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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 27, 1999 - Commission File Number 1-10542
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UNIFI, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New York 11-2165495
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
7201 West Friendly Avenue
Greensboro, North Carolina 27410
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(336) 294-4410
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(REGISTRANT'S TELEPHONE NO., INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, par value $.10 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section13 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliated of the
registrant as of August 13, 1999 based on a closing price of $14.8125 per
share: $865,598,433
Number of shares outstanding as of August 13, 1999: 59,548,652
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders of Unifi, Inc., to be held on October 21, 1999, are incorporated by
reference into Part III.
Exhibits, Financial Statement Schedules and Reports on Form 8-K index is located
on pages 32 through 34.
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PART I
ITEM 1. BUSINESS
Unifi, Inc., a New York corporation formed in 1969, together with its
subsidiaries, hereinafter set forth, (the "Company" or "Unifi"), is one of the
largest and most diversified producers and processors of textile yarns in the
world. The Company is primarily engaged in the processing of synthetic yarns in
two primary business segments, polyester and nylon. The polyester segment is
comprised of textured, dyed, twisted and beamed yarns with sales to knitters and
weavers that produce fabrics for the apparel, automotive and furniture
upholstery, home furnishings, industrial and other end use markets. The nylon
segment is comprised of textured nylon and covered spandex products with sales
to knitters and weavers that produce fabrics for the apparel, hosiery, socks and
other end use markets. See footnote to the Consolidated Financial Statements
("Footnote") 2 ("Acquisitions") on page 20 and Footnote 11 ("Investment in
Unconsolidated Affiliates") on pages 27 and 28 of this Report for information
concerning recent mergers, acquisitions and consolidations of the Company's
business, which is incorporated herein by reference.
Texturing polyester and nylon filament fiber involves the processing of
partially oriented yarn ("POY"), which is either raw polyester or nylon filament
fiber purchased from chemical manufacturers, to give it greater bulk, strength,
stretch, consistent dyeability and a softer feel, thereby making it suitable for
use in knitting and weaving of fabrics. The texturing process involves the use
of high-speed machines to draw, heat and twist the POY to produce yarn having
various physical characteristics, depending on its ultimate end use.
During the fourth quarter of fiscal year 1999, the Company formed Unifi
Technology Group, LLC ("UTG"), to provide consulting services focused on
integrated manufacturing, factory automation and electronic commerce solutions
to other domestic manufacturers. Effective June 1, 1999, UTG acquired the assets
of Cimtec, Inc. ("Cimtec"), a manufacturing automation solutions provider, for
$10.5 million. Subsequently, a five-percent interest in the new entity was sold
to certain former Cimtec shareholders. See Footnote 2 ("Acquisitions") on page
20 of this Report for additional information on UTG.
See the information included under "Year 2000 Compliance Status" under
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 11 and 12 of this Report.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The primary suppliers of POY to the Company's polyester segment are E. I.
DuPont de Nemours and Company ("Dupont"), Nanya Plastics Corp. of America
("Nanya"), Kosa (formerly Hoechst Celanese Corporation), Wellman Industries,
Reliance Industries, LTD. and P.T. Indorama Synthetics TBK, with the majority of
the Company's polyester POY being supplied by DuPont. In addition, the Company
has polyester POY manufacturing facilities in Ireland and Yadkinville, North
Carolina (which provides approximately 35% of its total domestic polyester POY
supply needs). The production of POY is comprised of two primary processes,
polymerisation (performed in Ireland only) and spinning (performed in both
Ireland and Yadkinville). The polymerisation process is the production of
polymer by a chemical reaction involving terephthalic acid and ethylene glycol,
which are combined to form chip. The spinning process involves the extrusion and
melting of chip to form molten polymer. The molten polymer is then extruded
through spinnerettes to form continuous multi-filament raw yarn (POY).
Substantially all of the raw materials for such manufactured POY is supplied by
Nanya for domestic production and by Dupont and Bayer AG for our Irish
operation. The primary suppliers of POY to the Company's nylon segment are
DuPont and Cookson Fibers, Inc., with the majority of the Company's nylon POY
being supplied by DuPont.
Although the Company is heavily dependent upon a limited number of
suppliers, the Company has not had and does not anticipate any material
difficulty in obtaining its raw POY or raw materials used to manufacture
polyester POY.
PATENTS AND LICENSES: The Company currently has several patents and
registered trademarks, none of which it considers material to its business as a
whole.
CUSTOMERS: The Company, in fiscal year ended June 27, 1999, sold its
polyester yarns to approximately 1,150 customers and its nylon yarns to
approximately 400 customers, no one customer's purchases exceeded 10% of net
sales for the polyester segment during said period, while one customer comprised
19.5% of net sales for the
2
nylon segment for this time period. The Company does not believe that either its
polyester segment or its nylon segment is dependent on any one customer.
BACKLOG: The Company, other than in connection with certain foreign sales
and for textured yarns that are package dyed according to customers'
specifications, does not manufacture to order. The Company's products can be
used in many ways and can be thought of in terms of a commodity subject to the
laws of supply and demand and, therefore, does not have what is considered a
backlog of orders. In addition, the Company does not consider its products to be
seasonal ones.
COMPETITIVE CONDITIONS: The textile industry in which the Company currently
operates is keenly competitive. The Company processes and sells high-volume
commodity products, pricing is highly competitive with product quality and
customer service being essential for differentiating the competitors within the
industry. Product quality insures manufacturing efficiencies for the customer.
The Company's polyester and nylon yarns compete in a worldwide market with a
number of other foreign and domestic producers of such yarns. In the sale of
polyester filament yarns, major domestic competitors are Dillon Yarn Company,
Inc., Spectrum Dyed Yarns, Inc. and Milliken & Company and in the sale of nylon
yarns major domestic competitors are Jefferson Mills, Inc. and Worldtex, Inc.
Additionally, there are numerous foreign competitors that sell polyester and
nylon yarns in the United States.
RESEARCH AND DEVELOPMENT: The estimated amount spent during each of the
last three fiscal years on Company-sponsored and Customer-sponsored research and
development activities is considered immaterial.
COMPLIANCE WITH CERTAIN GOVERNMENT REGULATIONS: Management of the Company
believes that the operation of the Company's production facilities and the
disposal of waste materials are substantially in compliance with applicable laws
and regulations.
EMPLOYEES: The number of full-time employees of the Company is
approximately 6,250.
FINANCIAL INFORMATION ABOUT SEGMENTS: See the information included in
Footnote 9 ("Business Segments, Foreign Operations and Concentrations of Credit
Risk") on Page 24 through Page 26 of this Report for the Financial Information
About Segments required by Item 101 of Regulation S-K.
ITEM 2. PROPERTIES
The Company currently maintains a total of 20 manufacturing and warehousing
facilities, one central distribution center and one recycling center in North
Carolina; one manufacturing and related warehousing facility in Staunton,
Virginia; one central distribution center in Fort Payne, Alabama; four
manufacturing operations in Letterkenny, County of Donegal, Republic of Ireland;
two warehousing locations in Carrickfergus, Ireland; two manufacturing and one
office building in Brazil and one manufacturing and administration facility in
Bogota, Colombia. All of these facilities, which contain approximately 8,166,153
square feet of floor space, with the exception of one plant facility leased from
NationsBank Leasing and R.E. Corp. pursuant to a Sales-leaseback Agreement
entered on May 20, 1997, as amended, two warehouses in Carrickfergus, Ireland,
and one plant and the office in Brazil are owned in fee; and management believes
they are in good condition, well maintained, and are suitable and adequate for
present production.
The polyester segment of the Company's business uses 17 manufacturing, six
warehousing and one dedicated office totaling 5.3 million square feet. The nylon
segment of the Company's business uses utilizes six manufacturing and four
warehousing facilities aggregating 2.7 million square feet.
UTG leases six office locations in several states from which it conducts
business.
The Company leases sales offices and/or apartments in New York, Coleshill,
England, Oberkotzau, Germany, and Lyon, France, and has a representative office
in Tokyo, Japan.
The Company also leases its corporate headquarters building at 7201 West
Friendly Avenue, Greensboro, North Carolina, which consists of a building
containing approximately 121,125 square feet located on a tract of land
containing approximately 8.99 acres. This property is leased from Merrill Lynch
Trust Company of North Carolina, Trustee under the Unifi, Inc. Profit Sharing
Plan and Trust, and Wachovia Bank & Trust Company, N.A., Independent Trustee. On
May 20, 1996, the Company exercised its option to extend the term of the lease
on this property for five years, through March 13, 2002. Reference is made to a
copy of the lease agreement
3
attached to the Registrant's Annual Report on Form 10-K as Exhibit (10d) for the
fiscal year ended June 27, 1987, which is by reference incorporated herein.
See the related information included in Footnote 8 ("Leases and
Commitments") on Page 24 of this Report.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any litigation which is considered
material, as that term is used in Item 103 of Regulation S-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter for the fiscal year ended June 27, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed for trading on the New York Stock
Exchange. The following table sets forth the range of high and low sales prices
of the Unifi Common Stock as reported on the NYSE Composite Tape and the regular
cash dividends per share declared by Unifi during the periods indicated.
On July 16, 1998, the Company announced its intention to discontinue the
payment of cash dividends and utilize the cash to purchase shares of the
Company's common stock. Accordingly, effective July 16, 1998, the Board of
Directors of the Company terminated the previously established policy of paying
cash dividends equal to approximately 30% of the Company's after tax earnings of
the previous fiscal year.
As of August 13, 1999, there were approximately 849 holders of record of
the Company's common stock.
HIGH LOW DIVIDENDS
----------- ----------- ----------
Fiscal year 1997:
First quarter ended September 29, 1996 .. $ 28.88 $ 26.00 $ .11
Second quarter ended December 29, 1996 .. $ 33.13 $ 26.63 $ .11
Third quarter ended March 30, 1997 ...... $ 33.88 $ 30.13 $ .11
Fourth quarter ended June 29, 1997 ...... $ 36.88 $ 29.63 $ .11
Fiscal year 1998:
First quarter ended September 28, 1997 .. $ 43.63 $ 35.06 $ .14
Second quarter ended December 28, 1997 .. $ 42.25 $ 36.38 $ .14
Third quarter ended March 29, 1998 ...... $ 42.13 $ 33.00 $ .14
Fourth quarter ended June 28, 1998 ...... $ 39.56 $ 34.19 $ .14
Fiscal year 1999:
First quarter ended September 27, 1998 .. $ 34.25 $ 17.13 $ --
Second quarter ended December 27, 1998 .. $ 20.06 $ 11.94 $ --
Third quarter ended March 28, 1999 ...... $ 19.56 $ 10.69 $ --
Fourth quarter ended June 27, 1999 ...... $ 18.56 $ 11.56 $ --
4
ITEM 6. SELECTED FINANCIAL DATA
JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997 JUNE 30, 1996 JUNE 25, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS)
- ----------------------------------------------- --------------- --------------- --------------- --------------- --------------
Summary of Earnings:
Net sales ..................................... $1,251,160 $1,377,609 $1,704,926 $1,603,280 $1,554,557
Cost of sales ................................. 1,076,610 1,149,838 1,473,667 1,407,608 1,330,410
Gross profit .................................. 174,550 227,771 231,259 195,672 224,147
Selling, general and administrative
expense ...................................... 55,338 43,277 46,229 45,084 43,116
Interest expense .............................. 27,459 16,598 11,749 14,593 15,452
Interest income ............................... (2,399) (1,869) (2,219) (6,757) (10,372)
Other (income) expense ........................ 1,569 389 819 (4,390) (9,659)
Equity in (earnings) losses of
unconsolidated affiliates .................... (4,214) (23,030) 399 -- --
Minority interest ............................. 9,401 723 -- -- --
Non-recurring charge .......................... -- -- -- 23,826 --
---------- ---------- ---------- ---------- ----------
Income from continuing operations
before income taxes and other items
listed below ................................. 87,396 191,683 174,282 123,316 185,610
Provision for income taxes .................... 28,369 62,782 58,617 44,939 69,439
---------- ---------- ---------- ---------- ----------
Income before extraordinary item
and cumulative effect of accounting
change ....................................... 59,027 128,901 115,665 78,377 116,171
---------- ---------- ---------- ---------- ----------
Extraordinary item, net of tax ................ -- -- -- 5,898 --
Cumulative effect of accounting
change, net of tax ........................... 2,768 4,636 -- -- --
---------- ---------- ---------- ---------- ----------
Net income .................................... 56,259 124,265 115,665 72,479 116,171
========== ========== ========== ========== ==========
Per Share of Common Stock:
Income before extraordinary item
and cumulative effect of accounting
change (diluted) ............................. $ .97 $ 2.08 $ 1.81 $ 1.18 $ 1.62
Extraordinary item (diluted) .................. -- -- -- ( .09) --
Cumulative effect of accounting
change (diluted) ............................. ( .04) ( .07) -- -- --
Net income (diluted) .......................... .93 2.01 1.81 1.09 1.62
Cash dividends ................................ -- .56 .44 .52 .40
Financial Data:
Working capital ............................... $ 216,897 $ 209,878 $ 216,145 $ 196,222 $ 333,357
Gross property, plant and
equipment .................................... 1,231,013 1,145,622 1,147,148 1,027,128 910,383
Total assets .................................. 1,365,840 1,333,814 1,018,703 951,084 1,040,902
Long-term debt and other
obligations .................................. 478,898 458,977 255,799 170,000 230,000
Shareholders' equity .......................... 646,138 636,197 548,531 583,206 603,502
Fiscal year 1995 through 1997 amounts include the spun cotton yarn
operations that were contributed to Parkdale America, LLC on June 30, 1997.
