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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 28, 1997
[] 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 2, 1997
Common Stock, par value $.10 per share 60,837,190 Shares
Part I. Financial Information
UNIFI, INC.
Condensed Consolidated Balance Sheets
September 28, June 29,
1997 1997
(Unaudited) (Note)
(Amounts in Thousands)
ASSETS:
Current assets:
Cash and cash equivalents $12,215 $9,514
Receivables 184,446 224,233
Inventories:
Raw materials and supplies 39,914 54,979
Work in process 12,119 11,791
Finished goods 70,850 75,493
Other current assets 3,603 3,688
Total current assets 323,147 379,698
Property, plant and equipment 954,306 1,147,148
Less: accumulated depreciation 450,776 548,775
503,530 598,373
Equity investment in unconsolidated 193,467 1,851
affiliates
Other noncurrent assets 38,822 38,781
Total assets $1,058,966 $1,018,703
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Note payable $10,000 $--
Current maturities of long-term debt 88 1,189
Accounts payable 97,135 119,623
Accrued expenses 21,924 35,854
Income taxes payable 15,171 6,887
Total current liabilities 144,318 163,553
Long-term debt 308,325 255,799
Deferred income taxes 57,134 50,820
Shareholders' equity:
Common stock 6,088 6,121
Retained earnings 548,730 545,099
Cumulative translation adjustment (5,629) (2,689)
Total shareholders' equity 549,189 548,531
Total liabilities and shareholders' $1,058,966 $1,018,703
equity
Note: The balance sheet at June 29, 1997, has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Condensed Consolidated Statements of Income
(Unaudited)
For the Quarters Ended
September 28, September 29,
1997 1996
(Amounts in Thousands, Except
Per Share Data)
Net Sales $329,842 $414,715
Cost of goods sold 280,324 364,770
Selling, general & administrative 9,895 10,830
expense
Operating income 39,623 39,115
Interest expense 3,271 2,922
Interest income 458 532
Other income 290 198
Equity in earnings of unconsolidated 4,621 --
affiliates
Income before income taxes 41,721 36,923
Provision for income taxes 14,196 12,968
Net income $27,525 $23,955
Earnings per share: Primary $.45 $.37
Fully diluted $.45 $.37
Cash dividends per share $.14 $.11
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Quarters Ended
September 28, September 29,
1997 1996
(Amounts in Thousands)
Cash and cash equivalents provided by $54,946 $18,643
operating activities
Investing activities:
Capital expenditures (59,022) (36,090)
Investments in unconsolidated equity (34,027) --
affiliates
Sale of capital assets 203 1,388
Proceeds from notes receivable 137 258
Other (361) --
Net investing activities (93,070) (34,444)
Financing activities:
Issuance of Company common stock 608 416
Stock option tax benefit 1,443 --
Purchase and retirement of Company (17,394) (9,336)
common stock
Borrowing of long-term debt 75,000 10,000
Payments of long-term debt (10,120) --
Cash dividends paid (8,557) (7,094)
Other (27) --
Net financing activities 40,953 (6,014)
Currency translation adjustment (128) (10)
Net increase (decrease) in cash and cash 2,701 (21,825)
equivalents
Cash and cash equivalents - beginning 9,514 24,473
Cash and cash equivalents - ending $12,215 $2,648
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 28, 1997, and the results of operations and
cash flows for the quarters ended September 28, 1997, and
September 29, 1996. Such adjustments consisted of normal recurring items.
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 28, September 29,
1997 1996
Weighted average shares 61,009 64,537
outstanding
Add: dilutive options 689 636
Primary shares 61,698 65,173
Incremental shares arising 37 3
from full dilution
assumption
Average shares assuming
full dilution 61,735 65,176
(d)Common Stock
On October 23, 1997, the Company's Board of Directors declared a cash
dividend of 14 cents per share payable on November 14, 1997, to
shareholders of record on November 7, 1997.
(e)Investments in unconsolidated affiliates
Investments in affiliates consist of a 34% interest in Parkdale America,
LLC and a 50% interest in MiCELL Technologies, Inc. These investments are
reported using the equity method.
