UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 3, 1998
Commission file number 1-10984
BURLINGTON INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 56-1584586
(State of incorporation) ( I.R.S. Employer
Identification No.)
3330 West Friendly Avenue
Greensboro, N.C. 27410
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 379-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, New York Stock Exchange
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
As of December 7, 1998, the aggregate market value of Registrant's voting stock
held of record by nonaffiliates of Registrant was approximately $582,134,324
(based upon the closing composite price on the New York Stock Exchange on that
date), excluding Treasury shares and, without acknowledging affiliate status,
470,316 shares held beneficially by Directors and executive officers as a group.
As of December 7, 1998, there were outstanding 56,919,705 shares of Registrant's
Common Stock, par value $.01 per share, and 704,301 shares of Registrant's
Nonvoting Common Stock, par value $.01 per share.
Documents Incorporated by Reference
Portions of Registrant's 1998 Annual Report to Shareholders are incorporated by
reference into Parts I, II and IV hereof.
Portions of Registrant's Proxy Statement dated December 18, 1998 in connection
with its Annual Meeting of Stockholders to be held on February 4, 1999 are
incorporated by reference into Part III hereof.
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PART I
Item 1. Business
General
The Corporation is one of the world's largest and most diversified
manufacturers of textile products. It is a leading developer, marketer and
manufacturer of fabrics and other textile products used in a wide variety of
apparel and interior furnishings end uses. The Corporation operates in two
principal industry segments, products for apparel markets and products for
interior furnishings markets. References herein to the "Corporation" mean
Burlington Industries, Inc. ("Burlington") and its subsidiaries.
As of October 3, 1998, the Corporation operated 32 U.S. manufacturing
plants in six states and three manufacturing plants in Mexico (two additional
plants are substantially completed). It also held a 50% interest in two joint
ventures, one in India with one manufacturing plant and one in Mexico with one
manufacturing plant, and a minority interest in a U.S. yarn manufacturing
venture. At October 3, 1998, the Corporation employed approximately 18,900
persons.
Products for Apparel Markets
Worsted and worsted wool blend fabrics. The Corporation is the
leading domestic manufacturer of woven worsted and worsted blend fabrics
supplied to manufacturers of men's and women's apparel as well as to major
clothing retailers. Over the past two years, its product development efforts
have produced many high value-added products using finer wools, creative blends
and innovative nonwool fabrics. Products made with its fabrics are sold to the
moderate, better and bridge segments of men's and women's apparel. The
Corporation also sells worsted wool and wool blend fabrics to manufacturers of
better career and uniform apparel.
Woven synthetic fabrics. The Corporation is a leading manufacturer of
woven synthetic fabrics made with 100% polyester, 100% nylon and polyester
blended with wool, rayon or other fibers that are supplied to manufacturers of a
wide variety of apparel, activewear, interior furnishings, medical and
industrial products.
The Corporation produces lightweight polyester and polyester blend fabrics
and 100% nylon fabrics for men's, women's and children's wear sold in a variety
of price ranges, for high performance sportswear and activewear and for a
variety of other apparel, medical, interior furnishings and industrial uses. It
also produces heavyweight polyester fabrics for use in the manufacture of
slacks, suits, skirts and sport coats as well as in the manufacture of military
and law enforcement uniforms.
The Corporation is a leading manufacturer of waterproof, water repellent,
breathable and moisture management synthetic fabrics used by makers of outerwear
and high performance sportswear and activewear. A number of its products,
including the Ultrex(R) line of breathable, waterproof fabrics and the Xalt(TM)
family of composite, laminate fabrics, are used in leading brands of skiwear and
other activewear and by suppliers to leading activewear retailers. The
Corporation also produces performance fabrics for the reusable health care
market and contamination control environments.
The Corporation also markets lightweight, reusable, protective barrier
fabrics under the Maxima(R) brand name to makers of, among other things,
clothing worn by hospital personnel and by industrial workers who are required
to work in clean and static-free environments.
The Corporation is a leader in developing new applications and end uses
for synthetic fibers, such as fabrics made with microdenier filament yarn, a
yarn made from fiber thinner than silk. These products combine a natural
appearance and touch with the performance characteristics of synthetic fibers.
The Corporation's microdenier fabrics are currently being used in men's and
women's apparel fabrics, activewear, protective medical clothing and in home
furnishings. The Corporation is the leading domestic producer of microdenier
fabrics made from 100% polyester and polyester blended with wool or rayon.
Denim fabrics. The Corporation is a leading manufacturer of fashion,
value-added, specialty denim fabrics. It produces a diversified product line
that services the major brands with innovative and engineered products for denim
customization. It is a major supplier to all segments of the branded, designer
and private label business.
The Corporation has a 50% interest in a joint venture with Mafatlal
Industries Limited to manufacture denim in India. Production began in mid-1997.
It also has entered into a 50% joint venture ownership arrangement with
International Garment Processors, a leader in denim jeans processing. The
venture will commence operation in late 1999 in a new facility under
construction in the State of Chihuahua, Mexico.
Cotton fabrics. The Corporation produces 100% cotton and cotton/polyester
blend woven and knitted fabrics to serve the better men's sportswear and uniform
markets.
Apparel Services. The Corporation also offers customers the option of
purchasing fabrics in the form of customer-specified garments. To date, the
Corporation has contracted for cut and sew services with outside contractors,
principally in Mexico. During 1998, the Corporation commenced a multi-year
effort to expand its direct garment-making capabilities through the construction
in Mexico of a number of state-of-the-art facilities and will equip and train
the work forces with the aid of a leading apparel consultant. Investment in
these facilities over the next three years will exceed $80 million. When coupled
with the yarn, fabric and processing facilities currently under construction in
Mexico (as described above and below), the Corporation will be able to convert
raw materials to shelf-ready denim, worsted and worsted wool blend garments
totally within Mexico.
Yarn Disposition. The Corporation disposed of the assets of its Burlington
Madison Yarn division during the past year. The division was a major supplier of
textured and spun synthetic yarns. On May 30, 1998, the division's textured yarn
manufacturing assets, along with the textured yarn assets of Unifi, Inc., were
transferred into a newly-formed company. The Corporation holds a minority
interest in the venture, which will be managed by Unifi. On November 6, 1998,
the remaining assets of the division were sold to Carolina Mills. The
Corporation entered into long-term yarn supply agreements with each of these
entities.
Mexican operations. In Mexico, the Corporation manufactures woven fabrics
for apparel which are sold in the local market and, in the form of garments,
exported to the United States. In December 1997, construction commenced on new
facilities in Mexico to produce worsted wool and denim fabric and for a joint
venture to produce cotton yarns, principally for use in denim fabric. Yarn is
being produced by the joint venture facility, currently at partial capacity, and
is being consumed at the Corporation's Mississippi denim facility pending
commencement of denim production at the Mexican site scheduled for Spring 1999.
Worsted fabric production will commence late in the 1999 fiscal year.
Products for Interior Furnishings Markets
Interior furnishings fabrics and products. The Corporation is a leading
manufacturer of ready-made and made-to-measure draperies, window coverings and
coordinating bedroom ensembles, mattress ticking, upholstery fabrics, and
decorative fabrics for use by makers of bedroom ensembles, draperies and window
coverings.
<PAGE>
The product lines consist of:
o ready-made and made-to-measure draperies, window coverings, coordinating
bedroom ensembles, table linens and throws sold under the Burlington
House(R) name to department and specialty stores, under the Burlington
House American Lifestyle(TM) name to discount stores and on a private
label basis to several major retailers;
o woven jacquard mattress ticking (primarily damasks) sold to all major
domestic manufacturers of mattresses for both the residential and
institutional markets (The Corporation is the leading manufacturer of
jacquard mattress ticking supplied to domestic manufacturers of
mattresses. Mattress ticking is the exterior fabric surface of a
finished mattress. The Corporation believes it produces the widest
variety of ticking patterns of any domestic manufacturer.);
o woven jacquard and textured fabrics for residential upholstered
furniture which are marketed to a broad range of furniture
manufacturers;
o woven jacquard and other decorative fabrics used by manufacturers of
bedroom ensembles, comforters, draperies and window coverings.
The Corporation manufactures flame resistant fabrics for use as draperies
and bed coverings in major hotels and health care facilities and on cruise
ships. Additionally, its fabrics are used as window coverings in the home and by
makers of upholstered furniture and wall coverings for commercial environments.
The Corporation recently introduced a new Seasons by Burlington(TM) high
performance, fade-, stain-, and mildew-resistant outdoor fabric.
Area rugs. The Corporation is a leading producer in the United States of
tufted area and bath rugs for home use, sold primarily under the Burlington
House(R) name to department and specialty stores and the Burlington House
American Lifestyle(TM) name to discount stores.
Accent rugs. The Corporation is a leading producer of printed accent rugs
and welcome mats. It markets these products, in addition to fully coordinated
bath ensembles, to diverse market segments that include the leading U.S.
department stores, mail order catalogs, mass merchants, specialty stores and
international customers.
Carpets. The Corporation is a leading domestic manufacturer of tufted
synthetic carpet for commercial uses, comprised of broadloom carpet, carpet
tiles and six-foot vinyl-backed carpet. It produces and sells a wide variety of
standard and custom commercial carpet products under the Corporation's Lees(R)
brand name primarily for use in offices, institutions, airports, hotels,
schools, stores and health care facilities. The Corporation's commercial carpet
products are sold in the middle to high priced segments of the commercial carpet
market, and are marketed through dealers primarily to architects, designers and
commercial builders, as well as directly to end users.
The Corporation developed and patented a yarn dyeing process that permits
us to produce carpeting that resists staining and fading on a permanent basis.
Products incorporating this dyeing technology, which are marketed under the
Duracolor(R) name in the commercial market, represent a major portion of the
current carpet sales of the division. It also have developed and markets a
proprietary thermoplastic carpet backing process for commercial carpets, known
as Unibond(R), which enhances the carpet's durability.
The Corporation's yarn dyeing capability allows us to offer carpeting in a
wide range of colors. Through its Colorfax(R) program, the Corporation offers
customers the ability to order sample yardage manufactured to their exact color
specifications. Such samples are generally deliverable within 72 hours after
receipt of the specifications.
Mexican operations. The Corporation manufactures residential and
commercial carpeting and fabrics for home furnishings in Mexico.
Financial Information Concerning Industry Segments
Reference is made to Note O to the Notes to Consolidated Financial
Statements in the Corporation's 1998 Annual Report to Shareholders, which is
incorporated herein by reference, for information concerning industry segments
for the Corporation's 1998, 1997 and 1996 fiscal years.
Exports
The Corporation's exports have increased to 11.8% of revenues in fiscal
year 1998, with export sales of $237 million. The Corporation's export sales
were $239 million in fiscal year 1997 and $213 million in fiscal year 1996.
Operations
The Corporation's domestic operations are organized primarily by product
category, and intercompany sales are minimal. Products are distributed through
direct sales except in a few cases, mainly export sales, where products are sold
through independent agents or distributors.
The Corporation's corporate headquarters, principal sales and
merchandising offices and principal staff operations are located in Greensboro,
North Carolina. The Corporation maintains domestic sales offices in New York
City and other major cities in the United States.
Manufacturing
The Corporation is a vertically integrated manufacturer in most of its
product areas. Generally, raw fibers are purchased and spun into yarn, or
filament yarns are purchased and processed. Yarns, whether produced by the
Corporation or purchased, are dyed in some cases, and then are woven, knitted or
tufted into fabric or carpet. Fabric is then sold either in dyed and finished
form, as greige (unfinished) goods or processed into finished home furnishing or
apparel products. Residential and commercial interior furnishings products are
further processed and packaged for sale to retailers.
"Just-in-time" manufacturing techniques, which reduce in-process
inventories, floor space requirements and the time required to process a
particular order, are used in most facilities. Programs to link customers and
suppliers of the Corporation by means of electronic data transmission are also
in place in all divisions. These programs improve efficiency and reduce lead
times by improving communication, planning and processing times at the various
stages of production. They also assist the Corporation in working effectively
with manufacturers to coordinate their operations with the demands of retailers
and, as such, are an important part of the domestic textile industry's "Quick
Response" program designed to improve its competitive position vis-a-vis
imports.
<PAGE>
Year 2000
Considerable attention has been focused upon potential disruptions that
could result from certain computer programs' inability to recognize the year
2000. See "Year 2000" in "Management's Discussion and Analysis of Results of
Operations and Financial Condition" in the Corporation's 1998 Annual Report to
Shareholders for information concerning the impact of this issue on the
Corporation and its efforts to address it.
Raw Materials
The Corporation uses many types of fiber, both natural (principally wool
and cotton) as well as manufactured (polyester, nylon, polypropylene, acrylic,
rayon, Tencel(R) and acetate), in the manufacture of its textile products. Total
raw material costs were 31.1% of net sales in the 1998 fiscal year, 33.4% of net
sales in the 1997 fiscal year and 33.8% of net sales in the 1996 fiscal year.
The Corporation believes that future price levels for all fibers will depend
primarily upon supply and demand conditions, general inflation, U. S. and
foreign government fiscal policies and agricultural programs, relative currency
values, and prices of underlying raw materials such as petroleum.
Generally, the Corporation has had no difficulty in obtaining raw
materials. Wool and man-made fibers are available from a wide variety of sources
both domestically and abroad. Cotton is available from a wide variety of
domestic sources. Other materials, such as dyes and chemicals, are generally
available, but, as in the case of raw materials, continued availability is
dependent to varying degrees upon the adequacy of petroleum supplies. The
Corporation purchases essentially all its raw materials and dyes.
Research and Development
Textile manufacturers generally focus their research and development
efforts on product development rather than basic research. Major innovations in
the textile industry have come primarily from fiber producers (microdenier
fiber, for example) or machinery manufacturers (high speed shuttleless looms).
While breakthroughs by textile manufacturers in fabric development have occurred
(for example, the Corporation's Duracolor(R) carpets using stain-resistant
technology), generally, textile makers have enhanced their competitiveness
through continual development and refinement of products to meet or create
consumer needs (for example, the Corporation's use of microdenier fibers in a
wide range of apparel and other applications). Accordingly, with few exceptions,
basic research and development expenditures have not been as significant a
component of textile manufacturing success as expenditures on design innovation
or capability and on capital equipment that increase the range of end products
and enhance productivity.
Basic research and development responsibility is located in each product
area and focused on specific process and product development needs. Total
expenditures for research, product development, productivity enhancements,
enhanced styling and market samples aggregated $58.9 million in the 1998 fiscal
year, $57.3 million in the 1997 fiscal year and $62.3 million in the 1996 fiscal
year. Included in these amounts are research and development expenditures, which
totaled $14.9 million in the 1998 fiscal year ($10.8 million in the apparel
products segment and $4.1 million in the interior furnishings products segment),
compared with $11.8 million and $13.5 million in the 1997 and 1996 fiscal years,
respectively.
Trademarks and Patents
The Corporation owns or has the right to use all trademarks and tradenames
that it believes are material to the operation of its business. The Corporation
markets its products under a variety of trademarks and tradenames, principally
utilizing variations of the Burlington(R) name. Certain products are marketed
under nationally recognized names such as Lees(R) for commercial carpets,
Klopman(R) for fabrics or Bacova(R) for mats and rugs.
From time to time, the Corporation's product development efforts have
resulted in new processes or products, some of which have been patented.
Examples of Burlington-developed technology include the patented Ultrex(R)
waterproof breathable woven fabric used in activewear and barrier fabrics and
Duracolor(R) carpets, manufactured using stain-resistant technology with respect
to which the Corporation has obtained patents. Because the Corporation's
business is not dependent to any significant degree upon patents and licenses
(with the possible exception of the patented stain resistant carpet technology
in the case of the interior furnishings segment), the loss of any patents or
licenses now held by the Corporation would not have a material adverse effect
upon its business or results of operations.
The Corporation derives licensing income (approximately $2.1 million in
the 1998 fiscal year) from licenses of the Corporation's technology and from
licenses of the Burlington(R) name, principally to manufacturers of socks and
hosiery products in the United States and Europe.
Competition
The global and United States textile industries are highly competitive. No
one firm dominates the United States market and many companies compete only in
limited segments of the textile market. Certain of the Corporation's products
also compete with non-textile products. Textile competition is based in varying
degrees on price, product styling and differentiation, quality, response time
and customer service. The importance of each of these factors depends upon the
needs of particular customers and the degree of fashion risk inherent in the
product.
Imports of foreign-made textile and apparel products are a significant
source of competition for most sectors of the domestic textile industry. The
U.S. Government has attempted to regulate the growth of certain textile and
apparel imports through tariffs and bilateral agreements which establish quotas
on imports from lesser-developed countries that historically account for
significant shares of U.S. imports. Despite these efforts, imported apparel and
apparel textile fabrics, which represent the area of heaviest import
penetration, represent in excess of 60% of the U.S. market, up from less than
approximately 24% in 1975.
U.S. retailers' and apparel manufacturers' sourcing decisions are affected
by numerous factors, including relative labor and raw material costs, lead
times, political instability and infrastructure deficiencies of newly
industrializing countries, fluctuating currency exchange rates, individual
government policies and international agreements regarding textile and apparel
trade. As evidence of the impact of these factors, sourcing of textile and
apparel imports for goods shipped into the United States -- once dominated
primarily by Hong Kong, Taiwan and Korea -- has been shifting to other
lower-cost producer countries such as The People's Republic of China, the
Philippines, Mexico and countries in the Caribbean Basin. The Corporation
believes that changing cost structures, delivery lead times, political
uncertainty and infrastructure deficiencies associated with many of these
producers have caused importers to reassess the degree of reliance placed upon
certain of these sources, and to reconsider the importance of the reliability of
manufacturing sources closer to point of sale. In addition to these factors, the
U.S. Government's policies designed to benefit Mexico and the Caribbean Basin,
through favored quota and tariff treatment, have accelerated the shift in
production of garments to sources in this hemisphere, indirectly benefiting U.S.
textile producers.
Under the North American Free Trade Agreement ("NAFTA") with Mexico and
Canada, there are no textile/apparel quotas between the United States and either
Mexico or Canada for products that meet certain origin criteria. Tariffs among
the three countries are either already zero or are being phased out. There are
provisions in NAFTA that should give Mexican apparel makers incentives to use
fabric made in the United States. Because the Corporation is a major U.S.
apparel fabrics manufacturer and a resident, diversified textile manufacturer in
Mexico, the Corporation believes that NAFTA is advantageous to the Corporation.
In addition, the U.S. "807" tariff program benefits U.S. textile producers whose
fabrics are incorporated into garments assembled in Caribbean countries before
returning to U.S. markets, where duty is charged on only the value added in
assembling the garments.
The impact of the economic factors and legislative/treaty provisions
described above are apparent in the rapid growth of U.S. apparel imports from
the Caribbean Basin, Canada and Mexico, primarily due to the advantages of
quota/tariff provisions described above. Apparel imports from the Caribbean
Basin and Mexico have grown from 6.5% of total apparel imports in 1984 to 38.7%
in 1997, surpassing imports from the Asian bloc. Mexico has now become the
largest exporter of apparel to the U.S., surpassing China.
Also of significance to domestic textile and apparel companies is the
ultimate impact of multilateral agreements intended to liberalize global trade.
The World Trade Organization ("WTO") established under GATT in January, 1995 has
responsibility for overseeing international trade in manufactured goods,
agriculture, intellectual property and services. The WTO will oversee the
phaseout of textile and apparel quotas over a ten-year period through 2005. In
addition, tariffs on textile/apparel products will be reduced (but not
eliminated) over the same ten-year period. After the end of the ten years,
textile/apparel trade would revert to regular GATT rules that would prohibit
quotas and most other non-tariff barriers. The Clinton Administration is also
engaged in discussions with a number of countries or trading blocs with the
intent of further liberalizing trade, although "fast track" authority to
negotiate new agreements was recently denied by Congress.
Over the years, the Corporation has attempted to offset the negative
impact of increased imports by focusing on product lines and markets that are
less vulnerable to import penetration. Capital expenditures and systems
improvements have centered on strengthening value-added product strategies and
on increasing productivity, lowering costs and improving quality. The
Corporation has also introduced manufacturing techniques such as "just-in-time"
and "Quick Response" and created electronic data links with customers and
suppliers, thereby shortening lead times and improving service. The Corporation
is also investing in apparel fabric and garment manufacturing and processing
facilities in Mexico and India in response to the forces affecting global
textile and apparel trade which have been described above.
During 1998, legislation was introduced, but failed to pass, relating to
trade between the U.S. and Sub-Saharan African nations, trade between the U.S.
and the Caribbean countries, and reduction of wool fabric tariffs. If enacted,
versions of these bills could have had significantly negative impacts on the
Corporation. The bills in various forms are likely to be re-introduced in 1999,
and the Corporation cannot predict the ultimate impact, if any, on it of
legislation and regulation which could emerge from Congress.
The long-run success of the Corporation will be influenced in varying
degrees by its response to legislation and administrative actions restricting or
liberalizing trade among world textile producing and consuming countries such as
NAFTA and the GATT/WTO changes, the effectiveness of anti-dumping and
countervailing duty remedies and of enforcement activities by the U.S.
Government, the value of the United States dollar in relation to other
currencies and world economic developments generally. The Corporation's success
will also be affected by the ability of certain of the Corporation's apparel
fabrics customers to remain competitive, the success of the Corporation's global
diversification, modernization and cost-reduction efforts and, most importantly,
the ongoing ability of the Corporation to produce innovative, quality products
to satisfy specific customer needs at competitive costs.
