SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 (Zip Code)
executive offices)
Registrant's telephone number, including area code: (610) 859-3000
Indicate by check mark whether the registrants (1) have 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 period that the
registrant was required to file such reports) and (2) have been subject to such
filing requirements for the past 90 days.
YES X NO
Foamex L.P. and Foamex Capital Corporation meet the conditions set forth in
General Instruction H (1) (a) and (b) of Form 10-Q and is therefore filing this
form with the reduced disclosure format.
The number of shares of Foamex Capital Corporation's common stock outstanding as
of November 16, 1998 was 1,000.
Page 1 of 31
Exhibit List on Page 25 of 31
<PAGE>
FOAMEX L.P.
FOAMEX CAPITAL CORPORATION
<TABLE>
<CAPTION>
INDEX
Page
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Foamex L.P.
Condensed Consolidated Statements of Operations - Quarterly and Year to Date
Periods Ended September 30, 1998 and September 28, 1997 3
Condensed Consolidated Balance Sheets as of September 30, 1998 and December 28, 1997 4
Condensed Consolidated Statements of Cash Flows - Year to Date Periods
Ended September 30, 1998 and September 28, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Foamex Capital Corporation
Balance Sheets as of September 30, 1998 and December 28, 1997 15
Notes to Balance Sheets 16
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 18
Part II. Other Information 25
Exhibit List 25
Signatures 31
</TABLE>
Foamex L.P. is filing this Form 10-Q/A to reflect adjustments to
accounts receivable, inventory and other assets and liabilities during the
fourth quarter of 1998 related to prior periods including, but not limited to,
the third quarter of 1998. Foamex L.P. has updated its Management's Discussion
and Analysis of Financial Condition and Results of Operations to reflect only
such adjustments, but has not updated such disclosure to reflect other
developments since the original filing. Reference is made to Foamex L.P.'s
subsequent reports under the Securities Exchange Act of 1934, as amended, which
have been filed with the Securities and Exchange Commission.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOAMEX L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Quarterly Periods Ended Year to Date Periods Ended
September 30, September 28, September 30, September 28,
1998 1997 1998 1997
(thousands)
<S> <C> <C> <C> <C>
NET SALES $ 299,783 $ 233,434 $ 871,564 $ 702,441
COST OF GOODS SOLD 257,293 195,395 736,569 576,825
--------- --------- --------- ---------
GROSS PROFIT 42,490 38,039 134,995 125,616
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 17,846 15,562 56,669 46,893
RESTRUCTURING AND OTHER CHARGES (CREDITS) -- -- (700) --
--------- --------- --------- ---------
INCOME FROM OPERATIONS 24,644 22,477 79,026 78,723
INTEREST AND DEBT ISSUANCE EXPENSE 16,706 11,846 49,186 33,355
OTHER INCOME (EXPENSE), NET (1,146) 281 (1,765) 1,403
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 6,792 10,912 28,075 46,771
PROVISION FOR INCOME TAXES 165 1,359 2,049 4,618
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS 6,627 9,553 26,026 42,153
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT -- -- (3,195) (45,538)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 6,627 $ 9,553 $ 22,831 $ (3,385)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
September 30, December 28,
ASSETS 1998 1997
--------- ---------
CURRENT ASSETS: (thousands)
<S> <C> <C>
Cash and cash equivalents $ 2,112 $ 9,405
Accounts receivable, net 151,905 174,959
Inventories 130,591 120,299
Accounts receivable, related party 21,836 1,680
Other current assets 37,654 45,874
--------- ---------
Total current assets 344,098 352,217
PROPERTY, PLANT AND EQUIPMENT, NET 208,430 221,274
COST IN EXCESS OF ASSETS ACQUIRED, NET 181,094 219,699
DEBT ISSUANCE COSTS, NET 14,454 18,889
OTHER ASSETS 21,112 21,989
--------- ---------
TOTAL ASSETS $ 769,188 $ 834,068
========= =========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings $ 6,058 $ 6,598
Current portion of long-term debt 4,347 12,161
Accounts payable 115,816 121,147
Accounts payable - related parties -- 11,662
Accrued interest 9,670 10,655
Other accrued liabilities 33,821 63,920
--------- ---------
Total current liabilities 169,712 226,143
LONG-TERM DEBT 681,231 726,649
LONG-TERM DEBT - RELATED PARTY 34,000 --
OTHER LIABILITIES 28,749 37,578
--------- ---------
Total liabilities 913,692 990,370
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
PARTNERS' EQUITY (DEFICIT):
General partners (109,605) (122,304)
Limited partners -- --
Notes and advances receivable from partner (16,118) (16,118)
Accumulated other comprehensive income (8,986) (8,085)
Other (9,795) (9,795)
--------- ---------
Total partners' equity (deficit) (144,504) (156,302)
--------- ---------
TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) $ 769,188 $ 834,068
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Year to Date Periods Ended
September 30, September 28,
1998 1997
OPERATING ACTIVITIES: (thousands)
<S> <C> <C>
Net income (loss) $ 22,831 $ (3,385)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 23,146 15,570
Amortization of debt issuance costs and debt discount (114) 1,903
Extraordinary loss on extinguishment of debt 2,857 22,620
Other operating activities 2,448 (1,696)
Changes in operating assets and liabilities (78,703) (26,203)
--------- ---------
Net cash provided by (used for) operating activities (27,535) 8,809
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (22,603) (25,444)
Acquisition, net of cash acquired (3,899) --
Redemption of General Felt (8,971) --
Purchase of FJPS senior secured discount debentures -- (105,829)
Decrease in restricted cash -- 12,143
Loan to partner -- (5,000)
Other investing activities (168) (930)
--------- ---------
Net cash used for investing activities (35,641) (125,060)
--------- ---------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 185 1,179
Net proceeds from revolving loans 81,489 31,000
Proceeds from long-term debt 129,000 453,500
Repayment of long-term debt (134,203) (363,443)
Debt issuance costs (1,598) (15,617)
Distributions to partners (20,074) (10,283)
Other financing activities 1,084 25
--------- ---------
Net cash provided by financing activities 55,883 96,361
--------- ---------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (7,293) (19,890)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 9,405 20,968
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,112 $ 1,078
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex L.P.'s condensed consolidated balance sheet as of December 28,
1997 has been condensed from the audited consolidated balance sheet at that
date. The condensed consolidated balance sheet as of September 30, 1998 and the
condensed consolidated statements of operations for the quarterly and year to
date periods ended September 30, 1998 and September 28, 1997 and the condensed
consolidated statements of cash flows for the year to date periods ended
September 30, 1998 and September 28, 1997 have been prepared by Foamex L.P. and
its subsidiaries and have not been audited by Foamex L.P.'s independent
accountants. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation of
the consolidated financial position, results of operations and cash flows have
been included.
During September 1998, management of Foamex L.P. decided to change the
year-end reporting requirement of Foamex L.P. from a fifty-two or fifty-three
week fiscal year ending on the Sunday closest to the end of the calendar year to
a calendar year ending December 31st to improve the internal reporting
requirements of Foamex L.P. On November 3, 1998, Foamex International Inc.'s
("Foamex International") Board of Directors and other required third parties
approved the fiscal year-end change. This change is effective for the third
fiscal quarter of 1998 which ended on September 30, 1998 and will result in a
1998 fiscal year end of December 31, 1998 as compared to January 3, 1999;
accordingly, the quarterly period ended September 30, 1998 includes an
additional three day period with estimated revenues of approximately $18.9
million.
On December 23, 1997, Foamex International acquired Crain Industries,
Inc. ("Crain") pursuant to a merger agreement with Crain Holdings Corp. for a
purchase price of approximately $213.7 million, including the assumption of debt
with a face value of approximately $98.6 million (and an estimated fair value of
approximately $112.3 million) (the "Crain Acquisition"). Subsequent to the
acquisition, Foamex International contributed the assets of Crain, subject to
all of its liabilities and indebtedness, to Foamex L.P. Fees and expenses
associated with the Crain Acquisition were approximately $13.2 million. (See
Note 4).
Certain information and note disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with Foamex
L.P.'s 1997 consolidated financial statements and notes thereto as set forth in
Foamex L.P.'s Annual Report on Form 10-K/A for the fiscal year ended December
28, 1997.
