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Still pain, some gains in '02

It sure didn't feel like it at the time, but 2002 was actually something of a turnaround year for the American textiles industry, with sales and earnings both making gains despite an accelerating influx of low-cost imported products and debt loads that left some knocking on the door of bankruptcy court.

With sales taking a beating through the first six months of 2003, and so many producers still crying the blues, it comes as something of a surprise, looking back, that composite sales of 10 major textiles suppliers measured in the Home Textiles Today Vendor Report Card improved at an almost double-digit pace last year, lifted by one big acquisition, rising by 9.4 percent, to $10.9 billion from $10.0 billion last year.

But the sales gains weren't equally spread around, and just one company, Mohawk Industries, provided a big lift to the overall total as it layered on sales generated by its big Dal-Tile acquisition, boosting its 2002 total by almost a third, or 31.2 percent, to $4.6 billion.

Indeed, just that one company, Mohawk, managed to skew the industry totals, accounting for more than 41 percent of all the sales recorded by all 10 companies in the 2002 Vendor Report Card.

Pull Mohawk out of the equation and the picture wasn't so bright, and six out of the 10 companies in this year's Report Card actually lost sales ground.

And Mohawk isn't the only big industry player whose sales benefited from acquisitions in 2002. Springs Industries boosted its sales by almost 14 percent, acquiring the big Burlington House business and Beaulieu rugs. Springs' strong sales figures would have given the overall industry totals an even bigger boost — by more than $1.8 billion — but it's no longer a publicly reporting company. Since going private in a leveraged buyout its sales and earnings are no longer publicly reported and cannot be included in the Vendor Report Card, actually holding back the industry totals.

The industry still lost money last year, but far less of it, cutting its composite loss by more than 83 percent, to $57.6 million, down from $345.3 million in 2001. And in more good news, fewer companies were leaking red ink — five out of ten last year, compared with a staggering 10 out of 12 companies in 2001.

In even better news, suppliers parlayed stronger sales, improving margins and deep cost-cutting into a big improvement in operating profits, which rocketed up by 59.9 percent, to a composite $801.1 million from $501.1 million the preceding year. Nine out of the ten companies canvassed reported an operating profit, a solid improvement over the eight out of 12 who managed an operating profit in 2001.

There was even more good news — using sophisticated systems and planning out more carefully, the overall industry brought inventories into better balance with sales, saving a lot of cash in the process. And as companies spent less to add capacity or modernize plants, and learned to do more with less, seven out of the 10 companies on the list increased their return on invested capital, getting more bang for every buck spent.

But that's where the good news ends — and the industry as a whole gets crushed by a massive debt load that squeezes the life out of some companies and pushes them into bankruptcy.

Stuck in the muck of high-interest debt, fully a third of the companies in this year's Vendor Report card — three out of the 10 — couldn't even generate enough cash to cover the interest on their debt, let alone pay down any principal. But even that's a big improvement over the preceding year, when seven out of 12 companies, more than half, couldn't make their interest payments.

Composite results of 10 textiles companies
figures, excluding percentages, in $000s

2002 2001 % chg
( ): Denotes loss
Source: Home Textiles Today market research
Sales $10,895,953 $9,959,659 9.4%
Operating income 801,061 501,097 59.9
Net income (57,560) (345,326)
Average gross margin 20.6% 21.2%
SG&A as a % of sales 13.2 12.5
Net debt coverage 46.5 84.1


Composite results of 7 home fashions producers
figures, excluding percentages, in $000s

2002 2001 % chg
( ): Denotes loss
Source: Home Textiles Today market research
Sales $8,680,694 $7,684,625 13.0%
Operating income 710,452 433,969 63.7
Net income 549,143 (65,558)
Average gross margin 22.4% 23.4%
SG&A as a % of sales 14.2 13.3
Net debt coverage 38.7 66.1


Composite results of 3 diversified textiles producers
figures, excluding percentages, in $000s

2002 2001 % chg
( ): Denotes loss
Source: Home Textiles Today market research
Sales $2,215,259 $2,275,034 -2.6%
Operating income 90,609 67,128 35.0
Net income (606,703) (279,768)
Average gross margin 13.5% 14.4%
SG&A as a % of sales 9.4 9.7
Net debt coverage 107.9 200.4


Top 3 sales in $000s Top 3 earnings in $000s
Source: Home Textiles Today market research
Gains? What Gains: In the past, vendors were ranked by the greatest sales and earnings gains — but that was back in the salad days of the industry, when companies were actually making money or building sales. But by 2002, half the companies in the HTT Vendor Report Card, five out of 10, lost money; and six out of the 10 saw their sales fall. And when it comes to making money, appearances can be deceiving — Pillowtex did, but only on paper, as it recorded a $398.7 million one-time gain on the forgiveness of debt as it emerged from Chapter 11. Without the one-time item, the company still reported a pre-tax loss of $96.8 million.
1. Mohawk Inds. $4,522,336 1. Pillowtex Corp. $301,513
2. WestPoint Stevens 1,811,357 2. Mohawk Inds. 284,489
3. Wellman 1,013,968 3. Quaker Fabric 11,556


