-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B9uRNblAVdCwRkLKrWb9Le6aUAy31sTX9TaHzSpEkZutZ4Y9wVtG+ilRElaB4nzd fcx0S2zbqnoE/lJRKkm4YA== 0000950144-00-001661.txt : 20000210 0000950144-00-001661.hdr.sgml : 20000210 ACCESSION NUMBER: 0000950144-00-001661 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991226 FILED AS OF DATE: 20000209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIFI INC CENTRAL INDEX KEY: 0000100726 STANDARD INDUSTRIAL CLASSIFICATION: TEXTILE MILL PRODUCTS [2200] IRS NUMBER: 112165495 STATE OF INCORPORATION: NY FISCAL YEAR END: 0627 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10542 FILM NUMBER: 529185 BUSINESS ADDRESS: STREET 1: 7201 WEST FRIENDLY RD STREET 2: P O BOX 19109 CITY: GREENSBORO STATE: NC ZIP: 27419-9109 BUSINESS PHONE: 9192944410 MAIL ADDRESS: STREET 1: P O BOX 19109 CITY: GREENSBORO STATE: NC ZIP: 24719-9109 FORMER COMPANY: FORMER CONFORMED NAME: AUTOMATED ENVIRONMENTAL SYSTEMS INC DATE OF NAME CHANGE: 19720906 10-Q 1 UNIFI INC 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 26, 1999 [ ] 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 January 30, 2000 - -------------------------------------- ------------------------------- Common stock, par value $.10 per share 59,102,293 shares 2 Part I. Financial Information UNIFI, INC. Condensed Consolidated Balance Sheets - --------------------------------------------------------------------------------
December 26, June 27, 1999 1999 ----------- ----------- (Unaudited) (Note) (Amounts in Thousands) ASSETS: Current assets: Cash and cash equivalents $ 34,347 $ 44,433 Receivables 188,243 185,784 Inventories: Raw materials and supplies 48,895 45,584 Work in process 17,270 14,584 Finished goods 78,932 69,749 Other current assets 1,254 2,015 ----------- ----------- Total current assets 368,941 362,149 ----------- ----------- Property, plant and equipment 1,239,996 1,231,013 Less: accumulated depreciation 567,341 541,275 ----------- ----------- 672,655 689,738 ----------- ----------- Equity investments in unconsolidated affiliates 209,889 207,142 ----------- ----------- Other noncurrent assets 106,385 106,811 ----------- ----------- Total assets $ 1,357,870 $ 1,365,840 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable $ 78,954 $ 68,716 Accrued expenses 45,631 52,889 Income taxes payable 9,355 7,392 Current maturities of long-term debt and other current liabilities 5,581 16,255 ----------- ----------- Total current liabilities 139,521 145,252 ----------- ----------- Long-term debt and other liabilities 467,089 478,898 ----------- ----------- Deferred income taxes 84,343 78,369 ----------- ----------- Minority interests 18,131 17,183 ----------- ----------- Shareholders' equity: Common stock 5,915 5,955 Capital in excess of par value 51 13 Retained earnings 668,210 658,353 Accumulated other comprehensive loss (25,390) (18,183) ----------- ----------- Total shareholders' equity 648,786 646,138 ----------- ----------- Total liabilities and shareholders' equity $ 1,357,870 $ 1,365,840 =========== ===========
- ---------------- Note: The balance sheet at June 27, 1999, 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. 3 UNIFI, INC. Condensed Consolidated Statement of Income (Unaudited) - --------------------------------------------------------------------------------
For the Quarters Ended For the Six Months Ended ------------------------- ------------------------- Dec. 26, Dec. 27, Dec. 26, Dec. 27, 1999 1998 1999 1998 -------- --------- -------- --------- (Amounts in Thousands Except Per Share Data) Net sales $317,589 $ 319,854 $622,303 $ 648,669 Cost of goods sold 275,847 269,394 546,302 550,732 Selling, general & admin. expense 14,004 11,419 28,426 22,982 Interest expense 7,507 6,553 14,952 13,139 Interest income 848 716 1,532 1,192 Other (income) expense 1,197 741 865 1,292 Equity in (earnings) losses of unconsolidated affiliates 864 (2,545) 5,228 (6,639) Minority interests 2,410 2,450 4,804 4,800 -------- --------- -------- --------- Income before income taxes 16,608 32,558 23,258 63,555 Provision for income taxes 6,435 10,060 9,753 20,027 -------- --------- -------- --------- Income before cumulative effect of accounting change 10,173 22,498 13,505 43,528 Cumulative effect of accounting change, net of tax -- -- -- 2,768 -------- --------- -------- --------- Net income $ 10,173 $ 22,498 $ 13,505 $ 40,760 ======== ========= ======== ========= Earnings per common share - basic: Income before cumulative effect of accounting change $ .17 $ .37 $ .23 $ .71 Cumulative effect of accounting change, net of tax -- -- -- .04 -------- --------- -------- --------- Net income per common share $ .17 $ .37 $ .23 $ .67 ======== ========= ======== ========= Earnings per common share - assuming dilution: Income before cumulative effect of accounting change $ .17 $ .37 $ .23 $ .71 Cumulative effect of accounting change, net of tax -- -- -- .04 -------- --------- -------- --------- Net income per common share - assuming dilution $ .17 $ .37 $ .23 $ .67 ======== ========= ======== =========
