facility.
(g)Stock-Based Compensation
In October 1995, the FASB issued Statement No. 123, "Stock-Based
Compensation," (SFAS 123) which became effective beginning with the
Company's quarter ended September 29, 1996. The Company has adopted FAS
123 and will continue to measure compensation expense for its stock-based
employee compensation plans using the intrinsic value method prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees". In
addition, the Company will provide at fiscal year end pro forma
disclosures of net income and earnings per share as if the fair
value-based method prescribed by SFAS 123 had been applied in measuring
compensation expense. The adoption of the pronouncement has not had and
is not expected to have a material effect on the Company's financial
position or results of operations.
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 7.1% in the quarter from $387.4 million to
$414.7 million. Volume increased 5.3% for the quarter while average unit
price, based on overall product mix, increased 1.7% during this period.
Demand for our domestic yarn products improved throughout the quarter
increasing 6.1% over the prior year quarter. This was accomplished by a 2.9%
increase in average unit prices, based on product mix, combined with an
increase in unit volume of approximately 3.1%. Sales growth of 20.6% in our
international operations reflects increased capacity due to expansion.
Cost of sales as a percentage of net sales for the quarter decreased slightly
from 88.4% last year to 88.0% this year. Increases in average raw material
and manufacturing costs, based on product mix, were absorbed by higher
average sales prices resulting in the slight improvement in gross margin.
Selling, general and administrative expense as a percentage of net sales
remained consistent between quarters at 2.6%. On a dollar basis, selling,
general and administrative expense increased 7.5% from $10.1 million to $10.8
million.
Interest expense decreased from $3.7 million in the prior fiscal year first
quarter to $2.9 million in the current quarter. This is the direct result of
lower levels of outstanding debt and a lower effective interest rate.
Interest income has declined significantly compared to the corresponding
period of the prior year as we have lower levels of invested funds due to the
use of such funds for capital expenditures, acquisitions, long-term debt
extinguishment and the purchase and retirement of Company common stock.
In the first quarter of the prior fiscal year the Company announced
restructuring plans to further reduce the Company's cost structure and
improve productivity through the consolidation of certain manufacturing
operations and the disposition of underutilized assets. The estimated cost
of restructuring resulted in a first quarter fiscal 1996 non-recurring charge
to earnings of $23.8 million or an after-tax charge to earnings of $14.9
million ($.22 per share). The Company anticipates no material differences in
actual charges compared to its original estimates.
Our effective tax rate was 35.1% in each of the current quarter and the prior
year quarter. The difference between the statutory federal income tax rate
and the effective tax rate is primarily due to the realization of state and
federal tax credits and the results of foreign subsidiaries which are taxed
at rates below those of U.S. operations.
Earnings per share for the current quarter were $.37 compared to $.10 for the
corresponding quarter of the prior year. Earnings per share for the prior
year quarter were adversely affected by the non-recurring charge to earnings
of $.22 per share.
Liquidity and Capital Resources
Cash provided by operations continues to be the Company's primary source of
funds to finance operating needs and capital expenditures. Cash generated
from operations was $18.6 million for the first quarter of fiscal 1997
compared to $50.1 million for the first quarter of fiscal 1996. This $31.6
million decline in cash flow from operations occurred despite a $2.3 million
increase in income before non-recurring charges due primarily to increases in
accounts receivable and decreases in accounts payable and accrued expenses.
The changes in accounts receivable, accounts payable and accrued expenses
since our fiscal year ended June 30, 1996, can be attributed to the timing of
cash receipts from our customers and factors and payments to vendors which
are expected to reverse in the second quarter of fiscal 1997.
Working capital levels are more than adequate to meet the operating
requirements of the Company. We ended the current quarter with working
capital of $201.7 million which included cash and cash equivalents of $2.6
million. Cash and short-term investments have decreased $21.8 million since
June 30, 1996, resulting primarily from the utilization of existing cash to
fund capacity expansions and upgrade facilities and the purchase and
retirement of Company common stock.
The Company utilized $34.4 million and $6.0 million for net investing and
financing activities, respectively, during the quarter ended September 29,
1996. Significant expenditures during the quarter included $36.1 million for
capacity expansions and upgrade facilities, $7.1 million for the payment of
the Company's cash dividends and $9.3 million for the purchase and retirement
of Company common stock. The Company utilized proceeds from borrowings under
its long-term debt agreement of $10.0 million, $1.4 million from the sale of
equipment and $.7 million from other sources to offset these cash
expenditures.
At September 29, 1996 the Company has committed approximately $114.2 million
for the purchase and upgrade of equipment and facilities, which is scheduled
to be expended during fiscal years 1997 and 1998. A significant component of
these committed funds as well as a major component of the year to date
capital expenditures is the continuing construction of a highly automated,
state-of-the-art texturing facility in Yadkinville, North Carolina. We have
reached approximately one-half of productive capacity in this texturing
facility which is scheduled for completion in 1997. Certain contracted costs
associated with the construction of our previously announced polyester fiber
production facility are also included in the $114.2 million commitment.
However, the costs of various construction and machinery phases of the
polyester fiber facility project which are still under negotiation are not
included.
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 September 29, 1996, 6.2 million shares have been
repurchased at a total cost of $150.7 million pursuant to this Board
authorization.
On October 30, 1996, Unifi announced plans for a "Dutch Auction" tender offer
for a minimum of 4,000,000 and a maximum of 6,000,000 shares of its common
stock, representing approximately 6.2 to 9.3 percent of its currently
outstanding shares. Under terms of the offer, the Company has invited
shareholders to tender their shares at prices within a range of $28 to $31
per share as specified by the tendering shareholders. The Company will
determine a single per share price within the range that it will pay for up
to the 6,000,000 shares properly tendered. The offer will expire on Friday,
December 13, 1996, unless extended by the Company. Unifi's offer is
conditional on a minimum of 4,000,000 shares being tendered; however, the
Company reserves the right to purchase a lesser number of properly tendered
shares. The Company reserves the right to buy more than 6,000,000 shares, but
has no current intention to do so.
The Company will fund substantially all of the share repurchases utilizing
available proceeds under its revolving credit facility.
Management believes the current financial position of the Company in
connection with its operations and its access to debt and equity markets are
sufficient to meet anticipated capital expenditure, strategic acquisition,
working capital, Company common stock repurchases and other financial needs.
UNIFI, INC.
Item 6. Exhibits and Reports on Form 8-K
(27) Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended
September 29, 1996.
UNIFI, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIFI, INC.
Date: November 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.)