SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........... to ................
Commission file numbers: 1-11432; 1-11436
FOAMEX L.P.
FOAMEX CAPITAL CORPORATION
(Exact Name of registrant as Specified in its Charter)
Delaware 05-0475617
Delaware 22-3182164
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Columbia Avenue, Linwood, PA 19061
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 859-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether Foamex L.P. (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that Foamex
L.P. was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether Foamex Capital Corporation (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods that
Foamex Capital Corporation was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [ ] NO [X] (The
Foamex Capital Corporation Exchange Act reports were timely transmitted to the
Securities and Exchange Commission, but contained incorrect electronic codes;
therefore, such reports may not be deemed to have been timely filed.)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
None of the voting securities of Foamex L.P. or Foamex Capital Corporation
are held by non-affiliates.
As of April 7, 1997, there were 1,000 shares of Foamex Capital
Corporation's common stock outstanding.
Foamex Capital Corporation meets the condition set forth in General
Instruction (J)(1)(a) and (b) of Form 10-K and is therefore filing this form
with the reduced disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE
None
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FOAMEX L.P.
FOAMEX CAPITAL CORPORATION
INDEX
Page
Part I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote
of Security Holders 13
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 13
Item 6. Selected Consolidated Financial Data 13
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 15
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 22
Part III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management 28
Item 13. Certain Relationships and Related Transactions 29
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 33
Signatures 40
The Registrants will furnish a copy of any exhibit to this Form 10-K upon
the payment of a fee equal to the Registrants' reasonable expense in furnishing
such exhibit.
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PART I
ITEM l. BUSINESS
General
Foamex L.P., an indirect-majority owned subsidiary of Foamex
International Inc. ("Foamex International"), is engaged in the business of
manufacturing and distributing quality flexible polyurethane foam and foam
products. As of December 29, 1996, Foamex L.P.'s partners were FMXI, Inc
("FMXI") with a 1% managing general partnership interest, Trace Foam Company,
Inc. ("Trace Foam") with a 1% non-managing general partnership interest, and
Foamex-JPS Automotive L.P. ("FJPS") with a 98% limited partnership interest.
FMXI and FJPS are both wholly-owned subsidiaries of Foamex International. Foamex
L.P.'s operations are conducted together with its wholly-owned subsidiaries,
General Felt Industries, Inc. ("General Felt"), Foamex Fibers, Inc. ("Foamex
Fibers"), Foamex Canada Inc. ("Foamex Canada"), and Foamex Latin America, Inc.
("Foamex Mexico").
In 1995, Foamex L.P. announced an operational plan to improve
profitability. The operational plan consisted of (i) reducing layers of
management through organizational realignment, (ii) the consolidation of foam
production, fabrication or branch locations, (iii) implementing additional
procedures to reduce manufacturing costs, including process redesign to
eliminate non-value added operations, (iv) reducing selling, general and
administrative expenses through cost containment and (v) reducing inventory
levels through improved forecasting and the effect of plant consolidations. In
December 1995, Foamex L.P. recorded restructuring and other charges of $39.2
million relating to (i) the consolidation of thirteen foam production,
fabrication or branch locations (the "1995 restructuring plan"), (ii) other
charges, primarily relating to merger and acquisition activities of Foamex L.P.
and (iii) the completion of a 1993 restructuring plan. During 1996, Foamex L.P.
completed the consolidation of twelve foam production, fabrication or branch
locations; however, one of the facilities originally identified for closure will
continue to operate because of improved economics and the lack of synergy to be
achieved from relocating the manufacturing process. In addition, Foamex L.P. has
approved a plan to close two facilities that were not originally identified in
the 1995 restructuring plan. As a result of these changes to the 1995
restructuring plan and the favorable termination of certain lease agreements and
other matters, Foamex L.P. recorded a $6.4 million net restructuring credit
which included a restructuring credit of $11.3 million associated with Foamex
L.P.'s decision not to close the facility identified as part of the 1995
restructuring plan and $1.7 million of restructuring credits relating primarily
to the favorable termination of certain lease agreements and other matters
associated with the 1995 restructuring plan, offset by $6.6 million of
restructuring charges relating to the closure of two facilities during 1997 (the
"1996 restructuring plan"). There can be no assurance that Foamex L.P. will be
able to successfully complete its restructuring plans.
During 1996, Foamex L.P. completed the sale of its Perfect Fit
Industries, Inc. ("Perfect Fit") subsidiary. Perfect Fit operated in the home
comfort products business segment and was acquired in November 1993 for $69.1
million which included 364,820 shares of Foamex International's common stock
valued at $5.5 million. The consolidated financial statements of Foamex L.P.
have been restated for discontinued operations and include a net loss of
approximately $41.8 million (net of a $1.2 million income tax benefit) on the
disposal of Perfect Fit which includes provisions for operating losses during
the phase-out period. As of February 26, 1997, Foamex L.P. has utilized $39.7
million of the net proceeds from the sale of Perfect Fit to reduce long-term
debt by $38.6 million.
During April 1996, Foamex International contributed the foam products
operations of Foamex Mexico to Foamex L.P. The contribution was accounted for in
a manner similar to a pooling of interests since the entities were under common
control. Accordingly, all prior periods presented have been restated to reflect
the results of operations and financial position of Foamex Mexico.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Annual Report on Form 10-K
and those that may be made in the future by or on behalf of Foamex L.P. which
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are identified as forward-looking, Foamex L.P. notes that there are various
factors that could cause actual results to differ materially from those set
forth in any such forward-looking statements, such as raw material price
increases, general economic conditions, the level of automotive production,
carpet cushion production and housing starts, the implementation and estimated
annualized savings of the operational plan and changes in environmental
legislation and environmental conditions. The forward- looking statements
contained in this Annual Report on Form 10-K were prepared by management and are
qualified by, and subject to, significant business, economic, competitive,
regulatory and other uncertainties and contingencies, all of which are difficult
or impossible to predict and many of which are beyond the control of Foamex L.P.
Accordingly, there can be no assurance that the forward-looking statements
contained in this Annual Report on Form 10-K will be realized or that actual
results will not be significantly higher or lower. The forward-looking
statements have not been audited by, examined by, compiled by or subjected to
agreed-upon procedures by independent accountants, and no third-party has
independently verified or reviewed such statements. Readers of this Annual
Report on Form 10-K should consider these facts in evaluating the information
contained herein. In addition, the business and operations of Foamex L.P. are
subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements contained in this Annual Report on Form 10-K. The
inclusion of the forward-looking statements contained in this Annual Report on
Form 10-K should not be regarded as a representation by Foamex L.P. or any other
person that the forward-looking statements contained in this Annual Report on
Form 10-K will be achieved. In light of the foregoing, readers of this Annual
Report on Form 10-K are cautioned not to place undue reliance on the
forward-looking statements contained herein.
The principal executive offices of Foamex L.P. are located at 1000
Columbia Avenue, Linwood, Pennsylvania 19061 and its telephone number is (610)
859-3000.
References in this Annual Report on Form 10-K to Foamex L.P. mean Foamex
L.P. and, where relevant, its subsidiaries. The diagram on the following page
depicts the relationships between Foamex L.P. and certain of its affiliates as
of December 29, 1996.
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DIAGRAM OMITTED
A description of the diagram is as follows:
Trace International Holdings Inc. and subsidiaries has a 44.7% interest in
Foamex International Inc. and a 1% non- managing general partnership interest in
Foamex L.P.
Foamex International Inc. has a 99% limited partnership interest in Foamex-JPS
Automotive L.P. and a 100% corporate interest in FJGP Inc. and FMXI, Inc. FJGP
Inc. has a 1% managing general partnership interest in Foamex-JPS Automotive
L.P. and FMXI, Inc. has a 1% managing general partnership interest in Foamex
L.P.
Foamex-JPS Automotive L.P. has a 98% limited partnership interest in Foamex L.P.
and a 100% corporate interest in Foamex-JPS Capital Corporation.
Foamex L.P. has a 100% corporate interest in General Felt Industries, Inc.,
Foamex Canada Inc., Foamex Capital Corporation and Foamex Latin America, Inc.
General Felt Industries, Inc. has a 100% corporate interest in Foamex Fibers
Inc.
Foamex Latin America, Inc. has a 100% corporate interest in Grupo Foamex Mexico,
S.A. de C.V., Foamex De Mexico S.A. de C.V and Transformacion De Espumas Y
Fieltros, S.A. de C.V.
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Flexible Polyurethane Foam Products
Foamex L.P. is a manufacturer and distributor of quality flexible
polyurethane foam and foam products to satisfy the specific needs of customers.
Foamex L.P.'s foam manufacturing and distribution facilities enable it to source
production efficiently and meet the needs of its customers throughout North
America. Such facilities are also important for satisfying all of the foam
requirements of large national customers in a timely and cost effective manner.
Foamex L.P.'s operations are conducted together with its wholly-owned
subsidiaries General Felt, Foamex Fibers, Foamex Canada, and Foamex Mexico.
Foamex L.P. operates in the foam products business segment with net sales
being derived from four major product categories: carpet cushion, cushioning
foams, automotive foams and technical foams. Management's Discussion and
Analysis of Financial Condition and Results of Operations provides net sales by
product category for the past three fiscal years.
Foamex L.P. supplies cushioning foams to major bedding and furniture
manufacturers such as Sealy, Simmons, and Ethan Allen. Foamex L.P.'s packaging
foams are supplied to distributors and manufacturers of computers and other
electronic devices, including Seagate Technology and CompUSA. Foamex L.P.
distributes its automotive foam products to original equipment manufacturers
("OEMs") and major tier one suppliers such as Lear Corporation, Johnson
Controls, Inc., and Delphi Interiors and Lighting. Many of these relationships
allow Foamex L.P. to work with customers during the design phase for new
products and new applications for existing products, thereby increasing the
likelihood that Foamex L.P. will be a principal supplier for these products.
The introduction of new products and new applications for existing
products is an integral component of Foamex L.P.'s growth strategy. During 1996,
Foamex L.P. introduced Reflex(TM) and Nexol(TM) for the cushioning and packaging
industries, respectively. These products were created using patented variable
pressure foaming technology ("VPF(TM)"). Reflex(TM) materials, which include
cushion wraps and cushion cores, are advanced polymer cushioning products
designed to improve comfort, quality and durability in upholstered furniture.
Nexol(TM) expands Foamex L.P.'s capabilities in meeting the special packaging
requirements of sensitive and fragile products such as electronic components.
Also, during the past few years, Foamex L.P. developed new automotive foam
applications, including thermoformable foam headliners and energy absorbing
foams, and introduced ComfortWear(TM), a branded, high resilience prime carpet
cushion. In addition, Foamex L.P. has developed, and is the exclusive producer
of, a reticulated foam for the precise metering of ink for Hewlett-Packard
inkjet printers and the attendant replacement ink cartridges.
Carpet Cushion
Foamex L.P. is one of the largest manufacturers and distributors of
prime, bonded, sponge rubber and felt carpet cushion in North America. Foamex
L.P. also manufactures synthetic "grass" turf, primarily for the residential
market. Synthetic turf is tufted from polypropylene yarn in a variety of colors,
textures and qualities. In addition, Foamex L.P. manufactures a variety of
textured carpeting and wall coverings primarily using solution dyed
polypropylene staple fiber. Such needlepunch carpets have generally been used as
indoor/outdoor floor covering but, through the development of patterned products
and stylized color lines, have found increasing acceptance in both residential
and commercial applications.
Foamex L.P. developed ComfortWear(TM), a quality prime carpet cushion,
which was introduced in February 1994 in conjunction with significant consumer
and trade promotions. ComfortWear(TM) currently is sold in retail outlets
throughout the United States. ComfortWear(TM) is marketed through floor covering
retailers in the United States such as Sears, New York Carpet World, and
Carpetland USA.
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Cushioning Foams
Foamex L.P. is one of the largest manufacturers of cushioning foams in
North America. These foams are used by the bedding industry in quilts, toppers,
cores and border rolls for mattresses and by the furniture industry for seating
products. Cushioning foams are generally sold in large volumes on a regional
basis because of high shipping costs. Due to its size and the strategic location
of its production facilities, Foamex L.P. believes it will continue to have an
advantage over small regional producers in supplying large national accounts
with all of their foam requirements.
The development and introduction of value added products continues to be
a priority of Foamex L.P. and has included (i) Reflex(TM) and Nexol(TM)
discussed below, (ii) viscoelastic or "memory" foams for the bedding industry,
which maintain their resiliency better than other foams and materials and (iii)
Latex Plus, a urethane-based replacement for latex, a material used in bedding
products. Foamex L.P.'s most recent product introductions have included
Reflex(TM) and Nexol(TM) for the cushioning and packaging industries,
respectively, which were created using the VPF(TM) manufacturing process.
Reflex(TM) materials, which include cushion wraps and cushion cores, are
advanced polymer cushioning products designed to improve comfort, quality and
durability in upholstered furniture. Nexol(TM) expands Foamex L.P.'s
capabilities in meeting the special packaging requirements of sensitive and
fragile products such as electronic components.
Foamex L.P.'s cushioning foams for bedding products are sold to mattress
customers, such as Sealy Mattress Co., Simmons, Serta, and Spring Air Company,
both directly and through independent fabrication operators located across the
United States. Also, Foamex L.P. supplies cut-to-size seat cushions, backs and
other pieces to the furniture industry, including to Berkline, Action, and
Schnadig.
Automotive Foams
Foamex L.P. is one of the largest suppliers of the trim foam requirements
of the North American operations of American and Japanese automotive
manufacturers. Depending on the automotive manufacturer and/or the application,
foam is supplied by Foamex L.P. either directly to the manufacturer or
indirectly through sub-suppliers. Automotive foams are used for trim pads, door
panel parts, headliners, acoustical purposes, flame and adhesive laminates and
rolls for tri-lamination. Tri-laminated foam is applied to automotive fabrics to
form a foam/fabric composite that results in cost savings and aesthetic value
for the automotive manufacturer.
The domestic automotive manufacturers have narrowed their supply base
during recent years, increasing the percentage and dollar amount of components
that they purchase from outside suppliers. As a result, a smaller number of
companies are supplying an increasing percentage of these manufacturers' needs.
Foamex L.P. believes it has benefited from this trend, which favors suppliers
with quality facilities and products, cost efficient plants, long-standing
relationships, strong design, technical and product development support and
broad product lines. Management believes this outsourcing trend will continue,
particularly for components such as foam, trim and accessories that represent a
small portion of the overall cost of a vehicle.
During 1996, Foamex L.P. entered into a strategic alliance with Recticel,
s.a. ("Recticel") to design, manufacture and market polyurethane products for
the automotive industry in order to meet the worldwide requirements of the OEMs
and the major tier one suppliers such as Lear Corporation, Johnson Controls,
Inc., and Delphi Interiors and Lighting. Under this alliance, both companies
will jointly supply the automotive suppliers with products manufactured in North
America by Foamex L.P. and in Europe by Recticel.
Foamex L.P. believes that the automotive manufacturers' just-in-time
inventory requirements will provide Foamex L.P. with a competitive advantage due
to the quality of Foamex L.P.'s foam products, its flexible manufacturing
capacity and its strategically located manufacturing facilities that enable
Foamex L.P. to minimize shipping time and costs. In addition, management expects
foam usage per vehicle to increase because manufacturers have generally
increased their investment in upgrading automobile and light truck interiors to
improve comfort, attractiveness, safety and noise absorption capabilities.
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Foamex L.P.'s new product development and flexible manufacturing
capabilities allow it to produce quality products to satisfy changing
specifications. Examples of Foamex L.P.'s ability to react to changing industry
requirements include thermoformable headliners, tri-laminates and energy
absorbing foams. For example, Foamex L.P. is one of the first suppliers to
introduce a thermoformable headliner, Custom Fit(TM), made from rigid
polyurethane foam. The use of foam headliners is expected to continue to grow
due to concerns for automotive workers' safety caused by fiberglass processing.
Foamex L.P. intends to continue manufacturing and supplying foam and fabric
components, such as tri-laminated material for automotive seating. The use of
tri-laminates has become increasingly prevalent due to significant cost savings
for manufacturers and improved aesthetics for consumers. Automotive suppliers
are increasingly offering integrated systems which lower overall cost and
improve quality relative to previous sourcing methods in which individually
sourced components were assembled and installed by the OEMs.
Automotive manufacturers are increasingly requiring the production
facilities of their suppliers to meet certain high quality standards.
Eventually, all tier one and tier two automotive supplier facilities worldwide
must adhere to the QS-9000 quality manufacturing standards set by United States
automotive manufacturers. In 1996, Foamex L.P. completed QS-9000 and ISO-9001
certification for its eight facilities which supply the automotive industry.
Foamex L.P. was one of the first polyurethane manufacturers to be QS-9000
certified which demonstrates its commitment to producing the highest quality
products and meeting the needs of its customers.
Technical Foams
Foamex L.P. believes that it is one of the foam industry's prime
innovators and producers of industrial, specialty and safety foams
(collectively, "technical foams"). Technical foams consist of reticulated foams
and other custom polyester and polyether foams, which are sometimes combined
with other materials to yield specific properties. Reticulation is the thermal
or chemical process used to remove the membranes from the interconnecting cells
within foam. This leaves a porous, skeletal structure allowing for the free flow
of gases and/or liquids.
Reticulated foams are well suited for filtration, reservoiring, sound
absorption and sound transmission. Industrial applications include carburetors,
computer cabinets, ink pad reservoirs, high speed inkjet printers and speaker
grills. Medical applications include oxygenators for cardiopulmonary bypass
surgery, instrument holders for sterilization, pre-op scrubbers impregnated with
anti-microbial agents and EKG pads containing conductive gels. Other technical
foams have unique characteristics such as flame retardancy and fluid absorption.
In addition, felting and lamination with other foams or materials give these
composites specific properties. Additional products sold within this group
include foams for refrigerated supermarket produce counters, mop heads, paint
brushes, diapers and cosmetic applications.
Foamex L.P. utilizes advertising in trade journals and related media in
order to attract customers and, more generally, to create an awareness of its
capabilities for technical foams. In addition, due to the highly specialized
nature of most technical foams, Foamex L.P.'s research staff works with
customers to design, develop and manufacture each product to specification.
Marketing and Sales
Foamex L.P. has a marketing and sales force of approximately 194
employees. Product business managers direct sales efforts towards each of the
end-user markets (i.e., carpet cushion, cushioning foams, automotive foams and
technical foams).
Foamex L.P.'s carpet cushion marketing program includes the broad
distribution of products to both the retail and wholesale levels. Furthermore,
promotions, marketing and advertising expenditures are important in positioning
Foamex L.P.'s carpet cushions as premium, trade branded products.
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Bedding and furniture products are sold directly by Foamex L.P. to
customers and also through third party independent fabricators. The key
strategic elements supporting growth in these areas are a focus on marketing and
sales efforts, high quality, cost competitive products and low freight costs
through optimal plant location. Plant locations are critical in this
regionalized line of business where the transportation cost typically comprises
a significant portion of product cost.
Foamex L.P. has been a leading supplier of automotive foam products to
the automotive industry for more than 30 years. Automotive foam products are
predominantly sold directly through a bidding process in which each customer's
requirements for a particular time period are awarded to a foam supplier. Foamex
L.P. has consistently been awarded contracts with OEM's and major tier one
suppliers such as Lear Corporation, Johnson Controls, Inc.
and Delphi Interiors and Lighting.
Foamex L.P. markets most of its technical foams through a network of
independent fabrication and distribution companies in North America, the United
Kingdom, and South Korea. Such fabricators or distributors often further process
or finish these products to meet the specific needs of the end-user. Foamex
L.P.'s technical foams service unique end-user requirements and are generally
sold at relatively high margins. This line of business is characterized by a
diversity and complexity of both customers and applications.
Customers
During the past three fiscal years, no one customer accounted for more
than 10.0% of Foamex L.P.'s net sales. However, 1996 net sales to the five
largest customers comprised $225.4 million or 24.3% of Foamex L.P.'s net sales,
including net sales to Lear Corporation, Johnson Controls, Inc., and Sealy
Mattress Co. of approximately $62.0 million, $57.7 million and $42.1 million or
approximately 6.7%, 6.2% and 4.5% of net sales, respectively.
Manufacturing and Raw Materials
Foamex L.P. produces bulk and fabricated flexible polyurethane foam at 46
locations in North America with a total of approximately 6.8 million square feet
of floor space. Management believes that Foamex L.P.'s manufacturing facilities
are well suited for their intended purposes and are in good condition (see
"Properties"). The manufacturing facilities are strategically located to service
their major customers since high freight cost in relation to the cost of the
foam product generally results in distribution being most cost effective within
200 to 300 miles from each facility.
In 1996, raw materials accounted for approximately 74% of the
manufacturing costs of Foamex L.P. The two principal chemicals in polyurethane
foam, toulene diisocyanate ("TDI") and polyol, accounted for approximately 52%
of raw material cost. Foamex L.P.'s largest supplier of raw materials is The Dow
Chemical Company. Foamex L.P. generally has alternative chemical suppliers for
each major raw material and Foamex L.P. believes that it could find alternative
sources of supply should it cease doing business with any one of its major
suppliers. The price of TDI and polyol is influenced by demand, manufacturing
capacity and oil and natural gas prices.
Foamex L.P.'s principal suppliers of raw materials used in the
manufacturing of the foam increased the price of raw materials several times
during 1995 and 1994. In response, Foamex L.P. increased selling prices, where
possible, for cushioning, automotive and technical foam products depending on
the product. The 1995 results of operations were adversely affected by the
delays in, or the inability to, implement selling price increases to offset
these raw material cost increases. Foamex L.P. did not experience any
significant price increases during 1996; however, there can be no assurance that
chemical suppliers will not increase raw material costs in the future or that
Foamex L.P. will be able to implement selling price increases to offset any such
raw material cost increases.
Foamex L.P. is subject to extensive and changing environmental laws and
regulations. See "Legal Proceedings -- Environmental Matters" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Environmental Matters."
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Employees
As of December 29, 1996, Foamex L.P. employed 4,453 persons, with 3,972
of such employees involved in manufacturing, 287 in administration and 194
involved in sales and marketing. Approximately 728 of these employees are
located outside the United States. Also, approximately 1,338 of these employees
are covered by collective bargaining agreements with labor unions, which
agreements expire on various dates from 1997 through 2001. Foamex L.P. considers
relations with its employees to be good.
Competition
The flexible polyurethane foam industry is highly competitive. With
respect to flexible polyurethane foam, competition is based primarily on price,
quality of products and service. Foamex L.P.'s larger competitors in the
polyurethane foam industry include E. R. Carpenter Company, Crain Industries
Inc., Hickory Springs Manufacturing Company, Vitafoam, Inc., General Foam
Corporation, Flexible Foam Products, Inc., and Crest Foam Industries, Inc. None
of such competitors compete in all of the product categories in which Foamex
L.P. does business.
International and Domestic Operations and Export Sales
Foamex L.P. has manufacturing operations in the United States, Canada,
and Mexico. Net sales to customers in foreign markets in 1996, 1995 and 1994
were $76.0 million (8.2% of net sales), $73.3 million (8.5% of net sales) and
$66.6 million (8.0% of net sales), respectively.
Patents and Trademarks
Foamex L.P. owns various patents and trademarks registered domestically
and in numerous foreign countries. The registered processes and products were
developed through on-going research and development activities to improve
quality, reduce costs and expand markets through the development of new
applications for flexible polyurethane foam products. Foamex L.P. uses several
trademarks and tradenames for product identification, the majority of which are
used in the carpet cushion and technical foams product lines. Foamex L.P.
believes its business is not dependent upon any individual patent, trademark or
tradename.
Research and Development
Foamex L.P. believes it has a leading research and development capability
in the flexible polyurethane foam industry. This capability gives Foamex L.P. a
significant advantage in the on-going development of new products and new
applications for existing products. Foamex L.P. has research and development
facilities located in Hayward, California; Dalton, Georgia; and Eddystone,
Pennsylvania employing approximately 28 full-time employees. Expenditures for
research and development amounted to $2.5 million, $3.2 million and $2.7 million
for 1996, 1995 and 1994, respectively.
Foamex L.P. and Recticel, have exchanged know-how, trade secrets,
engineering and other data, designs, specifications, chemical formulations,
technical information, market information and drawings which are necessary or
useful for the manufacture, use or sale of foam products and it is anticipated
that they will continue to do so in the future. Foamex L.P., Recticel, and
Beamech Group Limited, an unaffiliated third party ("Beamech"), have an interest
in a Swiss corporation that develops new manufacturing technology for the
production of polyurethane foam including the VPF(TM) manufacturing process.
Foamex L.P., Recticel, and their affiliates have a royalty-free license to use
technology developed by the Swiss corporation.
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ITEM 2. PROPERTIES
As of December 29, 1996, Foamex L.P. conducted its operations through 59
manufacturing and distribution facilities, of which 18 are owned and 41 are
leased. Total floor space in use at the owned manufacturing and distribution
facilities is approximately 3.7 million square feet and total floor space in use
at the leased manufacturing and distribution facilities is approximately 3.5
million square feet. Fifty-one of these facilities are located in 36 cities in
the United States, five facilities are located in two cities in Canada and three
facilities are located in three cities in Mexico. The 1997 annual base rental
with respect to such leased facilities is approximately $7.4 million under
leases expiring from 1997 to 2005. Foamex L.P. does not anticipate any problem
in renewing or replacing any of such leases expiring in 1997. In addition,
Foamex L.P. has approximately 1.1 million square feet of idle space of which
approximately 0.5 million is leased.
Foamex L.P. maintains administrative and sales offices in Linwood,
Pennsylvania; Hayward, California; Chicago, Illinois; and New York, New York.
ITEM 3. LEGAL PROCEEDINGS
Environmental Matters
Foamex L.P. is subject to extensive and changing federal, state, local
and foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with Foamex
L.P.'s compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on its operations, financial
position, capital expenditures or competitive position. As of December 29, 1996,
Foamex L.P. has environmental accruals of approximately $4.1 million for
environmental matters. In addition, as of December 29, 1996, Foamex L.P. has
receivables of approximately $0.9 million relating to indemnification for
environmental liabilities, net of an allowance of approximately $1.0 million
relating to potential disagreements regarding the scope of the indemnification.
Foamex L.P. believes that realization of the net receivables established for
indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air pollutants
including methylene chloride and TDI, principal raw materials used in the
manufacturing of foam. Foamex L.P. completely eliminated the use of
chlorofluorocarbons and methylchloroform by the end of 1995. The 1990 CAA
Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
Foamex L.P. has reported to appropriate state authorities that it has
found soil contamination in excess of state standards at facilities in Orlando,
Florida; La Porte, Indiana; Conover, North Carolina; Cornelius, North Carolina;
Fort Wayne, Indiana; Philadelphia, Pennsylvania; and at a former facility in
Dallas, Texas and groundwater contamination in excess of state standards at the
Orlando, Conover, Philadelphia, and Cornelius facilities. Foamex L.P. has begun
remediation and is conducting further investigations into the extent of the
contamination at these facilities and, accordingly, the extent of the
remediation that may ultimately be required. The actual cost and the timetable
of any such remediation cannot be predicted with any degree of certainty at this
time. Foamex L.P., based on engineering estimates of the remaining potential
remediation costs for these facilities, has accruals of $3.2 million for the
estimated cost of completing remediation and established a net receivable of
$0.9 million on the basis of indemnifications by Trace International Holdings,
Inc. ("Trace Holdings") and Recticel Foam Corporation ("RFC") associated with
the partnership formation of Foamex L.P. Foamex L.P. has completed remediation
of soil contamination at a former Trenton, New Jersey manufacturing facility
closed in October 1993 and is awaiting final closure approvals from the New
Jersey Department of Environmental Protection regarding the remediation of soil
contamination and monitoring of groundwater at the former Trenton facility.
11
<PAGE>
Also, Foamex L.P. has completed remediation at its Mesquite, Texas facility and
is awaiting a certificate of completion under the Texas Voluntary Clean Up
program.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. Foamex L.P. has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. Foamex
L.P. has accrued $0.4 million for the estimated removal and remediation costs,
if any, associated with these USTs. However, the full extent of contamination,
and accordingly, the actual cost of such remediation cannot be predicted with
any degree of certainty at this time. Foamex L.P. believes that its USTs do not
pose a significant risk of environmental liability because of its monitoring
practices for USTs and conditional approval for the permanent in-place closure
for certain USTs. However, there can be no assurance that such USTs will not
result in significant environmental liability in the future.
Foamex L.P. has been designated as a Potentially Responsible Party
("PRP") by the United States Environmental Protection Agency (the "EPA") with
respect to thirteen sites with an estimated total liability to Foamex L.P. for
the thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of Foamex L.P. is considered to be immaterial.
Although it is possible that new information or future developments could
require Foamex L.P. to reassess its potential exposure relating to all pending
environmental matters, including those described herein, management believes
that, based upon all currently available information, the resolution of such
environmental matters will not have a material adverse effect on Foamex L.P.'s
operations, financial position, capital expenditures or competitive position.
The possibility exists, however, that new environmental legislation and/or
environmental regulations may be adopted, or other environmental conditions may
be found to exist, that may require expenditures not currently anticipated and
that may be material.
Legal Proceedings
As of March 21, 1997, Foamex L.P. and Trace Holdings were two of multiple
defendants in actions filed on behalf of approximately 5,000 recipients of
breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, Foamex L.P. and Trace Holdings were granted summary judgements and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of the 903 foreign plaintiffs were dismissed on the grounds that the
cases could not be brought in the United States courts. This decision is subject
to appeal. Foamex L.P. believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from Foamex
L.P. or Trace Holdings. Neither Foamex L.P. nor Trace Holdings recommended,
authorized, or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings' consolidated
financial position or results of operations. In addition, Foamex L.P. is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990. Although Trace Holdings has paid Foamex
12
<PAGE>
L.P.'s litigation expenses to date pursuant to such indemnification and
management believes Trace Holdings likely will be in a position to continue to
pay such expenses, there can be no absolute assurance that Trace Holdings will
be able to provide such indemnification. Based on information available at this
time with respect to the potential liability, and without taking into account
the indemnification provided by Trace Holdings and the coverage provided by
Trace Holdings' and Foamex L.P.'s liability insurance, Foamex L.P. believes that
the proceedings should not ultimately result in any liability that would have a
material adverse effect on the financial position or results of operations of
Foamex L.P. If management's assessment of Foamex L.P.'s liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on Foamex L.P.
During 1996, the Richard Lee Cobble et al. v. Steve Canslers et al. lawsuit
--------------------------------------------------
was settled without liability to Foamex L.P.
Foamex L.P. is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not, individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on Foamex L.P.'s consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
a) Foamex L.P. is a privately-held limited partnership. There is no
established public trading market for its securities.
b) There are three holders of Foamex L.P.'s equity securities.
c) During 1996 and 1995, Foamex L.P. made net cash distributions in
accordance with tax sharing agreements of approximately $3.5
million and $2.4 million, respectively, and has $6.4 million of
accrued distributions in accordance with tax sharing agreements at
December 29, 1996 as follows:
Distributions
1996 1995
(thousands)
FMXI, Inc. $ (35) $ 12
Trace Foam Company, Inc. 45 --
Foamex-JPS Automotive L.P. 3,477 2,367
------- -------
$ 3,487 $ 2,379
======= =======
See "Certain Relationships and Related Transactions - Distributions" for
further information concerning these distributions.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial
data of Foamex L.P. and subsidiaries after being restated for discontinued
operations for all periods presented (see Note 3 to the consolidated financial
statements). The results of operations of acquired businesses (as noted below)
are included from the dates of their respective acquisitions. The financial data
should be read in conjunction with the financial statements and related notes
thereto of Foamex L.P. included elsewhere in this Annual Report on Form 10-K.
13
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year(1)(2)
1996(3) 1995(4) 1994 1993(5) 1992
(thousands)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales $ 926,351 $ 862,834 $ 833,660 $ 684,310 $ 501,751
Income (loss) from continuing operations 53,661 (48,126) 38,011 (7,926) 22,011
Net income (loss) 9,699 (53,243) 39,241 (17,653) 22,011
Balance Sheet Data (at period end):
Total assets $ 586,517 605,892 654,176 575,528 340,900
Long-term debt 392,617 433,956 441,757 414,757 285,762
Partners' equity (deficit) 12,832 (12,604) 52,548 49,386 (39,061)
<FN>
- --------------------------------------------------------------------------------
(1) Foamex L.P. has a 52-53 week fiscal year ending on the Sunday closest to
the end of the calendar year. Each fiscal year presented was 52 weeks
with the exception of 1992 which was 53 weeks.
(2) Fiscal years 1993 through 1995 have been restated for discontinued
operations and fiscal years 1994 and 1995 have been restated for the
contribution of Foamex Mexico.
(3) Includes restructuring credits of $6.4 million (see Note 4 to
consolidated financial statements).
(4) Includes restructuring and other charges of $39.2 million (see Note 4 to
the consolidated financial statements).
(5) Includes the results of operations of General Felt and Great Western from
March 23, 1993 and May 1, 1993, respectively, and thus may not be
comparable to other periods.
</FN>
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Foamex L.P. operates in the flexible polyurethane foam and foam products
industry, together with its wholly- owned subsidiaries, General Felt Industries,
Inc. ("General Felt"), Foamex Fibers, Inc. ("Foamex Fibers"), Foamex Canada Inc.
("Foamex Canada"), and Foamex Latin America, Inc. ("Foamex Mexico"). The
following discussion should be read in conjunction with the consolidated
financial statements and related notes thereto of Foamex L.P. included in this
report.
On April 7, 1997, Foamex International announced that it has initiated an
evaluation of its current capital structure, which includes the long-term debt
of Foamex L.P., with the intention of reducing interest expense and improving
financing flexibility. There can be no assurance however, that the Company will
be able to successfully reduce interest expense or improve financing
flexibility. Also, the affect of any change in the current capital structure on
the consolidated financial statements of Foamex L.P. can not be determined at
this time.
During 1996, Foamex L.P. sold Perfect Fit Industries, Inc. ("Perfect
Fit") which comprised the home comfort products business segment of Foamex L.P.
The consolidated financial statements of Foamex L.P. have been restated for
discontinued operations and includes a net loss of $41.8 million (net of a $1.2
million income tax benefit) on the disposal of this business segment which
includes provisions for operating losses during the phase-out period (see Note 3
to the consolidated financial statements for further discussion). In addition,
during April 1996, Foamex International contributed the foam products operations
of Foamex Mexico to Foamex L.P. The contribution was accounted for in a manner
similar to a pooling of interests since the entities were under common control.
Accordingly, all prior periods presented have been restated to reflect the
results of operations and financial position of Foamex Mexico.
Foamex L.P.'s results of operations have been affected by various
factors, including the implementation of an operational plan in 1995 to improve
profitability and unrecovered raw material cost increases during 1995. The
operational plan consisted of (i) reducing layers of management through
organizational realignment, (ii) the consolidation of foam production,
fabrication or branch locations, (iii) implementing additional procedures to
reduce manufacturing costs, including process redesign to eliminate non-value
added operations, (iv) reducing selling, general and administrative expenses
through cost containment and (v) reducing inventory levels through improved
forecasting and the effect of plant consolidations. In December 1995, Foamex
L.P. recorded restructuring and other charges of $39.2 million relating to (i)
the consolidation of thirteen foam production, fabrication or branch locations
(the "1995 restructuring plan"), (ii) other charges, primarily relating to
merger and acquisition activities of Foamex L.P. and (iii) the completion of a
1993 restructuring plan. During 1996, Foamex L.P. completed the consolidation of
twelve foam production, fabrication or branch locations; however, one of the
facilities originally identified for closure in the 1995 restructuring plan will
continue to operate because of improved economics and the lack of synergy to be
achieved from relocating the manufacturing process. In addition, Foamex L.P. has
approved a plan to close two facilities that were not originally identified in
the 1995 restructuring plan. As a result of these changes to the 1995
restructuring plan and the favorable termination of certain lease agreements and
other matters, Foamex L.P. recorded a $6.4 million net restructuring credit
which included a restructuring credit of $11.3 million associated with Foamex
L.P.'s decision not to close the facility identified as part of the 1995
restructuring plan and $1.7 million of restructuring credits relating primarily
to the favorable termination of certain lease agreements and other matters
associated with the 1995 restructuring plan, offset by $6.6 million of
restructuring charges relating to the closure of two facilities during 1997 (the
"1996 restructuring plan"). There can be no assurance that Foamex L.P. will be
able to successfully complete its restructuring plans.
Foamex L.P.'s automotive foam customers are predominantly automotive
original equipment manufacturers or other automotive suppliers. As such, the
sales of these product lines are directly related to the overall level of
passenger car and light truck production in North America. Also, Foamex L.P.'s
sales are sensitive to sales of new and existing homes, changes in personal
disposable income and seasonality. Foamex L.P. typically experiences two
seasonally slow periods during each year, in early July and in late December,
due to scheduled plant shutdowns and holidays.
15
<PAGE>
RESULTS OF OPERATIONS
1996 Compared to 1995
Net sales for 1996 were $926.4 million as compared to $862.8 million in
1995, an increase of $63.6 million or 7.4%. Carpet cushion net sales for 1996
increased 7.5% to $291.3 million from $271.0 million in 1995 primarily due to
increased selling prices initiated during the second quarter of 1996 as well as
increased volume of shipments due to improved carpet sales. Cushioning foam net
sales for 1996 increased 7.4% to $332.9 million from $310.0 million in 1995
primarily due to increased net sales volume from both new and existing customers
of bedding related products, increased selling prices initiated at the beginning
of 1996 and a full year of results for a company acquired in April 1995 which
manufactures cushioning products. Automotive foam net sales for 1996 increased
5.5% to $231.9 million from $219.8 million in 1995 primarily due to a continued
increase in net sales of tri-laminates and composite headliners and increased
selling prices initiated at the beginning of 1996. Technical foam net sales for
1996 increased 13.4% to $70.3 million from $62.0 million in 1995 primarily due
to increased selling prices and increased net sales volume.
Gross profit as a percentage of net sales increased to 16.5% for 1996
from 11.7% in 1995 primarily due to selling price increases and improved
material and production efficiencies, which includes (i) selling price increases
during 1996 to offset the adverse affect of the 1995 and 1994 raw material cost
increases, (ii) reductions in customer deductions for pricing disputes,
promotional programs and other matters and (iii) reductions in salaries and
other overhead costs associated with the implementation of the 1995
restructuring plan.
Income from operations was $102.9 million for 1996 as compared to a loss
from operations of $2.0 million in 1995. The increase was primarily due to an
increase in gross profit margins as discussed above, a decrease in restructuring
and other charges (credits) of $45.7 million and a decrease in selling, general
and administrative expenses of $6.7 million for 1996 as compared to 1995. The
decrease in restructuring and other charges (credits) is comprised of the $39.2
million charge for restructuring and other charges in 1995 plus the net
restructuring credit of $6.4 million in 1996. The 1996 net restructuring credit
is comprised of a $11.3 million credit due to Foamex L.P.'s decision not to
close a facility which was part of the 1995 restructuring plan and $1.7 million
of credits relating primarily to the favorable termination of lease agreements
and other matters relating to the 1995 restructuring plan, offset by $6.6
million of restructuring charges relating to the 1996 restructuring plan which
primarily consists of the closure of two facilities during 1997. The decrease in
selling, general and administrative expenses is the result of reductions in the
provision for uncollectible accounts of approximately $3.9 million, salaries and
employee costs of approximately $3.7 million and a reduction of approximately
$2.0 million in environmental accruals offset by increases in selling expenses
associated with the increased net sales volume and management realignment in
connection with the 1995 operational plan.
Income from continuing operations before provision for income taxes was
$61.4 million for 1996 as compared to a loss from continuing operations before
provision for income taxes of $46.7 million in 1995. The increase is primarily
due to the reasons cited above and a decrease in interest and debt issuance
expense of $1.3 million. The decrease in interest and debt issuance expense is
primarily due to a $2.3 million increased benefit from interest rate swap
agreements offset by the amount of interest allocated to discontinued operations
in 1996 as compared to 1995 (See Note 3 to the consolidated financial
statements for further discussion).
Foamex L.P., as a limited liability partnership, is not subject to
federal and certain state income taxes. However, the consolidated financial
statements include a provision for income taxes which primarily relates to the
federal and state income taxes of corporate subsidiaries and subsidiaries
located in foreign jurisdictions that file separate income tax returns. See Note
10 to the consolidated financial statements for further discussion.
16
<PAGE>
The loss from discontinued operations of $42.1 million (net of $2.6
million income tax benefit) in 1996 relates to the net loss on the sale of the
home comfort products business segment which consisted primarily of the net
assets of Perfect Fit and the operating loss of Perfect Fit through the closing
date. See Note 3 to the consolidated financial statements for further
discussion.
The extraordinary loss on early extinguishment of debt of $1.9 million
primarily relates to the write-off of debt issuance costs and redemption
premiums associated with the early extinguishment of $30.6 million of long-term
debt. See Note 11 to the consolidated financial statements for further
discussion.
Operating results in 1997 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
continued implementation of the operational plan to improve Foamex L.P.'s
profitability, (ii) the completion of Foamex International's evaluation of the
capital structure of Foamex L.P., (iii) raw material price increases, if any, by
Foamex L.P.'s chemical suppliers and (iv) Foamex L.P.'s success in passing on to
its customers selling price increases to recover such raw material cost
increases, if any. Also, effective in January 1997, Foamex L.P.'s operations in
Mexico became subject to highly inflationary accounting for financial reporting
purposes. Translation adjustments resulting from fluctuations in the exchange
rate between the Mexican Peso and the U.S. dollar will be included in Foamex
L.P.'s consolidated statement of operations as compared to partners' equity
(deficit). Large fluctuations in the Mexican Peso exchange rate could have an
adverse impact on Foamex L.P.'s results of operations.
