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 December 30, 2000
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Commission file number 1-10984
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BURLINGTON INDUSTRIES, INC.
---------------------------------------------------------
(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
(Address of principal executive offices)
(Zip Code)
(336) 379-2000
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(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 February 6, 2001 there were outstanding 53,714,984 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
months months
ended ended
December 30, January 1,
2000 2000
------------ ------------
Net sales $ 364,314 $ 371,048
Cost of sales 335,532 327,337
------------ ------------
Gross profit 28,782 43,711
Selling, general and administrative
expenses 31,558 32,708
Provision for doubtful accounts 1,707 269
Amortization of goodwill 0 4,449
------------ ------------
Operating income (loss) before
interest and taxes (4,483) 6,285
Interest expense 17,871 15,627
Equity in income of joint ventures (2,500) (1,799)
Other expense (income) - net (2,510) (6,742)
------------ ------------
Loss before income taxes (17,344) (801)
Income tax expense (benefit):
Current (5,313) 5,641
Deferred (508) (1,122)
------------ ------------
Total income tax expense (benefit) (5,821) 4,519
------------ ------------
Net loss $ (11,523) $ (5,320)
============ ============
Basic and diluted loss per
common share $ (0.22) $ (0.10)
See notes to consolidated financial statements.
1
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Amounts in thousands)
December 30, September 30,
2000 2000
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 21,610 $ 26,172
Short-term investments 13,356 13,167
Customer accounts receivable after
deductions of $16,622, and $16,866
for the respective dates for
doubtful accounts, discounts, returns
and allowances 212,629 269,209
Sundry notes and accounts receivable 35,340 31,792
Inventories 263,300 287,969
Prepaid expenses 3,777 3,476
-------------- -------------
Total current assets 550,012 631,785
Fixed assets, at cost:
Land and land improvements 30,743 30,761
Buildings 411,313 410,248
Machinery, fixtures and equipment 657,776 658,597
-------------- -------------
1,099,832 1,099,606
Less accumulated depreciation and
amortization 498,020 487,739
-------------- -------------
Fixed assets - net 601,812 611,867
Other assets:
Investments and receivables 64,317 60,217
Intangibles and deferred charges 58,240 47,731
-------------- -------------
Total other assets 122,557 107,948
-------------- -------------
$ 1,274,381 $ 1,351,600
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 0 $ 3,400
Long-term debt due currently 8,650 30,470
Accounts payable - trade 60,814 86,892
Sundry payables and accrued expenses 82,944 97,552
Income taxes payable 2,414 2,024
Deferred income taxes 22,198 22,560
-------------- -------------
Total current liabilities 177,020 242,898
Long-term liabilities:
Long-term debt 869,339 865,980
Other 54,716 58,288
-------------- -------------
Total long-term liabilities 924,055 924,268
Deferred income taxes 89,678 89,659
Shareholders' equity:
Common stock issued 700 689
Capital in excess of par value 885,269 884,643
Accumulated deficit (623,838) (612,315)
Accumulated other comprehensive
income (loss) (22,714) (22,452)
Cost of common stock held in treasury (155,789) (155,790)
-------------- -------------
Total shareholders' equity 83,628 94,775
-------------- -------------
$ 1,274,381 $ 1,351,600
============== =============
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)
Three Three
months months
ended ended
December 30, January 1,
2000 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (11,523)$ (5,320)
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and amortization of fixed assets 16,881 15,108
Provision for doubtful accounts 1,707 269
Amortization of intangibles and
deferred debt expense 552 4,667
Equity in loss of joint ventures 200 901
Deferred income taxes (508) (1,122)
Translation gain on liquidation of subsidiary 0 (5,507)
Changes in assets and liabilities:
Customer accounts receivable - net 54,873 25,790
Sundry notes and accounts receivable (3,548) (1,180)
Inventories 24,669 (4,704)
Prepaid expenses (301) (237)
Accounts payable and accrued expenses (40,686) (34,911)
Change in income taxes payable 390 3,658
Payment of financing fees (11,698) 0
Other (3,558) (1,122)
------------ ------------
Total adjustments 38,973 1,610
------------ ------------
Net cash provided (used) by operating activities 27,450 (3,710)
------------ ------------
Cash flows from investing activities:
Capital expenditures (7,134) (20,889)
Proceeds from sales of assets 450 517
Change in investments (4,375) 785
------------ ------------
Net cash used by investing activities (11,059) (19,587)
------------ ------------
Cash flows from financing activities:
Changes in short-term borrowings (3,400) 0
Repayments of long-term debt (110,253) (13,083)
Proceeds from issuance of long-term debt 92,700 35,000
------------ ------------
Net cash provided (used) by financing activities (20,953) 21,917
------------ ------------
Net change in cash and cash equivalents (4,562) (1,380)
Cash and cash equivalents at beginning of period 26,172 17,402
------------ ------------
Cash and cash equivalents at end of period $ 21,610 $ 16,022
============ ============
See notes to consolidated financial statements.
