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Pillowtex takes big 4Q plunge

KANNAPOLIS, NC — With sales dropping off by almost one-fourth, margins squeezed thin to the vanishing point, and now weighed down by more than $132 million in bankruptcy and restructuring costs, Pillowtex Corp. recorded a crushing fourth-quarter loss of $233.2 million vs. a smaller year-ago loss of $18.6 million.

For all of last year, the major mill's losses mounted to $262.4 million, and would have climbed even higher, to more than $367 million — a loss of 25 cents for every dollar of sales — but for a tax break of more than $104 million. Sales for the 12-month period fell by 13.0 percent, to $1.3 billion from $1.6 billion the year before.

Driving the huge quarterly loss, in addition to the plunging sales, the company posted a negative gross margin of 35.3 percent — meaning it was selling its goods for one-third less than it cost to make them. Acting as a drag on margins were an inventory write-down charge of $69.2 million, extended plant closings and a handful of one-time charges. For all of last year, Pillowtex recorded a paper-thin gross margin of 0.3 percent, compared with 11.6 percent a year ago. Excluding one-time items, gross margin narrowed to 5.1, compared to 11.9 percent the year before.

With costs climbing higher on the lower level of sales, and dragged down by margin pressure, the company posted an operating loss of $161.5 million, compared with an almost break-even loss of just $821,000 last year. The 12-month operating loss totaled $128.0 million vs. a year-ago profit of $61.8 million.

Accounting for most of the bottom-line damage has been plunging sales. Said the company in its federal filing: "The general slowdown in the U.S. economy in the last quarter of 2000 and Pillowtex's filing of the Chapter 11 cases were the primary contributors to the sharp decline in sales volume for the fourth quarter of 2000 across all segments. Other factors that adversely affected sales in earlier quarters of 2000 were increased competition from imports, higher inventory levels held by many of our customers and an unexpected softening in demand in the company's institutional and regional discount markets." Taking a notably big bite out of sales was the loss of roughly $53 million in Kmart business across all the company's product lines.

Hardest hit last year were blanket sales, which fell by 24.2 percent, to $90.6 million from $119.6 million. Over the past two years, blanket sales dropped off by more than a third, or 35.7 percent, from $140.9 million in 1999. Putting a big squeeze on the bottom line, the blanket business posted a sharply widening loss of $37.8 million last year, almost four times as large as a year-ago loss of $10.2 million.

Bed and bath sales for all of last year fell 13.9 percent, to $942.6 million, while profits in the segment plunged by 93.9 percent, to just $7.4 million from $122.0 million in 1999.

Pillows and pads fared best last year, recording a relatively modest 5.7 percent sales decline, to $286.7 million from $304.0 million. But profits in the segment fell by 35.4 percent, to $22.3 million from $57.7 million.

Gross Profit by Product Segment (in $millions)

2000 1999 %CHG
Bed and Bath $7.4 $122.0 -93.9
Pillows and Pads 22.3 57.7 -35.4
Blankets (37.8) (10.2)
Other* 8.5 10.8 -21.3

( ): Denotes loss

*Other includes the company's retail stores.

Sales by Product Segment (in $millions)

2000 1999 %CHG
Bed and bath $942.6 $1,095.4 -13.9%
Pillow and Pad 286.7 304.0 -5.7
Blanketsa 90.6 119.6 -24.2
Other* 29.7 33.1 -10.3

*Other includes the company's retail stores.

a-In 1999, blanket sales totaled $140.9 million, producing a two-year sales decline of 35.7 percent.

PILLOW TEX CORP.

Qtr. 12/30 (x000) 2000 1999 % CHG
Sales $305,091 $405,287 -24.7
Oper. income (EBIT) (161,545) (821)
Net income (233,246)a (22,172)a
Per share (diluted) (16.36) (1.57)
Average gross margin (35.3%) 8.9%
SG&A expenses 17.6% 9.1%
12 MONTHS
Sales 1,349,627 1,552,068 -13.0
Oper. income (EBIT) (128,028) 61,846
Net income (271,336)b (31,826)b
Per share (diluted) (19.04) (2.25)
Average gross margin 0.3% 11.9%
SG&A expenses 9.5% 7.6%

a-Fourth-quarter results include a $112.7 million charge for the impairment of long-lived assets and restructuring charges, compared with 2 million the prior year; bankruptcy costs of $19.4 million; $3.0 million in preferred stock dividends and accretion vs. $1.7 million in 1999; and an income-tax benefit of $88.9 million, compared with $6.6 million the prior year.

b-12-month results include a $112.7 million charge for the impairment of long-lived assets and restructuring charges, compared with a $2.0 million charge in 1999; bankruptcy costs of $19.4 million; $8.9 million in preferred stock dividends and accretion, compared with $12.3 million the prior year; and an offsetting income-tax benefit of $104.8 million vs. $7.9 million the previous year.

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