1995 Compared to 1994
Net sales for 1995 were $862.8 million as compared to $833.7 million
in 1994, an increase of $29.1 million or 3.5%. Carpet cushion net sales for 1995
decreased 7.4% to $271.0 million from $292.5 million in 1994 primarily due to
reduced net sales volume of certain carpet cushion products resulting from weak
carpet sales and a change in product mix to carpet cushion with lower selling
prices. In addition, carpet cushion selling prices were under pressure from an
excess supply of low priced scrap foam, the primary component of rebond carpet
cushion. Cushioning foam net sales for 1995 increased 7.2% to $310.0 million
from $289.2 million in 1994 primarily due to the April 1995 acquisition of a
company which manufactures cushioning products and increased selling prices
offset by a reduction in net sales volume due to competitive pricing pressures
and reduced demand for certain cushioning foam products. Automotive foam net
sales for 1995 increased 11.0% to $219.8 million from $198.0 million in 1994
primarily due to increased net sales volume of tri-laminates and composite
headliner products offset by a reduction in net sales volume of other automotive
foam products. Technical foam net sales for 1995 increased 14.8% to $62.0
million from $54.0 million in 1994 primarily due to increased selling prices and
increased net sales volume.
Gross profit as a percentage of net sales decreased to 11.7% for 1995
from 17.1% for 1994. This unfavorable relationship was primarily due to net
unrecovered raw material cost increases of approximately $25.0 million during
1995. In addition, the decrease in gross profit margins for 1995 as compared to
1994 was also associated with (i) approximately $7.7 million of increased
customer deductions for pricing disputes, promotion programs and other matters,
(ii) approximately $3.5 million of increased employee benefits accruals
associated with insurance and pension plans and other accruals, (iii)
approximately $1.5 million of inventory write-offs associated with scrap foam
inventory and discontinued or slow moving product lines, (iv) an increase in net
sales of automotive tri- laminates, which have a lower-margin than other foam
products, (v) under-utilization of manufacturing capacities due to reduced net
sales volume of certain product lines and (vi) carpet cushion selling prices
remaining under pressure from an excess supply of low priced scrap foam, the
primary component of rebond carpet cushion.
A loss from operations of $2.0 million was incurred for 1995 as
compared to income of $85.3 million for 1994. The decrease in income from
17
<PAGE>
operations was primarily due to (i) the reduction in gross profit margins as a
percentage of net sales as discussed above, (ii) an increase in selling, general
and administrative expenses of $6.4 million for 1995 as compared to 1994
including an increase of $3.7 million in the provision for uncollectible
accounts and (iii) restructuring and other charges of $39.2 million (as
discussed below).
In 1995, Foamex L.P. approved the 1995 restructuring plan to
consolidate thirteen foam production, fabrication or branch locations to
concentrate resources as a result of industry conditions and better position
itself to achieve its strategic growth objectives. Foamex L.P. recorded
restructuring and other charges of $39.2 million which were comprised of charges
of $35.6 million associated with the consolidation of the foam production,
fabrication or branch locations, $2.2 million associated with the completion of
the 1993 restructuring plan and $1.4 million associated with merger and
acquisition activities of Foamex L.P. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns, $15.1
million for plant closure and operating lease obligations and $3.8 million for
personnel reductions. The $3.8 million cost for personnel reductions primarily
represents severance and employee benefit costs associated with the elimination
of manufacturing and administrative personnel (See Note 4 to the consolidated
financial statements for further discussion).
A net loss of $53.2 million was incurred for 1995 as compared to net
income of $39.2 million for 1994. The decrease is primarily due to (i) the
reasons cited above and (ii) an increase in interest and debt issuance expense
of $3.0 million. The increase in interest and debt issuance expense was
primarily associated with (i) a decrease of $1.6 million in the benefit received
from interest rate swap agreements in 1995 as compared to 1994 and (ii) an
increase in term loan interest expense due to a full year of borrowings in 1995
as compared to 1994.
Foamex L.P., as a limited partnership, is not subject to federal and
certain state income taxes. However, the consolidated statements include a
provision for income taxes which primarily relates to the federal and state
income taxes of corporate subsidiaries and subsidiaries located in foreign
jurisdictions that file separate income tax returns. See Note 10 to the
consolidated financial statements for further discussion.
Foamex Capital Corporation ("FCC")
FCC is solely a co-issuer of certain indebtedness of Foamex L.P. and FCC
has no other material operations.
Liquidity and Capital Resources
Liquidity
Foamex L.P.'s operating cash requirements consist principally of
working capital requirements, scheduled payments of principal and interest on
outstanding indebtedness and capital expenditures. Foamex L.P. believes that
cash flow from operating activities, cash on hand and periodic borrowings under
its revolving credit agreement, if necessary, will be adequate to meet operating
cash requirements. The ability to meet the operating cash requirements could be
impaired if Foamex L.P. was to fail to comply with any of the covenants
contained in the Foamex L.P. credit facility (the "Foamex L.P. Credit Facility")
and such noncompliance was not cured by Foamex L.P. or waived by the lenders.
Foamex L.P. was in compliance with the covenants in the Foamex L.P. Credit
Facility as of December 29, 1996 and expects to be in compliance with the
covenants for the foreseeable future.
Cash and cash equivalents increased $20.4 million during 1996 to $21.0
million at December 29, 1996 from $0.6 million at December 31, 1995 primarily
due to a $18.4 million payment received on a note from a partner (see Note 13 to
the consolidated financial statements) and improved operating results, offset by
the increased use of cash and cash equivalents by the operating assets and
liabilities of Foamex L.P., capital expenditures and scheduled debt repayments.
Cash and cash equivalents decreased $19.4 million during 1995 to $0.6 million at
December 31, 1995 from $20.0 million at January 1, 1995 primarily due to capital
expenditures, scheduled debt repayments and the acquisition of a manufacturing
18
<PAGE>
company in April 1995. Working capital increased $65.8 million during 1996 to
$137.1 million at December 29, 1996 from $71.3 million at December 31, 1995
primarily due to (i) improved operating results, (ii) an increase in cash
resulting from the payment received on a note with a partner and (iii) an
increase in net operating assets and liabilities which was offset by working
capital used for capital expenditures and scheduled debt repayments. Net
operating assets and liabilities (comprised of accounts receivable, inventories
and accounts payable) increased $19.9 million during 1996 to $144.0 million at
December 29, 1996 from $124.1 million at December 31, 1995 primarily due to
increased accounts receivable and inventories offset by an increase in accounts
payable. The increase in accounts receivable and inventories are primarily
associated with the improved operating results of Foamex L.P. In addition, raw
material inventories increased due to increased year end purchases associated
with a potential cost increase that did not occur. The increase in accounts
payable is primarily associated with the year end purchase of raw material
inventories. Working capital decreased $57.1 during 1995 to $71.3 million at
December 31, 1995 from $128.4 million at January 1, 1995 primarily due to (i)
the reduction of cash and cash equivalents as discussed above and (ii) an
increase in accrued restructuring charges. Net operating assets and liabilities
(comprised of accounts receivable, inventories and accounts payable) decreased
$12.1 million to $124.1 million at December 31, 1995 as compared to $136.2
million at January 1, 1995. The decrease was primarily due to a decrease in
inventories. The 1996 and 1995 restructuring plans include approximately $16.6
million of cash charges of which $10.1 million has been incurred as of December
29, 1996.
As of December 29, 1996, there were no revolving credit borrowings under
the Foamex L.P. Credit Facility with unused availability of approximately $33.3
million which includes approximately $11.7 million associated with letters of
credit outstanding which are supported by the Foamex L.P. Credit Facility.
Borrowings by Foamex Canada as of December 29, 1996 were $3.7 million under
Foamex Canada's revolving credit agreement with unused availability of
approximately $0.7 million at an interest rate of 5.25%.
Cash Flow from Operating Activities
Cash flow from continuing operations was $36.7 million, $36.5 million and
$50.6 million in 1996, 1995 and 1994, respectively. Cash flow from continuing
operations remained consistent for 1996 as compared to 1995 primarily as a
result of improved operating results from continuing operations offset by an
increased use of cash by the operating assets and liabilities. Cash flow from
continuing operations decreased in 1995 as compared to 1994 primarily as a
result of the reduction in operating results from continuing operations.
Cash Flow from Investing Activities
From the beginning of 1994 through 1996, Foamex L.P. spent approximately
$63.9 million on capital improvements. The expenditures included: (i)
installation of new variable pressure foaming technology ("VPF(TM)") in the
Verona, Mississippi and Orange, California facilities; (ii) initiation of the
construction of a facility in Mexico City, Mexico to improve manufacturing
efficiencies and to meet the growing demand for foam products; and (iii)
installation of more efficient foam production line systems and fabricating
equipment in a number of manufacturing facilities. Foamex L.P. expects to
maintain capital expenditures at the current levels for the foreseeable future
by focusing spending primarily on the maintenance of existing equipment and on
the installation of the VPF(TM) manufacturing process.
During 1996, Foamex L.P. received net sale proceeds of approximately
$42.7 million in connection with the sale of Perfect Fit which was finalized in
1996. The net sale proceeds were used to repurchase long-term debt (see Note 11
to the consolidated financial statements) and for the payment of certain
retained liabilities, with the remainder held as restricted cash as of December
29, 1996 for the repurchase of additional long-term debt during 1997. As of
February 26, 1997, Foamex L.P. has repurchased approximately $8.0 million of
long-term debt with restricted cash.
19
<PAGE>
On June 28, 1994, Foamex L.P. purchased an $87.9 million principal
amount note due 2006 from its 98% limited partner Foamex-JPS Automotive L.P.
("FJPS") for $35.3 million (the "FJPS Note"). The FJPS Note will not pay
interest until July 2000. Instead, principal will accrete (from the initial
purchase price of $35.3 million) on a daily basis and compound semiannually at
the rate of 15.50% per annum through June 1996; 15.75% per annum thereafter
through June 1997; and 16.00% per annum thereafter through June 2000. Interest
will be due semiannually in cash at 16.00% per annum from July 2000 through the
maturity date. In December 1996 in exchange for certain waivers and amendment of
the FJPS Note, FJPS repaid $18.4 million of the FJPS Note and a waiver payment
of $0.2 million using a portion of the proceeds from the sale of its partnership
interest in JPS Automotive L.P. FJPS has the right to reborrow such amount,
subject to limitations in the Foamex L.P. Credit Facility, solely for the
purpose of funding a purchase price adjustment payment, if any, in connection
with the JPS Automotive L.P. sale. The intercompany note has been classified in
partners' equity (deficit) and the accreted principal of $16.3 million for the
period from June 28, 1994 to December 29, 1996 has been included in the FJPS
Note. The FJPS Note may be redeemed at the option of FJPS, in whole or in part,
at any time at the redemption prices (expressed as percentages of the Accreted
Value (as defined) if on or prior to July 1, 2000, and thereafter, expressed as
percentages of the principal amount) initially equal to 108% for the
twelve-month period commencing July 1, 1994 declining to 100% on or after July
1, 2005. If FJPS does not repay indebtedness with at least 85% of the net
proceeds of any Equity Offering (as defined), the rate at which the FJPS Note
accretes and the interest rate on the FJPS Note will increase.
In April 1995, Foamex L.P. acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for an aggregate consideration of approximately $8.0 million,
including related fees and expenses of approximately $0.3 million, with an
initial cash payment of $7.2 million.
In March 1994, Foamex International acquired Transformacion De Espumas
Y Fieltros, S.A. de C.V. ("TEFSA") for an aggregate purchase price of $4.5
million, including related fees and expenses of approximately $0.4 million, to
be paid over a three year period with an initial cash payment of $1.7 million.
During 1996, Foamex International contributed its interest in Foamex Mexico to
Foamex L.P. Also, during 1996 Foamex L.P. made a scheduled cash payment of
approximately $0.8 million in accordance with the purchase agreement. The final
payment of approximately $0.8 million will be made in April 1997.
Cash Flow from Financing Activities
As of December 29, 1996, Foamex L.P. had repurchased long-term debt of
approximately $30.6 million with the net proceeds from the sale of Perfect Fit.
In addition, Foamex L.P. had repurchased long-term debt of approximately $8.0
million through February 26, 1997 with restricted cash.
During 1996, Foamex Mexico borrowed $1.5 million under two promissory
notes that bear interest at LIBOR (5.69% at December 29, 1996) plus 3/8% and
mature on June 30, 1997.
Foamex L.P. made cash distributions to its partners, pursuant to a tax
sharing agreement, of approximately $3.5 million, $2.4 million and $3.3 million
in 1996, 1995 and 1994, respectively.
Interest Rate Swap Agreements
Foamex L.P. enters into interest rate swaps to lower funding costs
and/or to manage interest costs and exposure to changing interest rates. Foamex
L.P. does not hold or issue financial instruments for trading purposes. Foamex
L.P. has an interest rate swap agreement, as amended, with a notional amount of
$150.0 million through December 2001. Under the swap agreement, Foamex L.P. has
20
<PAGE>
made variable payments based on LIBOR through December 1996 and is obligated to
make fixed payments at 5.30% per annum for the twelve months ended in December
1997 and variable payments at a rate equal to LIBOR for the remainder of the
agreement, in exchange for fixed payments by the swap partner at 5.81% per annum
through December 1996, and 6.50% per annum for the remainder of the agreement,
payable semiannually in arrears. The swap partner has the ability to terminate
the swap agreement after the December 1997 payment if the LIBOR rate Foamex L.P.
is to pay for any period thereafter is equal to or less than 4.50% per annum.
Interest expense will be subject to fluctuations in LIBOR during the term of the
swap agreement except during 1997. Foamex L.P. is exposed to credit loss in the
event of nonperformance by the swap partner; however, the occurrence of this
event is not anticipated.
Also, Foamex L.P. has an interest rate swap agreement, as amended, for
a notional amount of $150.0 million through December 2001. Under this swap
agreement, Foamex L.P. has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for variable payments by the swap partner at the rate of LIBOR plus
0.80% per annum for the six months ended in June 1995, LIBOR plus 0.72% per
annum for the six months ended in December 1995, LIBOR plus 2.45% per annum for
the six months ended in June 1996, LIBOR plus 2.39% per annum for the six months
ended in December 1996 and fixed payments at 6.50% per annum for the remainder
of the term of the agreement, payable semiannually in arrears. The swap partner
has the ability to terminate the swap agreement after the December 1997 payment
if the LIBOR rate Foamex L.P. is to pay for any period thereafter is equal to or
less than 4.50% per annum. Foamex L.P. is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated. Interest expense will be subject to fluctuations in LIBOR during
the term of the swap agreement except during 1997. The effect of the two
interest rate swaps described above was a favorable adjustment to interest
expense of $3.7 million, $1.4 million and $3.0 million for 1996, 1995 and 1994,
respectively.
Environmental Matters
Foamex L.P. is subject to extensive and changing environmental laws
and regulations. Expenditures to date in connection with Foamex L.P.'s
compliance with such laws and regulations did not have a material adverse effect
on operations, financial position, capital expenditures or competitive position.
The amount of liabilities recorded by Foamex L.P. in connection with
environmental matters as of December 29, 1996 was $4.1 million. In addition, as
of December 29, 1996 Foamex L.P. has net receivables of $0.9 million for
indemnification of environmental liabilities from former owners, net of a $1.0
million allowance relating to potential disagreements regarding the scope of the
indemnification. Although it is possible that new information or future
developments could require Foamex L.P. to reassess its potential exposure to all
pending environmental matters, including those described in the footnotes to
Foamex L.P.'s consolidated financial statements, management believes that, based
upon all currently available information, the resolution of all such pending
environmental matters will not have a material adverse effect on Foamex L.P.'s
operations, financial position, capital expenditures or competitive position.
Inflation and Other Matters
There was no significant impact on Foamex L.P.'s operations as a
result of inflation during the prior three year period. See "Results of
Operations 1995 versus 1994" for a discussion of the impact of raw material
price increases. In some circumstances, market conditions or customer
expectations may prevent Foamex L.P. from increasing the price of its products
to offset the inflationary pressures that may increase its costs in the future.
New Accounting Pronouncement
In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities", which provides guidance on specific accounting issues
that are present in the recognition, measurement, display and disclosure of
environmental remediation liabilities. SOP 96-1 is effective for fiscal years
beginning after December 15, 1996. Accordingly, Foamex L.P. will adopt SOP 96-1
during the first quarter of 1997. Management believes that the adoption of this
statement will not have a material impact on its results of operations or
financial position.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
An index to the financial statements and the required financial
statement schedule is set forth in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS
Executive Officers of Foamex L.P.
The executive officers of Foamex L.P. are as follows:
<TABLE>
<CAPTION>
Name Age Position(s) Held
<S> <C> <C>
Marshall S. Cogan 59 Chairman and Chief Executive Officer
Robert J. Hay 71 Chairman Emeritus
Salvatore J. Bonnano 56 President
Kenneth R. Fuette 52 Senior Vice President of Finance, Chief
Financial Officer and Chief Accounting
Officer
William H. Bundy 56 Senior Vice President of Manufacturing
Operations
Paul A. Haslanger 50 Senior Vice President of Strategic
Planning and the Technical Products
Segment Group
Barry Zimmerman 58 Senior Vice President of Productivity
and Quality
Philip N. Smith, Jr. 54 Vice President, Secretary and General
Counsel
Theodore J. Kall 56 President of General Felt Industries, Inc.
</TABLE>
Marshall S. Cogan has been the Chairman of the Board and Chairman of the
Executive Committee of Foamex International since its inception in September
1993 and Chief Executive Officer since January 1994. Mr. Cogan served as Vice
Chairman of Foamex L.P. from January 1993 until January 1994. Mr. Cogan has been
a director of Trace Foam Company, Inc. (formerly known as `21' Foam Company,
Inc.) ("Trace Foam") since December 1991 and the Chairman of the Board and
President of Trace Foam since January 1992. Mr. Cogan has been principal
stockholder, Chairman or Co-Chairman of the Board and Chief Executive Officer or
Co-Chief Executive Officer of Trace Holdings since 1974. He has also been a
member of the Board of Directors of Recticel s.a. since February 1993. Mr. Cogan
served as chairman and director of other companies formerly owned by Trace
Holdings, including Color Tile, Inc., General Felt Industries, Inc., Knoll
International, Inc. and Sheller-Globe Corporation. Prior to forming Trace
Holdings, he was senior partner at Cogan, Berlind, Weill & Levitt and
subsequently CBWL - Hayden Stone, Inc. Additionally, Mr. Cogan serves on the
Board of Directors of American Friends of the Israel Museum and serves on the
Board of Trustees of the Museum of Modern Art, the Boston Latin School and New
York University Medical Center. Mr. Cogan also serves on several committees of
Harvard University.
Mr. Hay has been Chairman Emeritus of Foamex L.P. since January 1994 and
Chairman Emeritus and a director of Foamex International since September 1993.
Mr. Hay was Chairman and Chief Executive Officer of Foamex L.P. from January
1993 to January 1994. Mr. Hay was President of Foamex L.P. and its predecessor
from 1972 through 1992. Mr. Hay began his career as a chemist with The Firestone
Tire and Rubber Company, a predecessor of Foamex L.P., in 1948.
Mr. Bonnano has been Executive Vice President of Manufacturing, Corporate
Planning of Foamex International and President of Foamex L.P. since July 1995
and a director of Foamex International since February 1996. Prior to joining
Foamex L.P., Mr. Bonanno was employed with Chrysler Corporation for thirty
years, most recently serving as the General Manager of International
Manufacturing Operations.
22
<PAGE>
Mr. Fuette has been the Senior Vice President - Finance, Chief Financial
Officer and Chief Accounting Officer of Foamex International and Foamex L.P.
since January 1996. Prior to that Mr. Fuette served as a Vice President of
Foamex International from 1993 to 1995. Mr. Fuette served as controller of
Foamex L.P. or its predecessor from 1977 to 1995.
Mr. Bundy has been Senior Vice President of Foamex L.P. since January
1994. Mr. Bundy was President and Chief Operating Officer of Foamex L.P. from
January 1993 to January 1994. Mr. Bundy has been a Senior Vice President of
Foamex International since March 1994. Mr. Bundy served as President and Chief
Operating Officer of Foamex International from September 1993 until January
1994. Mr. Bundy was Senior Vice President of Manufacturing of Foamex L.P. from
1984 through 1992. Mr. Bundy began his career as a production manager for the
predecessor to Foamex L.P. in 1967.
Mr. Haslanger has been Senior Vice President of Manufacturing of Foamex
L.P. since February 1993. Mr. Haslanger has been the Senior Vice President of
Manufacturing of Foamex International since its inception in September 1993.
Prior thereto, Mr. Haslanger was Vice President of Manufacturing of Foamex L.P.
and its predecessor from 1984 through January 1993. He began his career with the
predecessor to Foamex L.P. in 1969.
Mr. Zimmerman has been the Senior Vice President of Productivity and
Quality of Foamex L.P. since October 1995 and Chairman, President and a director
of Foamex Latin America, Inc. since September 1993. Mr. Zimmerman has been a
Senior Vice President or Vice President and Managing Director of Trace Holdings
since October 1986. Prior to that, Mr. Zimmerman held several executive
positions within Trace Holdings beginning in August 1978. Mr. Zimmerman has been
a director of Trace Foam since October 1990. Mr. Zimmerman has served as
director of General Felt since March 1993 and Foamex Capital Corporation since
July 1992.
Mr. Smith has been Vice President, Secretary and General Counsel of
Foamex International since its inception in September 1993. Mr. Smith has been
the Secretary of Trace Foam since its inception in October 1990 and a Vice
President of Trace Foam since December 1991. Mr. Smith has been a Vice President
or Senior Vice President and the Secretary and General Counsel of Trace Holdings
since January 1988 and has overseen and been actively involved in transaction
negotiations, litigation, stockholder and director relations and other corporate
legal matters. Prior to joining Trace Holdings, he was the sole shareholder of a
professional corporation which was a partner of Akin, Gump, Strauss, Hauer &
Feld, L.L.P.
Mr. Kall was appointed President of General Felt in April 1995. Mr. Kall
previously served as General Felt's National Accounts Manager since July 1993.
Mr. Kall has served in various sales, marketing and product management positions
including Vice President of Sales and Marketing from 1980 to 1993. He began his
career with General Felt in 1974.
Managing General Partner
Pursuant to the Fourth Amended and Restated Agreement of Limited
Partnership of Foamex L.P. (the "Fourth Partnership Agreement"), Foamex L.P. is
managed by its managing general partner, FMXI. All of the directors and
executive officers of FMXI are employees of Foamex L.P. and/or Foamex
International and are not compensated by FMXI for their services as directors
and executive officers of FMXI.
The directors and executive officers of FMXI are as follows:
<TABLE>
<CAPTION>
Name Age Position(s) Held
<S> <C> <C>
Marshall S. Cogan 59 Chairman of the Board, Chief Executive
Officer
Robert J. Hay 71 Chairman Emeritus and Director
John Rallis 59 President, Chief Operating Officer
and Director
William H. Bundy 56 Senior Vice President and Director
Kenneth R. Fuette 52 Senior Vice President of Finance,
Chief Financial Officer and Chief
Accounting Officer
Paul A. Haslanger 50 Senior Vice President of Manufacturing
</TABLE>
23
<PAGE>
John Rallis has been a Director of Foamex International since its
inception in September 1993 and has been the President and Chief Operating
Officer of Foamex International since January 1994. Mr. Rallis served as
President and Chief Operating Officer of Foamex L.P. from January 1994 to July
1995. Prior to that, Mr. Rallis served as a Senior Vice President of Foamex
International from September 1993 until January 1994. He held various managerial
and executive positions with The General Tire & Rubber Company starting in 1964
prior to becoming President of the foam operations of that company in 1977. In
1980, Mr. Rallis became Chairman and Chief Executive Officer of Great Western
Foam Products Corporation and certain related entities. Mr. Rallis has been a
director of JPSGP Inc. since October 1994.
See "Executive Officers of Foamex L.P." for a description of the business
experience of the other directors and officers of FMXI.
ITEM 11. EXECUTIVE COMPENSATION
The summary compensation table below contains information concerning
annual and long-term compensation provided to the Chief Executive Officer and
the four next most highly compensated executive officers of Foamex L.P. in 1996
for services rendered in all capacities during the fiscal years 1996, 1995 and
1994. The officers of FCC are not compensated for their services as such.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)
Annual Compensation Long-Term Compensation
Awards
Securities All
Underlying Other
Options\ Compen-
Year Salary Bonus SARs(2) sation(3)
<S> <C> <C> <C> <C> <C>
Marshall S. Cogan 1996 $750,000 - 100,000 -
Chief Executive Officer 1995 750,000 - 229,167 -
1994 750,000 - - -
Salvatore J. Bonanno (4) 1996 $201,850 $250,000 25,000 $1,500
President of Foamex L.P. 1995 77,308 100,000 49,590 700
1994 - - - -
Barry Zimmerman 1996 $306,730 $ 50,000 - $1,500
Senior Vice President of 1995 300,000 - 17,569 1,500
Productivity and Quality 1994 300,000 85,000 - 1,500
Philip N. Smith, Jr. 1996 $265,000 - - 1,500
Vice President, Secretary 1995 315,000 - 7,028 1,500
and General Counsel 1994 315,000 110,000 - 1,500
Theodore Kall 1996 $260,885 $ 4,545 7,616 1,500
President and Chief 1995 228,885 33,600 7,384 1,500
Executive Officer of 1994 175,000 - - 1,450
General Felt Industries, Inc.
24
<PAGE>
<FN>
(1) As none of the above executive officers received perquisites in
excess of the lesser of $50,000 or 10% of their reported salary
and bonus, any other annual compensation required to be reported,
any restricted stock awards, or any long-term compensation payouts
information relating to "Other Annual Compensation", "Restricted
Stock Awards" and "LTIP Payouts" is inapplicable and has therefore
been omitted from the table.
(2) The 1995 options represent options granted in connection with a
repricing of the options under the stock option exchange program
discussed below.
(3) The amounts shown represent Foamex L.P.'s matching contribution to
Foamex L.P.'s 401(k) plan on behalf of Mr. Bonanno, Mr. Zimmerman,
Mr. Smith, and Mr. Kall. Mr. Cogan did not participate in a 401(k)
plan.
(4) Salvatore J. Bonanno became President of Foamex L.P. in June 1995.
</FN>
</TABLE>
Employment Agreements
On June 26, 1995, Foamex L.P. entered into an employment agreement with
Salvatore J. Bonanno, President of Foamex L.P. The agreement provides for a
three-year employment term commencing on June 26, 1995, which employment may be
automatically extended for two additional one-year terms unless either party
gives written notice as set forth therein. The employment agreement provides
that as compensation for all services rendered by Mr. Bonanno, he will receive
an annual salary at the rate of $150,000 per annum for the period from June 26,
1995 through June 30, 1996; and at a rate of $250,000 per annum commencing as of
July 1, 1996. In addition, Mr. Bonanno will be paid a bonus of $100,000 on or
before December 31, 1995 and a bonus of $150,000 on or before June 30, 1996. Mr.
Bonanno will be eligible to earn an additional bonus of $100,000 based upon the
attainment of company performance targets (including but not limited to,
earnings target) for that period, which targets are required to be mutually
established in good faith between Foamex L.P. and Mr. Bonanno. Also, Mr. Bonanno
will participate in certain employee benefit plans and receive certain other
perquisites. The employment agreement further provides that upon termination of
the employment agreement (i) by Foamex L.P. for "cause", (ii) by Mr. Bonanno
other than for "good reason" (as such terms are defined therein) or (iii) by
reason of either party's election not to extend the employment agreement as
provided therein, Foamex L.P. shall pay Mr. Bonanno, in addition to any amounts
earned but not yet paid, an amount equal to one-year's then current base salary
(payable in twelve equal monthly installments). In the event the employment
agreement is terminated (i) by Foamex L.P. other than for "cause" or (ii) by Mr.
Bonanno for "good reason," Mr. Bonanno shall be entitled to receive the greater
of (a) one-year's then current base salary or (b) continued payment of Mr.
Bonanno's then current base salary for the remainder of the term of the
agreement, subject to certain provisions set forth therein (payable in twelve
equal monthly installments). Additionally, during the period for which Mr.
Bonanno is receiving continued payment of base salary, Mr. Bonanno would be
entitled to receive health care benefits, to continue to participate in other
employee benefit plans to the extent permissible under such plans and to receive
a supplemental annual pension benefit equal to (i) the annual pension benefit
that would have been payable to Mr. Bonanno under the Retirement Plan (as
defined therein) had Mr. Bonanno continued to earn credited service under the
Retirement Plan until February 1, 1999, reduced by (ii) the annual pension
benefit payable to Mr. Bonanno under the Retirement Plan. The employment
agreement prohibits Mr. Bonanno from owning any controlling or substantial stock
or other beneficial interest in any business enterprise which is engaged in, or
competitive with, any business engaged in by Foamex L.P. Additionally, the
employment agreement provides that for a period of one year following his
termination date, Mr. Bonanno may not, among other things, engage in any
business activities reasonably determined by Foamex L.P. to be competitive with
any substantial type or kind of business activities conducted by Foamex L.P. at
the time of termination.
Foamex International Stock Option Plan
Foamex International and its stockholders adopted the Foamex
International Inc. 1993 Stock Option Plan (the "Stock Option Plan") authorizing
the issuance of up to 3,000,000 shares of Foamex International's common stock
pursuant to options that may be granted under the Stock Option Plan to officers
and executive employees of Foamex International and its subsidiaries and
affiliates.
25
<PAGE>
Foamex International Option Grants In Last Fiscal Year (1)
<TABLE>
<CAPTION>
Number of Percent of
Securities Total Potential Realized
Underlying Options/SARs Exercise Market Value at Assumed
Options/ Granted to or Base Price on Annual Rate of Appreciation
SAR's Employees in Price Expiration date of for Option Term (2)
Name Granted (#) Fiscal Year ($/Sh) Date Grant 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
Marshall S. Cogan 100,000 49.4% $6.875 05/17/06 $12.125 1,814,017 3,114,691
Salvatore J. Bonanno 25,000 12.4% 6.875 05/17/06 12.125 453,504 778,673
Theodore Kall 7,616 3.8% 6.875 05/17/06 12.125 138,156 237,215
<FN>
(1) Mr. Zimmerman and Mr. Smith are not included in this table since no
options were granted to them during 1996.
(2) Based on December 29, 1996 market value of Foamex International common
stock of $16 1/8 per share.
</FN>
</TABLE>
Trace Holdings Stock Option Plan
In 1987, Trace Holdings established a Nonqualified Stock Option Plan (the
"Trace Holdings Option Plan"), under which options for the purchase of shares of
common stock of Trace Holdings may be granted to officers, directors and
employees of Trace Holdings or its affiliates. Under the Trace Holdings Option
Plan, options may generally be granted for a term not to exceed eleven years and
are exercisable at the cumulative rate of one-third per year on the fifth, sixth
and seventh anniversaries of the date of grant. Under the Trace Holdings Option
Plan, the option exercise price of an option may not be less than the fair
market value of the common stock of Trace Holdings as of the date of grant. In
1988, Trace Holdings granted options to Mr. Smith to purchase 120 shares of
common stock of Trace Holdings. The options expire eleven years from the date of
grant and have an exercise price of $1,450.00 per share. No options have been
subsequently granted to named executive officers of Foamex International.
Aggregate Option Values
The following table sets forth as of December 29, 1996, the number of options
and the value of the unexercised options held by Foamex L.P.'s named executive
officers listed on the Summary Compensation Table.
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values (1)
<TABLE>
<CAPTION>
Number of Securities Underlying Unexer- Value of Unexercised In-the-Money
Name cised Options at Fiscal Year End(2) Options at Fiscal Year End(3)
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Marshall S. Cogan 157,500 171,667 1,456,875 1,587,920
Salvatore J. Bonanno 14,918 59,672 137,992 551,966
Barry Zimmerman 7,791 9,778 72,067 90,447
Philip N. Smith, Jr. 3,117 3,911 28,832 36,177
120 (4) - (5) (5)
Theodore Kall 4,853 10,147 44,890 43,860
26
<PAGE>
<FN>
(1) No stock options were exercised in 1996 and SARs are not included in the
table since none were outstanding during 1996.
(2) Except as otherwise noted, these options are for common stock of Foamex
International and were granted pursuant to the Foamex International Stock
Option Plan.
(3) As of December 29, 1996, the market value of Foamex International common
stock was $16 1/8 per share.
(4) These options are for common stock of Trace Holdings and were granted
pursuant to the Trace Holdings Option Plan.
(5) Trace Holdings is a privately-held company. There is no public market for
its securities and no valuation of Trace Holdings for the purpose of
ascertaining the value of stock options has been undertaken.
</FN>
</TABLE>
Pension Plans
Effective December 31, 1994, the Foamex L.P. Salaried Employees
Retirement Plan (the "Foamex Plan") merged with the General Felt Industries,
Inc. Retirement Plan for Salaried Employees and the General Felt Industries,
Inc. Pension Plan for Bargaining Unit Employees National Sponge Cushion
Division. The surviving plan is called the Foamex Group Salaried Employees
Pension Plan (the "Retirement Plan"). The Retirement Plan is a defined benefit
pension plan that is qualified under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), and in which the executive officers are
eligible to participate.
The following table illustrates estimated annual pensions under the
Retirement Plan for various compensation levels and periods of credited service,
assuming present compensation rates at all points in the past and until Normal
Retirement Date (as defined in the Retirement Plan) and a constant Social
Security Wage Base ($65,400 in 1997). The pension amount is expressed as a life
annuity with certain benefits continuing to the spouse.
<TABLE>
<CAPTION>
Pension Plan Table
Years of Credited Service
15 20 25 30 35
<S> <C> <C> <C> <C> <C>
Current Compensation:
$125,000 $25,400 $33,867 $42,334 $50,801 $59,267
$160,000 and above $31,607 $41,742 $52,178 $62,613 $73,049
</TABLE>
The Retirement Plan is a career pay plan. The Retirement Plan formula is
1.25% of annual compensation up to the Social Security Wage Base and 1.75% of
annual compensation in excess of the Social Security Wage Base, subject to an
annual compensation limit of $160,000. Prior to September 1, 1994, the Foamex
Plan was a final average pay plan, with retirement benefits based upon earnings
for the five consecutive years within the last ten years which yield the highest
average yearly salary ("Final Average Compensation"). Annual benefit
calculations under the Foamex Plan for service prior to June 1, 1994, will be
the years of credited service multiplied by the sum of 2.0% of Final Average
Compensation and 0.4% of Final Average Compensation in excess of the average of
the Social Security Wage Bases over the 35 year period ending with the year an
employee reaches age 65 (such 35 year average referred to herein as the "Covered
Compensation"). For service subsequent to May 31, 1994, but before September 1,
1994, annual benefit calculations will be the years of credited service
multiplied by the sum of 1.1% of Final Average Compensation and 0.4% of Final
Average Compensation in excess of Covered Compensation. The actuarially
determined cost of providing benefits under the Retirement Plan is provided by
Foamex L.P. The participants are neither required nor permitted to make
contributions.
The compensation used as a basis for computing pension is primarily based
on salaries set forth in the Summary Compensation Table and excludes bonuses set
forth therein. In 1996 and 1995, the compensation used as a basis for computing
the pension of each of the executive officers named in the Summary Compensation
27
<PAGE>
Table was as follows: Mr. Cogan, $150,000 and $150,000, respectively; Mr.
Bonanno, $150,000 in 1996; Mr. Zimmerman, $150,000 and $150,000, respectively;
Mr. Smith, $150,000 and $150,000, respectively; and Mr. Kall $150,000 and
$150,000, respectively. Mr. Bonanno was not a plan participant in 1995.
The estimated annual benefit under the Retirement Plan payable on
retirement at normal retirement age, or immediately if the individual has
reached normal retirement age, for each of the employees named in the Summary
Compensation Table is as follows: Mr. Cogan, $23,250; Mr. Bonanno, $24,050; Mr.
Zimmerman, $22,100; Mr. Smith, $35,260; and Mr. Kall $43,550. These amounts
assume the employees continue their employment with Foamex L.P. at present
salary levels until normal retirement age. As of December 29, 1996, the
employees named in the Summary Compensation Table had been credited with years
of service under the Retirement Plan as follows: Mr. Cogan, 2.50 years; Mr.
Bonanno, 0.50 years; Mr. Zimmerman, 2.83 years; Mr. Smith, 2.83 years; and Mr.
Kall 22.08 years.
General
Under the Internal Revenue Code, a participant's compensation in excess
of $150,000 (as adjusted to reflect cost of living increases) is disregarded for
purposes of determining pension benefits. Benefits accrued for plan years prior
to 1994 on the basis of compensation in excess of $150,000 are preserved. In
addition, as required by law, the maximum annual pension payable to a
participant under a qualified pension plan in 1995 is $120,000, in the form of a
qualified joint and survivor annuity, although certain benefits accrued prior to
1995 in excess of $120,000 are not subject to such limitation. Such limits have
been included in the calculation of estimated annual benefit amounts listed
above for each of the executive officers named in the Summary Compensation
Table. Foamex L.P. does not have a non-qualified defined benefit plan to provide
payments in excess of limits imposed by the Internal Revenue Service.
Compensation Committee Interlocks and Insider Participation
The executive officers of FCC are not compensated for serving in such
capacity, thus information regarding compensation committee interlocks and
insider participation with respect to FCC has been omitted.
In accordance with the terms of the Fourth Partnership Agreement, the
compensation of Foamex L.P.'s officers is determined by FMXI, a wholly-owned
subsidiary of Foamex International. FMXI has agreed to accept the
recommendations of the Compensation Committee of Foamex International's Board of
Directors regarding the compensation of Foamex L.P.'s executive officers. The
members of Foamex International's Compensation Committee are: Messrs. John V.
Tunney, who serves as Chairman, and Stuart J. Hershon.
The Securities and Exchange Commission requires issuers to disclose the
existence of any relationship where an executive officer of the registrant
serves (i) on the compensation committee of another entity, one of whose
executive officers served on the compensation committee of the registrant, (ii)
as a director of another entity, one of whose executive officers served on the
compensation committee of the registrant, and (iii) on the compensation
committee of another entity, one of whose executive officers served as a
director of the registrant. Foamex L.P. is not aware of any such relationships.
Foamex International's Compensation Committee is comprised entirely of
independent outside directors. No employee of Foamex L.P., Foamex International,
or FMXI serves on Foamex International's Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table and the accompanying footnotes set forth, as of
December 29, 1996, the beneficial ownership of the partnership interests of
Foamex L.P. by (i) each person who is known to Foamex L.P. to own beneficially
more than 5.0% of any class of Foamex L.P.'s partnership interests, (ii) each
director of FMXI (the managing general partner of Foamex L.P.) and FCC, (iii)
each executive officer listed in the summary compensation table and (iv) all
officers and directors of Foamex L.P., FMXI, and FCC as a group. FCC is a
wholly-owned subsidiary of Foamex L.P.
28
<PAGE>
<TABLE>
<CAPTION>
Partnership Interests Owned
Name and Address Type of % of % of
of Beneficial Owners Interest Profits Class
<S> <C> <C> <C>
FMXI, Inc. (1) General Partner 1.00 50.00
1000 Columbia Avenue
Linwood, Pennsylvania 19061
Trace Foam Company, Inc. (2) General Partner 1.00 50.00
375 Park Avenue, 11th Floor
New York, New York 10152
Foamex-JPS Automotive L.P. (1) Limited Partner 98.00 100.00
1000 Columbia Avenue
Linwood, Pennsylvania 19061
Marshall S. Cogan (2) General Partner 1.00 50.00
375 Park Avenue, 11th Floor
New York, New York 10152
All officers and directors as General Partner 1.00 50.00
a group (11 persons) (2), (3)
<FN>
- ----------------------
(1) FMXI and Foamex-JPS Automotive, L.P. are each wholly-owned by Foamex
International.
(2) Trace Foam is a wholly-owned subsidiary of Trace Holdings. Marshall S.
Cogan, a director of FMXI, Foamex International, and Trace Foam, is the
majority stockholder of Trace Holdings. Mr. Cogan disclaims beneficial
ownership of the partnership interest owned by Trace Foam. The disclosure
of Marshall S. Cogan's beneficial ownership does not include the
beneficially owned partnership interests of Foamex International. Trace
Holdings is the beneficial owner of 42.4% of the common stock of Foamex
International.
(3) The disclosure of beneficial ownership of officers and directors does not
include any beneficial ownership arising solely by virtue of such
person's position with FMXI, Foamex-JPS Automotive L.P., or Foamex
International.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Foamex L.P. regularly enters into transactions with its affiliates on
terms it believes to be no less favorable to Foamex L.P. than those which Foamex
L.P. could have obtained from unaffiliated third parties. Payments to affiliates
by Foamex L.P. and its subsidiaries in connection with any such transactions are
governed by the provisions of the indentures for Foamex L.P.'s public debt
securities which generally provide that such transactions be on terms comparable
to those generally available in equivalent transactions with third parties.
29
<PAGE>
Technology Sharing Arrangements
In December 1992, Foamex L.P., Recticel, and Beamech Group Limited
("Beamech"), an unaffiliated third party, formed a Swiss corporation to develop
new manufacturing technology for the production of polyurethane foam. Each of
Foamex L.P., Recticel, and Beamech contributed or caused to be contributed to
such corporation a combination of cash and technology valued at $1.5 million,
$3.0 million and $1.5 million, respectively, for a 25%, 50% and 25% interest,
respectively, in the corporation. Foamex L.P., Recticel, and other affiliates
have been granted a royalty-free license to use certain technology and it is
expected that the corporation will license use of such technology to other foam
producers in exchange for royalty payments.
Tax Sharing Agreement
In 1992, Foamex L.P. and its partners entered into a tax sharing
agreement, as amended (the "Tax Sharing Agreement"), pursuant to which Foamex
L.P. agreed to make quarterly distributions to its partners which, in the
aggregate, will equal the tax liability that Foamex L.P. would have paid if it
had been a Delaware corporation filing separate tax returns rather than a
Delaware partnership. In connection with Foamex International's initial public
offering in 1993 and the attendant reallocation of partnership interests, the
Foamex L.P. Tax Sharing Agreement was amended to provide that 99% of the
payments will be made to Foamex International and its subsidiaries and 1% of the
payments would be made to Trace Foam. In 1996, Foamex L.P. made payments of
approximately $3.5 million pursuant to the terms of the Tax Sharing Agreement to
Foamex International and its subsidiaries.
