SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1997
Commission file number 0-22624
FOAMEX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 05-0473908
(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 registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
The number of shares of the registrant's common stock outstanding as of November
3, 1997 was 24,919,680.
Page 1 of 27
Exhibit List on Page 21 of 27
<PAGE>
FOAMEX INTERNATIONAL INC.
INDEX
Page
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Thirteen Week and Thirty-Nine Week Periods Ended
September 28, 1997 and September 29, 1996 3
Condensed Consolidated Balance Sheets as of September 28,
1997 and December 29, 1996 4
Condensed Consolidated Statements of Cash Flows -
Thirty-Nine Week Periods Ended September 28, 1997 and
September 29, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Part II. Other Information 21
Exhibit List 21
Signatures 27
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
13 Week Periods Ended 39 Week Periods Ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
(thousands except per share data)
<S> <C> <C> <C> <C>
NET SALES $ 233,434 $ 236,766 $ 702,441 $ 696,344
COST OF GOODS SOLD 195,395 196,806 576,825 582,186
--------- --------- --------- ---------
GROSS PROFIT 38,039 39,960 125,616 114,158
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 15,766 15,485 47,853 43,207
--------- --------- --------- ---------
INCOME FROM OPERATIONS 22,273 24,475 77,763 70,951
INTEREST AND DEBT ISSUANCE EXPENSE 12,080 13,794 39,522 39,742
OTHER INCOME, NET 324 501 1,410 1,003
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 10,517 11,182 39,651 32,212
PROVISION FOR INCOME TAXES 4,002 3,826 15,530 12,408
--------- --------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 6,515 7,356 24,121 19,804
LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAX BENEFITS -- (73,576) -- (111,594)
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT,
NET OF INCOME TAXES -- (403) (42,599) (403)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 6,515 $ (66,623) $ (18,478) $ (92,193)
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.26 $ 0.29 $ 0.94 $ 0.77
DISCONTINUED OPERATIONS -- (2.88) -- (4.33)
EXTRAORDINARY LOSS -- (0.02) (1.66) (0.02)
--------- --------- --------- ---------
EARNINGS (LOSS) PER SHARE $ 0.26 $ (2.61) $ (0.72) $ (3.58)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 25,435 25,541 25,645 25,749
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
September 28, December 29,
ASSETS 1997 1996
CURRENT ASSETS: (thousands)
<S> <C> <C>
Cash and cash equivalents $ 1,916 $ 22,203
Accounts receivable, net 142,410 126,573
Inventories 94,301 102,610
Other current assets 53,476 55,718
--------- ---------
Total current assets 292,103 307,104
PROPERTY, PLANT AND EQUIPMENT, NET 207,676 195,373
COST IN EXCESS OF ASSETS ACQUIRED, NET 80,624 82,471
DEBT ISSUANCE COSTS, NET 17,771 18,628
DEFERRED INCOME TAXES 24,111 --
OTHER ASSETS 20,343 16,270
--------- ---------
TOTAL ASSETS $ 642,628 $ 619,846
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings $ 4,871 $ 3,692
Current portion of long-term debt 9,434 14,505
Accounts payable 87,339 84,930
Accrued interest 7,273 9,012
Other accrued liabilities 66,170 58,384
--------- ---------
Total current liabilities 175,087 170,523
--------- ---------
LONG-TERM DEBT 528,872 483,344
--------- ---------
OTHER LIABILITIES 27,074 24,082
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $1.00 per share:
Authorized 5,000,000 shares - none issued -- --
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares, Issued 26,908,680 and
26,753,262 shares, respectively; Outstanding
24,919,680 and 25,198,862 shares, respectively 269 267
Additional paid-in capital 85,743 84,579
Retained earnings (accumulated deficit) (140,251) (120,174)
Other (14,964) (9,312)
--------- ---------
(69,203) (44,640)
Common Stock held in treasury, at cost; 1,989,000
shares at September 28, 1997 and 1,554,400 Shares
at December 29, 1996, respectively (19,202) (13,463)
--------- ---------
Total stockholders' equity (deficit) (88,405) (58,103)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 642,628 $ 619,846
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
4
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
39 Week Periods Ended
September 28, September 29,
1997 1996
OPERATING ACTIVITIES: (thousands)
<S> <C> <C>
Net income (loss) $ (18,479) $ (92,193)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 16,409 16,861
Amortization of debt issuance costs and debt discount 7,380 10,283
Extraordinary loss on extinguishment of debt 42,599 403
Loss from discontinued operations -- 111,594
Other operating activities, net 9,274 (4,095)
Changes in operating assets and liabilities, net of acquisitions (26,807) (7,558)
--------- ---------
Net cash provided by continuing operations 30,376 35,295
Net cash provided by discontinued operations -- 14,415
--------- ---------
Net cash provided by operating activities 30,376 49,710
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (25,865) (14,536)
Decrease (increase) in restricted cash 12,143 (33,149)
Proceeds from sale of discontinued operations -- 45,425
Loan to shareholder (5,000) --
Other investing activities (2,930) 1,745
Discontinued operations investing activities -- (4,828)
--------- ---------
Net cash used for investing activities (21,652) (5,343)
--------- ---------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 1,179 2,970
Net proceeds from revolving loans 31,000 --
Proceeds from long-term debt 453,500 --
Repayments of long-term debt (450,270) (19,034)
Premiums and payments associated with debt extinguishment (42,565) --
Debt issuance costs (15,617) --
Purchase of treasury stock (5,739) (5,789)
Other financing activities (499) 70
Discontinued operations financing activities -- (12,184)
--------- ---------
Net cash used for financing activities (29,011) (33,967)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (20,287) 10,400
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22,203 6,162
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,916 $ 16,562
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Foamex International Inc.'s (the "Company") condensed consolidated balance
sheet as of December 29, 1996 has been condensed from the audited consolidated
balance sheet at that date. The condensed consolidated balance sheet as of
September 28, 1997, the condensed consolidated statements of operations for the
thirteen week and thirty-nine week periods ended September 28, 1997 and
September 29, 1996 and the condensed consolidated statements of cash flows for
the thirty-nine week periods ended September 28, 1997 and September 29, 1996
have been prepared by the Company and have not been audited by the Company's
independent accountants. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation of the financial position, results of operations and cash flows
have been included.
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 the Company's 1996 consolidated
financial statements and notes thereto as set forth in the Company's Annual
Report on Form 10-K for the fiscal year ended December 29, 1996.
2. DISCONTINUED OPERATIONS
In December 1996, the Company completed the sale of its partnership
interests in JPS Automotive L.P. ("JPS Automotive") for a sale price of
approximately $220.1 million including $200.1 million of JPS Automotive's
indebtedness. The sale price is subject to a post-closing adjustment. The sale
included the net assets of the automotive textiles business segment. During
1996, the Company sold the outstanding common stock of Perfect Fit Industries,
Inc. ("Perfect Fit"), a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included the net assets of the home
comfort products business segment.
