UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 29, 2001
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
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(State of incorporation) ( I.R.S. Employer
Identification No.)
3330 West Friendly Avenue
Greensboro, N.C. 27410
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 379-2000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, None
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of December 3, 2001, the aggregate market value of Registrant's voting stock
held of record by nonaffiliates of Registrant was approximately $2,380,845
(based upon the closing price on the Over the Counter Bulletin Board on that
date), excluding Treasury shares and, without acknowledging affiliate status,
617,270 shares held beneficially by Directors and executive officers as a group.
As of December 3, 2001, there were outstanding 53,524,941 shares of Registrant's
Common Stock, par value $.01 per share, and 454,301 shares of Registrant's
Nonvoting Common Stock, par value $.01 per share.
Documents Incorporated by Reference
None.
1
Unless the context otherwise requires, references to "Burlington" or
the "Company" include Burlington Industries, Inc. and its subsidiaries, and,
where relevant, its participation in joint venture companies. References to
"Debtors" include Burlington Industries, Inc. and certain of its domestic
subsidiaries that have filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code.
Forward-Looking Statements
With the exception of historical information, the statements contained
in this report include statements that are forward-looking statements within the
meaning of applicable federal securities laws and are based upon the Company's
current expectations and assumptions, which are subject to a number of risks and
uncertainties that could cause actual results to differ materially from those
anticipated. Such risks and uncertainties include, among other things, the
following:
* The success of the Company's overall business strategy, including
successful implementation of the Company's restructuring plan and successful
development and implementation of the Company's plan of reorganization.
* The impact that public disclosure of the Company's Chapter 11 filing
may have on the Company's relationships with its principal customers and
suppliers.
* The risk that the bankruptcy court overseeing the Company's Chapter
11 proceedings may not confirm any reorganization plan proposed by the Company.
* Actions that may be taken by creditors and other parties in interest
that may have the effect of preventing or delaying confirmation of a plan of
reorganization in connection with the Company's Chapter 11 proceedings.
* The risk that the cash generated by the Company from operations,
asset sales and the cash received by the Company under its debtor-in-possession
financing facility will not be sufficient to fund the operations of the Company
until such time as the Company is able to propose a plan of reorganization that
will be acceptable to creditors, other parties in interest and the bankruptcy
court.
* Senior management may be required to expend a substantial amount of
time and effort structuring a plan of reorganization, which could have a
disruptive impact on management's ability to focus on the operation of the
Company's business.
* The risk that the Company will have difficulty attracting and
retaining top management and other personnel as a result of the Chapter 11
proceedings.
* Successful development and implementation of the Company's plan of
reorganization and restructuring plan may require that the Company's business
change materially from the Company's current business and operations as
described in this report.
* The Company's success may depend in part on the goodwill associated
with, and protection of, the brand names and other intellectual property rights
of the Company.
* Global economic activity and the implications thereon after the
attacks on September 11 and the U.S. government's response thereto.
* The success of the Company's expansion in other countries.
* The demand for textile products.
* The cost and availability of raw materials and labor.
* Governmental legislation and regulatory changes.
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* The long-term implications of regional trade blocs and the effect of
quota phase-out and lowering of tariffs under the WTO trade regime.
* The level of the Company's indebtedness, ability to borrow and
exposure to interest rate fluctuations.
* The Company's access to capital markets will likely be limited for
the foreseeable future.
PART I
Item 1. Business
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General
The Company is one of the world's largest and most diversified
manufacturers of softgoods for apparel and interior furnishings. It is a leading
developer, marketer and manufacturer of fabrics and other textile products used
in a wide variety of apparel and interior furnishings end uses. During the
fiscal year ended September 29, 2001, the Company was organized in four industry
segments: PerformanceWear, CasualWear, Interior Furnishings and Carpets. On
December 4, 2001, the Company announced that as part of the reorganization,
which is discussed in detail below, its PerformanceWear and CasualWear divisions
are to be merged into one apparel fabrics division, Burlington North American
Apparel Fabrics.
As of September 29, 2001, the Company operated 16 U.S. manufacturing
plants in three states and three manufacturing plants, one garment assembly
plant and one drapery sewing plant in Mexico. It also held a 50% interest in
three joint ventures: one in India with one manufacturing plant and two in
Mexico, each with one manufacturing plant, and held a minority interest in a
U.S. yarn manufacturing venture. It also owns a 51% interest in Nano-Tex, LLC, a
California limited liability company ("Nano-Tex") engaged in research activities
directed to enhancing the performance characteristics of textile products. At
September 29, 2001, the Company employed approximately 13,700 persons, not
counting joint venture employees.
Proceedings Under Chapter 11 of the Bankruptcy Code
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, 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 payment of prepetition obligations
to certain critical vendors to aid the Debtors in maintaining the operation of
their businesses. On November 15, 2001, the Bankruptcy Court also entered an
interim order (the "Interim DIP Financing Order") authorizing the Debtors to
enter into a debtor-in-possession financing facility (the "DIP Financing
Facility") with JPMorgan Chase Bank and a syndicate of financial institutions,
and to grant first priority mortgages, security interests, liens (including
priming liens), and superiority claims on substantially all of the assets of the
Debtors to secure the DIP Financing Facility. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" below for a further discussion regarding the
DIP Financing Facility. On December 12, 2001, the Bankruptcy Court entered a
final order (the "Final DIP Financing Order") approving the DIP Financing
Facility and
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authorizing the Debtors to utilize up to $190 million, including up to $50
million for post petition letters of credit, 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 amount of the claims to be
filed by the creditors could be significantly different than the amount of the
liabilities recorded by the Company.
The United States trustee for the District of Delaware has appointed an
Official Committee of Unsecured Creditors in accordance with the provisions of
the Bankruptcy Code. The Bankruptcy Code provides that the Debtors have
exclusive periods during which only they may file and solicit acceptances of a
plan of reorganization. The exclusive period of the Debtors to file a plan for
reorganization expires on March 15, 2002; however, the Debtors may request that
the Bankruptcy Court extend such exclusive period. If the Debtors fail to file a
plan of reorganization during the exclusive period or, after such plan has been
filed, if the Debtors fail to obtain acceptance of such plan from the requisite
impaired classes of creditors and equity holders during the exclusive
solicitation period, any party in interest, including a creditor, an equity
holder, a committee of creditors or equity holders, or an indenture trustee, may
file their own plan of reorganization for the Debtors. After a plan of
reorganization has been filed with the Bankruptcy Court, the plan, along with a
disclosure statement approved by the Bankruptcy Court, will be sent to all
creditors and equity holders. Following the solicitation period, the Bankruptcy
Court will consider whether to confirm the plan. In order to confirm a plan of
reorganization, the Bankruptcy Court, among other things, is required to find
that (i) with respect to each impaired class of creditors and equity holders,
each holder in such class has accepted the plan or will, pursuant to the plan,
receive at least as much as such holder would receive in a liquidation, (ii)
each impaired class of creditors and equity holders has accepted the plan by the
requisite vote (except as described in the following sentence), and (iii)
confirmation of the plan is not likely to be followed by a liquidation or a need
for further financial reorganization of the Debtors or any successors to the
Debtors unless the plan proposes such liquidation or reorganization. If any
impaired class of creditors or equity holders does not accept the plan and,
assuming that all of the other requirements of the Bankruptcy Code are met, the
proponent of the plan may invoke the "cram down" provisions of the Bankruptcy
Code. Under these provisions, the Bankruptcy Court may confirm a plan
notwithstanding the non-acceptance of the plan by an impaired class of creditors
or equity holders if certain requirements of the Bankruptcy Code are met. These
requirements may, among other things, necessitate payment in full for senior
classes of creditors before payment to a junior class can be made. As a result
of the amount of prepetition indebtedness and the availability of the "cram
down" provisions, the holders of the Company's capital stock may receive no
value for their interests under the plan of reorganization. Because of such
possibility, the value of the Company's outstanding capital stock and unsecured
instruments are highly speculative.
Since the Petition Date, the Debtors have conducted business in the
ordinary course. Management is in the process of stabilizing the business of the
Debtors and evaluating their operations as part of the development of a plan of
reorganization. After developing a plan of reorganization, the Debtors will seek
the requisite acceptance of the plan by impaired creditors and equity holders
and confirmation of the plan by the Bankruptcy Court, all in accordance with the
applicable provisions of the Bankruptcy Code. During the pendency of the Chapter
11 Cases, the Debtors may, with Bankruptcy Court approval, sell assets and
settle liabilities, including for amounts other than those reflected in the
financial statements. The Debtors are in the process of reviewing their
operations and identifying assets for disposition. The administrative and
reorganization expenses resulting from the Chapter 11 Cases will unfavorably
affect the Debtors' results of operations. Future results of operations may also
be adversely affected by other factors related to the Chapter 11 Cases. See
"Forward-Looking Statements." ---
The description of the Debtors' current business and operations set
forth below may also be materially impacted by the ultimate plan of
reorganization adopted.
4
Products for Apparel Markets
Burlington PerformanceWear. The Company is a leading manufacturer of
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woven worsted and worsted blend fabrics, as well as woven synthetic fabrics made
with 100% polyester, 100% nylon and polyester or nylon blended with wool, rayon,
lycra or other fibers, supplied to manufacturers of a wide variety of apparel,
activewear and barrier products. Burlington PerformanceWear is organized to
service the needs of six distinct customer groups:
. Menswear - Clothing: Fabrics of worsted wool, synthetics and blends
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designed for the increasingly diverse needs in men's jackets, suits
and formal wear.
. Menswear - Trousers: Fabrics made from worsted wool, synthetics and
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blends for use in men's slacks and shorts, from business to casual
application.
. Womens Wear: A breadth of fabric styles for a wide variety of end-uses
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in the "moderate" and "better" women's market.
. Raeford(R): An extensive product line, from tailored fabrics to
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performance fabrics, for uniform and career apparel.
. ActiveWear: High-tech, performance fabrics with waterproof, water
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repellent, breathable and moisture management characteristics used by
makers of outerwear and high performance sportswear and activewear.
. Barrier Products: Performance fabrics for the reusable health care
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market and contamination control environments. Lightweight, reusable,
protective barrier fabrics under the Maxima(R) brand name are marketed
to makers of, among other things, clothing worn by hospital personnel
and by industrial workers who are required to work in clean and
static-free environments.
The Company owns a minority interest in a joint venture that manufacturers
and sells natural textured polyester yarn. During 2001, the Company announced
that it was exiting the woven shirting fabrics business and closing its
facilities in Mexico that developed these products and its offering of shirts
made therefrom.
Burlington CasualWear. The Company is a leading manufacturer of denim
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fabrics, focusing on fashion, value-added, specialty products. It produces a
diversified product line that services the major brands with innovative and
engineered products for denim customization. From plants in the United States,
Mexico and India, it is a major supplier to all segments of the branded,
designer and private label business. The India denim plant is a 50/50 joint
venture with Mafatlal Industries Limited. A Mexican cotton yarn plant, which is
a 50/50 joint venture with Parkdale Mills Incorporated, principally supplies the
Company's Mexican denim facility.
The CasualWear apparel fabric business also offers customers the option
of purchasing fabrics in the form of customer-specified garments through direct
garment-making capabilities in Mexico or through the purchase of sewing services
from contractors or joint ventures. The Company operates a jeans sewing plant
and has entered into a 50/50 joint venture with International Garment
Processors, a leader in denim jeans processing. The joint venture commenced
operation in late 1999 in a new facility in the state of Chihuahua, Mexico. When
coupled with its yarn and fabric facilities in Mexico, the Company is able to
convert raw materials to shelf-ready denim garments totally within Mexico.
Products for Interior Furnishings Markets
Burlington House. The Company is a leading manufacturer and marketer of
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ready-made and made-to-measure draperies, window coverings and coordinating
bedroom ensembles, mattress ticking, upholstery fabrics, and decorative fabrics
for use by makers of products for the home, office, hospitality and healthcare
markets.
5
The product lines consist of:
. Ready-made and made-to-measure draperies, window coverings and
coordinating bedroom ensembles, and table linens sold under the
Burlington House(R) name to department and specialty stores, under the
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American Lifestyle(TM) name to discount stores and on a private label
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basis to several major retailers;
. Woven jacquard mattress ticking (primarily damasks) sold to all major
domestic manufacturers of mattresses for both the residential and
institutional markets;
. Woven jacquard and textured fabrics for residential upholstered
furniture which are marketed to a broad range of furniture
manufacturers;
. Woven jacquard and other decorative fabrics and flame resistant fabrics
used by manufacturers of home, office, hospitality and healthcare
products (bedding, window coverings, draperies, panel fabric and
upholstery fabric); and
. Bath accessories designed and marketed by the Company. Many of these
products, which include shower curtains plus resin, ceramic and wood
bathroom accessories, are designed to coordinate with the Company's
bedroom ensembles.
Carpets. The Company is a leading domestic manufacturer of tufted
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synthetic carpet for commercial uses, comprised of broadloom carpet, carpet
tiles and six-foot vinyl-backed carpet. It produces and sells a wide variety of
standard and custom commercial carpet products under the Company's Lees(R) brand
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name primarily for use in offices, institutions, airports, hotels, schools,
stores and health care facilities. The Company's commercial carpet products are
sold in the middle to high priced segments of the commercial carpet market, and
are marketed through dealers primarily to architects, designers and commercial
builders, as well as directly to end users.
The Company developed and patented a yarn dyeing process that permits
the production of carpeting that resists staining and fading on a permanent
basis. Products incorporating this dyeing technology, which are marketed under
the Duracolor(R) name, represent a substantial portion of current carpet sales.
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The Company also has developed and markets a proprietary thermoplastic carpet
backing process for commercial carpets, known as Unibond(R), which enhances the
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carpet's durability.
The Company's yarn dyeing capability facilitates the offering of
carpeting in a wide range of colors. Through its Colorfax(R) program, the
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Company offers customers the ability to order sample yardage manufactured to
their exact color specifications. In addition, the Company offers high quality
digital product simulations, known as Techno-Images(TM). These provide
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customers with custom design and color direction and are marketed by the Company
under it's Accelerated Design System (ADS)(TM). Techno-Images(TM) are
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deliverable within 48 hours of request.
During 2001, the Company exited the tufted area and bath rug business
by selling its facilities located in Monticello, Arkansas. The Company also sold
its decorative mats business, marketed under the Bacova(R) name.
Financial Information Concerning Industry Segments
Reference is made to Note P to the Notes to Consolidated Financial
Statements for information concerning industry segments for the Company's 2001,
2000 and 1999 fiscal years. See "Item 8 -- Financial Statements and
Supplementary Data."
Exports
The Company's exports were 11.4 % of revenues in fiscal year 2001, with
export sales of $160.7 million; of these sales, $79.3 million were to Mexico and
Canada. The Company's export sales were $179.1 million in fiscal year 2000 and
$236 million in fiscal year 1999.
Operations
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The Company's domestic operations are organized primarily by product
category. Products are distributed through direct sales except in a few cases,
mainly export sales, where products are sold through independent agents or
distributors.
The Company's operations in Mexico, directly owned or through joint
ventures, are designed primarily to service consumer markets outside of Mexico.
These operations benefit from the quota, tariff and tax advantages of the North
American Free Trade Agreement (See "Competition" below) and Mexico's
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"maquiladora " program.
The Company's corporate headquarters, principal sales and merchandising
offices and principal staff operations are located in Greensboro, North
Carolina. The Company maintains domestic sales offices in New York City and
other major cities in the United States.
Manufacturing
The Company is a vertically integrated manufacturer in many of its product
areas. Generally, raw fibers are purchased and spun into yarn, or filament yarns
are purchased and processed. Yarns, whether produced by the Company or
purchased, are dyed in some cases, and then are woven, or tufted, into fabric or
carpet. Fabric is then sold either as greige (unfinished) goods or in dyed and
finished form, or further processed into finished home furnishing or apparel
products. Residential and commercial interior furnishings products are further
processed and packaged for sale to retailers.
"Just-in-time" manufacturing techniques, which reduce in-process
inventories, floor space requirements and the time required to process a
particular order, are used in most facilities. Programs to link customers and
suppliers of the Company by means of electronic data transmission or the
Internet are also in place in all businesses. These programs improve efficiency
and reduce lead times by improving communication and planning and processing
times at the various stages of production. They also assist the Company in
working effectively with manufacturers to coordinate their operations with the
demands of retailers and, as such, are an important part of the domestic textile
industry's "Quick Response" program designed to improve its competitive position
vis-a-vis imports. The Company is placing increased emphasis on continuous
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improvement of its manufacturing processes.
Raw Materials
The Company uses many types of fiber, both natural (principally wool and
cotton) as well as manufactured (polyester, nylon, polypropylene, acrylic,
rayon, Tencel(R) and acetate), in the manufacture of its textile products. Total
raw material costs were 34.2 % of net sales in the 2001 fiscal year, 33.4% of
net sales in the 2000 fiscal year, and 30.4% of net sales in the 1999 fiscal
year. The Company believes that future price levels for all fibers will depend
primarily upon supply and demand conditions, general inflation, U. S. and
foreign government fiscal policies and agricultural programs, relative currency
values, and prices of underlying raw materials such as petroleum.
The Company purchases all of its raw materials and dyes, and, generally, to
date, has had no difficulty in obtaining these materials. Wool and man-made
fibers are available from a wide variety of sources both domestically and
abroad. Cotton is available from a wide variety of domestic sources. Other
materials, such as dyes and chemicals, are generally available, but, as in the
case of raw materials, continued availability is dependent to varying degrees
upon the adequacy of petroleum supplies. Energy costs are an important factor in
cost of sales across all the Company's segments.
It will be necessary for the Company to assess the effect of the Chapter 11
Cases on the availability of raw materials. The Company may have difficulty in
maintaining existing or creating new relationships with suppliers or vendors as
a result of its pending bankruptcy proceedings. Suppliers to the Company may
stop providing raw materials and other supplies to the Company, or provide raw
materials and supplies to the Company only on "cash on delivery" or other terms
less favorable to the Company than prior to the Chapter 11 Cases.
Research and Development
7
Textile manufacturers generally focus their research and development
efforts on product development rather than basic research. Major innovations in
the textile industry have come primarily from fiber producers (microdenier
fiber, for example) or machinery manufacturers (high-speed shuttleless looms).
While breakthroughs by textile manufacturers in fabric development have occurred
(for example, the Company's Duracolor(R) carpets using stain-resistant
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technology), generally, textile makers have enhanced their competitiveness
through continual development and refinement of products to meet or create
consumer needs (for example, the Company's use of microdenier fibers in a wide
range of apparel and other applications). Accordingly, with few exceptions,
basic research and development expenditures have not been as significant a
component of textile manufacturing success as expenditures on design innovation
or capability and on capital equipment that increase the range of end products
and enhance productivity.
The Company is a leader in developing new applications and end uses for
synthetic fibers, such as fabrics made with microdenier filament yarn, a yarn
made from fiber thinner than silk. These products combine a natural appearance
and touch with the performance characteristics of synthetic fibers. The
Company's microdenier fabrics are currently being used in men's and women's
apparel fabrics, activewear, protective medical clothing and in home
furnishings. The Company is the leading domestic producer of microdenier fabrics
made from 100% polyester and polyester blended with wool or rayon.
Basic research and development responsibility is located in each product
area and focused on specific process and product development needs. Research and
development expenditures totaled $11.4 million in the 2001 fiscal year -- $6.3
million in the PerformanceWear segment, $1.2 million in the CasualWear segment,
$1.4 million in the Interior Furnishings segment, and $2.5 million in the Carpet
segment -- compared with $11.8 million and $12.1 million in the 2000 and 1999
fiscal years, respectively.
In November 1999, the Company increased its ownership interest to 51% in
Nano-Tex, LLC, a California start-up limited liability company developing novel
chemistry directed to enhancing the performance characteristics of textile
products. Nano-Tex operates a research facility in Emeryville, California
engaged in research activities. The Company believes that the application of
Nano Tex's research to the next generation of textile products is promising.
Research and product development to date have been focused on providing existing
products with enhanced performance characteristics for use in the apparel and
home furnishings markets. Three products have been released for commercial
distribution and others are currently under development.
Trademarks and Patents
The Company owns or has the right to use all trademarks and trade names that it
believes are material to the operation of its business. The Company markets its
products under a variety of trademarks and trade names, principally utilizing
variations of the Burlington(R) name. Certain products are marketed under
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nationally recognized names such as Lees(R) for commercial carpets
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From time to time, the Company's product development efforts have resulted
in new processes or products, some of which have been patented. Examples of
Burlington-developed technology include the Xalt(R) family of composite,
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laminate fabrics used in activewear and Duracolor(R) carpets, manufactured using
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stain-resistant technology with respect to which the Company has obtained
patents. Because the Company's business is not dependent to any significant
degree upon patents and licenses (with the exception of the patented stain
resistant carpet technology in the case of the Carpet segment), the loss of any
patents or licenses now held by the Company would not have a material adverse
effect upon its business or results of operations.
To date, Nano-Tex has filed 65 patent applications on a series of
inventions in a number of important fields applicable to textiles. It has also
filed for trademark registration of its name and various derivations thereof
using the "Nano" prefix. There can be no assurance as to the extent to which
these registrations and applications will result in registered trademarks and
issued patents, although the Company's patent counsel believe that a significant
intellectual property portfolio will result from these filings. Under agreements
with Nano-Tex, the Company has the right to use, on a perpetual basis and
favorable license terms, all technologies developed which apply to textile
fields practiced by the Company. In addition, the Company has contracted to
represent Nano-Tex in exploiting all of its technology in the textile field,
including areas where the Company is not presently a manufacturer.
8
The Company derives licensing income (approximately $2.9 million in the
2001 fiscal year) from licenses of the Company's technology and from licenses of
the Burlington(R) name, principally to manufacturers of socks and hosiery
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products in the United States and Europe.
Competition
The global and United States textile industries are highly competitive.
No one firm dominates the United States market, and many companies compete only
in limited segments of the textile market. Certain of the Company's products
also compete with non-textile products. Textile competition is based in varying
degrees on price, product styling and differentiation, quality, response time
and customer service. The importance of each of these factors depends upon the
needs of particular customers and the degree of fashion risk inherent in the
product. The CasualWear division's offering of fabrics in garment form puts the
Company into competition with a global array of highly-competitive garment
makers.
Imports of foreign-made textile and apparel products are a significant
source of competition for most sectors of the domestic textile industry. The
U.S. Government has attempted to regulate the growth of certain textile and
apparel imports through tariffs and bilateral agreements which establish quotas
on imports from lesser-developed countries that historically account for
significant shares of U.S. imports. Despite these efforts, imported apparel,
which represents the area of heaviest import penetration, represents in excess
of 85% of the U.S. market.
U.S. retailers' and apparel manufacturers' sourcing decisions are
affected by numerous factors, including relative labor and raw material costs,
lead times, political instability and infrastructure deficiencies of newly
industrializing countries, fluctuating currency exchange rates, individual
government policies and international agreements regarding textile and apparel
trade, particularly those setting quota and tariff levels. As evidence of the
impact of these factors, sourcing of textile and apparel imports for goods
shipped into the United States -- once dominated primarily by Hong Kong, Taiwan
and Korea -- has been shifting to other lower-cost producer countries such as
The People's Republic of China, Bangladesh, Pakistan, Mexico and Honduras and
other countries in the Caribbean Basin. The Company believes that changing cost
structures, delivery lead times, political uncertainty and infrastructure
deficiencies associated with many of these producers have caused importers to
reassess the degree of reliance placed upon certain of these sources, and to
reconsider the importance of the reliability of manufacturing sources closer to
point of sale which can satisfy retailers' rapid replacement/response needs. In
addition to these factors, the U.S. Government's policies designed to benefit
Mexico and the Caribbean Basin, through favored quota and tariff treatment, have
stimulated a shift in production of garments to sources in the western
hemisphere, indirectly benefiting U.S. textile producers.
Under the North American Free Trade Agreement ("NAFTA") with Mexico and
Canada, there are no textile and apparel quotas between the United States and
either Mexico or Canada for products that meet certain origin criteria. Tariffs
among the three countries are either already zero or are being phased out.
Because the Company is a major U.S. apparel fabrics manufacturer and a resident,
diversified textile and finished product manufacturer in Mexico, the Company
believes that NAFTA is advantageous to the Company. In addition, the U.S. "807"
tariff program benefits U.S. textile producers whose cut fabrics are
incorporated into garments assembled in Caribbean countries before returning to
U.S. markets, where duty is charged on only the value added in assembling the
garments.
The impact of the economic factors and legislative/treaty provisions
described above are apparent in the rapid growth of U.S. apparel imports from
the Caribbean Basin, Canada and Mexico. Apparel imports from these countries
have grown from 6.5% of total apparel imports in 1984 to approximately 40% in
2000, surpassing imports from the Far East. Mexico has now become the largest
exporter of apparel to the U.S., surpassing China.
During 2000, legislation was passed relating to trade between the U.S.
and Sub-Saharan African nations, trade between the U.S. and the Caribbean Basin
countries, and reduction of U.S. wool fabric tariffs on a limited volume of
certain wool fabrics (the "2000 Trade Amendments"). Of these changes, only the
requirements that Caribbean countries use U.S.-made fabric to obtain favorable
trade concessions have benefited the Company. Additional legislation favoring
imported apparel producers is pending before Congress.
Also of significance to domestic textile and apparel companies is the
ultimate impact of multilateral agreements intended to liberalize global trade.
