WestPoint Forecasts A Better 2007

By Don Hogsett -- Home Textiles Today, 3/12/2007 12:00:00 AM

New York —

With fourth-quarter sales falling off by 18.2%, to $236.6 million, and picking up a $12 million tab to shutdown plants and overhaul its U.S. operations, WestPoint Home recorded an operating loss of $40.0 million, sharply wider than a prior-year loss of $5.4 million.

But sending out a signal that the worst may be behind for the major mill, WestPoint's new corporate parent, American Real Estate Partners (AREP), which bought it out of bankruptcy in August 2005, said it expects "much stronger results" this year.

In its 10-K annual report filed with the Securities and Exchange Commission, AREP, controlled by billionaire investor Carl Icahn, said WestPoint Home could be erasing its losses and breaking even on an operating basis by the end of this year.

WestPoint's parent, a holding company which controls gaming interests in Las Vegas as well as real estate, said it believes "the home fashions segment may potentially reach a break-even" operating profit by the end of 2007.

And as the home fashions supplier shuts down more of its U.S. plants, moving production offshore, margins should climb sharply higher, it said, helping the company to climb back on track. Gross margins, said AREP, "should more than double on average from 6% in 2006, to the low teens by the end of 2007."

But in the meantime, margins remain thin, and for all of 2006 clocked in at 5.8%, while operating costs, when measured as a percentage of declining sales, reached 15.8%.

For all of last year, WestPoint sales totaled $957.7 million, and the mill threw off an operating loss of $150.6 million. Since AREP owned WestPoint only since Aug. 8, 2005, full-year 2005 numbers are not available for a head-to-head comparison.

In an eventful year, as its new parent struggled to get its arms around the industry, WestPoint began a long-postponed process of moving some manufacturing operations offshore to lower-cost facilities. In December, WestPoint acquired bedding manufacturing operations in Bahrain that once supplied product to rival Springs Global, and took a 50% stake in a joint venture in Pakistan to produce bath products.

Off-shore investment is likely to accelerate, said WestPoint's parent. The mill, it said, "may expend additional amounts in connection with further joint venture and acquisitions, and such amounts may be significant."

Providing the cash, WestPoint's parent put $200 million into the division last year, buying a new issue of preferred stock. Making it easy for WestPoint, the preferred shares will pay a low dividend, and the dividend won't be paid for years to come. Additionally, AREP helped WestPoint Home secure a $250 million revolving line of credit from Bank of America. At year's end, WestPoint said there were no borrowings under the line of credit, but outstanding letters of credit of $40.1 million, leaving WestPoint with a cash availability in the range of $210 million, in addition to the $200 million AREP supplied when it bought the new issue of preferred shares.

WestPoint's operating loss tugged only modestly at the bottom line of its deep-pockets parent, and AREP recorded a fourth-quarter profit of $565.4 million, gaining on the sale of its Atlantic City gaming operations and oil and gas businesses. For all of 2006, AREP recorded a profit of $798.8 million, bounding back from a loss of $25.7 million the year before.

WestPoint Home 2006 Results

American Real Estate Partners L.P.