Debt is a four-letter word
July 7, 2003-- Home Textiles Today,
Half the companies in this year's Vendor Report Card didn't make any money last year — and you don't have to look far to figure out why — crushing debt that is sucking the life out of textiles producers already hobbled by a weak retail environment and an accelerating influx of low-cost imports.
And crushing is the word — it's not hyperbole. Take Polymer Group, for example, a producer of specialty, non-woven textiles. Last year, its interest expense — not the principal, just the interest expense — was almost five times as great as its cash flow. Ditto WestPoint Stevens, later to file for bankruptcy protection, where interest expense also exceeded its operating profits. Things were better at Dan River, but not by much — interest expense there ate up more than 60 percent of the company's cash flow.
Look at all that leverage another way — compare it to annual sales. It gets even scarier when you realize that Polymer Group's total debt was almost 70 percent greater than its annual sales. WestPoint Stevens' total debt, which would ultimately put it into bankruptcy, exceeded its last year sales by 16 percent.
Not scared enough? Try this. At Cone Mills, in 2002, the company's total debt exceeded its total one-year earnings by 3,104 percent.
Net debt coverage
interest expense as a percentage of cash flow
|This measure compares a company's interest expense with its cash flow, or operating income. In the case of Polymer Group, for example, its interest expense last year exceeded its cash flow by 384.6 percent. The odd man out is Pillowtex — it had no cash flow and recorded an operating loss.|
Total liabilities vs. sales
|This metric measures total debt as a percentage of one year's sales. Topping the list, at the wrong end of the spectrum, is Polymer Group, where total liabilities were almost 70 percent greater than 2002 sales. The strongest company here is Quaker Fabrics, where liabilities added up to slightly more than a third of 2002 sales.|
Interest expense vs. net income
|In the case of every single company in this year's Report Card, interest expense exceeded total net income, if there was any — half the companies lost money. In the case of Cone Mills, for example, interest expense exceeded net income by 222.0 percent, by more than three to one.|
Total liabilities vs. net income
|( ): Denotes loss
Source for all charts: Home Textiles Today market research
|This compares total debt to one year's profits — where there was any. And half the companies in this year's Report Card lost money (indicated in parentheses). In the case of Cone Mills, for example, total debt exceeded 2002 earnings by 3,104 percent — way more than 30 times earnings.|
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