FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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Commission file number 1-10984
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BURLINGTON INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 56-1584586
(State or other juris- (I.R.S. Employer
diction of incorpora- Identification No.)
tion or organization)
3330 West Friendly Avenue, Greensboro, North Carolina 27410
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(Address of principal executive offices)
(Zip Code)
(336) 379-2000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of August 4, 2001 there were outstanding 53,193,959 shares of Common Stock,
par value $.01 per share, and 454,301 shares of Nonvoting Common Stock, par
value $.01 per share, of the registrant.
Part 1 - Financial Information
Item 1. Financial Statements
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Operations
(Amounts in thousands, except for per share amounts)
Three Three Nine Nine
months months months months
ended ended ended ended
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
---------- ---------- --------- ---------
Net sales $ 351,123 $ 419,821 $1,076,849 $ 1,193,016
Cost of sales 308,355 362,429 966,699 1,038,097
---------- ---------- --------- ---------
Gross profit 42,768 57,392 110,150 154,919
Selling, general and
administrative expenses 28,892 35,006 91,221 102,786
Provision for doubtful accounts 236 2,188 2,863 2,694
Provision/(recovery) for
restructuring and impairments (357) (186) (121) (186)
Amortization of goodwill 0 4,449 0 13,348
---------- ---------- --------- ---------
Operating income before
interest and taxes 13,997 15,935 16,187 36,277
Interest expense 17,588 16,836 54,836 48,975
Equity in (income) loss of
joint ventures 1,638 (3,562) (725) (7,401)
Other expense (income) - net (7,255) (2,133) (16,010) (11,195)
---------- ---------- --------- ---------
Income (loss) before income taxes 2,026 4,794 (21,914) 5,898
Income tax expense (benefit):
Current 429 1,986 (5,560) 10,247
Deferred 107 1,314 (1,957) (1,077)
---------- ---------- --------- ---------
Total income tax
expense (benefit) 536 3,300 (7,517) 9,170
---------- ---------- --------- ---------
Net income (loss) $ 1,490 $ 1,494 $ (14,397)$ (3,272)
========== ========== ========= =========
Basic and diluted earnings
(loss) per common share $ 0.03 $ 0.03 $ (0.27)$ (0.06)
See notes to consolidated financial statements.
1
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Balance Sheets
(Amounts in thousands)
June 30, September 30,
2001 2000
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,294 $ 26,172
Short-term investments 14,046 13,167
Customer accounts receivable after deductions
of $13,084, and $16,866 for the
respective dates for doubtful accounts,
discounts, returns and allowances 220,802 269,209
Sundry notes and accounts receivable 27,446 31,792
Inventories 237,906 287,969
Prepaid expenses 4,623 3,476
---------- ------------
Total current assets 515,117 631,785
Fixed assets, at cost:
Land and land improvements 29,639 30,761
Buildings 403,190 410,248
Machinery, fixtures and equipment 650,823 658,597
---------- ------------
1,083,652 1,099,606
Less accumulated depreciation and amortization 507,100 487,739
---------- ------------
Fixed assets - net 576,552 611,867
Other assets:
Investments and receivables 58,260 60,217
Intangibles and deferred charges 51,122 47,731
---------- ------------
Total other assets 109,382 107,948
---------- ------------
$ 1,201,051 $ 1,351,600
========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 0 $ 3,400
Long-term debt due currently 50 30,470
Accounts payable - trade 62,686 86,892
Sundry payables and accrued expenses 70,540 97,552
Income taxes payable 306 2,024
Deferred income taxes 11,358 22,560
---------- ------------
Total current liabilities 144,940 242,898
Long-term liabilities:
Long-term debt 821,622 865,980
Other 55,277 58,288
---------- ------------
Total long-term liabilities 876,899 924,268
Deferred income taxes 98,111 89,659
Shareholders' equity:
Common stock issued 700 689
Capital in excess of par value 885,727 884,643
Accumulated deficit (626,712) (612,315)
Accumulated other comprehensive income (loss) (22,711) (22,452)
Cost of common stock held in treasury (155,903) (155,790)
---------- ------------
Total shareholders' equity 81,101 94,775
---------- ------------
$ 1,201,051 $ 1,351,600
========== ============
See notes to consolidated financial statements.
2
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Amounts in thousands)
Nine Nine
months months
ended ended
June 30, July 1,
2001 2000
---------- ----------
Cash flows from operating activities:
Net loss $ (14,397)$ (3,272)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization of fixed assets 48,964 48,951
Provision for doubtful accounts 2,863 2,694
Amortization of intangibles and
deferred debt expense 3,369 14,012
Equity in loss of joint ventures 1,975 699
Deferred income taxes (1,957) (1,077)
Translation gain on liquidation of subsidiary 0 (5,507)
Gain on disposal of assets (5,023) (990)
Provision/(recovery) for restructuring
and impairments (121) (186)
Changes in assets and liabilities:
Customer accounts receivable - net 45,544 (15,759)
Sundry notes and accounts receivable 4,220 (6,038)
Inventories 36,813 (9,335)
Prepaid expenses (1,271) 1,003
Accounts payable and accrued expenses (41,161) (10,375)
Change in income taxes payable (1,718) 2,739
Payment of financing fees (11,872) 0
Other (4,585) (8,597)
---------- ----------
Total adjustments 76,040 12,234
---------- ----------
Net cash provided by operating activities 61,643 8,962
---------- ----------
Cash flows from investing activities:
Capital expenditures (20,985) (56,199)
Proceeds from sales of assets 22,143 6,438
Change in investments (1,487) 5,521
---------- ----------
Net cash used by investing activities (329) (44,240)
---------- ----------
Cash flows from financing activities:
Changes in short-term borrowings (3,400) 3,300
Repayments of long-term debt (155,392) (458)
Proceeds from issuance of long-term debt 81,600 21,331
---------- ----------
Net cash provided (used) by financing activities (77,192) 24,173
---------- ----------
Net change in cash and cash equivalents (15,878) (11,105)
Cash and cash equivalents at beginning of period 26,172 17,402
---------- ----------
Cash and cash equivalents at end of period $ 10,294 $ 6,297
========== ==========
See notes to consolidated financial statements.
