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 April 3, 1999
------------------------------
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 May 10, 1999, there were outstanding 52,808,561 shares of Common Stock,
par value $.01 per share, and 604,301 shares of Nonvoting Common Stock, par
value $.01 per share, of the registrant.
Part 1 - Financial Information
Item 1. Financial Statements
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Operations
(Amounts in thousands, except for per share amounts)
Three Three Six Six
months months months months
ended ended ended ended
April 3, March 28, April 3, March 28,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net sales $ 403,905 $ 517,954 $ 811,087 $ 999,657
Cost of sales 360,731 423,272 703,093 826,075
---------- ---------- ---------- ----------
Gross profit 43,174 94,682 107,994 173,582
Selling, general and
administrative expenses 36,438 36,165 73,199 72,045
Provision for doubtful accounts 608 142 1,597 1,392
Amortization of goodwill 4,449 4,539 8,911 9,079
Provision for restructuring 65,280 0 65,280 0
---------- ---------- ---------- ----------
Operating income (loss) before
interest and taxes (63,601) 53,836 (40,993) 91,066
Interest expense 14,673 15,057 28,987 29,608
Equity in (income) loss of
joint ventures 375 0 (1,901) 1,000
Other expense (income) - net (989) (1,013) (4,578) (1,927)
---------- ---------- ---------- ----------
Income (loss) before
income taxes (77,660) 39,792 (63,501) 62,385
Income tax expense (benefit):
Current (5,177) 10,322 585 20,156
Deferred (24,600) 4,900 (24,172) 4,435
---------- ---------- ---------- ----------
Total income tax
expense (benefit) (29,777) 15,222 (23,587) 24,591
---------- ---------- ---------- ----------
Net income (loss) $ (47,883)$ 24,570 $ (39,914)$ 37,794
========== ========== ========== ==========
Net income per common share:
Basic earnings (loss)
per share $ (0.86)$ 0.41 $ (0.70)$ 0.63
Diluted earnings (loss)
per share $ (0.86)$ 0.40 $ (0.70)$ 0.62
See notes to consolidated financial statements.
1
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Amounts in thousands)
April 3, October 3,
1999 1998
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 15,808 $ 18,163
Short-term investments 26,988 27,253
Customer accounts receivable after deductions
of $18,535 and $20,864 for the
respective dates for doubtful accounts,
discounts, returns and allowances 253,327 288,806
Sundry notes and accounts receivable 16,426 15,810
Inventories 330,494 322,548
Prepaid expenses 4,361 3,198
------------- --------------
Total current assets 647,404 675,778
Fixed assets, at cost:
Land and land improvements 39,349 39,374
Buildings 433,784 442,828
Machinery, fixtures and equipment 636,842 636,439
------------- --------------
1,109,975 1,118,641
Less accumulated depreciation and amortization 479,239 475,885
------------- --------------
Fixed assets - net 630,736 642,756
Other assets:
Investments and receivables 48,870 44,990
Intangibles and deferred charges 29,407 35,211
Excess of purchase cost over net assets acquired 501,528 514,152
------------- --------------
Total other assets 579,805 594,353
------------- --------------
$ 1,857,945 $ 1,912,887
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 0 $ 14,200
Long-term debt due currently 470 470
Accounts payable - trade 69,081 87,999
Sundry payables and accrued expenses 85,193 73,995
Income taxes payable 1,956 6,440
Deferred income taxes 35,983 44,576
------------- --------------
Total current liabilities 192,683 227,680
Long-term liabilities:
Long-term debt 870,902 801,486
Other 56,369 59,052
------------- --------------
Total long-term liabilities 927,271 860,538
Deferred income taxes 108,869 124,448
Shareholders' equity:
Common stock issued 684 684
Capital in excess of par value 884,307 884,685
Accumulated deficit (93,763) (53,849)
Accumulated other comprehensive income (loss) (16,325) (17,357)
Cost of common stock held in treasury (145,781) (113,942)
------------- --------------
Total shareholders' equity 629,122 700,221
------------- --------------
$ 1,857,945 $ 1,912,887
============= ==============
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
April 3, March 28,
1999 1998
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (39,914)$ 37,794
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization of fixed assets 32,325 32,706