The Company's condensed consolidated financial statements reflect the
discontinuation of the home comfort products and automotive textile business
segments. In addition to the interest and debt issuance expense of JPS
Automotive, interest and debt issuance expense was allocated to discontinued
operations based on the estimated debt to be retired from the net proceeds from
the sale of Perfect Fit and JPS Automotive. A summary of the results for the
discontinued operations is as follows:
<TABLE>
<CAPTION>
13 Week Period Ended 39 Week Period Ended
September 29, 1996 September 29, 1996
(thousands)
<S> <C> <C>
Net sales $ 36,540 $ 244,305
Gross profit 3,842 38,296
Income from operations 596 17,072
Interest and debt issuance expense 3,101 16,905
Loss on disposal of discontinued operations,
net of income taxes (71,713) (111,010)
Other income (expense) 93 (975)
Loss from discontinued operations before
benefit from income taxes (74,125) (111,818)
Benefit for income taxes (549) (224)
Loss from discontinued operations, net of income taxes (73,576) (111,594)
</TABLE>
6
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. INVENTORIES
The components of inventories consist of:
<TABLE>
<CAPTION>
September 28, December 29,
1997 1996
(thousands)
<S> <C> <C>
Raw materials and supplies $ 49,067 $ 61,559
Work-in-process 17,568 13,453
Finished goods 27,666 27,598
-------- --------
Total $ 94,301 $102,610
======== ========
</TABLE>
4. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is calculated by dividing net income by the
weighted average shares of common stock outstanding. Common stock equivalents
have been included in the weighted average shares of common stock outstanding
for 1997 and 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS
No. 128 specifies new standards designed to improve the earnings per share
("EPS") information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and increasing
the comparability of EPS data on an international basis. Some of the changes
made to simplify the EPS computations include: (i) eliminating the presentation
of primary EPS and replacing it with basic EPS, with the principal difference
being that common stock equivalents are not considered in computing basic EPS,
(ii) eliminating the modified treasury stock method and the three percent
materiality provision and (iii) revising the contingent share provisions and the
supplemental EPS data requirements. Fully diluted earnings per share under the
provisions of SFAS No.128 would not differ significantly from earnings per share
presented on the consolidated statement of operations. In addition, under the
provisions of SFAS No. 128, the Company would have reported the following basic
per share information:
<TABLE>
<CAPTION>
13 Week Periods Ended 39 Week Periods Ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
(thousands except per share data)
<S> <C> <C> <C> <C>
Basic loss per share $0.26 $(2.64) $(0.73) $(3.62)
Weighted average shares outstanding 24,959 25,251 25,198 25,450
</TABLE>
7
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
September 28, December 29,
1997 1996
(thousands)
<S> <C> <C>
9 7/8% senior subordinated notes due 2007 (1) $150,000 $ --
Foamex L.P. term loans (7.83% interest rate
at September 28, 1997) (2) 298,000 --
Foamex L.P. revolving loan (7.62% interest rate
at September 28, 1997) (3) 31,000 --
9 1/2% senior secured notes due 2000 (4) 4,523 106,793
11 1/4% senior notes due 2002 (4) 5,825 141,400
11 7/8% senior subordinated debentures due 2004 (net of
unamortized debt discount of $116 and $769) (4) 20,227 125,056
Senior secured discount debentures due 2004, Series B
(net of unamortized debt discount of $35,864) (5) -- 80,881
11 7/8% senior subordinated debentures due 2004, Series B (6) 45 7,000
Industrial revenue bonds (7) 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 29, 1996) (7) -- 11,000
Subordinated note (net of debt discount of $969 and $1,198) (7) 6,046 5,817
Other 15,640 12,902
-------- --------
538,306 497,849
Less current portion 9,434 14,505
-------- --------
Long-term debt $528,872 $483,344
======== ========
<FN>
(1) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation ("FCC")
(together the "Issuers"), guaranteed by General Felt Industries, Inc.
("General Felt"), Foamex Fibers, Inc. ("Foamex Fibers") and certain future
domestic subsidiaries of the Issuers.
(2) Subsidiary debt of Foamex L.P., guaranteed by the Company, General Felt and
Foamex Fibers.
(3) Subsidiary debt of Foamex L.P. and General Felt, guaranteed by the Company
and Foamex Fibers.
(4) Subsidiary debt of the Issuers, guaranteed by the Company and General Felt.
(5) Subsidiary debt of FJPS and Foamex-JPS Capital Corporation, guaranteed by
the Company.
(6) Subsidiary debt of the Issuers, guaranteed by General Felt.
(7) Subsidiary debt of Foamex L.P.
</FN>
</TABLE>
8
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT (continued)
Refinancing Plan
On June 12, 1997, the Company substantially completed a refinancing plan
(the "Refinancing Plan") that included the refinancing of certain long-term
indebtedness to reduce the Company's interest expense and improve financing
flexibility. In connection with the Refinancing Plan, Foamex L.P. purchased
approximately $342.3 million of aggregate principal amount of its public debt
and approximately $116.7 million of aggregate principal amount of Foamex-JPS
Automotive L.P.'s ("FJPS") senior secured discount debentures due 2004
("Discount Debentures") and repaid $5.2 million of term loan borrowings under
its old credit facility. The Company incurred an extraordinary loss on the early
extinguishment of debt associated with the Refinancing Plan of approximately
$42.0 million (net of income taxes). The Refinancing Plan was funded by $347.0
million of borrowings under a new $480.0 million credit facility (the "New
Credit Facility") and the net proceeds from the issuance of $150.0 million of 9
7/8% senior subordinated notes due 2007.
In addition, on October 1, 1997, the Company redeemed all of the
outstanding: (i) 11 1/4% senior notes due 2002, (ii) 11 7/8% senior subordinated
debentures due 2004 and (iii) the 11 7/8% senior subordinated debentures due
2004, Series B, constituting approximately $26.0 million of the approximately
$30.0 million of outstanding public debt that was not tendered as part of the
Refinancing Plan. The redemption was funded with borrowings under the New Credit
Facility. In connection with this redemption, the Company expects to incur an
extraordinary loss on the early extinguishment of debt of approximately $1.6
million (net of income taxes) in the fourth quarter of 1997.
Term Loans and Revolving Loan
On June 12, 1997, Foamex L.P. entered into the New Credit Facility with a
group of banks that provides for term loans of up to $330.0 million which expire
from June 2003 to June 2006 and borrowings of up to $150.0 million under a
revolving line of credit which expires in June 2003. In connection with the
Refinancing Plan, Foamex L.P. entered into term loans of $298.0 million and
borrowed $49.0 million under the revolving line of credit.
The term loans are comprised of a (i) term A loan ("Term A") which provides
up to $120.0 million of borrowings of which Foamex L.P. borrowed $88.0 million
in connection with the Refinancing Plan, (ii) term B loan ("Term B") of $110.0
million and (iii) term C loan ("Term C") of $100.0 million. The remaining $32.0
million available under the Term A is restricted and can only be used by Foamex
L.P. to retire its public debt not tendered in connection with the Refinancing
Plan with such unused availability terminating June 15, 1998. Foamex L.P.
borrowed $29.0 million under the Term A in connection with the October 1, 1997
redemption.
Borrowings under the New Credit Facility are collateralized by
substantially all of the assets of Foamex L.P., General Felt and Foamex Fibers
on a pari passu basis with the 9 1/2% senior secured notes due 2000 and the
industrial revenue bonds (collectively, the "Notes"); however, the rights of the
holders of the applicable issue of the Notes to receive payment upon the
disposition of the collateral securing such issue of Notes has been preserved.
Pursuant to the terms of the New Credit Facility, borrowed funds will bear
interest at a floating rate equal to an applicable margin, as defined, plus the
higher of (i) the base rate of The Bank of Nova Scotia, in effect from time to
time, or (ii) a rate that is equal to 0.5% per annum plus the federal funds rate
in effect from time to time. The applicable margin is determined based on the
total net debt to EBDAIT ratio, as defined, and can range from no margin up to
1.125% per annum for Term A and revolving loans, from 0.875% per annum to 1.375%
per annum for Term B and from 1.125% per annum to 1.625% per annum for Term C.
At the option of Foamex L.P., portions of the outstanding loans under the New
Credit Facility are convertible into LIBOR based loans
9
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT (continued)
which bear interest at a floating rate equal to an applicable margin for LIBOR
based loans, as defined, plus the average LIBOR, as defined. The applicable
margin for LIBOR based loans is a rate that will generally equal the applicable
margin (discussed above) plus 1.0% per annum.
9 7/8% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes")
The Senior Subordinated Notes were issued by Foamex L.P. and FCC in a
private placement under Rule 144A of the Securities Act of 1933, as amended, on
June 12, 1997 in connection with the 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.
