FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000
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Commission file number 1-10984
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BURLINGTON INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 56-1584586
(State or other juris- (I.R.S. Employer
diction of incorpora- Identification No.)
tion or organization)
3330 West Friendly Avenue, Greensboro, North Carolina 27410
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(Address of principal executive offices)
(Zip Code)
(336) 379-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of August 1, 2000 there were outstanding 52,082,514 shares of Common Stock,
par value $.01 per share, and 454,301 shares of Nonvoting Common Stock, par
value $.01 per share, of the registrant.
Part 1 - Financial Information
Item 1. Financial Statements
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Operations
(Amounts in thousands, except for per share amounts)
Three Three Nine Nine
months months months months
ended ended ended ended
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Net sales $ 419,821 $ 434,634 $ 1,193,016 $ 1,245,721
Cost of sales 362,429 374,246 1,038,097 1,077,339
---------- ---------- ---------- ----------
Gross profit 57,392 60,388 154,919 168,382
Selling, general and
administrative expenses 35,006 34,247 102,786 107,446
Provision for doubtful accounts 2,188 3,231 2,694 4,828
Amortization of goodwill 4,449 4,449 13,348 13,360
Provision for restructuring (186) 0 (186) 65,280
---------- ---------- ---------- ----------
Operating income (loss) before
interest and taxes 15,935 18,461 36,277 (22,532)
Interest expense 16,836 15,136 48,975 44,123
Equity in income of joint ventures (3,562) (2,912) (7,401) (4,813)
Other expense (income) - net (2,133) (2,342) (11,195) (6,920)
---------- ---------- ---------- ----------
Income (loss) before income taxes 4,794 8,579 5,898 (54,922)
Income tax expense (benefit):
Current 1,986 2,599 10,247 3,184
Deferred 1,314 1,234 (1,077) (22,938)
---------- ---------- ---------- ----------
Total income tax expense
(benefit) 3,300 3,833 9,170 (19,754)
---------- ---------- ---------- ----------
Net income (loss) $ 1,494 $ 4,746 $ (3,272)$ (35,168)
========== ========== ========== ==========
Net income (loss) per common share:
Basic earnings (loss)
per share $ 0.03 $ 0.09 $ (0.06)$ (0.63)
Diluted earnings (loss)
per share $ 0.03 $ 0.09 $ (0.06)$ (0.63)
See notes to consolidated financial statements.
1
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Amounts in thousands)
July 1, October 2,
2000 1999
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ASSETS
Current assets:
Cash and cash equivalents $ 6,297 $ 17,402
Short-term investments 13,427 18,307
Customer accounts receivable after deductions
of $16,812 and $18,258 for the
respective dates for doubtful accounts,
discounts, returns and allowances 264,846 251,781
Sundry notes and accounts receivable 29,482 23,444
Inventories 326,889 317,554
Prepaid expenses 4,368 5,371
------------ -------------
Total current assets 645,309 633,859
Fixed assets, at cost:
Land and land improvements 31,337 31,807
Buildings 424,907 419,569
Machinery, fixtures and equipment 667,998 644,765
------------ -------------
1,124,242 1,096,141
Less accumulated depreciation and amortization 482,787 454,909
------------ -------------
Fixed assets - net 641,455 641,232
Other assets:
Investments and receivables 63,677 68,103
Intangibles and deferred charges 47,266 40,452
Excess of purchase cost over net assets acquired 480,739 492,629
------------ -------------
Total other assets 591,682 601,184
------------ -------------
$ 1,878,446 $ 1,876,275
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,300 $ 0
Long-term debt due currently 323,470 470
Accounts payable - trade 78,639 80,176
Sundry payables and accrued expenses 69,618 79,612
Income taxes payable 3,905 1,166
Deferred income taxes 38,868 40,171
------------ -------------
Total current liabilities 517,800 201,595
Long-term liabilities:
Long-term debt 579,129 880,957
Other 58,039 57,657
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Total long-term liabilities 637,168 938,614
Deferred income taxes 106,401 106,817
Shareholders' equity:
Common stock issued 689 684
Capital in excess of par value 884,485 884,347
Accumulated deficit (88,615) (85,343)
Accumulated other comprehensive income (loss) (23,698) (14,658)
Cost of common stock held in treasury (155,784) (155,781)
------------ -------------
Total shareholders' equity 617,077 629,249
------------ -------------
$ 1,878,446 $ 1,876,275
============ =============
See notes to consolidated financial statements.