- ---------------- See Accompanying Notes to Condensed Consolidated Financial Statements. 4 UNIFI, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) - --------------------------------------------------------------------------------
For the Six Months Ended ------------------------------ December 26, December 27, 1999 1998 -------- --------- (Amounts in Thousands) Cash and cash equivalents provided by operating activities $ 58,744 $ 130,204 -------- --------- Investing activities: Capital expenditures (30,874) (74,431) Investments in unconsolidated equity affiliates (17,976) (10,000) Sale of capital assets 867 456 Other 687 1,059 -------- --------- Net investing activities (47,296) (82,916) -------- --------- Financing activities: Borrowing of long-term debt 10,000 33,357 Repayment of long-term debt (20,132) (25,119) Issuance of Company common stock 14 641 Purchase and retirement of Company common stock (3,708) (24,847) Distributions to minority interest shareholders (6,000) (3,000) Other (3,040) 393 -------- --------- Net financing activities (22,866) (18,575) -------- --------- Currency translation adjustment 1,332 276 -------- --------- Net increase (decrease) in cash and cash equivalents (10,086) 28,989 Cash and cash equivalents - beginning 44,433 8,372 -------- --------- Cash and cash equivalents - ending $ 34,347 $ 37,361 ======== =========
- ---------------- See Accompanying Notes to Condensed Consolidated Financial Statements. 5 UNIFI, INC. Notes to Condensed Consolidated Financial Statements - -------------------------------------------------------------------------------- (a) Basis of Presentation The information furnished is unaudited and reflects all adjustments which are, in the opinion of management, necessary to present fairly the financial position at December 26, 1999, and the results of operations and cash flows for the periods ended December 26, 1999, and December 27, 1998. Such adjustments consisted of normal recurring items in the current year. 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 losses of foreign subsidiaries for which no significant tax benefit was recognized thereby distorting the effective rate for our consolidated operations. (c) Earnings per Share The following table sets forth the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (amounts in thousands):
For the Quarters Ended For the Six Months Ended ---------------------- ------------------------ Dec. 26, Dec. 27, Dec. 26, Dec. 27, 1999 1998 1999 1998 ------- ------- ------- ------- Numerator: Income before cumulative effect of accounting change $10,173 $22,498 $13,505 $43,528 Cumulative effect of accounting change, net of tax -- -- -- 2,768 ------- ------- ------- ------- Net income $10,173 $22,498 $13,505 $40,760 ======= ======= ======= =======
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For the Quarters Ended For the Six Months Ended ---------------------- ------------------------ Dec. 26, Dec. 27, Dec. 26, Dec. 27, 1999 1998 1999 1998 ------ ------ ------ ------ Denominator: Denominator for basic earnings per share - Weighted average shares 59,266 60,935 59,407 61,168 Effect of dilutive securities: Stock options 49 -- 25 3 Restricted stock awards 3 -- 1 -- ------ ------ ------ ------ Dilutive potential common shares denominator for diluted earnings per share-Adjusted weighted average shares and assumed conversions 59,318 60,935 59,433 61,171 ====== ====== ====== ======
(d) Comprehensive Income Comprehensive income (loss) amounted to $7.1 million for the second quarter of fiscal 2000 and $21.8 million for the second quarter of fiscal 1999, and was comprised of net income and foreign currency translation adjustments. For the respective year-to-date periods, comprehensive income totaled $6.3 million and $46.3 million and was comprised of net income and foreign currency translation adjustments. The Company does not provide income taxes on the impact of currency translations as earnings from foreign subsidiaries are deemed to be permanently invested. (e) Cumulative Effect of Accounting Change In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," (SOP 98-5) which requires start-up costs, as defined, to be expensed as incurred. In accordance with this SOP, any previously capitalized start-up costs are required to be written-off as a cumulative effect of a change in accounting principle. The Company, upon adoption of this SOP in the first quarter of fiscal 1999, wrote off the unamortized balance of such previously capitalized start-up costs as of June 29, 1998, of $4.5 million ($2.8 million after tax) or $.04 per diluted share as a cumulative catch-up adjustment. (f) Segment Disclosures 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 the Company adopted in the fourth quarter of fiscal 1999. SFAS 131 establishes standards for public companies for the reporting of financial information from operating segments in 7 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 adoption of SFAS 131 did not effect consolidated results of operations or financial position. Following is the Company's selected segment information for the quarter and year-to-date periods ended December 26, 1999, and December 27, 1998 (amounts in thousands):
