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 March 29, 2003
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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 (Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of May 7, 2003 there were outstanding 53,609,538 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, except for per share amounts)
Three Three Six Six
months months months months
ended ended ended ended
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
--------- --------- --------- ----------
Net sales $ 204,647 $ 256,541 $ 394,389 $ 502,725
Cost of sales 178,630 239,196 347,363 478,795
--------- --------- --------- ----------
Gross profit 26,017 17,345 47,026 23,930
Selling, general and
administrative expenses 21,484 25,969 43,131 52,989
Provision for doubtful accounts (178) 2,776 (140) 3,738
Provision for restructuring/
impairments 3,021 74,476 7,335 133,652
--------- --------- --------- ----------
Operating income (loss) before
interest and taxes 1,690 (85,876) (3,300) (166,449)
Interest expense (contractual
interest of $12,433 and
$14,462 for the three months
ended March 29, 2003 and
March 30, 2002, respectively,
and $25,183 and $30,670 for
the six months ended March 29,
2003 and March 30, 2002,
respectively) 6,945 8,976 14,308 22,471
Equity in income of
joint ventures (827) (466) (1,289) (737)
Other expense (income) - net 196 (562) (715) (1,314)
--------- --------- --------- ----------
Loss before reorganization items
and income taxes (4,624) (93,824) (15,604) (186,869)
Reorganization items 4,283 6,858 8,571 14,810
--------- --------- --------- ----------
Loss before income taxes (8,907) (100,682) (24,175) (201,679)
Income tax expense (benefit):
Current 722 (47,551) 1,435 (46,940)
Deferred (394) (2,676) (788) (29,054)
--------- --------- --------- ----------
Total income tax expense
(benefit) 328 (50,227) 647 (75,994)
--------- --------- --------- ----------
Net loss $ (9,235)$ (50,455)$ (24,822)$ (125,685)
========= ========= ========= ==========
Basic and diluted loss per
common share $ (0.17)$ (0.95)$ (0.46)$ (2.37)
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)
March 29, September 28,
2003 2002
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 155,593 $ 137,793
Short-term investments 23,204 26,828
Customer accounts receivable after
deductions of $7,785 and $10,363 for the
respective dates for doubtful accounts,
discounts, returns and allowances 118,220 118,115
Income taxes receivable 0 67,630
Sundry notes and accounts receivable 16,596 13,174
Inventories 134,383 131,363
Prepaid expenses 3,912 5,238
---------- -----------
Total current assets 451,908 500,141
Fixed assets, at cost:
Land and land improvements 13,364 14,339
Buildings 225,915 227,453
Machinery, fixtures and equipment 476,268 474,023
---------- -----------
715,547 715,815
Less accumulated depreciation and amortization 395,999 380,862
---------- -----------
Fixed assets - net 319,548 334,953
Other assets:
Assets held for sale 16,940 21,533
Investments and receivables 29,422 47,825
Intangibles and deferred charges 6,145 9,111
---------- -----------
Total other assets 52,507 78,469
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$ 823,963 $ 913,563
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities not subject to compromise:
Current liabilities:
Long-term debt - current $ 430,917 $ 464,617
Accounts payable - trade 37,309 36,146
Sundry payables and accrued expenses 44,889 68,831
Income taxes payable 2,044 2,024
Deferred income taxes 30,684 31,472
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Total current liabilities 545,843 603,090
Other long-term liabilities 43,473 57,058
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Total liabilities not subject to compromise 589,316 660,148
Liabilities subject to compromise 365,796 366,145
---------- -----------
Total liabilities 955,112 1,026,293
Shareholders' equity (deficit):
Common stock issued 707 703
Capital in excess of par value 887,968 887,116
Accumulated deficit (829,008) (804,186)
Accumulated other comprehensive income (loss) (34,883) (40,435)
Cost of common stock held in treasury (155,933) (155,928)
---------- -----------
Total shareholders' equity (deficit) (131,149) (112,730)
---------- -----------
$ 823,963 $ 913,563
========== ===========
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)
Six Six
months months
ended ended
March 29, March 30,
2003 2002
--------- --------
Cash flows from operating activities:
Net loss $ (24,822)$ (125,685)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization of fixed 20,835 27,875
assets
Provision for doubtful accounts (140) 3,738
Amortization of intangibles and deferred
debt expense 3,168 3,597
Equity in income of joint ventures (1,289) (737)
Deferred income taxes (788) (29,054)
(Gain) loss on disposal of assets (712) 0
Provision for restructuring/impairments 7,335 133,652
Non-cash reorganization items 0 3,577
Changes in assets and liabilities:
Customer accounts receivable - net 35 45,889
Income taxes receivable 67,630 (12,573)
Sundry notes and accounts receivable (3,422) (933)
Inventories (3,020) 27,475
Prepaid expenses 1,326 819
Accounts payable and accrued expenses (23,355) 8,242
Change in income taxes payable 20 26
Other 5,421 2,731
--------- --------
Total adjustments 73,044 214,324
--------- --------
Net cash provided by operating activities 48,222 88,639
--------- --------
Cash flows from investing activities:
Capital expenditures (5,673) (4,183)
Proceeds from sales of assets 8,480 1,092
Change in investments 471 1,215
--------- --------
Net cash provided (used) by investing activities 3,278 (1,876)
--------- --------
Cash flows from financing activities:
Repayments of long-term debt (33,700) (99,389)
Payment of financing fees 0 (4,619)
--------- --------
Net cash used by financing activities (33,700) (104,008)
--------- --------
Net change in cash and cash equivalents 17,800 (17,245)
Cash and cash equivalents at beginning of period 137,793 87,473
--------- --------
Cash and cash equivalents at end of period $ 155,593 $ 70,228
========= ========
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 six months ended March 29, 2003
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 superpriority claims on
substantially all of the assets of the Debtors to secure the DIP Financing
Facility. Under the original terms of the DIP Financing Order, a $190.0 million
revolving credit facility, including up to $50.0 million for postpetition
letters of credit, was 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, and (iv) any event of default having occurred and
continuing under the DIP Financing Facility. Effective September 28, 2002, the
Company elected to reduce the commitment amount under the DIP Financing Facility
to $100.0 million. 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 (defined
by reference to the agent's base commercial lending 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 in Management's Discussion and
Analysis of Results of Operations and Financial Condition - Liquidity and
Capital Resources. 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 March 29, 2003, there were no borrowings outstanding
under the DIP Financing Facility other than issuances of letters of credit, and
the Company had approximately $83.1 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 DIP Financing 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. The Debtors are assessing
the claims filed and their impact on the development of a plan of
reorganization. The amount of the claims filed or 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 initial exclusive period of the Debtors to file a
plan for reorganization expired on March 15, 2002; and subsequent rulings by the
Bankruptcy Court have extended the Debtors' time to file and solicit acceptances
of a plan or reorganization to May 31, 2003 and July 31, 2003, respectively. On
February 11, 2003, the Debtors filed their joint plan of reorganization and
related disclosure statement with the Bankruptcy Court. If the Debtors fail to
obtain an extension of the exclusive period or if the Debtors fail to obtain
acceptance of their plan from the parties entitled to vote on the plan 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 the
parties entitled to vote. The Debtors have not yet sought Bankruptcy Court
approval to solicit votes on their joint plan of reorganization. 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 class of parties
entitled to vote, 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 class of parties entitled to vote 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
class of parties entitled to vote 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 parties entitled to vote 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, the availability of the "cram down" provisions, and
the possibility that the plan of reorganization will require the issuance of
common stock or common stock equivalents, thereby diluting current equity
interests, 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.