2
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Amounts in thousands)
Nine Nine
months months
ended ended
July 1, July 3,
2000 1999
------------ -------------
Cash flows from operating activities:
Net loss $ (3,272)$ (35,168)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization of fixed assets 48,951 48,156
Provision for doubtful accounts 2,694 4,828
Amortization of intangibles and
deferred debt expense 14,012 13,627
Equity in loss of joint ventures 699 2,427
Deferred income taxes (1,077) (22,938)
Translation gain on liquidation of subsidiary (5,507) 0
Gain on disposal of assets (990) (4,328)
Provision for restructuring (186) 65,280
Changes in assets and liabilities:
Customer accounts receivable - net (15,759) 28,108
Sundry notes and accounts receivable (6,038) (3,083)
Inventories (9,335) (8,529)
Prepaid expenses 1,003 (742)
Accounts payable and accrued expenses (10,375) (33,943)
Change in income taxes payable 2,739 (2,284)
Other (8,597) (15,459)
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Total adjustments 12,234 71,120
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Net cash provided by operating activities 8,962 35,952
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Cash flows from investing activities:
Capital expenditures (56,199) (104,945)
Proceeds from sales of assets 6,438 48,982
Investment in joint ventures 0 (5,366)
Change in investments 5,521 (2,516)
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Net cash used by investing activities (44,240) (63,845)
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Cash flows from financing activities:
Changes in short-term borrowings 3,300 (14,200)
Repayments of long-term debt (458) (28,960)
Proceeds from issuance of long-term debt 21,331 100,000
Purchase of treasury shares 0 (35,349)
------------ -------------
Net cash provided by financing activities 24,173 21,491
------------ -------------
Net change in cash and cash equivalents (11,105) (6,402)
Cash and cash equivalents at beginning of period 17,402 18,163
------------ -------------
Cash and cash equivalents at end of period $ 6,297 $ 11,761
============ =============
See notes to consolidated financial statements.
3
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
As of and for the nine months ended July 1, 2000
Note A.
With respect to interim quarterly financial data, which are unaudited, in
the opinion of Management, all adjustments necessary to a fair statement of the
results for such interim periods have been included. All adjustments were of a
normal recurring nature.
Note B.
Accounts of certain international subsidiaries are included as of dates
three months or less prior to that of the consolidated balance sheets.
Note C.
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.
Note D.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands):
Three Months Ended Nine Months Ended
--------------------- -------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
---------- ---------- ---------- --------
Numerator:
Net income (loss)............... $ 1,494 $ 4,746 $ (3,272) $ (35,168)
========= ======== ======== =========
Denominator:
Denominator for basic earnings per
share.......................... 52,079 53,381 52,074 55,718
Effect of dilutive securities:
Stock options.................. 10 1 - -
Performance Unit awards........ 297 21 - -
Nonvested stock................ 130 6 47 8
-------- -------- -------- --------
Denominator for diluted earnings
per share...................... 52,516 53,409 52,121 55,726
======== ======== ======== ========
Awards that could potentially dilute basic earnings per share in the
future were not included in the diluted earnings per share computations in loss
periods because they would have been antidilutive. However, such securities were
not significant in these periods. During the first nine months of the 2000
fiscal year, outstanding shares changed due to the issuance of 11,834 shares to
settle Performance Unit awards and the issuance of 458,910 new shares of
restricted stock, principally in exchange for the surrender of 1,384,943 vested
stock options.
Under its agreement to purchase a controlling interest in Nano-Tex
(formerly AvantGarb LLC), the Company is obligated to issue shares of the
Company's Common Stock on each of the three anniversaries of the November 4,
1999 closing date, the amount of which will depend on the average market price
for a specified period prior to such date. On November 4, 2000, the required
number of shares to be issued will be 467,000 if the average price is below
$5.00, or 334,000 if greater than such price.
Note E.
Inventories are summarized as follows (dollar amounts in thousands):
July 1, October 2,
2000 1999
---------- ----------
Inventories at average cost:
Raw materials............................. $ 29,229 $ 34,468
Stock in process.......................... 82,608 88,042
Produced goods............................ 225,914 207,804
Dyes, chemicals and supplies.............. 25,792 21,269
---------- ----------
363,543 351,583
Less excess of average cost over LIFO..... 36,654 34,029
---------- ----------
Total................................. $ 326,889 $ 317,554
========== ==========
Note F.
Comprehensive income (loss) totaled $(1,992,000) and $5,135,000 for the
three months ended July 1, 2000 and July 3, 1999, respectively, and
$(12,312,000) and $(33,747,000) for the nine months ended July 1, 2000 and
July 3, 1999, respectively. Comprehensive income (loss) consists of net income
(loss), foreign currency translation adjustments during the period,
reclassification of $(5,507,000) in the December 1999 quarter for a foreign
currency translation gain included in "Other income" arising from the
liquidation of the Company's Canadian subsidiary, and unrealized gains and
losses on securities (net of income tax).
Note G.
The following is combined summarized unaudited financial information of
the Company's investments in affiliates that are accounted for on the equity
method (in millions):
Three months ended Nine months ended
------------------- -------------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
-------- -------- -------- --------
Revenue.................. $ 131.7 $ 110.6 $ 361.6 $ 347.7
Gross profit............. 10.1 7.5 30.8 17.6
Net income (loss)........ (4.0) 4.3 (1.1) (1.2)
The earnings data above includes the earnings recorded by the Company's
textured yarn joint venture combined with the income (loss) of other
affiliates. Under the terms of the textured yarn joint venture agreement, the
Company is entitled to receive the first $12.0 million of cash flow for each
of the first five years of operations which began in the June quarter of 1998.