The World Trade Organization ("WTO") established as a successor to the GATT in
January 1995 has responsibility for overseeing international trade in
manufactured goods, agriculture,
9
intellectual property and services. The WTO will oversee the phase-out of
textile and apparel quotas over a ten-year period through 2004. In addition,
tariffs on textile and apparel products will be reduced (but not eliminated)
over the same ten-year period. After the end of the ten years, textile and
apparel trade would revert to regular WTO rules that prohibit quotas and most
other non-tariff barriers. The Clinton and Bush Administrations have also
engaged in discussions with a number of countries or trading blocs with the
intent of further liberalizing trade, although "fast track" authority to
negotiate new agreements has to date been denied by Congress. China has recently
gained admission to the WTO and access to the more liberal trade regime
currently being phased in. The Administration has also entered into a free trade
agreement with Jordan and proposed similar agreements with Chile and Singapore.
Over the years, the Company has attempted to offset the negative impact of
increased imports by focusing on product lines and markets that are less
vulnerable to import penetration and by increasing production in lower cost
countries. Capital expenditures and systems improvements have centered on
strengthening value-added product strategies and on increasing productivity,
lowering costs and improving quality. The Company also has introduced
manufacturing techniques such as "just-in-time" and "Quick Response" and created
electronic data links with customers and suppliers, thereby shortening lead
times and improving service. The Company has invested in yarn, apparel fabric
and garment manufacturing and processing facilities in Mexico and India in
response to the forces affecting global textile and apparel trade which have
been described above.
The long-run success of the Company will be influenced in varying degrees
by its response to legislation and administrative actions restricting or
liberalizing trade among world textile producing and consuming countries such as
NAFTA, the 2000 Trade Amendments and the GATT/WTO changes, the effectiveness of
anti-dumping and countervailing duty remedies and of enforcement activities by
the U.S. Government, the value of the United States dollar in relation to other
currencies and world economic developments generally. The Company's success also
will be affected by the ability of certain of the Company's customers to remain
competitive, the success of the Company's global diversification, modernization
and cost-reduction efforts and, most importantly, the ongoing ability of the
Company to produce innovative, quality products to satisfy specific customer
needs at competitive costs. The Company's exclusive right to commercialize
Nano-Tex's future product applications, if and when achieved, could provide it
unique market opportunities.
As is evident from the Company's public statements as to the causes of its
decisions to seek protection under Chapter 11 of the U.S. Bankruptcy Code, the
negative consequences of U.S. Government trade policy and the advantages gained
by Asian exporters following the 1998 financial crisis and currency devaluation
have to date outweighed the advantages of NAFTA and Caribbean Basin production
and the Company's efforts to distinguish its product offerings and service to
customers. During the last year, numerous other apparel and textile companies
have been forced by these factors to either close or seek Bankruptcy Court
protection.
Employees
The number of persons employed by the Company in both its domestic and
foreign operations, excluding joint ventures, as of September 29, 2001, was
approximately 13,700. The Company's workforce in the United States is not
represented by labor unions. All wage employees in the Company's Mexican
operations (approximately 2,600 persons) and in its Mexican joint ventures are
represented by labor unions.
Customers
The Company primarily markets its products to approximately 7,500 customers
in the United States. The Company also markets its products to customers in
Canada, Mexico, Central and South America, Europe, Africa, Australia and Asian
countries. For the 2001 fiscal year, no single customer represented more than
10% of the Company's net sales, and the Company's 10 largest customers accounted
for approximately 28% of net sales.
10
Backlog
The Company's business generally is characterized by very short forward
order positions. The backlog of orders at any time is not material, since most
orders are deliverable within a few months. The backlog of forward orders, after
eliminating sales within the Company, was approximately 11.3% of annual net
sales at the end of the 2001 fiscal year, compared with approximately 15.2% of
annual net sales at the end of the 2000 fiscal year, virtually all of which was
expected to be shipped within less than a year. Backlog at the end of the 2001
fiscal year for the PerformanceWear segment was 19.8% of annual net sales of the
segment, for the CasualWear segment was 10.0% of annual net sales of the
segment, for the Interior Furnishings segment was 6.4% of annual net sales of
the segment, and for the Carpet segment was 6.5% of annual net sales of the
segment.
Governmental Regulation
The Company is subject to various Federal, state and local laws and
regulations limiting the production, discharge, storage, handling and disposal
of a variety of substances, particularly the Federal Clean Water Act, the
Federal Clean Air Act, the Resource Conservation and Recovery Act, the Federal
Comprehensive Environmental Response, Compensation and Liability Act as amended
by the Superfund Amendment and Reauthorization Act of 1986, and other Federal,
state and local laws and regulations for the protection of public health and the
environment. Mexico imposes similar obligations on resident producers. The
Company is presently engaged in a number of environmental remediation plans and
has reported dispositions of waste that could result in future remediation
obligations. The Company cannot with certainty assess at this time the impact of
future emission standards and enforcement practices under the 1990 Clean Air Act
upon its operations or capital expenditure requirements. Reference is also made
to the discussion of "Legal and Environmental Contingencies" under "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
The Company's operations also are governed by laws and regulations
relating to workplace safety and worker health, principally the Occupational
Safety and Health Act and regulations thereunder which, among other things,
establish cotton dust, formaldehyde, asbestos and noise standards, and regulate
the use of hazardous chemicals in the workplace. The Company uses numerous
chemicals, including resins containing formaldehyde, in processing some of its
products. Although the Company does not use asbestos in the manufacture of its
products, some of its facilities contain some structural asbestos.
The Company believes that it has complied in all material respects with
the foregoing environmental or health and safety laws or regulations and does
not believe that future compliance with such laws or regulations will have a
material adverse effect on its results of operations or financial condition.
Item 2. Properties
----------
As of September 29, 2001 the Company operated 16 manufacturing plants
in the United States, of which 10 were located in North Carolina, five in
Virginia, and one in Mississippi. All of these plants are owned in fee. The
aggregate floor area of these manufacturing plants in the United States is
approximately 8.3 million square feet. The Company's international operations
include three textile manufacturing plants, one garment assembly plant, one
drapery sewing plant, a joint venture yarn plant and a joint venture garment
processing plant, all in Mexico, and a joint venture fabric plant in India.
Of the Company's manufacturing plants (including the garment assembly
plant and drapery sewing plant), eight are used principally in the
PerformanceWear segment, four are used in the CasualWear segment, eight are used
in the Interior Furnishings segment and one is used in the Carpet segment. In
addition, the Company has eight manufacturing plants not currently in operation
and held for sale. The Company's U.S. plants generally operate on a three-shift
basis for five-, six- or seven-day weeks during 49 weeks per year, or fewer
weeks per year during curtailments. The Company considers its plants and
equipment to be in good condition.
The corporate headquarters building in Greensboro, North Carolina,
containing approximately 430,000 square feet, was completed and occupied in
1971. The building is located on property occupied under a 99-year ground lease
that began in 1969.
11
Item 3. Legal Proceedings
-----------------
On November 15, 2001, 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 Chapter 11 cases pending for
the Debtors (the "Chapter 11 Cases") are being jointly administered for
procedural purposes. Each of the Debtors continues to operate its business and
manage its property as debtors-in-possession pursuant to Sections 1107 and 1108
of the Bankruptcy Code. See "Item 1. Business -- Proceedings under Chapter 11 of
the Bankruptcy Code for a detailed discussion of the Chapter 11 Cases.
The Company and its subsidiaries have sundry claims and other lawsuits
pending against them and also have made certain guarantees in the ordinary
course of business. It is not possible to determine with certainty the ultimate
liability, if any, of the Company in any of the matters referred to in this
item, but in the opinion of management, their outcome should have no material
adverse effect upon the financial condition or results of operations of the
Company. 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.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $.01 per share ("Common Stock"),
was traded on the New York Stock Exchange (the "NYSE") under the symbol "BUR"
until the NYSE suspended trading of the Common Stock on November 15, 2001. After
the NYSE suspended trading in the Common Stock, the Common Stock began trading
on the over-the-counter electronic bulletin board (the "OTCBB" under the symbol
"BRLG.)" The following table sets forth for the period indicated the high and
low sales prices on the NYSE of the Common Stock during fiscal year 2001 and
fiscal year 2000. The Company's common stock as of December 19, 2001 closed on
the OTCBB at the price of $0.032 per share with a high for that day of $0.035
per share and a low for that day of $0.024 per share.
Fiscal 2001 Quarters
- --------------------
Common Stock Prices First Quarter Second Quarter Third Quarter Fourth Quarter
High $1.8125 2.7500 2.4900 2.3500
Low $1.1875 1.5625 1.8600 1.1000
Fiscal 2000 Quarters
- --------------------
Common Stock Prices First Quarter Second Quarter Third Quarter Fourth Quarter
High $5.1875 5.2500 4.5000 2.6250
Low $3.5000 2.5625 1.6875 1.2500
As of September 29, 2001, the Company had approximately 1,881 holders
of record of the Company's Common Stock and one holder of records of its
Nonvoting Common Stock.
The Company has not paid any cash dividends on its Common Stock during
fiscal years 2001 and 2000. The DIP Financing Facility prohibits the Company
from paying cash dividends on the Common Stock.
13
Item 6. SELECTED FINANCIAL DATA
Burlington Industries, Inc. and Subsidiary Companies
(Debtors-in-Possession as of November 15, 2001)
(Dollar amounts in thousands, except per share data)
2001 2000 1999 1998(a) 1997
----------- ----------- ----------- ----------- -----------
SUMMARY OF OPERATIONS
Net sales ......................... $ 1,403,905 $ 1,620,247 $ 1,651,689 $ 2,010,414 $ 2,090,683
Operating income (loss)
before interest and taxes(b) ..... (63,893) (504,690) (3,154) 182,769 143,643
Interest expense .................. 71,174 66,264 58,420 59,544 60,062
Income tax expense (benefit) ...... (27,634) (21,676) (15,855) 49,560 37,673
Income (loss) before
extraordinary item (b) ........... (91,101) (526,972) (31,494) 80,452 58,698
Per share of common stock:
Income (loss) before
extraordinary item (basic) ...... (1.73) (10.12) (0.57) 1.33 0.96
Income (loss) before
extraordinary item
(diluted) ....................... (1.73) (10.12) (0.57) 1.32 0.95
Dividends ........................ -- -- -- -- --
FINANCIAL POSITION AT YEAR END
Current assets .................... $ 538,720 $ 631,785 $ 633,859 $ 659,313 $ 697,627
Fixed assets - net ................ 537,178 611,867 641,232 642,756 584,647
Total assets ...................... 1,184,995 1,351,600 1,876,275 1,912,887 1,873,692
Current liabilities ............... 655,180 242,898 201,595 227,680 263,595
Long-term liabilities ............. 451,025 924,268 938,614 860,538 865,008
Shareholders' equity .............. 25,444 94,775 629,249 700,221 630,726
OTHER DATA
Capital expenditures .............. $ 24,785 $ 73,773 $ 141,539 $ 140,333 $ 96,500
Number of employees at
year end ......................... 13,700 17,900 18,500 18,900 20,100
(a) Fiscal year 1998 represents a 53-week period.
(b) Includes restructuring provisions of $59.3 in 2001, $43.6 million in
2000, $37.6 million in 1999 and $7.3 million in 1997, each net of
income taxes, and $463.2 million write-off of goodwill in 2000 (see
Note C of the notes to consolidated financial statements).
14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Burlington Industries, Inc. and Subsidiary Companies
(Debtors-in-Possession as of November 15, 2001)
Proceedings Under Chapter 11 of the Bankruptcy Code
After the end of fiscal year 2001, 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 "Item 1. Business --
Proceedings Under Chapter 11 of the Bankruptcy Code." The Debtors are currently
operating their businesses as debtors-in-possession pursuant to the Bankruptcy
Code. Management is in the process of stabilizing the businesses of the Debtors
and evaluating their operations in connection with the development of a plan of
reorganization. After developing a plan of reorganization, the Debtors will seek
the requisite acceptance of the plan by impaired creditors and equity holders
and confirmation of the plan by the Bankruptcy Court, all in accordance with the
applicable provisions of the Bankruptcy Code.
During the pendency of the Chapter 11 Cases, the Debtors may with
Bankruptcy Court approval, sell assets and settle liabilities, including for
amounts other than those reflected on the Debtors' financial statements. The
Debtors are in the process of reviewing their operations and identifying assets
for disposition. The Debtors are in the process of reviewing their executory
contracts and unexpired leases to determine which, if any, they will reject as
permitted by the Bankruptcy Code. The Debtors cannot presently or reasonably
estimate the ultimate liability that may result from rejecting contracts or
leases or from the filing of claims for any rejected contracts or leases, and no
provisions have yet been made for these items. The administrative and
reorganization expenses resulting from the Chapter 11 Cases will unfavorably
affect the Debtors' results of operations. Future results of operations may also
be affected by other factors related to the Chapter 11 Cases.
Basis of Presentation
The Company's consolidated financial statements included elsewhere in
this Annual Report have been prepared on a "going concern" basis in accordance
with United States generally accepted accounting principles. The "going concern"
basis of presentation assumes that the Company will continue in operation for
the foreseeable future and will be able to realize upon its assets and discharge
its liabilities in the normal course of business. Because of the Chapter 11
Cases and the circumstances leading to the filing thereof, there is substantial
doubt about the appropriateness of the use of the "going concern" assumption.
The Company's ability to realize the carrying value of its assets and discharge
its liabilities is subject to substantial uncertainty. The appropriateness of
the "going concern" basis is dependent upon, among other things, confirmation of
a plan of reorganization, the Company's ability to comply with the terms of the
DIP Financing Facility, and the Company's ability to generate sufficient cash
flows from operations, asset sales and financing arrangements to meet its
obligations. If the "going concern" basis was not appropriate for the Company's
consolidated financial statements, then significant adjustments would be
necessary in the carrying value of assets and liabilities, the revenues and
expenses reported, and the balance sheet classifications used.
The Company's consolidated financial statements included elsewhere in
this Annual Report do not reflect adjustments that may occur in accordance with
AICPA Statement of Position 90-7 ("Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code") ("SOP 90-7"), which the Company will
adopt for its financial reporting in periods ending after November 15, 2001
assuming that the Company will continue as a "going concern". 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 will be segregated and classified as Liabilities Subject to
Compromise in the consolidated balance sheet under SOP 90-7. Generally, all
actions to
15
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 an approved plan of
reorganization and, accordingly, are not presently determinable. Pursuant to SOP
90-7, professional fees associated with the Chapter 11 Cases will be expensed as
incurred and reported as reorganization costs. Also, interest expense will be
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.
Overview
Fiscal year 2001 was a difficult year caused by continued economic
decline and slowing retail activity. Despite these conditions, the Company was
able to achieve significant working capital reductions, including $71 million
reduction in inventories from the prior year. Improvements in operations and
asset sales generated substantial cash, which provided the flexibility to pay
down debt and initiate other restructuring activities.
Restructuring efforts have included reducing capacities as demand
declined and exiting several low-margin product lines. The Company will continue
to review its capacities in light of continued economic uncertainty in order to
maintain lower inventories and increase profitability.
Earnings results for 2001 were disappointing. The Company experienced
continued slowing in the fourth quarter and began taking additional
restructuring actions. The general outlook since September 2001 has worsened and
management can no longer afford the time needed to incrementally transition the
Company. For this reason, the Company took the difficult, but necessary, action
to file the Chapter 11 Cases.
Operational restructuring will continue in 2002 with additional
capacity reductions, product rationalization and related asset sales, the detail
of which is in the process of being developed. Restructuring charges and runout
expenses of $72.6 million (after tax) were recorded during the 2001 fiscal year.
Additional restructuring and reorganization charges are anticipated in 2002 as
the restructuring is completed and the reorganization proceeds. On December 4,
2001, the Company announced that as part of its reorganization Burlington
PerformanceWear and Burlington CasualWear are to be merged into one apparel
fabrics division, Burlington North American Apparel Fabrics. The net cash impact
of restructuring activities in 2002 is expected to be slightly positive.
PERFORMANCE BY SEGMENT: The Company conducts its operations in four
----------------------
principal operating segments: PerformanceWear, CasualWear, Interior Furnishings
and Carpet. Beginning in the first quarter of the 2001 fiscal year, the Company
changed its organizational structure so that the Carpet business, formerly part
of the Interior Furnishings segment, reports to the chief operating decision
maker. This represents a change in the Company's segment reporting, and the
Company accordingly has restated its segment information where appropriate to
reflect this change. The Company evaluates performance and allocates resources
based on profit or loss before interest, amortization of goodwill, restructuring
charges, certain unallocated corporate expenses, and income taxes. The following
table sets forth certain information about the segment results for the fiscal
years ended September 29, 2001, September 30, 2000 and October 2, 1999 (in
millions).
16
2001 2000 1999
--------- -------- ---------
Net Sales
PerformanceWear ..................... $ 473.4 $ 587.3 $ 611.7
CasualWear .......................... 257.5 242.5 257.1
Interior Furnishings ................ 371.3 496.5 485.4
Carpet .............................. 304.1 295.8 272.6
Other ............................... 23.5 34.1 36.0
--------- -------- ---------
1,429.8 1,656.2 1,662.8
Less:
Intersegment sales ................. (25.9) (36.0) (11.1)
--------- -------- ---------
$ 1,403.9 $1,620.2 $ 1,651.7
========= ======== =========
Income (Loss) before
Income Taxes
PerformanceWear ..................... $ (2.8) $ 13.9 $ 18.4
CasualWear .......................... (12.9) (8.3) (2.9)
Interior Furnishings ................ (17.1) 12.1 29.1
Carpet .............................. 56.1 51.2 48.9
Other ............................... (1.5) (2.1) 1.9
--------- -------- ---------
Total reportable segments ......... 21.8 66.8 95.4
Corporate expenses .................. (12.9) (14.2) (12.3)
Goodwill amortization ............... - (16.7) (17.8)
Write-off of goodwill ............... - (463.2) -
Restructuring and impairment
charges ........................... (72.1) (67.0) (62.1)
Interest expense .................... (71.2) (66.3) (58.4)
Other (expense) income - net ........ 15.7 12.0 7.9
--------- -------- ---------
$ (118.7) $ (548.6) $ (47.3)
========= ======== =========
Results of Operations
Comparison of Fiscal Years ended September 29, 2001 and September 30, 2000
2001 Restructuring and Impairment
During the September quarter of 2001, management adopted a plan to
further reduce capacities and focus on value-added products in the global supply
chain. Outside factors, including a continuing flood of low-cost and often
subsidized foreign imports and a slowdown in consumer spending have hit the
textile industry hard. Imports have been growing rapidly for many years, but
since 1999, the volume of imported apparel has grown at five times the rate of
consumption, squeezing out U.S.-made products to the point that four out of five
garments sold in this country today are imported. The major elements of the plan
include:
(1) Realign operating capacity. During the September 2001 quarter, the
Company reduced operations by closing a plant in Mexico and moving its
production to an underutilized facility, also in Mexico, and reducing operations
at the facilities in Clarksville, Virginia and Stonewall, Mississippi. The
Company has offered for sale and will further reduce or realign 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.
17
(2) Eliminate unprofitable business. The CasualWear segment has offered
for sale and will exit its garment-making business in Aguascalientes, Mexico in
fiscal year 2002. Net sales and net operating loss for this business in fiscal
year 2001 were $61.8 million and $6.3 million, respectively.
(3) Reduce overhead. The Company has analyzed administrative and staff
positions throughout the Company, and identified a number of opportunities to
consolidate and reduce cost. This will result in job reductions in division and
corporate staff areas primarily during the December and March quarters of fiscal
year 2002.
The closings and overhead reductions outlined above will result in the
elimination of approximately 600 jobs in the United States and 2,000 jobs in
Mexico with severance benefits calculated for periods of up to 12 months from
the termination date, depending on the employee's length of service. The Debtors
currently anticipate seeking approval of the Bankruptcy Court for payment by the
Company of severance benefits to employees whose jobs are eliminated. The
Debtors cannot reasonably estimate the ultimate liability that the Bankruptcy
Court will approve.
This plan resulted in a pre-tax charge for restructuring, asset
write-downs and impairment of $67.3 million. The Company will also incur
approximately $3.6 million of runout charges related to this restructuring,
primarily in the first two quarters of fiscal 2002. The components of the 2001
restructuring and impairment charge included the establishment of a $10.0
million reserve for severance benefit payments, write-downs for impairment of
$50.4 million related to long-lived assets resulting from the restructuring
(including $22.5 million related to foreign currency translation adjustments for
the planned liquidation of Mexican assets) and a reserve of $6.9 million for
lease cancellation and other exit costs expected to be paid through December
2002. Although these lease cancellation costs have been reserved for, any such
amounts due will be treated as general unsecured claims in the Chapter 11 Cases
and, accordingly, the Company's ultimate liability for these amounts cannot yet
be ascertained.
Following is a summary of activity in the related 2001 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
-------- -------------
September 2001 restructuring charge $ 10.0 $ 6.9
Payments .......................... (1.1) -
------- ------
Balance at September 29, 2001 ..... $ 8.9 $ 6.9
======= ======
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 September 29, 2001, $5.8 million of such costs
have been incurred and charged to operations during the 2001 fiscal year,
consisting primarily of losses on accounts receivable and inventories.
Assets that have been sold, or are held for sale at September 29, 2001
and are no longer in use, were written down to their estimated fair values less
costs of sale. The Company, through its Real Estate and Purchasing departments,
is actively marketing the affected real estate and equipment. The active plan to
sell the assets includes the preparation of a detailed property marketing
package to be used in working with real estate and used equipment brokers and
other channels, including other textile companies, the local Chamber of Commerce
and Economic Development and the State Economic Development Department. The
Company anticipates that the divestitures of real estate and equipment will be
completed within 18 months from the date of closing. However, the actual timing
of the disposition of these properties may vary due to their locations and
market conditions. The Debtors currently anticipate seeking Bankruptcy Court
approval of certain procedures that would allow them to consummate asset sales
that occur outside of the ordinary course of business under procedures
established by the Bankruptcy Court.
18
NET SALES: Net sales for the 2001 fiscal year were $1,403.9 million,
13.4% lower than the $1,620.2 million recorded for the 2000 fiscal year. Exports
totaled $161 million and $179 million in the 2001 and 2000 fiscal years,
respectively.
PerformanceWear: Net sales for the PerformanceWear segment for the 2001
fiscal year were $473.4 million, 19.4% lower than the $587.3 million recorded in
the 2000 fiscal year. Excluding $67.7 million sales reduction due to closed
businesses and planned capacity reductions, net sales of the PerformanceWear
markets were 8.9% lower than in the prior year. This decrease was due primarily
to 10.3% lower volume partially offset by 1.4% higher selling prices and product
mix. Export volume decreased by $13.1 million, in part due to the weak Euro
currency.
CasualWear: Net sales for the CasualWear segment for the 2001 fiscal
year were $257.5 million, 6.2% higher than the $242.5 million recorded in the
2000 fiscal year. This increase was due primarily to 9.6% higher volume offset
by 3.4% lower selling prices and product mix.
Interior Furnishings: Net sales of products for interior furnishings
markets for the 2001 fiscal year were $371.3 million, 25.2% lower than the
$496.5 million recorded in the 2000 fiscal year. Excluding $66.2 million sales
reduction due to the sales of the tufted area rug and printed mats businesses
($56.1 million in 2001 versus $122.3 million in 2000), net sales of the interior
furnishings markets were 15.8% lower than in the prior year. This decrease was
primarily due to 17.9% lower volume partially offset by 2.1% higher selling
prices and mix.
Carpet: Net sales for the Carpet segment for the 2001 fiscal year were
$304.1 million, 2.8% higher than the $295.8 million recorded in the 2000 fiscal
year. This increase was primarily due to 5.2% higher selling prices and product
mix offset by 2.4% lower volume.
SEGMENT INCOME: Total reportable segment income for the 2001 fiscal
year was $21.8 million compared to $66.8 million for the 2000 fiscal year.
PerformanceWear: Income (loss) of the PerformanceWear segment for the
2001 fiscal year was $(2.8) million compared to $13.9 million recorded for the
2000 fiscal year. This decrease was due primarily to $20.9 million reduction in
margins resulting from lower volume, $24.2 million deterioration in
manufacturing performance due to lower volume, restructuring and plant
curtailments and $9.9 million lower equity earnings from the Unifi joint
venture, partially offset by $6.2 million improvement in margins due to selling
price/mix, $15.5 million lower start-up costs in Mexico, $13.0 million of lower
selling, general and administrative expenses resulting from restructuring and
cost reduction programs, and $3.5 million of lower raw material costs.
CasualWear: Losses of the CasualWear segment for the 2001 fiscal year
were $(12.9) million compared to $(8.3) million recorded for the 2000 fiscal
year. This increased loss was due primarily to $5.1 million lower margins due to
selling prices and mix, higher selling, general and administrative expenses of
$1.7 million associated with growing the garment business, and $2.8 million
reduction in manufacturing performance after incurring the costs associated with
plant curtailments, partially offset by $2.3 million higher margins due to
volume and lower raw material costs of $2.8 million.
Interior Furnishings: Income (loss) of the interior furnishings
products segment for the 2001 fiscal year was $(17.1) million compared to $12.1
million recorded for the 2000 fiscal year. This decrease was due primarily to
$23.2 million lower margins due to volume and price/mix and a $13.1 million
negative impact on manufacturing performance due to lower volume, restructuring
and plant curtailments, partially offset by $1.2 million lower raw material
costs, $4.0 million of lower selling, general and administrative expenses
resulting from cost reduction programs and $1.8 million improvement resulting
from the sale of the tufted area rug and printed mats businesses.
Carpet: Income of the Carpet segment for the 2001 fiscal year was $56.1
million compared to $51.2 million recorded for the 2000 fiscal year. This
increase was due primarily to $11.1 million higher margins due to price/mix,
19
offset by $0.9 million reduced margins due to lower volume, $1.6 million higher
raw material costs, $0.8 million reduction in margins due to manufacturing
inefficiencies caused by production curtailments to reduce inventory levels, and
$3.0 million higher selling expenses resulting from expanding the sales force
for better geographic and market segment coverage and costs associated with the
introduction of new products.
