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 June 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
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)
(Former name, former address and former fiscal year,
if changed since last report)
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 July 17, 1996, there were outstanding 55,567,262 shares of Common Stock,
par value $.01 per share, and 7,026,708 shares of Nonvoting Common Stock, par
value $.01 per share, of the Registrant.
<PAGE>
Part I - 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 Nine Nine
months months months months
ended ended ended ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
--------- --------- ---------- ----------
Net sales........................ $ 574,571 $ 581,983 $1,659,346 $1,680,242
Cost of sales.................... 471,697 483,694 1,378,146 1,396,334
--------- --------- ---------- ----------
Gross profit..................... 102,874 98,289 281,200 283,908
Selling, administrative and
general expenses............... 41,433 39,855 124,281 123,241
Provision for doubtful accounts.. 1,278 6,423 3,306 10,044
Amortization of goodwill......... 4,557 4,553 13,662 13,504
Loss on closing of division...... 29,856 - 29,856 -
--------- --------- ---------- ----------
Operating income before
interest and taxes............. 25,750 47,458 110,095 137,119
Interest expense................. 16,111 14,547 49,033 42,133
Other expense (income) - net..... 6,813 (548) 6,740 (1,353)
--------- --------- ---------- ----------
Income before income taxes....... 2,826 33,459 54,322 96,339
Income tax expense:
Current........................ 15,258 9,735 32,604 28,824
Deferred....................... (13,002) 4,228 (8,026) 12,993
--------- --------- ---------- ----------
Total income tax expense..... 2,256 13,963 24,578 41,817
--------- --------- ---------- ----------
Income before
extraordinary item............. 570 19,496 29,744 54,522
Extraordinary item:
Loss from early
extinguishment of debt, net
of income tax benefit of
$454 for the nine months
ended June 29, 1996........... - - 697 -
--------- --------- ---------- ----------
Net income....................... $ 570 $ 19,496 $ 29,047 $ 54,522
========= ========= ========== ==========
Average common shares
outstanding.................... 62,540 64,913 63,395 65,388
Net income per common share:
Income before
extraordinary item............ $ 0.01 $ 0.30 $ 0.47 $ 0.83
Extraordinary item............. - - (0.01) -
--------- --------- ---------- ----------
$ 0.01 $ 0.30 $ 0.46 $ 0.83
========= ========= ========== ==========
1
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BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Amounts in thousands)
June 29, September 30,
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents....................... $ 13,052 $ 10,507
Short-term investments.......................... 22,400 22,821
Customer accounts receivable after deductions
of $18,528 and $19,222 for the respective
dates for doubtful accounts, discounts,
returns and allowances........................ 369,622 337,389
Sundry notes and accounts receivable............ 7,438 17,245
Inventories..................................... 348,154 342,659
Prepaid expenses................................ 2,888 2,216
----------- -----------
Total current assets....................... 763,554 732,837
Fixed assets, at cost:
Land and land improvements...................... 34,594 34,499
Buildings....................................... 377,312 371,268
Machinery, fixtures and equipment............... 584,955 576,919
----------- -----------
996,861 982,686
Less accumulated depreciation and amortization.. 434,065 411,957
----------- -----------
Fixed assets - net......................... 562,796 570,729
Other assets:
Investments and receivables..................... 16,443 17,365
Intangibles and deferred charges................ 30,352 31,910
Net assets held for sale........................ 4,399 4,351
Excess of purchase cost over
net assets acquired............................ 561,664 574,539
----------- -----------
Total other assets......................... 612,858 628,165
----------- -----------
$ 1,939,208 $ 1,931,731
=========== ===========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings........................... $ 3,400 $ 323
Long-term debt due currently.................... 2,090 34,686
Accounts payable and accrued expenses........... 187,640 180,028
Income taxes payable............................ 17,143 9,403
Deferred income taxes........................... 42,882 47,957
----------- -----------
Total current liabilities.................. 253,155 272,397
Long-term liabilities:
Long-term debt.................................. 921,325 878,005
Other........................................... 56,891 54,222
----------- -----------
Total long-term liabilities................ 978,216 932,227
Deferred income taxes........................... 108,716 111,667
Shareholders' equity:
Common stock issued............................. 684 684
Capital in excess of par value.................. 884,807 893,439
Accumulated deficit............................. (204,858) (233,905)
Currency translation adjustments................ (9,325) (5,822)
----------- -----------
671,308 654,396
Less unearned compensation...................... (874) (2,492)
Less cost of common stock held in treasury...... (71,313) (36,464)
----------- -----------
Total shareholders' equity................. 599,121 615,440
----------- -----------
$ 1,939,208 $ 1,931,731
=========== ===========
2
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BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Amounts in thousands)
Nine Nine
months months
ended ended
June 29, July 1,
1996 1995
---------- ---------
Cash flows from operating activities:
Net income......................................... $ 29,047 $ 54,522
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of fixed assets.. 50,305 48,637
Provision for doubtful accounts................ 3,306 10,044
Amortization of intangibles.................... 13,662 13,504
Amortization of deferred debt expense.......... 2,089 2,016
Deferred income taxes.......................... (8,026) 12,993
Non-cash compensation.......................... 1,674 1,709