Parkdale America, LLC (the LLC) was created on June 30, 1997, when the
Company and Parkdale Mills, Inc. (Parkdale) of Gastonia, North Carolina
entered into a Contribution Agreement (the Agreement) that set forth the
terms and conditions whereby each entity's open-end and air jet spun cotton
yarn assets and certain long-term debt obligations were contributed to the
LLC. In accordance with the Agreement, each entity's inventory, owned real
and tangible personal property and improvements thereon and the Company's
leased real property associated with the operations were contributed to the
LLC. Additionally, the Company contributed $32.9 million in cash to the
LLC on June 30, 1997, and is required to contribute $10.0 million in cash
on June 30, 1998, and $10.0 million on June 30, 1999, whereas Parkdale
contributed cash of $51.6 million on June 30, 1997. The LLC assumed
certain long-term debt obligations of Unifi and Parkdale in the amounts of
$23.5 million and $46.0 million, respectively. In exchange for the assets
contributed to the LLC and the liabilities assumed by the LLC, the Company
received a 34% interest in the LLC and Parkdale received a 66% interest in
the LLC. The excess of the Company's investment over its equity in the
underlying net assets of the LLC approximates $80 million and is being
amortized on a straight-line basis over 30 years as a component of the
equity in earnings of unconsolidated affiliates. Net sales and operating
loss for the prior year first quarter from the Company's spun cotton yarn
operations contributed to the LLC amounted to $75.4 million and $0.8
million, respectively.
Condensed balance sheet and income statement information as of and for the
quarter ended September 28, 1997, of the unconsolidated affiliates is as
follows (in $000):
Current assets $220,758
Noncurrent assets 180,218
Current liabilities 111,907
Shareholders' equity 289,069
Net sales $166,279
Gross profit 23,542
Income from operations 15,269
Income before income taxes 15,269
(f)Recent Accounting Pronouncements
In February 1997, the FASB issued Statements of Financial Accounting
Standards No. 128, `Earnings Per Share,' (SFAS 128) which is required to
be adopted in the December 1997 fiscal quarter. At that time, the Company
will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating basic earnings per share, the dilutive effect of stock options
will be excluded. The Company has determined that the impact of SFAS 128
will not have a significant effect on the calculation of basic and diluted
earnings per share.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, `Reporting Comprehensive Income,' (SFAS 130) which is required
to be adopted for fiscal years beginning after December 15, 1997, if not
previously adopted. SFAS 130 requires the reporting of comprehensive
income and its components in complete general purpose financial statements
as well as requires certain interim comprehensive income information be
disclosed. Comprehensive income represents the change in net assets of a
business during a period from non-owner sources. Such non-owner changes in
net assets that are not included in net income include, among others,
foreign currency translation adjustments, unrealized gains and losses on
available-for-sale securities and certain minimum pension liabilities. The
Company has not as yet determined the impact that the adoption of this
standard will have on its consolidated financial statements.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, `Disclosures about Segments of an Enterprise and
Related Information,' (SFAS 131) which is required to be adopted for
fiscal years beginning after December 15, 1997, if not previously adopted.
SFAS 131 establishes standards for public companies for the reporting of
financial information from operating segments in annual and interim
financial statements as well as establishes standards for related
disclosures about products and services, geographic areas and major
customers. Operating segments are defined in SFAS 131 as components of an
enterprise about which separate financial information is available to the
chief operating decision maker for purposes of assessing performance and
allocating resources. The Company has not completed its analysis of the
effect that the adoption of this standard will have on its financial
statement disclosure, however, the adoption of SFAS 131 will not affect
results of operations or financial position.
(g)Year 2000 Computer Conversion Status
The Company is in process of identifying the business issues associated
with the year 2000 that impact information systems both internally and in
relation to our external customers, suppliers and other business
associates. Factors considered in the assessment of the business issues
involved with the year 2000 include the evaluation of compliance
capabilities and the current status of the Company's enterprise-wide system
conversion project, significant customers' and vendors' compliance plans
and status thereof (including the impact on electronic commerce systems
with these companies) and the compliance plans and status for businesses in
which the Company has investments in their operations.
The Company has identified a team of professionals with the responsibility
of addressing business issues associated with the year 2000 and has
completed a preliminary assessment of the issues and actions needed to be
performed. The Company does not believe any material exposures or
contingencies exist with respect to its internal information systems. The
Company has not completed its evaluation of year 2000 compliance plans for
its external business affiliates but is not aware of any material exposure
or contingency to date.
(h)Pending Acquisition
On September 15, 1997, the Company entered an Agreement and Plan of
Triangular Merger with SI Holding Company to acquire their covered yarn
business for approximately $49.2 million. Additionally, covenants-not-to-
compete have been entered with the principal operating officers of the
acquired company in exchange for $9.2 million, to generally be paid over
the terms of the covenants. The merger is expected to close effective
November 14, 1997. The acquisition, which is not deemed significant to the
Company's consolidated net assets or results of operations, will be
accounted for by the purchase method of accounting.