3
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Notes to Consolidated Financial Statements
As of and for the nine months ended June 30, 2001
Note A.
With respect to interim quarterly financial data, which are unaudited, in
the opinion of Management, all adjustments necessary to a fair statement of the
results for such interim periods have been included. All adjustments were of a
normal recurring nature.
Note B.
Accounts of certain international subsidiaries are included as of dates
three months or less prior to that of the consolidated balance sheets.
Note C.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and notes thereto. Actual results could differ from those estimates.
Note D.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands):
Three Months Ended Nine Months Ended
--------------------- --------------------
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
---------- ---------- ---------- ---------
Numerator:
Net income (loss)............... $ 1,490 $ 1,494 $ (14,397) $ (3,272)
======== ======== ========= ========
Denominator:
Denominator for basic earnings per
share.......................... 52,613 52,079 52,533 52,074
Effect of dilutive securities:
Stock options.................. 1 10 - -
Contingent stock awards........ 797 125 - -
Performance Unit awards........ - 10 - -
Nonvested stock................ 255 6 - -
-------- -------- -------- --------
Denominator for diluted earnings
per share...................... 53,666 52,516 52,533 52,074
======== ======== ======== =========
Shares not included in the diluted
earnings per share computations
because they were antidilutive... - - 889 148
======== ======== ======== ========
During the first nine months of the 2001 fiscal year, outstanding
shares changed due to the issuance of 10,334 shares to settle Performance Unit
awards, the issuance of 746,340 new shares of restricted nonvested stock, the
forfeiture of 109,007 shares of restricted nonvested stock, and the issuance of
465,543 vested shares related to the acquisition of the Nano-Tex investment.
Note E.
Inventories are summarized as follows (in thousands):
June 30, September 30,
2001 2000
--------- ---------
Inventories at average cost:
Raw materials................................ $ 13,900 $ 27,345
Stock in process............................. 63,517 77,978
Produced goods............................... 177,157 198,176
Dyes, chemicals and supplies................. 16,060 22,618
--------- ---------
270,634 326,117
Less excess of average cost over LIFO........ 32,728 38,148
--------- ---------
Total.................................... $ 237,906 $ 287,969
========= =========
Note F.
Comprehensive income (loss) totaled $2,540,000 and $(1,992,000) for the
three months ended June 30, 2001 and July 1, 2000, respectively, and
$(14,656,000) and $(12,312,000) for the nine months ended June 30, 2001 and July
1, 2000, respectively. Comprehensive income (loss) consists of net income
(loss), foreign currency translation adjustments, unrealized gains/losses on
interest rate derivatives and marketable securities (net of income taxes), and
reclassification of $(5,507,000) in the quarter ended January 1, 2000 for a
foreign currency translation gain arising from the liquidation of the Company's
Canadian subsidiary.
Note G.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Under the statement, all derivatives are
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. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The adoption of SFAS No. 133 on October 1, 2000 resulted
in the cumulative effect of an accounting change of $1.4 million being
recognized as a net gain (after taxes) in other comprehensive income (loss). In
addition, income of $16.2 thousand (after income taxes), or $0.00 per share, was
recognized upon adoption but not presented as a separate line in the
consolidated statement of operations as the cumulative effect of an accounting
change due to lack of materiality.
SFAS No. 133 requires companies to recognize all of its derivative
instruments as either assets or liabilities in the statement of financial
position at fair value. The accounting for changes in the fair value (i.e.,
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and further, on the
type of hedging relationship. For those derivative instruments that are
designated and qualify as hedging instruments, a company must designate the
hedging instrument, based upon the exposure being hedged, as either a fair value
hedge, cash flow hedge or a hedge of a net investment in a foreign operation.
For derivative instruments that are designated and qualify as a fair
value hedge (i.e., hedging the exposure to changes in the fair value of an asset
or a liability or an identified portion thereof that is attributable to a
particular risk), the gain or loss on the derivative instrument as well as the
offsetting loss or gain on the hedged item attributable to the hedged risk are
recognized in current earnings during the period of the change in fair values.
For derivative instruments that are designated and qualify as a cash flow hedge
(i.e., hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss on
the derivative instrument is reported as a component of other comprehensive
income and reclassified into earnings in the same period or periods during which
the hedged transaction affects earnings. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the present value of
future cash flows of the hedged item, if any, is recognized in current earnings
during the period of change. For derivative instruments not designated as
hedging instruments, the gain or loss is recognized in current earnings during
the period of change.
Fair Value Hedging Strategy
The Company enters into forward exchange contracts to hedge certain
firm commitments denominated in foreign currencies. The purpose of the Company's
foreign currency hedging activities is to protect the Company from risk that the
eventual dollar cash flows from the sale of products to international customers
will be adversely affected by changes in the exchange rates.
Cash Flow Hedging Strategy
The Company has entered into interest rate swap and cap agreements that
effectively convert a portion of its floating-rate debt to a fixed-rate basis,
thus reducing the impact of interest-rate changes on future interest expense. At
June 30, 2001, $50 million of the Company's outstanding long-term debt was
designated as the hedged item to an interest rate swap agreement through January
2002, $50 million was designated as the hedged item to an interest rate swap
agreement through November 2002, and $100 million was designated as the hedged
item to an interest rate cap agreement through March 2003.
To protect against the reduction in value of forecasted foreign
currency cash flows resulting from export sales, the Company has instituted a
foreign currency cash flow hedging program. The Company hedges portions of its
forecasted revenue and subsequent cash flows denominated in foreign currencies
with forward contracts. When the dollar strengthens significantly against the
foreign currencies, the decline in value of future foreign currency revenue and
cash flows is offset by gains in the value of the forward contracts designated
as hedges. Conversely, when the dollar weakens, the increase in the value of
future foreign currency cash flows is offset by losses in the value of the
forward contracts.
The fair values of interest rate instruments are estimated by obtaining
quotes from brokers and 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 June 30, 2001, the fair value carrying amounts of these instruments was a
$1.8 million liability. The fair values of foreign currency contracts (used for
hedging purposes) are estimated by obtaining quotes from brokers. At June 30,
2001, the fair value carrying amount related to foreign currency contracts in
the consolidated balance sheet was not material.