Subsequent to this five-year period, distributions and earnings are to be
allocated based on ownership percentages.
Note H.
The Company conducts its operations in three principal operating
segments: PerformanceWear, CasualWear and Interior Furnishings. The Company
evaluates performance and allocates resources based on profit or loss before
interest, amortization of goodwill, restructuring charges, certain unallocated
corporate expenses, and income taxes. The following table sets forth certain
information about the segment results (in millions):
Three months ended Nine months ended
------------------ -----------------
July 1, July 3, July 1, July 3,
2000 1999 2000 1999
-------- -------- -------- --------
Net sales
PerformanceWear........ $ 153.4 $ 164.1 $ 442.4 $ 472.1
CasualWear............. 66.1 69.8 172.1 197.1
Interior Furnishings... 200.1 194.0 581.8 557.8
Other.................. 8.9 9.3 25.9 27.2
-------- -------- -------- --------
428.5 437.2 1,222.2 1,254.2
Less:
Intersegment sales.... (8.7) (2.6) (29.2) (8.5)
-------- -------- -------- --------
$ 419.8 $ 434.6 $1,193.0 $1,245.7
======== ======== ======== ========
Income (loss) before
income taxes
PerformanceWear........ $ 7.4 $ 12.4 $ 21.5 $ 13.0
CasualWear............. 1.4 (4.7) (7.9) 1.1
Interior Furnishings... 19.5 21.1 54.3 55.2
Other.................. (0.3) 0.6 (1.1) 1.1
-------- -------- -------- --------
Total reportable
segments............ 28.0 29.4 66.8 70.4
Corporate expenses..... (4.3) (3.6) (10.0) (9.4)
Goodwill amortization.. (4.4) (4.4) (13.3) (13.4)
Restructuring ......... 0.2 - 0.2 (65.3)
Interest expense....... (16.8) (15.1) (49.0) (44.1)
Other (expense)
income - net......... 2.1 2.3 11.2 6.9
-------- -------- -------- --------
$ 4.8 $ 8.6 $ 5.9 $ (54.9)
======== ======== ======== ========
Intersegment net sales for the three months ended July 1, 2000 were
primarily attributable to PerformanceWear segment sales of $6.0 million and
$2.7 million included in the "Other" category. Intersegment net sales for the
nine months ended July 1, 2000 were primarily attributable to PerformanceWear
segment sales of $22.1 million and $7.1 million included in the "Other"
category. Intersegment net sales for the three and nine months ended July 3,
1999 were primarily attributable to the "Other" category.
Note I.
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 137, "Accounting for
Derivative Instruments and Hedging Activities --Deferral of the Effective Date
of FASB Statement No. 133." Reference is made to Note A of the consolidated
financial statements in the Company's 1999 Annual Report to Shareholders
regarding SFAS No. 133. The Company is required to adopt SFAS No. 133 no later
than October 1, 2000, and does not expect it will have a material effect on
the earnings and financial position of the Company.
Note J.
In March 2000, the Company entered into a new three-year interest rate
cap agreement with a notional amount of $100.0 million and a fixed rate of
6.02% (the variable rate is based on three-month LIBOR). The new agreement is
with a bank that is a counterparty to two existing interest rate swap
agreements that were modified at the same time under terms that required no
premium payment for the cap instrument. These terms changed the maturity date
of the Company's 6.10%, $50 million notional swap instrument to November 2002
and the maturity date of its 5.72%, $50 million notional swap instrument to
January 2002. The fair values of the Company's interest rate instruments are
the estimated amounts that the Company would receive or pay to terminate the
agreements at the reporting date, taking into account current interest rates
and the current creditworthiness of the counterparties. At July 1, 2000, the
Company estimates it would have received $3.6 million to terminate its
interest rate agreements, and at October 2, 1999, the Company estimates it
would have paid $1.6 million to terminate its interest rate agreements.
Note K.
During the March quarter of 1999, the Company implemented a
comprehensive reorganization plan primarily related to its apparel fabrics
business. The apparel fabrics operations had been running at less than full
capacity during the preceding 9-12 month period, anticipating that the surge
of low-priced garment imports from Asia might only be the temporary result of
the Asian financial crisis. The Company viewed this situation to be more
permanent in nature and therefore decided to reduce its U.S. manufacturing
capacity accordingly and utilize only its most modern facilities to be
competitive. The major elements of the plan included:
(1) The combination of two businesses that had complementary product
lines and serve many of the same customers. The merger of the two--Burlington
Klopman Fabrics and Burlington Tailored Fashions--created an organization with
an improved cost structure, called Burlington PerformanceWear. Also,
Burlington Global Denim and a portion of the former Sportswear division were
combined to form Burlington CasualWear.