5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FISCAL 1999
Following is a summary of operating income by segment for fiscal years 1999
and 1998, as reported regularly to the Company's management:
ALL
(AMOUNTS IN THOUSANDS) POLYESTER NYLON OTHER CONSOLIDATED
- ------------------------------------- ----------- ----------- ------------- -------------
Fiscal 1999
Net sales .......................... $822,763 $449,009 $ (20,612) $1,251,160
Cost of sales ...................... 719,535 384,772 (27,697) 1,076,610
Selling, general and administrative 38,518 16,271 549 55,338
-------- -------- --------- ----------
Operating income ................... $ 64,710 $ 47,966 $ 6,536 $ 119,212
======== ======== ========= ==========
Fiscal 1998
Net sales .......................... $939,780 $470,994 $ (33,165) $1,377,609
Cost of sales ...................... 797,613 387,428 (35,203) 1,149,838
Selling, general and administrative 30,223 13,054 -- 43,277
-------- -------- --------- ----------
Operating income ................... $111,944 $ 70,512 $ 2,038 $ 184,494
======== ======== ========= ==========
As described in Note 9 to the consolidated financial statements, all
"other" revenues and expenses, required to reconcile the polyester and nylon
operating segments to consolidated results, are comprised primarily of
intersegment sales and cost of sales eliminations and various expenses reported
internally at a consolidated level. In addition, fiscal 1999 "other" revenue and
expenses contains activity from the June 1, 1999 acquisition of Cimtec (see Note
2 to the consolidated financial statements).
POLYESTER OPERATIONS
In fiscal 1999, polyester net sales decreased $117.0 million, or 12.5%
compared to fiscal 1998. Year-over-year performance continues to be negatively
impacted by the continuing effects of Asian imports of yarns, fabric and
apparel, which have kept sales volumes, sales pricing and gross margins under
pressure both domestically and internationally. The fiscal 1999 over 1998 volume
increase of 1.0% was aided by twelve months of sales volume generated by the
business venture with Burlington Industries consummated May 29, 1998 (see Note
13 to the consolidated financial statements). Average unit sales prices declined
13.5% during fiscal 1999. In addition to the decline in average unit sales
prices created by market pressures, the pricing decline was also influenced by
decreasing fiber costs and the strengthening of the U.S. dollar. As described in
Note 10 to the consolidated financial statements, the Company utilizes forward
contracts to hedge exposure for sales in foreign currencies based on specific
sales orders with customers or for anticipated sales activity for a future time
period. Additionally, currency exchange rate risks are mitigated by purchases
and borrowings in local currencies. The Company also enters currency forward
contracts for committed equipment and inventory purchases. The Company does not
enter into derivative financial instruments for trading purposes.
Polyester gross profit decreased $38.9 million during fiscal 1999 and gross
margins declined from 15.1% in 1998 to 12.5% in 1999. Gross profit for fiscal
1999 was reduced by a $4.0 million charge resulting from employee acceptance of
an early retirement plan. The remainder of the decline in gross profit and gross
margin can be attributed to the aforementioned pressures on sales prices caused
by imports.
Selling, general and administrative expense allocated to the polyester
segment increased $8.3 million in fiscal 1999. Of this increase, $5.7 million
related to a charge resulting from employee acceptance of an early retirement
program offered in fiscal 1999. Selling, general and administrative expense, as
a percentage of polyester net sales, increased from 3.2% in fiscal 1998 to 4.7%
in fiscal 1999.
NYLON OPERATIONS
In fiscal 1999, nylon net sales decreased $22.0 million, or 4.7% compared
to fiscal 1998. Unit volumes for fiscal 1999 decreased by 4.8%, while average
sales prices, based on product mix, increased 0.1%. The reduction in sales
volume is primarily attributable to the continuing decline of the ladies hosiery
market. The sales price increase was impacted by a minor shift in domestic
product mix to lower volume, higher priced products.
6
Nylon gross profit decreased $19.3 million and gross margin decreased from
17.7% in 1998 to 14.3% in 1999, due mainly to the previously noted decrease in
net sales and the corresponding lack of volume to cover existing fixed
manufacturing costs and depreciation. In addition, depreciation increased $8.0
million in fiscal 1999 over 1998 resulting from the completion in fiscal 1999 of
a nylon texturing and covering facility, constructed to replace older equipment
and consolidate several of the Company's older nylon facilities. Gross profit
was also reduced by a $2.6 million charge resulting from employee acceptance of
an early retirement plan offered in fiscal 1999.
Selling, general and administrative expense allocated to the nylon segment
increased $3.2 million in fiscal 1999. Of this increase, $2.5 million related to
a charge resulting from employee acceptance of an early retirement program
offered in fiscal 1999. Selling, general and administrative expense, as a
percentage of nylon net sales, increased from 2.8% in fiscal 1998 to 3.6% in
fiscal 1999.
CONSOLIDATED OPERATIONS
Interest expense increased $10.9 million, from $16.6 million in fiscal 1998
to $27.5 million in fiscal 1999. The increase in interest expense reflects
higher levels of debt outstanding at higher average interest rates during fiscal
1999 and a $4.8 million reduction in capitalized interest for major construction
projects, as certain significant projects in process during the prior year
period have been completed. The weighted average interest rate on debt
outstanding at June 27, 1999 was 5.94%.
Interest income improved by $530 thousand from 1998 to 1999 primarily as a
result of higher levels of invested funds. Other expense increased from $389
thousand to $1.6 million from 1998 to 1999.
Earnings from our equity affiliates, Parkdale America, LLC. (the "LLC") and
Micell Technologies, Inc. ("Micell"), net of related amortization, totaled $4.2
million in fiscal 1999 compared with $23.0 million in fiscal 1998. The decline
in earnings is primarily attributable to the reduced earnings of the LLC and
higher start-up expenses at Micell. The LLC's operations were negatively
impacted by excess capacity in the markets and reduced sales volumes as imported
apparel eroded their customer's business.
Effective May 29, 1999, the Company formed a limited liability company (the
"Partnership") with Burlington Industries, Inc. ("Burlington") to manufacture
and market natural textured polyester. The Company has an 85.42% ownership
interest in the Partnership and Burlington has 14.58%. However, for the first
five years of the Partnership, Burlington is entitled to receive the first $9.4
million of earnings. Subsequent to this five year period, earnings are to be
allocated based on ownership percentages. Burlington's share of the earnings of
the Partnership are reflected as minority interest and amounted to $9.4 million
in fiscal 1999 and $0.7 million in fiscal 1998.
The effective tax rate decreased from 32.8% in 1998 to 32.5% in 1999. The
difference between the statutory and effective tax rate is primarily due to the
realization of state tax credits associated with significant capital
expenditures and the operating results of our Irish operations that are taxed at
a 10.0% effective rate.
In the first quarter of fiscal 1999, the Company recognized a cumulative
effect of an accounting change of $4.5 million ($2.8 million after tax) or $.04
per diluted share as a result of changing its accounting policy regarding
start-up costs. Pursuant to the AICPA issued SOP 98-5, "Reporting on the Costs
of Start-Up Activities," any previously capitalized start-up costs were required
to be written-off as a cumulative effect of an accounting change. Accordingly,
the Company has written-off the unamortized balance of the previously
capitalized start-up costs.
As a result of the above, the Company realized during the current year net
income of $56.3 million, or $0.93 per diluted share, compared to $124.3 million,
or $2.01 per diluted share for the prior fiscal year period. Before the
previously described cumulative effect of an accounting change in the current
year, earnings would have been $59.0 million or $0.97 per diluted share.
In June 1997, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130"). 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, which are not included in net income. Foreign
currency translation adjustments presently represent the only component of
comprehensive income for the Company. As of June 28, 1998, the Company adopted
SFAS 130, Reporting Comprehensive Income. SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
7
adoption of this Statement had no impact on the Company's net income or
shareholders' equity. Statement 130 requires unrealized gains or losses on the
Company's available-for-sale securities and the foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. Prior year financial
statements have been reclassified to conform to the requirements of SFAS 130.
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 of reporting financial information from operating
segments in annual and interim financial statements of public companies, 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 required segment reporting is detailed
in Note 9 to the consolidated financial statements. The adoption of SFAS 131 had
no effect on the consolidated 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.
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. As discussed in "Year 2000 Compliance Status" located in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Company is actively implementing an enterprise-wide software
solution that is substantially complete at June 27, 1999. Consequently,
remaining costs associated with obtaining and modifying this system are not
anticipated to be material to the Company's results of operations or financial
position after the adoption of this SOP.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS
133") and in August 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "An Amendment to SFAS 133," which delayed the effective date
of SFAS 133 until the Company's fiscal year 2001. 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.
For derivatives that are hedges, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged asset,
liability, or firm commitment 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. Although the Company does not enter into derivative
financial instruments for trading purposes, it has not yet determined what the
effect of SFAS 133, for derivatives that are considered hedges, will be on its
results of operations or financial position.