The Senior Subordinated Notes are subordinated in right of payment to all senior
indebtedness and are pari passu in right of payment to the subordinated note.
The Senior Subordinated Notes contain certain covenants that will limit, among
other things, the ability of Foamex L.P. (i) to pay distributions or redeem
partnership interests, (ii) to make certain restrictive payments or investments,
(iii) to incur additional indebtedness or issue Preferred Equity Interest, as
defined, (iv) to merge, consolidate or sell all or substantially all of its
assets or (v) to enter into certain transactions with affiliates or related
persons. The Senior Subordinated Notes are guaranteed by General Felt and Foamex
Fibers and certain future domestic subsidiaries of the Issuers.
The Issuers have filed a registration statement relating to an exchange
offer in which the Issuers will offer to exchange the Senior Subordinated Notes
issued in the private placement for new notes. The terms of the new notes will
be substantially identical in all respects (including principal amount, interest
rate, maturity and ranking) to the terms of the Senior Subordinated Notes,
except that the new notes will be transferable by holders thereof without
further registration under the Securities Act of 1933, as amended (except in the
case of Senior Subordinated Notes held by affiliates of the Issuers and for
certain other holders), and are not subject to any covenant regarding
registration under the Securities Act of 1933, as amended. The exchange offer is
expected to be consummated during November 1997.
Principal payments on the Company's long-term debt for the remainder of
1997 and for the next five years are as follows: 1997 - $4.3 million; 1998 -
$12.7 million; 1999 - $21.6 million; 2000 - $32.1 million; 2001 - $32.1 million;
2002 - $33.5 million; and thereafter - $403.1 million.
Early Extinguishment of Debt - Refinancing Plan
In connection with the Refinancing Plan, the Company incurred an
extraordinary loss on the early extinguishment of debt of approximately $42.0
million (net of income tax benefits of $25.7 million). The extraordinary loss is
comprised of approximately $39.0 million for premium and consent fee payments,
approximately $16.2 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
$4.3 million of professional fees and other costs. In connection with the
Refinancing Plan, Foamex
10
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT (continued)
L.P. repaid $5.2 million in term loan borrowings under its old credit facility
and purchased approximately $459.0 million of aggregate principal amount of
public debt comprised of:
o $99.8 million of aggregate principal amount of its 9 1/2% senior secured
notes due 2000 for an aggregate consideration of 104.193% of principal plus
accrued interest, comprised of a tender price of 102.193% and a consent fee
of 2.0%;
o $130.1 million of aggregate principal amount of its 11 1/4% senior notes
due 2002 for an aggregate consideration of 105.709% of principal plus
accrued interest, comprised of a tender price of 103.709% and a consent fee
of 2.0%;
o $105.5 million of aggregate principal amount of its 11 7/8% senior
subordinated debentures due 2004 for an aggregate consideration of 107.586%
of principal plus accrued interest, comprised of a tender price of 105.586%
and a consent fee of 2.0%;
o $6.9 million of aggregate principal amount of its 11 7/8% senior
subordinated debentures, series B, due 2004 for an aggregate consideration
of 107.586% of principal plus accrued interest, comprised of a tender price
of 105.586% and a consent fee of 2.0%; and
o $116.7 million of aggregate principal amount of the Discount Debentures for
an aggregate consideration of 9.0% of principal amount, which represents
approximately 116.2% of the accreted book value as of June 12, 1997,
comprised of a tender price of 88.0% and a consent fee of 2.0%.
Early Extinguishment of Debt - Other
In addition, during 1997 the Company incurred extraordinary losses of
approximately $0.6 million (net of income tax benefits of $0.4 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 Perfect Fit. 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. The long-term debt was comprised of:
o $2.5 million of aggregate principal amount of its 9 1/2% senior secured
notes due 2000.
o $5.5 million of aggregate principal amount of its 11 1/4% senior notes due
2002.
o Bank term loan borrowings of $3.8 million under Foamex L.P.'s old credit
facility.
Interest Rate Swaps
The Company uses derivative financial instruments to manage interest
expense. All derivative financial instruments are classified as "held for
purposes other than trading". The Company does not use derivatives for
speculative purposes.
Interest rate swap agreements are used to manage interest expense by
changing the interest rate characteristics of certain debt instruments to
approximate current market conditions. The amended interest rate swap agreement
matures in June 2007 which is consistent with the underlying debt. The
differential paid or received on interest rate swap agreements is recognized on
an accrual basis as an adjustment to interest and debt
11
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT (continued)
issuance expense.
In connection with the Refinancing Plan, Foamex L.P.'s existing interest
rate swap agreements with a notional amount of $300.0 million were considered to
be effectively terminated since the underlying debt was extinguished. These
interest rate swap agreements had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreements, Foamex L.P. entered into an amendment of the existing interest rate
swap agreements resulting in one interest rate swap agreement with a notional
amount of $150.0 million through June 2007. Accordingly, the $8.2 million fair
value liability has been recorded as a deferred credit which will be amortized
as a reduction of interest and debt issuance expense on a straight-line basis
over the life of the amended interest rate swap agreement. Under the amended
interest rate swap agreement, Foamex L.P. is obligated to make fixed payments of
5.75% per annum through December 1997 and variable payments based on the higher
of LIBOR at the beginning or the end of the period for the remainder of the
agreement, in exchange for fixed payments by the swap partner at 6.44% per annum
for the life of the agreement, payable semiannually in arrears. The amended
interest rate swap agreement can be terminated by either party in June 2002, and
annually thereafter, for a cash settlement based on the fair market value of the
amended interest rate swap agreement. Interest and debt issuance expense is
subject to fluctuations in LIBOR during the term of the swap agreement except
during 1997. Foamex L.P. is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated. The effect of the interest rate swaps described above was a
favorable adjustment to interest and debt issuance expense of $0.5 million and
$0.9 million for the thirteen week periods ended September 28, 1997 and
September 29, 1996, respectively, and $2.2 million and $2.8 million for the
thirty-nine week periods ended September 28, 1997 and September 29, 1996,
respectively.
6. ENVIRONMENTAL MATTERS
As of September 28, 1997, the Company has accruals of approximately $3.8
million for environmental matters. In addition, as of September 28, 1997, the
Company has net receivables of approximately $1.0 million relating to
indemnification for environmental liabilities, net of an allowance of
approximately $1.0 million relating to potential disagreements regarding the
scope of the indemnification. The Company believes that realization of the net
receivables established for indemnification is probable.
On May 5, 1997, there was an accidental chemical spill at one of the
Company's manufacturing facilities that was contained on site. The Company is in
the process of disposing of the contaminated soil which is estimated to cost
approximately $0.6 million. As of September 28, 1997, the Company has spent
approximately $0.5 million for remediation costs related to this chemical spill.
The actual cost and the timetable for the clean-up of the site cannot be
predicted with any degree of certainty at this time; therefore, there can be no
assurance that the clean-up of the site will not result in a more significant
environmental liability in the future.
The Company has reported to appropriate state authorities that it has found
soil and groundwater contamination in excess of state standards at four
additional facilities and soil contamination in excess of state standards at
three other facilities. The Company has begun remediation and is conducting
further investigations into the extent of the contamination at these facilities
and, accordingly, the extent of the remediation that may ultimately be required.
The actual cost and the timetable of any such remediation cannot be predicted
with any degree of certainty at this time. As of September 28, 1997, the Company
has environmental accruals of approximately $2.9 million for the remaining
potential remediation costs for these facilities based on engineering estimates.
12
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FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
6. ENVIRONMENTAL MATTERS (continued)
Federal regulations require that by 1998 all underground storage tanks
("USTs") be removed or upgraded in most states to meet applicable standards. The
Company has six USTs that will require removal or permanent in-place closure by
the end of 1998. Due to the age of these tanks, leakage may have occurred
resulting in soil and possibly groundwater contamination. The Company has
accrued approximately $0.3 million for the estimated removal and remediation, if
any, associated with the USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. The Company believes that its USTs do not pose
a significant risk of environmental liability because of the Company's
monitoring practices for USTs and conditional approval for permanent in-place
closure for certain USTs. However, there can be no assurance that such USTs will
not result in significant environmental liability in the future.
