Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Burlington Industries, Inc. and Subsidiary Companies
Overview
The Company's operating earnings for fiscal year 1997 were slightly higher than
the year before. Sales were approximately 4 percent lower, primarily as a result
of closing or selling certain businesses for strategic reasons. During the year,
the Company accomplished several objectives as part of its basic strategy of
focusing on core businesses, investing in growth and building financial
strength.
Sedgefield Specialties (a chemical subsidiary) and Advanced Textiles,
Inc. (a small fiberglass business) were sold. The Lees division discontinued its
residential carpet line to concentrate exclusively on its successful commercial
carpets business. Certain yarn manufacturing facilities were restructured and
consolidated for better asset management. In addition, costs were reduced
throughout the Company during 1997 by reducing overhead. The net result of these
streamlining activities, including reducing staff, consolidation of yarn
facilities and exiting the residential carpet product line, was a net charge of
$0.12 per share.
During the year, operating results generated $166.3 million in cash and
asset sales provided an additional $20.7 million. This cash was primarily used
to invest $99.3 million in capital expenditures and a joint venture, repurchase
4.5 million shares of stock for $53.4 million and reduce debt by $32.7 million.
The Company's operating performance in the 1997 fiscal year was
restrained by an oversupply in denim markets.
PERFORMANCE BY SEGMENT: The Company conducts its operations in two
principal industry segments: products for apparel markets and products for
interior furnishings markets. The following table sets forth certain information
about the segment results for the fiscal years ended September 27, 1997,
September 28, 1996 and September 30, 1995.
Fiscal Fiscal Fiscal
(dollar amounts in millions) 1997 1996 1995
------ ------ -----
Net sales
Apparel products $ 1,253.2 $ 1,328.3 $ 1,347.1
Interior furnishings products 837.5 854.0 862.1
-------- -------- --------
Total $ 2,090.7 $ 2,182.3 $ 2,209.2
======== ======== ========
Operating income before interest and taxes
Apparel products $ 112.1 $ 121.7 $ 107.1
As a percentage of net sales 8.9% 9.2% 8.0%
Interior furnishings products $ 43.6 $ 55.6 $ 67.4
As a percentage of net sales 5.2% 6.5% 7.8%
Operating income before interest,
taxes, provision for restructuring
and loss on closing of division $ 155.7 $ 177.3 $ 174.5
Loss on closing of division $ - $ (29.9) $ -
Provision for restructuring $ (12.1) $ - $ -
-------- ------- --------
Total $ 143.6 $ 147.4 $ 174.5
As a percentage of net sales 6.9% 6.8% 7.9%
======= ======= ========
Results of Operations
Comparison of Fiscal Years ended September 27, 1997 and September 28, 1996
NET SALES: Net sales for the 1997 fiscal year were $2,090.7 million, a
decrease of 4.2% from the $2,182.3 million recorded in the 1996 fiscal year.
Exports totaled $239 million and $213 million in the 1997 and 1996 fiscal years,
respectively (an increase of 12.2%).
Products for Apparel Markets: Net sales of products for apparel markets
for the 1997 fiscal year were $1,253.2 million, 5.7% lower than net sales of
$1,328.3 million for the 1996 fiscal year. This reduction was primarily due to
the elimination of the volume produced and marketed by the Knitted Fabrics
division, which was closed in June, 1996, and lower volume and selling prices in
the Denim division, partially offset by higher volume and improvement in selling
prices and product mix in the Klopman division.
Products for Interior Furnishings Markets: Net sales of products for
interior furnishings markets for the 1997 fiscal year were $837.5 million, a
decrease of 1.9% from the $854.0 million recorded in the 1996 fiscal year. The
change in sales of the interior furnishings segment was mainly attributable to
the sale of J.G. Furniture in April 1996 and Advanced Textiles in October 1996
and lower volume and selling prices in the Burlington House and Area Rugs
divisions, partially offset by higher activity in the Lees division.
OPERATING INCOME BEFORE INTEREST AND TAXES: Operating income before
interest and taxes for the 1997 fiscal year was $143.6 million. Before the 1997
provision for restructuring, the 1997 charge for exiting the residential carpet
product line, the 1997 charge for closing a yarn spinning plant in the
Burlington House Area Rugs division and the 1996 loss on closing the Knitted
Fabrics division, operating income before interest and taxes for the 1997 fiscal
year was $164.4 million in comparison with $181.0 million recorded in the 1996
fiscal year. Amortization of goodwill was $18.2 million in both the 1997 and
1996 fiscal years.
Products for Apparel Markets: Operating income before interest and
taxes for the apparel products segment for the 1997 fiscal year was $112.1
million compared to $125.4 million recorded for the 1996 fiscal year before the
charges for closing the Knitted Fabrics division. The principal factors
affecting this change were lower profits of the Denim division partially offset
by the absence of Knitted Fabrics division operating losses in the 1997 period.
Products for Interior Furnishings Markets: Operating income before
interest and taxes for the interior furnishings products segment for the 1997
fiscal year was $52.3 million before the charges for restructuring activities,
compared to $55.6 million recorded in the 1996 fiscal year. This decrease was
mainly attributable to the reduced level of operations in the Burlington House
and Area Rugs divisions partially offset by improved results in the Lees
division.
Selling, administrative and general expenses totaled $154.6 million, or
7.4% of net sales, in the 1997 fiscal year, compared with $166.3 million, or
7.6% of net sales, in the 1996 fiscal year. The decrease was mainly attributable
to sold/closed operations and benefits resulting from cost reduction actions.
The Company recorded provisions for doubtful accounts of $3.5 million
and $6.5 million in the 1997 and 1996 fiscal years, respectively.
INTEREST EXPENSE: Interest expense for the 1997 fiscal year was $60.1
million, or 2.9% of net sales, compared with $65.9 million, or 3.0% of net sales
in the 1996 fiscal year. The decrease in interest expense was due primarily to
the lower average debt outstanding.
OTHER EXPENSE (INCOME): Other income for the 1997 fiscal year was $12.8
million consisting principally of $9.5 million in gains on the disposal of
certain non-core operating assets and interest income. Other expense for the
1996 fiscal year was $6.1 million consisting principally of $4.0 million for
legal contingencies, $2.3 million loss on sale of a non-operating asset and $1.3
million loss on sale of J.G. Furniture partially offset by interest income.
INCOME TAX EXPENSE AND EXTRAORDINARY ITEMS: Income tax expense of $37.7
million was recorded for the 1997 fiscal year in comparison with $33.7 million
for fiscal year 1996. The extraordinary loss of $0.7 million for the 1996 fiscal
year resulted from the early extinguishment of debt net of income tax benefit of
$0.5 million.
NET INCOME AND NET INCOME PER SHARE: Net income for the 1997 fiscal
year was $58.7 million, or $0.96 per share, in comparison with $40.9 million, or
$0.65 per share, for the 1996 fiscal year. Net income for the 1997 fiscal year
included a net charge of $0.12 per share for one-time costs associated with
various streamlining actions, including reducing staff, consolidation of yarn
facilities and exiting the residential carpet product line, offset by gains on
sales of Sedgefield Specialties and Advanced Textiles, Inc. Net income for the
1996 fiscal year included $25.0 million ($0.40 per share) of non-recurring
expenses, consisting of an after-tax charge of $20.3 million ($0.33 per share)
for the closing of the Knitted Fabrics division and an after-tax provision of
$4.7 million ($0.07 per share) for legal contingencies, the sale of the J.G.
Furniture division and the sale of a non-operating asset. In addition, there was
an extraordinary loss of $0.01 per share in 1996 for the early extinguishment of
debt.
Comparison of Fiscal Years ended September 28, 1996 and September 30, 1995
NET SALES: Net sales for the 1996 fiscal year were $2,182.3 million, a
decrease of 1.2% from the $2,209.2 million recorded in the 1995 fiscal year.
Exports totaled $213 million and $161 million in the 1996 and 1995 fiscal years,
respectively (an increase of 32.3%).
Products for Apparel Markets: Net sales of products for apparel markets
for the 1996 fiscal year were $1,328.3 million, 1.4% lower than net sales of
$1,347.1 million for the 1995 fiscal year. Lower unit volumes from the Menswear
and Knitted Fabrics divisions were only partially offset by improvements in
selling price and product mix.
Products for Interior Furnishings Markets: Net sales of products for
interior furnishings markets for the 1996 fiscal year were $854.0 million, a
decrease of 0.9% from the $862.1 million recorded in the 1995 fiscal year. Lower
unit volumes resulting from a carpets division strategy to streamline its
residential product line, the difficult business environment faced by the rugs
divisions and the sale of a non-core business were only partially offset by
enhancements to product mix and higher selling prices.
