Debt is a four-letter word

By Don Hogsett -- Home Textiles Today, 7/7/2003 12:00:00 AM

NEW YORK —

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

Total liabilities vs. sales

Interest expense vs. net income

Total liabilities vs. net income