The Company has been designated as a Potentially Responsible Party ("PRP")
by the United States Environmental Protection Agency (the "EPA") with respect to
thirteen sites, with an estimated total liability to the Company for the
thirteen sites of less than approximately $0.5 million. Estimates of total
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 the Company is considered to be immaterial.
Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all pending
environmental matters, management believes that, based upon all currently
available information, the resolution of such environmental matters will not
have a material adverse effect on the Company's operations, financial position,
capital expenditures or competitive position. The possibility exists, however,
that new environmental legislation and/or environmental regulations may be
adopted, or other environmental conditions may be found to exist, that may
require expenditures not currently anticipated and that may be material.
7. LITIGATION
As of November 3, 1997, Foamex L.P. and Trace International Holdings Inc.
("Trace Holdings") were two of multiple defendants in actions filed on behalf of
approximately 5,500 persons in various United States federal and state courts
and one Canadian provincial court by recipients of breast implants, some of
which allege substantial damages, but most of which allege unspecified damages
for personal injuries of various types. Three of these cases seek to allege
claims on behalf of all breast implant recipients or other allegedly affected
parties, but only one class has been approved or certified by the court, and
that is a class limited to Louisiana residents or persons who received their
implants in Louisiana. In addition, three cases have been filed alleging claims
on behalf of approximately 725 residents of Australia and New Zealand. 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. believes that the number of suits and claimants may
increase, but not significantly. While it is not feasible to predict or
determine the outcome of these actions, based on management's present assessment
of the merits of pending claims, after consultation with the general counsel of
Trace Holdings, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings' consolidated
financial position or results of operations. In addition, Foamex L.P. is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to the capitalization of Foamex L.P. in October 1990.
Although Trace Holdings has paid Foamex L.P.'s litigation expenses pursuant to
such indemnification, and management believes Trace Holdings will be in a
position to continue to pay such
13
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
7. LITIGATION (continued)
expenses, there can be no assurance that Trace Holdings will be able to continue
to provide such indemnification. Based on information available at this time
with respect to the potential liability, the Company believes that the
proceedings should not ultimately result in any liability that would have a
material adverse effect on the financial position or results of operations of
the Company. If management's assessment of Foamex L.P.'s liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on the Company.
The Company is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of the Company. If management's assessment of the
Company's liability with respect to these actions is incorrect, such actions
could have a material adverse effect on the Company's consolidated financial
position.
8. RELATED PARTY TRANSACTION
On July 1, 1997, Trace Holdings borrowed $5.0 million pursuant to a
promissory note with an aggregate principal amount of $5.0 million issued to
Foamex L.P. on June 12, 1997. The promissory note is due and payable on demand
or, if no demand is made, on July 7, 2001, and bears interest at 2 3/8% plus
three-month LIBOR, as defined, per annum payable quarterly in arrears commencing
October 1, 1997. The promissory note is included in the other component of
stockholders' equity (deficit).
During June 1997, Foamex L.P. and Trace Foam Company, Inc. ("Trace Foam")
amended their management services agreement to increase the annual fee from
$1.75 million to $3.0 million, plus reimbursement of expenses incurred.
On June 12, 1997, a promissory note issued to Foamex L.P. by Trace Holdings
was amended. The amended promissory note is an extension of a promissory note of
Trace Holdings that was due in July 1997. The aggregate principal amount of the
amended promissory note was increased to approximately $4.8 million and the
maturity of the promissory note was extended. The promissory note is due and
payable on demand or, if no demand is made, on July 7, 2001, and bears interest
at 2 3/8% plus three-month LIBOR, as defined, per annum payable quarterly in
arrears. The promissory note is included in the other components of
stockholders' equity (deficit).
In connection with the Refinancing Plan, Foamex L.P. made a cash
distribution of approximately $1.5 million to Trace Foam as a result of Foamex
L.P.'s distribution to FJPS and FMXI, Inc. of the Discount Debentures, a note
with a principal amount of approximately $56.2 million (net of approximately
$20.6 million of original issue discount) due from FJPS and a promissory note in
the aggregate principal amount of $2.0 million due from the Company. The
distribution to Trace Foam reduced retained earnings (accumulated deficit) of
the Company.
9. SUBSEQUENT EVENT
On October 6, 1997, the Company sold substantially all of the net assets of
its needlepunch carpeting, tufted carpeting and artificial grass products
business located at its facilities in Dalton, Georgia to Bretlin, Inc. for an
aggregate sale price of approximately $41.2 million, subject to post-closing
adjustments. The Company expects to realize an immaterial gain on the sale (net
of income taxes) in the fourth quarter of 1997. The Company used $38.8 million
of the net sale proceeds to repay outstanding term loan borrowings under the New
Credit Facility. In connection with this repayment, the Company expects to incur
an extraordinary loss on the early extinguishment of debt of approximately $0.6
million (net of income tax benefits) during the fourth quarter of 1997.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company operates in the flexible polyurethane and advanced polymer foam
products industry. The Company's operations are conducted through its largest
subsidiary Foamex L.P., together with Foamex L.P.'s wholly-owned subsidiaries,
General Felt, Foamex Fibers, Foamex Canada Inc., Foamex Latin America, Inc., and
Foamex Asia, Inc. The following discussion should be read in conjunction with
the condensed consolidated financial statements and related notes thereto of the
Company 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 pages 3 and 4 of the Company's
1996 Annual Report on Form 10-K.
On June 12, 1997, the Company substantially completed the Refinancing Plan
which included the repurchase of $342.3 million of aggregate principal amount of
Foamex L.P.'s public debt and $116.7 million of aggregate principal amount of
the Discount Debentures and the payment of $5.2 million of Foamex L.P. term loan
borrowings under its old credit facility. The Company incurred an extraordinary
loss on the early extinguishment of debt associated with the Refinancing Plan of
approximately $42.0 million (net of income tax benefits of approximately $25.7
million). The Refinancing Plan was funded by $347.0 million of borrowings under
the New Credit Facility and the net proceeds from the issuance the Senior
Subordinated Notes. See Note 5 to the condensed consolidated financial
statements for further discussion. As a result of the Refinancing Plan, the
Company's total long-term debt increased $63.9 million to $556.5 million.
However, the Company expects the Refinancing Plan to result in interest expense
savings of approximately $3.5 million in the second half of 1997 as compared to
the first half of 1997, and annualized interest expense savings of approximately
$8.0 million, as compared to the debt structure prior to the Refinancing Plan,
assuming no material changes in interest rates. The Company's future interest
expense, and the ability to realize the expected savings in interest expense,
will vary based on a variety of factors, including fluctuation in interest rates
in general. As a result of the Refinancing Plan, variable rate debt comprises a
larger percentage of the Company's overall indebtedness than in the past, and as
a result, future fluctuations in interest rates will have a greater impact on
the Company's interest expense than in the past.
In addition, on October 1, 1997, the Company redeemed all of the
outstanding: (i) 11 1/4% senior notes due 2002, (ii) 11 7/8% senior subordinated
debentures due 2004 and (iii) the 11 7/8% senior subordinated debentures due
2004, Series B, constituting approximately $26.0 million of the approximately
$30.0 million of outstanding public debt that was not tendered as part of the
Refinancing Plan. The redemption was funded with borrowings under the New Credit
Facility. In connection with this redemption, the Company expects to incur an
extraordinary loss on the early extinguishment of debt of approximately $1.6
million (net of income tax benefits) in the fourth quarter of 1997.
