SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from .......... to ..........
Commission file 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 executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 859-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per
share, which is
traded through the
National
Association of
Securities Dealers,
Inc. National
Market System.
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 periods 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of April 7, 1997 was $192,507,000.
The number of shares outstanding of the registrant's common stock as of
April 7, 1997 was 25,341,100.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A relating to the Annual
Meeting of Shareholders scheduled to be held on May 22, 1997, is incorporated by
reference in Part III of this Form 10-K.
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FOAMEX INTERNATIONAL INC.
INDEX
Page
Part I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote 13
of Security Holders
Part II
Item 5. Market for Registrant's Common Equity and 13
Related Stockholder Matters
Item 6. Selected Consolidated Financial Data 14
Item 7. Management's Discussion and Analysis 15
of Financial Condition and Results
of Operations
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants 22
on Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners 22
and Management
Item 13. Certain Relationships and Related Transactions 22
Part IV
Item 14. Exhibits, Financial Statement Schedules 23
and Reports on Form 8-K
Signatures 30
The Registrant will furnish a copy of any exhibit to this Form 10-K upon the
payment of a fee equal to the Registrant's reasonable expense in furnishing
such exhibit.
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PART I
ITEM l. BUSINESS
General
Foamex International Inc. (the "Company") is a holding company which is
engaged primarily in the business of manufacturing and distributing quality
flexible polyurethane foam and foam products. The Company's operations are
conducted through its largest subsidiary, Foamex L.P., and through Foamex L.P.'s
wholly-owned subsidiaries, General Felt Industries, Inc. ("General Felt"),
Foamex Fibers, Inc. ("Foamex Fibers"), Foamex Canada Inc. ("Foamex Canada"), and
Foamex Latin America, Inc. ("Foamex Mexico"). The Company was incorporated in
1993 and is the successor of Foamex L.P.
In 1995, the Company announced an operational plan to improve
profitability. The operational plan consisted of (i) reducing layers of
management through organizational realignment, (ii) the consolidation of foam
production, fabrication or branch locations, (iii) implementing additional
procedures to reduce manufacturing costs, including process redesign to
eliminate non-value added operations, (iv) reducing selling, general and
administrative expenses through cost containment and (v) reducing inventory
levels through improved forecasting and the effect of plant consolidations. In
December 1995, the Company recorded restructuring and other charges of $41.4
million relating to (i) the consolidation of thirteen foam production,
fabrication or branch locations (the "1995 restructuring plan"), (ii) other
charges, primarily relating to merger and acquisition activities of the Company
and (iii) the completion of a 1993 restructuring plan. During 1996, the Company
completed the consolidation of twelve foam production, fabrication or branch
locations; however, one of the facilities originally identified for closure will
continue to operate because of improved economics and the lack of synergy to be
achieved from relocating the manufacturing process. In addition, the Company has
approved a plan to close two facilities that were not originally identified in
the 1995 restructuring plan. As a result of these changes to the 1995
restructuring plan and the favorable termination of certain lease agreements and
other matters, the Company recorded a $6.5 million net restructuring credit
which included a restructuring credit of $11.3 million associated with the
Company's decision not to close the facility identified as part of the 1995
restructuring plan and $1.8 million of restructuring credits relating primarily
to the favorable termination of certain lease agreements and other matters
associated with the 1995 restructuring plan, offset by $6.6 million of
restructuring charges relating to the closure of two facilities during 1997 (the
"1996 restructuring plan"). There can be no assurance that the Company will be
able to successfully complete its restructuring plans.
During 1996, the Company completed the sale of its Perfect Fit
Industries, Inc. ("Perfect Fit") and JPS Automotive L.P. ("JPS Automotive")
subsidiaries. Perfect Fit operated in the home comfort products business segment
and was acquired in November 1993 for $69.1 million which included 364,820
shares of the Company's common stock valued at $5.5 million. JPS Automotive
operated in the automotive textiles business segment and was acquired in June
1994 for $290.3 million which included the assumption and issuance of long-term
debt by JPS Automotive of approximately $205.6 million. The consolidated
financial statements of the Company have been restated for discontinued
operations and includes a net loss of approximately $113.9 million (net of a
$34.9 million income tax benefit) on the disposal of Perfect Fit and JPS
Automotive which includes provisions for operating losses during the phase-out
period. As of February 26, 1997, the Company has utilized $39.7 million of the
net proceeds from the sale of Perfect Fit to reduce long-term debt by $38.6
million.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Annual Report on Form 10-K
and those that may be made in the future by or on behalf of the Company which
are identified as forward-looking, the Company notes that there are various
factors that could cause actual results to differ materially from those set
forth in any such forward-looking statements, such as raw material price
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increases, general economic conditions, the level of automotive production,
carpet cushion production and housing starts, the implementation and estimated
annualized savings of the operational plan and changes in environmental
legislation and environmental conditions. The forward-looking statements
contained in this Annual Report on Form 10-K were prepared by management and are
qualified by, and subject to, significant business, economic, competitive,
regulatory and other uncertainties and contingencies, all of which are difficult
or impossible to predict and many of which are beyond the control of the
Company. Accordingly, there can be no assurance that the forward-looking
statements contained in this Annual Report on Form 10-K will be realized or that
actual results will not be significantly higher or lower. The forward-looking
statements have not been audited by, examined by, compiled by or subjected to
agreed-upon procedures by independent accountants, and no third-party has
independently verified or reviewed such statements. Readers of this Annual
Report on Form 10-K should consider these facts in evaluating the information
contained herein. In addition, the business and operations of the Company are
subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements contained in this Annual Report on Form 10-K. The
inclusion of the forward-looking statements contained in this Annual Report on
Form 10-K should not be regarded as a representation by the Company or any other
person that the forward-looking statements contained in this Annual Report on
Form 10-K will be achieved. In light of the foregoing, readers of this Annual
Report on Form 10-K are cautioned not to place undue reliance on the
forward-looking statements contained herein.
The principal executive offices of the Company are located at 1000
Columbia Avenue, Linwood, Pennsylvania 19061 and its telephone number is (610)
859-3000.
References in this Annual Report on Form 10-K to the "Company" mean
Foamex International Inc. and, where relevant, its subsidiaries. The diagram on
the following page depicts the relationships between the Company and certain of
its affiliates as of December 29, 1996.
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DIAGRAM OMITTED
A description of the diagram is as follows:
Trace International Holdings Inc. and subsidiaries has a 44.7% interest in
Foamex International Inc. and a 1% non-managing general partnership interest in
Foamex L.P.
Foamex International Inc. has a 99% limited partnership interest in Foamex-JPS
Automotive L.P. and a 100% corporate interest in FJGP Inc. and FMXI, Inc. FJGP
Inc. has a 1% managing general partnership interest in Foamex-JPS Automotive
L.P. and FMXI, Inc. has a 1% managing general partnership interest in Foamex
L.P.
Foamex-JPS Automotive L.P. has a 98% limited partnership interest in Foamex L.P.
and a 100% corporate interest in Foamex-JPS Capital Corporation.
Foamex L.P. has a 100% corporate interest in General Felt Industries, Inc.,
Foamex Canada Inc., Foamex Capital Corporation and Foamex Latin America, Inc.
General Felt Industries, Inc. has a 100% corporate interest in Foamex Fibers
Inc.
Foamex Latin America, Inc. has a 100% corporate interest in Grupo Foamex Mexico,
S.A. de C.V., Foamex De Mexico S.A. de C.V and Transformacion De Espumas Y
Fieltros, S.A. de C.V.
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Flexible Polyurethane Foam Products
The Company is a manufacturer and distributor of quality flexible
polyurethane foam and foam products to satisfy the specific needs of customers.
The Company's foam manufacturing and distribution facilities enable it to source
production efficiently and meet the needs of its customers throughout North
America. Such facilities are also important for satisfying all of the foam
requirements of large national customers in a timely and cost effective manner.
The Company's operations are conducted through its largest subsidiary Foamex
L.P., and through Foamex L.P.'s wholly-owned subsidiaries, General Felt, Foamex
Fibers, Foamex Canada, and Foamex Mexico.
The Company operates in the foam products business segment with net
sales being derived from four product categories: carpet cushion, cushioning
foams, automotive foams and technical foams. Management's Discussion and
Analysis of Financial Condition and Results of Operations provides net sales by
product category for the past three fiscal years.
The Company supplies cushioning foams to major bedding and furniture
manufacturers such as Sealy, Simmons, and Ethan Allen. The Company's packaging
foams are supplied to distributors and manufacturers of computers and other
electronic devices, including Seagate Technology and CompUSA. The Company
distributes its automotive foam products to domestic original equipment
manufacturers ("OEMs") and major tier one suppliers such as Lear Corporation,
Johnson Controls, Inc., and Delphi Interiors and Lighting. Many of these
relationships allow the Company to work with customers during the design phase
for new products and new applications for existing products, thereby increasing
the likelihood that the Company will be a principal supplier for these products.
The introduction of new products and new applications for existing
products is an integral component of the Company's growth strategy. During 1996,
the Company introduced Reflex(TM) and Nexol(TM) for the cushioning and packaging
industries, respectively. These products were created using patented variable
pressure foaming technology ("VPF(TM)"). Reflex(TM) materials, which include
cushion wraps and cushion cores, are advanced polymer cushioning products
designed to improve comfort, quality and durability in upholstered furniture.
Nexol(TM) expands the Company's capabilities in meeting the special packaging
requirements of sensitive and fragile products such as electronic components.
Also, during the past few years, the Company developed new automotive foam
applications, including thermoformable foam headliners and energy absorbing
foams, and introduced ComfortWear(TM), a branded, high resilience prime carpet
cushion. In addition, the Company has developed, and is the exclusive producer
of, a reticulated foam for the precise metering of ink for Hewlett-Packard
inkjet printers and the attendant replacement ink cartridges.
Carpet Cushion
The Company is one of the largest manufacturers and distributors of
prime, bonded, sponge rubber and felt carpet cushion in North America. The
Company also manufactures synthetic "grass" turf, primarily for the residential
market. Synthetic turf is tufted from polypropylene yarn in a variety of colors,
textures and qualities. In addition, the Company manufactures a variety of
textured carpeting and wall coverings primarily using solution dyed
polypropylene staple fiber. Such needlepunch carpets have generally been used as
indoor/outdoor floor covering but, through the development of patterned products
and stylized color lines, have found increasing acceptance in both residential
and commercial applications.
The Company developed ComfortWear(TM), a quality prime carpet cushion,
which was introduced in February 1994 in conjunction with significant consumer
and trade promotions. ComfortWear(TM) currently is sold in retail outlets
throughout the United States. ComfortWear(TM) is marketed through floor covering
retailers in the United States such as Sears, New York Carpet World, and
Carpetland USA.
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Cushioning Foams
The Company is one of the largest manufacturers of cushioning foams in
North America. These foams are used by the bedding industry in quilts, toppers,
cores and border rolls for mattresses and by the furniture industry for seating
products. Cushioning foams are generally sold in large volumes on a regional
basis because of high shipping costs. Due to its size and the strategic location
of its production facilities, the Company believes it will continue to have an
advantage over small regional producers in supplying large national accounts
with all of their foam requirements.
The development and introduction of value added products continues to
be a Company priority and has included (i) Reflex(TM) and Nexol(TM) discussed
below, (ii) viscoelastic or "memory" foams for the bedding industry, which
maintain their resiliency better than other foams and materials, and (iii) Latex
Plus, a urethane-based replacement for latex, a material used in bedding
products. The Company's most recent product introductions have included
Reflex(TM) and Nexol(TM) for the cushioning and packaging industries,
respectively, which were created using the VPF(TM) manufacturing process.
Reflex(TM) materials, which include cushion wraps and cushion cores, are
advanced polymer cushioning products designed to improve comfort, quality and
durability in upholstered furniture. Nexol(TM) expands the Company's
capabilities in meeting the special packaging requirements of sensitive and
fragile products such as electronic components.
The Company's cushioning foams for bedding products are sold to
mattress customers, such as Sealy Mattress Co., Simmons, Serta, and Spring Air
Company, both directly and through independent fabrication operators located
across the United States. Also, the Company supplies cut-to-size seat cushions,
backs and other pieces to the furniture industry, including to Berkline, Action,
and Schnadig.
Automotive Foams
The Company is one of the largest suppliers of the trim foam
requirements of the North American operations of American and Japanese
automotive manufacturers. Depending on the automotive manufacturer and/or the
application, foam is supplied by the Company either directly to the manufacturer
or indirectly through sub-suppliers. Automotive foams are used for trim pads,
door panel parts, headliners, acoustical purposes, flame and adhesive laminates
and rolls for tri-lamination. Tri-laminated foam is applied to automotive
fabrics to form a foam/fabric composite that results in cost savings and
aesthetic value for the automotive manufacturer.
The domestic automotive manufacturers have narrowed their supply base
during recent years, increasing the percentage and dollar amount of components
that they purchase from outside suppliers. As a result, a smaller number of
companies are supplying an increasing percentage of these manufacturers' needs.
The Company believes it has benefited from this trend, which favors suppliers
with quality facilities and products, cost efficient plants, long-standing
relationships, strong design, technical and product development support and
broad product lines. Management believes this outsourcing trend will continue,
particularly for components such as foam, trim and accessories that represent a
small portion of the overall cost of a vehicle.