Loss on disposal of assets and other expense... 7,633 -
Loss from early extinguishment of debt......... 1,151 -
Loss on closing of division.................... 29,856 -
Changes in assets and liabilities:
Customer accounts receivable - net......... (40,287) (11,916)
Sundry notes and accounts receivable....... 9,371 (2,260)
Inventories................................ (9,260) (33,054)
Prepaid expenses........................... (676) (1,093)
Accounts payable and accrued expenses...... (7,337) (18,281)
Payment of financing fees...................... (36) (2,340)
Change in interest payable..................... 5,896 2,205
Change in income taxes payable................. 7,742 (3,394)
Other.......................................... (6,669) 2,866
---------- ---------
Total adjustments......................... 60,394 21,636
---------- ---------
Net cash provided by operating activities.......... 89,441 76,158
---------- ---------
Cash flows from investing activities:
Capital expenditures............................... (58,748) (76,519)
Payment for purchase of business,
net of cash acquired............................. - (12,004)
Proceeds from sales of assets...................... 4,420 2,629
Investment in joint venture........................ (1,350) -
Change in investments.............................. (354) (1,301)
---------- ---------
Net cash used by investing activities.............. (56,032) (87,195)
---------- ---------
Cash flows from financing activities:
Net change in short-term borrowings................ 3,125 51,366
Repayments of long-term debt....................... (546,708) (50,995)
Proceeds from issuance of long-term debt........... 557,325 35,958
Purchase of treasury stock......................... (44,606) (37,105)
---------- ---------
Net cash used by financing activities.............. (30 864) (776)
---------- ---------
Net change in cash and cash equivalents............ 2,545 (11,813)
Cash and cash equivalents at beginning of period... 10,507 21,511
---------- ---------
Cash and cash equivalents at end of period......... $ 13,052 $ 9,698
========== =========
3
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BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
As of and for the nine months ended June 29, 1996
Note A.
Effective January 1, 1995, the Company acquired the business and assets of
The Bacova Guild, Ltd. and related companies ("Bacova"). Bacova, which is part
of the Burlington Interior Furnishings Group, manufactures printed accent rugs
and decorative mats and accessories. The acquisition was accounted for as a
purchase and, accordingly, the net assets and results of operations of Bacova
are included in the Company's consolidated financial statements commencing on
January 1, 1995.
Note B.
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 C.
Accounts of international subsidiaries are included as of dates three
months or less prior to that of the consolidated balance sheets.
Note D.
Income per common share is computed based on the weighted average number of
common shares outstanding during each period.
Note E.
Inventories are summarized as follows (dollar amounts in thousands):
June 29, September 30,
1996 1995
---------- ----------
Inventories at average cost:
Raw materials............................. $ 50,777 $ 51,676
Stock in process.......................... 101,039 104,661
Produced goods............................ 218,209 214,718
Dyes, chemicals and supplies.............. 23,906 22,059
---------- ----------
393,931 393,114
Less excess of average cost over LIFO..... 45,777 50,455
---------- ----------
Total................................. $ 348,154 $ 342,659
========== ==========
Note F.
During the third quarter of the 1996 fiscal year, the Company recorded a
$29.9 million pre-tax charge as a result of its plan to close the Knitted
Fabrics division, announced on June 5, 1996. 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. The division
produced knitted fabrics for use in sportswear, active wear and occupational
apparel. During the 1993 and 1994 fiscal years, the Company took steps to
restructure the division which had been unprofitable for several years. Two of
the division's manufacturing facilities located in Wake Forest and Denton, North
Carolina will be closed and offered for sale, while its other facility, the
Lakewood plant located in Cramerton, North Carolina, will be utilized by
Burlington Sportswear, a new business unit serving the better men's sportswear
and uniform markets specializing in fine cotton fabrics for casual shirts and
pants. Production of the Knitted Fabrics division will be phased out during the
September 1996 quarter, and it is anticipated that sales of the majority of the
division's assets will be completed within a 2-year period. The components of
4
<PAGE>
this charge include estimated 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 for divestitures of real estate, and $0.8
million for cancellation of leases. Operating results of the Knitted Fabrics
division before any charges related to the closing were as follows (in
millions):
Three Months Ended Nine Months Ended
-------------------- -------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
--------- --------- --------- --------
Net sales ........................... $ 32.0 $ 32.9 $ 90.8 $ 101.9
Net operating loss before
interest and taxes ................ $ (3.4) $ (3.9) $ (14.2) $ (13.7)
Note G.
Other expense (income) - net consists of the following (in thousands):
Three Months Ended Nine Months Ended
-------------------- -------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
--------- --------- --------- --------
Provision for legal contingencies .. $ 3,990 $ - $ 3,990 $ -
Provision for loss on sale of
non-operating asset .............. 2,300 - 2,300 -
Loss on sale of J.G. Furniture ..... 1,343 - 1,343 -
Interest income .................... (611) (644) (1,888) (1,555)
Other .............................. (209) 96 995 202
-------- -------- -------- --------
$ 6,813 $ (548) $ 6,740 $ (1,353)
======== ======== ======== ========
On April 27, 1996 the Company sold its J.G. Furniture operation for $4.7
million in cash and securities. J.G. Furniture had sales of $17.4 million during
the 1995 fiscal year.