3
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
As of and for the three months ended December 30, 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:
Three Months Ended
-------------------------
December 30, January 1,
2000 2000
------------ ------------
(in thousands)
Numerator:
Net income (loss)............... $(11,523) $ (5,320)
======== ========
Denominator:
Denominator for basic and diluted
earnings per share............. 52,398 52,072
====== ========
For the fiscal 2001 and 2000 periods, 1,955,088 shares and 61,301
shares, respectively, that could potentially dilute basic earnings per share in
the future were not included in the diluted earnings per share computations
because they were antidilutive. During the first three months of the 2001 fiscal
year, outstanding shares changed due to the issuance of 10,334 shares to settle
Performance Unit awards, the issuance of 743,150 new shares of restricted
nonvested stock, the forfeiture of 29,089 shares of restricted nonvested stock,
and the issuance of 455,569 vested shares related to the acquisition of the
Nano-Tex investment. Under its agreement to purchase a controlling interest in
Nano-Tex (formerly AvantGarb LLC), the Company is obligated to issue additional
shares of the Company's Common Stock on November 4, 2001 and November 4, 2002
totaling 816,279 shares.
Note E.
Inventories are summarized as follows (in thousands):
December 30, September 30,
2000 2000
--------- ---------
Inventories at average cost:
Raw materials................................ $ 25,209 $ 27,345
Stock in process............................ 69,050 77,978
Produced goods............................... 187,747 198,176
Dyes, chemicals and supplies................. 19,442 22,618
--------- ---------
301,448 326,117
Less excess of average cost over LIFO........ 38,148 38,148
--------- ---------
Total.................................... $ 263,300 $ 287,969
========= =========
Note F.
Comprehensive income (loss) totaled $(11,785,000) and $(11,386,000) for
the three months ended December 30, 2000 and January 1, 2000, respectively.
Comprehensive income (loss) consists of net loss, foreign currency translation
adjustments, unrealized gains/losses on interest rate derivatives and marketable
securities (net of income taxes), and reclassification of $(5,507,000) in the
three months ended January 1, 2000 for a foreign currency translation gain
included in "Other income"arising from the liquidation of the Company's Canadian
subsidiary.
Note G.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Under the statement, all derivatives are
required to be recognized on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The adoption of SFAS No. 133 on October 1, 2000 resulted
in the cumulative effect of an accounting change of $1.4 million being
recognized as a net gain (after taxes) in other comprehensive income (loss). In
addition, income of $16.2 thousand (after income taxes), or $0.00 per share, was
recognized upon adoption but not presented as a separate line in the
consolidated statement of operations as the cumulative effect of an accounting
change due to lack of materiality.
SFAS No. 133 requires companies to recognize all of its derivative
instruments as either assets or liabilities in the statement of financial
position at fair value. The accounting for changes in the fair value (i.e.,
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the
type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, a company must designate the
hedging instrument, based upon the exposure being hedged, as either a fair value
hedge, cash flow hedge or a hedge of a net investment in a foreign operation.