2. RESTATEMENT OF FINANCIAL INFORMATION
Foamex L.P. identified certain adjustments to accounts receivable,
inventory and other assets and liabilities during the fourth quarter of 1998
that related to prior periods including, but not limited to, the third quarter
of 1998. As a result, Foamex L.P. has restated the accompanying 1998 condensed
consolidated financial statements to reflect adjustments that related to the
third quarter of 1998, as follows:
<TABLE>
<CAPTION>
For the Quarterly Period September 30, 1998
As Previously As
Reported Adjustments Restated
Statement of Operations (thousands)
<S> <C> <C> <C>
Net sales $ 300,274 $ (491) $ 299,783
Cost of goods sold 252,072 5,221 257,293
--------- --------- ---------
Gross profit 48,202 (5,712) 42,490
Selling, general and administrative 14,109 3,737 17,846
--------- --------- ---------
Income (loss) from operations 34,093 (9,449) 24,644
Interest and debt issuance expense 16,956 (250) 16,706
Other income (expense), net (1,146) -- (1,146)
--------- --------- ---------
Income (loss) before provision for income taxes 15,991 (9,199) 6,792
Provision for income taxes 165 -- 165
--------- --------- ---------
Income (loss) before extraordinary loss 15,826 (9,199) 6,627
Extraordinary loss -- -- --
--------- --------- ---------
Net income (loss) $ 15,826 $ (9,199) $ 6,627
========= ========= =========
</TABLE>
6
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
2. RESTATEMENT OF FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
For the Year to Date Period Ended September 30, 1998
As Previously As
Reported Adjustments Restated
Statement of Operations (thousands)
<S> <C> <C> <C>
Net sales $ 873,555 $ (1,991) $ 871,564
Cost of goods sold 730,266 6,303 736,569
--------- --------- ---------
Gross profit 143,289 (8,294) 134,995
Selling, general and administrative 51,472 5,197 56,669
Restructuring and other charges (credits) -- (700) (700)
--------- --------- ---------
Income (loss) from operations 91,817 (12,791) 79,026
Interest and debt issuance expense 49,936 (750) 49,186
Other income (expense), net (1,765) -- (1,765)
--------- --------- ---------
Income (loss) before provision for income taxes 40,116 (12,041) 28,075
Provision for income taxes 2,049 -- 2,049
--------- --------- ---------
Income (loss) before extraordinary loss 38,067 (12,041) 26,026
Extraordinary loss (3,195) -- (3,195)
--------- --------- ---------
Net income (loss) $ 34,872 $ (12,041) $ 22,831
========= ========= =========
Cash Flows
Net cash used for operating activities $ (26,988) $ (547) $ (27,535)
Net cash used for investing activities (36,188) 547 (35,641)
September 30, 1998
As Previously As
Reported Adjustments Restated
--------- --------- ---------
Balance Sheet (thousands)
Current assets $352,710 $(8,612) $344,098
Total assets 777,285 (8,097) 769,188
Current liabilities 165,767 3,945 169,712
Total liabilities 909,747 3,945 913,692
Partners' deficit (132,462) (12,042) (144,504)
</TABLE>
3. GFI TRANSACTION
On February 27, 1998, Foamex International, Foamex L.P. and certain of
their affiliates completed a series of transactions designed to simplify the
structure of Foamex International and Foamex L.P. and to provide future
operational flexibility (collectively, the "GFI Transaction"). Prior to the
consummation of these transactions, (i) Foamex L.P. and Foamex L.P.'s wholly
owned subsidiary, General Felt Industries, Inc. ("General Felt"), entered into a
supply agreement and an administrative services agreement (see Note 8), (ii)
Foamex L.P. repaid its outstanding indebtedness to General Felt with $4.8
million in cash and a $34.0 million principal amount promissory note (the
"Foamex/GFI Note") supported by a $34.5 million letter of credit under Foamex
L.P.'s credit facility, (the "Credit Facility"), (iii) Foamex L.P. contributed
to General Felt $9.4 million of outstanding net intercompany payables and
intercompany loans with General Felt, and (iv) Foamex L.P. defeased the $4.5
million outstanding principal amount of its 9 1/2% senior secured notes due
2000. The initial transaction resulted in the transfer from Foamex L.P. to Foam
Funding LLC of all of the outstanding common stock of General Felt, in exchange
for (i) the assumption by Foam Funding LLC of $129.0 million of Foamex L.P.'s
indebtedness and (ii) the transfer by Foam Funding LLC to Foamex L.P. of a 1%
non-managing general partnership interest in Foamex L.P. As a result, General
Felt ceased being a subsidiary of Foamex L.P. and was relieved from all
obligations under Foamex L.P.'s 9 7/8% senior subordinated notes due 2007 and 13
1/2% senior subordinated notes due 2005. Upon consummation of the initial
transaction, Foamex Carpet Cushion, Inc. ("Foamex Carpet"), a newly formed
wholly owned subsidiary of Foamex International, Foamex International, Foam
Funding LLC, and General Felt entered into an asset purchase agreement dated
February 27, 1998, pursuant to which General Felt sold substantially all of its
assets (other than the
7
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. GFI TRANSACTION (continued)
Foamex/GFI Note and its operating facility in Pico Rivera, California) to Foamex
Carpet in exchange for (i) $20.0 million in cash and (ii) a promissory note
issued by Foamex Carpet to Foam Funding LLC in the amount of $70.2 million. The
$20.0 million cash payment was funded with a distribution by Foamex L.P. to
Foamex International. As part of these transactions, FMXI, Inc. and Crain, both
wholly owned subsidiaries of Foamex International and general partners of Foamex
L.P., were merged and Crain, as the surviving corporation, subsequently changed
its name to FMXI, Inc. Foamex Carpet will conduct the carpet cushion business
previously conducted by General Felt.
No gain has been recognized on the GFI Transaction. The impact of the GFI
Transaction was an increase in Foamex L.P.'s partners' equity (deficit) of
approximately $10.1 million, a distribution of $20.0 million to Foamex
International and approximately $1.5 million of fees charged to earnings. The
proceeds from the $129.0 million of debt assumed by Foam Funding LLC in the GFI
Transaction was used to repay approximately $125.1 million of term loan
borrowings that was accounted for as an extinguishment of debt which resulted in
an extraordinary loss of approximately $3.2 million. The 1% non-managing general
partnership interest acquired in connection with the GFI Transaction was
accounted for as a redemption of equity. The GFI Transaction used cash of
approximately $10.2 million. The non-cash portion was insignificant.
4. CRAIN ACQUISITION
On December 23, 1997, Foamex International acquired Crain pursuant to a
merger agreement with Crain Holdings Corp. for a purchase price of approximately
$213.7 million, including the assumption of debt with a face value of
approximately $98.6 million (with an estimated fair value of approximately
$112.3 million). Subsequent to the acquisition, Foamex International contributed
the assets of Crain, subject to all its liabilities and indebtedness, to Foamex
L.P. Fees and expenses associated with the Crain Acquisition were approximately
$13.2 million. The acquisition was funded by $118.0 million in bank borrowings
by Foamex L.P. under the Credit Facility. The excess of the purchase price over
the estimated fair value of the net assets acquired was approximately $152.5
million.
The Crain Acquisition was accounted for as a purchase and the operations
of Crain are included in the consolidated statements of operations and cash
flows from the date of acquisition. The cost of the Crain 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. The allocation of the purchase price for the Crain
Acquisition is based upon preliminary estimates and assumptions and is subject
to revision once appraisals, valuations and other studies of the fair value of
the acquired assets and liabilities have been completed. The pro forma results
listed below are unaudited and assume that the Crain Acquisition occurred at the
beginning of 1997 fiscal year.
<TABLE>
<CAPTION>
Quarterly Period Ended Year to Date Period Ended
September 28, 1997 September 28, 1997
(thousands, except per share data)
<S> <C> <C>
Net sales $320,847 $946,927
======== ========
Income before extraordinary loss $ 15,712 $ 39,009
======== ========
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred if the Crain Acquisition had occurred at the beginning of the periods
presented nor are they necessarily indicative of future consolidated results.
8
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
September 30, December 28,
1998 1997
------------------ -----------------
(thousands)
<S> <C> <C>
Raw materials and supplies $ 81,542 $ 75,487
Work-in-process 19,051 15,620
Finished goods 29,998 29,192
--------- ---------
Total $130,591 $120,299
======== ========
</TABLE>
6. LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
Long-term debt consists of:
<TABLE>
<CAPTION>
September 30, December 28,
1998 1997
------------------ -----------------
Credit Facility: (thousands)
<S> <C> <C>
Term Loan A $ - $ 76,700
Term Loan B 82,924 109,725
Term Loan C 75,385 99,750
Term Loan D 109,175 110,000
Revolving credit facility 136,953 54,928
9 7/8% Senior subordinated notes due 2007 150,000 150,000
13 1/2% Senior subordinated notes due 2005 (includes
$12,824 and $13,720 of unamortized debt premium) 110,376 111,720
9 1/2% Senior secured notes due 2000 - 4,523
Industrial revenue bonds 7,000 7,000
Subordinated note payable (net of unamortized
debt discount of $709 and $1,198) 6,394 6,129
Other 7,371 8,335
---------- ----------
685,578 738,810
Less current portion 4,347 12,161
Long-term debt-unrelated parties $681,231 $726,649
======== ========
Long-term debt-related party consists of:
Foamex/GFI Note $ 34,000 $ -
======== ========
</TABLE>
Refinancing Associated with GFI Transaction
In connection with the GFI Transaction (see Note 3), Foamex L.P. amended
its agreements with lenders under the Credit Facility, which included additional
borrowings of $129.0 million under new term loan agreements that were assumed by
Foam Funding LLC (as discussed in Note 3) and borrowings of $32.0 million under
the existing revolving credit facility. These funds were used to (i) repay
approximately $125.1 million of existing term loans and accrued interest thereon
of approximately $0.9 million, (ii) deposit $4.8 million into an escrow account
in order to defease the 9 1/2% senior secured notes due 2000 which were redeemed
during June 1998, (iii) repay $4.8 million of indebtedness owed to General Felt,
(iv) fund the $20.0 million distribution to Foamex International and (v) pay
fees and expenses of approximately $5.4 million. Also, this amendment increased
the availability under the revolving credit facility from $150.0 million to
$200.0 million; however, $34.5 million of this increase is used for a letter of
credit to support the Foamex/GFI Note.