Provision for doubtful accounts 1,597 1,392
Amortization of intangibles and
deferred debt expense 9,085 9,291
Equity in loss of joint ventures 1,319 0
Deferred income taxes (24,172) 4,435
Gain on disposal of assets (2,947) (512)
Provision for restructuring 65,280 0
Changes in assets and liabilities:
Customer accounts receivable - net 33,882 479
Sundry notes and accounts receivable (616) (4,778)
Inventories (18,500) (32,244)
Prepaid expenses (1,163) (873)
Accounts payable and accrued expenses (31,172) (22,153)
Change in income taxes payable (4,484) (5,428)
Other (3,435) (4,532)
------------ ------------
Total adjustments 56,999 (22,217)
------------ ------------
Net cash provided by operating activities 17,085 15,577
------------ ------------
Cash flows from investing activities:
Capital expenditures (73,518) (65,042)
Proceeds from sales of assets 36,185 4,720
Investment in joint ventures (5,366) (925)
Change in investments 432 2,355
------------ ------------
Net cash used by investing activities (42,267) (58,892)
------------ ------------
Cash flows from financing activities:
Changes in short-term borrowings (14,200) 2,000
Repayments of long-term debt (33,979) (190,390)
Proceeds from issuance of long-term debt 103,000 214,083
Proceeds from exercise of stock options 0 13,632
Purchase of treasury shares (31,994) (356)
------------ ------------
Net cash provided by financing activities 22,827 38,969
------------ ------------
Net change in cash and cash equivalents (2,355) (4,346)
Cash and cash equivalents at beginning of period 18,163 17,863
------------ ------------
Cash and cash equivalents at end of period $ 15,808 $ 13,517
============ ============
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 April 3, 1999
Note A.
With respect to interim quarterly financial data, which are unaudited, in
the opinion of Management, all adjustments necessary to a fair statement of
the results for such interim periods have been included. All adjustments were
of a normal recurring nature.
Note B.
Accounts of certain international subsidiaries are included as of dates
three months or less prior to that of the consolidated balance sheets.
Note C.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Note D.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands):
Three Months Ended Six Months Ended
April 3, March 28, April 3, March 28,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Numerator:
Net income (loss)............... $(47,883) $ 24,570 $(39,914) $ 37,794
Effect of dilutive securities:
Convertible note............... - 52 - 116
-------- -------- -------- --------
Numerator for diluted earnings
per share...................... $(47,883) $ 24,622 $(39,914) $ 37,910
========= ======== ========= ========
Denominator:
Denominator for basic earnings per
share.......................... 55,944 60,037 56,887 59,836
Effect of dilutive securities:
Stock options.................. - 684 - 698
Convertible note............... - 340 - 374
-------- -------- -------- --------
Denominator for diluted earnings
per share...................... 55,944 61,061 56,887 60,908
======== ======== ======== =========
For the three and six month periods ended April 3, 1999, stock options,
nonvested stock and Performance Unit Awards that could potentially dilute
basic earnings per share in the future were not included in the diluted
earnings per share computation because they would have been antidilutive.
However, such securities were not significant in these periods. During the
first six months of the 1999 fiscal year, outstanding shares changed due to
(i) the issuance of 13,779 shares of treasury stock to settle Performance Unit
awards and (ii) the purchase of 4,768,573 shares of treasury stock.
Note E.
Inventories are summarized as follows (dollar amounts in thousands):
April 3, October 3,
1999 1998
---------- ----------
Inventories at average cost:
Raw materials............................. $ 44,485 $ 40,594
Stock in process.......................... 92,916 98,922
Produced goods............................ 210,368 204,169
Dyes, chemicals and supplies.............. 21,676 22,358
---------- ----------
369,445 366,043
Less excess of average cost over LIFO..... 38,951 43,495
---------- ----------
Total................................. $ 330,494 $ 322,548
========== ==========
Note F.