OPERATING INCOME BEFORE INTEREST AND TAXES: Operating income before
interest and taxes for the 1996 fiscal year was $147.4 million. Before the
charges for closing the Knitted Fabrics division, operating income before
interest and taxes for the 1996 fiscal year was $181.0 million in comparison
with $174.5 million recorded in the 1995 fiscal year. Amortization of goodwill
was $18.2 million and $18.1 million in the 1996 and 1995 fiscal years,
respectively.
Products for Apparel Markets: Operating income before interest and
taxes for the apparel products segment before the charges for closing the
Knitted Fabrics division for the 1996 fiscal year was $125.4 million, up 17.1%
from the $107.1 million recorded for the 1995 fiscal year. The principal factors
leading to this increase were improvements in selling price and product mix and
lower bad debts, offset by lower unit volume, operating capacity inefficiencies
and wage increases. Better operating earnings were achieved by the Denim,
Klopman and Menswear divisions.
Products for Interior Furnishings Markets: Operating income before
interest and taxes for the interior furnishings products segment for the 1996
fiscal year was $55.6 million, down 17.5% from the $67.4 million recorded in the
1995 fiscal year. Manufacturing inefficiencies resulting from lower unit volume,
wage increases and severance costs associated with manpower reductions more than
offset the benefit of better product mix and higher selling prices. Good results
in the Burlington House and Lees divisions were offset by slower business
activity in the area rugs divisions.
Selling, administrative and general expenses totaled $166.3 million, or
7.6% of net sales, in the 1996 fiscal year, compared with $162.5 million, or
7.4% of net sales, in the 1995 fiscal year. The increase was mainly attributable
to the new Bacova operation which was acquired during fiscal year 1995.
The Company recorded provisions for doubtful accounts of $6.5 million
and $10.4 million in the 1996 and 1995 fiscal years, respectively, resulting
primarily from bankruptcies which occurred in those periods.
INTEREST EXPENSE: Interest expense for the 1996 fiscal year was $65.9
million, or 3.0% of net sales, compared with $56.3 million, or 2.5% of net sales
in the 1995 fiscal year. The increase in interest expense was primarily the
result of lengthening maturities and higher rates partially offset by lower
average debt.
OTHER EXPENSE (INCOME): Other expense for the 1996 fiscal year was $6.1
million consisting principally of $4.0 million for legal contingencies, $2.3
million loss on sale of a non-operating asset and $1.3 million loss on sale of
J.G. Furniture, partially offset by interest income. Other income of $1.9
million for fiscal year 1995 consisted primarily of interest income.
INCOME TAX EXPENSE AND EXTRAORDINARY ITEMS: Income tax expense of $33.7
million was recorded for the 1996 fiscal year in comparison with $51.7 million
for fiscal year 1995. The extraordinary loss of $0.7 million for the 1996 fiscal
year resulted from the early extinguishment of debt net of income tax benefit of
$0.5 million (principally the write-off of unamortized bank financing costs).
NET INCOME AND NET INCOME PER SHARE: Net income for the 1996 fiscal
year was $40.9 million, or $0.65 per share, in comparison with $68.4 million, or
$1.05 per share, for the 1995 fiscal year. Net income for the 1996 fiscal year
included $25.0 million ($0.40 per share) of non-recurring expenses, consisting
of an after-tax charge of $20.3 million ($0.33 per share) for the closing of the
Knitted Fabrics division and an after-tax provision of $4.7 million ($0.07 per
share) for legal contingencies, the sale of the J.G. Furniture division and the
sale of a non-operating asset. In addition, there was an extraordinary loss of
$0.01 per share for the early extinguishment of debt.
Legal and Environmental Contingencies
The Company and its subsidiaries have sundry claims and other lawsuits
pending against them and also have certain guarantees which were made in the
ordinary course of business. The Company has made provisions in its financial
statements for litigation based on the Company's assessment of the possible
outcome of such litigation, including the possibility of settlement, and related
legal fees and costs.
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency, by the environmental agencies in
several states and by private parties as potentially responsible parties at a
number of hazardous waste disposal sites under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 ("Superfund") and comparable
state laws and, as such, may be liable for the cost of cleanup and other
remedial activities at these sites. The Company may also have liability for such
matters pursuant to contractual obligations relating to divested property or
with respect to sites which may be identified in the future. With respect to
certain of these sites, other persons have also been identified as potentially
responsible parties, and in such circumstances the responsibility for cleanup
and other remedial activities is typically shared among such parties based on an
allocation formula. The Company is also involved in remedial responses and
voluntary environmental cleanups at other sites which are not currently the
subject of proceedings of any kind under Superfund or comparable state laws. The
Company has established reserves in its financial statements for such
environmental liabilities, including related legal fees and other transaction
costs, in the aggregate amount of approximately $5.7 million. The provision for
environmental liabilities is based on the Company's estimate of allocations of
liability among potentially responsible parties (and the likelihood of
contribution by such parties), information concerning the scope of
contamination, estimated remediation costs, estimated transaction costs and
other factors. The Company has also recorded $1.1 million for estimated
recoveries under insurance policies to the extent that coverage for such claims
has been acknowledged by the relevant insurer and for estimated recoveries from
third parties. No provision has been made for liabilities that may be incurred
with respect to sites which may be identified in the future because insufficient
basis exists for making informed estimates in such cases.
Like most owners of computer software, the Company will be required to
modify significant portions of its software so that it will function properly in
the year 2000. The Company has initiated a company-wide program to prepare its
computer systems and applications to recognize the year 2000 and beyond and
expects to complete this project during 1998. The Company also is dependent upon
the successful efforts of its customers and suppliers to modify their software
and could be impacted by the failure of one or more of these efforts.
It is not possible with certainty to determine the ultimate liability
of the Company with respect to the matters described in the preceding
paragraphs, but in the opinion of management their outcome should have no
material adverse effect on the financial condition or results of operations of
the Company.
Liquidity and Capital Resources
During the 1995-97 fiscal years, the Company took steps to strengthen
its capital structure and enhance the flexibility of its financial resources
going forward. During the last quarter of the 1995 fiscal year, a $400 million
senior debt shelf registration statement was filed and became effective, and the
Company has used $300 million of its capacity in two public offerings of
fixed-rate senior notes. The proceeds of these offerings were used to repay
variable-rate bank loans. The notes received investment grade ratings from each
of the two major credit rating agencies, which underscored the continued
improvement in the Company's credit standing. In November 1995, the Company
entered into a $750 million bank credit facility which reduces borrowing costs
compared to the previous bank credit facility, and further enhances the
Company's financial flexibility. At September 27, 1997, total debt of the
Company (consisting of current and non-current portions of long-term debt and
short-term borrowings) was $806.9 million compared with $838.9 million at
September 28, 1996. The ratio of debt to total capital declined from 57.7% at
the beginning of fiscal year 1997 to 56.1% at fiscal year end.
The Company's principal uses of funds during the next several years
will be for capital investments (including the funding of acquisitions and
participations in joint ventures), repayment and servicing of indebtedness,
working capital needs and the repurchase of shares of Company common stock. The
Company intends to fund such 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. The Company believes that these
sources of funds will be adequate to meet the Company's foregoing needs.
The net cash generated by the Company from operating activities during
the 1997 fiscal year amounted to $166.3 million; additionally $20.7 million was
provided from sales of assets and $3.7 million from the exercise of stock
options. Cash generated in this manner was primarily used for: $99.3 million of
capital expenditures and investment in a joint venture, $53.4 million for the
repurchase of Company common stock and $32.7 million for net repayments of
long-term debt. Shares of Company common stock purchased during the 1997 fiscal
year are expected to be used during the next several years in part to satisfy
Company obligations to contribute stock under its employee incentive plans and
will, accordingly, minimize further future cash outlays for these purposes.
During the 1997 fiscal year, investment in capital expenditures and a
joint venture totaled $99.3 million, compared to $81.4 million in the 1996
fiscal year. The Company anticipates that the level of capital expenditures for
fiscal year 1998 could total approximately $185 million, principally for growth
and modernization of U.S. and Mexican plants.
In August 1997, the Company issued $150.0 million principal amount of
7.25% notes due August 1, 2027 ("Notes Due 2027") at a price of 99.402% plus
accrued interest. Proceeds from the sale were used to prepay Revolving Loans
under its 1995 Bank Credit Agreement on the same date. 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.
On September 26, 1995, the Company issued $150.0 million principal amount of
7.25% notes due September 15, 2005 ("Notes Due 2005") at a price of 99.926% plus
accrued interest. The Notes Due 2005 are not redeemable prior to maturity.
Proceeds from the sale of the Notes Due 2005 were used to prepay outstanding
term loans under the Company's bank credit facility. The Notes Due 2027 and the
Notes Due 2005 are unsecured and rank equally with all other unsecured and
unsubordinated indebtedness of the Company.
The Company has a $750.0 million unsecured Revolving Credit Facility ("1995
Bank Credit Agreement") which expires in March, 2001. At November 7, 1997, the
Company had approximately $432.0 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 the Adjusted Eurodollar Rate
plus 0.275% or (ii) Eurodollar rates or fixed rates which 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 0.15%. The interest rate and the facility fee are based on the
Company's current implied senior unsecured debt ratings of BBB minus and Baa3.