Also, on October 6, 1997, the Company sold substantially all of the net
assets of its needlepunch carpeting, tufted carpeting and artificial grass
products business located at its facilities in Dalton, Georgia ("Dalton") to
Bretlin, Inc. for an aggregate sale price of approximately $41.2 million,
subject to post-closing adjustments. The Company expects to realize an
immaterial gain on the sale (net of income taxes) in the fourth quarter of 1997.
Dalton's revenues were $10.7 million and $9.3 million for the thirteen week
periods ended September 28, 1997 and September 29, 1996, respectively, and $35.1
million and $32.1 million for the thirty-nine week periods ended September 28,
1997 and September 29,1996, respectively. As of September 28, 1997, Dalton had
$7.5 million, $14.8 million, $12.3 million and $2.0 million of inventories, net
plant, property and equipment, net goodwill and other assets, respectively. The
Company used $38.8 million of the net sale proceeds to repay outstanding term
loan borrowings under the New Credit Facility. In connection with this
repayment, the Company expects to incur an extraordinary loss on the early
extinguishment of debt of approximately $0.5 million (net of income tax
benefits) during the fourth quarter of 1997.
During July 1997, the Company announced the creation of a new senior
management operating committee to simplify the Company's management and
reporting structure and to position the Company to achieve its strategic goals
which include: (i) to focus on its core flexible polyurethane operations in the
automotive, carpet cushion, technical, cushioning and furniture markets
(furniture sales were previously combined with cushioning sales), (ii) to
maximize revenue growth by increasing market share in existing markets,
introducing new and
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
enhanced foam products with higher margins and pursuing international
opportunities and (iii) to continue to lower its cost structure.
The principal suppliers to the foam industry announced raw material cost
increases effective April 1997. The impact of the raw material cost increases
were not significant during the second quarter of 1997. However, the Company
estimates the raw material cost increases, net of sale price increases to
customers, had an unfavorable impact of approximately $2.0 million during the
third quarter of 1997. There can be no assurance that chemical suppliers will
not increase raw material costs in the future or that the Company will be able
to implement selling price increases to offset any such raw material cost
increases.
During 1996, the Company sold Perfect Fit and JPS Automotive which
comprised the home comfort products and automotive textile business segments,
respectively, of the Company. Accordingly, the accompanying condensed
consolidated statements of operations for the thirteen week and thirty-nine week
periods ended September 29, 1996 and the condensed consolidated statement of
cash flows for the thirty-nine week period ended September 29, 1996 reflect the
home comfort products and automotive textile business segments as discontinued
operations. See Note 2 to the condensed consolidated financial statements for
further discussion.
Operating results for 1997 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
continued implementation of the continuous improvement program to improve the
Company's profitability, (ii) additional raw material cost increases, if any, by
the Company's chemical suppliers, (iii) the Company's success in passing on to
its customers selling price increases to recover such raw material cost
increases, and (iv) fluctuations in interest rates.
13 Week Period Ended September 28, 1997 Compared to 13 Week Period Ended
September 29, 1996
Results of Operations
Net sales for the third quarter of 1997 were $233.4 million as compared to
$236.8 million in the third quarter of 1996, a decrease of $3.4 million or 1.4%.
Carpet cushion products net sales for the third quarter of 1997 decreased 6.4%
to $72.0 million from $77.0 million in the third quarter of 1996 primarily due
to a change in product mix and competitive pricing pressure resulting from an
excess supply of foam trim, the primary component of rebond carpet cushion.
Cushioning products net sales for the third quarter of 1997 increased 5.7% to
$60.2 million from $57.0 million in the third quarter of 1996 primarily due to
an increase in net sales from both new and existing customers of bedding related
products. Furniture products net sales for the third quarter of 1997 of $29.6
million were consistent as compared to net sales of $29.0 million for the third
quarter of 1996. Automotive products net sales for the third quarter of 1997
decreased 6.4% to $52.3 million from $55.9 million in the third quarter of 1996
primarily due to decreased net sales volume resulting from reduced car and light
truck builds due to temporary production shut-downs at several Chrysler and Ford
facilities for new model conversions and slower than expected start-up of
several new platforms during the third quarter of 1997. Technical products net
sales for the third quarter of 1997 increased 8.0% to $19.3 million from $17.9
million in the third quarter of 1996 primarily due to increased net sales
volume.
Gross profit as a percentage of net sales decreased to 16.3% for the third
quarter of 1997 from 16.9% in the third quarter of 1996 primarily due to the
unfavorable impact of the unrecovered raw material cost increases of
approximately $2.0 million during the third quarter of 1997, offset by improved
material and production efficiencies and manufacturing cost containment which
includes favorable raw material efficiencies and an increased impact of the 1995
restructuring and operational plan in 1997 as compared to 1996.
Income from operations decreased to $22.3 million for the third quarter of
1997 from $24.5 million in the third quarter of 1996 primarily due to the
reasons discussed above and an increase in selling, general and administrative
expenses of $0.3 million for the third quarter of 1997. The increase in selling,
general and
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
administrative expenses is primarily due to increases in research and
development costs and travel and promotion costs associated with the launching
of new products and international expansion offset by a decrease in employee
compensation and incentives.
Income from continuing operations decreased to $6.5 million or $0.26 per
share for the third quarter of 1997 as compared to $7.4 million or $0.29 per
share in the third quarter of 1996. The decrease is primarily due to the reasons
cited above, offset by a decrease in interest and debt issuance expense of $1.7
million. The decrease in interest and debt issuance expense is primarily due to
the effects of the Refinancing Plan, as previously discussed. Loss from
discontinued operations in the third quarter of 1996 represents the loss on
disposal of JPS Automotive and the operating losses of Perfect Fit and JPS
Automotive which were sold during 1996. See Note 2 to the condensed consolidated
financial statements for further discussion. The effective income tax rate for
continuing operations increased to 38.1% for the third quarter of 1997 from
34.2% in the third quarter of 1996 primarily due to the impact in 1996 of an
income tax benefit associated with the reversal of income tax valuation
allowances.
The extraordinary loss on early extinguishment of debt of approximately
$0.4 million (net of income tax benefits of approximately $0.3 million) during
the third quarter of 1996 relates to the write-off of debt issuance costs
associated with the early extinguishment of $12.0 million of bank term loan
borrowings.
39 Week Period Ended September 28, 1997 Compared to 39 Week Period Ended
September 29, 1996
Results of Operations
Net sales for 1997 were $702.4 million as compared to $696.3 million in
1996, an increase of $6.1 million or 0.9%. Carpet cushion products net sales for
1997 decreased 1.0% to $214.9 million from $217.2 million in 1996 primarily due
to a change in product mix and competitive pricing pressure resulting from an
excess supply of foam trim, the primary component of rebond carpet cushion.
Cushioning products net sales for 1997 increased 4.4% to $167.6 million from
$160.5 million in 1996 primarily due to an increase in net sales from both new
and existing customers of bedding related products. Furniture products net sales
for 1997 of $92.1 million were consistent as compared to net sales of $91.5
million for 1996. Automotive products net sales for 1997 decreased 2.2% to
$171.4 million for 1997 from $175.2 million for 1996 primarily due to increased
selling prices implemented during the first quarter of 1996 offset by reduced
net sales volume in 1997 as compared to 1996 resulting from reduced car and
light truck builds due to temporary production shut-downs at several Chrysler
and Ford facilities, slower than expected start-up of several new platforms and
labor strikes at both Chrysler and General Motors plants during the second
quarter of 1997. Technical products net sales for 1997 increased 8.8% to $56.4
million from $51.9 million in 1996 primarily due to increased net sales volume.
Gross profit as a percentage of net sales increased to 17.9% for 1997 from
16.4% in 1996 primarily due to selling price increases, improved material and
production efficiencies and manufacturing cost containment which include (i) the
impact during 1997 of the selling prices initiated in 1996 to offset previous
raw material cost increases, (ii) favorable raw material efficiencies and (iii)
an increased favorable impact of the 1995 restructuring and operational plan in
1997 as compared to 1996. These increases were offset by approximately $2.0
million of unrecovered raw material cost increases during the third quarter of
1997.