Comprehensive income (loss) consists of net income (loss) and foreign
currency translation adjustments and totaled $(46,793,000) and $23,251,000 for
the three months ended April 3, 1999 and March 28, 1998, respectively, and
$(38,882,000) and $34,959,000 for the six months ended April 3, 1999 and March
28, 1998, respectively.
Note G.
In November, 1998, the Company sold the remaining assets of the
Burlington Madison Yarn division, including manufacturing facilities located
in Ranlo and St. Pauls, North Carolina, to Carolina Mills, Inc. The related
pre-tax gain of $2.7 million is included in the caption "Other expense
(income) - net" in the consolidated statements of operations.
Note H.
In November, 1998, the Company established a $110 million credit
facility with a group of banks. On that date, $57 million of proceeds from the
new agreement were used to repay loans under the Company's existing bank
credit agreement. Additional proceeds from this facility will be used to
finance the construction and working capital needs of the Company's Mexican
subsidiaries related to expansion projects in Mexico. The facility includes
terms and covenants similar to the existing bank credit agreement, except that
the outstanding balance on the third anniversary of the facility will convert
to a two-year term loan payable semi-annually in four equal installments.
Loans under the new facility are made directly to a new Mexican financing
subsidiary of the Company and are guaranteed by the Company.
Note I.
On January 26, 1999, the Company announced a comprehensive
reorganization of its apparel fabrics business. The major elements of the plan
include:
(1) The combination of two businesses that have complementary product
lines and serve many of the same customers. The merger of the two---Burlington
Klopman Fabrics and Burlington Tailored Fashions---will create a fast,
responsive organization with an improved cost structure, called Burlington
PerformanceWear. Also, Burlington Global Denim and a portion of the former
Sportswear division have been combined to form Burlington CasualWear.
(2) The reduction of U.S. apparel fabrics capacity by approximately 25
percent and the reorganization of manufacturing assets, including overhead
reductions throughout the Company. Seven plants have been or will be closed or
sold by the dates indicated: one department in Raeford, North Carolina and one
plant in Forest City, North Carolina were closed in the March quarter; three
plants in North Carolina located in Cramerton (sold April 5, 1999),
Mooresville, and Statesville will be closed or sold during the June quarter as
will one plant in Hillsville, Virginia; one plant in Bishopville, South
Carolina will be closed during the September quarter; and the remaining plant
located in Oxford, North Carolina will be closed in phases through the March
quarter 2000. The plan will result in the reduction of approximately 2,900
employees, with severance benefit payments to be paid over periods of up to
twelve months depending on the employee's length of service (reduction of 848
employees as of April 3, 1999). The Company is currently marketing the
affected real estate and equipment to be available for sale upon cessation of
operations and continues to include them in the Fixed Assets caption on the
balance sheet.
The cost of the reorganization was reflected in a restructuring charge,
before taxes, of $65.3 million in the second fiscal quarter ended April 3,
1999. The components of the restructuring charge included the establishment of
a $20.1 million reserve for severance benefit payments, write-down of pension
assets of $7.4 million for curtailment and settlement losses, write-downs for
impairment of $20.1 million related to real estate and $15.5 million related
to equipment ($0.3 million realized as of April 3, 1999) resulting from the
restructuring and a reserve of $2.2 million for lease cancellations and other
exit costs. Assets that are no longer in use have been sold or are held for
sale at April 3, 1999, and were written down to their estimated fair values
less costs of sale. Assets remaining in use, to be disposed of in future
periods, have been written down based upon their estimated discounted future
cash flows. Cash costs of the reorganization are expected to be substantially
offset by cash receipts from asset sales and lower working capital needs.