During the nine months ended June 30, 2001, the Company recognized a
net gain of $0.1 million related to the ineffective portion of its hedging
instruments, and a gain of $0.1 million related to the portion of the designated
hedging instruments excluded from the assessment of hedge effectiveness,
included in Other Expense (Income) - Net in the statement of operations. At June
30, 2001, the Company expects to reclassify $0.9 million of net losses on
derivative instruments from accumulated other comprehensive income to earnings
during the next twelve months due to actual export sales and the payment of
variable interest associated with the floating rate debt.
Note H.
The Company conducts its operations in four principal operating
segments: PerformanceWear, CasualWear, Interior Furnishings and Carpet.
Beginning in the first quarter of the 2001 fiscal year, the Company changed its
organizational structure so that the Carpet business, formerly part of the
Interior Furnishings segment, reports to the chief operating decision maker.
This represents a change in the Company's segment reporting, and the Company
accordingly has restated its segment information where appropriate to reflect
this change. The Company evaluates performance and allocates resources based on
profit or loss before interest, amortization of goodwill, restructuring charges,
certain unallocated corporate expenses, and income taxes. The following table
sets forth certain information about the segment results (in millions):
Three months ended Nine months ended
------------------- ----------------------
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
-------- -------- -------- -----------
Net sales
PerformanceWear........ $ 123.7 $ 153.4 $ 369.1 $ 442.4
CasualWear............. 60.3 66.1 197.1 172.1
Interior Furnishings... 83.6 116.1 291.0 369.4
Carpet................. 82.5 84.0 220.6 212.4
Other.................. 5.3 8.9 18.4 25.9
-------- -------- -------- --------
355.4 428.5 1,096.2 1,222.2
Less:
Intersegment sales.... (4.3) (8.7) (19.4) (29.2)
-------- -------- -------- --------
$ 351.1 $ 419.8 $1,076.8 $1,193.0
======== ======== ======== ========
Income (loss) before
income taxes
PerformanceWear........ $ 5.4 $ 7.4 $ 5.3 $ 21.5
CasualWear............. (2.0) 1.4 (8.0) (7.9)
Interior Furnishings... (5.1) 2.2 (9.4) 15.3
Carpet................. 16.8 17.3 39.3 39.0
Other.................. (0.2) (0.3) (1.1) (1.1)
-------- -------- -------- --------
Total reportable
segments............ 14.9 28.0 26.1 66.8
Corporate expenses..... (2.9) (4.3) (9.3) (10.0)
Goodwill amortization.. - (4.4) - (13.3)
Restructuring ......... 0.3 0.2 0.1 0.2
Interest expense....... (17.6) (16.8) (54.8) (49.0)
Other (expense)
income - net......... 7.3 2.1 16.0 11.2
-------- -------- -------- --------
$ 2.0 $ 4.8 $ (21.9) $ 5.9
======== ======== ======== ========
Intersegment net sales for the three months ended June 30, 2001 and
July 1, 2000 were primarily attributable to PerformanceWear segment sales of
$2.9 million and $6.0 million, respectively, and $1.2 million and $2.7 million
included in the "Other" category, respectively. Intersegment net sales for the
nine months ended June 30, 2001 and July 1, 2000 were primarily attributable to
PerformanceWear segment sales of $14.9 million and $22.1 million, respectively,
and $4.3 million and $7.1 million included in the "Other" category,
respectively.
Note I.
During the March quarter of 1999, the Company implemented a
comprehensive reorganization plan primarily related to its apparel fabrics
business. The major elements of the plan included:
(1) The combination of two businesses--Burlington Klopman Fabrics and
Burlington Tailored Fashions--into Burlington PerformanceWear. Also, Burlington
Global Denim and a portion of the former Sportswear division were combined to
form Burlington CasualWear.
(2) The reduction of U.S. apparel fabrics capacity by approximately 25
percent and the reorganization of manufacturing assets, including overhead
reductions throughout the Company. Seven plants have been closed or sold by the
dates indicated: one department in Raeford, North Carolina and one plant in
Forest City, North Carolina were closed in the March 1999 quarter; three plants
in North Carolina located in Cramerton (sold in July 1999), Mooresville (sold in
June 2001), and Statesville were closed during the June 1999 quarter and one
plant in Hillsville, Virginia was sold in June 1999; one plant in Bishopville,
South Carolina and one plant located in Oxford, North Carolina (sold in
September 2000) were closed in phases and closure was completed during the March
quarter 2000.
(3) The plan resulted in the reduction of approximately 2,800
employees, with severance benefits payments to be paid over periods of up to 12
months from the termination date depending on the employee's length of service.
The cost of the reorganization was reflected in a restructuring and
impairment charge, before income taxes, of $57.9 million ($55.9 million
applicable to the apparel fabrics business) recorded in the second fiscal
quarter ended April 3, 1999, as adjusted by $3.2 million in the fourth quarter
of 1999, $0.2 million in the June quarter of 2000, $0.5 million in the September
2000 quarter, $0.9 million in the March 2001 quarter, and $2.6 million in the
June 2001 quarter. The components of the adjusted 1999 restructuring and
impairment charge included the establishment of a $17.6 million reserve for
severance benefit payments, write-down of pension assets of $2.7 million for
curtailment and settlement losses, write-downs for impairment of $36.2 million
related to fixed assets resulting from the restructuring and a reserve of $1.4
million for lease cancellations and other exit costs expected to be paid through
September 2001. Cash costs of the reorganization were substantially offset by
cash receipts from asset sales and lower working capital needs.