In the event that the Company's debt ratings improve, the interest rate and
facility fees would be reduced. Conversely, a deterioration in the Company's
debt ratings would increase the interest rate and facility fees.
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 incurrence 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.
On December 22, 1992, the Company, established a $225.0 million A-1/D-1
rated commercial paper facility ("CP Facility") backed by a $225.0 million
Receivables-Backed Liquidity Facility ("Liquidity Facility") established with a
group of banks. On November 7, 1997, $173.9 million of commercial paper maturing
on or before December 10, 1997 was outstanding. The Company has received a
commitment from a bank to replace the CP Facility and Liquidity Facility with a
five-year, $225.0 million Trade Receivables Financing Agreement ("Receivables
Facility") which is scheduled to close on or about December 5, 1997. 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.
Because the Company's obligations under the 1995 Bank Credit Agreement
and the receivables-backed financing programs 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.
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 forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
represent management's current expectations or beliefs as to the future and are
subject to risks and uncertainties which could affect the Company's actual
future results and which could cause those results to differ materially from the
expectations or beliefs expressed in the forward-looking statements. Such risks
and uncertainties include, but are not limited to: the outlook for global
economic activity and its impact upon the Company's businesses; the demand for
textile products, including the acceptance by customers and consumers of the
Company's products and the possible imbalances between consumer demand and
inventories of the Company's customers; the success of the Company's
value-added, fashion-driven product strategy; the Company's relationships with
its principal customers and suppliers; cost and availability of raw materials
and labor; the success of the Company's strategic plans to expand in the United
States, India and Mexico; the Company's ability to finance its capital expansion
and modernization programs, and the level of the Company's indebtedness and the
exposure to interest rate fluctuations; governmental legislation and regulatory
changes which impose higher costs, or greater restrictions, on the Company's
operations and which alter the existing regulation of international trade; and
the long-term implications of the current development of regional trade blocs
and the effect of the anticipated elimination of quotas and lowering of tariffs
under the GATT trade regime by 2005. 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.
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Operations
For the fiscal years ended September 27, 1997,
September 28, 1996 and September 30, 1995
(amounts in thousands, except for per share amounts)
1997 1996 1995
---------- ---------- ----------
Net sales............................. $2,090,683 $2,182,347 $2,209,191
Cost of sales......................... 1,758,698 1,814,160 1,843,752
---------- ---------- ----------
Gross profit.......................... 331,985 368,187 365,439
Selling, administrative and
general expenses.................... 154,648 166,283 162,504
Provision for doubtful accounts....... 3,478 6,457 10,382
Amortization of goodwill.............. 18,158 18,201 18,055
Loss on closing of division........... - 29,856 -
Provision for restructuring........... 12,058 - -
---------- ---------- ----------
Operating income before
interest and taxes.................. 143,643 147,390 174,498
Interest expense...................... 60,062 65,936 56,294
Other expense (income) - net.......... (12,790) 6,104 (1,897)
---------- ---------- ----------
Income before income taxes............ 96,371 75,350 120,101
Income tax expense:
Current............................. (33,048) (36,822) (31,706)
Deferred............................ (4,625) 3,075 (20,001)
---------- ---------- ----------
Total income tax expense.......... (37,673) (33,747) (51,707)
---------- ---------- ----------
Income before
extraordinary item.................. 58,698 41,603 68,394
Extraordinary item:
Loss from early extinguishment
of debt, net of income tax
benefit of $454 in 1996............ - (697) -
---------- ---------- ----------
Net income............................ $ 58,698 $ 40,906 $ 68,394
========== ========== ==========
Average common shares
outstanding......................... 61,289 63,231 65,273
Net income per common share:
Income before
extraordinary item................. $ 0.96 $ 0.66 $ 1.05
Extraordinary item.................. - (0.01) -
---------- ---------- ----------
$ 0.96 $ 0.65 $ 1.05
========== ========== ==========
See notes to consolidated financial statements.
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(amounts in thousands)
September 27, September 28,
1997 1996
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents....................... $ 17,863 $ 15,392
Short-term investments.......................... 23,832 22,755
Customer accounts receivable after deductions
of $20,688 and $21,466 for the respective
dates for doubtful accounts, discounts,
returns and allowances........................ 331,457 342,390
Sundry notes and accounts receivable............ 6,762 6,608
Inventories..................................... 314,994 329,386
Prepaid expenses................................ 2,719 2,839
----------- -----------
Total current assets....................... 697,627 719,370
Fixed assets, at cost:
Land and land improvements...................... 36,677 35,869
Buildings....................................... 400,212 384,153
Machinery, fixtures and equipment............... 607,502 585,587
----------- -----------
1,044,391 1,005,609
Less accumulated depreciation and amortization.. 459,744 436,069
----------- -----------
Fixed assets - net......................... 584,647 569,540
Other assets:
Investments and receivables..................... 22,670 14,032
Intangibles and deferred charges................ 29,781 25,875
Excess of purchase cost over
net assets acquired............................ 538,967 557,125
----------- -----------
Total other assets......................... 591,418 597,032
----------- -----------
$ 1,873,692 $ 1,885,942
=========== ===========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due currently.................... $ 470 $ 1,720
Accounts payable - trade........................ 102,898 93,688
Sundry payables and accrued expenses............ 100,039 102,895
Income taxes payable............................ 16,406 20,674
Deferred income taxes........................... 43,782 46,375
----------- -----------
Total current liabilities.................. 263,595 265,352
Long-term liabilities:
Long-term debt.................................. 806,413 837,136
Other........................................... 58,595 57,360
----------- -----------
Total long-term liabilities................ 865,008 894,496
Deferred income taxes........................... 114,363 110,174
Shareholders' equity:
Common stock issued (Note G).................... 684 684
Capital in excess of par value.................. 882,837 885,185
Accumulated deficit............................. (134,301) (192,999)
Currency translation adjustments................ (10,211) (9,263)
----------- -----------
739,009 683,607
Less cost of common stock held in treasury...... (108,283) (67,687)
----------- -----------
Total shareholders' equity................. 630,726 615,920
----------- -----------
$ 1,873,692 $ 1,885,942
=========== ===========
See notes to consolidated financial statements.
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
For the fiscal years ended September 27, 1997,
September 28, 1996 and September 30, 1995
(amounts in thousands)
1997 1996 1995
-------- --------- ---------
Cash flows from operating activities:
Net income..................................... $ 58,698 $ 40,906 $ 68,394
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
fixed assets.............................. 66,742 66,942 66,646
Provision for doubtful accounts............ 3,478 6,457 10,382
Amortization of intangibles
and deferred debt expense................. 18,600 22,053 20,733
Deferred income taxes...................... 4,625 (3,075) 20,001
(Gain) loss on disposal of assets
and other expense......................... (11,821) 7,641 -
Loss from early extinguishment of debt..... - 1,151 -
Restructuring/loss on closing of division.. 12,058 29,856 -
Changes in assets and liabilities:
Customer accounts receivable - net..... 6,400 (16,165) 8,331
Sundry notes and accounts receivable... (154) 10,203 (7,511)
Inventories............................ 11,478 9,561 (12,645)
Prepaid expenses....................... 120 (627) 51
Accounts payable and accrued expenses.. (2,428) 3,694 (15,910)
(Payment) receipt of financing fees........ 80 (444) (3,848)
Change in interest payable................. 64 3,257 (1,222)
Change in income taxes payable............. 1,821 11,273 (7,252)
Other...................................... (3,481) 442 6,414
-------- -------- ---------
Total adjustments..................... 107,582 152,219 84,170
-------- -------- ---------
Net cash provided by operating activities...... 166,280 193,125 152,564
-------- -------- ---------
Cash flows from investing activities:
Capital expenditures........................... (96,500) (79,174) (101,876)
Payment for purchase of business, net
of cash acquired.............................. - - (12,022)
Proceeds from sales of assets.................. 20,672 8,785 6,472
Investment in joint venture.................... (2,750) (2,200) -
Change in investments.......................... (2,817) (957) (3,073)
-------- -------- ---------
Net cash used by investing activities.......... (81,395) (73,546) (110,499)
-------- -------- ---------
Cash flows from financing activities:
Net change in short-term borrowings............ - (274) (1,136)
Repayments of long-term debt................... (200,472) (600,708) (211,966)
Proceeds from issuance of long-term debt....... 167,768 527,478 197,818
Proceeds from exercise of stock options........ 3,709 3,848 73
Purchase of treasury stock..................... (53,419) (45,038) (37,858)
-------- -------- ---------
Net cash used by financing activities.......... (82,414) (114,694) (53,069)
-------- -------- ---------
Net change in cash and cash equivalents........ 2,471 4,885 (11,004)
Cash and cash equivalents at beginning
of period..................................... 15,392 10,507 21,511
-------- -------- ---------
Cash and cash equivalents at end of period..... $ 17,863 $ 15,392 $ 10,507
======== ======== =========
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
Burlington Industries, Inc. and Subsidiary Companies
Note A - Summary of Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts of the
Company and all its subsidiaries. The accounts of foreign subsidiaries have been
included on the basis of fiscal periods ended no more than three months prior to
the dates of the consolidated balance sheets. Investments in affiliates in which
the Company owns 20 to 50 percent of the voting stock are accounted for using
the equity method. All significant intercompany accounts and transactions have
been eliminated.