9
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
6. LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
Foamex/GFI Note
In connection with the GFI Transaction (see Note 3), Foamex L.P. entered
into the $34.0 million Foamex/GFI Note to settle an existing intercompany note
payable to General Felt (see Note 8). The Foamex/GFI Note matures in March 2000
with interest payable at LIBOR plus an applicable margin. The principal amount
is due upon maturity in March 2000.
During the quarterly and year to date periods ended September 30, 1998,
Foamex L.P. incurred interest expense of approximately $0.6 million and $1.4
million, respectively.
Principal Payments
Principal payments on Foamex L.P.'s long-term debt and long-term debt -
related party for the remainder of 1998 and for the next five years are as
follows: 1998 - $1.3 million; 1999 - $7.2 million; 2000 - $40.9 million; 2001 -
$6.9 million; 2002 - $2.9 million; 2003 - $147.8 million and thereafter - $500.8
million.
7. EARLY EXTINGUISHMENT OF DEBT
In connection with the GFI Transaction (see Note 3), Foamex L.P. incurred
an extraordinary loss on the early extinguishment of debt of approximately $3.2
million. The extraordinary loss is comprised of approximately $2.9 million for
the write-off of debt issuance costs and approximately $0.3 million of
professional fees and other costs.
During 1997, in connection with a refinancing plan of Foamex
International's subsidiaries' indebtedness, Foamex L.P. incurred an
extraordinary loss on the early extinguishment of debt of approximately $44.5
million (the "June 1997 refinancing plan"). The extraordinary loss is comprised
of approximately $20.2 million for premium and consent fee payments,
approximately $12.6 million for the write-off of debt issuance costs and debt
discount, approximately $8.2 million for the loss associated with the effective
termination and amendment of the interest rate swap agreements and approximately
$3.5 million of professional fees and other costs. In addition, during 1997,
Foamex L.P. incurred extraordinary losses of approximately $1.0 million
associated with the early extinguishment of approximately $11.8 million of
long-term debt funded with approximately $12.1 million of the remaining net
proceeds from the sale of its Perfect Fit Industries, Inc. subsidiary. The
extraordinary loss is comprised of approximately $0.4 million of premium
payments and approximately $0.6 million for the write-off of debt issuance
costs.
8. RELATED PARTY TRANSACTIONS
Effective February 27, 1998, Foamex L.P. and General Felt entered into a
supply agreement that was subsequently assigned to Foamex Carpet (see Note 3)
whereby (i) Foamex Carpet may purchase from Foamex L.P. finished prime, rubber
and rebond carpet cushion at the lesser of cost plus 4.7% or fair market value,
(ii) Foamex L.P. may purchase from Foamex Carpet nonwoven textile fiber products
at the lesser of cost plus 15% or fair market value, and (iii) either party may
purchase from the other trim foam and other raw materials and supplies for the
lesser of the price paid for such raw materials or fair market value. Prior to
February 27, 1998, Foamex L.P. had sales and purchases with General Felt based
on an established intercompany transfer price which was adjusted to comply with
the transfer pricing regulations of the Internal Revenue Code, as amended, if
necessary. During the quarterly periods ended September 30, 1998 and September
28, 1997, Foamex L.P. sold approximately $43.6 million and $37.1 million,
respectively, to Foamex Carpet and purchased from Foamex Carpet approximately
$4.8 million and $0.3 million, respectively. During the year to date periods
ended September 30, 1998 and September 28, 1997, Foamex L.P. sold approximately
$110.0 million and $109.6 million, respectively, to Foamex Carpet and purchased
from Foamex Carpet approximately $7.4 million and $1.1 million, respectively.
In connection with the GFI Transaction (see Note 3), Foamex L.P. and
General Felt entered into an administrative services agreement that was
subsequently assigned to Foamex Carpet (the "Services Agreement"). Pursuant to
the Services Agreement, Foamex L.P. will provide Foamex Carpet administrative
and management
10
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
8. RELATED PARTY TRANSACTIONS (continued)
services, as defined, at cost plus out-of-pocket expenses. During the quarterly
and year to date periods ended September 30, 1998, Foamex L.P. received $1.2
million and $1.8 million, respectively, for services provided to Foamex Carpet.
During the thirteen week period ended March 29, 1998, Foamex L.P.
incurred approximately $0.5 million of interest expense on a $38.8 million note
due to General Felt. On February 27, 1998, Foamex L.P. repaid approximately $4.8
million of this note, and the balance was replaced by the Foamex/GFI Note. The
Foamex/GFI Note was retained by Foam Funding LLC in connection with the GFI
Transaction. During the quarterly and year to date periods ended September 30,
1998, Foamex L.P. incurred approximately $0.6 million and $1.4 million,
respectively, of interest expense on the Foamex/GFI Note (see Note 3).
Foamex L.P. had a supply agreement with Foamex International pursuant to
which, at the option of Foamex L.P., Foamex International would purchase certain
raw materials, which were 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 believed that the terms of
this supply agreement were no less favorable than those which Foamex L.P. could
have obtained from an unaffiliated third party. During the quarterly period
ended September 28, 1997, Foamex L.P. purchased approximately $31.4 million of
raw material under this supply agreement. During the year to date periods ended
September 30, 1998 and September 28, 1997, Foamex L.P. purchased approximately
$15.0 million and $94.4 million, respectively, of raw materials under this
supply agreement. Effective March 30, 1998, Foamex L.P. discontinued utilizing
this supply agreement to purchase its raw materials.
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 $0.2 million and $0.3 million during the quarterly periods ended
September 30, 1998 and September 28, 1997, respectively, and approximately $0.7
million and $0.9 million during the year to date periods ended September 30,
1998 and September 28, 1997, respectively.
On December 11, 1996, Foamex L.P. entered into a tax distribution advance
agreement, pursuant to which its partners are entitled to obtain advances, in
the aggregate not to exceed $17.0 million, against future distributions under
Foamex L.P.'s tax distribution agreement with its partners. As of September 30,
1998, there were $13.6 million of advances to Foamex International under this
agreement.
9. 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 the year to date period ended September 30,
1998, 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 September 30, 1998, Foamex L.P. has
accruals of approximately $3.4 million for environmental matters. In addition,
as of September 30, 1998 Foamex L.P. has net receivables of approximately $0.6
million relating to indemnification for environmental liabilities.
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, propylene oxide and TDI, materials used in the
manufacturing of foam. On December 27, 1996, the United States Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that will require manufacturers of slab stock polyurethane foam and foam
fabrication plants to reduce emissions of methylene chloride. Because these
regulations are subject to change prior to finalization, Foamex L.P. cannot
accurately predict the actual cost of their implementation. Foamex L.P. does not
believe implementation of the regulations will require it to make material
expenditures at facilities owned prior to December 23, 1997, due to Foamex
L.P.'s use of alternative technologies which do not utilize methylene chloride
and its ability to shift current production to the facilities which use these
11
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
9. ENVIRONMENTAL MATTERS (continued)
alternative technologies; however, material expenditures may be required at the
facilities formerly operated by Crain. The 1990 CAA Amendments also may result
in the imposition of additional standards regulating air emissions from
polyurethane foam manufacturers, but these standards have not yet been proposed
or promulgated.
In addition to general regulatory requirements, state laws have resulted
or will result in more stringent regulations regarding the use and emission of
methylene chloride. Several former Crain facilities have been required to meet
greater restrictions regarding emission limits and/or quantities used of this
chemical.
On April 10, 1997, the Occupational Health and Safety Administration
promulgated new standards governing employee exposure to methylene chloride,
which is used as a blowing agent in some of Foamex L.P.'s manufacturing
processes. Foamex L.P. does not believe that it will be required to make any
material expenditures to comply with these new standards due to its use of
alternative technologies which do not use methylene chloride and its ability to
shift production to facilities which use these technologies; however, material
expenditures may be required at the facilities formerly operated by Crain.
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 September 30, 1998, Foamex L.P. has
accruals of approximately $2.8 million for the remaining potential remediation
costs for these facilities based on 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. Foamex L.P. has two 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 $0.1 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 EPA with respect to nine sites, with an estimated total liability
to Foamex L.P. for the nine sites of less than approximately $0.5 million.
Estimates of total clean-up 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.
10. LITIGATION
As of November 16, 1998, Foamex L.P. and Trace International Holdings,
Inc. ("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 these
transactions allege substantial damages, but most of these actions allege
unspecified damages for personal injuries of various types.
12
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. LITIGATION (continued)
Three 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. Foamex L.P. believes that the number of suits may
increase. 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. 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. Foamex L.P. is indemnified by Trace Holdings for any such
liabilities relating to foam manufactured prior to October 1990. Although Trace
Holdings has paid Foamex L.P.'s litigation expenses to date pursuant to such
indemnification, there can be no assurance that Trace Holdings will be able to
provide such indemnification in the future. While it is not feasible to predict
or determine the outcome of these actions, based on Foamex L.P.'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 the
consolidated financial position or results of operations of Foamex L.P. If
Foamex L.P.'s assessment of liability with respect to these actions is
incorrect, such actions could have a material adverse effect on Foamex L.P.