Other: Losses of other segments for the 2001 fiscal year were $(1.5)
million compared to $(2.1) million recorded for the 2000 fiscal year. This
improvement resulted primarily from gains on asset sales resulting from the
downsizing of trucking operations.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $12.9 million for the 2001 fiscal year compared to $14.2 million in
the 2000 fiscal year. This reduction is due primarily to the cost reductions
resulting from the 2000 restructuring plan.
OPERATING INCOME BEFORE INTEREST AND TAXES: Before the 2000 goodwill
write-off and provisions for restructuring in both periods, operating income
before interest and taxes for the 2001 fiscal year would have been $8.2 million
compared to $25.6 million for the 2000 fiscal year. Amortization of goodwill was
$0.0 million and $16.7 million in the 2001 and 2000 fiscal years, respectively.
INTEREST EXPENSE: Interest expense for the 2001 fiscal year was $71.2
million, or 5.1% of net sales, compared with $66.3 million, or 4.1% of net
sales, in the 2000 fiscal year. The increase was mainly attributable to the
effects of higher interest rates and higher amortization of fees associated with
the new bank credit facility, partially offset by lower borrowing levels.
OTHER EXPENSE (INCOME): Other income for the 2001 fiscal year was $15.7
million consisting principally of gains on the disposal of assets of $5.2
million and interest income of $11.8 million, including interest of $6.3 million
related to refunds of value-added taxes in Mexico, offset by a provision for
environmental contingencies of $1.3 million. Other income for the 2000 fiscal
year was $12.0 million consisting principally of a $5.5 million translation gain
on the liquidation of the Company's Canadian subsidiary, a gain on the disposal
of assets of $1.0 million and interest income of $5.5 million.
INCOME TAX EXPENSE (BENEFIT): Income tax benefit of $(27.6) million was
recorded for the 2001 fiscal year in comparison with $(21.7) million for fiscal
year 2000. The total income tax benefit for the 2001 period is different from
the amounts obtained by applying statutory rates to loss before income taxes
primarily as a result of foreign losses with no tax benefits, including a
provision for restructuring and impairments of $22.5 million related to foreign
currency translation adjustments for the planned liquidation of Mexican assets,
tax rate differences on foreign transactions and changes in the valuation
allowance, partially offset by the favorable tax treatment of export sales
through a foreign sales corporation ("FSC"). The change in the valuation
allowance for both 2001 and 2000 relate to deferred tax assets on net operating
loss carryforwards. It is management's opinion that it is more likely than not
that some portion of the deferred tax asset will not be recognized. The 2000
period includes a $5.7 million charge related to the liquidation of the
Company's Canadian subsidiary and U.S. taxes on income previously considered
permanently re-invested. Excluding the tax on the Canadian liquidation, total
income tax expense/benefit is different from the amounts obtained by applying
statutory rates to the income/loss before income taxes primarily as a result of
the write-off or amortization of nondeductible goodwill and tax rate differences
on foreign transactions, which is partially offset by the favorable tax
treatment of export sales through a foreign sales corporation ("FSC"). The
favorable tax benefit from the FSC was lower in the current period compared to
the 2000 period due to the reduction in export sales and related lower gross
margins. The U.S. law providing the FSC benefits has been found to be illegal
under WTO provisions and the U.S. has agreed to implement complying provisions.
The Company cannot predict the impact on its future use of the FSC benefit under
the ultimate program put into place and its acceptability to the World Trade
Organization ("WTO").
NET LOSS AND LOSS PER SHARE: Net loss for the 2001 fiscal year was $(91.1)
million, or $(1.73) per share, in comparison with $(527.0) million, or $(10.12)
per share, for the 2000 fiscal year. Net loss for the 2001 fiscal year included
a net charge of $(1.38) per share related to restructuring and run-out costs
resulting from the 2000
20
restructuring, $0.01 per share income from the Unifi joint venture, interest
income of $0.09 per share related to refunds of value-added taxes in Mexico and
a net gain of $0.06 per share related to the sale of assets. Net loss for the
2000 fiscal year included a net charge of $(8.89) per share resulting from the
accounting change in measuring impairment of goodwill, a net charge of $(1.02)
per share resulting from the 2000 restructuring provision and restructuring
run-out costs included in cost of sales and $0.13 per share income from the
Unifi joint venture.
Comparison of Fiscal Years ended September 30, 2000 and October 2, 1999
2000 Restructuring and Impairment
During the September quarter of 2000, the Company's Board of Directors approved
a plan designed to address performance shortfalls as well as difficult market
dynamics. The major elements of the plan include:
(1) Realign operating capacity. The Company reduced capacity to better
align its operations with current market demand and to assure the most efficient
use of assets. This included: closing a plant in Johnson City, Tennessee and
moving a portion of its production to other underutilized facilities in the
first half of fiscal year 2001; reducing operations at the Clarksville, Virginia
facilities of the PerformanceWear segment in the December 2000 quarter; reducing
the size of the Company's trucking fleet and closing the Gaston trucking
terminal located in Belmont, North Carolina in the December 2000 quarter; and
closing a drapery sewing plant of the interior furnishings segment in Mt Olive,
North Carolina in June 2001.
(2) Eliminate unprofitable businesses. The PerformanceWear segment
exited its garment-making business (December 2000) and sold its facility in
Cuernavaca, Mexico (September 2001), and has pruned unprofitable product lines.
Also, the Company has exited its Burlington House Floor Accents business by
selling (February 2001) its tufted area rug business and (June 2001) its Bacova
printed mat business. Net sales of the Burlington House Floor Accents business
were $122.3 million for the 2000 fiscal year and net operating loss was $5.3
million for the same period.
(3) Reduce overhead. The Company has analyzed administrative and staff
positions throughout the Company, and identified a number of opportunities to
consolidate and reduce cost. This resulted in job reductions in division and
corporate staff areas primarily during the December and March quarters of fiscal
year 2001.
(4) Improve financial flexibility. Company-wide initiatives to sell
non-performing assets, reduce working capital, and decrease capital expenditures
will free up cash.
The closings and overhead reductions outlined above resulted in the
elimination of approximately 2,500 jobs in the United States and 1,000 jobs in
Mexico with severance benefits calculated for periods of up to 12 months from
the termination date, depending on the employee's length. The Debtors currently
anticipate seeking approval of the Bankruptcy Court for payment by the Company
of severance benefits to employees whose jobs are eliminated. The Debtors cannot
reasonably estimate the ultimate liability that the Bankruptcy Court will
approve.
This plan resulted in a pre-tax charge for restructuring, asset
write-downs and impairment of $72.7 million, as adjusted by $5.0 million in the
2001 fiscal year. The components of the 2000 restructuring and impairment charge
included the establishment of a $17.4 million reserve for severance benefit
payments, write-downs for impairment of $45.7 million (including $12.7 million
of goodwill) related to long-lived assets resulting from the restructuring and a
reserve of $9.6 million primarily for lease cancellation costs expected to be
paid through December 2001. 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.
21
Following is a summary of activity in the related 2000 restructuring
reserves (in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
-------- -------------
September 2000 restructuring charge $ 19.7 $ 10.0
Payments .......................... (0.4) -
------- --------
Balance at September 30, 2000 ..... 19.3 10.0
Payments .......................... (16.6) (8.5)
Adjustments ....................... (2.3) (0.4)
------- --------
Balance at September 29, 2001 ..... $ 0.4 $ 1.0
======= ========
Other expenses related to the 2000 restructuring (including losses on
inventories of discontinued styles, relocation of employees and equipment, and
plant carrying and other costs) are charged to operations as incurred. Through
September 29, 2001, $11.8 million and $8.1 million of such costs have been
incurred and charged to operations during the 2001 and 2000 fiscal years,
respectively, consisting primarily of inventory losses and plant carrying costs.
In 2000, the Company changed its method of evaluating the
recoverability of enterprise-level goodwill from the undiscounted cash flow
method to the market value method. Under the market value method, impairment is
measured by the excess of the Company's net book value over its market
capitalization. The Company believes the market value method is preferable
because it results in a more objective measurement of recoverability and better
reflects the value of goodwill as perceived by investors. Since the excess of
the Company's net book value over its market capitalization exceeded the
carrying value of the Company's enterprise-level goodwill, the change in method
resulted in an impairment charge to write-off the remaining carrying value of
enterprise-level goodwill of $463.2 million, or ($8.89) per share. This change
represents a change in method that is inseparable from a change in estimate and,
accordingly, the effect of the change has been reflected as an impairment charge
in the accompanying 2000 statement of operations. The Company's bank credit
agreements have been amended to allow for this change in accounting for
goodwill. Prior to the change, goodwill was amortized using the straight-line
method over not more than 40 years. At adoption of the change, the accumulated
amortization of goodwill was $234.4 million compared to $217.7 million at
October 2, 1999.
NET SALES: Net sales for the 2000 fiscal year were $1,620.2 million,
1.9% lower than the $1,651.7 million recorded for the 1999 fiscal year. Exports
totaled $179 million and $236 million in the 2000 and 1999 fiscal years,
respectively.
PerformanceWear: Net sales for the PerformanceWear segment for the 2000
fiscal year were $587.3 million, 4.0% lower than the $611.7 million recorded in
the 1999 fiscal year. Excluding $4.1 million sales reduction due to the sale of
the Burlington Madison Yarn division, net sales of products for the
PerformanceWear segment were 3.3% lower than in the prior year. This decrease
was due primarily to 4.0% lower prices and product mix partially offset by 0.7%
higher volume. Export volume decreased by $23.3, in part due to the weak Euro
currency.
CasualWear: Net sales for the CasualWear segment for the 2000 fiscal
year were $242.5 million, 5.7% lower than the $257.1 million recorded in the
1999 fiscal year. Excluding $16.0 million sales reduction due to exiting the
Sportswear business, net sales of products for the CasualWear segment were 0.6%
higher than in the prior year. This increase was due primarily to 12.0% higher
volume offset by 11.4% lower prices and product mix.
Interior Furnishings: Net sales of products for interior furnishings
markets for the 2000 fiscal year were $496.5 million, 2.3% higher than the
$485.4 million recorded in the 1999 fiscal year. This increase was primarily due
to 4.5% higher volume offset by 2.2% lower selling prices and mix.
22
Carpet: Net sales for the Carpet segment for the 2000 fiscal year were
$295.8 million, 8.5% higher than the $272.6 million recorded in the 1999 fiscal
year. This increase was primarily due to 4.6% higher selling prices and product
mix and 3.9% higher volume.
SEGMENT INCOME: Total reportable segment income for the 2000 fiscal
year was $66.8 million compared to $95.4 million for the 1999 fiscal year.
PerformanceWear: Income of the PerformanceWear segment for the 2000
fiscal year was $13.9 million compared to $18.4 million recorded for the 1999
fiscal year. This decrease was due primarily to $13.3 million reduction in
margins resulting from lower volume and price/mix, $1.9 million of higher raw
material costs and higher start-up costs of $6.1 million, partially offset by
reduced run-out costs charged to operations associated with restructuring of
$10.5 million and $5.2 million resulting from cost reductions, restructuring and
improved net operating efficiencies. Segment results for 2000 also include $11.1
million equity in income of the Company's textured yarn joint venture, compared
to $9.4 million for 1999.
CasualWear: Losses of the CasualWear segment for the 2000 fiscal year
were $(8.3) million compared to $(2.9) million recorded for the 1999 fiscal
year. This increased loss was due primarily to $25.7 million lower margins
resulting from price/mix and manufacturing inefficiencies, partially offset by
the absence of Sportswear losses of $4.8 million, lower raw material costs of
$1.6 million, reduced run-out costs charged to operations associated with
restructuring of $4.3 million and lower start-up costs of $7.0 million. Segment
results for 2000 include losses of $0.8 million related to joint venture
activity, compared to joint venture losses of $3.0 million in 1999.
Interior Furnishings: Income of the interior furnishings products
segment for the 2000 fiscal year was $12.1 million compared to $29.1 million
recorded for the 1999 fiscal year. This decrease was due primarily to $24.0
million lower margins due to price/mix and manufacturing inefficiencies,
partially offset by lower raw material costs of $2.8 million, improved margins
from higher volume of $8.0 million and lower bad debt expense of $1.3 million.
Also, Interior Furnishings segment results include costs of $5.1 million
associated with restructuring which have been charged to cost of sales,
primarily inventory losses on discontinued styles.
Carpet: Income of the Carpet segment for the 2000 fiscal year was $51.2
million compared to $48.9 million recorded for the 2000 fiscal year. This
increase was due primarily to $10.6 million higher margins due to volume and
price/mix, offset by $4.8 million higher raw material costs, and $2.3 million
higher selling expenses resulting from a higher sales force due to growth in
sales. Also, Carpet segment results include costs of $1.1 million associated
with restructuring which have been charged to cost of sales, primarily inventory
losses on discontinued styles.
Other: Income (loss) of other segments for the 2000 fiscal year was
$(2.1) million compared to $1.9 million recorded for the 1999 fiscal year. This
resulted primarily from lower earnings in the captive insurance company as well
as lower outside revenues from the trucking business.
CORPORATE EXPENSES: General corporate expenses not included in segment
results were $14.2 million for the 2000 fiscal year compared to $12.3 million in
the 1999 fiscal year. The increase from the prior year period is attributable
mainly to higher employee benefit costs, tax consulting fees and executive
recruiting and relocation costs.
OPERATING INCOME BEFORE INTEREST AND TAXES: Before the 2000 goodwill
write-off and provisions for restructuring in both periods, operating income
before interest and taxes for the 2000 fiscal year would have been $25.6 million
compared to $58.9 million for the 1999 fiscal year. Amortization of goodwill was
$16.7 million and $17.8 million in the 2000 and 1999 fiscal years, respectively.
INTEREST EXPENSE: Interest expense for the 2000 fiscal year was $66.3
million, or 4.1% of net sales, compared with $58.4 million, or 3.5% of net
sales, in the 1999 fiscal year. The increase was mainly attributable to the
effects of higher borrowing levels combined with higher interest rates.
23
OTHER EXPENSE (INCOME): Other income for the 2000 fiscal year was $12.0
million consisting principally of a $5.5 million translation gain on the
liquidation of the Company's Canadian subsidiary, a gain on the disposal of
assets of $1.0 million and interest income of $5.5 million. Other income for the
1999 fiscal year was $7.9 million consisting principally of $4.3 million in
gains on the disposal of assets and interest income of $3.5 million.
INCOME TAX EXPENSE (BENEFIT): Income tax benefit of $(21.7) million was
recorded for the 2000 fiscal year in comparison with $(15.9) million for fiscal
year 1999. The 2000 period includes a $5.7 million charge related to the
liquidation of the Company's Canadian subsidiary and U.S. taxes on income
previously considered permanently re-invested. Excluding the tax on the Canadian
liquidation, total income tax expense/benefit is different from the amounts
obtained by applying statutory rates to the income/loss before income taxes
primarily as a result of the write-off or amortization of nondeductible
goodwill, tax rate differences on foreign transactions and changes in the
valuation allowance, which is partially offset by the favorable tax treatment of
export sales through a foreign sales corporation ("FSC"). The change in the
valuation allowance for both 2000 and 1999 relate to deferred tax assets on net
operating loss carryforwards. It is management's opinion that it is more likely
than not that some portion of the deferred tax asset will not be recognized. The
favorable tax benefit from the FSC was lower in the current period compared to
the 1999 period due to the reduction in export sales. The U.S. law providing the
FSC benefits has been found to be illegal under WTO provisions and the U.S. has
agreed to implement complying provisions. The Company cannot predict the impact
on its future use of the FSC benefit under the ultimate program put into place
and its acceptability to the World Trade Organization ("WTO").
NET LOSS AND LOSS PER SHARE: Net loss for the 2000 fiscal year was
$(527.0) million, or $(10.12) per share, in comparison with $(31.5) million, or
$(0.57) per share, for the 1999 fiscal year. Net loss for the 2000 fiscal year
included a net charge of $(8.89) per share resulting from the accounting change
in measuring impairment of goodwill and a net charge of $(1.02) per share
resulting from the 2000 restructuring provision and restructuring run-out costs
included in cost of sales. Net loss for the 1999 fiscal year included a net
charge of $(0.98) per share resulting from the 1999 restructuring provision and
related run-out costs included in cost of sales.
Liquidity and Capital Resources
On November 15, 2001, the Company filed the Chapter 11 Cases, which
will affect the Company's liquidity and capital resources in fiscal year 2002.
See "Item 1. Business -- Proceedings under Chapter 11 of the Bankruptcy Code."
During the 2001 fiscal year, the Company generated $93.2 million of
cash from operating activities and $29.7 million from sales of assets. Cash was
primarily used for capital expenditures of $24.8 million and net payments of
debt and financing fees of $36.7 million. At September 29, 2001, total debt of
the Company (consisting of current and non-current portions of long-term debt
and short-term borrowings) was $874.0 million compared with $899.9 million at
September 30, 2000. At September 29, 2001, cash on hand totaled $87.5 million.
---------------------------------------------------------
The Company's principal uses of funds during the next several years
will be for repayment and servicing of indebtedness, working capital needs,
capital expenditures and expenses of the Chapter 11 Cases. The Company intends
to fund its financial needs principally from net cash provided by operating
activities, asset sales (to the extent permitted in the Bankruptcy Cases) and,
to the extent necessary, from funds provided by the credit facilities described
below. The Company currently believes that these sources of funds will be
adequate to meet the Company's foregoing needs.
During the 2001 fiscal year, investment in capital expenditures and
joint ventures totaled $24.8 million, compared to $74.2 million in the 2000
fiscal year and $146.9 million in the 1999 fiscal year. The Company anticipates
that the level of capital expenditures for fiscal year 2002 will total
approximately $20 million, and under its DIP Financing Facility discussed below,
cannot exceed $20 million.
24
DIP Financing Facility. On November 15, 2001, the Bankruptcy Court
----------------------
approved the DIP Financing Facility on an interim basis. The Interim DIP
Financing Order authorized the Debtors to grant first priority mortgages,
security interests, liens (including priming liens), and superpriority claims on
substantially all of the assets of the Debtors to secure the DIP Financing
Facility. On December 12, 2001, the Bankruptcy Court issued the Final DIP
Financing Order. The Interim DIP Financing Order authorized the Debtors to enter
into the $125.0 million DIP Financing Facility and to grant superpriority claims
and mortgages, security interests, and liens (including priming liens), on
substantially all of the assets of the Debtors to secure the DIP Financing
Facility. Upon the entry of the Final DIP Financing Order, the remaining $65.0
million, over and above the $125.0 million approved by the Interim DIP Financing
Order of the Bankruptcy Court, became available to the Debtors. Under the terms
of the Final DIP Financing Order, a $190.0 million revolving credit facility,
including up to $50.0 million for postpetition letters of credit, is available
to the Company until the earliest of (i) November 15, 2003, (ii) the date on
which the plan of reorganization becomes effective, (iii) any material
non-compliance with any of the terms of the Final DIP Financing Order, or (iv)
any event of default shall have occurred and be continuing under the DIP
Financing Facility. Amounts borrowed under the DIP Financing Facility bear
interest at the option of the Company at the rate of the London Interbank
Offering Rate ("LIBOR") plus 3.0%, 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% 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 the 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 costs ("EBITDA"), as defined. In
addition, the DIP Financing Facility contains covenants applicable to the
Debtors, including limiting the incurrence of additional indebtedness and
guarantees thereof, the creation of liens and other encumbrances on properties,
the making of investments or acquisitions, the sale or other disposition of
property or assets, the making of cash dividend payments, the making of capital
expenditures beyond certain limits, and entering into certain transactions with
affiliates. In addition, proceeds from sales of certain assets must be used to
repay specified borrowings and permanently reduce the commitment amount under
the Facility. At December 12, 2001, $75.0 million was outstanding and the
Company had approximately $115.0 in unused capacity available under this
Facility.
2000 Bank Credit Agreement. On December 5, 2000, the Company entered
--------------------------
into a secured amended bank credit agreement ("2000 Bank Credit Agreement")
which amended and extended an earlier unsecured revolving credit facility (the
"1995 Bank Credit Agreement"). The 2000 Bank Credit Agreement consists of a
total revolving credit facility commitment amount of $525.0 million revolving
credit facility that provides for the issuance of letters of credit by the
fronting bank in an outstanding aggregate face amount not to exceed $75.0
million, and provides short-term overnight borrowings up to $30.0 million,
provided that at no time shall the aggregate principal amount of revolving loans
and short-term borrowings, together with the aggregate face amount of such
letters of credit issued, exceed 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 pays 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. As a result of the
noncompliance with such financial covenants, the Company has classified all of
the 2000 Bank Credit Agreement debt as current. The Bankruptcy Court has
approved the payment of all interest and fees under the 2000 Bank Credit
Agreement incurred subsequent to November 15, 2001.
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").
Proceeds from the sale were used to prepay revolving loans under its bank
25
credit agreement on the same date. The Notes Due 2027 provide that they will be
redeemable as a whole or in part at the option of the Company at any time on or
after August 2, 2007, and will also be redeemable at the option of the holders
thereof on August 1, 2007 in amounts at 100% of their principal amount. In
September 1995, the Company issued $150.0 million principal amount of 7.25%
notes due September 15, 2005 ("Notes Due 2005"). The Notes Due 2005 are not
redeemable prior to maturity. The Notes Due 2027 and the Notes Due 2005 are
unsecured and rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The commencement of the Chapter 11 Cases
constitutes an event of default under the Indenture governing both the 2027
Notes and the 2005 Notes. The payment of interest accruing thereunder after
November 15, 2001 is stayed.
Adequacy of Capital Resources
As discussed above, the Company is operating its businesses as
debtors-in-possession under Chapter 11 of the Bankruptcy Code. In addition to
the cash requirements necessary to fund ongoing operations, the Company
anticipates that it will incur significant professional fees and other
restructuring costs in connection with the Chapter 11 Cases and the
restructuring of its business operations. As a result of the uncertainty
surrounding the Company's current circumstances, it is difficult to predict the
Company's actual liquidity needs and sources at this time. However, based on
current and anticipated levels of operations, and efforts to effectively manage
working capital, the Company anticipates that its cash flow from operations,
together with cash on hand, cash generated from asset sales, and amounts
available under the DIP Financing Facility, will be adequate to meet its
anticipated cash requirements during the pendency of the Chapter 11 Cases.
In the event that cash flows and available borrowings under the DIP
Financing Facility are not sufficient to meet future cash requirements, the
Company may be required to reduce planned capital expenditures, sell assets or
seek additional financing. The Company can provide no assurances that reductions
in planned capital expenditures or proceeds from asset sales would be sufficient
to cover shortfalls in available cash or that additional financing would be
available or, if available, offered on acceptable terms.
As a result of the Chapter 11 Cases, the Company's access to additional
financing is, and for the foreseeable future will likely continue to be, very
limited. The Company's long-term liquidity requirements and the adequacy of the
Company's capital resources are difficult to predict at this time, and
ultimately cannot be determined until a plan of reorganization has been
developed and confirmed by the Bankruptcy Court in connection with the Chapter
11 Cases.
Legal and Environmental Contingencies
The Company and its subsidiaries have sundry claims and other lawsuits
pending against them and also have certain guarantees of debt of equity
investees ($14.3 million) that were made in the ordinary course of business. The
Company makes provisions in its financial statements for litigation based on the
Company's assessment of the possible outcome of such litigation, including the
possibility of settlement.
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
United States Environmental Protection Agency, by the environmental agencies in
several states and by private parties as potentially responsible parties
("PRPs") at 22 hazardous waste disposal sites under the Comprehensive
Environmental Response Compensation and Liability Act of 1980 ("Superfund") and
comparable state laws and, as such, may be liable for the cost of cleanup and
other remedial activities at these sites. With respect to certain of these
sites, other persons have also been identified as potentially responsible
parties, and in such circumstances the responsibility for cleanup and other
remedial activities is typically shared among such parties based on an
allocation formula. The Company is currently involved in a remedial
investigation and/or environmental cleanups at 21 other sites under federal or
state law. The Company may also be liable for environmental contingencies at 25
other sites pursuant to contractual obligations resulting from divested
property or with respect to environmental cleanups that may be identified in the
future. The Company has established reserves in its financial statements for
such environmental liabilities in the aggregate amount of $4.1 million at
September 29, 2001, estimated to be paid primarily over the next five years. The
26
provision for environmental liabilities is based on the Company's estimate of
allocations of liability among potentially responsible parties (and the
likelihood of contribution by such parties), information concerning the scope of
contamination, estimated remediation costs, estimated transaction costs and
other factors.
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.
Conversion to the Euro Currency
Various member countries of the European Union in which the Company
conducts its business adopted the Euro as their single currency on January 1,
1999. National currencies will continue to exist as legal tender and may
continue to be used in commercial transactions through January 1, 2002, at which
time Euro notes and coins will be issued. By July 2002, the respective national
currencies will be withdrawn. During this transition period, permanent rates of
exchange between the members' national currency and the Euro will be established
and banking, finance and foreign exchange markets will convert to the Euro. The
Euro conversion has not impacted the Company, and the Company does not expect
the conversion to have a material adverse effect on its financial condition or
results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
Because the Company's obligations under its bank credit agreements bear
interest at floating rates (primarily 3-month LIBOR rates), the Company is
sensitive to changes in prevailing interest rates. The Company sometimes uses
derivative instruments to manage its long-term debt interest rate exposure,
rather than for trading purposes. Interest rate movements also affect the value
and returns on the Company's investment securities. A 10% increase or decrease
in market interest rates that affect the Company's financial instruments would
not have a material impact on earnings or cash flows during the next fiscal
year. Such an increase or decrease would not materially affect the fair value of
the company's financial instruments at September 29, 2001, except for long-term
debt, the fair value of which would change by approximately $11.0 million.