Employees
The number of persons employed by the Corporation in both its domestic and
foreign operations as of October 3, 1998, was approximately 18,900. The
Corporation's workforce in the United States is not represented by labor unions.
All wage employees in the Corporation's Mexican operations (approximately 1,100
persons) are represented by labor unions.
Customers
The Corporation primarily markets its products to approximately 10,500
customers in the United States. The Corporation also markets its products to
customers in Canada, Mexico, Latin America, Europe and Asian countries. For the
1998 fiscal year, no single customer represented more than 10% of the
Corporation's net sales, and the Corporation's 10 largest customers accounted
for approximately 27% of net sales.
Backlog
The Corporation's business generally is characterized by very short
forward order positions. The backlog of orders at any time is not material,
since most orders are deliverable within a few months. The backlog of forward
orders, after eliminating sales within the Corporation, was approximately 13.6%
of annual net sales at the end of the 1998 fiscal year, compared with
approximately 14.2% of annual net sales at the end of the 1997 fiscal year,
virtually all of which was expected to be shipped within less than a year.
Backlog at the end of the 1998 fiscal year for the apparel products segment was
18.1% of annual net sales of the segment and for the interior furnishings
products segment was 7.4% of annual net sales of the segment.
Governmental Regulation
The Corporation is subject to various Federal, state and local laws and
regulations limiting the production, discharge, storage, handling and disposal
of a variety of substances, particularly the Federal Clean Water Act, the
Federal Clean Air Act, the Resource Conservation and Recovery Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act as amended
by the Superfund Amendment and Reauthorization Act of 1986, and other Federal,
state and local laws and regulations for the protection of public health and the
environment. The Corporation is presently engaged in a number of environmental
remediation plans and has reported dispositions of waste that could result in
future remediation obligations. The Corporation cannot with certainty assess at
this time the impact of future emission standards and enforcement practices
under the 1990 Clean Air Act upon its operations or capital expenditure
requirements. Reference is also made to the discussion of "Legal and
Environmental Contingencies" under "Management's Discussion and Analysis of
Results of Operations and Financial Condition" in the Corporation's 1998 Annual
Report to Shareholders, which is incorporated herein by reference.
The Corporation's operations also are governed by laws and regulations
relating to workplace safety and worker health, principally the Occupational
Safety and Health Act and regulations thereunder which, among other things,
establish cotton dust, formaldehyde, asbestos and noise standards, and regulate
the use of hazardous chemicals in the workplace. The Corporation uses numerous
chemicals, including resins containing formaldehyde, in processing some of its
products. Although the Corporation does not use asbestos in the manufacture of
its products, some of its facilities contain some structural asbestos.
The Corporation believes that it has complied in all material respects
with the foregoing environmental or health and safety laws or regulations and
does not believe that future compliance with such laws or regulations will have
a material adverse effect on its results of operations or financial condition.
Item 2. Properties
As of October 3, 1998, the Corporation operated 32 manufacturing plants in
the United States, of which 19 were located in North Carolina, seven were in
Virginia, two each were in Arkansas and Mississippi and one each was in South
Carolina and Tennessee. All but two of these plants are owned in fee. The
aggregate floor area of these manufacturing plants in the United States is
approximately 13.0 million square feet. The Corporation's international
operations include three manufacturing plants in Mexico and a joint venture
plant in India. Two wholly-owned plants and two joint venture plants, all in the
apparel products segment, are under construction or are being equipped in
Mexico.
Of the Corporation's manufacturing plants, 21 are used principally in the
apparel products segment and 14 are used in the interior furnishings products
segment. In addition, the Corporation has seven manufacturing plants not
currently in operation. The Corporation's plants generally operate on a
three-shift basis for five-, six- or seven-day weeks during 49 weeks per year,
or fewer weeks per year during curtailments. The Corporation considers its
plants and equipment to be in excellent condition.
The corporate headquarters building in Greensboro, North Carolina,
containing approximately 430,000 square feet, was completed and occupied in
1971. The building is located on property occupied under a 99-year ground lease
that began in 1969.
Item 3. Legal Proceedings
The Corporation and its subsidiaries have sundry claims and other lawsuits
pending against them and also have made certain guarantees in the ordinary
course of business. It is not possible to determine with certainty the ultimate
liability, if any, of the Corporation in any of the matters referred to in this
item, but in the opinion of management, their outcome should have no material
adverse effect upon the financial condition or results of operations of the
Corporation.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Corporation
The Corporation's executive officers are listed below.
Name Age Position
George W. Henderson, III 50 Director, Chairman of the Board and
Chief Executive Officer
Abraham B. Stenberg 63 Director and Vice Chairman
Gary P. Welchman 55 Executive Vice President
John D. Englar 51 Director, Senior Vice President,
Corporate Development and Law
Charles E. Peters, Jr. 46 Senior Vice President and Chief
Financial Officer
Judith J. Altman 40 Vice President and Chief
Information Officer
James M. Guin 55 Vice President, Human Resources
and Public Relations
Lynn L. Lane 47 Vice President, Treasurer and Investor
Relations
George C. Waldrep, Jr. 59 Group Vice President
Robert A. Wicker 54 Vice President and General Counsel
Alice Washington Grogan 42 Corporate Secretary and
Associate General Counsel
Mr. Henderson has been Chairman of the Board of the Corporation since
February 1998, and Chief Executive Officer since 1995. Prior thereto he was
President and Chief Operating Officer of the Corporation (from 1993).
Mr. Stenberg has been Vice Chairman of the Corporation since November
1997. Prior thereto, he was an Executive Vice President of the Corporation (from
1993) and Chief Operating Officer of the Burlington Interior Furnishings Group
(from 1995).
Mr. Welchman has been Executive Vice President of the Corporation since
1993. He has served as President of the Klopman Fabrics division for more than
five years.
Mr. Englar has been Senior Vice President, Corporate Development and Law
of the Corporation since 1995. Prior thereto, he was a Senior Vice President,
Finance and Law (from 1993) and Chief Financial Officer of the Corporation (from
1994).
Mr. Peters has been Senior Vice President and Chief Financial Officer of
the Corporation since 1995. He was Senior Vice President-Finance of Boston
Edison Company from 1991 until joining Burlington.
Ms. Altman joined Burlington in September, 1998 as Vice President and
Chief Information Officer. Prior thereto, she was Senior Director of Information
Systems with Polo/Ralph Lauren (from 1995), Vice President of New Product
Development of CMS, Inc. (from 1994 to 1995) and Director of Information
Services of the Clorox Company (prior to 1994).
Mr. Guin has been Vice President, Human Resources and Public Relations,
since 1996. Prior thereto, he was Director of Human Resources for the
Corporation (from 1993 through 1995).
Ms. Lane has been Vice President, Treasurer and Investor Relations since
1997. Prior thereto she was Vice President and Treasurer (from 1996). She was
Vice President and Treasurer of R.J. Reynolds Tobacco Company from 1995 until
joining Burlington and was Vice President and Assistant Treasurer, Capital
Markets of RJR Nabisco, Inc. (from 1991 to 1995).
Mr. Waldrep has been a Group Vice President of the Corporation for more
than five years.
Mr. Wicker has been Vice President and General Counsel of the Corporation
since 1995. Prior thereto, he was Associate General Counsel of the Corporation
(from 1992).
Ms. Grogan joined Burlington in October, 1998 as Corporate Secretary and
Associate General Counsel. Prior thereto, she was Corporate Secretary (from
1992) and Counsel (from 1989) of Wachovia Corporation.
Executive officers of the Corporation are elected by, and serve at the
discretion of, its Board of Directors. None of the executive officers or
Directors of the Corporation is related by blood, marriage or adoption to any
other executive officer or Director of the Corporation.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Reference is made to Note S to the Notes to Consolidated Financial
Statements in the Corporation's 1998 Annual Report to Shareholders, which is
incorporated herein by reference, for information concerning the composite high
and low sales prices for the Corporation's Common Stock for each fiscal quarter
of fiscal years 1998 and 1997. The Corporation's common stock is traded on the
New York Stock Exchange.
As of November 11, 1998, there were approximately 1,526 holders of record
of the Corporation's common stock and one holder of record of the Corporation's
nonvoting common stock.
The Corporation has not paid any cash dividends on its common stock during
fiscal years 1998 and 1997. The Corporation's bank credit agreements place
annual limitations on the payment of cash dividends on the Corporation's common
stock and on stock repurchases. Under such agreements, the Corporation may not
pay dividends or repurchase stock in an aggregate amount in any fiscal year, on
a cumulative basis since the beginning of such fiscal year through such time, in
an amount exceeding 50% of Consolidated Net Income (as defined in such bank
credit agreements) for the preceding fiscal year; however, in addition, the
Corporation may repurchase stock in an aggregate amount not to exceed $200
million during the term of such agreements.
Item 6. Selected Financial Data
The information required by this Item is set forth in the table entitled
"Statistical Review" in the Corporation's 1998 Annual Report to Shareholders,
and is incorporated herein by reference.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item is set forth under the caption
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" in the Corporation's 1998 Annual Report to Shareholders and is
incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this Item is set forth under the subheading
"Risk Management" on page 9 in the Corporation's 1998 Annual Report to
Shareholders and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The financial statements, including the Report of the Corporation's
Independent Auditors, required by this Item are incorporated herein by reference
to the Corporation's 1998 Annual Report to Shareholders. See Item 14 for a list
of those financial statements and the pages of the Corporation's 1998 Annual
Report to Shareholders from which they are incorporated.
INDEX TO FINANCIAL STATEMENT SCHEDULE
Page No.
Burlington Industries, Inc. and Subsidiary Companies:
II. Valuation and Qualifying Accounts. S-1
All other schedules have been omitted because they are not applicable, not
required or because the required information is included in the consolidated
financial statements or notes thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is set forth under the captions
"Information about Nominees and Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Corporation's Proxy Statement dated
December 18, 1998 and is incorporated herein by reference.
Information with respect to the Corporation's executive officers is
included in Part I of this Report.
Item 11. Executive Compensation
The information required by this Item is set forth under the captions
"Compensation of Directors"; "Report of the Compensation and Benefits Committee
on Executive Compensation"; "Executive Compensation"; and "Stock Performance
Graph" in the Corporation's Proxy Statement dated December 18, 1998 and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth under the caption
"Security Ownership of Certain Beneficial Owners and Management" in the
Corporation's Proxy Statement dated December 18, 1998 and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The information contained in the Corporation's 1998 Annual Report
to Shareholders under the captions and on the pages indicated
below is incorporated herein by reference:
Report of Ernst & Young LLP, Independent Auditors (page 30)
Consolidated Statements of Operations - for the fiscal
years ended October 3, 1998, September 27, 1997 and
September 28, 1996 (page 12)
Consolidated Balance Sheets - as of October 3, 1998 and
September 27, 1997 (page 13)
Consolidated Statements of Cash Flows - for the fiscal
years ended October 3, 1998, September 27, 1997 and
September 28, 1996 (page 14)
Notes to Consolidated Financial Statements (pages 15 to 28)
2. Financial Statement Schedules
The financial statement schedule listed under Item 8 is filed as a
part of this Report.
3. Exhibits
The exhibits listed on the accompanying Index to Exhibits are
filed as a part of this Report.
(b) The Corporation did not file any reports on Form 8-K for the
last quarter of fiscal year 1998.
<PAGE>
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BURLINGTON INDUSTRIES, INC.
Date: December 18, 1998
By /s/ George W. Henderson, III
George W. Henderson, III
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Corporation and in the capacities and on the dates indicated.
Signature Title Date
/s/ George W. Henderson, III Director, Chairman of the December 18, 1998
- ---------------------------- the Board and Chief
George W. Henderson, III Executive Officer (Principal
Executive Officer)
/s/ Charles E. Peters, Jr. Senior Vice President and December 18, 1998
- ---------------------------- Chief Financial Officer
Charles E. Peters, Jr. (Principal Financial Officer
and Principal Accounting
Officer)
/s/ Joseph F. Abely, Jr. Director December 18, 1998
- ----------------------------
Joseph F. Abely, Jr.
/s/ Jerald J. Blumberg Director December 18, 1998
- ----------------------------
Jerald J. Blumberg
/s/ John D. Englar Director December 18, 1998
- ----------------------------
John D. Englar
/s/ David I. Margolis Director December 18, 1998
- ----------------------------
David I. Margolis
/s/ John G. Medlin, Jr. Director December 18, 1998
- ----------------------------
John G. Medlin, Jr.
/s/ Nelson Schwab III Director December 18, 1998
- ----------------------------
Nelson Schwab III
/s/ Abraham B. Stenberg Director December 18, 1998
- ----------------------------
Abraham B. Stenberg
/s/ W. Barger Tygart Director December 18, 1998
- --------------------
W. Barger Tygart
<PAGE>
Index to Exhibits
(Item 14(a)(3))
Exhibit
No. Description
3.1 Restated Certificate of Incorporation of the Corporation
(incorporated by reference from the Corporation's Registration
Statement on Form 8-B, filed on June 3, 1994).
3.2 Bylaws of the Corporation (incorporated by reference from the
Corporation's Form 10-Q Quarterly Report for the fiscal
quarter ended March 29, 1997).
4.1 Credit Agreement dated as of September 30, 1988, as amended
and restated as of November 8, 1995, among the Corporation,
the Lenders listed therein, Chemical Bank ("Chemical"), Bank
of America, N.A., The Bank of Nova Scotia ("Scotiabank"),
Chase Bank ("Chase"), First Union National Bank, NationsBank,
N.A. and Wachovia Bank, N.A. ("Wachovia"), as Managing Agents,
Chase (as successor to Chemical), as Administrative Agent, and
Scotiabank, as Fronting Bank (incorporated by reference from
the Corporation's Form 8-K Report dated November 9, 1995).
4.2 Form of Rights Agreement dated as of December 3, 1997, between
the Corporation and Wachovia, as Rights Agent, including the
Form of Rights Certificate as Exhibit A, the Summary of
Preferred Stock Purchase Rights as Exhibit B and the Form of
Certificate of Designation as Exhibit C (incorporated by
reference from the Corporation's Form-8-K Report dated
December 4, 1997).
NOTE: Pursuant to the provisions of Item
601(b)(4)(iii) of Regulation S-K, the Corporation hereby
undertakes to furnish to the Commission upon request copies of
other instruments pursuant to which various entities hold
long-term debt of the Corporation or its consolidated or
unconsolidated subsidiaries, none of which instruments governs
indebtedness exceeding 10% of the total assets of the
Corporation and its subsidiaries on a consolidated basis.
10.1 Indenture of Lease dated February 26, 1969, between Blanche S.
Benjamin and Edward B. Benjamin, and a predecessor to the
Corporation, including the amendment thereto (incorporated by
reference from Burlington Holdings Inc.'s Registration
Statement on Form S-1, File No. 33-16437, filed on August 12,
1987).
10.2 1994 Deferred Compensation Plan (incorporated by reference
from the Form 10-K Annual Report for Burlington Industries
Equity Inc. ("Burlington Equity") for the fiscal year ended
October 2, 1993). (Management contract or compensatory plan,
contract or arrangement.)
10.3 Form of Stock Purchase Agreement dated as of March 19, 1992,
between Burlington Equity and The Equitable Life Assurance
Society of the United States and its affiliates (the
"Equitable Investors") (incorporated by reference from
Amendment No. 6 to Burlington Equity's Registration Statement
on Form S-1, File No. 33-45149, filed on March 19, 1992).
(Management contract or compensatory plan, contract or
arrangement.)
10.4 Description of Supplemental Pre-Retirement and Post-Retirement
Benefits Plan, as amended, and form of participant agreement
(incorporated by reference from the Form 10-K Annual Report
for Burlington Equity for the fiscal year ended October 2,
1993). (Management contract or compensatory plan, contract or
arrangement.)
10.5 Benefits Equalization Plan, as amended and restated on July
28, 1994 (incorporated by reference from the Corporation's
Form 10-K Annual Report for the fiscal year ended October 1,
1994). (Management contract or compensatory plan, contract or
arrangement.)
10.6 Stock Plan for Non-Employee Directors, as amended
(incorporated by reference from the Corporation's Registration
Statement on Form 8-B, filed on June 3, 1994). (Management
contract or compensatory plan, contract or arrangement.)
10.7 Deferred Compensation Plan for Non-Employee Directors
(incorporated by reference from the Form 10-Q Quarterly Report
for the fiscal quarter ended March 29, 1997). (Management
contract or compensatory plan, contract or arrangement).
10.8 Burlington Industries Equity Inc. Amended and Restated Equity
Incentive Plan (the "1990 Incentive Plan") dated as of January
16, 1992 (incorporated by reference from the 10-K Annual
Report for Burlington Equity for the fiscal year ended October
2, 1993) (Management contract or compensation plan, contract
or arrangement.)
10.9(a) Burlington Industries Equity Inc. 1992 Equity Incentive Plan
("1992 Incentive Plan") (incorporated by reference from
Amendment No. 3 to Burlington Equity's Registration Statement
on Form S-1, File No. 33-45149, filed on March 5, 1992).
(Management contract or compensatory plan, contract or
arrangement.)
10.9(b) Amendments to the 1992 Incentive Plan, effective as of July
22, 1992 (incorporated by reference from the Form 10-K Annual
Report for Burlington Equity for the fiscal year ended October
3, 1992). (Management contract or compensatory plan, contract
or arrangement.)
10.9(c) Forms of agreements under 1992 Incentive Plan (incorporated by
reference from the Form 10-K Annual Report for Burlington
Equity for the fiscal year ended October 3, 1992). (Management
contract or compensatory plan, contract or arrangement.)
10.9(d) Forms of amendments to agreements under 1992 Incentive Plan,
effective as of July 28, 1993 (incorporated by reference from
the Form 10-K Annual Report for Burlington Equity for the
fiscal year ended October 2, 1993). (Management contract or
compensatory plan, contract or arrangement.)
10.10(a) Burlington Industries, Inc. 1995 Equity Incentive Plan ("1995
Incentive Plan") (incorporated by reference from Exhibit A to
the Corporation's proxy statement dated December 18, 1995).
(Management contract or compensatory plan, contract or
arrangement.)
10.10(b) Amendment to 1995 Incentive Plan, effective as of November 1,
1995 (incorporated by reference from the Form 10-K Annual
Report for the fiscal year ended September 28, 1996)
(management contract or compensatory plan, contract or
arrangement).
10.10(c) Form of agreement under 1995 Incentive Plan (incorporated by
reference from the Corporation's Form 10-Q Quarterly Report
for the fiscal quarter ended March 30, 1996) (management
contract or compensatory plan, contract or arrangement.)
10.11 Agreement dated as of January 1, 1998, between the Corporation
and George W. Henderson, III (management contract or
compensatory plan, contract or arrangement).
10.12 Agreement dated as of January 1, 1998, between the Corporation
and Abraham B. Stenberg (management contract or compensatory
plan, contract or arrangement).
10.13 Agreement dated as of January 1, 1998, between the Corporation
and Gary P. Welchman (management contract or compensatory
plan, contract or arrangement).
10.14 Agreement dated as of January 1, 1998, between the Corporation
and John D. Englar (management contract or compensatory plan,
contract or arrangement).
10.15 Agreement dated as of January 1, 1998, between the Corporation
and Charles E. Peters, Jr. (management contract or
compensatory plan, contract or arrangement).
10.16(a) Stockholder Agreement ("Stockholder Agreement") dated as of
October 23, 1990, among Burlington Equity and the other
parties listed on the signature pages thereof (incorporated by
reference from the Form 10-K Annual Report for Burlington
Industries Capital Inc. for the fiscal year ended September
29, 1990).
10.16(b) Amendment dated January 17, 1992, to the Stockholder Agreement
(incorporated by reference from Amendment No. 3 to Burlington
Equity's Registration Statement on Form S-1, File No.
33-45149, filed on March 5, 1992).
10.16(c) Letter agreement dated October 25, 1993, with respect to the
Stockholder Agreement (incorporated by reference from the
Corporation's Form 10-K Annual Report for the fiscal year
ended September 30, 1995).
10.17 Amended and Restated Receivables Purchase Agreement dated as
of December 10, 1997, among B.I. Funding, Inc. ("BIF"), the
Corporation, B.I. Transportation, Inc. ("BIT"), Burlington
Apparel Services Company ("BASC"), Burlington International
Services Company ("BISC"), Burlington Fabrics Inc. ("Fabrics")
and The Bacova Guild, Ltd. ("Bacova") (incorporated by
reference from the Corporation's Form 10-K Annual Report for
the fiscal year ended September 27, 1997).
10.18 Facility Agreement dated as of December 10, 1997, among BIF,
the Corporation, as Servicer, and Wachovia, as Agent and
Collateral Agent. (incorporated by reference from the
Corporation's Form 10-K Annual report for the fiscal year
ended September 27, 1997).
10.19 Loan Agreement dated as of December 10, 1997, among BIF,
certain financial institutions as Liquidity Lenders, Blue
Ridge Asset Funding Corporation, as Conduit Lender, and
Wachovia as Agent for the Lenders") (incorporated by reference
from the Corporation's Form 10-K Annual Report for the fiscal
year ended September 27, 1997).
10.20 Security Agreement dated as of December 10, 1997, among BIF
and Wachovia, as Agent and Collateral Agent ") (incorporated
by reference from the Corporation's Form 10-K Annual Report
for the fiscal year ended September 27, 1997).