Cash equivalents: Cash and cash equivalents include time deposits and other
short-term investments with an original maturity of three months or less.
Inventories: Inventories are valued at the lower of cost or market. Cost of
substantially all components of textile inventories in the United States is
determined using the dollar value Last-in, First-out (LIFO) method. All other
inventories are valued principally at average cost.
Fixed assets: Depreciation and amortization of fixed assets is calculated over
the estimated useful lives of the related assets principally using the
straight-line method.
Excess of purchase cost over net assets acquired: The excess of purchase cost
over net assets acquired is amortized as goodwill using the straight-line method
over not more than 40 years. The accumulated amortization of goodwill was
$181,744,000 and $163,586,000 at September 27, 1997 and September 28, 1996,
respectively.
Impairment of long-lived assets: When circumstances indicate, the Company
evaluates the recoverability of its long-lived assets by comparing estimated
future undiscounted cash flows with the asset's carrying amount to determine if
a write-down to market value or discounted cash flow is required.
Deferred debt expense: Deferred debt expense is amortized over the lives of the
related debt as an adjustment to interest expense.
Revenue recognition: In general, the Company recognizes revenues from product
sales when units are shipped.
Research expenditures: Expenditures for research and development are expensed as
incurred. Total expenditures for research and development aggregated
$11,841,000, $13,482,000 and $17,082,000 in the 1997, 1996 and 1995 fiscal
years, respectively.
Income per common share: Income per common share is computed based on the
weighted average number of common shares outstanding during each period.
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.
Reclassification: Certain prior period amounts have been reclassified to conform
to current presentations.
Fiscal year: The Company uses a 52 - 53 week fiscal year.
Other: In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which
the Company is required to adopt in the first quarter of the 1998 fiscal year.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. The impact of
SFAS No. 128 on the calculation of earnings per share for these periods is not
expected to be material. Also in 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" and No. 131, "Disclosures About Segments of an Enterprise
and Related Information", both of which the Company will adopt in its 1999
fiscal year. The Company will be required to report comprehensive income which
is the total of net income and all other nonowner changes in shareholders'
equity, such as foreign currency translation adjustments. The effect of SFAS No.
131 on the Company's financial statement disclosures has not yet been
determined, but adoption will not affect the accounting for the Company's
consolidated results of operations, financial position or cash flows.
Note B - Restructuring Activities
During the June 1997 quarter, the Company recorded a $12.1 million pre-tax
provision for restructuring associated with reducing staff, consolidation of
certain yarn facilities and exiting the residential carpet product line. The
staff reduction included severance costs of $5.2 million related to 215
employees. The components of the yarn manufacturing restructuring charge
included costs of $1.3 million for severance related to 286 employees, $2.2
million for divestitures of machinery and equipment, and $1.4 million for
divestitures of real estate. Costs related to exiting the residential carpet
product line included primarily $1.2 million for severance related to 70
employees. Production capacity of the residential carpet product line will be
utilized by the commercial carpet product line within existing facilities. In
addition, exiting the residential carpet product line resulted in an inventory
write-down and other claims of $4.9 million included in cost of sales. Combining
these charges, the restructuring activities resulted in a pre-tax charge of
$17.0 million, $10.3 million after income taxes, or $0.17 per share. Costs of
these restructuring activities paid or incurred through September 27, 1997 were
$3.2 million.
In June 1996, the Company announced its plan to close the Knitted Fabrics
division which resulted in a $29.9 million pre-tax charge in the 1996 fiscal
year. In addition, the closing resulted in an inventory write-down of $3.7
million included in cost of sales. Combining these charges, the closing of the
division resulted in a pre-tax charge of $33.6 million, $20.3 million after
income taxes, or $0.33 per share. Production of the Knitted Fabrics division was
phased out during September and October, 1996, and it is anticipated that sales
of the majority of the division's assets will be completed within a two-year
period. The components of the 1996 charge include costs of $12.7 million for
severance and other benefits related to approximately 1,150 employees, $8.3
million for divestitures of machinery and equipment, $8.0 million for
divestitures of real estate, and $0.8 million for cancellation of leases. Costs
of closing the division paid or incurred through September 27, 1997 were $23.2
million. Operating results of the Knitted Fabrics division before any charges
related to the restructuring were as follows (in millions):
1996 1995
-------- --------
Net sales ........................... $ 108.2 $ 134.1
Net operating loss before
interest and taxes ................ $ (17.2) $ (17.9)
Note C - Inventories
Inventories are summarized as follows (in thousands):
1997 1996
--------- ---------
Inventories at average cost:
Raw materials................................ $ 46,722 $ 49,481
Stock in process............................. 97,973 96,836
Produced goods............................... 190,326 200,679
Dyes, chemicals and supplies................. 21,859 23,100
--------- ---------
356,880 370,096
Less excess of average cost over LIFO........ 41,886 40,710
--------- ---------
Total.................................... $ 314,994 $ 329,386
========= =========
Inventories valued using the LIFO method comprised approximately 91% and 90% of
consolidated inventories at September 27, 1997 and September 28, 1996,
respectively.
Note D - Sundry Payables and Accrued Expenses
Sundry payables and accrued expenses consisted of the following (in thousands):
1997 1996
--------- ---------
Sundry accounts payable......................... $ 1,386 $ 2,156
Accrued expenses:
Payroll and employee benefits............... 57,558 58,555
Taxes, other than income taxes.............. 9,960 9,597
Interest.................................... 9,156 12,464
Other....................................... 21,979 20,123
--------- ---------
Total................................... $ 100,039 $ 102,895
========= =========
Note E - Long-term Debt
Long-term debt consisted of the following (in thousands):
1997 1996
---------- ---------
1995 Bank Credit Agreement........................... $ 335,000 $ 525,000
Commercial Paper..................................... 163,592 144,221
Senior Debentures due 2005........................... 149,911 149,900
Senior Debentures due 2027........................... 149,117 -
Other indebtedness with various rates and maturities. 9,263 19,735
---------- ---------
806,883 838,856
Less long-term debt due currently.................... 470 1,720
---------- ---------
Total.............................................. $ 806,413 $ 837,136
========== =========
Bank Financing: On November 8, 1995, the Company entered into an unsecured
credit agreement ("1995 Bank Credit Agreement"), consisting of a $750.0 million
Revolving Credit Facility with a final maturity on March 31, 2001. The Agreement
provides for the issuance of letters of credit by the fronting bank in an
outstanding aggregate face amount not to exceed $75.0 million, provided that at
no time shall the aggregate principal amount of Revolving Loans, together with
the aggregate face amount of such letters of credit issued, exceed $750.0
million. At September 27, 1997, there were no letters of credit outstanding
issued by the fronting bank, and the unused portion of the revolving facility
commitment was $415.0 million. Additional overnight borrowings up to $42.0
million are also available under bank lines of credit.
Loans under the 1995 Bank Credit Agreement bear interest at either (i) floating
rates generally payable quarterly based on the Adjusted Eurodollar Rate plus
0.275% or (ii) Eurodollar rates or fixed rates which 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
0.15%. The interest rate and the facility fee are based on the Company's current
senior unsecured debt ratings of BBB minus and Baa3. In the event that the
Company's debt ratings improve, the interest rate and facility fees would be
reduced. Conversely, a deterioration in the Company's debt ratings would
increase the interest rate and facility fees. At September 27, 1997, the average
bank financing interest rate was 6.29%. See Note P for information on financial
instruments utilized to manage interest rate exposure.
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 (equal to 50% of the previous
fiscal year's domestic net income less any after-tax gain or loss on asset sales
outside the ordinary course of business), stock repurchases, leases, the
incurrence of additional indebtedness by domestic subsidiaries, the creation of
additional liens and the making of investments in foreign entities and restricts
the Company's ability to enter into certain merger, liquidation or asset sale or
purchase transactions.
On November 20, 1995, the Company borrowed $510.0 million under the 1995 Bank
Credit Agreement to repay all $505.0 million principal amount of outstanding
indebtedness under its 1994 Bank Credit Agreement and recorded a related charge
from early extinguishment of debt of $0.7 million (net of income taxes) during
the 1996 fiscal year.