On July 29, 1996, preliminary approval was granted for the settlement of
class-action litigation arising out of the creation in 1989 of the Company's
Employee Stock Ownership Plan ("ESOP"). The proposed settlement provides for the
contribution of $26.5 million from the Company and two other defendants, from
which will be deducted court-approved fees and expenses, to a settlement fund
for current and former ESOP members. The Company believes that its portion of
the settlement ($8.833 million) is adequately covered by reserves, including the
provision made in the June quarter. (See Part II, Item 1, Legal Proceedings).
Note H.
On December 19 and 20, 1995, the Company purchased 3,428,571 shares of
non-voting Common Stock from a shareholder group in a privately-negotiated
transaction. Immediately thereafter, such shares of non-voting Common Stock were
converted to voting Common Stock held as treasury stock.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
Net income for the third quarter of fiscal 1996 before the non-recurring
items described below was $0.41 per share, in comparison with $0.30 for the
third quarter of fiscal 1995, reflecting improving performance in most of the
Company's businesses. The improvement was the result of better demand,
stabilizing raw material prices, new product introductions and the Company's
cost reduction efforts.
Net income for the third quarter of the 1996 fiscal year was $0.6 million,
or $0.01 per share, and reflected a $20.3 million after-tax charge ($0.33 per
share), for costs associated with the closing of the Knitted Fabrics division
announced on June 5, 1996. Net income for the quarter also included $4.7 million
($0.07 per share) in after-tax losses on provision for legal contingencies, the
sale of the J.G. Furniture division and the sale of a non-operating asset.
<PAGE>
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 nine months ended June 29, 1996 and July 1 , 1995,
respectively. Because of the existence of significant non-cash expenses, such as
depreciation of fixed assets and amortization of intangible assets, the Company
believes that operating income before interest, taxes, depreciation and
amortization ("EBITDA"), which is set forth in the table below with respect to
each segment, contributes to a better understanding of the Company's ability to
satisfy its debt obligations and to utilize cash for other purposes. EBITDA
should not be considered in isolation from or as a substitute for operating
income before interest and taxes, cash flow from operating activities and other
consolidated income or cash flow statement data prepared in accordance with
generally accepted accounting principles.
Three Months Ended Nine Months Ended
------------------ ------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- -------- -------- --------
(Dollar amounts in millions)
Net sales
Apparel products.................... $ 359.9 $ 368.2 $1,022.5 $1,043.4
Interior furnishings products....... 214.6 213.8 636.8 636.8
-------- -------- -------- --------
Total............................ $ 574.5 $ 582.0 $1,659.3 $1,680.2
======== ======== ======== ========
Operating income before interest
and taxes
Apparel products.................... $ 37.5 $ 30.4 $ 96.7 $ 86.5
As a percentage of net sales...... 10.4% 8.3% 9.5% 8.3%
Interior furnishings products....... $ 18.2 $ 17.0 $ 43.3 $ 50.6
As a percentage of net sales...... 8.5% 8.0% 6.8% 7.9%
Loss on closing of division......... $ (29.9) $ - $ (29.9) $ -
-------- -------- -------- --------
Total............................ $ 25.8 $ 47.4 $ 110.1 $ 137.1
As a percentage of net sales.... 4.5% 8.1% 6.6% 8.2%
======== ======== ======== ========
Operating income before interest, taxes,
depreciation and amortization (EBITDA)
Apparel products.................... $ 51.0 $ 43.9 $ 136.5 $ 125.9
As a percentage of net sales...... 14.2% 11.9% 13.3% 12.1%
Interior furnishings products....... $ 26.9 $ 25.4 $ 69.1 $ 75.1
As a percentage of net sales...... 12.5% 11.9% 10.9% 11.8%
-------- -------- -------- --------
EBITDA before loss on
closing of division................ $ 77.9 $ 69.3 $ 205.6 $ 201.0
As a percentage of net sales...... 13.6% 11.9% 12.4% 12.0%
Loss on closing of division......... $ (29.9) $ - $ (29.9) $ -
-------- -------- -------- --------
EBITDA after loss on
closing of division............. $ 48.0 $ 69.3 $ 175.7 $ 201.0
======== ======== ======== ========
6
<PAGE>
RESULTS OF OPERATIONS
Comparison of Three Months ended June 29, 1996 and July 1, 1995.
