FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2002
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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 1, 2002 there were outstanding 53,328,304 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
(Debtors-in-Possession as of November 15, 2001)
Consolidated Statements of Operations
(Amounts in thousands)
Three Three Nine Nine
months months months months
ended ended ended ended
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net sales $ 269,718 $ 351,123 $ 772,443 $ 1,076,849
Cost of sales 240,936 308,355 719,731 966,699
---------- ---------- ---------- ----------
Gross profit 28,782 42,768 52,712 110,150
Selling, general and
administrative expenses 24,508 28,892 77,497 91,221
Provision for doubtful accounts (155) 236 3,583 2,863
Provision/(recovery) for
restructuring/impairments 12,086 (357) 145,738 (121)
---------- ---------- ---------- ----------
Operating income (loss) before
interest and taxes (7,657) 13,997 (174,106) 16,187
Interest expense (contractual
interest of $14,144 and $44,814
for the three and nine months
ended June 29, 2002,
respectively) 8,716 17,588 31,187 54,836
Equity in (income) loss of
joint ventures (682) 1,638 (1,419) (725)
Other expense (income) - net (1,592) (7,255) (2,906) (16,010)
---------- ---------- ---------- ----------
Income (loss) before
reorganization items
and income taxes (14,099) 2,026 (200,968) (21,914)
Reorganization items 5,092 0 19,902 0
---------- ---------- ---------- ----------
Income (loss) before
income taxes (19,191) 2,026 (220,870) (21,914)
Income tax expense (benefit):
Current (3,122) 429 (50,062) (5,560)
Deferred (4,917) 107 (33,971) (1,957)
---------- ---------- ---------- ----------
Total income tax
expense (benefit) (8,039) 536 (84,033) (7,517)
---------- ---------- ---------- ----------
Net income (loss) $ (11,152)$ 1,490 $ (136,837)$ (14,397)
========== ========== ========== ==========
Basic and diluted earnings (loss)
per common share $ (0.21)$ 0.03 $ (2.57)$ (0.27)
See notes to consolidated financial statements.
1
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
(Debtors-in-Possession as of November 15, 2001)
Consolidated Balance Sheets
(Amounts in thousands)
June 29, September 29,
2002 2001
---------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 102,684 $ 87,473
Short-term investments 12,633 13,394
Customer accounts receivable after
deductions of $9,938 and $12,406 for the
respective dates for doubtful accounts,
discounts, returns and allowances 143,476 195,571
Sundry notes and accounts receivable 41,116 21,985
Inventories 138,791 216,968
Prepaid expenses 7,075 3,329
---------- -------------
Total current assets 445,775 538,720
Fixed assets, at cost:
Land and land improvements 18,322 23,334
Buildings 252,557 352,491
Machinery, fixtures and equipment 462,032 585,425
---------- -------------
732,911 961,250
Less accumulated depreciation and amortization 393,348 456,890
---------- -------------
Fixed assets - net 339,563 504,360
Other assets:
Assets held for sale 41,061 32,818
Investments and receivables 47,844 48,405
Intangibles and deferred charges 50,027 60,692
---------- -------------
Total other assets 138,932 141,915
---------- -------------
$ 924,270 $ 1,184,995
========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities not subject to compromise:
Current liabilities:
Long-term debt - current $ 464,617 $ 476,900
Accounts payable - trade 32,844 62,171
Sundry payables and accrued expenses 67,475 79,724
Income taxes payable 3,475 4,566
Deferred income taxes 17,974 31,819
---------- -------------
Total current liabilities 586,385 655,180
Long-term liabilities:
Long-term debt 0 397,068
Other 46,555 53,957
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Total long-term liabilities 46,555 451,025
Deferred income taxes 33,879 53,346
---------- -------------
Total liabilities not subject
to compromise 666,819 1,159,551
Liabilities subject to compromise 366,996 0
---------- -------------
Total liabilities 1,033,815 1,159,551
Shareholders' equity (deficit):
Common stock issued 703 700
Capital in excess of par value 886,943 885,935
Accumulated deficit (840,253) (703,416)
Accumulated other comprehensive income (loss) (1,010) (1,860)
Cost of common stock held in treasury (155,928) (155,915)
---------- -------------
Total shareholders' equity (deficit) (109,545) 25,444
---------- -------------
$ 924,270 $ 1,184,995
========== =============
See notes to consolidated financial statements.
2
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
(Debtors-in-Possession as of November 15, 2001)
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Amounts in thousands)
Nine Nine
months months
ended ended
June 29, June 30,
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss $ (136,837)$ (14,397)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization
of fixed assets 40,637 48,964
Provision for doubtful accounts 3,583 2,863
Amortization of intangibles and deferred
debt expense 5,583 3,369
Equity in (income) loss of joint ventures (1,419) 1,975
Deferred income taxes (33,971) (1,957)
Gain on disposal of assets (777) (5,023)
Provision/(recovery) for
restructuring/impairments 145,738 (121)
Non-cash reorganization items 3,577 0
Changes in assets and liabilities:
Customer accounts receivable - net 31,532 45,544
Sundry notes and accounts receivable (19,131) 4,220
Inventories 51,474 36,813
Prepaid expenses (3,746) (1,271)
Accounts payable and accrued expenses 7,137 (41,161)
Change in income taxes payable (1,091) (1,718)
Other (935) (4,585)
----------- -----------
Total adjustments 228,191 87,912
----------- -----------
Net cash provided by operating activities 91,354 73,515
----------- -----------
Cash flows from investing activities:
Capital expenditures (8,341) (20,985)
Proceeds from sales of assets 47,215 22,143
Change in investments 2,014 (1,487)
----------- -----------
Net cash provided (used) by investing activities 40,888 (329)
----------- -----------
Cash flows from financing activities:
Changes in short-term borrowings 0 (3,400)
Repayments of long-term debt (111,889) (155,392)
Proceeds from issuance of long-term debt 0 81,600
Payment of financing fees (5,142) (11,872)
----------- -----------
Net cash used by financing activities (117,031) (89,064)
----------- -----------
Net change in cash and cash equivalents 15,211 (15,878)
Cash and cash equivalents at beginning of period 87,473 26,172
----------- -----------
Cash and cash equivalents at end of period $ 102,684 $ 10,294
=========== ===========
See notes to consolidated financial statements.
3
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
(Debtors-in-Possession as of November 15, 2001)
Notes to Consolidated Financial Statements
As of and for the nine months ended June 29, 2002
Note A.
On November 15, 2001 (the "Petition Date"), the Company and certain of
its domestic subsidiaries (collectively, the "Debtors"), filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
District of Delaware (Case Nos. 01-11282 through 01-11306) (the "Bankruptcy
Court"). The Chapter 11 cases pending for the Debtors (the "Chapter 11 Cases")
are being jointly administered for procedural purposes only. International
operations, joint venture partnerships, Nano-Tex, LLC and Burlington WorldWide
Limited and certain other subsidiaries were not included in the filing.
In conjunction with the commencement of the Chapter 11 Cases, the
Debtors sought and obtained several orders from the Bankruptcy Court which were
intended to enable the Debtors to operate in the normal course of business
during the Chapter 11 Cases. The most significant of these orders (i) permit the
Debtors to operate their consolidated cash management system during the Chapter
11 Cases in substantially the same manner as it was operated prior to the
commencement of the Chapter 11 Cases, (ii) authorize payment of prepetition
employee salaries, wages, and benefits and reimbursement of prepetition employee
business expenses, (iii) authorize payment of prepetition sales, payroll, and
use taxes owed by the Debtors, (iv) authorize payment of certain prepetition
obligations to customers, and (v) authorize limited payment of prepetition
obligations to certain critical vendors to aid the Debtors in maintaining the
operation of their businesses. Subsequent orders set guidelines for sales of
assets, authorized severance payments to terminated employees and authorized
retention incentive payments to certain managers.
On December 12, 2001, the Bankruptcy Court entered an order (the "DIP
Financing Order") authorizing the Debtors to enter into a debtor-in-possession
financing facility (the "DIP Financing Facility") with JPMorgan Chase Bank and a
syndicate of financial institutions, and to grant first priority mortgages,
security interests, liens (including priming liens), and superiority claims on
substantially all of the assets of the Debtors to secure the DIP Financing
Facility. Under the terms of the DIP Financing Order, a $190.0 million revolving
credit facility, including up to $50.0 million for postpetition letters of
credit, is available to the Company until the earliest of (i) November 15, 2003,
(ii) the date on which the plan of reorganization becomes effective, (iii) any
material non-compliance with any of the terms of the Final DIP Financing Order,
or (iv) any event of default shall have occurred and be continuing under the DIP
Financing Facility. Amounts borrowed under the DIP Financing Facility bear
interest at the option of the Company at the rate of the London Interbank
Offering Rate ("LIBOR") plus 3.0% per annum, or the Alternate Base Rate plus
2.0%. In addition, there is an unused commitment fee of 0.50% on the unused
commitment and a letter of credit fee of 3.0% per annum on letters of credit
outstanding. The DIP Financing Facility is secured by, in part, the receivables
that formerly secured the Receivables Facility described below. On November 16,
2001, the Company borrowed $95.0 million under an Interim DIP Financing Facility
principally in order to repay all loans and accrued interest related to such
Receivables Facility, as well as certain other financing fees. At August 1,
2002, principal amount of $0.0 million was outstanding and the Company had
approximately $186.7 million in unused capacity available under this Facility.