Receivables-Backed Financing: On December 22, 1992, the Company established a
$225.0 million A-1/D-1 rated commercial paper facility ("CP Facility") backed by
a $225.0 million Receivables-Backed Liquidity Facility ("Liquidity Facility")
with a group of banks. There were no borrowings outstanding at September 27,
1997 or September 28, 1996 under the Liquidity Facility. The Company has
received a commitment from a bank to replace the CP Facility and Liquidity
Facility with a five-year, $225.0 million Trade Receivables Financing Agreement
("Receivables Facility") which is scheduled to close on or about December 5,
1997; accordingly, commercial paper borrowings were classified as long-term debt
at September 27, 1997. 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.
Senior Debentures: On August 12, 1997, the Company issued, through a public
offering, $150.0 million principal amount of 7.25% unsecured senior debentures
due August 1, 2027 ("Senior Debentures Due 2027"). The securities were issued
under an indenture (the "Indenture") dated as of September 1, 1995 pursuant to a
shelf registration filed with the Securities and Exchange Commission, under
which $100.0 million of debt securities may still be issued. The Indenture
contains covenants limiting certain liens and sale and leaseback transactions.
The Senior Debentures Due 2027 were issued at a discount to yield 7.335% and the
net proceeds from the sale were the principal source of funds used to prepay
$150.0 million of Revolving Loans under its 1995 Bank Credit Agreement on the
same date. Interest on the Senior Debentures Due 2027 is payable semiannually on
February 1 and August 1. The Senior Debentures 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 at a price equal to the greater of 100% of the principal amount redeemed or
the sum of the present values of the remaining scheduled payments of principal
and interest thereon. The Senior Debentures Due 2027 will also be redeemable at
the option of the holders thereof on August 1, 2007 in amounts at 100% of their
principal amount.
On September 26, 1995, the Company issued through a public offering $150.0
million principal amount of 7.25% unsecured senior debentures due September 15,
2005 ("Senior Debentures Due 2005") under the Indenture. The Senior Debentures
Due 2005 were issued at a discount to yield 7.26% and the net proceeds from the
sale were the principal source of funds used to prepay $150.0 million of term
loans under its 1994 Bank Credit Agreement on the same date. Interest on the
Senior Debentures Due 2005 is payable semiannually on March 15 and September 15,
and the
debentures are not redeemable prior to maturity and are not entitled to any
sinking fund.
Maturities: As of September 27, 1997, aggregate annual maturities of long-term
debt for the next five years are $0.5 million in 1998, $0.7 million in 1999,
$1.2 million in 2000, $335.5 million in 2001 and $0.1 million in 2002.
Note F - Leases
Minimum commitments for rental expenditures under noncancellable operating
leases are as follows (in thousands):
1998............................................. $ 16,359
1999............................................. 14,373
2000............................................. 10,418
2001............................................. 7,974
2002............................................. 5,873
Later years...................................... 23,252
--------
78,249
Less sublease income............................. 102
--------
Total minimum lease payments................ $ 78,147
========
Approximately 37% of the operating leases pertain to real estate. The remainder
covers a variety of machinery and equipment. Certain operating leases,
principally for office facilities, contain escalation clauses for increases in
operating costs, property taxes and insurance. For the 1997, 1996 and 1995
fiscal years, rental expense for all operating leases was $19,751,000,
$20,023,000 and $18,542,000, respectively. Sublease income was not material in
any of these years.
Note G - Shareholders' Equity
Shares of the Company's voting and nonvoting common stock, par value $.01 per
share, authorized, issued and outstanding at September 27, 1997 and September
28, 1996, respectively, were as follows:
Shares Shares Shares
September 27, 1997 Authorized Issued Outstanding
------------------ ----------- ---------- -----------
Common Stock.................. 200,000,000 65,344,561 56,356,728
Nonvoting Common Stock........ 15,000,000 3,048,888 3,048,888
----------- ---------- ----------
215,000,000 68,393,449 59,405,616
=========== ========== ==========
Shares Shares Shares
September 28, 1996 Authorized Issued Outstanding
------------------ ----------- ---------- -----------
Common Stock.................. 200,000,000 61,366,741 55,852,652
Nonvoting Common Stock........ 15,000,000 7,026,708 7,026,708
----------- ---------- ----------
215,000,000 68,393,449 62,879,360
=========== ========== ==========
All shares have similar rights and privileges except for voting rights. Holders
of Nonvoting Common Stock are entitled, subject to certain limitations, to
exchange such shares for Common Stock.
On September 27, 1997 and September 28, 1996, the Company had 30,000,000 shares
of preferred stock authorized, par value $.01 per share, none of which were
issued and outstanding.
During the 1997 fiscal year, the Company purchased 1,750,000 shares of Nonvoting
Common Stock from a shareholder group in a privately-negotiated transaction.
Immediately thereafter, these shares were converted to voting Common Stock held
as treasury stock. Additionally, the Company exchanged 2,227,820 shares of
Nonvoting Common Stock for voting Common Stock. During the 1997 fiscal year,
outstanding shares also changed due to (i) the purchase of 2,794,120 additional
shares of treasury stock; (ii) the issuance of 488,280 shares of treasury stock
to the ESOP Plan (see Note M); (iii) the issuance of 250,101 shares of treasury
stock to settle Performance Unit awards (see Note Q); (iv) the issuance of
322,995 shares of treasury stock for exercise of stock options (see Note Q); and
(v) the issuance of 9,000 shares for other transactions.
Changes in shareholders' equity of the Company for fiscal 1995, 1996 and 1997
were (dollar amounts in thousands):
Capital
in Currency Treasury
Common excess of Accumulated translation shares,
Stock par value deficit adjustment at cost Total
------ --------- ----------- ----------- --------- --------
Balance October 1, 1994........... $ 683 $883,838 $ (302,299) $ 3,955 $ (11,813) $574,364
Purchase of treasury stock........ (37,858) (37,858)
Issuance of treasury stock........ (1,163) 13,333 12,170
Awards issued under
Equity Incentive Plans........... 1 5,818 5,819
Amortization of unearned
compensation..................... 2,255 2,255
Exercise of stock options......... 73 73
Forfeiture of restricted shares... 126 (126) -
Net income for the period......... 68,394 68,394
Translation adjustment............ (9,777) (9,777)
------ -------- --------- ------- --------- --------
Balance September 30, 1995........ 684 890,947 (233,905) (5,822) (36,464) 615,440
Purchase of treasury stock........ (45,038) (45,038)
Issuance of treasury stock........ (10,978) 9,730 (1,248)
Awards issued under
Equity Incentive Plans........... 3,205 3,205
Amortization of unearned
compensation..................... 2,248 2,248
Exercise of stock options......... (297) 4,145 3,848
Forfeiture of restricted shares... 60 (60) -
Net income for the period......... 40,906 40,906
Translation adjustment............ (3,441) (3,441)
------- -------- ---------- -------- --------- --------
Balance September 28, 1996........ 684 885,185 (192,999) (9,263) (67,687) 615,920
Purchase of treasury stock........ (53,419) (53,419)
Issuance of treasury stock........ (4,613) 8,890 4,277
Awards issued under
Equity Incentive Plans........... 2,082 2,082
Amortization of unearned
compensation..................... 176 176
Exercise of stock options......... (224) 3,933 3,709
Tax benefit on stock options...... 231 231
Net income for the period......... 58,698 58,698
Translation adjustment............ (948) (948)
------- --------- ----------- -------- --------- --------
Balance September 27, 1997........ $ 684 $ 882,837 $ (134,301) $(10,211) $(108,283) $630,726
======= ========= =========== ======== ========= ========
Note H - Other Expense (Income) - Net
Other expense (income) - net consisted of the following (in thousands):
1997 1996 1995
-------- -------- --------
Loss (gain) on sale of assets - net.. (9,487) $ 3,651 $ -
Provision for legal contingencies.... - 3,990 -
Interest income...................... (2,991) (2,583) (2,133)
Other................................ (312) 1,046 236
-------- -------- --------
Total........................... $(12,790) $ 6,104 $ (1,897)
======== ======== ========
During the 1997 fiscal year, the Company sold Advanced Textiles, Inc. (a small
fiberglass business) for $4.6 million in cash and $4.1 million in securities and
recognized a pre-tax gain of $4.8 million from the sale. Also during the 1997
fiscal year, the Company sold its Sedgefield chemical business for cash and
recognized a pre-tax gain of $4.3 million from the sale. These businesses had
combined sales of $5.3 million and $16.9 million during the 1997 and 1996 fiscal
years, respectively. On April 27, 1996, the Company sold its J.G. Furniture
operation for $1.1 million in cash and $3.6 million in securities. J.G.
Furniture had sales of $17.4 million during the 1995 fiscal year. Additionally,
the Company recorded a charge for $2.3 million in 1996 on the sale of a
non-operating asset. The Company recorded a charge of $4.0 million in the 1996
fiscal year for legal contingencies.