Tax Distribution Advance Agreement
On December 11, 1996, Foamex L.P. and FJPS entered into a Tax
Distribution Advance Agreement pursuant to which FJPS has the right to obtain up
to $17.0 million of advances against future distributions to the Tax Sharing
Agreement. Any such advances will bear interest at a rate equal to the greater
of 13.25% per annum or the yield to maturity of the FJPS Senior Secured Discount
Debentures plus one hundred twenty-five basis points. All advances must be
repaid by December 31, 1999, and FJPS is obligated to use 50.0% of any tax
distribution to prepay the outstanding advances. As of December 29, 1996, there
were no advances under the agreement.
Management Services Agreement
In 1992, Foamex L.P. and Trace Foam entered into a management services
agreement pursuant to which Trace Foam provides Foamex L.P. with general
managerial services of a financial, technical, legal, commercial, administrative
and/or advisory nature for an annual fee of $1.75 million and reimbursement of
expenses incurred. Management believes that the agreement is no less favorable
to Foamex L.P. than that which Foamex L.P. could have obtained from unaffiliated
third parties.
Indemnification Regarding Environmental Matters
Pursuant to an Asset Transfer Agreement between Foamex L.P. and RFC (the
"RFC Asset Transfer Agreement"), Foamex L.P. is indemnified by RFC for any
liabilities incurred by Foamex L.P. arising out of or resulting from, among
other things, the ownership or use of any of the assets transferred pursuant to
the RFC Asset Transfer Agreement or the conduct of the transferred business on
or prior to October 2, 1990, including, without limitation, any loss actually
arising out of or resulting from any events, occurrences, acts or activities
occurring before October 2, 1990 or occurring after October 2, 1990 to the
extent resulting from conditions existing on or prior to October 2, 1990,
relating to (i) injuries to or the contraction of any diseases by any person
resulting from exposure to hazardous substances (as defined in the RFC Asset
Transfer Agreement) without regard to when such injuries or diseases are first
manifested, (ii) the generation, processing, handling, storage or disposition of
or contamination by any waste or hazardous substance, whether on or off the
premises from which the transferred business has been conducted or (iii) any
pollution or other damage or injury to the environment, whether on or off
30
<PAGE>
the premises from which the transferred business has been conducted. Foamex L.P.
is also indemnified by RFC for any liabilities arising under Environmental Laws
(as defined in the RFC Asset Transfer Agreement) relating to current or former
RFC assets and for any liability relating to products of the transferred
business shipped on or prior to October 2, 1990. Foamex L.P. has agreed to
assume certain known environmental liabilities relating to the assets
transferred by RFC to Foamex L.P., with an estimated remediation cost of less
than $0.5 million, in exchange for a cash payment by RFC to Foamex L.P.
approximately equal to the remediation cost for such environmental liabilities.
Pursuant to the Asset Transfer Agreement, dated as of October 2, 1990, as
amended, between Trace Holdings and Foamex L.P. (the "Trace Holdings Asset
Transfer Agreement"), Foamex L.P. is indemnified by Trace Holdings for any
liabilities incurred by Foamex L.P. arising out of or resulting from, among
other things, the ownership or use of any of the assets transferred pursuant to
the Trace Holdings Asset Transfer Agreement or the conduct of the transferred
business on or prior to October 2, 1990, including, without limitation, any loss
actually arising out of or resulting from any events, occurrences, acts or
activities occurring after October 2, 1990, to the extent resulting from
conditions existing on or prior to October 2, 1990, relating to (i) injuries to
or the contraction of any diseases by any person resulting from exposure to
Hazardous Substances (as defined in the Trace Holdings Asset Transfer Agreement)
without regard to when such injuries or diseases are first manifested, (ii) the
generation, processing, handling, storage or disposition of or contamination by
any waste or Hazardous Substance, whether on or off the premises from which the
transferred business has been conducted or (iii) any pollution or other damage
or injury to the environment, whether on or off the premises from which the
transferred business has been conducted. Foamex L.P. is also indemnified by
Trace Holdings for any liabilities arising under Environmental Laws (as defined
in the Trace Holdings Asset Transfer Agreement) relating to current or former
Trace Holdings assets and for any liability relating to products of the
transferred business shipped on or prior to October 2, 1990.
Certain Transactions Relating to the Acquisition of Great Western
In connection with the acquisition of Great Western in May 1993, Foamex
L.P. entered into lease agreements dated May 1993, with John Rallis,
individually, or an affiliate, relating to former Great Western manufacturing
facilities. Aggregate lease payments in 1996 were $1.7 million. In connection
therewith, Foamex L.P. has the option to purchase each of the properties at any
time after April 2001 at a price equal to fair market value.
Part of the aggregate consideration paid by Foamex L.P. for the assets of
Great Western was in the form of a subordinated promissory note payable to
Rallis in the principal amount of $7,014,864 that bears interest at a maximum
rate of 6.0% per annum payable semiannually.
FJPS Note
On June 28, 1994, Foamex L.P. purchased an $87.9 million principal amount
note due 2006 from its 98% limited partner FJPS for $35.3 million. The FJPS Note
will not pay interest until July 2000. Instead, principal will accrete (from the
initial purchase price of $35.3 million) on a daily basis and compound
semiannually at the rate of 15.50% per annum through June 1996; 15.75% per annum
thereafter through June 1997; and 16.00% per annum thereafter through June 2000.
Interest will be due semiannually in cash at 16.00% per annum from July 2000
through the maturity date. In December 1996 in exchange for certain waivers and
amendment of the FJPS Note, FJPS repaid $18.4 million of the FJPS Note and a
waiver payment of $0.2 million using a portion of the proceeds from the sale of
its partnership interest in JPS Automotive L.P. FJPS has the right to reborrow
such amount, subject to limitations in the Foamex L.P. Credit Facility, solely
for the purpose of funding a purchase price adjustment payment, if any, in
connection with the JPS Automotive L.P. sale. The intercompany note has been
classified in partners' equity (deficit) and the accreted principal of $16.3
million for the period from June 28, 1994 to December 29, 1996 has been included
in the FJPS Note. The FJPS Note may be redeemed at the option of FJPS, in whole
or in part, at any time at the redemption prices (expressed as percentages of
the Accreted Value (as defined) if on or prior to July 1, 2000, and thereafter,
expressed as percentages of the principal amount) initially equal to 108% for
31
<PAGE>
the twelve-month period commencing July 1, 1994 declining to 100% on or after
July 1, 2005. If FJPS does not repay indebtedness with at least 85% of the net
proceeds of any Equity Offering (as defined), the rate at which the FJPS Note
accretes and the interest rate on the FJPS Note will increase.
Foamex International Supply Agreement
In June 1994, Foamex L.P. also entered into a supply agreement with
Foamex International (the "Supply Agreement"). Pursuant to the terms of the
Supply Agreement, at the option of Foamex L.P., Foamex International will
purchase certain raw materials which are necessary for the manufacture of Foamex
L.P.'s products, and resell such raw materials to Foamex L.P. at a price equal
to net cost plus reasonable out of pocket expenses. Management believes that the
terms of the Supply Agreement are no less favorable than those which Foamex L.P.
could have obtained from an unaffiliated third party. During 1996, Foamex L.P.
purchased $129.7 million in raw materials under the Supply Agreement.
Other Transactions
Foamex L.P. made charitable contributions to the Trace International
Holdings, Inc. Foundation (the "Foundation") in the amount of $0.2 million in
1996. The Foundation is a Delaware tax-exempt private foundation. Marshall S.
Cogan, Chairman and Chief Executive Officer of Foamex International and Foamex
L.P., is the sole director of the Foundation.
In July 1996, Foamex L.P. and Trace Holdings agreed to extend the term of
the $4.4 million principal amount promissory note of Trace Holdings dated July
8, 1995, payable to Foamex L.P., for an additional year and a new promissory
note was executed. The note provides for interest of 9.5% and is due on demand,
or if no demand is made, on July 7, 1997 and is included in partners' equity
(deficit). Interest is due and payable quarterly.
In December 1995, Foamex L.P. entered into a $2.0 million promissory note
with Foamex International. The note bears interest at a rate per annum equal to
six months LIBOR plus 4.0% and is payable semiannually in June and December. The
note matures in December 1997. The note has been classified in the other
component of partners' equity (deficit).
During 1996, Foamex L.P. chartered an aircraft (which is owned by a
wholly-owned subsidiary of Foamex International) through a third party and
incurred costs of approximately $1.4 million.
Trace Holdings rents approximately 5,900 square feet of general,
executive and administrative office space in New York, New York from Foamex L.P.
on substantially the same terms as Foamex L.P. leases such space from a third
party lessor. The lease commenced October 1, 1993 with the occupancy and rent
payments commencing on October 1, 1994. The lease provides for an initial term
of 11 years and expires on September 30, 2004. The lease provides for two
optional five-year renewal periods at the fair market rental value of the
property on the first day of such renewal term. The annual rental for the period
October 1, 1994 through September 30, 2004 is approximately $0.7 million. Under
the lease, Foamex L.P. is required to pay certain excess real estate taxes and
operating expenses incurred by the lessor relating to the property for which it
will be proportionally reimbursed by Trace Holdings. The rental terms were the
result of arm-length negotiations between Foamex L.P. and the third party
lessor. Trace Holdings will reimburse, through increased rent, Foamex L.P. for
the cost of any leasehold improvements applicable to the space occupied for the
benefit of Trace Holdings.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(a) Financial Statements and Schedules
Foamex L.P. and Subsidiaries:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-3
Consolidated Statements of Operations for the years ended 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994 F-6
Consolidated Statements of Partners' Equity (Deficit) for the years ended 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-8
Foamex Capital Corporation:
Report of Independent Accountants F-30
Balance Sheets as of December 29, 1996 and December 31, 1995 F-31
Notes to Balance Sheets F-32
General Felt Industries, Inc.:
Report of Independent Accountants F-33
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-34
Consolidated Statements of Operations for the years ended 1996, 1995 and 1994 F-36
Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994 F-37
Consolidated Statements of Stockholder's Equity for the years ended 1996, 1995 and 1994 F-38
Notes to Consolidated Financial Statements F-39
Foamex International Inc. and Subsidiaries:
Report of Independent Accountants F-51
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-52
Consolidated Statements of Operations for the years ended 1996, 1995 and 1994 F-54
Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994 F-55
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended 1996, 1995 and 1994 F-56
Notes to Consolidated Financial Statements F-57
Foamex L.P. and Subsidiaries Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
(b) Reports on Form 8-K
None
(c) Exhibits
3.1(a) - Restated Certificate of Incorporation of Foamex International.
3.2(a) - By-laws of Foamex International.
3.3(a) - Fourth Amended and Restated Agreement of Limited Partnership
of Foamex L.P., dated as of December 14, 1993, by and among
FMXI and Trace Foam, as general partners, and Foamex
International, as a limited partner (the "Partnership
Agreement").
3.4(n) - First Amendment to the Fourth Amendment and Restated
Agreement of Limited Partnership of Foamex L.P., dated June 28,
1994.
3.5(a) - Certificate of Incorporation of FMXI.
3.6(a) - By-laws of FMXI.
3.7(e) - Certificate of Incorporation of FCC.
3.8(e) - By-laws of FCC.
3.9(c) - Certificate of Incorporation of GFI Acquisition Corp.
3.10(c) - Certificate of Amendment to the Certificate of Incorporation of
GFI Acquisition Corp.
33
<PAGE>
3.11(c) - Certificate of Amendment to the Certificate of Incorporation of
General Felt.
4.1(b) - Indenture, dated as of June 3, 1993, among Foamex L.P. and FCC,
as joint and several obligors, General Felt, as Guarantor, and
Shawmut Bank, National Association ("Shawmut"), as trustee,
relating to $160,000,000 principal amount of 9 1/2% Senior Secured
Notes due 2000, including form of Senior Secured Note.
4.2(a) - First Supplemental Indenture, dated as of November 18, 1993,
among Foamex International and FCC, as Issuers, General Felt and
Perfect Fit, as Guarantors and Shawmut, as trustee, relating to
the Senior Secured Notes.
4.3(a) - Second Supplemental Indenture, dated as of December 14, 1993,
among Foamex L.P. and FCC, as Issuers, Foamex International,
General Felt and Perfect Fit, as Guarantors and Shawmut, as
trustee, relating to the Senior Secured Notes.
4.3.1(s) - Third Supplemental Indenture, dated as of August 1, 1996, by and
among Foamex L.P. and FCC, as Issuers, Foamex International, as
parent guarantor, General Felt, as guarantor, Perfect Fit, as
withdrawing guarantor, and Fleet National Bank ("Fleet"), as
trustee relating to the Senior Secured Notes.
4.4(b) - Company Pledge Agreement, dated as of June 3, 1993, by Foamex
L.P. in favor of Shawmut, as trustee for the holders of the Senior
Secured Notes.
4.5(b) - Company Pledge Agreement, dated as of June 3, 1993, by FCC in
favor of Shawmut, as trustee for the holders of the Senior Secured
Notes.
4.6(b) - Subsidiary Pledge Agreement, dated as of June 3, 1993, by
General Felt in favor of Shawmut, as trustee for the holders of
the Senior Secured Notes.
4.7(b) - Company Security Agreement, dated as of June 3, 1993, by Foamex
L.P. and FCC in favor of Shawmut, as trustee for the holders of
the Senior Secured Notes.
4.8(b) - Subsidiary Security Agreement, dated as of June 3, 1993, by
General Felt in favor of Shawmut, as trustee for the holders of
the Senior Secured Notes.
4.9(b) - Collateral Assignment of Patents and Trademarks, dated as of
June 3, 1993, by Foamex L.P. in favor of Shawmut, as trustee for
the holders of the Senior Secured Notes.
4.10(b) - Collateral Assignment of Patents and Trademarks, dated as of
June 3, 1993, by FCC in favor of Shawmut, as trustee for the
holders of the Senior Secured Notes.
4.11(b) - Collateral Assignment of Patents and Trademarks, dated as of
June 3, 1993, by General Felt in favor of Shawmut, as trustee for
the holders of the Senior Secured Notes.
4.12(c) - Indenture, dated as of October 13, 1992, among Foamex L.P., FCC
and The Connecticut National Bank, as trustee, relating to
$150,000,000 principal amount of 11 1/4% Senior Notes due 2002,
including form of Senior Note.
4.13(d) - First Supplemental Indenture, dated as of March 23, 1993, among
Foamex L.P. and FCC, as joint and several obligors, General Felt,
as Guarantor, and Shawmut Bank Connecticut, National Association
(formerly The Connecticut National Bank ("Shawmut Connecticut")),
as trustee, relating to the Senior Notes.
4.14(a) - Second Supplemental Indenture, dated as of November 18, 1993,
among Foamex L.P. and FCC, as Issuers, General Felt and Perfect
Fit, as Guarantors and Shawmut Connecticut, as trustee, relating
to the Senior Notes.
4.15(a) - Third Supplemental Indenture, dated as of December 14, 1993,
among Foamex L.P. and FCC, as Issuers, Foamex International,
General Felt and Perfect Fit, as Guarantors, and Shawmut
Connecticut, as trustee, relating to the Senior Notes.
4.16(m) - Fourth Supplemental Indenture, dated as of October 31, 1994,
among Foamex L.P. and FCC as Issuers, Foamex International as
Parent Guarantor, General Felt and Perfect Fit as Guarantors and
Shawmut Connecticut, as Trustee, relating to the Senior Notes.
4.17(t) - Fifth Supplemental Indenture, dated as of August 1, 1996, by and
among Foamex L.P. and FCC as guarantors, Perfect Fit as
withdrawing guarantor, and Fleet, as trustee relating to the
Senior Notes.
4.18(c) - Indenture, dated as of October 13, 1992, among Foamex L.P., FCC
and Shawmut, as trustee, relating to $126,000,000 principal amount
of 117/8% Senior Subordinated Debentures due 2004, including form
of Senior Subordinated Debenture.
34
<PAGE>
4.19(d) - First Supplemental Indenture, dated as of March 23, 1993, among
Foamex L.P. and FCC, as joint and several obligors, General Felt,
as Guarantor, and Shawmut, as trustee, relating to the Senior
Subordinated Debentures.
4.20(a) - Second Supplemental Indenture, dated as of November 18, 1993,
among Foamex L.P. and FCC, as Issuers, General Felt and Perfect
Fit, as Guarantors, and Shawmut, as trustee, relating to the
Senior Subordinated Debentures.
4.21(b) - Third Supplemental Indenture, dated as of December 14, 1993,
among Foamex L.P. and FCC, as Issuers, Foamex International,
General Felt and Perfect Fit, as Guarantors and Shawmut, as
trustee, relating to the Senior Subordinated Debentures.
4.22(t) - Fourth Supplemental Indenture, dated as of August 1, 1996, among
Foamex L.P. and FCC, as Issuers, Foamex International, as Parent
Guarantor, General Felt, as Guarantor, Perfect Fit, as withdrawing
guarantor, and Fleet, as Trustee, relating to the Senior
Subordinated Debentures.
4.23(i) - Indenture, dated as of June 28, 1994, among FJPS and FJCC, as
Issuers, Foamex International, as guarantor, and Shawmut
Connecticut, as trustee, relating to $116,745,000 principal amount
of Senior Secured Discount Debentures due 2004, including form of
Senior Secured Discount Debenture.
4.24(m) - Pledge Agreement, dated as of June 28, 1994, made by FJPS in
favor of Shawmut, as collateral agent for the holders of the
Senior Secured Discount Debentures.
4.25(i) - Senior Note, dated June 28, 1994, in the aggregate principal
amount of $87,943,103.14 due July 1, 2006, executed by FJPS to
Foamex L.P.
4.26 - Consent, Waiver and Amendment Agreement, dated December 11,
1996, between FJPS and Foamex L.P.
4.27(t) - Commitment letter, dated July 9, 1996, from The Bank of Nova
Scotia to Foamex Canada Inc.
4.28(t) - Third Amended and Restated Credit Agreement, dated as of July
30, 1996, among Foamex L.P., General Felt, Trace Foam Company,
Inc. ("Trace Foam"), FMXI, Inc. ("FMXI"), Citibank, N.A., The Bank
of Nova Scotia, the institutions from time to time parties thereto
as lenders, the institutions parties thereto as issuing banks and
Citibank, N.A. and The Bank of Nova Scotia, as Administrative
Agents (the "Credit Agreement").
4.29(t) - First Amendment to Third Amended and Restated Credit Agreement,
dated September 30, 1996, among Foamex L.P., General Felt, Trace
Foam, FMXI, Citibank, N.A., The Bank of Nova Scotia, the
institutions from time to time parties thereto as lenders, the
institutions parties thereto as issuing banks and Citibank, N.A.
and The Bank of Nova Scotia, as Administrative Agents.
4.30 - Second Amendment to Third Amended and Restated Credit Agreement,
dated as of November 27, 1996, among Foamex L.P., General Felt,
Trace Foam, FMXI, Citibank, N.A., The Bank of Nova Scoria, the
institutions from time to time parties thereto as lenders, the
institutions parties thereto as issuing banks and Citibank, N.A.
and The Bank of Nova Scotia, as Administrative Agents.
4.31(a) - Guaranties, dated November 18, 1993, executed by each of Foamex
L.P., General Felt and Perfect Fit, as guarantor, respectively, in
favor of Citibank, N.A., as Administrative Agent, for the ratable
benefit of the lenders and the issuing banks, guaranteeing the
obligations of one another under the Credit Agreement.
4.32(a) - Guaranty, dated November 18, 1993, executed by FCC in favor of
Citibank, N.A., as Administrative Agent, for the ratable benefit
of the lenders and the issuing banks, guaranteeing the obligations
of Foamex L.P., General Felt and Perfect Fit under the Credit
Agreement.
4.33(i) - Amended and Restated Guaranty, dated as of June 28, 1994,
executed by Foamex International in favor of Citibank, N.A. and
The Bank of Nova Scotia, as Administrative Agents, for the ratable
benefit of the lenders and the issuing banks under the Credit
Agreement.
4.34(q) - First Amendment to Amended and Restated Guaranty, dated June 30,
1995, executed by Foamex International in favor of Citibank, N.A.
and The Bank of Nova Scotia, as Administrative Agents, for the
ratable benefit of the lenders and the issuing banks under the
Credit Agreement.
4.35(q) - Second Amendment to Amended and Restated Guaranty, dated
February 27, 1996, executed by Foamex International in favor of
Citibank, N.A. and The Bank of Nova Scotia, as Administrative
Agents, for the ratable benefit of the lenders and the issuing
banks under the Credit Agreement.
35
<PAGE>
4.36(t) - Third Amendment to Amended and Restated Guaranty, dated November
27, 1996, executed by Foamex International in favor of Citibank,
N.A. as Collateral Agent, for the ratable benefit of the lenders
and the issuing banks under the Credit Agreement.
4.37(a) - Security Agreements, dated November 18, 1993, executed by each
of Foamex L.P., General Felt, Perfect Fit and FCC, respectively,
and Citibank N.A., as Administrative Agent for the lenders and the
issuing banks under the Credit Agreement.
4.38(i) - Amendatory Agreement, dated as of June 28, 1994, among Foamex
L.P., General Felt, Perfect Fit, FCC and Citibank, N.A., as
collateral agent under the Credit Agreement.
4.39(s) - Amendatory Agreement, dated as of July 30, 1996, among Foamex
L.P., General Felt, FCC, and Citibank, N.A., as collateral agent
under the Credit Agreement.
4.40(a) - Intercreditor Agreement, dated as of November 18, 1993, by and
between Citibank, N.A., as Administrative Agent under the Credit
Agreement and Shawmut, as trustee under the Foamex L.P. Senior
Secured Note Indenture.
4.41(a) - Subordinated Promissory Note, dated as of May 6, 1993, in the
original principal amount of $7,014,864 executed by Foamex L.P. to
John Rallis ("Rallis").
4.42(a) - Marely Loan Commitment Agreement, dated as of December 14, 1993,
by and between Foamex International and Marely s.a. ("Marely").
4.43(a) - DLJ Loan Commitment Agreement, dated as of December 14, 1993, by
and between Foamex International and DLJ Funding, Inc. ("DLJ
Funding").
4.44(s) - Promissory Note, dated July 7, 1996, in the aggregate principal
amount of $4,372,516, executed by Trace Holdings to Foamex L.P.
10.1 - Revised Confirmation Letter Agreements, dated as of January 7,
1997, by and between Foamex L.P. and Citibank, N.A.
10.2 - Assignment Agreement, dated as of December 16, 1996, among
Foamex L.P., FCC and Solomon Holdings, Inc. ("Solomon Holdings").
10.3(d) - Reimbursement Agreement, dated as of March 23, 1993, between
Trace Holdings and General Felt.
10.4(d) - Shareholder Agreement, dated December 31, 1992, among Recticel,
s.a. ("Recticel"), Recticel Holding Noord B.V., Foamex L.P.,
Beamech Group Limited, LME-Beamech, Inc., James Brian Blackell and
Prefoam AG relating to foam technology sharing arrangement.
10.5(e) - Asset Transfer Agreement, dated as of October 2, 1990, between
Trace Holdings and Foamex L.P. (the "Trace Holdings Asset Transfer
Agreement").
10.6(e) - First Amendment, dated as of December 19, 1991, to the Trace
Holdings Asset Transfer Agreement.
10.7(e) - Amended and Restated Guaranty, dated as of December 19, 1991,
made by Trace Foam in favor of Foamex L.P.
10.8(e) - Asset Transfer Agreement, dated as of October 2, 1990, between
RFC and Foamex L.P. (the "RFC Asset Transfer Agreement").
10.9(e) - First Amendment, dated as of December 19, 1991, to the RFC Asset
Transfer Agreement.
10.10(e) - Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
Protocol").
10.11(d) - The 5.03 Protocol Assumption Agreement, dated as of October 13,
1992, between RFC and Foamex L.P.
10.12(d) - Letter Agreement between Trace Holdings and Recticel regarding
the Recticel guaranty, dated as of July 22, 1992.
10.13(i) - Supply Agreement, dated June 28, 1994, between Foamex L.P. and
Foamex International.
10.14(i) - First Amended and Restated Tax Sharing Agreement, dated as of
December 14, 1993, among Foamex L.P., Trace Foam, FMXI and Foamex
International.
36
<PAGE>
10.15(i) - Tax Sharing Agreement, dated as of June 28, 1994, among FJPS and
Foamex International.
10.16 - Tax Distribution Advance Agreement, dated as of December 11,
1996, by and between Foamex L.P. and FJPS.
10.17(d) - Trace Foam Management Agreement between Foamex L.P. and Trace
Foam, dated as of October 13, 1992.
10.18(i) - Affirmation Agreement re: Management Agreement, dated as of
December 14, 1993 between Foamex L.P. and Trace Foam.
10.19(e)(p) - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.20(e)(p) - Trace Holdings 1987 Nonqualified Stock Option Plan.
10.21(e)(p) -Equity Growth Participation Program.
10.22(j)(o) - General Felt Industries, Inc. Retirement Savings Plan for
Salaried Employees, effective as of January 1, 1995.
10.23(e)(o) -Foamex L.P. Salaried Retirement Plan (formerly known as the
Foamex L.P. Products, Inc. Salaried Employee Retirement Plan), as
amended, effective July 1, 1984.
10.24(e)(p) - Foamex L.P. 401(k) Savings Plan dated January 1, 1989.
10.25(o) - Foamex/GFI 401(k) Savings Plan dated July 1, 1995.
10.26(a)(p) - Foamex International's 1993 Stock Option Plan.
10.27(a)(p) - Foamex International's Non-Employee Director Compensation Plan.
10.28(a)(p) - Employment Agreement, dated as of May 6, 1993, by and between
Foamex L.P. and Rallis.
10.29(f)(p) - Employment Agreement, dated as of February 1, 1994, by and
between Foamex L.P. and William H. Bundy.
10.30(p) - Employment Agreement, dated as of July 26, 1995, by and between
Foamex L.P. and Salvatore J. Bonanno.
10.31(a) - 1993 Recticel Master Agreement, dated as of November 4, 1993, by
and among Trace Holdings, Trace Foam, RFC, Foamex International,
Recticel s.a., MGM, FCD Sub and Foamex L.P.
10.32(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and RFC.
10.33(a) - Withdrawal Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and RFC.
10.34(a) - 1993 Agreement of Terms, dated as of November 4, 1993, by and
among Trace Holdings, Trace Foam, Foamex L.P., Foamex
International and GBNY.
10.35(a) - 1993 Marely Master Agreement, dated as of November 4, 1993, by
and among Foamex International, Trace Holdings, Trace Foam, Foamex
L.P. and Marely.
10.36(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and Marely.
10.37(a) - Warrant Exchange Agreement, dated as of December 14, 1993, by
and between Foamex International and Marely.
10.38(a) - Redemption and Withdrawal Agreement, dated as of December 14,
1993, by and between Foamex L.P. and Marely.
10.39(a) - 1993 DLJ Master Agreement, dated as of November 4, 1993, by and
among Foamex International, Trace Holdings, Trace Foam, DLJ
Funding and Foamex L.P.
10.40(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and DLJ Funding.
10.41(a) - Warrant Exchange Agreement, dated as of December 14, 1993, by
and between Foamex International and DLJ Funding.
10.42(a) - Redemption and Withdrawal Agreement, dated as of December 14,
1993, by and between Foamex L.P. and DLJ Funding.
37
<PAGE>
10.43(a) - 1993 Rallis Master Agreement, dated as of November 4, 1993, by
and among Foamex International, Trace Holdings, Trace Foam, Rallis
and Foamex L.P.
10.44(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and Rallis.
10.45(a) - Partial Redemption Agreement, dated as of December 14, 1993, by
and between Foamex L.P. and Rallis.
10.46(c) - Exchange Agreement Regarding Admission of Limited Partner and
Put Option, dated as of May 1, 1993, among Rallis, Pegasus
Properties, Foamex L.P. and Trace Holdings.
10.47(a) - Amended and Restated Put Option Agreement, dated as of December
14, 1993, by and between Trace Holdings and Rallis.
10.48(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and Trace Holdings.
10.49(a) - Redemption and Withdrawal Agreement, dated as of December 14,
1993, by and between Foamex L.P. and Trace Holdings.
10.50(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and Trace Foam.
10.51(a) - Withdrawal Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and Trace Foam.
10.52(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and FCD Sub.
10.53(a) - Redemption and Withdrawal Agreement, dated as of December 14,
1993, by and between Foamex L.P. and FCD Sub.
10.54(a) - Release and Termination Agreement, dated as of December 14,
1993, by and among Trace Holdings, Trace Foam, Foamex L.P., RFC,
Marely, DLJ, MGM, FCD Sub, Recticel s.a., SGB, GBNY, and
Wilmington Trust Company.
10.55(f) - Stock Purchase Agreement, dated as of December 23, 1993, by and
between Transformacion de Espumas y Fieltros, S. A., the
stockholders which are parties thereto, and Foamex L.P.
10.56(r) - Agreement and Plan of Merger, as amended, dated as of June 11,
1996, by and among PFI Subsidiary, Inc., PFI Acquisition Corp.,
Jody B. Vitale, Perfect Fit, General Felt, and Foamex L.P.
21 - Subsidiaries of the Registrant.
_________
(a) Incorporated herein by reference to the Exhibit to Foamex
International's Registration Statement on Form S-1, Registration
No. 33-69606.
(b) Incorporated herein by reference to the Exhibit to the
Registration Statement of Foamex L.P. and FCC on Form S-4,
Registration No. 33-65158.
(c) Incorporated herein by reference to the Exhibit to the
Registration Statement of Foamex L.P., FCC and General Felt on
Form S-1, Registration Nos. 33-60888, 33-60888-01, and
33-60888-02.
(d) Incorporated herein by reference to the Exhibit to the Form 10-K
Statement of Foamex L.P. and FCC for fiscal 1992.
(e) Incorporated herein by reference to the Exhibit to the
Registration Statement of Foamex L.P. and FCC on Form S-1,
Registration Nos. 33-49976 and 33-49976-01.
(f) Incorporated herein by reference to the Exhibit to the Form 10-K
of Foamex International for fiscal 1993.
38
<PAGE>
(g) Incorporated herein by reference to the Exhibit to JPS
Automotive's Registration Statement on Form S-1, Registration No.
33-75510.
(h) Incorporated by reference to the Exhibit to the Form 10-Q of
Foamex International for the quarterly period ended July 3, 1994.
(i) Incorporated herein by reference to the Exhibit to the
Registration Statement of FJPS, FJCC and Foamex International on
Form S-4, Registration No. 33-82028.
(j) Incorporated herein by reference to the Exhibit to the quarterly
report on Form 10-Q of JPS Automotive L.P. and JPS Automotive
Products Corp. for the fiscal quarter ended October 2, 1994.
(k) Incorporated herein by reference to the Exhibit to the quarterly
report on Form 10-Q of Foamex L.P. and Foamex L.P. Capital
Corporation, and General Felt Industries, Inc. for the fiscal
quarter ended October 2, 1994.
(l) Incorporated herein by reference to the Exhibit to the
Registration Statement on Form S-1 of Foamex International,
Registration No. 33-85488.
(m) Incorporated herein by reference to the Exhibit to the Form 10-K
of Foamex International for fiscal 1994.
(n) Incorporated herein by reference to the Exhibit to the Form 10-K
of Foamex L.P. for fiscal 1994.
(o) Incorporated herein by reference to the Exhibit to the Form 10-Q
of Foamex L.P. for the quarterly period ended July 2, 1995.
(p) A management contract or compensatory plan or arrangement required
to be filed as an Exhibit pursuant to Item 14(c) of this report.
(q) Incorporated herein by reference to the Exhibit to the Form 10-K
of Foamex L.P. for fiscal 1995.
(r) Incorporated herein by reference to the Exhibit to the Form 8-K of
Foamex L.P. dated June 11, 1996.
(s) Incorporated herein by reference to the Exhibit to the Form 10-Q
of Foamex L.P. for the quarterly period ended June 30, 1996.
(t) Incorporated herein by reference to the Exhibit to the Form 10-Q
of Foamex L.P. for the quarterly period ended September 30, 1996.
Certain instruments defining the rights of security holders have
been excluded herefrom in accordance with Item 601(b)(4)(iii) of Regulation S-K.
The Registrant hereby agrees to furnish a copy of any such instrument to the
Commission upon request.
(d) Schedules
The schedules listed in the accompanying Index to Financial
Statement Schedules are filed as part of this Annual Report on
Form 10-K.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 7th day of April,
1997
FOAMEX L.P.
By: FMXI, Inc.
General Partner
By: /s/ Marshall S. Cogan
Marshall S. Cogan
Chairman of the Board and
Chief Executive Officer
FOAMEX CAPITAL CORPORATION
By: /s/ Marshall S. Cogan
Marshall S. Cogan
Chairman of the Board and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on its behalf by the
registrant and in the capacities and on the dates indicated:
Signatures Title Date
/s/ Marshall S. Cogan Chairman of the Board, Chief April 7, 1997
- ------------------------- Executive Officer and Director
Marshall S. Cogan of FMXI and Chairman of the
Board, President and Director
of FCC
/s/ Robert J. Hay Chairman Emeritus and Director April 7, 1997
- ------------------------- of FMXI
Robert J. Hay
/s/ Salvatore J. Bonanno President (Principal Executive April 7, 1997
- ------------------------- Officer) of Foamex L.P.
Salvatore J. Bonanno
40
<PAGE>
/s/ Kenneth R. Fuette Senior Vice President of Finance April 7, 1997
- ------------------------- (Chief Financial Officer and Chief
Kenneth R. Fuette Accounting Officer) of Foamex L.P.
and FMXI and Treasurer, Chief
Financial Officer and Chief Accounting
Officer of FCC
/s/ William H. Bundy Senior Vice President of Foamex April 7, 1997
- ------------------------- L.P. and Senior Vice President
William H. Bundy of FMXI and Director
/s/ John Rallis President, Chief Operating Officer April 7, 1997
- ------------------------- and Director of FMXI
John Rallis
/s/ Andrea Farace Director of FCC April 7, 1997
- -------------------------
Andrea Farace
/s/ Frederick Marcus Director of FCC April 7, 1997
- -------------------------
Frederick Marcus
/s/ Robert H. Nelson Director of FCC April 7, 1997
- -------------------------
Robert H. Nelson
/s/ Barry Zimmerman Director of FCC April 7, 1997
- -------------------------
Barry Zimmerman
41
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Financial Statements of Registrants:
Foamex L.P.:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-3
Consolidated Statements of Operations for the years ended 1996, 1995, and 1994 F-5
Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994 F-6
Consolidated Statements of Partners' Equity (Deficit) for the years ended 1996, 1995, and 1994 F-7
Notes to Consolidated Financial Statements F-8
Foamex Capital Corporation:
Report of Independent Accountants F-30
Balance Sheets as of December 29, 1996 and December 31, 1995 F-31
Notes to Balance Sheets F-32
Financial Statements of Guarantors:
General Felt Industries, Inc.
Report of Independent Accountants F-33
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-34
Consolidated Statements of Operations for the years ended 1996, 1995 and 1993 F-36
Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994 F-37
Consolidated Statements of Stockholder's Equity for the years ended 1996, 1995 and 1994 F-38
Notes to Consolidated Financial Statements F-39
Foamex International Inc.
Report of Independent Accountants F-51
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-52
Consolidated Statements of Operations for the years ended 1996, 1995 and 1994 F-54
Consolidated Statements of Cash Flows for the years ended 1996, 1995 and 1994 F-55
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended 1996, 1995 and 1994 F-56
Notes to Consolidated Financial Statements F-57
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Foamex L.P.:
We have audited the accompanying consolidated balance sheets of Foamex L.P. and
subsidiaries ("Foamex L.P.") as of December 29, 1996 and December 31, 1995, and
the related consolidated statements of operations, cash flows and partners'
equity (deficit) for each of the three years in the period ended December 29,
1996. Our audits also included the financial statement schedule as of and for
each of the three years in the period ended December 29, 1996. These financial
statements and financial statement schedule are the responsibility of Foamex
L.P.'s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Foamex L.P. and
subsidiaries as of December 29, 1996 and December 31, 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 29, 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-2
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
ASSETS 1996 1995
(thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,968 $ 638
Restricted cash 12,143 --
Accounts receivable, net of allowance for
doubtful accounts of $6,328 and $9,138 125,847 113,583
Inventories 102,610 89,952
Deferred income taxes 6,720 --
Due from related parties 1,791 1,569
Other current assets 18,841 19,784
--------- ---------
Total current assets 288,920 225,526
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 9,674 4,632
Buildings and leasehold improvements 78,082 78,169
Machinery, equipment and furnishings 185,348 176,019
Construction in progress 20,784 7,985
--------- ---------
Total 293,888 266,805
Less accumulated depreciation and
amortization (111,461) (97,739)
--------- ---------
Property, plant and equipment, net 182,427 169,066
COST IN EXCESS OF ASSETS ACQUIRED, NET 83,991 91,165
DEBT ISSUANCE COSTS, NET 14,902 18,703
NET ASSETS OF DISCONTINUED OPERATIONS -- 85,073
OTHER ASSETS 15,917 16,359
--------- ---------
TOTAL ASSETS $ 586,157 $ 605,892
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
LIABILITIES AND PARTNERS' EQUITY (DEFICIT) 1996 1995
(thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 3,692 $ 2,199
Current portion of long-term debt - unrelated parties 13,735 8,511
Accounts payable 75,621 67,658
Accounts payable to related parties 8,803 11,731
Accrued employee compensation 7,302 8,116
Accrued interest 8,871 9,591
Accrued restructuring charges 6,300 15,882
Other accrued liabilities 27,506 30,516
--------- ---------
Total current liabilities 151,830 154,204
LONG-TERM DEBT - UNRELATED PARTIES 386,800 428,416
LONG-TERM DEBT - RELATED PARTIES 5,817 5,540
DEFERRED INCOME TAXES 4,663 1,394
ACCRUED RESTRUCTURING CHARGES 4,043 3,773
OTHER LIABILITIES 20,172 25,169
--------- ---------
Total liabilities 573,325 618,496
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
PARTNERS' EQUITY (DEFICIT)
General partners 632 404
Limited partners 57,654 46,036
Note receivable from partner (33,180) (44,444)
Other (12,274) (14,600)
--------- ---------
Total partners' equity (deficit) 12,832 (12,604)
--------- ---------
TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) $ 586,157 $ 605,892
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
NET SALES $ 926,351 $ 862,834 $ 833,660
COST OF GOODS SOLD 773,119 762,085 691,265
--------- --------- ---------
GROSS PROFIT 153,232 100,749 142,395
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 56,778 63,466 57,059
RESTRUCTURING AND OTHER CHARGES (CREDITS) (6,415) 39,249 --
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 102,869 (1,966) 85,336
INTEREST AND DEBT ISSUANCE EXPENSE 43,211 44,550 41,532
OTHER INCOME (EXPENSE), NET 1,705 (205) 732
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 61,363 (46,721) 44,536
PROVISION FOR INCOME TAXES 7,702 1,405 6,525
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 53,661 (48,126) 38,011
--------- --------- ---------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (230) (5,117) 1,230
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
INCLUDING PROVISIONS FOR OPERATING
LOSSES DURING THE PHASE-OUT PERIOD, NET
OF INCOME TAXES (41,820) -- --
--------- --------- ---------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (42,050) (5,117) 1,230
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 11,611 (53,243) 39,241
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT (1,912) -- --
--------- --------- ---------
NET INCOME (LOSS) $ 9,699 $ (53,243) $ 39,241
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
OPERATING ACTIVITIES: (thousands)
<S> <C> <C> <C>
Net income (loss) $ 9,699 $(53,243) $ 39,241
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 21,132 22,905 22,108
Amortization of debt issuance costs and debt discount 2,919 2,729 2,116
Net loss on disposal of discontinued operations 40,551 -- --
Net (income) loss from discontinued operations 1,499 5,117 (1,230)
Asset writedowns and other charges (credits) (7,364) 16,677 --
Extraordinary loss on early extinguishment of debt 1,217 -- --
Provision for uncollectible accounts 704 4,627 878
Deferred income taxes 6,010 659 5,520
Other, net (5,804) (706) 6
Changes in operating assets and liabilities, net of
acquisitions and discontinued operations:
Accounts receivable (13,130) (1,472) (24,677)
Inventories (13,078) 14,146 (21,790)
Accounts payable and accounts payable related parties 5,035 823 28,491
Accrued restructuring charges (7,000) 16,834 (3,469)
Other assets and liabilities (5,724) 7,415 3,414
-------- -------- --------
Net cash provided by continuing operations 36,666 36,511 50,608
Net cash used for discontinued operations (486) (9,175) (323)
-------- -------- --------
Net cash provided by operating activities 36,180 27,336 50,285
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (23,344) (19,348) (21,201)
Acquisitions, net of cash acquired (841) (7,272) --
Proceeds from sale of discontinued operations 42,650 -- --
Purchase of note from related party -- (2,000) --
Repayment of (purchase of) note from partner 18,623 -- (35,300)
Increase in restricted cash (12,143) -- --
Capital expenditures for discontinued operations (919) (4,429) (6,565)
Other investing activities (1,276) 2,495 (1,412)
-------- -------- --------
Net cash provided by (used for) investing activities 22,750 (30,554) (64,478)
-------- -------- --------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings 1,493 (1,685) 537
Net proceeds from (repayments of) revolving loans -- (3,000) 3,000
Proceeds from long-term debt-unrelated parties 1,500 -- 40,000
Repayments of long-term debt-unrelated parties (38,116) (9,099) (3,256)
Distributions and redemptions to partners (3,487) (2,379) (3,257)
Debt issuance costs -- -- (4,816)
Other financing activities 10 -- (1,974)
-------- -------- --------
Net cash provided by (used for) financing activities (38,600) (16,163) 30,234
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 20,330 (19,381) 16,041
Cash and cash equivalents at beginning of period 638 20,019 3,978
-------- -------- --------
Cash and cash equivalents at end of period $ 20,968 $ 638 $ 20,019
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
Note
General Limited Receivable
Partners Partners from Partner Other Total
(thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 2, 1994 $ 11,338 $ 45,199 $ -- $ (7,151) $ 49,386
Net income 1,377 37,864 -- -- 39,241
Distributions (117) (4,487) -- -- (4,604)
Note receivable from partner -- -- (35,300) -- (35,300)
Accretion of note receivable
from partner 58 2,809 (2,867) -- --
Transfer of partnership interests (11,208) 11,208 -- -- --
Contribution of Foamex Latin America, Inc. -- 5,093 -- (453) 4,640
Additional pension liability -- -- -- 168 168
Foreign currency translation adjustment -- -- -- (983) (983)
-------- -------- -------- -------- --------
Balances at January 1, 1995 1,448 97,686 (38,167) (8,419) 52,548
Net loss (1,044) (52,199) -- -- (53,243)
Distributions (125) (5,603) -- -- (5,728)
Purchase of note receivable from
Foamex International -- -- -- (2,000) (2,000)
Increase in note receivable from
Trace Holdings -- -- -- (1,373) (1,373)
Accretion of note receivable from partner 125 6,152 (6,277) -- --
Additional pension liability -- -- -- (3,290) (3,290)
Foreign currency translation adjustment -- -- -- 482 482
-------- -------- -------- -------- --------
Balances at December 31, 1995 404 46,036 (44,444) (14,600) (12,604)
Net income 184 9,515 -- -- 9,699
Distributions (104) (5,108) -- -- (5,212)
Accretion of note receivable from partner 144 7,031 (7,175) -- --
Repayment of note receivable from partner -- -- 18,439 -- 18,439
Repayment premium on note receivable from partner 4 180 -- -- 184
Additional pension liability -- -- -- 2,372 2,372
Foreign currency translation adjustment -- -- -- (46) (46)
-------- -------- -------- -------- --------
Balances at December 29, 1996 $ 632 $ 57,654 $(33,180) $(12,274) $ 12,832
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex L.P., a Delaware limited partnership, is an indirect,
majority-owned subsidiary of Foamex International Inc. ("Foamex International").