The documentation evidencing the DIP Financing Facility contains financial
covenants requiring the Company to maintain minimum levels of earnings before
interest, taxes, depreciation, amortization, restructuring and reorganization
items ("EBITDA"), as defined. In addition, the DIP Financing Facility contains
covenants applicable to the Debtors, including 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
payments, the making of capital expenditures beyond certain limits, and entering
into certain transactions with affiliates. In addition, proceeds from sales of
certain assets must be used to repay specified borrowings and permanently reduce
the commitment amount under the Facility.
The Debtors are currently operating their businesses as
debtors-in-possession pursuant to the Bankruptcy Code. Pursuant to the
Bankruptcy Code, prepetition obligations of the Debtors, including obligations
under debt instruments, generally may not be enforced against the Debtors, and
any actions to collect prepetition indebtedness are automatically stayed, unless
the stay is lifted by the Bankruptcy Court. The rights of and ultimate payments
by the Company under prepetition obligations may be substantially altered. This
could result in claims being liquidated in the Chapter 11 Cases at less (and
possibly substantially less) than 100% of their face value. In addition, as
debtors-in-possession, the Debtors have the right, subject to Bankruptcy Court
approval and certain other limitations, to assume or reject executory contracts
and unexpired leases. In this context, "assumption" means that the Debtors agree
to perform their obligations and cure all existing defaults under the contract
or lease, and "rejection" means that the Debtors are relieved from their
obligations to perform further under the contract or lease, but are subject to a
claim for damages for the breach thereof. Any damages resulting from rejection
of executory contracts and unexpired leases will be treated as general unsecured
claims in the Chapter 11 Cases unless such claims had been secured on a
prepetition basis prior to the Petition Date. The Debtors are in the process of
reviewing their executory contracts and unexpired leases to determine which, if
any, they will reject. The Debtors cannot presently determine or reasonably
estimate the ultimate liability that may result from rejecting contracts or
leases or from the filing of claims for any rejected contracts or leases, and no
provisions have yet been made for these items. The Bankruptcy Court established
July 22, 2002 as the "bar date" as of which all claimants were required to
submit and characterize claims against the debtors. Debtors are assessing the
claims filed and their impact on the development of a plan of reorganization.
The amount of the claims to be filed by the creditors could be significantly
different than the amount of the liabilities recorded by the Company.
The United States trustee for the District of Delaware has appointed an
Official Committee of Unsecured Creditors in accordance with the provisions of
the Bankruptcy Code. The Bankruptcy Code provides that the Debtors have
exclusive periods during which only they may file and solicit acceptances of a
plan of reorganization. The original exclusive period of the Debtors to file a
plan for reorganization expired on March 15, 2002; however, the Bankruptcy Court
has extended such exclusive period to November 15, 2002 if the Debtors file a
plan by September 16, 2002. If the Debtors fail to file a plan of reorganization
during the exclusive period or, after such plan has been filed, if the Debtors
fail to obtain acceptance of such plan from the requisite impaired classes of
creditors and equity holders during the exclusive solicitation period, any party
in interest, including a creditor, an equity holder, a committee of creditors or
equity holders, or an indenture trustee, may file their own plan of
reorganization for the Debtors. After a plan of reorganization has been filed
with the Bankruptcy Court, the plan, along with a disclosure statement approved
by the Bankruptcy Court, will be sent to all creditors and equity holders.
Following the solicitation period, the Bankruptcy Court will consider whether to
confirm the plan. In order to confirm a plan of reorganization, the Bankruptcy
Court, among other things, is required to find that (i) with respect to each
impaired class of creditors and equity holders, each holder in such class has
accepted the plan or will, pursuant to the plan, receive at least as much as
such holder would receive in a liquidation, (ii) each impaired class of
creditors and equity holders has accepted the plan by the requisite vote (except
as described in the following sentence), and (iii) confirmation of the plan is
not likely to be followed by a liquidation or a need for further financial
reorganization of the Debtors or any successors to the Debtors unless the plan
proposes such liquidation or reorganization. If any impaired class of creditors
or equity holders does not accept the plan and, assuming that all of the other
requirements of the Bankruptcy Code are met, the proponent of the plan may
invoke the "cram down" provisions of the Bankruptcy Code. Under these
provisions, the Bankruptcy Court may confirm a plan notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity holders
if certain requirements of the Bankruptcy Code are met. These requirements may,
among other things, necessitate payment in full for senior classes of creditors
before payment to a junior class can be made. As a result of the amount of
prepetition indebtedness and the availability of the "cram down" provisions, the
holders of the Company's capital stock may receive no value for their interests
under the plan of reorganization. Because of such possibility, the value of the
Company's outstanding capital stock and unsecured instruments are highly
speculative.
Since the Petition Date, the Debtors have conducted business in the
ordinary course. Management is in the process of implementing its announced
restructuring plan and evaluating the Debtors' operations as part of the
development of a plan of reorganization. After developing a plan of
reorganization, the Debtors will seek the requisite acceptance of the plan by
impaired creditors and equity holders and confirmation of the plan by the
Bankruptcy Court, all in accordance with the applicable provisions of the
Bankruptcy Code. During the pendency of the Chapter 11 Cases, the Debtors may,
with Bankruptcy Court approval, sell assets and settle liabilities, including
for amounts other than those reflected in the financial statements. The Debtors
are in the process of reviewing their operations and identifying assets for
disposition. The administrative and reorganization expenses resulting from the
Chapter 11 Cases will unfavorably affect the Debtors' results of operations.
Future results of operations may also be adversely affected by other factors
related to the Chapter 11 Cases. The discussions below under the captions "2001
Restructuring and Impairment" and "2002 Restructuring and Impairment" describe
the actions the Company is taking to align manufacturing capacity with market
demand and reorganize the manner in which it makes or services products to meet
customer demand. The financial reporting charges and cash costs of such actions
have required the Company to enter into amendments of certain of the covenants
under the DIP Financing Facility.
Basis of Presentation
The accompanying consolidated financial statements are presented in
accordance with American Institute of Certified Public Accountants Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" (SOP 90-7), and have been prepared in accordance with
accounting principles generally accepted in the United States applicable to a
going concern, which principles, except as otherwise disclosed, assume that
assets will be realized and liabilities will be discharged in the ordinary
course of business. The Company is currently operating under the jurisdiction of
Chapter 11 of the Bankruptcy Code and the Bankruptcy Court, and continuation of
the Company as a going concern is contingent upon, among other things, its
ability to formulate a plan of reorganization which will gain approval of the
requisite parties under the Bankruptcy Code and confirmation by the Bankruptcy
Court, its ability to comply with the DIP Financing Facility, its ability to
return to profitability, generate sufficient cash flows from operations and
obtain financing sources to meet future obligations. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might result from
the outcome of these uncertainties.
While under the protection of Chapter 11, the Company may sell or
otherwise dispose of assets, and liquidate or settle liabilities, for amounts
other than those reflected in the financial statements. Additionally, the
amounts reported on the consolidated balance sheet could materially change
because of changes in business strategies and the effects of any proposed plan
of reorganization. In the Chapter 11 Cases, substantially all unsecured
liabilities as of the Petition Date are subject to compromise or other treatment
under a plan of reorganization which must be confirmed by the Bankruptcy Court
after submission to any required vote by affected parties. For financial
reporting purposes, those liabilities and obligations whose treatment and
satisfaction is dependent on the outcome of the Chapter 11 Cases, have been
segregated and classified as liabilities subject to compromise in the
accompanying consolidated balance sheet. Generally, all actions to enforce or
otherwise effect repayment of pre-Chapter 11 liabilities as well as all pending
litigation against the Debtors are stayed while the Debtors continue their
business operations as debtors-in-possession. The ultimate amount of and
settlement terms for such liabilities are subject to approval of a plan of
reorganization and accordingly are not presently determinable. The principal
categories of obligations classified as liabilities subject to compromise under
the Chapter 11 Cases as of June 29, 2002 are identified below (in thousands):
7.25% Notes Due 2005.................... $ 150,000
7.25% Notes Due 2027.................... 150,000
---------
Total long-term debt................ 300,000
Interest accrued on above debt.......... 5,293
Accounts payable........................ 51,962
Sundry payables and accrued expenses.... 9,741
---------
$ 366,996
=========
Pursuant to SOP 90-7, professional fees associated with the Chapter 11
Cases are expensed as incurred and reported as reorganization items. Interest
expense is reported only to the extent that it will be paid during the Chapter
11 Cases or that it is probable that it will be an allowed claim. During the
first nine months of the 2002 fiscal year, the Company recognized a charge of
$19.9 million associated with the Chapter 11 Cases. Approximately $3.6 million
of this charge related to the non-cash write-off of the unamortized discount on
the 7.25% Notes, the non-cash write-off of deferred financing fees associated
with the unsecured debt classified as subject to compromise and termination
costs related to interest rate swaps in default as a result of the Chapter 11
Cases. In addition, the Company incurred $10.5 million for fees payable to
professionals retained to assist with the filing of the Chapter 11 Cases, and
$5.8 million has been recorded for service rendered to date related to retention
incentives.