As a result of the filing of the Chapter 11 Cases on November 15, 2001, the
Company was in default under its interest rate swap agreements. The parties to
these contracts agreed to terminate the swap agreements as of that date, and
concurrent with such terminations the amount outstanding under the 2000 Bank
Credit Agreement will likely be increased by the fair value of the swaps,
approximately $2.5 million.
Foreign Currency Risk
In order to reduce the risk of foreign currency exchange rate
fluctuations, the Company follows a policy of hedging substantially all
transactions denominated in a currency other than the functional currencies
applicable to each of its various entities. The instruments used for hedging are
readily marketable exchange-traded forward contracts with banks. The changes in
market value of such contracts have a high correlation to the price changes in
the currency of the related hedged transactions. The potential impact on
earnings, cash flows or fair value for such net currency position resulting from
a 10% increase or decrease in foreign currency exchange rates on each individual
currency would not be material.
27
Commodity Price Risk
The Company uses many types of fiber, both natural and man-made, in the
manufacture of its textile products. The Company believes that future price
levels for all fibers will depend primarily upon supply and demand conditions,
weather conditions, general inflation, domestic and foreign governmental
regulations and agricultural programs, and prices of underlying raw materials
such as petroleum. The Company manages its exposure to changes in commodity
prices primarily through its procurement practices (foreign exchange contracts
are occasionally utilized to offset the impact of currency fluctuations on wool
purchases).
The Company enters into contracts to purchase cotton under the Southern
Mill Rules ratified and adopted by the American Textile Manufacturers Institute,
Inc. and American Cotton Shippers Association. Under these contracts and rules,
nonperformance by either the buyer or seller may result in a net cash settlement
of the difference between the current market price of cotton and the contract
price. If the Company decided to refuse delivery of its open firm commitment
cotton contracts at September 29, 2001, and market prices of cotton decreased by
10%, the Company would be required to pay a net settlement provision of
approximately $1.3 million. The Company has not utilized this net settlement
provision in the past. Also, these contracts, like all executory contracts of
the Company, are subject to the right of the Debtors to reject executory
contracts as a part of the Chapter 11 Cases. See "Item 1. Business Proceedings
Under Chapter 11 of the Bankruptcy Code."
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are set forth herein commencing on page F-1.
Schedule II to the financial statements is set forth herein on page S-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FIANCIAL DISCLOSURE
None.
28
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Directors
The following is a list of directors, their ages, positions and
business experience as of December 6, 2001.
JERALD A. BLUMBERG, 61. Mr. Blumberg retired during 2000 as President,
Chief Executive Officer and a Director of Ambar Inc., an oilfield services
company, positions he had held since January 1998. Prior thereto, he was
Executive Vice President of E.I. du Pont de Nemours and Co. until his retirement
at the end of 1997. Mr. Blumberg also is a Director of Lubrizol Corporation and
NOVA Chemicals Corporation. He has been a Director of Burlington since April
1998. Mr. Blumberg is Chairman of the Audit Committee and a member of the
Compensation and Benefits and Nominating Committees.
JOHN D. ENGLAR, 54. Mr. Englar has been Senior Vice President,
Corporate Development and Law of Burlington since 1995. Prior thereto he was
Senior Vice President, Finance and Law and Chief Financial Officer of the
Company. Mr. Englar has been a Director of Burlington since 1990, and is
Chairman of the Investment Committee.
GEORGE W. HENDERSON, III, 53. Mr. Henderson has been Chairman of the
Board of Directors of Burlington since February 1998 and Chief Executive Officer
since 1995. Prior thereto he was President and Chief Operating Officer (from
1993). Mr. Henderson is also a Director of Jefferson-Pilot Corporation and The
Research Triangle Foundation of North Carolina. Mr. Henderson has been a
Director of Burlington since 1990, and is Chairman of the Executive Committee.
DOUGLAS J. MCGREGOR, 60. Mr. McGregor was elected President and Chief
Operating Officer of Burlington on June 1, 2000. On November 14, 2001, the Board
designated his position as President and Chief Restructuring Officer. Prior
thereto, he was Chairman, Chief Executive Officer and a director of the M. A.
Hanna Company until his retirement in 1998. Mr. McGregor is also a director of
KeyCorp and Vulcan Materials Company. He was elected to the Board in July 2000
and is a member of the Investment Committee.
JOHN G. MEDLIN, JR., 68. Mr. Medlin has been Chairman Emeritus of
Wachovia Corporation, a bank holding company, since 1998. He served at Wachovia
as non-executive Chairman of the Board from 1994 to 1998, Chief Executive
Officer from 1977 to 1993, and a director until April 2000. Mr. Medlin is a
director of BellSouth Corp., Media General, Inc., R. J. Reynolds Tobacco
Holdings, Inc., and US Airways Group, Inc. He has been a Director of Burlington
since 1994. Mr. Medlin is Chairman of the Nominating Committee and a member of
the Audit, Compensation and Benefits, and Executive Committees.
NELSON SCHWAB III, 56. Mr. Schwab is co-founder of Carousel Capital, a
merchant banking firm, and has been Managing Director since its inception in
1996. He was Chairman and Chief Executive Officer of Paramount Parks Inc., owner
of theme amusement parks, from 1992 until 1995. He is also a Director of Summit
Properties, Inc. and First Union National Bank of North Carolina. He has been a
Director of Burlington since 1995. Mr. Schwab is Chairman of the Compensation
and Benefits Committee and a member of the Executive, Investment, and Nominating
Committees.
THERESA M. STONE, 57. Ms. Stone is Chief Financial Officer and
Executive Vice President of Jefferson-Pilot Corporation, and President of
Jefferson-Pilot Communications Company. Ms. Stone joined Jefferson Pilot
Financial in July 1997 from Chubb Life Insurance Company of America, where she
served as President and Chief Executive Officer from 1994 to 1997. She served as
Executive Vice President of The Chubb Corporation from 1995 to 1997. Prior to
joining The Chubb Corporation as a Senior Vice President in 1990, Ms. Stone was
a principal with Morgan Stanley & Co., Inc., where she worked as an
investment banker from 1976 to 1990 and advised clients primarily in the
insurance industry on financial and strategic matters. Ms. Stone was elected to
the Board in April 1999 and is a member of the Audit and Nominating Committees.
W. BARGER TYGART, 66. Mr. Tygart is Chief Executive Officer and
Chairman of Monarch Dental in Dallas, Texas. He is the former President and
Chief Executive Officer of e-Tygart Consulting Services, an e-commerce
consulting company formed in 1999. He served as Vice Chairman (1997 - 1998) and
a Director (1995 - 1998) of The J. C. Penney Company, a retail marketing
company. Prior thereto, Mr. Tygart was President and Chief Operating Officer
29
of The J. C. Penney Company from 1995 to 1997 and senior executive vice
president from 1992 to 1995. He has been a Director of Burlington since April
1998 and is a member of the Audit, Compensation and Benefits, and Executive
Committees.
Board and Committee Meetings; Functions of Certain Committees
During the 2001 fiscal year, the Board of Directors met eight times,
the Compensation and Benefits Committee met five times, the Audit Committee met
three times, the Nominating Committee met one time, and the Investment Committee
met one time. The Executive Committee did not meet during the 2001 fiscal year.
Each of the Directors attended at least 75% of the meetings of the Board and of
each of the Committees on which he or she served.
The Audit Committee's principal responsibilities consist of
recommending the selection of independent auditors, reviewing the scope of the
audit conducted by such auditors, as well as the results of the audit itself,
reviewing Burlington's internal audit staff function and reviewing with
appropriate officers of the Company matters relating to financial reporting and
to accounting and auditing procedures and policies generally.
The Compensation and Benefits Committee has authority to formulate and
give effect to policies respecting salary, compensation and other matters
relating to employment of executive officers with Burlington, including, without
limitation, incentive compensation plans for such persons. The Committee also
reviews and makes recommendations with respect to pension, profit sharing and
other compensation plans of the Company.
The Nominating Committee's responsibilities are to review the size and
composition of the Board and the qualifications of possible candidates for the
Board and, as a result, to make recommendations respecting nominees to be
proposed for election. In addition, it is authorized to evaluate the existence,
composition and membership of the Committees of the Board of Directors and to
recommend a successor to the Chief Executive Officer in the event of a vacancy.
Executive Officers
The Company's executive officers are listed below.
Name Age Position
---- --- --------
George W. Henderson, III 53 Director, Chairman of the Board and
Chief Executive Officer
Douglas J. McGregor 60 Director, President and Chief
Restructuring Officer
John D. Englar 54 Director, Senior Vice President,
Corporate Development and Law
Charles E. Peters, Jr. 50 Senior Vice President and Chief
Financial Officer
John P. Ganley 47 President, Burlington House Division
James R. McCallum 46 President, Lees Carpet Division
Judith J. Altman 43 Vice President and Chief
Information Officer
James M. Guin 58 Vice President, Human Resources
and Corporate Communications
Robert A. Wicker 57 Vice President, General Counsel
30
and Assistant Secretary
Carl J. Hawk 60 Controller
Russell M. Robinson III 43 Corporate Secretary and
Assistant General Counsel
Mr. Henderson has been Chairman of the Board of the Company since
February 1998, and Chief Executive Officer since 1995. Prior thereto, he was
President and Chief Operating Officer of the Company (from 1993).
Mr. McGregor joined the Company as President and Chief Operating
Officer on June 1, 2000, and was elected a Director on July 26, 2000. On
November 14, 2001, the Board designated his position as President and Chief
Restructuring Officer. Prior to joining the Company, Mr. McGregor served as
Chairman and Chief Executive Officer (from January 1997 to October 1998) and
President and Chief Operating Officer (from January 1990 to January 1997) of M.
A. Hanna Company.
Mr. Englar has been Senior Vice President, Corporate Development and
Law of the Company since 1995. Prior thereto, he was Senior Vice President,
Finance and Law (from 1993) and Chief Financial Officer of the Company (from
1994).
Mr. Peters has been Senior Vice President and Chief Financial Officer
of the Company since 1995. He was Senior Vice President-Finance of Boston Edison
Company from 1991 until joining Burlington.
Mr. Ganley has been President of the Burlington House Division since
1997. Prior thereto, he was President of the Burlington House Floor Accents
Division (1996 - 1997) and President of the Lees Carpets Division of the Company
(1994 - 1997).
Mr. McCallum was named President of the Lees Carpets Division of the
Company in June 1999. Prior thereto, he was Executive Vice President, Sales and
Marketing (1997 - 1999) and Vice President, Operations (1994 - 1997) of the Lees
Carpets Division.
Ms. Altman has been Vice President and Chief Information Officer of the
Company since September 1998. Prior thereto, she was Senior Director of
Information Systems with Polo/Ralph Lauren (from 1995) and Vice President of New
Product Development of CMS, Inc. (from 1994 to 1995).
Mr. Guin has been Vice President, Human Resources and Corporate
Communications of the Company, since 1996. Prior thereto, he was Director of
Human Resources for the Company (from 1993 through 1995).
Mr. Wicker has been Vice President, General Counsel and Assistant
Secretary of the Company since 1995. Prior thereto, he was Associate General
Counsel of the Company (from 1992).
Mr. Hawk was elected Controller of Burlington in November 1999. Prior
thereto, he was Director of Accounting of the Company (from 1990).
Mr. Robinson was named Assistant General Counsel in February 2001 and
elected Corporate Secretary in April 2001. Prior to joining Burlington, he was a
partner in the law firm of Amos, Jeffries & Robinson, LLP in Greensboro, N.C..
Executive officers of the Company are elected by, and serve at the
discretion of, its Board of Directors. None of the executive officers or
Directors of the Company is related by blood, marriage or adoption to any other
executive officer or Director of the Company.
31
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires
Burlington's directors and executive officers, and any persons who own
beneficially more than 10% of the outstanding Common Stock, to file with the
Securities and Exchange Commission and the New York Stock Exchange reports
disclosing their ownership of and transactions in the Common Stock. Rules of the
Securities and Exchange Commission under Section 16(a) require that Burlington
identify, based solely on a review of the copies of such reports furnished to
Burlington and written representations, any such person whose reports were filed
on a timely basis. Based on such review, it has been determined by Burlington
that Form 3 reports for two new officers for Section 16(a) purposes, Harry G.
Barto, who is no longer with the Company, and Russell M. Robinson III, were not
filed within the 10-day period following their election as officers as required
by the rules. Based on such reports and representations, no such other reports
were required to be filed that were not timely filed during the fiscal year
ended September 29, 2001.
Item 11. Executive Compensation
Summary Compensation Table
- --------------------------
The following Table sets forth information regarding the compensation
of the Company's Chief Executive Officer and each of its four most highly
compensated senior executive officers (collectively, the "named executive
officers") for services in all capacities to the Company in fiscal years 2001,
2000 and 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
----------------------
Awards Payouts
------ -------
Other Restricted Securities
Name and Principal Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Awards Options Payouts Compensation
($) ($) ($)(1) ($)(2) (#) ($) ($)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
George W. Henderson, III
Chairman of the Board 2001 630,000 227,250 - 84,765 - - 9,314
and Chief Executive 2000 600,000 - - - 149,300 - 6,800
Officer 1999 595,000 25,000 - - 80,000 - 6,400
Douglas J. McGregor 2001 525,000 191,500 - 70,635 - - 2,788
President and Chief 2000 175,000 87,500 95,313 95,313 100,000 - -
Restructuring Officer 1999 - - - - - - -
Charles E. Peters, Jr.
Senior Vice President 2001 370,833 137,500 3,429 38,910 - - 8,019
and Chief Financial 2000 350,000 - 267 137,167 50,000 - 6,800
Officer 1999 305,000 15,000 673 - 38,000 - 6,400
John D. Englar
Senior Vice President, 2001 315,000 105,500 4,702 30,825 - - 7,904
Corporate Development 2000 301,667 - 643 26,677 45,000 - 6,800
and Law 1999 285,000 15,000 1,615 - 40,000 - 6,400
James R. McCallum 2001 217,500 203,300 - 20,385 - - 7,166
President, Lees Carpets 2000 190,417 121,100 - 28,852 25,000 15,000 6,800
1999 157,639 108,800 - - 40,000 15,000 6,400
- ------------------------------------------------------------------------------------------------------------------------------------
32
(1) Amounts equivalent to interest, earned on deferred compensation, in excess
of 120% of the long term annual federal rate, compounded quarterly.
(2) The value shown is the number of restricted shares times the closing market
price of the common stock on the day of grant. The restricted shares
generally vest over a period of three years. At fiscal year-end, the total
number and value (based on the closing market price of the common stock on
the last trading day of the fiscal year) of restricted shares held by the
Named Executive Officers was: Mr. Henderson, 56,510 shares worth $77,984;
Mr. McGregor, 63,756 shares worth $87,983; Mr. Peters, 49,163 shares worth
$67,845; Mr. Englar, 25,066 shares worth $34,591; and Mr. McCallum, 18,372
shares worth $25,353. The values given do not reflect the fact that the
shares are restricted. Any dividends paid on the common stock would be paid
on the restricted shares.
(3) Includes (i) Company matching contribution to 401(k) for as follows: $6,800
Henderson; $-0- McGregor; $6,800 Peters; $6,800 Englar; and $6,800
McCallum, and (ii) compensation value of split dollar life insurance as
follows: $2,514 Henderson; $2,788 McGregor; $1,219 Peters; $1,104 Englar;
and $366 McCallum.
Effect of Chapter 11 on Certain Compensation Arrangements
- ---------------------------------------------------------
Certain compensation arrangements discussed below, including cash payments
under the 2001 Long Term Incentive Plan, the benefits equalization plan, the
supplemental executive retirement plan, severance and change of control
arrangements and the Director's deferred stock units, are unfunded. All benefits
payable to a participant under such unfunded arrangements will be paid from the
general assets of the Company. As a result of the filing of the Chapter 11
Cases, each participant has the status of a general unsecured creditor with
respect to the obligation of the Company to make payments under the unfunded
arrangements, and, as discussed above, the Company cannot pay prepetition
general unsecured claims in the Chapter II Cases, other than pursuant to a
confirmed plan or plans of reorganization or other order of the Bankruptcy
Court. See "Item 1. Business -- Proceedings Under Chapter 11 of the Bankruptcy
Code."
Stock Options, SARs, Performance Units
- --------------------------------------
No options or SARs were granted to any of the named executive officers
during fiscal year 2001. The following Table shows information about stock
options held by each of the named executive officers as of December 3, 2001 (the
value being the difference between the closing price of Burlington's Common
Stock on December 3, 2001 and the respective option prices). No SARs are held by
any of the named executive officers.
- --------------------------------------------------------------------------------
Aggregated Option Exercises in Fiscal Year 2001 and Option Values
Number of Securities Underlying Unexercised
Options at December 3, 2001 (#)
-------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable
---- ------------ ------------ ----------- -------------
George W. Henderson, III 0 0 679,295 49,767
Douglas J. McGregor 0 0 33,334 66,666
Charles E. Peters, Jr. 0 0 68,000 20,000
John D. Englar 0 0 204,415 20,000
James R. McCallum 0 0 22,467 8,333
- --------------------------------------------------------------------------------
Long-Term Incentive Plan -- Awards in Fiscal Year 2001
- ------------------------------------------------------
The following table shows information about Burlington's 2001 Long Term
Incentive Plan, which was adopted December 7, 2000 for Company employees.
Under this plan, employees were given the opportunity to earn (i) restricted
stock awards (which are reported in the Summary Compensation Table); (ii)
phantom shares and (iii) cash awards. Under awards made on December 7, 2000,
payout (if any) of phantom shares and cash awards would be based on Company
performance as determined by debt-to-EBIDTA ratio on the last day of fiscal year
2002, as defined in the Plan. No awards have been made with respect 2002 fiscal
year.
33
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Shares, Performance or Other Estimated Future Payouts Under Non-Stock
Units or Other Rights Period until Maturation Price-Based Plans (Perf.-based Cash Award)
------------------------------------------------
Name (Phantom Shares) or Payout Threshold $ Target $ Maximum $
(a) (b)(1) (c)(2) (d) (e) (f)
- ------------------------------------------------------------------------------------------------------------------------------------
George W. Henderson, III 88,800 9/29/02 133,200 333,000 666,000
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Douglas J. McGregor 47,090 9/29/02 111,000 277,500 555,000
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Charles E. Peters, Jr. 25,940 9/29/02 61,128 152,820 305,640
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
John D. Englar 32,304 9/29/02 48,456 121,140 242,280
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
James R. McCallum 13,590 9/29/02 32,040 80,100 160,200
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Phantom shares, if earned would be payable in cash based on Company
stock price at the end of fiscal year 2002.
(2) If performance goals are met, cash awards and phantom share awards
would be paid in cash, 50% at end of fiscal year 2002 and 50% at end
of fiscal year 2003.
Retirement Plans
----------------
Retirement System
Each eligible employee, including the named executive officers, may
elect to participate in Burlington's "Retirement System", which is a
defined-benefit plan qualified under the Internal Revenue Code. Both
individual and Company contributions are made to the Retirement System.
Employee contributions represent a fixed percentage of base salary,
calculated at the rate of 1.5% or 3.0%, as the employee elects, of base
salary up to $6,600 plus 3.0% of base salary in excess of $6,600 each plan
year, subject to maximum participating earnings levels established by the
Internal Revenue Service ("IRS").
The Retirement System provides an annual benefit payable to an
eligible member at age 65 equal to the greater of (a) the sum of (i) the
number of years of continuous participation prior to October 1, 1984,
multiplied by the sum of 0.75% of the first $12,000 of annual salary at
September 30, 1984, plus 1.5% of the excess over $12,000, and (ii) one-half
of the member's contributions after September 30, 1984, (b) one-half of the
member's total contributions, or (c) an amount determined under applicable
Federal law requiring a minimum return on a participant's personal
contributions. This benefit represents a life annuity with a guaranteed
minimum return of personal contributions and may, at the participant's
election, be paid as a lump sum discounted to a present value at rates set
by the plan or applicable regulations. Benefits are not subject to offset
for Social Security benefits or other amounts. Contributions made by the
Company to the Retirement System in respect of a specified person cannot
readily be separately or individually calculated by the actuaries of the
Retirement System.
The credited years of service to date under the Retirement System for
named executive officers are as follows: Mr. Henderson - 22, , Mr. McGregor
- 1, Mr. Peters - 5, Mr. Englar - 16, and Mr. McCallum - 11. Covered
remuneration under the Retirement System for such individuals is the base
salary amount described in the first paragraph of "Employment Agreements"
below, subject to limitations on amount imposed under Federal regulations
($170,000 during the 2001-02 plan year). Estimated annual benefits payable
upon retirement under the Retirement System at age 65 to the named
executive officers (which benefits are fully vested), assuming no increase
in present salary levels, would be: Mr. Henderson - $216,347; Mr. McGregor
- $49,875; Mr. Peters - $110,535; Mr. Englar - $107,118; and Mr. McCallum -
$85,766.
Benefits provided under the Retirement System are subject to certain
restrictions and limitations under the Code and applicable regulations
promulgated thereunder, as in effect from time to time, and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Under a
benefits equalization plan, Burlington will pay to certain
34
participants in the Retirement System upon retirement supplemental benefits
equal to the reduction in such plan benefits mandated by maximum benefit and
salary limitations established under the Code and ERISA. Such supplemental
amounts are reflected in the individual annual benefits indicated in the next
preceding paragraph.
Supplemental Pre-Retirement/Post-Retirement Plan
The named executive officers and other senior management employees
participate in the Company's Supplemental Executive Retirement Plan (the
"SERP").
In the event of the death before retirement of a named executive
officer prior to age 65, the SERP provides for a pre-retirement survivor benefit
of 120 monthly payments equal to one-half of Monthly Base Salary (which is the
greater of (i) the monthly base salary on the January 1 occurring concurrently
with or immediately preceding such person's death or (ii) the average of the
monthly base salary on January 1 for each of the previous five years) in the
case of death prior to age 60, thereafter decreasing by 5% each year to 25% of
Monthly Base Salary if death occurs at or after age 64. The amount of the
monthly pre-retirement survivor benefit (to be paid for 120 months) calculated
assuming the death of the participant as of December 1, 2001, would be: Mr.
Henderson - $26,250; Mr. Peters - $15,625; Mr. Englar - $12,917; and Mr.
McCallum - $8,542. Mr. McGregor has not yet reached the three-year service
eligibility requirement.
Each named executive officer who attains age 50 and completes 10 years
of service with Burlington (currently each of them other than Messrs. McGregor,
Peters and McCallum) has a nonforfeitable right to receive post-retirement
benefits under the SERP of two and one-half times the greater of (a) final
annual base salary as of the January 1 occurring concurrently with or
immediately preceding retirement or (b) an average of annual base salary on
January 1 for each of the five years preceding retirement (such greater amount
being referred to as the "Annual Base Salary"), reduced in the event of early
retirement as described below. Any named executive officer who receives
post-retirement benefits before age 65 will have his benefits reduced by a
factor of 5% for each year remaining until he attains age 60 and reduced by a
factor of 3% for each year remaining between age 61 and 65. The amount of
post-retirement benefits (payable over 10 years) calculated assuming retirement
as of December 1, 2001, at current plan salary would be: Mr. Henderson -
$787,500 and Mr. Englar - $426,250; and Messrs. McGregor, Peters and McCallum -
$0.
Any payments in the future will depend upon the Annual Base Salary
level of the named executive officer at that time and whether he or she meets
all the terms and conditions of the SERP, including refraining from engaging in
any activities materially competitive with the business of the Company.
Employment Agreements
- ---------------------
Burlington has employment agreements with the named executive officers
providing for employment through December 31, 2003, in the case of Messrs.
Henderson, Peters and Englar; November 13, 2002 in the case of Mr. McGregor; and
October 31, 2003 in the case of Mr. McCallum. These agreements provide, among
other things, for minimum annual salaried compensation. Current annual salaries
are as follows: Mr. Henderson - $630,000; Mr. McGregor - $525,000; Mr. Peters -
$375,000; Mr. Englar - $330,000; and Mr. McCallum - $255,000.
The Company entered into an employment agreement with Mr. McGregor as
of November 14, 2001, which designates Mr. McGregor as President and chief
restructuring officer during the Company's Chapter 11 Cases. The agreement has a
term of one year and replaces Mr. McGregor's prior employment agreement. Mr.
McGregor's annual salary remains at the current level of $525,000. Under the
agreement, Mr. McGregor is entitled to a payment of $1,000,000 at the end of the
term or earlier in the case of certain termination events unless employment is
terminated for cause. Certain components of this agreement, including the
payment of such bonus, are subject to approval by the Bankruptcy Court.
The employment agreements with the named executive officers provide
that in the event of a voluntary termination of employment for "good reason" or
an involuntary termination of employment "without cause", such executive will
receive a lump sum in cash equal to (x) the salary that would have been payable
over the "severance period" of the agreement had such executive not been
terminated plus (y) the amount of the target incentive bonus payment for the
year in which termination occurred, times the number of years or partial years
in the "severance period". The executive also is entitled to continue
participating in all applicable benefit and welfare plans of the Company during
the "severance period". With regard to such termination, the "severance period"
is two years for Mr. Henderson, one and one-half years for Messrs. McGregor,
Peters and Englar, and one year for Mr. McCallum.