FISCAL 1998
Following is a summary of operating income by segment for fiscal years 1998
and 1997, as reported regularly to the Company's management:
ALL
(AMOUNTS IN THOUSANDS) POLYESTER NYLON OTHER CONSOLIDATED
- ------------------------------------- ----------- ----------- ------------- -------------
Fiscal 1998
Net sales .......................... $939,780 $470,994 $ (33,165) $1,377,609
Cost of sales ...................... 797,613 387,428 (35,203) 1,149,838
Selling, general and administrative. 30,223 13,054 -- 43,277
-------- -------- --------- ----------
Operating income ................... $111,944 $ 70,512 $ 2,038 $ 184,494
======== ======== ========= ==========
Fiscal 1997
Net sales .......................... $967,201 $469,954 $ 267,771 $1,704,926
Cost of sales ...................... 835,027 386,467 252,173 1,473,667
Selling, general and administrative. 25,464 11,845 8,920 46,229
-------- -------- --------- ----------
Operating income ................... $106,710 $ 71,642 $ 6,678 $ 185,030
======== ======== ========= ==========
8
As illustrated in Note 9 to the consolidated financial statements, all
"other" revenues and expenses, required to reconcile the polyester and nylon
operating segments to consolidated results, are comprised primarily of
intersegment sales and cost of sales eliminations and various expenses reported
internally at a consolidated level. In addition, fiscal 1997 contains activity
related to the spinning of cotton and cotton blend fibers, which were
contributed to Parkdale America on June 30, 1997 (see Note 11 to the
consolidated financial statements).
POLYESTER OPERATIONS
Polyester net sales decreased $27.4 million from fiscal year 1997 to 1998.
Overall unit volume increased 1.5% during fiscal 1998. Average unit sales prices
declined 4.3% during fiscal 1998 primarily due to export sales comprising a
larger percentage of total fiscal 1998 sales as compared with fiscal 1997.
Export unit prices were adversely affected in fiscal 1998 due to various factors
including the strengthening of the U.S. dollar and increased competition. The
stronger U.S. dollar also negatively impacted the translation of our Irish
operation's sales in fiscal 1998 from the functional Irish punt currency to the
U.S. dollar. Domestically, unit volumes declined in fiscal 1998 as a result of
increased fiber, fabric and apparel imports. Unit volumes increased in the
fourth quarter due, in part, to the sales generated by the formation of a
limited liability company with Burlington Industries on May 29, 1998.
Sales from foreign operations are denominated in local currencies and are
hedged in part by the purchase of raw materials and services in those same
currencies. As described in Note 10 to the consolidated financial statements,
currency exchange rate risks are mitigated by the utilization of foreign
currency forward contracts and purchases in local currencies. The Company does
not enter into derivative financial instruments for trading purposes.
Polyester gross margins improved from 13.7% in fiscal 1997 to 15.1% in the
fiscal 1998. The increase in gross margin primarily reflects raw material cost
reductions based on product mix, which were partially offset by higher direct
and allocated indirect manufacturing costs as a percentage of net sales. The
increase in allocated indirect manufacturing costs results from the lower
consolidated sales base in fiscal 1998, in which to allocate indirect costs, as
a result of the contribution of our spun cotton yarn operations at the beginning
of the 1998 fiscal year.
Selling, general and administrative expense allocated to the polyester
segment increased $4.8 million from fiscal 1997 to 1998. As a percentage of net
sales these costs increased from 2.6% in the prior fiscal year to 3.2% in the
current year. The increase mainly reflects the lower consolidated sales base, in
which to absorb allocated costs, as a result of the contribution of our spun
cotton yarn operations at the beginning of the 1998 fiscal year.
NYLON OPERATIONS
Nylon net sales remained stable from the fiscal year 1997 to 1998 despite a
4.4% decline in unit volume. The volume decrease was minimized by the
acquisition on November 14, 1997, of SI Holding Company (Spanco). The effect of
the volume decrease was offset by a 4.4% increase in average unit sales prices.
Nylon gross margins were 17.7% in both fiscal 1998 and 1997. During fiscal
1998 nylon realized average unit raw material cost reductions based on product
mix, which were offset by higher direct and allocated indirect manufacturing
costs as a percentage of net sales. The increase in allocated indirect
manufacturing costs results from the lower consolidated sales base in fiscal
1998, in which to allocate indirect costs, as a result of the contribution of
our spun cotton yarn operations at the beginning of the 1998 fiscal year.
Selling, general and administrative expense allocated to the nylon segment
increased $1.2 million from fiscal 1997 to 1998. As a percentage of net sales
these costs increased from 2.5% in fiscal 1997 to 2.8% in fiscal 1998. The
increase mainly reflects the lower consolidated sales base, in which to absorb
allocated costs, as a result of the contribution of our spun cotton yarn
operations at the beginning of the 1998 fiscal year.
CONSOLIDATED OPERATIONS
Interest expense increased $4.9 million, from $11.7 million in 1997 to
$16.6 million in 1998. The increase is associated with both higher levels of
debt outstanding during the current year and higher average interest rates
during this period. In February 1998, the Company issued $250.0 million of debt
securities, the proceeds of which were used to repay a portion of the revolving
credit facility. The coupon rate of the new securities is 6.50%. Debt
9
levels increased during the year as a result of capital expenditures,
investments in equity affiliates, stock repurchases and an acquisition.
Interest income declined $350 thousand from 1997 to 1998 primarily as a
result of lower levels of invested funds. Other expense decreased from $819
thousand to $389 thousand from 1997 to 1998.
Earnings from our equity affiliates, net of related amortization, totaled
$23.0 million in the current year. The effective tax rate decreased from 33.6%
in 1997 to 32.8% in 1998. The improvement in the effective tax rate is primarily
due to the realization of state tax credits in the current year associated with
significant capital expenditures and improved operating results of our Irish
operations that are taxed at a 10.0% effective rate.
In the second quarter of fiscal 1998, the Company recognized a write-off of
$7.5 million ($4.6 million after tax) or $.07 per diluted share as a result of
changing its accounting policy regarding business reengineering costs.
Previously, substantially all direct external costs associated with installing a
new computer software system were capitalized, including those costs related to
business process reengineering. Pursuant to Emerging Issues Task Force 97-13
issued in November 1997, these costs were written off as a cumulative catch-up
adjustment.
As a result of the above, the Company realized during fiscal 1998 net
income of $124.3 million, or $2.01 per diluted share, compared to $115.7 million
or $1.81 per diluted share for fiscal 1997. Before the cumulative effect of an
accounting change in fiscal 1998, earnings would have been $128.9 million or
$2.08 per diluted share.
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 $209.8 million for fiscal 1999, compared to $181.7 million for fiscal 1998.
The primary sources of cash from operations, other than net income, were a
decrease in accounts receivable of $34.5 million, a decrease in inventory of
$16.3 million and non-cash adjustments aggregating $103.0 million. Depreciation
and amortization of $89.9 million, the after-tax cumulative effect of an
accounting change of $2.8 million, the deferred income tax provision of $4.6
million, and the distributions from unconsolidated equity affiliates in excess
of earnings of $5.3 million were the primary components of the non-cash
adjustments. Offsetting these sources was a decrease in accounts payable and
accruals of $14.0 million. All working capital changes have been adjusted to
exclude the effects of acquisitions and currency translation. Working capital
levels are more than adequate to meet the operating requirements of the Company.
The Company ended fiscal 1999 with working capital of $216.9 million, which
included cash and cash equivalents of $44.4 million.
The Company utilized $159.6 million for net investing activities and $12.0
million for net financing activities during fiscal 1999. Significant
expenditures during this period included $118.8 million for capacity expansions
and upgrading of facilities, $27.1 million for acquisitions, $10.0 for
investments in equity affiliates, $39.3 million for the purchase and retirement
of Company common stock and $9.0 million for distributions to minority interest
shareholders. The Company also utilized the net proceeds of $35.4 million from
its long-term debt agreements to finance these expenditures. The Company
purchased, effective April 1, 1999, the polyester texturing and dyed yarn
property, plant and equipment of Fairway Polyester, LTDA located in Brazil for
$16.6 million. The Company also acquired the assets of Cimtec Inc, a
manufacturing solutions provider, effective June 1, 1999 for $10.5 million.
These acquisitions, which are not deemed significant to the Company's
consolidated net assets or result of operations, were accounted for by the
purchase method of accounting.
At June 27, 1999, the Company has committed approximately $20.2 million for
the purchase and upgrade of equipment and facilities during fiscal 2000.
In 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.
The Company periodically evaluates the carrying value of long-lived assets,
including property, plant and equipment and intangibles to determine if
impairment exists. If the sum of expected future undiscounted cash flows is less
than the carrying amount of the asset, an impairment loss is required to be
recognized for the difference between the fair value or the discounted future
cash flows and the carrying amount of the asset. As discussed in the current and
prior periods, the performance of our polyester operations continued to be
negatively
10
impacted by the ongoing effects of Asian fiber, fabric and apparel imports which
have reduced polyester sales volumes and gross margins. Additionally, in
response to the pressures caused by the importation of fabric and apparel, many
U.S. textile and apparel manufacturers are downsizing their domestic operations
and moving production capacity offshore. During the fourth quarter of fiscal
1999, the Company reviewed its projected future cash flows of the polyester
division's long-lived assets and determined no impairment exists at this time.
Effective July 16, 1998, the Board of Directors terminated the
previously-established policy of paying cash dividends equal to approximately
30% of the Company's after-tax earnings for the previous year. In lieu of this
cash dividend, the Board of Directors authorized management to utilize in fiscal
1999 cash equal to the same 30% of previous year's earnings to purchase shares
of the Company's stock, as management deems advisable. The Board of Directors
also increased the remaining authorization pursuant to a resolution originally
adopted on October 21, 1993, to purchase 10 million shares of Unifi's common
stock. During the current year, the Company has purchased 2.1 million shares for
$39.3 million. Accordingly, there remains an authorization to repurchase
approximately 7.9 million shares. The Company will continue to operate its stock
buy-back program, as it deems appropriate, based on prevailing financial and
market conditions.
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 technology systems and
non-information technology systems (i.e., embedded technology) 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;
evaluation, upgrading and certifying of non-information technology 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 enterprises-wide software is
anticipated to be completed in the necessary time frame. At present, the Company
estimates it is approximately 95% complete with its enterprise-wide software
implementation efforts and approximately 95% complete with respect to
manufacturing plant floor applications implementations. Additionally, upgrades
are ongoing and are on schedule for certain applications where the Company has
elected to postpone enterprise software conversion. Testing of the respective
applications is an on-going process, which will go on throughout the next
quarter. Embedded technology devices are also being reviewed in conjunction with
the manufacturing plant floor compliance procedures.
The Company is also dependent upon its customers' and vendors' compliance
with the year 2000 problem and could face disruption of business in the event
these efforts are unsuccessful. The Company has requested information on the
year 2000 compliance plans and status from its significant vendors and equity
affiliates and is presently not aware of any material exposures or
contingencies. Face-to-face meetings have been conducted and will continue in
order to plan and execute appropriate follow-up activities with its more
critical suppliers. The Company has sent surveys to its major customers and is
presently evaluating responses as they are submitted to plan and perform
necessary follow-up activities. Conversion plans have been established for the
Company's EDI customers and vendors and procedures have begun. Efforts are
underway to convert the remaining customers in the next fiscal quarter. The
Company will continue its efforts to gather information from businesses with
which it conducts business. However, such information is subject to accurate and
voluntary communication. Consequently, the Company cannot predict the likelihood
or impact on its business resulting from noncompliance by such parties. Although
the Company believes its business critical systems will be compliant, there can
be no assurances that all non-compliant systems will be identified or that all
significant suppliers or customers will be year 2000 capable. A worst-case
scenario could include interruption in the procurement of necessary materials or
the disruption in manufacturing or information systems. Such events would
adversely impact the distribution of product, timelines and accuracy of
record-keeping and collection of revenue among other consequences which could
cause a material impact on the Company's results of operation and financial
position.
11
The Company has substantially completed contingency plans and recovery
procedures to deal with potential problems associated with failures in its own
computer systems as well as disruptions caused by system failures (or further
dependencies) of its critical suppliers. These plans include, among others, the
modification and upgrading of necessary business systems for which the
enterprise-wide system implementation efforts are not certain. Costs incurred in
the Company's year 2000 compliance efforts are being expensed as incurred.