Note B.
With respect to interim quarterly financial data, which are unaudited, in
the opinion of Management, all adjustments necessary to a fair statement of the
results for such interim periods have been included. All adjustments were of a
normal recurring nature.
Note C.
Accounts of certain international subsidiaries are included as of dates
three months or less prior to that of the consolidated balance sheets.
Note D.
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 E.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands):
Three Months Ended Nine Months Ended
-------------------- --------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Numerator:
Net income (loss)............... $(11,152) $ 1,490 $(136,837) $ (14,397)
======== ======= ========= =========
Denominator:
Denominator for basic earnings per
share.......................... 53,277 52,613 53,168 52,533
Effect of dilutive securities:
Stock options.................. - 1 - -
Contingent stock awards........ - 797 - -
Nonvested stock................ - 255 - -
-------- -------- -------- --------
Denominator for diluted earnings
per share...................... 53,277 53,666 53,168 52,533
======== ======== ======== ========
Weighted-average shares not
included in the diluted earnings
per share computations because
they were antidilutive........... 392 - 392 889
======== ======== ========= ========
During the first nine months of the 2002 fiscal year, outstanding
shares changed due to the forfeiture of 238,370 shares of restricted nonvested
stock, and the issuance of 414,419 vested shares related to the acquisition of
the Nano-Tex investment.
Note F.
Inventories are summarized as follows (in thousands):
June 29, September 29,
2002 2001
--------- ---------
Inventories at average cost:
Raw materials................................ $ 7,572 $ 15,617
Stock in process............................. 44,520 57,130
Produced goods............................... 99,962 163,686
Dyes, chemicals and supplies................. 10,760 15,197
--------- ---------
162,814 251,630
Less excess of average cost over LIFO........ 24,023 34,662
--------- ---------
Total.................................... $ 138,791 $ 216,968
========= =========
Income related to LIFO quantity liquidation during the three and nine
months ended June 29, 2002 was $3.4 million and $5.3 million, respectively,
after income taxes.
Note G.
Comprehensive income (loss) totaled $(11,241,000) and $2,540,000 for
the three months ended June 29, 2002 and June 30, 2001, respectively, and
$(135,987,000) and $(14,656,000) for the nine months ended June 29, 2002 and
June 30, 2001, respectively. Comprehensive income (loss) consists of net income
(loss), foreign currency translation adjustments, and unrealized gains/losses on
interest rate derivatives and marketable securities (net of income taxes).
Note H.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("SFAS No. 141"), and No. 142, Goodwill and Other Intangible Assets ("SFAS No.
142"). SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations subsequent to June 30, 2001, and specifies criteria
for recognizing intangible assets acquired in a business combination. SFAS No.
142 requires that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least annually.
Intangible assets with definite useful lives will continue to be amortized over
their respective estimated useful lives. The Company will adopt SFAS No. 142
effective September 29, 2002, and does not expect that such adoption will have a
material impact on the earnings and financial condition of the Company. In
October 2001, the FASB issued Financial Accounting Standard No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). This
Statement establishes a single accounting model for the impairment or disposal
of long-lived assets. As required by SFAS No. 144, the Company will adopt this
new accounting standard on the first day of its 2003 fiscal year, September 29,
2002. The Company has not yet determined what effect the adoption of SFAS No.
144 will have on its financial statements.
Note I.
The Company conducts its operations in three principal operating
segments: Apparel Fabrics, Interior Furnishings and Carpet. Beginning in the
first quarter of the 2002 fiscal year, the Company changed its organizational
structure so that the PerformanceWear and CasualWear segments were merged into
one apparel fabrics segment. 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 29, June 30, June 29, June 30,
2002 2001 2002 2001
--------- --------- ---------- ----------
(Dollar amounts in millions)
Net sales
Apparel Fabrics........ $ 130.9 $ 184.0 $ 376.9 $ 566.3
Interior Furnishings... 61.0 83.6 200.4 291.0
Carpet................. 77.4 82.5 193.3 220.6
Other.................. 4.2 5.3 12.4 18.4
-------- --------- ------- --------
273.5 355.4 783.0 1,096.3
Less:
Intersegment sales.... (3.8) (4.3) (10.6) (19.5)
-------- -------- ------- --------
$ 269.7 $ 351.1 $ 772.4 $1,076.8
======== ======== ======= ========
Income (loss) before income taxes
Apparel Fabrics........ $ (4.2) $ 3.4 $ (33.4) $ (2.7)
Interior Furnishings... 0.2 (5.1) (10.1) (9.4)
Carpet................. 13.0 16.8 26.3 39.3
Other.................. (0.5) (0.2) (2.1) (1.1)
-------- -------- ------- -------
Total reportable
segments............ 8.5 14.9 (19.3) 26.1
Corporate expenses..... (3.4) (2.9) (7.7) (9.3)
Restructuring and
impairment charges... (12.1) 0.3 (145.7) 0.1
Interest expense....... (8.7) (17.6) (31.2) (54.8)
Other (expense)
income - net......... 1.6 7.3 2.9 16.0
Reorganization items... (5.1) - (19.9) -
--------- -------- ------- -------
$ (19.2) $ 2.0 $(220.9) $ (21.9)
======== ======== ======= =======
Intersegment net sales for the three months ended June 29, 2002 and
June 30, 2001 were primarily attributable to Apparel Fabrics segment sales of
$3.0 million and $2.9 million, respectively, and $0.8 million and $1.4 million
included in the "Other" category, respectively. Intersegment net sales for the
nine months ended June 29, 2002 and June 30, 2001 were primarily attributable to
Apparel Fabrics segment sales of $8.2 million and $14.9 million, respectively,
and $2.4 million and $4.6 million included in the "Other" category,
respectively.
Note J.
2000 Restructuring and Impairment
During the September quarter of 2000, the Company's Board of Directors
approved a plan to address performance shortfalls as well as difficult market
dynamics. The major elements of the plan include:
(1) Realign operating capacity. The Company reduced capacity to better
align its operations with 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 former 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 former PerformanceWear
segment exited its garment-making business (December 2000) and sold its facility
in Cuernavaca, Mexico (September 2001), and has pruned unprofitable product
lines. Also, the Company has exited its Burlington House Floor Accents business
by selling (February 2001) its tufted area rug business and (June 2001) its
Bacova printed mat business. Net sales of the Burlington House Floor Accents
business were $122.3 million for the 2000 fiscal year and net operating loss was
$5.3 million for the same period.
(3) Reduce overhead. The Company 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) Improve financial flexibility. Company-wide initiatives to sell
non-performing assets, reduce working capital, and decrease capital expenditures
were undertaken to free up cash.
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 benefits 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 $72.7 million, as adjusted by $5.0 million in the
2001 fiscal year. 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 $45.7 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.
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.............................. (16.6) (8.5)
Adjustments........................... (2.3) (0.4)
------ --------
Balance at September 29, 2001......... 0.4 1.1
Payments.............................. (0.4) (0.7)
------ -------
Balance at December 29, 2001.......... - 0.4
Payments.............................. - (0.4)
------ -------
Balance at March 30, 2002............. $ - $ -
====== =======
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 29, 2002, $0.2 million, $11.8 million and $8.1 million of such costs have
been incurred and charged to operations during the 2002, 2001 and 2000 fiscal
years, respectively, consisting primarily of inventory losses and plant carrying
costs.
2001 Restructuring and Impairment
During the September quarter of 2001, management adopted a plan to
further reduce capacities and focus on value-added products in the global supply
chain. Outside factors, including a continuing flood of low-cost and often
subsidized foreign imports and a slowdown in consumer spending have hit the
textile industry hard. Imports have been growing rapidly for many years, but
since 1999, the volume of imported apparel has grown at five times the rate of
consumption, squeezing out U.S.-made products to the point that four out of five
garments sold in this country today are imported. The major elements of the plan
include:
(1) Realign operating capacity. During the September 2001 quarter, the
Company reduced operations by closing a plant in Mexico and moving its
production to an underutilized facility, also in Mexico, and reducing operations
at the facilities in Clarksville, Virginia and Stonewall, Mississippi. The
Company has offered for sale and has further reduced or realigned capacity by
closing two older plants in Mexico in the first quarter of fiscal year 2002 (net
sales of $22.0 million and net operating loss of $7.1 million in fiscal year
2001), and by reducing operations at the Hurt, Virginia facility.