10.21 Amended and Restated Subordination Agreement, Consent and
Acknowledgment, dated as of December 10, 1997, among BIF, the
Corporation, BIT, BASC, BISC, Fabrics, Bacova and Wachovia, as
Agent and Collateral Agent ") (incorporated by reference from
the Corporation's Form 10-K Annual Report for the fiscal year
ended September 27, 1997).
12 Computation of Ratio of Earnings to Fixed Charges.
13 Portions of the Corporation's 1998 Annual Report to
Shareholders expressly incorporated by reference.
22 List of subsidiaries of the Corporation.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
<PAGE>
Schedule II
BURLINGTON INDUSTRIES INC. AND SUBSIDIARY COMPANIES
Valuation and Qualifying Accounts
(Amounts in Thousands)
Additions
Charged
(Credited)
Balance at to Costs Charged Balance
Beginning and to Other at Close
Description of Period Expenses Accounts Deductions of Period
- ---------------------- ---------- --------- -------- ---------- ---------
Fiscal year ended October 3, 1998
Deducted from customer accounts receivable:
Doubtful accounts.... $ 5,439 $ 1,677 $ - $ 3,377 (2) $ 3,629
110 (3)
Discounts............ 921 (133) (1) - - 788
Returns and
allowances.......... 14,328 2,119 (1) - - 16,447
------- ------- ---- ------- -------
$20,688 $ 3,663 $ - $ 3,487 $20,864
======= ======= ==== ======= =======
Fiscal year ended September 27, 1997
Deducted from customer accounts receivable:
Doubtful accounts.... $ 6,154 $ 3,478 $ - $ 4,184 (2) $ 5,439
9 (3)
Discounts............ 909 12 (1) - - 921
Returns and
allowances.......... 14,403 (75) (1) - - 14,328
------- ------- ---- ------- -------
$21,466 $ 3,415 $ - $ 4,193 $20,688
======= ======= ==== ======= =======
Fiscal year ended September 28, 1996
Deducted from customer accounts receivable:
Doubtful accounts.... $ 4,226 $ 6,457 $ - $ 4,487 (2) $ 6,154
42 (3)
Discounts............ 1,022 (113)(1) - - 909
Returns and
allowances.......... 13,974 429 (1) - - 14,403
------- ------- ---- ------- -------
$19,222 $ 6,773 $ - $ 4,529 $21,466
======= ======= === ======= =======
(1) Represents net increase (decrease) in required reserves.
(2) Uncollectible accounts receivable written off, net of recoveries.
(3) Represents changes in reserves due to foreign exchange fluctuation.
S-1
AGREEMENT, made and entered into as of the 1st day of January, 1998,
between BURLINGTON INDUSTRIES, INC., a Delaware corporation (hereinafter
sometimes referred to as the "Corporation"), and George W. Henderson, III
(hereinafter referred to as "Executive").
WHEREAS, the Corporation and Executive desire to enter into an
Employment Agreement effective January 1, 1998, this Agreement to supersede in
its entirety the present employment agreement between the parties;
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
contained, the Corporation and Executive hereby agree as follows:
l. The Corporation agrees to employ Executive, and Executive agrees to
serve the Corporation, upon the terms hereinafter set forth.
2. The employment of Executive hereunder shall commence January 1, 1998
and continue until December 31, 2000, unless earlier terminated under the
provisions of Paragraphs 6, 7 or 8 of this Agreement.
3. Executive agrees to serve the Corporation faithfully and to the best
of his ability under the direction of the Board of Directors of the Corporation,
devoting his entire time, energy and skill during regular business hours
performing the duties assigned by the Board.
4. The Corporation agrees to pay to Executive during the period of the
term hereof salary for his services at the rate (the "Annual Rate", which Annual
Rate shall refer to any subsequent increase in the rate of compensation of
Executive granted by the Corporation during the term of this Agreement) of Five
Hundred Forty Thousand Dollars ($540,000) per annum, payable in equal monthly or
other more frequent installments in accordance with the general practice of the
Corporation for salaried senior employees.
5. The Corporation may from time to time pay additional incentive
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. Executive is deemed to be a valuable executive of the Corporation
and will be considered for payment of such incentive compensation in all years
that the Board determines that such compensation should be paid to senior and
key employees generally. It is expressly understood that the amount of any
additional compensation 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 Executive whatsoever. If sums are paid to Executive
as additional compensation in any year, such payment shall not create an
obligation to pay additional compensation to Executive in any past or succeeding
year. No payments to Executive of additional compensation, if any, shall reduce
or be applied against the salary to be paid to Executive pursuant to Paragraph 4
hereof.
6. If, during the term of this Agreement, Executive 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 Executive
(or Executive's legal representative if Executive is incapable of making such
determination), which determination shall be final and conclusive, the
Corporation may, upon notice to Executive, terminate this Agreement and his
employment hereunder, and upon such termination, Executive shall be entitled to
receive (i) cash compensation at the Annual Rate for a period of one year and
(ii) shall receive benefits as provided under Paragraph 7(b)(iii) below for such
one-year period. Executive agrees to accept such payment 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
(including any liability for payments under the Corporation-funded disability
insurance program).
7. (a) The Corporation may in its sole discretion at any time terminate
Executive's employment under this Agreement, whether for cause or without cause.
(b) Other than under the circumstances described in paragraph 8
below, in the event of (1) an involuntary termination of employment of Executive
without Cause or (2) a voluntary termination of employment by Executive for Good
Reason, Executive shall receive (in lieu of any payment under the Corporation's
Severance Policy), as soon as practicable following such termination:
(i) salary accrued through the date of termination at the Annual
Rate;
(ii) a lump sum payment in cash equal to (x) the salary that would
have been payable under Paragraph 4 above during the Severance Period (as
defined below) plus (y) an amount (the "Bonus Equivalent") equal to the number
of years in the Severance Period times the amount established, for the year
during which such termination occurs, as the Executive's target incentive
payment under the Corporation's annual cash incentive plan approved by the Board
of Directors with respect to such year; and
(iii) either (x) Executive shall continue, to the extent permitted
by applicable law, as a participating member or beneficiary in all of the
benefit and welfare plans of the Corporation in which Executive participated
immediately prior to the date of termination or (y) the Corporation shall fund
substantially equivalent benefits to the extent participation in such plans is
not permissible, and Executive shall be guaranteed service credit in such plans
(including, without limitation, for vesting purposes of the Supplemental
Executive Retirement Plan), in either case (x) or (y) for the period equal to
the Severance Period. Executive's rights under this Clause (iii) shall cease
when Executive commences other employment and obtains coverage under other plans
on a substantially similar basis to those of the Corporation.
Except as expressly provided in this subparagraph 7(b), in all other respects,
Executive's rights under all of the benefit plans of the Corporation shall be
governed by the terms of such plans and not by the provisions of this Agreement.
(c) In the event of an involuntary termination for Cause,
Executive shall only be entitled to payments under the Severance Policy and only
if the conduct giving rise to such termination was not, in the Corporation's
sole judgment, willful.
(d) In the event that Executive's employment is terminated by
the Corporation or the Executive for any reason other than those set forth in
Paragraph 6 above, subparagraphs 7(b) or 7(c) or Paragraph 8 below, the
Corporation shall have no further obligation to Executive hereunder or under the
Severance Policy.
(e) Notwithstanding any other provisions of this Agreement,
Executive's obligations under Paragraphs 9 and 10 of this Agreement shall
survive the termination or expiration of this Agreement.
8. (a) If the employment of Executive hereunder terminates (other than
by reason of death, disability or a termination for Cause) within two years
following a Change of Control, whether initiated by Executive or by the
Corporation, the Corporation shall promptly (not later than 30 days) pay to
Executive a lump sum payment in cash equal to (i) the then salary of Executive
at the Annual Rate times the number of years in the Severance Period, plus (ii)
the Bonus Equivalent times the number of years in the Severance Period. In
addition, following such termination of employment, Executive shall continue for
the number of years in the Severance Period, in the manner set forth in
subparagraph 7(b)(iii) above, to participate in, or the Corporation shall fund
substantially equivalent benefits, under the welfare and benefit plans of the
Corporation.
(b) In the event that the payment by the Corporation of the
payments required in the preceding Paragraph would result in the Executive
becoming subject to the imposition of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended, then the amount of payments made
hereunder shall be reduced to an amount which would maximize the after-tax
payments to the Executive of such amount. The determination of such reduction
amount, if any, shall be made by the Executive, with the advice of Executive's
tax or financial advisor.
9. Executive 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 (1) during a period of six months following termination
of his employment, and (2) only in the event that Executive is receiving
severance payments and/or benefits under Paragraph 7(b) during the further
period commencing on the day following such six-month period and continuing
until the last day of the Severance Period, Executive 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 (Executive hereby acknowledging that
Executive has had access in his executive capacity to material information about
all of the Corporation's businesses) without first obtaining the written consent
of the Corporation. The period of non-competition established in clause (2)
above may be shortened, at the election of the Executive evidenced by a written
relinquishment satisfactory to the Corporation, of any remaining right to
severance payments under this Agreement, to a period ending on the last date as
of which such severance payments are earned.
10. Executive 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 strategic and 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.
Executive 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
Executive 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 or suit for restitution.
11. The following capitalized terms used in this Agreement shall have
the meanings set forth below:
(i) "Severance Policy" means the policy providing for
severance payments to salaried employees set forth in the Corporation's Policy
Manual as in effect on the date of Executive's termination of employment.
(ii) A termination for "Cause" means a termination of employment
with the Corporation or any of the subsidiaries or joint ventures which, as
determined by the Corporation, is by reason of (A) the commission by the
Executive of a felony or a perpetration by the Executive of a dishonest act,
material misrepresentation or common law fraud against the Corporation or any
subsidiary, joint venture or other affiliate thereof, (B) any other act or
omission which is injurious to the financial condition or business reputation of
the Corporation or any subsidiary, joint venture or other affiliate thereof, or
(C) the willful failure or refusal of the Executive to substantially perform the
material duties of the Executive's position with the Corporation or any of the
Corporation's subsidiaries, joint ventures or affiliates.
(iii) "Good Reason" means (A) a failure to promptly pay compensation
due and payable to the Executive in connection with his or her employment, (B) a
reduction in Executive's level of compensation (other than changes to incentive
or benefit plans affecting all executives) of the Corporation in a similar
manner, (C) unless agreed to by Executive, the assignment to the Executive of
duties inconsistent with the Executive's position as such duties were
immediately prior to such assignment which results in a diminution of such
position, authority, duties or responsibilities, or (D) a change in the
employment requirements of Executive which, in the view of the Compensation and
Benefits Committee of the Corporation's Board of Directors, subjects Executive
to an unfair change of circumstances.
(iv) "Severance Period" shall mean, for the purposes of Paragraph
7, the two year period commencing on the date of termination, and for the
purposes of Paragraph 8, the three year period commencing on the date of
termination.
(v) "Change of Control" means that any of the following events
shall have occurred:
(A) The Corporation is merged or consolidated or
reorganized into or with another corporation, person or entity, and as a result
of such merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such corporation,
person or entity immediately after such transaction are held in the aggregate by
the holders of securities entitled to vote generally in the election of
Directors of the Corporation ("Voting Stock") immediately prior to such
transaction;
(B) The Corporation sells or otherwise transfers all
or substantially all of its assets to any other corporation, person or entity,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation, person or entity immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock of the
Corporation immediately prior to such sale or transfer;
(C) If during any period of two consecutive years,
individuals who at the beginning of any such period constitute the Directors of
the Corporation cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each Director of the Corporation first elected during such
period was approved by a vote of at least two-thirds of the Directors of the
Corporation then still in office who were Directors of the Corporation at the
beginning of any such period.
12. Any notice to be given by Executive 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 Executive shall be sent
to Executive 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.
IN WITNESS WHEREOF, Burlington Industries, Inc. has caused this
Agreement to be executed in its corporate name by its duly authorized corporate
representative thereunto duly authorized, and Executive has hereunto set his
hand and seal, as of the day and year first above written.
BURLINGTON INDUSTRIES, INC.
By _______________________
Joseph F. Abely, Jr.
On Behalf of the
Board of Directors
____________________________ (L.S.)
George W. Henderson, III
AGREEMENT, made and entered into as of the 1st day of January, 1998,
between BURLINGTON INDUSTRIES, INC., a Delaware corporation (hereinafter
sometimes referred to as the "Corporation"), and Abraham B. Stenberg
(hereinafter referred to as "Executive").
WHEREAS, the Corporation and Executive desire to enter into an
Employment Agreement effective January 1, 1998, this Agreement to supersede in
its entirety the present employment agreement between the parties;
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
contained, the Corporation and Executive hereby agree as follows:
l. The Corporation agrees to employ Executive, and Executive agrees to
serve the Corporation, upon the terms hereinafter set forth.
2. The employment of Executive hereunder shall commence January 1, 1998
and continue until December 31, 2000, unless earlier terminated under the
provisions of Paragraphs 6, 7 or 8 of this Agreement.
3. Executive agrees to serve the Corporation faithfully and to the best
of his ability under the direction of the Board of Directors of the Corporation,
devoting his entire time, energy and skill during regular business hours
performing the duties assigned by the Board.
4. The Corporation agrees to pay to Executive during the period of the
term hereof salary for his services at the rate (the "Annual Rate", which Annual
Rate shall refer to any subsequent increase in the rate of compensation of
Executive granted by the Corporation during the term of this Agreement) of Four
Hundred Twenty-five Thousand Dollars ($425,000) per annum, payable in equal
monthly or other more frequent installments in accordance with the general
practice of the Corporation for salaried senior employees.
5. The Corporation may from time to time pay additional incentive
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. Executive is deemed to be a valuable executive of the Corporation
and will be considered for payment of such incentive compensation in all years
that the Board determines that such compensation should be paid to senior and
key employees generally. It is expressly understood that the amount of any
additional compensation 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 Executive whatsoever. If sums are paid to Executive
as additional compensation in any year, such payment shall not create an
obligation to pay additional compensation to Executive in any past or succeeding
year. No payments to Executive of additional compensation, if any, shall reduce
or be applied against the salary to be paid to Executive pursuant to Paragraph 4
hereof.
6. If, during the term of this Agreement, Executive 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 Executive
(or Executive's legal representative if Executive is incapable of making such
determination), which determination shall be final and conclusive, the
Corporation may, upon notice to Executive, terminate this Agreement and his
employment hereunder, and upon such termination, Executive shall be entitled to
receive (i) cash compensation at the Annual Rate for a period of six months and
(ii) shall receive benefits as provided under Paragraph 7(b)(iii) below for such
six-month period. Executive agrees to accept such payment 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
(including any liability for payments under the Corporation-funded disability
insurance program).
7. (a) The Corporation may in its sole discretion at any time terminate
Executive's employment under this Agreement, whether for cause or without cause.
(b) Other than under the circumstances described in paragraph 8
below, in the event of (1) an involuntary termination of employment of Executive
without Cause or (2) a voluntary termination of employment by Executive for Good
Reason, Executive shall receive (in lieu of any payment under the Corporation's
Severance Policy), as soon as practicable following such termination:
(i) salary accrued through the date of termination at the Annual
Rate;
(ii) a lump sum payment in cash equal to (x) the salary that would
have been payable under Paragraph 4 above during the Severance Period (as
defined below) plus (y) an amount (the "Bonus Equivalent") equal to the number
of years (or part thereof) in the Severance Period times the amount established,
for the year during which such termination occurs, as the Executive's target
incentive payment under the Corporation's annual cash incentive plan approved by
the Board of Directors with respect to such year; and
(iii) either (x) Executive shall continue, to the extent permitted
by applicable law, as a participating member or beneficiary in all of the
benefit and welfare plans of the Corporation in which Executive participated
immediately prior to the date of termination or (y) the Corporation shall fund
substantially equivalent benefits to the extent participation in such plans is
not permissible, and Executive shall be guaranteed service credit in such plans
(including, without limitation, for vesting purposes of the Supplemental
Executive Retirement Plan), in either case (x) or (y) for the period equal to
the Severance Period. Executive's rights under this Clause (iii) shall cease
when Executive commences other employment and obtains coverage under other plans
on a substantially similar basis to those of the Corporation.
Except as expressly provided in this subparagraph 7(b), in all other respects,
Executive's rights under all of the benefit plans of the Corporation shall be
governed by the terms of such plans and not by the provisions of this Agreement.
(c) In the event of an involuntary termination for Cause,
Executive shall only be entitled to payments under the Severance Policy and only
if the conduct giving rise to such termination was not, in the Corporation's
sole judgment, willful.
(d) In the event that Executive's employment is terminated by
the Corporation or the Executive for any reason other than those set forth in
Paragraph 6 above, subparagraphs 7(b) or 7(c) or Paragraph 8 below, the
Corporation shall have no further obligation to Executive hereunder or under the
Severance Policy.
(e) Notwithstanding any other provisions of this Agreement,
Executive's obligations under Paragraphs 9 and 10 of this Agreement shall
survive the termination or expiration of this Agreement.
8. (a) If within two years following a Change of Control, the
employment of Executive hereunder is terminated by the Corporation without
Cause, or is terminated by Executive for Good Reason, in either case other than
by reason of death or disability, the Corporation shall promptly (not later than
30 days) pay to Executive a lump sum payment in cash equal to (i) the then
salary of Executive at the Annual Rate times the number of years in the
Severance Period, plus (ii) the Bonus Equivalent times the number of years in
the Severance Period. In addition, following such termination of employment,
Executive shall continue for the number of years in the Severance Period, in the
manner set forth in subparagraph 7(b)(iii) above, to participate in, or the
Corporation shall fund substantially equivalent benefits, under the welfare and
benefit plans of the Corporation.
(b) In the event that the payment by the Corporation of the
payments required in the preceding Paragraph would result in the Executive
becoming subject to the imposition of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended, then the amount of payments made
hereunder shall be reduced to an amount which would maximize the after-tax
payments to the Executive of such amount. The determination of such reduction
amount, if any, shall be made by the Executive, with the advice of Executive's
tax or financial advisor.
9. Executive 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 (1) during a period of six months following termination
of his employment, and (2) only in the event that Executive is receiving
severance payments and/or benefits under Paragraph 7(b) during the further
period commencing on the day following such six-month period and continuing
until the last day of the Severance Period, Executive 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 (Executive hereby acknowledging that
Executive has had access in his executive capacity to material information about
all of the Corporation's businesses) without first obtaining the written consent
of the Corporation. The period of non-competition established in clause (2)
above may be shortened, at the election of the Executive evidenced by a written
relinquishment satisfactory to the Corporation, of any remaining right to
severance payments under this Agreement, to a period ending on the last date as
of which such severance payments are earned.
10. Executive 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 strategic and 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.
Executive 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
Executive 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 or suit for restitution.
11. The following capitalized terms used in this Agreement shall have
the meanings set forth below:
(i) "Severance Policy" means the policy providing for
severance payments to salaried employees set forth in the Corporation's Policy
Manual as in effect on the date of Executive's termination of employment.
(ii) A termination for "Cause" means a termination of employment
with the Corporation or any of the subsidiaries or joint ventures which, as
determined by the Corporation, is by reason of (A) the commission by the
Executive of a felony or a perpetration by the Executive of a dishonest act,
material misrepresentation or common law fraud against the Corporation or any
subsidiary, joint venture or other affiliate thereof, (B) any other act or
omission which is injurious to the financial condition or business reputation of
the Corporation or any subsidiary, joint venture or other affiliate thereof, or
(C) the willful failure or refusal of the Executive to substantially perform the
material duties of the Executive's position with the Corporation or any of the
Corporation's subsidiaries, joint ventures or affiliates.
(iii) "Good Reason" means (A) a failure to promptly pay compensation
due and payable to the Executive in connection with his or her employment, (B) a
reduction in Executive's level of compensation (other than changes to incentive
or benefit plans affecting all executives) of the Corporation in a similar
manner, (C) unless agreed to by Executive, the assignment to the Executive of
duties inconsistent with the Executive's position as such duties were
immediately prior to such assignment which results in a diminution of such
position, authority, duties or responsibilities, or (D) a change in the
employment requirements of Executive which, in the view of the Compensation and
Benefits Committee of the Corporation's Board of Directors, subjects Executive
to an unfair change of circumstances.
(iv) "Severance Period" shall mean, for the purposes of Paragraph
7, the one and one-half year period commencing on the date of termination, and
for the purposes of Paragraph 8, the three year period commencing on the date of
termination.
(v) "Change of Control" means that any of the following events
shall have occurred:
(A) The Corporation is merged or consolidated or
reorganized into or with another corporation, person or entity, and as a result
of such merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such corporation,
person or entity immediately after such transaction are held in the aggregate by
the holders of securities entitled to vote generally in the election of
Directors of the Corporation ("Voting Stock") immediately prior to such
transaction;
(B) The Corporation sells or otherwise transfers all
or substantially all of its assets to any other corporation, person or entity,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation, person or entity immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock of the
Corporation immediately prior to such sale or transfer;
(C) If during any period of two consecutive years,
individuals who at the beginning of any such period constitute the Directors of
the Corporation cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each Director of the Corporation first elected during such
period was approved by a vote of at least two-thirds of the Directors of the
Corporation then still in office who were Directors of the Corporation at the
beginning of any such period.
12. Any notice to be given by Executive 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 Executive shall be sent
to Executive 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.
IN WITNESS WHEREOF, Burlington Industries, Inc. has caused this
Agreement to be executed in its corporate name by its duly authorized corporate
representative thereunto duly authorized, and Executive has hereunto set his
hand and seal, as of the day and year first above written.
BURLINGTON INDUSTRIES, INC.