On February 11, 2003, the Company entered into a definitive agreement
with Berkshire Hathaway Inc. under which the Company agreed to be acquired by
Berkshire in a transaction in which the Company would emerge from bankruptcy
proceedings. The documentation relating to the transaction provided for an
auction procedure under which the Company would seek Bankruptcy Court approval
of procedures whereby higher and better offers to purchase the Company could
have been considered and authorizing the payment to Berkshire of a termination
fee of $14.0 million in certain circumstances. On February 28, 2003, Berkshire
terminated the agreement following a ruling in a hearing to consider procedures
to solicit alternatives to the Berkshire transaction. The Bankruptcy Court
indicated it approved the procedures generally, but disapproved the break-up fee
and certain other conditions required by Berkshire to proceed as a "stalking
horse" in the alternative bid process. On April 4, 2003, the Bankruptcy Court
extended the Company's period of exclusivity to solicit acceptances of its plan
of reorganization through July 31, 2003 and approved bidding procedures for the
Company to solicit offers to acquire the Company in an auction process. Under
the approved bidding procedures, the deadline for bids to purchase the Company,
which may be extended by the Company, is July 10, 2003 with the auction for
qualified bidders presently scheduled to be held on July 21, 2003. The Company
currently intends to present the results of the auction and its disclosure
statement to the Bankruptcy Court for approval on July 31, 2003. If the auction
is successful, the Company will file an amended plan of reorganization and
disclosure statement with the Court for approval of solicitation of votes of
creditor constituencies of confirmation of the amended plan.
Since the Petition Date, the Debtors have conducted business in the
ordinary course. Management believes that it has substantially completed the
restructuring steps it has identified as necessary and is evaluating the
elements of a plan of reorganization pending the results of the auction. During
the pendency of the Chapter 11 Cases, the Debtors have engaged in the process of
selling certain assets by court order and pursuant to certain sale procedures
approved by the Bankruptcy Court, and the Debtors have engaged in the process of
settling certain liabilities pursuant to certain settlement procedures approved
by the Bankruptcy Court. The Debtors are in the process of reviewing claims
submitted as of the July 22, 2002 "bar date" and continuing to evaluate
executory contracts and unexpired leases. To date, the Debtors have rejected
certain real property leases and other executory contracts that are not
necessary for operation of the business going forward. 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 has taken
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 be confirmed by the Bankruptcy
Court, its ability to comply with the DIP Financing Facility, and 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 has and will
continue to 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-petition 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 March 29, 2003 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........................ 50,346
Sundry payables and accrued expenses.... 10,157
----------
$ 365,796
==========
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
2002 fiscal year, the Company recognized a charge of $21.0 million associated
with the Chapter 11 Cases. Approximately $4.0 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 derivative
instruments in default as a result of the Chapter 11 Cases. In addition, the
Company incurred $12.6 million for fees payable to professionals retained to
assist with the filing of the Chapter 11 Cases, and $4.4 million has been
recorded for service rendered through September 28, 2002 related to retention
incentives. During the 2003 fiscal year, the Company has incurred $5.6 million
for fees payable to professionals retained to assist with the filing of the
Chapter 11 Cases, and $3.0 million has been recorded for service rendered
through March 29, 2003 related to retention incentives.
Following is unaudited condensed combined financial information of the
Debtors as of and for the six months ended March 29, 2003, and as of and for the
fiscal year ended September 28, 2002 (in millions). 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. Intercompany receivables and payables of entities in
reorganization proceedings are not material.
March 29, September 28,
2003 2002
------------- --------------
Earnings data:
Revenue............................. $ 393.1 $ 985.9
Gross profit........................ 67.1 129.2
Net loss............................ (25.8) (120.9)
Balance sheet data:
Current assets...................... $ 410.0 $ 457.0
Noncurrent assets................... 444.6 464.3
Current liabilities................. 537.3 585.9
Noncurrent liabilities.............. 401.3 396.3
Note B.
With respect to interim quarterly financial data, which are unaudited, in
the opinion of Management, all adjustments necessary to a fair statement, in all
material respects, 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. The March
29, 2003 consolidated balance sheet reflects the December 2002 quarter sale and
disposal of certain insurance programs maintained by the Company's captive
insurance subsidiary in Bermuda, including the sale of investments of $19.2
million and the commutation of insurance reserves of $22.7 million included in
sundry payables and accrued expenses and other long-term
liabilities as of September 28, 2002. The impact of these transactions on the
consolidated statement of operations was not material.
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 Six Months Ended
---------------------- ---------------------
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
---------- ---------- ---------- ----------
Numerator:
Net loss........................ $ (9,235) $(50,455) $(24,822) $(125,685)
======== ======== ========= =========
Denominator:
Denominator for basic and diluted
earnings per share............. 53,842 53,252 53,718 53,113
======== ======== ======= =========
Weighted-average shares not
included in the diluted earnings
per share computations because
they were antidilutive........... - 1,016 - 1,035
======== ======== ======= =========
During the first six months of the 2003 fiscal year, outstanding shares
changed due to the forfeiture of 105,553 shares of restricted nonvested stock,
and the issuance of 391,812 vested shares related to the investment in Nano-Tex.