(2) Eliminate unprofitable business. The former CasualWear segment sold
its garment-making business in Aguascalientes, Mexico during the June 2002
quarter. Net sales and net operating loss for this business in fiscal year 2001
were $61.8 million and $6.3 million, respectively.
(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 will result in job reductions in division and
corporate staff areas during the 2002 fiscal year.
The closings and overhead reductions outlined above resulted in the
elimination of approximately 600 jobs in the United States and 2,000 jobs in
Mexico with severance benefits originally calculated for periods of up to 12
months from the termination date, depending on the employee's length of service.
The Debtors obtained approval of the Bankruptcy Court for payment of severance
benefits equal to one-half of the amounts payable under the Company's former
severance policy. The Company recorded the adjustment of the severance liability
in the December 2001 quarter.
This plan resulted in a pre-tax charge for restructuring, asset
write-downs and impairment of $61.3 million, as adjusted by $3.2 million in the
December 2001 quarter and $2.8 million in the June 2002 quarter. The components
of the 2001 restructuring and impairment charge included the establishment of a
$6.8 million reserve ($10.0 million as adjusted by $3.2 million in the December
2001 quarter) for severance benefit payments, write-downs for impairment of
$47.6 million related to long-lived assets resulting from the restructuring
(including $22.5 million related to foreign currency translation adjustments for
the planned liquidation of Mexican assets) and a reserve of $6.9 million for
lease cancellation and other exit costs expected to be paid through December
2002. Although these lease cancellation costs have been reserved for, any such
amounts due will be treated as general unsecured claims in the Chapter 11 Cases
and, accordingly, the Company's ultimate liability for these amounts cannot yet
be ascertained.
Following is a summary of activity in the related 2001 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- --------------
September 2001 restructuring charge... $ 10.0 $ 6.9
Payments.............................. (1.1) -
------ -------
Balance at September 29, 2001......... 8.9 6.9
Payments.............................. (3.9) (0.3)
Adjustments........................... (3.2) -
------ --------
Balance at December 29, 2001.......... 1.8 6.6
Payments.............................. (1.8) (3.4)
------ -------
Balance at March 30, 2002............. - 3.2
Payments.............................. - (0.3)
------ --------
Balance at June 29, 2002............. $ - $ 2.9
====== =======
Other expenses related to the 2001 restructuring (including losses on
accounts receivable and inventories of discontinued styles, relocation of
employees and equipment, and plant carrying and other costs) are charged to
operations as incurred. Through June 29, 2002, $1.2 million and $5.8 million of
such costs have been incurred and charged to operations during the 2002 and 2001
fiscal years, respectively, consisting primarily of losses on accounts
receivable and inventories.
2002 Restructuring and Impairment
During the March 2002 quarter, management announced a comprehensive
reorganization of its apparel fabrics and interior furnishings groups. Continued
pressures from foreign imports coupled with slowing and uncertain economic
conditions have made it necessary to further reduce U.S. capacity. This
reorganization is part of the Company's initiatives to transition and modify its
business model in order to better serve its customers' expanding needs in the
global supply chain and restructure the Company under Chapter 11 of the U.S.
Bankruptcy Code.
The major elements of the reorganization are:
(1) Unified sales and marketing - All apparel products will be marketed
and sold under one organization, "Burlington WorldWide", instead of its previous
divisional structure.
(2) Accelerate product sourcing - The Company intends to complement the
product offerings of its manufacturing base with sourced products from mills
located in other countries. It is anticipated that many of these products will
be made using technology licensed by Nano-Tex, LLC. Burlington Worldwide is
attempting to put in place a coordinated network of domestic and international
resources to enable the Company to offer a broader range of fabrics to its
customers and deliver them to points of assembly worldwide.
(3) Rationalize its manufacturing base - The Company will reduce its
U.S. manufacturing base for apparel fabrics in response to slowing economic
conditions and continued import competition. This reorganization will result in
the sale or closing of plants in four locations, which include Mount Holly,
North Carolina; Stonewall, Mississippi; Halifax, Virginia; and Clarksville,
Virginia. Additional capacity reductions will occur at the Raeford, North
Carolina plant, and company-wide overhead reductions will take place.
(4) During the June 2002 quarter, the Company sold its bedding and
window consumer products businesses to Springs Industries, Inc. and entered into
an agreement to supply jacquard and decorative fabrics for certain of Springs'
home furnishing product lines. Also, the Company sold certain assets, inventory
and intellectual properties of its upholstery fabrics business to Tietex
International Ltd. These sales will enable the Company to focus its resources on
growing its interior fabrics business.
The closings and overhead reductions outlined above will result in the
elimination of approximately 4,400 jobs in the United States and 1,300 jobs in
Mexico with severance benefits calculated for periods of up to 6 months from the
termination date, depending on the employee's length of service, as approved by
the Bankruptcy Court.
In the December 2001 quarter, the Company recognized an impairment
charge of $60.7 million primarily related to long-lived assets at the Stonewall
Mississippi plant location, and $1.7 million for other charges. In the March
2002 quarter, the Company recognized an impairment charge of $74.5 million,
which included the establishment of a $9.9 million reserve for severance benefit
payments, write-downs for impairment of $63.4 million related to long-lived
assets resulting from the restructuring and a reserve of $1.2 million for lease
cancellation and other exit costs expected to be paid through December 2003. In
the June 2002 quarter, the Company recognized an impairment charge of $14.9
million, which included the establishment of a $2.2 million reserve for
severance benefit payments and write-downs for impairment of $12.7 million
related to long-lived assets resulting from the restructuring. Although the
lease cancellation costs have been reserved for, any such amounts due will be
treated as general unsecured claims in the Chapter 11 Cases and, accordingly,
the Company's ultimate liability for these amounts cannot yet be ascertained.
Following is a summary of activity in the related 2002 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- -------------
March 2002 restructuring charge....... $ 9.9 $ 1.2
Payments.............................. (0.4) -
------ -------
Balance at March 30, 2002............. 9.5 1.2
June 2002 restructuring charge........ 2.2 -
Payments.............................. (4.1) (0.3)
------ --------
Balance at June 29, 2002.............. $ 7.6 $ 0.9
====== =========
Other estimated expenses of $20-30 million related to the 2002
restructuring (including losses on inventories of discontinued styles,
relocation of employees and equipment, and plant carrying and other costs) will
be charged to operations as incurred. Through June 29, 2002, $14.2 million of
such costs have been incurred and charged to operations during the 2002 fiscal
year, consisting primarily of losses on inventories.
Assets that have been sold, or are held for sale at June 29, 2002 and
are no longer in use, were written down to their estimated fair values less
costs of sale. The Company 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 Chambers 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 18 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. The Bankruptcy Court has
approved certain procedures that allow the Debtors to consummate asset sales
that occur outside of the ordinary course of business under procedures
established by the Bankruptcy Court.
Note K.
The total income tax benefit for the 2002 and 2001 periods is different
from the amounts obtained by applying statutory rates to loss before income
taxes primarily as a result of foreign losses with no tax benefits, tax rate
differences on foreign transactions and changes in the valuation allowance. The
change in the valuation allowance relates to deferred tax assets on net
operating loss ("NOL") carryforwards. Realization of deferred tax assets
relating to state NOL carryforwards is contingent on future taxable earnings in
the U.S. state tax jurisdictions. It is management's opinion that it is more
likely than not that some portion of the U.S. state deferred tax assets will not
be realized, and in accordance with Statement of Accounting Standards No. 109,
"Accounting for Income Taxes," a valuation allowance has been established. The
valuation allowance related to the federal NOL carryforward recorded in the
first quarter of fiscal 2002 ($12.8 million) was reversed in the March 2002
quarter due to the enactment of the Job Creation and Worker Assistance Act of
2002 on March 9, 2002, which changed the federal carryback period from 2 to 5
years (see "Liquidity and Capital Resources"in Management's Discussion and
Analysis of Results of Operations and Financial Condition). Based on the
Company's taxable loss for the first nine months of the 2002 fiscal year, the
Company has recorded a tax benefit and current asset of $24.4 million for
federal income tax refunds expected to be received in fiscal year 2003 as a
result of the longer carryback period. Operating loss and tax credit
carryforwards with related tax benefits of $11.7 million (net of $9.0 million
valuation allowance) at June 29, 2002 and $38.7 million (net of $7.4 million
valuation allowance) at September 29, 2001, expire from 2003 to 2021.
Note L.
Following is unaudited condensed combined financial information of the
Debtors as of and for the nine months ended June 29, 2002 (in thousands). The
Debtor subsidiaries are wholly-owned subsidiaries of Burlington Industries, Inc.
Separate condensed financial information for each of the Debtor subsidiaries are
not presented because such financial information would not provide relevant
material additional information to users of the consolidated financial
statements of Burlington Industries, Inc.
