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 27, 1997
Commission file number 1-10984
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)
(910) 379-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of January 19, 1998, there were outstanding 56,673,500 shares of Common
Stock, par value $.01 per share, and 3,048,888 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 27, December 28,
1997 1996
---------- ----------
Net sales........................................... $ 481,703 $ 476,490
Cost of sales....................................... 402,803 403,910
---------- ----------
Gross profit........................................ 78,900 72,580
Selling, administrative and general expenses........ 35,880 36,876
Provision for doubtful accounts..................... 1,250 463
Amortization of goodwill............................ 4,540 4,539
---------- ----------
Operating income before interest and taxes.......... 37,230 30,702
Interest expense.................................... 14,551 14,636
Other expense (income) - net........................ 86 (566)
---------- ----------
Income before income taxes.......................... 22,593 16,632
Income tax expense:
Current........................................... 9,834 2,238
Deferred.......................................... (465) 5,009
---------- ----------
Total income tax expense........................ 9,369 7,247
---------- ----------
Net income.......................................... $ 13,224 $ 9,385
========== ==========
Average common shares outstanding................... 59,636 62,976
Basic and diluted earnings per common share......... $ 0.22 $ 0.15
1
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Amounts in thousands)
December 27, September 27,
1997 1997
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents....................... $ 17,961 $ 17,863
Short-term investments.......................... 26,324 23,832
Customer accounts receivable after deductions
of $22,144 and $20,688 for the respective
dates for doubtful accounts, discounts,
returns and allowances........................ 287,282 331,457
Sundry notes and accounts receivable............ 7,386 6,762
Inventories..................................... 334,269 314,994
Prepaid expenses................................ 3,350 2,719
----------- -----------
Total current assets....................... 676,572 697,627
Fixed assets, at cost:
Land and land improvements...................... 37,498 36,677
Buildings....................................... 404,521 400,212
Machinery, fixtures and equipment............... 614,851 607,502
----------- -----------
1,056,870 1,044,391
Less accumulated depreciation and amortization.. 468,494 459,744
----------- -----------
Fixed assets - net......................... 588,376 584,647
Other assets:
Investments and receivables..................... 28,030 22,670
Intangibles and deferred charges................ 29,582 29,781
Excess of purchase cost over
net assets acquired............................ 534,427 538,967
----------- -----------
Total other assets......................... 592,039 591,418
----------- -----------
$ 1,856,987 $ 1,873,692
=========== ===========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due currently.................... $ 470 $ 470
Accounts payable and accrued expenses........... 168,042 202,937
Income taxes payable............................ 19,672 16,406
Deferred income taxes........................... 42,025 43,782
----------- -----------
Total current liabilities.................. 230,209 263,595
Long-term liabilities:
Long-term debt.................................. 807,905 806,413
Other........................................... 59,166 58,595
----------- -----------
Total long-term liabilities................ 867,071 865,008
Deferred income taxes........................... 115,655 114,363
Shareholders' equity:
Common stock issued............................. 684 684
Capital in excess of par value.................. 881,241 882,837
Accumulated deficit............................. (121,077) (134,301)
Currency translation adjustments................ (11,727) (10,211)
----------- -----------
749,121 739,009
Less cost of common stock held in treasury...... (105,069) (108,283)
----------- -----------
Total shareholders' equity................. 644,052 630,726
----------- -----------
$ 1,856,987 $ 1,873,692
=========== ===========
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 27, December 28,
1997 1996
---------- ----------
Cash flows from operating activities:
Net income......................................... $ 13,224 $ 9,385
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of fixed assets.. 15,937 15,724
Provision for doubtful accounts................ 1,250 463
Amortization of intangibles and deferred
debt expense................................. 4,682 4,733
Deferred income taxes.......................... (465) 5,009
Changes in assets and liabilities:
Customer accounts receivable - net......... 42,925 42,035
Sundry notes and accounts receivable....... (624) 1,121
Inventories................................ (19,275) (7,766)
Prepaid expenses........................... (631) (1,898)
Accounts payable and accrued expenses...... (37,968) (42,783)
(Payment) receipt of financing fees............ (122) 364
Change in interest payable..................... 1,813 2,648
Change in income taxes payable................. 3,368 (9,407)
Other.......................................... (1,262) (4,695)
---------- ----------
Total adjustments......................... 9,628 5,548
---------- ----------
Net cash provided by operating activities.......... 22,852 14,933
---------- ----------
Cash flows from investing activities:
Capital expenditures............................... (21,488) (19,460)
Proceeds from sales of assets...................... 3,381 2,546
Investment in joint venture........................ (925) (1,250)
Change in investments.............................. (6,517) (463)
---------- ----------
Net cash used by investing activities.............. (25,549) (18,627)
---------- -----------
Cash flows from financing activities:
Net change in short-term borrowings................ - 2,200
Repayments of long-term debt....................... (205,039) (24,878)
Proceeds from issuance of long-term debt........... 206,900 28,738
Proceeds from exercise of stock options............ 934 -
Purchase of treasury stock......................... - (10,536)
---------- ----------
Net cash provided (used) by financing activities... 2,795 (4,476)
---------- ----------
Net change in cash and cash equivalents............ 98 (8,170)
Cash and cash equivalents at beginning of period... 17,863 15,392
---------- ----------
Cash and cash equivalents at end of period......... $ 17,961 $ 7,222
========== ==========
3
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
As of and for the three months ended December 27, 1997
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 international subsidiaries are included as of dates three
months or less prior to that of the consolidated balance sheets.
Note C.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Statement 128
replaced the previously computed primary and fully diluted earnings per share
(EPS) with basic and diluted EPS. Unlike primary EPS, basic EPS excludes any
dilutive effects of options, warrants, and convertible securities. Diluted EPS
is very similar to the previously computed fully diluted EPS and, unlike fully
diluted EPS, its disclosure is required regardless of materiality. All EPS
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
Note D.
