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 March 28, 1998
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)
(336) 379-2000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of April 23, 1998, there were outstanding 59,863,597 shares of Common
Stock, par value $.01 per share, and 1,481,988 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 Six Six
months months months months
ended ended ended ended
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
--------- --------- ---------- ----------
Net sales $ 517,954 $ 537,161 $ 999,657 $ 1,013,651
Cost of sales 423,272 450,196 826,075 854,106
--------- --------- ---------- ----------
Gross profit 94,682 86,965 173,582 159,545
Selling, administrative and
general expenses 36,307 37,993 73,437 75,332
Amortization of goodwill 4,539 4,540 9,079 9,079
--------- --------- ---------- ----------
Operating income before
interest and taxes 53,836 44,432 91,066 75,134
Interest expense 15,057 14,849 29,608 29,485
Other expense (income) - net (1,013) (5,620) (927) (6,186)
--------- --------- ---------- ----------
Income before income taxes 39,792 35,203 62,385 51,835
Income tax expense:
Current 10,322 9,949 20,156 12,187
Deferred 4,900 4,139 4,435 9,148
--------- --------- ---------- ----------
Total income tax expense 15,222 14,088 24,591 21,335
--------- --------- ---------- ----------
Net income $ 24,570 $ 21,115 $ 37,794 $ 30,500
========= ========= ========== ==========
Average common shares outstanding 60,037 61,962 59,836 62,469
Basic earnings per share 0.41 0.34 0.63 0.49
Diluted earnings per share 0.40 0.34 0.62 0.49
See notes to consolidated financial statements.
1
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Amounts in thousands)
March 28, September 27,
1998 1997
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,517 $ 17,863
Short-term investments 26,430 23,832
Customer accounts receivable after deductions
of $22,355 and $20,688 for the
respective dates for doubtful accounts,
discounts, returns and allowances 329,586 331,457
Sundry notes and accounts receivable 11,540 6,762
Inventories 347,238 314,994
Prepaid expenses 3,592 2,719
----------- -----------
Total current assets 731,903 697,627
Fixed assets, at cost:
Land and land improvements 37,433 36,677
Buildings 429,609 400,212
Machinery, fixtures and equipment 629,766 607,502
----------- -----------
1,096,808 1,044,391
Less accumulated depreciation and amortization 481,416 459,744
----------- -----------
Fixed assets - net 615,392 584,647
Other assets:
Investments and receivables 19,937 22,670
Intangibles and deferred charges 30,043 29,781
Excess of purchase cost over net assets acquired 529,888 538,967
----------- -----------
Total other assets 579,868 591,418
----------- -----------
$ 1,927,163 $ 1,873,692
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 2,000 $ 0
Long-term debt due currently 470 470
Accounts payable - trade 88,638 102,898
Sundry payables and accrued expenses 92,195 100,039
Income taxes payable 8,805 16,406
Deferred income taxes 44,183 43,782
----------- -----------
Total current liabilities 236,291 263,595
Long-term liabilities:
Long-term debt 825,639 806,413
Other 59,413 58,595
----------- -----------
Total long-term liabilities 885,052 865,008
Deferred income taxes 118,397 114,363
Shareholders' equity:
Common stock issued 684 684
Capital in excess of par value 883,408 882,837
Accumulated deficit (96,507) (134,301)
Currency translation adjustments (13,046) (10,211)
----------- -----------
774,539 739,009
Less cost of common stock held in treasury (87,116) (108,283)
----------- -----------
Total shareholders' equity 687,423 630,726
----------- -----------
$ 1,927,163 $ 1,873,692
=========== ===========
See notes to consolidated financial statements.
2
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Amounts in thousands)
Six Six
months months
ended ended
March 28, March 29,
1998 1997
------------ ------------
Cash flows from operating activities:
Net income $ 37,794 $ 30,500
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of fixed assets 32,706 32,004
Amortization of intangibles and
deferred debt expense 9,291 9,393
Deferred income taxes 4,435 9,148
Gain on disposal of assets (512) (4,780)
Changes in assets and liabilities:
Customer accounts receivable - net 1,871 (14,249)
Sundry notes and accounts receivable (4,778) (711)
Inventories (32,244) (25,269)
Prepaid expenses (873) (1,613)
Accounts payable and accrued expenses (22,153) (15,776)
Change in income taxes payable (5,428) (2,096)
Other (4,532) (8,264)
------------ ------------
Total adjustments (22,217) (22,213)
------------ ------------
Net cash provided by operating activities 15,577 8,287
------------ ------------
Cash flows from investing activities:
Capital expenditures (65,042) (40,264)
Proceeds from sales of assets 4,720 4,697
Investment in joint venture (925) (1,750)
Change in investments 2,355 (186)
------------ ------------
Net cash used by investing activities (58,892) (37,503)
------------ ------------
Cash flows from financing activities:
Changes in short-term borrowings 2,000 3,900
Repayments of long-term debt (190,390) (9,882)
Proceeds from issuance of long-term debt 214,083 61,504
Proceeds from exercise of stock options 13,632 2,057
Purchase of treasury shares (356) (30,794)
------------ ------------
Net cash provided by financing activities 38,969 26,785
------------ ------------
Net change in cash and cash equivalents (4,346) (2,431)
Cash and cash equivalents at beginning of period 17,863 15,392
------------ ------------
Cash and cash equivalents at end of period $ 13,517 $ 12,961
============ ============
See notes to consolidated financial statements.