Earnings data:
Revenue............................. $ 767.2
Gross profit........................ 86.6
Net loss............................ (150.7)
Balance sheet data:
Current assets...................... $ 387.1
Noncurrent assets................... 538.4
Current liabilities................. 566.7
Noncurrent liabilities.............. 425.2
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
Proceedings Under Chapter 11 of the Bankruptcy Code
On November 15, 2001, the Company and certain of its domestic
subsidiaries (referred to herein as the "Debtors") filed voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code. For further discussion
of the Chapter 11 Cases, see Note A of the Notes to the Consolidated Financial
Statements. The Debtors are currently operating their businesses as
debtors-in-possession pursuant to the Bankruptcy Code. Management is in the
process of implementing its announced restructuring plan and evaluating the
Debtors' operations in connection with the development of a plan of
reorganization. After developing a plan of reorganization, the Debtors will seek
the requisite acceptance of the plan by impaired creditors and equity holders
and confirmation of the plan by the Bankruptcy Court, all in accordance with the
applicable provisions of the Bankruptcy Code.
During the pendency of the Chapter 11 Cases, the Debtors may with
Bankruptcy Court approval, sell assets and settle liabilities, including for
amounts other than those reflected on the Debtors' financial statements. The
Debtors are in the process of reviewing (a) their operations and identifying
assets for disposition, (b) their executory contracts and unexpired leases to
determine which, if any, they will reject as permitted by the Bankruptcy Code,
and (c) claims against the Debtors submitted by claimants on or before July 22,
2002, the date established by the Bankruptcy Court. The Debtors cannot presently
or reasonably estimate the ultimate liability that may result from rejecting
contracts or leases or from the filing of claims for any rejected contracts or
leases or other asserted claims, and no provisions have yet been made for these
items. The administrative and reorganization expenses resulting from the Chapter
11 Cases will unfavorably affect the Debtors' results of operations. Future
results of operations may also be affected by other factors related to the
Chapter 11 Cases.
Basis of Presentation
The Company's consolidated financial statements are presented in
accordance with American Institute of Certified Public Accountants Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" (SOP 90-7), and have been prepared in accordance with
accounting principles generally accepted in the United States applicable to a
going concern, which principles, except as otherwise disclosed, assume that
assets will be realized and liabilities will be discharged in the ordinary
course of business. The Company is currently operating under the jurisdiction of
Chapter 11 of the Bankruptcy Code and the Bankruptcy Court, and continuation of
the Company as a going concern is contingent upon, among other things, its
ability to formulate a plan of reorganization which will gain approval of the
requisite parties under the Bankruptcy Code and confirmation by the Bankruptcy
Court, its ability to comply with the DIP Financing Facility, its ability to
return to profitability, generate sufficient cash flows from operations and
obtain financing sources to meet future obligations. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The Company's consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might result from the outcome
of these uncertainties.
While under the protection of Chapter 11, the Company may sell or
otherwise dispose of assets, and liquidate or settle liabilities, for amounts
other than those reflected in the financial statements. Additionally, the
amounts reported on the consolidated balance sheet could materially change
because of changes in business strategies and the effects of any proposed plan
of reorganization. In the Chapter 11 Cases, substantially all unsecured
liabilities as of the Petition Date are subject to compromise or other treatment
under a plan of reorganization which must be confirmed by the Bankruptcy Court
after submission to any required vote by affected parties. For financial
reporting purposes, those liabilities and obligations whose treatment and
satisfaction is dependent on the outcome of the Chapter 11 Cases, have been
segregated and classified as liabilities subject to compromise in the Company's
consolidated balance sheet. Generally, all actions to enforce or otherwise
effect repayment of pre-Chapter 11 liabilities as well as all pending litigation
against the Debtors are stayed while the Debtors continue their business
operations as debtors-in-possession. The ultimate amount of and settlement terms
for such liabilities are subject to approval of a plan of reorganization and
accordingly are not presently determinable. Pursuant to SOP 90-7, professional
fees associated with the Chapter 11 Cases are expensed as incurred and reported
as reorganization items. Interest expense is reported only to the extent that it
will be paid during the Chapter 11 Cases or that it is probable that it will be
an allowed claim.
Results Of Operations
2002 Restructuring and Impairment
During the March 2002 quarter, management announced a comprehensive
reorganization of its apparel fabrics and interior furnishings groups. Continued
pressures from foreign imports coupled with slowing and uncertain economic
conditions have made it necessary to further reduce U.S. capacity. This
reorganization is part of the Company's initiatives to transition and modify its
business model in order to better serve its customers' expanding needs in the
global supply chain and restructure the Company under Chapter 11 of the U.S.
Bankruptcy Code.
The major elements of the reorganization are:
(1) Unified sales and marketing - All apparel products will be marketed
and sold under one organization, "Burlington WorldWide", instead of its previous
divisional structure.
(2) Accelerate product sourcing - The Company intends to complement the
product offerings of its manufacturing base with sourced products from mills
located in other countries. It is anticipated that many of these products will
be made using technology licensed by Nano-Tex, LLC. Burlington Worldwide is
attempting to put in place a coordinated network of domestic and international
resources to enable the Company to offer a broader range of fabrics to its
customers and deliver them to points of assembly worldwide.
(3) Rationalize its manufacturing base - The Company will reduce its
U.S. manufacturing base for apparel fabrics in response to slowing economic
conditions and continued import competition. This reorganization will result in
the sale or closing of plants in four locations, which include Mount Holly,
North Carolina; Stonewall, Mississippi; Halifax, Virginia; and Clarksville,
Virginia. Additional capacity reductions will occur at the Raeford, North
Carolina plant, and company-wide overhead reductions will take place.
(4) During the June 2002 quarter, the Company sold its bedding and
window consumer products businesses to Springs Industries, Inc. and entered into
an agreement to supply jacquard and decorative fabrics for certain of Springs'
home furnishing product lines. Also, the Company sold certain assets, inventory
and intellectual properties of its upholstery fabrics business to Tietex
International Ltd. These sales will enable the Company to focus its resources on
growing its interior fabrics business.
The closings and overhead reductions outlined above will result in the
elimination of approximately 4,400 jobs in the United States and 1,300 jobs in
Mexico with severance benefits calculated for periods of up to 6 months from the
termination date, depending on the employee's length of service, as approved by
the Bankruptcy Court.
In the December 2001 quarter, the Company recognized an impairment
charge of $60.7 million primarily related to long-lived assets at the Stonewall
Mississippi plant location, and $1.7 million for other charges. In the March
2002 quarter, the Company recognized an impairment charge of $74.5 million,
which included the establishment of a $9.9 million reserve for severance benefit
payments, write-downs for impairment of $63.4 million related to long-lived
assets resulting from the restructuring and a reserve of $1.2 million for lease
cancellation and other exit costs expected to be paid through December 2003. In
the June 2002 quarter, the Company recognized an impairment charge of $14.9
million, which included the establishment of a $2.2 million reserve for
severance benefit payments and write-downs for impairment of $12.7 million
related to long-lived assets resulting from the restructuring. Although the
lease cancellation costs have been reserved for, any such amounts due will be
treated as general unsecured claims in the Chapter 11 Cases and, accordingly,
the Company's ultimate liability for these amounts cannot yet be ascertained.
Following is a summary of activity in the related 2002 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- -------------
March 2002 restructuring charge....... $ 9.9 $ 1.2
Payments.............................. (0.4) -
------ -------
Balance at March 30, 2002............. 9.5 1.2
June 2002 restructuring charge........ 2.2 -
Payments.............................. (4.1) (0.3)
------ --------
Balance at June 29, 2002.............. $ 7.6 $ 0.9
====== =========
Other estimated expenses of $20-30 million related to the 2002
restructuring (including losses on inventories of discontinued styles,
relocation of employees and equipment, and plant carrying and other costs) will
be charged to operations as incurred. Through June 29, 2002, $14.2 million of
such costs have been incurred and charged to operations during the 2002 fiscal
year, consisting primarily of losses on inventories.
Assets that have been sold, or are held for sale at March 30, 2002 and
are no longer in use, were written down to their estimated fair values less
costs of sale. The Company 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 Chambers 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 18 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. The Bankruptcy Court has
approved certain procedures that allow the Debtors to consummate asset sales
that occur outside of the ordinary course of business under procedures
established by the Bankruptcy Court.
Comparison of Three Months ended June 29, 2002 and June 30, 2001.
NET SALES: Net sales for the third quarter of the 2002 fiscal year were
$269.7 million, 23.2% lower than the $351.1 million recorded for the third
quarter of the 2001 fiscal year, partially due to planned volume reductions
resulting from restructuring plans. Export sales totaled $30.7 million and $43.0
million in the fiscal 2002 and 2001 periods, respectively.
Apparel Fabrics: Net sales for the Apparel Fabrics segment for the
third quarter of the 2002 fiscal year were $130.9 million, 28.9% lower than the
$184.0 million recorded in the third quarter of the 2001 fiscal year. This
decrease was due primarily to lower volume, partially due to planned reductions
resulting from restructuring plans.