Following is a summary of activity in the related reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- -------------
March 1999 restructuring charge....... $ 20.1 $ 2.2
Payments.............................. (1.5) (0.2)
------ -----
Balance at April 3, 1999.............. $ 18.6 $ 2.0
====== =====
Other expenses related to the restructuring (including losses on
inventories of discontinued styles, relocation of employees and equipment and
plant carrying and other costs) of approximately $33.0 million, before taxes,
will be charged to operations as incurred. $12.1 million of such costs have
been incurred through April 3, 1999 and charged to operations, consisting
primarily of inventory losses.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Overview
The Company reported, as expected, a net loss for the second quarter of
its 1999 fiscal year, primarily due to costs associated with the
previously-announced reorganization of the Company's apparel products segment.
The net loss for the quarter was $47.9 million, or $0.86 per share (diluted)
compared with net income of $24.6 million, or $0.40 per share (diluted) for
the second quarter of the 1998 fiscal year. This loss includes $49.0 million
after tax, or $0.88 per share for restructuring and run-out expenses, and
reduced earnings from a joint venture due to its restructuring.
Fiscal year 1999 is viewed as a transition year for the apparel
segment, especially in the second quarter. Operations have been affected by
difficult market conditions as well as the temporary inefficiencies that
accompany a major reorganization. The Company has taken aggressive action to
size its business appropriately, utilize state-of-the-art facilities and bring
a superior collection of products to the apparel market. The Company believes
its strategy will position it well to compete effectively on a global basis.
Performance by Segment
The Company conducts its operations in two principal industry segments:
products for apparel markets and products for interior furnishings markets.
Reference is made to the Company's 1998 Annual Report to Shareholders
concerning Statement of Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information," that will be adopted
by the Company in its 1999 Annual Report to Shareholders. The following table
sets forth certain information about the segment results for the three and six
months ended April 3, 1999 and March 28, 1998, respectively.
Three Months Ended Six Months Ended
------------------- ------------------
April 3, March 28, April 3, March 28,
1999 1998 1999 1998
-------- -------- -------- --------
(Dollar amounts in millions)
Net sales
Apparel products.................. $ 202.2 $ 308.6 $ 422.0 $ 591.4
Interior furnishings products..... 201.7 209.4 389.1 408.3
------- ------- ------- -------
Total.......................... $ 403.9 $ 518.0 $ 811.1 $ 999.7
======= ======= ======= =======
Operating income (loss) before
interest and taxes
Apparel products.................. $ (13.5) $ 34.6 $ (5.1) $ 57.2
As a percentage of net sales.... (6.7)% 11.2% (1.2)% 9.7%
Interior furnishings products..... $ 15.2 $ 19.2 $ 29.4 $ 33.9
As a percentage of net sales.... 7.5% 9.2% 7.6% 8.3%
------- ------- ------- -------
Operating income before interest,
taxes and provision for
restructuring...................... $ 1.7 $ 53.8 $ 24.3 $ 91.1
As a percentage of net sales.... 0.4% 10.4% 3.0% 9.1%
Provision for restructuring....... (65.3) - (65.3) -
------- ------- ------- --------
Total.......................... $ (63.6) $ 53.8 $ (41.0) $ 91.1
======= ======= ======= =======
Results Of Operations
Restructuring Plan
On January 26, 1999, the Company announced a comprehensive
reorganization of its apparel fabrics business. The major elements of the plan
include:
(1) The combination of two businesses that have complementary product
lines and serve many of the same customers. The merger of the two---Burlington
Klopman Fabrics and Burlington Tailored Fashions---will create a fast,
responsive organization with an improved cost structure, called Burlington
PerformanceWear. Also, Burlington Global Denim and a portion of the former
Sportswear division have been combined to form Burlington CasualWear.