All Polyester Nylon Other Total -------------------------------------------------------------------------------------------------------------------- Quarter ended December 26, 1999: Net sales to external customers $208,684 $104,049 $ 4,856 $ 317,589 Intersegment net sales 1 182 3,003 3,186 Operating income 17,512 12,369 299 30,180 Depreciation and amortization 13,425 5,443 224 19,092 Total assets 694,083 354,622 15,609 1,064,314 -------------------------------------------------------------------------------------------------------------------- Quarter ended December 27, 1998: Net sales to external customers $208,950 $110,904 $ -- $ 319,854 Intersegment net sales 5,800 950 -- 6,750 Operating income 22,160 12,769 -- 34,929 Depreciation and amortization 14,570 5,440 -- 20,010 Total assets 692,201 225,392 -- 917,593 --------------------------------------------------------------------------------------------------------------------
For the Quarters Ended ------------------------------------- December 26, 1999 December 27, 1998 ------------------------------------------------------------------------------ Operating income: Reportable segments operating income $ 30,180 $34,929 Net standard cost adjustment to LIFO (1,346) 2,953 Unallocated operating expense (1,096) 1,159 ================================ Consolidated operating income $ 27,738 $39,041 ================================
---------------------------------------------------- -------------- --------------- --------------- --------------- All Polyester Nylon Other Total ---------------------------------------------------- -------------- --------------- --------------- --------------- Six months ended December 26, 1999: Net sales to external customers $ 401,795 $ 210,707 $ 9,801 $ 622,303 Intersegment net sales 4 291 6,012 6,307 Operating income 28,076 22,327 780 51,183 Depreciation and amortization 28,100 10,792 380 39,272 ---------------------------------------------------- -------------- --------------- --------------- ---------------
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--------------------------------------------------- --------------- --------------- -------------- --------------- All Polyester Nylon Other Total --------------------------------------------------- --------------- --------------- -------------- --------------- Six months ended December 27, 1998: Net sales to external customers $ 421,204 $ 227,465 $ -- $ 648,669 Intersegment net sales 14,027 2,362 -- 16,389 Operating income 45,028 27,075 -- 72,103 Depreciation and amortization 29,002 10,508 -- 39,510 --------------------------------------------------- --------------- --------------- -------------- ---------------
For the Six Months Ended --------------------------------------------------- December 26, 1999 December 27, 1998 --------------------------------------------------------- ------------------------- ------------------------- Operating income: Reportable segments operating income $ 51,183 $ 72,103 Net standard cost adjustment to LIFO (2,346) 4,770 Unallocated operating expense (1,262) (1,918) ========================= ========================= Consolidated operating income $ 47,575 $ 74,955 ========================= =========================
Certain indirect manufacturing and selling, general and administrative costs are allocated to the operating segments based on activity drivers relevant to the respective costs. The primary differences between the segmented financial information of the operating segments, as reported to management, and the Company's consolidated reporting relates to intersegment transfer of yarn, fiber costing and capitalization of property, plant and equipment costs. Prior to the current fiscal year, substantially all intersegment transfers of yarn were treated as internal sales at a selling price which approximated cost plus a normalized profit margin. In the current quarter and for the year to date, intersegment transfers of yarn were treated as inventory transfers, and profit margins recorded only on intersegment transfers from our Unifi Textured Polyester joint venture. Domestic operating divisions' fiber costs are valued on a standard cost basis, which approximates first-in, first-out accounting. Subsequently, for those components of inventory valued utilizing the last-in, first-out method, an adjustment is made at the corporate level. For significant capital projects, capitalization is delayed for management segment reporting until the facility is substantially complete. However, for consolidated management financial reporting, assets are capitalized into construction in progress as costs are incurred or carried as unallocated corporate fixed assets if they have been placed in service but have not as yet been moved for management reporting. The increase in Nylon total assets is attributable to the reclassification of property, plant and equipment from unallocated corporate fixed assets. This reclassification primarily relates to a new facility that had become substantially completed. The change in total assets for the "All Other" segment primarily reflects the establishment of the Company's majority owned subsidiary, Unifi Technology Group in May 1999. Unifi Technology Group is a domestic automation solutions provider. 