Interior Furnishings: Net sales of products for interior furnishings
markets for the third quarter of the 2002 fiscal year were $61.0 million, 27.0%
lower than the $83.6 million recorded in the third quarter of the 2001 fiscal
year. Excluding $11.4 million sales reduction due to the sale of the tufted area
rug and printed mats businesses, net sales of the interior furnishings segment
were 15.5% lower than in the prior year. This decrease was primarily due to
14.3% lower volume, partially due to planned reductions resulting from
restructuring plans, and 1.2% lower selling prices and product mix.
Carpet: Net sales for the Carpet segment for the third quarter of the
2002 fiscal year were $77.4 million, 6.2% lower than the $82.5 million recorded
in the third quarter of the 2001 fiscal year. This decrease was primarily due to
4.2% lower volume and 2.0% lower selling prices and product mix. Lower sales
volume was principally due to corporate business customers' budget reductions or
postponements.
Other: Net sales of other segments for the third quarter of the 2002
fiscal year were $4.2 million compared to $5.3 million recorded in the third
quarter of the 2001 fiscal year. This decrease was primarily related to
decreased revenues in the transportation business.
SEGMENT INCOME (LOSS): Total reportable segment income for the third
quarter of the 2002 fiscal year was $8.5 million compared to $14.9 million for
the third quarter of the 2001 fiscal year.
Apparel Fabrics: Income (loss) of the Apparel Fabrics segment for the
third quarter of the 2002 fiscal year was $(4.2) million compared to $3.4
million recorded for the third quarter of the 2001 fiscal year. This decrease
was due primarily to $3.5 million lower margins due to volume, $3.0 million
deterioration in manufacturing performance due to lower volume and
restructuring, and $9.2 million of run-out expenses related to restructuring,
partially offset by $2.4 million higher margins due to product mix, $2.3 million
higher equity earnings from joint ventures and $3.6 million of lower selling,
general and administrative expenses resulting from restructuring and cost
reduction programs.
Interior Furnishings: Income (loss) of the interior furnishings
products segment for the third quarter of the 2002 fiscal year was $0.2 million
compared to $(5.1) million recorded for the third quarter of the 2001 fiscal
year. This increase was due primarily to $6.7 million of improved manufacturing
performance and lower selling, general and administrative expenses resulting
from restructuring and cost reduction programs, $0.7 million lower raw material
costs, and the absence of losses of $0.9 million associated with the tufted area
rug and printed mats businesses sold in February and June 2001, partially offset
by $3.1 million lower margins due to volume and price/mix.
Carpet: Income of the Carpet segment for the third quarter of the 2002
fiscal year was $13.0 million compared to $16.8 million recorded for the third
quarter of the 2001 fiscal year. This decrease was due primarily to $0.6 million
lower margins due to volume and product/mix, $3.5 million deterioration in
manufacturing performance due to lower volume, partially offset by $0.4 lower
selling, general and administrative expenses resulting from lower sales volume.
Other: Losses of other segments for the third quarter of the 2002
fiscal year were $(0.5) million compared to $(0.2) million recorded for the
third quarter of the 2001 fiscal year. This resulted primarily from the
deterioration of results in the transportation business.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $3.4 million for the third quarter of 2002 compared to $2.9 million
for the third quarter of the 2001 fiscal year. This increase is due higher
corporate consulting fees.
OPERATING INCOME BEFORE INTEREST AND TAXES: Before the provisions for
restructuring and impairment, operating income before interest and taxes for the
third quarter of the 2002 fiscal year would have been $4.4 million compared to
$13.6 million for the third quarter of the 2001 fiscal year.
INTEREST EXPENSE: Subsequent to the Petition Date, interest expense is
reported only to the extent that it will be paid during the Chapter 11 Cases or
that it is probable that it will be an allowed claim. Interest expense for the
third quarter of the 2002 fiscal year was $8.7 million, or 3.2% of net sales,
compared with $17.6 million, or 5.0% of net sales, in the third quarter of the
2001 fiscal year. The decrease was mainly attributable to the Chapter 11 Cases
(contractual interest expense would have been $14.1 million), lower borrowing
levels and interest rates, partially offset by higher amortization of fees
associated with new bank credit facilities.
OTHER EXPENSE (INCOME): Other income for the third quarter of the 2002
fiscal year was $1.6 million, consisting principally of interest income of $0.7
million and gains on the disposal of assets of $0.9 million. 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.
REORGANIZATION ITEMS: During the third quarter of the 2002 fiscal year,
the Company recognized a net pre-tax charge of $5.1 million associated with the
Chapter 11 Cases. The Company incurred $2.8 million for fees payable to
professionals retained to assist with the filing of the Chapter 11 Cases, and
$2.3 million was recorded for service rendered to date related to retention
incentives that were approved by the Bankruptcy Court on January 17, 2002.
INCOME TAX EXPENSE (BENEFIT): Income tax expense (benefit) of $(8.0)
million was recorded for the third quarter of the 2002 fiscal year in comparison
with $0.5 million for the third quarter of the 2001 fiscal year. The total
income tax expense (benefit) for the 2002 and 2001 periods is different from the
amounts obtained by applying statutory rates to loss before income taxes
primarily as a result of foreign losses with no tax benefits, tax rate
differences on foreign transactions and changes in the valuation allowance,
partially offset by the favorable tax treatment of export sales through a
foreign sales corporation ("FSC"). The change in the valuation allowance for
both the 2002 and 2001 periods relate to deferred tax assets on net operating
loss (NOL) carryforwards. It is management's opinion that it is more likely than
not that some portion of the deferred tax asset will not be recognized (see
"Liquidity and Capital Resources" below). The U.S. law providing the FSC
benefits has been found to be illegal under WTO provisions and the U.S. has
agreed to implement complying provisions. 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 World Trade Organization ("WTO").
NET INCOME (LOSS) AND INCOME (LOSS) PER SHARE: Net loss for the third
quarter of the 2002 fiscal year of $(11.2) million, or $(0.21) per share,
included a net charge of $(0.27) per share related to restructuring and run-out
costs and $(0.06) per share related to reorganization items. Net income of $1.5
million, or $0.03 per share, 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 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.
Comparison of Nine Months ended June 29, 2002 and June 30, 2001.
NET SALES: Net sales for the first nine months of the 2002 fiscal year
were $772.4 million, 28.3% lower than the $1,076.8 million recorded for the
first nine months of the 2001 fiscal year, partially due to planned volume
reductions resulting from restructuring plans. Export sales totaled $93.2
million and $124.0 million in the fiscal 2002 and 2001 periods, respectively.
Apparel Fabrics: Net sales for the Apparel Fabrics segment for the
first nine months of the 2002 fiscal year were $376.9 million, 33.4% lower than
the $566.3 million recorded in the first nine months of the 2001 fiscal year.
This decrease was due primarily to 32.8% lower volume, partially due to planned
reductions resulting from restructuring plans, and 0.6% lower selling prices and
product mix.
Interior Furnishings: Net sales of products for interior furnishings
markets for the first nine months of the 2002 fiscal year were $200.4 million,
31.1% lower than the $291.0 million recorded in the first nine months of the
2001 fiscal year. Excluding $55.8 million sales reduction due to the sale of the
tufted area rug and printed mats businesses, net sales of the interior
furnishings segment were 14.8% lower than in the prior year. This decrease was
primarily due to 14.4% lower volume, partially due to planned reductions
resulting from restructuring plans, and 0.4% lower selling prices and product
mix.
Carpet: Net sales for the Carpet segment for the first nine months of
the 2002 fiscal year were $193.3 million, 12.4% lower than the $220.6 million
recorded in the first nine months of the 2001 fiscal year. This decrease was
primarily due to 10.2% lower volume and 2.2% product mix. Lower sales volume was
principally due to corporate business customers' budget reductions or
postponements.
Other: Net sales of other segments for the first nine months of the
2002 fiscal year were $12.4 million compared to $18.4 million recorded in the
first nine months of the 2001 fiscal year. This decrease was primarily related
to decreased revenues in the transportation business.
SEGMENT INCOME (LOSS): Total reportable segment income (loss) for the
first nine months of the 2002 fiscal year was $(19.3) million compared to $26.1
million for the first nine months of the 2001 fiscal year.
Apparel Fabrics: Loss of the Apparel Fabrics segment for the first nine
months of the 2002 fiscal year was $(33.4) million compared to $(2.7) million
recorded for the first nine months of the 2001 fiscal year. This decrease was
due primarily to $14.7 million lower margins due to volume and price/mix, $18.5
million deterioration in manufacturing performance, primarily in fixed overhead
absorption, due to lower volume and restructuring, and $7.6 million of run-out
expenses related to restructuring, partially offset by $3.3 million lower raw
material costs, $0.7 million higher equity earnings from joint ventures, and
$6.1 million of lower selling, general and administrative expenses resulting
from restructuring and cost reduction programs. The Company settled a dispute
with a joint venture partner in the first quarter of the 2002 fiscal year that
was principally offset by an impairment charge in the value of its investment.