35
"Good reason" means a failure to pay compensation due and payable, a reduction
in compensation level (other than changes to incentive or benefit plans
affecting all executives), an assignment of duties resulting in a diminution of
the executive's position, authority, duties or responsibilities which is not
agreed to by the executive, or a change in employment requirements which the
Compensation and Benefits Committee determines subjects the executive to an
unfair change of circumstances.
All the employment agreements provide that in the event of a voluntary
termination of employment for "good reason" or an involuntary termination of
employment "without cause" which occurs within two years of a "change of
control", the "severance period" shall mean three years. In the event of
disability (as defined in the agreements), the employment agreements provide
that Burlington may terminate the agreement and provide the executive with
salary payments and benefits for one year in the case of Mr. Henderson and six
months in the case of Messrs. McGregor, Peters, Englar and McCallum. Further,
all the employment agreements provide that in the event of an involuntary
termination for cause where such conduct is not found to be willful, the
executive will receive a lump sum equal to the present value of the amount
payable under the terms of the Company's payroll severance policy applicable to
such employee.
Change of Control Arrangements
- ------------------------------
In addition to the provisions of the employment agreements discussed
above, the agreements which Burlington has entered into with each of the named
executive officers in connection with the SERP contain provisions under which
such officer's rights to receive pre-retirement survivor benefits and
post-retirement benefits automatically, upon the occurrence of a "change of
control" of the Company, become fully vested, nonforfeitable and payable on
normal payment dates at 100% of benefit level (without regard to reductions of
benefits arising from early retirement). Such officers have also entered into
agreements with Burlington in connection with each of the Equity Incentive Plans
under which such officers' awards of stock options and performance shares will
fully vest if their employment is terminated "without cause" or they voluntarily
terminate their employment for "good reason", in each case within two years
after the occurrence of a "change of control" of the Company. The key employee
retention plan described below contains a change of control arrangement similar
to those described in the employment agreements.
Compensation of Directors
- -------------------------
An annual fee of $30,000 is paid to each Director who is not an
employee of the Company. Effective with the beginning of fiscal year 2002,
directors are paid meeting fees equal to $1,500 for attendance at a board or
committee meeting plus $1,000 for each additional committee meeting on a meeting
day. No fees are paid to employee Directors for their services in such capacity.
Directors may participate, along with all other employees of the Company, in
Burlington's matching charitable gifts program to qualifying educational
institutions.
Prior to the beginning of fiscal year 2002, no separate attendance fees
were paid with respect to participation in and attendance at Board or Committee
meetings and each non-employee Director was awarded stock units at the end of
each fiscal quarter pursuant to the Company's Director Stock Plan (the "Stock
Plan"). The number of units was the number of shares of Common Stock that could
be purchased for $7,500 based on the average closing price of the Common Stock
on the New York Stock Exchange for the last five trading days prior to quarter
end. Prior to the beginning of fiscal year 2002, non-employee directors could
also elect to defer receipt of all or a portion of their annual fees until the
termination of Board service. Amounts deferred which have been deferred are
credited to the Director's stock unit account under the Stock Plan. Upon
retirement or death, the stock units credited to a Director's account are paid
in cash in either a lump sum or in installments over a period not exceeding ten
years, as elected by the Director. The Board Compensation and Benefits Committee
may accelerate payment of deferred amounts upon certain change of control events
as defined in the Stock Plan.
Upon first being elected to Burlington's Board of Directors, a
non-employee Director was awarded a one-time grant of 1,500 restricted shares of
Common Stock under the Stock Plan. Ownership of such shares vests upon the
completion of one year of service on the Board. Such stock grants are subject to
(a) restrictions on transfer and other disposition until completion of the
Director's service on the Board, and (b) forfeiture in whole or in part of
unvested share awards in the event the Director fails to complete the year of
service.
36
Key Employee Retention Plan
- ---------------------------
Subject to approval by the Bankruptcy Court, the Company has adopted a
key employee retention plan designed to provide incentives to certain key
employees to remain with the Company during the Chapter 11 Cases. Key components
of the plan include stay bonuses for certain employees; compensation payments
for severance and change of control events; bonus payments if the Company
emerges from Chapter 11, and a discretionary fund that would be available for
use by the chief executive for employee incentives during the Chapter 11 Cases.
The purpose of the plan is to provide the incentives necessary for the Company
to retain its management team and other key employees and to otherwise address
concerns regarding potential key employee attrition during the Company's
financial restructuring process. The named executive officers are participants
in the key employee retention plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth information with respect to each person
known to the Company (based on public filings) to be the beneficial owner of
more than five percent of the outstanding shares of Common Stock. Beneficial
ownership disclosed in the Tables in this section has been determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934. Each of
the owners listed below represents that it has sole voting and investment power
with respect to all of the shares listed except as noted. In addition to the
beneficial owners listed below, as of October 17, 2001, the Company's 401(k)
Plan, in the name of Vanguard Fiduciary Trust Company, holds 6,001,691 shares of
Common Stock (11.28%) which is allocated to the accounts of the plan
participants.
Amount and Nature of As of Percent
Name and Address of Beneficial Owner Beneficial Ownership Date of Class
- ------------------------------------ -------------------- ---- --------
Strong Capital Management Group, Inc. 5,114,810 9/30/01 9.55
100 Heritage Reserve
P.O. Box 2936
Milwaukee, WI 53201
Merrill Lynch Asset Management Inc. 4,746,600 9/30/01 8.86
800 Scudders Mill Road
Plainsboro, NJ 08536-1606
Dimension Funds Advisors 4,619,500 9/30/01 8.63
1299 Ocean Avenue
Santa Monica, CA 90401-1005
Masters Capital Management Inc. 3,395,000 9/30/01 6.34
3060 Peachtree Road NW
Atlanta, GA 30305
The following Table sets forth the number of shares of Common Stock
beneficially owned, as of December 3, 2001, by each Director and nominee for
Director, each of the named executive officers of Burlington (as defined in
"Executive Compensation - Summary Compensation Table") and all Directors and
executive officers of the Company as a group.
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership (a) of Class
- ------------------------ ------------------------ --------
Jerald A. Blumberg..................... 1,500(b) *%
John D. Englar......................... 286,071(c) *
George W. Henderson, III............... 875,256(c) 1.6%
James R. McCallum...................... 64,969(c) *
Douglas J. McGregor.................... 97,090(c) *
John G. Medlin, Jr..................... -0-(b) *
Charles E. Peters, Jr.................. 120,772(c) *
Nelson Schwab III...................... 30,250(b) *
37
Theresa M. Stone............................. 1,500(b) *
W. Barger Tygart............................. 1,500(b) *
All Directors and executive officers as
a group (16 persons), including
the above................................. 1,863,881 3.4%
__________________
* Represents less than 1% of the class.
(a) Unless otherwise indicated in a footnote below, each Director and executive
officer possesses sole voting and sole investment power with respect to the
shares shown in the Table above. Shares listed for Mr. Henderson include
133,145 shares held by a family limited partnership. Shares listed for Mr.
Englar include 200 shares held by his children and 200 shares held by his
wife.
(b) Does not include stock units held for the account of each non-employee
Director under the Director Stock Plan, as follows: Mr. Blumberg, 73,413.98
units; Mr. Medlin, 34,136.83 units; Mr. Schwab, 54,168.49 units; Ms. Stone,
71,662.07 units; and Mr. Tygart, 34,136.83 units.
(c) Includes for executive officers of Burlington shares in which they have
voting power, but not investment power, under the 401(k) Plan. Also
includes shares not currently owned but which are issuable upon exercise of
stock options under Company Equity Incentive Plans, which are currently
exercisable, as follows: Mr. Henderson, 679,295 shares; Mr. McGregor,
33,334 shares; Mr. Peters, 68,000 shares; Mr. Englar, 204,415 shares; Mr.
McCallum, 22,467 shares; and all executive officers as a group (16
persons), 1,246,611 shares. Also includes shares of restricted stock issued
under Company Equity Incentive Plans, which have not yet vested as follows:
Mr. Henderson, 56,510 shares; Mr. McGregor, 63,756 shares; Mr. Peters,
49,163 shares; Mr. Englar, 25,066 shares; Mr. McCallum, 18,372 shares; and
all executive officers as a group (16 persons), 307,607 shares.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
None.
38
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) 1. Financial Statements
--------------------
Report of Ernst & Young LLP, Independent Auditors (page
F-1)
Consolidated Statements of Operations - for the fiscal
years ended September 29, 2001, September 30, 2000 and
October 2, 1999. (page F-2)
Consolidated Balance Sheets - as of September 29, 2001 and
September 30, 2000 (page F-3)
Consolidated Statements of Shareholders' Equity - for the
fiscal years ended October 2, 1999, September 30, 2000 and
September 29, 2001 (page F-4)
Consolidated Statements of Cash Flows - for the fiscal
years ended September 29, 2001, September 30, 2000, and
October 2, 1999. (page F-5)
Notes to Consolidated Financial Statements (pages F-6 to
F-30)
2. Financial Statement Schedules
-----------------------------
The financial statement schedule listed under Item 8 is filed as
a part of this Report.
3. Exhibits
--------
The exhibits listed on the accompanying Index to Exhibits are
filed as a part of this Report.
(b) During the quarter ended September 29, 2001, the Company did not
file a Current Report on Form 8-K.
39
- -----------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
------------------------
Awards Payouts
------ -------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Compensation Awards Options Payouts Compensation
Position Year Salary ($) Bonus ($) ($)(1) ($)(2) (#) ($) ($)(3)
- -----------------------------------------------------------------------------------------------------------------------------
George W. Henderson, III
Chairman of the Board 2001 630,000 227,250 -- 84,765 -- -- 9,314
and Chief Executive 2000 600,000 -- -- -- 149,300 -- 6,800
Officer 1999 595,000 25,000 -- -- 80,000 -- 6,400
Douglas J. McGregor 2001 525,000 191,500 -- 70,635 -- -- 2,788
President and Chief 2000 175,000 87,500 95,313 95,313 100,000 -- --
Restructuring Officer 1999 -- -- -- -- -- -- --
Charles E. Peters, Jr
Senior Vice President 2001 370,833 137,500 3,429 38,910 -- -- 8,019
and Chief Financial 2000 350,000 -- 267 137,167 50,000 -- 6,800
Officer 1999 305,000 15,000 673 -- 38,000 -- 6,400
John D. Englar
Senior Vice President, 2001 315,000 105,500 4,702 30,825 -- -- 7,904
Corporate Development 2000 301,667 -- 643 26,677 45,000 -- 6,800
and Law 1999 285,000 15,000 1,615 -- 40,000 -- 6,400
James R. McCallum 2001 217,500 203,300 -- 20,385 -- -- 7,166
President, Lees Carpets 2000 190,417 121,100 -- 28,852 25,000 15,000 6,800
1999 157,639 108,800 -- -- 40,000 15,000 6,400
- -----------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Number of Shares, Performance or Other Estimated Future Payouts Under Non-Stock
Units or Other Rights Period until Maturation Price-Based Plans (Perf.-based Cash Award)
-----------------------------------------------------
Name (Phantom Shares) or Payout Threshold $ Target $ Maximum $
(a) (b)(1) (c)(2) (d) (e) (f)
- ------------------------------------------------------------------------------------------------------------------------------------
George W. Henderson, III 88,800 9/29/2002 133,200 333,000 666,000
Douglas J. McGregor 47,090 9/29/2002 111,000 277,500 555,000
Charles E. Peters, Jr. 25,940 9/29/2002 61,128 152,820 305,640
John D. Englar 32,304 9/29/2002 48,456 121,140 242,280
James R. McCallum 13,590 9/29/2002 32,040 80,100 160,200
- ------------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Aggregated Option Exercises in Fiscal Year 2001 and Option Values
Number of Securities Underlying Unexercised
Options at December 3, 2001 (#)
Shares -------------------------------
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable
---- ------------ ------------ ----------- -------------
George W. Henderson, III 0 0 679,295 49,767
Douglas J. McGregor 0 0 33,334 66,666
Charles E. Peters, Jr. 0 0 68,000 20,000
John D. Englar 0 0 204,415 20,000
James R. McCallum 0 0 22,467 8,333
- --------------------------------------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Corporation has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BURLINGTON INDUSTRIES, INC.
Date: December 21, 2001
By /s/ George W. Henderson, III
------------------------------
George W. Henderson, III
Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Corporation and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ George W. Henderson, III Director, Chairman of the Board and December 21, 2001
- -------------------------------------
George W. Henderson, III Chief Executive Officer
(Principal Executive Officer)
/s/ Charles E. Peters, Jr. Senior Vice President and December 21, 2001
- -------------------------------------
Charles E. Peters, Jr. Chief Financial Officer
(Principal Financial Officer)
/s/ Carl J. Hawk Controller December 21, 2001
- -------------------------------------
Carl J. Hawk (Principal Accounting Officer)
/s/ Jerald A. Blumberg Director December 21, 2001
- -------------------------------------
Jerald A. Blumberg
/s/ John D. Englar Director December 21, 2001
- -------------------------------------
John D. Englar
/s/ Douglas J. McGregor Director December 21, 2001
- -------------------------------------
Douglas J. McGregor
/s/ John G. Medlin, Jr. Director December 21, 2001
- -------------------------------------
John G. Medlin, Jr.
/s/ Nelson Schwab III Director December 21, 2001
- -------------------------------------
Nelson Schwab III
/s/ Theresa M. Stone Director December 21, 2001
- -------------------------------------
Theresa M. Stone
/s/ W. Barger Tygart Director December 21, 2001
- -------------------------------------
W. Barger Tygart
43
Burlington Industries, Inc. and Subsidiary Companies
(Debtors-in-Possession as of November 15, 2001)
Consolidated Financial Statements:
Report of Independent Auditors ....................................... F-1
Consolidated Statements of Operations ................................ F-2
Consolidated Balance Sheets .......................................... F-3
Consolidated Statements of Shareholders' Equity ...................... F-4
Consolidated Statements of Cash Flows ................................ F-5
Notes to Consolidated Financial Statements ........................... F-6
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts ...................... S-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Burlington Industries, Inc.
We have audited the accompanying consolidated balance sheets of
Burlington Industries, Inc. as of September 29, 2001 and September 30, 2000, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended September 29, 2001.
Our audits also included the financial statement schedule listed in the Index
for Item 14a. These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Burlington Industries, Inc. at September 29, 2001 and September 30, 2000, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended September 29, 2001, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note C to the Consolidated Financial Statements, in
2000 the Company changed its method for measuring impairment of goodwill.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note A to the
financial statements, on November 15, 2001, the Company filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code
("Chapter 11"). The Company is currently operating its business under the
jurisdiction of Chapter 11 and the United States Bankruptcy Court in Wilmington,
Delaware (the "Bankruptcy Court"), and continuation of the Company as a going
concern is contingent upon, among other things, the ability to formulate a plan
of reorganization which will be approved by the requisite parties under the
United States Bankruptcy Code and be confirmed by the Bankruptcy Court, the
ability to comply with its debtor-in-possession financing facility, obtain
adequate financing sources, and the Company's ability to generate sufficient
cash flows from operations to meet its future obligations. In addition, the
Company has experienced operating losses in 2001, 2000 and 1999. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note A. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that may result from the outcome of
this uncertainty.
s/s Ernst & Young LLP
Greensboro, North Carolina
November 15, 2001
except for Notes A and G, as to which the date is
December 12, 2001
F-1
CONSOLIDATED STATEMENTS OF OPERATIONS
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
(Debtors-in-Possession as of November 15, 2001)
For the 52 weeks ended September 29, 2001, September 30, 2000 and October 2,
1999
(Amounts in thousands, except for per share amounts)
2001 2000 1999
----------- ----------- -----------
Net sales $ 1,403,905 $ 1,620,247 $ 1,651,689
Cost of sales 1,272,694 1,434,867 1,426,311
----------- ----------- -----------
Gross profit 131,211 185,380 225,378
Selling, general and administrative expenses 118,672 138,725 143,171
Provision for doubtful accounts 4,334 4,380 5,482
Provision for restructuring and impairments 72,098 67,003 62,069
Amortization of goodwill 0 16,715 17,810
Write-off of goodwill 0 463,247 0
----------- ----------- -----------
Operating loss before interest and taxes (63,893) (504,690) (3,154)
Interest expense 71,174 66,264 58,420
Equity in income of joint ventures (626) (10,263) (6,357)
Other expense (income) - net (15,706) (12,043) (7,868)
----------- ----------- -----------
Loss before income taxes (118,735) (548,648) (47,349)
Income tax expense (benefit):
Current (2,041) 10,004 4,163
Deferred (25,593) (31,680) (20,018)
----------- ----------- -----------
Total income tax benefit (27,634) (21,676) (15,855)
----------- ----------- -----------
Net loss $ (91,101) $ (526,972) $ (31,494)
=========== =========== ===========
Basic and diluted loss per common share $ (1.73) $ (10.12) $ (0.57)
See notes to consolidated financial statements.
F-2
CONSOLIDATED BALANCE SHEETS
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
(Debtors-in-Possession as of November 15, 2001)
As of September 29, 2001 and September 30, 2000
(Amounts in thousands)
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 87,473 $ 26,172
Short-term investments 13,394 13,167
Customer accounts receivable after deductions
of $12,406 and $16,866 for the
respective dates for doubtful accounts,
discounts, returns and allowances 195,571 269,209
Sundry notes and accounts receivable 21,985 31,792
Inventories 216,968 287,969
Prepaid expenses 3,329 3,476
----------- -----------
Total current assets 538,720 631,785
Fixed assets, at cost:
Land and land improvements 23,334 25,871
Buildings 352,491 379,969
Machinery, fixtures and equipment 585,425 635,493
----------- -----------
961,250 1,041,333
Less accumulated depreciation and amortization 456,890 465,897
----------- -----------
Fixed assets - net 504,360 575,436
Other assets:
Assets held for sale 32,818 36,431
Investments and receivables 48,405 60,217
Intangibles and deferred charges 60,692 47,731
----------- -----------
Total other assets 141,915 144,379
----------- -----------
$ 1,184,995 $ 1,351,600
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 0 $ 3,400
Long-term debt - current 476,900 30,470
Accounts payable - trade 62,171 86,892
Sundry payables and accrued expenses 79,724 97,552
Income taxes payable 4,566 2,024
Deferred income taxes 31,819 22,560
----------- -----------
Total current liabilities 655,180 242,898
Long-term liabilities:
Long-term debt 397,068 865,980
Other 53,957 58,288
----------- -----------
Total long-term liabilities 451,025 924,268
Deferred income taxes 53,346 89,659
Shareholders' equity:
Common stock issued (Note I) 700 689
Capital in excess of par value 885,935 884,643
Accumulated deficit (703,416) (612,315)
Accumulated other comprehensive income (loss) (1,860) (22,452)
Cost of common stock held in treasury (155,915) (155,790)
----------- -----------
Total shareholders' equity 25,444 94,775
----------- -----------
$ 1,184,995 $ 1,351,600
=========== ===========
See notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
(Debtors-in-Possession as of November 15, 2001)
For the 52 weeks ended September 29, 2001, September 30, 2000 and October 2,
1999
(Amounts in thousands)
Accumulated
Capital in other Treasury
Common excess of Accumulated comprehensive shares,
Stock par value deficit income (loss) at cost Total
--------- ----------- ----------- ------------- --------- ---------
Balance October 3, 1998 $ 684 $ 884,685 $ (53,849) $ (17,357) $(113,942) $ 700,221
Net loss for the period (31,494) (31,494)
Translation adjustments 1,084 1,084
Unrealized gains on securities
(net of income taxes of $870) 1,615 1,615
---------
Comprehensive income (loss) (28,795)
Purchase of treasury stock (41,994) (41,994)
Issuance of treasury stock (378) 155 (223)
Amortization of unearned
compensation 40 40
--------- --------- --------- --------- --------- ---------
Balance October 2, 1999 684 884,347 (85,343) (14,658) (155,781) 629,249
Net loss for the period (526,972) (526,972)
Translation adjustments (947) (947)
Less: reclassification adjustment for
realized gain included in net loss (5,507) (5,507)
Unrealized losses on securities
(net of income taxes of $388) (721) (721)
Less: reclassification adjustment for
realized gains included in net loss (net
of income taxes of $333) (619) (619)
---------
Comprehensive income (loss) (534,766)
Awards issued under
Equity Incentive Plans 5 (26) (9) (30)
Amortization of unearned
compensation 322 322
--------- --------- --------- --------- --------- ---------
Balance September 30, 2000 689 884,643 (612,315) (22,452) (155,790) 94,775
Net loss for the period (91,101) (91,101)
Translation adjustments (198) (198)
Less: reclassification adjustment for
realized loss included in net loss 22,491 22,491
Net loss on derivative instruments
qualifying as cash flow hedges (net of
income taxes of $971) (1,493) (1,493)
Less: reclassification adjustment for
realized losses included in net loss (net
of income taxes of $78) 120 120
Unrealized gains on securities
(net of income taxes of $141) 262 262
Less: reclassification adjustment for
realized gains included in net loss (net
of income taxes of $318) (590) (590)
---------
Comprehensive income (loss) (70,509)
Shares issued related to
Nano-Tex acquisition 4 577 581
Awards issued under
Equity Incentive Plans 7 (87) (80)
Forfeiture of restricted
nonvested stock 1 (125) (124)
Amortization of unearned
compensation 801 801
--------- --------- --------- --------- --------- ---------
Balance September 29, 2001 $ 700 $ 885,935 $(703,416) $ (1,860) $(155,915) $ 25,444
========= ========= ========= ========= ========= =========
See notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
(Debtors-in-Possession as of November 15, 2001)
For the 52 weeks ended September 29, 2001, September 30, 2000 and October 2,
1999
(Amounts in thousands)
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (91,101) $(526,972) $ (31,494)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization of fixed assets 65,012 67,096 64,757
Provision for doubtful accounts 4,334 4,380 5,482
Amortization of intangibles and deferred debt expense 4,786 17,602 18,170
Write-off of goodwill 0 463,247 0
Equity in loss of joint ventures 2,074 837 3,052
Deferred income taxes (25,593) (31,680) (20,018)
Translation gain on liquidation of subsidiary 0 (5,507) 0
Gain on disposal of assets (5,165) (990) (4,328)
Provision for restructuring and impairments 72,098 67,003 62,069
Changes in assets and liabilities:
Customer accounts receivable - net 69,304 (21,808) 31,543
Sundry notes and accounts receivable 9,245 (8,348) (7,634)
Inventories 57,751 29,585 (5,560)
Prepaid expenses 23 1,895 (2,288)
Accounts payable and accrued expenses (49,429) (3,407) (29,174)
Change in income taxes payable 2,542 858 726
Other (22,678) (7,466) (18,577)
--------- --------- ---------
Total adjustments 184,304 573,297 98,220
--------- --------- ---------
Net cash provided by operating activities 93,203 46,325 66,726
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24,785) (73,773) (141,539)
Proceeds from sales of assets 29,727 11,091 55,884
Investment in joint ventures 0 (446) (5,366)
Change in investments (131) 7,838 (451)
--------- --------- ---------
Net cash provided (used) by investing activities 4,811 (55,290) (91,472)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in short-term borrowings (3,400) 3,400 (14,200)
Repayments of long-term debt (175,296) (11,665) (36,880)
Proceeds from issuance of long-term debt 153,900 26,000 119,000
Payment of financing fees (11,917) 0 0
Purchase of treasury stock 0 0 (41,994)
--------- --------- ---------
Net cash provided (used) by financing activities (36,713) 17,735 25,926
--------- --------- ---------
Net change in cash and cash equivalents 61,301 8,770 1,180
Cash and cash equivalents at beginning of period 26,172 17,402 16,222
--------- --------- ---------
Cash and cash equivalents at end of period $ 87,473 $ 26,172 $ 17,402
========= ========= =========
See notes to consolidated financial statements.
F-5
Notes to Consolidated Financial Statements
Burlington Industries, Inc. and Subsidiary Companies
(Debtors-in-Possession as of November 15, 2001)
Note A - Subsequent Events
Subsequent to the end of the Company's fiscal year, 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 payment of prepetition obligations to certain critical vendors
to aid the Debtors in maintaining the operation of their businesses. On November
15, 2001, the Bankruptcy Court also entered an interim order (the "Interim DIP
Financing Order") authorizing the Debtors to enter into a debtor-in-possession
financing facility (the "DIP Financing Facility") with JPMorgan Chase Bank and a
syndicate of financial institutions, and to grant first priority mortgages,
security interests, liens (including priming liens), and superiority claims on
substantially all of the assets of the Debtors to secure the DIP Financing
Facility. See Note G for a further discussion regarding the DIP Financing
Facility. On December 12, 2001, the Bankruptcy Court entered a final order (the
"Final DIP Financing Order") approving the DIP Financing Facility and
authorizing the Debtors to utilize up to $190 million, including up to $50.0
million for post petition letters of credit, 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 amount of the claims to be
filed by the creditors could be significantly different than the amount of the
liabilities recorded by the Company.