By ________________________
George W. Henderson, III
President and Chief
Executive Officer
_____________________(L.S.)
Abraham B. Stenberg
AGREEMENT, made and entered into as of the 1st day of January, 1998,
between BURLINGTON INDUSTRIES, INC., a Delaware corporation (hereinafter
sometimes referred to as the "Corporation"), and Gary P. Welchman (hereinafter
referred to as "Executive").
WHEREAS, the Corporation and Executive desire to enter into an
Employment Agreement effective January 1, 1998, this Agreement to supersede in
its entirety the present employment agreement between the parties;
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
contained, the Corporation and Executive hereby agree as follows:
l. The Corporation agrees to employ Executive, and Executive agrees to
serve the Corporation, upon the terms hereinafter set forth.
2. The employment of Executive hereunder shall commence January 1, 1998
and continue until December 31, 2000, unless earlier terminated under the
provisions of Paragraphs 6, 7 or 8 of this Agreement.
3. Executive agrees to serve the Corporation faithfully and to the best
of his ability under the direction of the Board of Directors of the Corporation,
devoting his entire time, energy and skill during regular business hours
performing the duties assigned by the Board.
4. The Corporation agrees to pay to Executive during the period of the
term hereof salary for his services at the rate (the "Annual Rate", which Annual
Rate shall refer to any subsequent increase in the rate of compensation of
Executive granted by the Corporation during the term of this Agreement) of Three
Hundred Forth-five Thousand Dollars ($345,000) per annum, payable in equal
monthly or other more frequent installments in accordance with the general
practice of the Corporation for salaried senior employees.
5. The Corporation may from time to time pay additional incentive
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. Executive is deemed to be a valuable executive of the Corporation
and will be considered for payment of such incentive compensation in all years
that the Board determines that such compensation should be paid to senior and
key employees generally. It is expressly understood that the amount of any
additional compensation 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 Executive whatsoever. If sums are paid to Executive
as additional compensation in any year, such payment shall not create an
obligation to pay additional compensation to Executive in any past or succeeding
year. No payments to Executive of additional compensation, if any, shall reduce
or be applied against the salary to be paid to Executive pursuant to Paragraph 4
hereof.
6. If, during the term of this Agreement, Executive 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 Executive
(or Executive's legal representative if Executive is incapable of making such
determination), which determination shall be final and conclusive, the
Corporation may, upon notice to Executive, terminate this Agreement and his
employment hereunder, and upon such termination, Executive shall be entitled to
receive (i) cash compensation at the Annual Rate for a period of six months and
(ii) shall receive benefits as provided under Paragraph 7(b)(iii) below for such
six-month period. Executive agrees to accept such payment 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
(including any liability for payments under the Corporation-funded disability
insurance program).
7. (a) The Corporation may in its sole discretion at any time terminate
Executive's employment under this Agreement, whether for cause or without cause.
(b) Other than under the circumstances described in paragraph 8
below, in the event of (1) an involuntary termination of employment of Executive
without Cause or (2) a voluntary termination of employment by Executive for Good
Reason, Executive shall receive (in lieu of any payment under the Corporation's
Severance Policy), as soon as practicable following such termination:
(i) salary accrued through the date of termination at the Annual
Rate;
(ii) a lump sum payment in cash equal to (x) the salary that would
have been payable under Paragraph 4 above during the Severance Period (as
defined below) plus (y) an amount (the "Bonus Equivalent") equal to the number
of years (or part thereof) in the Severance Period times the amount established,
for the year during which such termination occurs, as the Executive's target
incentive payment under the Corporation's annual cash incentive plan approved by
the Board of Directors with respect to such year; and
(iii) either (x) Executive shall continue, to the extent permitted
by applicable law, as a participating member or beneficiary in all of the
benefit and welfare plans of the Corporation in which Executive participated
immediately prior to the date of termination or (y) the Corporation shall fund
substantially equivalent benefits to the extent participation in such plans is
not permissible, and Executive shall be guaranteed service credit in such plans
(including, without limitation, for vesting purposes of the Supplemental
Executive Retirement Plan), in either case (x) or (y) for the period equal to
the Severance Period. Executive's rights under this Clause (iii) shall cease
when Executive commences other employment and obtains coverage under other plans
on a substantially similar basis to those of the Corporation.
Except as expressly provided in this subparagraph 7(b), in all other respects,
Executive's rights under all of the benefit plans of the Corporation shall be
governed by the terms of such plans and not by the provisions of this Agreement.
(c) In the event of an involuntary termination for Cause,
Executive shall only be entitled to payments under the Severance Policy and only
if the conduct giving rise to such termination was not, in the Corporation's
sole judgment, willful.
(d) In the event that Executive's employment is terminated by
the Corporation or the Executive for any reason other than those set forth in
Paragraph 6 above, subparagraphs 7(b) or 7(c) or Paragraph 8 below, the
Corporation shall have no further obligation to Executive hereunder or under the
Severance Policy.
(e) Notwithstanding any other provisions of this Agreement,
Executive's obligations under Paragraphs 9 and 10 of this Agreement shall
survive the termination or expiration of this Agreement.
8. (a) If within two years following a Change of Control, the
employment of Executive hereunder is terminated by the Corporation without
Cause, or is terminated by Executive for Good Reason, in either case other than
by reason of death or disability, the Corporation shall promptly (not later than
30 days) pay to Executive a lump sum payment in cash equal to (i) the then
salary of Executive at the Annual Rate times the number of years in the
Severance Period, plus (ii) the Bonus Equivalent times the number of years in
the Severance Period. In addition, following such termination of employment,
Executive shall continue for the number of years in the Severance Period, in the
manner set forth in subparagraph 7(b)(iii) above, to participate in, or the
Corporation shall fund substantially equivalent benefits, under the welfare and
benefit plans of the Corporation.
(b) In the event that the payment by the Corporation of the
payments required in the preceding Paragraph would result in the Executive
becoming subject to the imposition of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended, then the amount of payments made
hereunder shall be reduced to an amount which would maximize the after-tax
payments to the Executive of such amount. The determination of such reduction
amount, if any, shall be made by the Executive, with the advice of Executive's
tax or financial advisor.
9. Executive 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 (1) during a period of six months following termination
of his employment, and (2) only in the event that Executive is receiving
severance payments and/or benefits under Paragraph 7(b) during the further
period commencing on the day following such six-month period and continuing
until the last day of the Severance Period, Executive 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 (Executive hereby acknowledging that
Executive has had access in his executive capacity to material information about
all of the Corporation's businesses) without first obtaining the written consent
of the Corporation. The period of non-competition established in clause (2)
above may be shortened, at the election of the Executive evidenced by a written
relinquishment satisfactory to the Corporation, of any remaining right to
severance payments under this Agreement, to a period ending on the last date as
of which such severance payments are earned.
10. Executive 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 strategic and 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.
Executive 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
Executive 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 or suit for restitution.
11. The following capitalized terms used in this Agreement shall have
the meanings set forth below:
(i) "Severance Policy" means the policy providing for
severance payments to salaried employees set forth in the Corporation's Policy
Manual as in effect on the date of Executive's termination of employment.
(ii) A termination for "Cause" means a termination of employment
with the Corporation or any of the subsidiaries or joint ventures which, as
determined by the Corporation, is by reason of (A) the commission by the
Executive of a felony or a perpetration by the Executive of a dishonest act,
material misrepresentation or common law fraud against the Corporation or any
subsidiary, joint venture or other affiliate thereof, (B) any other act or
omission which is injurious to the financial condition or business reputation of
the Corporation or any subsidiary, joint venture or other affiliate thereof, or
(C) the willful failure or refusal of the Executive to substantially perform the
material duties of the Executive's position with the Corporation or any of the
Corporation's subsidiaries, joint ventures or affiliates.
(iii) "Good Reason" means (A) a failure to promptly pay compensation
due and payable to the Executive in connection with his or her employment, (B) a
reduction in Executive's level of compensation (other than changes to incentive
or benefit plans affecting all executives) of the Corporation in a similar
manner, (C) unless agreed to by Executive, the assignment to the Executive of
duties inconsistent with the Executive's position as such duties were
immediately prior to such assignment which results in a diminution of such
position, authority, duties or responsibilities, or (D) a change in the
employment requirements of Executive which, in the view of the Compensation and
Benefits Committee of the Corporation's Board of Directors, subjects Executive
to an unfair change of circumstances.
(iv) "Severance Period" shall mean, for the purposes of Paragraph
7, the one and one-half year period commencing on the date of termination, and
for the purposes of Paragraph 8, the three year period commencing on the date of
termination.
(v) "Change of Control" means that any of the following events
shall have occurred:
(A) The Corporation is merged or consolidated or
reorganized into or with another corporation, person or entity, and as a result
of such merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such corporation,
person or entity immediately after such transaction are held in the aggregate by
the holders of securities entitled to vote generally in the election of
Directors of the Corporation ("Voting Stock") immediately prior to such
transaction;
(B) The Corporation sells or otherwise transfers all
or substantially all of its assets to any other corporation, person or entity,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation, person or entity immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock of the
Corporation immediately prior to such sale or transfer;
(C) If during any period of two consecutive years,
individuals who at the beginning of any such period constitute the Directors of
the Corporation cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each Director of the Corporation first elected during such
period was approved by a vote of at least two-thirds of the Directors of the
Corporation then still in office who were Directors of the Corporation at the
beginning of any such period.
12. Any notice to be given by Executive 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 Executive shall be sent
to Executive 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.
IN WITNESS WHEREOF, Burlington Industries, Inc. has caused this
Agreement to be executed in its corporate name by its duly authorized corporate
representative thereunto duly authorized, and Executive has hereunto set his
hand and seal, as of the day and year first above written.
BURLINGTON INDUSTRIES, INC.
By ________________________
George W. Henderson, III
President and Chief
Executive Officer
________________________(L.S.)
Gary P. Welchman
AGREEMENT, made and entered into as of the 1st day of January, 1998,
between BURLINGTON INDUSTRIES, INC., a Delaware corporation (hereinafter
sometimes referred to as the "Corporation"), and John D. Englar (hereinafter
referred to as "Executive").
WHEREAS, the Corporation and Executive desire to enter into an
Employment Agreement effective January 1, 1998, this Agreement to supersede in
its entirety the present employment agreement between the parties;
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
contained, the Corporation and Executive hereby agree as follows:
l. The Corporation agrees to employ Executive, and Executive agrees to
serve the Corporation, upon the terms hereinafter set forth.
2. The employment of Executive hereunder shall commence January 1, 1998
and continue until December 31, 2000, unless earlier terminated under the
provisions of Paragraphs 6, 7 or 8 of this Agreement.
3. Executive agrees to serve the Corporation faithfully and to the best
of his ability under the direction of the Board of Directors of the Corporation,
devoting his entire time, energy and skill during regular business hours
performing the duties assigned by the Board.
4. The Corporation agrees to pay to Executive during the period of the
term hereof salary for his services at the rate (the "Annual Rate", which Annual
Rate shall refer to any subsequent increase in the rate of compensation of
Executive granted by the Corporation during the term of this Agreement) of Two
Hundred Sixty-five Thousand Dollars ($265,000) per annum, payable in equal
monthly or other more frequent installments in accordance with the general
practice of the Corporation for salaried senior employees.
5. The Corporation may from time to time pay additional incentive
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. Executive is deemed to be a valuable executive of the Corporation
and will be considered for payment of such incentive compensation in all years
that the Board determines that such compensation should be paid to senior and
key employees generally. It is expressly understood that the amount of any
additional compensation 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 Executive whatsoever. If sums are paid to Executive
as additional compensation in any year, such payment shall not create an
obligation to pay additional compensation to Executive in any past or succeeding
year. No payments to Executive of additional compensation, if any, shall reduce
or be applied against the salary to be paid to Executive pursuant to Paragraph 4
hereof.
6. If, during the term of this Agreement, Executive 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 Executive
(or Executive's legal representative if Executive is incapable of making such
determination), which determination shall be final and conclusive, the
Corporation may, upon notice to Executive, terminate this Agreement and his
employment hereunder, and upon such termination, Executive shall be entitled to
receive (i) cash compensation at the Annual Rate for a period of six months and
(ii) shall receive benefits as provided under Paragraph 7(b)(iii) below for such
six-month period. Executive agrees to accept such payment 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
(including any liability for payments under the Corporation-funded disability
insurance program).
7. (a) The Corporation may in its sole discretion at any time terminate
Executive's employment under this Agreement, whether for cause or without cause.
(b) Other than under the circumstances described in paragraph 8
below, in the event of (1) an involuntary termination of employment of Executive
without Cause or (2) a voluntary termination of employment by Executive for Good
Reason, Executive shall receive (in lieu of any payment under the Corporation's
Severance Policy), as soon as practicable following such termination:
(i) salary accrued through the date of termination at the Annual
Rate;
(ii) a lump sum payment in cash equal to (x) the salary that would
have been payable under Paragraph 4 above during the Severance Period (as
defined below) plus (y) an amount (the "Bonus Equivalent") equal to the number
of years (or part thereof) in the Severance Period times the amount established,
for the year during which such termination occurs, as the Executive's target
incentive payment under the Corporation's annual cash incentive plan approved by
the Board of Directors with respect to such year; and
(iii) either (x) Executive shall continue, to the extent permitted
by applicable law, as a participating member or beneficiary in all of the
benefit and welfare plans of the Corporation in which Executive participated
immediately prior to the date of termination or (y) the Corporation shall fund
substantially equivalent benefits to the extent participation in such plans is
not permissible, and Executive shall be guaranteed service credit in such plans
(including, without limitation, for vesting purposes of the Supplemental
Executive Retirement Plan), in either case (x) or (y) for the period equal to
the Severance Period. Executive's rights under this Clause (iii) shall cease
when Executive commences other employment and obtains coverage under other plans
on a substantially similar basis to those of the Corporation.
Except as expressly provided in this subparagraph 7(b), in all other respects,
Executive's rights under all of the benefit plans of the Corporation shall be
governed by the terms of such plans and not by the provisions of this Agreement.
(c) In the event of an involuntary termination for Cause,
Executive shall only be entitled to payments under the Severance Policy and only
if the conduct giving rise to such termination was not, in the Corporation's
sole judgment, willful.
(d) In the event that Executive's employment is terminated by
the Corporation or the Executive for any reason other than those set forth in
Paragraph 6 above, subparagraphs 7(b) or 7(c) or Paragraph 8 below, the
Corporation shall have no further obligation to Executive hereunder or under the
Severance Policy.
(e) Notwithstanding any other provisions of this Agreement,
Executive's obligations under Paragraphs 9 and 10 of this Agreement shall
survive the termination or expiration of this Agreement.
8. (a) If within two years following a Change of Control, the
employment of Executive hereunder is terminated by the Corporation without
Cause, or is terminated by Executive for Good Reason, in either case other than
by reason of death or disability, the Corporation shall promptly (not later than
30 days) pay to Executive a lump sum payment in cash equal to (i) the then
salary of Executive at the Annual Rate times the number of years in the
Severance Period, plus (ii) the Bonus Equivalent times the number of years in
the Severance Period. In addition, following such termination of employment,
Executive shall continue for the number of years in the Severance Period, in the
manner set forth in subparagraph 7(b)(iii) above, to participate in, or the
Corporation shall fund substantially equivalent benefits, under the welfare and
benefit plans of the Corporation.
(b) In the event that the payment by the Corporation of the
payments required in the preceding Paragraph would result in the Executive
becoming subject to the imposition of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended, then the amount of payments made
hereunder shall be reduced to an amount which would maximize the after-tax
payments to the Executive of such amount. The determination of such reduction
amount, if any, shall be made by the Executive, with the advice of Executive's
tax or financial advisor.
9. Executive 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 (1) during a period of six months following termination
of his employment, and (2) only in the event that Executive is receiving
severance payments and/or benefits under Paragraph 7(b) during the further
period commencing on the day following such six-month period and continuing
until the last day of the Severance Period, Executive 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 (Executive hereby acknowledging that
Executive has had access in his executive capacity to material information about
all of the Corporation's businesses) without first obtaining the written consent
of the Corporation. The period of non-competition established in clause (2)
above may be shortened, at the election of the Executive evidenced by a written
relinquishment satisfactory to the Corporation, of any remaining right to
severance payments under this Agreement, to a period ending on the last date as
of which such severance payments are earned.
10. Executive 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 strategic and 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.
Executive 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
Executive 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 or suit for restitution.
11. The following capitalized terms used in this Agreement shall have
the meanings set forth below:
(i) "Severance Policy" means the policy providing for
severance payments to salaried employees set forth in the Corporation's Policy
Manual as in effect on the date of Executive's termination of employment.
(ii) A termination for "Cause" means a termination of employment
with the Corporation or any of the subsidiaries or joint ventures which, as
determined by the Corporation, is by reason of (A) the commission by the
Executive of a felony or a perpetration by the Executive of a dishonest act,
material misrepresentation or common law fraud against the Corporation or any
subsidiary, joint venture or other affiliate thereof, (B) any other act or
omission which is injurious to the financial condition or business reputation of
the Corporation or any subsidiary, joint venture or other affiliate thereof, or
(C) the willful failure or refusal of the Executive to substantially perform the
material duties of the Executive's position with the Corporation or any of the
Corporation's subsidiaries, joint ventures or affiliates.
(iii) "Good Reason" means (A) a failure to promptly pay compensation
due and payable to the Executive in connection with his or her employment, (B) a
reduction in Executive's level of compensation (other than changes to incentive
or benefit plans affecting all executives) of the Corporation in a similar
manner, (C) unless agreed to by Executive, the assignment to the Executive of
duties inconsistent with the Executive's position as such duties were
immediately prior to such assignment which results in a diminution of such
position, authority, duties or responsibilities, or (D) a change in the
employment requirements of Executive which, in the view of the Compensation and
Benefits Committee of the Corporation's Board of Directors, subjects Executive
to an unfair change of circumstances.
(iv) "Severance Period" shall mean, for the purposes of Paragraph
7, the one and one-half year period commencing on the date of termination, and
for the purposes of Paragraph 8, the three year period commencing on the date of
termination.
(v) "Change of Control" means that any of the following events
shall have occurred:
(A) The Corporation is merged or consolidated or
reorganized into or with another corporation, person or entity, and as a result
of such merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such corporation,
person or entity immediately after such transaction are held in the aggregate by
the holders of securities entitled to vote generally in the election of
Directors of the Corporation ("Voting Stock") immediately prior to such
transaction;
(B) The Corporation sells or otherwise transfers all
or substantially all of its assets to any other corporation, person or entity,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation, person or entity immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock of the
Corporation immediately prior to such sale or transfer;
(C) If during any period of two consecutive years,
individuals who at the beginning of any such period constitute the Directors of
the Corporation cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each Director of the Corporation first elected during such
period was approved by a vote of at least two-thirds of the Directors of the
Corporation then still in office who were Directors of the Corporation at the
beginning of any such period.
12. Any notice to be given by Executive 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 Executive shall be sent
to Executive 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.
IN WITNESS WHEREOF, Burlington Industries, Inc. has caused this
Agreement to be executed in its corporate name by its duly authorized corporate
representative thereunto duly authorized, and Executive has hereunto set his
hand and seal, as of the day and year first above written.
BURLINGTON INDUSTRIES, INC.
By _________________________
George W. Henderson, III
President and Chief
Executive Officer
_________________________(L.S.)
John D. Englar
AGREEMENT, made and entered into as of the 1st day of January, 1998,
between BURLINGTON INDUSTRIES, INC., a Delaware corporation (hereinafter
sometimes referred to as the "Corporation"), and Charles E. Peters, Jr.
(hereinafter referred to as "Executive").
WHEREAS, the Corporation and Executive desire to enter into an
Employment Agreement effective January 1, 1998, this Agreement to supersede in
its entirety the present employment agreement between the parties;
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
contained, the Corporation and Executive hereby agree as follows:
l. The Corporation agrees to employ Executive, and Executive agrees to
serve the Corporation, upon the terms hereinafter set forth.
2. The employment of Executive hereunder shall commence January 1, 1998
and continue until December 31, 2000, unless earlier terminated under the
provisions of Paragraphs 6, 7 or 8 of this Agreement.
3. Executive agrees to serve the Corporation faithfully and to the best
of his ability under the direction of the Board of Directors of the Corporation,
devoting his entire time, energy and skill during regular business hours
performing the duties assigned by the Board.
4. The Corporation agrees to pay to Executive during the period of the
term hereof salary for his services at the rate (the "Annual Rate", which Annual
Rate shall refer to any subsequent increase in the rate of compensation of
Executive granted by the Corporation during the term of this Agreement) of Two
Hundred Fifty-five Thousand Dollars ($255,000) per annum, payable in equal
monthly or other more frequent installments in accordance with the general
practice of the Corporation for salaried senior employees.
5. The Corporation may from time to time pay additional incentive
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. Executive is deemed to be a valuable executive of the Corporation
and will be considered for payment of such incentive compensation in all years
that the Board determines that such compensation should be paid to senior and
key employees generally. It is expressly understood that the amount of any
additional compensation 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 Executive whatsoever. If sums are paid to Executive
as additional compensation in any year, such payment shall not create an
obligation to pay additional compensation to Executive in any past or succeeding
year. No payments to Executive of additional compensation, if any, shall reduce
or be applied against the salary to be paid to Executive pursuant to Paragraph 4
hereof.