Note I - Income Taxes
The sources of income before income taxes were as follows (in thousands):
1997 1996 1995
-------- -------- --------
United States............................... $ 89,233 $ 70,598 $118,012
Foreign..................................... 7,138 4,752 2,089
-------- -------- --------
Total $ 96,371 $ 75,350 $120,101
======== ======== ========
Income tax expense consisted of (in thousands):
1997 1996 1995
-------- -------- --------
Current:
United States.......................... $ 32,799 $ 36,375 $ 31,418
Foreign................................ 249 447 288
-------- -------- --------
Total current 33,048 36,822 31,706
Deferred:
United States.......................... 4,048 (3,716) 18,582
Foreign................................ 577 641 1,419
-------- -------- --------
Total deferred.................... 4,625 (3,075) 20,001
-------- -------- --------
$ 37,673 $ 33,747 $ 51,707
======== ======== ========
Income tax expense is different from the amount computed by applying the U.S.
federal income tax rate of 35% to income before income taxes as follows (in
thousands):
1997 1996 1995
-------- -------- --------
U.S. tax at statutory rate.................. $ 33,730 $ 26,373 $ 42,035
Goodwill amortization with no tax benefit... 6,140 6,212 6,166
State income taxes, net of federal benefit.. 1,712 1,465 3,622
Foreign Sales Corporation................... (2,865) (913) (867)
Other....................................... (1,044) 610 751
-------- -------- --------
$ 37,673 $ 33,747 $ 51,707
======== ======== ========
At September 27, 1997, the Company had $44.3 million of deferred tax assets and
$202.4 million of deferred tax liabilities which have been netted for
presentation purposes. At September 28, 1996, the Company had $40.4 million of
deferred tax assets and $196.9 million of deferred tax liabilities which have
been netted for presentation purposes. Operating loss and tax credit
carryforwards with related tax benefits of $2.1 million (net of $2.9 million
valuation allowance) at September 27, 1997, and $2.7 million (net of $2.9
million valuation allowance) at September 28, 1996, expire from 1998 to 2008.
Net deferred tax liabilities at September 27, 1997 and September 28, 1996
consisted of the following (in thousands):
1997 1996
--------------------- ---------------------
Current Noncurrent Current Noncurrent
Fixed assets.............. $ - $ 105,178 $ - $ 104,187
Inventory valuation....... 60,142 - 60,142 -
Accruals, allowances
and other............... (15,794) 10,763 (13,188) 8,142
Operating loss and tax
credit carryforwards.... (566) (1,578) (579) (2,155)
-------- --------- -------- ---------
Total................ $ 43,782 $ 114,363 $ 46,375 $ 110,174
======== ========= ======== =========
Note J - Supplemental Disclosures of Cash Flow Information
(in thousands) 1997 1996 1995
-------- -------- --------
Interest paid - net................... $ 56,565 $ 56,244 $ 52,705
======== ======== ========
Income taxes paid - net............... $ 37,086 $ 25,089 $ 38,973
======== ======== ========
The Company's noncash investing and financing activities not disclosed elsewhere
included the issuance of convertible notes in the amount of $12.2 million
related to the acquisition of The Bacova Guild, Ltd. during the 1995 fiscal year
and exchange of equipment for notes receivable in the amount of $2.9 million
during the 1995 fiscal year.
Note K - Retirement Benefits
The Company's U.S. defined benefit pension plan provides benefits to most of its
U.S. employees and certain employees in foreign countries, based on their
compensation over their working careers. The funding policy for this plan is to
contribute annually an amount based on the recommendation of the plan's actuary.
Employees also contribute a percentage of their compensation. Participants
become fully vested at the end of five years of service.
The following sets forth the funded status of the plan (in thousands):
1997 1996
--------- ---------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $(281,212) in 1997 and
$(260,261) in 1996................................... $(299,800) $(273,994)
--------- ---------
Projected benefit obligation for service rendered
to date.............................................. (337,730) (310,992)
Less plan assets at fair value, primarily listed
stocks and bonds, short-term investment funds
and insurance company contracts...................... 349,069 298,346
--------- ---------
Plan assets in excess of (less than) projected
benefit obligation................................... 11,339 (12,646)
Unrecognized prior service cost....................... 469 625
Unrecognized net loss................................. 15,280 34,652
--------- ---------
Pension asset recognized in the balance sheet......... $ 27,088 $ 22,631
========= =========
During the 1996 fiscal year, the plan made cash lump sum payments to the former
member employees of a divested division. Curtailment and settlement losses of
$3.7 million in 1996 were recognized and offset against reserves established at
the time of the divestiture.
Net pension cost included the following components for the 1997, 1996 and 1995
fiscal years (in thousands):
1997 1996 1995
-------- -------- --------
Service cost - benefits earned during the
period...................................... $ 7,354 $ 7,991 $ 4,385
Interest cost on projected benefit
obligation.................................. 25,128 24,093 24,148
Return on assets, net of deferred gain
of $37,690 in 1997, $19,579 in 1996,
and $20,361 in 1995......................... (24,077) (22,686) (20,270)
Amortization:
Unrecognized prior service cost............. 156 163 541
Unrecognized losses......................... 1,982 2,928 3,892
-------- -------- --------
Net pension cost............................. $ 10,543 $ 12,489 $ 12,696
======== ======== ========
The following assumptions were used at each measurement date:
1997 1996 1995
-------- -------- -------
Discount rate.................................. 7.75% 8.0% 7.75%
Long-term rate of return on plan assets........ 8.5% 8.5% 8.5%
Long-term rate of increase in compensation..... 3.75% 3.75% 3.75%
Pension cost for all plans, including those of foreign subsidiaries, was
$10,842,000, $12,940,000 and $13,112,000 for the 1997, 1996 and 1995 fiscal
years, respectively.
Note L - Other Postretirement Benefit Plans
In addition to the Company's pension plan, the Company has two defined benefit
postretirement medical plans available to most of its U.S. employees who elect
participation and one life insurance defined benefit postretirement plan
covering only certain employees. The medical plans include a health care plan
for employees electing early retirement between the ages of 55 and 65 and a
Medicare supplement plan for retired employees age 65 and older. The medical
plans are contributory, with retiree contributions adjusted annually, and
contain other cost-sharing features such as deductibles and coinsurance. The
life insurance plan is non-contributory and was closed to new members in 1973.
The Company's policy is to fund the cost of the medical plans and the life
insurance plan as expenses are incurred. The Company accounts for the plans
under SFAS NO. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions", which requires that the cost of such benefits be accrued over
the employees' service lives. The Company's annual postretirement benefit costs
are not significant.
The following table shows the three plans' combined funded status reconciled
with the amounts recognized in the Company's balance sheets as of September 27,
1997 and September 28, 1996 (in thousands) and assumptions:
1997 1996
------------------ ------------------
Life Life
Medical Insurance Medical Insurance
Plans Plan Plans Plan
------- ------- ------- -------
Accumulated postretirement benefit
obligation:
Retirees............................. $(1,764) $(4,858) $ (955) $(5,028)
Fully eligible active plan
participants........................ (3,098) - (2,241) -
Other active plan participants....... (3,521) - (2,530) -
------- ------- ------- -------
(8,383) (4,858) (5,726) (5,028)
Plan assets at fair value, primarily
bonds................................ 86 2,279 249 2,399
------ ------- ------- -------
Accumulated postretirement benefit
obligation in excess of plan assets.. (8,297) (2,579) (5,477) (2,629)
Unrecognized net (gain) loss.......... 5,947 (531) 3,266 (551)
------ ------- ------- -------
Accrued postretirement benefit cost... $(2,350) $(3,110) $(2,211) $(3,180)
======= ======= ======= =======
Discount rate......................... 7.75% 7.75% 8.0% 8.0%
Long-term rate of return on plan
assets............................... 8.5% 8.5% 8.5% 8.5%
The annual rate of increase in health care expenses was 7% in the 1997 and 1996
fiscal years. This rate was assumed to be 7% for the 1998 fiscal year and to
decrease gradually to 6% in 2004 and remain at that level thereafter.
Note M - Employee Stock Ownership Plan
The Company's Employee Stock Ownership Plan ("ESOP") is an individual account,
defined contribution plan designed to be qualified under the relevant provisions
of the Internal Revenue Code of 1986, as amended (the "Code"). The ESOP is
designed to invest primarily in the Company's stock. The Internal Revenue
Service has issued a favorable determination letter stating that the ESOP
qualifies under the Code and that the ESOP Trust is exempt from tax.
Substantially all U.S. salaried and hourly employees who complete a minimum
period of service are eligible to participate in the ESOP. The ESOP Plan also
provides for 100% vesting after one year of participating service and for
distributions of shares allocated to participant accounts at the time of
termination of employment with the Company.
Pursuant to a Board-established formula linked to the Company's annual operating
results, a contribution of 483,076 shares of Common Stock valued at $5.7 million
was made to the ESOP for fiscal year 1995, a contribution of 488,280 shares of
Common Stock valued at $5.2 million was made to the ESOP for fiscal year 1996,
and a cash contribution of $3.1 million will be made to the ESOP for fiscal year
1997. Such amounts have been charged to operations in the 1995, 1996 and 1997
fiscal years, respectively.