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 E.
Inventories are summarized as follows (dollar amounts in thousands):
December 27, September 27,
1997 1997
---------- ----------
Inventories at average cost:
Raw materials............................. $ 51,314 $ 46,722
Stock in process.......................... 100,075 97,973
Produced goods............................ 203,410 190,326
Dyes, chemicals and supplies.............. 22,957 21,859
---------- ----------
377,756 356,880
Less excess of average cost over LIFO..... 43,487 41,886
---------- ----------
Total................................. $ 334,269 $ 314,994
========== ==========
Note F.
On December 10, 1998, the Company, established a $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. The Receivables Facility replaced the Company's A-1/D-1 rated
commercial paper facility and the related $225.0 million Receivables-Backed
Liquidity Facility established with a group of banks.
4
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
The Company's earnings per share for the first quarter of the 1998 fiscal year
were $0.22 per share, in comparison with $0.15 recorded in the same quarter of
the 1997 fiscal year. This improvement was principally the result of the
Company's restructuring, cost-reduction and asset management steps that were
initiated during the past year.
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 three
months ended December 27, 1997 and December 28, 1996, respectively.
Three Months Ended
--------------------------
December 27, December 28,
1997 1996
------------ ------------
(Dollar amounts in millions)
Net sales
Apparel products......................... $ 282.8 $ 273.0
Interior furnishings products............ 198.9 203.5
-------- --------
Total................................. $ 481.7 $ 476.5
======== ========
Operating income before interest and taxes
Apparel products......................... $ 22.5 $ 17.9
As a percentage of net sales........... 8.0% 6.6%
Interior furnishings products............ $ 14.7 $ 12.8
As a percentage of net sales........... 7.4% 6.3%
-------- --------
Total................................. $ 37.2 $ 30.7
As a percentage of net sales......... 7.7% 6.4%
======== ========
RESULTS OF OPERATIONS
Comparison of Three Months ended December 27, 1997 and December 28, 1996.
Net sales for the first quarter of the 1998 fiscal year were $481.7
million, 1.1% higher than the $476.5 million recorded for the first quarter of
the 1997 fiscal year. Net sales of products for apparel markets for the first
quarter of the 1998 fiscal year were $282.8 million, 3.6% higher than the $273.0
million recorded in the first quarter of the 1997 fiscal year. This increase was
due primarily to additional volume, and better product mix in the Klopman and
Menswear divisions. Net sales of products for interior furnishings markets for
the first quarter of the 1998 fiscal year were $198.9 million in comparison with
the $203.5 million recorded in the first quarter of the 1997 fiscal year. This
reduction was due primarily to the closure in 1997 of the residential carpet
product line of the Lees division, lower volume and selling prices in the Area
Rugs division and lower volume in the Burlington House division partially offset
by higher volume in commercial carpets. Total export sales increased 1% over the
comparable quarter of the prior year and represented 11.6% of net sales.
Operating income before interest and taxes for the first quarter of the
1998 fiscal year was $37.2 million, an increase of 21.2% from the $30.7 million
recorded in the first quarter of the 1997 fiscal year. Amortization of goodwill
was $4.5 million in the first quarter of the 1998 and 1997 fiscal years.
Operating income before interest and taxes for the apparel products segment for
the first quarter of the 1998 fiscal year was $22.5 million compared to $17.9
million recorded for the first quarter of the 1997 fiscal year. This increase
5
was due primarily to higher margins resulting from volume and better product mix
in the Klopman and Menswear divisions and overall savings from cost-reduction
and asset management steps that were initiated during the past year. Operating
income before interest and taxes for the interior furnishings products segment
for the first quarter of the 1998 fiscal year was $14.7 million compared to
$12.8 million recorded for the first quarter of the 1997 fiscal year. This
increase was due primarily to improved results in the Lees and Burlington House
divisions partially offset by lower margins in the Area Rugs division.
Interest expense for the first quarter of the 1998 fiscal year was $14.6
million, or 3.0% of net sales, compared with $14.6 million, or 3.1% of net
sales, in the first quarter of the 1997 fiscal year.
Total income tax expense is different from the amounts obtained by
applying statutory rates to the income before income taxes primarily as a result
of amortization of goodwill which is not tax-deductible and favorable tax
treatment of growing export sales through a Foreign Sales Corporation.
Liquidity and Capital Resources
During the first three months of the 1998 fiscal year, the Company generated
$22.9 million of cash from operating activities and $3.4 million from sales of
assets and had net borrowings of long- and short-term debt of $1.9 million. Cash
was primarily used as follows: $22.4 million for capital expenditures and
investment in joint venture and $6.5 million for other investing activities,
primarily, related to the growth and modernization of Mexican plants. At
December 27, 1997, total debt of the Company (consisting of current and
non-current portions of long-term debt) was $808.4 million compared with $806.9
million at September 27, 1997 and $845.4 million at December 28, 1996.
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.
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. 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. 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 January 29, 1998, the
Company had approximately $444.0 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
6
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 10, 1998, the Company, established a $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 January 29, 1998, $179.5 million in borrowings under this facility
with original maturities of up to 266 days was outstanding. The Receivables
Facility replaced the Company's A-1/D-1 rated commercial paper facility and the
related $225.0 million Receivables-Backed Liquidity Facility established with a
group of banks.
Because the Company's obligations under the 1995 Bank Credit Agreement 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.
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.
7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
None.
b) Reports on Form 8-K.
The Company filed a report on Form 8-K, dated December
3, 1997. The Item reported was "Item 5. Other Events".
8
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: January 30, 1998 Charles E. Peters, Jr.
Senior Vice President and
Chief Financial Officer