Net sales for the third quarter of the 1996 fiscal year were $574.5
million, 1.3% lower than the $582.0 million recorded for the third quarter of
the 1995 fiscal year. Net sales of products for apparel markets for the third
quarter of the 1996 fiscal year were $359.9 million, 2.3% lower than the $368.2
million recorded in the third quarter of the 1995 fiscal year. The decrease in
sales of the apparel products segment was due to lower volume partially offset
by better mix and selling prices. Sales in the tailored men's clothing portion
of the Menswear division's business continue to suffer from changes in fashion
demand to more casual dress and the resulting weakness of many of the division's
customers for these fabrics. Sales of the Knitted Fabrics division were slightly
lower than the June 1995 quarter but will decline significantly in the September
1996 quarter as the sale of commodity knitted fabrics is phased out. Sales of
the Klopman, Denim and Madison Yarn divisions improved. Net sales of products
for interior furnishings markets for the third quarter of the 1996 fiscal year
were $214.6 million in comparison with the $213.8 million recorded in the third
quarter of the 1995 fiscal year. Total export sales increased 36% over the
comparable quarter of the prior year and represented 10.6% of net sales.
Operating income before interest and taxes for the third quarter of the
1996 fiscal year was $25.8 million. Before the charges for closing the Knitted
Fabrics division (see Note F to the consolidated financial statements),
operating income before interest and taxes for the third quarter of the 1996
fiscal year was $59.4 million, an increase of 25.3% over the $47.4 million
recorded in the third quarter of the 1995 fiscal year. Amortization of goodwill
was $4.6 in the third quarter of the 1996 and 1995 fiscal years. Operating
income before interest and taxes for the apparel products segment before the
charges for closing the Knitted Fabrics division for the third quarter of the
1996 fiscal year was $41.2 million, up from the $30.4 million recorded for the
third quarter of the 1995 fiscal year. The main reasons for the increase in
operating income of the apparel products segment were: improvement in gross
profit margins arising principally from better mix and selling prices, lower
level of bad debts, lower raw material prices and manufacturing variances,
partially offset by the effect of lower unit sales and increased wages.
Operating income before interest and taxes for the interior furnishings products
segment for the third quarter of the 1996 fiscal year was $18.2 million, in
comparison with the $17.0 million recorded in the third quarter of the 1995
fiscal year. This increase was primarily due to higher gross margins arising
from better mix and selling prices.
Operating income before interest, taxes, depreciation and amortization
(EBITDA) for the third quarter of the 1996 fiscal year was $48.0 million. EBITDA
before deducting the charges for closing the Knitted Fabrics division was $81.6
million, or 14.2% of sales, in the third quarter of the 1996 fiscal year
compared with $69.3 million, or 11.9% of sales, in the third quarter of the 1995
fiscal year. EBITDA for the apparel products segment before deducting the
charges for closing the Knitted Fabrics division was $54.7 million, or 15.2% of
sales, in the third quarter of the 1996 fiscal year compared with $43.9 million,
or 11.9% of sales in the third quarter of the 1995 fiscal year. EBITDA for the
interior furnishings products segment was $26.9 million, or 12.5% of sales, in
the third quarter of the 1996 fiscal year in comparison with $25.4 million, or
11.9% of sales, in the third quarter of the 1995 fiscal year.
Provision for doubtful accounts for the third quarter of the 1996 fiscal
year was $1.3 million in comparison with $6.4 million recorded in the same
quarter of the 1995 fiscal year. The 1995 provision was primarily due to the
bankruptcy of an apparel customer.
Interest expense for the third quarter of the 1996 fiscal year was $16.1
million, or 2.8% of net sales, compared with $14.5 million, or 2.5% of net
sales, in the third quarter of the 1995 fiscal year. The increase in interest
expense was due primarily to the favorable interest rates incurred in the June
1995 quarter and a higher percentage of the Company's debt subject to fixed
interest rates in the June 1996 quarter.
7
<PAGE>
Other expense for the third quarter of the 1996 fiscal year was $6.8
million, consisting principally of: a $4.0 million provision for legal
contingencies, a $2.3 million provision for loss on sale of a non-operating
asset, a $1.3 million loss on sale of J. G. Furniture, and interest income. (See
Note G to consolidated financial statements and Part II, Item 1, Legal
Proceedings). The Company sold its J. G. Furniture operation on April 27, 1996
for $4.7 million in cash and securities. Other income for the third quarter of
the 1995 fiscal year was $0.5 million, consisting principally of interest
income.
Net income for the third quarter of the 1996 fiscal year was $0.6
million, or $0.01 per share, in comparison with $19.5 million, or $0.30 per
share, for the third quarter of the 1995 fiscal year. Net income for the third
quarter of the 1996 fiscal year included non-recurring charges of $25.0 million,
or $0.40 per share, resulting from the closing of the Knitted Fabrics division,
a provision for legal contingencies and the disposition of J.G. Furniture and a
non-operating asset.
Comparison of Nine Months ended June 29, 1996 and July 1, 1995.
Net sales for the first nine months of the 1996 fiscal year were $1,659.3
million, 1.2% lower than the $1,680.2 million recorded for the first nine months
of the 1995 fiscal year. Net sales of products for apparel markets for the first
nine months of the 1996 fiscal year were $1,022.5 million, 2.0% lower than net
sales of $1,043.4 million for the first nine months of the 1995 fiscal year. A
decrease in unit volume was partially offset by improved selling prices and mix.
Net sales of products for interior furnishings markets for the first nine months
of the 1996 fiscal year were $636.8 million, unchanged from the first nine
months of the 1995 fiscal year.