For derivative instruments that are designated and qualify as a fair
value hedge (i.e., hedging the exposure to changes in the fair value of an asset
or a liability or an identified portion thereof that is attributable to a
particular risk), the gain or loss on the derivative instrument as well as the
offsetting loss or gain on the hedged item attributable to the hedged risk are
recognized in current earnings during the period of the change in fair values.
For derivative instruments that are designated and qualify as a cash flow hedge
(i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive
income and reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the present value of
future cash flows of the hedged item, if any, is recognized in current earnings
during the period of change. For derivative instruments not designated as
hedging instruments, the gain or loss is recognized in current earnings during
the period of change.
Fair Value Hedging Strategy
The Company enters into forward exchange contracts to hedge certain
firm commitments denominated in foreign currencies. The purpose of the Company's
foreign currency hedging activities is to protect the Company from risk that the
eventual dollar cash flows from the sale of products to international customers
will be adversely affected by changes in the exchange rates. For the quarter
ended December 30, 2000, the Company did not designate any such forward exchange
contracts as hedges.
Cash Flow Hedging Strategy
The Company has entered into interest rate swap and cap agreements that
effectively convert a portion of its floating-rate debt to a fixed-rate basis,
thus reducing the impact of interest-rate changes on future interest expense. At
December 30, 2000, $50 million of the Company's outstanding long-term debt was
designated as the hedged item to an interest rate swap agreement through January
2002, $50 million was designated as the hedged item to an interest rate swap
agreement through November 2002, and $100 million was designated as the hedged
item to an interest rate cap agreement through March 2003.
To protect against the reduction in value of forecasted foreign
currency cash flows resulting from export sales, the Company has instituted a
foreign currency cash flow hedging program. The Company hedges portions of its
forecasted revenue and subsequent cash flows denominated in foreign currencies
with forward contracts. When the dollar strengthens significantly against the
foreign currencies, the decline in value of future foreign currency revenue and
cash flows is offset by gains in the value of the forward contracts designated
as hedges. Conversely, when the dollar weakens, the increase in the value of
future foreign currency cash flows is offset by losses in the value of the
forward contracts. For the quarter ended December 30, 2000, the Company did not
designate any such forward exchange contracts as hedges.
During the three months ended December 30, 2000, the Company recognized
a gain of $0.1 million related to the portion of the designated hedging
instruments excluded from the assessment of hedge effectiveness, included in
Other Expense (Income) - Net in the statement of operations. At December 30,
2000, the Company expects to reclassify $0.04 million of net gains on derivative
instruments from accumulated other comprehensive income to earnings during the
next twelve months due to the payment of variable interest associated with the
floating rate debt.
The fair values of interest rate instruments are estimated by obtaining
quotes from brokers and 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 December 30, 2000, the fair value carrying amounts of these instruments was a
$0.2 million asset. The fair values of foreign currency contracts (used for
hedging purposes) are estimated by obtaining quotes from brokers. At December
30, 2000, the fair value carrying amount related to foreign currency contracts
in the consolidated balance sheets was a $0.9 liability.
Note H.
On December 5, 2000, the Company entered into an amended bank credit
agreement ("2000 Bank Credit Agreement") which extends the 1995 Bank Credit
Agreement for up to 30 months. The amended facility consists of a $600.0 million
revolving credit facility that provides for the issuance of letters of credit by
the fronting bank in an outstanding aggregate face amount not to exceed $75.0
million, and provides short-term overnight borrowings up to $30.0 million,
provided that at no time shall the aggregate principal amount of revolving loans
and short-term borrowings, together with the aggregate face amount of such
letters of credit issued, exceed $600.0 million.
Loans under the 2000 Bank Credit Agreement bear interest at floating
rates based on the Adjusted Eurodollar Rate plus 3.25%. In addition, the Company
pays an annual commitment fee of 0.50% on the unused portion of the facility.
The facility commitment amount will be reduced to $525.0 million on September
30, 2001 and to $450.0 million on September 30, 2002. At December 30, 2000, the
average interest rate under this agreement was 9.875%.