Running on fumes
They couldn't raise the cash to service their debt
(Ranked by the gulf between cash flow and interest expense)

( ): Denotes loss
Source: Home Textiles Today market research
Squeezed Thin: Mired deep in debt, and in some cases red ink, a third of the companies in this year's Vendor Report Card — three out of the 10 — couldn't even spin off enough cash in 2002 to cover the interest on their debt, let alone pay down some of the principal. As bad as that sounds, it's actually an improvement over the year before, when more than half the companies in the report card — seven out of 12 in 2001 — couldn't cover their interest expense. Holdovers from 2001 include two of the industry's biggest players, WestPoint Stevens and Pillowtex, which is still losing money on an operating basis even after emerging from Chapter 11. But the news wasn't all bad, and two companies, Dan River and Cone, both substantially improved their cash flow and were able to service their debt. But debt remains a crucial issue for an industry hard pressed by a continuing onslaught of foreign imports and a persistently weak retail environment. For more debt metrics, see page 9.
All figures in $000s
Company Cash flow Interest expense Shortfall
Pillowtex ($30,710) $28,362 ($59,072)
Polymer Group 18,583 71,478 (52,895)
WestPoint Stevens 128,923 135,476 (6,553)


Profitability Measures Sales Operations
Company* Net income x$000s % change '01-'02 % change '98-'02 Return on sales Return on equity Net sales x$000s % change '01-'02 % change '98-'02 Op. income x$000s % change '01-'02 Operating margin Gross margin SG&A as % of sales Inventory turns Net debt coverage Fiscal year end
*Companies are ranked by dollar volume of sales. ( ): Denotes loss Source: Home Textiles Today market research
1. 1998 net income was $115.3 million and includes a $2.9 million pretax charge for asset value reduction and a $17.7 million pretax charge for acquisition expense.
2. As of press time, WestPoint Stevens had not yet filed its annual SEC report. Figures are from unaudited company reports. Comparative information for 1998 is not available.
3. Includes pretax restructuring and asset impairment charges of $6.6 million in 2002 and $5 million in 2001 and income tax benefits of $7.1 million in 2002 and $15.2 million in 2001. 2001 net loss was $27.3 million.
4. Includes net losses from discontinued operations of $23.7 million in 2002 and $5 million in 2001. 2002 also includes a $197.1 extraordinary charge, the cumulative effect of an accounting change. 2001 net income was $8.4 million.
5. Includes a $6.9 million pretax restructuring charge, a $23.3 million pretax loss on the cancellation of a fixed rate financial instrument and $6.2 million in net earnings from discontinued operations. 1998 net income was $12.5 million.
6. Restated.
7. Following the company's emergence from bankruptcy, 2002 figures represent the combined amounts for the successor company for the seven months ended Dec. 28, 2002 and the predecessor company for the five months ended June 1, 2002.
8. After preferred dividends of $7.5 million in 2002 and $16.4 million in 2001; includes pretax asset impairment charges of $32.3 million in 2002 and $41 million in 2001. 2002 also includes a $398.7 million pretax reorganization credit, a $5.4 million pretax restructuring charge and a $7.2 million income tax benefit. 2001 also includes a a $31.4 million reorganization charge, a $10.8 million pretax restructuring charge and a $21.2 million net loss from discontinued operations. 2001 net loss was $239.1 million.
9. After preferred dividends of $2.1 million; includes a $1.5 million net loss from discontinued operations. 1998 net income was $40.8 million.
10. Includes pretax asset impairment charges of $317.9 million in 2002 and $181.2 million in 2001, pretax charges for plant realignment costs of $1.1 million in 2002 and $7.4 million in 2001, pretax special charges of $3.6 million in 2002 and $1.8 million in 2001, pretax foreign currency losses of $15.4 million in 2002 and $5.4 million in 2001 and income tax benefits of $3.3 million 2002 and $25.8 million in 2001. 2002 also includes $14.9 million in pretax Ch. 11 reorganization expense and a $12.8 million extraordinary charge, the cumulative effect of an accounting change. 2001 net loss was $247.6 million.
