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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 29, 1998
[] 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)
(336) 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 May 3, 1998
Common Stock, par value $.10 per share 61,628,720 Shares
Part I. Financial Information
UNIFI, INC.
Condensed Consolidated Balance Sheets
(Amounts in Thousands)
March 29, June 29,
1998 1997
(Unaudited) (Note)
ASSETS:
Current assets:
Cash and cash equivalents $12,585 $9,514
Receivables 190,598 224,233
Inventories:
Raw materials and supplies 40,306 54,979
Work in process 14,677 11,791
Finished goods 77,215 75,493
Other current assets 2,527 3,688
Total current assets 337,908 379,698
Property, plant and equipment 1,082,883 1,147,148
Less: accumulated depreciation 470,212 548,775
612,671 598,373
Equity investments in unconsolidated
affiliates 203,481 1,851
Other noncurrent assets 90,745 38,781
Total assets $1,244,805 $1,018,703
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Notes payable $10,090 $1,189
Accounts payable 80,748 119,623
Accrued expenses 40,026 35,854
Income taxes payable 11,669 6,887
Total current liabilities 142,533 163,553
Long-term debt 433,229 255,799
Other noncurrent liabilities 5,125 --
Deferred income taxes 57,100 50,820
Shareholders' equity:
Common stock 6,162 6,121
Capital in excess of par value 22,239 --
Retained earnings 590,284 545,099
Cumulative translation adjustment (11,867) (2,689)
Total shareholders' equity 606,818 548,531
Total liabilities and
shareholders' equity $1,244,805 $1,018,703
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)
(Amounts in Thousands Except Per Share Data)
For the Quarters Ended For the Nine Months Ended
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
Net sales $345,986 $438,252 $1,018,924 $1,272,312
Cost of goods sold 287,852 376,444 852,267 1,101,701
Selling, general & admin.
expense 11,286 11,627 31,776 33,704
Operating income 46,848 50,181 134,881 136,907
Interest expense 4,287 3,020 10,843 8,900
Interest income (579) (581) (1,451) (1,675)
Other (income) expense (93) 699 166 1,540
Equity in (earnings) losses of
unconsolidated affiliates (5,870) 145 (15,007) 239
Income before income taxes 49,103 46,898 140,330 127,903
Provision for income taxes 15,817 15,431 46,500 43,691
Income before cumulative
effect of accounting
change 33,286 31,467 93,830 84,212
Cumulative effect of
accounting change,
net of tax -- -- 4,636 --
Net income $33,286 $31,467 $89,194 $84,212
Earnings per common share:
Income before cumulative
effect of accounting change $.54 $.50 $1.53 $1.32
Cumulative effect of
accounting change, net of
tax -- -- .08 --
Net income per common
share $.54 $.50 $1.45 $1.32
Earnings per common share -
assuming dilution:
Income before cumulative
effect of accounting
change $.54 $.50 $1.52 $1.31
Cumulative effect of
accounting change, net of tax -- -- .08 --
Net income per common
share - assuming dilution $.54 $.50 $1.44 $1.31
Cash dividends per share $.14 $.11 $.42 $.33
See Accompanying Notes to Condensed Consolidated Financial Statements.
UNIFI, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in Thousands)
For the Nine Months Ended
March 29, March 30,
1998 1997
Cash and cash equivalents provided by
operating activities, net of
acquisitions $134,957 $139,771
Investing activities:
Capital expenditures (206,984) (105,409)
Acquisitions (25,776) --
Investments in unconsolidated equity
affiliates (35,152) (2,250)
Sale of capital assets 2,412 2,522
Proceeds from notes receivable 368 632
Other (1,428) --
Net investing activities (266,560) (104,505)
Financing activities:
Issuance of Company common stock 1,952 1,288
Stock option tax benefit 1,443 783
Purchase and retirement of Company
common stock (20,187) (82,419)
Borrowing of long-term debt 430,503 115,000
Payments of long-term debt (252,386) (50,000)
Cash dividends paid (25,692) (21,090)
Other (7) --
Net financing activities 135,626 (36,438)
Currency translation adjustment (952) (350)
Net increase (decrease) in cash and cash
equivalents 3,071 (1,522)
Cash and cash equivalents - beginning 9,514 24,473
Cash and cash equivalents - ending 12,585 $22,951
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 29, 1998, and the results of operations and
cash flows for the periods ended March 29, 1998, and March 30, 1997. Such
adjustments consisted of normal recurring items except for the cumulative
effect of accounting change recorded in the current year-to-date period as
described further in Note (i). 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. The Company has reclassified the presentation of certain
prior year information to conform with the current presentation format.