(2) The reduction of U.S. apparel fabrics capacity by approximately 25
percent and the reorganization of manufacturing assets, including overhead
reductions throughout the Company. Seven plants have been closed or sold by
the dates indicated: one department in Raeford, North Carolina and one plant
in Forest City, North Carolina were closed in the March 1999 quarter; three
plants in North Carolina located in Cramerton (sold in July 1999),
Mooresville, and Statesville were closed during the June 1999 quarter and one
plant in Hillsville, Virginia was sold in June 1999; one plant in Bishopville,
South Carolina and one plant located in Oxford, North Carolina were closed in
phases and closure was completed during the March quarter 2000.
(3) The plan resulted in the reduction of approximately 2,800
employees, with severance benefit payments to be paid over periods of up to 12
months from the termination date depending on the employee's length of
service.
The cost of the reorganization was reflected in a restructuring charge,
before income taxes, of $61.9 million ($58.5 million applicable to the apparel
fabrics business) recorded in the second fiscal quarter ended April 3, 1999,
as adjusted by $3.2 million in the fourth quarter of 1999 and $0.2 million
(reductions of $1.1 million in severance benefits, $0.5 million in write-down
of pension assets and an increase of $1.4 million for fixed assets) in the
June quarter of 2000. The components of the adjusted 1999 restructuring charge
included the establishment of a $17.9 million reserve for severance benefit
payments, write-down of pension assets of $2.7 million for curtailment and
settlement losses, write-downs for impairment of $39.1 million related to
fixed assets resulting from the restructuring and a reserve of $2.2 million
for lease cancellations and other exit costs expected to be paid through
September 2001. Assets that have been sold, or are held for sale at July 1,
2000 and are no longer in use, were written down to their estimated fair
values less costs of sale. Assets held for sale continue to be included in the
Fixed Assets caption on the balance sheet in the amount of $8.5 million. Cash
costs of the reorganization are expected to be substantially offset by cash
receipts from asset sales and lower working capital needs.
Following is a summary of activity in the related 1999 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- -------------
March 1999 restructuring charge....... $ 20.1 $ 2.2
Payments.............................. (1.5) (0.2)
------ -----
Balance at April 3, 1999.............. 18.6 2.0
Payments.............................. (5.7) (0.2)
------ -----
Balance at July 3, 1999............... 12.9 1.8
Payments.............................. (3.6) (0.1)
Adjustments........................... (1.1) -
------ -----
Balance at October 2, 1999............ 8.2 1.7
Payments.............................. (1.4) (0.3)
------ -----
Balance at January 1, 2000............ 6.8 1.4
Payments.............................. (2.9) (0.3)
------ -----
Balance at April 1, 2000.............. 3.9 1.1
Payments.............................. (1.3) (0.1)
Adjustments........................... (1.1) -
------ -----
Balance at July 1, 2000............... $ 1.5 $ 1.0
====== =====
Other expenses related to the 1999 restructuring (including losses on
inventories of discontinued styles, relocation of employees and equipment, and
plant carrying and other costs) are charged to operations as incurred. Through
July 1, 2000, $33.0 million of such costs have been incurred and charged to
operations, consisting primarily of inventory losses and plant carrying costs,
in the amounts of $1.4 million and $8.6 million in the June quarter of fiscal
2000 and 1999, respectively, $5.9 million and $20.7 million for the nine
months ended July 1, 2000 and July 3, 1999, respectively, and $27.1 million
for the 1999 fiscal year.
The Company has substantially completed all of the 1997 and 1996
restructuring efforts with the exception of the divestitures of certain
machinery and equipment and real estate (one plant was disposed of during the
March 2000 quarter at its carrying amount). The carrying amount of such assets
at July 1, 2000, included in the Fixed Assets caption on the balance sheet, is
$6.5 million, and the Company does not anticipate any material adjustments to
this amount.
The Company, through its Real Estate and Purchasing departments, is
actively marketing the affected real estate and equipment. The active plan to
sell the assets includes the preparation of a detailed property marketing
package to be used in working with real estate and used equipment brokers and
other channels, including other textile companies, the local Chamber of
Commerce and Economic Development and the State Economic Development
Department. The Company anticipates that the divestitures of real estate and
equipment will be completed within 12 to 18 months from the date of closing.
However, the actual timing of the disposition of these properties may vary due
to their locations and market conditions.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Results Of Operations
Sales and earnings in the PerformanceWear segment for the June 2000
quarter fell well below expectations. This shortfall was largely due to
weakness in womenswear and export markets that worsened in the closing weeks
of the quarter. There was also weakness in the consumer home products area of
interior furnishings largely due to inventory reductions at several major
retail customers. The Company's immediate action plan is to move aggressively
to improve financial performance by reviewing the strategic status of each of
the PerformanceWear product lines and to align manufacturing capacity and
organizational structure to its sustainable business level.
Comparison of Three Months ended July 1, 2000 and July 3, 1999.
NET SALES: Net sales for the third quarter of the 2000 fiscal year were
$419.8 million compared to $434.6 million recorded for the third quarter of
the 1999 fiscal year. Export sales totaled $41.0 million and $68.0 million in
the 2000 and 1999 periods, respectively.