(2) The reduction of U.S. apparel fabrics capacity by approximately 25
percent and the reorganization of manufacturing assets, including overhead
reductions throughout the Company. Seven plants have been or will be closed or
sold by the dates indicated: one department in Raeford, North Carolina and one
plant in Forest City, North Carolina were closed in the March quarter; three
plants in North Carolina located in Cramerton (sold April 5, 1999),
Mooresville, and Statesville will be closed or sold during the June quarter as
will one plant in Hillsville, Virginia; one plant in Bishopville, South
Carolina will be closed during the September quarter; and the remaining plant
located in Oxford, North Carolina will be closed in phases through the March
quarter 2000. The plan will result in the reduction of approximately 2,900
employees, with severance benefit payments to be paid over periods of up to
twelve months depending on the employee's length of service (reduction of 848
employees as of April 3, 1999). The Company is currently marketing the
affected real estate and equipment to be available for sale upon cessation of
operations and continues to include them in the Fixed Assets caption on the
balance sheet.
The cost of the reorganization was reflected in a restructuring charge,
before taxes, of $65.3 million in the second fiscal quarter ended April 3,
1999. The components of the restructuring charge included the establishment of
a $20.1 million reserve for severance benefit payments, write-down of pension
assets of $7.4 million for curtailment and settlement losses, write-downs for
impairment of $20.1 million related to real estate and $15.5 million related
to equipment ($0.3 million realized as of April 3, 1999) resulting from the
restructuring and a reserve of $2.2 million for lease cancellations and other
exit costs. Assets that are no longer in use have been sold or are held for
sale at April 3, 1999, and were written down to their estimated fair values
less costs of sale. Assets remaining in use, to be disposed of in future
periods, have been written down based upon their estimated discounted future
cash flows. Cash costs of the reorganization are expected to be substantially
offset by cash receipts from asset sales and lower working capital needs.
Following is a summary of activity in the related reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- -------------
March 1999 restructuring charge....... $ 20.1 $ 2.2
Payments.............................. (1.5) (0.2)
------ -----
Balance at April 3, 1999.............. $ 18.6 $ 2.0
====== =====
Other expenses related to the restructuring (including losses on
inventories of discontinued styles, relocation of employees and equipment and
plant carrying and other costs) of approximately $33.0 million, before taxes,
will be charged to operations as incurred. $12.1 million of such costs have
been incurred through April 3, 1999 and charged to operations, consisting
primarily of inventory losses.
By reducing overall capacity, utilizing only the most modern equipment,
and concentrating on a value-added product mix, the Company expects that it
will be able to run its U.S. operations on a more efficient and cost-effective
basis. The combination of streamlined and modern U.S. operations, together
with the new state-of-the-art manufacturing facilities coming on stream later
this year in Mexico, should position the Company well to compete on a global
basis.
Comparison of Three Months ended April 3, 1999 and March 28, 1998.
Net sales for the second quarter of the 1999 fiscal year were $403.9
million, 22.0% lower than the $518.0 million recorded for the second quarter
of the 1998 fiscal year. Net sales of products for apparel markets for the
second quarter of the 1999 fiscal year were $202.2 million, 34.5% lower than
the $308.6 million recorded in the second quarter of the 1998 fiscal year.
Excluding the Burlington Madison Yarn division, a portion of which has been
sold and the remainder transferred to a joint venture, net sales of products
for apparel markets were 28.2% lower than in the prior year period. This
decrease was due primarily to lower volume and, to a lesser extent, product
mix, in both of the group's divisions: PerformanceWear (formerly the Tailored
Fashions and Klopman divisions) and CasualWear (formerly the Global Denim and
Sportswear divisions). Net sales of products for interior furnishings markets
for the second quarter of the 1999 fiscal year were $201.7 million, 3.7% lower
than the $209.4 million recorded in the second quarter of the 1998 fiscal
year. This reduction was due primarily to the absence of Burlington Madison
Yarn division sales in this segment, lower volume in the Lees and Burlington
House divisions, partially offset by higher volume in the Area Rugs division
and higher selling prices in the Lees division. Total export sales were
unchanged from the comparable quarter of the prior year and represented 15.6%
of net sales for the current period compared to 12.2% of net sales in the
prior period.