During 1996, the Company entered into a strategic alliance with
Recticel, s.a. ("Recticel") to design, manufacture and market polyurethane
products for the automotive industry in order to meet the worldwide requirements
of the OEMs and the major tier one suppliers such as Lear Corporation, Johnson
Controls, Inc., and Delphi Interiors and Lighting. Under this alliance, both
companies will jointly supply the automotive suppliers with products
manufactured in North America by the Company and in Europe by Recticel.
The Company believes that the automotive manufacturers' just-in-time
inventory requirements will provide the Company with a competitive advantage due
to the quality of the Company's foam products, its flexible manufacturing
capacity and its strategically located manufacturing facilities that enable the
Company to minimize shipping time and costs. In addition, management expects
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foam usage per vehicle to increase because manufacturers have generally
increased their investment in upgrading automobile and light truck interiors to
improve comfort, attractiveness, safety and noise absorption capabilities.
The Company's new product development and flexible manufacturing
capabilities allow it to produce quality products to satisfy changing
specifications. Examples of the Company's ability to react to changing industry
requirements include thermoformable headliners, tri-laminates and energy
absorbing foams. For example, the Company is one of the first suppliers to
introduce a thermoformable headliner, Custom Fit(TM), made from rigid
polyurethane foam. The use of foam headliners is expected to continue to grow
due to concerns for automotive workers' safety caused by fiberglass processing.
The Company intends to continue manufacturing and supplying foam and fabric
components, such as tri-laminated material for automotive seating. The use of
tri-laminates has become increasingly prevalent due to significant cost savings
for manufacturers and improved aesthetics for consumers. Automotive suppliers
are increasingly offering integrated systems which lower overall cost and
improve quality relative to previous sourcing methods in which individually
sourced components were assembled and installed by the OEMs.
Automotive manufacturers are increasingly requiring the production
facilities of their suppliers to meet certain high quality standards.
Eventually, all tier one and tier two automotive supplier facilities worldwide
must adhere to the QS-9000 quality manufacturing standards set by United States
automotive manufacturers. In 1996, the Company completed QS-9000 and ISO-9001
certification for its eight facilities which supply the automotive industry. The
Company was one of the first polyurethane manufacturers to be QS-9000 certified
which demonstrates its commitment to producing the highest quality products and
meeting the needs of its customers.
Technical Foams
The Company believes that it is one of the foam industry's prime
innovators and producers of industrial, specialty and safety foams
(collectively, "technical foams"). Technical foams consist of reticulated foams
and other custom polyester and polyether foams, which are sometimes combined
with other materials to yield specific properties. Reticulation is the thermal
or chemical process used to remove the membranes from the interconnecting cells
within foam. This leaves a porous, skeletal structure allowing for the free flow
of gases and/or liquids.
Reticulated foams are well suited for filtration, reservoiring, sound
absorption and sound transmission. Industrial applications include carburetors,
computer cabinets, ink pad reservoirs, high speed inkjet printers and speaker
grills. Medical applications include oxygenators for cardiopulmonary bypass
surgery, instrument holders for sterilization, pre-op scrubbers impregnated with
anti-microbial agents and EKG pads containing conductive gels. Other technical
foams have unique characteristics such as flame retardancy and fluid absorption.
In addition, felting and lamination with other foams or materials give these
composites specific properties. Additional products sold within this group
include foams for refrigerated supermarket produce counters, mop heads, paint
brushes, diapers and cosmetic applications.
The Company utilizes advertising in trade journals and related media in
order to attract customers and, more generally, to create an awareness of its
capabilities for technical foams. In addition, due to the highly specialized
nature of most technical foams, the Company's research staff works with
customers to design, develop and manufacture each product to specification.
Marketing and Sales
The Company has a marketing and sales force of approximately 194
employees. Product business managers direct sales efforts towards each of the
end-user markets (i.e., carpet cushion, cushioning foams, automotive foams and
technical foams).
The Company's carpet cushion marketing program includes the broad
distribution of products to both the retail and wholesale levels. Furthermore,
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promotions, marketing and advertising expenditures are important in positioning
the Company's carpet cushions as premium, trade branded products.
Bedding and furniture products are sold directly by the Company to
customers and also through third party independent fabricators. The key
strategic elements supporting growth in these areas are a focus on marketing and
sales efforts, high quality, cost competitive products and low freight costs
through optimal plant location. Plant locations are critical in this
regionalized line of business where the transportation cost typically comprises
a significant portion of product cost.
The Company has been a leading supplier of automotive foam products to
the automotive industry for more than 30 years. Automotive foam products are
predominantly sold directly through a bidding process in which each customer's
requirements for a particular time period are awarded to a foam supplier. The
Company has consistently been awarded contracts with OEM's and major tier one
suppliers such as Lear Corporation, Johnson Controls, Inc., and Delphi Interiors
and Lighting.
The Company markets most of its technical foams through a network of
independent fabrication and distribution companies in North America, the United
Kingdom, and South Korea. Such fabricators or distributors often further process
or finish these products to meet the specific needs of the end-user. The
Company's technical foams service unique end-user requirements and are generally
sold at relatively high margins. This line of business is characterized by a
diversity and complexity of both customers and applications.
Customers
During the past three fiscal years, no one customer accounted for more
than 10.0% of the Company's net sales. However, 1996 net sales to the five
largest customers comprised $225.4 million or 24.3% of the Company's net sales,
including net sales to Lear Corporation, Johnson Controls, Inc., and Sealy
Mattress Co. of approximately $62.0 million, $57.7 million and $42.1 million or
approximately 6.7%, 6.2% and 4.5% of net sales, respectively.
Manufacturing and Raw Materials
The Company produces bulk and fabricated flexible polyurethane foam at
46 locations in North America with a total of approximately 6.8 million square
feet of floor space. Management believes that the Company's manufacturing
facilities are well suited for their intended purposes and are in good condition
(see "Properties"). The manufacturing facilities are strategically located to
service their major customers since high freight cost in relation to the cost of
the foam product generally results in distribution being most cost effective
within 200 to 300 miles from each facility.
In 1996, raw materials accounted for approximately 74% of the
manufacturing costs of the Company. The two principal chemicals in polyurethane
foam, toulene diisocyanate ("TDI") and polyol, accounted for approximately 52%
of raw material cost. The Company's largest supplier of raw materials is The Dow
Chemical Company. The Company generally has alternative chemical suppliers for
each major raw material and the Company believes that it could find alternative
sources of supply should it cease doing business with any one of its major
suppliers. The price of TDI and polyol is influenced by demand, manufacturing
capacity and oil and natural gas prices.
The Company's principal suppliers of raw materials used in the
manufacturing of foam increased the price of raw materials several times during
1995 and 1994. In response, the Company increased selling prices, where
possible, for cushioning, automotive and technical foam products depending on
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the product. The 1995 results of operations were adversely affected by the
delays in, or the inability to, implement selling price increases to offset
these raw material cost increases. The Company did not experience any
significant price increases during 1996; however, there can be no assurance that
chemical suppliers will not increase raw material costs in the future or that
the Company will be able to implement selling price increases to offset any such
raw material cost increases.
The Company is subject to extensive and changing environmental laws and
regulations. See "Legal Proceedings -- Environmental Matters" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Environmental Matters."
Employees
As of December 29, 1996, the Company employed 4,453 persons, with 3,972
of such employees involved in manufacturing, 287 in administration and 194
involved in sales and marketing. Approximately 728 of these employees are
located outside the United States. Also, approximately 1,338 of these employees
are covered by collective bargaining agreements with labor unions, which
agreements expire on various dates from 1997 through 2001. The Company considers
relations with its employees to be good.
Competition
The flexible polyurethane foam industry is highly competitive. With
respect to flexible polyurethane foam, competition is based primarily on price,
quality of products and service. The Company's larger competitors in the
polyurethane foam industry include E. R. Carpenter Company, Crain Industries,
Inc., Hickory Springs Manufacturing Company, Vitafoam, Inc., General Foam
Corporation, Flexible Foam Products, Inc., and Crest Foam Industries, Inc. None
of such competitors compete in all of the product categories in which the
Company does business.
International and Domestic Operations and Export Sales
The Company has manufacturing operations in the United States, Canada,
and Mexico. Net sales to customers in foreign markets in 1996, 1995 and 1994
were $76.0 million (8.2% of net sales), $73.3 million (8.5% of net sales) and
$66.6 million (8.0% of net sales), respectively.
Patents and Trademarks
The Company owns various patents and trademarks registered domestically
and in numerous foreign countries. The registered processes and products were
developed through on-going research and development activities to improve
quality, reduce costs and expand markets through the development of new
applications for flexible polyurethane foam products. The Company uses several
trademarks and tradenames for product identification, the majority of which are
used in the carpet cushion and technical foams product lines. The Company
believes its business is not dependent upon any individual patent, trademark or
tradename.
Research and Development
The Company believes it has a leading research and development
capability in the flexible polyurethane foam industry. This capability gives the
Company a significant advantage in the on-going development of new products and
new applications for existing products. The Company has research and development
facilities located in Hayward, California; Dalton, Georgia; and Eddystone,
Pennsylvania employing approximately 28 full-time employees. Expenditures for
research and development amounted to $2.5 million, $3.2 million and $2.7 million
for 1996, 1995 and 1994, respectively.
The Company and Recticel, have exchanged know-how, trade secrets,
engineering and other data, designs, specifications, chemical formulations,
technical information, market information and drawings which are necessary
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or useful for the manufacture, use or sale of foam products and it is
anticipated that they will continue to do so in the future. The Company,
Recticel, and Beamech Group Limited, an unaffiliated third party ("Beamech"),
have an interest in a Swiss corporation that develops new manufacturing
technology for the production of polyurethane foam including the VPF(TM)
manufacturing process. The Company, Recticel, and their affiliates have a
royalty-free license to use technology developed by the Swiss corporation.
ITEM 2. PROPERTIES
As of December 29, 1996, the Company conducted its operations through
59 manufacturing and distribution facilities, of which 18 are owned and 41 are
leased. Total floor space in use at the owned manufacturing and distribution
facilities is approximately 3.7 million square feet and total floor space in use
at the leased manufacturing and distribution facilities is approximately 3.5
million square feet. Fifty-one of these facilities are located in 36 cities in
the United States, five facilities are located in two cities in Canada and three
facilities are located in three cities in Mexico. The 1997 annual base rental
with respect to such leased facilities is approximately $7.4 million under
leases expiring from 1997 to 2005. The Company does not anticipate any problem
in renewing or replacing any of such leases expiring in 1997. In addition, the
Company has approximately 1.1 million square feet of idle space of which
approximately 0.5 million is leased.
The Company maintains administrative and sales offices in Linwood,
Pennsylvania; Hayward, California; Chicago, Illinois; and New York, New York.
ITEM 3. LEGAL PROCEEDINGS
Environmental Matters
The Company is subject to extensive and changing federal, state, local
and foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with the
Company's compliance with federal, state, local and foreign environmental laws
and regulations did not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position. As
of December 29, 1996, the Company has environmental accruals of approximately
$4.1 million for environmental matters. In addition, as of December 29, 1996,
the Company has receivables of approximately $0.9 million relating to
indemnification for environmental liabilities, net of an allowance of
approximately $1.0 million relating to potential disagreements regarding the
scope of the indemnification. The Company believes that realization of the net
receivables established for indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")
provide for the establishment of federal emission standards for hazardous air
pollutants including methylene chloride and TDI, principal raw materials used in
the manufacturing of foam. The Company completely eliminated the use of
chlorofluorocarbons and methylchloroform by the end of 1995. The 1990 CAA
Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
The Company has reported to appropriate state authorities that it has
found soil contamination in excess of state standards at facilities in Orlando,
Florida; La Porte, Indiana; Conover, North Carolina; Cornelius, North Carolina;
Fort Wayne, Indiana; Philadelphia, Pennsylvania; and at a former facility in
Dallas, Texas and groundwater contamination in excess of state standards at the
Orlando, Conover, Philadelphia, and Cornelius facilities. 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
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<PAGE>
time. The Company, based on engineering estimates of the remaining potential
remediation costs for these facilities, has accruals of $3.2 million for the
estimated cost of completing remediation and established a net receivable of
$0.9 million on the basis of indemnifications by Trace International Holdings,
Inc. ("Trace Holdings") and Recticel Foam Corporation ("RFC") associated with
the partnership formation of Foamex L.P. The Company has completed remediation
of soil contamination at a former Trenton, New Jersey manufacturing facility
closed in October 1993 and is awaiting final closure approvals from the New
Jersey Department of Environmental Protection regarding the remediation of soil
contamination and monitoring of groundwater at the former Trenton facility.
Also, the Company has completed remediation at its Mesquite, Texas facility and
is awaiting a certificate of completion under the Texas Voluntary Clean Up
program.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. The Company has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. The
Company has accrued $0.4 million for the estimated removal and remediation
costs, if any, associated with these USTs. However, the full extent of
contamination, and accordingly, the actual cost of such remediation cannot be
predicted with any degree of certainty at this time. The Company believes that
its USTs do not pose a significant risk of environmental liability because of
its monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurances that such
USTs will not result in significant environmental liability in the future.
The Company has been designated as a Potentially Responsible Party
("PRP") by the United States Environmental Protection Agency (the "EPA") with
respect to thirteen sites with an estimated total liability to the Company for
the thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of the Company is considered to be immaterial.