Note F.
Inventories are summarized as follows (in thousands):
March 29, September 28,
2003 2002
---------- -----------
Inventories at average cost:
Raw materials................................ $ 7,344 $ 5,729
Stock in process............................. 45,663 44,588
Produced goods............................... 96,080 92,855
Dyes, chemicals and supplies................. 10,223 10,118
--------- ---------
159,310 153,290
Less excess of average cost over LIFO........ 24,927 21,927
--------- ---------
Total.................................... $ 134,383 $ 131,363
========= =========
Note G.
Comprehensive income (loss) totaled $(14,368,000) and $(50,596,000) for
the three months ended March 29, 2003 and March 30, 2002, respectively, and
$(19,270,000) and $(124,746,000) for the six months ended March 29, 2003 and
March 30, 2002, respectively. The components of accumulated other comprehensive
income (loss), net of related tax, are as follows (in thousands):
March 29, September 29,
2003 2002
----------- -------------
Foreign currency translation adjustments........ $ (586) $ (604)
Minimum pension liability adjustment............ (33,865) (38,609)
Unrealized gains (losses) on securities......... (432) (1,222)
-------- --------
$(34,883) $(40,435)
======== ========
Note H.
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities"("SFAS No. 146"). SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, rather than at the date
of an entity's commitment to an exit plan as was previously required under
generally accepted accounting principles, and also established that fair value
should be used for initial measurement of the liability. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. Adopting this standard had no impact on the consolidated financial
position or results of operations of the Company.
During the March 2003 quarter, the Company adopted SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," related
to its various stock-based employee compensation plans. This Statement amends
the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," to require the disclosure of the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. As allowed under SFAS No. 123, the Company accounts for those plans
under the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations, rather
than the fair value approach. Under APB Opinion No. 25, no stock-based employee
compensation cost is reflected in net income, as all options granted under those
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. The effect on net income (loss) and earnings (loss)
per share as if the Company had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation was not material to any period
reported in the accompanying financial statements.
Note I.
The Company conducts its operations in three principal operating
segments: Apparel Fabrics, Interior Furnishings and Carpet. 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 and total assets (in millions):
Three Months Ended Six Months Ended
------------------- --------------------
March 29, March 30, March 29, March 30,
2003 2002 2003 2002
--------- --------- ---------- ---------
(Dollar amounts in millions)
Net sales
Apparel Fabrics........ $ 102.2 $ 124.5 $ 195.7 $ 246.0
Interior Furnishings... 44.9 72.5 86.0 139.4
Carpet................. 58.8 58.5 114.4 115.9
Other.................. 1.0 4.0 4.2 8.2
-------- -------- --------- -------
206.9 259.5 400.3 509.5
Less:
Intersegment sales.... (2.3) (3.0) (5.9) (6.8)
-------- -------- -------- -------
$ 204.6 $ 256.5 $ 394.4 $ 502.7
======== ======== ======== =======
Income (loss) before income taxes
Apparel Fabrics........ $ (1.3) $ (11.2) $ (4.9) $ (29.2)
Interior Furnishings... 1.5 (3.6) 1.2 (10.2)
Carpet................. 8.6 7.1 14.0 13.3
Other.................. (1.0) (0.7) (0.9) (1.6)
-------- -------- -------- -------
Total reportable
segments............ 7.8 (8.4) 9.4 (27.7)
Corporate expenses..... (2.3) (2.5) (4.1) (4.3)
Restructuring and
impairment charges... (3.0) (74.5) (7.3) (133.7)
Interest expense....... (6.9) ( 9.0) (14.3) (22.5)
Other (expense)
income - net......... (0.2) 0.6 0.7 1.3
Reorganization items... (4.3) (6.9) (8.6) (14.8)
-------- --------- --------- -------
$ (8.9) $ (100.7) $ (24.2) $(201.7)
======== ======== ======== =======
March 29, September 29,
2003 2002
--------- ------------
Total Assets
Apparel Fabrics........ $ 415.3 $ 421.5
Interior Furnishings... 100.3 106.1
Carpet................. 109.4 112.4
Other.................. 13.4 39.2
Corporate.............. 185.6 234.4
-------- --------
$ 824.0 $ 913.6
======== ========
Intersegment net sales for the three months ended March 29, 2003 and
March 30, 2002 were primarily attributable to Apparel Fabrics segment sales of
$2.4 million and $2.2 million, respectively. Intersegment net sales for the six
months ended March 29, 2003 and March 30, 2002 were primarily attributable to
Apparel Fabrics segment sales of $5.3 million and $5.2 million, respectively.
Assets decreased in the "Other" category primarily due to the sale of investment
securities in conjunction with the commutation of insurance liabilities by the
Company's captive insurance subsidiary, and corporate assets declined primarily
due to the use of cash to repay debt of $33.7 million as well as net cash used
by operating activities.
Note J.
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. 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 offered for sale and 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 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 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 $58.1 million, as adjusted by $9.6 million in the
2002 fiscal year and $1.2 million in the 2003 fiscal year. The components of the
2001 restructuring and impairment charge included the establishment of a $8.5
million reserve for severance benefit payments, write-downs for impairment of
$45.1 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 $4.5 million for
lease cancellation and other exit costs expected to be paid through June 2003.
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.............................. (5.7) (4.9)
Adjustments........................... (1.5) (1.9)
------ -------
Balance at September 28, 2002......... 1.7 0.1
Payments.............................. (0.1) 0.5
Adjustments........................... - (0.5)
------ -------
Balance at December 28, 2002.......... 1.6 0.1
Payments.............................. - -
------ -------
Balance at March 29, 2003............. $ 1.6 $ 0.1
====== =======
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 March 29, 2003, $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 has reduced its
U.S. manufacturing base for apparel fabrics in response to slowing economic
conditions and continued import competition. This reorganization resulted 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 have occurred at the Raeford, North Carolina
plant, and company-wide overhead reductions have taken place.