Anticipated expenditures related to year 2000 compliance readiness, in addition
to those associated with the enterprise- wide software implementation, was $765
thousand for the fiscal year ending June 27, 1999.
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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See the information included in Footnote 10 ("Derivative Financial
Instruments and Fair Value of Financial Instruments") on Pages 26 and 27 of this
Report.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's report of independent auditors and consolidated financial
statements and related notes follow on subsequent pages of this Report.
12
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF UNIFI, INC.
We have audited the accompanying consolidated balance sheets of Unifi, Inc.
as of June 27, 1999, and June 28, 1998, and the related consolidated statements
of income, changes in shareholders' equity and comprehensive income, and cash
flows for each of the three years in the period ended June 27, 1999. Our audits
also include the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Unifi, Inc. at
June 27, 1999, and June 28, 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended June 27,
1999, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Greensboro, North Carolina
July 20, 1999
13
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998
- ------------------------------------------------- --------------- --------------
ASSETS:
Current assets:
Cash and cash equivalents ....................... $ 44,433 $ 8,372
Receivables .................................... 185,784 222,310
Inventories .................................... 129,917 137,201
Other current assets ........................... 2,015 1,308
----------- -----------
Total current assets ......................... 362,149 369,191
----------- -----------
Property, plant and equipment:
Land ........................................... 6,973 6,525
Buildings and air conditioning ................. 241,852 206,559
Machinery and equipment ........................ 848,701 772,504
Other .......................................... 133,487 160,034
----------- -----------
1,231,013 1,145,622
Less accumulated depreciation ................... 541,275 497,042
----------- -----------
689,738 648,580
Investment in unconsolidated affiliates ......... 207,142 212,448
Other noncurrent assets ......................... 106,811 103,595
----------- -----------
$ 1,365,840 $ 1,333,814
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable ............................... $ 68,716 $ 93,922
Accrued expenses ............................... 52,889 43,939
Income taxes payable ........................... 7,392 5,218
Current maturities of long-term debt and
other current liabilities .................... 16,255 16,234
----------- -----------
Total current liabilities .................... 145,252 159,313
----------- -----------
Long-term debt and other liabilities ............ 478,898 458,977
----------- -----------
Deferred income taxes ........................... 78,369 62,970
----------- -----------
Minority interests .............................. 17,183 16,357
----------- -----------
Shareholders' equity:
Common stock ................................... 5,955 6,163
Capital in excess of par value ................. 13 22,454
Retained earnings .............................. 658,353 618,128
Accumulated other comprehensive loss ........... (18,183) (10,548)
----------- -----------
646,138 636,197
----------- -----------
$ 1,365,840 $ 1,333,814
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
- ------------------------------------------------------ --------------- --------------- --------------
Net sales ............................................ $ 1,251,160 $ 1,377,609 $ 1,704,926
----------- ----------- -----------
Costs and expenses:
Cost of sales ....................................... 1,076,610 1,149,838 1,473,667
Selling, general and administrative expense ......... 55,338 43,277 46,229
Interest expense .................................... 27,459 16,598 11,749
Interest income ..................................... (2,399) (1,869) (2,219)
Other expense ....................................... 1,569 389 819
Equity in (earnings) losses of unconsolidated
affiliates ........................................ (4,214) (23,030) 399
Minority interest ................................... 9,401 723 --
----------- ----------- -----------
1,163,764 1,185,926 1,530,644
----------- ----------- -----------
Income before income taxes and cumulative effect
of accounting change ................................ 87,396 191,683 174,282
Provision for income taxes ........................... 28,369 62,782 58,617
----------- ----------- -----------
Income before cumulative effect of accounting
change .............................................. 59,027 128,901 115,665
Cumulative effect of accounting change (net of
applicable income taxes of $1,696 for
June 27, 1999 and $2,902 for June 28, 1998) ......... 2,768 4,636 --
----------- ----------- -----------
Net income ........................................... $ 56,259 $ 124,265 $ 115,665
=========== =========== ===========
Earnings per common share -- basic:
Income before cumulative effect of
accounting change ................................. $ .97 $ 2.10 $ 1.83
Cumulative effect of accounting change .............. ( .04) ( .07) --
----------- ----------- -----------
Net income per common share ......................... $ .93 $ 2.03 $ 1.83
=========== =========== ===========
Earnings per common share -- assuming dilution:
Income before cumulative effect of accounting
change ............................................ $ .97 $ 2.08 $ 1.81
Cumulative effect of accounting change .............. ( .04) ( .07) --
----------- ----------- -----------
Net income per common share ......................... $ .93 $ 2.01 $ 1.81
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
CAPITAL IN ACCUMULATED TOTAL COMPREHENSIVE
(AMOUNTS IN THOUSANDS, SHARES COMMON EXCESS OF RETAINED COMPREHENSIVE SHAREHOLDERS' INCOME
EXCEPT PER SHARE DATA) OUTSTANDING STOCK PAR VALUE EARNINGS INCOME/(LOSS) EQUITY NOTE 1
- ----------------------------- ------------- ---------- ------------ ------------ --------------- --------------- --------------
Balance June 30, 1996 ....... 64,831 $ 6,483 $ 62,255 $ 512,253 $ 2,215 $ 583,206 $ --
====== ======= ========= ========= ========== ========== ======
Purchase of stock ........... (3,901) (390) (64,786) (55,824) -- (121,000) --
Options exercised ........... 280 28 2,531 (1,404) -- 1,155 --
Stock option tax benefit -- -- -- 2,307 -- 2,307 --
Cash dividends -- $.44
per share .................. -- -- -- (27,898) -- (27,898) --
Currency translation
adjustments ................ -- -- -- -- (4,904) (4,904) (4,904)
Net income .................. -- -- -- 115,665 -- 115,665 115,665
------ ------- --------- --------- ---------- ---------- -------
Balance June 29, 1997 ....... 61,210 6,121 -- 545,099 (2,689) 548,531 110,761
====== ======= ========= ========= ========== ========== =========
Purchase of stock ........... (539) (54) (618) (19,515) -- (20,187) --
Options exercised ........... 402 40 2,154 -- -- 2,194 --
Stock option tax benefit -- -- -- 2,599 -- 2,599 --
Stock issued for
acquisition ................ 561 56 20,918 -- -- 20,974 --
Cash dividends -- $.56
per share .................. -- -- -- (34,320) -- (34,320) --
Currency translation
adjustments ................ -- -- -- -- (7,859) (7,859) (7,859)
Net income .................. -- -- -- 124,265 -- 124,265 124,265
------ ------- --------- --------- ---------- ---------- ---------
Balance June 28, 1998 ....... 61,634 6,163 22,454 618,128 (10,548) 636,197 116,406
====== ======= ========= ========= ========== ========== =========
Purchase of stock ........... (2,112) (211) (23,092) (16,034) -- (39,337) --
Options exercised ........... 26 3 651 -- -- 654 --
Currency translation
adjustments ................ -- -- -- -- (7,635) (7,635) (7,635)
Net income .................. -- -- -- 56,259 -- 56,259 56,259
------ ------- --------- --------- ---------- ---------- ---------
Balance June 27, 1999 ....... 59,548 $ 5,955 $ 13 $ 658,353 $ (18,183) $ 646,138 $ 48,624
====== ======= ========= ========= ========== ========== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
- --------------------------------------------------------- --------------- --------------- --------------
Cash and cash equivalents at beginning of year .......... $ 8,372 $ 9,514 $ 24,473
Operating activities:
Net income ............................................ 56,259 124,265 115,665
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change (net
of applicable income taxes) ......................... 2,768 4,636 --
(Earnings) losses of unconsolidated equity
affiliates, net of distributions .................... 5,287 (15,282) 399
Depreciation ......................................... 82,993 65,033 85,533
Amortization ......................................... 6,883 4,677 2,366
Deferred income taxes ................................ 4,641 12,201 17,157
Other ................................................ 415 (350) (85)
Changes in assets and liabilities, excluding
effects of acquisitions and foreign
currency adjustments:
Receivables ......................................... 34,475 9,628 (26,441)
Inventories ......................................... 16,320 (793) (10,032)
Other current assets ................................ (948) 1,556 (462)
Payables and accruals ............................... (13,959) (25,213) 9,260
Income taxes ........................................ 14,697 1,329 (9,524)
---------- ---------- ----------
Net -- operating activities ........................... 209,831 181,687 183,836
---------- ---------- ----------
Investing activities:
Capital expenditures .................................. (118,846) (250,064) (143,176)
Acquisitions .......................................... (27,112) (25,776) --
Investments in unconsolidated equity
affiliates ........................................... (10,000) (39,492) (2,250)
Sale of capital assets ................................ 847 2,428 3,046
Other ................................................. (4,508) (2,755) 768
---------- ---------- ----------
Net -- investing activities ........................... (159,619) (315,659) (141,612)
---------- ---------- ----------
Financing activities:
Borrowing of long-term debt ........................... 97,000 440,273 187,500
Repayment of long-term debt ........................... (61,596) (252,844) (100,513)
Issuance of Company stock ............................. 654 2,194 3,462
Stock option tax benefit .............................. -- 2,599 2,307
Purchase and retirement of Company stock .............. (39,337) (20,187) (121,000)
Cash dividends paid ................................... -- (34,320) (27,898)
Distributions to minority shareholders ................ (9,000) -- --
Other ................................................. 249 (4,006) --
---------- ---------- ----------
Net -- financing activities ........................... (12,030) 133,709 (56,142)
---------- ---------- ----------
Currency translation adjustment ......................... (2,121) (879) (1,041)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents ........................................... 36,061 (1,142) (14,959)
---------- ---------- ----------
Cash and cash equivalents at end of year ................ $ 44,433 $ 8,372 $ 9,514
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND FINANCIAL STATEMENT INFORMATION
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of the Company and all majority-owned subsidiaries. The accounts of
all foreign subsidiaries have been included on the basis of fiscal periods ended
three months or less prior to the dates of the consolidated balance sheets. All
significant intercompany accounts and transactions have been eliminated.
Investments in 20 to 50% owned companies and partnerships are reported using the
equity method.
RECLASSIFICATION: The Company has reclassified the presentation of certain
prior year information to conform with the current presentation format.
REVENUE RECOGNITION: Revenues from sales are recognized at the time
shipments are made.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign
subsidiaries are translated at year-end rates of exchange and revenues and
expenses are translated at the average rates of exchange for the year. Gains and
losses resulting from translation are accumulated in a separate component of
shareholders' equity and included in comprehensive income. Gains and losses
resulting from foreign currency transactions (transactions denominated in a
currency other than the subsidiary's functional currency) are included in net
income.
CASH AND CASH EQUIVALENTS: Cash equivalents are defined as short-term
investments having an original maturity of three months or less.
RECEIVABLES: Certain customer accounts receivable are factored without
recourse with respect to credit risk. Factored accounts receivable at June 27,
1999, and June 28, 1998, were $41.6 million and $49.2 million, respectively. An
allowance for losses is provided for known and potential losses rising from yarn
quality claims and for customers not factored based on a periodic review of
these accounts. Reserves for such losses were $8.7 million at June 27, 1999 and
$8.2 million at June 28, 1998.
INVENTORIES: The Company utilizes the last-in, first-out ("LIFO") method
for valuing certain inventories representing 52.4% of all inventories at June
27, 1999, and the first-in, first-out ("FIFO") method for all other inventories.