Foamex L.P. is a significant manufacturer and marketer of flexible polyurethane
foam and foam products in North America. Foamex L.P.'s products include (i) foam
for carpet cushion and other carpet products, (ii) cushioning foams for
furniture, bedding, packaging and health care, (iii) foams for automotive trim
and accessories and (iv) technical foams for filtration, consumer products and
packaging.
During 1996, Foamex L.P. sold Perfect Fit Industries, Inc. ("Perfect
Fit") which comprised the home comfort products segment of Foamex L.P. The
consolidated financial statements of Foamex L.P. have been restated for
discontinued operations and includes a net loss of $41.8 million (net of $1.2
million income tax benefit) on the disposal of this business segment which
includes provisions for operating losses during the phase-out period. (See Note
3 for further discussion). In addition, during April 1996 Foamex International
contributed the foam products operations of Foamex Latin America, Inc. ("Foamex
Mexico") to Foamex L.P. The contribution was accounted for in a manner similar
to a pooling of interests since the entities were under common control.
Accordingly, all prior periods presented have been restated to reflect the
results of operations and financial position of Foamex Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Foamex
L.P. and all subsidiaries that Foamex L.P. directly or indirectly controls,
either through majority ownership or otherwise, other than the home comfort
products segment which is accounted for as discontinued operations. Intercompany
accounts and transactions for continuing operations have been eliminated in
consolidation.
The consolidated financial statements have been restated for
discontinued operations. The accompanying notes present amounts related only to
continuing operations.
Fiscal Year
Foamex L.P.'s fiscal year ends on the Sunday closest to the
thirty-first day of December. Fiscal years 1996, 1995 and 1994 were composed of
fifty-two weeks and ended on December 29, 1996, December 31, 1995 and January 1,
1995, respectively.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 4, 9, 10, 15, 16 and 17 and Cost in Excess of Net Assets
Acquired below.)
Cash and Cash Equivalents
Foamex L.P. considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. On
December 29, 1996, cash and cash equivalents included $18.4 million of
repurchase agreements collateralized by U.S. Government securities.
F-8
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted Cash
As of December 29, 1996, Foamex L.P. had restricted cash of
approximately $12.1 million. This cash was derived from the net sales proceeds
relating to the sale of Perfect Fit and is restricted by Foamex L.P.'s debt
agreements. As of February 26, 1997, Foamex L.P. has used approximately $8.4
million of the restricted cash to repurchase approximately $8.0 million of
outstanding indebtedness.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the assets.
The range of useful lives estimated for buildings is generally twenty to
thirty-five years and the range for machinery, equipment and furnishings is five
to twelve years. Leasehold improvements are amortized over the shorter of the
terms of the respective leases or the estimated useful lives of the leasehold
improvements. Depreciation expense for the years ended 1996, 1995 and 1994 was
$17.9 million, $18.7 million and $16.8 million, respectively. For income tax
purposes, Foamex L.P. uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other disposition
of items of plant and equipment, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
Debt Issuance Costs
Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the interest method. Accumulated amortization as of December 29, 1996 and
December 31, 1995 was approximately $7.5 million and $5.7 million, respectively.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for as purchases is amortized using
the straight-line method over a forty year period. At each balance sheet date
Foamex L.P. evaluates the recoverability of cost in excess of net assets
acquired using certain financial indicators such as historical and future
ability to generate income from operations based on a going concern basis.
Accumulated amortization as of December 29, 1996 and December 31, 1995 was
approximately $11.6 million and $9.1 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
F-9
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated.
Postretirement and Postemployment Benefits
Foamex L.P. accrues postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
Also, Foamex L.P. accrues postemployment benefits when it becomes probable that
such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.
Foreign Currency Accounting
The financial statements of foreign subsidiaries, except in countries
treated as highly inflationary, have been translated into U.S. dollars by using
the year end exchange rates for assets and liabilities and average exchange
rates for the statements of operations. Currency translation adjustments are
included in other partners' equity (deficit) until the entity is substantially
sold or liquidated. For operations in countries treated as highly inflationary,
certain financial statement amounts are translated at historical exchange rates,
with all other assets and liabilities translated at year end exchange rates.
These translation adjustments are reflected in the results of operations and are
insignificant for all periods presented. Also, foreign currency transaction
gains and losses are insignificant for all periods presented. The effect of
foreign currency exchange rates on cash flows is not material.
Interest Rate Swap Agreement
The differential to be paid or received under an interest rate swap
agreement is recognized as an adjustment to interest and debt issuance expense
in the current period as interest rates change.
Income Taxes
Income taxes are accounted for under the liability method, in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
Foamex L.P., as a limited partnership, is not subject to federal
income taxes; therefore no current or deferred provision has been provided for
such taxes. However, Foamex L.P. has provided for the income taxes of certain
states in which it is subject to taxes and for certain subsidiaries which are
subject to federal and state income taxes. The partners will provide for their
respective shares of income or loss in their federal or applicable state income
tax returns. Foamex L.P. has a tax sharing agreement that provides for the
payment of distributions to the partners for amounts that would be required to
be paid if Foamex L.P. was a corporation filing separate tax returns. The
ability of Foamex L.P. to make such distributions is limited by the terms of its
credit agreements and indentures. (See Note 8).
Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the current year's presentation.
F-10
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS
During 1996, Foamex L.P. finalized the sale of the outstanding common
stock of Perfect Fit, a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included substantially all of the net
assets of Foamex L.P.'s home comfort products segment. Actual and estimated
transaction expenses related to the sale totaled approximately $1.5 million.
Foamex L.P. has recorded a net loss on the sale of Perfect Fit of approximately
$41.8 million, which includes the loss on disposal and a net loss of $1.3
million (net of $1.2 million income tax benefit) relating to operating losses
during the phase-out period. Interest and debt issuance expense was allocated to
discontinued operations based on the estimated debt to be retired from the net
proceeds of the sale. A valuation allowance has been provided for the capital
loss relating to the sale of Perfect Fit since future capital gain taxable
income is not likely to be sufficient to recognize the deferred tax asset
relating to the capital loss carryforward.
Foamex L.P.'s financial statements have been restated to reflect the
discontinuation of the home comfort products segment. A summary of the operating
results for the discontinued operations is as follows:
<TABLE>
<CAPTION>
1996 (1) 1995 1994
(thousands)
<S> <C> <C> <C>
Sales $ 50,097 $ 98,464 $ 95,381
Gross profit 8,065 14,946 18,200
Income (loss) from operations 1,123 (3,058) 4,170
Interest and debt issuance expense 2,384 4,699 3,671
Other expense 348 -- --
Income (loss) from discontinued operations before income taxes (1,609) (7,757) 499
Provision (benefit) for income taxes (1,379) (2,640) (731)
Income (loss) from discontinued operations, net of income taxes (230) (5,117) 1,230
<FN>
(1) Foamex L.P.'s discontinued operations includes the operations of
Perfect Fit through June 1996.
</FN>
</TABLE>
Net assets of discontinued operations (excluding intercompany net
assets) at December 31, 1995 were as follows:
1995
(thousands)
Current assets $31,925
Property, plant and equipment, net 21,672
Cost in excess of assets acquired, net 40,333
Other assets 2,219
-------
Total assets 96,149
-------
Current liabilities 11,076
-------
Total liabilities 11,076
-------
Net assets $85,073
=======
F-11
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RESTRUCTURING AND OTHER CHARGES (CREDITS)
In 1995, Foamex L.P. approved a restructuring plan (the "1995
restructuring plan") to consolidate thirteen foam production, fabrication or
branch locations, to concentrate resources as a result of industry conditions
and to better position itself to achieve its strategic growth objectives. Foamex
L.P. recorded restructuring and other charges of $39.2 million which was
comprised of $35.6 million associated with the consolidation of the foam
production, fabrication or branch locations, $2.2 million associated with the
completion of a 1993 restructuring plan and $1.4 million associated with merger
and acquisition activities of Foamex L.P. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns (net of
estimated sale proceeds), $15.1 million for plant closure and operating lease
obligations and $3.8 million for personnel reductions. The $3.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
In 1996, Foamex L.P. determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, Foamex L.P. has approved a
plan to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters,
Foamex L.P. recorded a $6.4 million net restructuring credit which included a
restructuring credit of $11.3 million associated with Foamex L.P.'s decision not
to close the facility identified as part of the 1995 restructuring plan and $1.7
million of restructuring credits relating primarily to the favorable termination
of certain lease agreements and other matters relating to the 1995 restructuring
plan, offset by $6.6 million of restructuring charges relating to the closure of
the two facilities during 1997 (the "1996 restructuring plan").
Generally, the 1995 restructuring plan has been implemented as
originally contemplated. The following table sets forth the components of Foamex
L.P.'s restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge $ 39.2 $ 16.7 $ 15.1 $ 3.8 $ 3.6
Asset writeoff/writedowns (23.3) (20.9) -- -- (2.4)
Cash spending (0.4) -- (0.3) (0.1) --
------- ------- ------- ------ ------
Balances at December 31, 1995 15.5 (4.2) 14.8 3.7 1.2
Cash spending (9.7) -- (6.6) (2.0) (1.1)
Cash proceeds 1.0 1.0 -- -- --
1996 restructuring charge 6.6 2.4 4.1 0.1 --
Restructuring credits (13.0) (9.7) (2.8) (0.4) (0.1)
Asset adjustment for restructuring
credits 8.1 8.7 (0.6) -- --
------- ------- ------- ------ ------
Balances at December 29, 1996 $ 8.5 $ (1.8) $ 8.9 $ 1.4 $ --
======= ======= ======= ====== ======
</TABLE>
As indicated in the table above, the accrued restructuring balance at
December 29, 1996 will be used for payments relating to plant closure and leases
including rundown costs at the facilities. The $1.8 million of asset writedowns
relates to estimated proceeds and is included in noncurrent assets. Foamex L.P.
expects to incur approximately $6.3 million of charges during 1997 with the
remaining $4.0 million to be incurred through 2001. As of December 29, 1996,
Foamex L.P. has terminated approximately 270 employees and notified
approximately 40 employees in the manufacturing and administrative areas of
their impending termination in connection with the 1996 and 1995 restructuring
plans.
F-12
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. ACQUISITIONS
In April 1995, Foamex L.P. acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million, including
related fees and expenses of approximately $0.3 million, with an initial cash
payment of $7.2 million. The excess of the purchase price over the estimated
fair value of the net assets acquired was approximately $3.9 million. The
acquisition was accounted for as a purchase and the operations of the acquired
company are included in the consolidated statements of operations and cash flows
from the date of its acquisition. The excess of the purchase price over the
estimated fair value of the net assets acquired is being amortized using the
straight-line method over forty years.
6. INVENTORIES
Inventories consists of:
December 29, 1996 December 31, 1995
(thousands)
Raw materials and supplies $ 61,559 $ 49,963
Work-in process 13,453 14,451
Finished goods 27,598 25,538
-------- --------
Total $102,610 $ 89,952
======== ========
7. SHORT-TERM BORROWINGS
Short-term borrowings include borrowings outstanding under a line of
credit facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the
bank's prime rate (4.75% at December 29, 1996) plus 1/2%. The weighted average
interest rates on Foamex Canada's short-term borrowings outstanding for 1996,
1995 and 1994 were 5.9%, 8.0% and 7.3%, respectively. Borrowings under Foamex
Canada's credit facility are due on demand and are collateralized by accounts
receivable, property and inventories of Foamex Canada having an approximate net
carrying value of $17.1 million as of December 29, 1996. The unused amount under
this line of credit totaled $0.7 million as of December 29, 1996.
F-13
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 29, 1996 December 31, 1995
(thousands)
<S> <C> <C>
Unrelated parties:
9 1/2% Senior secured notes due 2000 $106,793 $116,667
11 1/4% Senior notes due 2002 141,400 150,000
11 7/8% Senior subordinated debentures due 2004 (net of
unamortized debt discount of $769 and $827) 125,056 125,173
11 7/8% Senior subordinated debentures due 2004,
Series B 7,000 7,000
Industrial revenue bonds 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 29, 1996) 11,000 30,000
Other 2,286 1,087
-------- --------
Total 400,535 436,927
Less current portion 13,735 8,511
-------- --------
Long-term debt--unrelated parties $386,800 $428,416
======== ========
Related parties:
Subordinated note payable (net of unamortized
debt discount of $1,198 and $1,475) $ 5,817 $ 5,540
======== ========
</TABLE>
9 1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest
at the rate of 9 1/2% payable semiannually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100% on or after June 1, 1999. The
Senior Secured Notes have been guaranteed, on a senior secured basis by General
Felt Industries, Inc. ("General Felt") and on a senior unsecured basis by Foamex
International. During 1996, Foamex L.P. repurchased $9.9 million of Senior
Secured Notes with the net proceeds from the sale of Perfect Fit (see Note 11).
11 1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11 1/4% payable
semiannually on each April 1 and October 1. The Senior Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part, at any time on or after October 1, 1997, initially at 104.219% of
F-14
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
their principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994, Foamex L.P. provided certain real property as
collateral for the Senior Notes, with a net book value of $37.8 million at
December 29, 1996. The Senior Notes have been guaranteed, on a senior basis, by
General Felt and Foamex International. During 1996, Foamex L.P. repurchased $8.6
million of Senior Notes with the net proceeds from the sale of Perfect Fit (see
Note 11).
11 7/8% Senior Subordinated Debentures ("Subordinated Debentures")
The Subordinated Debentures bear interest at the rate of 11 7/8%
payable semiannually on each April 1 and October 1. The Subordinated Debentures
mature on October 1, 2004. The Subordinated Debentures may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after October 1,
1997, initially at 105.938% of their principal amount, plus accrued interest,
and declining to 100% on or after October 1, 2002. The Subordinated Debentures
are subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. The Subordinated Debentures have been
guaranteed, on a senior subordinated basis, by General Felt and Foamex
International. During 1996, Foamex L.P. repurchased $0.1 million of Subordinated
Debentures with the net proceeds from the sale of Perfect Fit (see Note 11).
11 7/8% Senior Subordinated Debentures, Series B ("Series B
Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures. The Series B Debentures have
been guaranteed on a senior subordinated basis by General Felt.
Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0
million, maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.3 million at
December 29, 1996 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex L.P. to
convert to a fixed rate. The interest rates on the IRBs were 4.85% and 4.0% at
December 29, 1996 for the $6.0 million and $1.0 million bond issues,
respectively. The interest rate on the $6.0 million bond issue varies weekly
based on an interest rate that is indicative of current bidside yields on high
quality short-term, tax-exempt obligations, or if such interest rate is not
available, 70.0% of the interest rate for thirteen week United States Treasury
Bills. The maximum interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon appropriate notice,
the IRBs are redeemable at the option of the bondholders.
Term and Revolving Loans
Foamex L.P. has a credit agreement (the "Foamex L.P. Credit Facility")
with a group of banks that provide for loans of up to $85.0 million of which up
to $40.0 million was available as a term loan payable in twenty equal quarterly
installments commencing October 1994 and up to $45.0 million is available under
a revolving line of credit which expires in June 1999. In 1994, Foamex L.P. and
F-15
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility; no further term loan borrowings are available thereunder. During 1996,
Foamex L.P. and General Felt used $12.0 million of net proceeds from the Perfect
Fit sale to repay term loan borrowings. Borrowings under the Foamex L.P. Credit
Facility are collateralized by the accounts receivable of Foamex L.P. and
General Felt. Pursuant to the terms of the Foamex L.P. Credit Facility, borrowed
funds will bear interest at a floating rate equal to 1.0% per annum plus the
highest of (i) the base rate of The Bank of Nova Scotia, as in effect from time
to time, (ii) a rate that is, generally, 0.5% per annum plus a fluctuating rate
generally equal to the rate on three month certificates of deposit, subject to
certain adjustments, plus a fluctuating rate generally equal to the annual
assessment rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation or (iii) 0.5% per annum plus the federal funds rate in effect from
time to time. At the option of Foamex L.P., portions of the outstanding loan
under the Foamex L.P. Credit Facility will be convertible into Eurodollar rate
loans bearing interest at a rate generally equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29, 1996, there were approximately $11.7 million in letters of credit
outstanding under the Foamex L.P. Credit Facility. As of December 29, 1996,
there was unused availability of approximately $33.3 million under the Foamex
L.P. Credit Facility.
Subordinated Note Payable
This note payable was issued to John Rallis ("Rallis"), the Chief
Operating Officer of Foamex International, on May 6, 1993 by Foamex L.P. in
connection with the acquisition of Great Western Foam Products Corporation and
certain related entities and assets (collectively, "Great Western"). The note
bears interest at a maximum rate of 6% per annum and the principal amount is
payable in three equal annual installments beginning May 6, 1999.
Other
As of December 29, 1996, other debt is comprised primarily of capital
lease obligations and borrowings by Foamex Mexico.
Interest Rate Swap Agreements
Foamex L.P. enters into interest rate swaps to lower funding costs
and/or to manage interest costs and exposure to changing interest rates. Foamex
L.P. does not hold or issue financial instruments for trading purposes. Foamex
L.P. has an interest rate swap agreement, as amended, with a notional amount of
$150.0 million through December 2001. Under the swap agreement, Foamex L.P. has
made variable payments based on LIBOR through December 1996 and is obligated to
make fixed payments at 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 5.81% per annum through
December 1996, and 6.50% per annum for the remainder of the agreement, payable
semiannually in arrears. The swap partner has the ability to terminate the swap
agreement after the December 1997 payment if the LIBOR rate Foamex L.P. is to
pay for any period thereafter is equal to or less than 4.50% per annum. Interest
expense will be subject to fluctuations in LIBOR during the term of the swap
agreement except during 1997. Foamex L.P. is exposed to credit loss in the event
of nonperformance by the swap partner; however, the occurrence of this event is
not anticipated.
Also, Foamex L.P. has an interest rate swap agreement, as amended, for
a notional amount of $150.0 million through December 2001. Under this swap
agreement, Foamex L.P. has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
F-16
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months in December 1997 and
variable payments based on LIBOR for the remainder of the agreement, in exchange
for variable payments by the swap partner at the rate of LIBOR plus 0.80% per
annum for the six months ended in June 1995, LIBOR plus 0.72% per annum for the
six months ended in December 1995, LIBOR plus 2.45% per annum for the six months
ended in June 1996, LIBOR plus 2.39% per annum for the six months ended in
December 1996 and fixed payments at 6.50% per annum for the remainder of the
term of the agreement, payable semiannually in arrears. The swap partner has the
ability to terminate the swap agreement after the December 1997 payment if the
LIBOR rate Foamex L.P. is to pay for any period thereafter is equal to or less
than 4.50% per annum. Foamex L.P. is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated. Interest expense will be subject to fluctuations in LIBOR during
the term of the swap agreement except during 1997. The effect of the two
interest rate swaps described above was a favorable adjustment to interest
expense of $3.7 million, $1.4 million and $3.0 million for 1996, 1995 and 1994,
respectively.
Debt Restrictions and Covenants
The indentures, credit agreement and other indebtedness agreements
contain various covenants, including restrictions on payments of distributions
by Foamex L.P. to its partners, the incurrence of additional indebtedness, the
sale of assets, mergers and consolidations and transactions with affiliates. In
addition, certain agreements contain a provision that, in the event of a defined
change of control, the indebtedness must be repaid, in certain cases at the
option of the holder. Also, Foamex L.P. is required under certain of these
agreements to maintain specified financial ratios of which the most restrictive
is the maintenance of net worth and interest coverage ratios, as defined. Under
the most restrictive of the distribution restrictions, approximately $0.7
million was available to be paid by Foamex L.P. to its partners at December 29,
1996.
As of December 29, 1996, Foamex L.P. was in compliance with the
covenants of the indentures, credit agreements and other indebtedness agreements
and expects to be in compliance with these covenants for the foreseeable future.
Future Obligations on Long-Term Debt
Scheduled maturities of long-term debt are shown below:
Year Ended Long-Term Debt
(thousands)
1997 $ 13,490
1998 4,000
1999 5,338
2000 106,631
2001 2,339
Thereafter 275,735
--------
Total 407,533
Less unamortized discount 1,967
--------
Total $405,566
========
F-17
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
In addition, Foamex L.P. has approximately $0.8 million of total
capital lease obligations that are payable in 1997 through 2000 in annual
amounts of approximately $0.2 million.
9. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
Foamex L.P. maintains noncontributory defined benefit pension plans for
salaried and certain hourly employees. The salaried plan provides benefits that
are based principally on years of credited service and level of compensation.
The hourly plans provide benefits that are based principally on stated amounts
for each year of credited service.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service cost $ 2,471 $ 2,087 $ 2,452
Interest cost 3,997 3,742 3,541
Actual return on plan assets (8,841) (5,682) 624
Net amortization and deferral 4,643 1,807 (4,649)
------- ------- -------
Total $ 2,270 $ 1,954 $ 1,968
======= ======= =======
</TABLE>
Foamex L.P.'s funding policy is to contribute annually an amount that
both satisfies the minimum funding requirements of the Employee Retirement
Income Security Act of 1974 and does not exceed the full funding limita tions of
the Internal Revenue Code of 1986, as amended (the "Code"). Plan investments
consist primarily of corporate equity and debt securities, mutual life insurance
funds and cash equivalents. During 1996, the discount rate was adjusted to
7.50%. The following table sets forth the funded status of Foamex L.P.'s
underfunded plans and the amounts recognized in the accompanying consolidated
balance sheets as of December 29, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested benefits $ 55,336 $ 52,762
Nonvested benefits 2,137 1,916
-------- --------
Accumulated benefit obligations $ 57,473 $ 54,678
======== ========
Total projected benefit obligations $ 58,775 $ 55,810
Fair value of plan assets 53,734 44,441
-------- --------
Projected benefit obligations in excess
of plan assets (5,041) (11,369)
Unrecognized net loss from past experience difference
from that assumed and effect of changes in assumptions 1,099 6,394
Additional minimum liability (2,694) (5,265)
-------- --------
Accrued pension cost $ (6,636) $(10,240)
======== ========
</TABLE>
F-18
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
Significant assumptions used in determining the plans' funded status
are as follows:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
<S> <C> <C>
Expected long-term rates of return on plan assets 9.50% 9.00%
Discount rates on projected benefit obligations 7.50% 7.25%
Rates of increase in compensation levels (where applicable) 4.00% 4.00%
</TABLE>
Defined Contribution Plan
Foamex L.P. maintains a defined contribution plan which is qualified
under Section 401(k) of the Code and is available for eligible employees who
elect to participate in the plan. Employee contributions are voluntary and
subject to certain limitations as imposed by the Code. During 1996 and 1995,
Foamex L.P. provided contributions amounting to a 25% match of employees'
contributions up to 4% of eligible compensation. Foamex L.P. also provides an
additional 25% match of employees' contributions up to 4% of eligible
compensation made to a fund which invests in Foamex International common stock.
In addition, Foamex L.P. may make discretionary contributions amounting to a 25%
match of employees' contributions up to 4% of eligible compensation. Prior to
1995, employer contributions were discretionary and provided a 50% match of
employees' contributions up to 3% of eligible compensation. The expense for
these contributions for 1996, 1995 and 1994 was approximately $0.8 million, $0.7
million and $0.4 million, respectively.
Postretirement Benefits
In addition to providing pension benefits, Foamex L.P. provides
postretirement health care and life insurance for eligible employees. During
1996, certain employees accepted an early retirement program resulting in a
special termination loss of $0.6 million. During 1995, changes were made to
postretirement benefits offered to certain employees which resulted in a
curtailment loss of $0.6 million. These plans are unfunded and Foamex L.P.
retains the right, subject to existing agreements, to modify or eliminate these
benefits.
The components of 1996, 1995 and 1994 expense for postretirement
benefits are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service costs for benefits earned $ 12 $ 24 $ 172
Interest cost on liability 67 83 192
Net amortization and deferral (53) (13) 134
Special termination/curtailment loss 576 619 --
----- ----- -----
Net periodic postretirement benefit cost $ 602 $ 713 $ 498
===== ===== =====
</TABLE>
The accumulated postretirement benefit obligation at December 29, 1996
and December 31, 1995 resulted in an unfunded obligation of $2.1 million and
$1.6 million, respectively.
F-19
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
A 9% and 10% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1996 and 1995, respectively. This
rate was assumed to gradually decrease to 5% by the year 2000. Increasing the
weighted average assumed health care cost trend rates by one percentage point
would have an insignificant impact on the accumulated postretirement benefit
obligation and service and interest cost. The discount rate used was 7.50% and
7.25% as of December 29, 1996 and December 31, 1995, respectively.
Postemployment Benefits
Foamex L.P. provides certain postemployment benefits to former or
inactive employees and their dependents during the time period following
employment but before retirement. At December 29, 1996 and December 31, 1995,
Foamex L.P.'s liability for postemployment benefits was insignificant for each
period.
Other
In December 1994, Foamex L.P. changed its method of compensating
certain employees for vacation which increased income from operations by $4.3
million for 1994.
10. INCOME TAXES
Income (loss) from continuing operations before provision for income
taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
United States $ 58,277 $(45,738) $ 42,610
Foreign 3,086 (983) 1,926
-------- -------- --------
Income (loss) from continuing operations
before provision (benefit) for income taxes $ 61,363 $(46,721) $ 44,536
======== ======== ========
</TABLE>
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Continuing operations $ 7,702 $ 1,405 $ 6,525
Discontinued operations (2,606) (2,640) (731)
------- ------- -------
Total consolidated provision (benefit)
for income taxes $ 5,096 $(1,235) $ 5,794
======= ======= =======
</TABLE>
F-20
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The total consolidated provision (benefit) for income taxes is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Current:
Federal $ 220 $ -- $ --
State 686 266 172
Foreign 786 480 833
------- ------- -------
Total current 1,692 746 1,005
------- ------- -------
Deferred:
Federal 1,665 (1,424) 3,598
State 1,248 (268) 1,212
Foreign 491 (289) (21)
------- ------- -------
Total deferred 3,404 (1,981) 4,789
------- ------- -------
Total consolidated provision (benefit)
for income taxes $ 5,096 $(1,235) $ 5,794
======= ======= =======
</TABLE>
The tax effect of the temporary differences that give rise to
significant deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Deferred tax assets:
Inventory basis differences $ 415 $ 861
Employee benefit accruals 714 976
Allowances and contingent liabilities 2,548 2,427
Restructuring and plant closing accruals 3,632 7,644
Other 221 77
Net operating loss carryforwards 5,154 8,975
Capital loss carryforwards 14,193 --
Valuation allowance for deferred tax assets (15,988) (13,473)
-------- --------
Deferred tax assets 10,889 7,487
-------- --------
Deferred tax liabilities:
Basis difference in property, plant and equipment 7,644 8,507
Other 1,188 374
-------- --------
Deferred tax liabilities 8,832 8,881
-------- --------
Net deferred tax assets (liabilities) $ 2,057 $ (1,394)
======== ========
</TABLE>
F-21
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
Foamex L.P. has determined that taxable capital gains in the
foreseeable future for a subsidiary that files a separate federal income tax
return will likely not be sufficient to recognize the deferred tax asset
associated with the capital loss carryforward of that subsidiary. Accordingly, a
valuation allowance has been provided for the deferred tax asset associated with
the capital loss carryforward and certain other deferred tax assets. During
1996, the valuation allowance for deferred tax assets increased by $2.5 million
which included a $14.2 million increase for the capital loss carryforward,
offset by $6.9 million decrease due to reversal of General Felt preacquisition
temporary differences and $4.8 million for reversal of General Felt
postacquisition temporary differences which is reflected in the consolidated
statement of operations. The $6.9 million reversal of preacquisition temporary
differences was used to reduce cost in excess of assets acquired. As of December
29, 1996, approximately $1.8 million of deferred tax assets are related to
preacquisition activities and if utilized will further reduce cost in excess of
assets acquired. At December 29, 1996, General Felt has $14.7 million of regular
tax net operating loss carryforwards for federal income tax purposes expiring
from 2003 to 2010 of which $7.0 million was acquired in 1993 and is subject to
limitations. In addition, General Felt has $40.6 million of capital loss
carryforwards that expire in 2001.
A reconciliation of the statutory federal income tax rate to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Statutory income taxes $ 21,477 $(16,352) $ 15,588
State income taxes, net of federal 1,288 266 900
Permanent difference on partnership income (11,714) 12,233 (11,009)
Limitation on the utilization of tax benefits -- 4,929 --
Valuation allowance (4,823) -- (452)
Cost in excess of assets acquired 551 554 525
Other 923 (225) 973
-------- -------- --------
Total $ 7,702 $ 1,405 $ 6,525
======== ======== ========
</TABLE>
11. EXTRAORDINARY LOSS
During 1996, Foamex L.P. used $31.3 million of the net proceeds from
the sale of Perfect Fit to extinguish debt of $30.6 million and redemption
premiums of $0.6 million. Foamex L.P. wrote off $1.2 million of debt issuance
costs associated with the early extinguishment of debt and incurred transaction
costs of $0.1 million. The early extinguishment of debt resulted in an
extraordinary loss of $1.9 million.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
Foamex L.P. is obligated under various noncancelable lease agreements
for rental of facilities, vehicles and other equipment. Many of the leases
contain renewal options with varying terms and escalation clauses that provide
F-22
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES (continued)
for increased rentals based upon increases in the Consumer Price Index, real
estate taxes and lessors' operating expenses. Total minimum rental commitments
(excluding commitments accrued as part of the 1996 and 1995 restructuring plans)
required under operating leases at December 29, 1996 are:
Third Party Related Party
Leases Leases
(thousands)
1997 $ 7,874 $ 1,767
1998 6,164 1,823
1999 4,866 1,823
2000 3,812 1,823
2001 2,883 2,265
Thereafter 4,122 5,800
------- -------
Total $29,721 $15,301
======= =======
Rental expense charged to operations under operating leases
approximated $9.6 million, $10.1 million and $9.7 million for 1996, 1995 and
1994, respectively. Substantially all such rental expense represented the
minimum rental payments under operating leases. In addition, Foamex L.P.
incurred rental expense of approximately $1.7 million, $3.5 million and $3.9
million for 1996, 1995 and 1994, respectively, under leases with related
parties.
13. RELATED PARTY TRANSACTIONS AND BALANCES
Foamex L.P. regularly enters into transactions with its affiliates in
the ordinary course of business.
During April 1996, Foamex International contributed the foam products
operations of Foamex Mexico to Foamex L.P. The contribution was accounted for in
a manner similar to a pooling of interests since the entities were under common
control. Accordingly, all prior periods presented have been restated to reflect
the results of operations and financial position of Foamex Mexico. The
restatement of prior periods was insignificant to the consolidated financial
statements.
During 1996, Foamex L.P. chartered an aircraft (which is owned by a
wholly-owned subsidiary of Foamex International) through a third party and
incurred costs of approximately $1.4 million.
In December 1995, Foamex L.P. entered into a $2.0 million promissory
note with Foamex International. The note bears interest at a rate per annum
equal to six months LIBOR plus 4.0% and is payable semiannually in June and
December. The note matures in December 1997. The note has been classified in the
other component of partners' equity (deficit).
On July 7, 1996, Trace International Holdings, Inc. ("Trace Holdings")
issued to Foamex L.P. a promissory note for $4.4 million in principal amount
plus accrued interest of $0.4 million, which is an extension of a promissory
note of Trace Holdings that was due in July 1996. The promissory note is due and
payable on demand or, if no demand is made, July 7, 1997, and bears interest at
9.5%, payable quarterly in arrears commencing October 1, 1996. The promissory
note is included in other partners' equity (deficit).
F-23
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
In connection with the acquisition of Great Western, Foamex L.P. issued
a promissory note to Rallis (see Note 8) and entered into lease agreements (see
Note 12) with Rallis and an affiliate of Rallis, for the rental of former Great
Western manufacturing facilities located in Orange, Ontario and Hayward,
California and a warehouse facility in Tigard, Oregon. Foamex L.P. has the
option to purchase each of these properties from Rallis or such affiliate.
Foamex L.P. was party to a lease agreement for an airplane with Trace
Aviation Corp. ("Trace Aviation"), a subsidiary of Trace Holdings. During 1995
and 1994, Foamex L.P. paid Trace Aviation $1.6 million and $2.7 million,
respectively, pursuant to the lease agreement. The lease agreement also provided
for the use of the airplane by Trace Holdings with remuneration to Foamex L.P.
based on actual usage of the plane. During 1995 and 1994, Trace Holdings paid to
Foamex L.P. $0.6 million and $0.5 million, respectively, pursuant to the
agreement. During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly-owned
subsidiary of Foamex International, acquired the aircraft from Trace Holdings
for $3.0 million in cash and the assumption of $11.7 million of related debt. In
connection with the acquisition of the aircraft, the Foamex L.P. lease and other
agreements were terminated.
Foamex L.P. has a management service agreement with Trace Foam Company,
Inc. ("Trace Foam"), a wholly-owned subsidiary of Trace Holdings, pursuant to
which Trace Foam provides general managerial services of a financial, technical,
legal, commercial, administrative and/or advisory nature to Foamex L.P. for an
annual fee of $1.75 million and reimbursement of expenses incurred. Trace
Holdings rents approximately 5,900 square feet of general, executive, and
administrative office space in New York, New York from Foamex L.P. on
substantially the same terms as Foamex L.P. leases such space from a third party
lessor.
During 1995 and 1994, Foamex L.P. purchased approximately $2.5 million
and $11.9 million, respectively, of scrap material from Recticel Foam
Corporation ("RFC"), a former partner of Foamex L.P. and whose chairman is a
director of Foamex International, under a minimum annual volume agreement which
expired in June 1995.
On June 28, 1994, Foamex L.P. purchased an $87.9 million principal
amount note due 2006 from its 98% limited partner Foamex-JPS Automotive L.P.
("FJPS") for $35.3 million (the "FJPS Note"). The FJPS Note will not pay
interest until July 2000. Instead, principal will accrete (from the initial
purchase price of $35.3 million) on a daily basis and compound semiannually at
the rate of 15.50% per annum through June 1996; 15.75% per annum thereafter
through June 1997; and 16.00% per annum thereafter through June 2000. Interest
will be due semiannually in cash at 16.00% per annum from July 2000 through the
maturity date. In December 1996 in exchange for certain waivers and amendment of
the FJPS Note, FJPS repaid $18.4 million of the FJPS Note and a waiver payment
of $0.2 million using a portion of the proceeds from the sale of its partnership
interest in JPS Automotive L.P. FJPS has the right to reborrow such amount,
subject to limitations in the Foamex L.P. Credit Facility, solely for the
purpose of funding a purchase price adjustment payment, if any, in connection
with the JPS Automotive L.P. sale. The FJPS Note has been classified in
partners' equity (deficit) and the accreted principal of $16.3 million for the
period from June 28, 1994 to December 29, 1996 has been included in the FJPS
Note. The FJPS Note may be redeemed at the option of FJPS, in whole or in part,
at any time at the redemption prices (expressed as percentages of the Accreted
Value (as defined) if on or prior to July 1, 2000, and thereafter, expressed as
percentages of the principal amount) initially equal to 108% for the
twelve-month period commencing July 1, 1994 declining to 100% on or after July
1, 2005. If FJPS does not repay the indebtedness with at least 85% of the net
proceeds of any Equity Offering (as defined), the rate at which the FJPS Note
accretes and the interest rate on the FJPS Note will increase.
F-24
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
In June 1994, Foamex L.P. also entered into a supply agreement with
Foamex International (the "Supply Agreement"). Pursuant to the terms of the
Supply Agreement, at the option of Foamex L.P., Foamex International will
purchase certain raw materials which are necessary for the manufacture of Foamex
L.P.'s products, and resell such materials to Foamex L.P. at a price equal to
net cost plus reasonable out of pocket expenses. Management believes that the
terms of the Supply Agreement are no less favorable than those which Foamex L.P.
could have obtained from an unaffiliated third party. During 1996 and 1995,
Foamex L.P. made $129.7 million and $105.1 million, respectively, of purchases
relating to the Supply Agreement.
As of December 29, 1996 and December 31, 1995, due to related parties
amounted to $8.8 million and $11.7 million, respectively, and represents the net
amounts payable to Foamex International and subsidiaries for purchases under the
Supply Agreement and other matters.
Foamex L.P. made charitable contributions to the Trace International
Holding, Inc. Foundation of approximately $0.2 million in each of 1996, 1995 and
1994.
On December 11, 1996, Foamex L.P. entered into a Tax Distribution
Advance Agreement with FJPS, pursuant to which FJPS is entitled to obtain
advances, in the aggregate not to exceed $17.0 million, against future
distributions under Foamex L.P.'s tax distribution agreement. As of December 29,
1996, there were no advances under this agreement.
14. PARTNERS' EQUITY (DEFICIT)
Foamex L.P. was formed as a Delaware limited partnership on September
5, 1990, and initially capitalized on October 2, 1990, in accordance with a
limited partnership agreement as amended through June 1994. In connection with a
June 1994 amendment, the ownership of Foamex L.P. changed as follows: (i) FMXI,
a wholly-owned subsidiary of Foamex International, bifurcated its 4% managing
general partnership interest into a 1% managing general partnership interest and
a 3% limited partnership interest and distributed the limited partnership
interest to Foamex International, (ii) Foamex International contributed its 95%
limited partnership interest and the 3% limited partnership interest received
from FMXI to FJPS and withdrew as a partner of Foamex L.P. and (iii) FJPS was
admitted as a partner of Foamex L.P. with a 98% limited partnership interest.
The partners also consented to the pledge by FJPS of a 43.44% limited
partnership interest in Foamex L.P. to secure the repayment of certain of FJPS's
indebtedness incurred in connection with the acquisition of JPS Automotive L.P.
by Foamex International. As of December 29, 1996 and December 31, 1995, the
partnership interests of FMXI, Inc. ("FMXI"), Trace Foam, and FJPS were 1.0%,
1.0% and 98.0%, respectively.
Cash distributions for 1996, 1995 and 1994 were paid (received) as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
FMXI $ (35) $ 12 $ 59
Trace Foam 45 -- 29
Foamex International -- -- 653
FJPS 3,477 2,367 2,516
------- ------- -------
Total $ 3,487 $ 2,379 $ 3,257
======= ======= =======
</TABLE>
F-25
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. PARTNERS' EQUITY (DEFICIT) (continued)
Other
The other component of partners' equity (deficit) consists of the
following:
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment $ 3,494 $ 3,448 $ 3,930
Additional pension liability 2,407 4,779 1,489
Note receivable from Trace Holdings 4,373 4,373 3,000
Note receivable from Foamex International 2,000 2,000 --
------- ------- -------
$12,274 $14,600 $ 8,419
======= ======= =======
</TABLE>
15. ENVIRONMENTAL MATTERS
Foamex L.P. is subject to extensive and changing federal, state, local
and foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with Foamex
L.P.'s compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on Foamex L.P.'s operations,
financial position, capital expenditures or competitive position. As of December
29, 1996, Foamex L.P. has environmental accruals of approximately $4.1 million
for environmental matters. In addition, as of December 29, 1996 Foamex L.P. has
net receivables of approximately $0.9 million relating to indemnification for
environmental liabilities, net of an allowance of approximately $1.0 million
relating to potential disagreements regarding the scope of the indemnification.