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 2.8% in the quarter from $339.3 million to
$329.8 million after eliminating the net sales of our spun cotton yarn
operations for the prior year quarter. The spun cotton yarn operations were
contributed to Parkdale America, LLC on June 30, 1997, and had net sales of
$75.4 million for the first quarter of the prior fiscal year. Volume
remained relatively consistent year-over-year while average unit prices,
based on product mix, declined 2.0% after giving effect to the elimination of
the spun cotton yarn operations.
Demand for our domestic yarn products improved throughout the quarter after a
slow start in the July holiday period and our export volume remained steady
in the face of a strong U.S. dollar. For the quarter, domestic polyester and
nylon sales declined over the prior year due to reduced unit volumes of 1.7%
while average unit prices, based on product mix, remained virtually
unchanged. Internationally, sales declined 7.4% as decreases in average unit
prices, based on product mix, offset increases in units sold. Volume in our
European operations returned to expected levels after the summer holiday
period.
Gross margin as a percentage of net sales for the quarter increased 0.7% over
the prior year after removing spun yarn operating results for that period.
Decreases in raw material, based on product mix, as a percentage of net sales
was the primary source of the improved margin. Before giving effect to the
contribution of our spun cotton yarn operations to Parkdale America, LLC, the
gross margin percentage improved 3.0% from 12.0% in the prior year quarter to
15.0% in the current quarter.
Selling, general and administrative expense as a percentage of net sales
increased from 2.6% to 3.0% from the prior year quarter to the current
quarter. On a dollar basis, selling, general and administrative expense
decreased $0.9 million from $10.8 million to $9.9 million. Lower selling,
general and administrative costs in the current quarter reflect cost
reductions associated with the contribution of our spun cotton yarn
operations at the beginning of the quarter. The increase in selling, general
and administrative expense as a percentage of net sales resulted from the
lower sales base in the current quarter in combination with cost reduction
efforts that were achieved incrementally throughout the quarter.
Interest expense increased from $2.9 million in the prior fiscal year first
quarter to $3.3 million in the current quarter. This is attributable to
increased levels of debt outstanding at higher interest rates in the current
period compared to year ago levels. Interest income declined from $532
thousand in the prior year quarter to $458 thousand in the current quarter.
Other income increased to $290 thousand in the current quarter from $198
thousand in the prior year quarter.
Income from our equity affiliates, Parkdale America, LLC and MiCELL
Technologies, Inc., contributed $4.6 million to pre-tax income for the
quarter. During the first quarter of fiscal 1997, net sales and operating
loss from our spun cotton yarn assets contributed to Parkdale America, LLC
amounted to $75.4 million and $0.8 million, respectively. See Note (e) to
the financial statements for additional information regarding unconsolidated
affiliates.
Our effective tax rate declined 1.1% from 35.1% in the prior year quarter to
34.0% in the current quarter. The reduction in the effective tax rate
reflects the recognition of state and federal tax credits in the current year
period above those of the prior year period.
As a result of the above, the Company realized net income of $27.5 million,
or $.45 per primary share, in the current quarter compared to $24.0 million,
or $.37 per primary share, in the prior year quarter.
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 $54.9 million for the first quarter of fiscal 1998
compared to $18.6 million for the first quarter of fiscal 1997. Changes in
working capital contributed $9.1 million of cash from operating activities of
which accounts receivable was the primary source contributing a total of
$38.8 million. This amount was offset, in part, by net decreases in accounts
payable, accrued liabilities and income taxes which totaled $27.1 million.
Non-cash adjustments to cash provided by operations aggregated $18.3 million
for the quarter. Depreciation and amortization totaling $15.8 million and
the deferred income tax provision for the period which amounted to $6.3
million were partially offset by the equity in earnings of unconsolidated
affiliates of $4.6 million.
Working capital levels are more than adequate to meet the operating
requirements of the Company. We ended the current quarter with working
capital of $178.8 million which included cash and cash equivalents of $12.2
million.
The Company utilized $93.1 million for net investing activities and obtained
$41.0 million from net financing activities, during the quarter ended
September 28, 1997. Significant expenditures during the quarter included
$59.0 million for capacity expansions and upgrading of facilities, $34.0 for
investments in equity affiliates, $8.6 million for the payment of the
Company's cash dividends and $17.4 million for the purchase and retirement of
Company common stock. The Company utilized proceeds from net borrowings
under its long-term debt agreement of $64.9 million and $2.0 million from
other sources to offset these cash expenditures.