Inventory values computed by the LIFO method are lower than current market
values. Inventories valued at current or replacement cost would have been
approximately $0.7 million and $8.9 million in excess of the LIFO valuation at
June 27, 1999 and June 28, 1998, respectively. Finished goods, work in process,
and raw materials and supplies at June 27, 1999, and June 28, 1998, amounted to
$69.7 million and $77.4 million; $14.6 million and $14.8 million; and $45.6
million and $45.0 million, respectively.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is computed for asset groups primarily utilizing the
straight-line method for financial reporting and accelerated methods for tax
reporting. For financial reporting purposes, asset lives have been assigned to
asset categories over periods ranging between three and forty years.
OTHER NONCURRENT ASSETS: Other noncurrent assets at June 27, 1999, and June
28, 1998, consist primarily of the cash surrender value of key executive life
insurance policies ($8.1 million and $7.1 million); unamortized bond issue costs
($6.7 million and $7.5 million); and acquisition related assets consisting of
the excess cost over fair value of net assets acquired and other intangibles
($86.3 million and $83.9 million), respectively. Bond issue costs are being
amortized on the straight-line method over the life of the bonds which
approximates the effective interest method. The acquisition related assets are
being amortized on the straight-line method over periods ranging between five
and thirty years. Accumulated amortization at June 27, 1999 and June 28, 1998,
for bond issue costs and acquisition related assets was $19.2 million and $10.2
million, respectively.
LONG-LIVED ASSETS: Long-lived assets, including the excess cost over fair
value of net assets acquired, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of expected future undiscounted cash flows is less than
the carrying amount of the asset, a loss is recognized for the difference
between fair value and the carrying amount of the asset.
INCOME TAXES: The Company and its domestic subsidiaries file a
consolidated federal income tax return. Income tax expense is computed on the
basis of transactions entering into pretax operating results. Deferred
18
income taxes have been provided for the tax effect of temporary differences
between financial statement carrying amounts and the tax basis of existing
assets and liabilities. Income taxes have not been provided for the
undistributed earnings of certain foreign subsidiaries as such earnings are
deemed to be permanently invested.
EARNINGS PER SHARE: The following table details the computation of basic
and diluted earnings per share:
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
- ------------------------------------------------------------------ --------------- --------------- --------------
Numerator:
Income before cumulative effect of accounting change ........... $59,027 $128,901 $115,665
Cumulative effect of accounting change ......................... 2,768 4,636 --
------- -------- --------
Net income ..................................................... $56,259 $124,265 $115,665
======= ======== ========
Denominator:
Denominator for basic earnings per share -- weighted average
shares ........................................................ 60,568 61,331 63,294
Effect of dilutive securities: stock options ................... 2 525 641
------- -------- --------
Diluted potential common shares denominator for diluted
earnings per share --
adjusted weighted average shares and
assumed conversions ........................................... 60,570 61,856 63,935
======= ======== ========
STOCK-BASED COMPENSATION: With the adoption of SFAS 123, the Company
elected to continue to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Had the fair value-based
method encouraged by SFAS 123 been applied, compensation expense would have been
recorded on 414,000 options granted in fiscal 1999 (which mostly vest over a two
year period), and 270,500 options granted in fiscal 1997 (which vest over a two
year period). No options were granted in fiscal 1998. Net income in fiscal 1999,
1998 and 1997 restated for the effect would have been $53.0 million or $0.88 per
diluted share, $122.8 million or $1.98 per diluted share and $115.1 million or
$1.80 per diluted share, respectively. The fair value and related compensation
expense of the 1999 and 1997 options were calculated as of the issuance date
using the Black-Scholes model with the following assumptions:
OPTIONS GRANTED 1999 1997
- --------------------------------- --------- ---------
Expected life (years) ......... 10.0 10.0
Interest rate ................. 6.14% 6.18%
Volatility .................... 47.6% 31.1%
Dividend yield ................ -- 1.72%
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," ("SFAS 130"). 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, which are not
included in net income. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities and the foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity, to be included in other comprehensive income. Foreign currency
translation adjustments presently represent the only component of comprehensive
income for the Company. As of June 29, 1998, the Company adopted SFAS 130,
however, the adoption of this Statement had no impact on the Company's net
income or shareholders' equity. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.
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 of reporting financial information from operating
segments in annual and interim financial statements of public companies, 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 required segment
19
reporting is detailed in Note 9. The adoption of SFAS 131 had no effect on the
consolidated 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.
SOP 98-1 requires 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. As
discussed in "Year 2000 Compliance Status" located in Management's Discussion
and Analysis of Financial Condition and Results of Operations, the Company is
actively implementing an enterprise-wide software solution that is substantially
complete at June 27, 1999. Consequently, remaining costs associated with
obtaining and modifying this system are not anticipated to be material to the
Company's results of operations or financial position after the adoption of this
SOP.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS
133") and in August 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 of SFAS 133 until the Company's fiscal year 2001. 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. For derivatives that are hedges, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment 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 does not enter into derivative financial
instruments for trading purposes and it has not yet determined what the effect
of SFAS 133, for derivatives that are considered hedges, will be on its earnings
and financial position.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. ACQUISITIONS
The Company formed Unifi do Brasil, LTDA to acquire the assets of Fairway
Polyester, LTDA., a Brazilian company, for $16.6 million effective April 1,
1999. Also, effective June 1, 1999, UNIFI Technology Group LLC, the newly formed
subsidiary of the Company, acquired the assets of Cimtec Inc. ("Cimtec"), a
manufacturing automation solutions provider, for $10.5 million. Subsequently, a
five-percent interest in the new entity was sold to certain former Cimtec
shareholders. The acquisitions, which are not considered significant to the
Company's consolidated net assets or results of operations, were accounted for
by the purchase method of accounting and both have been included in the
consolidated results of the Company since the respective acquisition dates.
On November 14, 1997, the Company completed its 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 be paid generally over
the terms of the covenants. The acquisition, which is not considered significant
to the Company's consolidated net assets or results of operations, was accounted
for by the purchase method of accounting and accordingly, the net assets and
operations have been included in the Company's consolidated financial statements
beginning on the date the acquisition was consummated. After allocation of the
purchase price to the net assets acquired, the excess of cost over fair value
has been valued at $31.2 million.
3. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities," 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, has written 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.
20
Pursuant to Emerging Issues Task 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 which 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 $.07 per diluted
share was written off as a cumulative catch-up adjustment in the second quarter
of fiscal 1998.
4. LONG-TERM DEBT AND OTHER LIABILITIES
A summary of long-term debt follows:
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998
- ----------------------------------------------------- --------------- --------------
Bonds payable ....................................... $248,242 $248,038
Revolving credit facility ........................... 217,000 180,000
Sale-leaseback obligation ........................... 3,355 3,444
Other bank debt and other obligations ............... 26,556 43,729
-------- --------
Total debt ......................................... 495,153 475,211
Current maturities ................................. 16,255 16,234
-------- --------
Total long-term debt and other liabilities ......... $478,898 $458,977
======== ========
On February 5, 1998, the Company issued $250 million of senior, unsecured
debt securities (the "Notes") to qualified institutional buyers. The net
proceeds from the sale were used to repay a portion of the Company's bank credit
facility. The Notes, which were registered with the Securities and Exchange
Commission on April 2, 1998, bear a coupon rate of 6.50% and mature in 2008. The
estimated fair value of the Notes, based on quoted market prices, at June 27,
1999 and June 28, 1998, was approximately $229.7 million and $247.4 million,
respectively.
The Company entered a $400 million revolving credit facility dated April
15, 1996, with a group of financial institutions that extends through April 15,
2001. The rate of interest charged is adjusted quarterly based on a pricing grid
which is a function of the ratio of the Company's debt to earnings before income
taxes, depreciation, amortization and other non-cash charges. The credit
facility provides the Company the option of borrowing at a spread over the base
rate (as defined) for base rate loans or the Adjusted London Interbank Offered
Rate (LIBOR) for Eurodollar loans. In accordance with the pricing grid, the
Company pays a quarterly facility fee ranging from 0.090%-0.150% of the total
amount available under the revolving credit facility. The weighted average
interest rates for fiscal years 1999 and 1998 were 5.57% and 5.89%,
respectively. At June 27, 1999 and June 28, 1998, the interest rates on the
outstanding balances were 5.29% and 5.92%, respectively. As a result of the
variable nature of the credit facility's interest rate, the fair value of the
Company's revolving credit debt approximates its carrying value.
The revolving credit facility also provides the Company the option to
borrow funds competitively from the individual lenders, at their discretion,
provided that the sum of the competitive bid loans and the aggregate funds
committed under the revolving credit facility do not exceed the total committed
amount. The revolving credit facility allows the Company to reduce the
outstanding commitment in whole or in part upon satisfactory notice up to an
amount no less than the sum of the aggregate competitive bid loans and the total
committed loans. Any such partial termination is permanent. The Company may also
elect to prepay loans in whole or in part. Amounts paid in accordance with this
provision may be re-borrowed.
The terms of the revolving credit facility contain, among other provisions,
requirements for maintaining certain net worth and other financial ratios and
specific limits or restrictions on additional indebtedness, liens and merger
activity. Provisions under this agreement are not considered restrictive to
normal operations.
On May 20, 1997, the Company entered into a sales-leaseback agreement with
a financial institution whereby land, buildings and associated real and personal
property improvements of certain manufacturing facilities were sold to the
financial institution and will be leased by the Company over a sixteen year
period. Sales proceeds aggregated $27.5 million. The terms of the agreement
provide for an early purchase option at the end of year nine. If the agreement
has not been terminated before the end of the lease term, by exercising the
early purchase option or otherwise, the Company is required to purchase the
leased properties at the end of the lease term for
21
an amount equal to the fair market value as defined in the agreement. This
transaction has been recorded as a direct financing arrangement.
On June 30, 1997, the Company entered into a Contribution Agreement
associated with the formation of Parkdale America, LLC (see Note 11). As a part
of the Contribution Agreement, ownership of a significant portion of the assets
financed under the sales-leaseback agreement and the related debt ($23.5
million) were assumed by the LLC.
Payments for the remaining balance of the sales-leaseback agreement are due
semi-annually and are in varying amounts, in accordance with the agreement.
Principal payments required over the next five years are approximately $100
thousand per year. The interest rate implicit in the agreement is 7.84%, and the
fair value of the long-term obligation at June 27, 1999 and June 28, 1998,
approximates its carrying value.
Other obligations consist of acquisition related liabilities due within the
next four years. Maturities of the obligations over the next four years are
$16.3 million, $4.0 million, $3.1 million and $3.6 million, respectively.
Interest capitalized during fiscal 1999 and 1998 was $2.0 million and $6.8
million, respectively.
