This story was originally published on July 20, 2004.
The 40 guests arrived at Charlotte's Ballantyne Hotel Resort ready to celebrate. After 18 months in bankruptcy court, Pillowtex's top leaders were eager to hear from their new boss, David Perdue.
Following cocktails and hors d'oeuvres, Perdue spoke of his plans to reinvigorate the century-old Kannapolis textile giant. He wanted to improve sales by aggressively marketing its well-known brands. And he wanted to send more work overseas to make the company competitive.
Perdue's predecessor, Tony Williams, had failed to win support for a similar plan.
Many executives left dinner that night, in June 2002, excited about the company's prospects under the 52-year-old chairman and CEO. He came with a gleaming resume, a marketing whiz who had helped rejuvenate Reebok's sneaker line.
Gretchen Dale, a vice president of design and product development, recalls thinking after she met Perdue that he could unite the company and focus it on a promising future.
She recalls telling her staff: Guys, we've got somebody who gets it. If he tells me to walk through a wall, I'll walk through a wall.
But within months, Perdue's tenure would be consumed by issues he later told co-workers he did not foresee. Though he had hoped to save Pillowtex, he drew up other plans for the company - and for himself.
A proven leader
Perdue arrived as Pillowtex's third leader in two years. Chuck Hansen, an ambitious and sometimes combustible CEO, had merged Pillowtex and Fieldcrest Cannon in 1997 and saddled it with debt. Tony Williams, a British accountant who lacked textile experience, had led the company through bankruptcy reorganization.
Headquarters workers now saw Perdue as the perfect match for a company whose signature sheet and towel brands desperately needed a marketing boost.
When he joined Reebok in 1998, the sneaker giant had been in decline for years. Perdue earned raves for helping restore its profitability and market share. He quickly shot to the No. 3 job.
Perdue increased marketing aimed at various demographic groups, such as teenage boys and serious athletes. Under his watch, Reebok was one of the first companies to launch a tie-in with the popular TV show "Survivor."
By early 2002, he was earning $600,000 a year at Reebok, with potential for $600,000 more in bonuses. The company also had committed to give him lucrative stock options, which could have netted him several million dollars in later years.
But when a headhunter offered a $1 million signing bonus and a chance to lead his own company, Perdue jumped to Pillowtex. He also got nearly $800,000 in Pillowtex stock, plus options.
Perdue, who lived in the Boston area, became intrigued with the challenge of turning around another company.
"I've developed a knack for building things," he told the Observer when he was hired. "With the power of (Pillowtex's) brand, the quality of the employees and the connection they've had historically with retailers, I just see a real potential for quite a turnaround."
Perdue declined to talk publicly for this series.
Perdue envisioned a leaner Pillowtex after bankruptcy, one with rising sales and fast-growing profits.
In bankruptcy filings in early 2002, the company had forecast $50 million in operating profit that year. It also predicted that lower expenses and cheaper cotton prices would push profit margins to 13.1 percent in the last half of 2002, from 3.7 percent in 2001.
But within weeks of arriving in July, Perdue began questioning those projections.
He ordered a review.
In August he told senior managers the company was basically breaking even. The projections made months earlier in bankruptcy court would be impossible to meet.
The review showed Pillowtex was selling too much low-profit merchandise and too little of its higher-end brands.
The lower-end sheets and towels accounted for at least half of Pillowtex's sales. Perdue spoke in several meetings of wanting to shift the mix so that 80 percent of sales came from Pillowtex's name brands, which fetched a much higher profit margin.
Another problem was that Pillowtex continued to bow to retailers' demands for discounts and incentives, which further eroded profits.
Before hiring Perdue, directors had given him access to key officials and company documents, says Williams, who ran Pillowtex as president before Perdue arrived.
But Perdue later felt the information he got did not reflect the extent of the company's problems, colleagues say.
Dick Grissinger, Pillowtex's senior vice president of marketing at the time, says he was shocked after hearing Perdue's August report.
"It was a major deal," Grissinger recalls. "I didn't know how we could not be making projections that were made six months ago on a plan like that."
Everybody involved in the bankruptcy - the judge, Pillowtex officials and the company's creditors - had approved the numbers.
Bankruptcy experts say companies frequently offer rosy projections to escape bankruptcy court.
Sue Robinson, the U.S. Bankruptcy Court judge in Delaware who approved Pillowtex's plan, declined to discuss the case.
Williams says the company based its projections on making fundamental changes, such as closing plants and implementing a new marketing plan. But those ideas had stalled for months as the board looked for a CEO.
Williams says he thought the Ballantyne celebration marking the end of bankruptcy was premature because the company's transformation remained incomplete.
"It was like celebrating the fact you didn't die, " he says.
'Blip on the road'
Four months after leaving bankruptcy, Pillowtex said it was in default on part of a $200 million loan from Congress Financial, a branch of Charlotte-based Wachovia Corp.
Pillowtex negotiated for leeway. Chief Financial Officer Mike Harmon, an architect of the post-bankruptcy plans, told the Observer then that the problems were "a blip on the road."
About the same time, Perdue hired Sara Lee executive Michael Gannaway, a marketing expert, as president to run day-to-day operations.
But more trouble lay ahead, this time with Pillowtex's pension plan.
Underfunded pension plans had tripped up a number of U.S. companies as the stock market plunged after the dot-com bust. Because Pillowtex fell far short of the money needed to cover future obligations to workers and retirees, it was required by law to pump in more cash.
By one estimate, the pension plan was underfunded by $41 million for the next two years. Others set the figure as high as $100 million over five years.
Whatever the amount, the shortfall would require money Pillowtex didn't have.
Focus on survival
Just five months after bankruptcy, Pillowtex acknowledged that projections used to exit bankruptcy court were "no longer reasonable assumptions."
