Guilford Mills spiraling down: Guilford to seek Ch. 11

Don Hogsett, February 25, 2002

Greensboro, NC — Steadily losing ground as its sales continue to plummet — and losing almost $200 million over the past 27 months — Guilford Mills said it is actively crafting a pre-packaged bankruptcy as it hammers out a sweeping restructuring of a crushing debt load with its lenders.

The troubled textiles company — which is now raising cash by selling off the assets of its one growing business, home fashions — said last week in a federal filing, "It is anticipated that an agreed upon restructuring will be accomplished through a reorganization under the bankruptcy laws."

Acting as a millstone and dragging down the bottom line is a debt load of $239.8 million, and interest costs that totaled $7.5 million in the recent quarter, up 12 percent from $6 million in the year-ago period.

Guilford said talks are continuing with its creditors but cautioned that if an agreement can't be reached by March 29 — and if the company isn't cut any more slack — lenders can call in their loans and seize virtually all of the company's assets, a drastic move that could lead to the sale or liquidation of the embattled textiles company.

The most likely outcome of such a restructuring is a debt-for-equity swap in which Guilford's creditors would receive most of the stock in the reorganized company in exchange for debt forgiveness. Current Guilford shareholders would most likely be squeezed out entirely under such a deal.

With sales in both of its core businesses — automotive and apparel — steadily slipping away, hammered by off-shore imports and now a widespread recession, Guilford recorded a $15.1 million loss during its first fiscal quarter ended Dec. 30, almost twice the size of the year-ago loss of $7.7 million. That follows a whopping $160.8 million loss during 2001, and a $21 million loss rung up the year before, in a sweeping overhaul of operations, as Guilford shut down plants, streamlined production and sharply cut its work force.

Continuing their long slide, sales in the opening quarter dropped off by 20.7 percent, to $137.6 million from $173.6 million last year, a drop of $36 million.

Hardest hit of Guilford's businesses is still the apparel fabrics segment, where sales were slashed by more than half, declining by 52.5 percent, to $29.3 million from $61.7 million in the year-ago period. During the past 12 months, Guilford has streamlined and reconfigured a business especially hard hit by imports, closing four plants, down-sizing another and eliminating its U.S. dyeing and finishing. Over the past 12 months, Guilford has eliminated more than 1,700 jobs, struggling to compete against low-cost Asian imports in a recessionary U.S. economy.

Guilford's core automotive fabrics business — which accounted for almost 60 percent of total sales — slipped by 6.1 percent, to $81.3 million from $86.6 million last year. Sales to U.S. car makers were virtually flat, but overall sales in the division were hurt by sluggish business in Mexico, the United Kingdom and Brazil.

The one growing business was Guilford's relatively small direct-to-retail home fashions unit — now being jettisoned — where sales advanced by more than a fourth, climbing by 28.9 percent, to $14.7 million from $11.4 million last year, gaining on the strength of the Jockey Home bedding program and a growing window business.

Last week, Guilford agreed to sell some of the assets of the home fashions business to Homestead Fabrics Ltd., phasing out all of its U.S. manufacturing. Now, said Guilford, it is trying to find a buyer for the building, machinery and equipment of the home fashions unit.

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