Note N - Contingencies
The Company and certain of its current and former direct and indirect corporate
predecessors, subsidiaries and divisions have been identified by the United
States Environmental Protection Agency, by the environmental agencies in several
states and by private parties as potentially responsible parties at a number of
hazardous waste disposal sites under the Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("Superfund") and comparable state laws
and, as such, may be liable for the cost of cleanup and other remedial
activities at these sites. The Company may also have liability for such matters
pursuant to contractual obligations relating to divested property or with
respect to sites which may be identified in the future. With respect to certain
of these sites, other persons have also been identified as potentially
responsible parties, and in such circumstances the responsibility for cleanup
and other remedial activities is typically shared among such parties based on an
allocation formula. The Company is also involved in remedial responses and
voluntary environmental cleanups at other sites which are not currently the
subject of proceedings of any kind under Superfund or comparable state laws. The
Company has established reserves in its financial statements for such
environmental liabilities, including related legal fees and other transaction
costs, in the aggregate amount of $5.7 million. The provision for environmental
liabilities is based on the Company's estimate of allocations of liability among
potentially responsible parties (and the likelihood of contribution by such
parties), information concerning the scope of contamination, estimated
remediation costs, estimated transaction costs and other factors. The Company
has also recorded $1.1 million for estimated recoveries under insurance policies
to the extent that coverage for such claims has been acknowledged by the
relevant insurer and for estimated recoveries from third parties.
The Company and its subsidiaries also have sundry claims and other lawsuits
pending against them and also have certain guarantees which were made in the
ordinary course of business. It is not possible to determine with certainty the
ultimate liability of the Company in these matters, if any, but in the opinion
of management, their outcome should have no material adverse effect upon the
financial condition or results of operations of the Company.
Note O - Segment and Other Information
The Company is one of the largest and most diversified manufacturers of textile
products in the world. It is a leading developer, marketer and manufacturer of
fabrics and other textile products utilized in a wide variety of apparel and
interior furnishings end uses. The Company operates in two areas: products for
apparel markets and products for interior furnishings markets. Sales, operating
income, identifiable assets, depreciation and amortization and capital
expenditures for these segments were as follows (dollars in millions):
1997 1996 1995
-------- -------- ---------
Net sales
Apparel................................ $1,253.2 $1,328.3 $1,347.1
Interior furnishings................... 837.5 854.0 862.1
-------- -------- --------
Total........................... $2,090.7 $2,182.3 $2,209.2
======== ======== ========
Operating income
Apparel................................ $ 112.1 $ 121.7 $ 107.1
Interior furnishings................... 43.6 55.6 67.4
Loss on closing of division............ - (29.9) -
Provision for restructuring............ (12.1) - -
-------- -------- --------
Total........................... 143.6 147.4 174.5
Interest expense......................... 60.0 65.9 56.3
Other expense (income) - net............. (12.8) 6.1 (1.9)
-------- -------- --------
Income before income taxes............... $ 96.4 $ 75.4 $ 120.1
======== ======== ========
Operating margin
Apparel................................ 8.9% 9.2% 8.0%
Interior furnishings................... 5.2 6.5 7.8
---- ---- ----
Total........................... 6.9% 6.8% 7.9%
==== ==== ====
Identifiable assets
Apparel................................ $1,088.7 $1,091.8 $1,130.4
Interior furnishings................... 707.3 734.2 748.8
Corporate.............................. 77.7 59.9 52.5
-------- -------- --------
Total........................... $1,873.7 $1,885.9 $1,931.7
======== ======== ========
Depreciation and amortization
Apparel................................ $ 50.9 $ 52.3 $ 53.4
Interior furnishings................... 34.2 35.0 33.6
-------- -------- --------
Total........................... $ 85.1 $ 87.3 $ 87.0
======== ======== ========
Capital expenditures
Apparel................................ $ 72.0 $ 48.6 $ 55.4
Interior furnishings................... 24.5 30.6 46.5
-------- -------- --------
Total........................... $ 96.5 $ 79.2 $ 101.9
======== ======== ========
The Company primarily markets its products to approximately 12,000 customers in
the United States. The Company also markets its products to customers in Canada,
Mexico, Latin America, Europe and Asian countries. For the 1997 fiscal year, no
single customer represented more than 10% of the Company's net sales, and the
Company's 10 largest customers accounted for approximately 28% of net sales.
Export sales from the Company's United States operations to unaffiliated
customers were as follows (in millions):
1997 1996 1995
------- -------- --------
Asia..................................... $ 38.6 $ 51.5 $ 32.0
Europe................................... 78.3 61.5 41.5
North and South America.................. 108.2 91.5 78.5
Other.................................... 14.2 9.0 9.2
------ ------ ------
Total........................... $239.3 $213.5 $161.2
====== ====== ======
Note P - Financial Instruments
The Company utilizes interest rate agreements and foreign exchange contracts to
manage interest rate and foreign currency exposures. The principal objective of
such contracts is to minimize the risks and/or costs associated with financial
and global operating activities. The Company does not utilize financial
instruments for trading or other speculative purposes. The counterparties to
these contractual
arrangements are a diverse group of major financial institutions with which the
Company also has other financial relationships. The Company is exposed to credit
loss in the event of nonperformance by these counterparties. However, the
Company does not anticipate nonperformance by the other parties, and no material
loss would be expected from their nonperformance.
INTEREST RATE INSTRUMENTS: The Company enters into interest rate swap, cap,
floor and collar agreements to reduce the impact of changes in interest rates on
all or a portion of its floating rate debt. The swap agreements are contracts to
exchange floating rate for fixed interest payments periodically over the life of
the agreements without the exchange of the underlying notional amounts. The
notional amounts of interest rate agreements are used to measure interest to be
paid or received and do not represent the amount of exposure to credit loss. The
net cash paid for interest rate cap, floor and collar agreements is recorded in
intangibles and deferred charges in the consolidated balance sheet and charged
to interest expense over the life of the agreement. The net cash amounts paid or
received on swap agreements are accrued and recognized as an adjustment to
interest expense. If an arrangement is replaced by another instrument and no
longer qualifies as a hedge instrument, then it is marked to market and carried
on the balance sheet at fair value.
As of September 27, 1997 and September 28, 1996, the Company had the
following interest rate instruments in effect (notional amounts in millions; the
cap, swap, floor and collar rates are based on 3-month LIBOR):
1997
------------------------------------------
Notional Strike
Amount Rate Period
-------- ------ -----------
Interest rate swaps $200 7.37% 10/95-10/00
1996
------------------------------------------
Notional Strike
Amount Rate Period
-------- ------ -----------
Interest rate caps $100 9.50% 04/96-04/97
300 7.00 10/96-10/97
300 9.50 10/96-10/97
200 10.00 10/96-10/97
Interest rate swaps $200 7.37% 10/95-10/00
Interest rate collars $ 50 4.75% 10/96-10/97
7.00
50 5.03 10/96-10/97
7.00
Interest rate floors $100 5.50% 01/96-10/96
250 5.25 01/96-10/96
300(a) 5.60 10/96-10/97
(a) Entered into on October 3, 1996.
FOREIGN EXCHANGE INSTRUMENTS: The Company enters into forward currency exchange
contracts in the regular course of business to manage its exposure against
foreign currency fluctuations on sales, raw material and fixed asset purchase
transactions denominated in foreign currencies. Foreign currency receivables
which have forward exchange contracts are recorded in U.S. dollars at the
applicable forward rate. The foreign exchange contracts on receivables ($27.1
million and $19.8 million at September 27, 1997 and September 28, 1996,
respectively) require the Company to exchange British pounds, German marks,
French francs, Canadian dollars and Italian lira for U.S. dollars and mature in
one to eight months. Forward exchange contracts related to raw material and
fixed asset purchase transactions are recognized as adjustments to the bases of
the underlying assets. At September 27, 1997, the Company had $10.6 million of
forward currency exchange contracts maturing in one to eleven months which
related to purchases of wool and machinery denominated in
Australian dollars, German marks and Swiss francs, compared to $4.8 million at
September 28, 1996. At September 27, 1997 and September 28, 1996, deferred gains
and losses on foreign exchange contracts are not material to the consolidated
financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were
used in estimating the indicated fair values of financial instruments:
Cash and Cash Equivalents: The carrying amount approximates fair value because
of the short maturity of those instruments.
Short-term Investments: The fair values are estimated based on quoted market
prices for these or similar instruments.
Long-term Investments and Receivables: The fair values are estimated based on
one of the following methods: (i) quoted market prices; (ii) current rates for
similar issues; (iii) recent transactions for similar issues; or (iv) present
value of expected cash flows.
Short-term and Long-term Debt: The fair value is estimated based on current
rates offered for similar debt. At September 27, 1997, long-term debt with a
carrying value of $806.9 million had an estimated fair value of $809.2 million.