Although it is possible that new information or future developments
could require the Company to reassess its potential exposure relating to all
pending environmental matters, including those described herein, management
believes that, based upon all currently available information, the resolution of
such environmental matters will not have a material adverse effect on the
Company's operations, financial position, capital expenditures or competitive
position. The possibility exists, however, that new environmental legislation
and/or environmental regulations may be adopted, or other environmental
conditions may be found to exist, that may require expenditures not currently
anticipated and that may be material.
Legal Proceedings
As of March 21, 1997, the Company and Trace Holdings were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, the Company and Trace Holdings were granted summary judgements and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of the 903 foreign plaintiffs were dismissed on the grounds that the
cases could not be brought in the United States courts. This decision is subject
to appeal. The Company believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from the
Company or Trace Holdings. Neither the Company nor Trace Holdings recommended,
authorized, or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
12
<PAGE>
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either the Company's or Trace Holdings' consolidated
financial position or results of operations. In addition, the Company is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990. Although Trace Holdings has paid the
Company's litigation expenses to date pursuant to such indemnification and
management believes Trace Holdings likely will be in a position to continue to
pay such expenses, there can be no absolute assurance that Trace Holdings will
be able to provide such indemnification. Based on information available at this
time with respect to the potential liability, and without taking into account
the indemnification provided by Trace Holdings and the coverage provided by
Trace Holdings' and the Company's liability insurance, the Company believes that
the proceedings should not ultimately result in any liability that would have a
material adverse effect on the financial position or results of operations of
the Company. If management's assessment of the Company's liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on the Company.
During 1996, the Richard Lee Cobble et al v. Steve Cansler et al.
--------------------------------------------------
lawsuit was settled without liability to 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is traded through the National Association
of Securities Dealers, Inc. National Market System (the "NMS") under the symbol
"FMXI".
The following table sets forth the high and low bid prices for the
common stock on the NMS based on information supplied by NASDAQ.
High Low
1997
Quarter Ended March 30, 1997 22 1/8 15
1996
Quarter Ended December 29, 1996 17 5/8 12 5/8
Quarter Ended September 29, 1996 16 7/8 11 1/4
Quarter Ended June 30, 1996 12 7/8 9
Quarter Ended March 31, 1996 9 7/8 6 3/8
1995
Quarter Ended December 31, 1995 10 5/8 6 3/8
Quarter Ended October 1, 1995 11 3/8 7 1/8
Quarter Ended July 2, 1995 8 7/8 6 3/8
Quarter Ended April 1, 1995 11 7 1/2
As of April 7, 1997, there were 170 holders of record of the common stock.
13
<PAGE>
The Company is a corporation and has never declared or paid cash
dividends on its common stock. The Company presently intends to retain future
earnings to support the growth of its business and, therefore, does not
anticipate paying cash dividends in the foreseeable future. The payment of any
future dividends will be determined by the Board of Directors in light of
conditions then existing, including the Company's earnings, financial condition
and requirements, restrictions in financing agreements, business conditions and
other factors. The Company is a holding company whose assets consist primarily
of its indirect ownership of a 1% managing general partnership interest and a
98% limited partnership interest in Foamex L.P. Consequently, the Company's
ability to pay dividends is dependent upon the earnings of Foamex L.P. and any
future subsidiaries of the Company and the distribution of those earnings to the
Company and loans or advances by Foamex L.P. and any such future subsidiaries of
the Company. The ability of Foamex L.P. and Foamex-JPS Automotive L.P. ("FJPS"),
the owner of the 98% limited partnership interest in Foamex L.P., to make
distributions is restricted by the terms of their respective financing
agreements. Due to such restrictions, the Company is not expected to have access
to the cash flow generated by Foamex L.P. for the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial
data of the Company and its predecessors, after being restated for discontinued
operations for all periods presented (see Note 3 to the consolidated financial
statements). The results of operations of acquired businesses (as noted below)
are included from the dates of their respective acquisitions. The financial data
should be read in conjunction with the financial statements and related notes
thereto of the Company included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year (1)(2)
1996 (3) 1995 (4) 1994 1993 (5) 1992
(thousands except for earnings per share)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales $926,351 $862,834 $833,660 $684,310 $501,751
Income (loss) from continuing
operations 32,492 (50,750) 22,211 (5,440) 22,011
Earnings (loss) per share from
continuing operations (6) 1.27 (1.92) 0.83 - -
Balance Sheet Data (at period end):
Total assets $619,846 $748,242 $786,895 $612,124 $340,900
Long-term debt 483,344 514,954 502,980 414,445 285,762
Stockholders' equity (deficit) (58,103) 29,383 92,145 64,306 (39,061)
<FN>
(1) The Company has a 52 or 53 week fiscal year ending on the Sunday closest
to the end of the calendar year. Each fiscal year presented was 52 weeks
with the exception of 1992 which was 53 weeks.
(2) Fiscal years 1993 through 1995 have been restated for discontinued
operations.
(3) Includes restructuring credits of $6.5 million (see Note 4 to the
consolidated financial statements).
(4) Includes restructuring and other charges of $41.4 million (see Note 4 to
the consolidated financial statements).
(5) Includes the results of operations of General Felt and Great Western
from March 23, 1993 and May 1, 1993, respectively, and thus may not be
comparable to other periods.
(6) In December 1993, the Company completed an initial public offering of
common stock, therefore, earnings (loss) per share for 1993 and 1992 is
not applicable.
</FN>
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Foamex International Inc. (the "Company") operates in the flexible
polyurethane foam and foam products industry. The Company's operations are
conducted through its largest subsidiary Foamex L.P., and through Foamex L.P.'s
wholly-owned subsidiaries, General Felt Industries, Inc. ("General Felt"),
Foamex Fibers, Inc. ("Foamex Fibers"), Foamex Canada Inc. ("Foamex Canada"), and
Foamex Latin America, Inc. ("Foamex Mexico"). The following discussion should be
read in conjunction with the consolidated financial statements and related notes
thereto of the Company included in this report.
On April 7, 1997, the Company announced that it has initiated an
evaluation of its current capital structure, with the intention of reducing
interest expense and improving financing flexibility. There can be no assurance
however, that the Company will be able to successfully reduce interest expense
or improve financing flexibility and the impact it would have on the
consolidated financial statements.
During 1996, the Company sold Perfect Fit Industries, Inc. ("Perfect
Fit") and JPS Automotive L.P. ("JPS Automotive") which comprised the home
comfort products and automotive textile business segments, respectively, of the
Company. The consolidated financial statements of the Company have been restated
for discontinued operations and includes a net loss of $113.9 million (net of
$34.9 million income tax benefit) on the disposal of these business segments
which includes provisions for operating losses during the phase-out period. (See
Note 3 to the consolidated financial statements for further discussion).
The Company's results of operations have been affected by various
factors, including the implementation of an operational plan in 1995 to improve
profitability and unrecovered raw material cost increases during 1995. The
operational plan consisted of (i) reducing layers of management through
organizational realignment, (ii) the consolidation of foam production,
fabrication or branch locations, (iii) implementing additional procedures to
reduce manufacturing costs, including process redesign to eliminate non-value
added operations, (iv) reducing selling, general and administrative expenses
through cost containment and (v) reducing inventory levels through improved
forecasting and the effect of plant consolidations. In December 1995, the
Company recorded restructuring and other charges of $41.4 million relating to
(i) the consolidation of thirteen foam production, fabrication or branch
locations (the "1995 restructuring plan"), (ii) other charges, primarily
relating to merger and acquisition activities of the Company and (iii) the
completion of a 1993 restructuring plan. During 1996, the Company completed the
consolidation of twelve foam production, fabrication or branch locations;
however, one of the facilities originally identified for closure in the 1995
restructuring plan will continue to operate because of improved economics and
the lack of synergy to be achieved from relocating the manufacturing process. In
addition, the Company has approved a plan to close two facilities that were not
originally identified in the 1995 restructuring plan. As a result of these
changes to the 1995 restructuring plan and the favorable termination of certain
lease agreements and other matters, the Company recorded a $6.5 million net
restructuring credit which included a restructuring credit of $11.3 million
associated with the Company's decision not to close the facility identified as
part of the 1995 restructuring plan and $1.8 million of restructuring credits
relating primarily to the favorable termination of certain lease agreements and
other matters associated with the 1995 restructuring plan, offset by $6.6
million of restructuring charges relating to the closure of two facilities
during 1997 (the "1996 restructuring plan"). There can be no assurance that the
Company will be able to successfully complete its restructuring plans.
The Company's automotive foam customers are predominantly automotive
original equipment manufacturers or other automotive suppliers. As such, the
sales of these product lines are directly related to the overall level of
passenger car and light truck production in North America. Also, 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.
15
<PAGE>
RESULTS OF OPERATIONS
1996 Compared to 1995
Net sales for 1996 were $926.4 million as compared to $862.8 million in
1995, an increase of $63.6 million or 7.4%. Carpet cushion net sales for 1996
increased 7.5% to $291.3 million from $271.0 million in 1995 primarily due to
increased selling prices initiated during the second quarter of 1996 as well as
increased volume of shipments due to improved carpet sales. Cushioning foam net
sales for 1996 increased 7.4% to $332.9 million from $310.0 million in 1995
primarily due to increased net sales volume from both new and existing customers
of bedding related products, increased selling prices initiated at the beginning
of 1996 and a full year of results for a company acquired in April 1995 which
manufactures cushioning products. Automotive foam net sales for 1996 increased
5.5% to $231.9 million from $219.8 million in 1995 primarily due to a continued
increase in net sales of tri-laminates and composite headliners and increased
selling prices initiated at the beginning of 1996. Technical foam net sales for
1996 increased 13.4% to $70.3 million from $62.0 million in 1995 primarily due
to increased selling prices and increased net sales volume.
Gross profit as a percentage of net sales increased to 16.5% for 1996
from 11.7% in 1995 primarily due to selling price increases and improved
material and production efficiencies, which includes (i) selling price increases
during 1996 to offset the adverse affect of the 1995 and 1994 raw material cost
increases, (ii) reductions in customer deductions for pricing disputes,
promotional programs and other matters and (iii) reductions in salaries and
other overhead costs associated with the implementation of the 1995
restructuring plan.
Income from operations was $101.4 million for 1996 as compared to a
loss from operations of $10.6 million in 1995. The increase was primarily due to
an increase in gross profit margins as discussed above, a decrease in
restructuring and other charges (credits) of $47.9 million and a decrease in
selling, general and administrative expenses of $11.6 million for 1996 as
compared to 1995. The decrease in restructuring and other charges (credits) is
comprised of the $41.4 million charge for restructuring and other charges in
1995 plus the net restructuring credit of $6.5 million in 1996. The 1996 net
restructuring credit is comprised of a $11.3 million credit due to the Company's
decision not to close a facility which was part of the 1995 restructuring plan
and $1.8 million of credits relating primarily to the favorable termination of
lease agreements and other matters relating to the 1995 restructuring plan,
offset by $6.6 million of restructuring charges relating to the 1996
restructuring plan which primarily consists of the closure of two facilities
during 1997. The decrease in selling, general and administrative expenses is the
result of reductions in the provision for uncollectible accounts of
approximately $3.9 million, salaries and employee costs of approximately $5.9
million and a reduction of approximately $2.0 million in environmental accruals
offset by increases in selling expenses associated with the increased net sales
volume.
Income from continuing operations was $32.5 million or $1.27 per share
for 1996 as compared to a loss from continuing operations of $50.8 million or
$1.92 loss per share in 1995. The increase is primarily due to the reasons cited
above and a decrease in the average weighted shares outstanding resulting from
the purchase of treasury stock offset by an increase in interest and debt
issuance expense of $1.0 million. The increase in interest and debt issuance
expense is primarily due to (i) the amount of interest allocated to discontinued
operations in 1996 as compared to 1995 (see Note 3 to the consolidated financial
statements) and (ii) an increase in the accretion of the Discount Debentures (as
defined herein) offset by a $2.3 million increased benefit from interest rate
swap agreements.
The 1996 effective income tax rate for continuing operations was
approximately 33.9% which included a net benefit of approximately $3.0 million
associated with the reversal of valuation allowances offset by the impact of
permanent differences and other matters. The reversal of the valuation
allowances resulted from a determination in 1996 that a subsidiary that files
separate federal income tax returns would more likely than not have sufficient
taxable income to utilize its net operating loss carryforwards and other
deferred income tax assets as a result of improved continuing operations which
are expected to continue and its divesture of a subsidiary that historically
incurred taxable losses.
16
<PAGE>
The loss from discontinued operations of $114.5 million (net of $35.1
million income tax benefit) in 1996 relates to the net loss on the sale of the
home comfort products and automotive textile business segments which consisted
primarily of the net assets of Perfect Fit and JPS Automotive, respectively, and
the operating income (loss) of both entities through their respective closing
dates. The JPS Automotive sale is subject to a post-closing purchase price
adjustment which is expected to be finalized during the second quarter of 1997.
See Note 3 to the consolidated financial statements for further discussion.
The extraordinary loss on early extinguishment of debt of $1.1 million
(net of $0.8 million income tax benefit) primarily relates to the write-off of
debt issuance costs and redemption premiums associated with the early
extinguishment of $30.6 million of long-term debt. See Note 11 to the
consolidated financial statements for further discussion.