Foamex L.P. believes that realization of the net receivables established for
indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")
provide for the establishment of federal emission standards for hazardous air
pollutants including methylene chloride and TDI, principal raw materials used in
the manufacturing of foam. Foamex L.P. completely eliminated the use of
chlorofluorocarbons and methylchloroform by the end of 1995. The 1990 CAA
Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
Foamex L.P. has reported to appropriate state authorities that it has
found soil and groundwater contamination in excess of state standards at four
facilities and soil contamination in excess of state standards at three other
facilities. Foamex L.P. has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 29, 1996, Foamex L.P. has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
F-26
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. ENVIRONMENTAL MATTERS (continued)
standards. Foamex L.P. has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. Foamex
L.P. has accrued $0.4 million for the estimated removal and remediation, if any,
associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. Foamex L.P. believes that its USTs do not pose
a significant risk of environmental liability because of Foamex L.P.'s
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
Foamex L.P. has been designated as a Potentially Responsible Party
("PRP") by the United States Environmental Protection Agency (the "EPA") with
respect to thirteen sites, with an estimated total liability to Foamex L.P. for
the thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of Foamex L.P. is considered to be immaterial.
Although it is possible that new information or future developments
could require Foamex L.P. to reassess its potential exposure relating to all
pending environmental matters, including those described herein, management
believes that, based upon all currently available information, the resolution of
such environmental matters will not have a material adverse effect on Foamex
L.P.'s operations, financial position, capital expenditures or competitive
position. The possibility exists, however, that new environmental legislation
and/or environmental regulations may be adopted, or other environmental
conditions may be found to exist, that may require expenditures not currently
anticipated and that may be material.
16. LITIGATION
As of February 26, 1997, Foamex L.P. and Trace Holdings were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, Foamex L.P. and Trace Holdings were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of 903 foreign plaintiffs were dismissed on the grounds that the cases
could not be brought in the United States courts. This decision is subject to
appeal. Foamex L.P. believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from Foamex
L.P. or Trace Holdings. Neither Foamex L.P. nor Trace Holdings recommended,
authorized or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings' consolidated
financial position or results of operations. In addition, Foamex L.P. is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990.
F-27
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. LITIGATION (continued)
Although Trace Holdings has paid Foamex L.P.'s litigation expenses to date
pursuant to such indemnification and management believes Trace Holdings likely
will be in a position to continue to pay such expenses, there can be no absolute
assurance that Trace Holdings will be able to provide such indemnification.
Based on information available at this time with respect to the potential
liability, and without taking into account the indemnification provided by Trace
Holdings and the coverage provided by Trace Holdings' and Foamex L.P.'s
liability insurance, Foamex L.P. believes that the proceedings should not
ultimately result in any liability that would have a material adverse effect on
the financial position or results of operations of Foamex L.P. If management's
assessment of Foamex L.P.'s liability with respect to these actions is
incorrect, such actions could have a material adverse effect on Foamex L.P.
Foamex L.P. is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on Foamex L.P.'s consolidated financial position.
17. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Interest Rate Swap Agreements
Foamex L.P. has two interest rate swap agreements involving the
exchange of fixed and floating interest payment obligations without the exchange
of the underlying principal amounts. At December 29, 1996, the total notional
principal amount of these interest rate swap agreements was $300.0 million. The
counterparty to these agreements is a large international financial institution.
The interest rate swap agreements subject Foamex L.P. to financial risk that
will vary during the life of these agreements in relation to market interest
rates.
Concentration of Credit Risk
Financial instruments which potentially subject Foamex L.P. to
significant concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. Foamex L.P. maintains cash and cash
equivalents and certain other financial instruments with various large financial
institutions. Foamex L.P.'s periodic evaluation of these financial institutions
are considered in Foamex L.P.'s investment strategy.
Foamex L.P. sells foam products to the automotive, carpet, cushioning
and other industries. Foamex L.P. performs ongoing credit evaluations of its
customers and generally does not require collateral. Foamex L.P. maintains
allowance accounts for potential credit losses and such losses have been within
management's expectations.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on Foamex L.P.'s assessment of available market information and
appropriate valuation methodologies.
F-28
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)
The estimated fair values of Foamex L.P.'s financial instruments as of
December 29, 1996 are as follows:
Carrying Amount Fair Value
(thousands)
Liabilities:
Long-term debt $ 406,352 $427,862
============ ========
Interest rate swaps $ -- $ 3,160
============ ========
Carrying amounts reported in the consolidated balance sheet for cash
and cash equivalents, accounts receivable, accounts payable, accrued liabilities
and short-term borrowings approximates fair value due to the short-term nature
of these instruments.
The fair value of long-term debt is estimated using quoted market
prices, where available, or discounted cash flows.
The fair value of interest rate swaps are based on the amount at which
Foamex L.P. would pay if the swaps were settled, as determined by estimates
obtained from dealers.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Cash paid for interest $43,378 $47,282 $42,734
======= ======= =======
Cash paid for income taxes $ 1,533 $ 634 $ 1,757
======= ======= =======
Noncash capital expenditures $ 165 $ 378 $ --
======= ======= =======
</TABLE>
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Foamex Capital Corporation
Wilmington, Delaware
We have audited the accompanying balance sheets of Foamex Capital Corporation
("FCC") (a wholly-owned subsidiary of Foamex L.P.) as of December 29, 1996 and
December 31, 1995. These balance sheets are the responsibility of FCC's
management. Our responsibility is to express an opinion on these balance sheets
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of FCC at December 29, 1996 and
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-30
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly-Owned Subsidiary of Foamex L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
<S> <C> <C>
CASH $1,000 $1,000
====== ======
COMMITMENTS AND CONTINGENCIES $ -- $ --
------ ------
STOCKHOLDER'S EQUITY:
Common stock, par value $.01 per share;
1,000 shares authorized,
issued and outstanding 10 10
Additional paid-in capital 990 990
------ ------
Total Stockholder's Equity $1,000 $1,000
====== ======
</TABLE>
The accompanying notes are an integral part of the
balance sheets.
F-31
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly-Owned Subsidiary of Foamex L.P.)
NOTES TO BALANCE SHEETS
1. ORGANIZATION
Foamex Capital Corporation ("FCC"), a wholly-owned subsidiary of Foamex
L.P., was formed on July 20, 1992 and initially capitalized on July 23, 1992 for
the purpose of obtaining financing from external sources.
2. COMMITMENTS AND CONTINGENCIES
FCC is a joint obligor on the following borrowings of Foamex L.P.:
9 1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest at
the rate of 9 1/2% payable semiannually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100% on or after June 1, 1999. The
Senior Secured Notes have been guaranteed, on a senior secured basis by General
Felt and on a senior unsecured basis by Foamex International. During 1996,
Foamex L.P. repurchased $9.9 million of Senior Secured Notes.
11 1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11 1/4% payable
semiannually on each April 1 and October 1. The Senior Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part, at any time on or after October 1, 1997, initially at 104.219% of
their principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994, Foamex L.P. provided certain real property as
collateral for the Senior Notes, with a net book value of $37.8 million at
December 29, 1996. The Senior Notes have been guaranteed, on a senior basis, by
General Felt and Foamex International. During 1996, Foamex L.P.
repurchased $8.6 million of Senior Notes.
11 7/8% Senior Subordinated Debentures ("Subordinated Debentures")
The Subordinated Debentures bear interest at the rate of 11 7/8% payable
semiannually on each April 1 and October 1. The Subordinated Debentures mature
on October 1, 2004. The Subordinated Debentures may be redeemed at the option of
Foamex L.P., in whole or in part, at any time on or after October 1, 1997,
initially at 105.938% of their principal amount, plus accrued interest, and
declining to 100% on or after October 1, 2002. The Subordinated Debentures are
subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. The Subordinated Debentures have been
guaranteed, on a senior subordinated basis, by General Felt and Foamex
International. During 1996, Foamex L.P. repurchased $0.1 million of Subordinated
Debentures.
11 7/8% Senior Subordinated Debentures, Series B ("Series B Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures. The Series B Debentures have
been guaranteed on a senior subordinated basis by General Felt.
F-32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
General Felt Industries, Inc.
We have audited the accompanying consolidated balance sheets of General Felt
Industries, Inc. and subsidiaries ("General Felt") as of December 29, 1996 and
December 31, 1995, and the related consolidated statements of operations, cash
flows and stockholder's equity for each of the three years in the period ended
December 29, 1996. These financial statements are the responsibility of General
Felt's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of General Felt as of
December 29, 1996 and December 31, 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 29, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-33
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
ASSETS 1996 1995
(thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 336 $ 538
Restricted cash 12,143 --
Accounts receivable, net of allowance for
doubtful accounts of $4,453 and $5,986 44,973 35,532
Inventories 25,314 18,485
Deferred income taxes 6,342 --
Other current assets 3,093 3,574
--------- ---------
Total current assets 92,201 58,129
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 3,491 600
Buildings and leasehold improvements 5,896 5,579
Machinery, equipment and furnishings 29,354 23,426
Construction in progress 1,957 803
--------- ---------
Total 40,698 30,408
Less accumulated depreciation
and amortization (8,950) (5,322)
--------- ---------
Property, plant and equipment, net 31,748 25,086
COST IN EXCESS OF ASSETS ACQUIRED, NET 50,574 58,964
NET ASSETS OF DISCONTINUED OPERATIONS -- 11,689
OTHER ASSETS 3,158 1,629
--------- ---------
TOTAL ASSETS $ 177,681 $ 155,497
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-34
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
LIABILITIES & STOCKHOLDER'S EQUITY 1996 1995
(thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt - unrelated parties $ -- $ 3,000
Current portion of long-term debt - related party 12,143 --
Accounts payable 13,719 10,697
Accounts payable to related party 17,987 13,000
Accrued employee compensation 1,434 2,133
Accrued restructuring charges 2,279 4,308
Other accrued liabilities 14,210 10,780
--------- ---------
Total current liabilities 61,772 43,918
LONG-TERM DEBT - UNRELATED PARTIES -- 8,250
LONG-TERM DEBT - RELATED PARTY 9,260 48,306
DEFERRED INCOME TAXES 3,273 --
ACCRUED RESTRUCTURING - NONCURRENT 2,308 --
OTHER LIABILITIES 4,049 5,514
--------- ---------
Total liabilities 80,662 105,988
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value; authorized,
issued and outstanding 1,000 shares -- --
Additional paid-in capital 143,965 69,194
Retained earnings (accumulated deficit) (46,946) (19,685)
--------- ---------
Total stockholder's equity 97,019 49,509
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 177,681 $ 155,497
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-35
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
NET SALES $ 302,648 $ 279,123 $ 290,577
COST OF GOODS SOLD 263,316 252,591 251,120
--------- --------- ---------
GROSS PROFIT 39,332 26,532 39,457
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 18,819 22,312 24,392
RESTRUCTURING CHARGES (CREDITS) (5,460) 14,156 --
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 25,973 (9,936) 15,065
INTEREST EXPENSE 2,179 1,164 1,178
OTHER INCOME, NET 1,015 52 90
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE PROVISION
FOR INCOME TAXES 24,809 (11,048) 13,977
PROVISION FOR INCOME TAXES 6,344 962 5,587
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 18,465 (12,010) 8,390
--------- --------- ---------
DISCONTINUED OPERATIONS:
OPERATING LOSS FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES (3,389) (11,040) (2,293)
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS INCLUDING PROVISION FOR
OPERATING LOSSES DURING THE PHASE-
OUT PERIOD, NET OF INCOME TAXES (42,337) -- --
--------- --------- ---------
LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (45,726) (11,040) (2,293)
--------- --------- ---------
NET INCOME (LOSS) $ (27,261) $ (23,050) $ 6,097
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-36
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(27,261) $(23,050) $ 6,097
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 4,564 4,476 4,054
Net loss on disposal of discontinued operations 40,551 -- --
Net loss from discontinued operations 5,175 11,040 2,293
Asset writedowns and other charges (credits) (6,769) 8,505 --
Provision for uncollectible accounts 967 2,992 607
Deferred income taxes 5,519 962 5,541
Changes in operating assets and liabilities,
net of acquisitions and discontinued operations:
Accounts receivable (10,358) 721 (4,512)
Inventories (6,829) 157 254
Accounts payable and accounts payable to
related party 8,009 (6,309) 6,039
Accrued restructuring charges 280 3,424 (566)
Other assets and liabilities (1,813) (2,328) (7,961)
-------- -------- --------
Net cash provided by continued operations 12,035 590 11,846
Net cash used for discontinued operations (524) (12,617) (969)
-------- -------- --------
Net cash provided by (used for) operating activities 11,511 (12,027) 10,877
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (2,442) (1,604) (3,391)
Proceeds from sale of subsidiary 42,650 -- --
Acquisition, net of cash acquired -- (7,272) --
Increase in restricted cash (12,143) -- --
Capital expenditures for discontinued operations (919) (4,429) (6,565)
Other investing activities (2,149) 10 1,016
-------- -------- --------
Net cash provided by (used for) investing activities 24,997 (13,295) (8,940)
-------- -------- --------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) revolving loans -- (3,000) 3,000
Net proceeds from (repayments of) Foamex L.P.
notes payable (26,903) 14,742 (26,734)
Proceeds from long-term debt - unrelated party -- -- 15,000
Payments on long-term debt - unrelated party (11,250) (3,000) (750)
Net financing activities of discontinued operations 1,443 17,046 7,534
-------- -------- --------
Net cash (used for) provided by financing activities (36,710) 25,788 (1,950)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH (202) 466 (13)
CASH AT BEGINNING OF PERIOD 538 72 85
-------- -------- --------
CASH AT END OF PERIOD $ 336 $ 538 $ 72
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-37
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-In (Accumulated
Shares Amount Capital Deficit)
(thousands)
<S> <C> <C> <C> <C>
Balances at January 2, 1994 1 -- $ 67,036 $ (2,732)
Net income -- -- -- 6,097
-------- ------ -------- --------
Balances at January 1, 1995 1 -- 67,036 3,365
Assumption of pension liability
by Foamex L.P. -- -- 2,158 --
Net loss -- -- -- (23,050)
-------- ------ -------- --------
Balances at December 31, 1995 1 -- 69,194 (19,685)
Net loss -- -- -- (27,261)
Contribution by Foamex L.P. of
intercompany notes in connection
with sale of Perfect Fit -- -- 74,771 --
-------- ------ -------- --------
Balances at December 29, 1996 1 -- $143,965 $(46,946)
======== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-38
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
General Felt Industries, Inc. and subsidiaries ("General Felt") is one of
the largest distributors and manufacturers of carpet cushion in North America.
In addition, Foamex Fibers, Inc. ("Foamex Fibers"), a wholly- owned subsidiary,
manufactures various nonwoven textile fiber products used primarily for carpet
padding and in the furniture industry.
General Felt is a wholly-owned subsidiary of Foamex L.P. which in turn is
a 99% owned subsidiary of Foamex International Inc. ("Foamex International").
During 1996, General Felt sold Perfect Fit Industries, Inc. ("Perfect
Fit") which comprised the home comfort products segment of General Felt. The
consolidated financial statement of General Felt have been restated for
discontinued operations and includes a net loss of $42.3 million, which includes
the loss on disposal and a net loss of $1.8 million (net of $1.2 million income
tax benefit) relating to operating losses during the phase-out period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of General
Felt, other than the home comfort products segment, which is accounted for as
discontinued operations. Intercompany accounts and transactions for continuing
operations have been eliminated in consolidation.
The consolidated financial statements have been restated for discontinued
operations. The accompanying notes present amounts related only to continuing
operations.
Fiscal Year
General Felt's fiscal year ends on the Sunday closest to the thirty-first
day of December. Fiscal years 1996, 1995 and 1994 were composed of fifty-two
weeks and ended on December 29, 1996, December 31, 1995 and January 1, 1995,
respectively.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates. (
See Notes 4, 10, 11 and 14 and Cost in Excess of Net Assets Acquired below).
Cash Management
General Felt's cash management system operates such that checks processed
by General Felt but not yet presented to the bank are not considered reductions
of cash or accounts payable. Checks presented to the bank for payment are
provided for by a draw on the revolving notes with Foamex L.P. Cash receipts are
used to reduce the outstanding borrowings under the Foamex L.P. revolving notes.
As of December 29, 1996 and December 31, 1995, $0.4 million and $0.4 million,
respectively, of processed checks have not been presented to the bank and are
included in accounts payable.
F-39
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted Cash
As of December 29, 1996, General Felt had restricted cash of
approximately $12.1 million. This cash was derived from the net sales proceeds
relating to the sale of Perfect Fit and is restricted by Foamex L.P.'s debt
agreements. This restricted cash will be used to reduce long-term debt - related
party with Foamex L.P. during 1997; accordingly, a corresponding amount of
long-term debt - related party has been classified as current in the
accompanying consolidated balance sheets.
Inventories
Inventories are stated at the lower of cost or market. The cost of
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the assets.
The range of useful lives estimated for buildings and building improvements is
generally ten to forty years and the range for machinery, equipment and
furnishings is five to twelve years. Leasehold improvements are amortized over
the shorter of the terms of the respective lease or the estimated useful life of
the improvement, whichever is shorter. Depreciation expense for the years ended
1996, 1995 and 1994 was $3.0 million, $2.8 million and $2.6 million,
respectively. For income tax purposes, General Felt uses accelerated
depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other disposition
of items of plant and equipment, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
During 1994, General Felt Inc. sold equipment with a net book value of
approximately $1.0 million to a related party. There was no gain or loss on the
sale.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for by the purchase method is
amortized using the straight-line method over a forty year period. At each
balance sheet date General Felt evaluates the recoverability of cost in excess
of net assets acquired using certain financial indicators such as historical and
future ability to generate income from operations based on a going concern
basis. Accumulated amortization as of December 29, 1996 and December 31, 1995 is
approximately $5.9 million and $4.3 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, which do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable, and the cost can be reasonably
estimated.
F-40
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
Income taxes are accounted for under the liability method in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the current year's presentation.
3. DISCONTINUED OPERATIONS
During 1996, General Felt finalized the sale of the outstanding common
stock of Perfect Fit, a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included substantially all of the net
assets of the home comfort products segment with an adjusted net book value of
approximately $84.5 million after Foamex L.P. contributed Perfect Fit's
intercompany notes receivable and accrued interest thereon with Foamex L.P. to
General Felt. Actual and estimated transaction expenses related to the sale
totaled approximately $1.5 million. General Felt has recorded a loss for
discontinued operations of approximately $42.3 million, which includes the loss
on disposal and a net loss of $1.8 million (net of $1.2 million income tax
benefit) relating to operating losses during the phase-out period. A valuation
allowance has been provided for the capital loss relating to the sale of Perfect
Fit since General Felt has determined that capital gain taxable income is not
likely to be sufficient to recognize the deferred tax asset relating to the
capital loss carryforward.
Summary operating results of General Felt's discontinued operations were
as follows:
<TABLE>
<CAPTION>
1996 (1) 1995 1994
(thousands)
<S> <C> <C> <C>
Sales $ 50,097 $ 98,464 $ 95,381
Gross profit 8,065 14,946 18,200
Income (loss) from operations 1,123 (3,058) 4,170
Interest and debt issuance expense 5,543 10,636 (7,194)
Other expense 348 -- --
Loss from discontinued operations before income taxes (4,768) (13,694) (3,024)
Provision (benefit) for income taxes (1,379) (2,654) (731)
-------- -------- --------
Loss from discontinued operations, net of income taxes $ (3,389) $(11,040) $ (2,293)
======== ======== ========
</TABLE>
(1) General Felt's discontinued operations includes the operations of Perfect
Fit through June 1996.
F-41
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS (continued)
Net assets of General Felt's discontinued operations (excluding intercompany
net assets) at December 31, 1995 is as follows:
1995
(thousands)
Current assets $31,925
Property, plant and equipment, net 21,672
Cost in excess of assets acquired, net 40,333
Other assets 2,219
-------
Total assets 96,149
-------
Current liabilities 11,076
Long-term debt due to Foamex L.P. 73,384
-------
Total liabilities 84,460
-------
Net assets $11,689
=======
4. RESTRUCTURING CHARGES
In 1995, General Felt approved a restructuring plan (the "1995
restructuring plan") to consolidate two foam production, fabrication or branch
locations to concentrate resources as a result of industry conditions and better
position itself to achieve its strategic growth objectives. General Felt
recorded restructuring charges of $14.2 million which was comprised of $13.1
million charge associated with the consolidation of the two foam production,
fabrication or branch locations and a $1.1 million charge associated with the
completion of a 1993 restructuring plan. The components of the $13.1 million
restructuring charge include: $8.5 million for fixed asset writedowns (net of
estimated sale proceeds), $3.8 million for plant closure and operating lease
obligations and $0.8 million for personnel reductions. The $0.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
In 1996, General Felt determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, General Felt has approved a
plan to close a facility that was not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan,
General Felt recorded a $5.5 million net restructuring credit which included a
restructuring credit of $11.3 million associated with General Felt's decision
not to close the facility identified as part of the 1995 restructuring plan
offset by $5.8 million of restructuring charges relating to the closure of a
facility during 1997 (the "1996 restructuring plan").
F-42
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RESTRUCTURING CHARGES (continued)
Generally, the 1995 restructuring plan has been implemented as originally
contemplated. The following table sets forth the components of General Felt's
restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge $ 14.2 $ 8.5 $ 3.8 $ 0.8 $ 1.1
Asset writeoff/writedowns (11.3) (9.9) (0.3) -- (1.1)
------- ------ ------ ------ ------
Balances at December 31, 1995 2.9 (1.4) 3.5 0.8 --
Cash spending (1.0) -- (0.5) (0.5) --
1996 restructuring charge 5.8 1.6 3.9 0.3 --
Restructuring credits (11.3) (8.4) (2.7) (0.2) --
Asset adjustments for restructuring
credits 8.2 8.2 -- -- --
------- ------ ------ ------ ------
Balances at December 29, 1996 $ 4.6 $ -- $ 4.2 $ 0.4 $ --
======= ====== ====== ====== ======
</TABLE>
As indicated in the table above, the accrued restructuring balance at
December 29, 1996, will be used for plant closure and leases including rundown
costs at the facilities. General Felt expects to incur approximately $2.3
million of charges during 1997 with the remaining $2.3 million to be incurred
through 2001. General Felt has terminated or notified 61 employees in the
manufacturing and administrative areas of their impending termination.
5. ACQUISITIONS
In April 1995, Foamex Fibers acquired certain assets and assumed certain
liabilities of GS Industries, Inc. and Pontotoc Fibers, Inc., manufacturers of
various nonwoven textile fiber products used primarily for carpet padding and in
the furniture industry for aggregate consideration of approximately $8.0
million, including related fees and expenses of approximately $0.3 million, with
an initial cash payment of $7.2 million. The excess of the purchase price over
the estimated fair value of the net assets acquired was approximately $3.9
million. The acquisition was accounted for as a purchase and the operations of
the acquired companies are included in the consolidated statements of operations
and cash flows from the date of acquisition. The cost of the acquisition has
been allocated on the basis of the fair value of the assets acquired and the
liabilities assumed. The excess of the purchase price over the estimated fair
value of the net assets acquired is being amortized using the straight-line
method over forty years.
6. INVENTORIES
Inventories consist of:
December 29, 1996 December 31, 1995
(thousands)
Raw material and supplies $12,795 $ 7,277
Work in process 1,120 917
Finished goods 11,399 10,291
------- -------
Total $25,314 $18,485
======= =======
F-43
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT - RELATED PARTY
General Felt has two revolving promissory notes with Foamex L.P. to
borrow up to a maximum of $64.0 million. During 1996, General Felt used
approximately $22.5 million of the net proceeds from the sale of Perfect Fit to
reduce these promissory notes with Foamex L.P. The notes are due on demand,
however, the remaining net proceeds of $12.1 million from the sale of Perfect
Fit will be used to paydown the notes with Foamex L.P. during 1997 and is
classified as a current liability in the accompanying balance sheets. Foamex
L.P. has indicated that it does not intend to demand payment on the remaining
balance of the notes during 1997. Accordingly, the balance of the notes of $9.3
million is classified as long-term in the accompanying balance sheets. Interest
is payable quarterly at the prime rate (8.5% at December 31, 1995). General
Felt's cash receipts reduce the outstanding balance and the cash requirements
increase the outstanding balance on a daily basis.
8. LONG-TERM DEBT - UNRELATED PARTY
Long-term debt - unrelated parties consists of:
December 31, 1995
(thousands)
Term loan $11,250
Revolving loan --
-------
11,250
Less current portion 3,000
-------
Total $ 8,250
=======
Term and Revolving Loans
On June 28, 1994, Foamex L.P. and General Felt entered into an amended
credit agreement (the "Foamex L.P. Credit Facility"). The Foamex L.P. Credit
Facility provides for loans of up to $85.0 million of which up to $40.0 million
was available as a term loan payable in 20 equal quarterly installments
commencing October 1994 and up to $45.0 million is available under a revolving
line of credit which expires in June 1999. On June 28, 1994, Foamex L.P. and
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility of which $15.0 million was borrowed by General Felt; no further term
loan borrowings are available thereunder. Borrowings under the Foamex L.P.
Credit Facility are collateralized by the accounts receivable of Foamex L.P. and
General Felt During 1996, General Felt used $9.0 million of net proceeds from
the sale of Perfect Fit to repay its outstanding term loan borrowings. Pursuant
to the terms of the Foamex L.P. Credit Facility, borrowed funds will bear
interest at a floating rate equal to 1.0% per annum plus the higher of (i) the
base rate of The Bank of Nova Scotia, as in effect from time to time, (ii) a
rate that is, generally, 0.5% per annum plus a fluctuating rate generally equal
to the rate on three-month certificates of deposit, subject to certain
adjustments, plus a fluctuating rate generally equal to the annual assessment
rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation or (iii) 0.5% per annum plus the federal funds rate in effect from
time to time. At the option of either borrower, portions of outstanding loans
under the Foamex L.P. Credit Facility will be convertible into Eurodollar rate
loans bearing interest at a rate generally equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29, 1996, no revolving credit borrowings were outstanding under the Foamex L.P.
Credit Facility with unused availability of $33.3 million. In addition, there
were $11.7 million in letters of credit outstanding under the Foamex L.P. Credit
Facility.
F-44
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT - UNRELATED PARTY (continued)
Debt Restrictions and Covenants
The Foamex L.P. indentures, credit agreement and other indebtedness
agreements contain various covenants, including restrictions on payments of
distributions by Foamex L.P. to its partners, the incurrence of additional
indebtedness, the sale of assets, mergers and consolidations and transactions
with affiliates. In addition, certain agreements contain a provision that, in
the event of a defined change of control, the indebtedness must be repaid, in
certain cases at the option of the holder. Also, Foamex L.P. is required under
certain of these agreements to maintain specified financial ratios of which the
most restrictive is the maintenance of net worth and interest coverage ratios,
as defined. Under the most restrictive of the distribution restrictions,
approximately $0.7 million was available to be paid by Foamex L.P. to its
partners at December 29, 1996. Also, General Felt is required to maintain $41.0
million net worth, as defined.
As of December 29, 1996, Foamex L.P. and General Felt were in compliance
with the covenants of the Foamex L.P. Credit Facility and expects to be in
compliance with the covenants for the foreseeable future.
9. EMPLOYEE BENEFIT PLANS
Prior to December 31, 1996, General Felt had noncontributory defined
benefit pension plans (the "Plans") for eligible salaried employees (the
"Salaried Plan") and certain hourly employees at the Trenton and Pico Rivera
manufacturing facilities (the "Trenton Plan" and the "Pico Plan"). The Plans
provided benefits based principally on years of credited service and the highest
level of compensation earned during a specified period before retirement for the
Salaried Plan and stated amounts for each year of credited service for the
Trenton Plan and the Pico Plan. General Felt accounted for such pension plans
pursuant to SFAS No. 87, "Employer's Accounting for Pensions".
General Felt's funding policy was to make no less than the minimum annual
contributions required based upon actuarial methods allowable by applicable
governmental regulations. Effective January 1, 1995, General Felt merged the
Salaried Plan and the Trenton Plan with the defined benefit salaried pension
plan of Foamex L.P. During 1995, General Felt merged the Pico Plan with the
defined benefit hourly pension plan of Foamex L.P. Consequently, the aggregate
pension liability of approximately $2.2 million as of December 31, 1995 relating
to these plans has been included in additional paid-in capital since Foamex L.P.
has assumed all future obligations under the plans. General Felt will incur
pension expense for future periods to the extent it provides funding to the
plans. During 1996, General Felt funded approximately $0.1 million to the plans.
Net periodic pension cost includes the following components:
1994
(thousands)
Service cost-benefits earned
during the period $ 419
Interest cost on projected
benefit obligation 1,077
Actual return on plan assets 84
Net amortization and deferral (1,195)
-------
Net periodic pension cost $ 385
=======
F-45
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
The assumptions used to determine net periodic pension cost and related
pension obligations were as follows:
1994
Discount rate 8.25%
Rate of increase in compensation levels 4.00
Expected long-term rate of return on assets 9.75
In addition certain employees of General Felt are covered by
union-sponsored collectively bargained, multi-employer pension plans. General
Felt contributed and charged to expense $0.1 million related to these plans for
each of the years 1996, 1995 and 1994.
During 1995, General Felt merged its defined contribution plan with
Foamex L.P. Foamex L.P. is the plan sponsor, however, General Felt incurs a
contribution expense for its employees. The plan is qualified under Section
401(k) of the Internal Revenue Code (the "Code") and covers eligible employees
who elect to participate in the plan. Employee contributions are voluntary and
subject to certain limitations as imposed by the Code. During 1995, General Felt
provided contributions amounting to a 25% match of employees' contributions up
to 4% of eligible compensation. General Felt also provides an additional 25%
match of employees' contributions up to 4% of eligible compensation made to a
fund which invests in Foamex International common stock. In addition, General
Felt may make discretionary contributions amounting to a 25% match of employees'
contributions up to 4% of eligible compensation. Prior to 1995, contributions
were provided only to employees' who were members of collective bargaining
agreements. The expense for these contributions was $0.1 million for each of the
years 1996 and 1995.
10. INCOME TAXES
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Continuing operations $ 6,344 $ 962 $ 5,587
Discontinued operations (2,558) (2,654) (731)
Total consolidated provision (benefit)
for income taxes $3,786 $(1,692) $ 4,856
</TABLE>
F-46
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
1996 1995 1994
(thousands)
Current:
Federal $ 220 $-- $--
State 605 -- 46
------- ------- -------
Total 825 -- 46
------- ------- -------
Deferred:
Federal 1,666 (1,424) 3,598
State 1,295 (268) 1,212
------- ------- -------
Total 2,961 (1,692) 4,810
------- ------- -------
Total $ 3,786 $(1,692) $ 4,856
======= ======= =======
The components of the temporary differences that give use to significant
deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Deferred tax assets:
Inventory basis differences $ 415 $ 861
Employee benefit accruals 714 1,004
Allowances and contingent liabilities 2,548 2,427
Restructuring and plant closing accruals 3,632 7,498
Other 139 77
Net operating loss carryforward 5,154 8,975
Capital loss carryforwards 14,193 --
Valuation allowance (15,988) (13,473)
-------- --------
Deferred tax assets 10,807 7,369
-------- --------
Deferred tax liabilities:
Difference between book and tax depreciation 6,722 7,009
Other 1,016 360
-------- --------
Deferred tax liabilities 7,738 7,369
-------- --------
Net deferred tax asset (liabilities) $ 3,069 $ --
======== ========
</TABLE>
F-47
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
A reconciliation of the statutory federal income tax rate to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Statutory income taxes $ 8,683 $(3,867) $ 4,892
State income taxes, net of federal 1,235 (648) 839
Limitation on utilization of tax benefits -- 4,929 --
Amortization of excess cost 517 554 525
Valuation allowance (4,823) -- (452)
Other 732 (6) (217)
------- ------- -------
Tax provision $ 6,344 $ 962 $ 5,587
======= ======= =======
</TABLE>
General Felt. has determined that taxable capital gains in the
foreseeable future will likely not be sufficient to recognize the deferred tax
asset associated with the capital loss carryforward. Accordingly, a valuation
allowance has been provided for the deferred tax asset associated with the
capital loss carryforward and certain other deferred tax assets. During 1996,
the valuation allowance for deferred tax assets increased by $2.5 million which
included a $14.2 million increase for the capital loss carryforward, offset by
$6.9 million decrease due to reversal of preacquisition temporary differences
and $4.8 million for reversal of postacquisition temporary differences which is
reflected in the consolidated statement of operations. The $6.9 million reversal
of preacquisition temporary differences was used to reduce cost in excess of
assets acquired. As of December 29, 1996, approximately $1.8 million of deferred
tax assets are related to preacquisition activities and if utilized will further
reduce cost in excess of assets acquired. At December 29, 1996, General Felt has
$14.7 million of regular tax net operating loss carryforwards for federal income
tax purposes expiring from 2003 to 2010 of which $7.0 million was acquired in
1993 and is subject to limitations. In addition, General Felt has $40.6 million
of capital loss carryforwards that expire in 2001.
11. ENVIRONMENTAL MATTERS
During 1996, expenditures in connection with General Felt's compliance
with federal, state, and local environmental laws and regulations did not have a
material adverse effect on General Felt's operations, financial position,
capital expenditures or competitive position. As of December 29, 1996, General
Felt has environmental accruals of approximately $1.5 million for environmental
matters.
General Felt has reported to appropriate state authorities that it has
found soil and groundwater contamination in excess of state standards at a
facility located in Philadelphia. General Felt has begun remediation and is
conducting further investigations into the extent of the contamination at this
facility and, accordingly, the extent of the remediation that may ultimately be
required. The actual cost and the timetable of any such remediation cannot be
predicted with any degree of certainty at this time. As of December 29, 1996,
General Felt has environmental accruals of approximately $1.2 million for the
remaining potential remediation costs for these facilities based on engineering
estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. General Felt has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. General
Felt has accrued $0.3 million for the estimated removal and remediation, if any,
associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. General Felt believes that its USTs do not
pose a significant risk of environmental liability because of General Felt's
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
F-48
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. ENVIRONMENTAL MATTERS (continued)
Although it is possible that new information or future developments
could require General Felt to reassess its potential exposure relating to all
pending environmental matters, including those described herein, management
believes that, based upon all currently available information, the resolution of
such environmental matters will not have a material adverse effect on General
Felt's operations, financial position, capital expenditures or competitive
position. The possibility exists, however, that new environmental legislation
and/or environmental regulations may be adopted, or other environmental
conditions may be found to exist, that may require expenditures not currently
anticipated and that may be material.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
General Felt is obligated, under various noncancellable lease agreements,
for rental of facilities and machinery and equipment. Many of the leases contain
renewal options with varying terms and escalation clauses that provide for
increased rentals based upon increases in the Consumer Price Index, real estate
taxes and the lessors' operating expenses. Total minimum rental commitment
(excluding commitments accrued as part of the 1996 and 1995 restructuring plans)
required under operating leases at December 29, 1996 was:
1997 $ 1,070
1998 809
1999 446
2000 367
2001 340
Thereafter 1,061
-------
Total minimum lease payments $ 4,093
=======
Total rent expense for all operating leases for the years ended 1996,
1995 and 1994 were approximately $2.1 million, $2.8 million and $3.5 million,
respectively.
Guarantor
General Felt has pledged their stock as collateral for certain debt of
Foamex L.P. and is a co-guarantor of the borrowings outstanding under the Foamex
L.P. Credit Facility and Foamex L.P. bond indentures, which as of December 29,
1996, had amounts outstanding of approximately $11.0 million and $380.2 million,
respectively.
13. RELATED PARTY TRANSACTIONS AND BALANCES
General Felt purchased $154.0 million, $141.2 million and $149.0 million
of carpet cushion foam from Foamex L.P. during 1996, 1995 and 1994,
respectively.
In connection with the consolidation of General Felt's administrative
functions with those of Foamex L.P., General Felt paid approximately $1.4
million and $2.3 million to Foamex L.P. in 1996 and 1995, respectively, for
direct costs incurred by Foamex L.P. on General Felt's behalf and for an
allocation of shared services and facilities.
During 1993, General Felt leased two facilities from limited partnerships
in which certain directors and officers of related parties have an interest. The
lessor under the first of these leases (the "East State Lease") is East State
Associates. The lease related to a warehouse at General Felt's Trenton, New
Jersey facility. In accordance with the terms of the lease, the lessor exercised
its right to require General Felt to purchase the facility at the appraised fair
market value of approximately $2.3 million. General Felt assigned the purchase
contract for the property to an unaffiliated third party who purchased the
property on March 28, 1994. General Felt no longer leases the facility. The
lessor under the second lease (the "West State Lease") is West State Associates.
The lease relates to General Felt's manufacturing facility in Pico Rivera,
California. During 1994, General Felt purchased the facility in Pico Rivera,
California from the lessor at the appraised fair market value of $3.4 million.
Rental payments for these leases for the year ended January 1, 1995 were $0.3
million.
F-49
<PAGE>
GENERAL FELT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Concentration of Credit Risk
General Felt's financial instruments subject to credit risk are primarily
trade accounts receivable. Accounts receivable are concentrated with large
retail customers. General Felt performs ongoing credit evaluations of its
customers financial conditions and, generally, requires no collateral. General
Felt maintains allowance accounts for potential credit losses and such losses
have been within management's expectations. Additionally, General Felt's ten
largest customers accounted for approximately 30.8% and 32.6% of accounts
receivable at December 29, 1996 and December 31, 1995, respectively.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on General Felt's assessment of available market information
and appropriate valuation methodologies.
Carrying amounts reported in the consolidated balance sheet for cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
short term borrowings approximates fair value due to the short term nature of
these instruments.
The carrying value of long-term debt approximates fair value based on the
borrowing rate available to General Felt for bank loans with similar terms and
maturities.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosures of cash flow information:
1996 1995 1994
(thousands)
Interest paid $4,434 $5,300 $3,609
====== ====== ======
Income taxes paid, net $ 596 $ 183 $ 316
====== ====== ======
F-50
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Foamex International Inc.:
We have audited the accompanying consolidated balance sheets of Foamex
International Inc. and subsidiaries (the "Company") as of December 29, 1996 and
December 31, 1995 and the related consolidated statements of operations, cash
flows and stockholders' equity (deficit) for each of the three years in the
period ended December 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 29, 1996 and December 31, 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 29, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-51
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
ASSETS 1996 1995
(thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22,203 $ 3,322
Restricted cash 12,143 --
Accounts receivable, net of allowance for
doubtful accounts of $6,328 and $9,138 126,573 113,716
Inventories 102,610 89,952
Deferred income taxes 21,765 12,625
Due from related parties 1,866 1,644
Other current assets 19,944 25,033
--------- ---------
Total current assets 307,104 246,292
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 9,674 4,632
Buildings and leasehold improvements 78,082 78,169
Machinery, equipment and furnishings 199,993 190,708
Construction in progress 20,784 7,985
--------- ---------
Total 308,533 281,494
Less accumulated depreciation and
amortization (113,160) (98,176)
--------- ---------
Property, plant and equipment, net 195,373 183,318
COST IN EXCESS OF ASSETS ACQUIRED, NET 82,471 89,605
DEBT ISSUANCE COSTS, NET 18,628 22,770
NET ASSETS OF DISCONTINUED OPERATIONS -- 191,188
OTHER ASSETS 16,270 15,069
--------- ---------
TOTAL ASSETS $ 619,846 $ 748,242
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-52
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1996 1995
(thousands except share data)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 3,692 $ 2,199
Current portion of long-term debt - unrelated parties 14,505 9,281
Accounts payable 84,930 80,624
Accrued employee compensation 7,302 8,116
Accrued interest 9,012 9,694
Accrued restructuring charges 6,300 16,287
Other accrued liabilities 44,782 28,483
--------- ---------
Total current liabilities 170,523 154,684
LONG-TERM DEBT - UNRELATED PARTIES 477,527 509,414
LONG-TERM DEBT - RELATED PARTIES 5,817 5,540
DEFERRED INCOME TAXES 6,290 24,996
ACCRUED RESTRUCTURING CHARGES 4,043 3,773
OTHER LIABILITIES 13,749 20,452
--------- ---------
Total liabilities 677,949 718,859
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $1.00 per share:
Authorized 5,000,000 shares - none issued -- --
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares
Issued 26,753,262 and 26,715,960 shares, respectively;
Outstanding 25,198,862 and 25,786,260 shares, respectively 267 267
Additional paid-in capital 84,579 84,015
Retained earnings (accumulated deficit) (120,174) (37,039)
Other (9,312) (10,693)
--------- ---------
(44,640) 36,550
Common Stock held in treasury, at cost:
1,554,400 shares and 929,700, respectively (13,463) (7,167)
--------- ---------
Total stockholders' equity (deficit) (58,103) 29,383
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 619,846 $ 748,242
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-53
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
(thousands except per share amounts)
<S> <C> <C> <C>
NET SALES $ 926,351 $ 862,834 $ 833,660
COST OF GOODS SOLD 773,119 762,085 691,265
--------- --------- ---------
GROSS PROFIT 153,232 100,749 142,395
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 58,329 69,913 62,245
RESTRUCTURING AND OTHER CHARGES (CREDITS) (6,541) 41,417 --
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 101,444 (10,581) 80,150
INTEREST AND DEBT ISSUANCE EXPENSE 53,900 52,878 45,131
OTHER INCOME, NET 1,617 461 1,147
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 49,161 (62,998) 36,166
PROVISION (BENEFIT) FOR INCOME TAXES 16,669 (12,248) 13,955
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 32,492 (50,750) 22,211
--------- --------- ---------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (584) (2,370) 3,919
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
INCLUDING PROVISIONS FOR OPERATING LOSSES
DURING THE PHASE-OUT PERIOD, NET OF INCOME
TAXES (113,896) -- --
--------- --------- ---------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (114,480) (2,370) 3,919
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (81,988) (53,120) 26,130
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAXES (1,147) -- --
--------- --------- ---------
NET INCOME (LOSS) $ (83,135) $ (53,120) $ 26,130
========= ========= =========
EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 1.27 $ (1.92) $ 0.83
DISCONTINUED OPERATIONS (4.47) (0.09) 0.15
EXTRAORDINARY LOSS (0.05) 0.00 0.00
--------- --------- ---------
EARNINGS (LOSS) PER SHARE $ (3.25) $ (2.01) $ 0.98
========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 25,616 26,472 26,684
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-54
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (83,135) $ (53,120) $ 26,130
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 22,353 23,302 22,108
Amortization of debt issuance costs and debt discount 13,903 12,192 6,468
Net loss on disposal of discontinued operations 110,137 -- --
Net loss (income) from discontinued operations 4,343 2,370 (3,919)
Asset writedowns and other charges (credits) (7,364) 16,677 --
Provision for uncollectible accounts 704 4,627 878
Deferred income taxes 14,903 (10,667) 9,914
Other, net (3,642) (72) 453
Changes in operating assets and liabilities,
net of acquisitions and discontinued operations:
Accounts receivable (13,723) (1,604) (24,677)
Inventories (13,078) 14,146 (21,790)
Accounts payable 4,306 (2,726) 49,039
Accrued restructuring charges (7,405) 17,284 (3,469)
Other assets and liabilities (1,048) 3,048 (13,031)
--------- --------- ---------
Net cash provided by continuing operations 41,254 25,457 48,104
Net cash provided by discontinued operations 16,491 4,133 6,471
--------- --------- ---------
Net cash provided by operating activities 57,745 29,590 54,575
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (23,344) (22,348) (21,201)
Acquisitions, net of cash acquired (841) (8,113) (1,712)
Proceeds from sale of discontinued operations 59,452 -- --
Increase in restricted cash (12,143) -- --
Discontinued operations investing activities (5,490) (19,411) (290,014)
Other investing activities (1,276) 2,495 (1,910)
--------- --------- ---------
Net cash provided by (used for) investing activities 16,358 (47,377) (314,837)
--------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings 1,493 (1,685) 537
Net proceeds from (repayments of) revolving loans -- (3,000) 3,000
Proceeds from long-term debt-unrelated parties 1,500 -- 97,000
Repayments of long-term debt-unrelated parties (38,887) (9,356) (3,256)
Debt issuance costs -- (184) (9,116)
Purchase of treasury stock (6,296) (7,167) --
Discontinued operations financing activities (12,406) 1,674 179,655
Other financing activities (626) -- (687)
--------- --------- ---------
Net cash provided by (used for) financing activities (55,222) (19,718) 267,133
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 18,881 (37,505) 6,871
Cash and cash equivalents at beginning of period 3,322 40,827 33,956
--------- --------- ---------
Cash and cash equivalents at end of period $ 22,203 $ 3,322 $ 40,827
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-55
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-in (Accumulated Treasury
Shares Amount Capital Deficit) Other Stock
(thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 2, 1994 26,684 $ 267 $ 80,566 $ (10,049) $ (6,478)
Issuance of warrants 3,000
Stock option compensation 75
Stock options exercised 10
Additional pension liability 86
Foreign currency translation adjustment (1,435)
Other (27)
Net income 26,130
--------- --------- --------- --------- --------- ---------
Balances at January 1, 1995 26,684 267 83,624 16,081 (7,827)
Issuance of common stock 32 -- 316
Stock option compensation 75
Increase in note receivable from
principal stockholder (1,373)
Additional pension liability (1,974)
Foreign currency translation adjustment 481
Purchase of treasury stock $ (7,167)
Net loss (53,120)
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1995 26,716 267 84,015 (37,039) (10,693) (7,167)
Issuance of common stock 22 -- 165
Stock option compensation 297
Stock options exercised 15 -- 102
Additional pension liability 1,427
Foreign currency translation adjustment (46)
Purchase of treasury stock (6,296)
Net loss (83,135)
--------- --------- --------- --------- --------- ---------
Balances at December 29, 1996 26,753 $ 267 $ 84,579 $(120,174) $ (9,312) $ (13,463)
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-56
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex International Inc. (the "Company") is a significant manufacturer
and marketer of flexible polyurethane foam and foam products in North America
through Foamex L.P., a 99% owned subsidiary. The Company's products include (i)
foam for carpet cushion and other carpet products, (ii) cushioning foams for
furniture, bedding, packaging and health care, (iii) foams for automotive trim
and accessories and (iv) technical foams for filtration, consumer products and
packaging.