9 (g) Early Retirement and Termination Charge During the third quarter of fiscal 1999, the Company recognized a $14.8 million charge associated with the early retirement and termination of 114 salaried employees. The charge was recorded as a component of selling, general and administrative expenses in the amount of $8.2 million and cost of goods sold in the amount of $6.6 million. Substantially all employees were terminated effective March 31, 1999, with cash payments expected to be spread over a period not to exceed three years. At December 26, 1999 there remained a reserve of $8.9 million that is expected to equal the future cash expenditures to such terminated employees. (h) Recent Accounting Pronouncements 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 became effective for the Company in the first quarter of fiscal year 2000. SOP 98-1 provides guidance on accounting for costs of developing or obtaining computer software for internal use. In summary, costs incurred in the preliminary project stage (formulation, evaluation and selection of alternatives and assessment of existence of required technology) or post-implementation stage (training and maintenance) should be expensed as incurred while application development costs should be capitalized or expensed depending on their nature. Application development costs include external direct costs of materials and services. Examples of application development costs are designing the chosen path, coding, testing and installing the software product to hardware. The Company previously expensed certain of these internal costs when incurred. The adoption of this standard did not have, nor is it expected to have, a material effect on the Company's results of operations or financial position. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133) and in June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," which delayed the effective date the Company is required to adopt SFAS 133 until its fiscal year 2001. SFAS 133 permits early adoption as of the beginning of any fiscal quarter after its issuance. SFAS 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of Statement 133 will be on the earnings and financial position of the Company. 10 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 General Consolidated net sales decreased slightly for the quarter from $319.9 million to $317.6 million. Unit volume for the quarter increased 9.6% while average unit sales prices, based on product mix, declined 9.4%. For the year-to-date period, net sales declined $26.4 million to $622.3 million, or 4.1%. Unit volume for the year-to-date period increased 6.6% while average unit sales prices declined approximately 10.0%. Unit volumes are up for both current year periods due primarily to the Brazilian acquisition in April, 1999. Overall pricing has continued to be adversely impacted by Asian imports of fiber, fabric and apparel. However, several favorable trends developed in the second quarter. One positive factor was our ability to pass along raw material price increases to our customers for our polyester and some of our nylon products. In addition, a more profitable mix of products was sold strengthening our margins. These favorable developments were offset, in part, by volumes lost due to the price increases which the Company will attempt to recover. Domestically, polyester and nylon yarn net sales declined 3.1% for the quarter due primarily to reductions in unit price, based on product mix. Price increases were instituted at the beginning of the quarter for our polyester products and some of our nylon yarns. Volumes domestically experienced moderate growth for the quarter over the prior year. For the year to date, net sales declined 7.1% as a result of both lower volume and reduced unit prices. Internationally, sales in local currency of our Irish operation decreased 20.1% for the quarter and 23.3% for the year to date due to both lower unit volume and sales prices. The currency exchange rate change from the prior year to the current year adversely effected current quarter and year-to-date sales translated to U.S. dollars for this operation. U.S. dollar net sales were $3.8 million and $5.4 million less than what sales would have been reported using prior year translation rates for the quarter and year to date, respectively. Gross profit decreased by $8.7 million to $41.7 million for the quarter while gross margin (gross profit as a percentage of net sales) declined from 15.8% in the prior year quarter to 13.1%. For the year-to-date period, gross profit declined $21.9 million, while gross margin declined from 15.1% to 12.2%. Reduced volume and sales prices in the European market have adversely impacted our Irish operations and margins in our Brazilian operations, while improving, have