6. If, during the term of this Agreement, Executive 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 Executive
(or Executive's legal representative if Executive is incapable of making such
determination), which determination shall be final and conclusive, the
Corporation may, upon notice to Executive, terminate this Agreement and his
employment hereunder, and upon such termination, Executive shall be entitled to
receive (i) cash compensation at the Annual Rate for a period of six months and
(ii) shall receive benefits as provided under Paragraph 7(b)(iii) below for such
six-month period. Executive agrees to accept such payment 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
(including any liability for payments under the Corporation-funded disability
insurance program).
7. (a) The Corporation may in its sole discretion at any time terminate
Executive's employment under this Agreement, whether for cause or without cause.
(b) Other than under the circumstances described in paragraph 8
below, in the event of (1) an involuntary termination of employment of Executive
without Cause or (2) a voluntary termination of employment by Executive for Good
Reason, Executive shall receive (in lieu of any payment under the Corporation's
Severance Policy), as soon as practicable following such termination:
(i) salary accrued through the date of termination at the Annual
Rate;
(ii) a lump sum payment in cash equal to (x) the salary that would
have been payable under Paragraph 4 above during the Severance Period (as
defined below) plus (y) an amount (the "Bonus Equivalent") equal to the number
of years (or part thereof) in the Severance Period times the amount established,
for the year during which such termination occurs, as the Executive's target
incentive payment under the Corporation's annual cash incentive plan approved by
the Board of Directors with respect to such year; and
(iii) either (x) Executive shall continue, to the extent permitted
by applicable law, as a participating member or beneficiary in all of the
benefit and welfare plans of the Corporation in which Executive participated
immediately prior to the date of termination or (y) the Corporation shall fund
substantially equivalent benefits to the extent participation in such plans is
not permissible, and Executive shall be guaranteed service credit in such plans
(including, without limitation, for vesting purposes of the Supplemental
Executive Retirement Plan), in either case (x) or (y) for the period equal to
the Severance Period. Executive's rights under this Clause (iii) shall cease
when Executive commences other employment and obtains coverage under other plans
on a substantially similar basis to those of the Corporation.
Except as expressly provided in this subparagraph 7(b), in all other respects,
Executive's rights under all of the benefit plans of the Corporation shall be
governed by the terms of such plans and not by the provisions of this Agreement.
(c) In the event of an involuntary termination for Cause,
Executive shall only be entitled to payments under the Severance Policy and only
if the conduct giving rise to such termination was not, in the Corporation's
sole judgment, willful.
(d) In the event that Executive's employment is terminated by
the Corporation or the Executive for any reason other than those set forth in
Paragraph 6 above, subparagraphs 7(b) or 7(c) or Paragraph 8 below, the
Corporation shall have no further obligation to Executive hereunder or under the
Severance Policy.
(e) Notwithstanding any other provisions of this Agreement,
Executive's obligations under Paragraphs 9 and 10 of this Agreement shall
survive the termination or expiration of this Agreement.
8. (a) If within two years following a Change of Control, the
employment of Executive hereunder is terminated by the Corporation without
Cause, or is terminated by Executive for Good Reason, in either case other than
by reason of death or disability, the Corporation shall promptly (not later than
30 days) pay to Executive a lump sum payment in cash equal to (i) the then
salary of Executive at the Annual Rate times the number of years in the
Severance Period, plus (ii) the Bonus Equivalent times the number of years in
the Severance Period. In addition, following such termination of employment,
Executive shall continue for the number of years in the Severance Period, in the
manner set forth in subparagraph 7(b)(iii) above, to participate in, or the
Corporation shall fund substantially equivalent benefits, under the welfare and
benefit plans of the Corporation.
(b) In the event that the payment by the Corporation of the
payments required in the preceding Paragraph would result in the Executive
becoming subject to the imposition of an excise tax under Section 4999 of the
Internal Revenue Code of 1986, as amended, then the amount of payments made
hereunder shall be reduced to an amount which would maximize the after-tax
payments to the Executive of such amount. The determination of such reduction
amount, if any, shall be made by the Executive, with the advice of Executive's
tax or financial advisor.
9. Executive 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 (1) during a period of six months following termination
of his employment, and (2) only in the event that Executive is receiving
severance payments and/or benefits under Paragraph 7(b) during the further
period commencing on the day following such six-month period and continuing
until the last day of the Severance Period, Executive 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 (Executive hereby acknowledging that
Executive has had access in his executive capacity to material information about
all of the Corporation's businesses) without first obtaining the written consent
of the Corporation. The period of non-competition established in clause (2)
above may be shortened, at the election of the Executive evidenced by a written
relinquishment satisfactory to the Corporation, of any remaining right to
severance payments under this Agreement, to a period ending on the last date as
of which such severance payments are earned.
10. Executive 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 strategic and 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.
Executive 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
Executive 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 or suit for restitution.
11. The following capitalized terms used in this Agreement shall have
the meanings set forth below:
(i) "Severance Policy" means the policy providing for
severance payments to salaried employees set forth in the Corporation's Policy
Manual as in effect on the date of Executive's termination of employment.
(ii) A termination for "Cause" means a termination of employment
with the Corporation or any of the subsidiaries or joint ventures which, as
determined by the Corporation, is by reason of (A) the commission by the
Executive of a felony or a perpetration by the Executive of a dishonest act,
material misrepresentation or common law fraud against the Corporation or any
subsidiary, joint venture or other affiliate thereof, (B) any other act or
omission which is injurious to the financial condition or business reputation of
the Corporation or any subsidiary, joint venture or other affiliate thereof, or
(C) the willful failure or refusal of the Executive to substantially perform the
material duties of the Executive's position with the Corporation or any of the
Corporation's subsidiaries, joint ventures or affiliates.
(iii) "Good Reason" means (A) a failure to promptly pay compensation
due and payable to the Executive in connection with his or her employment, (B) a
reduction in Executive's level of compensation (other than changes to incentive
or benefit plans affecting all executives) of the Corporation in a similar
manner, (C) unless agreed to by Executive, the assignment to the Executive of
duties inconsistent with the Executive's position as such duties were
immediately prior to such assignment which results in a diminution of such
position, authority, duties or responsibilities, or (D) a change in the
employment requirements of Executive which, in the view of the Compensation and
Benefits Committee of the Corporation's Board of Directors, subjects Executive
to an unfair change of circumstances.
(iv) "Severance Period" shall mean, for the purposes of Paragraph
7, the one and one-half year period commencing on the date of termination, and
for the purposes of Paragraph 8, the three year period commencing on the date of
termination.
(v) "Change of Control" means that any of the following events
shall have occurred:
(A) The Corporation is merged or consolidated or
reorganized into or with another corporation, person or entity, and as a result
of such merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such corporation,
person or entity immediately after such transaction are held in the aggregate by
the holders of securities entitled to vote generally in the election of
Directors of the Corporation ("Voting Stock") immediately prior to such
transaction;
(B) The Corporation sells or otherwise transfers all
or substantially all of its assets to any other corporation, person or entity,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation, person or entity immediately after such sale or
transfer is held in the aggregate by the holders of Voting Stock of the
Corporation immediately prior to such sale or transfer;
(C) If during any period of two consecutive years,
individuals who at the beginning of any such period constitute the Directors of
the Corporation cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Corporation's
stockholders, of each Director of the Corporation first elected during such
period was approved by a vote of at least two-thirds of the Directors of the
Corporation then still in office who were Directors of the Corporation at the
beginning of any such period.
12. Any notice to be given by Executive 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 Executive shall be sent
to Executive 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.
IN WITNESS WHEREOF, Burlington Industries, Inc. has caused this
Agreement to be executed in its corporate name by its duly authorized corporate
representative thereunto duly authorized, and Executive has hereunto set his
hand and seal, as of the day and year first above written.
BURLINGTON INDUSTRIES, INC.
By ________________________
George W. Henderson, III
President and Chief
Executive Officer
________________________(L.S.)
Charles E. Peters, Jr.
Exhibit 12
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Computation of Ratio of Earnings
to Fixed Charges
(Amounts in thousands)
Fiscal Year Ended
----------------------------------------
October 3, September 27, September 28,
1998 1997 1996
----------- ------------ -------------
Income before income taxes ........... $ 130,012 $ 96,371 $ 75,350
Interest expense ..................... 59,544 60,062 65,936
Imputed interest on rent expense ..... 5,096 4,938 5,006
---------- --------- ---------
Total earnings ............... $ 194,652 $ 161,371 $ 146,292
---------- --------- ---------
Interest expense ..................... $ 59,544 $ 60,062 $ 65,936
Imputed interest on rent expense ..... 5,096 4,938 5,006
---------- --------- ---------
Total fixed charges .......... $ 64,640 $ 65,000 $ 70,942
---------- --------- ---------
Ratio of earnings to fixed charges ... 3.0 2.5 2.1
========== ========= =========
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Burlington Industries, Inc. and Subsidiary Companies
Overview
The Company's diluted earnings per share for the 1998 fiscal year were $1.32 per
share, a growth of 23 percent over the $1.07 per share recorded in the 1997
fiscal year before non-recurring charges. Sales were approximately 4 percent
lower, primarily as a result of closing or selling certain businesses for
strategic reasons.
The Company has continued its strategy of focusing on core apparel and
interior furnishings businesses by moving its textured yarn business into a new
joint venture and, on November 6, 1998, selling its spun yarn business. During
1998, the Company improved the debt to total capital ratio to 53.8 percent,
repurchased 3.7 million shares of common stock, and invested $148 million in
capital expenditures for expansion and modernization. During the year, operating
results generated $137 million in cash, and asset sales provided an additional
$11 million. The Company's sales and operating performance in the 1998 fiscal
year were somewhat restrained by difficult conditions in some of its markets,
including a surge in Asian textile and apparel imports. To address these
challenges, the Company in 1998 commenced construction of a large yarn and
fabric complex in Mexico and launched a major effort to expand its capability to
deliver fabrics to customers in garment package form.
PERFORMANCE BY SEGMENT: The Company conducts its operations in two
principal industry segments: products for apparel markets and products for
interior furnishings markets. The following table sets forth certain information
about the segment results for the fiscal years ended October 3, 1998, September
27, 1997 and September 28, 1996.
Fiscal Fiscal Fiscal
(dollar amounts in millions) 1998 1997 1996
--------- --------- ----------
(53 week
year)
Net sales
Apparel products $ 1,163.5 $ 1,253.2 $ 1,328.3
Interior furnishings products 846.9 837.5 854.0
-------- -------- --------
Total $ 2,010.4 $ 2,090.7 $ 2,182.3
======== ======== ========
Operating income before interest and taxes
Apparel products $ 101.9 $ 112.1 $ 121.7
As a percentage of net sales 8.8% 8.9% 9.2%
Interior furnishings products $ 80.9 $ 43.6 $ 55.6
As a percentage of net sales 9.6% 5.2% 6.5%
Operating income before interest,
taxes, loss on closing of division
and provision for restructuring $ 182.8 $ 155.7 $ 177.3
Loss on closing of division $ - $ - $ (29.9)
Provision for restructuring $ - $ (12.1) $ -
-------- -------- -------
Total $ 182.8 $ 143.6 $ 147.4
As a percentage of net sales 9.1% 6.9% 6.8%
======== ======= =======
<PAGE>
Results of Operations
Comparison of Fiscal Years ended October 3, 1998 and September 27, 1997
NET SALES: Net sales for the 1998 fiscal year (a 53-week year) were
$2,010.4 million, a decrease of 3.8% from the $2,090.7 million recorded in the
1997 fiscal year. Exports totaled $237 million and $239 million in the 1998 and
1997 fiscal years, respectively.
Products for Apparel Markets: Net sales of products for apparel markets
for the 1998 fiscal year were $1,163.5 million, 7.2% lower than net sales of
$1,253.2 million for the 1997 fiscal year. This reduction was primarily due to
the transfer of the textured yarn business to a joint venture in May, and lower
volume in the Tailored Fashions (former Menswear), Klopman and Sportswear
divisions, partially offset by higher volume in the Denim division.
Products for Interior Furnishings Markets: Net sales of products for
interior furnishings markets for the 1998 fiscal year were $846.9 million, an
increase of 1.1% from the $837.5 million recorded in the 1997 fiscal year. The
change in sales of the interior furnishings segment was mainly attributable to
increased volume and better mix in the commercial carpet product line of the
Lees division, which more than offset reductions due to the closure in 1997 of
the residential carpet product line, and higher volume in the Burlington House
and Bacova divisions, partially offset by lower price mix in the Area Rugs
division.
OPERATING INCOME BEFORE INTEREST AND TAXES: Operating income before
interest and taxes for the 1998 fiscal year was $182.8 million compared to
$143.6 million for the 1997 fiscal year. Before the 1997 provision for
restructuring, the 1997 charge for exiting the residential carpet product line
and the 1997 charge for closing a yarn spinning plant in the Burlington House
Area Rugs division, operating income before interest and taxes for the 1997
fiscal year was $164.4 million. Amortization of goodwill was $18.1 million and
$18.2 million in the 1998 and 1997 fiscal years, respectively.
Products for Apparel Markets: Operating income before interest and
taxes for the apparel products segment for the 1998 fiscal year was $101.9
million compared to $112.1 million recorded for the 1997 fiscal year. This
decrease primarily was composed of lower profits in the Tailored Fashions and
Klopman divisions and the transfer of the Company's textured yarn business to a
joint venture, partially offset by improved results in the Denim, Sportswear and
Burlington Madison Yarn (spun) divisions.
Products for Interior Furnishings Markets: Operating income before
interest and taxes for the interior furnishings products segment for the 1998
fiscal year was $80.9 million, compared to $52.3 million recorded in the 1997
fiscal year before the charges for restructuring activities. This increase was
mainly attributable to higher margins resulting from higher volume and better
product mix in the Lees division and improved results in the Burlington House
division due to cost reductions.
Selling, general and administrative expenses totaled $148.4 million, or
7.4% of net sales, in the 1998 fiscal year, compared with $154.6 million, or
7.4% of net sales, in the 1997 fiscal year. The decrease in dollars was mainly
attributable to sold/closed operations and benefits resulting from cost
reduction actions.
The Company recorded provisions for doubtful accounts of $1.7 million
and $3.5 million in the 1998 and 1997 fiscal years, respectively.
INTEREST EXPENSE: Interest expense for the 1998 fiscal year was $59.5
million, or 3.0% of net sales, compared with $60.1 million, or 2.9% of net sales
in the 1997 fiscal year.
EQUITY IN INCOME OF JOINT VENTURES: During the 1998 fiscal year the
Company recorded equity in income of joint ventures of $3.0 million related to
its textured yarn joint venture operations with Unifi, Inc., which commenced on
May 30, 1998, and its denim fabric joint venture with Mafatlal Industries
Limited in India.
OTHER EXPENSE (INCOME): Other income for the 1998 fiscal year was $3.8
million consisting principally of interest income. Other income for the 1997
fiscal year was $12.8 million consisting principally of $9.5 million in gains on
the disposal of certain non-core operating assets and interest income.
INCOME TAX EXPENSE: Income tax expense of $49.6 million was recorded
for the 1998 fiscal year in comparison with $37.7 million for fiscal year 1997.
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.
NET INCOME AND EARNINGS PER SHARE: Net income for the 1998 fiscal year
was $80.5 million, or $1.32 per share (diluted), in comparison with $58.7
million, or $0.95 per share (diluted), for the 1997 fiscal year. Net income for
the 1997 fiscal year included a net charge of $0.12 per share for one-time costs
associated with various streamlining actions, including reducing staff,
consolidation of yarn facilities and exiting the residential carpet product
line, offset by gains on sales of Sedgefield Specialties and Advanced Textiles,
Inc.
Comparison of Fiscal Years ended September 27, 1997 and September 28, 1996
NET SALES: Net sales for the 1997 fiscal year were $2,090.7 million, a
decrease of 4.2% from the $2,182.3 million recorded in the 1996 fiscal year.
Exports totaled $239 million and $213 million in the 1997 and 1996 fiscal years,
respectively (an increase of 12.2%).
Products for Apparel Markets: Net sales of products for apparel markets
for the 1997 fiscal year were $1,253.2 million, 5.7% lower than net sales of
$1,328.3 million for the 1996 fiscal year. This reduction was primarily due to
the elimination of the volume produced and marketed by the Knitted Fabrics
division, which was closed in June, 1996, and lower volume and selling prices in
the Denim division, partially offset by higher volume and improvement in selling
prices and product mix in the Klopman division.
Products for Interior Furnishings Markets: Net sales of products for
interior furnishings markets for the 1997 fiscal year were $837.5 million, a
decrease of 1.9% from the $854.0 million recorded in the 1996 fiscal year. The
change in sales of the interior furnishings segment was mainly attributable to
the sale of J.G. Furniture in April 1996 and Advanced Textiles in October 1996
and lower volume and selling prices in the Burlington House and Area Rugs
divisions, partially offset by higher volume in the Lees division.
OPERATING INCOME BEFORE INTEREST AND TAXES: Operating income before
interest and taxes for the 1997 fiscal year was $143.6 million. Before the 1997
provision for restructuring, the 1997 charge for exiting the residential carpet
product line, the 1997 charge for closing a yarn spinning plant in the
Burlington House Area Rugs division and the 1996 loss on closing the Knitted
Fabrics division, operating income before interest and taxes for the 1997 fiscal
year was $164.4 million in comparison with $181.0 million recorded in the 1996
fiscal year. Amortization of goodwill was $18.2 million in both the 1997 and
1996 fiscal years.
Products for Apparel Markets: Operating income before interest and
taxes for the apparel products segment for the 1997 fiscal year was $112.1
million compared to $125.4 million recorded for the 1996 fiscal year before the
charges for closing the Knitted Fabrics division. The principal factors
affecting this change were lower profits of the Denim division partially offset
by the absence of Knitted Fabrics division operating losses in the 1997 period.
Products for Interior Furnishings Markets: Operating income before
interest and taxes for the interior furnishings products segment for the 1997
fiscal year was $52.3 million before the charges for restructuring activities,
compared to $55.6 million recorded in the 1996 fiscal year. This decrease was
attributable mainly to the reduced level of operations in the Burlington House
and Area Rugs divisions partially offset by improved results in the Lees
division.
Selling, general and administrative expenses totaled $154.6 million, or
7.4% of net sales, in the 1997 fiscal year, compared with $166.3 million, or
7.6% of net sales, in the 1996 fiscal year. The decrease was mainly attributable
to sold/closed operations and benefits resulting from cost reduction actions.
The Company recorded provisions for doubtful accounts of $3.5 million
and $6.5 million in the 1997 and 1996 fiscal years, respectively.
INTEREST EXPENSE: Interest expense for the 1997 fiscal year was $60.1
million, or 2.9% of net sales, compared with $65.9 million, or 3.0% of net sales
in the 1996 fiscal year. The decrease in interest expense was due primarily to
the lower average debt outstanding.
OTHER EXPENSE (INCOME): Other income for the 1997 fiscal year was $12.8
million consisting principally of $9.5 million in gains on the disposal of
certain non-core operating assets and interest income. Other expense for the
1996 fiscal year was $6.1 million consisting principally of $4.0 million for
legal contingencies, $2.3 million loss on sale of a non-operating asset and $1.3
million loss on sale of J.G. Furniture partially offset by interest income.
INCOME TAX EXPENSE AND EXTRAORDINARY ITEM: Income tax expense of $37.7
million was recorded for the 1997 fiscal year in comparison with $33.7 million
for fiscal year 1996. The extraordinary loss of $0.7 million for the 1996 fiscal
year resulted from the early extinguishment of debt net of income tax benefit of
$0.5 million.
NET INCOME AND EARNINGS PER SHARE: Net income for the 1997 fiscal year
was $58.7 million, or $0.95 per share (diluted), in comparison with $40.9
million, or $0.64 per share (diluted), for the 1996 fiscal year. Net income for
the 1997 fiscal year included a net charge of $0.12 per share for one-time costs
associated with various streamlining actions, including reducing staff,
consolidation of yarn facilities and exiting the residential carpet product
line, offset by gains on sales of Sedgefield Specialties and Advanced Textiles,
Inc. Net income for the 1996 fiscal year included $25.0 million ($0.40 per
share) of non-recurring expenses, consisting of an after-tax charge of $20.3
million ($0.33 per share) for the closing of the Knitted Fabrics division and an
after-tax provision of $4.7 million ($0.07 per share) for legal contingencies,
the sale of the J.G. Furniture division and the sale of a non-operating asset.
In addition, there was an extraordinary loss of $0.01 per share in 1996 for the
early extinguishment of debt.
Liquidity and Capital Resources
Over the past several years, the Company has taken steps to strengthen
its capital structure and enhance the flexibility of its financial resources.
The Company has used $300 million of its capacity under a $400 million senior
debt shelf registration statement in two public offerings of fixed-rate senior
notes. The proceeds of these offerings were used to repay variable-rate bank
loans. The notes received investment grade ratings from each of the two major
credit rating agencies. In December 1997, the Company established a five-year
Trade Receivables Financing Agreement with a bank that provides up to $225
million in secured financing at commercial paper-indexed interest rates. The
Company also has an unsecured bank revolving credit facility providing LIBOR-
based borrowings up to $750 million that enhances the Company's financial
flexibility. At October 3, 1998, total debt of the Company (consisting of
current and non-current portions of long-term debt and short-term borrowings)
was $816.2 million compared with $806.9 million at September 27, 1997. The ratio
of debt to total capital declined from 56.1% at the beginning of fiscal year
1998 to 53.8% at fiscal year end.