Operating results in 1997 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
continued implementation of the operational plan to improve the Company's
profitability, (ii) the completion of the Company's evaluation of its current
capital structure, (iii) raw material price increases, if any, by the Company's
chemical suppliers and (iv) the Company's success in passing on to its customers
selling price increases to recover such raw material cost increases, if any.
Also, effective in January 1997, 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 will be included in the Company's
consolidated statement of operations as compared to stockholders' equity
(deficit). Large fluctuations in the Mexican Peso exchange rate could have an
adverse impact on the Company's results of operations.
1995 Compared to 1994
Net sales for 1995 were $862.8 million as compared to $833.7 million
in 1994, an increase of $29.1 million or 3.5%. Carpet cushion net sales for 1995
decreased 7.4% to $271.0 million from $292.5 million in 1994 primarily due to
reduced net sales volume of certain carpet cushion products resulting from weak
carpet sales and a change in product mix to carpet cushion with lower selling
prices. In addition, carpet cushion selling prices were under pressure from an
excess supply of low priced scrap foam, the primary component of rebond carpet
cushion. Cushioning foam net sales for 1995 increased 7.2% to $310.0 million
from $289.2 million in 1994 primarily due to the April 1995 acquisition of a
company which manufactures cushioning products and increased selling prices
offset by a reduction in net sales volume due to competitive pricing pressures
and reduced demand for certain cushioning foam products. Automotive foam net
sales for 1995 increased 11.0% to $219.8 million from $198.0 million in 1994
primarily due to increased net sales volume of tri-laminates and composite
headliner products offset by a reduction in net sales volume of other automotive
foam products. Technical foam net sales for 1995 increased 14.8% to $62.0
million from $54.0 million in 1994 primarily due to increased selling prices and
increased net sales volume.
Gross profit as a percentage of net sales decreased to 11.7% for 1995
from 17.1% for 1994. This unfavorable relationship was primarily due to net
unrecovered raw material cost increases of approximately $25.0 million during
1995. In addition, the decrease in gross profit margins for 1995 as compared to
1994 was also associated with (i) approximately $7.7 million of increased
customer deductions for pricing disputes, promotion programs and other matters,
(ii) approximately $3.5 million of increased employee benefits accruals
associated with insurance and pension plans and other accruals, (iii)
approximately $1.5 million of inventory write-offs associated with scrap foam
inventory and discontinued or slow moving product lines, (iv) an increase in net
sales of automotive tri-laminates, which have a lower-margin than other foam
products, (v) under utilization of manufacturing capacities due to reduced net
sales volume of certain product lines and (vi) carpet cushion selling prices
remaining under pressure from an excess supply of low priced scrap foam, the
primary component of rebond carpet cushion.
17
<PAGE>
A loss from operations of $10.6 million was incurred for 1995 as
compared to income of $80.2 million for 1994. The decrease in income from
operations was primarily due to (i) the reduction in gross profit margins as a
percentage of net sales as discussed above, (ii) an increase in selling, general
and administrative expenses of $7.7 million for 1995 as compared to 1994
including an increase of $3.7 million in the provision for uncollectible
accounts and (iii) restructuring and other charges of $41.4 million (as
discussed below).
In 1995, the Company approved the 1995 restructuring plan to
consolidate thirteen foam production, fabrication or branch locations to
concentrate resources as a result of industry conditions and better position
itself to achieve its strategic growth objectives. The Company recorded
restructuring and other charges of $41.4 million which were comprised of charges
of $35.6 million associated with the consolidation of the foam production,
fabrication or branch locations, $2.2 million associated with the completion of
the 1993 restructuring plan and $3.6 million associated with merger and
acquisition activities of the Company. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns, $15.1
million for plant closure and operating lease obligations and $3.8 million for
personnel reductions. The $3.8 million cost for personnel reductions primarily
represents severance and employee benefit costs associated with the elimination
of manufacturing and administrative personnel. (See Note 4 to the consolidated
financial statements for further discussion).
A net loss of $53.1 million or $2.01 loss per share was incurred for
1995 as compared to net income of $26.1 million or $0.98 per share for 1994. The
decrease is primarily due to (i) the reasons cited above, (ii) an increase in
interest and debt issuance expense of $7.7 million and an effective income tax
benefit of 19.4% for 1995 as compared to an effective income tax provision of
38.6% for 1994. The increase in interest and debt issuance expense is primarily
due to the issuance of the debt instruments in connection with the acquisition
of JPS Automotive in June 1994. The reduction in the effective income tax rate
is primarily due to establishing valuation allowances for net operating losses
and deferred tax assets of subsidiaries which file separate federal income tax
returns and had a history of taxable losses.
Liquidity and Capital Resources
Liquidity
The Company's operating cash requirements consist principally of
working capital requirements, scheduled payments of principal and interest on
outstanding indebtedness and capital expenditures of the operating subsidiaries.
The Company believes that cash flow from operating activities, cash on hand and
periodic borrowings under Foamex L.P.'s revolving credit agreement, 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 Foamex
L.P. credit facility (the "Foamex L.P. Credit Facility") and such noncompliance
was not cured by Foamex L.P. or waived by the lenders. Foamex L.P. was in
compliance with the covenants in the Foamex L.P. Credit Facility as of December
29, 1996 and expects to be in compliance with the covenants for the foreseeable
future. The ability of Foamex L.P. and of Foamex-JPS Automotive L.P. ("FJPS"),
the owner of a 98% limited partnership interest in Foamex L.P., to make
distributions to the Company is restricted by the terms of their respective
financing agreements; therefore, the Company is not expected to have access to
the cash flow generated by Foamex L.P. for the foreseeable future.
Cash and cash equivalents increased $18.9 million during 1996 to $22.2
million at December 29, 1996 from $3.3 million at December 31, 1995 primarily
due to net sale proceeds received from the sale of JPS Automotive which are
subject to post-closing adjustments and improved operating results, offset by
the increased use of cash and cash equivalents by the operating assets and
liabilities of the Company, capital expenditures, scheduled debt repayments and
the purchase of treasury stock. Cash and cash equivalents decreased $37.5
million during 1995 to $3.3 million at December 31, 1995 from $40.8 million at
January 1, 1995 primarily due to capital expenditures, scheduled debt
repayments, purchase of treasury stock and the acquisition of a manufacturing
company in April 1995. Working capital increased $45.0 million during 1996 to
$136.6 million at December 29, 1996 from $91.6 million at December 31, 1995
primarily due to improved operating results and the net sale proceeds received
18
<PAGE>
from the sale of JPS Automotive offset by working capital used for capital
expenditures and purchases of treasury stock. Net operating assets and
liabilities (comprised of accounts receivable, inventories and accounts payable)
increased $21.3 million during 1996 to $144.3 million at December 29, 1996 from
$123.0 million at December 31, 1995 primarily due to increases in accounts
receivable and inventories offset by increases in accounts payable. The
increases in accounts receivable and inventories are primarily associated with
the improved operating results of the Company. In addition, raw material
inventories increased due to increased year end purchases associated with a
potential cost increase that did not occur. The increase in accounts payable is
primarily associated with the year end purchase of raw material inventories.
Working capital decreased $24.3 million during 1995 to $91.6 million at December
31, 1995 from $115.9 million at January 1, 1995 primarily due to (i) the
reduction of cash and cash equivalents as discussed above and (ii) an increase
in accrued restructuring charges. Net operating assets and liabilities
(comprised of accounts receivable, inventories and accounts payable) decreased
$10.1 million to $123.0 million at December 31, 1995 as compared to $133.1
million at January 1, 1994. The decrease was primarily due to a decrease in
inventories. The 1996 and 1995 restructuring plans include approximately $16.8
million of cash charges of which $10.3 million has been incurred as of December
29, 1996.
As of December 29, 1996, there were no revolving credit borrowings
under the Foamex L.P. Credit Facility with unused availability of approximately
$33.3 million which includes approximately $11.7 million associated with letters
of credit outstanding which are supported by the Foamex L.P. Credit Facility.
Borrowings by Foamex Canada as of December 29, 1996 were $3.7 million under
Foamex Canada's revolving credit agreement with unused availability of
approximately $0.7 million at an interest rate of 5.25%.
Cash Flow from Operating Activities
Cash flow from continuing operations was $41.3 million, $25.5 million
and $48.1 million in 1996, 1995 and 1994, respectively. Cash flow from
continuing operations increased in 1996 as compared to 1995 primarily as a
result of improved operating results from continuing operations offset by an
increased use of cash by the operating assets and liabilities. Cash flow from
continuing operations decreased in 1995 as compared to 1994 primarily as a
result of the reduction in operating results from continuing operations.
Cash Flow from Investing Activities
From the beginning of 1994 through 1996, the Company spent
approximately $66.9 million on capital improvements. The expenditures included:
(i) installation of new variable pressure foaming technology ("VPF(TM)") in the
Verona, Mississippi and Orange, California facilities; (ii) initiation of the
construction of a facility in Mexico City, Mexico to improve manufacturing
efficiencies and to meet the growing demand for foam products; and (iii)
installation of more efficient foam production line systems and fabricating
equipment in a number of manufacturing facilities. The Company expects to
maintain capital expenditures at the current levels for the foreseeable future
by focusing spending primarily on the maintenance of existing equipment and on
the installation of the VPF(TM) manufacturing process.
During 1996, the Company received net sale proceeds of approximately
$59.5 million in connection with the sale of Perfect Fit ($42.7 million) and the
sale of JPS Automotive ($16.8 million). The Perfect Fit sale was finalized in
1996 and the net sale proceeds were used to repurchase long-term debt (see Note
11 to the consolidated financial statements) and for the payment of certain
retained liabilities, with the remainder held as restricted cash as of December
29, 1996 for the repurchase of additional long-term debt during 1997. As of
February 26, 1997, the Company has repurchased approximately $8.0 million of
long-term debt with restricted cash. The JPS Automotive sale price is subject to
post-closing adjustment which is expected to be finalized during the second
quarter of 1997.
In April 1995, the Company acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for an aggregate consideration of approximately $8.0 million,
including related fees and expenses of approximately $0.3 million, with an
initial cash payment of $7.2 million.
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In March 1994, the Company acquired Transformacion De Espumas Y
Fieltros, S.A. de C.V. ("TEFSA") for an aggregate purchase price of $4.5
million, including related fees and expenses of approximately $0.4 million, to
be paid over a three year period with an initial cash payment of $1.7 million.
During 1996 and 1995, the Company made scheduled cash payments of approximately
$0.8 million in each year in accordance with the purchase agreement. The final
payment of approximately $0.8 million will be made in April 1997.
Cash Flow from Financing Activities
As of December 29, 1996, the Company had repurchased long-term debt of
approximately $30.6 million with the net proceeds from the sale of Perfect Fit.
In addition, the Company had repurchased long-term debt of approximately $8.0
million through February 26, 1997 with restricted cash.
During 1996, Foamex Mexico borrowed $1.5 million under two promissory
notes that bear interest at LIBOR (5.69% at December 29, 1996) plus 3/8% and
mature on June 30, 1997. During 1994, the Company borrowed $97.0 million in
connection with the acquisition of JPS Automotive which included a $40.0 million
term loan under the Foamex L.P. Credit Facility and $57.0 from the issuance of
Senior Secured Discount Debentures due 2004 (the "Discount Debentures") by FJPS
and Foamex-JPS Capital Corporation ("FJCC"). These borrowings are further
discussed in Note 8 to the consolidated financial statements.
During 1996 and 1995, the Company purchased 624,700 shares and 929,700
shares of its common stock, respectively, for an aggregate cost of $6.3 million
and $7.2 million, respectively, under programs authorized by the Board of
Directors to purchase up to 3.0 million shares of the Company's common stock.
Interest Rate Swap Agreements
The Company enters into interest rate swaps to lower funding costs
and/or to manage interest costs and exposure to changing interest rates. The
Company does not hold or issue financial instruments for trading purposes. The
Company has an interest rate swap agreement, as amended, with a notional amount
of $150.0 million through December 2001. Under the swap agreement, the Company
has made variable payments based on LIBOR through December 1996 and is obligated
to make fixed payments at 5.30% per annum for the twelve months ended in
December 1997 and variable payments at a rate equal to LIBOR for the remainder
of the agreement, in exchange for fixed payments by the swap partner at 5.81%
per annum through December 1996, and 6.50% per annum for the remainder of the
agreement, payable semiannually in arrears. The swap partner has the ability to
terminate the swap agreement after the December 1997 payment if the LIBOR rate
the Company is to pay for any period thereafter is equal to or less than 4.50%
per annum. Interest expense will be subject to fluctuations in LIBOR during the
term of the swap agreement except during 1997. The Company is exposed to credit
loss in the event of nonperformance by the swap partner; however, the occurrence
of this event is not anticipated.
Also, the Company has an interest rate swap agreement, as amended, for
a notional amount of $150.0 million through December 2001. Under this swap
agreement, the Company has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for variable payments by the swap partner at the rate of LIBOR plus
0.80% per annum for the six months ended in June 1995, LIBOR plus 0.72% per
annum for the six months ended in December 1995, LIBOR plus 2.45% per annum for
the six months ended in June 1996, LIBOR plus 2.39% per annum for the six months
ended in December 1996 and fixed payments at 6.50% per annum for the remainder
of the term of the agreement, payable semiannually in arrears. The swap partner
has the ability to terminate the swap agreement after the December 1997 payment
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if the LIBOR rate the Company is to pay for any period thereafter is equal to or
less than 4.50% per annum. The Company is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated. Interest expense will be subject to fluctuations in LIBOR during
the term of the swap agreement except during 1997. The effect of the two
interest rate swaps described above was a favorable adjustment to interest
expense of $3.7 million, $1.4 million and $3.0 million for 1996, 1995 and 1994,
respectively.