Operating income before interest and taxes for the first nine months of the
1996 fiscal year was $110.1 million. Before the charges for closing the Knitted
Fabrics division, operating income before interest and taxes for the first nine
months of the 1996 fiscal year was $143.7 million, an increase of 4.8% over the
$137.1 million recorded in the first nine months of the 1995 fiscal year.
Amortization of goodwill was $13.7 million in the first nine months of the 1996
fiscal year and $13.5 million in the first nine months of the 1995 fiscal year.
Operating income before interest and taxes for the apparel products segment
before the charges for closing the Knitted Fabrics division for the first nine
months of the 1996 fiscal year was $100.4 million, in comparison with the $86.5
million recorded for the first nine months of the 1995 fiscal year. The main
reasons for the increase in operating income of the apparel products segment
were higher gross profit margins arising principally from better mix and selling
prices partially offset by the effect of increases in raw material prices and
lower sales and production volumes. Operating income before interest and taxes
for the interior furnishings products segment for the first nine months of the
1996 fiscal year was $43.3 million, in comparison with the $50.6 million
recorded in the first nine months of the 1995 fiscal year. This decrease was
primarily due to operating capacity losses arising from lower production levels
and raw material price increases.
Operating income before interest, taxes, depreciation and amortization
(EBITDA) for the first nine months of the 1996 fiscal year was $175.7 million.
EBITDA before deducting the charges for closing the Knitted Fabrics division was
$209.3 million, or 12.6% of sales, in the first nine months of the 1996 fiscal
year compared with $201.0 million, or 12.0% of sales, in the first nine months
of the 1995 fiscal year. EBITDA for the apparel products segment before
deducting the charges for closing the Knitted Fabrics division was $140.2
million, or 13.7% of sales, in the first nine months of the 1996 fiscal year
compared with $125.9 million, or 12.1% of sales in the first nine months of the
1995 fiscal year. EBITDA for the interior furnishings products segment was $69.1
million, or 10.9% of sales, in the first nine months of the 1996 fiscal year in
comparison with $75.1 million, or 11.8% of sales, in the first nine months of
the 1995 fiscal year.
8
<PAGE>
Provision for doubtful accounts for the first nine months of the 1996
fiscal year was $3.3 million in comparison with $10.0 million recorded in the
same period of the 1995 fiscal year. The 1995 provision was primarily due to the
bankruptcies of two apparel customers.
Interest expense for the first nine months of the 1996 fiscal year was
$49.0 million, or 3.0% of net sales, compared with $42.1 million, or 2.5% of net
sales, in the first nine months of the 1995 fiscal year. The increase in
interest expense was due primarily to the favorable interest rates incurred in
the 1995 period and higher interest rates in the 1996 period on the Company's
debt subject to fixed interest rates.
Other expense for the first nine months of the 1996 fiscal year was $6.7
million, consisting principally of: a $4.0 million provision for legal
contingencies, a $2.3 million provision for loss on sale of a non-operating
asset, a $1.3 million loss on sale of J. G. Furniture, and interest income. The
Company sold its J. G. Furniture operation on April 27, 1996 for $4.7 million in
cash and securities. Other income for the first nine months of the 1995 fiscal
year was $1.4 million, consisting principally of interest income.
An extraordinary loss from early extinguishment of debt - $1.2 million
before taxes, $0.7 million net of tax benefit, or $0.01 loss per share - was
recorded in the first nine months of the 1996 fiscal year. This resulted from
the write-off of deferred debt expense associated with the replacement of the
1994 Bank Credit Agreement which took place in November, 1995.
Net income for the first nine months of the 1996 fiscal year was $29.0
million, or $0.46 per share, in comparison with $54.5 million, or $0.83 per
share, for the first nine months of the 1995 fiscal year. Net income for the
first nine months of the 1996 fiscal year included non-recurring charges of
$25.7 million, or $0.41 per share, resulting from the closing of the Knitted
Fabrics division, a provision for legal contingencies, the disposition of J.G.
Furniture and a non-operating asset, and an extraordinary loss from early
extinguishment of debt.
Liquidity and Capital Resources
During the first nine months of the 1996 fiscal year, the Company generated
$89.4 million of cash from operating activities and $4.4 million from sales of
assets and had net borrowings of long- and short-term debt of $13.7 million.
Cash was primarily used as follows: $44.6 million for the repurchase of Company
common stock and $58.7 million for capital expenditures. At June 29, 1996, total
debt of the Company (consisting of current and non-current portions of long-term
debt and short-term borrowings) was $926.8 million compared with $913.0 million
at September 30, 1995 and $965.1 million at July 1, 1995.
The Company's principal uses of funds for the next several years will be
for capital investments (including the funding of acquisitions and
participations in joint ventures), servicing of indebtedness and working capital
needs, and possibly 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 under the
revolving credit facility of its 1995 Bank Credit Agreement and the
receivables-backed commercial paper program described below. The Company
believes that these sources of funds will be adequate to meet the Company's
foregoing needs.