The 2000 Bank Credit Agreement imposes various limitations on the
liquidity and flexibility 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 amended Agreement contains covenants
applicable to the Company and all material subsidiaries, limiting the incurrence
of additional indebtedness and guarantees thereof, the creation of liens and
other encumbrances on properties, the making of investments or acquisitions, the
sale or other disposition of property or assets, the making of cash dividend or
other restricted payments, the entering into of certain lease and sale and
leaseback transactions, the making of capital expenditures beyond certain
limits, and entering into certain transactions with affiliates or agreements
which are materially adverse to the bank lenders. All obligations under the
amended facility are unconditionally guaranteed by each material existing and
subsequently acquired or organized domestic subsidiary of the Company. The
facility is also secured by perfected first-priority security interests in
substantially all U.S. assets of the Company other than receivables, including
significant real properties, inventory and fixed assets and all of the capital
stock of the Company's existing and future subsidiaries, limited in the case of
any foreign subsidiary to 65.0% of their capital stock. In addition, proceeds
from sales of assets, except for certain exclusions, must be used to repay
borrowings under the facility.
Note I.
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
-------------------------
December 30, January 1,
2000 2000
----------- ------------
Revenue.................. $ 105.9 $ 110.4
Gross profit............. 0.9 10.2
Net income (loss)........ (6.7) 1.5
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 J.
The Company conducts its operations in four principal operating
segments: PerformanceWear, CasualWear, Interior Furnishings and Carpet.
Beginning in the first quarter of 2001, the Company changed its organizational
structure so that the Carpet business, formerly part of the Interior Furnishings
segment, reports to the chief operating decision maker. This represents a change
in the Company's segment reporting, and the Company accordingly has restated its
segment information where appropriate to reflect this change. 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
----------------------------
December 30, January 1,
2000 2000
------------- -------------
(Dollar amounts in millions)
Net sales
PerformanceWear........ $ 122.3 $ 136.2
CasualWear............. 67.0 50.6
Interior Furnishings... 108.1 123.3
Carpet................. 67.3 62.5
Other.................. 7.2 8.5
-------- --------
371.9 381.1
Less:
Intersegment sales.... (7.6) (10.1)
-------- --------
$ 364.3 $ 371.0
======== ========
Income (loss) before income taxes
PerformanceWear........ $ (2.7) $ 4.8
CasualWear............. (4.9) (5.4)
Interior Furnishings... (2.8) 5.6
Carpet................. 12.2 10.2
Other.................. (0.7) (0.3)
--------- --------
Total reportable
segments............ 1.1 14.9
Corporate expenses..... (3.0) (2.4)
Goodwill amortization.. 0.0 (4.4)
Interest expense....... (17.9) (15.6)
Other (expense)
income - net......... 2.5 6.7
-------- --------
$ (17.3) $ ( 0.8)
======== ========
Intersegment net sales for the three months ended December 30, 2000
were primarily attributable to PerformanceWear segment sales of $5.8 million and
$1.4 million included in the "Other" category. Intersegment net sales for the
three months ended January 1, 2000 were primarily attributable to
PerformanceWear segment sales of $7.2 million and $2.9 million included in the
"Other" category.
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--Burlington Klopman Fabrics and
Burlington Tailored Fashions--into 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 (sold in September
2000) 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 and impairment
charge, before income taxes, of $61.4 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, $0.2 million in
the June quarter of 2000, and $0.5 million in the September 2000 quarter. The
components of the adjusted 1999 restructuring and impairment charge included the
establishment of a $17.6 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 $2.0 million for lease
cancellations and other exit costs expected to be paid through September 2001.