Operating income before provision for restructuring, interest and taxes
for the second quarter of the 1999 fiscal year was $1.7 million compared to
$53.8 million recorded in the second quarter of the 1998 fiscal year.
Amortization of goodwill was $4.4 million and $4.5 million in the second
quarter of the 1999 and 1998 fiscal years, respectively. Operating income
(loss) before provision for restructuring, interest and taxes for the apparel
products segment for the second quarter of the 1999 fiscal year was $(13.5)
million compared to $34.6 million recorded for the second quarter of the 1998
fiscal year. This decrease was primarily due to lower margins resulting from
lower volume and inefficiencies associated with production levels, the absence
of the Burlington Madison Yarn division which was sold or transferred to a
joint venture, and start-up costs related to the Company's new Mexican
operations, partially offset by lower raw material costs in the
PerformanceWear division. Also, apparel segment results include costs of $11.9
million associated with the apparel restructuring which have been charged to
operations, including inventory write-downs, relocation of employees and
equipment and plant carrying costs. Operating income before interest and taxes
for the interior furnishings products segment for the second quarter of the
1999 fiscal year was $15.2 million compared to $19.2 million recorded for the
second quarter of the 1998 fiscal year. This decrease was due primarily to
lower profits in the Burlington House and Bacova divisions, partially offset
by improved results in the Lees division.
Interest expense for the second quarter of the 1999 fiscal year was $14.7
million, or 3.6% of net sales, compared with $15.1 million, or 2.9% of net
sales, in the second quarter of the 1998 fiscal year.
During the second quarter of the 1999 fiscal year, the Company recorded
equity in loss of joint ventures of $0.4 million primarily related to its
denim fabric joint venture with Mafatlal Industries Limited in India. The
Company received a $3.0 million cash distribution from its Unifi textured yarn
joint venture, but the joint venture earnings for the quarter were offset by a
restructuring provision which precluded the Company from recording equity
earnings from the venture during the quarter.
Other income for the second quarter of the 1999 and 1998 fiscal years was
$1.0 million in both periods consisting principally of interest income in each
period.
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 nondeductible goodwill, which is partially offset by
the favorable tax treatment of export sales through a foreign sales
corporation.
Comparison of Six Months ended April 3, 1999 and March 28, 1998.
Net sales for the first six months of the 1999 fiscal year were $811.1
million, 18.9% lower than the $999.7 million recorded for the first six months
of the 1998 fiscal year. Net sales of products for apparel markets for the
first six months of the 1999 fiscal year were $422.0 million, 28.6% lower than
the $591.4 million recorded in the first six months of the 1998 fiscal year.
Excluding the Burlington Madison Yarn division, which has been sold or
transferred to a joint venture, net sales of products for apparel markets were
22.5% lower than in the prior year period. This decrease was due primarily to
lower volume in both of the group's divisions: PerformanceWear and CasualWear.
Net sales of products for interior furnishings markets for the first six
months of the 1999 fiscal year were $389.1 million, 4.7% lower than the $408.3
million recorded in the first six months of the 1998 fiscal year. This
reduction was due primarily to the absence of Burlington Madison Yarn division
sales in this segment, lower volume in the Lees, Burlington House and Bacova
divisions, partially offset by higher volume in the Area Rugs division and
higher selling prices in the Lees division. Total export sales were unchanged
from the comparable period of the prior year and represented 14.7% of net
sales for the current period compared to 11.9% of net sales in the prior
period.
Operating income before provision for restructuring, interest and taxes
for the first six months of the 1999 fiscal year was $24.3 million compared to
$91.1 million recorded in the first six months of the 1998 fiscal year.