not reached acceptable levels. Domestically, our margins have improved over the September 1999 quarter and over year ago levels. Selling, general and administrative expenses as a percentage of net sales increased from 3.6% in last year's quarter to 4.4% this quarter. On a dollar basis, selling, general and administrative expense increased $2.6 million to $14.0. For the year to date, selling general 11 and administrative expenses as a percentage of net sales increased from 3.5% to 4.6%. On a dollar basis, selling general and administrative expense increased $5.4 million to $28.4 million. Higher selling, general and administrative expenses for the current year are primarily the result of our new business venture in Brazil, acquired in April 1999, and the formation of Unifi Technology Group in May 1999. Segment Information Net sales to external customers for our Polyester segment have remained virtually unchanged for the quarter compared to year ago levels as our acquisition in Brazil has resulted in higher volume offsetting decreased unit prices. Gross profit has declined as reduced sales prices and higher raw material prices have more than offset lower manufacturing and fixed charges. For the year-to-date period the results have been consistent with the quarter. Selling general and administrative expenses for this segment have increased primarily due to our acquisition in Brazil. Net sales to external customers for our Nylon segment were 6.2% lower in the current quarter versus the prior year quarter and 7.4% for the year to date as a result of both lower volume and sales prices, based on product mix. Gross margin declines for this segment reflects lower sales prices and higher production costs. Selling, general and administrative costs have also increased over the prior year amounts negatively impacting operating margins. Corporate Interest expense increased $1.0 million to $7.5 million in the current quarter and $1.8 million to $15.0 million for the year to date. The increase in interest expense reflects higher levels of outstanding debt at higher average interest rates and the reduction of interest capitalized for major construction projects. The weighted average interest rate on outstanding debt at December 26, 1999, was 6.3%. Other income and expense was negatively impacted in the current year by a $2.6 million write-off of fixed assets related to the abandonment of certain equipment associated with domestic plant consolidations. The asset write-off was offset, in part, by a $0.6 million gain recognize for insurance proceeds recovered for a claim filed for property damage sustained by a tornado. Equity in the earnings (losses) of our unconsolidated affiliates, Parkdale America, LLC ("the LLC") and Micell Technologies, Inc., ("Micell") amounted to a $0.9 million loss in the second quarter of fiscal 2000 compared with $2.5 million profit for the corresponding prior year quarter. For the respective year-to-date period, the loss in the current year was $5.2 million compared to a $6.6 million profit in the prior year, or an unfavorable change of $11.9 million. The declines are attributable to the reduced earnings from the LLC and higher start-up costs associated with Micell. The cotton spinning operations of the LLC have been negatively impacted by lower volumes and excess capacity in the spun cotton markets. Operating results for the LLC did, however, improve considerably in the second quarter of the current year over the first quarter largely as a result of the re-institution of the U.S.D.A. cotton 12 rebate program near the beginning of the second quarter. We are expecting continuing improvements in the LLC operations over the remainder of the fiscal year. In the current year fiscal quarter and corresponding prior year period the minority interest charge amounted to $2.4 million. For both of the respective year to date periods, the minority interest charge was $4.8 million. The effective income tax rate has increased from 30.9% to 38.7% in the current quarter and from 31.5% to 41.9% for the year to date period. The increases for the current periods reflect the reduction in earnings of our Irish operations, which are taxed at a 10.0% effective tax rate, and losses in our Brazilian operations for which no tax benefit has been recognized. In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," (SOP 98-5) which requires start-up costs, as defined, to be expensed as incurred. In accordance with this SOP, any previously capitalized start-up costs are required to be written-off as a cumulative effect of a change in accounting principle. The Company, upon adopting this SOP in the first quarter of fiscal 1999, wrote off the unamortized balance of such previously capitalized start-up costs as of June 29, 1998, of $4.5 million ($2.8 million after tax) or $.04 per diluted share as a cumulative catch-up adjustment. As a result of the above, the Company realized during the current quarter net income of $10.2 million, or diluted earnings per share of $.17, compared to $22.5 million, or $.37 per share, for the corresponding quarter of the prior year. For the year-to-date period, the Company realized net income of $13.5 million, or $.23 per share on a diluted basis compared to $40.8 million or $.67 per share in the prior year. For the prior year to date, income before the cumulative effect of the accounting change was $43.5 million, or $.71 per diluted share, respectively. 