(4) Divestitures - 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. For the first eight months of fiscal
2002, the bedding and window consumer products businesses had sales of $69.7
million, and from June through September 2002, the Company had sales of $12.5
million under its agreement to supply fabrics to Springs. 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. For the first nine
months of fiscal 2002, the upholstery fabrics business had sales of $31.5
million, and from July through September 2002, the Company had revenues of $3.5
million related to yarn preparation work for Tietex.
(5) Logistics Outsourcing - In December 2002, the Company signed an
agreement with a third party to manage the Company's growing logistics needs in
line with the Company's new business model. This transition was completed during
the March 2003 quarter.
The closings and overhead reductions outlined above resulted in the
elimination of approximately 4,550 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.
This plan resulted in a pre-tax charge for restructuring, asset
write-downs and impairment of $180.2 million, as adjusted by $4.9 million in the
first quarter of fiscal year 2003 and $1.5 million in the second quarter of
fiscal year 2003. The components of the 2002 restructuring and impairment charge
included the establishment of a $12.8 million reserve for severance benefit
payments, write-downs for impairment of $138.1 million related to long-lived
assets resulting from the restructuring, a loss provision of $28.1 million
related to the sale of the consumer products and upholstery businesses, and a
reserve of $1.2 million for lease cancellation and other exit costs expected to
be paid through December 2003. 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. Also, the Company recorded additional
pre-tax restructuring charges of $0.8 million and $0.9 million in fiscal year
2003 and 2002, respectively, primarily related to impairment write-downs of
long-lived assets in the apparel fabrics business identified in the 2000 and
1999 restructuring plans.
Following is a summary of activity in the related 2002 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- -------------
2002 restructuring charge............. $ 12.1 $ 1.1
Payments.............................. (7.0) (0.2)
------ --------
Balance at September 28, 2002......... 5.1 0.9
Payments.............................. (2.5) (0.1)
Adjustments........................... 0.7 0.1
------ --------
Balance at December 28, 2002.......... 3.3 0.9
Payments.............................. (1.4) (0.3)
------ -------
Balance at March 29, 2003............. $ 1.9 $ 0.6
====== =======
Other estimated expenses of $32-34 million related to the 2002
restructuring (including losses on inventories of discontinued styles,
relocation of employees and equipment, and plant carrying and other costs) have
been or will be charged to operations as incurred. Through March 29, 2003, $6.8
million and $23.8 million of such costs have been incurred and charged to
operations during the 2003 and 2002 fiscal year, respectively.
Assets that have been sold, or are held for sale at March 29, 2003 and
are no longer in use, were written down to their estimated fair values less
costs of sale. At March 29, 2003, assets held for sale consisted of real estate
of $16.9 million. The Company is actively marketing the affected real estate.
The active plan to sell the assets includes the preparation of a detailed
property marketing package to be used in working with real estate 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 12 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.
Note K.
The total income tax expense (benefit) for the 2003 and 2002 periods is
different from the amounts obtained by applying statutory rates to loss before
income taxes primarily as a result of U.S. and foreign losses with no tax
benefits, tax rate differences on foreign transactions and changes in the
valuation allowance. 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. Through March 29, 2003, the Company has applied for
and received income tax refunds under these changes of $103.2 million. As part
of its strategic realignment of assets and business restructuring announced in
January 2002, the Company terminated its domestic denim manufacturing operations
and closed its Stonewall, Mississippi and Mt. Holly, North Carolina plants. Such
actions included the transfer of $13.7 million of cash to a trust to restrict
these funds for the sole benefit of creditors of this subsidiary. These, and
other actions, resulted in a deduction for tax purposes only of approximately
$303 million. The Company used this tax deduction and operating losses to offset
remaining income in the 5-year carryback period (resulting in a portion of the
tax refund previously disclosed). The Company also has a tax loss carryforward
of approximately $237 million for federal income tax purposes, 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. It
is management's opinion that it is more likely than not that some portion of the
deferred tax assets created by these carryforwards will not be realized, and in
accordance with Statement of Accounting Standards No. 109, "Accounting for
Income Taxes," a valuation allowance has been established. Operating loss and
tax credit carryforwards with related tax benefits of $34.2 million (net of
$65.9 million valuation allowance) at March 29, 2003 and $23.9 million (net of
$65.9 million valuation allowance) at September 28, 2002 expire from 2003 to
2023.
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 believes that
it has substantially completed the restructuring steps it has identified as
necessary and is evaluating the elements of a plan of reorganization pending the
results of the auction of the Company. The procedures governing the auction
process, which has already been initiated, contemplate that the auction will be
completed in July 2003. There can be no assurance if or when the auction process
will be completed, that the Company will be acquired as a result, or as to the
timing or terms thereof. After developing a plan of reorganization, the Debtors
will seek the requisite acceptance of the plan by parties entitled to vote on
the plan 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 have engaged
in the process of selling certain assets by court order and pursuant to certain
sale procedures approved by the Bankruptcy Court, and the Debtors have engaged
in the process of settling certain liabilities pursuant to certain settlement
procedures approved by the Bankruptcy Court. The Debtors are in the process of
reviewing claims submitted as of the July 22, 2002 "bar date" and continuing to
evaluate executory contracts and unexpired leases. To date, the Debtors have
rejected certain real property leases and other executory contracts that are not
necessary for operation of the business going forward. 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.
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 has reduced its
U.S. manufacturing base for apparel fabrics in response to slowing economic
conditions and continued import competition. This reorganization resulted 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 have occurred at the Raeford, North Carolina
plant, and company-wide overhead reductions have taken place.
(4) Divestitures - 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. For the first eight months of fiscal
2002, the bedding and window consumer products businesses had sales of $69.7
million, and from June through September 2002, the Company had sales of $12.5
million under its agreement to supply fabrics to Springs. 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. For the first nine
months of fiscal 2002, the upholstery fabrics business had sales of $31.5
million, and from July through September 2002, the Company had revenues of $3.5
million related to yarn preparation work for Tietex.
(5) Logistics Outsourcing - In December 2002, the Company signed an
agreement with a third party to manage the Company's growing logistics needs in
line with the Company's new business model. This transition was completed during
the March 2003 quarter.