Amortization of goodwill was $8.9 million and $9.1 million in the first six
months of the 1999 and 1998 fiscal years, respectively. Operating income
(loss) before provision for restructuring, interest and taxes for the apparel
products segment for the first six months of the 1999 fiscal year was $(5.1)
million compared to $57.2 million recorded for the first six months of the
1998 fiscal year. This decrease was due primarily to lower margins resulting
from lower volume and inefficiencies associated with production levels, the
absence of the Burlington Madison Yarn division which was sold or transferred
to a joint venture, and start-up costs related to the Company's new Mexican
operations, partially offset by better product mix in the CasualWear division
and lower raw material costs. Also, apparel segment results include costs of
$11.9 million associated with the apparel restructuring which have been
charged to operations, including inventory write-downs, relocation of
employees and equipment and plant carrying and other costs. Operating income
before interest and taxes for the interior furnishings products segment for
the first six months of the 1999 fiscal year was $29.4 million compared to
$33.9 million recorded for the first six months of the 1998 fiscal year. This
decrease was due primarily to product mix in the Burlington House division and
lower profits in the Bacova division, partially offset by improved results in
the Lees and Area Rugs divisions and lower raw material costs.
Interest expense for the first six months of the 1999 fiscal year was
$29.0 million, or 3.6% of net sales, compared with $29.6 million, or 3.0% of
net sales, in the first six months of the 1998 fiscal year.
During the first six months of the 1999 fiscal year, the Company recorded
equity in income of joint ventures of $1.9 million related to its textured
yarn joint venture operations with Unifi, Inc., its Mexican yarn joint venture
with Parkdale Mills, and its denim fabric joint venture with Mafatlal
Industries Limited in India, compared to equity in loss of joint ventures of
$1.0 million in the first quarter of the 1998 fiscal year related to the joint
venture in India.
Other income for the first six months of the 1999 fiscal year was $4.6
million consisting principally of a $2.7 million gain on the disposal of the
Burlington Madison Yarn division and interest income. Other income for the
first six months of the 1998 fiscal year was $1.9 million consisting
principally of interest income.
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 nondeductible goodwill, which is partially offset by
the favorable tax treatment of export sales through a foreign sales
corporation.
Liquidity and Capital Resources
During the first six months of the 1999 fiscal year, the Company generated
$17.1 million of cash from operating activities, $36.2 million from sales of
assets, and $0.4 million from other investing activities, and had net
borrowings of long- and short-term debt of $54.8 million. Cash was primarily
used for capital expenditures and investment in joint ventures totaling $78.9
million, and $32.0 million for the purchase of treasury shares. At April 3,
1999, total debt of the Company (consisting of current and non-current
portions of long-term debt and short-term borrowings) was $871.4 million
compared with $816.2 million at October 3, 1998 and $828.1 million at March
28, 1998.
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. On
April 27, 1999, the Company announced Board approval of $10.0 million for the
repurchase of Company common stock. Also on April 27, 1999, the Company
announced it has signed a letter of intent to form a joint venture company
with Tarrant Apparel Group that will provide garment-manufacturing services
for the branded casualwear market. The Company will be the marketing and
product development partner as well as the supply source for denim fabrics,
while Tarrant will be the production management partner and the supply source
for khaki twill fabrics. Garments will be assembled and finished in various
facilities in Mexico, utilizing a combination of independent contractors plus
garment-making assets contributed by both partners. The transaction is
expected to close in June, 1999.
The Company intends to fund its financial needs principally from net
cash provided by operating activities and, to the extent necessary, from funds
provided by the credit facilities described in this section. 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"). Proceeds from the sale were
used to prepay revolving loans under its 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. In September 1995, the Company issued
$150.0 million principal amount of 7.25% notes due September 15, 2005 ("Notes
Due 2005"). The Notes Due 2005 are not redeemable prior to maturity. The Notes
Due 2027 and the Notes Due 2005 are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of the Company.