Cash costs of the reorganization were 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.............................. (10.8) (0.5)
Adjustments........................... (1.1) -
------ -----
Balance at October 2, 1999............ 8.2 1.7
Payments.............................. (6.6) (0.8)
Adjustments........................... (1.4) (0.2)
------ -----
Balance at September 30, 2000......... 0.2 0.7
Payments.............................. (0.1) (0.1)
------ -----
Balance at December 30, 2000.......... $ 0.1 $ 0.6
====== ======
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
December 30, 2000, $34.5 million of such costs have been incurred and charged to
operations, consisting primarily of inventory losses and plant carrying costs,
in the amounts of $0.3, $7.1 million and $27.1 million for the 2001, 2000 and
1999 fiscal years, respectively.
During the September quarter of 2000, the Company's Board of Directors
approved a plan designed to strengthen the Company's future profitability and
financial flexibility. This plan addressed performance shortfalls as well as
difficult market dynamics including the continued growth of textile products
imports, the casual dressing trend, a drop in exports to Europe because of the
weakness of the Euro, price competition in denim and other products, and
retailers' efforts to reduce their inventories of interior furnishings products.
The major elements of the plan include:
(1) Realign operating capacity. The Company has or will reduce capacity
to better align its operations with current market demand and to assure the most
efficient use of assets. This includes: closing a plant in Johnson City,
Tennessee and moving a portion of its production to other underutilized
facilities in the first half of fiscal year 2001; reducing operations at the
Clarksville, Virginia facilities of the PerformanceWear segment in the December
2000 quarter; and reducing the size of the Company's trucking fleet and closing
the Gaston trucking terminal located in Belmont, North Carolina in the December
2000 quarter.
(2) Eliminate unprofitable businesses. The PerformanceWear segment has
exited its garment-making business (December 2000), and is offering its facility
in Cuernavaca, Mexico for sale, and will prune unprofitable product lines. Also,
the Company plans to exit its tufted area rug business in Monticello, Arkansas
as soon as commitments to customers can be completed.
(3) Reduce overhead. The Company has analyzed administrative and staff
positions throughout the Company, and identified a number of opportunities to
consolidate and reduce cost. This will result in job reductions in division and
corporate staff areas primarily during the December and March quarters of fiscal
year 2001.
(4) Pay down debt. Company-wide initiatives to sell non-performing
assets, reduce working capital, and decrease capital expenditures will free up
cash that will be used to reduce debt and improve financial flexibility. The
Company has completed the refinancing of its bank credit facilities (see Note
H).
The closings and overhead reductions outlined above will result in the
elimination of approximately 2,450 jobs in the United States and 950 jobs in
Mexico, 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
(reduction of approximately 1,600 employees as of December 30, 2000).
This plan resulted in a pre-tax charge for restructuring, asset
write-downs and impairment of $67.7 million. The components of the 2000
restructuring and impairment charge included the establishment of a $19.7
million reserve for severance benefit payments, write-downs for impairment of
$38.0 million (including $12.7 million of goodwill) related to long-lived assets
resulting from the restructuring and a reserve of $10.0 million primarily for
lease cancellation costs expected to be paid through December 2001.
Following is a summary of activity in the related 2000 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- --------------
September 2000 restructuring charge... $ 19.7 $ 10.0
Payments.............................. (0.4) -
------ -------
Balance at September 30, 2000......... 19.3 10.0
Payments.............................. (4.8) (0.1)
------ -------
Balance at December 30, 2000.......... $ 14.5 $ 9.9
====== ========
Other expenses related to the 2000 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
December 30, 2000, $1.5 million and $8.1 million of such costs have been
incurred and charged to operations during the December 2000 quarter and 2000
fiscal year, respectively, consisting primarily of inventory losses and plant
carrying costs.
Assets that have been sold, or are held for sale at December 30, 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 $36.1 million. 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 24 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
The Company reported a net loss of $11.5 million, or $0.22 per share,
for the first quarter of fiscal 2001, compared with a net loss of $5.3 million,
or $0.10 per share, in the first quarter a year ago. Excluding run-out costs
related to the Company's restructuring in September 2000, the first quarter loss
would have been $10.4 million, or $0.20 per share.