The purchase of approximately 3.4 million shares of Company common stock
during the December quarter utilized approximately $45 million in cash. The
shares purchased are expected to be used during the next several years
principally to satisfy Company obligations to contribute stock under its
employee incentive plans and will, accordingly, minimize further future cash
outlays for these purposes.
On November 8, 1995, the Company entered into a new $750.0 million
unsecured Revolving Credit Facility ("1995 Bank Credit Agreement") which
replaced in its entirety the Term Loan and Revolving Credit Facility under the
1994 Bank Credit Agreement. The new facility maintains the maturity of all
9
<PAGE>
revolving loans and letters of credit at March 31, 2001, thereby eliminating the
amortization of term loans required under the 1994 Bank Credit Agreement. At
July 26, 1996, the Company had approximately $224.6 million in unused capacity
under the 1995 Bank Credit Agreement. The Company also maintains $30.0 million
in additional overnight borrowing availability under bank lines of credit.
The 1995 Bank Credit Agreement reduces the margins over market interest
rates applicable to revolving credit indebtedness. Loans under the 1995 Bank
Credit Agreement bear interest at optional floating rates based on an Adjusted
Eurodollar Rate plus 0.275% or an Alternate Base Rate or such lower rates as may
be offered by lenders thereunder, pursuant to the competitive bid procedures
under the Agreement. In addition, the entire amount of the $750.0 million credit
facility is subject to an annual facility fee. Changes in the Company's debt
rating from current levels would increase or decrease borrowing costs.
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.
The Company also has in effect, through its wholly-owned subsidiary, B.I.
Funding, Inc., a $225.0 million receivables-backed, A-1/D-1 rated commercial
paper program which is supported by a multi-bank liquidity facility expiring in
August 1998. At July 26, 1996, $207.1 million of commercial paper with original
maturities of up to 75 days was outstanding. There were no borrowings
outstanding at such date under the liquidity facility.
Because the Company's obligations under the 1995 Bank Credit Agreement and
commercial paper program 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. As of July 26, 1996, the Company has purchased interest rate caps (i)
on $350 million notional principal amount at 6.0% and $150 million notional
principal amount at 9.5% for the 1996 fiscal year, (ii) on $100 million notional
principal amount at 9.5% for the one-year period commencing April 22, 1996, and
(iii) on $300 million notional principal amount at 7.0%, $300 million notional
principal amount at 9.5% and $200 million notional principal amount at 10.0% for
the 1997 fiscal year. The caps at the 9.5% and 10.0% levels were purchased in
1994 to provide partial protection to the Company from exposure to a high
floating interest rate scenario during the periods covered. The Company has also
entered into swap transactions pursuant to which it has exchanged its floating
rate interest obligations on (i) $200 million notional principal amount for a
fixed rate payment obligation of 7.37% per annum for the five-year period
beginning October 20, 1995 and (ii) $25 million notional principal amount for a
fixed rate payment obligation of 5.92% for the one-year period commencing
October 20, 1995. The fixing of the interest rates for these periods minimizes
in part the Company's exposure to the uncertainty of floating interest rates
during this five-year period. The Company has also entered into interest rate
collar agreements which effectively set maximum and minimum interest rates, and
entered into floor agreements, which set minimum interest rates on (i) $100
million notional principal amount ranging from a floor of 5.42% to a maximum cap
of 6.0% for the one-year period commencing October 20, 1995, (ii) $50 million
notional principal amount ranging from 4.75% to 7.0% and $50 million notional
principal amount ranging from 5.03% to 7.0%, each for the one-year period
commencing October 20, 1996, and (iii) $100 million of floor agreements at 5.50%
and $250 million of floor agreements at 5.25% each for the period from January
20, 1996 to October 20, 1996. The Company addresses the risk of counterparty
nonperformance by arranging swaps, caps, collars and floors with a diverse group
of parties with high credit ratings with which the Company also has other
financial relationships. (Such cap, swap, collar and floor rates are based on
3-month LIBOR (London Interbank Offered Rate) and are exclusive of the
Applicable Percentage or other charges the Company might then incur on its
floating rate obligations or to acquire the cap or floor instrument.)
10
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In June, 1992, a class action entitled Atwood et al. v. Burlington
Industries Equity Inc. et al. (Civ. Act. No. 2:92CV00716) was
commenced on behalf of all participants in the Company's Employee
Stock Ownership Plan ("ESOP"). The defendants include the Company
and certain of its officers, directors and employees, Morgan Stanley
& Co., and the independent trustee of the ESOP. The complaint
alleges certain causes of action for breach of fiduciary duties
under the Employee Retirement Income Security Act and violation of
the securities laws and state common law principally in connection
with the 1989 sale of Company stock to the ESOP.
On July 17, 1996, the parties to the lawsuit executed a Stipulation
of Settlement. On July 29, 1996, the United States District Court
entered an order giving provisional approval of the settlement. The
settlement provides that the Company, Morgan Stanley and the ESOP
Trustee each pay to the ESOP Trust $8.833 million for a total
settlement of $26.5 million (plus interest from April 15, 1996).