(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 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)Earnings per share
The following table sets forth the computation of basic and diluted
earnings per share:
For the Quarters Ended For the Nine Months Ended
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
Numerator:
Income before
cumulative effect
of accounting
change $33,286 $31,467 $93,830 $84,212
Cumulative effect of
accounting change,
net of tax -- -- 4,636 --
Net income $33,286 $31,467 $89,194 $84,212
For the Quarters Ended For the Nine Months Ended
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
Denominator:
Denominator for
basic earnings per
share - weighted
average shares 61,577 62,615 61,231 63,843
Effect of dilutive
securities:
Stock options 438 616 572 675
Dilutive potential
common shares
Denominator for
diluted earnings
per share -
adjusted
weighted average
shares and assumed
conversions 62,015 63,231 61,803 64,518
(d)Common Stock
On April 16, 1998, the Company's Board of Directors declared a cash
dividend of 14 cents per share payable on May 8, 1998, to shareholders of
record on May 1, 1998.
(e)Investments in unconsolidated affiliates
Investments in affiliates consist of a 34% interest in Parkdale America,
LLC (the LLC) and a 48.5% interest in MiCELL Technologies, Inc. (MiCELL).
These investments are reported using the equity method.
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 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. The
excess of the Company's investment over its equity in the underlying net
assets of the LLC approximates $58 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 income for the prior
year third quarter and for the prior year to date attributable to the
Company's spun cotton yarn operations contributed to the LLC amounted to
$74.7 million and $0.8 million and $222.9 million and $1.0 million,
respectively.
Condensed balance sheet and income statement information as of March 29,
1998, and for the quarter and year-to-date periods ended March 29, 1998, of
the combined unconsolidated affiliates is as follows (in $000):
March 29, 1998
Current assets $624,965
Noncurrent assets 263,191
Current liabilities 487,344
Shareholders' equity 377,358
Quarter Ended For the Nine Months Ended
Mar. 29, 1998 Mar. 29, 1998
Net sales $167,035 $484,662
Gross profit 28,880 72,816
Income from operations 21,462 51,847
Net Income 19,385 49,770
The LLC is organized as a partnership for tax purposes. Taxable income
is passed through the LLC to the shareholders in accordance with the
Operating Agreement of the LLC.
(f) Recent Accounting Pronouncements
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, ``Earnings Per Share,'' (SFAS 128) which was required to
be adopted in the December 1997 fiscal quarter. The Company adopted SFAS
128 at such time and restated all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect
of stock options is excluded. Diluted earnings per share continues to
reflect the assumed conversion of all potentially diluted securities,
without significant changes in the method of computation.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, ``Reporting Comprehensive Income,'' (SFAS 130) which is required
to be adopted in the first quarter of fiscal 1999 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 statement disclosures. Results of
operations and financial position, however, will be unaffected by the
implementation of this standard.
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 in the
first quarter of fiscal 1999, 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.
In March 1998, the AICPA issued SOP 98-1, ``Accounting for the Cost of
Computer Software Developed for or Obtained for Internal-Use,'' (SOP 98-
1). This SOP is effective for the Company in the first quarter of fiscal
year 2000 if not previously adopted. SOP 98-1 will require the
capitalization of certain costs incurred after the date of adoption in
connection with developing or obtaining software for internal use. The
Company currently expenses certain of these internal costs when incurred.