3
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
As of and for the six months ended March 28, 1998
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.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Note D.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands):
Three Months Ended Six Months Ended
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
--------- --------- --------- --------
Numerator:
Net income........................ $ 24,570 $ 21,115 $ 37,794 $ 30,500
Effect of dilutive securities:
Convertible note................. 52 100 116 230
------- -------- -------- --------
Numerator for diluted earnings
per share...................... $ 24,622 $ 21,215 $ 37,910 $ 30,730
======== ======== ======== ========
Denominator:
Denominator for basic earnings per
share - weighted-average shares.. 60,037 61,962 59,836 62,469
Effect of dilutive securities:
Stock options.................... 684 264 698 154
Convertible note................. 340 644 374 729
-------- -------- -------- --------
Dilutive potential common shares.. 1,024 908 1,072 883
-------- -------- -------- --------
Denominator for diluted earnings
per share - adjusted weighted-
average shares and assumed
conversions.................... 61,061 62,870 60,908 63,352
======== ======== ======== ========
On March 13, 1998, 407,000 treasury shares were issued upon the conversion of
the remaining balance of the note referred to above.
4
Note E.
Inventories are summarized as follows (dollar amounts in thousands):
March 28, September 27,
1998 1997
---------- ----------
Inventories at average cost:
Raw materials............................. $ 55,666 $ 46,722
Stock in process.......................... 107,047 97,973
Produced goods............................ 204,399 190,326
Dyes, chemicals and supplies.............. 22,613 21,859
---------- ----------
389,725 356,880
Less excess of average cost over LIFO..... 42,487 41,886
---------- ----------
Total................................. $ 347,238 $ 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.
Note G.
On April 23, 1998, the Company announced that it has agreed to form a joint
venture with Unifi, Inc. to manufacture and market textured polyester yarns.
Under the agreement, Unifi, Inc. will own a majority ownership and will manage
the business, and the Company's existing textured yarn business and its Mayodan,
North Carolina plant (now part of the Burlington Madison Yarn division) will be
transferred to the joint venture. Following the closing of the transaction,
which is expected to occur on May 30, 1998, the Burlington Madison Yarn division
will produce only spun synthetic yarns, utilizing its facilities in Ranlo and
St. Pauls, North Carolina.
5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
The Company's basic earnings per share for the second quarter of the 1998 fiscal
year were $0.41 per share, in comparison with $0.34 recorded in the same quarter
of the 1997 fiscal year. Although sales for the second quarter decreased
slightly, the improvement in the Company's operations reflects the effects of
the 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 and six months ended March 28, 1998 and March 29, 1997,
respectively.
Three Months Ended Six Months Ended
------------------- --------------------
March 28, March 29, March 28, March 29,
1998 1997 1998 1997
--------- --------- --------- ---------
Net sales
Apparel products................... $ 308.6 $ 324.7 $ 591.4 $ 597.7
Interior furnishings products...... 209.4 212.5 408.3 416.0
-------- -------- --------- ---------
Total........................... $ 518.0 $ 537.2 $ 999.7 $ 1,013.7
======== ======== ========= =========
Operating income before interest
and taxes
Apparel products................... $ 34.6 $ 33.6 $ 57.2 $ 51.5
As a percentage of net sales..... 11.2% 10.3% 9.7% 8.6%
Interior furnishings products (a).. $ 19.2 $ 10.8 $ 33.9 $ 23.6
As a percentage of net sales..... 9.2% 5.1% 8.3% 5.7%
-------- -------- --------- ---------
Total........................... $ 53.8 $ 44.4 $ 91.1 $ 75.1
As a percentage of net sales... 10.4% 8.3% 9.1% 7.4%
======== ======== ========= =========
(a) Fiscal year 1997 periods include a $3.8 million charge for the closing
of a yarn spinning plant in the Burlington House Area Rugs division.
RESULTS OF OPERATIONS
Comparison of Three Months ended March 28, 1998 and March 29, 1997.
Net sales for the second quarter of the 1998 fiscal year were $518.0
million, 3.6% lower than the $537.2 million recorded for the second quarter of
the 1997 fiscal year. Net sales of products for apparel markets for the second
quarter of the 1998 fiscal year were $308.6 million, 5.0% lower than the $324.7
million recorded in the second quarter of the 1997 fiscal year. This decrease
was due primarily to lower volume in the Menswear and Klopman divisions,
partially offset by higher Denim division sales due primarily to volume
increases. Net sales of products for interior furnishings markets for the second
quarter of the 1998 fiscal year were $209.4 million in comparison with the
$212.5 million recorded in the second 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 and lower volume in the Area Rugs division,
partially offset by higher volume in the commercial carpet product line. Total
export sales decreased 3.7% from the comparable quarter of the prior year and
represented 12.2% of net sales.