Income from operations increased to $77.8 million for 1997 from $71.0
million in 1996 primarily due to improved gross profit margins as discussed
above, offset by a $4.6 million increase in selling, general and administrative
expenses for 1997 as compared to the comparable period for 1996. The increase in
selling, general and administrative expenses is primarily due to increases in
employee compensation and incentives, research and development costs, and travel
and promotion costs associated with the launching of new products and
international expansion.
Income from continuing operations increased to $24.1 million or $0.94 per
share for 1997 as compared to $19.8 million or $0.77 per share in 1996. The
increase is primarily due to the reasons cited above. Loss from discontinued
operations for 1996 represents the loss on the disposals of Perfect Fit and JPS
Automotive and their
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
operating losses which were sold during 1996. See Note 2 to the condensed
consolidated financial statements for further discussion. The effective income
tax rate for continuing operations increased to 39.2% for 1997 from 38.5% in
1996 primarily due to the impact in 1996 of an income tax benefit associated
with the reversal of income tax valuation allowances.
The extraordinary loss on early extinguishment of debt during 1997 of
approximately $42.6 million (net of income tax benefits of approximately $26.1
million) relates to premium and consent fee payments, the write-off of debt
issuance costs associated with the early extinguishment of approximately $476.0
million of aggregate principal amount of debt in connection with the Refinancing
Plan and other debt extinguishment during 1997. See Note 5 to the condensed
consolidated financial statements for further discussion. The extraordinary loss
on early extinguishment of debt of approximately $0.4 million (net of income tax
benefits of approximately $0.3 million) during 1996 primarily relates to the
write-off of debt issuance costs associated with the early extinguishment of
$12.0 million of bank term loan borrowings.
Liquidity and Capital Resources
Liquidity and Capital Resources
The Company's operating cash requirements consist principally of working
capital requirements, scheduled payments of principal and interest on
outstanding indebtedness and capital expenditures. The Company believes that
cash flow from operating activities, cash on hand and periodic borrowings under
revolving credit agreements, if necessary, will be adequate to meet its
operating cash requirements. The ability to meet operating cash requirements
could be impaired if the Company were to fail to comply with any of the
covenants contained in its credit agreements or indentures and such
noncompliance was not cured or waived by the lenders or bondholders. The Company
was in compliance with such covenants as of September 28, 1997 and expects to be
in compliance with such covenants for the foreseeable future. The ability of the
Company to receive distributions from its subsidiaries is restricted by the
terms of its existing financing agreements.
Cash and cash equivalents decreased $20.3 million during 1997 to $1.9
million at September 28, 1997 from $22.2 million at December 29, 1996. The
decrease in cash and cash equivalents was primarily due to: (i) $25.9 million of
cash used for capital expenditures, (ii) $5.7 million of cash used for the
purchase of treasury stock, (iii) $6.5 million of cash used for distributions
and a loan to a shareholder, (iv) $10.6 million of cash used for financing
activities after considering the decrease in restricted cash offset by (v) $30.4
million of cash provided by operating activities. The $10.6 million of cash used
for financing activities reflects the: (a) $450.3 million repayment of long-term
debt, (b) $15.6 million of cash used for debt issuance costs, (c) $42.5 million
of cash used for premium and consent fee payments and other cash charges
associated with the Refinancing Plan and other debt extinguishment offset by (d)
$485.7 million of cash proceeds from long-term debt, revolving loans and
short-term borrowings and (e) the decrease of restricted cash of $12.1 million.
Cash flow from continuing operations decreased $4.9 million to $30.4 million for
1997 as compared to $35.3 million for 1996. Cash flow from continuing operations
decreased for 1997 as compared to 1996 primarily due to the use of cash for
operating assets offset by an increase in income from continuing operations.
Working capital decreased $19.6 million for 1997 to $117.0 million at
September 28, 1997 from $136.6 million at December 29, 1996. The decrease in
working capital is primarily due to the $20.3 million decrease in cash, as
previously discussed and a $10.0 million net increase in other current
liabilities, offset by a $5.1 million increase in net operating assets and
liabilities, as discussed below, and a $3.9 million decrease in short-term
borrowings and current portion of long-term debt. The net operating assets and
liabilities (comprised of accounts receivable, inventories and accounts payable)
increased $5.1 million to $149.4 million at September 28, 1997 from $144.3
million at December 29, 1996 primarily due to an increase in accounts receivable
offset by an increase in accounts payable and a decrease in inventories. The
increase in accounts receivable is primarily due to an increase in net sales for
September 1997 as compared to December 1996. The increase in accounts payable is
primarily due to the timing of payments. The decrease in inventories is due to
reduced levels of major chemicals and foam trim inventories offset by increased
work-in-process inventories which is the result of increased production in
September 1997 as compared to December 1996.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During 1997, the Company spent approximately $25.9 million on capital
expenditures and expects to maintain or reduce spending for capital expenditures
for the foreseeable future since significant capital projects (e.g. the new
Mexico City facility) are expected to be completed during 1997.
As of September 28, 1997, there was approximately $31.0 million outstanding
of revolving credit borrowings under the New Credit Facility with unused
availability of approximately $102.6 million. Borrowings by Foamex Canada Inc.
as of September 28, 1997 were approximately $2.9 million under a revolving
credit agreement with unused availability of approximately $1.4 million.
Borrowings by Foamex Latin America, Inc. as of September 28, 1997 were
approximately $2.0 million under a revolving credit agreement with no
availability.
Interest Rate Swaps
In connection with the Refinancing Plan, Foamex L.P.'s existing interest
rate swap agreements with a notional amount of $300.0 million were considered to
be effectively terminated since the underlying debt was extinguished. These
interest rate swap agreements had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreement, Foamex L.P. entered into an amendment of the existing interest rate
swap agreements resulting in one interest rate swap agreement with a notional
amount of $150.0 million through June 2007. Accordingly, the $8.2 million fair
value liability has been recorded as a deferred credit which will be amortized
as a reduction of interest and debt issuance expense on a straight-line basis
over the life of the amended interest rate swap agreement. Under the amended
interest rate swap agreement, Foamex L.P. is obligated to make fixed payments of
5.75% per annum through December 1997 and variable payments based on the higher
of LIBOR at the beginning or the end of the period for the remainder of the
agreement, in exchange for fixed payments by the swap partner at 6.44% per annum
for the life of the agreement, payable semiannually in arrears. The amended
interest rate swap agreement can be terminated by either party in June 2002, and
annually thereafter, for a cash settlement based on the fair market value of the
amended interest rate swap agreement. Interest and debt issuance expense is
subject to fluctuations in LIBOR during the term of the swap agreement except
during 1997. Foamex L.P. is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated. The effect of the interest rate swaps described above was a
favorable adjustment to interest and debt issuance expense of $0.5 million and
$0.9 million for the thirteen week periods ended September 28, 1997 and
September 29, 1996, respectively, and $2.2 million and $2.8 million for the
thirty-nine week periods ended September 28, 1997 and September 29, 1996,
respectively.
Environmental Matters
The Company is subject to extensive and changing environmental laws and
regulations. Expenditures to date in connection with the Company's compliance
with such laws and regulations have not had a material adverse effect on its
operations, financial position, capital expenditures or competitive position.
The amount of liabilities recorded by the Company in connection with
environmental matters as of September 28, 1997 was approximately $3.8 million.
In addition, as of September 28, 1997 the Company has net receivables of
approximately $1.0 million for indemnification of environmental liabilities from
former owners, net of a $1.0 million allowance relating to potential
disagreements regarding the scope of the indemnification. Although it is
possible that new information or future developments could require the Company
to reassess its potential exposure to all pending environmental matters,
including those described in the footnotes to the Company's condensed
consolidated financial statements, management believes that, based upon all
currently available information, the resolution of all such pending
environmental matters will not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position.