The Company has not yet assessed what the impact of the SOP will be on the
Company's future earnings or financial position.
In April 1998, the AICPA issued SOP 98-5, ``Reporting on the Costs of
Start-Up Activities,'' (SOP 98-5) which is effective for the Company in
fiscal year 2000 if not previously adopted. SOP 98-5 requires start-up
costs, as defined, to be expensed as incurred. Upon adoption of this SOP,
any previously capitalized start-up costs net of accumulated depreciation
will be required to be written-off as a cumulative effect of a change in
accounting principle. The Company has not yet determined what the impact
of the SOP will be on its financial statements.
(g)Year 2000 Compliance Status
The Company continues to actively address 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 involved in addressing such business issues include
the evaluation, testing and implementation of the Company's enterprise-wide
systems; assessing and testing significant customers' and vendors'
compliance strategies and monitoring the status thereof (including
electronic commerce with these companies); and, evaluating and monitoring
the compliance plans of businesses in which the Company maintains
investments in their operations.
The Company has created a team of professionals with the responsibility of
addressing business issues associated with the year 2000. The Company does
not believe any material exposures or contingencies exist with respect to
its internal information systems as the installation of the remaining
enterprise-wide software is anticipated to be completed in the necessary
time frame. Additionally, as a precautionary measure, back-up plans are in
process of being formulated in the event certain enterprise-wide
applications are not fully implemented by the end of the 1998 calendar
year. The Company is in process of assessing the year 2000 compliance
plans of its external business affiliates and is presently not aware of any
material exposures or contingencies.
(h)Acquisition
On November 14, 1997, the Company completed its previously announced
Agreement and Plan of Triangular Merger with SI Holding Company and thereby
acquired their covered yarn business for approximately $46.6 million.
Additionally, covenants-not-to-compete were entered into 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 acquisition, which
is not deemed significant to the Company's consolidated net assets or
results of operations, is being accounted for by the purchase method of
accounting.
(i)Cumulative Effect of Accounting Change
Pursuant to Emerging Issues Tasks Force No. 97-13 issued in November 1997,
the Company changed its accounting policy in the second quarter of fiscal
1998 regarding a project to install an entirely new computer software
system that it began in fiscal 1995. Previously, substantially all direct
external costs relating to the project were capitalized, including the
portion related to business process reengineering. In accordance with this
accounting pronouncement, the unamortized balance of these reengineering
costs as of September 28, 1997 of $7.5 million ($4.6 million after tax) or
$.08 per share was written off as a cumulative catch-up adjustment in the
second quarter of fiscal 1998.
(j)Issuance of Bonds
On February 5, 1998, the Company sold $250 million of senior, unsecured
debt securities (the ``Notes'') to qualified institutional buyers. The net
proceeds from the sale of the Notes were used to repay a portion of the
Company's bank credit facility. The Notes bear a coupon rate of interest
of 6.50% and mature in 2008. On April 2, 1998, the Company registered
these securities with the Securities and Exchange Commission.
(k)Storm Damage
On March 20, 1998, a tornado caused damage to a manufacturing facility and
a distribution warehouse and interrupted operations for a portion of the
Company's business. The Company is in process of estimating its recovery
under an insurance policy which covers such contingencies. It is
anticipated that a gain will be recognized as a result of this event.
However, the amount of any such gain is still in process of being
determined. Consequently, no adjustment has been recognized in the current
quarter operating results.
(l)Subsequent Event
On April 23, 1998, the Company announced that it agreed to form a limited
liability company with Burlington Industries, Inc. (Burlington) of
Greensboro, North Carolina, to manufacture and market natural textured
polyester yarns. The Company will have the majority ownership and will
manage the business, while Burlington will own a minority interest. All
yarns will be sold under the Unifi name. The Company's natural
textured polyester yarn facilities located in Yadkinville, North
Carolina, will become part of the limited liability company, along
with Burlington's natural textured yarn manufacturing business located
in Mayodan, North Carolina. The Company's polyester texturing facility
in Reidsville, North Carolina, will not be contributed. This facility
will continue to be dedicated to providing natural textured polyester
products for yarn dyeing. The limited liability company is anticipated to
commence operations at the end of May, 1998.