At September 28, 1996, long-term debt with a carrying value of $838.9 million
had an estimated fair value of $834.9 million.
Interest Rate Instruments: The fair values 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 September 27, 1997 and September 28, 1996, the carrying
amounts of these instruments were a $0.6 million liability and a $0.2 million
liability, respectively. At September 27, 1997, the Company estimates it would
have paid $8.4 million and at September 28, 1996 would have paid $7.2 million to
terminate the agreements.
Foreign Currency Contracts: The fair values of foreign currency contracts (used
for hedging purposes) are estimated by obtaining quotes from brokers. At
September 27, 1997 and September 28, 1996, there were no carrying amounts
related to foreign currency contracts in the consolidated balance sheets.
It is estimated that the carrying value of the Company's other financial
instruments approximated fair value at September 27, 1997 and September 28,
1996.
Note Q - Stock-Based Compensation
Under the Company's various Equity Incentive Plans, the Company is authorized to
award restricted shares of the Company's common stock, options to purchase
common stock, or Performance Units which are dependent upon achievement of
specified performance goals and are payable in common stock. Awards presently
outstanding are subject to vesting schedules ranging from three to five years
depending on whether performance goals are achieved. Stock options granted
generally have a maximum term of ten years. Under these plans, 739,507 shares of
common stock are reserved to settle Performance Unit awards currently
outstanding and 1,127,622 shares to settle additional future awards remain
available.
A summary of the Company's stock option activity and related information for the
1997, 1996 and 1995 fiscal years follows:
1997 1996 1995
----------------- ---------------- ---------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
------- --------- -------- -------- ------- -------
Outstanding at
beginning of year..... 6,203 $11.57 4,202 $11.55 4,130 $11.61
Granted................ 27 11.70 2,411 11.59 140 10.13
Exercised.............. (323) 11.41 (338) 11.39 (6) 11.63
Forfeited.............. (153) 11.68 (72) 11.99 (62) 12.20
------ ------ ------
Outstanding at
end of year........... 5,754 $11.58 6,203 $11.57 4,202 $11.55
======= ====== ======
Exercisable at end
of year............... 3,483 $11.57 3,807 $11.55 3,472 $11.55
Per share weighted-average
fair value of options
granted during the year.. $5.24 $5.12 $4.86
The following table summarizes information about stock options outstanding at
September 27, 1997:
Options Outstanding Options Exercisable
----------------------------------------- ------------------------
Range of Weighted-Average Weighted- Weighted-
Exercise Number Remaining Average Number Average
Prices (000) Contractual Life Exercise Price (000) Exercise Price
- ------------ -------- ---------------- -------------- -------- --------------
$ 8.40 to 10.40 646 5.1 $ 9.71 647 $ 9.71
$10.70 to 14.90 5,040 6.3 $11.68 2,768 $11.76
$15.60 to 21.93 68 4.5 $21.47 68 $21.47
------ ------
5,754 6.1 $11.58 3,483 $11.57
====== ======
The Company has elected to follow Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees". Under APB 25, no compensation
expense is recognized for the Company's employee stock options because the
exercise price of the options equals the market price of the underlying stock on
the date of grant. Total compensation cost charged against income related to
restricted share and Performance Unit awards was $4.3 million, $7.9 million and
$7.9 million for the 1997, 1996 and 1995 fiscal years, respectively.
The following pro forma information regarding net income and net income per
share is required when APB 25 accounting is elected, and was determined as if
the Company had accounted for its employee stock options under the fair value
method of SFAS No. 123, "Accounting for Stock-Based Compensation." The fair
values for these options were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 6.12% and 5.81% for fiscal year 1997
and 1996, respectively; volatility factors of the expected market price of the
Company's common stock of 0.34; dividend yields of 0%; and a weighted-average
expected life of the options of six years. For purposes of pro forma
disclosures, the estimated fair values of the options are amortized to expense
over the option's vesting periods (in thousands except for per share
information):
1997 1996
--------- ---------
Net income as reported................ $ 58,698 $ 40,906
Pro forma net income.................. $ 56,266 $ 38,794
Net income per share as reported...... $ 0.96 $ 0.65
Pro forma net income per share........ $ 0.92 $ 0.61
During the initial phase-in period, as required by SFAS No. 123, the pro forma
amounts were determined based on stock option grants in the 1996 and 1997 fiscal
years only. Therefore, the pro forma amounts for compensation cost may not be
indicative of the effects on pro forma net income and pro forma net income per
share for future years.
Note R - Quarterly Results of Operations (unaudited)
The Company's unaudited quarterly results of operations are presented below (in
thousands, except for per share data).
Fiscal 1997 Quarters
December March June September
-------- -------- -------- ---------
Net sales.............................. $476,490 $537,161 $553,590 $523,442
Cost of sales.......................... 403,910 450,196 463,975 440,617
Income tax expense..................... (7,247) (14,088) (7,235) (9,103)
Net income (a)......................... $ 9,385 $ 21,115 $ 13,491 $ 14,707
NET INCOME PER SHARE (a)............... $ 0.15 $ 0.34 $ 0.22 $ 0.25
COMMON STOCK PRICES
High................................. 12 13 5/8 12 3/8 14 11/16
Low.................................. 9 3/4 10 3/4 10 1/8 11 5/16
Fiscal 1996 Quarters
December March June September
-------- -------- -------- ---------
Net sales.............................. $512,694 $572,081 $574,571 $523,001
Cost of sales.......................... 434,689 471,760 471,697 436,014
Income tax expense..................... (7,438) (14,884) (2,256) (9,169)
Income before extraordinary item (b)... 8,473 20,701 570 11,859
Extraordinary item..................... (697) - - -
Net income............................. $ 7,776 $ 20,701 $ 570 $ 11,859
PER SHARE DATA
Income before extraordinary item (b)... $ 0.13 $ 0.33 $ 0.01 $ 0.19
Extraordinary item..................... (0.01) - - -
--------- -------- -------- -------
Net income............................. $ 0.12 $ 0.33 $ 0.01 $ 0.19
COMMON STOCK PRICES
High................................. 14 1/4 13 1/4 14 7/8 14 1/2
Low.................................. 11 11 3/8 11 1/4 9 7/8
(a) June quarter 1997 includes a $7.3 million charge for restructuring
associated with reducing staff, consolidation of certain yarn facilities
and exiting the residential carpet line, as well as $3.0 million for
certain other non-recurring charges, each net of income taxes.
(b) June quarter 1996 includes a $20.3 million loss on closing the Knitted
Fabrics division and $4.7 million for certain other non-recurring
charges, each net of income taxes.
STATISTICAL REVIEW
Burlington Industries, Inc. and Subsidiary Companies
(dollar amounts in thousands, except per share data and ratios)
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
SUMMARY OF OPERATIONS
Net sales.................... $2,090,683 $2,182,347 $2,209,191 $2,127,067 $2,057,943
Operating income before
interest and taxes.......... 143,643 147,390 174,498 204,242 214,141
Interest expense............. 60,062 65,936 56,294 49,841 93,389
Income tax expense........... 37,673 33,747 51,707 69,982 58,514
Income from continuing
operations.................. 58,698 41,603 68,394 99,299 68,445
Income per common share
from continuing operations.. 0.96 0.66 1.05 1.46 1.00
Dividends per common share... - - - - -
FINANCIAL POSITION AT YEAR END
Current assets............... $ 697,627 $ 719,370 $ 732,837 $ 733,538 $ 664,552
Fixed assets - net........... 584,647 569,540 575,080 549,942 537,088
Total assets................. 1,873,692 1,885,942 1,931,731 1,907,148 1,854,320
Current liabilities.......... 263,595 265,352 272,397 315,468 314,265
Long-term liabilities........ 865,008 894,496 932,227 915,884 948,960
Shareholders' equity......... 630,726 615,920 615,440 574,364 484,215
Current ratio................ 2.6 2.7 2.7 2.3 2.1
Total debt as % of
capitalization.............. 56.1% 57.7% 59.7% 61.3% 67.5%
OTHER DATA
Capital expenditures......... $ 96,500 $ 79,174 $ 101,876 $ 98,869 $ 80,590
Number of employees at
year end.................... 20,100 21,000 22,500 23,800 23,600
Cash interest coverage
ratio....................... 4.0 4.3 4.9 6.1 4.0
Report of Independent Auditors
Shareholders and Board of Directors
Burlington Industries, Inc.
We have audited the accompanying consolidated balance sheets of Burlington
Industries, Inc. and Subsidiary Companies as of September 27, 1997 and September
28, 1996, and the related consolidated statements of operations and cash flows
for each of the three years in the period ended September 27, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Burlington Industries, Inc. and Subsidiary Companies at September 27, 1997 and
September 28, 1996, and the consolidated results of their operations and their
cash flows, for each of the three years in the period ended September 27, 1997,
in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Greensboro, North Carolina
October 30, 1997