Following is a summary of activity in the related 1999 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- -------------
March 1999 restructuring charge....... $ 20.1 $ 2.2
Payments.............................. (10.8) (0.5)
Adjustments........................... (1.1) -
------ -----
Balance at October 2, 1999............ 8.2 1.7
Payments.............................. (6.6) (0.8)
Adjustments........................... (1.4) (0.2)
------ -----
Balance at September 30, 2000......... 0.2 0.7
Payments.............................. (0.1) (0.1)
------ -----
Balance at December 30, 2000.......... 0.1 0.6
Payments.............................. (0.1) -
Adjustments........................... - (0.4)
------ -----
Balance at March 31, 2001............. - 0.2
Payments.............................. - -
Adjustments........................... - (0.1)
------ -----
Balance at June 30, 2001.............. $ - $ 0.1
====== ======
Other expenses related to the 1999 restructuring (including losses on
inventories of discontinued styles, relocation of employees and equipment, and
plant carrying and other costs) are charged to operations as incurred. Through
June 30, 2001, $35.2 million of such costs have been incurred and charged to
operations, consisting primarily of inventory losses and plant carrying costs,
in the amounts of $1.0 million, $7.1 million and $27.1 million for the 2001,
2000 and 1999 fiscal years, respectively.
During the September quarter of 2000, the Company's Board of Directors
approved a plan designed to strengthen the Company's future profitability and
financial flexibility. This plan addressed performance shortfalls as well as
difficult market dynamics including the continued growth of textile products
imports, the casual dressing trend, a drop in exports to Europe because of the
weakness of the Euro, price competition in denim and other products, and
retailers' efforts to reduce their inventories of interior furnishings products.
The major elements of the plan include:
(1) Realign operating capacity. The Company reduced capacity to better
align its operations with current market demand and to assure the most efficient
use of assets. This included: closing a plant in Johnson City, Tennessee and
moving a portion of its production to other underutilized facilities in the
first half of fiscal year 2001; reducing operations at the Clarksville, Virginia
facilities of the PerformanceWear segment in the December 2000 quarter; reducing
the size of the Company's trucking fleet and closing the Gaston trucking
terminal located in Belmont, North Carolina in the December 2000 quarter; and
closing a drapery sewing plant of the interior furnishings segment in Mt Olive,
North Carolina in June 2001.
(2) Eliminate unprofitable businesses. The PerformanceWear segment
exited its garment-making business (December 2000), and is offering its facility
in Cuernavaca, Mexico for sale, and has pruned unprofitable product lines. Also,
the Company has exited its BH Floor Accents business by selling (February 2001)
its tufted area rug business and (June 2001) its Bacova printed mat business.
(3) Reduce overhead. The Company has analyzed administrative and staff
positions throughout the Company, and identified a number of opportunities to
consolidate and reduce cost. This resulted in job reductions in division and
corporate staff areas primarily during the December and March quarters of fiscal
year 2001.
(4) Pay down debt. Company-wide initiatives to sell non-performing
assets, reduce working capital, and decrease capital expenditures will free up
cash that will be used to reduce debt and improve financial flexibility.
The closings and overhead reductions outlined above resulted in the
elimination of approximately 2,500 jobs in the United States and 1,000 jobs in
Mexico, with severance benefit payments to be paid over periods of up to 12
months from the termination date depending on the employee's length of service.
This plan resulted in a pre-tax charge for restructuring, asset
write-downs and impairment of $71.0 million. The components of the 2000
restructuring and impairment charge included the establishment of a $17.4
million reserve for severance benefit payments, write-downs for impairment of
$44.0 million (including $12.7 million of goodwill) related to long-lived assets
resulting from the restructuring and a reserve of $9.6 million primarily for
lease cancellation costs expected to be paid through December 2001.
Following is a summary of activity in the related 2000 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- -------------
September 2000 restructuring charge... $ 19.7 $ 10.0
Payments.............................. (0.4) -
------ -------
Balance at September 30, 2000......... 19.3 10.0
Payments.............................. (4.8) (0.1)
------ -------
Balance at December 30, 2000.......... 14.5 9.9
Payments.............................. (7.4) (0.6)
Adjustments........................... (1.4) (0.4)
------ -----
Balance at March 31, 2001............. 5.7 8.9
Payments.............................. (2.5) (4.7)
Adjustments........................... (0.9) -
------ -----
Balance at June 30, 2001.............. $ 2.3 $ 4.2
====== =====
Other expenses related to the 2000 restructuring (including losses on
inventories of discontinued styles, relocation of employees and equipment, and
plant carrying and other costs) are charged to operations as incurred. Through
June 30, 2001, $9.6 million and $8.1 million of such costs have been incurred
and charged to operations during the 2001 and 2000 fiscal years, respectively,
consisting primarily of inventory losses and plant carrying costs.
Assets that have been sold, or are held for sale at June 30, 2001 and
are no longer in use, were written down to their estimated fair values less
costs of sale. Assets held for sale continue to be included in the Fixed Assets
caption on the balance sheet in the amount of $28.0 million. The Company,
through its Real Estate and Purchasing departments, is actively marketing the
affected real estate and equipment. The active plan to sell the assets includes
the preparation of a detailed property marketing package to be used in working
with real estate and used equipment brokers and other channels, including other
textile companies, the local Chamber of Commerce and Economic Development and
the State Economic Development Department. The Company anticipates that the
divestitures of real estate and equipment will be completed within 24 months
from the date of closing. However, the actual timing of the disposition of these
properties may vary due to their locations and market conditions.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Results Of Operations
Net sales for the third quarter of fiscal 2001 were $351.1 million,
compared with $419.8 million in the third quarter of fiscal 2000. Approximately
$36 million of the sales reduction relates to businesses sold or closed in the
fiscal year. The Company reported net earnings of $1.5 million, or $0.03 per
share, for the June 2001 quarter, equal to net earnings of $1.5 million, or
$0.03 per share, in the same quarter last year.
The June 2001 results include, among other things, the net effect of
the following items on an after-tax basis: $1.7 million, or $0.03 per share,
restructuring and runout expenses; $1.0 million, or $0.02 per share, loss from
the Unifi joint venture; and $4.8 million, or $0.09 per share, interest income
resulting from Mexican value-added tax refunds. The June 2000 results included,
among other things, the net effect of the following items on an after- tax
basis: $0.8 million, or $0.01 per share, restructuring and runout expenses; $2.1
million, or $0.04 per share income from the Unifi joint venture; and $4.4
million, or $0.08 per share from amortization expense related to goodwill.
The Company completed the divestiture of Burlington House Floor Accents
with the sale of the Bacova printed mats business in June. Capacity reductions
announced as part of the 2000 restructuring have been completed. The Company is
continuing to focus on improving customer service by reducing cycle times and
improving quality.