The closings and overhead reductions outlined above resulted in the
elimination of approximately 4,550 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.
This plan resulted in a pre-tax charge for restructuring, asset
write-downs and impairment of $180.2 million, as adjusted by $4.9 million in the
first quarter of fiscal year 2003 and $1.5 million in the second quarter of
fiscal year 2003. The components of the 2002 restructuring and impairment charge
included the establishment of a $12.8 million reserve for severance benefit
payments, write-downs for impairment of $138.1 million related to long-lived
assets resulting from the restructuring, a loss provision of $28.1 million
related to the sale of the consumer products and upholstery businesses, and a
reserve of $1.2 million for lease cancellation and other exit costs expected to
be paid through December 2003. 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. Also, the Company recorded additional
pre-tax restructuring charges of $0.8 million and $0.9 million in fiscal year
2003 and 2002, respectively, primarily related to impairment write-downs of
long-lived assets in the apparel fabrics business identified in the 2000 and
1999 restructuring plans.
Following is a summary of activity in the related 2002 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
--------- -------------
2002 restructuring charge............. $ 12.1 $ 1.1
Payments.............................. (7.0) (0.2)
------ --------
Balance at September 28, 2002......... 5.1 0.9
Payments.............................. (2.5) (0.1)
Adjustments........................... 0.7 0.1
------ --------
Balance at December 28, 2002.......... 3.3 0.9
Payments.............................. (1.4) (0.3)
------ -------
Balance at March 29, 2003............. $ 1.9 $ 0.6
====== =======
Other estimated expenses of $32-34 million related to the 2002
restructuring (including losses on inventories of discontinued styles,
relocation of employees and equipment, and plant carrying and other costs) have
been or will be charged to operations as incurred. Through March 29, 2003, $6.8
million and $23.8 million of such costs have been incurred and charged to
operations during the 2003 and 2002 fiscal year, respectively.
Assets that have been sold, or are held for sale at March 29, 2003 and
are no longer in use, were written down to their estimated fair values less
costs of sale. At March 29, 2003, assets held for sale consisted of real estate
of $16.9 million. The Company is actively marketing the affected real estate.
The active plan to sell the assets includes the preparation of a detailed
property marketing package to be used in working with real estate 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 12 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.
Overview
The restructuring steps and operational changes instituted by the
Company since 2000 have improved the Company's results of operations and
increased financial flexibility. However, the Company's performance in the first
two fiscal quarters of the current year has been negatively impacted by a number
of factors, including slow economic conditions generally, exacerbated by the
conflict with Iraq and other geopolitical uncertainty, continued rapid growth in
imports, and as specifically relates to the Company, cautiousness in its
customer base caused by the continuing uncertainty as to the outcome of the
ownership of the Company. These conditions continued to negatively impact the
Company's performance in the current quarter and could persist in periods beyond
the quarter's end. Accordingly, there necessarily can be no assurance as to the
Company's future prospects, particularly in the short and intermediate terms.
Comparison of Three Months ended March 29, 2003 and March 30, 2002.
NET SALES: Net sales for the second quarter of the 2003 fiscal year
were $204.6 million, 20.2% lower than the $256.5 million recorded for the second
quarter of the 2002 fiscal year, partially due to planned volume reductions
resulting from restructuring actions. Export sales totaled $28.1 million and
$30.2 million in the fiscal 2003 and 2002 periods, respectively.
Apparel Fabrics: Net sales for the Apparel Fabrics segment for the
second quarter of the 2003 fiscal year were $102.2 million, 17.9% lower than the
$124.5 million recorded in the second quarter of the 2002 fiscal year. This
decrease was due primarily to 25.8% lower volume, primarily due to planned
reductions resulting from restructuring actions, offset by 7.9% higher selling
prices and product mix.
Interior Furnishings: Net sales of products for interior furnishings
markets for the second quarter of the 2003 fiscal year were $44.9 million, 38.1%
lower than the $72.5 million recorded in the second quarter of the 2002 fiscal
year. This sales reduction included $24.0 million due to the sale of the
consumer products businesses in June 2002. The remaining decrease was primarily
due to 20.0% lower volume, offset by 8.1% higher selling prices and product mix.
Carpet: Net sales for the Carpet segment for the second quarter of the
2003 fiscal year were $58.8 million compared to $58.5 million recorded in the
second quarter of the 2002 fiscal year. This increase was primarily due to 0.9%
higher selling prices and product mix, partially offset by 0.4% lower volume.
Other: Net sales of other segments for the second quarter of the 2003
fiscal year were $1.0 million compared to $4.0 million recorded in the second
quarter of the 2002 fiscal year. This decrease was primarily due to the closing
of the transportation business in February 2003.
SEGMENT INCOME (LOSS): Total reportable segment income for the second
quarter of the 2003 fiscal year was $7.8 million compared to a loss of $(8.4)
million for the second quarter of the 2002 fiscal year.
Apparel Fabrics: Loss of the Apparel Fabrics segment for the second
quarter of the 2003 fiscal year was $(1.3) million compared to $(11.2) million
recorded for the second quarter of the 2002 fiscal year. This improvement was
due primarily to $6.6 million higher margins due to selling price and product
mix, $3.4 million improvement in manufacturing performance resulting from
capacity reductions due to restructuring, $1.1 million due to lower selling,
general and administrative expenses resulting from restructuring and cost
reduction programs, $1.2 million lower bad debt expense, and $0.4 million higher
equity earnings from joint ventures, partially offset by $2.8 million of higher
raw material costs.
Interior Furnishings: Income (loss) of the interior furnishings
products segment for the second quarter of the 2003 fiscal year was $1.5 million
compared to $(3.6) million recorded for the second quarter of the 2002 fiscal
year. This improvement was due primarily to $7.3 million of improved
manufacturing performance, $4.1 million lower selling, general and
administrative expenses resulting from restructuring and cost reduction programs
and $1.4 million lower bad debt expense, partially offset by $7.5 million lower
margins due to reduced volume resulting from the disposition of the consumer
products businesses and $0.2 million higher raw material costs.
