Irving Tanning Company Files For Chapter 11 Relief

Worldwide Shortage and Increase in Hide Prices the Cause

HARTLAND, Maine, March 30 - Irving Tanning Company based in Hartland, Maine, announced today the worldwide increase in hide prices and difficulties plaguing the U.S. tanning industry have led the company to file a petition for relief under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court in Bangor, Maine. The petition was filed Thursday afternoon.

Chapter 11 of the Bankruptcy Code is designed to provide companies with the time and opportunity to reorganize, including by restructuring their debts or by obtaining new investment capital. As part of the reorganization proceeding, Irving Tanning reached an agreement with its lenders, Fleet Bank and Peoples Heritage Bank, regarding continued working capital financing. Irving Tanning's plant will remain in operation as the company reorganizes.

No significant layoffs will occur as a result of the Chapter 11 filing. Approximately 20 persons are being laid off as part of a cost-cutting initiative, however, the layoffs are not part of the Chapter 11 plan.

Irving Tanning started operations in Hartland, Maine in 1936. Irving employs approximately 385 people at its Hartland location. Irving is a global supplier of leather for the footwear, accessories and upholstery markets with international sales accounting for approximately 50 percent of its production in Hartland. Irving has annual sales of approximately $100 million.

Irving Tanning senior management reports that the company has been suffering severe cash flow problems as a consequence of difficulties plaguing the tanning industry in general, including a global hide shortage resulting in recent steep increases in raw material costs.

Company officials say the hide market is in crisis, resulting from a combination of unprecedented circumstances affecting the supply and price of hides. The kill of cattle in the United States is down 7 percent this year due to economic conditions and severe winter weather. The European kill of cattle is down 50 percent because of concerns about "Mad Cow" and Foot and Mouth disease. Similar problems exist in South America and New Zealand. Accordingly, hide prices are at a historical high, having increased more than 50 percent in the past months. These raw material price increases eroded Irving's operating margins. Market conditions prevented the company from passing increased costs to its customers in the form of higher prices for its products. Significant increases in healthcare, electricity and fuel costs have also reduced operating margins. All of those factors have contributed to substantial operating losses at Irving over the past 12 months.

In addition, United States-based footwear manufacturing has seen a continuous decline, with most shoe factories relocating to Asia. Imported footwear now accounts for 97 percent of total footwear sales in the U.S. The uncertain economy and lackluster apparel sales have also negatively affected Irving's customers.

"The mounting losses at Irving led to a withdrawal of credit support by the company's senior lenders, leading the company to default on payments to suppliers. The company also faced possible termination of critical contracts. The company was left with no choice but to seek relief under Chapter 11 in order to continue its turnaround plans and to insure fair treatment of all creditors," said Robert J. Keach, a leading bankruptcy attorney with Bernstein, Shur, Sawyer & Nelson in Portland.

"Recent shifts in the market, resulting in increased prices for the leather sold by the company, support Irving's prospects for reorganization. In addition, aggressive cost-cutting, along with restructuring of the company's long-term debt, should return the long-standing company to profitability," Keach added.

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