Market conditions continue to be very difficult. Cash flow and debt
reduction remain the primary focus. Significant working capital reductions were
achieved early this year and have continued this quarter, reducing inventories
by approximately $89 million from a year ago and $12 million from the March
quarter. The Company generated approximately $37 million in cash from operations
and asset sales during the quarter, and to date has paid down over $77 million
of debt. The Company will be looking at improving its operating efficiencies by
further reducing capacity in order to return to profitability. Although it
expects positive cash flow, the Company expects to post a net loss in the
September 2001 quarter.
The Company's 51%-owned subsidiary, Nano-Tex, LLC, continues to
actively seek applications for its development of chemical modifications to
fabrics in order to impart desirable characteristics for fabric end uses. To
date, Nano-Tex has entered into two (2) licenses with fabric producers,
including the Company, for specific fabric applications of its technology, as
well as nine (9) development agreements with fabric producers to test and apply
Nano-Tex developments in specific fabric fields. Two developments in the apparel
field are now being commercially marketed to consumers through national retail
distribution channels. Nano-Tex's intellectual property portfolio also continues
to grow, with fifty-seven (57) patent applications now on file. For the quarter
ended June 30, 2001, research and marketing expenses exceeded royalty income
from licensing arrangements in place.
Comparison of Three Months ended June 30, 2001 and July 1, 2000.
NET SALES: Net sales for the third quarter of the 2001 fiscal year were
$351.1 million, 16.4% lower than the $419.8 million recorded for the third
quarter of the 2000 fiscal year. Export sales totaled $43.0 million and $41.0
million in the 2001 and 2000 periods, respectively.
PerformanceWear: Net sales for the PerformanceWear segment for the
third quarter of the 2001 fiscal year were $123.7 million, 19.4% lower than the
$153.4 million recorded in the third quarter of the 2000 fiscal year. Excluding
$22.1 million sales reduction due to closed businesses, net sales of the
PerformanceWear markets were 5.8% lower than in the prior year. This decrease
was due primarily to 9.6% lower volume offset by 3.8% higher prices and product
mix.
CasualWear: Net sales for the CasualWear segment for the third quarter
of the 2001 fiscal year were $60.3 million, 8.8% lower than the $66.1 million
recorded in the third quarter of the 2000 fiscal year. This decrease was due
primarily to 7.0% lower volume and 1.8% lower selling prices and product mix.
Interior Furnishings: Net sales of products for interior furnishings
markets for the third quarter of the 2001 fiscal year were $83.6 million, 28.0%
lower than the $116.1 million recorded in the third quarter of the 2000 fiscal
year. Excluding $13.0 million sales reduction due to the sale of the tufted area
rug business, net sales of the interior furnishings segment were 19.0% lower
than in the prior year. This decrease was primarily due to 22.2% lower volume
offset by 3.2% higher selling prices and mix.
Carpet: Net sales for the Carpet segment for the third quarter of the
2001 fiscal year were $82.5 million, 1.8% lower than the $84.0 million recorded
in the third quarter of the 2000 fiscal year. This decrease was primarily due to
7.1% lower volume offset by 5.4% higher selling prices and product mix.
SEGMENT INCOME: Total reportable segment income for the third quarter
of the 2001 fiscal year was $14.9 million compared to $28.0 million for the
third quarter of the 2000 fiscal year.
PerformanceWear: Income of the PerformanceWear segment for the third
quarter of the 2001 fiscal year was $5.4 million compared to $7.4 million
recorded for the third quarter of the 2000 fiscal year. This decrease was due
primarily to $6.6 million reduction in margins resulting from lower volume, $3.4
million deterioration in manufacturing performance due to lower volume,
restructuring and plant curtailments and $4.9 million lower equity earnings from
the Unifi joint venture, partially offset by $3.6 million higher margins due to
price/mix, $1.3 million lower raw material costs, $3.9 million lower start-up
costs in Mexico and $4.1 million of lower selling, general and administrative
expenses resulting from restructuring and cost reduction programs.
CasualWear: Income (loss) of the CasualWear segment for the third
quarter of the 2001 fiscal year was $(2.0) million compared to $1.4 million
recorded for the third quarter of the 2000 fiscal year. This decrease was due
primarily to a deterioration in manufacturing performance of $2.9 million due to
plant curtailments and higher energy costs, $0.9 million reduction in margins
resulting from lower volume and price/mix, and $0.5 million higher bad debt
expense, partially offset by $1.1 million lower raw material costs.
Interior Furnishings: Income (loss) of the interior furnishings
products segment for the third quarter of the 2001 fiscal year was $(5.1)
million compared to $2.2 million recorded for the third quarter of the 2000
fiscal year. This decrease was due primarily to $7.9 million lower margins due
to volume and price/mix and a $3.0 million negative impact on manufacturing
performance due to lower volume and plant curtailments, partially offset by $1.5
million of lower selling, general and administrative expenses resulting from
cost reduction programs and the absence of losses of $2.2 million associated
with the sale of the tufted area rug business.
Carpet: Income of the Carpet segment for the third quarter of the 2001
fiscal year was $16.8 million compared to $17.3 million recorded for the third
quarter of the 2000 fiscal year. This decrease was due primarily to $1.7 million
lower margins due to volume, $1.1 million higher selling expenses resulting from
expanding the sales force for better geographic and market segment coverage,
partially offset by $1.4 million improvement in margins due to price/mix and
$1.0 million improved manufacturing performance.
Other: Losses of other segments for the third quarter of the 2001
fiscal year were $(0.2) million compared to $(0.3) million recorded for the
third quarter of the 2000 fiscal year. This resulted primarily from improved
results in the trucking business.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $2.9 million for the third quarter of 2001 compared to $4.3 million
for the third quarter of the 2000 fiscal year. This reduction is due to timing
of maintenance expenses in the prior year and the cost reductions in the current
year resulting from the 2000 restructuring plan.
OPERATING INCOME BEFORE INTEREST AND TAXES: Operating income before
interest and taxes for the third quarter of the 2001 fiscal year was $14.0
million compared to $15.9 million for the third quarter of the 2000 fiscal year.