Carpet: Income of the Carpet segment for the second quarter of the 2003
fiscal year was $8.6 million compared to $7.1 million recorded for the second
quarter of the 2002 fiscal year. This improvement was due primarily to $0.9
million higher margins due to selling price and product mix and $0.9 million
improvement in manufacturing performance, partially offset by $0.2 million
higher selling, general and administrative expenses and $0.1 million higher raw
material costs.
Other: Loss of other segments for the second quarter of the 2003 fiscal
year was $(1.0) million compared to $(0.7) million recorded for the second
quarter of the 2002 fiscal year. This increased loss resulted primarily from
carrying costs related to winding down the transportation business.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $2.3 million for the second quarter of the 2003 fiscal year
compared to $2.5 million for the second quarter of the 2002 fiscal year.
OPERATING INCOME (LOSS) BEFORE INTEREST AND TAXES: Operating income
(loss) before interest and taxes for the second quarter of the 2003 fiscal year
was $1.7 million compared to $(85.9) million for the second quarter of the 2002
fiscal year. Operating income (loss) before interest and taxes included
provisions for restructuring and impairment of $3.0 million and $74.5 million
for the second quarter of the 2003 and 2002 fiscal years, respectively.
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
second quarter of the 2003 fiscal year was $6.9 million, or 3.4% of net sales,
compared with $9.0 million, or 3.5% of net sales, in the second quarter of the
2002 fiscal year. The decrease was mainly attributable to lower borrowing levels
and lower interest rates.
OTHER EXPENSE (INCOME): Other expense for the second quarter of the
2003 fiscal year was $0.2 million, consisting principally of net losses on the
disposal of assets. Other income for the second quarter of the 2002 fiscal year
was $0.6 million, consisting principally of interest income.
REORGANIZATION ITEMS: During the second quarter of the 2003 fiscal
year, the Company recognized a net pre-tax charge of $4.3 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
$1.5 million was recorded for service rendered for the period related to
retention incentives that were approved by the Bankruptcy Court on January 17,
2002.
INCOME TAX EXPENSE (BENEFIT): Income tax expense (benefit) of $0.3
million was recorded for the second quarter of the 2003 fiscal year in
comparison with $(50.2) million for the second quarter of the 2002 fiscal year.
The total income tax expense (benefit) for the 2003 and 2002 periods is
different from the amounts obtained by applying statutory rates to loss before
income taxes primarily as a result of U.S. and foreign losses with no tax
benefits, tax rate differences on foreign transactions, changes in the valuation
allowance, and the favorable tax treatment of export sales from the exclusion
for extraterritorial income under section 114 of the Internal Revenue Code. The
change in the valuation allowance for both the 2003 and 2002 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).
NET LOSS AND LOSS PER SHARE: Net loss for the second quarter of the
2003 fiscal year of $(9.2) million, or $(0.17) per share, included a net charge
of $(0.05) per share related to restructuring costs and $(0.08) per share
related to reorganization items. Net loss for the second quarter of the 2002
fiscal year of $(50.5) million, or $(0.95) per share, included a net charge of
$(0.70) per share related to restructuring costs and $(0.08) per share related
to reorganization items. The Company believes that earnings per share data are
not meaningful in the Company's circumstances.
Comparison of Six Months ended March 29, 2003 and March 30, 2002.
NET SALES: Net sales for the first six months of the 2003 fiscal year
were $394.4 million, 21.5% lower than the $502.7 million recorded for the first
six months of the 2002 fiscal year, partially due to planned volume reductions
resulting from restructuring actions. Export sales totaled $57.9 million and
$62.6 million in the fiscal 2003 and 2002 periods, respectively.
Apparel Fabrics: Net sales for the Apparel Fabrics segment for the
first six months of the 2003 fiscal year were $195.7 million, 20.4% lower than
the $246.0 million recorded in the first six months of the 2002 fiscal year.
This decrease was due primarily to 25.5% lower volume, primarily due to planned
reductions resulting from restructuring actions, offset by 5.1% higher selling
prices and product mix.
Interior Furnishings: Net sales of products for interior furnishings
markets for the first six months of the 2003 fiscal year were $86.0 million,
38.3% lower than the $139.4 million recorded in the first six months of the 2002
fiscal year. This sales reduction included $45.5 million due to the sale of the
consumer products businesses in June 2002. The remaining decrease was primarily
due to 17.3% lower volume, offset by 4.3% higher selling prices and product mix.
Carpet: Net sales for the Carpet segment for the first six months of
the 2003 fiscal year were $114.4 million, 1.3% lower than the $115.9 million
recorded in the first six months of the 2002 fiscal year. This decrease was
primarily due to 2.5% lower volume, partially offset by 1.2% higher selling
prices and product mix. The Company believes that lower sales volume was
principally due to corporate business customers' budget reductions or
postponements of projects.
Other: Net sales of other segments for the first six months of the 2003
fiscal year were $4.2 million compared to $8.2 million recorded in the first six
months of the 2002 fiscal year. This decrease was primarily due to decreased
revenues in the transportation business that was closed in February 2003.
SEGMENT INCOME (LOSS): Total reportable segment income for the first
six months of the 2003 fiscal year was $9.4 million compared to a loss of
$(27.7) million for the first six months of the 2002 fiscal year.
Apparel Fabrics: Loss of the Apparel Fabrics segment for the first six
months of the 2003 fiscal year was $(4.9) million compared to $(29.2) million
recorded for the first six months of the 2002 fiscal year. This improvement was
due primarily to $12.2 million higher margins due to selling price and product
mix, $9.6 million improvement in manufacturing performance due to restructuring,
$3.2 million due to lower selling, general and administrative expenses resulting
from restructuring and cost reduction programs, $1.4 million lower bad debt
expense, and $0.6 million higher equity earnings from joint ventures, partially
offset by $2.7 million of higher raw material costs.
Interior Furnishings: Income (loss) of the interior furnishings
products segment for the first six months of the 2003 fiscal year was $1.2
million compared to $(10.2) million recorded for the first six months of the
2002 fiscal year. This improvement was due primarily to $12.7 million of
improved manufacturing performance, $6.7 million lower selling, general and
administrative expenses resulting from restructuring and cost reduction programs
and $2.2 million lower bad debt expense, partially offset by $10.0 million lower
margins due to reduced volume resulting from the disposition of the consumer
products businesses and $0.2 million higher raw material costs.