PerformanceWear: Net sales for the PerformanceWear segment for the
third quarter of the 2000 fiscal year were $153.4 million, 6.5% lower than the
$164.1 million recorded in the third quarter of the 1999 fiscal year. This
decrease was primarily due to 4.7% lower selling prices/product mix and 1.8%
lower volume. Export volume decreased by $8.2 million, in part due to the weak
Euro currency.
CasualWear: Net sales for the CasualWear segment for the third quarter
of the 2000 fiscal year were $66.1 million, 5.3% lower than the $69.8 million
recorded in the third quarter of the 1999 fiscal year. Excluding $1.9 million
sales reduction due to exiting the Sportswear business, net sales of products
for the CasualWear segment were 2.7% lower than in the prior year. This
decrease was due primarily to 13.7% lower prices and product mix offset by
11.0% higher volume.
Interior Furnishings: Net sales of products for interior furnishings
markets for the third quarter of the 2000 fiscal year were $200.1 million,
3.1% higher than the $194.0 million recorded in the third quarter of the 1999
fiscal year. This increase was due primarily to 3.4% higher volume offset by
0.3% lower prices and product mix.
Intersegment Sales: The increase in intersegment net sales was
primarily attributable to PerformanceWear sales to Interior Furnishings of
fabrics for end customer use of interior furnishings.
SEGMENT INCOME: Total reportable segment income for the third quarter
of the 2000 fiscal year was $28.0 million compared to $29.4 million for the
third quarter of the 1999 fiscal year.
PerformanceWear: Income of the PerformanceWear segment for the third
quarter of the 2000 fiscal year was $7.4 million compared to $12.4 million
recorded for the third quarter of the 1999 fiscal year. This decrease was due
primarily to $3.8 million reduction in margins due to lower volume and
price/mix and $3.8 million associated manufacturing inefficiencies, partially
offset by lower raw material costs of $1.5 million and reduced run-out costs
of $1.0 million charged to operations associated with the 1999 restructuring.
CasualWear: Income (loss) of the CasualWear segment for the third
quarter of the 2000 fiscal year was $1.4 million compared to $(4.7) million
recorded for the third quarter of the 1999 fiscal year. This improvement was
due primarily to reduced run-out costs of $4.0 million charged to operations
associated with the 1999 restructuring, lower Mexican start-up costs of $2.1
million, $2.0 million improvement in margins due to higher volume, higher
equity earnings from joint ventures of $1.6 million, the absence of Sportswear
losses of $2.0 million and lower raw material costs of $0.9 million, partially
offset by $6.7 million reduction in margins due to price/mix.
Interior Furnishings: Income of the interior furnishings products
segment for the third quarter of the 2000 fiscal year was $19.5 million
compared to $21.1 million recorded for the third quarter of the 1999 fiscal
year. This decrease was due primarily to $5.9 million of manufacturing
inefficiencies and $1.7 million of higher raw material costs partially offset
by improved margins from higher volume and price/mix that totaled $4.6 million
and $1.3 million lower provision for doubtful accounts.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $4.3 million for the third quarter of the 2000 fiscal year
compared to $3.6 million in the third quarter of the 1999 fiscal year. The
increase from the prior year period is attributable mainly to the timing of
maintenance expenses.
OPERATING INCOME BEFORE INTEREST AND TAXES: Operating income before
interest and taxes for the third quarter of the 2000 fiscal year was $15.9
million compared to $18.5 million for the third quarter of the 1999 fiscal
year. Amortization of goodwill was $4.4 million in the 2000 and 1999 periods.
INTEREST EXPENSE: Interest expense for the third quarter of the 2000
fiscal year was $16.8 million, or 4.0% of net sales, compared with $15.1
million, or 3.5% of net sales, in the third quarter of the 1999 fiscal year.
The increase was mainly attributable to the effect of higher interest rates
and, to a lesser extent, higher borrowing levels.
OTHER EXPENSE (INCOME): Other income for the third quarter of the 2000
fiscal year was $2.1 million consisting of interest income and gains on sales
of marketable securities. Other income for the third quarter of the 1999
fiscal year was $2.3 million consisting of a $1.4 million gain on the disposal
of assets and interest income of $0.9 million.
INCOME TAX EXPENSE: Income tax expense of $3.3 million was recorded for
the third quarter of the 2000 fiscal year in comparison with $3.8 million for
the prior year period. Total income tax expense/benefit is different from the
amounts obtained by applying statutory rates to the income/loss before income
taxes primarily as a result of amortization of nondeductible goodwill, which
is partially offset by the favorable tax treatment of export sales through a
foreign sales corporation ("FSC"). The favorable tax benefit from the FSC was
lower in the current quarter compared to the 1999 period due to the reduction
in export sales. The U.S. law providing the FSC benefits has been found to be
illegal under WTO provisions and the U.S. has agreed to implement complying
provisions by October 1. The Company cannot predict the impact on its future
use of the FSC benefit under the ultimate scheme put into place and its
acceptability to the WTO.