After notice to the class, the Court will hold a further hearing
within 60 days to determine whether to give final approval to the
settlement. The procedures proposed by the defendants in the
Stipulation provide that, after payment of administrative costs,
expenses and attorneys' fees, the net settlement fund will be paid
to the ESOP Trustee. The fund will be divided on a pro rata basis
between eligible current and former employees who comprise the
class. The settlement portion for eligible current employees will be
used by the ESOP trustee to purchase shares of the Company's stock
for allocation on a pro rata basis to the employee's ESOP account.
Under the terms of the ESOP plan, former employees may elect to
receive stock or cash. It is estimated that approximately $14
million will be used by the Trustee to purchase additional Company
stock for allocation to eligible current members' ESOP accounts.
Stock held in ESOP members' accounts is distributable to
participants when they retire or otherwise leave the Company's
employment. See Note G to the consolidated financial statements in
Part I of this report.
On May 13, 1996 the U.S. Environmental Protection Agency ("EPA")
formally approved a Consent Order and Agreement with the Company
settling a civil proceeding commenced under the Toxic Substances
Control Act ("TSCA"). The originally assessed penalty of $3,061,000
was reduced to $43,440. The complaint against the Corporation's
chemical division asserted a violation of the TSCA pre-manufacture
notification requirements arising out of the division's manufacture
of a nontoxic, nonhazardous chemical substance used solely in the
internal textile manufacturing processes of the Corporation's
manufacturing plants.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10. Agreement dated as of May 1, 1996 between the
Corporation and George C. Waldrep, Jr.
27. Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter for which this report is filed, the
Corporation filed a report on Form 8-K dated June 5, 1996. The
item reported was "Item 5. Other Events".
11
<PAGE>
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.
Charles E. Peters, Jr.
Date: July 30, 1996 Senior Vice President and
Chief Financial Officer
By /s/ AGUSTIN J. DIODATI
Date: July 30, 1996 Agustin J. Diodati
Vice President and
Controller
12
Exhibit 10
AGREEMENT, made and entered into as of the 1st day of May, 1996, between
BURLINGTON INDUSTRIES, INC., a Delaware corporation (hereinafter sometimes
referred to as the "Corporation"), party of the first part, and George C.
Waldrep, Jr. (hereinafter referred to as "Employee"), party of the second part,
W I T N E S S E T H :
WHEREAS, the Corporation and Employee desire to enter into an Employment
Agreement effective May 1, 1996;
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
contained, the Corporation and Employee hereby agree as follows:
l. The Corporation agrees to employ or to cause one or more of its
subsidiary companies to employ Employee and Employee agrees to serve the
Corporation and such of the Corporation's subsidiary companies as may be
designated by the Corporation upon the terms hereinafter set forth.
2. The employment of Employee hereunder shall commence May 1, 1996 and
continue for a period ending April 30, 1998, unless earlier terminated under the
provisions of this Agreement.
3. Employee agrees to serve the Corporation and such of the
Corporation's subsidiary companies as may be designated by the Corporation,
faithfully and to the best of his ability under the direction of the Board of
Directors of the Corporation and of such subsidiary companies, devoting his
entire time, energy and skill during regular business hours to such employment,
and to perform from time to time such services, advisory or otherwise and act in
such office or capacity for the Corporation and for any of its subsidiary
companies as said Board of Directors shall request.
4. The Corporation agrees to pay, or cause one or more of its subsidiary
companies to pay, to Employee during the period of the term hereof salary for
his services at the rate (the "Annual Rate") of Two Hundred Five Thousand
Dollars ($205,000) per annum, payable in equal monthly or other installments in
accordance with the general practice of the Corporation.
5. The Corporation may from time to time pay additional compensation to
certain executives when and if authorized by the Board of Directors or the
appropriate Committee of the Board of Directors of the Corporation. It is
expressly understood that the amount and payment of any additional compensation
if made in the case of Employee is entirely in the discretion of the
Corporation, and nothing herein shall be construed as a promise or obligation to
pay any additional compensation to him whatsoever. If sums are paid to Employee
as additional compensation in any year, such payment shall not create an
obligation to pay additional compensation to him in any past or succeeding year,
and the Corporation and its subsidiary companies shall not be obligated to pay
to Employee any additional compensation by reason of the payment of additional
compensation to other employees in any year for any reason whatsoever. No
payments to Employee of additional compensation, if any, shall reduce or be
applied against the salary to be paid to him pursuant to Paragraph 4 hereof.
6. If, during the term of this Agreement, Employee shall become
physically or mentally incapable of fully performing services required of him in
accordance with his obligations under Paragraph 3 of this Agreement, and such
incapacity is, or may reasonably be expected to exist, for more than two months
in the aggregate during any period of twelve consecutive months, as shall be
determined by a physician mutually agreed upon by the Corporation and Employee
(or Employee's legal representative if Employee is incapable of making such
determination), which determination shall be final and conclusive, the
Corporation may, upon notice to Employee, terminate this Agreement and his
employment hereunder, and upon such termination, Employee shall be entitled to
receive and shall be paid compensation for a period of 90 days next following
the date of such notice of termination, at the Annual Rate set forth in
Paragraph 4 above, and compensation for the next 90 days at one half of the
Annual Rate. Employee agrees to accept such payments in full discharge and
release of the Corporation, its subsidiaries and their management, of and from
any and all further obligations and liabilities to him under Paragraph 4 hereof.