Operating income before interest and taxes for the second quarter of the
1998 fiscal year was $53.8 million, an increase of 21.2% from the $44.4 million
recorded in the second quarter of the 1997 fiscal year. Amortization of goodwill
was $4.5 million in the second quarter of the 1998 and 1997 fiscal years.
Operating income before interest and taxes for the apparel products segment for
the second quarter of the 1998 fiscal year was $34.6 million compared to $33.6
6
million recorded for the second quarter of the 1997 fiscal year. This increase
was due primarily to improved results in the Denim division resulting from
operating efficiencies, higher sales volume and lower raw material costs,
partially offset by lower profits in the Klopman and Menswear divisions.
Operating income before interest and taxes for the interior furnishings products
segment for the second quarter of the 1998 fiscal year was $19.2 million
compared to $10.8 million recorded for the second quarter of the 1997 fiscal
year. This increase was due primarily to higher margins resulting from volume
and better product mix in the Lees division, improved results in the Burlington
House division and improved results in the Area Rugs division due to the absence
of the plant closing charge recorded in the prior year.
Interest expense for the second quarter of the 1998 fiscal year was $15.1
million, or 2.9% of net sales, compared with $14.8 million, or 2.8% of net
sales, in the second 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 export sales through a Foreign Sales Corporation.
Comparison of Six Months ended March 28, 1998 and March 29, 1997.
Net sales for the first six months of the 1998 fiscal year were $999.7
million, 1.4% lower than the $1,013.7 million recorded for the first six months
of the 1997 fiscal year. Net sales of products for apparel markets for the first
six months of the 1998 fiscal year were $591.4 million, 1.1% lower than the
$597.7 million recorded in the first six months of the 1997 fiscal year. This
decrease was due primarily to lower volume in the Menswear and Klopman divisions
partially offset by mix improvement. The Denim division sales were higher due to
volume but offset somewhat by lower price/mix. Net sales of products for
interior furnishings markets for the first six months of the 1998 fiscal year
were $408.3 million in comparison with the $416.0 million recorded in the first
six months 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 in the Area Rugs and Burlington House divisions, partially offset
by higher volume in the commercial carpet product line. Total export sales
decreased 1.5% from the comparable period of the prior year and represented
11.9% of net sales.
Operating income before interest and taxes for the first six months of the
1998 fiscal year was $91.1 million, an increase of 21.3% from the $75.3 million
recorded in the first six months of the 1997 fiscal year. Amortization of
goodwill was $9.1 million in the first six months of the 1998 and 1997 fiscal
years. Operating income before interest and taxes for the apparel products
segment for the first six months of the 1998 fiscal year was $57.2 million
compared to $51.5 million recorded for the first six months of the 1997 fiscal
year. This increase was due primarily to improved results in the Denim division
as a result of operating efficiencies, higher sales volume and lower raw
material costs, and improved results in the Menswear and Sportswear divisions.
Operating income before interest and taxes for the interior furnishings products
segment for the first six months of the 1998 fiscal year was $33.9 million
compared to $23.6 million recorded for the first six months of the 1997 fiscal
year. This increase was due primarily to higher margins resulting from volume
and better product mix in the Lees division and improved results in the
Burlington House and Area Rugs divisions.
Interest expense for the first six months of the 1998 fiscal year was $29.6
million, or 3.0% of net sales, compared with $29.5 million, or 2.9% of net
sales, in the first six months 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 export sales through a Foreign Sales Corporation.
7
Liquidity and Capital Resources
During the first six months of the 1998 fiscal year, the Company generated
$15.6 million of cash from operating activities, $4.7 million from sales of
assets, $13.6 million from the exercise of stock options, $2.4 million from
other investing activities, and had net borrowings of long- and short-term debt
of $25.7 million. Cash was primarily used for capital expenditures and
investment in joint venture totalling $66.0 million. At March 28, 1998, total
debt of the Company (consisting of current and non-current portions of long-term
debt and short-term borrowings) was $828.1 million compared with $806.9 million
at September 27, 1997 and $895.1 million at March 29, 1997.
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 May 1, 1998, the
Company had approximately $439.0 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 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
8
commitment fee of 0.125% is charged on the unused portion of the Receivables
Facility. At May 1, 1998, $201.9 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, and in 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.
9
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At Registrant's Annual Meeting held on February 4, 1998, the following
actions were taken:
1. John G. Medlin, Jr. and Nelson Schwab III were elected as
Class III Directors to serve for a three-year term expiring at
the Annual Meeting of Stockholders in 2001; and
2. The selection of Ernst & Young LLP as Registrant's independent
public accountants for its 1998 fiscal year was approved.
Mr. Medlin received 50,263,793 shares voted in favor of his election
and 371,207 shares were withheld; and Mr. Schwab received 50,250,455 shares
voted in favor of his election and 384,545 shares were withheld. 50,520,171
shares were voted in favor of the selection of Ernst & Young LLP as Registrant's
independent public accountants, 71,333 shares were voted against and 42,488
shares abstained.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
None.
b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K
during the quarter for which this report is filed.
10
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: May 6, 1998 Charles E. Peters, Jr.
Senior Vice President and
Chief Financial Officer