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 became effective for the Company in the first quarter of fiscal year 2000. SOP 98-1 provides guidance on accounting for costs of developing or obtaining computer software for internal use. In summary, costs incurred in the preliminary project stage (formulation, evaluation and selection of alternatives and assessment of existence of required technology) or post-implementation stage (training and maintenance) should be expensed as incurred while application development costs should be capitalized or expensed depending on their nature. Application development costs include external direct costs of materials and services. Examples of application development costs are designing the chosen path, coding, testing and installing the software product to hardware. The Company previously expensed certain of these internal costs when incurred. The adoption of this standard did not have, nor is it expected to have, a material effect on the Company's results of operations or financial position. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS 133) and in June 1999, the FASB issued Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB 13 Statement No. 133," which delayed the effective date the Company is required to adopt SFAS 133 until its fiscal year 2001. SFAS 133 permits early adoption as of the beginning of any fiscal quarter after its issuance. SFAS 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of Statement 133 will be on the earnings and financial position of the Company. 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 $58.7 million for the year-to-date period ended December 26, 1999, compared to $130.2 million for the prior year corresponding period. The primary sources of cash from operations, other than net income, was an increase in accounts payable, accruals and income taxes of $11.9 million and non-cash adjustments aggregating $57.0 million. Depreciation and amortization of $43.3 million, the deferred income tax provision of $6.0 million, the undistributed losses of unconsolidated affiliates of $5.2 million and the loss on the sale of assets of $2.5 million were the components of the non-cash adjustments to cash provided by operations. Offsetting these sources were increases in accounts receivable and inventory of $3.5 million and $18.4 million, respectively. All working capital changes have been adjusted to exclude the effects of currency translation. 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 $229.4 million, which included cash and cash equivalents of $34.3 million. The Company utilized $47.3 million for net investing activities and $22.9 million for net financing activities during the current quarter. Significant expenditures during this period included $30.9 million for capital expenditures consisting of initial construction costs for the Company's Unifi Technical Fabrics nonwoven facility and installment payments for related equipment and for upgrading other machinery and facilities. Additionally, $18.0 million was expended for investments in equity affiliates, $6.0 million for distributions to minority interest shareholders, $10.1 million for net payments under long-term debt agreements and $3.7 for repurchases of the Company's common stock. At December 26, 1999, the Company has committed approximately $40.6 million for costs related to the construction of its nonwoven facility and related equipment and the purchase and upgrade of equipment at other locations. The majority of these committed costs are scheduled to be expended during the remainder of fiscal year 2000. The Board of Directors, effective July 16, 1998, increased the remaining authorization pursuant to a resolution originally adopted on October 21, 1993, to purchase 10 million shares 14 of Unifi's common stock. There remains an authorization to repurchase approximately 7.5 million shares. 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. The Company's $400.0 million revolving credit facility is scheduled to mature on April 15, 2001. At December 26, 1999 the outstanding balance under this credit facility was $207.0 million. The Company is currently in the process of evaluating its options regarding the refinancing of the 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. Year 2000 Compliance Status The Company did not experience any interruption in its business operations as a result of problems associated with the year 2000 for either its information technology systems or non-information technology systems (i.e., embedded technology). In addition, no disruption in business was experienced between the Company and its customers or vendors as a consequence of the year 2000 issue. Costs incurred for