Amortization of goodwill was $0.0 and $4.4 million in the third quarter of the
2001 and 2000 fiscal years, respectively. In September 2000, the Company changed
its method of evaluating the recoverability of enterprise-level goodwill from
the undiscounted cash flow method to the market value method, resulting in an
impairment charge to write-off the remaining carrying value of enterprise-level
goodwill in the September 2000 quarter.
INTEREST EXPENSE: Interest expense for the third quarter of the 2001
fiscal year was $17.6 million, or 5.0% of net sales, compared with $16.8
million, or 4.0% of net sales, in the third quarter of the 2000 fiscal year. The
increase was mainly attributable to the effects of higher interest rates and
higher amortization of fees associated with the new bank credit facility,
partially offset by lower borrowing levels.
OTHER EXPENSE (INCOME): Other income for the third quarter of the 2001
fiscal year was $7.3 million consisting principally of interest income,
including interest of $6.3 million related to refunds of value-added taxes in
Mexico. Other income for the third quarter of the 2000 fiscal year was $2.1
million consisting principally of interest income.
INCOME TAX EXPENSE (BENEFIT): Income tax expense of $0.5 million was
recorded for the third quarter of the 2001 fiscal year in comparison with $3.3
million for the third quarter of the 2000 fiscal year. The total income tax
expense for the 2001 period is different from the amounts obtained by applying
statutory rates to loss before income taxes primarily as a result of tax rate
differences on foreign transactions, partially offset by the favorable tax
treatment of export sales through a foreign sales corporation ("FSC"). The 2000
income tax expense is different from the amounts obtained by applying statutory
rates to income before income taxes primarily as a result of amortization of
nondeductible goodwill, partially offset by the favorable tax treatment of
export sales through the FSC. The U.S. law providing the FSC benefits has been
found to be non-compliant under GATT treaty provisions according to challenges
raised by the World Trade Organization ("WTO"). The Company cannot predict the
impact on its future use of the FSC benefit under the ultimate program put into
place and its acceptability to the WTO.
NET INCOME AND INCOME PER SHARE: Net income for the third quarter of
the 2001 and 2000 fiscal years was $1.5 million, or $0.03 per share. Net income
for the third quarter of the 2001 fiscal year included a net charge of $(0.03)
per share related to restructuring and run-out costs resulting from the 2000
restructuring, $(0.02) per share loss from the Unifi joint venture, and interest
income of $0.09 per share related to refunds of value-added taxes in Mexico. Net
income for the third quarter of the 2000 fiscal year included a net charge of
$(0.01) per share related to restructuring and run-out costs resulting from the
1999 restructuring, $(0.08) from amortization expense related to goodwill and
$0.04 per share income from the Unifi joint venture.
Comparison of Nine Months ended June 30, 2001 and July 1, 2000.
NET SALES: Net sales for the first nine months of the 2001 fiscal year
were $1,076.8 million, 9.7% lower than the $1,193.0 million recorded for the
first nine months of the 2000 fiscal year. Export sales totaled $124.0 million
and $125.0 million in the 2001 and 2000 periods, respectively.
PerformanceWear: Net sales for the PerformanceWear segment for the
first nine months of the 2001 fiscal year were $369.1 million, 16.6% lower than
the $442.4 million recorded in the first nine months of the 2000 fiscal year.
Excluding $45.7 million sales reduction due to closed businesses, net sales of
the PerformanceWear markets were 7.0% lower than in the prior year. This
decrease was due primarily to 6.5% lower volume and 0.5% lower selling prices
and product mix.
CasualWear: Net sales for the CasualWear segment for the first nine
months of the 2001 fiscal year were $197.1 million, 14.5% higher than the $172.1
million recorded in the first nine months of the 2000 fiscal year. This increase
was due primarily to 19.0% higher volume offset by 4.5% lower selling prices and
product mix.
Interior Furnishings: Net sales of products for interior furnishings
markets for the first nine months of the 2001 fiscal year were $291.0 million,
21.2% lower than the $369.4 million recorded in the first nine months of the
2000 fiscal year. Excluding $30.7 million sales reduction due to the sale of the
tufted area rug business ($20.0 million in 2001 versus $50.7 million in 2000),
net sales of the interior furnishings markets were 15.0% lower than in the prior
year. This decrease was primarily due to 16.1% lower volume partially offset by
1.1% higher selling prices and mix.
Carpet: Net sales for the Carpet segment for the first nine months of
the 2001 fiscal year were $220.6 million, 3.9% higher than the $212.4 million
recorded in the first nine months of the 2000 fiscal year. This increase was
primarily due to 6.5% higher selling prices and product mix offset by 2.6% lower
volume.
SEGMENT INCOME: Total reportable segment income for the first nine
months of the 2001 fiscal year was $26.1 million compared to $66.8 million for
the first nine months of the 2000 fiscal year.
PerformanceWear: Income of the PerformanceWear segment for the first
nine months of the 2001 fiscal year was $5.3 million compared to $21.5 million
recorded for the first nine months of the 2000 fiscal year. This decrease was
due primarily to $13.5 million reduction in margins resulting from lower volume
and price/mix, $16.9 million deterioration in manufacturing performance due to
lower volume, restructuring and plant curtailments and $6.9 million lower equity
earnings from the Unifi joint venture, partially offset by $10.3 million lower
start-up costs in Mexico, $7.6 million of lower selling, general and
administrative expenses resulting from restructuring and cost reduction
programs, and $3.1 million of lower raw material costs.
CasualWear: Losses of the CasualWear segment for the first nine months
of the 2001 fiscal year were $(8.0) million compared to $(7.9) million recorded
for the first nine months of the 2000 fiscal year. This decrease was due
primarily to $3.9 million lower margins due to selling prices and mix, higher
selling, general and administrative expenses of $0.9 million associated with
growing the garment business, and $0.3 million reduction in manufacturing
performance after incurring the costs associated with plant curtailments,
partially offset by $3.0 million higher margins due to volume and lower raw
material costs of $1.9 million.