The United States trustee for the District of Delaware has appointed an Official
Committee of Unsecured Creditors in accordance with the provisions of the
Bankruptcy Code. The Bankruptcy Code provides that the Debtors have exclusive
periods during which only they may file and solicit acceptances of a plan of
reorganization. The exclusive period of the Debtors to file a plan for
reorganization expires on March 15, 2002; however, the Debtors may request that
the Bankruptcy Court extend such exclusive period. If the Debtors fail to file a
plan of reorganization during the exclusive period or, after
F-6
such plan has been filed, if the Debtors fail to obtain acceptance of such plan
from the requisite impaired classes of creditors and equity holders during the
exclusive solicitation period, any party in interest, including a creditor, an
equity holder, a committee of creditors or equity holders, or an indenture
trustee, may file their own plan of reorganization for the Debtors. After a plan
of reorganization has been filed with the Bankruptcy Court, the plan, along with
a disclosure statement approved by the Bankruptcy Court, will be sent to all
creditors and equity holders. Following the solicitation period, the Bankruptcy
Court will consider whether to confirm the plan. In order to confirm a plan of
reorganization, the Bankruptcy Court, among other things, is required to find
that (i) with respect to each impaired class of creditors and equity holders,
each holder in such class has accepted the plan or will, pursuant to the plan,
receive at least as much as such holder would receive in a liquidation, (ii)
each impaired class of creditors and equity holders has accepted the plan by the
requisite vote (except as described in the following sentence), and (iii)
confirmation of the plan is not likely to be followed by a liquidation or a need
for further financial reorganization of the Debtors or any successors to the
Debtors unless the plan proposes such liquidation or reorganization. If any
impaired class of creditors or equity holders does not accept the plan and,
assuming that all of the other requirements of the Bankruptcy Code are met, the
proponent of the plan may invoke the "cram down" provisions of the Bankruptcy
Code. Under these provisions, the Bankruptcy Court may confirm a plan
notwithstanding the non-acceptance of the plan by an impaired class of creditors
or equity holders if certain requirements of the Bankruptcy Code are met. These
requirements may, among other things, necessitate payment in full for senior
classes of creditors before payment to a junior class can be made. As a result
of the amount of prepetition indebtedness and the availability of the "cram
down" provisions, the holders of the Company's capital stock may receive no
value for their interests under the plan of reorganization. Because of such
possibility, the value of the Company's outstanding capital stock and unsecured
instruments are highly speculative.
Since the Petition Date, the Debtors have conducted business in the ordinary
course. Management is in the process of stabilizing the business of the Debtors
and evaluating their operations as part of the development of a plan of
reorganization. After developing a plan of reorganization, the Debtors will seek
the requisite acceptance of the plan by impaired creditors and equity holders
and confirmation of the plan by the Bankruptcy Court, all in accordance with the
applicable provisions of the Bankruptcy Code. During the pendency of the Chapter
11 Cases, the Debtors may, with Bankruptcy Court approval, sell assets and
settle liabilities, including for amounts other than those reflected in the
financial statements. The Debtors are in the process of reviewing their
operations and identifying assets for disposition. The administrative and
reorganization expenses resulting from the Chapter 11 Cases will unfavorably
affect the Debtors' results of operations. Future results of operations may also
be adversely affected by other factors related to the Chapter 11 Cases.
Basis of Presentation
The Company's consolidated financial statements included elsewhere in this
Annual Report have been prepared on a "going concern" basis in accordance with
United States generally accepted accounting principles. The "going concern"
basis of presentation assumes that the Company will continue in operation for
the foreseeable future and will be able to realize upon its assets and discharge
its liabilities in the normal course of business. Because of the Chapter 11
Cases and the circumstances leading to the filing thereof, there is substantial
doubt about the appropriateness of the use of the "going concern" assumption.
The Company's ability to realize the carrying value of its assets and discharge
its liabilities is subject to substantial uncertainty. The appropriateness of
the "going concern" basis is dependent upon, among other things, confirmation of
a plan of reorganization, the Company's ability to comply with the terms of the
DIP Financing Facility, and the Company's ability to generate sufficient cash
flows from operations, asset sales and financing arrangements to meet its
obligations. If the "going concern" basis was not appropriate for the Company's
consolidated financial statements, then significant adjustments would be
necessary in the carrying value of assets and liabilities, the revenues and
expenses reported, and the balance sheet classifications used.
The Company's consolidated financial statements included elsewhere in this
Annual Report do not reflect adjustments that may occur in accordance with AICPA
Statement of Position 90-7 ("Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code") ("SOP 90-7"), which the Company will adopt for its
financial reporting in periods ending after November 15, 2001 assuming that the
Company will continue as a "going concern". 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 will be segregated and classified as Liabilities Subject to
Compromise in the consolidated balance sheet under SOP 90-7.
F-7
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
an approval plan of reorganization and, accordingly, are not presently
determinable. Pursuant to SOP 90-7, professional fees associated with the
Chapter 11 Cases will be expensed as incurred and reported as reorganization
costs. Also, interest expense will be 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.
Note B - Summary of Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts of the
Company and all its subsidiaries. The accounts of foreign subsidiaries have been
included on the basis of fiscal periods ended no more than three months prior to
the dates of the consolidated balance sheets. Investments in affiliates in which
the Company owns 20 to 50 percent of the voting stock are generally accounted
for using the equity method. The Company has an ownership interest in an
affiliated limited liability company of approximately 15 percent that is
accounted for using the equity method because the Company has significant
influence over the operations of the entity, including control of 40 percent of
the Board and certain additional rights that require unanimous votes to pass.
All significant intercompany accounts and transactions have been eliminated.
Cash equivalents: Cash and cash equivalents include time deposits and other
short-term investments with an original maturity of three months or less. At
times such amounts may exceed the F.D.I.C limits, and at September 29, 2001,
they included a significant concentration of overnight deposits at Bank One,
N.A. valued at $68.1 million.
Investments: The Company classifies all of its investments as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported as a component of shareholders'
equity in comprehensive income (loss), net of income taxes. Investments
available for current operations are classified in the consolidated balance
sheet as current assets; investments held for long-term purposes are classified
as noncurrent assets. Interest income and realized gains and losses on
securities are included in "Other expense (income) - net" in the consolidated
statements of operations. The cost of securities sold is based on the specific
identification method.
Inventories: Inventories are valued at the lower of cost or market. Cost of
substantially all components of textile inventories in the United States is
determined using the dollar value Last-in, First-out (LIFO) method. All other
inventories are valued principally at average cost.
Fixed assets: Depreciation and amortization of fixed assets is calculated over
the estimated useful lives of the related assets principally using the
straight-line method: 15 to 20 years for land improvements, 15 to 50 years for
buildings and 5 to 15 years for machinery, fixtures and equipment.
Impairment of long-lived assets: When circumstances indicate, the Company
evaluates the recoverability of its long-lived assets by comparing market value
or estimated future undiscounted cash flows with the asset's carrying amount to
determine if a write-down to market value or discounted cash flow is required.
Excess of purchase cost over net assets acquired (Goodwill): The Company has
historically amortized goodwill over not more than 40 years using the
straight-line method, and has evaluated the recoverability of its carrying value
using projected undiscounted cash flows. In 2000, the Company changed the method
by which it evaluates the recoverability of enterprise-level goodwill to the
market value method. As a result of this change, the Company recorded an
impairment charge for the remaining carrying value of its enterprise-level
goodwill (see Note C).
Deferred debt expense: Deferred debt expense is amortized over the life of the
related debt as an adjustment to interest expense.
Revenue recognition: Sales are recorded upon shipment or designation of specific
goods for later shipment at customers' request with related risk of ownership
passing to such customers. The Company classifies amounts billed to customers
for shipping and handling in net sales, and costs incurred for shipping and
handling in cost of sales in the consolidated statements of income.
F-8
Research expenditures: Expenditures for research and development are expensed as
incurred. Total expenditures for research and development aggregated $11.4
million, $11.8 million, $12.1 million in the 2001, 2000 and 1999 fiscal years,
respectively.
Derivative instruments: On October 1, 2000, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Under the statement, all derivatives are
required to be recognized on the balance sheet at fair value. The accounting for
changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and further, on the type of hedging relationship. The Company
formally assesses, both at the hedge's inception and on an ongoing basis,
whether the derivatives used are highly effective in offsetting changes in the
fair values or cash flows of the hedged items. For those derivative instruments
that are designated and qualify as hedging instruments, the Company must
designate the hedging instrument, based upon the exposure being hedged, as
either a fair value hedge, cash flow hedge or a hedge of a net investment in a
foreign operation. For fair value hedges, the gain or loss on the derivative
instrument as well as the offsetting loss or gain on the hedged item
attributable to the hedged risk are recognized in current earnings during the
period of the change in fair values. For cash flow hedges, the effective portion
of the gain or loss on the derivative instrument is reported as a component of
other comprehensive income and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings, with the
ineffective portion, if any, being recognized in current earnings during the
period of change. For derivative instruments not designated as hedging
instruments, the gain or loss is recognized in current earnings during the
period of change.
The adoption of SFAS No. 133 resulted in the cumulative effect of an accounting
change of $1.4 million being recognized as a net gain (after taxes) in other
comprehensive income (loss). In addition, income of $16.2 thousand (after income
taxes), or $0.00 per share, was recognized upon adoption but not presented as a
separate line in the consolidated statement of operations as the cumulative
effect of an accounting change due to lack of materiality.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassification: Certain prior period amounts have been reclassified to conform
to current presentations.
Fiscal year: The Company uses a 52 - 53 week fiscal year.
Recently issued accounting pronouncements: In July 2001, the Financial
Accounting Standards Board ("FASB") issued Statements of Financial Accounting
Standards No. 141, Business Combinations ("SFAS No. 141"), and No. 142, Goodwill
and Other Intangible Assets ("SFAS No. 142"). SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations subsequent
to June 30, 2001, and specifies criteria for recognizing intangible assets
acquired in a business combination. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually. Intangible assets with
definite useful lives will continue to be amortized over their respective
estimated useful lives. The Company will adopt SFAS No. 142 effective September
29, 2002, and does not expect that such adoption will have a material impact on
the earnings and financial condition of the Company. In October 2001, the FASB
issued Financial Accounting Standard No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS No. 144"). This Statement establishes a
single accounting model for the impairment or disposal of long-lived assets. As
required by SFAS No. 144, the Company will adopt this new accounting standard on
September 29, 2002. The Company has not yet determined what effect the adoption
of SFAS No. 144 will have on its financial statements.
F-9
Note C - Restructuring and Impairment Charges
1999 Restructuring and Impairment
- ---------------------------------
During the March quarter of 1999, the Company implemented a comprehensive
reorganization plan primarily related to its apparel fabrics business. The major
elements of the plan included:
(1) The combination of two businesses--Burlington Klopman Fabrics and
Burlington Tailored Fashions--into Burlington PerformanceWear. Also, Burlington
Global Denim and a portion of the former Sportswear division were combined to
form Burlington CasualWear.
(2) The reduction of U.S. apparel fabrics capacity by approximately 25
percent and the reorganization of manufacturing assets, including overhead
reductions throughout the Company. Seven plants were closed or sold.
(3) The plan resulted in the reduction of approximately 2,800
employees, with severance benefits payments paid over periods of up to 12 months
from the termination date depending on the employee's length of service.
The cost of the reorganization was reflected in a restructuring and impairment
charge, before income taxes, of $60.9 million recorded in the second fiscal
quarter ended April 3, 1999, as adjusted (reduced) by $3.2 million in the fourth
quarter of 1999, $0.7 million in the 2000 fiscal year, and $0.5 million in the
2001 fiscal year. The components of the adjusted 1999 restructuring and
impairment charge included the establishment of a $17.6 million reserve for
severance benefit payments, write-down of pension assets of $2.7 million for
curtailment and settlement losses, write-downs for impairment of $39.2 million
related to fixed assets resulting from the restructuring and a reserve of $1.4
million for lease cancellations and other exit costs expected to be paid through
September 2001.
Following is a summary of activity in the related 1999 restructuring reserves
(in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
-------- -------------
March 1999 restructuring charge ................... $ 20.1 $ 2.2
Payments .......................................... (10.8) (0.5)
Adjustments ....................................... (1.1) -
------- ---------
Balance at October 2, 1999 ........................ 8.2 1.7
Payments .......................................... (6.6) (0.8)
Adjustments ....................................... (1.4) (0.2)
------- ---------
Balance at September 30, 2000 ..................... 0.2 0.7
Payments .......................................... (0.2) (0.1)
Adjustments ....................................... - (0.5)
------- ---------
Balance at September 29, 2001 ..................... $ - $ 0.1
======= =========
Other expenses related to the 1999 restructuring (including losses on
inventories of discontinued styles, relocation of employees and equipment, and
plant carrying and other costs) are charged to operations as incurred. Through
September 29, 2001, $35.6 million of such costs have been incurred and charged
to operations, consisting primarily of inventory losses and plant carrying
costs, in the amounts of $1.4 million, $7.1 million and $27.1 million for the
2001, 2000 and 1999 fiscal years, respectively.
2000 Restructuring and Impairment
- ---------------------------------
During the September quarter of 2000, the Company's Board of Directors approved
a plan to address performance shortfalls as well as difficult market dynamics.
The major elements of the plan include:
F-10
(1) Realign operating capacity. The Company reduced capacity to better
align its operations with current market demand and to assure the most efficient
use of assets. This included: closing a plant in Johnson City, Tennessee and
moving a portion of its production to other underutilized facilities in the
first half of fiscal year 2001; reducing operations at the Clarksville, Virginia
facilities of the PerformanceWear segment in the December 2000 quarter; reducing
the size of the Company's trucking fleet and closing the Gaston trucking
terminal located in Belmont, North Carolina in the December 2000 quarter; and
closing a drapery sewing plant of the interior furnishings segment in Mt Olive,
North Carolina in June 2001.
(2) Eliminate unprofitable businesses. The PerformanceWear segment
exited its garment-making business (December 2000) and sold its facility in
Cuernavaca, Mexico (September 2001), and has pruned unprofitable product lines.
Also, the Company has exited its Burlington House Floor Accents business by
selling (February 2001) its tufted area rug business and (June 2001) its Bacova
printed mat business. Net sales of the Burlington House Floor Accents business
were $122.3 million for the 2000 fiscal year and net operating loss was $5.3
million for the same period.
(3) Reduce overhead. The Company has analyzed administrative and staff
positions throughout the Company, and identified a number of opportunities to
consolidate and reduce cost. This resulted in job reductions in division and
corporate staff areas primarily during the December and March quarters of fiscal
year 2001.
(4) Improve financial flexibility. Company-wide initiatives to sell
non-performing assets, reduce working capital, and decrease capital expenditures
were undertaken to free up cash.
The closings and overhead reductions outlined above resulted in the
elimination of approximately 2,500 jobs in the United States and 1,000 jobs in
Mexico with severance benefits calculated for periods of up to 12 months from
the termination date, depending on the employee's length. The Debtors currently
anticipate seeking approval of the Bankruptcy Court for payment by the Company
of severance benefits to employees whose jobs are eliminated. The Debtors cannot
reasonably estimate the ultimate liability that the Bankruptcy Court will
approve.
This plan resulted in a pre-tax charge for restructuring, asset write-downs and
impairment of $72.7 million, as adjusted by $5.0 million in the 2001 fiscal
year. The components of the 2000 restructuring and impairment charge included
the establishment of a $17.4 million reserve for severance benefit payments,
write-downs for impairment of $45.7 million (including $12.7 million of
goodwill) related to long-lived assets resulting from the restructuring and a
reserve of $9.6 million primarily for lease cancellation costs expected to be
paid through December 2001. 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 2000 restructuring reserves
(in millions):
Lease
Cancellations
Severance and Other
Benefits Exit Costs
-------- -------------
September 2000 restructuring charge .............. $ 19.7 $ 10.0
Payments ......................................... (0.4) -
-------- ---------
Balance at September 30, 2000 .................... 19.3 10.0
Payments ......................................... (16.6) (8.5)
Adjustments ...................................... (2.3) (0.4)
-------- ---------
Balance at September 29, 2001 .................... $ 0.4 $ 1.0
======== =========
Other expenses related to the 2000 restructuring (including losses on
inventories of discontinued styles, relocation of employees and equipment, and
plant carrying and other costs) are charged to operations as incurred. Through
September 29, 2001, $11.8 million and $8.1 million of such costs have been
incurred and charged to operations during the 2001 and 2000 fiscal years,
respectively, consisting primarily of inventory losses and plant carrying costs.
F-11
In 2000, the Company changed its method of evaluating the recoverability of
enterprise-level goodwill from the undiscounted cash flow method to the market
value method. Under the market value method, impairment is measured by the
excess of the Company's net book value over its market capitalization. The
Company believes the market value method is preferable because it results in a
more objective measurement of recoverability and better reflects the value of
goodwill as perceived by investors. Since the excess of the Company's net book
value over its market capitalization exceeded the carrying value of the
Company's enterprise-level goodwill, the change in method resulted in an
impairment charge to write-off the remaining carrying value of enterprise-level
goodwill of $463.2 million, or ($8.89) per share, in fiscal year 2000. This
change represents a change in method that is inseparable from a change in
estimate and, accordingly, the effect of the change has been reflected as an
impairment charge in the accompanying 2000 statement of operations. The
Company's bank credit agreements were amended to allow for this change in
accounting for goodwill. Prior to the change, goodwill was amortized using the
straight-line method over not more than 40 years. At adoption of the change, the
accumulated amortization of goodwill was $234.4 million.
2001 Restructuring and Impairment
- ---------------------------------
During the September quarter of 2001, management adopted a plan to further
reduce capacities and focus on value-added products in the global supply chain.
Outside factors, including a continuing flood of low-cost and often subsidized
foreign imports and a slowdown in consumer spending have hit the textile
industry hard. Imports have been growing rapidly for many years, but since 1999,
the volume of imported apparel has grown at five times the rate of consumption,
squeezing out U.S.-made products to the point that four out of five garments
sold in this country today are imported. The major elements of the plan include:
(1) Realign operating capacity. During the September 2001 quarter, the
Company reduced operations by closing a plant in Mexico and moving its
production to an underutilized facility, also in Mexico, and reducing operations
at the facilities in Clarksville, Virginia and Stonewall, Mississippi. The
Company has offered for sale and will further reduce or realign 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 CasualWear segment has offered
for sale and will exit its garment-making business in Aguascalientes, Mexico in
fiscal year 2002. Net sales and net operating loss for this business in fiscal
year 2001 were $61.8 million and $6.3 million, respectively.
(3) Reduce overhead. The Company has analyzed administrative and staff
positions throughout the Company, and identified a number of opportunities to
consolidate and reduce cost. This will result in job reductions in division and
corporate staff areas primarily during the December and March quarters of fiscal
year 2002.
The closings and overhead reductions outlined above will result in the
elimination of approximately 600 jobs in the United States and 2,000 jobs in
Mexico with severance benefits calculated for periods of up to 12 months from
the termination date, depending on the employee's length of service. The Debtors
currently anticipate seeking approval of the Bankruptcy Court for payment by the
Company of severance benefits to employees whose jobs are eliminated. The
Debtors cannot reasonably estimate the ultimate liability that the Bankruptcy
Court will approve.
This plan resulted in a pre-tax charge for restructuring, asset write-downs and
impairment of $67.3 million. The Company will also incur approximately $3.6
million of runout charges related to this restructuring, primarily in the first
two quarters of fiscal 2002. The components of the 2001 restructuring and
impairment charge included the establishment of a $10.0 million reserve for
severance benefit payments, write-downs for impairment of $50.4 million related
to long-lived assets resulting from the restructuring (including $22.5 million
related to foreign currency translation adjustments for the planned liquidation
of Mexican assets) and a reserve of $6.9 million for lease cancellation and
other exit costs expected to be paid through December 2002. Although these lease
cancellation costs have been reserved for, any such amounts due will be treated
as general unsecured claims in the Chapter 11 Cases and, accordingly, the
Company's ultimate liability for these amounts cannot yet be ascertained.
F-12
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
======= =========
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 September 29, 2001, $5.8 million of such costs have been
incurred and charged to operations during the 2001 fiscal year, consisting
primarily of losses on accounts receivable and inventories.
Assets that have been sold, or are held for sale at September 29, 2001 and are
no longer in use, were written down to their estimated fair values less costs of
sale. The Company, through its Real Estate and Purchasing departments, is
actively marketing the affected real estate and equipment. The active plan to
sell the assets includes the preparation of a detailed property marketing
package to be used in working with real estate and used equipment brokers and
other channels, including other textile companies, the local Chamber of Commerce
and Economic Development and the State Economic Development Department. The
Company anticipates that the divestitures of real estate and equipment will be
completed within 18 months from the date of closing. However, the actual timing
of the disposition of these properties may vary due to their locations and
market conditions. The Debtors currently anticipate seeking Bankruptcy Court
approval of certain procedures that would allow them to consummate asset sales
that occur outside of the ordinary course of business under procedures
established by the Bankruptcy Court.
Note D - Investments
The Company's investments in marketable securities at September 29, 2001 and
September 30, 2000 consisted of the following (in millions):
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ---------
2001
- ----
U.S. municipal bonds
(due after five years
through ten years) $ 18.1 $ 0.5 $ - $ 18.6
Equity securities 6.3 0.6 (1.2) 5.7
Money market funds 4.1 - - 4.1
------- ------ ------ ------
$ 28.5 $ 1.1 $ (1.2) $ 28.4
======= ====== ====== ======
2000
- ----
U.S. municipal bonds
(due after five years
through ten years) $ 17.5 $ 0.2 $ (0.4) $ 17.3
Equity securities 5.4 0.9 (0.2) 6.1
Money market funds 4.7 - - 4.7
------- ------ ------ ------
$ 27.6 $ 1.1 $ (0.6) $ 28.1
======= ====== ====== ======
F-13
Proceeds from sales of available-for-sale securities were $30.1 million, $31.8
million and $19.8 million during the 2001, 2000 and 1999 fiscal years,
respectively, and gross purchases were $30.0 million, $24.6 million and $20.7
million, respectively. Gross gains of $1.0 million ($1.2 million in 2000 and
$1.8 million in 1999) and gross losses of $0.1 million ($0.3 million in 2000 and
$0.1 million in 1999) were realized on these sales. At September 29, 2001,
approximately $18.5 million of marketable securities are required to be
maintained in conjunction with insurance programs, compared to $18.6 million at
September 30, 2000.
The following is combined summarized unaudited financial information of the
Company's investments in affiliates that are accounted for on the equity method
(in millions):
2001 2000 1999
--------- -------- --------
Earnings data:
Revenue .......................... $ 390.7 $ 474.8 $ 453.5
Gross profit ..................... 10.0 37.1 27.6
Net income (loss) ................ (19.4) 1.3 0.9
Balance sheet data:
Current assets ................... $ 104.7 $ 109.2 $ 102.2
Noncurrent assets ................ 183.2 206.7 221.0
Current liabilities .............. 70.8 53.6 38.2
Noncurrent liabilities ........... 35.9 61.5 37.2
The earnings data above includes the earnings recorded by the Company's textured
yarn joint venture combined with the income (loss) of other affiliates. Under
the terms of the textured yarn joint venture agreement, the Company is entitled
to receive the first $12.0 million of cash flow for each of the first five years
of operations which began in the June quarter of 1998. Subsequent to this
five-year period, distributions and earnings are to be allocated based on
ownership percentages. The Company purchased raw materials in the amount of
$35.8 million, $50.1 million and $42.1 million from these affiliates during the
2001, 2000 and 1999 fiscal years, respectively.
Note E - Inventories
Inventories are summarized as follows (in thousands):
2001 2000
--------- ---------
Inventories at average cost:
Raw materials ................................ $ 15,617 $ 27,345
Stock in process ............................. 57,130 77,978
Produced goods ............................... 163,686 198,176
Dyes, chemicals and supplies ................. 15,197 22,618
--------- ---------
251,630 326,117
Less excess of average cost over LIFO ........ 34,662 38,148
--------- ---------
Total .................................... $ 216,968 $ 287,969
========= =========
Inventories valued using the LIFO method comprised approximately 90% and 89% of
consolidated inventories at September 29, 2001 and September 30, 2000,
respectively. LIFO quantity liquidations in the 2001, 2000 and 1999 fiscal years
were $4.5 million, $2.0 million and $0.1 million, respectively, after income
taxes.
F-14
Note F - Sundry Payables and Accrued Expenses
Sundry payables and accrued expenses consisted of the following at September 29,
2001 and September 30, 2000 (in thousands):
2001 2000
--------- ---------
Sundry accounts payable .......................... $ 3,922 $ 2,987
Accrued expenses:
Payroll and employee benefits ................ 45,560 57,071
Taxes, other than income taxes ............... 7,287 6,690
Interest ..................................... 5,645 8,116
Other ........................................ 17,310 22,688
--------- ---------
Total .................................... $ 79,724 $ 97,552
========= =========
Note G - Long-term Debt
Long-term debt consisted of the following at September 29, 2001 and September
30, 2000 (in thousands):
2001 2000
---------- ----------
2000 Bank Credit Agreement ............................... $ 476,900 $ -
1995 Bank Credit Agreement ............................... - 345,000
1998 Bank Credit Agreement ............................... - 83,000
Receivables Facility ..................................... 94,638 165,550
Senior Debentures due 2005 ............................... 149,953 149,943
Senior Debentures due 2027 ............................... 149,477 149,387
Other indebtedness with various rates and maturities ..... 3,000 3,570
---------- ----------
873,968 896,450
Less:
Long-term debt classified as current .................... 476,900 30,470
---------- ----------
Total ................................................. $ 397,068 $ 865,980
========== ==========
DIP Financing Facility: As discussed in Note A above, on November 15, 2001, the
Bankruptcy Court approved the DIP Financing Facility on an interim basis. The
Interim DIP Financing Order authorized the Debtors to grant first priority
mortgages, security interests, liens (including priming liens), and
superpriority claims on substantially all of the assets of the Debtors to secure
the DIP Financing Facility. On December 12, 2001, the Bankruptcy Court issued
the Final DIP Financing Order. The Interim DIP Financing Order authorized the
Debtors to enter into the $125.0 million DIP Financing Facility and to grant
superpriority claims and mortgages, security interests, and liens (including
priming liens), on substantially all of the assets of the Debtors to secure the
DIP Financing Facility. Upon the entry of the Final DIP Financing Order, the
remaining $65.0 million, over and above the $125.0 million approved by the
Interim DIP Financing Order of the Bankruptcy Court, became available to the
Debtors. Under the terms of the Final DIP Financing Order, a $190.0 million
revolving credit facility, including up to $50.0 million for postpetition
letters of credit, is available to the Company until the earliest of (i)
November 15, 2003, (ii) the date on which the plan of reorganization becomes
effective, (iii) any material non-compliance with any of the terms of the Final
DIP Financing Order, or (iv) any event of default shall have occurred and be
continuing under the DIP Financing Facility. Amounts borrowed under the DIP
Financing Facility bear interest at the option of the Company at the rate of the
London Interbank Offering Rate ("LIBOR") plus 3.0%, 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% 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 the 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 costs ("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
F-15
certain transactions with affiliates. In addition, proceeds from sales of
certain assets must be used to repay specified borrowings and permanently reduce
the commitment amount under the Facility. At December 12, 2001, $75.0 million
was outstanding and the Company had approximately $115.0 in unused capacity
available under this Facility.