In November 1997, a complaint was filed in the United States District
Court for the Southern District of Texas alleging that various defendants,
including Crain through the use of the CARDIO(R) process licensed from a third
party, infringed on a patent held by plaintiff. Foamex L.P. is negotiating with
the licensor of the process for the assumption of the defense of the action by
the licensor; however, the action is in the preliminary stages, and there can be
no assurance as to the ultimate outcome of the action.
On or about March 17, 1998, five purported class action lawsuits were
filed in the Delaware Chancery Court, New Castle County (the "Court"), against
Foamex International, directors of Foamex International, Trace Holdings, and
individual officers and directors of Trace Holdings: Brickell Partners v.
Marshall S. Cogan, et al., No. 16260NC; Mimona Capital v. Salvatore J. Bonanno,
et al., No. 16259NC; Daniel Cohen v. Foamex International Inc., No. 16263;
Eileen Karisinki v. Foamex International Inc., et al., No. 16261NC and John E.
Funky Trust v. Salvatore J. Bonanno, et al., No. 16267. A sixth purported class
action lawsuit, Barnett Stepak v. Foamex International Inc., et al., No. 16277,
was filed on or about March 23, 1998 against the same defendants. A stipulation
and order consolidating these six actions under the caption In re Foamex
International Inc. Shareholders Litigation Consolidation Action, No. 16259NC was
entered by the Court on May 28, 1998 (the "Shareholders Litigation"). The
complaints in the six actions allege, among other things, that the defendants
have violated fiduciary and other common law duties purportedly owed to Foamex
International's stockholders in connection with Trace Holdings' initial proposal
to acquire all of the outstanding shares of Foamex International's common stock
(the "First Merger Agreement"). The complaints sought, among other things, class
certification, a declaration that the defendants have breached their fiduciary
duties to the class, preliminary and permanent injunctions barring
implementation of the proposed transaction, rescission of the transaction if
consummated, unspecified compensatory damages, and costs and attorneys' fees.
Foamex L.P. is not a party to such suit.
The parties to the Shareholders Litigation entered into a Memorandum of
Understanding, dated June 25, 1998 to settle the Shareholders Litigation,
subject to, inter alia, execution of a definitive Stipulation of Settlement and
approval by the Court following notice to the stockholders and a hearing, and on
September 9, 1998, the parties entered into a definitive Stipulation of
Settlement. On November 10, 1998, counsel for certain of the defendants in the
Shareholders Litigation gave notice pursuant to the Stipulation of Settlement
that such defendants were withdrawing from the Stipulation of Settlement. On
November 12, 1998, the plaintiffs in the Shareholders Litigation filed an
amended class action complaint against Foamex International, Trace Holdings and
certain individual directors of Foamex International alleging that (i) they
breached their fiduciary and other common law duties purportedly owed to Foamex
International's stockholders in connection with Trace Holding's revised proposal
to acquire all of the outstanding shares of Foamex International's common stock
(the "Second Merger Agreement"), (ii)
13
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. LITIGATION (continued)
the individual defendants violated the Delaware Code in approving the Second
Merger Agreement, and (iii) Trace Holdings breached the Stipulation of
Settlement. Foamex L.P. is not a party to such suit.
Foamex L.P. is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. Management believes 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.
11. COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which requires disclosure of comprehensive income, as defined, including
comprehensive disclosure in interim financial statements. Comprehensive income
(loss) for the respective periods presented below is comprised of the following:
<TABLE>
<CAPTION>
Quarterly Periods Ended Year to Date Periods Ended
September 30, September 28, September 30, September 28,
1998 1997 1998 1997
(thousands)
<S> <C> <C> <C> <C>
Net income (loss) $ 6,627 $ 9,553 $ 22,831 $ (3,385)
Foreign currency translation adjustments (1,130) (62) (900) (230)
-------- -------- -------- --------
Total comprehensive income (loss) $ 5,497 $ 9,491 $ 21,931 $ (3,615)
======== ======== ======== ========
</TABLE>
14
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly Owned Subsidiary of Foamex L.P.)
BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
September 30, December 28,
1998 1997
ASSETS (thousands)
<S> <C> <C>
CASH $1 $1
== ==
LIABILITIES AND STOCKHOLDER'S EQUITY
COMMITMENTS AND CONTINGENCIES $- $--
-- --
STOCKHOLDER'S EQUITY:
Common stock, par value $.01 per share;
1,000 shares authorized, issued and outstanding - --
Additional paid-in capital 1 1
-- --
TOTAL STOCKHOLDER'S EQUITY $1 $1
== ==
</TABLE>
The accompanying notes are an integral part of the balance sheets.
15
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly Owned Subsidiary of Foamex L.P.)
NOTES TO BALANCE SHEETS (unaudited)
1. ORGANIZATION
Foamex Capital Corporation ("FCC"), a wholly owned subsidiary of Foamex
L.P., was formed for the sole purpose of obtaining financing from external
sources.
2. COMMITMENTS AND CONTINGENCIES
FCC is a joint obligor and severally liable on the following borrowings
of Foamex L.P.:
9 7/8% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes")
The Senior Subordinated Notes were issued by Foamex L.P. and FCC in
connection with the June 1997 refinancing plan. The Senior Subordinated Notes
bear interest at the rate of 9 7/8% per annum payable semiannually on each June
15 and December 15, commencing December 15, 1997. The Senior Subordinated Notes
mature on June 15, 2007. The Senior Subordinated Notes may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after June 15,
2002, initially at 104.938% of their principal amount, plus accrued interest and
liquidated damages, as defined, if any, thereon to the date of redemption and
declining to 100.0% on or after June 15, 2005. In addition, at any time prior to
June 15, 2000, Foamex L.P. may on one or more occasions redeem up to 35.0% of
the initially outstanding principal amount of the Senior Subordinated Notes at a
redemption price equal to 109.875% of the principal amount, plus accrued
interest and liquidated damages, if any, thereon to the date of redemption with
the cash proceeds of one or more Public Equity Offerings, as defined. Upon the
occurrence of a change of control, as defined, each holder of Senior
Subordinated Notes will have the right to require Foamex L.P. to repurchase the
Senior Subordinated Notes at a price equal to 101.0% of the principal amount,
plus accrued interest and liquidated damages, if any, to the date of repurchase.
Trace Holdings' proposed acquisition of Foamex International may constitute such
a change of control. The Senior Subordinated Notes are subordinated in right of
payment to all senior indebtedness and are pari passu in right of payment to the
13 1/2% Senior Subordinated Notes and approximately $7.0 million subordinated
promissory note.
13 1/2% Senior Subordinated Notes due 2005 ("13 1/2% Senior Subordinated
Notes")
The 13 1/2% Senior Subordinated Notes were issued by Foamex L.P. and FCC
in a private placement on December 23, 1997 in connection with the Crain
Acquisition. The 13 1/2% Senior Subordinated Notes bear interest at the rate of
13 1/2% per annum payable semiannually on each February 15 and August 15,
commencing February 15, 1998. The 13 1/2% Senior Subordinated Notes mature on
August 15, 2005. The 13 1/2% Senior Subordinated Notes may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after August 15,
2000, initially at 106.75% of their principal amount, plus accrued interest and
liquidated damages, as defined, if any, thereon to the date of redemption and
declining to 100.0% on or after August 15, 2004. Upon the occurrence of a change
of control, as defined, each holder of the 13 1/2% Senior Subordinated Notes
will have the right to require Foamex L.P. to repurchase the 13 1/2% Senior
Subordinated Notes at a price equal to 101.0% of the principal amount, plus
accrued interest and liquidated damages, if any, to the date of repurchase.
Trace Holdings' proposed acquisition of Foamex International may constitute such
a change of control. The 13 1/2% Senior Subordinated Notes are subordinated in
right of payment to all senior indebtedness and are pari passu in right of
payment to the Senior Subordinated Notes and an approximately $7.0 million of
subordinated promissory note.
16
<PAGE>
FOAMEX CAPITAL CORPORATION
(A Wholly Owned Subsidiary of Foamex L.P.)
NOTES TO BALANCE SHEETS (unaudited)
2. COMMITMENTS AND CONTINGENCIES (continued)
Foamex L.P. has completed a registration statement relating to an
exchange offer in which Foamex L.P. exchanged the 13 1/2% Senior Subordinated
Notes issued in the private placement for new notes. The terms of the new notes
are substantially identical in all respects (including principal amount,
interest rate, maturity and ranking) to the terms of the 13 1/2% Senior
Subordinated Notes, except that the new notes are transferable by holders
thereof without further registration under the Securities Act of 1933, as
amended (except in the case of 13 1/2% Senior Subordinated Notes held by
affiliates of Foamex L.P. and for certain other holders), and are not subject to
any covenant regarding registration under the Securities Act of 1933, as
amended.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Foamex L.P. operates in the flexible polyurethane and advanced polymer
foam products industry. The following discussion should be read in conjunction
with the condensed consolidated financial statements and related notes thereto
of Foamex L.P. included in this report. Certain information in this report
contains forward-looking statements and should be read in conjunction with the
discussion regarding forward-looking statements set forth on page five of Foamex
L.P.'s 1997 Annual Report on Form 10-K/A.