11. Includes a $795,000 pretax investment gain, a $806,000 pretax foreign currency loss, a $2.7 million extraordinary charge and a $1.5 million extraordinary charge, the cumulative effect of an accounting change. 1998 net income was $19.7 million.
12. Includes a $20.7 million extraordinary charge, the cumulative effect of an accounting change.
13. Includes a $18.1 million income tax benefit. 2001 net loss was $20.9 million.
14. Includes a $405,000 extraordinary loss on the early extinguishment of debt. 1998 net income was $16.7 million.
15. 2002 and 2001 are 52 weeks; 1998 is 53 weeks.
16. After preferred dividends.
17. After preferred dividends; includes pretax restructuring and asset impairment charges of $19.9 million in 2001 and $17.1 million in 1998, income tax benefits of $12.1 million in 2001 and $6.3 million in 1998 and net losses from discontinued operations of $13.3 million in 2001 and $2.4 million in 1998. 2001 net loss was $40.7 million. 1998 net loss was $9.6 million.
18. 2002 is 53 weeks; 2001 and 1998 are 52 weeks.
19. Includes a $500,000 non-recurring after-tax charge for costs related to a potential acquisition.
20. As of press time, Culp had not yet filed its annual SEC report. Figures are from unaudited company reports. Comparative information for 1998 is not available. 2001 net loss was $1.6 million.
21. Includes an $11,000 pretax loss on the disposition of assets, a $1.8 million pretax restructuring charge and a $35,000 foreign currency translation loss.
22. Includes a $34,000 pretax loss on the disposition of assets, a $25 million pretax gain on the extinguishment of debt, a $1.9 million income tax benefit and a $76,000 foreign currency translation gain.
23. 1998 net loss was $11.8 million and includes a $19,000 after-tax foreign currency translation loss.
Mohawk Inds. $284,489 50.8% 146.8%1 6.3% 14.3% $4,522,336 31.2% 58.7% $519,112 58.7% 11.5% 27.4% 15.9% 5.4x 13.3% 12/31/02
WestPoint Stevens2 (12,659)3 3 -0.7 1,811,357 2.6 128,923 7.1 7.1 21.7 14.6 3.7 105.1 12/31/02
Wellman (194,307)4 4 5 -19.2 -45.5 1,013,968 0.4 17.96 41,323 17.3 4.1 11.4 7.3 6.9 24.8 12/31/02
Pillowtex Corp.7 301,5138 8 639.89 32.3 286.7 934,892 -7.6 -30.76 (30,710) -3.3 4.6 7.8 4.6 -92.4 12/28/02
Polymer Group (419,637)10 10 11 -55.5 755,691 -7.3 -5.9 18,583 -31.7 2.5 15.9 13.4 5.5 384.6 12/28/02
Dan River (13,321)12 13 14 -2.2 -5.8 612,949 -2.9 18.5 43,793 7776.4 7.1 18.4 11.2 3.2 61.4 12/28/02
Cone Mills15 7,24116 -117.817 -175.717 1.6 7.7 445,600 -1.0 -32.66 30,703 556.9 6.9 14.2 7.3 6.9 52.4 12/29/02
Quaker Fabric18 11,556 21.019 100.3 3.2 7.1 365,445 10.4 44.36 23,067 16.3 6.3 21.9 15.6 5.8 20.1 1/4/03
Culp20 (24,887) -7.3 -26.0 338,980 -11.2 17,533 18.5 5.2 17.0 11.8 5.2 34.4 4/27/03
Crown Crafts 2,45221 -90.922 23 2.6 16.1 $94,735 -19.4 -73.8 8,734 72.7 9.2 22.6 13.4 4.6 52.1 3/30/03


Operating margin
operating income as a percentage of sales

Source: Home Textiles Today market research
A double-digit Mohawk: Hacking through the underbrush, the thicket of extraordinary items that obscures the bottom line, 90 percent, nine of the 10 players in this year's Vendor Report Card recorded an operating profit, a strong improvement over the 75 percent, eight out 12, who managed an operating profit in 2001. In the top spot is Mohawk Industries, as it was in 2001, with a double-digit operating profit of 11.5 percent. It was followed by Crown Crafts and Dan River, which yielded a strong operating profit, despite falling sales, by bulking up margins and slashing costs.
The high
1. Mohawk Inds. 11.5%
2. Crown Crafts 9.2%
3. Dan River 7.1
The low
1. Pillowtex Corp. -3.3%
2. Polymer Group 2.5
3. Wellman 4.1


The bottom line
return on sales: after-tax profits as percentage of sales

Source: Home Textiles Today market research
Pillowtex, it's only on paper: At least on paper, Pillowtex looked fantastic in 2002, with a phenomenal return on sales of 32.3 percent, leading all other home fashions producers. But things aren't always what they seem, and the major mill did it only by throwing into the mix a one-time gain of almost $400 million from debt forgiveness as it emerged from bankruptcy. Pull out that one-time item, and Pillowtex continued to lose money on an operating basis. Doing it the hard way, by actually earning it, Mohawk Industries generated a return of 6.3 percent, banking more than six cents out of every dollar of sales.
The top
1. Pillowtex Corp. 32.3%
2. Mohawk Inds. 6.3
3. Quaker Fabric 3.2
The bottom
1. Polymer Group -55.5%
2. Wellman -19.2
3. Culp -7.3