Interior Furnishings: Income (loss) of the interior furnishings
products segment for the first nine months of the 2001 fiscal year was $(9.4)
million compared to $15.3 million recorded for the first nine months of the 2000
fiscal year. This decrease was due primarily to $18.1 million lower margins due
to volume and price/mix and a $12.3 million negative impact on manufacturing
performance due to lower volume, restructuring and plant curtailments, partially
offset by $1.4 million lower raw material costs and $4.1 million of lower
selling, general and administrative expenses resulting from cost reduction
programs and the sale of the tufted area rug business.
Carpet: Income of the Carpet segment for the first nine months of the
2001 fiscal year was $39.3 million compared to $39.0 million recorded for the
first nine months of the 2000 fiscal year. This increase was due primarily to
$8.2 million higher margins due to price/mix, offset by $2.7 million higher raw
material costs, $1.1 million reduction in margins due to manufacturing
inefficiencies caused by production curtailments to reduce inventory levels, and
$4.0 million higher selling expenses resulting from expanding the sales force
for better geographic and market segment coverage and costs associated with the
introduction of new products.
Other: Losses of other segments were $(1.1) million for the first
nine months of the 2001 and 2000 fiscal years.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $9.3 million for the first nine months of the 2001 fiscal year
compared to $10.0 million for the first nine months of the 2000 fiscal year.
This reduction is due primarily to the cost reductions resulting from the 2000
restructuring plan.
OPERATING INCOME BEFORE INTEREST AND TAXES: Operating income before
interest and taxes for the first nine months of the 2001 fiscal year was $16.2
million compared to $36.3 million for the first nine months of the 2000 fiscal
year. Amortization of goodwill was $0.0 and $13.3 million in the first nine
months of the 2001 and 2000 fiscal years, respectively. In September 2000, the
Company changed its method of evaluating the recoverability of enterprise-level
goodwill from the undiscounted cash flow method to the market value method,
resulting in an impairment charge to write-off the remaining carrying value of
enterprise-level goodwill in the September 2000 quarter.
INTEREST EXPENSE: Interest expense for the first nine months of the
2001 fiscal year was $54.8 million, or 5.1% of net sales, compared with $49.0
million, or 4.1% of net sales, in the first nine months of the 2000 fiscal year.
The increase was mainly attributable to the effects of higher interest rates and
higher amortization of fees associated with the new bank credit facility,
partially offset by lower borrowing levels.
OTHER EXPENSE (INCOME): Other income for the first nine months of the
2001 fiscal year was $16.0 million consisting principally of gains on the
disposal of assets of $5.0 million and interest income of $11.0 million,
including interest of $6.3 million related to refunds of value-added taxes in
Mexico. Other income for the first nine months of the 2000 fiscal year was $11.2
million consisting principally of a $5.5 million translation gain on the
liquidation of the Company's Canadian subsidiary, a gain on the disposal of
assets of $1.0 million and interest income of $4.7 million.
INCOME TAX EXPENSE (BENEFIT): Income tax benefit of $(7.5) million was
recorded for the first nine months of the 2001 fiscal year in comparison with
income tax expense of $9.2 million for the first nine months of the 2000 fiscal
year. The total income tax benefit for the 2001 period is different from the
amounts obtained by applying statutory rates to loss before income taxes
primarily as a result of tax rate differences on foreign transactions, partially
offset by the favorable tax treatment of export sales through a foreign sales
corporation ("FSC"). The 2000 period includes a $5.7 million charge related to
the liquidation of the Company's Canadian subsidiary and U.S. taxes on income
previously considered permanently invested. Excluding the tax on the Canadian
liquidation, the 2000 income tax benefit is different from the amounts obtained
by applying statutory rates to the loss before income taxes primarily as a
result of amortization of nondeductible goodwill, partially offset by the
favorable tax treatment of export sales through the FSC. The favorable tax
benefit from the FSC was lower in the current period compared to the 2000 period
due to the reduction in export sales. The U.S. law providing the FSC benefits
has been found to be non-compliant under GATT treaty provisions according to
challenges raised by the World Trade Organization ("WTO"). The Company cannot
predict the impact on its future use of the FSC benefit under the ultimate
program put into place and its acceptability to the WTO.
NET LOSS AND LOSS PER SHARE: Net loss for the first nine months of the
2001 fiscal year was $(14.4) million, or $(0.27) per share, in comparison with
$(3.3) million, or $(0.06) per share, for the first nine months of the 2000
fiscal year. Net loss for the first nine months of the 2001 fiscal year included
a net charge of $(0.13) per share related to restructuring and run-out costs
resulting from the 2000 restructuring, $0.01 per share gain from the Unifi joint
venture, interest income of $0.09 per share related to refunds of value-added
taxes in Mexico and a net gain of $0.06 per share related to the sale of assets.
Net loss for the first nine months of the 2000 fiscal year included a net charge
of $(0.07) per share related to restructuring and run-out costs resulting from
the 1999 restructuring, $(0.25) from amortization expense related to goodwill
and $0.09 per share income from the Unifi joint venture.
Liquidity and Capital Resources
During the first nine months of the 2001 fiscal year, the Company
generated $61.6 million of cash from operating activities and $22.1 million from
sales of assets. Cash was primarily used for net repayments of long- and
short-term debt of $77.2 million and capital expenditures and other investing
activities of $22.4 million. At June 30, 2001, total debt of the Company
(consisting of current and non-current portions of long-term debt and short-term
borrowings) was $821.7 million compared with $899.9 million at September 30,
2000.
The Company's principal uses of funds during the next several years
will be for repayment and servicing of indebtedness, working capital needs and
capital investments (including participations in joint ventures and funding of
acquisitions). The Company intends to fund its financial needs principally from
net cash provided by operating activities, asset sales and, to the extent
necessary, from funds provided by the credit facilities described below. The
Company believes that these sources of funds will be adequate to meet the
Company's foregoing needs.
During the first nine months of the 2001 fiscal year, investment in
capital expenditures totaled $21.0 million, compared to $56.2 million in the
2000 period. The Company anticipates that the level of capital expenditures for
fiscal year 2001 will total approximately $26 million.