During 1996, the Company sold Perfect Fit Industries, Inc. ("Perfect
Fit") and JPS Automotive L.P. ("JPS Automotive") which comprised the home
comfort products and automotive textile business segments, respectively, of the
Company. The consolidated financial statements of the Company have been restated
for discontinued operations and includes a net loss of $113.9 million (net of
$34.9 million income tax benefit) on the disposal of these business segments
which includes provisions for operating losses during the phase-out period. (See
Note 3 for further discussion).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the
Company and all subsidiaries that the Company directly or indirectly controls,
either through majority ownership or otherwise, other than the home comfort
products and automotive textile business segments which are accounted for as
discontinued operations. Intercompany accounts and transactions for continuing
operations have been eliminated in consolidation.
The consolidated financial statements have been restated for
discontinued operations. The accompanying notes present amounts related only to
continuing operations.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to the
thirty-first day of December. Fiscal years 1996, 1995 and 1994 were composed of
fifty-two weeks and ended on December 29, 1996, December 31, 1995 and January 1,
1995, respectively.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 3, 4, 9, 10, 16, 17 and 18 and Cost in Excess of Net
Assets Acquired below.)
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. On
December 29, 1996 and December 31, 1995, cash and cash equivalents included
$19.6 million and $2.7 million, respectively, of repurchase agreements
collateralized by U.S. Government securities.
F-57
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted Cash
As of December 29, 1996, the Company had restricted cash of
approximately $12.1 million. This cash was derived from the net sales proceeds
relating to the sale of Perfect Fit and is restricted by Foamex L.P.'s debt
agreements. As of February 26, 1997, the Company has used approximately $8.4
million of the restricted cash to repurchase approximately $8.0 million of
outstanding indebtedness.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the assets.
The range of useful lives estimated for buildings is generally twenty to
thirty-five years, and the range for machinery, equipment and furnishings is
five to twelve years. Leasehold improvements are amortized over the shorter of
the terms of the respective leases or the estimated useful lives of the
leasehold improvements. Depreciation expense for the years ended 1996, 1995 and
1994 was $19.1 million, $19.1 million and $16.8 million, respectively. For
income tax purposes, the Company uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other disposition
of items of plant and equipment, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
Debt Issuance Costs
Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the interest method. Accumulated amortization as of December 29, 1996 and
December 31, 1995 was approximately $8.8 million and $6.7 million, respectively.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for as purchases is amortized using
the straight-line method over a forty year period. At each balance sheet date
the Company evaluates the recoverability of cost in excess of net assets
acquired using certain financial indicators such as historical and future
ability to generate income from operations based on a going concern basis.
Accumulated amortization as of December 29, 1996 and December 31, 1995 was
approximately $11.6 million and $9.0 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
F-58
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated.
Postretirement and Postemployment Benefits
The Company accrues postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
Also, the Company accrues postemployment benefits when it becomes probable that
such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.
Foreign Currency Accounting
The financial statements of foreign subsidiaries, except in countries
treated as highly inflationary, have been translated into U.S. dollars by using
the year end exchange rates for the assets and liabilities and average exchange
rates for the statements of operations. Currency translation adjustments are
included in other stockholders' equity (deficit) until the entity is
substantially sold or liquidated. For operations in countries treated as highly
inflationary, certain financial statement amounts are translated at historical
exchange rates, with all other assets and liabilities translated at year end
exchange rates. These translation adjustments are reflected in the results of
operations and are insignificant for all periods presented. Also, foreign
currency transaction gains and losses are insignificant for all periods
presented. The effect of foreign currency exchange rates on cash flows is not
material.
Interest Rate Swap Agreement
The differential to be paid or received under an interest rate swap
agreement is recognized as an adjustment to interest and debt issuance expense
in the current period as interest rates change.
Income Taxes
Income taxes are accounted for under the liability method, in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
Earnings (Loss) Per Share
Earnings (loss) per share for 1996 was computed based on the weighted
average number of shares actually outstanding plus the shares that would be
outstanding assuming the exercise of dilutive stock options and warrants which
are considered to be common stock equivalents. The number of shares that would
be issued from the exercise of stock options has been reduced by the number of
shares that could have been purchased from the proceeds at the average market
price of the Company's common stock. For 1995 and 1994, common stock equivalents
have not been included since the effect would be antidilutive and/or immaterial.
Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the current year's presentation.
F-59
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS
On December 11, 1996, the Company completed the sale of its partnership
interests in JPS Automotive for a sale price of approximately $220.1 million
including $200.1 million of JPS Automotive's indebtedness. The sale is subject
to a post-closing adjustment which is expected to be finalized during the second
quarter of 1997. The sale included substantially all of the net assets of the
automotive textiles business segment. Actual and estimated transaction expenses
related to the sale amounted to approximately $8.9 million. The Company has
recorded a net loss on the sale of JPS Automotive of approximately $70.9 million
(net of $34.2 million income tax benefit), which includes the loss on disposal
and a net loss of $1.3 million (net of $0.7 million income tax benefit) relating
to operating losses during the phase-out period.
During 1996, the Company finalized the sale of the outstanding common
stock of Perfect Fit, a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included substantially all of the net
assets of the home comfort products segment. Actual and estimated transaction
expenses related to the sale amounted to approximately $1.5 million. The Company
has recorded a loss on the sale of Perfect Fit of approximately $43.0 million,
which includes the loss on disposal and a loss of $2.4 million relating to
operating losses during the phase-out period. A valuation allowance has been
provided for the capital loss relating to the sale of Perfect Fit since the
Company has determined that capital gain taxable income is not likely to be
sufficient to recognize the deferred tax asset relating to the capital loss
carryforward.
The Company's financial statements have been restated to reflect the
discontinuation of the home comfort products and automotive textile business
segments. In addition to the interest and debt issuance expense of JPS
Automotive, interest and debt issuance expense was allocated to discontinued
operations based on the estimated debt to be retired from the net proceeds from
the sale of Perfect Fit and JPS Automotive. A summary of the operating results
for the discontinued operations is as follows:
<TABLE>
<CAPTION>
1996 (1) 1995 1994
(thousands)
<S> <C> <C> <C>
Sales $ 244,305 $ 405,726 $ 254,174
Gross profit 38,296 69,410 50,477
Income from operations 17,072 28,009 24,026
Interest and debt issuance expense 16,905 28,575 16,463
Other expense (975) (113) (127)
Income (loss) from discontinued operations before income taxes (808) (679) 7,436
Provision (benefit) for income taxes (224) 1,691 3,517
Income (loss) from discontinued operations, net of income taxes (584) (2,370) 3,919
<FN>
(1) The Company's discontinued operations includes the operations of
Perfect Fit through June 1996 and JPS Automotive through September
1996.
</FN>
</TABLE>
F-60
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS (continued)
Net assets of discontinued operations (excluding intercompany net
assets) at December 31, 1995 were as follows:
1995
(thousands)
Current assets $100,574
Property, plant and equipment, net 142,863
Cost in excess of assets acquired, net 202,020
Other assets 10,642
--------
Total assets 456,099
Current liabilities 49,202
Long-term debt 204,463
Other liabilities 11,246
--------
Total liabilities 264,911
--------
Net assets $191,188
========
4. RESTRUCTURING AND OTHER CHARGES (CREDITS)
In 1995, the Company approved a restructuring plan (the "1995
restructuring plan") to consolidate thirteen foam production, fabrication or
branch locations to concentrate resources as a result of industry conditions and
better position itself to achieve its strategic growth objectives. The Company
recorded restructuring and other charges of $41.4 million which was comprised of
$35.6 million associated with the consolidation of the foam production,
fabrication or branch locations, $2.2 million associated with the completion of
a 1993 restructuring plan and $3.6 million associated with merger and
acquisition activities of the Company. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns (net of
estimated sale proceeds), $15.1 million for plant closure and operating lease
obligations and $3.8 million for personnel reductions. The $3.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
In 1996, the Company determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, the Company has approved a
plan to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters, the
Company recorded a $6.5 million net restructuring credit which included a
restructuring credit of $11.3 million associated with the Company's decision not
to close the facility identified as part of the 1995 restructuring plan and $1.8
million of restructuring credits relating primarily to the favorable termination
of certain lease agreements and other matters relating to the 1995 restructuring
plan, offset by $6.6 million of restructuring charges relating to the closure of
the two facilities during 1997 (the "1996 restructuring plan").
F-61
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
Generally, the 1995 restructuring plan has been implemented as
originally contemplated. The following table sets forth the components of the
Company's restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge $ 41.4 $ 16.7 $ 15.1 $ 3.8 $ 5.8
Asset writeoff/writedowns (25.1) (20.9) -- -- (4.2)
Cash spending (0.4) -- (0.3) (0.1) --
------- ------- ------- ------ ------
Balances at December 31, 1995 15.9 (4.2) 14.8 3.7 1.6
Cash spending (9.9) -- (6.6) (2.0) (1.3)
Cash proceeds 1.0 1.0 -- -- --
1996 restructuring charge 6.6 2.4 4.1 0.1 --
Restructuring credits (13.1) (9.7) (2.8) (0.4) (0.2)
Asset adjustment for restructuring
credit 8.0 8.7 (0.6) -- (0.1)
------- ------- ------- ------ ------
Balances at December 29, 1996 $ 8.5 $ (1.8) $ 8.9 $ 1.4 $ --
======= ======= ======= ====== ======
</TABLE>
As indicated in the table above, the accrued restructuring balance at
December 29, 1996, will be used for payments relating to plant closure and
leases including rundown costs at the facilities. The $1.8 million of asset
writedowns relates to estimated proceeds and is included in noncurrent assets.
The Company expects to incur approximately $6.3 million of charges during 1997
with the remaining $4.0 million to be incurred through 2001. As of December 29,
1996, the Company has terminated approximately 270 employees and notified
approximately 40 employees in the manufacturing and administrative areas of
their impending termination in connection with the 1996 and 1995 restructuring
plans.
5. ACQUISITIONS
In April 1995, the Company acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million, including
related fees and expenses of approximately $0.3 million, with an initial cash
payment of $7.2 million. The excess of the purchase price over the estimated
fair value of the net assets acquired was approximately $3.9 million.
In March 1994, the Company acquired Transformacion De Espumas Y
Fieltros S.A. de C.V. ("TEFSA") for an aggregate purchase price of approximately
$4.5 million, including related fees and expenses of approximately $0.4 million,
to be paid over a three year period with an initial cash payment of $1.7
million. The excess of the purchase price over the estimated fair value of the
assets acquired was $3.7 million. During 1996 and 1995, the Company made
scheduled cash payments of $0.8 million for each year in accordance with the
purchase agreement. The final payment will be made in April 1997.
The acquisitions were accounted for as purchases and the operations of
the acquired companies are included in the consolidated statements of operations
and cash flows from their respective dates of acquisition. The excess of the
purchase price over the estimated fair value of the net assets acquired is being
amortized using the straight-line method over forty years.
F-62
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVENTORIES
Inventories consists of:
December 29, December 31,
1996 1995
(thousands)
Raw materials and supplies $ 61,559 $ 49,963
Work-in process 13,453 14,451
Finished goods 27,598 25,538
-------- --------
Total $102,610 $ 89,952
======== ========
7. SHORT-TERM BORROWINGS
Short-term borrowings include borrowings outstanding under a line of
credit facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the
bank's prime rate (4.75% at December 29, 1996) plus 1/2%. The weighted average
interest rates on Foamex Canada's short-term borrowings outstanding for 1996,
1995 and 1994 were 5.9%, 8.0% and 7.3%, respectively. Borrowings under Foamex
Canada's credit facility are due on demand and are collateralized by accounts
receivable, property and inventories of Foamex Canada having an approximate net
carrying value of $17.1 million as of December 29, 1996. The unused amount under
this line of credit totaled $0.7 million as of December 29, 1996.
8. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Unrelated parties:
9 1/2% Senior secured notes due 2000 (1) $106,793 $116,667
11 1/4% Senior notes due 2002 (1) 141,400 150,000
11 7/8% Senior subordinated debentures due 2004 (net of
unamortized debt discount of $769 and $827) (1) 125,056 125,173
Senior secured discount debentures due 2004, Series B
(net of unamortized debt discount of $35,864 and
$46,364) (2) 80,881 70,381
11 7/8% Senior subordinated debentures due 2004, Series B (3) 7,000 7,000
Industrial revenue bonds (4) 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 29, 1996)(4) 11,000 30,000
Other 12,902 12,474
-------- --------
492,032 518,695
Less current portion 14,505 9,281
-------- --------
Long-term debt--unrelated parties $477,527 $509,414
======== ========
</TABLE>
F-63
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Related parties:
Subordinated note payable (net of unamortized
debt discount of $1,198 and $1,475) (3) $5,817 $5,540
====== ======
(1) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation
and guaranteed by the Company and General Felt Industries,
Inc. ("General Felt").
(2) Subsidiary debt of Foamex-JPS Automotive L.P. and Foamex-JPS
Capital Corporation and guaranteed by the Company.
(3) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation
and guaranteed by General Felt.
(4) Subsidiary debt of Foamex L.P.
9 1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest
at the rate of 9 1/2% payable semiannually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100% on or after June 1, 1999. During
1996, Foamex L.P. repurchased $9.9 million of Senior Secured Notes with the net
proceeds from the sale of Perfect Fit (see Note 11).
11 1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11 1/4% payable
semiannually on each April 1 and October 1. The Senior Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part, at any time on or after October 1, 1997, initially at 104.219% of
their principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994, Foamex L.P. provided certain real property as
collateral for the Senior Notes, with a net book value of $37.8 million at
December 29, 1996. During 1996, Foamex L.P. repurchased $8.6 million of Senior
Notes with the net proceeds from the sale of Perfect Fit (see Note 11).
11 7/8% Senior Subordinated Debentures due 2004 ("Subordinated
Debentures")
The Subordinated Debentures bear interest at the rate of 11 7/8%
payable semiannually on each April 1 and October 1. The Subordinated Debentures
mature on October 1, 2004. The Subordinated Debentures may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after October 1,
1997, initially at 105.938% of their principal amount, plus accrued interest,
and declining to 100% on or after October 1, 2002. The Subordinated Debentures
are subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. During 1996, Foamex L.P. repurchased
$0.1 million of Subordinated Debentures with the net proceeds from the sale of
Perfect Fit (see Note 11).
F-64
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Senior Secured Discount Debentures due 2004 ("Discount Debentures")
Discount Debentures, in the aggregate principal amount of $116.7
million ($57.0 million initial cash proceeds) were issued during 1994 by
Foamex-JPS Automotive L.P. ("FJPS") and Foamex-JPS Capital Corporation ("FJCC").
In connection with this issuance, the Company issued warrants to acquire 0.6
million shares of the Company's common stock to the purchasers of the Discount
Debentures (see Note 15). The Discount Debentures are collateralized by a
first-priority lien granted by FJPS on a 43.44% limited partnership interest in
Foamex L.P. and are guaranteed on a senior basis by the Company. The original
issue discount of $59.7 million will be amortized using the weighted average to
maturity method over the life of the issue. No cash interest is payable on the
Discount Debentures prior to January 1, 2000; rather the Discount Debentures
accrete on a daily basis and compound semiannually at the rate of 13.50% per
annum from the date of issuance through June 30, 1996, at the rate of 13.75% per
annum from July 1, 1996 through June 30, 1997 and at the rate of 14.00% per
annum from July 1, 1997 through June 30, 1999, in each case subject to increase
in the event the Discount Debentures are not redeemed at the option of FJPS and
FJCC as described below. Thereafter, interest accrues at the rate of 14.00% per
annum and is payable semiannually in cash commencing January 1, 2000.
The Discount Debentures may be redeemed at the option of FJPS and FJCC,
in whole or in part, at any time after July 1, 1999, initially at 110% of their
principal amount, plus accrued interest to the redemption date, and declining to
100% on or after July 1, 2002. Prior to July 1, 1997, at the option of FJPS and
FJCC, (i) up to 50% of the original aggregate principal amount of the Discount
Debentures will be redeemable at a redemption price equal to 110% of the
Accreted Value (as defined in the indenture with respect to such debentures)
(the "Discount Debenture Indenture") of such Discount Debentures and (ii)
additional Discount Debentures will be redeemable at a redemption price equal to
112% of the Accreted Value of such Discount Debentures from the proceeds of an
Equity Offering (as defined in the Discount Debenture Indenture). In addition,
at any time on or prior to July 1, 1997, FJPS and FJCC may redeem all, but not
less than all, of the outstanding Discount Debentures from the net proceeds of
an Equity-Linked Offering (as defined in the Discount Debenture Indenture) at
the redemption prices set forth in the immediately preceding sentence. If FJPS
and FJCC do not exercise such redemption rights with at least 85% of the net
proceeds of an Equity Offering, the rate at which the Discount Debentures shall
accrete and the interest rate on the Discount Debentures will increase based on
a formula.
During 1996, the Company received consents from 100% of the holders of
the Discount Debentures for the waiver of certain provisions of the Discount
Debentures Indenture in connection with the sale of JPS Automotive.
11 7/8% Senior Subordinated Debentures, Series B ("Series B
Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures.
F-65
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0
million, maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.3 million at
December 29, 1996 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex L.P. to
convert to a fixed rate. The interest rates on the IRBs were 4.85% and 4.0% at
December 29, 1996 for the $6.0 million and $1.0 million bond issues,
respectively. The interest rate on the $6.0 million bond issue varies weekly
based on an interest rate that is indicative of current bidside yields on high
quality short-term, tax-exempt obligations, or if such interest rate is not
available, 70.0% of the interest rate for thirteen week United States Treasury
Bills. The maximum interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon appropriate notice,
the IRBs are redeemable at the option of the bondholders.
Term and Revolving Loans
Foamex L.P. has a credit agreement (the "Foamex L.P. Credit Facility")
with a group of banks that provide for loans of up to $85.0 million of which up
to $40.0 million was available as a term loan payable in twenty equal quarterly
installments commencing October 1994 and up to $45.0 million is available under
a revolving line of credit which expires in June 1999. In 1994, Foamex L.P. and
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility; no further term loan borrowings are available thereunder. During 1996,
Foamex L.P. and General Felt used $12.0 million of the net proceeds from the
Perfect Fit sale to repay term loan borrowings. Borrowings under the Foamex L.P.
Credit Facility are collateralized by the accounts receivable of Foamex L.P. and
General Felt. Pursuant to the terms of the Foamex L.P. Credit Facility, borrowed
funds will bear interest at a floating rate equal to 1.0% per annum plus the
highest of (i) the base rate of The Bank of Nova Scotia, as in effect from time
to time, (ii) a rate that is, generally, 0.5% per annum plus a fluctuating rate
generally equal to the rate on three month certificates of deposit, subject to
certain adjustments, plus a fluctuating rate generally equal to the annual
assessment rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation or (iii) 0.5% per annum plus the federal funds rate in effect from
time to time. At the option of the borrower, portions of the outstanding loans
under the Foamex L.P. Credit Facility will be convertible into Eurodollar rate
loans bearing interest at a rate generally equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29, 1996, there were approximately $11.7 million in letters of credit
outstanding under the Foamex L.P. Credit Facility. As of December 29, 1996,
there was unused availability of approximately $33.3 million under the Foamex
L.P. Credit Facility.
Subordinated Note Payable
This note payable was issued to John Rallis ("Rallis"), the Chief
Operating Officer of the Company, on May 6, 1993 by Foamex L.P. in connection
with the acquisition of Great Western Foam Products Corporation and certain
related entities and assets (collectively, "Great Western"). The note bears
interest at a maximum rate of 6% per annum and the principal amount is payable
in three equal annual installments beginning May 6, 1999.
Other
As of December 29, 1996, other debt is comprised primarily of capital
lease obligations, equipment financing associated with an aircraft and
borrowings by Foamex Mexico.
F-66
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Interest Rate Swap Agreements
The Company enters into interest rate swaps to lower funding costs
and/or to manage interest costs and exposure to changing interest rates. The
Company does not hold or issue financial instruments for trading purposes. The
Company has an interest rate swap agreement, as amended, with a notional amount
of $150.0 million through December 2001. Under the swap agreement, the Company
has made variable payments based on LIBOR through December 1996 and is obligated
to make fixed payments at 5.30% per annum for the twelve months ended in
December 1997 and variable payments based on LIBOR for the remainder of the
agreement, in exchange for fixed payments by the swap partner at 5.81% per annum
through December 1996, and 6.50% per annum for the remainder of the agreement,
payable semiannually in arrears. The swap partner has the ability to terminate
the swap agreement after the December 1997 payment if the LIBOR rate the Company
is to pay for any period thereafter is equal to or less than 4.50% per annum.
Interest expense will be subject to fluctuations in LIBOR during the term of the
swap agreement except during 1997. The Company is exposed to credit loss in the
event of nonperformance by the swap partner; however, the occurrence of this
event is not anticipated.
Also, the Company has an interest rate swap agreement, as amended, for
a notional amount of $150.0 million through December 2001. Under this swap
agreement, the Company has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for variable payments by the swap partner at the rate of LIBOR plus
0.80% per annum for the six months ended in June 1995, LIBOR plus 0.72% per
annum for the six months ended in December 1995, LIBOR plus 2.45% per annum for
the six months ended in June 1996, LIBOR plus 2.39% per annum for the six months
ended in December 1996 and fixed payments at 6.50% per annum for the remainder
of the term of the agreement, payable semiannually in arrears. The swap partner
has the ability to terminate the swap agreement after the December 1997 payment
if the LIBOR rate the Company is to pay for any period thereafter is equal to or
less than 4.50% per annum. Interest expense will be subject to fluctuations in
LIBOR during the term of the swap agreement except during 1997. The effect of
the two interest rate swaps described above was a favorable adjustment to
interest expense of $3.7 million, $1.4 million and $3.0 million for 1996, 1995
and 1994, respectively. The Company is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated.
Debt Restrictions and Covenants
The indentures, credit agreement and other indebtedness agreements
contain various covenants, including restrictions on payments of distributions
to the Company by its subsidiaries, the incurrence of additional indebtedness,
the sale of assets, mergers and consolidations and transactions with affiliates.
In addition, certain agreements contain a provision that, in the event of a
defined change of control, the indebtedness must be repaid, in certain cases, at
the option of the holder. Also, the Company's subsidiaries are required under
certain of these agreements to maintain specified financial ratios of which the
most restrictive is the maintenance of net worth and interest coverage ratios,
as defined. Under the most restrictive of the distribution restrictions,
approximately $4.9 million was available to be paid to the Company by its
subsidiaries as of December 29, 1996.
F-67
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
During 1996, the Company received consents and/or waivers from its
lenders and bondholders in connection with the sale of Perfect Fit and JPS
Automotive and other related matters.
As of December 29, 1996, the Company was in compliance with the
covenants of the indentures, credit agreements and other indebtedness agreements
and expects to be in compliance with these covenants for the foreseeable future.
Future Obligations on Long-Term Debt
Scheduled maturities of long-term debt are shown below:
Year End Long-Term Debt
(thousands)
1997 $ 14,260
1998 4,770
1999 6,108
2000 107,401
2001 3,109
Thereafter 399,246
--------
Total 534,894
Less unamortized discount 37,831
--------
Total $497,063
========
In addition, the Company has approximately $0.8 million of total
capital lease obligations that are payable in 1997 through 2000 in annual
amounts of approximately $0.2 million.
9. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
The Company maintains noncontributory defined benefit pension plans for
salaried and certain hourly employees. The salaried plan provides benefits that
are based principally on years of credited service and level of compensation.
The hourly plans provide benefits that are based principally on stated amounts
for each year of credited service.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service cost $ 2,471 $ 2,087 $ 2,452
Interest cost 3,997 3,742 3,541
Actual return on plan assets (8,841) (5,682) 624
Net amortization and deferral 4,643 1,807 (4,649)
------- ------- -------
Total $ 2,270 $ 1,954 $ 1,968
======= ======= =======
</TABLE>
F-68
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
The Company's funding policy is to contribute annually an amount that
both satisfies the minimum funding requirements of the Employee Retirement
Income Security Act of 1974 and does not exceed the full funding limitations of
the Internal Revenue Code of 1986, as amended (the "Code"). Plan investments
consist primarily of corporate equity and debt securities, mutual life insurance
funds and cash equivalents. During 1996, the discount rate was adjusted to
7.50%. The following table sets forth the funded status of the Company's
underfunded plans and the amounts recognized in the accompanying consolidated
balance sheets as of December 29, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested benefits $ 55,336 $ 52,762
Nonvested benefits 2,137 1,916
-------- --------
Accumulated benefit obligations $ 57,473 $ 54,678
======== ========
Total projected benefit obligations $ 58,775 $ 55,810
Fair value of plan assets 53,734 44,441
-------- --------
Projected benefit obligations in excess
of plan assets (5,041) (11,369)
Unrecognized net loss from past experience
difference from that assumed and effect
of changes in assumptions 1,099 6,394
Additional minimum liability (2,694) (5,265)
-------- --------
Accrued pension cost $ (6,636) $(10,240)
======== ========
</TABLE>
Significant assumptions used in determining the plans' funded status
are as follows:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
<S> <C> <C>
Expected long-term rates of return on plan assets 9.50% 9.00%
Discount rates on projected benefit obligations 7.50% 7.25%
Rates of increase in compensation levels (where applicable) 4.00% 4.00%
</TABLE>
F-69
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
Defined Contribution Plan
The Company maintains a defined contribution plan which is qualified
under Section 401(k) of the Code and is available for eligible employees who
elect to participate in the plan. Employee contributions are voluntary and
subject to certain limitations as imposed by the Code. During 1996 and 1995, the
Company provided contributions amounting to a 25% match of employees'
contributions up to 4% of eligible compensation. The Company also provides an
additional 25% match of employees' contributions up to 4% of eligible
compensation made to a fund which invests in the Company's common stock. In
addition, the Company may make discretionary contributions amounting to a 25%
match of employees' contributions up to 4% of eligible compensation. Prior to
1995, Company contributions were discretionary and provided a 50% match of
employees' contributions up to 3% of eligible compensation. The expense for
these contributions for 1996, 1995 and 1994 was approximately $0.8 million, $0.7
million and $0.4 million, respectively.
Postretirement Benefits
In addition to providing pension benefits, the Company provides
postretirement health care and life insurance for eligible employees. During
1996, certain employees accepted an early retirement program resulting in a
special termination loss of $0.6 million. During 1995, changes were made to
postretirement benefits offered to certain employees which resulted in a
curtailment loss of $0.6 million. These plans are unfunded and the Company
retains the right, subject to existing agreements, to modify or eliminate these
benefits.
The components of 1996, 1995 and 1994 expense for postretirement
benefits are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service costs for benefits earned $ 12 $ 24 $ 172
Interest cost on liability 67 83 192
Net amortization and deferral (53) (13) 134
Special termination/curtailment loss 576 619 --
----- ----- -----
Net periodic postretirement benefit cost $ 602 $ 713 $ 498
===== ===== =====
</TABLE>
The accumulated postretirement benefit obligation at December 29, 1996
and December 31, 1995 resulted in an unfunded obligation of $2.1 million and
$1.6 million, respectively.
A 9% and 10% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1996 and 1995, respectively. This
rate was assumed to gradually decrease to 5% by the year 2000. Increasing the
weighted average assumed health care cost trend rates by one percentage point
would have an insignificant impact on the accumulated postretirement benefit
obligation and service and interest cost. The discount rate used was 7.50% and
7.25% as of December 29, 1996 and December 31, 1995, respectively.
F-70
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
Postemployment Benefits
The Company provides certain postemployment benefits to former or
inactive employees and their dependents during the time period following
employment but before retirement. At December 29, 1996 and December 31, 1995,
the Company's liability for postemployment benefits was insignificant for each
period.
Other
In December 1994, the Company changed its method of compensating
certain employees for vacation, which increased income from operations by $4.3
million for 1994.
10. INCOME TAXES
Income (loss) from continuing operations before provision for income
taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
United States $ 46,075 $(62,015) $ 34,240
Foreign 3,086 (983) 1,926
-------- -------- --------
Income (loss) from continuing operations
before provision (benefit) for income taxes $ 49,161 $(62,998) $ 36,166
======== ======== ========
</TABLE>
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Continuing operations $ 16,669 $(12,248) $ 13,955
Discontinued operations (35,129) 1,691 3,517
Extraordinary loss on early extinguishment
of debt (765) -- --
-------- -------- --------
Total consolidated provision (benefit) for
income taxes $(19,225) $(10,557) $ 17,472
======== ======== ========
</TABLE>
F-71
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The total consolidated provision (benefit) for income taxes is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Current:
Federal $ 220 $ (2,038) $ 3,236
State 760 -- --
Foreign 786 457 805
-------- -------- --------
Total current 1,766 (1,581) 4,041
-------- -------- --------
Deferred:
Federal (24,211) (9,543) 10,259
State 2,729 856 3,193
Foreign 491 (289) (21)
-------- -------- --------
Total deferred (20,991) (8,976) 13,431
-------- -------- --------
Total consolidated provision (benefit)
for income taxes $(19,225) $(10,557) $ 17,472
======== ======== ========
</TABLE>
The tax effect of the temporary differences that give rise to
significant deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
(thousands)
<S> <C> <C>
Deferred tax assets:
Inventory basis differences $ 1,209 $ 2,473
Employee benefit accruals 6,247 7,733
Allowances and contingent liabilities 3,616 8,589
Restructuring and plant closing accruals 8,323 10,869
Other 6,301 2,518
Net operating loss carryforwards 37,483 20,190
Capital loss carryforwards 16,561 --
Valuation allowance for deferred tax assets (23,064) (16,979)
-------- --------
Deferred tax assets 56,676 35,393
-------- --------
Deferred tax liabilities:
Basis difference in property, plant and equipment 36,257 30,183
Net deferred tax liabilities associated with discontinued
operations -- 14,304
Other 4,944 3,277
-------- --------
Deferred tax liabilities 41,201 47,764
-------- --------
Net deferred tax assets (liabilities) $ 15,475 $(12,371)
======== ========
</TABLE>
F-72
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The Company has determined that taxable capital gains in the
foreseeable future for subsidiaries that file a separate federal income tax
return will likely not be sufficient to recognize the deferred tax asset
associated with the capital loss carryforward. Accordingly, a valuation
allowance has been provided for the deferred tax asset associated with the
capital loss carryforward and certain other deferred tax assets. During 1996,
the valuation allowance for deferred tax assets increased by $6.1 million which
included a $16.6 million increase for the capital loss carryforward, offset by
$6.9 million decrease due to reversal of preacquisition temporary differences
and $3.6 million for the reversal of valuation allowances which are reflected in
the consolidated statement of operations. The $6.9 million reversal of
preacquisition temporary differences was used to reduce cost in excess of assets
acquired. As of December 29, 1996, approximately $1.8 million of deferred tax
assets are related to preacquisition activities and if utilized will further
reduce cost in excess of assets acquired. At December 29, 1996, the Company has
$103.2 million of regular tax net operating loss carryforwards for federal
income tax purposes expiring from 2003 to 2010 of which $7.0 million was
acquired in 1993 and is subject to limitations. In addition, the Company has
$47.3 million of capital loss carryforwards that expire in 2001.
A reconciliation of the statutory federal income tax rate to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Statutory income taxes $ 17,206 $(22,049) $ 12,658
State income taxes, net of federal 1,864 (2,095) 1,977
Limitation on the utilization of tax benefits -- 7,695 --
Valuation allowance (3,621) -- (452)
Cost in excess of assets acquired 644 1,010 926
Other 576 3,191 (1,154)
-------- -------- --------
Total $ 16,669 $(12,248) $ 13,955
======== ======== ========
</TABLE>
11. EXTRAORDINARY LOSS
During 1996, the Company used $31.3 million of the net proceeds from
the sale of Perfect Fit to extinguish debt of $30.6 million and redemption
premiums of $0.6 million. The Company wrote off $1.2 million of debt issuance
costs associated with the early extinguishment of debt and incurred transaction
costs of $0.1 million. The early extinguishment of debt resulted in an
extraordinary loss of $1.1 million (net of $0.8 million income tax benefit).
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under various noncancelable lease agreements
for rental of facilities, vehicles and other equipment. Many of the leases
contain renewal options with varying terms and escalation clauses that
F-73
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES (continued)
provide for increased rentals based upon increases in the Consumer Price Index,
real estate taxes and lessors' operating expenses. Total minimum rental
commitments (excluding commitments accrued as part of the 1996 and 1995
restructuring plans) required under operating leases at December 29, 1996 are:
Third Party Related Party
Leases Leases
(thousands)
1997 $ 7,874 $ 1,767
1998 6,164 1,823
1999 4,866 1,823
2000 3,812 1,823
2001 2,883 2,265
Thereafter 4,122 5,800
-------- --------
Total $29,721 $15,301
======= =======
Rental expense charged to operations under operating leases
approximated $9.6 million, $10.5 million and $10.3 million for 1996, 1995 and
1994, respectively. Substantially all such rental expense represented the
minimum rental payments under operating leases. In addition, the Company
incurred rental expense of approximately $1.7 million, $3.5 million and $3.9
million for 1996, 1995 and 1994, respectively, under leases with related
parties.
13. RELATED PARTY TRANSACTIONS AND BALANCES
The Company regularly enters into transactions with its affiliates in
the ordinary course of business.
On July 7, 1996, Trace International Holdings, Inc. ("Trace Holdings")
issued to Foamex L.P. a promissory note for $4.4 million in principal amount
plus accrued interest of $0.4 million, which is an extension of a promissory
note of Trace Holdings that was due in July 1996. The promissory note is due and
payable on demand or, if no demand is made, July 7, 1997, and bears interest at
9.5%, payable quarterly in arrears commencing October 1, 1996.
The promissory note is included in other stockholders' equity (deficit).
In connection with the acquisition of Great Western, Foamex L.P. issued
a promissory note to Rallis (see Note 8) and entered into lease agreements (see
Note 12) with Rallis and an affiliate of Rallis, for the rental of former Great
Western manufacturing facilities located in Orange, Ontario and Hayward,
California and a warehouse facility in Tigard, Oregon. Foamex L.P. has the
option to purchase each of these properties from Rallis or such affiliate.
Foamex L.P. was party to a lease agreement for an airplane with Trace
Aviation Corp. ("Trace Aviation"), a subsidiary of Trace Holdings. During 1995
and 1994, Foamex L.P. paid Trace Aviation $1.6 million and $2.7 million,
respectively, pursuant to the lease agreement. The lease agreement also provided
for the use of the airplane by Trace Holdings with remuneration to Foamex L.P.
based on actual usage of the plane. During 1995 and 1994, Trace Holdings paid to
Foamex L.P. $0.6 million and $0.5 million, respectively, pursuant to the
agreement. During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly-owned
subsidiary of the Company, acquired the aircraft from Trace Holdings for $3.0
million in cash and the assumption of $11.7 million of related debt. In
connection with the acquisition of the aircraft, the Foamex L.P. lease and other
agreements were terminated.
F-74
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
Foamex L.P. has a management service agreement with Trace Foam Company,
Inc. ("Trace Foam"), a wholly-owned subsidiary of Trace Holdings, pursuant to
which Trace Foam provides general managerial services of a financial, technical,
legal, commercial, administrative and/or advisory nature to Foamex L.P. for an
annual fee of $1.75 million and reimbursement of expenses incurred. Trace
Holdings rents approximately 5,900 square feet of general, executive and
administrative office space in New York, New York from Foamex L.P. on
substantially the same terms as Foamex L.P. leases such space from a third party
lessor.
During 1995 and 1994, the Company purchased approximately $2.5 million
and $11.9 million, respectively, of scrap material from Recticel Foam
Corporation ("RFC"), a former partner of Foamex L.P. and whose chairman is a
director of the Company, under a minimum annual volume agreement which expired
in June 1995.
14. STOCK OPTION PLAN
The Company's 1993 Stock Option Plan provides for the granting of
nonqualified ("NQSOs") and incentive stock options for up to 3.0 million shares
of common stock to officers and executive employees of the Company and its
subsidiaries and affiliates, the price and terms of each such option is at the
discretion of the Company, except that the term cannot exceed ten years. As of
December 29, 1996, the stock options issued under the 1993 Stock Option Plan
vest equally over a five year period with a term of ten years.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 951,343 $ 7.64 2,033,800 $ 17.28 1,998,600 $ 17.63
Granted 202,240 7.06 150,000 9.95 145,000 10.50
Exercised (14,914) 6.88 -- -- (740) 13.50
Forfeited (171,193) 10.80 (145,956) 14.59 (109,060) 14.70
Canceled -- -- (1,924,700) 17.15 -- --
Granted in exchange offer -- -- 838,199 6.88 -- --
---------- --------- ---------- --------- ---------- ---------
Outstanding at end of year 967,476 $ 6.97 951,343 $ 7.64 2,033,800 $ 17.28
========== ========= ========== ========= ========== =========
Exercisable at end of year 431,863 $ 6.94 20,140 $ 14.62 573,100 $ 18.69
========== ========= ========== ========= ========== =========
</TABLE>
The options outstanding at December 29, 1996 have an exercise price
range of $6.88 to $10.25. During 1996, the Company granted 202,240 options with
a weighted average market price on the date of grant of $12.13. The aggregate
difference of $1.0 million between the fair market value ("FMV") of the options
at the date of grant and the option price is being charged to expense over the
vesting period (five years) of the options. During 1995, the Company granted a
total of 150,000 options which include (i) 15,000 options with a weighted
average market price on the date of grant of $9.50, (ii) 85,000 options with a
weighted average market price on the date of grant of $8.29 and (iii) 50,000
options with a weighted average market price on the date of grant of $9.50.
F-75
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. STOCK OPTION PLAN (continued)
During 1994, the Company granted 145,000 options with a weighted average market
price on the date of grant of $10.50. Upon completion of the initial public
offering (the "IPO") in December 1993, options were granted to purchase 248,600
shares of common stock at $13.50 per share and 1,750,000 shares of common stock
at prices ranging from $15.00 to $22.50 per share. The aggregate difference of
$373,000 between the FMV ($15 per share) of the options at the date of grant and
the $13.50 option price is being charged to expense over the vesting period
(five years) of the options. Total compensation expense relating to options
amounted to approximately $0.3 million, $0.1 million and $0.1 million,
respectively, in each of 1996, 1995 and 1994, respectively.