The Company entered fiscal year 2001 with aggressive action plans to
improve the financial performance of the Company. The Company's plan anticipated
losses in the first half of the year as a result of restructuring related
charges, production curtailments for inventory reduction, slowing retail and
higher interest costs. The Company is pleased with the progress made in the
first quarter, having achieved lower than expected losses and significant
working capital improvements, while reducing debt by approximately $22 million.
The completion of the bank credit facility refinancing provides liquidity to
move the Company forward.
The restructuring plans are on target and capacity reductions will be
complete by the end of the March quarter. Working capital reductions exceeded
expectations with approximately $59 million reduction in inventories from a year
ago. While achieving these reductions penalized earnings, they contributed
significantly to debt reduction. Performance thus far puts the Company on track
to meet its annual plan and return the Company to profitability in the second
half of the year, unless retail activity deteriorates significantly from
expectations.
Comparison of Three Months ended December 30, 2000 and January 1, 2000.
NET SALES: Net sales for the first quarter of the 2001 fiscal year were
$364.3 million, 1.8% lower than the $371.0 million recorded for the first
quarter of the 2000 fiscal year. Export sales totaled $41 million and $46
million in the 2001 and 2000 periods, respectively.
PerformanceWear: Net sales for the PerformanceWear segment for the
first quarter of the 2001 fiscal year were $122.3 million, 10.2% lower than the
$136.2 million recorded in the first quarter of the 2000 fiscal year. This
decrease was due primarily to 9.1% lower volume and 1.1% lower prices and
product mix.
CasualWear: Net sales for the CasualWear segment for the first quarter
of the 2001 fiscal year were $67.0 million, 32.4% higher than the $50.6 million
recorded in the first quarter of the 2000 fiscal year. This increase was due
primarily to 35.4% higher volume offset by 3.0% lower prices and product mix.
Interior Furnishings: Net sales of products for interior furnishings
markets for the first quarter of the 2001 fiscal year were $108.1 million, 12.3%
lower than the $123.3 million recorded in the first quarter of the 2000 fiscal
year. This decrease was primarily due to 13.6% lower volume offset by 1.3%
higher selling prices and mix.
Carpet: Net sales for the Carpet segment for the first quarter of the
2001 fiscal year were $67.3 million, 7.7% higher than the $62.5 million recorded
in the first quarter of the 2000 fiscal year. This increase was primarily due to
5.9% higher prices and product mix and 1.8% higher volume.
SEGMENT INCOME: Total reportable segment income for the first quarter
of the 2001 fiscal year was $1.1 million compared to $14.9 million for the first
quarter of the 2000 fiscal year.
PerformanceWear: Income (loss) of the PerformanceWear segment for the
first quarter of the 2001 fiscal year was $(2.7) million compared to $4.8
million recorded for the first quarter of the 2000 fiscal year. This decrease
was due primarily to $4.2 million reduction in margins resulting from lower
volume and price/mix and the $6.9 million deterioration in manufacturing
performance due to restructuring and plant curtailments, partially offset by
$2.2 million lower start-up costs in Mexico and $1.5 million of lower raw
material costs.
CasualWear: Losses of the CasualWear segment for the first quarter of
the 2001 fiscal year were $(4.9) million compared to $(5.4) million recorded for
the first quarter of the 2000 fiscal year. This decreased loss was due primarily
to $1.5 million higher margins due to volume and a $0.4 million improvement in
manufacturing performance after incurring the costs associated with plant
curtailments, partially offset by $1.2 million lower margins due to selling
prices and mix.
Interior Furnishings: Income (loss) of the interior furnishings
products segment for the first quarter of the 2001 fiscal year was $(2.8)
million compared to $5.6 million recorded for the first quarter of the 2000
fiscal year. This decrease was due primarily to $4.2 million lower margins due
to volume and $3.7 million negative impact on manufacturing performance due to
lower volume, restructuring and plant curtailments and higher bad debt expense
of $1.2 million, partially offset by lower raw material costs of $1.0 million.