During 1997, Foamex L.P.'s products were utilized primarily in four
businesses: (i) Foam Products, consisting of cushioning foams, including
bedding, furniture, packaging, health care and foam-based consumer products such
as futons, pillows, mattress pads and juvenile furniture, (ii) Carpet Cushion
Products, consisting of carpet padding and related products, (iii) Automotive
Products, consisting of automotive trim, laminates and other accessories, and
(iv) Technical Products, consisting of reticulated and other specialty foams
used for reservoiring, gasketing and sealing.
On November 5, 1998, Trace Holdings, Trace Merger Sub, Inc. ("Trace
Merger Sub") and Foamex International entered into a Second Merger Agreement.
Pursuant to the terms of the Second Merger Agreement, Trace Merger Sub will be
merged with and into Foamex International (the "Merger") and each outstanding
share of Foamex International's common stock (except for shares owned by the
Trace Holdings shareholders, shares owned by Foamex International and shares
owned by the stockholders who perfected their appraisal rights in accordance
with Delaware Law) will be converted into the right to received $12.00 in cash,
without interest. Also on November 5, 1998, Trace Holdings terminated the First
Merger Agreement among the parties by delivering a Notice of Termination to
Foamex International. Trace Holdings terminated the First Merger Agreement
because the financing condition contained in the First Merger Agreement was
incapable of being satisfied on or prior to December 31, 1998.
Consummation of the Merger is subject to various conditions, including,
among others: (i) the approval and adoption of the Second Merger Agreement by
(A) the affirmative vote of holders of a majority of the outstanding shares of
Foamex International's common stock entitled to vote thereon, and (B) the
affirmative vote of a majority of the Independent Shares (as defined) voting
with respect to the Merger, (ii) the absence of any injunction preventing
consummation of the Merger, (iii) the obtaining of financing for the
transactions contemplated by the Second Merger Agreement on terms and conditions
and in amounts reasonably satisfactory to Trace Holdings, and (iv) other
conditions that may be waived by the parties, including: the absence of any
action, suit, claim or legal, administrative or arbitral proceeding or
investigation pending before any governmental entity seeking to restrain or
prohibit, or to obtain damages in respect of the Second Merger Agreement or the
consummation of the transactions contemplated thereby.
In April 1998, Foamex L.P.'s facility in Orlando, Florida was damaged by
a fire. Foamex L.P. recommenced the manufacturing of Foam Products in this
facility in mid-September 1998. During this idle period, Foamex L.P. supplied
local customers from other facilities. Foamex L.P. believes that it has adequate
insurance coverage for business interruption and damages to the facility
associated with the fire; however, there can be no assurance that the fire will
not have a significant impact on Foamex L.P.'s financial position or operations.
On February 27, 1998, Foamex International, Foamex L.P. and certain of
their affiliates completed a series of transactions designed to simplify the
structure of Foamex International and Foamex L.P. and to provide future
operational flexibility (collectively, the "GFI Transaction"). Prior to the
consummation of these transactions, (i) Foamex L.P. and Foamex L.P.'s wholly
owned subsidiary, General Felt, entered into a supply agreement and an
administrative services agreement, (ii) Foamex L.P. repaid its outstanding
indebtedness to General Felt with $4.8 million in cash and the Foamex/GFI Note
supported by a $34.5 million letter of credit under the Credit Facility, (iii)
Foamex L.P. contributed to General Felt $9.4 million of outstanding net
intercompany payables and intercompany loans with General Felt and (iv) Foamex
L.P. defeased the $4.5 million outstanding principal amount of its 9 1/2% senior
secured notes due 2000. The initial transaction resulted in the transfer from
Foamex L.P. to Foam Funding LLC of all of the outstanding common stock of
General Felt, in exchange for (i) the assumption by Foam Funding LLC of $129.0
million of Foamex L.P.'s indebtedness and (ii) the transfer by Foam Funding LLC
to Foamex L.P. of a 1% non-managing general partnership interest in Foamex L.P.
As a result, General Felt ceased being a subsidiary of Foamex L.P. and was
relieved from all obligations under Foamex L.P.'s 9 7/8% senior subordinated
notes due 2007 and 13 1/2% senior subordinated notes due 2005. Upon consummation
of the initial transaction, Foamex Carpet, a newly formed wholly owned
subsidiary of Foamex International, Foamex International, Foam Funding
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LLC, and General Felt entered into an asset purchase agreement dated February
27, 1998, pursuant to which General Felt sold substantially all of its assets
(other than the Foamex/GFI Note and its operating facility in Pico Rivera,
California) to Foamex Carpet in exchange for (i) $20.0 million in cash and (ii)
a promissory note issued by Foamex Carpet to Foam Funding LLC in the amount of
$70.2 million. The $20.0 million cash payment was funded with a distribution by
Foamex L.P. to Foamex International. As part of these transactions, FMXI, Inc.
and Crain, both wholly owned subsidiaries of Foamex International and general
partners of Foamex L.P., were merged and Crain, as the surviving corporation,
subsequently changed its name to FMXI, Inc. Foamex Carpet will conduct the
carpet cushion business previously conducted by General Felt.
No gain has been recognized on the GFI Transaction. The impact of the GFI
Transaction was an increase in Foamex L.P.'s partners' equity (deficit) of
approximately $10.1 million, a distribution of $20.0 million to Foamex
International and approximately $1.5 million of fees charged to earnings. The
proceeds from the $129.0 million of debt assumed by Foam Funding LLC in the GFI
Transaction was used to repay approximately $125.1 million of term loan
borrowings that was accounted for as an extinguishment of debt which resulted in
an extraordinary loss of approximately $3.2 million. The 1% non-managing general
partnership interest acquired in connection with the GFI Transaction was
accounted for as a redemption of equity. The GFI Transaction used cash of
approximately $10.2 million. The non-cash portion was insignificant.
On December 23, 1997, Foamex International acquired Crain pursuant to a
merger agreement with Crain Holdings Corp. for a purchase price of approximately
$213.7 million, including the assumption of debt with a face value of
approximately $98.6 million (and an estimated fair value of approximately $112.3
million). Subsequent to the acquisition, Foamex International contributed the
assets of Crain, subject to all of its liabilities and indebtedness, to Foamex
L.P. Fees and expenses associated with the Crain Acquisition were approximately
$13.2 million.
Operating results for 1998 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
consolidation of the Crain Acquisition, (ii) continued implementation of the
continuous improvement program to improve Foamex L.P.'s profitability, (iii)
additional raw material cost increases, if any, by Foamex L.P.'s chemical
suppliers, (iv) Foamex L.P.'s success in passing on to its customers selling
price increases to recover such raw material cost increases and (v) fluctuations
in interest rates.
Quarterly Period Ended September 30, 1998 Compared to Quarterly
Period Ended September 28, 1997
Results of Operations
Net sales for the third quarter of 1998 were $299.8 million as compared
to $233.4 million in the third quarter of 1997, an increase of $66.3 million or
28.4%. Foam Products net sales for the third quarter of 1998 increased to $155.1
million from $89.8 million in the third quarter of 1997 primarily due to net
sales from the Crain Acquisition, which occurred in December 1997, and increased
volume from national bedding customers and fabricators. Carpet Cushion Products
net sales for the third quarter of 1998 decreased 28.8% to $51.3 million from
$72.0 million in the third quarter of 1997 primarily due to the GFI Transaction,
which occurred on February 27, 1998 (see Note 3), which resulted in General Felt
no longer being included in Foamex L.P.'s results of operations subsequent to
the transaction date, offset by increased net sales from the Crain Acquisition.
Automotive Products net sales for the third quarter of 1998 increased 40.6% to
$73.6 million from $52.3 million in the third quarter of 1997 primarily due to
increased volume associated with above normal volume to General Motors and
General Motor suppliers following the settlement of the General Motor labor
dispute. This above normal level of volume is not expected to continue.
Technical Products net sales for the third quarter of 1998 increased 2.6% to
$19.8 million from $19.3 million in the third quarter of 1997 primarily due to
increased net sales volume for felted, gasketing, and sealing products.
Gross profit as a percentage of net sales decreased to 14.2% for the
third quarter of 1998 from 16.3% in the third quarter of 1997 primarily due to
(i) a $2.2 million increase in cost of goods sold for Foamex L.P.'s operations
in Mexico, (ii) operating inefficiencies and logistics costs of $2.5 million
associated with the sales of juvenile and other consumer products sold through
mass merchandisers and discount stores, and (iii) a shift in product mix for
1998 as a result of the Crain Acquisition and the GFI Transaction offset by
increased purchasing leverage. Crain's
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
principal product lines, bedding, furniture and carpet cushion, have inherently
lower gross profit margins than Foamex L.P.'s historical gross profit margins.
Selling, general and administrative expenses increased primarily due to a
$2.7 million additional provision for doubtful accounts recorded during the
third quarter of 1998 and additional expenses from the Crain operations offset
by the reduction in selling, general and administrative expenses associated with
the former operations of General Felt.
Income from operations increased to $24.6 million for the third quarter
of 1998 from $22.5 million in the third quarter of 1997. The increase primarily
reflected the Crain Acquisition, partially offset by the items discussed above.
Income before extraordinary loss decreased to $6.6 million for the third
quarter of 1998 as compared to $9.6 million for the third quarter of 1997. The
decrease is primarily due to the increase in income from operations discussed
above offset by an increase of approximately $4.9 million in interest and debt
issuance expense and an increase of $1.4 million in other income (expense), net,
associated with financial and legal advisors used by Foamex International in
connection with the proposed Merger and foreign currency losses in Mexico and
Canada. The increase in interest and debt issuance expense is primarily due to
the additional debt incurred in connection with the Crain Acquisition and the
June 1997 refinancing plan.
