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WPS Takes a Heavy Hit in 3Q

As WestPoint Stevens Inc. struggled to what it hopes to be the end of its time in Chapter 11, the company posted a third quarter loss more than four times as high as its third quarter loss one year ago.

However, behind the numbers — a net loss of $52.6 million for the quarter ended Sept. 30 versus a $12.8 million loss from the third quarter of 2003 — lie a pair of sizable non-cash items.

WestPoint charged off $11 million for accelerated depreciation related to anticipated plant closings. The major mill's 10Q did not detail which plants might be closed, nor did it specify the number of plants potentially affected.

Also included in the loss was a $7.6 million charge for a higher level of sell-offs to reduce inventory levels.

However, the company also benefited from a $5.8 million savings related to accounting adjustments in its workmans compensation fund.

“When you see a $52 million loss versus a $12 million loss, it looks staggering,” said Lorraine Miller, chief financial officer, senior vice president, finance and external communications. “But there are some pretty big numbers behind that.”

She added, “Accounting for some of these unusual items, factoring in the specific restructuring charges but also adjusting for an increased level of raw materials vs. as year ago, especially cotton, our margins were fairly comparable to a year ago.”

The company also registered an operating loss for the quarter of nearly $5.2 million, versus an operating gain from last year of $20.7 million.

Despite the numbers, WestPoint's president and CEO, M.L. “Chip” Fontenot, continued to look ahead to a brighter future for the company he leads. Fontenot said, “We have completed our revised business plan and are in final negotiations with our creditors regarding our exit from bankruptcy. We are hopeful this process will be concluded in the first quarter of 2005.”

Meanwhile, waiting for the outcome of this process is Carl Icahn, the financier known for his corporate raiding of the 1980s. During the third quarter, the news emerged that Icahn increased his stake in WestPoint earlier this year, perhaps with the view of engineering a takeover once the company emerges from bankruptcy protection. Earlier in 2004, Fontenot confirmed that Icahn had acquired a portion of WestPoint's second-lien debt.

WestPoint's third-quarter sales took a 6.5 percent hit, finishing at $416.1 million. Miller noted there were “apples and oranges” comparisons in the sales figure, including the closure of WestPoint's European division and the reduced number of U.S. outlet stores it operates compared to a year ago.

Sales were also negatively impacted by softness in the institutional channels as well as declining sales at Kmart, she said.

“But we're making progress at targeted key accounts in mass and specialty stores.”

Fontenot said, “The retail environment continued to be challenging for home fashions in the third quarter as retailers experienced slower sales growth in textile home furnishings.

Nevertheless, we increased our market share with targeted key accounts and received positive retailer response during our recent fall market.”

For the first nine months of 2004, WestPoint's net loss was $91.5 million, compared with a three-quarter net loss of $101.8 million from 2003. The company's operating profit for that period fell by more than 88 percent to $3.2 million, and sales managed a slight gain of less than 1 percent, finishing the nine months at slightly less than $1.2 billion.

Fontenot said, “Furthermore, we remain adequately funded with availability under our $300 million debtor-in-possession facility of $146 million at the end of the third quarter.”

WestPoint Stevens

(loss)
QTR. 9/30 (x1000) 2004 2003 % CHANGE
Total revenues $416,100 $445,160 -6.5
Operating income (5,171) 20,661 --
Net income (52,639) (12,802) --
Earnings per share (1.05) (0.26) --
Average gross margin 11.7% 17.8% --
SG&A percentage 13.0% 13.2% --
Nine months
Total revenues 1,198,732 1,190,118 0.7
Operating income 3,243 27,357 -88.1
Net income (91,512) (101,755) --
Earnings per share (1.83) (2.04) --
Average gross margin 14.1% 17.7% --
SG&A percentage 13.9% 15.4% --


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