7. (a) The Corporation may in its sole discretion at any time terminate
Employee's employment under this Agreement, whether for cause or without cause.
(b) In the event of a voluntary termination of employment by Employee
for "good reason," an involuntary termination of employment of Employee without
cause, or the sale of a subsidiary or a division (a "Business") of the
Corporation that employs Employee or in connection with which he is employed, in
which he is not offered employment in the Business or with the Corporation (or
any of their respective affiliates) following such sale, Employee shall receive
as soon as practicable following such termination a lump sum payment in cash
equal to the greater of (A) the present value of the salary that would have been
payable under Paragraph 4 above during the remainder of the term of this
Agreement had Employee not been terminated, or (B) the present value of the
amount payable to Employee under the terms of the Corporation's Payroll
Severance Policy (Policy Manual Index XI H 3.1) applicable to Employee as in
effect on the date hereof (the "Severance Policy"). For purposes of this
Paragraph 7, (i) all present value calculations shall be determined using the
short term applicable federal rate in effect at the time of computation as
determined by the Internal Revenue Service for purposes of Section 1274(d) of
the Internal Revenue Code, and (ii) "good reason" shall mean a material breach
of this Agreement involving the Corporation's failure to pay compensation due
under the terms of this Agreement.
(c) In the event of an involuntary termination for cause, Employee
shall be entitled to payments under the Severance Policy so long as the conduct
giving rise to such termination was not, in the Corporation's sole judgment,
willful.
(d) In the event that Employee's employment is terminated by the
Corporation or the Employee for any reason other than those set forth in
subparagraphs (b) and (c) above, the Corporation shall have no further
obligation to Employee hereunder or under the Severance Policy.
(e) Upon termination of Employee's employment for any reason,
Employee's rights under all of the benefit plans of the Corporation, other than
the Severance Policy, shall be governed by the terms of such plans and not by
the provisions of this Agreement.
(f) Notwithstanding any other provisions of this Agreement,
Employee's obligations under Paragraphs 9 and 10 of this Agreement shall survive
the termination or expiration of this Agreement.
8. Any notice to be given by Employee hereunder shall be sent to the
Corporation at its offices, 3330 West Friendly Avenue, Greensboro, North
Carolina 274l0, and any notice from the Corporation to Employee shall be sent to
Employee at the address set forth under his signature below. Either party may
change the address to which notices are to be sent by notifying the other in
writing of such changes in accordance with the terms hereof.
9. Employee expressly agrees, as further consideration hereof and as a
condition to the performance by the Corporation and its subsidiary companies of
their obligations hereunder, that while employed by the Corporation or its
subsidiary companies and during a period of six months following termination of
his employment, he will not directly or indirectly render advisory services to
or become employed by or participate or engage in any business materially
competitive with any of the businesses of the Corporation and its subsidiary
companies (Employee hereby acknowledging that he has had access in his executive
capacity to material information about all of the Corporation's businesses)
without the written consent of the Corporation first had and obtained.
10. Employee agrees that, both during and after his employment hereunder, he
will not disclose to any person unless authorized to do so by the Corporation,
any of the Corporation's trade secrets or other information which is
confidential or secret. Trade secrets or confidential information shall mean
information which has not been made available by the Corporation to the public,
including but not limited to business plans, product or market development
studies, plans or surveys; designs and patterns; inventions, secret processes
and developments; any cost data, including labor costs, material costs, and any
data that is a factor in costs; price, source or utilization data on raw
materials, fibers, machinery, equipment and other manufacturing supplies;
technical improvements, designs, procedures and methods developed by the
Corporation; any data pertaining to sales volume by location or by product
category; customer lists; production methods other than those licensed by
outside companies; compensation practices; and profitability, margins, asset
values, or other information relating to financial statements.
Employee acknowledges that the disclosure of the Corporation's trade
secrets or confidential information to unauthorized persons would constitute a
clear threat to the business of the Corporation, and that the failure of the
Employee to abide by the terms of Paragraphs 9 and 10 will entitle the
Corporation to exercise any or all remedies available to it in law or equity,
including without limitation, an injunction prohibiting a breach of these
provisions.
IN WITNESS WHEREOF, Burlington Industries, Inc. has caused this
Agreement to be executed in its corporate name by its corporate officer
thereunto duly authorized, and George C. Waldrep, Jr. has hereunto set his hand
and seal, as of the day and year first above written.
BURLINGTON INDUSTRIES, INC.
By_________________________
Abraham B. Stenberg
Executive Vice President
_______________________(L.S.)
George C. Waldrep, Jr.
7230 Strawberry Road
Summerfield, NC 27358
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 13,052
<SECURITIES> 22,400
<RECEIVABLES> 388,150
<ALLOWANCES> 18,528
<INVENTORY> 348,154
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<PP&E> 996,861
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0
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<SALES> 1,659,346
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