Interior Furnishings: Loss of the interior furnishings products segment
for the first nine months of the 2002 fiscal year was $(10.1) million compared
to $(9.4) million recorded for the first nine months of the 2001 fiscal year.
This increased loss was due primarily to $15.5 million lower margins due to
volume and price/mix, partially offset by $4.1 million improvement in
manufacturing performance due to restructuring, $3.3 million lower raw material
costs, $2.7 million of lower selling, general and administrative expenses
resulting from cost reduction programs and the absence of losses of $4.7 million
associated with the tufted area rug and printed mats businesses sold in February
and June 2001.
Carpet: Income of the Carpet segment for the first nine months of the
2002 fiscal year was $26.3 million compared to $39.3 million recorded for the
first nine months of the 2001 fiscal year. This decrease was due primarily to
$8.8 million lower margins due to volume and product/mix, $3.7 million
deterioration in manufacturing performance, primarily due to lower volume, and
higher raw material costs of $0.5 million.
Other: Losses of other segments for the first nine months of the 2002
fiscal year were $(2.1) million compared to $(1.1) million recorded for the
first nine months of the 2001 fiscal year. This resulted primarily from the
deterioration of results in the transportation business.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $7.7 million for the first nine months of 2002 compared to $9.3
million for the first nine months of the 2001 fiscal year. This reduction is due
to the cost reductions in the current year resulting from the 2001 and 2002
restructuring plans, partially offset by higher corporate consulting fees.
OPERATING INCOME (LOSS) BEFORE INTEREST AND TAXES: Before the
provisions for restructuring and impairment, operating income (loss) before
interest and taxes for the first nine months of the 2002 fiscal year would have
been $(28.4) million compared to $16.1 million for the first nine months of the
2001 fiscal year.
INTEREST EXPENSE: Subsequent to the Petition Date, interest expense is
reported only to the extent that it will be paid during the Chapter 11 Cases or
that it is probable that it will be an allowed claim. Interest expense for the
first nine months of the 2002 fiscal year was $31.2 million, or 4.0% of net
sales, compared with $54.8 million, or 5.1% of net sales, in the first nine
months of the 2001 fiscal year. The decrease was mainly attributable to the
Chapter 11 Cases (contractual interest expense would have been $44.8 million),
lower borrowing levels and interest rates, partially offset by higher
amortization of fees associated with new bank credit facilities.
OTHER EXPENSE (INCOME): Other income for the first nine months of the
2002 fiscal year was $2.9 million consisting principally of interest income of
$2.0 million and gains on the disposal of assets of $0.9 million. 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.
REORGANIZATION ITEMS: During the first nine months of the 2002 fiscal
year, the Company recognized a net pre-tax charge of $19.9 million associated
with the Chapter 11 Cases. Approximately $3.6 million of this charge related to
the non-cash write-off of the unamortized discount on the 7.25% Notes, the
non-cash write-off of deferred financing fees associated with the unsecured debt
classified as subject to compromise and termination costs related to interest
rate swap agreements in default as a result of the Chapter 11 Cases. In
addition, the Company incurred $10.5 million for fees payable to professionals
retained to assist with the filing of the Chapter 11 Cases, and $5.8 million has
been recorded for service rendered to date related to retention incentives that
were approved by the Bankruptcy Court on January 17, 2002.
INCOME TAX EXPENSE (BENEFIT): Income tax benefit of $(84.0) million was
recorded for the first nine months of the 2002 fiscal year in comparison with
$(7.5) million for the first nine months of the 2001 fiscal year. The total
income tax benefit for the 2002 and 2001 periods is different from the amounts
obtained by applying statutory rates to loss before income taxes primarily as a
result of foreign losses with no tax benefits, tax rate differences on foreign
transactions and changes in the valuation allowance, partially offset by the
favorable tax treatment of export sales through a foreign sales corporation
("FSC"). The change in the valuation allowance for both the 2002 and 2001
periods relate to deferred tax assets on net operating loss ("NOL")
carryforwards. It is management's opinion that it is more likely than not that
some portion of the deferred tax asset will not be recognized. The valuation
allowance related to the federal NOL carryforward recorded in the first quarter
of fiscal 2002 ($12.8 million) was reversed in the March 2002 quarter due to the
enactment of the Job Creation and Worker Assistance Act of 2002 on March 9,
2002, which changed the federal carryback period from 2 to 5 years (see
"Liquidity and Capital Resources" below). The U.S. law providing the FSC
benefits has been found to be illegal under WTO provisions and the U.S. has
agreed to implement complying provisions. 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 World Trade Organization ("WTO").
NET LOSS AND LOSS PER SHARE: Net loss for the first nine months of the
2002 fiscal year of $(136.8) million, or $(2.57) per share, included a net
charge of $(1.88) per share related to restructuring and run-out costs and
$(0.23) per share related to reorganization items. Net loss of $(14.4) million,
or $(0.27) per share, 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
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.
Liquidity and Capital Resources
On November 15, 2001, the Company filed the Chapter 11 Cases, which
will affect the Company's liquidity and capital resources in fiscal year 2002.
See Note A of the Notes to Consolidated Financial Statements.
During the first nine months of the 2002 fiscal year, the Company
generated $91.4 million of cash from operating activities and $49.2 million from
sales of assets and other investing activities. Cash was primarily used for net
payments of debt and financing fees of $117.0 million and capital expenditures
of $8.3 million. At June 29, 2002, total debt of the Company not subject to
compromise was $464.6 million, total debt subject to compromise was $300.0
million, and cash on hand totaled $102.7 million. At September 29, 2001, total
debt was $874.0 million and cash on hand totaled $87.5 million.
The Company's principal uses of funds during the next several years
will be for repayment and servicing of indebtedness, working capital needs,
capital expenditures and expenses of the Chapter 11 Cases. The Company intends
to fund its financial needs principally from net cash provided by operating
activities, asset sales (to the extent permitted in the Bankruptcy Cases) 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 2002 fiscal year, investment in
capital expenditures totaled $8.3 million, compared to $21.0 million during the
first nine months of the 2001 fiscal year. The Company anticipates that the
level of capital expenditures for fiscal year 2002 will total approximately $15
million, and under its DIP Financing Facility discussed below, cannot exceed $20
million.
Tax matters. The Company's results of operations and cash position for
the current fiscal year have been, and for future years, may be, materially
affected by certain changes in U. S. income tax laws and by actions that the
Company is planning to take. Tax related impacts fall into three categories:
(1) TAX REFUNDS. The Job Creation and Worker Assistance Act of 2002
changed, for tax years 2001 and 2002, the federal income tax net operating loss
carryback period from 2 to 5 years. To date, the Company has applied for and
received income tax refunds under these changes of $35.5 million and expects to
receive additional refunds applied for of $6.3 million during September 2002. As
of June 28, 2002, the Company has approximately $61 million of additional tax
refunds available from the extended carryback period. Based upon its 2002 fiscal
year expected losses and the potential tax deduction discussed below, the
Company anticipates the remaining refunds could be received following the filing
of its 2002 tax return.
(2) TAX DEDUCTION FOR BASIS IN SUBSIDIARY STOCK. As part of its
strategic realignment of assets and business restructuring announced in January,
the Company terminated its domestic denim manufacturing operations and has
closed its Stonewall, Mississippi and Mt. Holly, North Carolina plants. These
actions, coupled with the associated indebtedness of the subsidiary in which
such business operated, may qualify for treatment as a tax deduction. In a
motion to be filed on August 8, 2002, the Company intends to seek permission of
the U.S. Bankruptcy Court to take certain actions which would allow it to claim
a federal income tax deduction for the tax basis of the subsidiary's stock,
resulting in a deduction for tax purposes only of approximately $300 million.
The Company will use this tax deduction and current year operating losses to
offset remaining income in the 5-year carryback period, which would result in
the $61 million income tax refund mentioned above following the filing of its
2002 tax return. Additional benefits from the unutilized tax deduction would be
a tax loss carryforward (which could range from $100 million to $200 million),
which could be realized in 2003 and subsequent years to the extent of taxable
income in such years. There can be no assurances that such deduction will be
successfully utilized as described for a number of reasons, including
limitations imposed upon such use following emergence by companies in Chapter 11
reorganization.
(3) IRS CLAIM. The IRS has filed a claim of approximately $20.8 million
against the Company in its Chapter 11 proceeding, relating to income tax issues
raised in an examination of the Company's federal income tax returns with
respect to tax years 1995-1997. The IRS and the Company are presently engaged in
discussions to resolve such claim.