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 4.8% in the quarter from $363.5 million to
$346.0 million and declined 2.9% for the year to date from $1,049.4 million
for the prior year nine month period to $1,018.9 million in the corresponding
current year period, after eliminating the net sales of the Company's spun
cotton yarn operations that were contributed to Parkdale America, LLC on
June 30, 1997. Net sales of the spun cotton yarn operations were $74.7
million and $222.9 million for the prior year third quarter and year to date,
respectively. Unit volume for the quarter and year-to-date periods, after
eliminating spun yarn cotton operations from the prior year periods,
decreased 4.1% and 1.3%, respectively. Average unit sales prices, based on
product mix, declined 0.8% for the quarter and 1.7% for the year to date
after giving effect to the elimination of spun cotton yarn sales for the
prior year periods. Also impacting the current quarter and year-to-date
sales relative to the prior year was the strengthening of the U.S. dollar to
the Irish punt during these periods which had the effect upon translation of
reducing net sales by $5.7 million, and $12.1 million, respectively.
Domestically, polyester and nylon yarn sales declined 5.0% for the quarter
and 2.8% for the year to date due primarily to reductions in unit volume,
based on product mix. Additionally during the current quarter, the Company
experienced a continuing weakness in demand for our products going into
bottom-weight wovens and ladies hosiery. These factors, together with
product mix differences, the strong U.S. dollar and competition pricing
pressures led to the domestic sales decline. Internationally, sales in local
currency increased 12.7% and 8.9% for the quarter and year-to-date periods,
respectively due to both increased unit volume and average sales prices.
Gross profit decreased 1.1% to $58.1 million for the quarter and increased
2.4% to $166.7 million for the year-to-date, after eliminating spun cotton
yarn operating results from the prior year periods. Gross margin (gross
profit as a percentage of net sales) improved 0.6% for the quarter and 0.9%
for the year to date compared to the prior year periods, after removing the
spun cotton yarn net operating results for these periods.
Selling, general and administrative expenses as a percentage of net sales
increased from 2.7% in last year's quarter to 3.3% this quarter. On a year-
to-date basis, selling, general and administrative expense as a percentage of
net sales increased from 2.6% last year to 3.1% this year. On a dollar
basis, selling, general and administrative expense declined $0.3 million to
$11.3 million for the quarter and decreased $1.9 million to $31.8 million for
the year to date. Lower selling, general and administrative expenses for
both current year periods reflect cost reductions associated with the
contribution of our spun cotton yarn operations at the beginning of the
fiscal year. The increase in selling, general and administrative expense as
a percentage of net sales for both current year periods is attributable to
the lower sales base discussed above.
Interest expense increased $1.3 million to $4.3 million in the current
quarter and $1.9 million to $10.8 million for the year-to-date period. The
increase in interest expense for both current year periods reflects higher
levels of outstanding debt at higher average interest rates. Net other income
and expense changed favorably $0.8 million for the quarter and $1.4 million
for the year to date compared to the corresponding periods in the prior year.
Currency gains together with other net favorable miscellaneous items
recognized in the current year periods exceeded the corresponding prior
quarter and year-to-date activity resulting in the improvement noted.
Income from our equity affiliates, Parkdale America, LLC and MiCELL
Technologies, Inc., contributed $5.9 million to pre-tax income for the
quarter and $15.0 million for the year to date. During the third quarter of
fiscal 1997, and for the corresponding year to date, net sales and operating
income from our spun cotton yarn assets contributed to Parkdale America, LLC
amounted to $74.7 million and $0.8 million, and $222.9 million and $1.0
million, respectively. See Note (e) to the financial statements for
additional information regarding unconsolidated affiliates.
The effective tax rate has decreased from 32.9% to 32.2% in the current
quarter and from 34.2% to 33.1% for the year-to-date period. 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.