The possibility exists, however, that new environmental legislation and/or
environmental regulations may be adopted, or other environmental conditions may
be found to exist, that may require expenditures not currently anticipated and
that may be material.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Inflation and Other Matters
There was no significant impact on the Company's operations as a result of
inflation for the periods presented. In some circumstances, market conditions or
customer expectations may prevent the Company from increasing the price of its
products to offset the inflationary pressures that may increase its costs in the
future. Effective in January 1997, the Company's operations in Mexico became
subject to highly inflationary accounting for financial reporting purposes.
Translation adjustments resulting from fluctuations in the exchange rate between
the Mexican Peso and the U.S. dollar are included in the Company's consolidated
statement of operations as compared to stockholders' equity (deficit). The
effect of translation adjustments on the 1997 results of operations have not
been material.
The Company'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, the Company's
sales are sensitive to sales of new and existing homes, changes in personal
disposable income and seasonality. The Company typically experiences two
seasonally slow periods during each year, in early July and in late December,
due to scheduled plant shutdowns and holidays.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS
No. 128 specifies new standards designed to improve the earnings per share
("EPS") information provided in financial statements by simplifying the existing
computational guidelines, revising the disclosure requirements, and increasing
the comparability of EPS data on an international basis. Some of the changes
made to simplify the EPS computations include: (i) eliminating the presentation
of primary EPS and replacing it with basic EPS, with the principal difference
being that common stock equivalents are not considered in computing basic EPS,
(ii) eliminating the modified treasury stock method and the three percent
materiality provision and (iii) revising the contingent share provisions and the
supplemental EPS data requirements. Fully diluted earnings per share under the
provisions of SFAS No. 128 would not differ significantly from earnings per
share presented on the consolidated statement of operations. In addition, under
the provisions of SFAS No. 128, the Company would have reported the following
basic per share information:
<TABLE>
<CAPTION>
13 Week Periods Ended 39 Week Periods Ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
(thousands except per share data)
<S> <C> <C> <C> <C>
Basic loss per share $0.26 $(2.64) $(0.73) $(3.62)
Weighted average shares outstanding 24,959 25,251 25,198 25,450
</TABLE>
20
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Reference is made to the description of the legal proceedings
contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 1996 and in the Company's Quarterly Reports
on Form 10-Q for the fiscal quarters ended March 30, 1997 and June
29, 1997.
The information from Notes 6 and 7 of the condensed consolidated
financial statements of the Company as of September 28, 1997
(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 Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 International Inc. ("Foamex
International"), 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.
3.3(a) - Certificate of Incorporation of FMXI.
3.4(a) - By-laws of FMXI.
3.5(k) - Certificate of Incorporation of Foamex Capital Corporation
("FCC").
3.6(k) - By-laws of FCC.
3.7(g) - Certificate of Incorporation of General Felt Industries, Inc.
("General Felt").
3.8(g) - By-laws of General Felt.
3.9(p) - Certificate of Incorporation of Foamex Fibers, Inc. ("Foamex
Fibers")
3.10(p) - By-laws of Foamex Fibers.
3.11(a) - Certificate of Incorporation of Foamex International.
3.12(a) - By-laws of Foamex International.
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.
21
<PAGE>
4.1.2(d) - Registration Rights Agreement, dated as of June 12, 1997, by
and among Foamex L.P., FCC, General Felt, Foamex Fibers, and all
future direct or indirect domestic subsidiaries of Foamex L.P.
or FCC, and Donaldson, Lufkin & Jenrette Securities Corporation,
Salomon Brothers Inc. and Scotia Capital Markets, as Initial
Purchasers.
4.2.1(e) - Indenture, dated as of June 3, 1993, among Foamex L.P. and
FCC, as joint and several obligors, General Felt, as Guarantor,
and Shawmut Bank, National Association ("Shawmut"), as trustee,
relating to $160,000,000 principal amount of 9 1/2% Senior
Secured Notes due 2000, including the form of Senior Secured
Note.
4.2.2(a) - First Supplemental Indenture, dated as of November 18, 1993,
among Foamex L.P. and FCC, as Issuers, General Felt and Perfect
Fit Industries, Inc. ("Perfect Fit"), as Guarantors and Shawmut,
as trustee, relating to the Senior Secured Notes.
4.2.3(a) - Second Supplemental Indenture, dated as of December 14, 1993,
among Foamex L.P. and FCC, as Issuers, Foamex L.P., General Felt
and Perfect Fit, as Guarantors and Shawmut, as trustee, relating
to the Senior Secured Notes.
4.2.4(f) - Third Supplemental Indenture, dated as of August 1, 1996, by
and among Foamex L.P. and FCC, as Issuers, Foamex L.P., as
parent guarantor, General Felt, as guarantor, Perfect Fit, as
withdrawing guarantor, and Fleet National Bank ("Fleet"), as
trustee relating to the Senior Secured Notes.
4.2.5(c) - Fourth Supplemental Indenture, dated as of May 28, 1997, by
and among Foamex L.P. and FCC, as Issuers, Foamex L.P., as
Parent Guarantor, General Felt, as Guarantor, and Fleet, as
Trustee.
4.2.6(e) - Company Pledge Agreement, dated as of June 3, 1993, by Foamex
L.P. in favor of Shawmut, as trustee for the holders of the
Senior Secured Notes.
4.2.7(p) - Amendment No. 1 to Company (Foamex L.P.) Pledge Agreement,
dated June 12, 1997.
4.2.8(e) - Company Pledge Agreement, dated as of June 3, 1993, by FCC in
favor of Shawmut, as trustee for the holders of the Senior
Secured Notes.
4.2.9(p) - Amendment No. 1 to Company (FCC) Pledge Agreement, dated June
12, 1997.
4.2.10(e) - Subsidiary Pledge Agreement, dated as of June 3, 1993, by
General Felt in favor of Shawmut, as trustee for the holders of
the Senior Secured Notes.
4.2.11(p) - Amendment No. 1 to Subsidiary (General Felt) Pledge Agreement,
dated June 12, 1997.
4.2.12(e) - Company Security Agreement, dated as of June 3, 1993, by
Foamex L.P. and FCC in favor of Shawmut, as trustee for the
holders of the Senior Secured Notes.
4.2.13(p) - Amendment No. 1 to Company, Foamex L.P. and FCC Security
Agreement, dated June 12, 1997.
4.2.14(e) - Subsidiary Security Agreement, dated as of June 3, 1993, by
General Felt in favor of Shawmut, as trustee for the holders of
the Senior Secured Notes.
4.2.15(p) - Amendment No. 1 to Subsidiary Security Agreement (General
Felt), dated June 12, 1997.
4.2.16(e) - Collateral Assignment of Patents and Trademarks, dated as of
June 3, 1993, by Foamex L.P. in favor of Shawmut, as trustee for
the holders of the Senior Secured Notes.
4.2.17(p) - Amendment No. 1 to Collateral Assignment of Patents and
Trademarks (Foamex L.P.), dated June 12, 1997.
4.2.18(e) - Collateral Assignment of Patents and Trademarks, dated as of
June 3, 1993, by FCC in favor of Shawmut, as trustee for the
holders of the Senior Secured Notes.
4.2.19(p) - Amendment No. 1 to Collateral Assignment of Patents and
Trademarks (FCC), dated June 12, 1997.
4.2.20(e) - Collateral Assignment of Patents and Trademarks, dated as of
June 3, 1993, by General Felt in favor of Shawmut, as trustee
for the holders of the Senior Secured Notes.
4.2.21(p) - Amendment No.1 to Collateral Assignment of Patents and
Trademarks (General Felt), dated June 12, 1997.
4.2.22(p) - Amended and Restated Receivables Security Agreement, by and
among Fleet National Bank, Citicorp USA, Inc. and The Bank of
Nova Scotia, dated as of June 12, 1997.