the Company's year 2000 compliance efforts were expensed as incurred and were funded by cash flows from operations. Expenditures related to year 2000 compliance readiness were approximately $0.2 million during the current fiscal year and $1.0 million in total. Euro Conversion The Company conducts business in multiple currencies, including the currencies of various European countries in the European Union which began participating in the single European currency by adopting the Euro as their common currency as of January 1, 1999. Additionally, the functional currency of our Irish operation and several sales office locations will change before January 1, 2002, from their historical currencies to the Euro. During the period January 1, 1999, to January 1, 2002, the existing currencies of the member countries will remain legal tender and customers and vendors of the Company may continue to use these currencies when conducting business. Currency rates during this period, however, will no longer be computed from one legacy currency to another but instead will first be converted into the Euro. The Company continues to evaluate the Euro conversion and the impact on its business, both strategically and operationally. At this time, the conversion to the Euro has not had, nor is expected to have, a material adverse effect on the financial condition or results of operations of the Company. 15 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 and volumes 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, negotiations 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. 16 Part II. Other Information UNIFI, INC. - -------------------------------------------------------------------------------- Item 4. Submission of Matters to a Vote of Security Holders The first item of business to come before the Shareholders of the Company at their annual Meeting held on the 21st day of October 1999, was to consider and vote upon the election of one (1) Class 3 Director, one (1) Class 1 Director and three (3) Class 2 Directors of the Company. The Shareholders elected management's nominees for the one (1) Class 3 Director, one (1) Class 1 Director and three (3) Class 2 Directors of the Company to serve until the Annual Meeting of the Shareholders in 2000, 2001 and 2002, respectively or until their successors are elected and qualified, as follows:
Class Votes Votes Votes Name of Director of Director in Favor Against Abstaining ---------------- ----------- -------- ------- ---------- Brian R. Parke 3 50,585,278 0 963,665 Sir Richard Greenbury 1 50,518,146 0 1,030,797 Charles R. Carter 2 50,577,771 0 971,172 Jerry W. Eller 2 50,585,091 0 963,852 Kenneth G. Langone 2 50,572,726 0 976,217
The following persons will continue to serve on the Company's Board of Directors until the Annual Meeting of Shareholders in 2000 for Class 3 and 2001 for Class 1: Class 3 Class 1 ------- ------- G. Allen Mebane, IV Donald F. Orr J.B. Davis Robert A. Ward R. Wiley Bourne, Jr. G. Alfred Webster The information set forth under the headings "Election of Directors," "Nominees for Election as Directors," and "Security Holding of Directors, Nominees, and Executive Officers" on Pages 3-5 of the Definitive Proxy Statement filed with the Commission since the close of the registrant's fiscal year ending June 27, 1999, is incorporated herein by reference. The second item of business to come before the Shareholders of the Company at their Annual Meeting was to consider and vote upon the adoption of the 1999 Unifi, Inc. Long-Term Incentive Plan ("Plan"). The Plan reserves 6 million shares of the Company's stock for use in issuing restricted stock awards and granting stock options to 17 key employees of the company, which provides an effective means of retaining, attracting, and motivating such key employees, as more particularly set forth as Proposal No. 2 on Pages 14-17 and on Exhibit "A" of the Definitive Proxy filed with the Commission since the close of the registrant's fiscal year ending June 27, 1999, which is incorporated herein by reference. The Shareholders adopted the Plan, with the vote being as follows: UNIFI, INC. LONG-TERM INCENTIVE PLAN For Plan Abstaining Against Plan -------- ---------- ------------ 34,366,194 10,112,952 1,853,307 18 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 December 26, 1999 19 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: February 9, 2000 /s/ 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.) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S QUARTERLY REPORT FOR THE SIX MONTH PERIOD ENDED DECEMBER 26, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JUN-25-2000 DEC-26-1999 34,347 0 197,613 9,370 145,097 368,941 1,239,996 567,341 1,357,870 139,521 467,089 0 0 5,915 642,871 1,357,870 622,303 622,303 546,302 546,302 0 3,197 14,952 23,258 9,753 13,505 0 0 0 13,505 .23 .23 OTHER STOCKHOLDERS EQUITY OF $642,871 IS COMPRISED OF CAPITAL IN EXCESS OF PAR VALUE OF $51, RETAINED EARNINGS OF $668,210 AND ACCUMULATED OTHER COMPREHENSIVE LOSS OF $(25,390).
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