Year to Date Period Ended September 30, 1998 Compared to Year to Date
Period Ended September 28, 1997
Results of Operations
Net sales for the year to date period ended September 30, 1998 were
$871.6 million as compared to $702.4 million for the year to date period ended
September 28, 1997, an increase of $169.1 million or 24.1%. Foam Products net
sales for the year to date period ended September 30, 1998 increased to $448.6
million from $259.7 million for the year to date period ended September 28, 1997
primarily due to the net sales from the Crain Acquisition, which occurred in
December 1997, and increased volume from national bedding customers and
fabricators. Carpet Cushion Products net sales for the year to date period ended
September 30, 1998 decreased 24.3% to $162.6 million from $214.9 million for the
year to date period ended September 28, 1997. This decrease was primarily due to
(i) reductions in net sales due to the GFI Transaction in February 1998 and the
sale of Dalton in October 1997, (ii) reductions in rebond selling prices in 1998
as compared to 1997 and (iii) changes in product mix. Automotive Products net
sales for the year to date period ended September 30, 1998 increased 16.3% to
$199.3 million from $171.4 million for the year to date period ended September
28, 1997 primarily due to increased volume of laminated products. Technical
Products net sales for the year to date period ended September 30, 1998
increased 8.2% to $61.1 million from $56.4 million for the year to date period
ended September 28, 1997 primarily due to increased net sales volume for felted,
gasketing, and sealing products.
Gross profit as a percentage of net sales decreased to 15.5% for the year
to date period ended September 30, 1998 from 17.9% in the year to date period
ended September 28, 1997 primarily due to (i) a $2.2 million increase in cost of
goods sold recorded during the third quarter of 1998 for Foamex L.P.'s
operations in Mexico in connection with certain inventory writedowns; (ii)
operating inefficiencies and logistics costs of $2.5 million recorded during the
third quarter of 1998 associated with the sales of juvenile and other consumer
products sold through mass merchandisers and discount stores; and (iii) the
shift in product mix for 1998 as a result of the Crain Acquisition. Crain's
principal product lines, bedding, furniture and carpet cushion, have inherently
lower gross profit margins than Foamex L.P.'s historical gross profit margins.
The 1998 gross profit percentage was also impacted by Foamex L.P. carrying the
full operating costs of both organizations. The Foamex L.P.
restructuring/consolidation programs were a favorable factor.
Income from operations increased to $79.0 million for the year to date
period ended September 30, 1998 from $78.7 million in the year to date period
ended September 28, 1997. The increase primarily reflected the Crain
Acquisition, partially offset by the items discussed above.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Income before extraordinary loss decreased to $26.0 million for the year
to date period ended September 30, 1998 as compared to $42.2 million for the
year to date period ended September 28, 1997. The decrease is primarily due the
decrease in income from operations discussed above, offset by an increase of
approximately $15.8 million in interest and debt issuance expense and an
increase of $3.2 million of other income (expense), net, associated with certain
fees and financial and legal advisors used by Foamex International in connection
with the proposed Merger and foreign currency losses in Mexico and Canada. The
increase in interest and debt issuance expense is primarily due to the
additional debt incurred in connection with the Crain Acquisition and the June
1997 refinancing plan.
The extraordinary loss on early extinguishment of debt of approximately
$3.2 million during the year to date period ended September 30, 1998 primarily
relates to the write-off of debt issuance costs with debt extinguishment in
connection with the GFI Transaction and the redemption of the 9 1/2% senior
secured notes due 2000 and redeemed in June. The extraordinary loss on early
extinguishment of debt of approximately $45.5 million during the year to date
period ended September 28, 1997 primarily relates to the write-off of debt
issuance costs with debt extinguished in connection with the June 1997
refinancing plan.
Foamex Capital Corporation ("FCC")
FCC is solely a co-issuer of certain indebtedness of Foamex L.P. and has
no other material operations.
Liquidity and Capital Resources
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
the Credit Facility, if necessary, will be adequate to meet operating cash
requirements. The ability to meet the operating cash requirements of Foamex L.P.
could be impaired if Foamex L.P. was to fail to comply with any of the covenants
contained in the 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 Credit Facility as of September 30, 1998 and expects to be in compliance
with the covenants for the foreseeable future.
Cash and cash equivalents decreased $7.3 million during 1998 to $2.1
million at September 30, 1998 from $9.4 million at December 28, 1997 primarily
due to an increase in cash used to fund the operating assets and liabilities.
Working capital increased $48.3 million during 1998 to $174.4 million at
September 30, 1998 from $126.1 million at December 28, 1997 primarily due to an
increase in net operating assets (defined below) of $24.4 million, a decrease in
current portion of long-term debt of $7.8 million and a net increase in other
current assets and liabilities of $21.9 million. The decrease in current portion
of long-term debt is primarily due to the assumption of Foamex L.P.'s long-term
debt by Foam Funding LLC in connection with the GFI Transaction. The net
increase in other current assets and liabilities is primarily associated with
the timing of payments for prepaid expenses and accrued liabilities and the
receipt of cash for other receivables. The increase in net operating assets
(comprised of accounts receivable, accounts receivables from related parties,
inventories, accounts payable and accounts payable related parties) of $24.4
million during 1998 to $188.5 million at September 30, 1998 from $164.1 million
at December 28, 1997 was primarily due to increases in accounts receivable -
related party and inventory and decreases in accounts payable, accounts payable
- - related party and accounts receivable. The decrease in accounts payable and in
accounts payable - related party is primarily due to the timing of payments.
As of September 30, 1998, there were $137.0 million of revolving credit
borrowings under the Credit Facility and approximately $50.0 million associated
with letters of credit outstanding which are supported by the Credit Facility
with unused availability of approximately $13.1 million. Borrowings by Foamex
Canada Inc. as of September 30, 1998 were $3.6 million under Foamex Canada
Inc.'s revolving credit agreement with unused availability of approximately $1.7
million.
Cash flow used for operating activities was $27.5 million for the year to
date period ended September 30, 1998 as compared to cash provided of $8.8
million for the year to date period ended September 28, 1997. This decrease is
primarily due to changes in the components of working capital primarily related
to (i) cash used for the
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
increase in inventory, accounts receivable - related party and other receivables
associated with the timing of receipts and (ii) a reduction in accounts payable
and accounts payable related party associated with the timing of payments.
Cash flow used for investing activities decreased to $35.6 million for
the year to date period ended September 30, 1998 from $125.1 million for the
year to date period ended September 28, 1997 primarily due to the use of $105.8
million of cash during 1997 to purchase the outstanding FJPS discount debentures
in connection with the June 1997 refinancing plan.
Cash flow provided by financing activities decreased to $55.9 million for
the year to date period ended September 30, 1998 as compared to cash provided of
$96.4 million for the year to date period ended September 28, 1997. The decrease
is due to greater net borrowings during the year to date period ended September
28, 1997 primarily relating to the June 1997 refinancing plan as compared to net
cash borrowings during the year to date period ended September 30, 1998
primarily for working capital needs and to fund distributions relating to the
GFI Transaction.
Certain credit agreements and promissory notes of Foamex L.P. and/or
Foamex Carpet pursuant to which approximately $500.0 million of debt has been
issued, contain provisions that would result in the acceleration of such
indebtedness if Trace Holdings were to cease to own at least 30% of Foamex
International's outstanding common stock. Similarly, certain indentures of
Foamex L.P. and Foamex Capital Corporation relating to approximately $248.0
million of senior subordinated notes contain provisions that provide the holders
of such senior subordinated notes with the right to require the issuers thereof
to repurchase such senior subordinated notes at a price in cash equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if Trace Holdings falls below certain specified ownership levels of
Foamex International's common stock and other persons or groups own a greater
percentage of Foamex International's common stock than Trace Holdings. Trace
Holdings has informed Foamex International that it has substantial debt
obligations due at the end of December 1998 and currently does not have the
financial resources to pay these obligations. Trace Holdings intends to seek
waivers and/or modifications of such indebtedness; however, there can be no
assurance that such waivers and/or modifications will be received. If Trace
Holdings were to default on its indebtedness and the holders of such
indebtedness or other Trace Holdings creditors were to foreclose on or otherwise
attach the Foamex International common stock owned by Trace Holdings, such event
could trigger the acceleration and put rights described above. Although Foamex
L.P.'s management believes that its debt obligations would be refinanced under
such circumstances, there can be no assurance that it would be able to do so.
Trace Holdings has informed Foamex International that it anticipates that if the
proposed merger is consummated it will be able to satisfy or restructure its
outstanding obligations.
Interest Rate Swaps
In September 1998, Foamex L.P. sold its existing interest rate swap
agreement for a net gain of approximately $1.0 million which is being amortized
over the life of the debt.
The effect of Foamex L.P.'s interest rate swap agreements were decreases
in interest and debt issuance expense of $0.3 million and $0.5 million for the
quarterly periods ended September 30, 1998 and September 28, 1997, respectively,
and $0.7 million and $2.2 million for the year to date periods ended September
30, 1998 and September 28, 1997, 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 September 30, 1998 was $3.4 million. In addition, as
of September 30, 1998 Foamex L.P. has net receivables of $0.6 million for
indemnification of environmental liabilities from former owners. 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
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 periods presented. 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.