The Company's principal uses of funds during the next several years
will be for capital investments (including the funding of acquisitions and
participations in joint ventures), repayment and servicing of indebtedness,
working capital needs and the repurchase of shares of Company common stock. The
Company intends to fund such needs principally from net cash provided by
operating activities and, to the extent necessary, from funds provided by the
credit facilities described in this section. The Company believes that these
sources of funds will be adequate to meet the Company's foregoing needs.
The net cash generated by the Company from operating activities during
the 1998 fiscal year amounted to $137.4 million; additionally, $10.6 million was
provided from sales of assets and $24.5 million from the exercise of stock
options. Cash generated in this manner was used primarily for capital
expenditures and investments in joint ventures totaling $147.7 million and $38.7
million for the repurchase of Company common stock. Shares of Company common
stock purchased during the 1998 fiscal year are expected to be used during the
next several years in part to satisfy Company obligations to contribute stock
under its employee incentive plans and will, accordingly, minimize further
future cash outlays for these purposes.
On November 5, 1998, the Board of Directors of the Company approved the
adoption of the 1998 Equity Incentive Plan (the "1998 Plan") and reserved
2,700,000 shares of the Company's common stock for issuance under the 1998 Plan.
The 1998 Plan and the awards of options and performance shares that have been
granted thereunder are subject to approval by the Company's shareholders. A
committee of two or more members of the Board of Directors is responsible for
administration and interpretation of the 1998 Plan. The following types of
awards may be made to key executives and employees: (i) options to purchase
shares of common stock, (ii) stock appreciation rights payable in common stock,
cash or a combination thereof, (iii) restricted shares of common stock and (iv)
performance shares that vest only upon achievement of specified performance
goals and are payable in common stock, cash or a combination thereof. The
vesting and payment of awards may be accelerated in the event of a change of
control of the Company (as defined in the 1998 Plan).
During the 1998 fiscal year, investment in capital expenditures and
joint ventures totaled $147.7 million, compared to $99.3 million in the 1997
fiscal year. The Company anticipates that the level of capital expenditures and
joint venture investments for fiscal year 1999 could total approximately $210
million, principally for growth and modernization of U.S. and Mexican plants.
In August 1997, the Company issued $150.0 million principal amount of
7.25% notes due August 1, 2027 ("Notes Due 2027"). 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. Proceeds from the sale of the Notes
Due 2005 were used to prepay outstanding term loans under the Company's bank
credit facility. The Notes Due 2027 and the Notes Due 2005 are unsecured and
rank equally with all other unsecured and unsubordinated indebtedness of the
Company.
The Company has a $750.0 million unsecured revolving credit facility that
expires in March, 2001. At November 6, 1998, the Company had approximately
$479.0 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.
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 November 6, 1998, $204.3 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.
The Company has received a commitment from a bank to establish a new
credit facility of approximately $110 million that is scheduled to close on or
about November 20, 1998. The proceeds from this facility will be used to finance
or refinance the construction and working capital needs of the Company's Mexican
subsidiaries related to the expansion projects in Mexico. The facility will
include 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 facility will be made directly to a new Mexican
financing subsidiary of the Company and will be guaranteed by the Company.
Risk Management
Interest Rate Risk
Because the Company's obligations under the bank credit agreement and
the receivables-backed financing programs bear interest at floating rates, the
Company is sensitive to changes in prevailing interest rates. The Company uses
derivative instruments to manage its long-term debt interest rate exposure,
rather than for trading purposes. Interest rate movements also affect the value
and returns on the Company's investment securities. A 10% increase or decrease
in market interest rates that effect the Company's financial instruments would
not have a material impact on earnings during the next fiscal year, and would
not materially affect the fair value of the company's financial instruments.
Foreign Currency Risk
In order to reduce the risk of foreign currency exchange rate
fluctuations, the Company follows a policy of hedging substantially all
transactions denominated in a currency other than the functional currencies
applicable to each of its various entities. The instruments used for hedging are
readily marketable exchange traded forward contracts with banks. The changes in
market value of such contracts have a high correlation to the price changes in
the currency of the related hedged transactions. The potential impact on
earnings or fair value for such net currency position resulting from a 10%
increase or decrease in foreign currency exchange rates on each individual
currency would not be material.
Commodity Price Risk
The Company uses many types of fiber, both natural and man-made, in the
manufacture of its textile products. The Company believes that future price
levels for all fibers will depend primarily upon supply and demand conditions,
weather conditions, general inflation, domestic and foreign governmental
regulations and agricultural programs, and prices of underlying raw materials
such as petroleum. The Company manages its exposure to changes in commodity
prices primarily through its procurement practices (foreign exchange contracts
are utilized to offset the impact of currency fluctuations on wool purchases).
The Company enters into contracts to purchase cotton under the Southern
Mill Rules ratified and adopted by the American Textile Manufacturers Institute,
Inc. and American Cotton Shippers Association. Under these contracts and rules,
nonperformance by either the buyer or seller may result in a net cash settlement
of the difference between the current market price of cotton and the contract
price. If the Company decided to refuse delivery of its open firm commitment
cotton contracts at October 3, 1998, and market prices of cotton decreased by
10%, the Company would be required to pay a net settlement provision of
approximately $9.5 million. However, the Company has not utilized this net
settlement provision in the past, and does not anticipate using it in the
future. Further, if this provision was utilized, the settlement amount could be
substantially offset by making open market purchases of cotton at the lower
market prices.
Legal and Environmental Contingencies
The Company and its subsidiaries have sundry claims and other lawsuits
pending against them and also have certain guarantees that were made in the
ordinary course of business. The Company has made provisions in its financial
statements for litigation based on the Company's assessment of the possible
outcome of such litigation, including the possibility of settlement, and related
legal fees and costs.
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency, by the environmental agencies in
several states and by private parties as potentially responsible parties at a
number of hazardous waste disposal sites under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 ("Superfund") and comparable
state laws and, as such, may be liable for the cost of cleanup and other
remedial activities at these sites. The Company may also have liability for such
matters pursuant to contractual obligations relating to divested property or
with respect to sites that may be identified in the future. With respect to
certain of these sites, other persons have also been identified as potentially
responsible parties, and in such circumstances the responsibility for cleanup
and other remedial activities is typically shared among such parties based on an
allocation formula. The Company is also involved in remedial responses and
voluntary environmental cleanups at other sites that are not currently the
subject of proceedings of any kind under Superfund or comparable state laws. The
Company has established reserves in its financial statements for such
environmental liabilities, including related legal fees and other transaction
costs, in the aggregate amount of approximately $4.7 million. The provision for
environmental liabilities is based on the Company's estimate of allocations of
liability among potentially responsible parties (and the likelihood of
contribution by such parties), information concerning the scope of
contamination, estimated remediation costs, estimated transaction costs and
other factors. No provision has been made for liabilities that may be incurred
with respect to sites that may be identified in the future because insufficient
basis exists for making informed estimates in such cases.
It is not possible with certainty to determine the ultimate liability
of the Company with respect to the matters described in the preceding
paragraphs, but in the opinion of management their outcome should have no
material adverse effect on the financial condition or results of operations of
the Company.
Year 2000
As we approach the turn of the century, much attention has been given
to a serious problem that exists in many computers and programs in use today, a
problem that arose from the earliest days of computing when systems had very
limited memory storage capacities. To save space and data entry time, only the
last two digits of a year were used when performing date calculations and,
consequently, these systems may not be able to properly recognize dates
beginning with the year 2000. Many of these programs are still in use today
throughout the world.
Like most owners of computer software, the Company is modifying a
significant portion of its computer software to handle the Year 2000 problem.
Any date-reliant system is at risk. This includes information technology
applications and embedded systems such as heating and ventilation, security,
voice and data communications, ordering and supply, manufacturing and
distribution, labeling, bar coding, billing and paying. For several years the
Company has conducted a company-wide effort to prepare its computer systems and
applications to recognize dates later than December 31, 1999 in order to
continue to function properly. The Company expects to complete this portion of
its project in early 1999, and as of October 3, 1998, the Company believes that
the project is more than 90% complete.
The Company also is dependent upon the successful efforts of its
customers and suppliers of goods, services and essential utilities to modify
their software and could be affected by the failure of one or more of these
efforts. The Company has communicated with most of its major suppliers and
customers and is following up with others. Efforts include the collection and
evaluation of voluntary representations made or provided by those parties
together with independent research. The goal of all these efforts is to reduce
business risk and avoid interruption of service. Although the Company will
continue to take reasonable care to gather information about external parties,
such information is not always provided voluntarily, is not otherwise available,
or may not be reliable.
Contingency plans and recovery procedures for Year 2000 problems have
been initiated dealing with potential problems ranging from systems failure to
failure of a utility or a supplier. The Company expects to finalize these
contingency plans and procedures by March 1999. Although the Company expects its
critical systems to be compliant in early 1999, there can be no assurances that
the Company identifies all susceptible systems and will not be adversely
affected by the failure of an external party to adequately address the Year 2000
problem. A possible worst case scenario might include one or more of the
Company's significant manufacturing or information technology systems being
interrupted causing a delay or curtailment in the production and/or distribution
of goods, a delay or curtailment in the billing and collection of revenues, an
inability to maintain accounting records accurately, and/or an inability to
manage its financial resources, potentially causing a material impact on the
Company's results of operations and financial position.
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 $14.0 million. These costs are expensed as incurred and are being
funded with cash from operations. As of October 3, 1998, the Company had spent
$11.1 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.
Conversion to the Euro Currency
Various member countries of the European Union in which the Company
conducts its business will adopt the Euro as their single currency on January 1,
1999. National currencies will continue to exist as legal tender and may
continue to be used in commercial transactions through January 1, 2002, at which
time Euro notes and coins will be issued. By July 2002, the respective national
currencies will be withdrawn. During this transition period, permanent rates of
exchange between the members' national currency and the Euro will be established
and banking, finance and foreign exchange markets will convert to the Euro. The
Company has not completed its evaluation of the impact of the Euro conversion on
its business and its operating and information technology systems, but it is not
expected to have a material adverse effect on its financial condition or results
of operations.
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 that could affect the Company's actual future
results and that 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; the possible imbalances between consumer demand and
inventories of the Company's customers; the success of the Company's value-added
product strategy; the Company's relationships with its principal customers and
suppliers, including its and their success in addressing the Year 2000 computer
problem; cost and availability of raw materials and labor; the success of the
Company's strategic plans to expand in the United States, India and Mexico; the
Company's ability to finance its capital expansion and modernization programs,
and the level of the Company's indebtedness and the exposure to interest rate
fluctuations; governmental legislation and regulatory changes that impose higher
costs, or greater restrictions, on the Company's operations and that 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.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
For the 53 weeks ended October 3, 1998 and the 52 weeks ended
September 27, 1997 and September 28, 1996
(Amounts in thousands, except for per share amounts)
1998 1997 1996
------------ ------------- ------------
Net sales $ 2,010,414 $ 2,090,683 $ 2,182,347
Cost of sales 1,659,485 1,758,698 1,814,160
------------ ------------- ------------
Gross profit 350,929 331,985 368,187
Selling, general and
administrative expenses 148,383 154,648 166,283
Provision for doubtful accounts 1,677 3,478 6,457
Amortization of goodwill 18,100 18,158 18,201
Loss on closing of division 0 0 29,856
Provision for restructuring 0 12,058 0
------------ ------------- ------------
Operating income before
interest and taxes 182,769 143,643 147,390
Interest expense 59,544 60,062 65,936
Equity in income of joint ventures (2,980) 0 0
Other expense (income) - net (3,807) (12,790) 6,104
------------ ------------- ------------
Income before income taxes 130,012 96,371 75,350
Income tax expense:
Current (38,681) (33,048) (36,822)
Deferred (10,879) (4,625) 3,075
------------ ------------- ------------
Total income tax expense (49,560) (37,673) (33,747)
------------ ------------- ------------
Income before extraordinary item 80,452 58,698 41,603
Extraordinary item:
Loss from early extinguishment of
debt, net of income tax benefit
of $454 in 1996 0 0 (697)
------------ ------------- ------------
Net income $ 80,452 $ 58,698 $ 40,906
============ ============= ============
Average common shares outstanding 60,428 61,289 63,231
EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 1.33 $ 0.96 $ 0.66
Extraordinary item 0.00 0.00 (0.01)
----------- ------------ ----------
Net income per common share $ 1.33 $ 0.96 $ 0.65
=========== ============ ==========
EARNINGS PER COMMON SHARE -
ASSUMING DILUTION:
Income before extraordinary item $ 1.32 $ 0.95 $ 0.65
Extraordinary item 0.00 0.00 (0.01)
----------- ------------ ----------
Net income per common share -
assuming dilution $ 1.32 $ 0.95 $ 0.64
=========== ============ ==========
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
As of October 3, 1998 and September 27, 1997
(Amounts in thousands) 1998 1997
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 18,163 $ 17,863
Short-term investments 27,253 23,832
Customer accounts receivable after deductions
of $20,864 and $20,688 for the
respective dates for doubtful accounts,
discounts, returns and allowances 288,806 331,457
Sundry notes and accounts receivable 15,810 6,762
Inventories 322,548 314,994
Prepaid expenses 3,198 2,719
--------------- --------------
Total current assets 675,778 697,627
Fixed assets, at cost:
Land and land improvements 39,374 36,677
Buildings 442,828 400,212
Machinery, fixtures and equipment 636,439 607,502
--------------- --------------
1,118,641 1,044,391
Less accumulated depreciation and amortization 475,885 459,744
--------------- --------------
Fixed assets - net 642,756 584,647
Other assets:
Investments and receivables 44,990 22,670
Intangibles and deferred charges 35,211 29,781
Excess of purchase cost over net assets acquired 514,152 538,967
--------------- --------------
Total other assets 594,353 591,418
--------------- --------------
$ 1,912,887 $ 1,873,692
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 14,200 $ 0
Long-term debt due currently 470 470
Accounts payable - trade 87,999 102,898
Sundry payables and accrued expenses 73,995 100,039
Income taxes payable 6,440 16,406
Deferred income taxes 44,576 43,782
--------------- --------------
Total current liabilities 227,680 263,595
Long-term liabilities:
Long-term debt 801,486 806,413
Other 59,052 58,595
--------------- --------------
Total long-term liabilities 860,538 865,008
Deferred income taxes 124,448 114,363
Shareholders' equity:
Common stock issued (Note G) 684 684
Capital in excess of par value 884,685 882,837
Accumulated deficit (53,849) (134,301)
Currency translation adjustments (17,357) (10,211)
--------------- --------------
814,163 739,009
Less cost of common stock held in treasury (113,942) (108,283)
--------------- --------------
Total shareholders' equity 700,221 630,726
--------------- --------------
$ 1,912,887 $ 1,873,692
=============== ==============
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
For the 53 weeks ended October 3, 1998 and the 52 weeks ended
September 27, 1997 and September 28, 1996
(Amounts in thousands)
1998 1997 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 80,452 $ 58,698 $ 40,906
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization of fixed assets 68,375 66,742 66,942
Provision for doubtful accounts 1,677 3,478 6,457
Amortization of intangibles and
deferred debt expense 18,455 18,600 22,053
Deferred income taxes 10,879 4,625 (3,075)
(Gain) loss on disposal of assets
and other expense (512) (11,821) 7,641
Loss from early extinguishment of debt 0 0 1,151
Restructuring/loss on closing of division 0 12,058 29,856
Changes in assets and liabilities:
Customer accounts receivable - net 40,974 6,400 (16,165)
Sundry notes and accounts receivable (7,114) (154) 10,203
Inventories (14,877) 11,478 9,561
Prepaid expenses (479) 120 (627)
Accounts payable and accrued expenses (39,577) (3,404) 7,342
Change in income taxes payable (5,903) 1,821 11,273
Other (14,969) (2,361) (393)
--------- --------- ---------
Total adjustments 56,929 107,582 152,219
--------- --------- ---------
Net cash provided by operating activities 137,381 166,280 193,125
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (140,333) (96,500) (79,174)
Proceeds from sales of assets 10,559 20,672 8,785
Investment in joint ventures (7,375) (2,750) (2,200)
Change in investments 1,708 (2,817) (957)
--------- --------- ---------
Net cash used by investing activities (135,441) (81,395) (73,546)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings 14,200 0 (274)
Repayments of long-term debt (217,606) (200,472) (600,708)
Proceeds from issuance of long-term debt 216,021 167,768 527,478
Proceeds from exercise of stock options 24,492 3,709 3,848
Purchase of treasury stock (38,747) (53,419) (45,038)
--------- --------- ---------
Net cash used by financing activities (1,640) (82,414) (114,694)
--------- --------- ---------
Net change in cash and cash equivalents 300 2,471 4,885
Cash and cash equivalents at beginning of period 17,863 15,392 10,507
--------- --------- ---------
Cash and cash equivalents at end of period $ 18,163 $ 17,863 $ 15,392
========= ========= =========
See notes to consolidated financial statements.
<PAGE>
Notes to Consolidated Financial Statements
Burlington Industries, Inc. and Subsidiary Companies
Note A - Summary of Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts of the
Company and all its subsidiaries. The accounts of foreign subsidiaries have been
included on the basis of fiscal periods ended no more than three months prior to
the dates of the consolidated balance sheets. Investments in affiliates in which
the Company owns 50 percent or less of the voting stock are accounted for using
the equity method. All significant intercompany accounts and transactions have
been eliminated.
Cash equivalents: Cash and cash equivalents include time deposits and other
short-term investments with an original maturity of three months or less.
Inventories: Inventories are valued at the lower of cost or market. Cost of
substantially all components of textile inventories in the United States is
determined using the dollar value Last-in, First-out (LIFO) method. All other
inventories are valued principally at average cost.
Fixed assets: Depreciation and amortization of fixed assets is calculated over
the estimated useful lives of the related assets principally using the
straight-line method.
Excess of purchase cost over net assets acquired: The excess of purchase cost
over net assets acquired is amortized as goodwill using the straight-line method
over not more than 40 years. The accumulated amortization of goodwill was
$199,844,000 and $181,744,000 at October 3, 1998 and September 27, 1997,
respectively. In connection with the formation of a joint venture and resulting
transfer of assets, excess of purchase cost over net assets acquired was reduced
by $6.7 million (see Note J).
Impairment of long-lived assets: When circumstances indicate, the Company
evaluates the recoverability of its long-lived assets by comparing estimated
future undiscounted cash flows with the asset's carrying amount to determine if
a write-down to market value or discounted cash flow is required.
Deferred debt expense: Deferred debt expense is amortized over the lives of the
related debt as an adjustment to interest expense.
Revenue recognition: In general, the Company recognizes revenues from product
sales when units are shipped.
Research expenditures: Expenditures for research and development are expensed as
incurred. Total expenditures for research and development aggregated
$14,934,000, $11,841,000 and $13,482,000 in the 1998, 1997 and 1996 fiscal
years, respectively.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassification: Certain prior period amounts have been reclassified to conform
to current presentations.
Fiscal year: The Company uses a 52 - 53 week fiscal year. The fiscal year ended
October 3, 1998 represents a 53-week period.
Other: In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income" and No. 131, "Disclosures About Segments of an Enterprise and Related
Information", both of which the Company will adopt in its 1999 fiscal year. The
Company will be required to report comprehensive income, which is the total of
net income and certain other nonowner changes in shareholders' equity. Foreign
currency translation adjustments currently represent the primary difference
between comprehensive income and net income for the Company. SFAS No. 131, among
other things, establishes standards for reporting financial information about
operating segments, defined as components of an enterprise about which separate
financial information is available to the chief operating decision maker for
purposes of assessing performance and allocating resources. The effect of SFAS
No. 131 on the Company's financial statement disclosures has not yet been
determined. Adoption of SFAS No. 130 and SFAS No. 131 will not affect the
accounting for the Company's consolidated results of operations and financial
position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in fiscal
years beginning after June 15, 1999. The statement permits early adoption as of
the beginning of any fiscal quarter after its issuance. The Company expects to
adopt the new statement effective October 3, 1999. Under the statement, all
derivatives will be required to be recognized on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. Under the statement, any ineffective portion of
a derivative's change in fair value must be immediately recognized in earnings.
The Company has not yet determined what the effect of SFAS No. 133 will be on
the earnings and financial position of the Company.
Note B - Restructuring Activities
During the June 1997 quarter, the Company recorded a $12.1 million pre-tax
provision for restructuring associated with reducing staff, consolidation of
certain yarn facilities and exiting the residential carpet product line. The
staff reduction included severance costs of $5.2 million related to 215
employees. The components of the yarn manufacturing restructuring charge
included costs of $1.3 million for severance related to 286 employees, $2.2
million for divestitures of machinery and equipment, and $1.4 million for
divestitures of real estate. Costs related to exiting the residential carpet
product line included primarily $1.2 million for severance related to 70
employees. In addition, exiting the residential carpet product line resulted in
an inventory write-down and other claims of $4.9 million included in cost of
sales. Combining these charges, the restructuring activities resulted in a 1997
pre-tax charge of $17.0 million, $10.3 million after income taxes, or $0.17 per
share. Costs of these restructuring activities paid or incurred through October
3, 1998 were $14.1 million. The Company has completed substantially all of these
restructuring efforts with the exception of the divestitures of certain
machinery and equipment and real estate.