5. INCOME TAXES
The provision for income taxes before the cumulative effect of accounting
change in fiscal 1999 and 1998 consists of the following:
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
- ------------------------------------------ --------------- --------------- --------------
Currently payable:
Federal ................................ $ 20,124 $ 43,245 $ 34,235
State .................................. 2,951 5,704 6,074
Foreign ................................ 653 1,474 1,151
-------- --------- --------
Total current .......................... 23,728 50,423 41,460
-------- --------- --------
Deferred:
Federal ................................ 10,219 23,799 18,929
State .................................. (5,718) (11,715) (1,994)
Foreign ................................ 140 275 222
-------- --------- --------
Total deferred ......................... 4,641 12,359 17,157
-------- --------- --------
Income taxes before extraordinary item and
cumulative effect of accounting change . $ 28,369 $ 62,782 $ 58,617
======== ========= ========
Income taxes were 32.5%, 32.8% and 33.6% of pretax earnings in fiscal 1999,
1998 and 1997, respectively. A reconciliation of the provision for income taxes
(before cumulative effect of accounting change, where applicable) with the
amounts obtained by applying the federal statutory tax rate is as follows:
JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
--------------- --------------- --------------
Federal statutory tax rate ........................ 35.0% 35.0% 35.0%
State income taxes net of federal tax benefit ..... 3.1 2.9 3.2
State tax credits net of federal tax benefit ...... (5.1) (4.9) (1.7)
Foreign taxes less than domestic rate ............. (1.8) (1.9) (1.8)
Foreign Sales Corporation tax benefit ............. (0.7) (0.4) (0.5)
Research and experimentation credit ............... (0.1) -- --
Nondeductible expenses and other .................. 2.1 2.1 (0.6)
---- ---- ----
Effective tax rate ................................ 32.5% 32.8% 33.6%
==== ==== ====
The deferred income taxes reflect the net tax effects of temporary
differences between the bases of assets and liabilities for financial reporting
purposes and their bases for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of June 27, 1999, and June 28,
1998, were as follows:
22
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998
- ----------------------------------------------------- --------------- --------------
Deferred tax liabilities:
Property, plant and equipment ...................... $78,241 $48,935
Investments in equity affiliates ................... 20,883 33,506
------- -------
Total deferred tax liabilities ...................... 99,124 82,441
------- -------
Deferred tax assets:
Accrued liabilities and valuation reserves ......... 1,568 2,684
State tax credits .................................. 17,043 12,379
Other items ........................................ 2,144 4,408
------- -------
Total deferred tax assets ........................... 20,755 19,471
------- -------
Net deferred tax liabilities ........................ $78,369 $62,970
======= =======
6. COMMON STOCK AND STOCK OPTION PLANS
Common shares authorized were 500 million in 1999 and 1998. Common shares
outstanding at June 27, 1999, and June 28, 1998, were 59,547,819 and 61,634,386,
respectively.
The Company has Incentive Stock Option Plans ("ISO") with 1,537,357 shares
reserved at June 27, 1999. There remain 691,000 options available for grant at
year end. The Company also has a Non-Qualified Stock Option Plan ("NQSO") with
1,613,999 shares reserved at June 27, 1999. There remain 37,992 options
available for grant at year end. The transactions for 1999, 1998 and 1997 were
as follows:
ISO NQSO
---------------------------- ---------------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED
OUTSTANDING AVG. $/SHARE OUTSTANDING AVG. $/SHARE
------------- -------------- ------------- -------------
Fiscal 1997:
Shares under option -- beginning of year ..... 1,793,378 $ 18.76 693,519 $ 25.47
Granted ...................................... -- -- 465,500 28.64
Exercised .................................... (346,787) 9.79 -- --
Canceled ..................................... -- -- -- --
--------- -------- ------- --------
Shares under option -- end of year ........... 1,446,591 $ 20.91 1,159,019 $ 26.75
--------- -------- --------- --------
Fiscal 1998:
Granted ...................................... -- $ -- -- $ --
Exercised .................................... (504,458) 14.31 (47,852) 25.76
Canceled ..................................... -- -- -- --
--------- -------- --------- --------
Shares under option -- end of year ........... 942,133 $ 24.45 1,111,167 $ 26.79
--------- -------- --------- --------
Fiscal 1999:
Granted ...................................... 309,000 $ 16.31 105,000 $ 17.47
Exercised .................................... (833) 16.31 (25,000) 25.65
Canceled ..................................... (12,435) 17.48 (6,668) 31.00
Converted from ISO to NQSO ................... (391,508) 23.24 391,508 23.24
--------- -------- --------- --------
Shares under option -- end of year ........... 846,357 $ 22.15 1,576,007 $ 25.29
========= ======== ========= ========
23
FISCAL 1999 FISCAL 1998 FISCAL 1997
------------------ ------------------ -----------------
ISO:
Exercisable shares under option -- end of year .... 685,918 942,133 1,446,591
Option price range ................................ $ 10.19-$25.38 $ 10.19-$25.38 $ 4.80-$25.38
Weighted average exercise price for options
exercisable ..................................... $ 23.52 $ 24.45 $ 20.91
Weighted average remaining life of shares
under options ................................... 6.4 6.2 6.0
Fair value of options granted ..................... $ 11.04 $ -- $ --
NQSO:
Exercisable shares under option -- end of year .... 1,542,077 1,021,001 888,519
Option price range ................................ $ 16.31-$31.00 $ 25.38-$31.00 $ 23.88-$31.00
Weighted average exercise price for options
exercisable ..................................... $ 25.48 $ 26.42 $ 25.45
Weighted average remaining life of shares
under options ................................... 6.0 6.8 7.8
Fair value of options granted ..................... $ 11.21 $ -- $ 13.32
Substantially all options granted in fiscal years 1997, 1998 and 1999 vest
over a two year period from the date of grant.
7. RETIREMENT PLANS
The Company has a qualified profit-sharing plan, which provides benefits
for eligible salaried and hourly employees. The annual contribution to the plan,
which is at the discretion of the Board of Directors, amounted to $11.0 million
in 1999, $13.0 million in 1998 and $17.0 million 1997. The Company leases its
corporate office building from its profit-sharing plan through an independent
trustee.
8. LEASES AND COMMITMENTS
In addition to the direct financing sales-leaseback obligation described in
Note 4, the Company is obligated under operating leases consisting primarily of
real estate and equipment. Future obligations for minimum rentals under the
leases during fiscal years after June 27, 1999, are $5.6 million in 2000, $4.8
million in 2001, $4.0 million in 2002, $3.1 million in 2003 and $1.9 million in
2004. Rental expense was $7.6 million, $6.8 million and $5.0 million for the
fiscal years 1999, 1998 and 1997, respectively. The Company had committed
approximately $20.2 million for the purchase and up grade of equipment and
facilities at June 27, 1999.
9. BUSINESS SEGMENTS, FOREIGN OPERATIONS AND CONCENTRATIONS OF CREDIT RISK
The Company and its subsidiaries are engaged predominantly in the
processing of yarns by texturing of synthetic filament polyester and nylon fiber
with sales domestically and internationally, mostly to knitters and weavers for
the apparel, industrial, hosiery, home furnishing, automotive upholstery and
other end-use markets. Additionally, during fiscal 1999, the Company formed a
limited liability company to provide integrated manufacturing, factory
automation and electronic commerce solutions to other domestic manufactures. In
fiscal year 1997, the Company was also directly involved with the spinning of
cotton and cotton blend fibers. These operations were contributed to a limited
liability company on June 30, 1997, of which the Company has a 34% ownership
interest (see Note 11).
In accordance with SFAS 131, segmented financial information of the
polyester and nylon operating segments, as regularly reported to management for
the purpose of assessing performance and allocating resources, is detailed
below. "All other" represents the results of the limited liability consulting
company in fiscal 1999 and the spun cotton operations in fiscal 1997.
24
ALL
(AMOUNTS IN THOUSANDS) POLYESTER NYLON OTHER TOTAL
- -------------------------------------- ----------- ----------- ------------- -------------
Fiscal 1999
Net sales to external customers ..... $ 805,749 $ 443,850 $ 1,561 $ 1,251,160
Intersegment net sales .............. 17,014 5,159 -- 22,173
Depreciation and amortization ....... 36,791 24,038 48 60,877
Operating income .................... 64,710 47,966 (62) 112,614
Total assets ........................ 709,553 206,661 13,392 929,606
--------- --------- --------- -----------
Fiscal 1998
Net sales to external customers ..... $ 911,704 $ 465,905 $ -- $ 1,377,609
Intersegment net sales .............. 28,076 5,089 -- 33,165
Depreciation and amortization ....... 46,003 15,030 -- 61,033
Operating income .................... 111,944 70,512 -- 182,456
Total assets ........................ 650,335 249,754 60 900,149
--------- --------- --------- -----------
Fiscal 1997
Net sales to external customers ..... $ 935,972 $ 464,608 $ 304,346 $ 1,704,926
Intersegment net sales .............. 31,229 5,346 8 36,583
Depreciation and amortization ....... 49,460 11,929 19,277 80,666
Operating income .................... 106,710 71,642 4,681 183,033
Total assets ........................ 548,533 180,323 182,539 911,395
--------- --------- --------- -----------
Segment operating income for fiscal 1999 was reduced $9.7 million and $5.1
million for polyester and nylon, respectively, as a result of the early
retirement and termination charge in the third quarter (see Note 14).
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 fiber costing and capitalization of
property, plant and equipment costs. The domestic portion of the operating
division's fiber costs are valued on a standard cost basis, which approximates
first-in, first-out accounting to better match current fluctuations in fiber
costing. Subsequently, for those components of inventory valued utilizing the
last-in, first-out method (see Note 1), an adjustment is made at the corporate
level. For significant capital projects, capitalization is delayed for
management reporting until the facility is substantially complete, however, for
consolidated financial reporting, expenditures are capitalized into construction
in progress as costs are incurred.
25
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
- -------------------------------------------------------- --------------- --------------- --------------
Depreciation and amortization
Depreciation and amortization on specific assets of
reportable segments ................................. $ 60,877 $ 61,033 $ 80,666
Depreciation on unallocated assets .................... 25,626 6,138 7,233
Amortization of unallocated goodwill .................. 2,343 2,096 --
Amortization of financing costs ....................... 1,030 443 --
----------- ----------- -----------
Consolidated depreciation and amortization ............ $ 89,876 $ 69,710 $ 87,899
=========== =========== ===========
Operating income
Reportable segments operating income .................. $ 112,614 $ 182,456 $ 183,033
Net LIFO to standard adjustment ....................... 8,040 2,038 1,997
Unallocated operating expense projects ................ (1,442) -- --
----------- ----------- -----------
Consolidated operating income ......................... $ 119,212 $ 184,494 $ 185,030
=========== =========== ===========
Total assets
Reportable segments total assets ...................... $ 929,606 $ 900,149 $ 911,395
Cash, receivables and other current assets ............ 18,269 2,604 9,027
Unallocated corporate fixed assets .................... 176,161 188,311 90,852
Other non-current corporate assets .................... 41,201 34,112 8,529
Investments in equity affiliates ...................... 207,142 212,488 --
Intersegment notes and receivables .................... (6,539) (3,850) (1,100)
----------- ----------- -----------
Consolidated Assets ................................... $ 1,365,840 $ 1,333,814 $ 1,018,703
=========== =========== ===========
The Company's domestic operations serve customers principally located in
the southeastern United States as well as international customers located
primarily in Canada, Mexico, Europe and South America. During fiscal 1999, 1998
and 1997 the Company did not have sales to any one customer in excess of 10% of
consolidated revenues. Export sales, excluding those to the Company's
international operations, aggregated $153.9 million in 1999, $185.5 million in
1998 and $203.8 million in 1997. The concentration of credit risk for the
Company with respect to trade receivables is mitigated due to the large number
of customers, dispersion across different industries and geographic regions and
its factoring arrangements.
The Company's foreign operations primarily consist of manufacturing
operations in Ireland, Brazil and Columbia. Net sales, pre-tax operating income
and total assets of the Company's foreign and domestic operations are as
follows:
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
- ------------------------------ --------------- --------------- --------------
Foreign operations:
Net sales .............. $ 130,766 $ 136,573 $ 140,102
Pre-tax income ......... 6,804 15,107 12,683
Total assets ........... 173,298 127,586 112,203
Domestic operations:
Net sales .............. $ 1,120,394 $ 1,241,036 $ 1,564,824
Pre-tax income ......... 80,592 176,576 161,599
Total assets ........... 1,192,542 1,206,228 906,500
10. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company conducts its business in various foreign currencies. As a
result, it is subject to the transaction exposure that arises from foreign
exchange rate movements between the dates that foreign currency transactions are
recorded (export sales and purchases commitments) and the dates they are
consummated (cash receipts and cash disbursements in foreign currencies). The
Company utilizes some natural hedging to mitigate these transaction exposures.