Pursuant to Emerging Issues Tasks Force No. 97-13 issued in November 1997,
the Company changed its accounting policy in the second quarter of fiscal
1998 regarding a project to install an enterprise wide computer software
system that it began in fiscal 1995. Previously, substantially all direct
external costs relating to the project were capitalized, including the
portion related to business process reengineering. In accordance with this
accounting pronouncement, the unamortized balance of these reengineering
costs as of September 28, 1997 of $7.5 million ($4.6 million after tax) or
$.08 per share was written off as a one-time, non-cash, cumulative catch-up
adjustment in the second quarter of fiscal 1998.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, ``Earnings Per Share,'' (SFAS 128) which was required to be adopted
in the December 1997 fiscal quarter. The Company adopted SFAS 128 in the
second fiscal quarter and restated all prior periods. Under the new
requirements for calculating basic earnings per share, the dilutive effect of
stock options is excluded. Diluted earnings per share continues to reflect
the assumed conversion of all potentially diluted securities, without
significant changes in the method of computation.
As a result of the above, the Company realized during the current quarter net
income of $33.3 million, or diluted earnings per share of $.54, compared to
$31.5 million, or $.50 per share, for the corresponding quarter of the prior
year. Net income for the current nine month year-to-date period amounted to
$89.2 million, or $1.44 per share, compared to corresponding amounts in the
prior year-to-date period of $84.2 million, or $1.31 per share. For the
current year to date, income before the cumulative effect of the accounting
change was $93.8 million, or $1.52 per share, respectively.
Liquidity and Capital Resources
Cash provided by operations continues to be a primary source of funds to
finance operating needs and capital expenditures. Cash generated from
operations was $135.0 million for the nine month period ended March 29, 1998,
compared to $139.8 million for the prior year corresponding period. The
primary sources of cash from operations, other than net income, were
decreases in accounts receivable and current income taxes payable of $41.2
million and $7.8 million, respectively and non-cash adjustments aggregating
$49.3 million. Depreciation and amortization of $51.0 million, the after-tax
cumulative accounting change of $4.6 million and the deferred income tax
provision of $6.3 million, offset by earnings of unconsolidated affiliates of
$12.5 million, were the primary components of the non-cash adjustments to
cash provided by operations. Offsetting these sources were an increase in
inventory of $2.1 million and a decrease in accounts payable and accruals of
$48.3 million. All working capital changes have been adjusted to exclude the
effect of the current year acquisition and currency translation. The
significant decreases in account receivable and account payable and accruals
were impacted by the contribution of the spun cotton yarn operations at the
beginning of the fiscal year.
Working capital levels are more than adequate to meet the operating
requirements of the Company. The Company ended the current quarter with
working capital of $195.4 million, which included cash and cash equivalents
of $12.6 million.
The Company utilized $266.6 million for net investing activities and obtained
$135.6 million from net financing activities, during the nine month period
ended March 29, 1998. Significant expenditures during this period included
$207.0 million for capacity expansions and upgrading of facilities, $25.8 for
acquisitions, $35.2 for investments in equity affiliates, $25.7 million for
the payment of the Company's cash dividends and $20.2 million for the
purchase and retirement of Company common stock. The Company obtained
proceeds from net borrowings under its long-term debt agreements of
$178.1 million which partially 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. The LLC
distributed dividends of $2.5 million to the Company in the current quarter
to satisfy income tax liabilities attributable to the taxable earnings of the
LLC. It is expected that such distributions will continue. Additionally,
the Company is not obligated to provide the LLC with any further cash
contributions beyond those described herein.
On November 14, 1997, the Company completed its previously announced
Agreement and Plan of Triangular Merger with SI Holding Company and thereby
acquired their covered yarn business for approximately $46.6 million.
Additionally, covenants-not-to-compete were entered into 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 acquisition, which is
not deemed significant to the Company's consolidated net assets or results of
operations, is being accounted for by the purchase method of accounting.