In June 1996, the Company announced its plan to close the Knitted Fabrics
division, which resulted in a $29.9 million pre-tax charge in the 1996 fiscal
year. In addition, the closing resulted in an inventory write-down of $3.7
million included in cost of sales. Combining these charges, the closing of the
division resulted in a pre-tax charge of $33.6 million, $20.3 million after
income taxes, or $0.33 per share. Production of the Knitted Fabrics division was
phased out during September and October, 1996. The components of the 1996 charge
include costs of $12.7 million for severance and other benefits related to
approximately 1,150 employees, $8.3 million for divestitures of machinery and
equipment, $8.0 million for divestitures of real estate, and $0.8 million for
cancellation of leases. Costs of these restructuring activities paid or incurred
through October 3, 1998 were $28.0 million. The Company has completed
substantially all of these restructuring efforts with the exception of the
divestitures of certain machinery and equipment and real estate. Net sales of
the Knitted Fabrics division were $108.2 million during the 1996 fiscal year,
and net operating loss before interest, taxes and restructuring charges was
$17.2 million during the same period.
Note C - Inventories
Inventories are summarized as follows (in thousands):
1998 1997
--------- ---------
Inventories at average cost:
Raw materials................................ $ 40,594 $ 46,722
Stock in process............................. 98,922 97,973
Produced goods............................... 204,169 190,326
Dyes, chemicals and supplies................. 22,358 21,859
--------- ---------
366,043 356,880
Less excess of average cost over LIFO........ 43,495 41,886
--------- ---------
Total.................................... $ 322,548 $ 314,994
========= =========
Inventories valued using the LIFO method comprised approximately 91% of
consolidated inventories at October 3, 1998 and September 27, 1997.
<PAGE>
Note D - Sundry Payables and Accrued Expenses
Sundry payables and accrued expenses consisted of the following (in thousands):
1998 1997
--------- ---------
Sundry accounts payable......................... $ 3,346 $ 1,386
Accrued expenses:
Payroll and employee benefits............... 44,264 57,558
Taxes, other than income taxes.............. 8,648 9,960
Interest.................................... 6,078 9,156
Other....................................... 11,659 21,979
--------- ---------
Total................................... $ 73,995 $ 100,039
========= =========
Note E - Long-term Debt
Long-term debt consisted of the following (in thousands):
1998 1997
---------- ----------
Bank Credit Agreement................................ $ 294,000 $ 335,000
Receivables Facility................................. 204,058 -
Commercial Paper..................................... - 163,592
Senior Debentures due 2005........................... 149,921 149,911
Senior Debentures due 2027........................... 149,208 149,117
Other indebtedness with various rates and maturities. 4,769 9,263
---------- ----------
801,956 806,883
Less long-term debt due currently.................... 470 470
---------- ----------
Total.............................................. $ 801,486 $ 806,413
========== ==========
Bank Financing: The Company has an unsecured credit agreement ("Bank Credit
Agreement"), consisting of a $750.0 million Revolving Credit Facility with a
final maturity on March 31, 2001. The Agreement provides for the issuance of
letters of credit by the fronting bank in an outstanding aggregate face amount
not to exceed $75.0 million, provided that at no time shall the aggregate
principal amount of Revolving Loans, together with the aggregate face amount of
such letters of credit issued, exceed $750.0 million. At October 3, 1998, there
were no letters of credit outstanding issued by the fronting bank, and the
unused portion of the revolving facility commitment was $456.0 million.
Additional overnight borrowings up to $42.0 million are also available under
bank lines of credit.
Loans under the 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 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 senior
unsecured debt ratings of BBB minus and Baa3. In the event that the Company's
debt ratings improve, the interest rate and facility fees would be reduced.
Conversely, a deterioration in the Company's debt ratings would increase the
interest rate and facility fees. At October 3, 1998, the average bank financing
interest rate was 5.86%. See Note P for information on financial instruments
utilized to manage interest rate exposure.
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 and stock repurchases (equal to
50% of the previous fiscal year's domestic net income less any after-tax gain or
loss on asset sales outside the ordinary course of business), leases, the
incurrence of additional indebtedness by domestic subsidiaries, the creation of
additional liens and the making of investments in foreign entities and restricts
the Company's ability to enter into certain merger, liquidation or asset sale or
purchase transactions.
Receivables-Backed Financing: 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. 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.
The Company has the intent and ability to maintain the receivables-backed
borrowings on a long-term basis. Accordingly, receivables-backed borrowings have
been classified as long-term debt.
Senior Debentures: In August 1997, the Company issued, through a public
offering, $150.0 million principal amount of 7.25% unsecured senior debentures
due August 1, 2027 ("Senior Debentures Due 2027"). The securities were issued
under an indenture (the "Indenture") dated as of September 1, 1995 pursuant to a
shelf registration filed with the Securities and Exchange Commission, under
which $100.0 million of debt securities may still be issued. The Indenture
contains covenants limiting certain liens and sale and leaseback transactions.
The Senior Debentures Due 2027 were issued at a discount to yield 7.335% and the
net proceeds from the sale were the principal source of funds used to prepay
$150.0 million of Revolving Loans under the Bank Credit Agreement on the same
date. Interest on the Senior Debentures Due 2027 is payable semiannually on
February 1 and August 1. The Senior Debentures Due 2027 will be redeemable as a
whole or in part at the option of the Company at any time on or after August 2,
2007 at a price equal to the greater of 100% of the principal amount redeemed or
the sum of the present values of the remaining scheduled payments of principal
and interest thereon. The Senior Debentures Due 2027 will also be redeemable at
the option of the holders thereof on August 1, 2007 in amounts at 100% of their
principal amount.
The Company also has outstanding $150.0 million principal amount of 7.25%
unsecured senior debentures due September 15, 2005 ("Senior Debentures Due
2005") under the Indenture. The Senior Debentures Due 2005 were issued at a
discount to yield 7.26%. Interest on the Senior Debentures Due 2005 is payable
semiannually on March 15 and September 15, and the debentures are not redeemable
prior to maturity and are not entitled to any sinking fund.
Maturities: As of October 3, 1998, aggregate annual maturities of long-term debt
for the next five years are $0.5 million in 1999, $0.5 million in 2000, $294.5
million in 2001, $204.1 million in 2002 and $0.0 million in 2003.
Note F - Leases
Minimum commitments for rental expenditures under noncancellable operating
leases are as follows (in thousands):
1999............................................. $ 15,678
2000............................................. 12,106
2001............................................. 8,201
2002............................................. 5,833
2003............................................. 4,295
Later years...................................... 12,337
---------
Total minimum lease payments............... $ 58,450
=========
Approximately 32% of the operating leases pertain to real estate. The remainder
covers a variety of machinery and equipment. Certain operating leases,
principally for office facilities, contain escalation clauses for increases in
operating costs, property taxes and insurance. For the 1998, 1997 and 1996
fiscal years, rental expense for all operating leases was $20,384,000,
$19,751,000 and $20,023,000, respectively. Sublease income was not material in
any of these years.
Note G - Shareholders' Equity
Shares of the Company's voting and nonvoting common stock, par value $.01 per
share, authorized, issued and outstanding at October 3, 1998 and September 27,
1997, respectively, were as follows:
Shares Shares Shares
October 3, 1998 Authorized Issued Outstanding
--------------- ----------- ---------- -----------
Common Stock.................. 200,000,000 67,689,148 57,687,155
Nonvoting Common Stock........ 15,000,000 704,301 704,301
----------- ---------- -----------
215,000,000 68,393,449 58,391,456
=========== ========== ===========
Shares Shares Shares
September 27, 1997 Authorized Issued Outstanding
------------------ ----------- ---------- -----------
Common Stock.................. 200,000,000 65,344,561 56,356,728
Nonvoting Common Stock........ 15,000,000 3,048,888 3,048,888
----------- ---------- ----------
215,000,000 68,393,449 59,405,616
=========== ========== ==========
All shares have similar rights and privileges except for voting rights. Holders
of Nonvoting Common Stock are entitled, subject to certain limitations, to
exchange such shares for Common Stock.
On October 3, 1998 and September 27, 1997, the Company had 30,000,000 shares of
preferred stock authorized, par value $.01 per share, none of which were issued
and outstanding. On December 3, 1997, the Board of Directors of the Company
approved the adoption of a Stockholder Rights Plan. Under the Stockholder Rights
Plan, Preferred Stock Purchase Rights were distributed as a dividend at the rate
of one Right for each share of Common Stock held as of the close of business on
December 15, 1997. Each Right will entitle a stockholder to a Unit consisting of
a portion of a newly issued share of Junior Participating Preferred Stock of the
Company, at an exercise price of $50.00 per Unit, subject to adjustment from
time to time to prevent dilution. The Rights will not initially be exercisable.
The Rights will become exercisable only if another person acquires beneficial
ownership of 15 percent or more of the Company's voting Common Stock or
commences a tender offer that would result in such person beneficially owning 15
percent or more of the Company's voting Common Stock. If any person becomes the
beneficial owner of 15 percent or more of the Company's voting Common Stock, or
if a holder of 15 percent or more of the Company's voting Common Stock engages
in certain other acquisition transactions, then each outstanding Right (other
than Rights owned by such 15 percent stockholder) will entitle its holder to
purchase, at the Right's then-current exercise price, units of the Company's
Junior Participating Preferred Stock having a market value equal to twice the
then-current exercise price. The Rights expire on December 4, 2007, unless
earlier redeemed. The Company may generally redeem the Rights at $.01 per right
at any time until the tenth day following public announcement that a person has
acquired 15% or more of the Company's voting Common Stock.
During the 1998 fiscal year, the Company exchanged 2,344,587 shares of Nonvoting
Common Stock for voting Common Stock. During the 1998 fiscal year, outstanding
shares also changed due to (i) the purchase of 3,733,800 additional shares of
treasury stock; (ii) the issuance of 407,000 shares of treasury stock upon the
conversion of the remaining balance of a convertible note; (iii) the issuance of
186,444 shares of treasury stock to settle Performance Unit awards (see Note Q);
(iv) the issuance of 2,136,203 shares of treasury stock for exercise of stock
options (see Note Q); and (v) the purchase of 10,007 shares for other
transactions.
<PAGE>
Changes in shareholders' equity of the Company for fiscal 1996, 1997 and 1998
were (dollar amounts in thousands):
<TABLE>
<CAPTION>
Capital
in Currency Treasury
Common excess of Accumulated translation shares,
Stock par value deficit adjustment at cost Total
------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance September 30, 1995........ $ 684 $890,947 $(233,905) $(5,822) $ (36,464) $615,440
Purchase of treasury stock........ (45,038) (45,038)
Issuance of treasury stock........ (10,978) 9,730 (1,248)
Awards issued under
Equity Incentive Plans........... 3,205 3,205
Amortization of unearned
compensation..................... 2,248 2,248
Exercise of stock options......... (297) 4,145 3,848
Forfeiture of restricted shares... 60 (60) -
Net income for the period......... 40,906 40,906
Translation adjustment............ (3,441) (3,441)
------- -------- ---------- -------- --------- --------
Balance September 28, 1996........ 684 885,185 (192,999) (9,263) (67,687) 615,920
Purchase of treasury stock........ (53,419) (53,419)
Issuance of treasury stock........ (4,613) 8,890 4,277
Awards issued under
Equity Incentive Plans........... 2,082 2,082
Amortization of unearned
compensation..................... 176 176
Exercise of stock options......... (224) 3,933 3,709
Tax benefit on stock options...... 231 231
Net income for the period......... 58,698 58,698
Translation adjustment............ (948) (948)
------- --------- ----------- -------- --------- --------
Balance September 27, 1997........ 684 882,837 (134,301) (10,211) (108,283) 630,726
Purchase of treasury stock........ (38,747) (38,747)
Issuance of treasury stock........ (2,285) 2,436 151
Amortization of unearned
compensation..................... 125 125
Exercise of stock options......... (1,254) 25,746 24,492
Tax benefit on stock options...... 4,063 4,063
Conversion of note................ 1,199 4,906 6,105
Net income for the period......... 80,452 80,452
Translation adjustment............ (7,146) (7,146)
------- --------- ----------- -------- --------- --------
Balance October 3, 1998........... $ 684 $ 884,685 $ (53,849) $(17,357) $(113,942) $700,221
======= ========= =========== ======== ========= ========
</TABLE>
Note H - Other Expense (Income) - Net
Other expense (income) - net consisted of the following (in thousands):
1998 1997 1996
-------- -------- --------
Loss (gain) on sale of assets - net.. $ (512) $ (9,487) $ 3,651
Provision for legal contingencies.... - - 3,990
Interest income...................... (3,408) (2,991) (2,583)
Other................................ 113 (312) 1,046
--------- -------- --------
Total........................... $ (3,807) $(12,790) $ 6,104
======== ======== ========
During the 1997 fiscal year, the Company sold Advanced Textiles, Inc. (a small
fiberglass business) for $4.6 million in cash and $4.1 million in securities and
recognized a pre-tax gain of $4.8 million from the sale. Also during the 1997
fiscal year, the Company sold its Sedgefield chemical business for cash and
recognized a pre-tax gain of $4.3 million from the sale. These businesses had
combined sales of $5.3 million and $16.9 million during the 1997 and 1996 fiscal
years, respectively. In April 1996, the Company sold its J.G. Furniture
operation for $1.1 million in cash and $3.6 million in securities. Additionally,
the Company recorded a charge of $2.3 million in 1996 related to the sale of a
non-operating asset.
<PAGE>
Note I - Income Taxes
The sources of income before income taxes were as follows (in thousands):
1998 1997 1996
-------- -------- --------
United States............................... $124,761 $ 89,233 $ 70,598
Foreign..................................... 5,251 7,138 4,752
-------- -------- --------
Total $130,012 $ 96,371 $ 75,350
======== ======== ========
Income tax expense consisted of (in thousands):
1998 1997 1996
-------- -------- --------
Current:
United States.......................... $ 39,228 $ 32,799 $ 36,375
Foreign................................ (547) 249 447
-------- -------- --------
Total current 38,681 33,048 36,822
Deferred:
United States.......................... 10,174 4,048 (3,716)
Foreign................................ 705 577 641
-------- -------- --------
Total deferred.................... 10,879 4,625 (3,075)
-------- -------- --------
$ 49,560 $ 37,673 $ 33,747
======== ======== ========
Income tax expense is different from the amount computed by applying the U.S.
federal income tax rate of 35% to income before income taxes as follows (in
thousands):
1998 1997 1996
-------- -------- ---------
U.S. tax at statutory rate.................. $ 45,504 $ 33,730 $ 26,373
Goodwill amortization with no tax benefit... 6,119 6,140 6,212
State income taxes, net of federal benefit.. 1,888 1,712 1,465
Foreign Sales Corporation................... (3,581) (2,865) (913)
Other....................................... (370) (1,044) 610
-------- -------- --------
$ 49,560 $ 37,673 $ 33,747
======== ======== ========
At October 3, 1998, the Company had $37.1 million of deferred tax assets and
$206.1 million of deferred tax liabilities that have been netted for
presentation purposes. At September 27, 1997, the Company had $44.3 million of
deferred tax assets and $202.4 million of deferred tax liabilities that have
been netted for presentation purposes. Operating loss and tax credit
carryforwards with related tax benefits of $1.3 million (net of $2.9 million
valuation allowance) at October 3, 1998, and $2.1 million (net of $2.9 million
valuation allowance) at September 27, 1997, expire from 2003 to 2013. Net
deferred tax liabilities at October 3, 1998 and September 27, 1997 consisted of
the following (in thousands):
1998 1997
-------------------- --------------------
Current Noncurrent Current Noncurrent
Fixed assets.............. $ - $ 110,439 $ - $ 105,178
Inventory valuation....... 60,142 - 60,142 -
Accruals, allowances
and other............... (15,020) 14,782 (15,794) 10,763
Operating loss and tax
credit carryforwards.... (546) (773) (566) (1,578)
-------- --------- -------- ---------
Total................ $ 44,576 $ 124,448 $ 43,782 $ 114,363
======== ========= ======== =========
Note J - Supplemental Disclosures of Cash Flow Information
(in thousands) 1998 1997 1996
-------- -------- --------
Interest paid - net................... $ 56,118 $ 56,565 $ 56,244
======== ======== ========
Income taxes paid - net............... $ 45,131 $ 37,086 $ 25,089
======== ======== ========
On May 30, 1998, the Company formed a joint venture with Unifi, Inc. of
Greensboro, North Carolina, to manufacture and market textured polyester yarns.
Each of the partners transferred its textured yarn manufacturing assets into a
newly-formed limited liability company. Under the agreement, Unifi owns a
majority ownership interest and manages the business, while the Company owns a
minority interest. The noncash transfer of assets from the Company's Burlington
Madison Yarn division included $24.6 million of inventory, fixed assets and
excess of purchase cost over net assets acquired for an equity investment. On
September 30, 1998, the Company announced its intent to sell 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 sale is expected to be completed during November, 1998.
Note K - Retirement Benefits
The Company's U.S. defined benefit pension plan provides benefits to most of its
U.S. employees and certain employees in foreign countries, based on their
compensation over their working careers. The funding policy for this plan is to
contribute annually an amount based on the recommendation of the plan's actuary.
Employees also contribute a percentage of their compensation. Participants
become fully vested at the end of five years of service.
The following sets forth the funded status of the plan (in thousands):
1998 1997
--------- ---------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $(295,031) in 1998 and
$(281,212) in 1997................................... $(313,401) $(299,800)
--------- ---------
Projected benefit obligation for service rendered
to date.............................................. (354,986) (337,730)
Less plan assets at fair value, primarily listed
stocks and bonds, short-term investment funds
and insurance company contracts...................... 327,754 349,069
--------- ---------
Plan assets in excess of (less than) projected
benefit obligation................................... (27,232) 11,339
Unrecognized prior service cost....................... 313 469
Unrecognized net loss................................. 59,678 15,280
--------- ---------
Pension asset recognized in the balance sheet......... $ 32,759 $ 27,088
========= =========
Net pension cost included the following components for the 1998, 1997 and 1996
fiscal years (in thousands):
1998 1997 1996
-------- -------- --------
Service cost - benefits earned during the
period...................................... $ 7,520 $ 7,354 $ 7,991
Interest cost on projected benefit
obligation.................................. 24,722 25,128 24,093
Return on assets, net of deferred gain (loss)
of $(30,960) in 1998, $37,690 in 1997,
and $19,579 in 1996......................... (28,069) (24,077) (22,686)
Amortization:
Unrecognized prior service cost............. 156 156 163
Unrecognized losses......................... - 1,982 2,928
-------- -------- --------
Net pension cost............................. $ 4,329 $ 10,543 $ 12,489
======== ======== ========
The following assumptions were used at each measurement date:
1998 1997 1996
-------- -------- --------
Discount rate.................................. 6.75% 7.75% 8.0%
Long-term rate of return on plan assets........ 8.5% 8.5% 8.5%
Long-term rate of increase in compensation..... 3.75% 3.75% 3.75%
Pension cost for all plans, including those of foreign subsidiaries, was
$5,019,000, $10,842,000 and $12,940,000 for the 1998, 1997 and 1996 fiscal
years, respectively.
Note L - Other Postretirement Benefit Plans
In addition to the Company's pension plan, the Company has two defined benefit
postretirement medical plans available to most of its U.S. employees who elect
participation and one life insurance defined benefit postretirement plan
covering only certain employees. The medical plans include a healthcare plan for
employees electing early retirement between the ages of 55 and 65 and a Medicare
supplement plan for retired employees age 65 and older. The medical plans are
contributory, with retiree contributions adjusted annually, and contain other
cost-sharing features such as deductibles and coinsurance. The life insurance
plan is non-contributory and was closed to new members in 1973. The Company's
policy is to fund the cost of the medical plans and the life insurance plan as
expenses are incurred. The Company accounts for the plans under SFAS NO. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", which
requires that the cost of such benefits be accrued over the employees' service
lives. The Company's annual postretirement benefit costs are not significant.
The following table shows the three plans' combined funded status reconciled
with the amounts recognized in the Company's balance sheets as of October 3,
1998 and September 27, 1997 (in thousands) and assumptions:
1998 1997
------------------ ------------------
Life Life
Medical Insurance Medical Insurance
Plans Plan Plans Plan
-------- --------- -------- ---------
Accumulated postretirement benefit
obligation:
Retirees............................. $(1,756) $(4,332) $(1,764) $(4,858)
Fully eligible active plan
participants........................ (3,499) - (3,098) -
Other active plan participants....... (4,736) - (3,521) -
------- ------- ------- -------
(9,991) (4,332) (8,383) (4,858)
Plan assets at fair value, primarily
bonds................................ 650 2,193 86 2,279
------- ------- ------- -------
Accumulated postretirement benefit
obligation in excess of plan assets.. (9,341) (2,139) (8,297) (2,579)
Unrecognized net (gain) loss.......... 7,807 (766) 5,947 (531)
------- ------- ------- -------
Accrued postretirement benefit cost... $(1,534) $(2,905) $(2,350) $(3,110)
======= ======= ======= =======
Discount rate......................... 6.75% 6.75% 7.75% 7.75%
Long-term rate of return on plan
assets............................... 8.5% 8.5% 8.5% 8.5%
The annual rate of increase in healthcare expenses was 6% and 7% in the 1998 and
1997 fiscal years, respectively. This rate was assumed to remain at 6% after
fiscal year 1998.
Note M - Defined Contribution Plans
The Company's Employee Stock Ownership Plan ("ESOP") is an individual account,
defined contribution plan designed to be qualified under the relevant provisions
of the Internal Revenue Code of 1986, as amended (the "Code"). The ESOP is
designed to invest primarily in the Company's stock. The ESOP Plan provides for
100% vesting after one year of participating service and for distributions of
shares allocated to participant accounts at the time of termination of
employment with the Company. Pursuant to a Board-established formula linked to
the Company's annual operating results, a contribution of 488,280 shares of
Common Stock valued at $5.2 million was made to the ESOP for fiscal year 1996, a
cash contribution of $3.1 million was made to the ESOP for fiscal year 1997, and
a cash contribution of $5.3 million will be made to the ESOP for fiscal year
1998. Such amounts have been charged to operations in the 1996, 1997 and 1998
fiscal years, respectively.