Environmental Matters
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 did not have a material adverse effect on
operations, financial position, capital expenditures or competitive position.
The amount of liabilities recorded by the Company in connection with
environmental matters as of December 29, 1996 was $4.1 million. In addition, as
of December 29, 1996, the Company has net receivables of $0.9 million for
indemnification of environmental liabilities from former owners, net of a $1.0
million allowance relating to potential disagreements regarding the scope of the
indemnification. Although it is possible that new information or future
developments could require the Company to reassess its potential exposure to all
pending environmental matters, including those described in the footnotes to the
Company's consolidated financial statements, management believes that, based
upon all currently available information, the resolution of all such pending
environmental matters will not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position.
Inflation and Other Matters
There was no significant impact on the Company's operations as a result
of inflation during the prior three year period. See "Results of Operations 1995
versus 1994" for a discussion of the impact of raw material price increases. In
some circumstances, market conditions or customer expectations may prevent the
Company from increasing the price of its products to offset the inflationary
pressures that may increase its costs in the future.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". SFAS 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. SFAS 128 also makes a number of
changes to existing disclosure requirements. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997.
The Company has not yet determined the impact of the implementation of SFAS 128.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities", which provides guidance on specific accounting issues that are
present in the recognition, measurement, display and disclosure of environmental
remediation liabilities. SOP 96-1 is effective for fiscal years beginning after
December 15, 1996. Accordingly, the Company will adopt SOP 96-1 during the first
quarter of 1997. Management believes that the adoption of this statement will
not have a material impact on its results of operations or financial position.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Foamex International Inc. and Subsidiaries:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 29, 1996
and December 31, 1995 F-3
Consolidated Statements of Operations for the years
ended 1996, 1995, and 1994 F-5
Consolidated Statements of Cash Flows for the years
ended 1996, 1995, and 1994 F-6
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended 1996, 1995, and 1994 F-7
Notes to Consolidated Financial Statements F-8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information required by this Part III (Items 10, 11, 12 and 13) is
hereby incorporated by reference from the Company's definitive proxy statement
which is expected to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 not later than 120 days after the end of the fiscal year
covered by this report.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
Form 8-K, dated December 11, 1996, reporting the closing of the
sale of JPS Automotive on December 11, 1996 pursuant to Item 2 of
Form 8-K.
(c) Exhibits
3.1(a) - Restated Certificate of Incorporation of the Company.
3.2(a) - By-laws of the Company.
4.1(b) - Indenture, dated as of June 3, 1993, among Foamex L.P. and Foamex
Capital Corporation ("FCC"), as joint and several obligors, General
Felt, as Guarantor, and Shawmut Bank, National Association
("Shawmut"), as trustee, relating to $160,000,000 principal amount of
9 1/2% Senior Secured Notes due 2000, including form of Senior Secured
Note.
4.2(a) - First Supplemental Indenture, dated as of November 18, 1993, among
the Company and FCC, as Issuers, General Felt and Perfect Fit, as
Guarantors and Shawmut, as trustee, relating to the Senior Secured
Notes.
4.3(a) - Second Supplemental Indenture, dated as of December 14, 1993, among
the Company and FCC, as Issuers, the Company, General Felt and Perfect
Fit, as Guarantors and Shawmut, as trustee, relating to the Senior
Secured Notes.
4.3.1(p) - Third Supplemental Indenture, dated as of August 1, 1996, by and
among the Foamex L.P and FCC, as Issuers, the Company, as parent
guarantor, General Felt, as guarantor, Perfect Fit, as withdrawing
guarantor, and Fleet National Bank ("Fleet"), as trustee, relating to
the Senior Secured Notes.
4.4(b) - Company Pledge Agreement, dated as of June 3, 1993, by Foamex L.P.
in favor of Shawmut, as trustee for the holders of the Senior Secured
Notes.
4.5(b) - Company Pledge Agreement, dated as of June 3, 1993, by FCC in favor
of Shawmut, as trustee for the holders of the Senior Secured Notes.
4.6(b) - Subsidiary Pledge Agreement, dated as of June 3, 1993, by General
Felt in favor of Shawmut, as trustee for the holders of the Senior
Secured Notes.
4.7(b) - Company Security Agreement, dated as of June 3, 1993, by Foamex L.P.
and FCC in favor of Shawmut, as trustee for the holders of the Senior
Secured Notes.
4.8(b) - Subsidiary Security Agreement, dated as of June 3, 1993, by General
Felt in favor of Shawmut, as trustee for the holders of the Senior
Secured Notes.
4.9(b) - Collateral Assignment of Patents and Trademarks, dated as of June 3,
1993, by Foamex L.P. in favor of Shawmut, as trustee for the holders
of the Senior Secured Notes.
4.10(b) - Collateral Assignment of Patents and Trademarks, dated as of June 3,
1993, by FCC in favor of Shawmut, as trustee for the holders of the
Senior Secured Notes.
4.11(b) - Collateral Assignment of Patents and Trademarks, dated as of June 3,
1993, by General Felt in favor of Shawmut, as trustee for the holders
of the Senior Secured Notes.
4.12(c) - Indenture, dated as of October 13, 1992, among Foamex L.P., FCC, and
The Connecticut National Bank, as trustee, relating to $150,000,000
principal amount of 11 1/4% Senior Notes due 2002, including form of
Senior Note.
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4.13(d) - First Supplemental Indenture, dated as of March 23, 1993, among
Foamex L.P. and FCC, as joint and several obligors, General Felt, as
Guarantor, and Shawmut Bank Connecticut, National Association
(formerly The Connecticut National Bank) ("Shawmut Connecticut"), as
trustee, relating to the Senior Notes.
4.14(a) - Second Supplemental Indenture, dated as of November 18, 1993, among
Foamex L.P. and FCC, as Issuers, General Felt and Perfect Fit, as
Guarantors, and Shawmut Connecticut, as trustee, relating to the
Senior Notes.
4.15(a) - Third Supplemental Indenture, dated as of December 14, 1993, among
Foamex L.P. and FCC, as Issuers, the Company, General Felt and Perfect
Fit, as Guarantors, and Shawmut Connecticut, as trustee, relating to
the Senior Notes.
4.16(j) - Fourth Supplemental Indenture, dated as of October 31, 1994, among
Foamex L.P. and FCC as Issuers, the Company as Parent Guarantor,
General Felt and Perfect Fit as Guarantors, and Shawmut Connecticut,
as Trustee, relating to the Senior Notes.
4.17(p) - Fifth Supplemental Indenture, dated as of August 1, 1996, by and
among Foamex L.P. and FCC as guarantor, Perfect Fit, as withdrawing
guarantors, and Fleet, as trustee, relating to the Senior Notes.
4.18(c) - Indenture, dated as of October 13, 1992, among Foamex L.P., FCC and
Shawmut, as trustee, relating to $126,000,000 principal amount of 11 %
Senior Subordinated Debentures due 2004, including form of Senior
Subordinated Debenture.
4.19(d) - First Supplemental Indenture, dated as of March 23, 1993, among
Foamex L.P. and FCC, as joint and several obligors, General Felt, as
Guarantor, and Shawmut, as trustee, relating to the Senior
Subordinated Debentures.
4.20(a) - Second Supplemental Indenture, dated as of November 18, 1993, among
Foamex L.P. and FCC, as Issuers, General Felt and Perfect Fit, as
Guarantors, and Shawmut, as trustee, relating to the Senior
Subordinated Debentures.
4.21(b) - Third Supplemental Indenture, dated as of December 14, 1993, among
Foamex L.P. and FCC, as Issuers, the Company, General Felt and Perfect
Fit, as Guarantors, and Shawmut, as trustee, relating to the Senior
Subordinated Debentures.
4.22(p) - Fourth Supplemental Indenture, dated as of August 1, 1996, by and
among Foamex L.P. and FCC, as Issuers, the Company, as parent, General
Felt, as guarantor, Perfect Fit, as withdrawing guarantor, and Fleet,
as trustee relating to the Senior Subordinated Debentures.
4.23(i) - Indenture, dated as of June 28, 1994, among FJPS and FJCC, as
Issuers, the Company, as guarantor, and Shawmut Connecticut, as
trustee, relating to $116,745,000 principal amount of Senior Secured
Discount Debentures due 2004, including form of Senior Secured
Discount Debenture.
4.24(j) - Pledge Agreement, dated as of June 28, 1994, made by FJPS in favor
of Shawmut, as collateral agent for the holders of the Senior Secured
Discount Debentures.
4.25(i) - Senior Note, dated June 28, 1994, in the aggregate principal amount
of $87,943,103.14 due July 1, 2006, executed by FJPS to Foamex L.P.
4.26(t) - Consent, Waiver and Amendment Agreement, dated December 11, 1996,
between FJPS and Foamex L.P. 4.27(p) - Commitment letter, dated July
9, 1996, from The Bank of Nova Scotia to Foamex Canada Inc. 4.28(p) -
Third Amended and Restated Credit Agreement, dated as of July 30,
1996, among Foamex L.P., General Felt, Trace Foam Company, Inc.
("Trace Foam"), FMXI, Inc. ("FMXI"), Citibank, N.A., The Bank of Nova
Scotia, the institutions from time to time parties thereto as lenders,
the institutions parties thereto as issuing banks and Citibank, N.A.
and The Bank of Nova Scotia, as Administrative Agents (the "Credit
Agreement").
4.29(q) - First Amendment to Third Amended and Restated Credit Agreement,
dated September 30, 1996, among Foamex L.P., General Felt, Trace Foam,
FMXI, Citibank, N.A., The Bank of Nova Scotia, the institutions from
time to time parties thereto as lenders, the institutions from time to
time parties as lenders, the parties thereto as issuing banks and
Citibank, N.A. and The Bank of Nova Scotia, as Administrative Agents.
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4.30(t) - Second Amendment to Third Amended and Restated Credit Agreement,
dated as of November 27, 1996, among Foamex L.P., General Felt, Trace
Foam, FMXI, Citibank, N.A., The Bank of Nova Scoria, the institutions
from time to time parties thereto as lenders, the institutions parties
thereto as issuing banks and Citibank, N.A. and The Bank of Nova
Scotia, as Administrative Agents.
4.31(a) - Guaranties, dated November 18, 1993, executed by each of Foamex
L.P., General Felt, and Perfect Fit, as guarantor, respectively, in
favor of Citibank, N.A., as Administrative Agent, for the ratable
benefit of the lenders and the issuing banks, guaranteeing the
obligations of one another under the Credit Agreement.
4.32(a) - Guaranty, dated November 18, 1993, executed by FCC in favor of
Citibank, N.A., as Administrative Agent, for the ratable benefit of
the lenders and the issuing banks, guaranteeing the obligations of
Foamex L.P., General Felt, and Perfect Fit under the Credit Agreement.
4.33(i) - Amended and Restated Guaranty, dated as of June 28, 1994, executed
by the Company in favor of Citibank, N.A. and The Bank of Nova Scotia,
as Administrative Agents, for the ratable benefit of the lenders and
the issuing banks under the Credit Agreement.
4.34(n) - First Amendment to Amended and Restated Guaranty, dated June 30,
1995, executed by the Company in favor of Citibank, N.A. and The Bank
of Nova Scotia, as Administrative Agents, for the ratable benefit of
the lenders and the issuing banks under the Credit Agreement.
4.35(n) - Second Amendment to Amended and Restated Guaranty, dated February
27, 1996, executed by the Company in favor of Citibank, N.A. and The
Bank of Nova Scotia, as Administrative Agents, for the ratable benefit
of the lenders and the issuing banks under the Credit Agreement.
4.36(t) - Third Amendment to Amended and Restated Guaranty, dated November 27,
1996, executed by the Company in favor of Citibank, N.A. as Collateral
Agent, for the ratable benefit of the lenders and the issuing banks
under the Credit Agreement.
4.37(a) - Security Agreements, dated November 18, 1993, executed by each of
Foamex L.P., General Felt, Perfect Fit, and FCC, respectively, and
Citibank N.A., as Administrative Agent for the lenders and the issuing
banks under the Credit Agreement.
4.38(i) - Amendatory Agreement, dated as of June 28, 1994, among Foamex L.P.,
General Felt, Perfect Fit, FCC, and Citibank, N.A., as collateral
agent under the Credit Agreement.
4.39(p) - Amendatory Agreement, dated as of July 30, 1996, among Foamex L.P.,
General Felt, FCC, and Citibank, N.A., as collateral agent under the
Credit Agreement.
4.40(a) - Intercreditor Agreement, dated as of November 18, 1993, by and
between Citibank, N.A., as Administrative Agent under the Credit
Agreement and Shawmut, as trustee under the Foamex L.P. Senior Secured
Note Indenture.
4.41(a) - Subordinated Promissory Note, dated as of May 6, 1993, in the
original principal amount of $7,014,864 executed by Foamex L.P. to
John Rallis ("Rallis").
4.42(a) - Marely Loan Commitment Agreement, dated as of December 14, 1993, by
and between the Company and Marely s.a. ("Marely").