At March 29, 1998, the Company has committed approximately $130.9 million for
the purchase and upgrade of equipment and facilities, which is scheduled to
be expended during the remainder of fiscal year 1998 and in fiscal year 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. This
facility is expected to be fully operational by the end of the fiscal year.
When completed, this facility will be capable of producing an estimated 25%
of the Company's total domestic POY supply requirements (before giving effect
to the pending formation of a limited liability company with Burlington
described below). All polyester fiber manufactured by this facility is
expected to be used by the Company. In addition to this project, the Company
also has in process several other capital projects including the construction
of 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 March 29, 1998, 10.2 million shares have been repurchased
at a total cost of $282.5 million pursuant to this Board authorization. The
Company will continue to operate its stock buy-back program from time to time
as it deems appropriate, based on prevailing financial and market conditions.
On February 5, 1998, the Company sold $250 million of senior, unsecured debt
securities to qualified institutional buyers. The net proceeds from the sale
of the Notes were used to repay a portion of the Company's bank credit
facility. The Notes bear a coupon rate of interest of 6.50% and mature in
2008.
On April 23, 1998, the Company announced that it agreed to form a limited
liability company with Burlington Industries, Inc. (Burlington) of
Greensboro, North Carolina, to manufacture and market natural textured
polyester yarns. The Company will have the majority ownership and will
manage the business, while Burlington will own a minority interest. All
yarns will be sold under the Unifi name. The Company's natural textured
polyester yarn facilities located in Yadkinville, North Carolina, will become
part of the limited liability company, along with Burlington's natural
textured yarn manufacturing business located in Mayodan, North Carolina. The
Company's polyester texturing facility in Reidsville, North Carolina, will
not be contributed. This facility will continue to be dedicated to providing
textured polyester products for yarn dyeing. The limited liability company
is anticipated to commence operations at the end of May, 1998. Under terms
of the agreement, the Company is not required to contribute any operating
funds to the newly created entity at inception nor will any existing Company
debt be assumed by the new entity. Additionally, there are no future
contributions required to be made to the new entity. However, the Company
may, from time to time, loan funds to this entity under prevailing market
conditions as deemed necessary or appropriate under the circumstances.
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.
Year 2000 Compliance Status
The Company continues to actively address 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
involved in addressing such business issues include the evaluation, testing
and implementation of the Company's enterprise-wide systems; assessing and
testing significant customers' and vendors' compliance strategies and
monitoring the status thereof (including electronic commerce with these
companies); and, evaluating and monitoring the compliance plans of businesses
in which the Company maintains investments in their operations.
The Company has created a team of professionals with the responsibility of
addressing business issues associated with the year 2000. The Company does
not believe any material exposures or contingencies exist with respect to its
internal information systems as the installation of the remaining enterprise-
wide software is anticipated to be completed in the necessary time frame.
Additionally, as a precautionary measure, back-up plans are in process of
being formulated in the event certain enterprise-wide applications are not
fully implemented by the end of the 1998 calendar year. The Company is in
process of assessing the year 2000 compliance plans of its external business
affiliates and is presently not aware of any material exposures or
contingencies.
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 management's 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, or implied by, 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
those expressed in, or implied by, 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, employee relations, changes in construction
spending and capital equipment expenditures (including those related to
unforeseen acquisition opportunities), the timely completion of construction
and expansion projects planned or in process, 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 general domestic and international
economic and industry conditions in the markets where the Company competes,
such as changes in currency exchange rates, interest and inflation rates,
recession and other economic and political factors over which the Company has
no control.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(27) Financial Data Schedules:
(27.1)For the Period Ended March 29, 1998
(27.2)For the Restated Periods Ended March 30, 1997,
September 28, 1997, December 29, 1996, and
September 29, 1996
(27.3)For the Restated fiscal year periods ended
June 29, 1997, June 30, 1996, and June 25, 1995
(b) No reports on Form 8-K have been filed during the quarter ended
March 29, 1998
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: 5-12-1998 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.)