The Company also enters into foreign currency forward contracts for the purchase
and sale of European, Canadian and other currencies to hedge balance sheet and
income statement currency exposures. These contracts are principally entered
into for the purchase of inventory and equipment and the sale of Company
products into export markets. Counter-parties for these instruments are major
financial institutions.
26
Currency forward contracts are entered to hedge exposure for sales in
foreign currencies based on specific sales orders with customers or for
anticipated sales activity for a future time period. Generally, 60-80% of the
sales value of these orders are covered by forward contracts. Maturity dates of
the forward contracts attempt to match anticipated receivable collections. The
Company marks the outstanding accounts receivable and forward contracts to
market at month end and any realized and unrealized gains or losses are recorded
as other income and expense. The Company also enters currency forward contracts
for committed equipment and inventory purchases. Generally 50-75% of the asset
cost is covered by forward contracts. Forward contracts are matched with the
anticipated date of delivery of the assets and gains and losses are recorded as
a component of the asset cost. The outstanding hedge agreements as of June 27,
1999 mature through June 2000.
The dollar equivalent of these forward currency contracts and their related
fair values are detailed below:
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998
- ------------------------------------------ --------------- --------------
Foreign currency purchase contracts:
Notational amount ...................... $ 2,842 $ 29,184
Fair value ............................. 3,250 31,418
-------- ---------
Net unrecognized (gain) loss ........... $ (408) $ (2,234)
======== =========
Foreign currency sales contracts:
Notational amount ...................... $ 28,024 $ 28,446
Fair value ............................. 27,826 28,646
-------- ---------
Net unrecognized (gain) loss ........... $ (198) $ 200
======== =========
The following methods were used by the Company in estimating its fair value
disclosures for financial instruments:
CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES AND TRADE PAYABLES -- The
carrying amounts approximate fair value because of the short maturity of these
instruments.
LONG-TERM DEBT -- The fair value of the Company's borrowings is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities
(see Note 4).
FOREIGN CURRENCY CONTRACTS -- The fair value is based on quotes obtained
from brokers or reference to publicly available market information.
11. INVESTMENT IN UNCONSOLIDATED AFFILIATES
Investments in affiliates consist of a 34% interest in Parkdale America,
LLC (the "LLC") and a 41.61% interest in Micell Technologies, Inc. ("Micell").
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 approximated $67.9 million at June 30, 1997 and is being amortized on a
straight-line basis over 30 years as a component of the equity in earnings of
unconsolidated affiliates.
27
Condensed balance sheet and income statement information as of June 27,
1999 and June 28, 1998 and for the fiscal year ended June 27, 1999 and June 28,
1998, of the combined LLC and Micell is as follows:
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998
- -------------------------------------------- --------------- --------------
Current assets ..................... $ 282,004 $ 260,358
Noncurrent assets .................. 256,513 264,194
Current liabilities ................ 125,730 134,110
Shareholders' equity and capital accounts 390,935 390,442
Net sales .......................... $ 594,445 $ 652,097
Gross profit ....................... 57,915 108,649
Income from operations ............. 27,653 80,546
Net income ......................... 21,262 75,788
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. For the fiscal year ended June 27, 1999, distributions
received by the Company from the LLC aggregated $9.5 million.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is summarized below:
(AMOUNTS IN THOUSANDS) JUNE 27, 1999 JUNE 28, 1998 JUNE 29, 1997
- -------------------------------------------------------- --------------- --------------- --------------
Cash payments for:
Interest, net of amounts capitalized ............. $ 16,922 $ 16,521 $ 12,064
Income taxes, net of refunds ..................... 8,225 47,488 45,726
Stock issued for SI Holdings Company acquisition .. -- 21,000 --
13. MINORITY INTEREST
Effective May 29, 1998, the Company formed a limited liability company (the
"Partnership") with Burlington Industries, Inc. ("Burlington") to manufacture
and market natural textured polyester yarns. The Company has an 85.42% interest
in the Partnership and Burlington has 14.58%. However, for the first five years
of the Partnership, Burlington is entitled to the first $9.4 million of
earnings. Subsequent to this five year period, earnings are to be allocated
based on ownership percentages. The Partnership's assets, liabilities and
earnings are consolidated with those of the Company and Burlington's interest in
the Partnership is included in the Company's financial statements as minority
interest. Burlington's share of the partnership earnings in fiscal 1999 and 1998
amounted to $9.4 million and $0.7 million, respectively.
14. 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 June 27, 1999 there remained a reserve of $11.0
million that is expected to equal the future cash expenditures to such
terminated employees.
28
15. QUARTERLY RESULTS (UNAUDITED)
Quarterly financial data for the years ended June 28, 1998, and June 27,
1999, is presented below:
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
(AMOUNT IN THOUSANDS, EXCEPT PER SHARE DATA) (13 WEEKS) (13 WEEKS) (13 WEEKS) (13 WEEKS)
- -------------------------------------------------- --------------- ---------------- --------------- ---------------
1998:
Net sales ....................................... $ 329,842 $ 343,096 $ 345,986 $ 358,685
Gross profit .................................... 49,518 59,005 58,134 61,114
Income before cumulative effect of accounting
change ......................................... 27,525 33,019 33,286 35,071
Cumulative effect of accounting change .......... 4,636
Net income ...................................... 27,525 28,383 33,286 35,071
Income before cumulative effect of accounting
change (basic) ................................. .45 .54 .54 .57
Income before cumulative effect of accounting
change (diluted) ............................... .45 .54 .54 .57
Earnings per share (basic) ...................... .45 .46 .54 .57
Earnings per share (diluted) .................... .45 .46 .54 .57
1999:
Net sales ....................................... $ 328,815 $ 319,854 $ 294,805 $ 307,686
Gross profit .................................... 47,477 50,460 29,970 46,643
Income before cumulative effect of accounting
change ......................................... 21,030 22,498 1,093 14,406
Cumulative effect of accounting change .......... 2,768
Net income ...................................... 18,262 22,498 1,093 14,406
Income before cumulative effect of accounting
change (basic) ................................. .34 .37 .02 .24
Income before cumulative effect of accounting
change (diluted) ............................... .30 .37 .02 .24
Earnings per share (basic) ...................... .34 .37 .02 .24
Earnings per share (diluted) .................... .30 .37 .02 .24
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not changed accountants nor are there any disagreements
with its accountants, Ernst & Young LLP, on accounting and financial disclosure
that should be reported pursuant to Item 304 of Regulation S-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT AND COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
(a) Directors of Registrant: The information included under the headings
"Election of Directors", "Nominees for Election as Directors", "Security Holding
of Directors, Nominees, and Executive Officers", "Directors' Compensation",
"Committees of the Board of Directors", and compliance with Section 16(a) of The
Securities and Exchange Act, beginning on Page 3 and ending on Page 6 and on
page 17 of the definitive proxy statement filed with the Commission since the
close of the Registrant's fiscal year ended June 27, 1999, and within 120 days
after the close of said fiscal year, are incorporated herein by reference.
29
(b) Identification of Executive Officers:
CHAIRMAN OF THE BOARD OF DIRECTORS
G. ALLEN MEBANE, IV Mr. Mebane is 69 and has been an Executive Officer and
member of the Board of directors of the Company since 1971, serving as President
and Chief Executive Officer of the Company, relinquishing these positions in
1980 and 1985, respectively. He was the Chairman of the Board of Directors for
many years, Chairman of the Executive Committee from 1974 to 1995, and was
elected as one of the three members of the Office of Chairman on August 8, 1991.
On October 22, 1992, Mr. Mebane was again elected as Chairman of the Board of
Directors and on January 20, 1999 resumed the positions of Chief Executive
Officer and Chairman of the Executive Committee.
PRESIDENT AND CHIEF OPERATING OFFICER
BRIAN R. PARKE Mr. Parke is 51 and has been the Manager or President of the
Company's Irish subsidiary (Unifi Textured Yarns Europe) from its acquisition by
the Company in 1984 to January 20, 1999, when he was elected President and Chief
Operating Officer of the Company. Additionally, Mr. Parke has been a Vice
President of the Company since October 21, 1993 and on July 22, 1999 was elected
to the Company's Board of Directors.
EXECUTIVE VICE PRESIDENTS
JERRY W. ELLER Mr. Eller is 58 and has been a Vice President or Executive
Vice President since 1975. He has been a member of the Board of Directors since
1985 and is a member of the Executive Committee.
G. ALFRED WEBSTER Mr. Webster is 51 and has been a Vice President or
Executive Vice President since 1979. He has been a member of the Board of
Directors since 1986 and is a member of the Executive Committee.
SENIOR VICE PRESIDENTS
WILLIS C. MOORE, III Mr. Moore is 46 and had been a Partner with Ernst &
Young LLP, or its predecessors from 1975 until December 1994, when he became
employed by the Company as its Chief Financial Officer. Mr. Moore was elected
as a Vice President of the Company on October 19, 1995, and is currently
serving as a Senior Vice President and Chief Financial Officer.
JAMES W. BROWN, JR. Mr. Brown is 47 and was an employee of Macfield, Inc.
from 1973 until the Macfield merger on August 8, 1991, when he became an
employee of the Company. He became a Vice President of the Company on October
22, 1992 and a Senior Vice President on January 20, 1999. He is currently
serving as President of the Nylon/Covered Yarn Division of the Company.
STEWART O. LITTLE Mr. Little is 46 and has been a Vice President of the
Company since October 24, 1985 and a Senior Vice President since January 20,
1999. He is currently serving as President of the Polyester Division of the
Company.
These officers, unless otherwise noted, were elected by the Board of
Directors of the Registrant at the Annual Meeting of the Board of Directors held
on October 22, 1998. Each officer was elected to serve until the next Annual
Meeting of the Board of Directors or until his successor was elected and
qualified.
(c) Family Relationship: Mr. Mebane, Chairman of the Board, and Mr. C. Clifford
Frazier, Jr., the Secretary of the Registrant, are first cousins. Except for
this relationship, there is no family relation between any of the Officers.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the headings "Compensation and Option
Committees Interlocks and Insider Participation in Compensation Decisions",
"Executive Officers and Their Compensation", "Employment and Termination
Agreements", "Options Granted", "Option Exercises and Option/SAR Values", the
"Report of the Compensation Committee on Executive Compensation", and the
"Performance Graph-Shareholder Return on Common Stock" beginning on Page 6 and
ending on Page 13 of the Company's definitive proxy statement filed with the
Commission since the close of the Registrant's fiscal year ended June 27, 1999,
and within 120 days after the close of said fiscal year, are incorporated herein
by reference.
For additional information regarding executive compensation reference is
made to Exhibits (101), (10m), (10n), (10p), (10q), (10r) and (10s) of this Form
10-K.
30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners and management is the same
as reported under the heading "Information Relating to Principal Security
Holders" on Page 2 of the definitive proxy statement and under the heading
"Security Holding of Directors, Nominees and Executive Officers" on Page 5 and
Page 6 of the definitive proxy statement filed with the Commission pursuant to
Regulation 14 (a) within 120 days after the close of the fiscal year ended June
27, 1999, which are hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the heading "Compensation and Option
Committees Interlocks and Insider Participation In Compensation Decisions", on
Page 6 and Page 7 of the definitive proxy statement filed with the Commission
since the close of the Registrant's fiscal year ended June 27, 1999, and within
120 days after the close of said fiscal year, is incorporated herein by
reference.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following financial statements and report of independent auditors are
filed as a part of this Report.