Carpet: Income of the Carpet segment for the first six months of the
2003 fiscal year was $14.0 million compared to $13.3 million recorded for the
first six months of the 2002 fiscal year. This increase was due primarily to
$0.3 million improvement in manufacturing performance and $0.4 million of lower
selling, general and administrative expenses.
Other: Loss of other segments for the first six months of the 2003
fiscal year was $(0.9) million compared to $(1.6) million recorded for the first
six months of the 2002 fiscal year. This resulted primarily from the absence of
carrying costs for a sold terminal in the transportation business and the
absence of losses in a disposed insurance business.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $4.1 million for the first six months of the 2003 fiscal year
compared to $4.3 million for the first six months of the 2002 fiscal year.
OPERATING INCOME (LOSS) BEFORE INTEREST AND TAXES: Operating loss
before interest and taxes for the first six months of the 2003 fiscal year was
$(3.3) million compared to $(166.4) million for the first six months of the 2002
fiscal year. Operating income (loss) before interest and taxes included
provisions for restructuring and impairment of $7.3 million and $133.7 million
for the first six months of the 2003 and 2002 fiscal years, respectively.
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 six months of the 2003 fiscal year was $14.3 million, or 3.6% of net
sales, compared with $22.5 million, or 4.5% of net sales, in the first six
months of the 2002 fiscal year. The decrease was mainly attributable to the
Chapter 11 Cases (contractual interest expense would have been $25.2 million and
$30.7 million, respectively), lower borrowing levels and lower interest rates.
OTHER EXPENSE (INCOME): Other income for the first six months of the
2003 fiscal year was $0.7 million, consisting principally of net gains on the
disposal of assets. Other income for the first six months of the 2002 fiscal
year was $1.3 million, consisting principally of interest income.
REORGANIZATION ITEMS: During the first six months of the 2003 fiscal
year, the Company recognized a net pre-tax charge of $8.6 million associated
with the Chapter 11 Cases. The Company incurred $5.6 million for fees payable to
professionals retained to assist with the filing of the Chapter 11 Cases, and
$3.0 million was recorded for service rendered for the period related to
retention incentives that were approved by the Bankruptcy Court on January 17,
2002.
INCOME TAX EXPENSE (BENEFIT): Income tax expense (benefit) of $0.6
million was recorded for the first six months of the 2003 fiscal year in
comparison with $(76.0) million for the first six months of the 2002 fiscal
year. The total income tax expense (benefit) for the 2003 and 2002 periods is
different from the amounts obtained by applying statutory rates to loss before
income taxes primarily as a result of U.S. and foreign losses with no tax
benefits, tax rate differences on foreign transactions, changes in the valuation
allowance, and the favorable tax treatment of export sales from the exclusion
for extraterritorial income under section 114 of the Internal Revenue Code. The
change in the valuation allowance for both the 2003 and 2002 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).
NET LOSS AND LOSS PER SHARE: Net loss for the first six months of the
2003 fiscal year of $(24.8) million, or $(0.46) per share, included a net charge
of $(0.13) per share related to restructuring costs and $(0.16) per share
related to reorganization items. Net loss for the first six months of the 2002
fiscal year of $(125.7) million, or $(2.37) per share, included a net charge of
$(1.56) per share related to restructuring costs and $(0.18) per share related
to reorganization items. The Company believes that earnings per share data are
not meaningful in the Company's circumstances.
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 2003.
See Note A of the Notes to Consolidated Financial Statements.
During the first six months of the 2003 fiscal year, the Company
generated $48.2 million of cash from operating activities and $9.0 million from
sales of assets and other investing activities. Cash was primarily used for debt
repayments of $33.7 million and capital expenditures of $5.7 million. At March
29, 2003, total debt of the Company not subject to compromise was $430.9
million, total debt subject to compromise was $300.0 million, and cash on hand
totaled $155.6 million. At September 28, 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 $137.8 million.
During the first six months of the 2003 fiscal year, investment in
capital expenditures totaled $5.7 million, compared to $4.2 million during the
first six months of the 2002 fiscal year. The Company anticipates that the level
of capital expenditures for fiscal year 2003 will total approximately $20
million, and under its DIP Financing Facility discussed below, cannot exceed $20
million.
The Company maintains, and plans to continue to maintain, a defined
benefit pension plan ("Retirement System") and a defined contribution 401(k)
plan, both of which require cash contributions from the Company. The value of
the Retirement System's assets has fallen significantly as a result of benefit
payments and market conditions, and is presently below the accumulated benefit
obligation, resulting in the recognition of a non-cash minimum pension liability
adjustment of $33.9 million as a reduction of shareholders' equity (deficit) as
of March 29, 2003. In addition, because of the number of terminations arising
from the Company's ongoing downsizing of its workforce and the nearly universal
selection of lump sum payouts by participants, outflow of funds has been higher
than it had been historically. To address this shortfall, the Company has made
in the last two years the maximum allowable tax deductible cash contributions to
the Retirement System, and expects to continue funding this plan at high levels.
Cash contributions to the Retirement System and 401(k) Plans were $12.9 million
and $6.2 million for the 2002 fiscal year, and are estimated to be $10.5 million
and $5.0 million for the 2003 fiscal year. Market value declines of Retirement
System assets may result in the recognition of higher pension costs in near term
periods.
The March 29, 2003 consolidated balance sheet reflects the December
2002 quarter sale and disposal of certain insurance programs maintained by the
Company's captive insurance subsidiary in Bermuda, including the sale of
investments of $19.2 million and the commutation of insurance reserves of $22.7
million included in sundry payables and accrued expenses and other long-term
liabilities as of September 28, 2002.
Tax matters. The Company's results of operations and cash position for
the current period and fiscal year 2002 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 has taken or is planning to take. 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. Through March 29,
2003, the Company has applied for and received income tax refunds under these
changes of $103 million. As part of its strategic realignment of assets and
business restructuring announced in January 2002, the Company terminated its
domestic denim manufacturing operations and 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, resulted in a
deduction for tax purposes only of approximately $303 million. The Company used
this tax deduction and operating losses to offset remaining income in the 5-year
carryback period (resulting in a portion of the tax refund previously
disclosed). After utilization of the carryback provisions, the Company has a tax
loss carryforward of approximately $237 million for federal income tax purposes,
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. It is management's opinion that it is more likely than not that
some portion of the deferred tax assets created by these carryforwards will not
be realized, and in accordance with Statement of Accounting Standards No. 109,
"Accounting for Income Taxes," a valuation allowance has been established.
