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WestPoint Losses Continue

New York — Still a major home textiles manufacturer, WestPoint Home is clearly a shrinking company, one that operates at a loss, and its brands are losing value, the company said in its just-filed quarterly report.

Sales by the Icahn Enterprises (IEP) division known as Home Fashion — aka WestPoint — fell 22.3% in the third quarter ended Sept. 30, to $183.4 million from $223.1 million for the same period one year ago.

With expenses of $220.2 million for the quarter, WestPoint contributed a loss of $36.8 million to IEP's overall $100.7 million loss from continuing operations before taxes.

Nine months year-to-date sales of $531.1 million were down 21.0% from $672.4 million last year. WestPoint racked up $656.2 million in expenses and a loss before taxes of $125.0 million through the third quarter.

Among the assets WestPoint boasts are its trademarks including Martex, Vellux, Grand Patrician, WestPoint and Utica. Its own assessment of these brands is that decreasing sales are undermining their long-term value.

The company said, in its regular reporting on the status of goodwill and other intangible assets, that this quarter it took an impairment charge of $3.0 million, “reducing the fair value of the trademarks to $20.4 million.”

While WestPoint is scaling down in search of profitability, IEP as a whole is delivering a profit to shareholders, albeit less than a third of year-ago earnings. EPS (diluted) for the quarter was $0.53, compared to $1.65 in the year-ago quarter. Through three quarters the comparison was a 2007 diluted EPS of $1.65 vs. $3.70 in 2006.

The Icahn Enterprises 10-K filed last week with the Securities and Exchange Commission notes that the company reached a sale agreement for the inventory of “substantially all” of WestPoint's 30 retail outlets and will close that business. The stores showed a loss of $15.1 million on sales of $16.0 million during the quarter. This small retail operation is now classified as discontinued operations; through three quarters, WestPoint as a whole recorded a negative cash flow from discontinued operations of $21.0 million.

This is a minor part of other discontinued business: three of the other IEP segments — gaming, oil and gas, and real estate — shed assets as the company moved into its main area of trade: investment management.

WestPoint continues to take charges for the closing of U.S. operations as it moves production offshore. The company said it expects restructuring costs in the $15 - $20 million range over the next 12 months. To date, that is from the WestPoint acquisition date of Aug. 8, 2005 through Sept. 30, 2007, the company said it incurred “total cumulative impairment and restructuring charges” of $86.0 million.

Besides acknowledging the liquidation of its retail outlet inventory, a decision that precipitated a recent chancery court order allowing such moves (see HTT, Oct. 15, p.2; and Oct. 29, p.4) the filing notes, “Ongoing litigation may result in our ownership of WPI [WestPoint International, the parent entity of WestPoint Home] being reduced to less than 50% as described in Part I, Item 3 of our 2006 Annual Report filed with the SEC on March 6, 2007…”

As financier Carl Icahn has consolidated his hold on the firm's $13.5 billion in assets, he has built a series of shells within shells — holding companies, subsidiaries and affiliates including limited partnerships based in the Cayman Islands tax haven. It seems likely that the losses by WestPoint serve as a means to deliver tax benefits to the overall company.

Icahn Enterprises will hold its quarterly conference call today (Monday, Nov. 12).

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