Bank Financing: On December 5, 2000, the Company entered into a secured amended
bank credit agreement ("2000 Bank Credit Agreement") which amended and extended
an earlier unsecured revolving credit facility (the "1995 Bank Credit
Agreement"). The 2000 Bank Credit Agreement consists of a total revolving credit
facility commitment amount of $525.0 million revolving credit facility that
provides for the issuance of letters of credit by the fronting bank in an
outstanding aggregate face amount not to exceed $75.0 million, and provides
short-term overnight borrowings up to $30.0 million, provided that at no time
shall the aggregate principal amount of revolving loans and short-term
borrowings, together with the aggregate face amount of such letters of credit
issued, exceed 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 pays 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 its
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 on November 15, 2001. As a result of the
noncompliance with such financial covenants, the Company has classified all of
the 2000 Bank Credit Agreement debt as current. 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 November, 1998, the Company established a $105 million credit facility with a
group of banks ("1998 Bank Credit Agreement"). Upon the establishment of the
2000 Bank Credit Agreement, all loans under the 1998 Bank Credit Agreement were
repaid and this facility was terminated.
Receivables-Backed Financing: 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 Debentures: In August 1997, the Company issued, through a public
offering, $150.0 million principal amount of 7.25% unsecured senior debentures
due August 1, 2027 ("2027 Notes"). The securities were issued under an indenture
(the "Indenture") dated as of September 1, 1995 pursuant to a shelf registration
filed with the Securities and Exchange Commission. The Indenture contains
covenants limiting certain liens and sale and leaseback transactions. The 2027
Notes were issued at a discount to yield 7.335%. Interest on the 2027 Notes is
payable semiannually on February 1 and August 1. The 2027 Notes provide that
they will be redeemable as a whole or in part at the option of the Company at
any time on or after August 2, 2007 at a price equal to the greater of 100% of
the principal amount redeemed or the sum of the present values of the remaining
scheduled payments of principal and interest thereon. The 2027 Notes will also
be redeemable at the option of the holders thereof on August 1, 2007 in amounts
at 100% of their principal amount. The Company also has outstanding $150.0
million principal amount of 7.25% unsecured senior debentures due September 15,
2005 ("2005 Notes") under the Indenture. The 2005 Notes were issued at a
discount to yield 7.26%. Interest on the 2005 Notes is payable semiannually on
March 15 and September 15, and the debentures are not redeemable prior to
maturity and are not entitled to any sinking fund. 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.
As of September 29, 2001, aggregate maturities of long-term debt for each of the
next five years based on the contractual terms of the instruments prior to the
filing of the Chapter 11 Cases is as follows: $476.9 million in 2002, $94.6
million in 2003, $0.0 million in 2004, $150.0 million in 2005 and $0.0 million
in 2006.
See Note Q for information on financial instruments utilized to manage interest
rate exposure.
F-16
Note H - Leases
As of September 29, 2001, minimum commitments for rental expenditures under
noncancellable operating leases were as follows (in thousands):
2002 .................................... $15,302
2003 .................................... 13,203
2004 .................................... 4,447
2005 .................................... 3,085
2006 .................................... 2,463
Later years ............................. 7,555
-------
Total minimum lease payments ........ $46,055
=======
Approximately 25% of the operating leases pertain to real estate. The remainder
covers a variety of machinery and equipment. Certain operating leases,
principally for office facilities, contain escalation clauses for increases in
operating costs, property taxes and insurance. For the 2001, 2000 and 1999
fiscal years, rental expense for all operating leases was $20.8 million, $22.4
million and $22.0 million, respectively. Sublease income was not material in any
of these years.
As described in Note A, as debtors-in-possession, the Debtors have the right to
assume or reject executory contracts and leases. The Debtors are in the process
of reviewing their executory contracts and 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.
Note I - Shareholders' Equity
Shares of the Company's voting and nonvoting common stock, par value $.01 per
share, authorized, issued and outstanding at September 29, 2001 and September
30, 2000, respectively, were as follows:
Shares Shares Shares
September 29, 2001 Authorized Issued Outstanding
------------------ ----------- ---------- -----------
Common Stock .................... 200,000,000 69,548,325 53,165,627
Nonvoting Common Stock .......... 15,000,000 454,301 454,301
----------- ---------- ----------
215,000,000 70,002,626 53,619,928
=========== ========== ==========
Shares Shares Shares
September 30, 2000 Authorized Issued Outstanding
------------------ ----------- ---------- -----------
Common Stock .................... 200,000,000 68,410,248 52,080,719
Nonvoting Common Stock .......... 15,000,000 454,301 454,301
----------- ---------- ----------
215,000,000 68,864,549 52,535,020
=========== ========== ==========
All shares have similar rights and privileges except for voting rights. Holders
of Nonvoting Common Stock are entitled, subject to certain limitations, to
exchange such shares for Common Stock.
On September 29, 2001 and September 30, 2000, the Company had 30,000,000 shares
of preferred stock authorized, par value $.01 per share, none of which were
issued and outstanding. On December 3, 1997, the Board of Directors of the
Company approved the adoption of a Stockholder Rights Plan. Under the
Stockholder Rights Plan, Preferred Stock Purchase Rights were distributed as a
dividend at the rate of one Right for each share of Common Stock held as of the
close of business on December 15, 1997. Each Right will entitle a stockholder to
a Unit consisting of a portion of a newly issued share of Junior Participating
Preferred Stock of the Company, at an exercise price of $50.00 per Unit, subject
to adjustment from time to time to prevent dilution. The Rights will not
initially be exercisable. The Rights will become exercisable only if another
person acquires beneficial ownership of 15 percent or more of the Company's
voting Common Stock or commences a tender offer that would result in such person
beneficially owning 15 percent or more of
F-17
the Company's voting Common Stock. If any person becomes the beneficial owner of
15 percent or more of the Company's voting Common Stock, or if a holder of 15
percent or more of the Company's voting Common Stock engages in certain other
acquisition transactions, then each outstanding Right (other than Rights owned
by such 15 percent stockholder) will entitle its holder to purchase, at the
Right's then-current exercise price, units of the Company's Junior Participating
Preferred Stock having a market value equal to twice the then-current exercise
price. The Rights expire on December 4, 2007, unless earlier redeemed. The
Company may generally redeem the Rights at $.01 per right at any time until the
tenth day following public announcement that a person has acquired 15 percent or
more of the Company's voting Common Stock.
During the 2001 fiscal year, outstanding shares changed due to (i) the issuance
of 10,334 shares to settle Performance Unit awards, (ii) the issuance of 759,290
new shares of restricted nonvested stock, (iii) the forfeiture of 150,259 shares
of restricted nonvested stock, and (iv) the issuance of 465,543 vested shares
related to the acquisition of the Nano-Tex investment. Under its agreement to
purchase a controlling interest in Nano-Tex, the Company is obligated to issue
approximately 806,000 additional shares of the Company's Common Stock on or
before November 4, 2002.
The components of accumulated other comprehensive income (loss), net of related
tax, at September 29, 2001 and September 30, 2000 are as follows (in thousands):
2001 2000
--------- ---------
Foreign currency translation adjustments ....... $ (434) $(22,727)
Net gain (loss) on derivative instruments
qualifying as cash flow hedges ................ (1,373) --
Unrealized gains (losses) on securities ........ (53) 275
-------- --------
$ (1,860) $(22,452)
======== ========
On October 1, 2000, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (See Note B). As part of the 2001 Restructuring Plan, the Company
recorded a provision for restructuring and impairments of $22.5 million related
to foreign currency translation adjustments for the planned liquidation of
Mexican assets (see Note C).
Note J - Other Expense (Income) - Net
Other expense (income) - net consisted of the following (in thousands):
2001 2000 1999
--------- --------- ----------
Gain on sale of assets - net ..... $ (5,165) $ (990) $ (4,328)
Provision for environmental
contingencies .................. 1,287 -- --
Translation gain on liquidation of
Canadian subsidiary ............. -- (5,507) --
Interest income .................. (11,801) (5,527) (3,523)
Other ............................ (27) (19) (17)
-------- -------- --------
Total ....................... $(15,706) $(12,043) $ (7,868)
======== ======== ========
Net gain on sale of assets in fiscal year 2001 resulted from the sale of
miscellaneous assets in the normal course of business and certain corporate
assets. The Company recorded a charge of $1.3 million for environmental
contingencies (see Note O). Interest income for the 2001 fiscal year includes
$6.3 million related to refunds of value-added taxes in Mexico. In November
1998, the Company sold the remaining assets of the Burlington Madison Yarn
division, including manufacturing facilities located in Ranlo and St. Pauls,
North Carolina, for a pre-tax gain of $2.7 million. Net sales of this division
were $58.4 million during the 1998 fiscal year, and net operating income before
interest and taxes was $1.3 million during the same period. Also during fiscal
year 1999, the Company sold two idle plant facilities and recorded pre-tax gains
on the sales of $1.6 million.
F-18
Note K - Income Taxes
The sources of income (loss) before income taxes were as follows (in thousands):
2001 2000 1999
---------- ---------- ----------
United States .........................
Foreign ............................... $ (87,066) $(544,560) $ (48,168)
(31,669) (4,088) 819
Total --------- --------- ---------
$(118,735) $(548,648) $ (47,349)
========= ========= =========
Income tax expense (benefit) consisted of (in thousands):
2001 2000 1999
---------- ---------- ----------
Current:
United States .................... $ (7,657) $ 7,708 $ 3,923
Foreign .......................... 5,616 2,296 240
--------- --------- ---------
Total current (2,041) 10,004 4,163
Deferred:
United States .................... (21,328) (29,798) (20,149)
Foreign .......................... (4,265) (1,882) 131
--------- --------- ---------
Total deferred .............. (25,593) (31,680) (20,018)
--------- --------- ---------
$ (27,634) $ (21,676) $ (15,855)
========= ========= =========
Income tax expense (benefit) is different from the amount computed by applying
the U.S. federal income tax rate of 35% to income (loss) before income taxes as
follows (in thousands):
2001 2000 1999
---------- ---------- ----------
U.S. tax at statutory rate ................... $ (41,557) $(192,027) $ (16,572)
Goodwill charges with no tax benefits ........ -- 167,771 7,318
State income taxes, net of federal effect .... (3,154) (7,116) (7,349)
Change in valuation allowance ................ 2,342 1,106 4,000
Taxes on liquidation of Canadian
subsidiary previously considered
permanently reinvested ...................... -- 5,784 --
Restructuring losses in Mexico with no tax
benefits .................................... 10,626 2,774 --
Foreign Sales Corporation .................... (120) (733) (3,166)
Other foreign tax items ...................... 2,434 (354) (1,597)
Other ........................................ 1,795 1,119 1,511
--------- --------- ---------
$ (27,634) $ (21,676) $ (15,855)
========= ========= =========
At September 29, 2001, the Company had $81.5 million of deferred tax assets and
$166.7 million of deferred tax liabilities that have been netted for
presentation purposes. At September 30, 2000, the Company had $58.4 million of
deferred tax assets and $170.6 million of deferred tax liabilities that have
been netted for presentation purposes. Deferred income taxes include the tax
impact of net operating loss carryforwards. Realization of these assets is
contingent on future taxable earnings in the U.S. federal and state tax
jurisdictions. It is management's opinion that it is more likely than not that
some portion of the U.S. state deferred tax assets will not be realized, and in
accordance with Statement of Accounting Standards No. 109, "Accounting for
Income Taxes," a valuation allowance has been established. Operating loss and
tax credit carryforwards with related tax benefits of $38.7 million (net of $7.4
million valuation allowance) at September 29, 2001, and $6.0 million (net of
$5.1 million valuation allowance) at September 30, 2000, expire from 2003 to
2021. Of these carryforwards, approximately $28.5 million expire in 2021.
F-19
Net deferred tax liabilities at September 29, 2001 and September 30, 2000
consisted of the following (in thousands):
2001 2000
-------------------- --------------------
Current Noncurrent Current Noncurrent
-------- ---------- -------- ----------
Fixed assets ........... $ -- $ 77,426 $ -- $ 83,026
Inventory valuation .... 46,817 -- 52,044 --
Accruals, allowances
and other ............ (14,998) 14,585 (25,003) 8,166
Tax credit and
operating loss
carryforwards ........ -- (46,113) (5,587) (5,533)
Valuation allowance .... -- 7,448 1,106 4,000
-------- -------- -------- ---------
Total ............. $ 31,819 $ 53,346 $ 22,560 $ 89,659
======== ======== ======== =========
Note L - Supplemental Disclosures of Cash Flow Information
(in thousands) 2001 2000 1999
-------- -------- --------
Interest paid - net ........ $ 72,641 $ 55,675 $ 57,835
======== ======== ========
Income taxes paid - net .... $ 3,751 $ 7,259 $ 2,811
======== ======== ========
Note M - Retirement and Other Postretirement Benefits
The Company's U.S. defined benefit pension plan provides benefits to most of its
U.S. employees and certain employees in foreign countries, based on their
compensation over their working careers. The funding policy for this plan is to
contribute annually an amount based on the recommendation of the plan's actuary.
Employees also contribute a percentage of their compensation. Participants
become fully vested at the end of five years of service. Benefits consist of a
pension payable for life following termination, or, at the option of the
participant, a one-time lump sum cash payment equal to the discounted present
value of the pension, determined under the provisions of the plan and applicable
law.
In addition, the Company has a health care plan for employees electing early
retirement between the ages of 55 and 65 and a Medicare supplement plan for
retired employees age 65 and older. These plans are available to most of the
Company's U.S. employees who elect participation. The Company also has a life
insurance plan that was closed to new members in 1973. The Company's policy is
to fund the cost of the medical plans and the life insurance plan as expenses
are incurred. The cost of postretirement benefits are accrued over the
employees' service lives.
F-20
Postretirement
Pension Benefits Benefits
------------------- ----------------------
2001 2000 2001 2000
--------- --------- ---------- -----------
(in thousands)
Change in benefit obligations:
Balance at beginning of year ....... $(288,270) $(284,167) $ (15,631) $ (16,754)
Service cost ....................... (5,466) (6,254) (414) (311)
Interest cost ...................... (21,018) (21,560) (1,890) (1,298)
Contributions by plan participants.. (8,250) (9,479) (6,367) (6,635)
Benefits paid ...................... 41,555 31,052 10,232 9,691
Actuarial gains (losses) ........... (1,113) (3,359) (4,260) (1,261)
Curtailment gains (losses) ......... (1,108) (4,946) 149 937
Settlements ........................ 31,109 10,443 -- --
--------- --------- --------- ---------
Balance at end of year ............. (252,561) (288,270) (18,181) (15,631)
--------- --------- --------- ---------
Change in fair value of plan assets:
Balance at beginning of year ....... 326,628 318,900 1,916 2,175
Actual return on plan assets, net
of plan expenses .................. (34,020) 34,744 (542) (501)
Contributions by employer .......... 18,000 5,000 4,432 3,298
Contributions by plan participants.. 8,250 9,479 6,367 6,635
Benefits paid ...................... (41,555) (31,052) (10,232) (9,691)
Settlements ........................ (31,109) (10,443) -- --
--------- --------- --------- ---------
Balance at end of year ............. 246,194 326,628 1,941 1,916
--------- --------- --------- ---------
Funded status ........................ (6,367) 38,358 (16,240) (13,715)
Unrecognized net (gain) loss ......... 52,860 (2,078) 12,132 9,208
--------- --------- --------- ---------
Net amount recognized in the
consolidated balance sheet ......... $ 46,493 $ 36,280 $ (4,108) $ (4,507)
========= ========= ========= =========
Pension plan and postretirement benefit plan assets consist primarily of index
funds holding listed stocks and bonds and short-term investment funds.
The fiscal year 2001 pension plan curtailment loss was recognized as a component
of the 2001 restructuring provision. The fiscal year 2000 pension plan
curtailment loss was not recognized in earnings but rather reduced the
unrecognized net gain in that plan in accordance with SFAS No. 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits." The curtailment gains in the postretirement benefit
plans resulting from the 2001 and 2000 restructuring plans were not recognized
in earnings but rather reduced the unrecognized net losses in those plans in
accordance with SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." Components of net benefit expense and assumptions at the
fiscal year end measurement dates for the plans were as follows for the 2001,
2000 and 1999 fiscal years:
F-21
Postretirement
Pension Benefits Benefits
------------------------ ----------------------------
2001 2000 1999 2001 2000 1999
-------- ------- ------- -------- -------- ---------
(dollar amounts in thousands)
Service cost ................ $ 5,466 $ 6,254 $ 7,832 $ 414 $ 311 $ 379
Interest cost ............... 21,018 21,560 21,238 1,890 1,298 1,305
Expected return on plan
assets, net of plan
expenses ................... (23,328) (26,108) (26,399) 526 614 413
Amortization:
Unrecognized prior
service cost .............. -- 125 138 -- -- --
Unrecognized losses ........ 112 -- 99 1,203 681 763
-------- -------- -------- -------- -------- --------
Net expense ................. 3,268 $ 1,831 $ 2,908 $ 4,033 $ 2,904 $ 2,860
======== ======== ======== ======== ======== ========
Discount rate ............... 8.0% 8.0% 7.75% 8.0% 8.0% 7.75%
Long-term rate of return
on plan assets ............. 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Long-term rate of
compensation increase ...... 3.75% 3.75% 3.75% N/A N/A N/A
For the postretirement benefit plans, the assumed annual rate of increase in the
Company's net per capita health care expenses was 7% and 6% in the 2001 and 2000
fiscal years, respectively. This rate was assumed to remain at 7% after fiscal
year 2001. A one percentage point increase in the assumed health care cost trend
rate would have increased the Accumulated Projected Benefit Obligation (APBO) by
$1.1 million at September 29, 2001 and increased the aggregate service and
interest cost components of postretirement benefit expense for fiscal year 2001
by $0.2 million. A one percentage point decrease in the assumed health care cost
trend rate would have decreased the APBO by $1.0 million at September 29, 2001
and decreased the aggregate service and interest cost components of
postretirement benefit expense for fiscal year 2001 by $0.2 million. At
September 29, 2001, the plan for early retirees and the life insurance plan are
underfunded with an APBO of $16.4 million and $3.6 million, respectively, and
plan assets of $0.2 million and $1.4 million, respectively. At September 30,
2000, the plan for early retirees and the life insurance plan are underfunded
with an APBO of $13.2 million and $3.7 million, respectively, and plan assets of
$0.2 million and $1.7 million, respectively.
Note N - Defined Contribution Plans
Effective January 1, 1999, the Company instituted a 401(k) Savings Plan for all
U.S. employees (and certain employees in foreign countries). The Company
discontinued making contributions to its Employee Stock Ownership Plan ("ESOP")
after the 1998 plan year, and the ESOP was merged into the 401(k) Savings Plan.
The 401(k) Savings Plan provides for Company contributions of cash and/or Common
Stock on a sliding scale based on the level of the employee's contribution.
During the 2001, 2000 and 1999 fiscal years, cash contributions of $8.3, $9.2
million and $9.3 million, respectively, were made to the 401(k) Savings Plan and
charged to operations.
Note O - Contingencies
The Company and its subsidiaries have sundry claims and other lawsuits pending
against them and also have certain guarantees of the debt of equity investees
($14.3 million) that were made in the ordinary course of business. The Company
makes provisions in its financial statements for litigation based on the
Company's assessment of the possible outcome of such litigation, including the
possibility of settlement.
The Company and certain of its current and former direct and indirect corporate
predecessors, subsidiaries and divisions have been identified by the United
States Environmental Protection Agency, by the environmental agencies in several
states and
F-22
by private parties as potentially responsible parties ("PRPs") at 22 hazardous
waste disposal sites under the Comprehensive Environmental Response Compensation
and Liability Act of 1980 ("Superfund") and comparable state laws and, as such,
may be liable for the cost of cleanup and other remedial activities at these
sites. With respect to certain of these sites, other persons have also been
identified as potentially responsible parties, and in such circumstances the
responsibility for cleanup and other remedial activities is typically shared
among such parties based on an allocation formula. The Company is currently
involved in a remedial investigation and/or environmental cleanups at 21 other
sites under federal or state law. The Company may also be liable for
environmental contingencies at 25 other sites pursuant to contractual
obligations resulting from divested property or with respect to environmental
cleanups that may be identified in the future.
The Company has established the following aggregate reserves in its financial
statements for such environmental liabilities, estimated to be paid primarily
over the next five years. The provision for environmental liabilities is based
on the Company's estimate of allocations of liability among potentially
responsible parties (and the likelihood of contribution by such parties),
information concerning the scope of contamination, estimated remediation costs,
estimated transaction costs and other factors.
(In millions)
-------------
Balance at October 3, 1998 ................. $ 4.7
Payments ................................... (1.2)
-------
Balance at October 2, 1999 ................. 3.5
Adjustments ................................ 0.2
Payments ................................... (0.5)
-------
Balance at September 30, 2000 .............. 3.2
Adjustments ................................ 1.3
Payments ................................... (0.4)
-------
Balance at September 29, 2001 .............. $ 4.1
=======
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.
Note P - Segment and Other Information
The Company is one of the largest and most diversified manufacturers of softgood
products in the world. It is a leading developer, marketer and manufacturer of
fabrics and other textile products utilized in a wide variety of apparel and
interior furnishings end uses.
The Company has four reportable segments that are based on its internal
organizational structure: PerformanceWear, CasualWear, Interior Furnishings and
Carpet. Beginning in the first quarter of the 2001 fiscal year, the Company
changed its organizational structure so that the Carpet business, formerly part
of the Interior Furnishings segment, reports to the chief operating decision
maker. This represents a change in the Company's segment reporting, and the
Company accordingly has restated its segment information where appropriate to
reflect this change. The PerformanceWear segment includes woven synthetic
fabrics, worsted and worsted wool blend fabrics and apparel. The CasualWear
segment consists of denim and woven cotton and cotton blend fabrics and apparel.
Products included in the Interior Furnishings segment are fabrics for
upholstery, window coverings, bedroom ensembles, and mattress ticking, and,
through mid-2001, bath, area and accent rugs. The Carpet segment consists of
tufted synthetic carpet and carpet tiles for commercial uses. The "Other"
category includes transportation and miscellaneous ancillary operations.
F-23
Sales, income (loss) before income taxes and total assets for the Company's
reportable segments are presented below (in millions). 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 accounting policies of the reportable segments
are the same as those described in the summary of significant accounting
policies. Intersegment sales and transfers are recorded at cost and are
primarily related to transportation operations included in the "Other" category.
2001 2000 1999
---------- ---------- ----------
Net Sales
PerformanceWear ............. $ 473.4 $ 587.3 $ 611.7
CasualWear .................. 257.5 242.5 257.1
Interior Furnishings ........ 371.3 496.5 485.4
Carpet ...................... 304.1 295.8 272.6
Other ....................... 23.5 34.1 36.0
---------- ---------- ----------
1,429.8 1,656.2 1,662.8
Less:
Intersegment sales ......... (25.9) (36.0) (11.1)
---------- ---------- ----------
$ 1,403.9 $ 1,620.2 $ 1,651.7
========== ========== ==========
Income (Loss) before
Income Taxes
PerformanceWear ............. $ (2.8) $ 13.9 $ 18.4
CasualWear .................. (12.9) (8.3) (2.9)
Interior Furnishings ........ (17.1) 12.1 29.1
Carpet ...................... 56.1 51.2 48.9
Other ....................... (1.5) (2.1) 1.9
---------- ---------- ----------
Total reportable
segments ................ 21.8 66.8 95.4
Corporate expenses .......... (12.9) (14.2) (12.3)
Goodwill amortization ....... -- (16.7) (17.8)
Write-off of goodwill ....... -- (463.2) --
Restructuring and
impairment charges ......... (72.1) (67.0) (62.1)
Interest expense ............ (71.2) (66.3) (58.4)
Other (expense)
income - net .............. 15.7 12.0 7.9
---------- ---------- ----------
$ (118.7) $ (548.6) $ (47.3)
========== ========== ==========
Total Assets
PerformanceWear ............. $ 430.8 $ 528.2 $ 542.6
CasualWear .................. 244.5 303.8 301.3
Interior Furnishings ........ 228.3 301.0 311.5
Carpet ...................... 125.5 127.2 128.9
Other ....................... 45.2 54.6 66.9
Corporate (including
goodwill) .................. 110.7 36.8 525.1
---------- ---------- ----------
$ 1,185.0 $ 1,351.6 $ 1,876.3
========== ========== ==========
F-24
The following items are included in income (loss) before income taxes:
2001 2000 1999
---------- ---------- ----------
Equity in Income (Loss) of
Equity Method Investees
PerformanceWear .......... $ 1.2 $ 11.1 $ 9.4
CasualWear ............... (0.6) $ (0.8) $ (3.0)
Depreciation and Amortization
PerformanceWear .......... $ 28.1 $ 28.1 $ 25.7
CasualWear ............... 13.3 13.5 12.7
Interior Furnishings ..... 16.0 17.7 18.0
Carpet ................... 6.0 5.7 5.5
Other .................... 0.3 0.4 0.5
Corporate ................ 1.3 1.7 2.4
--------- --------- ---------
$ 65.0 $ 67.1 $ 64.8
========= ========= =========
The following items are included in the determination of total assets:
2001 2000 1999
---------- ---------- ----------
Investments in Equity
Method Investees
Performance Wear ......... $ 7.1 $ 11.6 $ 10.9
CasualWear ............... 9.4 $ 7.0 $ 16.4
Capital Expenditures
PerformanceWear .......... $ 7.5 $ 42.9 $ 67.3
CasualWear ............... 2.8 11.7 57.3
Interior Furnishings ..... 5.6 11.3 11.2
Carpet ................... 8.8 6.5 5.1
Corporate ................ 0.1 1.4 0.6
---------- ---------- ----------
$ 24.8 $ 73.8 $ 141.5
========== ========== ==========
The Company primarily markets its products to approximately 7,500 customers in
the United States. The Company also markets its products to customers in Canada,
Mexico, Central and South America, Europe, Africa, Australia, and Asian
countries. For the 2001 fiscal year, no single customer represented more than
10% of the Company's net sales, and the Company's 10 largest customers accounted
for approximately 28% of net sales. The following table presents sales and
long-lived asset information by geographic area as of and for the fiscal year
ended 2001, 2000, and 1999 (in millions). The geographic sales dollars are
determined generally based on the ultimate destination of the product.