Foamex L.P.'s automotive products 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.
Year 2000 Compliance
Foamex L.P. uses multiple business information systems as well as
manufacturing support systems that could be impacted by the "Year 2000 problem".
The Year 2000 problem arises from computer programs that have been written using
two digits rather than four to designate the year. Date-sensitive computer
software may recognize a date using "00" as the year 1900 rather than the year
2000, resulting in system failures or miscalculations, which may cause
operational disruptions.
Foamex L.P. is in the process of the remediation of their business
information computer systems. Foamex L.P. is also in the process of the
conversion of the former Crain systems to Foamex L.P.'s standard business
information computer systems. The replacement of these systems will increase the
integration of systems and allow employees at different locations to share
financial information and operations information more effectively. Remediation
of Foamex L.P. business information computer systems and the conversion of the
former Crain systems should be completed in 1998. These systems and software are
Year 2000 compliant, thus handling the majority of Foamex L.P.'s Year 2000
business systems requirements.
Foamex L.P. has a Year 2000 Executive Sponsor Team with representatives
of Foamex L.P. The Year 2000 Executive Sponsor Team is providing direction to
the Year 2000 Steering Committee within the organization. The Steering Committee
is in the process of completing an assessment of the state of readiness of the
Information Technology ("IT") and non-IT systems of Foamex L.P. These
assessments cover manufacturing systems, including laboratory information
systems and field instrumentation, and significant third party vendor and
supplier systems, including employee compensation and benefit plan maintenance
systems. The Steering Committee is also in the process of assessing the
readiness of significant customers and suppliers.
The Year 2000 assessment process for each facility consists of an
inventory of Year 2000 sensitive equipment, an assessment of the impact of
possible failures, determination of the required remediation actions, and
testing and implementation of solutions. The inventory, assessment, remediation
and testing phases should be completed in 1998, with fail safe testing and final
implementation taking place in 1999. The progress of these phases as of
September 30, 1998 is summarized as follows:
The total estimated spending of $2.4 million for Foamex L.P. represents a
midpoint of an estimated range between $2.1 million and $2.7 million. These
spending estimates will be refined as phases of the assessment are completed.
Spending is funded by cash generated from operations. Preliminary estimates
indicate that from 25 to 35 percent of the estimated costs could qualify for
capitalization.
Management believes that all significant systems controlled by Foamex
L.P. will be Year 2000 ready in the last half of 1999. While the Steering
Committee is communicating readiness to third party customers, as requested, and
is assessing the readiness of critical suppliers, there can be no assurance that
third parties with a significant business relationship will successfully test,
reprogram, and replace all of their IT and non-IT systems on a timely
23
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
basis. As part of the overall readiness, Foamex L.P. is in the process of
developing contingency plans in the event of Year 2000 non-compliance of certain
systems or third parties. Details of such contingency plans will be determined
after the Steering Committee has completed its assessment of both internal and
third party systems and the potential for possible failures.
There is inherent uncertainty in the Year 2000 problem due to the
possibility of unanticipated failures by third party customers and suppliers.
Accordingly, Foamex L.P. is unable, at this time, to assess the extent and
resulting materiality of the impact of possible Year 2000 failures on its
operations, liquidity or financial position. The Year 2000 assessment process is
expected to provide information that will significantly reduce the level of
uncertainty regarding the Year 2000 impact. Management believes that the
completion of the assessment as scheduled will help minimize the possibility of
any significant disruptions of Foamex L.P.'s operations.
New Accounting Standards
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board in June 1997. This statement requires all items that must be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. Foamex L.P. adopted SFAS No. 130 during the first
quarter of 1998 (see Note 11).
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Restated Information," was
issued by the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected financial
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Foamex L.P. will
adopt SFAS No. 131 for year end 1998 reporting. Management is evaluating the
impact, if any, the standard will have on Foamex L.P.'s present segment
reporting.
In February 1998 the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pension and Other Postretirement Benefits"
("SFAS No. 132"), which is effective for fiscal years beginning after December
15, 1997. SFAS No. 132 revised the required disclosures about pension and other
postretirement benefit plans. Foamex L.P. plans to adopt SFAS No. 132 in the
fourth quarter of 1998.
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 established new procedures for accounting for
derivatives and hedging activities and supercedes and amends a number of
existing standards. The statement is effective for fiscal years beginning after
June 15, 1999.
24
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to the description of the legal proceedings contained
in the Foamex L.P. Annual Report on Form 10-K/A for the fiscal year
ended December 28, 1997 and in Foamex L.P.'s Quarterly Report on Form
10-Q/A for the fiscal quarter ended June 28, 1998.
The information from Notes 9 and 10 of the condensed consolidated
financial statements of Foamex L.P. and subsidiaries as of September
30, 1998 (unaudited) is incorporated herein by reference.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Financial Statement Schedules.
(a) Exhibits
2.1(x) - Transfer Agreement, dated as of February 27, 1998, by and between
Foam Funding LLC ("Foam LLC") and Foamex L.P.
3.1(a) - Certificate of Limited Partnership of Foamex L.P.
3.2.1(a) - Fourth Amended and Restated Agreement of Limited Partnership of
Foamex L.P., dated as of December 14, 1993, by and among FMXI Inc.
("FMXI") and Trace Foam Company, Inc. ("Trace Foam"), as general
partners, and Foamex L.P., as a limited partner (the "Partnership
Agreement").
3.2.2(b) - First Amendment to the Partnership Agreement, dated June 28, 1994.
3.2.3(c) - Second Amendment to the Partnership Agreement, dated June 12,
1997.
3.2.4(v) - Third Amendment to the Partnership Agreement, dated December 23,
1997.
3.2.5(x) - Fourth Amendment to the Partnership Agreement, dated February 27,
1998.
3.3(y) - Certificate of Incorporation of FMXI.
3.4(y) - By-laws of FMXI.
3.5(k) - Certificate of Incorporation of Foamex Capital Corporation
("FCC").
3.6(k) - By-laws of FCC.
4.1.1(d) - Indenture, dated as of June 12, 1997, by and among Foamex L.P.,
FCC, the Subsidiary Guarantors and The Bank of New York, as Trustee,
relating to $150,000,000 principal amount of 9 7/8% Senior
Subordinated Notes due 2007, including the form of Senior
Subordinated Note and Subsidiary Guarantee.
4.1.2(v) - First Supplemental Indenture, dated as of December 23, 1997,
between Foamex LLC ("FLLC") and The Bank of New York, as trustee,
relating to the 9 7/8% Notes.
4.1.3(x) - Second Supplemental Indenture, dated as of February 27, 1998,
among Foamex L.P. and FCC, as joint and several obligors, General
Felt Industries, Inc. ("General Felt"), Foamex Fibers, Inc. ("Foamex
Fibers"), and FLLC, as withdrawing guarantors, and The Bank of New
York, as trustee, relating to the 9 7/8% Notes.
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4.2.1(v) - Indenture, dated as of December 23, 1997, by and among Foamex
L.P., FCC, the Subsidiary Guarantors, Crain Holdings Corp., as
Intermediate obligator, and The Bank of New York, as trustee,
relating to $98,000,000 principal amount of 13 1/2% Senior
Subordinated Notes due 2005 (the "13 1/2% Notes"), including the
form of Senior Subordinated Note and Subsidiary Guarantee.
4.2.2(x) - First Supplemental Indenture, dated as of February 27, 1998, among
Foamex L.P. and FCC, as joint and several obligors, General Felt,
Foamex Fibers and FLLC, as withdrawing guarantors, Crain Industries,
Inc., as withdrawing intermediate obligor, and The Bank of New York,
as trustee, relating to the 13 1/2% Notes.
4.3(x) - Discharge of Indenture, dated as of February 27, 1998, by and
among Foamex L.P., General Felt, Foamex International Inc. ("Foamex
International") and State Street Bank and Trust Company, as trustee,
relating to the 9 1/2% Senior Secured Notes due 2000.
4.4.1(x) - Credit Agreement, dated as of June 12, 1997, as amended and
restated as of February 27, 1998, by and among Foamex L.P., and
FMXI, the institutions from time to time party thereto as lenders,
the institutions from time to time party thereto as issuing banks,
and Citicorp USA, Inc. and The Bank of Nova Scotia, as
Administrative Agents.
4.4.2(x) - Second Amended and Restated Foamex International Guaranty, dated
as of February 27, 1998, made by Foamex International in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.3(x) - Amended and Restated Partnership Guaranty, dated as of February
27, 1998, made by FMXI in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.4(p) - Foamex Guaranty, dated as of June 12, 1997, made by Foamex L.P. in
favor of Citicorp USA, Inc., as Collateral Agent.
4.4.5(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Latin America, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.6(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.7(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by FCC in
favor of Citicorp USA, Inc., as Collateral Agent.
4.4.8(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.9(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Asia, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.10(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.11(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Latin America, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.12(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.13(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.14(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.15(p) - Foamex Security Agreement, dated as of June 12, 1997, made by
Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.16(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Latin America, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.17(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.18(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.19(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.20(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
FCC in favor of Citicorp USA, Inc., as Collateral Agent.
