Pillowtex review leaves possible deals in doubt

Don Hogsett, May 19, 2003

New York — Accounting issues at Pillowtex have added another layer of uncertainty to Springs Industries' proposed buyout of the mill, which remains on hold after earlier hitting a snag involving the nation's largest textile union.

Adding an unexpected complication, Pillowtex said its audit committee has ordered a review of the company's financial results for all of last year, a move that will likely force the company to restate its earnings, adding an extra $2 million to its losses before one-time items related to its bankruptcy, the firm said.

Under scrutiny, Pillowtex said, is the way it accounted for trade allowances, including discounts, rebates and co-op advertising. For all of 2002, Pillowtex recorded a loss before one-time bankruptcy items of $96.8 million.

Raising an additional caution flag, Pillowtex said the review could unearth more issues. The company said "additional and material revisions to its previously reported results of operations may arise as a result of the pending review."

Because of the review, Pillowtex said it's delaying the filing of its first-quarter financial results until its auditor, KPMG, can review the financial statements. Pillowtex said it "alerted KPMG of the issues being reviewed as soon as it became aware of them."

If successful, the proposed Springs deal would create a home fashions giant with more than $3 billion in sales. But the proposal earlier generated sparks of controversy and the ire of the nation's largest textiles union, which wanted to block the deal in a bid to save jobs.

UNITE, the Union of Needletrades, Industrial and Textile Employees, claimed the buyout could "result in the loss of thousands of jobs" as Springs would likely shut down outdated or redundant Pillowtex plants, possibly including the giant Kannapolis, NC, manufacturing complex.

Hoping to derail the deal, union head Bruce Raynor said he had lined up two other prospective buyers — who would presumably keep Pillowtex intact - who want to pore over the Pillowtex books as a prelude to a possible deal.

One candidate reportedly is New York-based Cereberus Capital Management, a so-called "vulture fund," a firm that specializes in buying distressed companies.

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