4.43(a) - DLJ Loan Commitment Agreement, dated as of December 14, 1993, by and
between the Company and DLJ Funding, Inc. ("DLJ Funding") .
4.44(p) - Promissory Note, dated July 7, 1996, in the aggregate principal
amount of $4,372,516 executed by Trace Holdings to Foamex L.P.
10.1(a) - Registration Rights Agreement, dated as of December 14, 1993, by and
among the Company and GBNY and, for certain limited purposes as set
forth therein, Trace Holdings and Trace Foam.
10.2(a) - Registration Rights Agreement, dated as of December 14, 1993, by and
among the Company and RFC and, for certain limited purposes as set
forth therein, Trace Holdings and Trace Foam.
10.3(a) - Registration Rights Agreement, dated as of December 14, 1993, by and
between the Company and Rallis.
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10.4(a) - Registration Rights Agreement, dated as of December 14, 1993, by and
among the Company and DLJ Funding and, for certain limited purposes as
set forth therein, Trace Holdings and Trace Foam.
10.5(a) - Registration Rights Agreement, dated as of December 14, 1993, by and
between the Company and FCD Sub, Inc.
10.6(a) - Registration Rights Agreement, dated as of December 14, 1993, by and
among the Company and Marely and, for certain limited purposes as set
forth therein, Trace Holdings and Trace Foam.
10.7(a) - Registration Rights Agreement, dated as of December 14, 1993, by and
between the Company and Trace Foam.
10.8(a) - Registration Rights Agreement, dated as of December 14, 1993, by and
between the Company and Trace Holdings.
10.9(a) - Registration Rights Agreement, dated as of November 18, 1993, by and
among the Company and the Investors which are signatories thereto.
10.10(i) - Warrant Registration Rights Agreement, dated as of June 28, 1994, by
and among the Company, DLJ Funding and Smith Barney Inc.
10.11(h) - Warrant Agreement, dated as of June 28, 1994, between the Company
and Shawmut.
10.12(t) - Revised Confirmation Letter Agreements, dated as of January 7, 1997,
by and between Foamex L.P. and Citibank, N.A.
10.13(t) - Assignment Agreement, dated as of December 16, 1996, among Foamex
L.P., FCC, and Salomon Brothers Holdings Company Inc ("Salomon
Holdings").
10.14(d) - Reimbursement Agreement, dated as of March 23, 1993, between Trace
Holdings and General Felt.
10.15(d) - Shareholder Agreement, dated December 31, 1992, among Recticel, s.a.
("Recticel"), Recticel Holding Noord B.V., Foamex L.P., Beamech Group
Limited, LME-Beamech, Inc., James Brian Blackell, and Prefoam AG
relating to foam technology sharing arrangement.
10.16(e) - Asset Transfer Agreement, dated as of October 2, 1990, between Trace
Holdings and Foamex L.P. (the "Trace Holdings Asset Transfer
Agreement").
10.17(e) - First Amendment, dated as of December 19, 1991, to the Trace
Holdings Asset Transfer Agreement.
10.18(e) - Amended and Restated Guaranty, dated as of December 19, 1991, made
by Trace Foam in favor of Foamex L.P.
10.19(e) - Asset Transfer Agreement, dated as of October 2, 1990, between RFC
and Foamex L.P. (the "RFC Asset Transfer Agreement").
10.20(e) - First Amendment, dated as of December 19, 1991, to the RFC Asset
Transfer Agreement.
10.21(e) - Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
Protocol").
10.22(d) - The 5.03 Protocol Assumption Agreement, dated as of October 13,
1992, between RFC and Foamex L.P.
10.23(d) - Letter Agreement between Trace Holdings and Recticel regarding the
Recticel guaranty, dated as of July 22, 1992.
10.24(i) - Supply Agreement, dated June 28, 1994, between Foamex L.P. and the
Company.
10.25(i) - First Amended and Restated Tax Sharing Agreement, dated as of
December 14, 1993, among Foamex L.P., Trace Foam, FMXI, and the
Company.
10.26(i) - Tax Sharing Agreement, dated as of June 28, 1994, among FJPS and the
Company.
10.27(t) - Tax Distribution Advance Agreement, dated as of December 11, 1996,
by and between Foamex L.P. and FJPS.
10.28(d) - Trace Foam Management Agreement between Foamex L.P. and Trace Foam,
dated as of October 13, 1992.
10.29(i) - Affirmation Agreement re: Management Agreement, dated as of December
14, 1993 between Foamex L.P. and Trace Foam.
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10.30(m) - Aircraft Purchase Agreement, dated as of August 22, 1995, by and
between Trace Aviation Corp. ("Trace Aviation") and Foamex Aviation
Inc. ("Foamex Aviation").
10.31(m) - Aircraft Sale, Lease and Operating Agreement, dated as of August 22,
1995, by and between Trace Aviation and Trace Holdings.
10.32(m) - Assumption/Aircraft Security Agreement, dated as of August 22, 1995,
by and between Foamex Aviation and the CIT Group/Equipment Financing,
Inc. ("CIT Group").
10.33(m) - Collateral Assignment of Aircraft Leases and Aircraft Use
Agreements, dated as of August 22, 1995, by and between Foamex
Aviation and CIT Group.
10.34(m) - Guaranty by the Company in favor of CIT Group, dated as of August
22, 1995.
10.35(m) - Aviation Guaranty Indemnity Agreement, dated as of August 22, 1995,
by and between the Company and Trace Holdings.
10.36(e)(o) - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.37(e)(o) - Trace Holdings 1987 Nonqualified Stock Option Plan.
10.38(e)(o) - Equity Growth Participation Program.
10.39(j)(o) - General Felt Industries, Inc. Retirement Plan for Salaried
Employees, effective as of January 1, 1995.
10.40(e)(o) - Foamex L.P. Salaried Retirement Plan (formerly known as the Foamex
L.P. Products, Inc. Salaried Employee Retirement Plan), as amended,
effective July 1, 1984.
10.41(e)(o) - Foamex L.P. 401(k) Savings Plan dated January 1, 1989.
10.42(l)(o) - Foamex/GFI 401(k) Savings Plan dated July 1, 1995.
10.43(a)(o) - The Company's 1993 Stock Option Plan.
10.44(a)(o) - The Company's Non-Employee Director Compensation Plan.
10.45(a)(o) - Employment Agreement, dated as of May 6, 1993, by and between
Foamex L.P. and Rallis.
10.46(f)(o) - Employment Agreement, dated as of February 1, 1994, by and between
Foamex L.P. and William H. Bundy.
10.47(n)(o) - Employment Agreement, dated as of June 26, 1995, by and between
Foamex L.P. and Salvatore J. Bonanno
10.48(k)(o) - Bonus Agreement, dated as of May 7, 1993, between the Company and
Robert Hay.
10.49(a) - Amended and Restated Put Option Agreement, dated as of December 14,
1993, by and between Trace Holdings and Rallis.
10.50(f) - Stock Purchase Agreement, dated as of December 23, 1993, by and
between Transformacion de Espumas y Fieltros, S. A. de C.V., the
stockholders which are parties thereto, and Foamex L.P.
10.51(g) - Asset Purchase Agreement, dated as of May 25, 1994, by and among JPS
Automotive, JPS Textile Group, Inc., the Company, JPS Auto Inc., and
JPS Converter & Industrial Corp.
10.52(r) - Agreement and Plan of Merger, as amended, dated as of June 11, 1996,
by and among, PFI Subsidiary, Inc., PFI Acquisition Corp., Jody B.
Vitale, Perfect Fit, General Felt, and Foamex L.P.
10.53(s) - Equity Purchase Agreement, dated as of August 28, 1996, by and among
JPSGP Inc., FJPS, and Collins & Aikman Products Co.
10.54(u) - Amendment No. 1 to Equity Purchase Agreement, by and among JPSGP
Inc., FJPS, the Company and Collins and Aikman Products Co., dated as
of December 11, 1996.
21 - Subsidiaries of the Registrant.
23.1 - Consent of Independent Accountants of Coopers & Lybrand L.L.P.
________________
(a) Incorporated herein by reference to the Exhibit to the Company's
Registration Statement on Form S-1, Registration No. 33-69606.
(b) Incorporated herein by reference to the Exhibit to the
Registration Statement of Foamex L.P. and FCC on Form S-4,
Registration No. 33-65158.
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(c) Incorporated herein by reference to the Exhibit to the
Registration Statement of Foamex L.P., FCC, and General Felt on
Form S-1, Registration Nos. 33-60888, 33-60888-01, and
33-60888-02.
(d) Incorporated herein by reference to the Exhibit to the Form 10-K
Statement of Foamex L.P. and FCC for fiscal 1992.
(e) Incorporated herein by reference to the Exhibit to the
Registration Statement of Foamex L.P. and FCC on Form S-1,
Registration Nos. 33-49976 and 33-49976-01.
(f) Incorporated herein by reference to the Exhibit to the Form 10-K
of the Company for fiscal 1993.
(g) Incorporated herein by reference to the Exhibit to JPS
Automotive's Registration Statement on Form S-1, Registration No.
33-75510.
(h) Incorporated by reference to the Exhibit to the Form 10-Q of the
Company for the quarterly period ended July 3, 1994.
(i) Incorporated herein by reference to the Exhibit to the
Registration Statement of FJPS, FJCC, and the Company on Form
S-4, Registration No. 33-82028.
(j) Incorporated herein by reference to the Exhibit to the Form 10-K
of the Company for fiscal 1994.
(k) Incorporated herein by reference to the Exhibit to the Form 10-K
of Foamex L.P. for fiscal 1994.
(l) Incorporated herein by reference to the Exhibit to the Form 10-Q
of Foamex L.P. for the quarterly period ended July 2, 1995.
(m) Incorporated herein by reference to the Exhibit to the Form 10-Q
of the Company for the quarterly period ended October 1, 1995.
(n) Incorporated herein by reference to the Exhibit to the Form 10-K
of Foamex L.P. for fiscal 1995.
(o) A management contract or compensatory plan or arrangement
required to be filed as an Exhibit pursuant to Item 14(c) of this
report.
(p) Incorporated herein by reference to the Exhibit to the Form 10-Q
of Foamex L.P. for the quarterly period ended June 30, 1996.
(q) Incorporated herein by reference to the Exhibit to the Form 10-Q
of Foamex L.P. for the quarterly period ended September 29, 1996.
(r) Incorporated herein by reference to the Exhibit to the Form 8-K
of Foamex L.P. reporting an event which occurred on June 11,
1996.
(s) Incorporated herein by reference to the Exhibit to the Form 8-K
of Foamex International Inc. reporting an event which occurred on
August 28, 1996.
(t) Incorporated herein by reference to the Exhibit to the Form 10-K
of Foamex L.P. for fiscal 1996.
(u) Incorporated herein by reference to the Exhibit to the Form 8-K
of Foamex International Inc. reporting an event which occurred on
December 11, 1996.
28
<PAGE>
Certain instruments defining the rights of security holders have been
excluded herefrom in accordance with Item 601(b)(4)(iii) of Regulation S-K. The
Registrant hereby agrees to furnish a copy of any such instrument to the
Commission upon request.
(d) Schedules
The schedules listed in the accompanying Index to Financial Statement
Schedules are filed as part of this Annual Report on Form 10-K.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 7th day of
April, 1997.
FOAMEX INTERNATIONAL INC.