PAGES
------
Report of Independent Auditors .................................................... 13
Consolidated Balance Sheets at June 27, 1999 and June 28, 1998 .................... 14
Consolidated Statements of Income for the Years Ended June 27, 1999, June 28, 1998,
and June 29, 1997 ................................................................. 15
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive
Income for the Years Ended June 27, 1999, June 28, 1998 and June 29, 1997 ......... 16
Consolidated Statements of Cash Flows for the Years Ended June 27, 1999, June 28,
1998 and June 29, 1997 ............................................................ 17
Notes to Consolidated Financial Statements ........................................ 18
2. Financial Statement Schedules
Schedules for the three years ended June 27, 1999:
II -- Valuation and Qualifying Accounts .......... 36
Schedules other than those above are omitted because they are not required,
are not applicable, or the required information is given in the consolidated
financial statements or notes thereto.
Individual financial statements of the Registrant have been omitted because
it is primarily an operating company and all subsidiaries included in the
consolidated financial statements being filed, in the aggregate, do not have
minority equity interest and/or indebtedness to any person other than the
Registrant or its consolidated subsidiaries in amounts which together exceed 5%
of the total assets as shown by the most recent year end consolidated balance
sheet.
With the exception of the information herein expressly incorporated by
reference, the 1999 Proxy Statement is not deemed filed as a part of this Annual
Report on Form 10-K.
3. Exhibits
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------
(2a-1) Contribution Agreement, dated June 30, 1997, by and between
Parkdale Mills, Inc., Unifi, Inc., UNIFI Manufacturing, Inc.,
and Parkdale America, LLC, filed as Exhibit (2) to Unifi's Form
8-K filed with the Commission on July 15, 1997, which is
incorporated herein by reference.
(3a) Restated Certificate of Incorporation of Unifi, Inc., dated July
21, 1994, (filed as Exhibit (3a) with the Company's Form 10-K
for the fiscal year ended June 26, 1994), which is incorporated
herein by reference.
(3b) Restated by-laws of Unifi, Inc., (effective July 22, 1999),
filed herewith.
(4a) Specimen Certificate of Unifi, Inc.'s common stock, filed as
Exhibit 4(a) to the Registration Statement on Form S-1,
(Registration No. 2-45405), which is incorporated herein by
reference.
(4b) Unifi, Inc.'s Registration Statement for the 6 1/2% Notes due
2008, Series B, filed on Form S-4 (Registration No. 333-49243),
which is incorporated herein by reference.
(4c) Description of Unifi, Inc.'s common stock, filed on November 5,
1998, as Item 5. (Other Events) on Form 8-K, which is
incorporated herein by reference.
(10a) *Unifi, Inc. 1982 Incentive Stock Option Plan, as amended, filed
as Exhibit 28.2 to the Registration Statement on Form S-8,
(Registration No. 33-23201), which is incorporated herein by
reference.
(10b) *Unifi, Inc. 1987 Non-Qualified Stock Option Plan, as amended,
filed as Exhibit 28.3 to the Registration Statement on Form S-8,
(Registration No. 33-23201), which is incorporated herein by
reference.
32
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------
(10c) *Unifi, Inc. 1992 Incentive Stock Option Plan, effective July
16, 1992, (filed as Exhibit (10c) with the Company's Form 10-K
for the fiscal year ended June 27, 1993), and included as
Exhibit 99.2 to the Registration Statement on Form S-8
(Registration No. 33-53799), which are incorporated herein by
reference.
(10d) *Unifi, Inc.'s Registration Statement for selling Shareholders,
who are Directors and Officers of the Company, who acquired the
shares as stock bonuses from the Company, filed on Form S-3
(Registration No. 33-23201), which is incorporated herein by
reference.
(10e) Unifi Spun Yarns, Inc.'s 1992 Employee Stock Option Plan filed
as Exhibit 99.3 to the Registration Statement on Form S-8
(Registration No. 33-53799), which is incorporated herein by
reference.
(10f) *Unifi, Inc.'s 1996 Incentive Stock Option Plan (filed as
Exhibit 10(f) with the Company's Form 10-K for the fiscal year
ended June 30, 1996) which is incorporated herein by reference.
(10g) *Unifi, Inc.'s 1996 Non-Qualified Stock Option Plan (filed as
Exhibit 10(g) with the Company's Form 10-K for the fiscal year
ended June 30, 1996) which is incorporated herein by reference.
(10h) Lease Agreement, dated March 2, 1987, between NationsBank,
Trustee under the Unifi, Inc. Profit Sharing Plan and Trust,
Wachovia Bank and Trust Co., N.A., Independent Fiduciary, and
Unifi, Inc., (filed as Exhibit (10d) with the Company's Form
10-K for the fiscal year ended June 27, 1987), which is
incorporated herein by reference.
(10i) Factoring Contract and Security Agreement and a Letter Amendment
thereto, all dated as of May 25, 1994, by and between Unifi,
Inc. and the CIT Group/DCC, Inc., (filed as Exhibit (10g) with
the Company's Form 10-K for the fiscal year ended June 26,
1994), which are incorporated herein by reference.
(10j) Factoring Contract and Security Agreement, dated as of May 2,
1988, between Macfield, Inc., and First Factors Corp., and First
Amendment thereto, dated September 28, 1990, (both filed as
Exhibit (10g) with the Company's Form 10-K for the fiscal year
ended June 30, 1991), and Second Amendment to the Factoring
Contract and Security Agreement, dated March 1, 1992, (filed as
Exhibit (10g) with the Company's Form 10-K for the fiscal year
ended June 27, 1992), and Letter Agreement dated August 31, 1993
and Amendment to Factoring Contract and Security Agreement dated
January 5, 1994, (filed as Exhibit (10h) with the Company's Form
10-K for the fiscal year ended June 26, 1994), which are
incorporated herein by reference.
(10k) Factoring Agreement dated August 23, 1995, and a Letter
Amendment thereto dated October 16, 1995, by and between Unifi,
Inc. and Republic Factors Corp., (filed as Exhibit 10(k) with
the Company's Form 10-K for the fiscal year ended June 30, 1996)
which is incorporated herein by reference.
(10l) *Employment Agreement between Unifi, Inc. and G. Allen Mebane,
dated July 19, 1990, (filed as Exhibit (10h) with the Company's
Form 10-K for the fiscal year ended June 30, 1991), which is
incorporated herein by reference.
(10m) *Employment Agreement between Unifi, Inc. and William T.
Kretzer, dated July 19, 1990, (filed as Exhibit (10i) with the
Company's Form 10-K for the fiscal year ended June 30, 1991),
and Amendment to Employment Agreement between Unifi, Inc. and
William T. Kretzer, dated October 22, 1992 (filed as Exhibit
(10j) with the Company's Form 10-K for fiscal year ended June
27, 1993), which are incorporated herein by reference, and
Termination Agreement effective the 1st day of February, 1999,
which is filed herewith.
(10n) *Severance Compensation Agreement between Unifi, Inc. and
William T. Kretzer, dated July 20, 1996, expiring on July 19,
1999 (similar agreements were signed with G. Allen Mebane,
Robert A. Ward, Jerry W. Eller and G. Alfred Webster)(filed as
Exhibit (10n) with the Company's Form 10-K for fiscal year ended
June 30, 1996), which is incorporated herein by reference.
(10o) Credit Agreement, dated April 15, 1996, by and between Unifi,
Inc. and The Several Lenders from Time to Time Party thereto and
NationsBank, N.A. as agent, (filed as Exhibit (10o) with the
Company's Form 10-K for the fiscal year ended June 30, 1996)
which is incorporated herein by reference.
(10p) *Deferral Agreement, dated November 21, 1997, by and between
Unifi, Inc. and William T. Kretzer (filed as Exhibit (10p) with
the Company's Form 10-K for the fiscal year ended June 28,
1998), which incorporated herein by reference. Note: Said
Deferral Agreement was amended by the Termination Agreement
filed as Exhibit (10m) to this Form 10-K.
33
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------
(10q) *Severance Compensation Agreement between Unifi, Inc. and Willis
C. Moore, III, dated July 16, 1998, expiring on July 20, 2001
(similar agreements were signed with James W. Brown, Jr.,
Kenneth L. Huggins, Stewart Q. Little, Ralph D. Mayes and
Raymond W. Maynard)(filed as Exhibit (10q) with the Company's
Form 10-K for the fiscal year ended June 28, 1998).
(10r) *Severance Compensation Agreement between Unifi, Inc. and Brian
R. Parke, dated October 1, 1998, expiring on July 20, 2001,
filed herewith.
(10s) *Agreement, effective February 1, 1999, by and between Unifi,
Inc. and Jerry W. Eller, filed herewith.
(21) Subsidiaries of Unifi, Inc.
(23) Consent of Ernst & Young LLP.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None
- ---------
* NOTE: These Exhibits are management contracts or compensatory plans or
arrangements required to be filed as an exhibit to this Form 10-K pursuant to
Item 14(c) of this report.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
September 21, 1999 By: /s/ G. ALLEN MEBANE, IV
-- ---------------------------------------
G. ALLEN MEBANE, IV
CHAIRMAN OF THE BOARD
(CHIEF EXECUTIVE OFFICER)
September 21, 1999 By: /s/ WILLIS C. MOORE, III
-- ---------------------------------------
WILLIS C. MOORE, III
SENIOR VICE PRESIDENT
(CHIEF FINANCIAL OFFICER)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ G. ALLEN MEBANE, IV Chairman, Chief Executive Officer September 21, 1999
- ---------------------------------- and Director --
G. ALLEN MEBANE, IV
/s/ BRIAN R. PARKE President, Chief Operating Officer September 21, 1999
- ---------------------------------- and Director --
BRIAN R. PARKE
/s/ ROBERT A. WARD Senior Advisor to President and September 21, 1999
- ---------------------------------- Director --
ROBERT A. WARD
/s/ JERRY W. ELLER Executive Vice President and September 21, 1999
- ---------------------------------- Director --
JERRY W. ELLER
/s/ G. ALFRED WEBSTER Executive Vice President and September 21, 1999
- ---------------------------------- Director --
G. ALFRED WEBSTER
/s/ CHARLES R. CARTER Director September 21, 1999
- ---------------------------------- --
CHARLES R. CARTER
/s/ KENNETH G. LANGONE Director September 21, 1999
- ---------------------------------- --
KENNETH G. LANGONE
/s/ DONALD F. ORR Director September 21, 1999
- ---------------------------------- --
DONALD F. ORR
/s/ J.B. DAVIS Director September 21, 1999
- ---------------------------------- --
J.B. DAVIS
/s/ R. WILEY BOURNE, JR. Director September 21, 1999
- ---------------------------------- --
R. WILEY BOURNE, JR.
Director September 21, 1999
- ---------------------------------- --
SIR RICHARD GREENBURY
35
(d) Schedule II -- Valuation and Qualifying Accounts
UNIFI, INC. AND SUBSIDIARIES
JUNE 27, 1999
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------- -------------- --------------------------- ------------------ --------------
ADDITIONS
---------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS -- DEDUCTIONS -- BALANCE AT
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
- ----------------------------- -------------- ------------ -------------- ------------------ --------------
Allowance for doubtful
accounts:
Year ended June 27, 1999 .. $8,225 $6,241 $ 451(a) $ (6,168)(b) $8,749
Year ended June 28, 1998 .. 5,462 3,917 3,665(a) (4,819)(b) 8,225
Year ended June 29, 1997 .. 6,595 4,390 -- (5,523)(b) 5,462
(A) INCLUDES ACQUISITION RELATED ADJUSTMENTS TO WRITE-DOWN ACQUIRED ACCOUNTS
RECEIVABLE TO FAIR MARKET VALUE.
(B) INCLUDES UNCOLLECTIBLE ACCOUNTS WRITTEN OFF AND CUSTOMER CLAIMS PAID, NET OF
CERTAIN RECOVERIES.
36