By now, according to the plan, the company should have been profitable. Instead it lost $9.3 million in the third quarter.
Gannaway, the company president, calls it "the trigger point for everything."
Perdue had to dump plans for a post-bankruptcy turnaround and focus on survival.
In a press release, Pillowtex blamed foreign imports, overcapacity in the U.S. textile market and slow consumer spending.
Creditors were furious.
"They were beside themselves about how quickly this company was deteriorating, " one creditor's representative says. "Everyone was of the same opinion. How do we get out and cut our losses?"
With Pillowtex's post-bankruptcy plans scrapped, lenders demanded options.
Perdue, Gannaway and CFO Harmon quietly began developing a new strategy in late 2002.
The four-year plan called for wiping out most of Pillowtex's U.S. jobs and shifting production to Asia, where labor and other costs are lower. It was the most detailed restructuring proposal any Pillowtex executive had produced.
Plant 1, Pillowtex's flagship factory in Kannapolis, would be among the casualties. More than 2,600 people worked in the century-old complex roughly the size of the Pentagon. It was too big and costly to operate, Perdue and others concluded.
Headquarters employees agonized over Plant 1's fate. In one meeting, Perdue said anyone who could figure out what to do with the plant, other than shutting it down, would be a hero.
At best, maybe 1,000 to 2,000 of the company's total jobs - 8,300 at the time - would remain under the plan, which would cost $80 million. Implementing it would require investors willing to gamble that it would work.
Investors approached by the company worried that the rise of global trade and the end of textile quotas in 2005 would create too much uncertainly for Pillowtex and the U.S. textile industry. On Jan. 1, quotas limiting textile imports into the United States expire under World Trade Organization rules, opening the door to a flood of foreign fabric.
"It was always, 'Can you tell us what will happen in 2005? How do you know you will be able to survive?' " says Don Mallo, who was Pillowtex's vice president of human resources.
Perdue also sought help from Pillowtex's biggest financial backer, a Los Angeles investment firm, Oaktree Capital Management. Oaktree is one of the nation's largest investors in troubled companies.
When Pillowtex left bankruptcy protection in May 2002, Oaktree and other former creditors converted the debt they held into stock. Oaktree now controlled 20 percent of the company. It also put several of its executives on the Pillowtex board.
Previous boards had been controlled by executives familiar with the textile industry. Now, Pillowtex's financial backers were in charge.
Perdue and his directors met several times in Los Angeles and Kannapolis and held conference calls to discuss ways to salvage the company.
In the end, Perdue failed to persuade Oaktree or other investors to put in more money.
A consultant advised Oaktree that further investments were too risky. Three more textile companies had followed Pillowtex into bankruptcy, and several others were near filing.
Perdue's plan to shift most production abroad was never made public.
One option remained: Sell Pillowtex.
A common refrain began to echo down the halls at Pillowtex headquarters. "Where's Perdue?"
He rarely appeared in Kannapolis and hardly ever returned e-mails sent on the BlackBerry personal digital assistants he had distributed when he first arrived, three executives say. He never bought an N.C. home and still lived in Boston.
"When (Perdue) came in, he was very visible, " says Ed Hosack, who was a Pillowtex general manager. "But he disappeared fairly quickly."
Many managers and executives say they took his absence as a sign that Pillowtex's problems were worse than they knew, especially after he skipped a major trade show in New York that fall.
Perdue's absence, internal auditor Wayne Keirn says, "was terrible for morale. We felt he'd given up."
The industry also took note. In December 2002, trade publication HFN ran a list of satirical holiday gifts for textile executives. Perdue's gift: "Directions to 1271 Avenue of the Americas," Pillowtex's New York address.
Behind his back, some employees began calling him "Oz, " the seldom-seen wizard.
Asked about those perceptions, Gannaway acknowledges that Perdue wasn't around much. He says Perdue was busy trying to sell the company.
"I know David wanted very much to turn around (Pillowtex) and succeed, " Gannaway says.
Perdue's executive assistant, Barbara Richards, says she saw her boss in Kannapolis during this time, seeking buyers. She says Perdue was very enthusiastic when he started.
"He was just beginning to learn about the company, then whammo, " she says. "The focus had to be on the business of selling the company."
Another new leader
Perdue did attend a monthly sales meeting in March 2003 at Hilton Charlotte University Place.
Speaking briefly, in the same informal tone he used months earlier at Ballantyne, Perdue said he couldn't address rumors of a sale, several people who were in the room say. But he emphasized that those who brought value to the company would remain.
Someone asked if he was going to the upcoming trade show. He said he couldn't promise.
Soon after, Pillowtex announced Perdue's resignation. In a prepared statement, board member Scott Graves, an Oaktree official, said Perdue "made considerable contributions to Pillowtex during his tenure."
The board promoted Gannaway to CEO. And Pillowtex finally confirmed it had hired an investment adviser to help find a buyer.
Perdue's sudden departure angered some headquarters employees, who saw him as abandoning the company in a crisis.
Perdue received no severance. In nine months at Pillowtex, he had earned nearly $1.7 million in salary, bonus and signing bonus. The stock he got for joining the company was now worthless. Still, he was the highest-paid home-furnishings boss during that time, a survey by Home Textiles Today found.
Two weeks after Pillowtex disclosed Perdue's resignation, Dollar General Corp. named him CEO. The suburban Nashville, Tenn., discount retailer called him a "multidimensional executive with a proven record of making things happen."
Perdue briefly discussed his time at Pillowtex with a Nashville paper in April 2003, and said he had encountered a few surprises, including the pension issue.
Efforts to attract a buyer were about to pay off, he told the paper.
But finishing the job would fall to Gannaway, the company's fourth leader in three years - and its last hope.