In 1998, the Company approved a new 401(k) Savings Plan scheduled to go into
effect on January 1, 1999 for all U.S. employees (and certain employees in
foreign countries) with one or more years of service. The Company will
discontinue making contributions to the ESOP Plan after the 1998 plan year, and
the ESOP Plan will be merged into the new 401(k) Savings Plan. The 401(k)
Savings Plan provides for Company contributions of cash and/or Common Stock on a
sliding scale based on the level of the employee's contribution.
Note N - Contingencies
The Company and certain of its current and former direct and indirect corporate
predecessors, subsidiaries and divisions have been identified by the United
States Environmental Protection Agency, by the environmental agencies in several
states and by private parties as potentially responsible parties at a number of
hazardous waste disposal sites under the Comprehensive Environmental Response
Compensation and Liability Act of 1980 ("Superfund") and comparable state laws
and, as such, may be liable for the cost of cleanup and other remedial
activities at these sites. The Company may also have liability for such matters
pursuant to contractual obligations relating to divested property or with
respect to sites that may be identified in the future. With respect to certain
of these sites, other persons have also been identified as potentially
responsible parties, and in such circumstances the responsibility for cleanup
and other remedial activities is typically shared among such parties based on an
allocation formula. The Company is also involved in remedial responses and
voluntary environmental cleanups at other sites that are not currently the
subject of proceedings of any kind under Superfund or comparable state laws. The
Company has established reserves in its financial statements for such
environmental liabilities, including related legal fees and other transaction
costs, in the aggregate amount of $4.7 million. The provision for environmental
liabilities is based on the Company's estimate of allocations of liability among
potentially responsible parties (and the likelihood of contribution by such
parties), information concerning the scope of contamination, estimated
remediation costs, estimated transaction costs and other factors. The Company
and its subsidiaries also have sundry claims and other lawsuits pending against
them and also have certain guarantees that were made in the ordinary course of
business.
It is not possible to determine with certainty the ultimate liability of the
Company in these matters, if any, but in the opinion of management, their
outcome should have no material adverse effect upon the financial condition or
results of operations of the Company.
Note O - Segment and Other Information
The Company is one of the largest and most diversified manufacturers of textile
products in the world. It is a leading developer, marketer and manufacturer of
fabrics and other textile products utilized in a wide variety of apparel and
interior furnishings end uses. The Company operates in two areas: products for
apparel markets and products for interior furnishings markets. Sales, operating
income, identifiable assets, depreciation and amortization and capital
expenditures for these segments were as follows (dollars in millions):
<PAGE>
1998 1997 1996
-------- -------- --------
Net sales
Apparel................................ $1,163.5 $1,253.2 $1,328.3
Interior furnishings................... 846.9 837.5 854.0
-------- -------- --------
Total........................... $2,010.4 $2,090.7 $2,182.3
======== ======== ========
Operating income
Apparel................................ $ 101.9 $ 112.1 $ 121.7
Interior furnishings................... 80.9 43.6 55.6
Loss on closing of division............ - - (29.9)
Provision for restructuring............ - (12.1) -
-------- -------- --------
Total........................... 182.8 143.6 147.4
Interest expense......................... 59.6 60.0 65.9
Equity in income of joint ventures....... (3.0) - -
Other expense (income) - net............. (3.8) (12.8) 6.1
-------- -------- --------
Income before income taxes............... $ 130.0 $ 96.4 $ 75.4
======== ======== ========
Operating margin
Apparel................................ 8.8% 8.9% 9.2%
Interior furnishings................... 9.6 5.2 6.5
---- ---- ----
Total........................... 9.1% 6.9% 6.8%
=== ==== ====
Identifiable assets
Apparel................................ $1,135.1 $1,088.7 $1,091.8
Interior furnishings................... 685.0 707.3 734.2
Corporate.............................. 92.8 77.7 59.9
-------- -------- --------
Total........................... $1,912.9 $1,873.7 $1,885.9
======== ======== ========
Depreciation and amortization
Apparel................................ $ 52.5 $ 50.9 $ 52.3
Interior furnishings................... 34.1 34.2 35.0
-------- -------- --------
Total........................... $ 86.6 $ 85.1 $ 87.3
======== ======== ========
Capital expenditures
Apparel................................ $ 116.5 $ 72.0 $ 48.6
Interior furnishings................... 23.8 24.5 30.6
-------- -------- --------
Total........................... $ 140.3 $ 96.5 $ 79.2
======== ======== ========
The Company primarily markets its products to approximately 10,500 customers in
the United States. The Company also markets its products to customers in Canada,
Mexico, Latin America, Europe and Asian countries. For the 1998 fiscal year, no
single customer represented more than 10% of the Company's net sales, and the
Company's 10 largest customers accounted for approximately 27% of net sales.
Export sales from the Company's U.S. operations to unaffiliated customers were
as follows (in millions):
1998 1997 1996
------ ------ ------
Asia..................................... $ 28.0 $ 38.6 $ 51.5
Europe................................... 71.6 78.3 61.5
North and South America.................. 118.1 108.2 91.5
Other.................................... 19.2 14.2 9.0
------ ------ ------
Total........................... $236.9 $239.3 $213.5
====== ====== ======
Note P - Financial Instruments
The Company utilizes interest rate agreements and foreign exchange contracts to
manage interest rate and foreign currency exposures. The principal objective of
such contracts is to minimize the risks and/or costs associated with financial
and global operating activities. The Company does not utilize financial
instruments for trading or other speculative purposes. The counterparties to
these contractual arrangements are a diverse group of major financial
institutions with which the Company also has other financial relationships.
These counterparties expose the Company to the risk of credit loss in the event
of nonperformance. However, the Company does not anticipate nonperformance by
the other parties, and no material loss would be expected from their
nonperformance.
INTEREST RATE INSTRUMENTS: The Company enters into interest rate swap, cap,
floor and collar agreements to reduce the impact of changes in interest rates on
all or a portion of its floating rate debt. The swap agreements are contracts to
exchange variable rate for fixed interest payments periodically over the life of
the agreements without the exchange of the underlying notional amounts. The
notional amounts of interest rate agreements are used to measure interest to be
paid or received and do not represent the amount of exposure to credit loss. The
net cash paid for interest rate cap, floor and collar agreements is recorded in
intangibles and deferred charges in the consolidated balance sheet and charged
to interest expense over the life of the agreement. The net cash amounts paid or
received on swap agreements are accrued and recognized as an adjustment to
interest expense. If an arrangement is replaced by another instrument and no
longer qualifies as a hedge instrument, then it is marked to market and carried
on the balance sheet at fair value.
As of October 3, 1998 and September 27, 1997, the Company had the
following interest rate instruments in effect (the variable rates are based on
three-month LIBOR):
Notional
Amount Fixed
(millions) Rate Period
1998 ---------- ----- -----------
----
Interest rate swaps $200 7.37% 10/95-10/00
50 6.10% 11/97-11/04
50 5.72% 01/98-01/05
1997
----
Interest rate swaps $200 7.37% 10/95-10/00
FOREIGN EXCHANGE INSTRUMENTS: The Company enters into forward currency
exchange contracts in the regular course of business to manage its exposure
against foreign currency fluctuations on sales, raw material and fixed asset
purchase transactions denominated in foreign currencies. Foreign currency
receivables that have forward exchange contracts are recorded in U.S. dollars at
the applicable forward rate. The foreign exchange contracts on receivables
($29.7 million and $27.1 million at October 3, 1998 and September 27, 1997,
respectively) require the Company to exchange British pounds, German marks,
French francs, Canadian dollars, Spanish pesetas and Italian lira for U.S.
dollars and mature in one to eight months. Forward exchange contracts related to
raw material and fixed asset purchase transactions are recognized as adjustments
to the bases of the underlying assets. At October 3, 1998, the Company had $31.1
million of forward currency exchange contracts maturing in one to nine months
related to purchases of wool and fixed assets denominated in Australian dollars,
Italian lira and Mexican pesos, compared to $10.6 million at September 27, 1997.
At October 3, 1998 and September 27, 1997, deferred gains and losses on foreign
exchange contracts are not material to the consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS: It is estimated that the carrying value of
the Company's financial instruments approximated fair value at October 3, 1998
and September 27, 1997, unless indicated otherwise below. The following methods
and assumptions were used in estimating the fair values of financial
instruments:
Cash and Cash Equivalents: The carrying amount approximates fair value because
of the short maturity of those instruments.
Short-term Investments: The fair values are estimated based on quoted market
prices for these or similar instruments.
Long-term Investments and Receivables: The fair values are estimated based on
one of the following methods: (i) quoted market prices; (ii) current rates for
similar issues; (iii) recent transactions for similar issues; or (iv) present
value of expected cash flows.
Short-term and Long-term Debt: The fair value is estimated based on current
rates offered for similar debt. At October 3, 1998, long-term debt with a
carrying value of $802.0 million had an estimated fair value of $804.3 million.
At September 27, 1997, long-term debt with a carrying value of $806.9 million
had an estimated fair value of $809.2 million.
Interest Rate Instruments: The fair values are the estimated amounts that the
Company would receive or pay to terminate the agreements at the reporting date,
taking into account current interest rates and the current creditworthiness of
the counterparties. At October 3, 1998 and September 27, 1997, the carrying
amounts of these instruments were a $0.7 million liability and a $0.6 million
liability, respectively. At October 3, 1998, the Company estimates it would have
paid $16.0 million and at September 27, 1997 would have paid $8.4 million to
terminate the agreements.
Foreign Currency Contracts: The fair values of foreign currency contracts (used
for hedging purposes) are estimated by obtaining quotes from brokers. At October
3, 1998 and September 27, 1997, carrying amounts related to foreign currency
contracts in the consolidated balance sheets were not material. At October 3,
1998, foreign currency contracts to pay $31.1 million had an estimated fair
value to receive $27.8 million, and foreign currency contracts to receive $29.7
million had an estimated fair value to pay $31.6 million. At September 27, 1997,
foreign currency contracts to pay $10.7 million had an estimated fair value to
receive $10.9 million, and foreign currency contracts to receive $27.1 million
had an estimated fair value to pay $27.6 million.
Note Q - Stock-Based Compensation
Under the Company's various Equity Incentive Plans, the Company is authorized to
award restricted shares of the Company's common stock, options to purchase
common stock, or Performance Units that are dependent upon achievement of
specified performance goals and are payable in common stock and cash. Stock
options granted generally have a maximum term of 10 years. Under these plans at
October 3, 1998, 34,447 shares of common stock are reserved to settle
Performance Unit awards currently outstanding and 982,213 shares to settle
additional future awards remain available.
A summary of the Company's stock option activity and related information for the
1998, 1997 and 1996 fiscal years follows:
<PAGE>
1998 1997 1996
----------------- ----------------- -----------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
------- --------- ------- --------- ------- ---------
Outstanding at
beginning of year..... 5,754 $11.58 6,203 $11.57 4,202 $11.55
Granted................ 253 14.78 27 11.70 2,411 11.59
Exercised.............. (2,136) 11.46 (323) 11.41 (338) 11.39
Forfeited.............. (182) 13.07 (153) 11.68 (72) 11.99
------ ------ ------
Outstanding at
end of year........... 3,689 $11.79 5,754 $11.58 6,203 $11.57
====== ======= ======
Exercisable at end
of year............... 59 $ 8.40 3,483 $11.57 3,807 $11.55
Per share weighted-average
fair value of options
granted during the year.. $6.66 $5.24 $5.12
The following table summarizes information about stock options outstanding at
October 3, 1998:
Options Outstanding Options Exercisable
------------------------------------ -------------------
Weighted- Weighted-
Range of Weighted-Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices (000) Contractual Life Price (000) Price
- --------------- -------- ---------------- --------- -------- --------
$ 8.40 to 10.40 408 4.4 $ 9.68 59 $ 8.40
$10.70 to 14.90 3,211 5.8 $11.86 - $ -
$15.60 to 21.93 70 4.4 $20.83 - $ -
------ ------
3,689 5.6 $11.79 59 $ 8.40
====== ======
The Company has elected to follow Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees". Under APB 25, no compensation
expense is recognized for the Company's employee stock options because the
exercise price of the options equals the market price of the underlying stock on
the date of grant. Total compensation cost charged (credited) to income related
to restricted share and Performance Unit awards was $(0.8) million, $4.3 million
and $7.9 million for the 1998, 1997 and 1996 fiscal years, respectively.
The following pro forma information regarding net income and net income per
share is required when APB 25 accounting is elected, and was determined as if
the Company had accounted for its employee stock options under the fair value
method of SFAS No. 123, "Accounting for Stock-Based Compensation." The fair
values for these options were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 5.84%, 6.12% and 5.81% for fiscal year
1998, 1997 and 1996, respectively; volatility factors of the expected market
price of the Company's common stock of 0.35 for 1998 and 0.34 for 1997 and 1996;
dividend yields of 0%; and a weighted-average expected life of the options of
six years. For purposes of pro forma disclosures, the estimated fair values of
the options are amortized to expense over the option's vesting periods (in
thousands except for per share information):
<PAGE>
1998 1997 1996
-------- --------- ---------
Net income:
As reported......................... $ 80,452 $ 58,698 $ 40,906
Pro forma........................... $ 78,212 $ 56,266 $ 38,794
Diluted earnings per share:
As reported......................... $ 1.32 $ 0.95 $ 0.64
Pro forma........................... $ 1.28 $ 0.91 $ 0.61
During the initial phase-in period, as required by SFAS No. 123, the pro forma
amounts were determined based on stock option grants in the 1996, 1997 and 1998
fiscal years only. Therefore, the pro forma amounts for compensation cost may
not be indicative of the effects on pro forma net income and pro forma net
income per share for future years.
Note R - Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which was
required to be adopted in the December 1997 fiscal quarter. SFAS No. 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously calculated fully diluted earnings per share and must be reported
regardless of materiality when potentially dilutive securities exist. Earnings
per share amounts for all prior periods have been restated where appropriate to
conform to the requirements of SFAS No. 128.
The following table sets forth the computation of basic and diluted earnings per
share (in thousands):
1998 1997 1996
--------- --------- ---------
Numerator:
Income before extraordinary item.... $ 80,452 $ 58,698 $ 41,603
Effect of dilutive securities:
Convertible note................... 116 360 520
-------- -------- --------
Numerator for diluted earnings
per share........................ $ 80,568 $ 59,058 $ 42,123
======== ======== ========
Denominator:
Denominator for basic earnings per
share - weighted-average shares.... 60,428 61,289 63,326
Effect of dilutive securities:
Stock options...................... 524 154 432
Convertible note................... 183 568 814
Contingent Performance Unit awards. 4 - -
-------- -------- --------
Dilutive potential common shares.... 711 722 1,246
-------- -------- --------
Denominator for diluted earnings
per share - adjusted weighted-
average shares and assumed
conversions...................... 61,139 62,011 64,572
======== ======== ========
<PAGE>
Note S - Quarterly Results of Operations (unaudited)
The Company's unaudited quarterly results of operations are presented below (in
thousands, except for per share data). The three month period ended October 3,
1998 represents a 14-week period; all other periods presented represent a
13-week period.
Fiscal 1998 Quarters
December March June September
-------- -------- -------- ---------
Net sales.............................. $481,703 $517,954 $511,033 $499,724
Cost of sales.......................... 402,803 423,272 414,781 418,629
Income tax expense..................... (9,369) (15,222) (15,412) (9,557)
Net income ............................ $ 13,224 $ 24,570 $ 25,951 $ 16,707
Basic earnings per share .............. $ 0.22 $ 0.41 $ 0.42 $ 0.28
Diluted earnings per share............. $ 0.22 $ 0.40 $ 0.42 $ 0.28
COMMON STOCK PRICES
High................................. 15 5/8 17 7/8 18 7/8 14 1/2
Low.................................. 13 1/16 13 3/16 13 3/4 8 3/16
Fiscal 1997 Quarters
December March June(a) September
-------- -------- -------- ---------
Net sales.............................. $476,490 $537,161 $553,590 $523,442
Cost of sales.......................... 403,910 450,196 463,975 440,617
Income tax expense..................... (7,247) (14,088) (7,235) (9,103)
Net income............................. $ 9,385 $ 21,115 $ 13,491 $ 14,707
Basic earnings per share............... $ 0.15 $ 0.34 $ 0.22 $ 0.25
Diluted earnings per share............. $ 0.15 $ 0.34 $ 0.22 $ 0.25
COMMON STOCK PRICES
High................................. 12 13 5/8 12 3/8 14 11/16
Low.................................. 9 3/4 10 3/4 10 1/8 11 5/16
(a) June quarter 1997 includes a $7.3 million charge for restructuring
associated with reducing staff, consolidation of certain yarn facilities
and exiting the residential carpet line, as well as $3.0 million for
certain other non-recurring charges, each net of income taxes.
<PAGE>
STATISTICAL REVIEW
Burlington Industries, Inc. and Subsidiary Companies
(Dollar amounts in thousands, except per share data and ratios)
<TABLE>
<CAPTION>
1998(a) 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales.................... $2,010,414 $2,090,683 $2,182,347 $2,209,191 $2,127,067
Operating income before
interest and taxes.......... 182,769 143,643 147,390 174,498 204,242
Interest expense............. 59,544 60,062 65,936 56,294 49,841
Income tax expense........... 49,560 37,673 33,747 51,707 69,982
Income before extraordinary
item........................ 80,452 58,698 41,603 68,394 99,299
Per share of common stock:
Income before extraordinary
item (basic)............... 1.33 0.96 0.66 1.05 1.46
Income before extraordinary
item (diluted)............. 1.32 0.95 0.65 1.04 1.44
Dividends................... - - - - -
FINANCIAL POSITION AT YEAR END
Current assets............... $ 675,778 $ 697,627 $ 719,370 $ 732,837 $ 733,538
Fixed assets - net........... 642,756 584,647 569,540 575,080 549,942
Total assets................. 1,912,887 1,873,692 1,885,942 1,931,731 1,907,148
Current liabilities.......... 227,680 263,595 265,352 272,397 315,468
Long-term liabilities........ 860,538 865,008 894,496 932,227 915,884
Shareholders' equity......... 700,221 630,726 615,920 615,440 574,364
Current ratio................ 3.0 2.6 2.7 2.7 2.3
Total debt as % of
capitalization.............. 53.8% 56.1% 57.7% 59.7% 61.3%
OTHER DATA
Capital expenditures......... $ 140,333 $ 96,500 $ 79,174 $ 101,876 $ 98,869
Number of employees at
year end.................... 18,900 20,100 21,000 22,500 23,800
Cash interest coverage
ratio....................... 4.6 4.0 4.3 4.9 6.1
(a) Fiscal year 1998 represents a 53-week period.
</TABLE>
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Burlington Industries, Inc.
We have audited the accompanying consolidated balance sheets of Burlington
Industries, Inc. and Subsidiary Companies as of October 3, 1998 and September
27, 1997, and the related consolidated statements of operations and cash flows
for each of the three years in the period ended October 3, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Burlington Industries, Inc. and Subsidiary Companies at October 3, 1998 and
September 27, 1997, and the consolidated results of their operations and their
cash flows, for each of the three years in the period ended October 3, 1998, in
conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Greensboro, North Carolina
October 28, 1998
Exhibit 22
SUBSIDIARIES
Set forth below is a list of all subsidiaries of Burlington Industries, Inc.
(the "Corporation")* and, as to each person named, the percentage of voting
securities owned, or other bases of control, by its immediate parent.
Percentage of Voting
State or Power Represented by
Jurisdiction Securities Owned by
of the Corporation on
Name Incorporation October 3, 1998
- ----------------------- ------------- ---------------------
Burlington Fabrics Inc. Delaware 100%
B.I. Funding, Inc. Delaware 100%
Insuratex, Ltd. Bermuda 100%
Textiles Morelos, S.A. de C.V. Mexico 100%
- ----------------------------
* The names of 20 domestic subsidiaries (4 of which are inactive) and 14
foreign subsidiaries have been omitted because, considered in the
aggregate, they would not constitute a significant subsidiary. All of the
foregoing subsidiaries are included in the consolidated financial
statements of the Corporation.
Exhibit 23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Burlington Industries, Inc. of our report dated October 28, 1998, included in
the 1998 Annual Report to Shareholders of Burlington Industries, Inc.
Our audits also included the financial statement schedule of Burlington
Industries, Inc. listed in the accompanying index to financial statement
schedule. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-95350) of Burlington Industries, Inc. and in the related
Prospectus of our report dated October 28, 1998, with respect to the
consolidated financial statements incorporated herein by reference and our
report included in the above paragraph with respect to the financial statement
schedule included in this Annual Report (Form 10-K) of Burlington Industries,
Inc.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-49894) pertaining to the Burlington Industries, Inc. 1992
Equity Incentive Plan and the Burlington Industries, Inc. Equity Incentive Plan
and (Form S-8 No. 333-09501) pertaining to the Burlington Industries, Inc. 1995
Equity Incentive Plan of Burlington Industries, Inc. of our report dated October
28, 1998, with respect to the consolidated financial statements incorporated
herein by reference and our report included in the above paragraph with respect
to the financial statement schedule included in this Annual Report (Form 10-K)
of Burlington Industries, Inc.
/s/Ernst & Young LLP
Greensboro, North Carolina
December 14, 1998
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