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4.4.21(r) - Foamex Pledge Agreement, dated as of June 12, 1997, made by Foamex
L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.22(w) - First Amendment to Foamex Pledge Agreement, dated as of December
23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.23(w) - First Amendment to Foamex Security Agreement, dated as of December
23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.24(w) - First Amendment to Foamex Patent Agreement, dated as of December
23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.25(w) - First Amendment to Trademark Security Agreement, dated as of
December 23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.26(w) - Acknowledgment of Guaranty by each of the guarantors to a Guaranty
dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.27(w) - First Amendment to Pledge Agreement, dated as of December 23,
1997, by pledgors in favor of Citicorp USA, Inc.
4.4.28(w) - Crain Industries Guaranty, dated as of December 23, 1997, made by
Crain in favor of Citicorp USA, Inc.
4.4.29(x) - Partnership Pledge Agreement, dated as of February 27, 1998, made
by Foamex International and FMXI in favor of Citicorp USA, Inc., as
Collateral Agent.
4.6(j) - Commitment letter, dated July 9, 1996, from The Bank of Nova
Scotia to Foamex Canada Inc.
4.7(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").
4.8(a) - Marely Loan Commitment Agreement, dated as of December 14, 1993,
by and between Foamex L.P. and Marely s.a. ("Marely").
4.9(a) - DLJ Loan Commitment Agreement, dated as of December 14, 1993, by
and between Foamex L.P. and DLJ Funding, Inc. ("DLJ Funding").
4.10(p) - Promissory Note, dated June 12, 1997, in the aggregate principal
amount of $5,000,000, executed by Trace Holdings to Foamex.
4.10.1(p) - Promissory Note, dated June 12, 1997, in the aggregate principal
amount of $4,794,828, executed by Trace Holdings to Foamex.
4.11.1(x) - Promissory Note of Foamex L.P. in favor of Foam LLC in the
principal amount of $34 million, dated February 27, 1998.
10.1.1(p) - Amendment to Master Agreement, dated as of June 5, 1997, between
Citibank, N.A. and Foamex.
10.1.2(p) - Amended confirmation, dated as of June 13, 1997, between Citibank,
N.A. and Foamex L.P.
10.1.3(w) - Amended confirmation, dated as of February 2, 1998, between
Citibank, N.A. and Foamex L.P.
10.2(h) - Reimbursement Agreement, dated as of March 23, 1993, between Trace
Holdings and General Felt.
10.3(h) - 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 Blackwell, and Prefoam
AG relating to foam technology sharing arrangement.
10.4.1(k) - Asset Transfer Agreement, dated as of October 2, 1990, between
Trace Holdings and Foamex (the "Trace Holdings Asset Transfer
Agreement").
10.4.2(k) - First Amendment, dated as of December 19, 1991, to the Trace
Holdings Asset Transfer Agreement.
10.4.3(k) - Amended and Restated Guaranty, dated as of December 19, 1991, made
by Trace Foam in favor of Foamex L.P.
10.5.1(k) - Asset Transfer Agreement, dated as of October 2, 1990, between RFC
and Foamex L.P. (the "RFC Asset Transfer Agreement").
10.5.2(k) - First Amendment, dated as of December 19, 1991, to the RFC Asset
Transfer Agreement.
10.5.3(k) - Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
Protocol").
10.5.4(h) - The 5.03 Protocol Assumption Agreement, dated as of October 13,
1992, between RFC and Foamex L.P.
10.5.5(h) - Letter Agreement between Trace Holdings and Recticel regarding the
Recticel Guaranty, dated as of July 22, 1992.
10.6(l) - Supply Agreement, dated June 28, 1994, between Foamex L.P. and
Foamex International.
27
<PAGE>
10.7.1(l) - First Amended and Restated Tax Sharing Agreement, dated as of
December 14, 1993, among Foamex, Trace Foam, FMXI and Foamex L.P.
10.7.2(d) - First Amendment to Amended and Restated Tax Sharing Agreement of
Foamex, dated as of June 12, 1997, by and among Foamex, Foamex L.P.,
FMXI, Inc. and Trace Foam.
10.7.3(w) - Second Amendment to Amended and Restated Tax Sharing Agreement of
Foamex L.P., dated as of December 23, 1997, by and among Foamex
L.P., Foamex International, FMXI, and Trace Foam.
10.7.4(y) - Third Amendment to Amended and Restated Tax Sharing Agreement of
Foamex L.P., dated as of February 27, 1998, by and between Foamex
L.P., Foamex International and FMXI.
10.8.1(m) - Tax Distribution Advance Agreement, dated as of December 11, 1996,
by and between Foamex and Foamex-JPS Automotive.
10.8.2(d) - Amendment No. 1 to Tax Distribution Advance Agreement, dated as of
June 12, 1997, by and between Foamex L.P. and Foamex.
10.9.1(h) - Trace Foam Management Agreement between Foamex and Trace Foam,
dated as of October 13, 1992.
10.9.2(l) - Affirmation Agreement re: Management Agreement, dated as of
December 14, 1993, between Foamex and Trace Foam.
10.9.3(d) - First Amendment to Management Agreement, dated as of June 12,
1997, by and between Foamex and Trace Foam.
10.10.1(k) - Salaried Incentive Plan of Foamex and Subsidiaries.
10.10.2(k) - Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k) - Equity Growth Participation Program.
10.10.4(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, 1994.
10.10.5(u) - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.6(a) - Foamex L.P.'s 1993 Stock Option Plan.
10.10.7(a) - Foamex L.P.'s Non-Employee Director Compensation Plan.
10.11.1(o) - Employment Agreement, dated as of February 1, 1994, by and between
Foamex L.P. and William H. Bundy.
10.12(a) - Warrant Exchange Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and Marely.
10.13(a) - Warrant Exchange Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and DLJ Funding.
10.14(o) - 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.
10.15.1(r) - Asset Purchase Agreement, dated as of August 29, 1997, by and
among General Felt, Foamex L.P., Bretlin, Inc. and The Dixie Group.
10.15.2(s) - Addendum to Asset Purchase Agreement, dated as of October 1, 1997,
by and among General Felt, Foamex L.P., Bretlin, Inc. and The Dixie
Group.
10.16.1(x) - Supply Agreement, dated as of February 27, 1998, by and between
Foamex L.P. and General Felt (as assigned to Foamex Carpet).
10.16.2(x) - Administrative Services Agreement, dated as of February 27, 1998,
by and between Foamex L.P. and General Felt (as assigned to Foamex
Carpet).
10.17.1(w) - Joint Venture Agreement between Hua Kee Company Limited and Foamex
Asia, Inc., dated July 8, 1997.
10.17.2(w) - Loan Agreement between Hua Kee Company Limited and Foamex Asia,
Inc., dated July 8, 1997.
27 - Amended Financial Data Schedule for the year to date period ended
September 30, 1998.
- ----------------------------
(a) Incorporated herein by reference to the Exhibit to Foamex L.P.'s
Registration Statement on Form S-1, Registration No. 33-69606.
(b) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
for the fiscal year ended January 1, 1995.
28
<PAGE>
(c) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex reporting an event that occurred May 28, 1997.
(d) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex reporting an event that occurred June 12, 1997.
(e) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex and FCC on Form S-4, Registration No. 33-65158.
(f) Intentionally omitted.
(g) Intentionally omitted.
(h) Incorporated herein by reference to the Exhibit to the Form 10-K Statement
of Foamex and FCC for fiscal 1992.
(i) Intentionally omitted.
(j) Incorporated herein by reference to the Exhibit to the Form 10-Q of Foamex
for the quarterly period ended September 30, 1996.
(k) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex and FCC on Form S-1, Registration Nos. 33-49976 and
33-49976-01.
(l) Incorporated herein by reference to the Exhibit to the Registration
Statement of FJPS, FJCC and Foamex L.P. on Form S-4, Registration No.
33-82028.
(m) Incorporated herein by reference to the Exhibit to the Annual Report on
Form 10-K of Foamex for the fiscal year ended December 29, 1996.
(n) Intentionally omitted.
(o) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
L.P. for fiscal 1993.
(p) Incorporated herein by reference to the Exhibit in the Registration
Statement of Foamex on Form S-4, Registration No. 333-30291.
(q) Intentionally omitted.
(r) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex L.P. reporting an event that occurred on August 29, 1997.
(s) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex L.P. reporting an event that occurred on October 6, 1997.
(t) Intentionally omitted.
(u) Incorporated by reference to the Exhibit to the Form 10-Q of Foamex L.P.
for the quarterly period ended September 28, 1997.
(v) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P., Foamex Capital Corporation and Foamex
International reporting an event that occurred December 23, 1997.
(w) Incorporated herein by reference to the Exhibit in the Registration
Statement of Foamex L.P. and FCC on Form S-4, Registration No. 333-45733.
29
<PAGE>
(x) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex International reporting an event that occurred on February 27, 1998.
(y) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
International for fiscal 1997.
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.
(b) Foamex L.P. filed the following Current Reports on Form 8-K:
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
FOAMEX L.P.
By: FMXI, INC.
General Partner
Date: November 2, 1999 By: /s/ George L. Karpinski
-----------------------
George L. Karpinski
Vice President
FOAMEX CAPITAL CORPORATION
Date: November 2, 1999 By: /s/ George L. Karpinski
-----------------------
George L. Karpinski
Vice President
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