4.2.23(p) - Intercreditor Agreement by and among Fleet, Citicorp USA,
Inc., and The Bank of Nova Scotia, dated as of June 12, 1997
(re: Senior Secured Notes).
4.3 - Intentionally omitted.
22
<PAGE>
4.4 - Intentionally omitted.
4.5.1(d) - Credit Agreement, dated as of June 12, 1997, by and among
Foamex L.P., General Felt, Trace Foam, 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.
4.5.2(p) - Foamex International Guaranty, dated as of June 12, 1997, in
favor of Citicorp USA, Inc., as Collateral Agent.
4.5.3(p) - Partnership Guaranty, dated as of June 12, 1997, made by Trace
Foam and FMXI in favor of Citicorp USA, Inc., as Collateral
Agent.
4.5.4(p) - Foamex Guaranty, dated as of June 12, 1997, made by Foamex
L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.5.5(p) - GFI Guaranty, dated as of June 12, 1997, made by General Felt
in favor of Citicorp USA, Inc., as Collateral Agent.
4.5.6(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Fibers in favor of Citicorp USA, Inc., as Collateral Agent.
4.5.7(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Latin America, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.5.8(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.5.9(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by FCC in
favor of Citicorp USA, Inc., as Collateral Agent.
4.5.10(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.5.11(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Asia, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.5.12(p) - Partnership Pledge Agreement, dated as of June 12, 1997, made
by Trace Foam Company, Inc., FMXI, and Foamex International in
favor of Citicorp USA, Inc., as Collateral Agent.
4.5.13(p) - Foamex Pledge Agreement, dated as of June 12, 1997, made by
Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.5.14(p) - GFI Pledge Agreement, dated as of June 12, 1997, made by
General Felt in favor of Citicorp USA, Inc., as Collateral
Agent.
4.5.15(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made
by FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.5.16(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made
by Foamex Fibers in favor of Citicorp USA, Inc., as Collateral
Agent.
4.5.17(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.
4.5.18(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made
by Foamex Asia, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.5.19(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made
by Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.5.20(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.
4.5.21(p) - Foamex Security Agreement, dated as of June 12, 1997, made by
Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.5.22(p) - GFI Security Agreement, dated as of June 12, 1997, made by
General Felt in favor of Citicorp USA, Inc., as Collateral
Agent.
4.5.23(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made
by Foamex Fibers in favor of Citicorp USA, Inc., as Collateral
Agent.
4.5.24(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.
4.5.25(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made
by Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
23
<PAGE>
4.5.26(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.
4.5.27(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made
by Foamex Asia, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.5.28(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made
by FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.6 - Commitment letter, dated July 17, 1997, 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").
4.10.1(p) - Promissory Note, dated June 12, 1997, in the aggregate
principal amount of $5,000,000, executed by Trace Holdings to
Foamex L.P.
4.10.2(p) - Promissory Note, dated June 12, 1997, in the aggregate
principal amount of $4,794,828, executed by Trace Holdings to
Foamex L.P.
10.1.1(p) - Amendment to Master Agreement, dated as of June 5, 1997,
between Citibank, N.A. and Foamex L.P.
10.1.2(p) - Amended confirmation, dated as of June 13, 1997, 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 L.P. (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
Recticel Foam Corporation ("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) n 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.
10.7.1(l) - First Amended and Restated Tax Sharing Agreement, dated as of
December 14, 1993, among Foamex L.P., Trace Foam, FMXI and
Foamex International.
10.7.2(d) - First Amendment to Amended and Restated Tax Sharing Agreement
of Foamex L.P., dated as of June 12, 1997, by and among Foamex
L.P., Foamex International, FMXI and Trace Foam.
10.8.1(m) - Tax Distribution Advance Agreement, dated as of December 11,
1996, by and between Foamex L.P. 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
International.
10.9.1(h) - Trace Foam Management Agreement between Foamex L.P. 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 L.P. and Trace Foam.
10.9.3(d) - First Amendment to Management Agreement, dated as of June 12,
1997, by and between Foamex L.P. and Trace Foam.
24
<PAGE>
10.10.1(k) - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.10.2(k) - Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k) - Equity Growth Participation Program.
10.10.4(o) - The Foamex L.P. Salaried Pension Plan (formerly the General
Felt Industries, Inc. Retirement Plan for Salaried Employees),
effective as of January 1, 1995.
10.10.5(u) - The Foamex L.P. Hourly Pension Plan (formerly "The Foamex
Products Inc. Hourly Employee Retirement Plan), as amended
December 31, 1995.
10.10.6(u) - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.7(a) - Foamex L.P.'s 1993 Stock Option Plan.
10.10.8(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.
10.11.2(q) - Employment Agreement, dated as of July 26, 1995, by and
between Foamex L.P. and Salvatore J. Bonanno.
10.12.1(a) - Warrant Exchange Agreement, dated as of December 14, 1993, by
and between Foamex L.P. and Marely.
10.12.2(a) - Warrant Exchange Agreement, dated as of December 14, 1993, by
and between Foamex L.P. and DLJ Funding.
10.13(t) - Warrant Exchange Agreement, dated as of June 29, 1997, by and
between Foamex International and Shawmut Bank.
10.14(o) - Stock Purchase Agreement, dated as of December 23, 1993, by
and between Transformacion de Espumas u Fieltros, S.A., the
stockholders which are parties thereto, and Foamex L.P.
10.15(r) - Asset Purchase Agreement, dated as of August 29, 1997, by and
among General Felt, Foamex L.P., Bretlin, Inc. and The Dixie
Group.
10.15.1(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.
27 - Financial Data Schedule.
- ----------------------------
(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.
(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) Incorporated herein by reference to the Exhibit to the Form 10-Q of Foamex
for the quarterly period ended June 30, 1996.
(g) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex, FCC and General Felt on Form S-1, Registration Nos.
33-60888, 33-60888-01, and 33-60888-02.
(h) Incorporated herein by reference to the Exhibit to the Form 10-K Statement
of Foamex and FCC for fiscal 1992.
25
<PAGE>
(i) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
L.P. for fiscal 1994.
(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) Incorporated herein by reference to the Exhibit to the Form 10-Q of Foamex
for the quarterly period ended July 2, 1995.
(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) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
L.P. for the fiscal year ended December 31, 1995.
(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) Incorporated by reference to the Exhibit to the Form 10-Q of Foamex
International for the quarterly period ended July 3, 1994.
(u) Incorporated by reference to the Exhibit to the Form 10-Q of Foamex L.P.
for the quarterly period ended September 28, 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:
Form 8-K reporting an event that occurred on August 29, 1997.
Form 8-K reporting an event that occurred on October 6, 1997.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOAMEX INTERNATIONAL INC.
Date: November 12, 1997 By: /s/ Kenneth R. Fuette
-------------------------
Kenneth R. Fuette
Chief Financial Officer
27
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000912908
<NAME> FOAMEX INTERNATIONAL INC
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Sep-28-1997
<EXCHANGE-RATE> 1
<CASH> 1,916
<SECURITIES> 0
<RECEIVABLES> 142,410
<ALLOWANCES> 0
<INVENTORY> 94,301
<CURRENT-ASSETS> 292,103
<PP&E> 207,676
<DEPRECIATION> 0
<TOTAL-ASSETS> 642,628
<CURRENT-LIABILITIES> 175,087
<BONDS> 528,872
0
0
<COMMON> 269
<OTHER-SE> (69,203)
<TOTAL-LIABILITY-AND-EQUITY> 642,628
<SALES> 233,434
<TOTAL-REVENUES> 233,434
<CGS> 195,395
<TOTAL-COSTS> 195,395
<OTHER-EXPENSES> 15,766
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<INCOME-TAX> 4,002
<INCOME-CONTINUING> 6,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,515
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0
</TABLE>