In August 1997, the Company issued $150.0 million principal amount of 7.25%
notes due August 1, 2027 ("Notes Due 2027"). The Notes Due 2027 will be
redeemable as a whole or in part at the option of the Company at any time on or
after August 2, 2007, and will also be redeemable at the option of the holders
thereof on August 1, 2007 in amounts at 100% of their principal amount. In
September 1995, the Company issued $150.0 million principal amount of 7.25%
notes due September 15, 2005 ("Notes Due 2005"). The Notes Due 2005 are not
redeemable prior to maturity. The Notes Due 2027 and the Notes Due 2005 are
unsecured and rank equally with all other unsecured and unsubordinated
indebtedness of the Company.
On December 5, 2000, the Company entered into an amended bank credit
agreement ("2000 Bank Credit Agreement") which extends the 1995 Bank Credit
Agreement to the earlier of (i) June 5, 2003 or (ii) the date that is the later
of (x) November 10, 2002 or (y) 30 days prior to the maturity date of the
Receivables Facility described below, as extended in a refinanced facility. The
2000 Bank Credit Agreement consists of a $600.0 million revolving credit
facility that provides for the issuance of letters of credit by the fronting
bank in an outstanding aggregate face amount not to exceed $75.0 million, and
provides short-term overnight borrowings up to $30.0 million, provided that at
no time shall the aggregate principal amount of revolving loans and short-term
borrowings, together with the aggregate face amount of such letters of credit
issued, exceed $600.0 million. At August 4, 2001, the Company had approximately
$183.4 million in unused capacity under this facility.
Loans under the 2000 Bank Credit Agreement bear interest at floating
rates based on the Adjusted Eurodollar Rate plus 3.25%. In addition, the Company
pays an annual commitment fee of 0.50% on the unused portion of the facility.
The facility commitment amount will be reduced to $525.0 million on September
30, 2001 and to $450.0 million on September 30, 2002.
The 2000 Bank Credit Agreement imposes various limitations on the
liquidity and flexibility 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 amended Agreement contains covenants
applicable to the Company and all material subsidiaries, limiting the incurrence
of additional indebtedness and guarantees thereof, the creation of liens and
other encumbrances on properties, the making of investments or acquisitions, the
sale or other disposition of property or assets, the making of cash dividend or
other restricted payments, the entering into of certain lease and sale and
leaseback transactions, the making of capital expenditures beyond certain
limits, and entering into certain transactions with affiliates or agreements
which are materially adverse to the bank lenders. All obligations under the
amended facility are unconditionally guaranteed by each material existing and
subsequently acquired or organized domestic subsidiary of the Company. The
facility is also secured by perfected first-priority security interests in
substantially all U.S. assets of the Company other than receivables, including
significant real properties, inventory and fixed assets and all of the capital
stock of the Company's existing and future subsidiaries, limited in the case of
any foreign subsidiary to 65.0% of their capital stock. In addition, proceeds
from sales of assets, except for certain exclusions, must be used to repay
borrowings under the facility.
The Company is in compliance with all of the covenants under the 2000
Bank Credit Agreement at June 30, 2001, which requires the Company, among other
covenants, to maintain a certain level of EBITDA (earnings before interest,
taxes, depreciation and amortization) in relation to debt as of the end of each
fiscal quarter. Based on current levels of operating profit and the uncertainty
of business conditions in the months ahead, the Company may not be able to
comply with one or more of such covenants, possibly as early as the end of the
September 2001 quarter. The Company has discussed with representatives of its
bank group the possible future non-compliance with covenants under the 2000 Bank
Credit Agreement and believes it will be successful in negotiating revised
covenant terms or a waiver of any possible violation. However, there can be no
assurance that the Company will be able to satisfactorily renegotiate its
covenants or obtain a waiver, or refinance its debt from alternative sources. If
a default under the credit agreement occurred, the bank group could elect to
declare all obligations under the 2000 Bank Credit Agreement to be due and
payable, which would materially and adversely affect the Company's financial
condition in the absence of alternative financing sources.
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 August 4, 2001, $118.4 million in borrowings under this facility
with original maturities of up to 42 days was outstanding.
Because the Company's obligations under the bank credit facility and
the Receivables Facility bear interest at floating rates, the Company is
sensitive to changes in prevailing interest rates. The Company uses derivative
instruments to manage its interest rate exposure, rather than for trading
purposes.
Commodity Price Risk
The Company manages its exposure to changes in commodity prices
primarily through its procurement practices. 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 June 30, 2001,
and market prices of cotton decreased by 10%, the Company would be required to
pay a net settlement provision of approximately $2.0 million. However, the
Company has not utilized this net settlement provision in the past, and does not
anticipate using it in the future.
Forward-Looking Statements
With the exception of historical information, the statements contained in
Management's Discussion and Analysis of Results of Operations and Financial
Condition and in other parts of this report include statements that are
forward-looking statements within the meaning of applicable federal securities
laws and are based upon the Company's current expectations and assumptions,
which are subject to a number of risks and uncertainties that could cause actual
results to differ materially from those anticipated. Such risks and
uncertainties include, among other things, global economic activity, the success
of the Company's overall business strategy, the Company's relationships with its
principal customers and suppliers, the success of the Company's operations in
other countries, the demand for textile products, the cost and availability of
raw materials and labor, the Company's ability to service its existing debt and
to finance its capital expenditures and working capital needs, the level of the
Company's indebtedness and its exposure to interest rate fluctuations, its
compliance with the terms of its financing agreements, and, if necessary, its
ability to obtain waivers or renegotiate covenants on commercially reasonable
terms, governmental legislation and regulatory changes, and the long-term
implications of regional trade blocs and the effect of quota phase-out and
lowering of tariffs under the WTO trade regime and of the changes in U.S.
apparel trade as a result of recently-enacted Caribbean Basin and Sub-Saharan
African trade legislation. Other risks and uncertainties may also be described
from time to time in the Company's other reports and filings with the Securities
and Exchange Commission.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits.
--------
None.
b) Reports on Form 8-K.
-------------------
The Company did not file any reports on Form 8-K
during the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURLINGTON INDUSTRIES, INC.
By /s/ CHARLES E. PETERS, JR.
------------------------------
Date: August 13, 2001 Charles E. Peters, Jr.
Senior Vice President and
Chief Financial Officer
By /s/ CARL J. HAWK
------------------------------
Date: August 13, 2001 Carl J. Hawk
Controller