NET INCOME AND EARNINGS PER SHARE: Net income for the third quarter of
the 2000 fiscal year was $1.5 million, or $0.03 per share (diluted), in
comparison with $4.7 million, or $0.09 per share (diluted), for the third
quarter of the 1999 fiscal year. Net income for the third quarter of the 2000
and 1999 fiscal years included net charges of $(0.02) per share and $(0.10)
per share, respectively, related to the provision for restructuring and
related run-out costs included in cost of sales.
Comparison of Nine Months ended July 1, 2000 and July 3, 1999.
NET SALES: Net sales for the first nine months of the 2000 fiscal year
were $1,193.0 million compared to $1,245.7 million recorded for the first nine
months of the 1999 fiscal year. Export sales totaled $125.0 million and $187.0
million in the 2000 and 1999 periods, respectively.
PerformanceWear: Net sales for the PerformanceWear segment for the
first nine months of the 2000 fiscal year were $442.4 million, 6.3% lower than
the $472.1 million recorded in the first nine months of the 1999 fiscal year.
Excluding $4.1 million sales reduction due to the sale of the Burlington
Madison Yarn division, net sales of products for the PerformanceWear segment
were 5.5% lower than in the prior year. This decrease was due primarily to
3.3% lower prices and product mix and 2.2% lower volume.
CasualWear: Net sales for the CasualWear segment for the first nine
months of the 2000 fiscal year were $172.1 million, 12.7% lower than the
$197.1 million recorded in the first nine months of the 1999 fiscal year.
Excluding $16.1 million sales reduction due to exiting the Sportswear
division, net sales of products for the CasualWear segment were 4.9% lower
than in the prior year. This decrease was due primarily to 11.9% lower prices
and product mix, offset by 7.0% higher volume.
Interior Furnishings: Net sales of products for interior furnishings
markets for the first nine months of the 2000 fiscal year were $581.8 million,
4.3% higher than the $557.8 million recorded in the first nine months of the
1999 fiscal year. This increase was due primarily to 4.5% higher volume offset
by 0.2% lower selling prices and mix.
Intersegment Sales: The increase in intersegment net sales was
primarily attributable to PerformanceWear sales to
Interior Furnishings of fabrics for end customer use of interior furnishings.
SEGMENT INCOME: Total reportable segment income for the first nine
months of the 2000 fiscal year was $66.8 million compared to $70.4 million for
the first nine months of the 1999 fiscal year.
PerformanceWear: Income of the PerformanceWear segment for the first
nine months of the 2000 fiscal year was $21.5 million compared to $13.0
million recorded for the first nine months of the 1999 fiscal year. This
increase was due primarily to reduced run-out costs charged to operations
associated with the 1999 restructuring of $8.9 million, $6.6 million resulting
from cost reductions and restructuring and improved net operating efficiencies
resulting from the restructuring of manufacturing and associated capacity
reductions of $2.4 million, partially offset by reduced margins resulting from
lower volume and price/mix of $7.5 million and higher Mexican start-up costs
of $2.0 million.
CasualWear: Income (loss) of the CasualWear segment for the first nine
months of the 2000 fiscal year was $(7.9) million compared to $1.1 million
recorded for the first nine months of the 1999 fiscal year. This decrease was
due primarily to $25.1 million lower margins resulting from price/mix and
manufacturing inefficiencies, partially offset by the absence of Sportswear
losses of $4.8 million, reduced run-out costs charged to operations associated
with the 1999 restructuring of $2.8 million, higher equity earnings from joint
ventures of $3.4 million, and lower Mexican start-up costs of $5.1 million.
Interior Furnishings: Income of the interior furnishings products
segment for the first nine months of the 2000 fiscal year was $54.3 million
compared to $55.2 million recorded for the first nine months of the 1999
fiscal year. This decrease was due primarily to $12.5 million lower margins
due to price/mix and manufacturing inefficiencies, partially offset by
improved margins from higher volume of $8.6 million, lower provision for
doubtful accounts of $1.5 million and $1.8 million lower raw material costs.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $10.0 million for the first nine months of the 2000 fiscal year
compared to $9.4 million in the first nine months of the 1999 fiscal year. The
increase from the prior year period is attributable mainly to the timing of
maintenance expenses.
OPERATING INCOME BEFORE INTEREST AND TAXES: Operating income (loss)
before interest and taxes for the first nine months of the 2000 fiscal year
was $36.3 million compared to $42.7 million for the first nine months of the
1999 fiscal year (excluding the 1999 restructuring provision). Amortization of
goodwill was $13.3 million and $13.4 million in the 2000 and 1999 periods,
respectively.
INTEREST EXPENSE: Interest expense for the first nine months of the
2000 fiscal year was $49.0 million, or 4.1% of net sales, compared with $44.1
million, or 3.5% of net sales, in the first nine months of the 1999 fiscal
year. The increase was mainly attributable to the effects of higher interest
rates combined with higher borrowing levels.