Worker productivity
sales productivity
$000s

( ): Denotes loss
Source: Home Textiles Today market research
Squeezing more and more out of the troops: Spurred by constant cost-cutting and head-count reduction, American textiles producers kept doing more with less in 2002, generating more sales and earnings dollars out of every worker. Last year, eight key players generated average sales per employee of $190.59. But with three out of eight companies ranked losing money last year, and pulling down the industry totals, the average loss per employee totaled $53.00 on average.
Rank by sales Rank by income Company Sales per employee 2002 Sales per employee 2001 Income per employee 2002 Income per employee 2001
1 7 Wellman $460.9 $403.8 ($88.3) $3.4
2 3 Crown Crafts 245.4 NA 6.4 NA
3 8 Polymer Group 200.3 201.9 (111.3) (61.3)
4 2 Mohawk 142.3 109.9 9.0 6.0
5 5 Cone Mills 139.3 136.3 2.3 (12.3)
6 4 Quaker Fabric 129.8 120.4 4.1 3.5
7 6 WestPoint Stevens 123.2 115.7 (0.9) (1.8)
8 1 Pillowtex 119.1 110.0 38.4 (26.0)
9 6 Dan River 87.6 86.4 (1.9) (2.9)


Getting more bang for the buck
return on invested capital

Source: Home Textiles Today market research
Doing more with less: With U.S. textiles producers actually producing fewer goods, and stepping up sourcing of low-cost products from abroad, they're spending less and less money to add capacity or modernize plants and equipment. After spending more than a billion dollars over the past decade to add capacity, cash-strapped vendors, in the midst of a prolonged economic slowdown, have been shutting down some of the capacity they spent so much to add.
In something of a turnaround — as increasingly frugal suppliers learn to do more with less — most industry players actually improved their return on capital during 2002, a significant improvement over the prior year. Seven companies out of 10, 70 percent, made gains, compared with only a third, five out of a dozen companies, who made strides in 2001.
Rank Company 2001 2000
1. Crown Crafts 15.1% 8.4%
2. Mohawk 14.4 18.5
3. WestPoint Stevens 9.9 8.8
4. Cone Mills 9.6 1.4
5. Quaker Fabric 8.0 7.2
6. Culp 8.0 5.1
7. Dan River 7.4 0.1
8. Wellman 3.3 3.7
9. Polymer Group 2.3 2.2
10. Pillowtex -5.2 -4.9


Building stockpiles — a balancing act
inventory turns

Source: Home Textiles Today market research
A balancing act: Always on the lookout for ways to save money, especially in a hit-or-miss sales environment, and making better use of sophisticated systems and tighter supply chain management, textiles producers are doing a better job of managing inventories and bridging the gap between sales and stockpiles. Putting it into perspective, sales at WestPoint Stevens increased by almost 3 percent last year, but at the same time the company managed to reduce its inventories by more than 7 percent, saving money in the process.
Rank by % change in inventory Rank by % change in sales Company Inventory % change Sales % change
1 1 Mohawk 27.6% 31.2%
2 2 Quaker Fabric 5.0 10.4
7 3 WestPoint Stevens -7.2 2.6
10 4 Wellman -21.8 0.4
9 5 Cone Mills -21.3 -1.0
4 6 Dan River -3.1 -2.9
3 7 Polymer Group -0.2 -7.3
6 8 Pillowtex -6.2 -7.6
8 9 Culp -14.4 -11.2
5 10 Crown Crafts -5.5 -19.4


Building stockpiles — a balancing act
Inventory turns

Source: Home Textiles Today market research
Sheets and towels a slow turn: In an increasingly competitive sales environment for U.S. suppliers, with more and more retailers bringing in product and bypassing U.S. producers, building and balancing inventories becomes a more critical component of the bottom line. Those aren't just sheets and towels sitting on a warehouse pallet, they're the dollars it costs to build those inventories, and the profits they might have been. It says a lot about the current state of the industry that last year, as in 2001, not one bed and bath producer shows up on the list of the strongest inventory turners.
1. Cone Mills 6.9x
2. Wellman 6.9
3. Quaker Fabric 5.8
4. Polymer Group 5.5
Far Behind: Still picking up the rear are home fashions producers. But while their inventory turns remain sluggish in a stalled-out retail environment, they've actually improved for each of these four players.
1. Pillowtex Corp. 4.6x
2. Crown Crafts 4.6
3. WestPoint Stevens 3.7
4. Dan River 3.2


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