Carpet: Income of the Carpet segment for the first quarter of the 2001
fiscal year was $12.2 million compared to $10.2 million recorded for the first
quarter of the 2000 fiscal year. This increase was due primarily to $3.8 million
higher margins due to volume and price/mix, offset by $1.1 million higher raw
material costs and $0.7 million higher selling expenses resulting from expanding
the sales force for better geographic and market segment coverage.
Other: Losses of other segments for the first quarter of the 2001
fiscal year were $(0.7) million compared to $(0.3) million recorded for the
first quarter of the 2000 fiscal year. This resulted primarily from losses in
the trucking business during the current period as a result of restructuring.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $3.0 million for the first quarter of the 2001 fiscal year compared
to $2.4 million in the first quarter of the 2000 fiscal year.
OPERATING INCOME BEFORE INTEREST AND TAXES: Operating income (loss)
before interest and taxes for the first quarter of the 2001 fiscal year was
$(4.5) million loss compared to $6.3 million income for the first quarter of the
2000 fiscal year. Amortization of goodwill was $0.0 and $4.4 million in the
first quarter of the 2001 and 2000 fiscal years, respectively. In September
2000, the Company changed its method of evaluating the recoverability of
enterprise-level goodwill from the undiscounted cash flow method to the market
value method, resulting in an impairment charge to write-off the remaining
carrying value of enterprise-level goodwill in the September 2000 quarter.
INTEREST EXPENSE: Interest expense for the first quarter of the 2001
fiscal year was $17.9 million, or 4.9% of net sales, compared with $15.6
million, or 4.2% of net sales, in the first quarter of the 2000 fiscal year. The
increase was mainly attributable to the effects of higher borrowing levels
combined with higher market interest rates and higher fees associated with the
new bank credit facility.
OTHER EXPENSE (INCOME): Other income for the first quarter of the 2001
fiscal year was $2.5 million consisting principally of interest income. Other
income for the first quarter of the 2000 fiscal year was $6.7 million consisting
principally of a $5.5 million translation gain on the liquidation of the
Company's Canadian subsidiary and interest income of $1.2 million.
INCOME TAX EXPENSE (BENEFIT): Income tax benefit of $(5.8) million was
recorded for the first quarter of the 2001 fiscal year in comparison with income
tax expense of $4.5 million for the first quarter of the 2000 fiscal year. The
total income tax benefit for the 2001 period is different from the amounts
obtained by applying statutory rates to loss before income taxes primarily as a
result of tax rate differences on foreign transactions, partially offset by the
favorable tax treatment of export sales through a foreign sales corporation
("FSC"). 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, the 2000 income tax benefit is different from the amounts obtained
by applying statutory rates to the loss before income taxes primarily as a
result of amortization of nondeductible goodwill, partially offset by the
favorable tax treatment of export sales through the FSC. The favorable tax
benefit from the FSC was lower in the current period compared to the 2000 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. The Company cannot predict the impact on its
future use of the FSC benefit under the ultimate program put into place and its
acceptability to the World Trade Organization ("WTO").
NET LOSS AND LOSS PER SHARE: Net loss for the first quarter of the 2001
fiscal year was $(11.5) million, or $(0.22) per share, in comparison with $(5.3)
million, or $(0.10) per share, for the first quarter of the 2000 fiscal year.
Net loss for the first quarter of the 2001 fiscal year included a net charge of
$(0.02) per share related to run-out costs included in cost of sales resulting
from the 2000 restructuring. Net loss for the first quarter of the 2000 fiscal
year included a net charge of $(0.02) per share related to run-out costs
included in cost of sales resulting from the 1999 restructuring.
Liquidity and Capital Resources
During the first quarter of the 2001 fiscal year, the Company generated
$27.5 million of cash from operating activities and $0.4 million from sales of
assets. Cash was primarily used for net repayments of long- and short-term debt
of $21.0 million and capital expenditures and other investing activities of
$11.5 million. At September 30, 2000, total debt of the Company (consisting of
current and non-current portions of long-term debt and short-term borrowings)
was $878.0 million compared with $899.9 million at September 30, 2000.