OTHER EXPENSE (INCOME): Other income for the first nine months of the
2000 fiscal year was $11.2 million consisting principally of a $5.5 million
translation gain on the liquidation of the Company's Canadian subsidiary, a
gain on the disposal of assets of $1.0 million and interest income of $4.7
million. Other income for the first nine months of the 1999 fiscal year was
$6.9 million consisting of $4.3 million in gains on the disposal of assets and
interest income of $2.6 million.
INCOME TAX EXPENSE: Income tax expense of $9.2 million was recorded for
the first nine months of the 2000 fiscal year in comparison with an income tax
benefit of $19.8 million for the prior year period. The 2000 period includes a
$5.7 million charge related to the liquidation of the Company's Canadian
subsidiary and U.S. taxes on income previously considered permanently
invested. Excluding the tax on the Canadian liquidation, total income tax
expense/benefit is different from the amounts obtained by applying statutory
rates to the income/loss before income taxes primarily as a result of
amortization of nondeductible goodwill, which is partially offset by the
favorable tax treatment of export sales through a foreign sales corporation
("FSC"). The favorable tax benefit from the FSC was lower in the current
period compared to the 1999 period due to the reduction in export sales. The
U.S. law providing the FSC benefits has been found to be illegal under WTO
provisions and the U.S. has agreed to implement complying provisions by
October 1. The Company cannot predict the impact on its future use of the FSC
benefit under the ultimate scheme put into place and its acceptability to the
WTO.
NET LOSS AND LOSS PER SHARE: Net loss for the first nine months of the
2000 fiscal year was $(3.3) million, or $(0.06) per share (diluted), in
comparison with $(35.2) million, or $(0.63) per share (diluted), for the
first nine months of the 1999 fiscal year. Net losses for the first nine
months of the 2000 and 1999 fiscal years included net charges of $(0.07) per
share and $(0.94) per share, respectively, related to the 1999 restructuring
provision and related run-out costs included in cost of sales.
Liquidity and Capital Resources
During the first nine months of the 2000 fiscal year, the Company
generated $9.0 million of cash from operating activities, $6.4 million from
the sale of assets and $5.5 million from other investing activities, and had
net borrowings of long- and short-term debt of $24.2 million. Cash was used
primarily for capital expenditures totaling $56.2 million. At July 1, 2000,
total debt of the Company (consisting of current and non-current portions of
long-term debt and short-term borrowings) was $905.9 million compared with
$881.4 million at October 2, 1999 and $870.6 million at July 3, 1999.
The Company's principal uses of funds during the next several years will
be for repayment and servicing of indebtedness, capital investments
(including the funding of acquisitions and participations in joint ventures),
and working capital needs. The Company intends to fund its financial needs
principally from net cash provided by operating activities and, to the extent
necessary, from funds provided by the credit facilities described in this
section. During the next six months, the Company also expects to generate
cash through reductions in working capital levels and cost reduction
measures. The Company believes that these sources of funds will be adequate
to meet the Company's foregoing needs. (See discussion of Bank Credit
Agreement refinancing below).
In August 1997, the Company issued $150.0 million principal amount of
7.25% notes due August 1, 2027 ("Notes Due 2027"). The Notes Due 2027 will be
redeemable as a whole or in part at the option of the Company at any time on
or after August 2, 2007, and will also be redeemable at the option of the
holders thereof on August 1, 2007 in amounts at 100% of their principal
amount. In September 1995, the Company issued $150.0 million principal amount
of 7.25% notes due September 15, 2005 ("Notes Due 2005"). The Notes Due 2005
are not redeemable prior to maturity. The Notes Due 2027 and the Notes Due
2005 are unsecured and rank equally with all other unsecured and
unsubordinated indebtedness of the Company.
In December 1997, the Company established a five-year, $225.0 million
Trade Receivables Financing Agreement ("Receivables Facility") with a bank.
The amount of borrowings allowable under the Receivables Facility at any time
is a function of the amount of then-outstanding eligible trade accounts
receivable up to $225.0 million. Loans under the Receivables Facility bear
interest, with terms up to 270 days, at the bank's commercial paper dealer
rate plus 0.1875%. A commitment fee of 0.125% is charged on the unused
portion of the Receivables Facility. At August 1, 2000, $172.0 million in
borrowings under this facility with original maturities of up to 91 days was
outstanding.
The Company has a $550.0 million unsecured revolving credit facility
("1995 Bank Credit Agreement") that expires in March, 2001. At August 1, 2000,
the Company had approximately $216.5 million in unused capacity under this
facility. The Company also maintains $42.0 million in additional overnight
borrowing availability under bank lines of credit.