DIP Financing Facility. 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 superpriority claims on substantially all of the assets of the Debtors to
secure the DIP Financing Facility. Under the original terms of the DIP Financing
Order, a $190.0 million revolving credit facility, including up to $50.0 million
for postpetition letters of credit, was 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, and (iv) any event of default having
occurred and continuing under the DIP Financing Facility. Effective September
28, 2002, the Company elected to reduce the commitment amount under the DIP
Financing Facility to $100.0 million. 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 upon repayment
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 and other provisions under the
DIP Financing Facility. In September 2002, the Bankruptcy Court also approved
changes to the DIP Financing Facility to allow the Company to increase asset
sales subject to a specified application of sale proceeds and to make a cash
payment with respect to the principal amount of loans owing to the pre-petition
secured lenders (see "2000 Bank Credit Agreement" below). At May 7, 2003, there
were no borrowings outstanding under the DIP Financing Facility other than
issuances of letters of credit, and the Company had approximately $81.5 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
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. In addition, the Company
made a further cash payment of $33.7 million of principal amount on September
30, 2002 pursuant to a Bankruptcy Court approved motion. Pursuant to an order of
the Bankruptcy Court entered April 30, 2003, the Company has repaid $50.0
million of pre-petition loans under the 2000 Bank Credit Agreement plus accrued
interest, and extended adequate protection to a pre-petition issuer of certain
interest rate protection and foreign exchange agreements aggregating
approximately $2.9 million.
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").
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 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. The Company
intends to fund its financial needs while in reorganization proceedings
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. 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. The Company's capital requirements after reorganization will
necessarily depend on the terms of the reorganization and, as such, cannot be
determined at this time.
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 ($9.2 million at March 29, 2003) 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
This report contains statements that are forward-looking statements
within the meaning of applicable federal securities laws and are based upon the
Company's current expectations and assumptions, which are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from those anticipated. Such risks and uncertainties include, among other
things, global economic activity, the impact of the armed conflict with Iraq,
the success of the Company's overall business strategy including successful
implementation of the Company's restructuring plan and the Company's development
of a global sourcing structure, the demand for textile products, the cost and
availability of raw materials and labor, governmental legislation and regulatory
changes, and the long-term implications of regional trade blocs and the effect
of quota phase-out and lowering of tariffs under the WTO trade regime, the
impact that the Company's Chapter 11 proceeding has had or may have on the
Company's relationships with its principal customers and suppliers and the
Company's ability to retain key employees and managers, the nature of the
capital structure which is approved in the Company's plan of reorganization and
the Company's ongoing ability to finance its operations and restructuring
activities, the cost of future capital sources, and the exposure to interest
rate and currency fluctuations, the Company's ability to utilize tax loss
carryforwards and retain tax refunds received or to be received, and other
factors identified in Burlington's filings with the Securities and Exchange
Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Item 7A. Quantitative and Qualitative Disclosures About Market Risk
in the Company's Annual Report on Form 10-K for the fiscal year ended September
28, 2002.
Item 4. Controls and Procedures
The Company maintains a set of disclosure controls and procedures
designed to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. Within the 90-day period
prior to the filing of this report, an evaluation was carried out under the
supervision and with the participation of the Company's management, including
the chief executive officer ("CEO") and the chief financial officer ("CFO") of
the effectiveness of such disclosure controls and procedures. Based on that
evaluation, the CEO and CFO have concluded that the Company's disclosure
controls and procedures are effective. Subsequent to the date of their
evaluation, there have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
4.1 FOURTH AMENDMENT, dated as of April 16, 2003, to the REVOLVING
CREDIT AND GUARANTY AGREEMENT, dated as of November 15, 2001,
among BURLINGTON INDUSTRIES, INC., a debtor and
debtor-in-possession under Chapter 11 of the Bankruptcy Code,
the Guarantors named therein, each of which Guarantor is a
debtor and debtor-in-possession in a case pending under
Chapter 11 of the Bankruptcy Code, JPMORGAN CHASE BANK, a New
York banking corporation, each of the other financial
institutions party thereto and JPMORGAN CHASE BANK, as Agent
for the Banks.
99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
b) Reports on Form 8-K.
The Company filed a report on Form 8-K on February 12, 2003.
The Item reported was "Item 5. Other Events" and "Item 7.
Financial Statements and Exhibits".
The Company filed a report on Form 8-K on February 21, 2003.
The Item reported was "Item 9. Regulation FD Disclosure".
The Company filed a report on Form 8-K on March 3, 2003. The
Item reported was "Item 5. Other Events" and "Item 7.
Financial Statements and Exhibits".
The Company filed a report on Form 8-K on March 10, 2003. The
Item reported was "Item 5. Other Events" and "Item 7.
Financial Statements and Exhibits".
The Company filed a report on Form 8-K on April 8, 2003. The
Item reported was "Item 5. Other Events" and "Item 7.
Financial Statements and Exhibits".
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BURLINGTON INDUSTRIES, INC.
By /s/ CHARLES E. PETERS, JR.
------------------------------
Date: May 13, 2003 Charles E. Peters, Jr.
Senior Vice President and
Chief Financial Officer
By /s/ CARL J. HAWK
------------------------------
Date: May 13, 2003 Carl J. Hawk
Controller
CERTIFICATION
I, George W. Henderson, III, Chief Executive Officer of Burlington
Industries, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended March 29, 2003 of Burlington Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003
BURLINGTON INDUSTRIES, INC.
By: /s/ George W. Henderson III
------------------------------
Name: George W. Henderson III
Title: Chief Executive Officer
CERTIFICATION
I, Charles E. Peters, Jr., Senior Vice President and Chief Financial
Officer of Burlington Industries, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter
ended March 29, 2003 of Burlington Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003
BURLINGTON INDUSTRIES, INC.
By: Charles E. Peters, Jr.
-------------------------------
Name: Charles E. Peters, Jr.
Title: Senior Vice President and Chief Financial Officer