In December 1995, the Stock Option Plan Committee approved a stock
option exchange program which permitted optionees of record as of that date to
exchange all options previously granted for options priced at the FMV share
price, $6.875, as of the close of business on that date. The number of new
options (the "New Options") to be exchanged for previously granted options (the
"Old Options") was determined on the basis of the ratio of the FMV on December
6, 1995 to the FMV or the discount share value of the Old Options when
originally granted. New Options could not be exercised until December 6, 1996
and expire upon the same terms as the Old Options.
The weighted average remaining contractual lives of outstanding options
at December 29, 1996 was approximately 7.7 years.
The Company applies the provisions of Accounting Principles Board
Opinion No. 25 ("Accounting for Stock Issued to Employees") and related
interpretations ("APB 25") in accounting for its stock-based compensation plans.
Accordingly, compensation expense has been recognized in the consolidated
financial statements with respect to the above plans in accordance with APB 25.
Had compensation costs for the above plans been determined based on the fair
value of the options at the grant dates under those plans consistent with the
methods under Statement of Financial Accounting Standards No. 123 ("Accounting
for Stock Based Compensation"), the Company's income from continuing operations
and earnings (loss) per share would not have been significantly affected.
15. STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
The Company is authorized to issue 5.0 million shares of preferred
stock with a par value of $1.00 per share, none of which has been issued. The
Board of Directors has the power to establish the powers, preferences, and
rights of each series which may afford the holders of any preferred stock
preferences, powers and rights (including voting rights) senior to the rights of
the holders of common stock.
Common Stock
At December 29, 1996, the Company had an aggregate of 4.8 million of
common stock shares reserved for issuance in connection with its stock option
plan (3.0 million) and outstanding warrants (1.8 million).
Warrants
In June 1994, in connection with the issuance of the Discount
Debentures, the Company issued 116,745 warrants to purchase 0.6 million shares
of common stock. Each warrant is exercisable on or before July 1, 1999 for
5.1394 shares at a cash price of $11.52 per share upon exercise. The warrants
F-76
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCKHOLDERS' EQUITY (DEFICIT) (continued)
were valued by projecting the Company's financial results for five years. These
financial results were discounted at a rate of 18% to 20% and, with a projected
price earnings ratio of 10-11x after five years, yielded a value of
approximately $25.70 per warrant or $3.0 million in total. Accordingly,
additional paid in capital was increased for the cash received attributable to
the warrants and the associated debt reduced, with such reduction to be
amortized over the life of the debt.
In addition, the Company has outstanding warrants to purchase
approximately 1.2 million shares of common stock at an exercise price of
approximately $12.30 per share at any time prior to October 1999.
Treasury Stock
During 1996 and 1995, the Company purchased 624,700 and 929,700 shares
of its common stock, respectively, for an aggregate cost of $6.3 million and
$7.2 million, respectively, under programs authorized by the Board of Directors
to purchase up to 3.0 million shares of the Company's common stock.
Other
The other component of stockholders' equity (deficit) consists of the
following:
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment $ 3,494 $ 3,448 $ 3,929
Additional pension liability, net of income taxes 1,445 2,872 898
Note receivable from Trace Holdings 4,373 4,373 3,000
------- ------- -------
$ 9,312 $10,693 $ 7,827
======= ======= =======
</TABLE>
16. ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing federal, state, local
and foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with the
Company's compliance with federal, state, local and foreign environmental laws
and regulations did not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position. As
of December 29, 1996, the Company has environmental accruals of approximately
$4.1 million for environmental matters. In addition, as of December 29, 1996,
the Company has net receivables of approximately $0.9 million relating to
indemnification for environmental liabilities, net of an allowance of
approximately $1.0 million relating to potential disagreements regarding the
scope of the indemnification. The Company believes that realization of the net
receivables established for indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")
provide for the establishment of federal emission standards for hazardous air
pollutants including methylene chloride and TDI, principal raw materials used in
the manufacturing of foam. The Company completely eliminated the use of
chlorofluorocarbons and methylchloroform by the end of 1995. The 1990 CAA
Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
F-77
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. ENVIRONMENTAL MATTERS (continued)
The Company has reported to appropriate state authorities that it has
found soil and groundwater contamination in excess of state standards at four
facilities and soil contamination in excess of state standards at three other
facilities. The Company has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 29, 1996, the Company has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. The Company has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. The
Company has accrued $0.4 million for the estimated removal and remediation, if
any, associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. The Company believes that its USTs do not pose
a significant risk of environmental liability because of the Company's
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
The Company has been designated as a Potentially Responsible Party
("PRP") by the United States Environmental Protection Agency (the "EPA") with
respect to thirteen sites with an estimated total liability to the Company for
the thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of the Company is considered to be immaterial.
Although it is possible that new information or future developments
could require the Company to reassess its potential exposure relating to all
pending environmental matters, including those described herein, management
believes that, based upon all currently available information, the resolution of
such environmental matters will not have a material adverse effect on the
Company's operations, financial position, capital expenditures or competitive
position. The possibility exists, however, that new environmental legislation
and/or environmental regulations may be adopted, or other environmental
conditions may be found to exist, that may require expenditures not currently
anticipated and that may be material.
17. LITIGATION
As of February 26, 1997, the Company and Trace Holdings were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, the Company and Trace Holdings were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of 903 foreign plaintiffs were dismissed on the grounds that the cases
F-78
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. LITIGATION (continued)
could not be brought in the United States courts. This decision is subject to
appeal. The Company believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from the
Company or Trace Holdings. Neither the Company nor Trace Holdings recommended,
authorized or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either the Company's or Trace Holdings' consolidated
financial position or results of operations. In addition, the Company is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990. Although Trace Holdings has paid the
Company's litigation expenses to date pursuant to such indemnification and
management believes Trace Holdings likely will be in a position to continue to
pay such expenses, there can be no absolute assurance that Trace Holdings will
be able to provide such indemnification. Based on information available at this
time with respect to the potential liability, and without taking into account
the indemnification provided by Trace Holdings and the coverage provided by
Trace Holdings' and the Company's liability insurance, the Company believes that
the proceedings should not ultimately result in any liability that would have a
material adverse effect on the financial position or results of operations of
the Company. If management's assessment of the Company's liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on the Company.
The Company is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of the Company. If management's assessment of the
Company's liability with respect to these actions is incorrect, such actions
could have a material adverse effect on the Company's consolidated financial
position.
18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Interest Rate Swap Agreements
The Company has two interest rate swap agreements involving the
exchange of fixed and floating interest payment obligations without the exchange
of the underlying principal amounts. At December 29, 1996, the total notional
principal amount of these interest rate swap agreements was $300.0 million. The
counterparty to these agreements is a large international financial institution.
The interest rate swap agreements subject the Company to financial risk that
will vary during the life of these agreements in relation to market interest
rates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company maintains cash and cash
equivalents and certain other financial instruments with various large financial
institutions. The Company's periodic evaluation of these financial institutions
are considered in the Company's investment strategy.
F-79
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)
The Company sells foam products to the automotive, carpet, cushioning
and other industries. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
allowance accounts for potential credit losses and such losses have been within
management's expectations.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on the Company's assessment of available market information and
appropriate valuation methodologies.
The estimated fair values of the Company's financial instruments as of
December 29, 1996 are as follows:
Carrying Amount Fair Value
(thousands)
Liabilities:
Long-term debt $ 497,849 $533,041
============ ========
Interest rate swaps $ -- $ 3,160
============ ========
Carrying amounts reported in the consolidated balance sheet for cash
and cash equivalents, accounts receivable, accounts payable, accrued liabilities
and short-term borrowings approximates fair value due to the short-term nature
of these instruments.
The fair value of long-term debt is estimated using quoted market
prices, where available, or discounted cash flows.
The fair value of interest rate swaps are based on the amount at which
the Company would pay if the swaps were settled, as determined by estimates
obtained from dealers.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
F-80
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Cash paid for interest $ 44,472 $ 47,333 $ 42,734
======== ======== ========
Cash paid (received) for income taxes, net $ (2,855) $ 3,024 $ 6,711
======== ======== ========
Noncash capital expenditures $ 165 $ 378 $ --
======== ======== ========
</TABLE>
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(thousands except per share amounts)
1996
<S> <C> <C> <C> <C>
Net sales $ 219,131 $ 240,447 $ 236,766 $ 230,007
Gross profit 36,031 38,167 39,960 39,074
Net income (loss) 6,137 (31,707) (66,623) 9,058
Earning (loss) per share 0.24 (1.24) (2.61) 0.36
1995
Net sales $ 219,542 $ 215,350 $ 217,036 $ 210,906
Gross profit 32,664 33,198 30,809 4,078
Net income (loss) 5,061 3,923 425 (62,529)
Earnings (loss) per share 0.19 0.15 0.02 (2.40)
</TABLE>
During 1996, the Company recorded a net loss on the disposal of Perfect
Fit including operating losses during the phase-out period of approximately
$43.0 million of which $39.3 million is reflected in the second quarter of 1996
(see Note 3). Also, during 1996 the Company recorded an estimated net loss on
the disposal of JPS Automotive including operating losses during the phase-out
period of approximately $70.9 million of which $69.7 million is reflected in the
third quarter of 1996 (see Note 3). During the fourth quarter of 1996, the
Company recorded a $6.5 million net restructuring credit, which is described in
Note 4.
During 1995, depressed industry conditions necessitated the closing of
certain facilities, as more fully described in Note 4, which resulted in a
pre-tax restructuring charge of $41.4 million in December 1995 and resulted in
certain unusual charges, consisting of inventory write-downs, customer credits
and rollbacks. Furthermore, the fourth quarter of 1995 included certain changes
in estimates related to recovery of environmental receivables and employee
benefit accruals. The unusual charges and change in estimates decreased gross
profit by $13.4 million and increased selling, general and administrative
expenses by $4.9 million.
F-81
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULE
Index to Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
S-1
<PAGE>
Schedule II
FOAMEX L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning of Costs and other End of
Period Expenses Accounts(1) Deductions Period
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 29, 1996
Allowance for Uncollectible Accounts $ 4,839 $ 704 $ 292 $ 1,911 $ 3,060
=========== ========= =========== =========== =======
Reserve for Discounts $ 4,299 $ -- $ 12,190 $ 13,221 $ 3,268
=========== ========= =========== =========== =======
Valuation Allowance $ 13,473 $ 9,370 $ (6,855)(3) $ -- $15,988
=========== ========= =========== =========== =======
YEAR ENDED DECEMBER 31, 1995(2)
Allowance for Uncollectible Accounts $ 2,324 $ 4,627 $ 324 $ 2,436 $ 4,839
=========== ========= =========== =========== =======
Reserve for Discounts $ 1,382 $ -- $ 15,056 $ 12,139 $ 4,299
=========== ========= =========== =========== =======
Valuation Allowance $ 12,432 $ 4,929 $ (3,888)(3) $ -- $13,473
=========== ========= =========== =========== =======
YEAR ENDED JANUARY 1, 1995(2)
Allowance for Uncollectible Accounts $ 2,898 $ 878 $ 146 $ 1,598 $ 2,324
=========== ========= =========== =========== =======
Reserve for Discounts $ 1,326 $ -- $ 12,582 $ 12,526 $ 1,382
=========== ========= =========== =========== =======
Reserve for Billing Adjustments $ 140 $ -- $ (140) $ -- $ --
=========== ========= =========== =========== =======
Valuation Allowance $ 12,884 $ (452) $ -- $ -- $12,432
=========== ========= =========== =========== =======
<FN>
-------------------------------------
(1) Discounts and billing adjustments reflect a reduction in net sales.
(2) Fiscal years 1995 and 1994 were restated for discontinued operations.
(3) Represents an adjustment to cost in excess of net assets relating to the
utilization of preacquisition deferred tax assets of General Felt.
</FN>
</TABLE>
S-2
===============================================================================
CONSENT, WAIVER AND AMENDMENT
AGREEMENT
BETWEEN
FOAMEX-JPS AUTOMOTIVE L.P.
AND
FOAMEX L.P.
Dated as of December 11, 1996
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. WAIVERS; AMENDMENTS; AND RELEASE OF COLLATERAL..................2
Section 1.1. Waiver Payment; Reduction
of Accreted Value.................................2
Section 1.2. Waiver...............................................2
Section 1.3. Effect of Amendment..................................3
Section 1.4. Release of Company Pledged Interests;
Termination of Company Pledge
Agreement.........................................3
Section 1.5. Release of JPS Partners Pledged Interests;
Termination of JPS Partners
Pledge Agreement..................................3
Section 1.6. Further Assurances...................................3
ARTICLE II. REBORROWING OF WAIVER PAYMENT; REINSTATEMENT OF NOTE...........4
Section 2.1. Reborrowing of Waiver Payment........................4
Section 2.2. Reborrowing of Waiver Payment........................4
Section 2.3. Subrogation to Company Rights;
Mandatory Prepayment Obligation......................4
ARTICLE III. REPRESENTATIONS AND WARRANTIES................................5
Section 3.1. Mutual Representations and Warranties................5
Section 3.2. Additional Company Representations
and Warranties.....................................6
ARTICLE IV. MISCELLANEOUS PROVISIONS.......................................6
Section 4.1. Expenses.............................................6
Section 4.2. Effectiveness........................................6
Section 4.3. Counterparts.........................................7
Section 4.4. Governing Law........................................7
Section 4.5. Headings.............................................7
Section 4.6. No Other Changes.....................................7
Section 4.7. Conflict of Terms....................................7
-i-
<PAGE>
CONSENT, WAIVER AND AMENDMENT AGREEMENT
Consent, Waiver and Amendment Agreement (this "Agreement"),
dated as of December 11, 1996, by and between Foamex-JPS Automotive L.P., a
Delaware limited partnership (the "Company"), and Foamex L.P., a Delaware
limited partnership, the "Holder").
R E C I T A L S:
WHEREAS, on June 28, 1994 the Company issued to Holder its
Senior Note due 2006 in the principal amount of $87,943,103.14 (as amended,
supplemented or otherwise modified from time to time, the "Note"); and
WHEREAS, in consideration of Holder's purchase of the Note,
the Company, pursuant to the Pledge Agreement, dated as of June 28, 1994,
between the Company and Holder (the "Company Pledge Agreement") pledged to
Holder certain of its assets, including without limitation all of the Company's
right, title and interests in 99% of the issued and outstanding limited
partnership interests of JPS Automotive L.P. ("JPS Partners"), a Delaware
limited partnership (the "Company Pledged Interests"); and
WHEREAS, in consideration of Holder's purchase of the Note,
the Company caused JPS Partners, pursuant to the Pledge Agreement, dated as of
June 28, 1994, between JPS Partners and Holder (the "JPS Partners Pledge
Agreement" and, together with the Company Pledge Agreement, the "Pledge
Agreements") to pledge to Holder certain of its assets, including without
limitation all of the Company's right, title and interests in all of the issued
and outstanding common stock of JPS Automotive Products Corp. ("JAPC"), a
Delaware corporation (the "JPS Partners Pledged Interests" and together with the
Company Pledged Interests, the "Collateral"); and
WHEREAS, the Company has entered into an Equity Purchase
Agreement by and among JPSGP Inc., a Delaware corporation ("JPSGP"), the
Company, and Collins & Aikman Products Co., a Delaware corporation ("C&A"),
dated August 28, 1996 (as amended, supplemented or otherwise modified from time
to time, the "Equity Purchase Agreement"), pursuant to which the Company has
agreed to sell the Company Pledged Interests to C&A (the "Sale"); and
WHEREAS, the Company has requested that Holder waive certain
provisions of the Note and release the Collateral in consideration for the
Waiver Payment upon the terms and subject to the conditions set forth in this
Agreement; and
<PAGE>
WHEREAS, capitalized terms used herein, and not otherwise
defined, shall have the respective meanings ascribed to them in the Note.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I.
ARTICLE II. WAIVERS; AMENDMENTS; AND RELEASE OF COLLATERAL
Section 1.1. Waiver Payment; Reduction of Accreted Value .
(a) Upon the effectiveness of this Agreement pursuant to
Section 4.2 hereof, in consideration of the waivers and other
agreements of Holder set forth in this Agreement, the Company shall pay
to Holder $18,623,788.16 (the "Waiver Payment") in immediately
available funds.
(b) Upon receipt by Holder of the Waiver Payment, the Accreted
Value of the Note shall be reduced by an amount equal to the Waiver
Payment divided by 1.01. Holder and the Company shall execute an
allonge, substantially in the form of Exhibit A, evidencing the
reduction in the Accreted Value and the maximum principal amount of the
Note resulting from such reduction.
Section 1.2. Waiver. In consideration of the Waiver Payment,
Holder hereby:
(a) consents to the Company entering into the Equity Purchase
Agreement and to the consummation of the transactions contemplated
thereby and the performance by the Company of its obligations
thereunder, and waives any Default or Event of Default under the Note
arising solely out of the sale of the Company Pledged Interests by the
Company pursuant to the Equity Purchase Agreement;
(b) waives the occurrence of a "Change of Control" arising out
of the Sale, any requirement that the Company repurchase or offer to
repurchase the Note upon the occurrence of such a Change of Control,
and any notice of such Change of Control;
(c) waives the occurrence of an "Asset Sale" arising out of
the Sale, any requirement that the Company apply the proceeds of the
Asset Sale in any manner, or redeem or offer to redeem the Note, or a
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portion thereof, upon the occurrence of such an Asset Sale, and any
notice of such Asset Sale; and
(d) waives the requirement that the Company apply any "Excess
Cash Payments" arising out of the Sale to an offer to redeem the Note.
Section 1.3. Effect of Waivers. On and after the date
hereof, each reference in the Note to "this Note", "hereof", "hereunder" or
words of like import referring to the Note, shall mean and be a reference to the
Note, subject to the terms of this Agreement. The Note, as amended and waived by
this Agreement, shall continue to be in full force and effect and is hereby in
all respects ratified and confirmed.
Section 1.4 Release of Company Pledged Interests; Termination
of Company Pledge Agreement.
(a) Holder hereby releases all of its liens, claims, right,
title and interest in and to the Company Pledged Interests, including
the 99% limited partnership interest in JPS Partners evidenced by
partnership certificate number 102 held by Holder pursuant to the
Company Pledge Agreement.
(b) The Company Pledge Agreement is hereby terminated and
shall be of no further force and effect.
Section 1.5. Release of JPS Partners Pledged Interests;
Termination of JPS Partners Pledge Agreement
(a) Holder hereby releases all of its liens, claims, right,
title and interest in and to the JPS Partners Pledged Interests,
including the 100 shares of JAPC common stock evidenced by stock
certificate number 2 held by Holder pursuant to the JPS Partners Pledge
Agreement.
(b) The JPS Partners Pledge Agreement is hereby terminated and
shall be of no further force and effect.
Section 1.6. Further Assurances . Upon the request of the
Company at any time after the date hereof, Holder shall forthwith execute and
deliver such further instruments of release, direction or authorization and
other documents as may be reasonably requested in order to effectuate the
purposes of this Agreement. Upon its receipt of written evidence of the closing
of the transactions contemplated by the Equity Purchase Agreement, Holder will
deliver to the Company executed UCC-3 termination statements, in form and
substance reasonably satisfactory to the Company.
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ARTICLE III.
REBORROWING OF WAIVER PAYMENT; REINSTATEMENT OF NOTE
Section 2.1. Reborrowing of Waiver Payment . If at any time
subsequent to the date of this Agreement and prior to July 1, 2006, the Company
is obligated to make any payment to C&A or any Affiliates of C&A in connection
with an adjustment of the purchase price or indemnification obligation under the
Equity Purchase Agreement, then the Company shall have the right to require
Holder to lend an amount equal to such payment obligation (but in no event
greater than the Waiver Payment) to the Company upon ten (10) Business Days'
notice (a "Reborrowing Notice"). Notwithstanding the anything to the contrary
contained in this Agreement, Holder shall not be required to extend such loan if
the loan would constitute a Default or Event of Default under the terms of the
Third Amended and Restated Credit Agreement, dated as of July 30, 1996, among
Foamex L.P., General Felt Industries, Inc., Trace Foam Company, Inc., FMXI Inc.,
the Institutions from time to time party thereto as Lenders, the Institutions
from time to time party thereto as Issuing Banks, and Citibank N.A. and The Bank
of Nova Scotia, as Administrative Agents, as such agreement may be amended.
Section 2.2. Reborrowing of Waiver Payment. Upon receipt of a
Reborrowing Notice, Holder shall promptly lend the amount set forth in the
Reborrowing Notice (the "Reborrowed Amount") to the Company, which shall apply
such amounts to its payment obligations under the Equity Purchase Agreement. If
such reborrowing occurs on or prior to July 1, 2000, the Reborrowed Amount shall
be added to the Accreted Value of the Note, and if such reborrowing occurs
subsequent to July 1, 2000, the Reborrowed Amount shall be added to the
Principal Amount of the Note. The parties shall execute an allonge, or other
appropriate documentation, to evidence the increase in the Accreted Value and/or
Principal Amount of the Note.
Section 2.3. Subrogation to Company Rights; Mandatory
Prepayment Obligation.
(a) The Company hereby assigns to Holder any right the Company
may have against C&A and its Affiliates to recover any Reborrowed
Amount that Holder has lent to the Company pursuant to this Article.
The Company agrees to cooperate reasonably with Holder, at Holder's
sole cost and expense, in connection with Holder's efforts to pursue
such rights, including, without limitation, providing reasonable access
to the Company's personnel, books and records, making its personnel and
those of its Affiliates reasonably available for deposition and
testimony and executing such additional instruments of assignment to
evidence the assignment of such rights. In the event such rights by
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<PAGE>
their terms may not be assigned, the Company agrees to pursue its
rights against such other Person, at the sole cost and expense and
direction of Holder, and to remit to Holder any recovery. The amount of
any such recovery by Holder, net of all costs of recovery, shall be
deemed to be a prepayment of the amounts outstanding under the Note.
(b) To the extent the Company recovers from any person an
amount with respect to any Reborrowed Amount that Holder has lent to
the Company pursuant to this Article, the Company shall apply such
amount to a prepayment of the amounts outstanding under the Note.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Section 3.1. Mutual Representations and Warranties. Each
party hereto represents and warrants to the other as follows:
(a) It has all requisite partnership power and authority to
enter into and perform its obligations under this Agreement. The
execution, delivery and performance of this Agreement have been duly
authorized by all necessary partnership action on the part of it, and
this Agreement constitutes the legal, valid and binding obligation of
it enforceable against it in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting rights of
creditors generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity).
(b) The execution, delivery and performance by it of this
Agreement and the consummation of the transactions contemplated hereby,
do not and will not conflict with, result in a violation or breach of,
constitute a default (or an event which with the giving of notice or
the lapse of time or both would constitute a default) or give rise to
any right of termination or acceleration of any right or obligation of
it under, or result in the creation or imposition of any lien,
mortgage, pledge, security interest, claim, right of first refusal or
other limitation on transfer or other encumbrance (any of the
foregoing, a "Lien") upon any of its assets or properties by reason of
the terms of, (i) its partnership agreement or other charter or
organizational document, (ii) any contract, agreement, lease, license,
mortgage, note, bond, debenture, indenture or other instrument or
obligation to which it is a party or by or to which it or its assets or
properties may be bound or subject, (iii) any order, writ, judgment,
injunction, award, decree, law, statute, rule or regulation applicable
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<PAGE>
to it or (iv) any license, permit, order, consent, approval,
registration, authorization or qualification with or under any
governmental agency, other than (x) in the case of the Holder (I) a
fairness opinion from a nationally recognized investment bank as to the
fairness of the Agreement from a financial point of view is required to
avoid a conflict with the Foamex Senior Note Indenture, the Foamex
Senior Secured Note Indenture, the Foamex Senior Subordinated Debenture
Indenture, the Foamex Series B Debenture Indenture, and the Foamex
Credit Facility, and (II) loans of the Reborrowed Amounts will require
the consent of the requisite lenders under the Foamex Credit Facility
and (y) in the case of clauses (ii), (iii) or (iv) above any conflict,
violation, breach or default which would not, individually or in the
aggregate together with all other such conflicts, violations, breaches
or defaults, have a material adverse effect on it or have a material
adverse effect on its ability to perform its obligations, or consummate
the transactions contemplated, hereunder.
(c) No consent, approval or authorization of, or registration,
filing or declaration with, any governmental authority by it is
required for the validity of the execution and delivery by it of this
Agreement or the consummation of the transactions contemplated hereby.
Section 6.4. Additional Company Representations and Warranties
. The Company represents and warrants to Holder that the Waiver Payment is equal
to the Net Proceeds from the Sale, without giving effect to clause (iv) of the
definition of such term.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
Section 4.1. Expenses. Except as expressly set forth herein,
each party to this Agreement shall bear all of its legal, accounting, and other
expenses incurred by it or on its behalf in connection with the transactions
contemplated by this Agreement.
Section 4.2. Effectiveness. This Agreement shall become
effective upon receipt by Holder of (a) a copy of this Agreement executed by the
Company, (b) the Waiver Payment, and (c) the opinion set forth in Section
3.1(b)(x)(I).
Section 4.3. Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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<PAGE>
Section 4.4. Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York,
without giving effect to conflicts of law principles.
Section 4.5. Headings. The headings of the several sections
of this Agreement are inserted for convenience only and shall not in any way
affect the meaning or construction of this Agreement.
Section 4.6. No Other Changes.
(a) Except as expressly stated herein, the Note is unaffected
hereby and shall remain in full force and effect in accordance with the
terms thereof.
(b) Except as expressly set forth herein, Holder does not
waive (i) any breaches or defaults under the Note or any other
agreements executed concurrently therewith or pursuant thereto, whether
known or unknown, previously or hereafter arising, or of any nature or
character whatsoever, or (ii) any of its respective rights or remedies
thereunder or under applicable law to which Holder may be entitled.
Section 4.7. Conflict of Terms. In the event of any
inconsistency between the provisions of this Agreement and any provision of the
Note, or the Pledge Agreements, as the case may be, the terms and provisions of
this Agreement shall govern and control.
[The rest of this page is intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this
Agreement to be duly executed and delivered as of the date first written above.
FOAMEX-JPS AUTOMOTIVE L.P.,
a Delaware limited partnership
By FJGP Inc., a Delaware
corporation and its
general partner
By:
Name: Philip N. Smith, Jr.
Title: Vice President and
Secretary
FOAMEX L.P.,
a Delaware limited partnership
By FMXI Inc., a Delaware corporation
and its general partner
By:
Name: Philip N. Smith, Jr.
Title: Vice President and
Secretary
Solely for purposes of
Section 1.5,
JPS AUTOMOTIVE L.P.,
a Delaware limited partnership
By JPSGP Inc., a Delaware
corporation and its general
partner
By:
Name: Philip N. Smith, Jr.
Title: Vice President and
Secretary
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<PAGE>
EXHIBIT A
ALLONGE
FOAMEX-JPS AUTOMOTIVE L.P.
SENIOR NOTE DUE 2006
Number R-1
Original Principal Amount: $87,943,103.14
Principal Amount: $[__________]
Original Accreted Value: $[35,300,000]
Accreted Value: $[____________]
Original Date: June 28, 1994
1. Foamex-JPS Automotive L.P., a Delaware limited partnership
(the "Company"), the issuer of the above-described Senior Note (as amended,
supplemented or otherwise modified from time to time, the "Note"), and Foamex
L.P., a Delaware limited partnership ("Holder"), hereby acknowledge that they
have entered into that certain Consent, Waiver and Amendment Agreement, dated
____________, 1996 (the "Agreement"), pursuant to which the Company and Holder
have agreed, among other things, to amend certain terms of the Note.
2. The terms of the Note are hereby modified as provided in
the Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this
Allonge to be duly executed and delivered as of the date first written above.
FOAMEX-JPS AUTOMOTIVE L.P.,
a Delaware limited partnership
By FJGP Inc., a Delaware
Signed, sealed and delivered corporation and its general
in the presence of: partner
____________________________ By: ______________________________
Name:
Title:
FOAMEX L.P.,
a Delaware limited partnership
By FMXI Inc., a Delaware
Signed, sealed and delivered corporation and its general
in the presence of: partner
____________________________ By: ______________________________
Name:
Title:
A-2
EXECUTION COPY
SECOND AMENDMENT TO
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of November 27, 1996 (the "Second Amendment"), amends in certain
respects the Third Amended and Restated Credit Agreement dated as of July 30,
1996, as amended by the First Amendment to Third Amended and Restated Credit
Agreement dated as of September 30, 1996 (as so amended, the "Credit
Agreement"), among Foamex L.P. ("Foamex"), General Felt Industries, Inc. ("GFI";
and together with Foamex, the "Borrowers"), Trace Foam Company, Inc. ("Trace
Foam"), FMXI, Inc. ("FMXI"), the institutions from time to time party thereto as
Lenders, the institutions from time to time party thereto as Issuing Banks and
Citibank, N.A., as collateral and documentation agent for the Lenders and the
Issuing Banks (the "Collateral Agent") and The Bank of Nova Scotia, as funding
agent for the Lenders and the Issuing Banks (the "Funding Agent"; together with
the Collateral Agent, the "Administrative Agents").
R E C I T A L S:
In connection with the sale by New Partners of its limited partnership
interests in JPS Partners and the sale by JPSGP Inc. ("JPSGP") of its general
partnership interest in JPS Partners (each such sale being referred to
collectively as the "JPS Partners Sale"), and pursuant to a letter dated
September 19, 1996, a copy of which is attached as Exhibit A hereto (the
"Letter"), the Borrowers have requested the undersigned, which constitute the
Requisite Lenders, to amend the Credit Agreement along the lines set forth in
the Letter. The Lenders party hereto have agreed to amend the Credit Agreement
to accommodate the request of the Borrowers contained in the Letter, subject to
the terms set forth in this Second Amendment.
NOW, THEREFORE, in consideration of the above recitals each of the
Borrowers, Trace Foam, FMXI, the Lenders party hereto and the Administrative
Agents agree as follows:
SECTION 1. Defined Terms. Terms defined in the Credit Agreement not
otherwise defined herein have the meanings given such terms in the Credit
Agreement.
SECTION 2. Amendments to the Credit Agreement. The Credit Agreement is
hereby amended as follows:
2.1 The definition of "Acquisition Transaction Documents" contained in
Section 1.01 of the Credit Agreement is amended in its entirety to read as
follows:
<PAGE>
"Acquisition Transaction Documents" means (i) solely for purposes of
Sections 13.02 and 13.03, the JPS Automotive Acquisition Agreement, the JPS
Automotive Senior Note Indenture, the JPS Automotive Senior Notes and all
other documents evidencing the JPS Automotive Acquisition, the issuance of
the JPS Automotive Senior Notes and the transactions contemplated by each
of the foregoing, and (ii) for all purposes under this Agreement (including
Sections 13.02 and 13.03), the Discount Debenture Indenture, the Discount
Debentures, the Foamex International Warrants, the New Partners Note
Purchase Agreement, the New Partners Note, the New Partners Note Collateral
Documents, the Foamex International Supply Agreement and all other
documents evidencing the issuance of the Discount Debentures and the Foamex
International Warrants, the New Partners Loan, the New Partners Investment
and the transactions contemplated by each of the foregoing.
2.2 The definition of "Fixed Charge Coverage Ratio" shall be amended
in its entirety to read as follows:
"Fixed Charge Coverage Ratio" means, with respect to any period, the
ratio of (i) EBITDA for such period, minus Capital Expenditures paid during
such period, minus charges for federal, state, local and foreign income
taxes actually paid during such period, minus payments made to the partners
of Foamex during such period pursuant to the Tax Sharing Agreement (other
than such payments made pursuant to clauses (2) and (3) of the second
proviso of Section 9.06(iii)) and payments made to any Affiliate of Foamex
to the extent permitted to be made under Section 9.04 or 9.06 (other than
such payments made pursuant to Section 9.04(xix), but only to the extent
such payments are made from cash received by Foamex as a partial repayment
of the New Partners Note) to (ii) Consolidated Fixed Charges for such
period.
2.3 The definition of "JPS Automotive Credit Agreement" contained in
Section 1.01 of the Credit Agreement shall be deleted in its entirety.
2.4 The definitions of "New Partners Loan" and "New Partners Note"
contained in Section 1.01 of the Credit Agreement shall be amended in their
entirety to read as follows:
"New Partners Loan" means the loan, the gross proceeds of which did
not exceed $40,000,000, made by Foamex to New Partners pursuant to the New
Partners Note Purchase Agreement and evidenced by the New Partners Note.
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"New Partners Note" means that certain Senior Note due 2006 dated June
28, 1994 in the original principal amount of $87,943,103.14 issued by New
Partners in favor of Foamex, as the same may be amended, supplemented or
otherwise modified from time to time.
2.5 Section 1.01 of the Credit Agreement is amended by adding the
following definitions to such section in alphabetical order:
"Consent Solicitation" means the solicitation for consents made to the
holders of the Discount Debentures in connection with the JPS Partners
Sale, pursuant to which such holders would consent to waive certain rights
upon the occurrence of a Change of Control (as defined in the Discount
Debenture Indenture) resulting from the JPS Partners Sale.
"JPS Partners Sale" means the sale by New Partners of its
limited partnership interests in JPS Partners and the sale by JPSGP,
Inc. of its general partnership interest in JPS Partners.
2.6 Section 7.02 of the Credit Agreement is amended in its entirety to
read as follows:
7.02. Borrowing Base Certificate. At least semi-monthly (and more
often if requested by either Administrative Agent or by the Requisite
Lenders), each Borrower shall provide the Administrative Agents and the
Lenders with a Borrowing Base Certificate, together with such supporting
documents as either Administrative Agent may reasonably request (including
updated information concerning Receivables of such Borrower), all certified
as being true and correct by such Borrower.
2.7 Section 9.04(ix) of the Credit Agreement is amended in its
entirety to read as follows:
(ix) so long as no Event of Default or Potential Event of Default has
occurred and is continuing (or would result therefrom), Investments by
Foamex in Foamex International and the Managing General Partner in an
aggregate amount not to exceed (together with any distributions to the
General Partners pursuant to the Management Agreement permitted under
Section 9.06(iv)) $4,000,000 in any Fiscal Year; provided that the amount
of the Investment in Foamex International and the Managing General Partner
permitted under this clause (ix) shall be reduced by any amounts
distributed to the Managing General Partner and New Partners by Foamex
pursuant to Section 9.06(vi); provided further that any Investment
permitted pursuant to this clause (ix) may be recharacterized by the
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<PAGE>
Borrowers at any time as a Restricted Junior Payment made pursuant to
Section 9.06(vi);
2.8 Section 9.04(xi) of the Credit Agreement is amended in its
entirety to read as follows:
(xi) Investments by Foamex in the New Partners Loan;
2.9 Section 9.04 of the Credit Agreement is further amended by
deleting the word "and" at the end of clause (xvii) thereof, by replacing the
period at the end of clause (xviii) thereof with a semicolon followed by the
word "and" and by adding the following new clause (xix) at the end of such
section:
(xix) one or more loans by Foamex to New Partners up to an aggregate
amount not to exceed the sum of (A) the amount of cash received by Foamex
as a partial repayment of the New Partners Note from the net cash proceeds
received by New Partners upon the consummation of the JPS Partners Sale and
(B) $7,000,000, for the purpose of providing funds to New Partners (v) to
make payments to the holders of the Discount Debentures in connection with
the Consent Solicitation, (w) to redeem any Discount Debentures that may be
required by the holders of such Discount Debentures that did not vote in
favor of the Consent Solicitation, (x) to make open-market purchases of
Discount Debentures, (y) to pay fees, expenses and other costs associated
with the Consent Solicitation and the JPS Partners Sale and (z) to make
payments in satisfaction of any outstanding obligation it may have as a
prior owner of JPS Partners.
2.10 Section 9.05(vi) of the Credit Agreement is amended in its
entirety to read as follows:
(vi) Accommodation Obligations of Foamex in an aggregate amount not to
exceed $5,000,000 at any time outstanding in respect of Indebtedness
incurred by the Foamex Mexico Group;
2.11 The second proviso of Section 9.06(iii) of the Credit Agreement
is amended in its entirety to read as follows:
provided further, however, notwithstanding the restrictions set forth in
this clause (iii), the Borrowers shall be permitted to make distributions
in respect of Foamex's obligations under the Tax Sharing Agreement (1) to
the General Partners and the Limited Partner in an aggregate amount not to
exceed $5,000,000; (2) to New Partners in an aggregate amount not to exceed
the outstanding principal amount of the loan made by Foamex to New Partners
pursuant to Section 9.04(xix), including interest accrued thereon, but only
to the extent the proceeds of such distributions are immediately paid by
New Partners to Foamex in repayment of such loan; and (3) to its partners
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<PAGE>
for the benefit of Foamex International in an aggregate amount not to
exceed the outstanding balance (including interest accrued thereon) of that
certain promissory note dated December 8, 1995 made by Foamex International
in favor of Foamex in the original principal amount of $2,000,000, but only
to the extent the proceeds of such distributions are immediately paid by
Foamex International to Foamex in repayment of such promissory note;
2.12 Section 9.06(vi) of the Credit Agreement is amended in its
entirety to read as follows:
(vi) so long as no Event of Default or Potential Event of Default has
occurred and is continuing (or would result therefrom), distributions by
the Borrowers to New Partners and the Managing General Partner in an
aggregate amount not to exceed (together with any distributions to the
General Partners pursuant to the Management Agreement permitted under
clause (iv) above) $4,000,000 in any Fiscal Year; provided that the amount
of the Restricted Junior Payments permitted under this clause (vi) shall be
reduced by any Investment in Foamex International or the Managing General
Partner permitted solely pursuant to Section 9.04(ix);
2.13 Section 9.08 of the Credit Agreement is amended by adding the
phrase "9.04(xix)," immediately following the phrase "Section 9.04(ix)," in
clause (i) thereof.
2.14 Clauses (vi) and (ix) of Section 9.08 of the Credit Agreement
shall be deleted in their entirety and clauses (vii), (viii), (x), (xi), (xii)
and (xiii) of such section shall be renamed clauses "(vi)", "(vii)", "(viii)",
"(ix)", "(x)" and "(xi)", respectively.
2.15 Section 10.05 of the Credit Agreement is amended (i) by replacing
the amount "$15,000,000" under the heading "Maximum Amount" opposite "Fiscal
Year 1996" with the amount "$18,500,000" and (ii) by replacing the amount
"$21,000,000" under the heading "Maximum Amount" opposite "Fiscal Year 1997"
with the amount "$24,000,000".
2.16 Section 11.01(s) of the Credit Agreement is deleted in its
entirety.
2.17 Section 13.01(b) of the Credit Agreement is amended by deleting
the proviso at the end of clause (iii) of the first sentence thereof and
replacing the semicolon at the end of such clause with a period.
2.18 Section 13.03 of the Credit Agreement is amended by inserting the
number "(i)" after the phrase "with respect to Indemnified Matters" in the
proviso at the end of the first sentence of such section and adding the
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following phrase immediately preceding the period at the end of such first
sentence:
or (ii) arising in connection with events or conditions occurring after the
Effective Date (as defined in the Second Amendment to Third Amended and
Restated Credit Agreement dated as of November 27, 1996) that relate solely
to JPS Automotive or JPS Partners or any of the JPS Automotive Acquisition
Agreement, the JPS Automotive Senior Note Indenture, the JPS Automotive
Senior Notes or any other document evidencing the JPS Automotive
Acquisition, the issuance of the JPS Automotive Senior Notes or the
transactions contemplated by any of the foregoing
SECTION 3. Consent of the Requisite Lenders. (a) The Requisite Lenders
hereby waive the provisions of Section 3.01(b)(v) of the Credit Agreement that
would require Foamex to prepay the Term Loan with proceeds received by it from
the prepayment or repayment of the principal amount outstanding of the New
Partners Loan but only to the extent such prepayment or repayment is made with
net cash proceeds received by New Partners arising from the consummation of the
JPS Partners Sale.
(b) The Requisite Lenders hereby consent, pursuant to Sections 9.02,
9.08, 9.16 and 9.19 of the Credit Agreement, (i) to the release by Foamex of its
Lien on the Equity Interests in JPS Partners and JPS Automotive as security for
the New Partners Loan, (ii) to the waiver by Foamex of its rights under Section
4.15 of the New Partners Note arising from the occurrence of a Change of Control
under and as defined in the New Partners Note as a result of the JPS Partners
Sale, (iii) to any amendment to the Discount Debentures resulting from the
Consent Solicitation (and no Event of Default shall occur as a result of any
such amendment) and (iv) to the amendments to the New Partners Note and the
limited partnership agreement of JPS Partners made in connection with the JPS
Partners Sale.
(c) The Requisite Lenders hereby authorize the Collateral Agent to
enter into the Third Amendment to Amended and Restated Guaranty, dated as of the
date hereof, between Foamex International and the Collateral Agent, a copy of
which is attached hereto as Exhibit B.
SECTION 4. Conditions to Effectiveness. This Second Amendment shall be
effective as of the date hereof (the "Effective Date"), provided that the
following conditions precedent shall have been satisfied:
4.1 Execution by Requisite Lenders. The Collateral Agent shall have
received all of the following, each fully executed and in form and substance
satisfactory to the Collateral Agent and the Requisite Lenders, in sufficient
copies for each Lender:
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<PAGE>
(a) this Second Amendment duly executed by the Borrowers, the General
Partners, the Senior Lenders, the Funding Agent and the Collateral Agent;
(b) all loan documentation evidencing the loan to be made by Foamex to
New Partners pursuant to Section 9.04(xix) of the Credit Agreement;
(c) a copy of the fairness opinion to be issued in respect of the loan
to be made by Foamex to New Partners pursuant to Section 9.04(xix) of the
Credit Agreement;
(d) all notices and other documentation distributed to the holders of
the Discount Debentures and/or filed with the Securities and Exchange
Commission in connection with the Consent Solicitation;
(e) the amendment to or amendment and restatement of the New Partners
Note made in connection with the JPS Partners Sale; and
(f) the amendment to the limited partnership agreement of JPS Partners
made in connection with the JPS Partners Sale.