Loans under the 1995 Bank Credit Agreement bear interest at either (i)
floating rates generally payable quarterly based on an adjusted Eurodollar
rate plus 0.50% or (ii) Eurodollar rates or fixed rates that may be offered
from time to time by a Lender pursuant to a competitive bid request submitted
by the Company, payable up to 360 days. In addition, the Company pays an
annual facility fee of 0.25%. The interest rate and the facility fee are
currently at the maximum levels under the agreement based on the Company's
senior unsecured debt ratings. In the event that both of the Company's debt
ratings improve, the interest rate and facility fees would be reduced.
The 1995 Bank Credit Agreement imposes various limitations on the
liquidity of the Company. The agreement requires the Company to maintain
minimum interest coverage and maximum leverage ratios and a specified level of
net worth. In addition, the Agreement limits dividend payments, stock
repurchases, leases, the incurring of additional indebtedness by consolidated
subsidiaries, the creation of additional liens and the making of investments
in non-U.S. persons, and restricts the Company's ability to enter into certain
merger, liquidation or asset sale or purchase transactions.
In November 1998, the Company established a $105 million credit
facility with a group of banks used to finance the construction and working
capital needs of the Company's Mexican subsidiaries related to the expansion
projects in Mexico. The facility includes terms and covenants similar to the
$550.0 million bank credit agreement, except that the outstanding balance on
the third anniversary of the facility will convert to a two-year term loan
payable semi-annually in four equal installments. Loans under the new facility
are made directly to a Mexican financing subsidiary of the Company and are
guaranteed by the Company. At August 1, 2000, the Company had no unused
capacity under this facility.
The outstanding balance of $323.0 million under the 1995 Bank Credit
Agreement as of July 1, 2000 is classified as current in the consolidated
balance sheet. The Company intends to refinance this facility on a long-term
basis prior to maturity, and has begun refinancing discussions with key
participants in the facility.
Any vehicle that is used to refinance outstanding credit facilities can
be expected to be considerably more expensive than our current borrowing rate
and have more stringent covenants and may require some form of collateral.
Because the Company's obligations under the bank credit facilities and
the Receivables Facility bear interest at floating rates, the Company is
sensitive to changes in prevailing interest rates. The Company uses derivative
instruments to manage its interest rate exposure, rather than for trading
purposes.
Commodity Price Risk
Exposure to changes in commodity prices is managed primarily through
the Company's procurement practices. The Company enters into contracts to
purchase cotton under the Southern Mill Rules ratified and adopted by the
American Textile Manufacturers Institute, Inc. and American Cotton Shippers
Association. Under these contracts and rules, nonperformance by either the
buyer or seller may result in a net cash settlement of the difference between
the current market price of cotton and the contract price. If the Company
decided to refuse delivery of its open firm commitment cotton contracts at
July 1, 2000, and market prices of cotton decreased by 10%, the Company would
be required to pay a net settlement provision of approximately $4.7 million.
However, the Company has not utilized this net settlement provision in the
past, and does not anticipate using it in the future.
Forward-Looking Statements
With the exception of historical information, the statements contained in
Management's Discussion and Analysis of Results of Operations and Financial
Condition and in other parts of this report include statements that are
forward-looking statements within the meaning of applicable federal securities
laws and are based upon the company's current expectations and assumptions,
which are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those anticipated. Such risks and
uncertainties include, among other things, global economic activity, the
success of the company's overall business strategy, the company's
relationships with its principal customers and suppliers, the success of the
company's expansion in other countries, the demand for textile products, the
cost and availability of raw materials and labor, the company's ability to
refinance its existing debt and to finance its capital expansion and
modernization programs, the level of the company's indebtedness and the
exposure to interest rate fluctuations, governmental legislation and
regulatory changes, and the long-term implications of regional trade blocs and
the effect of quota phase-out and lowering of tariffs under the WTO trade
regime and of the changes in U.S. apparel trade as a result of
recently-enacted Caribbean Basin and Sub-Saharan African trade legislation.
Other risks and uncertainties may also be described from time to time in the
Company's other reports and filings with the Securities and Exchange
Commission.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits.
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10.1 Burlington Industries Equity Inc. Amended and
Restated Equity Incentive Plan ("1990 Plan").
10.2 Burlington Industries Equity Inc. Amended and
Restated 1992 Equity Incentive Plan ("1992 Plan").
10.3 Burlington Industries, Inc. Amended and Restated
1995 Equity Incentive Plan ("1995 Plan").
10.4 Burlington Industries, Inc. Amended and Restated
1998 Equity Incentive Plan ("1998 Plan").
10.5 Form of Restricted Stock Award Agreement under the
1990, 1992, 1995 and 1998 Plans.
10.6 AvantGarb, LLC 2000 Equity Incentive Plan and forms
of agreements thereunder.
27 Financial Data Schedule.
b) Reports on Form 8-K.
-------------------
The Company did not file any reports on Form 8-K during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURLINGTON INDUSTRIES, INC.
By /s/ CHARLES E. PETERS, JR.
----------------------------
Date: August 2, 2000 Charles E. Peters, Jr.
Senior Vice President and
Chief Financial Officer
By /s/ CARL J. HAWK
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Date: August 2, 2000 Carl J. Hawk
Controller