2001 2000 1999
---------- ---------- ----------
Net Sales:
United States ............ $ 1,242.3 $ 1,441.1 $ 1,415.6
Foreign .................. 161.6 $ 179.1 $ 236.1
Long-lived Assets:
United States ............ $ 459.2 $ 516.7 $ 548.3
Foreign .................. $ 78.0 $ 95.2 $ 92.9
Note Q - Derivative and Financial Instruments
The Company utilizes interest rate agreements and foreign exchange contracts to
manage interest rate and foreign currency exposures. The principal objective of
such contracts is to minimize the risks and/or costs associated with financial
and global operating activities. The Company does not utilize financial
instruments for trading or other speculative purposes. The
F-25
counterparties to these contractual arrangements are a diverse group of major
financial institutions with which the Company also has other financial
relationships. These counterparties expose the Company to the risk of credit
loss in the event of nonperformance. However, the Company does not anticipate
nonperformance by the other parties, and no material loss would be expected from
their nonperformance.
Fair Value Hedging Strategy
The Company enters into forward exchange contracts to hedge certain firm
commitments denominated in foreign currencies. The purpose of the Company's
foreign currency hedging activities is to protect the Company from risk that the
eventual U.S. dollar cash flows from the sale of products to international
customers will be adversely affected by changes in the exchange rates.
Cash Flow Hedging Strategy
The Company has entered into interest rate swap and cap agreements that
effectively convert a portion of its floating-rate debt to a fixed-rate basis,
thus reducing the impact of interest-rate changes on future interest expense. To
protect against the reduction in value of forecasted foreign currency cash flows
resulting from export sales, the Company has instituted a foreign currency cash
flow hedging program. The Company hedges portions of its forecasted revenue and
subsequent cash flows denominated in foreign currencies with forward contracts
of up to six months. When the dollar strengthens significantly against the
foreign currencies, the decline in value of future foreign currency revenue and
cash flows is offset by gains in the value of the forward contracts designated
as hedges. Conversely, when the dollar weakens, the increase in the value of
future foreign currency cash flows is offset by losses in the value of the
forward contracts.
FAIR VALUE OF FINANCIAL INSTRUMENTS: It is estimated that the carrying value of
the Company's financial instruments approximated fair value at September 29,
2001 and September 30, 2000, unless indicated otherwise below. The following
methods and assumptions were used in estimating the fair values of financial
instruments:
Cash and Cash Equivalents: The carrying amount approximates fair value because
of the short maturity of those instruments.
Short-term Investments: The fair values are estimated based on quoted market
prices for these or similar instruments.
Long-term Investments and Receivables: The fair values are estimated based on
one of the following methods: (i) quoted market prices; (ii) current rates for
similar issues; (iii) recent transactions for similar issues; or (iv) present
value of expected cash flows.
Short-term and Long-term Debt: The fair value is estimated by obtaining quotes
from brokers or based on current rates offered for similar debt. At September
29, 2001, long-term debt with a carrying value of $874.0 million had an
estimated fair value of $649.5 million. At September 30, 2000, long-term debt
with a carrying value of $896.5 million had an estimated fair value of $760.3
million. Subsequent to September 29, 2001, the estimated fair value of the
Company's long-term debt declined to approximately $564.1 million as of November
14, 2001 prior to the filing of the Chapter 11 Cases.
Interest Rate Instruments: The fair values of interest rate instruments are
estimated by obtaining quotes from brokers and are the estimated amounts that
the Company would receive or pay to terminate the agreements at the reporting
date, taking into account current interest rates and the current
creditworthiness of the counterparties. At September 29, 2001, the fair value
carrying amounts of these instruments was a $2.6 million liability.
As a result of the filing of the Chapter 11 Cases on November 15, 2001, the
Company was in default under its interest rate swap agreements. The parties to
these contracts agreed to terminate the swap agreements as of that date, and
concurrent with such terminations the amount outstanding under the 2000 Bank
Credit Agreement will likely be increased by the fair value of the swaps,
approximately $2.5 million.
F-26
Foreign Currency Contracts: The fair values of foreign currency contracts (used
for hedging purposes) are estimated by obtaining quotes from brokers. At
September 29, 2001, the fair value carrying amount related to foreign currency
contracts in the consolidated balance sheet was not material.
During the 2001 fiscal year, the Company recognized a gain of $0.1 million
related to the portion of the designated cash flow hedging instruments excluded
from the assessment of hedge effectiveness, included in Other Expense (Income) -
Net in the statement of operations. At September 29, 2001, the Company expects
to reclassify $1.4 million of net losses on derivative instruments from
accumulated other comprehensive income to earnings (loss) during the next twelve
months due to actual export sales, the payment of variable interest associated
with the floating rate debt, and the termination of swap contracts discussed
above. The amount of fair value and cash flow hedge ineffectiveness in fiscal
year 2001 was not material.
Note R - Stock-Based Compensation
Under the Company's various Equity Incentive Plans, the Company is authorized to
award restricted nonvested shares of common stock, options to purchase common
stock, or Performance Unit/Share awards that are dependent upon achievement of
specified performance goals and are payable in common stock and cash. Stock
options granted generally have a maximum term of 10 years.
On June 5, 2000, 1,384,943 Burlington employee stock options were exchanged for
409,266 shares of Burlington restricted nonvested stock with a fair value of
$3.94 per share. In addition, 759,290 and 50,000 shares of Burlington restricted
nonvested stock were granted during the 2001 and 2000 fiscal years,
respectively, with weighted-average grant date fair values of $1.52 and $3.81.
Total compensation cost charged to income related to Burlington nonvested
restricted share and Performance Unit awards was $0.8 million, $0.2 million and
$0.0 million for the 2001, 2000 and 1999 fiscal years, respectively. Under the
Burlington Equity Incentive Plans at September 29, 2001, 1,225,713 shares of
Burlington common stock remain available to settle additional future awards.
A summary of Burlington stock option activity and related information follows:
2001 2000 1999
-------------------- -------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
------- --------- ------- --------- ------- ----------
Outstanding at
beginning of year .......... 4,532 $ 8.15 4,508 $ 11.21 3,689 $ 11.79
Granted ..................... 22 1.56 1,821 3.78 1,093 9.15
Exercised ................... - - - - - -
Forfeited/exchanged ......... (559) 7.97 (1,797) 11.40 (274) 10.83
------- ------- -------
Outstanding at
end of year ................ 3,994 $ 8.13 4,532 $ 8.15 4,508 $ 11.21
======= ======= =======
Exercisable at end
of year .................... 2,827 $ 9.55 2,183 $ 11.01 3,313 $ 11.58
Per share weighted-average
fair value of options
granted during the year .... $ 1.13 $ 2.47 $ 5.47
F-27
The following table summarizes information about Burlington stock options
outstanding at September 29, 2001:
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted- Weighted-
Range of Weighted-Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices (000) Contractual Life Price (000) Price
- --------------- -------- ---------------- --------- -------- --------
$ 1.31 to 5.38 1,525 8.2 $ 3.72 572 $ 3.74
$ 7.19 to 11.00 1,206 5.4 $ 9.39 992 $ 9.45
$11.63 to 21.93 1,263 3.0 $12.27 1,263 $12.27
------ ------
3,994 5.7 $ 8.13 2,827 $ 9.55
====== ======
In November 1999, the Company acquired a controlling interest in a
privately-held company called AvantGarb, LLC (now known as Nano-Tex, LLC), a
California limited liability company engaged in developing novel chemistry for
fabric applications. Prior thereto, Burlington had made a preliminary investment
in AvantGarb in order to explore the commercial application of this technology.
In connection with its investment, Burlington has responsibility for the
marketing and licensing of the technology developed by Nano-Tex and has an
exclusive right to use these developments on products Burlington produces. The
Board of Directors of Nano-Tex has adopted an equity incentive plan pursuant to
which executive officers and members of senior management of the Company were
granted Nano-Tex stock options and restricted membership units during fiscal
year 2001 and 2000. The restricted awards (33,500 in 2001 and 120,800 in 2000)
were purchased by the recipients for $2.25 per unit with such purchase price
paid by a promissory note.
A summary of Nano-Tex stock option activity and related information follows:
2001 2000
--------------------- ------------------
Weighted- Weighted-
Average Average
Options Exercise Options Exercise
(000) Price (000) Price
-------- ---------- ------- ---------
Outstanding at
beginning of year .......... 1,189 $ 2.17 -- $ -
Granted ..................... 285 3.48 1,189 2.17
Exercised ................... - - - -
Forfeited/exchanged ......... - - - -
------ ------
Outstanding at
end of year ................ 1,474 $ 2.42 1,189 $ 2.17
------ ------
Exercisable at end
of year .................... 397 $ 2.16 - $ -
Per share weighted-average
fair value of options
granted during the year .... $1.10 $ 0.90
F-28
The following table summarizes information about Nano-Tex stock options
outstanding at September 29, 2001:
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted- Weighted-
Range of Weighted-Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices (000) Contractual Life Price (000) Price
- --------------- -------- ---------------- --------- -------- --------
$ 0.60 60 8.3 $ 0.60 21 $ 0.60
$ 2.25 1,320 8.7 $ 2.25 376 $ 2.25
$ 6.00 94 9.9 $ 6.00 - $ 6.00
------ ------
1,474 8.8 $ 2.42 397 $ 2.16
====== ======
The Company has elected to follow Accounting Principles Board (APB) Opinion No.
25, "Accounting for Stock Issued to Employees." Under APB 25, no compensation
expense is recognized for employee stock options because the exercise price of
the options equals the market price of the underlying stock on the date of
grant. The following pro forma information regarding net income (loss) and net
income (loss) per share is required when APB 25 accounting is elected, and was
determined as if the Company had accounted for all employee stock options under
the fair value method of SFAS No. 123, "Accounting for Stock-Based
Compensation." The fair values for Burlington options were estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rates of 5.05%, 6.11% and 4.82%
for fiscal year 2001, 2000 and 1999, respectively; volatility factors of the
expected market price of the Burlington common stock of 0.60 for 2001, 0.57 for
2000 and 0.49 for 1999; dividend yields of 0%; and a weighted-average expected
life of the options of eight years. The fair values for Nano-Tex options were
estimated at the date of grant using the "minimum value" method for nonpublic
companies with the following weighted-average assumptions: risk-free interest
rates of 4.86% and 6.74% for fiscal year 2001 and 2000, respectively; dividend
yields of 0%; and a weighted-average expected life of the options of eight
years. For purposes of pro forma disclosures, the estimated fair values of the
options are amortized to expense over the option's vesting periods (in thousands
except for per share information):
2001 2000 1999
--------- --------- -----------
Net income (loss):
As reported .................... $ (91,101) $ (526,972) $ (31,494)
Pro forma ...................... $ (92,185) $ (529,187) $ (33,543)
Diluted earnings (loss) per share:
As reported .................... $ (1.73) $ (10.12) $ (0.57)
Pro forma ...................... $ (1.75) $ (10.16) $ (0.61)
During the initial phase-in period, as required by SFAS No. 123, the pro forma
amounts were determined based on stock options granted after the 1995 fiscal
year only. Therefore, the pro forma amounts for compensation cost may not be
indicative of the effects on pro forma net income and pro forma net income per
share for future years.
Note S - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands):
2001 2000 1999
--------- -------- ----------
Numerator:
Net loss ........................ $ (91,101) $(526,972) $ (31,494)
========= ========= =========
Denominator:
Denominator for basic and diluted
earnings per share ............. 52,569 52,080 54,978
========= ========= =========
F-29
For the 2001, 2000 and 1999 fiscal years, weighted-average shares of 263,223,
113,660 and 34,877, respectively, that could potentially dilute basic earnings
per share in the future were not included in the diluted earnings per share
computation because they would have been antidilutive.
Note T - Quarterly Results of Operations (unaudited)
The Company's unaudited quarterly results of operations are presented below (in
thousands, except for per share data).
Fiscal 2001 Quarters (a)
December March June September
-------- ----- ---- ---------
Net sales ...................................... $ 364,314 $ 361,412 $ 351,123 $ 327,056
Cost of sales .................................. 335,532 322,812 308,355 305,995
Income tax (expense) benefit ................... 5,821 2,232 (536) 20,117
Net income (loss) .............................. $ (11,523) $ (4,364) $ 1,490 $ (76,704)
Basic and diluted earnings (loss)
per share ..................................... $ (0.22) $ (0. 08) $ (0.03) (1.46)
Fiscal 2000 Quarters (b)
December March June September
-------- ----- ---- ---------
Net sales ...................................... $ 371,048 $ 402,147 $ 419,821 $ 427,231
Cost of sales .................................. 327,337 348,331 362,429 396,770
Income tax (expense) benefit ................... (4,519) (1,351) (3,300) 30,846
Net income (loss) .............................. $ (5,320) $ 554 $ 1,494 $(523,700)
Basic and diluted earnings (loss)
per share ..................................... $ (0.10) $ 0.01 $ 0.03 $ (10.05)
(a) September quarter 2001 includes a $59.4 million charge for restructuring and
impairments (net of income taxes).
(b) September quarter 2000 includes an accounting change resulting in a $463.2
million write-off of goodwill, and a $43.6 million charge for restructuring and
impairments (net of income taxes).
F-30
Schedule II
-----------
BURLINGTON INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
(Debtors-in-Possession as of November 15, 2001)
Valuation and Qualifying Accounts
(Amounts in Thousands)
Additions
----------------------------------------------
Charged
(Credited)
Balance at to Costs Charged Balance at
Beginning and to Other Close
Description of Period Expenses Accounts Deductions of Period
----------- ------------ ------------ ------------ ------------ ------------
Fiscal year ended September 29, 2001
- ------------------------------------
Deducted from customer
accounts receivable:
Doubtful accounts $ 2,929 $ 4,334 $ - $ 3,758 (2) $ 3,499
6 (3)
Discounts 940 (163) (1) - - 777
Returns and
allowances 12,997 (4,870) (1) - (3) 8,130
------------ -------- ------------ --------- ------------
$ 16,866 $ (699) $ - $ 3,761 $ 12,406
============ ======== ============ ========= ============
Fiscal year ended September 30, 2000
- ------------------------------------
Deducted from customer
accounts receivable:
Doubtful accounts $ 3,771 $ 4,380 $ - $ 5,214 (2) $ 2,929
(8)(3)
Discounts 883 57 (1) - - 940
Returns and
allowances 13,604 (607) (1) - - 12,997
------------ -------- ------------ --------- ------------
$ 18,258 $ 3,830 $ - $ 5,222 $ 16,866
============ ======== ============ ========= ============
Fiscal year ended October 2, 1999
- ---------------------------------
Deducted from customer
accounts receivable:
Doubtful accounts $ 3,629 $ 5,482 $ - $ 5,353 (2) $ 3,771
(13)(3)
Discounts 788 95 (1) - - 883
Returns and
allowances 16,447 (2,843) (1) - - 13,604
------------ -------- ------------ --------- ------------
$ 20,864 $ 2,734 $ - $ 5,340 $ 18,258
============ ======== ============ ========= ============
(1) Represents net increase (decrease) in required reserves.
(2) Uncollectible accounts receivable written-off, net of recoveries.
(3) Represents changes in reserves due to foreign exchange fluctuation.
S-1
Index to Exhibits
-----------------
(Item 14(a)(3))
Exhibit
No. Description
------- -----------
3.1 Restated Certificate of Incorporation of Burlington
Industries, Inc. ("the Company") (incorporated by reference
from the Company's Registration Statement on Form 8-B, filed
on June 3, 1994).
3.2 Bylaws of the Company (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 29, 1997).
4.1 Credit Agreement dated as of September 30, 1988, as amended
and restated as of December 5, 2000, among the Company, the
Lenders listed therein, The Chase Manhattan Bank, as
Administrative Agent, and Chase Manhattan Bank USA, N.A., as
Fronting Bank, together with forms of Indemnity, Subrogation
and Contribution Agreement, Guarantee Agreement, Pledge
Agreement and Security Agreement, each Exhibits to the Credit
Agreement (incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
2000).
4.2 Form of Rights Agreement dated as of December 3, 1997,
(amended and restated as of February 4, 1999), between the
Company and First Union (as successor to Wachovia), as Rights
Agent (incorporated by reference from Exhibit 4.1 to the
Company's Registration Statement on Form 8-A/A filed on April
5, 1999).
4.3 Indenture dated as of September 1, 1995 between the Company
and The Bank of New York (as Successor Trustee to Wachovia
Bank of North Carolina, N.A.) and the forms of notes thereto
as Exhibits to the Indenture (incorporated by reference from
the Company's Registration Statement on Form S-3, File No.
33-95350, filed on August 2, 1995).
4.4 Revolving Credit and Guaranty Agreement dated as of November
15, 2001 among Burlington Industries, Inc., a Debtor and a
Debtor-in Possession under Chapter 11 of the Bankruptcy Code,
as Borrower, and The Subsidiaries of the Borrower Named
Herein, each a Debtor and a Debtor-in-Possession under Chapter
11 of the Bankruptcy Code, as Guarantors, and The Banks Party
Hereto, and JP Morgan Chase Bank, as Administrative Agent,
Documentation Agent and Collateral Agent, J.P. Morgan
Securities, Inc., as Book Manager and Lead Arranger, together
with Exhibit B, Form of Security and Pledge Agreement
(incorporated by reference from Exhibit 99.2 to the Company's
Form 8-K filed on November 29, 2001).
10.1 Indenture of Lease dated February 26, 1969, between Blanche S.
Benjamin and Edward B. Benjamin, and a predecessor to the
Company, including the amendment thereto (incorporated by
reference from Burlington Holdings Inc.'s ("Burlington
Holdings") Registration Statement on Form S-1, File No.
33-16437, filed on August 12, 1987).
10.2 Form of Stock Purchase Agreement dated as of March 19, 1992,
between Burlington Equity and The Equitable Life Assurance
Society of the United States and its affiliates (incorporated
by reference from Amendment No. 6 to Burlington Equity's
Registration Statement on Form S-1, File No. 33-45149, filed
on March 19, 1992).
10.3(a) Stockholder Agreement dated as of October 23, 1990, among
Burlington Equity and the other parties listed on the
signature pages thereof (incorporated by reference from the
Annual Report on Form 10-K for Burlington Industries Capital
Inc. for the fiscal year ended September 29, 1990).
10.3(b) Amendment dated January 17, 1992, to the Stockholder Agreement
(incorporated by reference from Amendment No. 3 to Burlington
Equity's Registration Statement on Form S-1, File No.
33-45149, filed on March 5, 1992).
10.3(c) Letter agreement dated October 25, 1993, with respect to the
Stockholder Agreement (incorporated by reference form the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995).
10.4 Description of Supplemental Executive Retirement Plan, and
form of participant agreement (incorporated by reference from
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended January 1, 2000). (Management contract or
compensatory plan, contract or arrangement.)
10.5 Benefits Equalization Plan, as amended and restated on July
28, 1994 (incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended October 1,
1994). (Management contract or compensatory plan, contract or
arrangement.)
10.6 Burlington Equity Amended and Restated Equity Incentive Plan
(the "1990 Plan") (incorporated by reference from the
Quarterly Report on Form 10-Q for the Company for the fiscal
quarter ended July 1, 2000). (Management contract or
compensatory plan, contract or arrangement.)
10.7(a) Burlington Equity Amended and Restated 1992 Equity Incentive
Plan (the "1992 Plan") (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 2000). (Management contract or compensation
plan, contract or arrangement.)
10.7(b) Forms of agreements under 1992 Plan (incorporated by reference
from the Annual Report on Form 10-K for Burlington Equity for
the fiscal year ended October 3, 1992). (Management contract
or compensatory plan, contract or arrangement.)
2
10.7(c) Forms of amendments to agreements under 1992 Plan, effective
as of July 28, 1993 (incorporated by reference from the Annual
Report on Form 10-K for Burlington Equity for the fiscal year
ended October 2, 1993). (Management contract or compensatory
plan, contract or arrangement.)
10.8(a) Amended and Restated 1995 Equity Incentive Plan ("1995 Plan")
(incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended July 1, 2000).
(Management contract or compensatory plan, contract or
arrangement.)
10.8(b) Form of agreement under 1995 Plan (incorporated by reference
from the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 30, 1996). (Management contract or
compensatory plan, contract or arrangement.)
10.8(c) Form of agreement under 1995 Plan (incorporated by reference
from the Company's Annual Report on Form 10-K for the fiscal
year ended October 2, 1999). (Management contract or
compensatory plan, contract or arrangement.)
10.9(a) Amended and Restated 1998 Equity Incentive Plan ("1998 Plan")
(incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended July 1, 2000).
(Management contract or compensatory plan, contract or
arrangement).
10.9(b) Forms of agreements under 1998 Equity Incentive Plan.
(Management contract or compensatory plan, contract or
arrangement). (incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 2000). (Management contract or compensatory plan, contract
or arrangement).
10.10 Form of restricted stock agreements under the 1990, 1992, 1995
and 1998 Plans (incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
July 1, 2000. (Management contract or compensatory plan,
contract or arrangement).
10.11 Agreement dated as of February 3, 2000 between the Company and
George W. Henderson, III (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 1, 2000). (Management contract or compensatory
plan, contract or arrangement.)
3
10.12 Agreement dated May 19, 2000 between the Company and Douglas
J. McGregor, (incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 2000). (Management contract or compensatory plan, contract
or arrangement).
10.13 Agreement dated as of February 3, 2000, between the Company
and John D. Englar (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 1, 2000). (Management contract or compensatory
plan, contract or arrangement).
10.14 Agreement dated as of February 3, 2000, between the Company
and Charles E. Peters, Jr. (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 1, 2000). (Management contract or compensatory
plan, contract or arrangement).
10.15 Agreement dated as of November 1, 2001, between the Company
and James R. McCallum. (Management contract or compensatory
plan, contract or arrangement).
10.16 Agreement dated as of November 14, 2001, between the Company
and Douglas J. McGregor. (Management contract or compensatory
contract or arrangement).
10.17 AvantGarb, LLC 2000 Equity Incentive Plan and forms of
agreement thereunder (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 1, 2000). (Management contract or compensatory
plan, contract or arrangement.)
10.18 Director Stock Plan (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 3, 1999). (Management contract or compensatory
plan, contract or arrangement).
10.19(a) Amended and Restated Receivables Purchase Agreement dated as
of December 10, 1997 among B.I. Funding, Inc. ("BIF"), the
Company, B.I. Transportation, Inc. ("BIT"), Burlington Apparel
Services Company ("BASC"), Burlington International Services
Company ("BISC"), Burlington Fabrics Inc. ("Fabrics") and The
Bacova Guild, Ltd. ("Bacova") (incorporated by reference from
the Company's Annual Report on Form 10- K for the fiscal year
ended September 27, 1997).
10.19(b) Amended and Restated Facility Agreement dated as of December
10, 1997, among BIF, the Company, as Servicer, and Wachovia,
as Agent and Collateral Agent (incorporated by reference from
the Company's Annual Report on Form 10-K for the fiscal year
ended September 27, 1997).
10.19(c) Loan Agreement dated as of December 10, 1997, among BIF,
certain financial institutions as Liquidity Lenders, Blue
Ridge Asset Funding Corporation, as Conduit Lender, and
Wachovia, as Agent for the Lenders (incorporated by reference
from the Company's Annual Report on Form 10-K for the fiscal
year ended September 27, 1997).
4
10.20(d) Security Agreement dated as of December 10, 1997, among BIF
and Wachovia as Agent and Collateral Agent (incorporated by
reference from the Company's Annual Report on Form 10-K for
the fiscal year ended September 27, 1997).
10.20(e) Amended and Restated Subordination Agreement, Consent and
Acknowledgment, dated as of December 10, 1997, among BIF, the
Company, BIT, BASC, BISC, Fabrics, Bacova and Wachovia, as
Agent and Collateral Agent (incorporated by reference from the
Company's Form 10-K Annual Report for the fiscal year ended
September 27, 1997).
12 Statement regarding computation of ratios
21 List of subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
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