By: /s/ Marshall S. Cogan
Marshall S. Cogan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on its behalf by the
registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Marshall S. Cogan Chairman of the Board, April 7, 1997
Marshall S. Cogan Chief Executive Officer
and Director
/s/ Robert J. Hay Chairman Emeritus April 7, 1997
Robert J. Hay and Director
/s/ John Rallis President, Chief April 7, 1997
John Rallis Operating Officer and
Director
/s/ Kenneth R. Fuette Senior Vice President April 7, 1997
Kenneth R. Fuette of Finance (Chief Financial
Officer and Chief
Accounting Officer)
/s/ Salvatore J. Bonanno Director April 7, 1997
Salvatore J. Bonanno
30
<PAGE>
/s/ Etienne Davignon Director April 7, 1997
Etienne Davignon
/s/ Andrea Farace Director April 7, 1997
Andrea Farace
/s/ Stuart J. Hershon Director April 7, 1997
Stuart J. Hershon
/s/ John V. Tunney Director April 7, 1997
John V. Tunney
31
<PAGE>
FOAMEX INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENTS
Index to Consolidated Financial Statements F-1
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 29, 1996
and December 31, 1995 F-3
Consolidated Statements of Operations for the years
ended 1996, 1995, and 1994 F-5
Consolidated Statements of Cash Flows for the years
ended 1996, 1995, and 1994 F-6
Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended 1996, 1995, and 1994 F-7
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Foamex International Inc.:
We have audited the consolidated financial statements and financial statement
schedules of Foamex International Inc. and subsidiaries (the "Company") listed
in Item 14 of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 29, 1996 and December 31, 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 29, 1996 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedules, referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-2
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 29, December 31,
ASSETS 1996 1995
(thousands)
CURRENT ASSETS:
Cash and cash equivalents $22,203 $3,322
Restricted cash 12,143 --
Accounts receivable, net of allowance for
doubtful accounts of $6,328 and $9,138 126,573 113,716
Inventories 102,610 89,952
Deferred income taxes 21,765 12,625
Due from related parties 1,866 1,644
Other current assets 19,944 25,033
--------- --------
Total current assets 307,104 246,292
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 9,674 4,632
Buildings and leasehold improvements 78,082 78,169
Machinery, equipment and furnishings 199,993 190,708
Construction in progress 20,784 7,985
--------- ---------
Total 308,533 281,494
Less accumulated depreciation and
amortization (113,160) (98,176)
-------- --------
Property, plant and equipment, net 195,373 183,318
COST IN EXCESS OF ASSETS ACQUIRED, NET 82,471 89,605
DEBT ISSUANCE COSTS, NET 18,628 22,770
NET ASSETS OF DISCONTINUED OPERATIONS -- 191,188
OTHER ASSETS 16,270 15,069
--------- ---------
TOTAL ASSETS $619,846 $748,242
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1996 1995
(thousands except share data)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $3,692 $2,199
Current portion of long-term debt - unrelated parties 14,505 9,281
Accounts payable 84,930 80,624
Accrued employee compensation 7,302 8,116
Accrued interest 9,012 9,694
Accrued restructuring charges 6,300 16,287
Other accrued liabilities 44,782 28,483
--------- ---------
Total current liabilities 170,523 154,684
LONG-TERM DEBT - UNRELATED PARTIES 477,527 509,414
LONG-TERM DEBT - RELATED PARTIES 5,817 5,540
DEFERRED INCOME TAXES 6,290 24,996
ACCRUED RESTRUCTURING CHARGES 4,043 3,773
OTHER LIABILITIES 13,749 20,452
--------- ---------
Total liabilities 677,949 718,859
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $1.00 per share:
Authorized 5,000,000 shares - none issued -- --
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares
Issued 26,753,262 and 26,715,960 shares, respectively;
Outstanding 25,198,862 and 25,786,260 shares, respectively 267 267
Additional paid-in capital 84,579 84,015
Retained earnings (accumulated deficit) (120,174) (37,039)
Other (9,312) (10,693)
--------- ---------
(44,640) 36,550
Common Stock held in treasury, at cost:
1,554,400 shares and 929,700, respectively (13,463) (7,167)
--------- ---------
Total stockholders' equity (deficit) (58,103) 29,383
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $619,846 $748,242
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
(thousands except per share amounts)
<S> <C> <C> <C>
NET SALES $926,351 $862,834 $833,660
COST OF GOODS SOLD 773,119 762,085 691,265
--------- --------- ---------
GROSS PROFIT 153,232 100,749 142,395
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 58,329 69,913 62,245
RESTRUCTURING AND OTHER CHARGES (CREDITS) (6,541) 41,417 --
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 101,444 (10,581) 80,150
INTEREST AND DEBT ISSUANCE EXPENSE 53,900 52,878 45,131
OTHER INCOME, NET 1,617 461 1,147
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 49,161 (62,998) 36,166
PROVISION (BENEFIT) FOR INCOME TAXES 16,669 (12,248) 13,955
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 32,492 (50,750) 22,211
--------- --------- ---------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (584) (2,370) 3,919
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
INCLUDING PROVISIONS FOR OPERATING LOSSES
DURING THE PHASE-OUT PERIOD, NET OF INCOME
TAXES (113,896) -- --
--------- --------- ---------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (114,480) (2,370) 3,919
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (81,988) (53,120) 26,130
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAXES (1,147) -- --
--------- --------- ---------
NET INCOME (LOSS) $(83,135) $(53,120) $26,130
========= ========= =========
EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $1.27 $(1.92) $0.83
DISCONTINUED OPERATIONS (4.47) (0.09) 0.15
EXTRAORDINARY LOSS (0.05) 0.00 0.00
--------- --------- ---------
EARNINGS (LOSS) PER SHARE $(3.25) $(2.01) $0.98
========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 25,616 26,472 26,684
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $(83,135) $(53,120) $26,130
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 22,353 23,302 22,108
Amortization of debt issuance costs and debt discount 13,903 12,192 6,468
Net loss on disposal of discontinued operations 110,137 -- --
Net loss (income) from discontinued operations 4,343 2,370 (3,919)
Asset writedowns and other charges (credits) (7,364) 16,677 --
Provision for uncollectible accounts 704 4,627 878
Deferred income taxes 14,903 (10,667) 9,914
Other, net (3,642) (72) 453
Changes in operating assets and liabilities,
net of acquisitions and discontinued operations
Accounts receivable (13,723) (1,604) (24,677)
Inventories (13,078) 14,146 (21,790)
Accounts payable 4,306 (2,726) 49,039
Accrued restructuring charges (7,405) 17,284 (3,469)
Other assets and liabilities (1,048) 3,048 (13,031)
--------- --------- ---------
Net cash provided by continuing operations 41,254 25,457 48,104
Net cash provided by discontinued operations 16,491 4,133 6,471
--------- --------- ---------
Net cash provided by operating activities 57,745 29,590 54,575
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (23,344) (22,348) (21,201)
Acquisitions, net of cash acquired (841) (8,113) (1,712)
Proceeds from sale of discontinued operations 59,452 -- --
Increase in restricted cash (12,143) -- --
Discontinued operations investing activities (5,490) (19,411) (290,014)
Other investing activities (1,276) 2,495 (1,910)
--------- --------- ---------
Net cash provided by (used for) investing activities 16,358 (47,377) (314,837)
--------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings 1,493 (1,685) 537
Net proceeds from (repayments of) revolving loans -- (3,000) 3,000
Proceeds from long-term debt-unrelated parties 1,500 -- 97,000
Repayments of long-term debt-unrelated parties (38,887) (9,356) (3,256)
Debt issuance costs -- (184) (9,116)
Purchase of treasury stock (6,296) (7,167) --
Discontinued operations financing activities (12,406) 1,674 179,655
Other financing activities (626) -- (687)
--------- --------- ---------
Net cash provided by (used for) financing activities (55,222) (19,718) 267,133
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 18,881 (37,505) 6,871
Cash and cash equivalents at beginning of period 3,322 40,827 33,956
--------- --------- ---------
Cash and cash equivalents at end of period $22,203 $3,322 $40,827
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-in (Accumulated Treasury
Shares Amount Capital Deficit) Other Stock
(thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 2, 1994 26,684 $267 $80,566 $ (10,049) $ (6,478)
Issuance of warrants 3,000
Stock option compensation 75
Stock options exercised 10
Additional pension liability 86
Foreign currency translation adjustment (1,435)
Other (27)
Net income 26,130
------ ---- ------- --------- --------
Balances at January 1, 1995 26,684 267 83,624 16,081 (7,827)
Issuance of common stock 32 - 316
Stock option compensation 75
Increase in note receivable from
principal stockholder (1,373)
Additional pension liability (1,974)
Foreign currency translation adjustment 481
Purchase of treasury stock $ (7,167)
Net loss (53,120)
------ ---- ------- --------- -------- --------
Balances at December 31, 1995 26,716 267 84,015 (37,039) (10,693) (7,167)
Issuance of common stock 22 - 165
Stock option compensation 297
Stock options exercised 15 - 102
Additional pension liability 1,427
Foreign currency translation adjustment (46)
Purchase of treasury stock (6,296)
Net loss (83,135)
------ ---- ------- --------- -------- --------
Balances at December 29, 1996 26,753 $267 $84,579 $(120,174) $ (9,312) $(13,463)
====== ==== ======= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-7
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex International Inc. (the "Company") is a significant manufacturer
and marketer of flexible polyurethane foam and foam products in North America
through Foamex L.P., a 99% owned subsidiary. The Company's products include (i)
foam for carpet cushion and other carpet products, (ii) cushioning foams for
furniture, bedding, packaging and health care, (iii) foams for automotive trim
and accessories and (iv) technical foams for filtration, consumer products and
packaging.
During 1996, the Company sold Perfect Fit Industries, Inc. ("Perfect
Fit") and JPS Automotive L.P. ("JPS Automotive") which comprised the home
comfort products and automotive textile business segments, respectively, of the
Company. The consolidated financial statements of the Company have been restated
for discontinued operations and includes a net loss of $113.9 million (net of
$34.9 million income tax benefit) on the disposal of these business segments
which includes provisions for operating losses during the phase-out period. (See
Note 3 for further discussion).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the
Company and all subsidiaries that the Company directly or indirectly controls,
either through majority ownership or otherwise, other than the home comfort
products and automotive textile business segments which are accounted for as
discontinued operations. Intercompany accounts and transactions for continuing
operations have been eliminated in consolidation.
The consolidated financial statements have been restated for
discontinued operations. The accompanying notes present amounts related only to
continuing operations.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to the
thirty-first day of December. Fiscal years 1996, 1995 and 1994 were composed of
fifty-two weeks and ended on December 29, 1996, December 31, 1995 and January 1,
1995, respectively.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 3, 4, 9, 10, 16, 17 and 18 and Cost in Excess of Net
Assets Acquired below.)
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. On
December 29, 1996 and December 31, 1995, cash and cash equivalents included
$19.6 million and $2.7 million, respectively, of repurchase agreements
collateralized by U.S. Government securities.
F-8
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted Cash
As of December 29, 1996, the Company had restricted cash of
approximately $12.1 million. This cash was derived from the net sales proceeds
relating to the sale of Perfect Fit and is restricted by Foamex L.P.'s debt
agreements. As of February 26, 1997, the Company has used approximately $8.4
million of the restricted cash to repurchase approximately $8.0 million of
outstanding indebtedness.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the assets.
The range of useful lives estimated for buildings is generally twenty to
thirty-five years, and the range for machinery, equipment and furnishings is
five to twelve years. Leasehold improvements are amortized over the shorter of
the terms of the respective leases or the estimated useful lives of the
leasehold improvements. Depreciation expense for the years ended 1996, 1995 and
1994 was $19.1 million, $19.1 million and $16.8 million, respectively. For
income tax purposes, the Company uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other disposition
of items of plant and equipment, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
Debt Issuance Costs
Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the interest method. Accumulated amortization as of December 29, 1996 and
December 31, 1995 was approximately $8.8 million and $6.7 million, respectively.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for as purchases is amortized using
the straight-line method over a forty year period. At each balance sheet date
the Company evaluates the recoverability of cost in excess of net assets
acquired using certain financial indicators such as historical and future
ability to generate income from operations based on a going concern basis.
Accumulated amortization as of December 29, 1996 and December 31, 1995 was
approximately $11.6 million and $9.0 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current
F-9
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
or future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated.
Postretirement and Postemployment Benefits
The Company accrues postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
Also, the Company accrues postemployment benefits when it becomes probable that
such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.
Foreign Currency Accounting
The financial statements of foreign subsidiaries, except in countries
treated as highly inflationary, have been translated into U.S. dollars by using
the year end exchange rates for the assets and liabilities and average exchange
rates for the statements of operations. Currency translation adjustments are
included in other stockholders' equity (deficit) until the entity is
substantially sold or liquidated. For operations in countries treated as highly
inflationary, certain financial statement amounts are translated at historical
exchange rates, with all other assets and liabilities translated at year end
exchange rates. These translation adjustments are reflected in the results of
operations and are insignificant for all periods presented. Also, foreign
currency transaction gains and losses are insignificant for all periods
presented. The effect of foreign currency exchange rates on cash flows is not
material.
Interest Rate Swap Agreement
The differential to be paid or received under an interest rate swap
agreement is recognized as an adjustment to interest and debt issuance expense
in the current period as interest rates change.
Income Taxes
Income taxes are accounted for under the liability method, in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
Earnings (Loss) Per Share
Earnings (loss) per share for 1996 was computed based on the weighted
average number of shares actually outstanding plus the shares that would be
outstanding assuming the exercise of dilutive stock options and warrants which
are considered to be common stock equivalents. The number of shares that would
be issued from the exercise of stock options has been reduced by the number of
shares that could have been purchased from the proceeds at the average market
price of the Company's common stock. For 1995 and 1994, common stock equivalents
have not been included since the effect would be antidilutive and/or immaterial.
Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the current year's presentation.
F-10
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS
On December 11, 1996, the Company completed the sale of its partnership
interests in JPS Automotive for a sale price of approximately $220.1 million
including $200.1 million of JPS Automotive's indebtedness. The sale is subject
to a post-closing adjustment which is expected to be finalized during the second
quarter of 1997. The sale included substantially all of the net assets of the
automotive textiles business segment. Actual and estimated transaction expenses
related to the sale amounted to approximately $8.9 million. The Company has
recorded a net loss on the sale of JPS Automotive of approximately $70.9 million
(net of $34.2 million income tax benefit), which includes the loss on disposal
and a net loss of $1.3 million (net of $0.7 million income tax benefit) relating
to operating losses during the phase-out period.
During 1996, the Company finalized the sale of the outstanding common
stock of Perfect Fit, a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included substantially all of the net
assets of the home comfort products segment. Actual and estimated transaction
expenses related to the sale amounted to approximately $1.5 million. The Company
has recorded a loss on the sale of Perfect Fit of approximately $43.0 million,
which includes the loss on disposal and a net loss of $2.4 million relating to
operating losses during the phase-out period. A valuation allowance has been
provided for the capital loss relating to the sale of Perfect Fit since the
Company has determined that capital gain taxable income is not likely to be
sufficient to recognize the deferred tax asset relating to the capital loss
carryforward.