As discussed in Note (e) to the financial statements, on June 30, 1997, the
Company and Parkdale Mills, Inc. (Parkdale) contributed the inventory and the
owned and leased tangible real and personal property associated with their
open-end and air jet spun cotton yarn operations to Parkdale America, LLC
(the LLC). Additionally, the Company contributed $32.9 million in cash to
the LLC on June 30, 1997, and is required to contribute $10.0 million on June
30, 1998, and $10.0 million on June 30, 1999, whereas Parkdale contributed
cash of $51.6 million on June 30, 1997. The LLC assumed certain long-term
debt obligations of the Company and Parkdale in the amounts of $23.5 million
and $46.0 million, respectively. In exchange for the assets contributed to
the LLC and the liabilities assumed by the LLC, the Company received a 34%
interest in the LLC and Parkdale received a 66% interest in the LLC. It is
anticipated that the LLC will distribute dividends to the Company and
Parkdale sufficient to satisfy any income tax liability attributable to the
taxable earnings of the LLC. Additionally, the Company is not obligated to
provide the LLC with any further cash contributions beyond those described
herein.
On September 15, 1997, the Company entered an Agreement and Plan of
Triangular Merger with SI Holding Company to acquire their covered yarn
business for approximately $49.2 million. Additionally, covenants-not-to-
compete have been entered with the principal operating officers of the
acquired company in exchange for $9.2 million, to generally be paid over the
terms of the covenants. The Company has received the necessary approvals
from governmental agencies and the transaction is expected to close effective
November 14, 1997. The acquisition, which is not deemed significant to the
Company's consolidated net assets or results of operations, will be accounted
for by the purchase method of accounting.
At September 28, 1997, the Company has committed approximately $207.7 million
for the purchase and upgrade of equipment and facilities, which is scheduled
to be expended during fiscal years 1998 and 1999. 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 polyester fiber
production facility in Yadkinville, North Carolina. In addition to this
project, the Company is in process of constructing a new nylon texturing and
covering facility in Madison, North Carolina. This plant will consolidate
the existing capacity at several locations, replacing older equipment with
state-of-the-art technology, and will provide for additional capacity and
expansion capabilities. Certain construction and machinery components of
this project are still under negotiation.
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 28, 1997, 10.2 million shares have been
repurchased at a total cost of $279.8 million pursuant to this Board
authorization.
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.
Cautionary Statement on Forward-Looking Statements
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and other sections of this Quarterly
Report contain `forward-looking statements' within the meaning of federal
security laws about the Company's financial condition and results of
operations that are based on current expectations, estimates and projections
about the markets in which the Company operates, Management's beliefs and
assumptions made by Management. Words such as "expects," "anticipates,"
"believes," "estimates," variations of such words and other similar
expressions are intended to identify such forward-looking statements. These
statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which reflect Management's judgment only as of the date hereof. The Company
undertakes no obligation to update publicly any of these forward-looking
statements to reflect new information, future events or otherwise.
Factors that may cause actual outcome and results to differ materially from
these forward-looking statements include, but are not necessarily limited to,
availability, sourcing and pricing of raw materials, pressures on sales
prices due to competition and economic conditions, reliance on and financial
viability of significant customers, technological advancements, timely
completion of and changes in construction spending and capital equipment
expenditures (including those related to unforeseen acquisition
opportunities), continued availability of financial resources through
financing arrangements and operations, negotiation of new or modifications of
existing contracts for asset management and for property and equipment
construction and acquisition, regulations governing tax laws, other
governmental and authoritative bodies' policies and legislation, the
continuation and magnitude of the Company's common stock repurchase program
and proceeds received from the sale of assets held for disposal. In addition
to these representative factors, forward-looking statements could be impacted
by unforeseen economic and industry conditions in the markets where the
Company competes, such as changes in currency exchange rates, interest rates,
inflation rates, recession and other economic and political factors over
which the Company has no control.
Part II. Other Information
UNIFI, INC.
Item 6. Exhibits and Reports on Form 8-K
(27) Financial Data Schedule
(b) Form 8-K dated June 30, 1997, and filed with the Commission on
July 15, 1997, was filed during the Company's first quarter to
report the contribution of the Company's spun cotton yarn
operations to a newly created limited liability company named
Parkdale America, LLC.
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:11/12/97 WILLIS C. MOORE, III
Willis C. Moore, III
Senior-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.)