The Company's principal uses of funds during the next several years
will be for repayment and servicing of indebtedness, working capital needs and
capital investments (including the participations in joint ventures and funding
of acquisitions). The Company intends to fund its financial needs principally
from net cash provided by operating activities, asset sales and, to the extent
necessary, from funds provided by the credit facilities described below. The
Company believes that these sources of funds will be adequate to meet the
Company's foregoing needs.
During the first quarter of the 2001 fiscal year, investment in capital
expenditures totaled $7.1 million, compared to $20.9 million in the 2000 period.
The Company anticipates that the level of capital expenditures for fiscal year
2001 will total approximately $30 million, and under its amended bank credit
facility, cannot exceed $35 million.
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.
On December 5, 2000, the Company entered into an amended bank credit
agreement ("2000 Bank Credit Agreement") which extends the 1995 Bank Credit
Agreement for up to 30 months through June 5, 2003. The amended facility
consists of a $600.0 million revolving credit facility that provides for the
issuance of letters of credit by the fronting bank in an outstanding aggregate
face amount not to exceed $75.0 million, and provides short-term overnight
borrowings up to $30.0 million, provided that at no time shall the aggregate
principal amount of revolving loans and short-term borrowings, together with the
aggregate face amount of such letters of credit issued, exceed $600.0 million.
At February 6, 2001, the Company had approximately $156.3 million in unused
capacity under this facility.
Loans under the 2000 Bank Credit Agreement bear interest at floating
rates based on the Adjusted Eurodollar Rate plus 3.25%. In addition, the Company
pays an annual commitment fee of 0.50% on the unused portion of the facility.
The facility commitment amount will be reduced to $525.0 million on September
30, 2001 and to $450.0 million on September 30, 2002.
The 2000 Bank Credit Agreement imposes various limitations on the
liquidity and flexibility 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 amended Agreement contains covenants
applicable to the Company and all material subsidiaries, limiting the incurrence
of additional indebtedness and guarantees thereof, the creation of liens and
other encumbrances on properties, the making of investments or acquisitions, the
sale or other disposition of property or assets, the making of cash dividend or
other restricted payments, the entering into of certain lease and sale and
leaseback transactions, the making of capital expenditures beyond certain
limits, and entering into certain transactions with affiliates or agreements
which are materially adverse to the bank lenders. All obligations under the
amended facility are unconditionally guaranteed by each material existing and
subsequently acquired or organized domestic subsidiary of the Company. The
facility is also secured by perfected first-priority security interests in
substantially all U.S. assets of the Company other than receivables, including
significant real properties, inventory and fixed assets and all of the capital
stock of the Company's existing and future subsidiaries, limited in the case of
any foreign subsidiary to 65.0% of their capital stock. In addition, proceeds
from sales of assets, except for certain exclusions, must be used to repay
borrowings under the facility.
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 February 6, 2001, $130.9 million in borrowings under this facility
with remaining maturities of up to 43 days was outstanding.
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 (see Note G).
Commodity Price Risk
The Company manages its exposure to changes in commodity prices
primarily through its 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 December 30,
2000, and market prices of cotton decreased by 10%, the Company would be
required to pay a net settlement provision of approximately $3.5 million.
However, the Company has not utilized this net settlement provision in the past,
and does not anticipate using it in the future.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Under the statement, all derivatives are
required to be recognized on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The adoption of SFAS No. 133 on October 1, 2000 resulted
in the cumulative effect of an accounting change of $1.4 million being
recognized as a net gain (after taxes) in other comprehensive income (loss) and
a $16.2 thousand net charge (after taxes) to income in the consolidated
statement of operations (See Note G).
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 operations in
other countries, the demand for textile products, the cost and availability of
raw materials and labor, the Company's ability to service its existing debt and
to finance its capital expenditures and working capital needs, the level of the
Company's indebtedness and its 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.
--------
None.
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: February 12, 2001 Charles E. Peters, Jr.
Senior Vice President and
Chief Financial Officer
By /s/ CARL J. HAWK
------------------------------
Date: February 12, 2001 Carl J. Hawk
Controller