4.2 JPS Partners Sale. The JPS Partners Sale shall have been
consummated and New Partners and JPSGP shall have received on the Effective Date
gross proceeds arising from such sale of at least $17,000,000.
4.3 Discount Debentures. New Partners shall have received consents
from at least 87% of the holders of the Discount Debentures in connection with
the Consent Solicitation.
4.4 JPS Automotive Credit Agreement. The JPS Automotive Credit
Agreement (as defined immediately prior to the effectiveness of this Second
Amendment) shall have been terminated in accordance with the terms thereof and
the Obligations (as defined in such agreement) of the borrower thereunder then
due and payable shall have been paid in full in cash.
4.5 No Default. After giving effect to this Second Amendment, no Event
of Default or Potential Event of Default shall have occurred and be continuing
on the Effective Date or shall result from the transactions contemplated in this
Second Amendment.
4.6 Representations and Warranties. All of the representations and
warranties contained in Section 6.01 of the Credit Agreement and in any of the
other Loan Documents (in each case after giving effect to this Second Amendment)
shall be true and correct in all material respects on and as of the Effective
-7-
<PAGE>
Date (except for those representations and warranties which expressly speak as
of a different date).
SECTION 5. Representations and Warranties. The Borrowers and the
General Partners hereby represent and warrant to the Lenders party hereto that
(i) the execution, delivery and performance of this Second Amendment by each
Borrower and the General Partners are within their respective partnership and
corporate powers and have been duly authorized by all necessary partnership and
corporate action, and (ii) this Second Amendment constitutes the legal, valid
and binding obligation of each Borrower and each General Partner, enforceable
against each of them, respectively, in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or limiting creditors' rights generally or by
equitable principles generally.
SECTION 6. Reference to and Effect on the Loan Documents.
6.1 Upon the effectiveness of this Second Amendment, on and after the
date hereof each reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference
in the other Loan Documents to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended hereby.
6.2 Except as specifically amended above, all of the terms of the
Credit Agreement and all other Loan Documents shall remain unchanged and in
full force and effect.
6.3 The execution, delivery and effectiveness of this Second Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender or either Administrative Agent under
the Credit Agreement or any of the Loan Documents, nor constitute a waiver
of any provision of the Credit Agreement or any of the Loan Documents.
SECTION 7. Execution in Counterparts. This Second Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
SECTION 8. Governing Law. This Second Amendment shall be governed by,
and shall be construed and enforced in accordance with, the law of the State of
New York.
SECTION 9. Guarantor Consent. By its signature below, each of Foamex
and GFI consents to this Second Amendment in its separate capacity as a
-8-
<PAGE>
guarantor under the Foamex Guaranty and the GFI Guaranty, respectively, and each
hereby affirms its obligations under such guaranties.
SECTION 10. Headings. Section headings in this Second Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Second Amendment or be given any substantive effect.
IN WITNESS WHEREOF, this Second Amendment has been duly executed as of
the date first above written.
FOAMEX L.P.
By: FMXI, Inc.
Its Managing General Partner
By:________________________
Title:
GENERAL FELT INDUSTRIES, INC.
By:________________________
Title:
TRACE FOAM COMPANY, INC.
By:________________________
Title:
FMXI, INC.
By:________________________
Title:
-9-
<PAGE>
CITIBANK, N.A., as Collateral
Agent and individually as a Lender
By:___________________________
Title: Attorney-in-fact
THE BANK OF NOVA SCOTIA, as Funding
Agent and individually as a Lender
By:________________________
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION, as a Lender
By:___________________________
Title: Vice President, being
duly authorized
HELLER FINANCIAL, INC.,
as a Lender
By:___________________________
Title:
CREDIT LYONNAIS, New York Branch,
as a Lender
By:___________________________
Title:
CREDIT LYONNAIS, Cayman Island
Branch, as a Lender
By:___________________________
Title:
FLEET NATIONAL BANK,
as a Lender
By:___________________________
Title:
NATIONSBANK N.A. (SOUTH), formerly
known as NationsBank of Georgia,
N.A., as a Lender
By:___________________________
Title:
-10-
<PAGE>
ACKNOWLEDGMENT
Reference is hereby made to that certain Guaranty dated as of November
18, 1993, as amended (the "Guaranty"), executed by the undersigned, FOAMEX
CAPITAL CORPORATION, a Delaware corporation ("FCC"), in favor of the
Administrative Agents, the Lenders and the Issuing Banks. FCC hereby consents to
the terms of the foregoing Second Amendment to Third Amended and Restated Credit
Agreement and agrees that, except as provided in such Second Amendment, the
terms thereof shall not affect in any way its obligations and liabilities under
the Guaranty or any other Loan Document to which it is a party, all of which
obligations and liabilities shall remain in full force and effect and each of
which is hereby reaffirmed.
FOAMEX CAPITAL CORPORATION
By:_______________________
Title:
Dated as of November 27, 1996
-11-
REVISED CONFIRMATION
Date: January 7, 1997
To: Foamex L.P. ("Foamex")
Attention: George Karpinski
Fax No.: 610-859-3032
From: Citibank, N.A., New York ("Citibank")
Fax No.: 416-941-7432
Transaction Reference Number: 96L206
The purpose of this letter agreement is to set forth the terms and conditions of
the Transaction entered into between us on the Trade Date referred to below.
This letter constitutes a "Confirmation" as referred to in the Master Agreement
specified below. The terms and conditions of this Confirmation will have the
effect of replacing those of the certain interest rate swap agreement dated as
of June 14, 1993 by and between Foamex and Salomon Brothers Holding Company Inc.
assigned to Citibank by Foamex with an Effective Date evenherewith. This
Confirmation amends, restates and supersedes any prior Confirmation for this
Transaction.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swap Dealers Association, Inc.) are incorporated
into this Confirmation. In the event of any inconsistency between those
definitions and provisions and this Confirmation, this Confirmation will govern.
1. This Confirmation supplements, forms a part of, and is subject to, the Master
Agreement dated as of March 31, 1994 (the "Agreement") between you and us. All
provisions contained in the Agreement shall govern this Confirmation except as
expressly modified below.
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:
Notional Amount: USD $150,000,000
Trade Date: December 4, 1996
Effective Date: December 16, 1996
Termination Date: December 14, 2001
<PAGE>
Foamex Fixed Amounts for the Calculation Periods from and including December 16,
1996 to but excluding December 14, 1997:
Foamex Fixed Rate Payer Payment
Dates: June 14, 1997 and
December 14, 1997, subject
to adjustment in accordance
with the Modified Following
Business Day Convention.
Fixed Rate: 5.30 percent
Fixed Rate Day Count Fraction: 30/360
Foamex Floating Amounts for all Calculation Periods from and including December
14, 1997 to but excluding December 14, 2001:
Floating Rate Payer: Foamex
Foamex Floating Rate Payer Payment Dates: Semiannually on each June
14 and December 14
commencing June 14, 1998 to
and including the
Termination Date, subject
to adjustments in
accordance with the
Modified Following Business
Day Convention; provided,
however, if for any
Calculation Period,
commencing on or after
December 14, 1997, the
Foamex Floating Rate is
equal to or less than 4.50
percent, no Foamex Floating
Amounts shall be due to
Citibank for said
Calculation Period or any
subsequent Calculation
Period.
Floating Rate: Either (1) the Floating
Rate determined pursuant to
the USD-LIBOR-BBA Floating
Rate Option with the Reset
Date on the first day of
the subject Calculation
Period or (2) the Floating
Rate determined pursuant to
the USD-LIBOR-BBA Floating
Rate Option with the Reset
Date on the last day of the
subject Calculation Period,
whichever is higher (the
"Foamex Floating Rate").
Designated Maturity: 6 Months
Compounding: Inapplicable
Floating Rate Payer Day Count Fraction: Actual/360
-2-
<PAGE>
Citibank Fixed Amounts for the Calculation Periods from and including December
16, 1996 to but excluding December 14, 2001:
Citibank Fixed Rate Payer Payment Dates: Semiannually on each June
14 and December 14
commencing June 14, 1997 to
and including the
Termination Date, subject
to adjustment in accordance
with the Modified Following
Business Day Convention;
provided, however, if for
any Calculation Period,
commencing on or after
December 14, 1997, the
Foamex Floating Rate is
equal to or less than 4.50
percent, no Citibank Fixed
Amounts shall be due to
Foamex for said Calculation
Period or any subsequent
Calculation Period.
Fixed Rate: 6.50 percent
Fixed Rate Day Count Fraction: 30/360
3. Other:
Business Days: New York and London
Calculation Agent: Citibank
4. Account Details:
Payments to Citibank: Account for payments:
Citibank, N.A., New York
ABA # 021000089
Account No.: 00167679
Financial Futures
Reference Swap 96L205
Payments to Foamex: Citibank, N.A., New York
ABA # 021000089
Account No.: 4058-7993
Account Name: Foamex L.P.
-3-
<PAGE>
Foamex hereby agrees (a) to check this Confirmation (Reference No.: 96L206)
carefully and immediately upon receipt so that errors or discrepancies can be
promptly identified and rectified and (b) to confirm that the foregoing
correctly sets forth the terms of the agreement between Citibank and Foamex with
respect to the particular Transaction to which this Confirmation relates, by
manually signing this Confirmation and providing the other information requested
herein and immediately returning an executed copy to facsimile No. 416-941-7432.
Very truly yours,
CITIBANK, N.A., NEW YORK
By: /s/ Adam J. Kulick
Name: Adam J. Kulick
Agreed and Accepted By:
FOAMEX L.P.
By: /s/ G. L. Karpinski
Name: G. L. Karpinski
Title: Vice President - Treasurer
<PAGE>
REVISED CONFIRMATION
Date: January 7, 1997
To: Foamex L.P. ("Foamex")
Attention: George Karpinski
Fax No.: 610-859-3032
From: Citibank, N.A., New York ("Citibank")
Fax No.: 416-941-7432
Transaction Reference Number: 96L205/96P047/94F98/94A93
The purpose of this letter agreement is to set forth the terms and conditions of
the Transaction entered into between us on the Trade Date referred to below.
This letter constitutes a "Confirmation" as referred to in the Master Agreement
specified below. This Confirmation amends, restates and supersedes any prior
Confirmation for this Transaction and Transaction 94A93/94F98/96P047.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swap Dealers Association, Inc.) are incorporated
into this Confirmation. In the event of any inconsistency between those
definitions and provisions and this Confirmation, this Confirmation will govern.
1. This Confirmation supplements, forms a part of, and is subject to, the Master
Agreement dated as of March 31, 1994 (the "Agreement") between you and us. All
provisions contained in the Agreement shall govern this Confirmation except as
expressly modified below.
2. The terms of the particular Transaction to which this Confirmation relates
are as follows:
Notional Amount: USD $150,000,000
Amendment Date: December 4, 1996
Effective Date: December 16, 1996
Termination Date: December 14, 2001
<PAGE>
Foamex Fixed Amounts for the Calculation Periods from and including December 16,
1996 to but excluding December 14, 1997:
Foamex Fixed Rate Payer Payment Dates: June 14, 1997 and
December 14, 1997, subject
to adjustment in accordance
with the Modified Following
Business Day Convention.
Fixed Rate: 5.30 percent
Fixed Rate Day Count Fraction: 30/360
Foamex Floating Amounts for all Calculation Periods from and including December
14, 1997 to but excluding December 14, 2001:
Foamex Floating Rate Payer
Payment Dates: Semiannually on each June
14 and December 14
commencing June 14, 1998 to
and including the
Termination Date, subject
to adjustment in accordance
with the Modified Following
Business Day Convention;
provided, however, if for
any Calculation Period,
commencing on or after
December 14, 1997, the
Foamex Floating Rate is
equal to or less than 4.50
percent, no Foamex Floating
Amounts shall be due to
Citibank for said
Calculation Period or any
subsequent Calculation
Period.
Floating Rate: Either (1) the Floating
Rate determined pursuant to
the USD-LIBOR-BBA Floating
Rate Option with the Reset
Date on the first day of
the subject Calculation
Period or (2) the Floating
Rate determined pursuant to
the USD-LIBOR-BBA Floating
Rate Option with the Reset
Date on the last day of the
subject Calculation Period,
whichever is higher (the
"Foamex Floating Rate").
Designated Maturity: 6 Months
Compounding: Inapplicable
Floating Rate Payer Day Count Fraction: Actual/360
-2-
<PAGE>
Citibank Fixed Amounts for the Calculation Periods from and including December
16, 1996 to but excluding December 14, 2001:
Citibank Fixed Rate Payer Payment Dates: Semiannually on each June
14 and December 14
commencing June 14, 1997 to
and including the
Termination Date, subject
to adjustment in accordance
with the Modified Following
Business Day Convention;
provided, however, if for
any Calculation Period,
commencing on or after
December 14, 1997, the
Foamex Floating Rate is
equal to or less than 4.50
percent, no Citibank Fixed
Amounts shall be due to
Foamex for said Calculation
Period or any subsequent
Calculation Period.
Fixed Rate: 6.50 percent
Fixed Rate Day Count Fraction: 30/360
3. Other:
Business Days: New York and London
Calculation Agent: Citibank
4. Account Details:
Payments to Citibank: Account for payments:
Citibank, N.A., New York
ABA # 021000089 Account
No.: 00167679 Financial
Futures Reference Swap
96L205/96P047/94F98/94A93
Payments to Foamex: Citibank, N.A., New York
ABA # 021000089
Account No.: 4058-7993
Account Name: Foamex L.P.
Foamex hereby agrees (a) to check this Confirmation (Reference No.:
96L205/96P047/94F98/94A93) carefully and immediately upon receipt so that errors
or discrepancies can be promptly identified and rectified and (b) to confirm
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<PAGE>
that the foregoing correctly sets forth the terms of the agreement between
Citibank and Foamex with respect to the particular Transaction to which this
Confirmation relates, by manually signing this Confirmation and providing the
other information requested herein and immediately returning an executed copy to
facsimile No.
416-941-7432.
Very truly yours,
CITIBANK, N.A., NEW YORK
By: /s/ Adam J. Kulick
Name: Adam J. Kulick
Agreed and Accepted By:
FOAMEX L.P.
By: /s/ G. L. Karpinski
Name: G. L. Karpinski
Title: Vice President - Treasurer
ASSIGNMENT AGREEMENT
ASSIGNMENT AGREEMENT, dated as of December 16, 1996 (the "Effective
Date") among Foamex L.P. and Foamex Capital Corporation (the "Assignors"),
Citibank, N.A., New York (the "Assignee"), and Salomon Brothers Holding Company
Inc. (the "Company").
WHEREAS, the Assignors have entered into a Transaction (the
"Transaction") maturing June 14, 2000 with the Company, the terms of which are
attached hereto as Exhibit A.
WHEREAS, the Assignors wish to assign their rights and delegate their
obligations under the Transaction to the Assignee, and the Assignee wishes to
succeed to the rights and assume the obligations of the Assignors under the
Transaction.
WHEREAS, the Company consents herein to the assignment of the
Assignors' right and delegation of the Assignors' obligations under the
Transaction.
NOW, THEREFORE, the parties hereto agree as follows:
1. Assignment. The Assignors hereby assign, transfer and set over to
the Assignee all the right, title and interest, powers,
privileges and remedies of the Assignors under the Transaction,
including, without limitation, the right to receive all amounts
which may be due or owing to the Assignors under the Transaction
(including all amounts accrued as of the date hereof but not yet
payable and all amounts payable as damages or indemnities). The
Assignors authorize the Assignee to take all action necessary or
desirable to enforce the rights assigned hereunder. The Assignors
shall give all notices, make all filings and take such other
action as the Assignee reasonably requests to perfect and
preserve the Assignee's rights acquired hereby.
2. Assumption. The Assignors hereby delegates and the Assignee
hereby assumes all duties, liabilities and obligations of the
Assignors under the Transaction. Without limiting the foregoing,
the Assignee shall make all payments hereafter due and owing by
the Assignors to the Company under the Transaction (including all
amounts accrued as of the date hereof but not yet payable and all
amounts payable as damages or indemnities) when and as the
Assignors are obligated to make such payments.
3. Consent by Company. The Company hereby consents to the assignment
of rights and delegations of duties set forth in Paragraphs 1 and
2 and subject to Sub-paragraph 4(a) below, releases the Assignors
from all further obligations and liabilities hereafter arising
under the Transaction.
4. Indemnities.
(a) Subject to paragraph 2 above, the Assignors hereby agree to
indemnify and hold harmless the Assignee with respect to any
and all claims by any persons relating to liabilities
incurred by the Assignors pursuant to or under the
Transaction prior to the Effective Date.
(b) The Assignee hereby agrees to indemnify and hold harmless
the Assignors with respect to any and all claims by any
persons relating to liabilities incurred by the Assignee
pursuant to or under the Transaction on or after the
Effective Date.
<PAGE>
5. Redocumentation. Except as expressly provided herein, all the
terms and conditions of the Transaction shall remain unchanged.
The Assignee and the Company may agree to execute a new
Confirmation providing that such Transaction shall be subject to
the Interest Rate and Currency Exchange between them, or
alternatively, may adopt the original Confirmation. The Assignee
and the Company further agree that as of the Effective Date of
this Agreement the original Transaction between the Assignors and
the Company shall be deemed assigned to the Assignee. All
references to the Assignors in the original Confirmation shall be
deemed to refer to the Assignee, and all payments which would,
under the Transaction, be made to the Assignors, shall
hereinafter be made to the Assignee.
6. Amendment or Termination of Transaction. The Assignee and the
Company may hereafter amend or terminate the Transaction without
the consent of the Assignors.
7. Representations and Warranties of the Parties hereto. The parties
hereto represent and warrant that each has all necessary
corporate consents, authorizations and approvals to execute,
deliver and perform its obligations under this Agreement, and
that this Agreement is a legal, valid and binding obligation
enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally, and subject, as to enforceability to
general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law).
8. Representations and Warranties of the Assignors and the Company.
The Assignors and the Company severally represents and warrant to
the Assignee that, to the best of their knowledge, on the date
hereof, the Transaction is in full force and effect, there being
no default thereunder.
9. Fee Letter. The Assignee and the Assignors may, but are not
required to, execute a separate letter agreement (the "Fee
Letter"), pursuant to which the Assignee shall pay the Assignors
(or the Assignors shall pay the Assignee, as the case may be) a
fee in an amount specified in such Fee Letter, as additional
consideration for the Assignee's agreement to assume and the
Assignors' agreement to assign its rights and obligations under
the Transaction pursuant to the terms hereof. The Company shall
not be a party to or a beneficiary of any such Fee Letter, and
neither the validity or enforceability hereof nor the terms
hereof shall be affected by the existence, validity,
enforceability or terms of the Fee Letter.
10. Governing Law. This Agreement and the Transaction shall be
governed by, and construed in accordance with, the law of the
State of New York without reference to a choice of law doctrine.
11. Jurisdiction. Any action or proceeding relating in any way to
this Agreement or the Transaction may be brought and enforced in
the courts of the State of New York or of the United States for
the Southern District of New York. Any process or other legal
summons in connection with any such action or proceeding may be
served by mailing a copy thereof by certified or registered mail,
or any substantially similar form of mail, addressed to the
Assignee, the Assignors or the Company, as the case may be.
12. Amendments. This Agreement may be amended only by an instrument
in writing executed by the parties thereto.
13. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which
counterparts, taken together, shall constitute one of the same
agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York City as of the date and year first above
written.
CITIBANK, N.A., NEW YORK
By: /s/ Adam J. Kulick
Name: Adam J. Kulick
Title:
FOAMEX L.P. FOAMEX CAPITAL CORPORATION
By: /s/ G. L. Karpinski By: /s/ Kenneth R. Fuette
Name: G. L. Karpinski Name: Kenneth R. Fuette
Title: Vice President - Treasurer Title: Chief Financial Officer
SALOMON BROTHERS HOLDING COMPANY INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
June 10, 1993
Mr. Andrea Farace
Foamex L.P.
c/o `21' International Holdings, Inc.
153 East 53rd Street, Suite 5900
New York, NY 10022
Facsimile: 212-593-1363
REVISED SWAP TRANSACTION
Dear Mr. Farace:
The purpose of this letter agreement is to set forth the terms and conditions of
the Swap Transaction entered into between Foamex L.P. and Foamex Capital
Corporation jointly and severally ("Counterparty") and Salomon Brothers Holding
Company Inc. ("Salomon") on the Trade Date specified below (the "Swap
Transaction"). This letter agreement constitutes a "Confirmation" as referred to
in the Swap Agreement specified below. This Confirmation supersedes and replaces
any previously executed Confirmation of this Swap Transaction.
1. The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swap Dealers Association, Inc.) (the
"Definitions") are incorporated into this Confirmation.
If you and we are parties to an Interest Rate and Currency Exchange Agreement
that sets forth the general terms and conditions applicable to Swap Transactions
between us (a "Swap Agreement"), this Confirmation supplements, forms a part of,
and is subject to, such Swap Agreement. If you and we are not yet parties to a
Swap Agreement, this Confirmation will supplement, form a part of, and be
subject to, a Swap Agreement upon its execution and delivery by you and us. All
provisions contained or incorporated by reference in such Swap Agreement shall
govern this Confirmation except as expressly modified below. In the event of any
inconsistency between this Confirmation and the Definitions or the Swap
Agreement, this Confirmation will govern. In addition, if a Swap Agreement has
not been executed, this Confirmation will itself evidence a complete binding
agreement between you and us as to the terms and conditions of the Swap
Transaction to which this Confirmation relates.
Each party is hereby advised, and each such party acknowledges, that the other
party has engaged in (or refrained from engaging in) substantial financial
transactions and has taken other material actions in reliance upon the parties'
entry into the Swap Transaction to which this Confirmation relates on the terms
and conditions set forth below.
Each party will make each payment specified in this Confirmation as being
payable by it, not later than the due date for value on that date in the place
of the account specified below, in freely transferable funds and in the manner
customary for payments in the required currency. If on any date amounts would
otherwise be payable in the same currency by each party to the other, then, on
such date, each party's obligation to make payment of any such amount will be
automatically satisfied and discharged and, if the aggregate amount that would
otherwise have been payable by one party exceeds the aggregate amount that would
otherwise have been payable by the other party, replaced by an obligation upon
the party by whom the larger aggregates amount would have been payable to pay to
the other party the excess of the larger aggregate amount over the smaller
aggregate amount.
<PAGE>
This Confirmation will be governed by and construed in accordance with the laws
of the State of New York, without reference to choice of law doctrine, provided
that this provision will be superseded by any choice of law provision in the
Swap Agreement.
2. The terms of the particular Swap Transaction to which this Confirmation
relates are as follows:
Notional Amount: USD $150,000,000
Trade Date: June 10, 1993
Effective Date: June 14, 1993
Termination Date: June 14, 2000, subject to
adjustment in accordance
with the Modified Following
Business Day Convention
Fixed Amounts:
Fixed Rate Payer: Salomon
Fixed Rate Payer Payment Dates: Each December 14 and June 14,
commencing December 14, 1993,
through and including the
Termination Date.
Fixed Rate: 5.61 percent
Fixed Rate Day Count Fraction: 30/360
Floating Amounts:
Floating Rate Payer: Counterparty
Floating Rate Payer Payment Dates: Each December 14 and June 14,
commencing December 14, 1993,
through and including the
Termination Date.
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: Six months
Spread: None
Floating Rate Day Count Fraction: Actual/360
Reset Dates: The Floating Rate is set in
arrears. The Floating Rate
Reset Date with respect to
each Calculation Period is the
Payment Date for such
Calculation Period.
Compounding: Inapplicable
Calculation Agent: Salomon
Business Days: London, New York
<PAGE>
Business Day Convention: Modified Following
3. Other Provisions
Documentation: To be provided by Salomon at
its own expense.
Documentation Legal Fees: Each party bears own
4. Account Details
Payments to Salomon: The Chase Manhattan Bank,
N.A., New York Account No.:
Salomon Brothers Holding Co.
Account No.: 930-1-031300
Payments to Counterparty: Please provide to expedite
payment.
Please __________ the foregoing correctly sets forth the terms of our agreement
by executing this copy of this Confirmation enclosed for that purpose and
returning it to us.
Very truly yours,
SALOMON BROTHERS HOLDING COMPANY INC.
By:
Authorized Agent
Accepted and confirmed as of the Trade Date:
`21' FOAM COMPANY, INC.
as General Partner of Foamex L.P.
By: /s/ Andrea Farace
Name: Andrea Farace
Title: Vice President - Director
FOAMEX CAPITAL CORPORATION
By: /s/ Andrea Farace
Name: Andrea Farace
Title: Vice President - Director
TAX DISTRIBUTION ADVANCE AGREEMENT
BY AND BETWEEN
FOAMEX L.P.
AND
FOAMEX-JPS AUTOMOTIVE L.P.
Dated as of December __, 1996
<PAGE>
ARTICLE I. DEFINITIONS......................................................1
ARTICLE II. THE ADVANCE.....................................................2
Section 2.1. Commitment to Advance.......................................2
ARTICLE III. PAYMENT........................................................3
Section 3.1. Payment of Principal and Interest...........................3
Section 3.3. Optional Prepayment of the Advance..........................3
ARTICLE IV. MUTUAL REPRESENTATIONS AND WARRANTIES...........................4
Section 4.1. Organization...............................................4
Section 4.2. Authorization, Validity and Enforceability.................4
Section 4.3. Violation or Breach........................................4
Section 4.4. Consents and Approvals.....................................5
ARTICLE V. EVENTS OF DEFAULT................................................5
Section 5.1. Events of Default...........................................5
Section 5.2. Remedies....................................................6
ARTICLE VI. MISCELLANEOUS...................................................6
Section 6.1. Nature of Obligation........................................6
Section 6.2. Notices.....................................................6
Section 6.3. Construction................................................7
Section 6.4. Assignment..................................................7
Section 6.5. Severability................................................7
Section 6.6. Amendments..................................................7
Section 6.7. Entire Agreement............................................7
<PAGE>
TAX DISTRIBUTION ADVANCE AGREEMENT
This Tax Distribution Advance Agreement (the "Agreement") dated as of
December __, 1996 is made by and between Foamex-JPS Automotive L.P., a Delaware
limited partnership ("FJPS"), and Foamex L.P., a Delaware limited partnership
("Foamex").
WHEREAS, Foamex entered into a First Amended and Restated Tax Sharing
Agreement dated as of December 14, 1993, with its partners, which provides for
certain distributions ("Tax Sharing Payments") to be made by Foamex to its
partners (as amended by the First Amendment to Fourth Amended and Restated
Partnership Agreement of Foamex L.P., dated June 28, 1994, the "Tax Sharing
Agreement"); and
WHEREAS, FJPS has requested that Foamex, from time to time, make
certain advances of Tax Sharing Payments to FJPS, and Foamex is willing to make
such advances on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
"Advance" shall have the meaning specified in Section 2.1(a) hereof.
"Availability" shall have the meaning specified in Section 2.1(b)
"Bankruptcy Law" shall mean Title 11, U.S. Code or any similar federal
or state law for the relief, supervision, conservation, reorganization or
liquidation of debtors or for the benefit of creditors.
"Business Day" shall mean a day that is not a Saturday or a Sunday or
a day on which banking institutions are not required to be open in the State of
New York.
"Custodian" shall mean any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"Event of Default" shall mean any of the events specified in Section
5.1 hereof.
"FJPS" shall have the meaning specified in the recitals hereto.
<PAGE>
"Maturity Date" shall have the meaning specified in Section 3.1(a)
hereof.
"Foamex" shall have the meaning specified in the recitals hereto.
"Note" shall have the meaning specified in Section 2.1(e) hereof.
"Tax Sharing Agreement" shall have the meaning specified in the
recitals hereto.
"Tax Sharing Payments" shall have the meaning specified in the
recitals hereto.
ARTICLE II.
THE ADVANCE
Section 2.2. Commitment to Advance.
(a) FJPS shall have the right, from time to time, to take an advance
against future Tax Sharing Payments (an "Advance") from Foamex of all or a
portion of the Availability in effect at such time.
(b) "Availability" at any point in time shall mean $17 million, less
all previous Advances.
(c) The making of each Advance by Foamex shall be subject to the
following terms and conditions:
(i) no Event of Default shall have occurred and be continuing;
(ii) FJPS shall have delivered to Foamex a certificate of a duly
authorized officer of FJPS to the effect that all of the
representations and warranties of FJPS set forth in this Agreement are
true and correct as of the date of the Advance as though restated as
of such date.
(iii) the making of the Advance shall not constitute a Default or
Event of Default under the terms of the Third Amended and Restated
Credit Agreement, dated as of July 30, 1996, among Foamex L.P.,
General Felt Industries, Inc., Trace Foam Company, Inc., FMXI Inc.,
the Institutions from time to time party thereto as Lenders, the
Institutions from time to time party thereto as Issuing Banks, and
Citibank N.A. and The Bank of Nova Scotia, as Administrative Agents,
as such agreement may be amended.
(d) FJPS shall notify Foamex in writing of its intention to borrow the
-2-
<PAGE>
Advance pursuant to Section 2.1(a) and the amount of the Advance. Foamex shall
extend the Advance to FJPS on the date which is no more than three Business Days
after receipt of such notice.
(e) The Advances shall be evidenced by a promissory note duly executed
by FJPS payable to the order of Foamex, substantially in the form of Exhibit A
hereto (the "Note").
ARTICLE III.
PAYMENT
Section 3.1. Payment of Principal and Interest.
(a) FJPS shall pay to Foamex the outstanding principal of the Advance
on December 31, 1999 (the "Maturity Date"), together with accrued and unpaid
interest.
(b) Each Advance shall bear interest at a fixed rate per annum
(determined on the date of the Advance) equal to the greater of (i) the yield to
maturity on the FJPS Senior Secured Discount Debentures due 2004 as of such
date, plus one hundred twenty five (125) basis points, or (ii) 13.25%.
(c) Interest shall be computed on the basis of a 360-day year of
twelve 30-day months).
Section 3.2. Mandatory Prepayment of the Advance.
(a) During such time as there is an Advance outstanding, FJPS shall
apply 50% of all Tax Sharing Payments to a mandatory prepayment of the Advances.
(b) FJPS grants to Foamex an express right of offset to withhold and
apply in accordance with the terms of this Agreement all Tax Sharing Payments
which FJPS is required to apply to a mandatory prepayment of the Advance
pursuant to Section 3.2(a).
(c) All mandatory prepayments of the Advances shall be applied first
to interest and then to the principal of the outstanding Advances with the
highest associated interest rate.
Section 3.3. Optional Prepayment of the Advance. FJPS may at any time
and from time to time prepay or repay the Advance, in whole or in part, without
premium or penalty. All Optional Prepayments shall be applied first to interest
and then to the principal of the outstanding Advances with the highest
associated interest rate.
-3-
<PAGE>
ARTICLE IV.
MUTUAL REPRESENTATIONS AND WARRANTIES
Each party hereto represents and warrants to the other as follows:
Section 4.1. Organization. It is a limited partnership duly formed and
validly existing in good standing under the laws of its jurisdiction of
formation, and has all requisite partnership power and authority to own, lease
and operate its assets and properties and to conduct its business as currently
being conducted.
Section 4.2. Authorization, Validity and Enforceability. It has full
partnership power and authority to execute, deliver and perform its obligations
under this Agreement. The execution, delivery and performance by it of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by its general partner or other governing body and no
other proceedings on its part are necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by it, and constitutes the legal, valid and binding obligation of it,
enforceable against it in accordance with the terms hereof, except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting rights of creditors generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity).
Section 4.3. Violation or Breach. The execution, delivery and
performance by it of this Agreement and the consummation of the transactions
contemplated hereby, do not and will not conflict with, result in a violation or
breach of, constitute a default (or an event which with the giving of notice or
the lapse of time or both would constitute a default) or give rise to any right
of termination or acceleration of any right or obligation of it under, or result
in the creation or imposition of any lien, mortgage, pledge, security interest,
claim, right of first refusal or other limitation on transfer or other
encumbrance upon any of its assets or properties by reason of the terms of, (a)
its certificate of limited partnership, agreement of limited partnership,
by-laws or other charter or organizational document, (b) any contract,
agreement, lease, license, mortgage, note, bond, debenture, indenture or other
instrument or obligation to which it is a party or by or to which it or its
assets or properties may be bound or subject, (c) any order, writ, judgment,
injunction, award, decree, law, statute, rule or regulation applicable to it or
(d) any license, permit, order, consent, approval, registration, authorization
or qualification with or under any governmental agency, other than
-4-
<PAGE>
(i) in the case of clause (b) above, with respect to Foamex, the Company
Security Agreement, dated as of June 3, 1993, by Foamex and Foamex Capital
Corporation in favor of Fleet National Bank (formerly known as Shawmut Bank,
National Association) as trustee for the holders of 9 1/2% Senior Secured Notes
due 2000, and (ii) in the case of clauses (b), (c) or (d) above, any conflict,
violation, breach or default which would not, individually or in the aggregate
together with all other such conflicts, violations, breaches or defaults, have a
material adverse effect on it or have a material adverse effect on its ability
to perform its obligations, or consummate the transactions contemplated,
hereunder.
Section 4.4. Consents and Approvals. No consent, approval,
authorization, license or order of, registration or filing with, or notice to,
any governmental agency is necessary to be obtained, made or given by it in
connection with the execution, delivery and performance by it of this Agreement
or the consummation by it of the transactions contemplated hereby.
ARTICLE V.
EVENTS OF DEFAULT
Section 5.1. Events of Default. Each of the following shall constitute
an "Event of Default" under this Agreement:
(a) FJPS defaults in the payment of the principal or interest on any
Advance when the same becomes due and payable on the Maturity Date or otherwise;
(b) FJPS fails to comply with any of its other covenants or agreements
in this Agreement or the Note and the default continues for thirty days after
receipt by FJPS of written notice thereof from Foamex;
(c) there shall be a default under any evidence of indebtedness of
FJPS, whether any such indebtedness exists as of the date hereof or shall
hereafter be created, in the amount, individually or in the aggregate, of
$15,000,000 or more, if the effect of such default is to accelerate, or to
permit the holder(s) of such indebtedness or a trustee for such holder(s) to
accelerate, the maturity of such indebtedness, or such indebtedness is not paid
at maturity;
(d) a court of competent jurisdiction enters a final and
non-appealable judgment against FJPS in which FJPS is required to pay an amount
(calculated after the application of any proceeds of insurance policies
applicable to such loss), individually or in the aggregate, in excess of
$5,000,000, and such final and non-appealable judgment remains unsatisfied for a
period of 60 days;
-5-
<PAGE>
(e) FJPS pursuant to or within the meaning of any Bankruptcy Law (i)
becomes insolvent, (ii) fails generally to pay its debts as they become due,
(iii) admits in writing its inability to pay its debts generally as they become
due, (iv) commences a voluntary case or proceeding, (v) consents to, or
acquiesces in, the institution of a bankruptcy or an insolvency proceeding
against it or the entry of a judgment, decree or order for relief against it in
an involuntary case or proceeding, (vi) applies for, consents to or acquiesces
in the appointment of or taking possession by a Custodian of FJPS or of all or
substantially all of its property or (vii) makes a general assignment for the
benefit of its creditors; or
(f) a court of competent jurisdiction enters a judgment, decree or
order under any Bankruptcy Law which (i) is for relief against FJPS in an
involuntary case, (ii) appoints a Custodian of FJPS or a Custodian for all or
substantially all of its property or (iii) orders the winding-up or liquidation
of FJPS; and such judgment, decree or order shall remain unstayed and in effect
for a period of 60 consecutive days.
Section 5.4. Remedies. If an Event of Default specified in clause (e)
or (f) of Section 5.1 hereof occurs, the Advance shall automatically become due
and payable at the principal amount thereof, together with interest accrued
thereon. If such event is any other Event of Default, Foamex may, at its option,
by notice in writing to FJPS, declare the Advance to be, and the Advance shall
thereupon be and become, immediately due and payable together with interest
accrued thereon, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by FJPS. Foamex may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been
cured, paid or waived.
ARTICLE VI.
MISCELLANEOUS
Section 6.1. Nature of Obligation. FJPS hereby waives presentment and
demand for payment, notice of dishonor, protest and notice of protest of the
Note and agrees to perform and comply with each of the terms, covenants and
provisions contained in this Agreement.
Section 6.2. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given (a) when delivered
personally to the recipient, (b) when sent to the recipient by telecopy (with
-6-
<PAGE>
receipt confirmed) if during normal business hours of the recipient, otherwise
on the next Business Day, or (c) one Business Day after the date sent to the
recipient by reputable express courier service (charges prepaid). Such notices,
demands and other communications shall be sent to FJPS and Foamex at such
address as either party hereto may, from time to time, designate in writing
delivered pursuant to the terms of this Section.
Section 6.3. Construction. This Agreement has been executed and
delivered in the State of New York, and shall be governed by and construed in
accordance with the laws of the State of New York.
Section 6.4. Assignment. Any of the rights, duties or obligations of
FJPS may not be transferred, assigned, except with the written consent of
Foamex. Subject to the foregoing, this Agreement shall be binding upon, and
inure to the benefit of the parties hereto and their respective permitted
successors and assigns.
Section 6.5. Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 6.6. Amendments. The terms, provisions and conditions of this
Agreement may not be changed, modified or amended in any manner except by an
instrument in writing duly executed by both of the parties hereto.
Section 6.7. Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof,
supersedes and is in full substitution for any and all prior agreements and
understandings among them relating to such subject matter, and no party shall be
liable or bound to the other party hereto in any manner with respect to such
subject matter by any warranties, representations, indemnities, covenants or
agreements except as specifically set forth herein. The Exhibits and Schedules
to this Agreement are hereby incorporated and made a part hereof and are an
integral part of this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
FOAMEX-JPS AUTOMOTIVE L.P.
By: FJGP Inc., its general partner
By: _______________________
Name: Philip N. Smith, Jr.
Title: Vice President and
Secretary
FOAMEX L.P.
By: FMXI, Inc.
Its: managing general partner
By: _______________________
Name: Philip N. Smith, Jr.
Title: Vice President and
Secretary
-8-
<PAGE>
PROMISSORY NOTE
$17,000,000 New York, New York
December __, 1996
THE UNDERSIGNED FOAMEX-JPS AUTOMOTIVE L.P., a Delaware limited
partnership ("Maker"), HEREBY PROMISES TO PAY to the order of FOAMEX L.P., a
Delaware limited partnership ("Payee"), on December 31, 1999, the principal
amount of SEVENTEEN MILLION DOLLARS ($17,000,000), or, if less, the outstanding
Advances of Maker by Payee pursuant to the terms of that certain Tax
Distribution Advance Agreement dated as of December __, 1996 (the "Tax
Distribution Advance Agreement") between Maker and Payee together, in each case,
with all accrued and outstanding interest in respect of such principal amount.
Maker promises to pay the interest on and principal of this Note in
accordance with the terms and conditions of the Tax Distribution Advance
Agreement.
Both principal and interest are payable in lawful money of the United
States of America in same day or immediately available funds to the account of
Payee at 1000 Columbia Avenue, Linwood, Pennsylvania 19061, or at such other
place or places as any subsequent holder of this Note may, from time to time,
designate in writing. Whenever any payment to be made hereunder shall be stated
to be due on a day that is not a Business Day, such payment shall be due instead
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of such payment of interest and not in the
computation of the succeeding payment of interest.
Payee or any subsequent holder of this Note shall have the right to
assign its rights hereunder or any interest herein without the prior written
consent of Maker.
This Note is subject to the terms and conditions of the Tax
Distribution Advance Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
All the covenants, stipulations, promises and agreements made by or
contained in this Note or in the Tax Distribution Advance Agreement on behalf of
the undersigned shall bind its successors, whether so expressed or not.
No failure on the part of Payee to exercise, and no delay in
exercising, any right under this Note shall operate as a waiver thereof, nor
<PAGE>
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first set forth above.
FOAMEX-JPS AUTOMOTIVE L.P.
By: FJGP Inc., its general partner
By: _______________________
Name:
Title:
-2-
SCHEDULE A
Affiliates of Foamex International Inc.
FJGP Inc.
Foamex-JPS Automotive L.P.
Foamex-JPS Capital Corporation
FMXI, Inc.
Foamex L.P.
General Felt Industries, Inc.
Foamex Aviation, Inc.
Foamex Fibers, Inc.
Foamex Canada Inc.
Foamex Capital Corporation
Foamex Latin America, Inc.
Foamex Mexico, Inc.
Foamex Mexico II, Inc.
Foamex de Mexico S.A. de C.V.
Transformacion de Espumas, S.A. de C.V. ("TEFSA")
Colochones y de Todo en Espuma, S.A. de C.V. ("CTE")
Foamex Delaware, Inc. (formerly Foamex Brazil)
Foamex do Brazil Industria e Comercia LTDA
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000890080
<NAME> FOAMEX L.P.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<EXCHANGE-RATE> 1
<CASH> 20,968
<SECURITIES> 0
<RECEIVABLES> 125,847
<ALLOWANCES> 0
<INVENTORY> 102,610
<CURRENT-ASSETS> 288,920
<PP&E> 182,427
<DEPRECIATION> 0
<TOTAL-ASSETS> 586,157
<CURRENT-LIABILITIES> 151,830
<BONDS> 392,617
0
0
<COMMON> 0
<OTHER-SE> 12,832
<TOTAL-LIABILITY-AND-EQUITY> 586,157
<SALES> 926,351
<TOTAL-REVENUES> 926,351
<CGS> 773,119
<TOTAL-COSTS> 773,119
<OTHER-EXPENSES> 56,778
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,211
<INCOME-PRETAX> 61,363
<INCOME-TAX> 7,702
<INCOME-CONTINUING> 53,661
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,699
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