DIP Financing Facility. On December 12, 2001, the Bankruptcy Court
approved the DIP Financing Order. The DIP Financing Order authorized the Debtors
to grant first priority mortgages, security interests, liens (including priming
liens), and superpriority claims on substantially all of the assets of the
Debtors to secure a DIP Financing Facility. Under the terms of the DIP Financing
Order, a $190.0 million revolving credit facility, including up to $50.0 million
for postpetition letters of credit, is available to the Company until the
earliest of (i) November 15, 2003, (ii) the date on which the plan of
reorganization becomes effective, (iii) any material non-compliance with any of
the terms of the Final DIP Financing Order, or (iv) any event of default shall
have occurred and be continuing under the DIP Financing Facility. Amounts
borrowed under the DIP Financing Facility bear interest at the option of the
Company at the rate of the London Interbank Offering Rate ("LIBOR") plus 3.0%
per annum, or the Alternate Base Rate plus 2.0%. In addition, there is an unused
commitment fee of 0.50% on the unused commitment and a letter of credit fee of
3.0% per annum on letters of credit outstanding. The DIP Financing Facility is
secured by, in part, the receivables that formerly secured the Receivables
Facility described below. On November 16, 2001, the Company borrowed $95.0
million under an Interim DIP Financing Facility principally in order to repay
all loans and accrued interest related to such Receivables Facility, as well as
certain other financing fees. The documentation evidencing the DIP Financing
Facility contains financial covenants requiring the Company to maintain minimum
levels of earnings before interest, taxes, depreciation, amortization,
restructuring and reorganization items ("EBITDA"), as defined. In addition, the
DIP Financing Facility contains covenants applicable to the Debtors, including
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 payments, the making of capital expenditures
beyond certain limits, and entering into certain transactions with affiliates.
In addition, proceeds from sales of certain assets must be used to repay
specified borrowings and permanently reduce the commitment amount under the
Facility. The financial reporting charges and cash costs of such actions have
required the Company to enter into amendments of certain of the covenants under
the DIP Financing Facility. At August 1, 2002, principal amount of $0.0 million
was outstanding and the Company had approximately $186.7 million in unused
capacity available under this Facility.
2000 Bank Credit Agreement. On December 5, 2000, the Company entered
into a secured amended bank credit agreement ("2000 Bank Credit Agreement")
which amended and extended an earlier unsecured revolving credit facility (the
"1995 Bank Credit Agreement"). The 2000 Bank Credit Agreement consists of a
total revolving credit facility commitment amount of $525.0 million revolving
credit facility that provided for the issuance of letters of credit by the
fronting bank in an outstanding aggregate face amount not to exceed $75.0
million, and provided 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 the total facility commitment amount. 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 paid an annual
commitment fee of 0.50% on the unused portion of the facility. Prior to the
Petition Date, the Company was not in compliance with certain financial
covenants under the 2000 Bank Credit Agreement, during which time the Company
engaged in active discussions with its senior lenders to obtain an amendment or
waiver of such non-compliance. As a result of the circumstances confronting the
Company, the Debtors filed the Chapter 11 Cases. The Bankruptcy Court has
approved the payment of all interest and fees under the 2000 Bank Credit
Agreement incurred subsequent to November 15, 2001. In addition, the DIP
Financing Order requires that 50% of the first $25 million of proceeds from
sales of certain assets be used to repay specified borrowings under the 2000
Bank Credit Agreement. The Company has applied $12.5 million of asset sale
proceeds to reduce borrowings under the 2000 Bank Credit Agreement in full
satisfaction of this requirement.
Receivables Facility. In December 1997, the Company established a
five-year, $225.0 million Trade Receivables Financing Agreement ("Receivables
Facility") with a bank. Using funds from the DIP Financing Facility, the Company
repaid all loans related to the Receivables Facility and this facility was
terminated. The receivables which previously secured the Receivables Facility
now secure the DIP Financing Facility.
Senior Unsecured Notes. 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 provide that they will be redeemable as a whole or in part at
the option of the Company at any time on or after August 2, 2007, and will also
be redeemable at the option of the holders thereof on August 1, 2007 in amounts
at 100% of their principal amount. In September 1995, the Company issued $150.0
million principal amount of 7.25% notes due September 15, 2005 ("Notes Due
2005"). The Notes Due 2005 are not redeemable prior to maturity. The Notes Due
2027 and the Notes Due 2005 are unsecured and rank equally with all other
unsecured and unsubordinated indebtedness of the Company. The commencement of
the Chapter 11 Cases constitutes an event of default under the Indenture
governing both the 2027 Notes and the 2005 Notes. The payment of interest
accruing thereunder after November 15, 2001 is stayed.
Adequacy of Capital Resources
As discussed above, the Company is operating its businesses as
debtors-in-possession under Chapter 11 of the Bankruptcy Code. In addition to
the cash requirements necessary to fund ongoing operations, the Company
anticipates that it will incur significant professional fees and other
restructuring costs in connection with the Chapter 11 Cases and the
restructuring of its business operations. As a result of the uncertainty
surrounding the Company's current circumstances, it is difficult to predict the
Company's actual liquidity needs and sources at this time. However, based on
current and anticipated levels of operations, and efforts to effectively manage
working capital, the Company anticipates that its cash flow from operations,
together with cash on hand, cash generated from asset sales, and amounts
available under the DIP Financing Facility, will be adequate to meet its
anticipated cash requirements during the pendency of the Chapter 11 Cases.
In the event that cash flows and available borrowings under the DIP
Financing Facility are not sufficient to meet future cash requirements, the
Company may be required to reduce planned capital expenditures, sell assets or
seek additional financing. The Company can provide no assurances that reductions
in planned capital expenditures or proceeds from asset sales would be sufficient
to cover shortfalls in available cash or that additional financing would be
available or, if available, offered on acceptable terms.
As a result of the Chapter 11 Cases, the Company's access to additional
financing is, and for the foreseeable future will likely continue to be, very
limited. The Company's long-term liquidity requirements and the adequacy of the
Company's capital resources are difficult to predict at this time, and
ultimately cannot be determined until a plan of reorganization has been
developed and confirmed by the Bankruptcy Court in connection with the Chapter
11 Cases.
Legal and Environmental Contingencies
The Company and its subsidiaries have sundry claims, environmental
claims and other lawsuits pending against them, and also have certain guarantees
of debt of equity investees ($11.5 million at June 29, 2002) that were made in
the ordinary course of business. The Company makes provisions in its financial
statements for litigation and claims based on the Company's assessment of the
possible outcome of such claims, including the possibility of settlement.
As a result of the Chapter 11 Cases, litigation relating to prepetition
claims against the Debtors is stayed; however, certain prepetition claims by the
government or governmental agencies seeking equitable or other non-monetary
relief against the Debtors may not be subject to the automatic stay.
Furthermore, litigants may seek to obtain relief from the Bankruptcy Court to
pursue their claims.
It is not possible to determine with certainty the ultimate liability
of the Company in the matters described above, 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.
Forward-Looking Statements
With the exception of historical information, the statements contained in
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, the
following: the success of the Company's overall business strategy, including
successful implementation of the Company's restructuring plan and successful
development and implementation of the Company's plan of reorganization; the
impact that the Company's Chapter 11 filing may have on the Company's
relationships with its principal customers and suppliers; the risk that the
bankruptcy court overseeing the Company's Chapter 11 proceedings may not confirm
any reorganization plan proposed by the Company; actions that may be taken by
creditors and other parties in interest that may have the effect of preventing
or delaying confirmation of a plan of reorganization in connection with the
Company's Chapter 11 proceedings; the risk that the cash generated by the
Company from operations, asset sales and the cash received by the Company under
its debtor-in-possession financing facility will not be sufficient to fund the
operations of the Company until such time as the Company is able to propose a
plan of reorganization that will be acceptable to creditors, other parties in
interest and the bankruptcy court; senior management may be required to expend a
substantial amount of time and effort structuring a plan of reorganization,
which could have a disruptive impact on management's ability to focus on the
operation of the Company's business; the risk that the Company will have
difficulty attracting and retaining top management and other personnel as a
result of the Chapter 11 proceedings; successful development and implementation
of the Company's plan of reorganization and restructuring plan may require that
the Company's business change materially from the Company's current business and
operations as described in this report; the Company's success may depend in part
on the goodwill associated with, and protection of, the brand names and other
intellectual property rights of the Company and its affiliates; global economic
activity and the implications thereon after the attacks on September 11 and the
U.S. government's response thereto; the success of the Company's expansion of
sourcing activities in other countries; the demand for textile products; the
cost and availability of raw materials and labor; governmental legislation and
regulatory changes including the recently enacted U.S. legislation granting the
President trade promotion authority; the long-term implications of regional
trade blocs and the effect of quota phase-out and lowering of tariffs under the
WTO trade regime; the level of the Company's indebtedness, ability to borrow and
exposure to interest rate fluctuations; and the Company's access to capital
markets will likely be limited for the foreseeable future.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits.
--------
None.
b) Reports on Form 8-K.
-------------------
None.
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 7, 2002 Charles E. Peters, Jr.
Senior Vice President and
Chief Financial Officer
By /s/ CARL J. HAWK
------------------------------
Date: August 7, 2002 Carl J. Hawk
Controller