The Company has a $750.0 million unsecured revolving credit facility that
expires in March, 2001. At May 10, 1999, the Company had approximately $443.0
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 bank credit agreement bear interest at either (i)
floating rates generally payable quarterly based on an adjusted Eurodollar
rate plus 0.275% or (ii) Eurodollar rates or fixed rates that may be offered
from time to time by a Lender pursuant to a competitive bid request submitted
by the Company, payable up to 360 days. In addition, the Company pays an
annual facility fee of 0.15%. 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, deterioration in the
Company's debt ratings would increase the interest rate and facility fees.
The 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 November 23, 1998, the Company established a $110 million credit
facility with a group of banks. On that date, $57 million of proceeds from the
facility were used to repay loans under the Company's existing bank credit
agreement. Additional proceeds from this facility will be used to finance the
construction and working capital needs of the Company's Mexican subsidiaries
related to the expansion projects in Mexico. The facility includes terms and
covenants similar to the $750.0 million bank credit agreement, except that the
outstanding balance on the third anniversary of the facility will convert to a
two-year term loan payable semi-annually in four equal installments. Loans
under the new facility are made directly to a new Mexican financing subsidiary
of the Company and are guaranteed by the Company. At May 10, 1999, the Company
had approximately $29.0 million in unused capacity under this facility.
In December 1997, the Company established a five-year, $225.0 million
Trade Receivables Financing Agreement ("Receivables Facility") with a bank.
The amount of borrowings allowable under the Receivables Facility at any time
is a function of the amount of then-outstanding eligible trade accounts
receivable up to $225.0 million. Loans under the Receivables Facility bear
interest, with terms up to 270 days, at the bank's commercial paper dealer
rate plus 0.1875%. A commitment fee of 0.125% is charged on the unused portion
of the Receivables Facility. At May 10, 1999, $174.5 million in borrowings
under this facility with original maturities of up to 161 days was
outstanding.
Because the Company's obligations under the bank credit facilities and the
Receivables Facility bear interest at floating rates, the Company is sensitive
to changes in prevailing interest rates. The Company uses derivative
instruments to manage its interest rate exposure, rather than for trading
purposes.
Year 2000
The Company recognizes the widespread impact of Year 2000 in its
systems and manufacturing facilities and is working toward compliance of all
software and office and manufacturing equipment, environmental systems,
telecommunications, utilities, safety and monitoring equipment and systems.
Total costs for addressing the Year 2000 issue are currently estimated to
reach approximately $14.5 million. These costs are expensed as incurred and
are being funded with cash from operations. As of April 3, 1999, the Company
had spent $12.7 million on the project since its inception. The Company views
Year 2000 as a company-wide business issue of the highest priority. The
Company is engaged in extensive efforts to provide a continuous, uninterrupted
flow of goods and services to customers.
Forward-Looking Statements
With the exception of historical information, the statements contained in
Management's Discussion and Analysis of Results of Operations and Financial
Condition and in other parts of this report include statements that are
forward-looking statements within the meaning of applicable federal securities
laws and are based upon the company's current expectations and assumptions,
which are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those anticipated. Such risks and
uncertainties include, among other things, global economic activity, the
success of the company's overall business strategy, the company's
relationships with its principal customers and suppliers, the success of the
company's expansion in other countries, the demand for textile products, the
cost and availability of raw materials and labor, the company's ability to
finance its capital expansion and modernization programs, the level of the
company's indebtedness and the exposure to interest rate fluctuations,
governmental legislation and regulatory changes, and the long-term
implications of regional trade blocs and the effect of quota phase-out and
lowering of tariffs under the WTO trade regime. Other risks and uncertainties
may also be described from time to time in the Company's other reports and
filings with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
10.22 Burlington Industries, Inc. 1998 Equity Incentive
Plan. Incorporated by reference from Exhibit A to
the Company's Proxy Statement dated December 18,
1998.
27. Financial Data Schedule.
b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURLINGTON INDUSTRIES, INC.
By /s/ CHARLES E. PETERS, JR.
Date: May 14, 1999 Charles E. Peters, Jr.
Senior Vice President and
Chief Financial Officer