Joan Fabrics files Ch. 11
Sales declined rapidly, exec says
By Susan M. Andrews -- Furniture Today, April 30, 2007
Tyngsboro, Mass. — Joan Fabrics, at one time the largest U.S. upholstery fabric supplier, has filed for Chapter 11 bankruptcy protection.
Joan and its wholly owned subsidiary Madison Avenue Design, which creates specialty designs for Joan and others, filed a voluntary petition for reorganization last week.
The companies said they have received debtor-in-possession financing of more than $10 million from lenders led by Bank of America and factor CIT. An executive also said the companies have been talking to suitors interested in acquiring some or all of the firms' operating units.
Elkin McCallum stepped down two weeks ago as president and CEO of Joan, turning over day-to-to-day operations to interim management firm Carl Marks Advisory Group. Richard Heller of Carl Marks was named chief operating officer.
McCallum, who remains on the board of directors, was charged with fraud last month by the Securities and Exchange Commission in a civil case related to textile supplier Collins & Aikman. Eight other C&A directors and executives also are defendants.
In an affidavit to the bankruptcy court, Heller acknowledged the SEC suit but added, "It is not believed these allegations made by the SEC have anything to do with (Joan's and Madison Avenue's) current financial problems and should not be a factor in these proceedings."
In a statement, Heller also said the debtor-in-possession financing package would meet the companies' cash needs and would let them explore strategic options.
"We are already in contact with a number of firms who have expressed interest in acquiring some or all of our operating units. We believe that such a sale will provide the most advantageous result for our employees, customers and creditors," he said.
According to the company's announcement, Joan Fabrics' 700 employees are unaffected by the filing, and customers should expect business as usual in terms of products, delivery and service.
Heller said Joan Fabrics "has many positive advantages as a business" that will "provide a solid foundation for the business to be restructured and emerge successfully from Chapter 11."
Joan Fabrics, founded in 1932, has manufacturing facilities in North Carolina and an affiliate in Mexico.
According to an affidavit Heller gave the bankruptcy court, Joan's revenues had fallen from $345 million in 2003 to $124 million in 2006. (Furniture/Today had estimated the company's sales in 2001 at $620 million, ranking it as the largest U.S. fabric supplier.)
"This reduction in the company's revenues resulted in a direct impact on its ability to service its debt obligations," Heller said.
He added that employee headcount declined from 3,265 in July 2002 to about 700 now. He noted the company had phased out its yarn operations and Joan Velvets division and sold certain assets, but that wasn't enough to meet its liquidity needs.
In bankruptcy documents, Joan and Madison Avenue together valued their assets at between $1 million and $100 million and said liabilities were in the same range.
Among its largest 30 unsecured creditors, industry companies with the biggest claims were fiber and yarn suppliers Unifi at $4.8 million and American Fibers and Yarns at $1.3 million.
Other industry companies on the list include Staubli, $540,493; R.L. Stowe Mills, $537,253; Carolina Mills, $487,489; Kennetex, $239,598; Crypton, $174,579; Parkdale, $148,362; Lonfil America Chenille Yarns, $117,798; and Applied Textiles, $112,961.