The Company's financial statements have been restated to reflect the
discontinuation of the home comfort products and automotive textile business
segments. In addition to the interest and debt issuance expense of JPS
Automotive, interest and debt issuance expense was allocated to discontinued
operations based on the estimated debt to be retired from the net proceeds from
the sale of Perfect Fit and JPS Automotive. A summary of the operating results
for the discontinued operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Sales $244,305 $405,726 $254,174
Gross profit 38,296 69,410 50,477
Income from operations 17,072 28,009 24,026
Interest and debt issuance expense 16,905 28,575 16,463
Other expense (975) (113) (127)
Income (loss) from discontinued operations before income taxes (808) (679) 7,436
Provision (benefit) for income taxes (224) 1,691 3,517
Income (loss) from discontinued operations, net of income taxes (584) (2,370) 3,919
<FN>
1 The Company's discontinued operations includes the operations of Perfect
Fit through June 1996 and JPS Automotive through September 1996.
</FN>
</TABLE>
Net assets of discontinued operations (excluding intercompany net
assets) at December 31, 1995 were as follows:
1995
(thousands)
Current assets $100,574
Property, plant and equipment, net 142,863
Cost in excess of assets acquired, net 202,020
Other assets 10,642
--------
Total assets 456,099
--------
F-11
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS (continued)
1995
(thousands)
Current liabilities 49,202
Long-term debt 204,463
Other liabilities 11,246
--------
Total liabilities 264,911
--------
Net assets $191,188
========
4 RESTRUCTURING AND OTHER CHARGES (CREDITS)
In 1995, the Company approved a restructuring plan (the "1995
restructuring plan") to consolidate thirteen foam production, fabrication or
branch locations to concentrate resources as a result of industry conditions and
better position itself to achieve its strategic growth objectives. The Company
recorded restructuring and other charges of $41.4 million which was comprised of
$35.6 million associated with the consolidation of the foam production,
fabrication or branch locations, $2.2 million associated with the completion of
a 1993 restructuring plan and $3.6 million associated with merger and
acquisition activities of the Company. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns (net of
estimated sale proceeds), $15.1 million for plant closure and operating lease
obligations and $3.8 million for personnel reductions. The $3.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
In 1996, the Company determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, the Company has approved a
plan to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters, the
Company recorded a $6.5 million net restructuring credit which included a
restructuring credit of $11.3 million associated with the Company's decision not
to close the facility identified as part of the 1995 restructuring plan and $1.8
million of restructuring credits relating primarily to the favorable termination
of certain lease agreements and other matters relating to the 1995 restructuring
plan, offset by $6.6 million of restructuring charges relating to the closure of
the two facilities during 1997 (the "1996 restructuring plan").
F-12
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
Generally, the 1995 restructuring plan has been implemented as
originally contemplated. The following table sets forth the components of the
Company's restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
(millions)
<S> <C> <C> <C>
1995 restructuring charge $41.4 $16.7 $15.1 $3.8 $5.8
Asset writeoff/writedowns (25.1) (20.9) -- -- (4.2)
Cash spending (0.4) -- (0.3) (0.1) --
----- ----- ----- ---- ----
Balances at December 31, 1995 15.9 (4.2) 14.8 3.7 1.6
Cash spending (9.9) -- (6.6) (2.0) (1.3)
Cash proceeds 1.0 1.0 -- -- --
1996 restructuring charge 6.6 2.4 4.1 0.1 --
Restructuring credits (13.1) (9.7) (2.8) (0.4) (0.2)
Asset adjustment for restructuring
credits 8.0 8.7 (0.6) -- (0.1)
----- ----- ----- ---- ----
Balances at December 29, 1996 $8.5 $(1.8) $8.9 $1.4 $--
===== ===== ===== ==== ====
</TABLE>
As indicated in the table above, the accrued restructuring balance at
December 29, 1996, will be used for payments relating to plant closure and
leases including rundown costs at the facilities. The $1.8 million of asset
writedowns relates to estimated proceeds and is included in noncurrent assets.
The Company expects to incur approximately $6.3 million of charges during 1997
with the remaining $4.0 million to be incurred through 2001. As of December 29,
1996, the Company has terminated approximately 270 employees and notified
approximately 40 employees in the manufacturing and administrative areas of
their impending termination in connection with the 1996 and 1995 restructuring
plans.
5. ACQUISITIONS
In April 1995, the Company acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million, including
related fees and expenses of approximately $0.3 million, with an initial cash
payment of $7.2 million. The excess of the purchase price over the estimated
fair value of the net assets acquired was approximately $3.9 million.
In March 1994, the Company acquired Transformacion De Espumas Y
Fieltros S.A. de C.V. ("TEFSA") for an aggregate purchase price of approximately
$4.5 million, including related fees and expenses of approximately $0.4 million,
to be paid over a three year period with an initial cash payment of $1.7
million. The excess of the purchase price over the estimated fair value of the
assets acquired was $3.7 million. During 1996 and 1995, the Company made
scheduled cash payments of $0.8 million for each year in accordance with the
purchase agreement. The final payment will be made in April 1997.
The acquisitions were accounted for as purchases and the operations of
the acquired companies are included in the consolidated statements of operations
and cash flows from their respective dates of acquisition. The excess of the
purchase price over the estimated fair value of the net assets acquired is being
amortized using the straight-line method over forty years.
F-13
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVENTORIES
Inventories consists of:
December 29, December 31,
1996 1995
(thousands)
Raw materials and supplies $61,559 $49,963
Work-in process 13,453 14,451
Finished goods 27,598 25,538
-------- --------
Total $102,610 $89,952
======== ========
7. SHORT-TERM BORROWINGS
Short-term borrowings include borrowings outstanding under a line of
credit facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the
bank's prime rate (4.75% at December 29, 1996) plus 1/2%. The weighted average
interest rates on Foamex Canada's short-term borrowings outstanding for 1996,
1995 and 1994 were 5.9%, 8.0% and 7.3%, respectively. Borrowings under Foamex
Canada's credit facility are due on demand and are collateralized by accounts
receivable, property and inventories of Foamex Canada having an approximate net
carrying value of $17.1 million as of December 29, 1996. The unused amount under
this line of credit totaled $0.7 million as of December 29, 1996.
8. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Unrelated parties:
9 1/2% Senior secured notes due 2000 (1) $106,793 $116,667
11 1/4% Senior notes due 2002 (1) 141,400 150,000
11 7/8% Senior subordinated debentures due 2004 (net of
unamortized debt discount of $769 and $827) (1) 125,056 125,173
Senior secured discount debentures due 2004, Series B
(net of unamortized debt discount of $35,864 and
$46,364) (2) 80,881 70,381
11 7/8% Senior subordinated debentures due 2004, Series B (3) 7,000 7,000
Industrial revenue bonds (4) 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 29, 1996)(4) 11,000 30,000
Other 12,902 12,474
-------- --------
492,032 518,695
Less current portion 14,505 9,281
-------- --------
Long-term debt--unrelated parties $477,527 $509,414
======== ========
F-14
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Related parties:
Subordinated note payable (net of unamortized
debt discount of $1,198 and $1,475) (3) $ 5,817 $ 5,540
======== ========
<FN>
(1) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation and
guaranteed by the Company and General Felt Industries, Inc. ("General
Felt").
(2) Subsidiary debt of Foamex-JPS Automotive L.P. and Foamex-JPS Capital
Corporation and guaranteed by the Company.
(3) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation and
guaranteed by General Felt.
(4) Subsidiary debt of Foamex L.P.
</FN>
</TABLE>
9 1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest
at the rate of 9 1/2% payable semiannually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100% on or after June 1, 1999. During
1996, Foamex L.P. repurchased $9.9 million of Senior Secured Notes with the net
proceeds from the sale of Perfect Fit (see Note 11).
11 1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11 1/4% payable
semiannually on each April 1 and October 1. The Senior Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part, at any time on or after October 1, 1997, initially at 104.219% of
their principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994, Foamex L.P. provided certain real property as
collateral for the Senior Notes, with a net book value of $37.8 million at
December 29, 1996. During 1996, Foamex L.P. repurchased $8.6 million of Senior
Notes with the net proceeds from the sale of Perfect Fit (see Note 11).
11 7/8% Senior Subordinated Debentures due 2004 ("Subordinated
Debentures")
The Subordinated Debentures bear interest at the rate of 11 7/8%
payable semiannually on each April 1 and October 1. The Subordinated Debentures
mature on October 1, 2004. The Subordinated Debentures may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after October 1,
1997, initially at 105.938% of their principal amount, plus accrued interest,
and declining to 100% on or after October 1, 2002. The Subordinated Debentures
are subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. During 1996, Foamex L.P. repurchased
$0.1 million of Subordinated Debentures with the net proceeds from the sale of
Perfect Fit (see Note 11).
F-15
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Senior Secured Discount Debentures due 2004 ("Discount Debentures")
Discount Debentures, in the aggregate principal amount of $116.7
million ($57.0 million initial cash proceeds) were issued during 1994 by
Foamex-JPS Automotive L.P. ("FJPS") and Foamex-JPS Capital Corporation ("FJCC").
In connection with this issuance, the Company issued warrants to acquire 0.6
million shares of the Company's common stock to the purchasers of the Discount
Debentures (see Note 15). The Discount Debentures are collateralized by a
first-priority lien granted by FJPS on a 43.44% limited partnership interest in
Foamex L.P. and are guaranteed on a senior basis by the Company. The original
issue discount of $59.7 million will be amortized using the weighted average to
maturity method over the life of the issue. No cash interest is payable on the
Discount Debentures prior to January 1, 2000; rather the Discount Debentures
accrete on a daily basis and compound semiannually at the rate of 13.50% per
annum from the date of issuance through June 30, 1996, at the rate of 13.75% per
annum from July 1, 1996 through June 30, 1997 and at the rate of 14.00% per
annum from July 1, 1997 through June 30, 1999, in each case subject to increase
in the event the Discount Debentures are not redeemed at the option of FJPS and
FJCC as described below. Thereafter, interest accrues at the rate of 14.00% per
annum and is payable semiannually in cash commencing January 1, 2000.
The Discount Debentures may be redeemed at the option of FJPS and FJCC,
in whole or in part, at any time after July 1, 1999, initially at 110% of their
principal amount, plus accrued interest to the redemption date, and declining to
100% on or after July 1, 2002. Prior to July 1, 1997, at the option of FJPS and
FJCC, (i) up to 50% of the original aggregate principal amount of the Discount
Debentures will be redeemable at a redemption price equal to 110% of the
Accreted Value (as defined in the indenture with respect to such debentures)
(the "Discount Debenture Indenture") of such Discount Debentures and (ii)
additional Discount Debentures will be redeemable at a redemption price equal to
112% of the Accreted Value of such Discount Debentures from the proceeds of an
Equity Offering (as defined in the Discount Debenture Indenture). In addition,
at any time on or prior to July 1, 1997, FJPS and FJCC may redeem all, but not
less than all, of the outstanding Discount Debentures from the net proceeds of
an Equity-Linked Offering (as defined in the Discount Debenture Indenture) at
the redemption prices set forth in the immediately preceding sentence. If FJPS
and FJCC do not exercise such redemption rights with at least 85% of the net
proceeds of an Equity Offering, the rate at which the Discount Debentures shall
accrete and the interest rate on the Discount Debentures will increase based on
a formula.
During 1996, the Company received consents from 100% of the holders of
the Discount Debentures for the waiver of certain provisions of the Discount
Debentures Indenture in connection with the sale of JPS Automotive.
11 7/8% Senior Subordinated Debentures, Series B ("Series B Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures.
F-16
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0
million, maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.3 million at
December 29, 1996 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex L.P. to
convert to a fixed rate. The interest rates on the IRBs were 4.85% and 4.0% at
December 29, 1996 for the $6.0 million and $1.0 million bond issues,
respectively. The interest rate on the $6.0 million bond issue varies weekly
based on an interest rate that is indicative of current bidside yields on high
quality short-term, tax-exempt obligations, or if such interest rate is not
available, 70.0% of the interest rate for thirteen week United States Treasury
Bills. The maximum interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon appropriate notice,
the IRBs are redeemable at the option of the bondholders.
Term and Revolving Loans
Foamex L.P. has a credit agreement (the "Foamex L.P. Credit Facility")
with a group of banks that provide for loans of up to $85.0 million of which up
to $40.0 million was available as a term loan payable in twenty equal quarterly
installments commencing October 1994 and up to $45.0 million is available under
a revolving line of credit which expires in June 1999. In 1994, Foamex L.P. and
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility; no further term loan borrowings are available thereunder. During 1996,
Foamex L.P. and General Felt used $12.0 million of the net proceeds from the
Perfect Fit sale to repay term loan borrowings. Borrowings under the Foamex L.P.
Credit Facility are collateralized by the accounts receivable of Foamex L.P. and
General Felt. Pursuant to the terms of the Foamex L.P. Credit Facility, borrowed
funds will bear interest at a floating rate equal to 1.0% per annum plus the
highest of (i) the base rate of The Bank of Nova Scotia, as in effect from time
to time, (ii) a rate that is, generally, 0.5% per annum plus a fluctuating rate
generally equal to the rate on three month certificates of deposit, subject to
certain adjustments, plus a fluctuating rate generally equal to the annual
assessment rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation or (iii) 0.5% per annum plus the federal funds rate in effect from
time to time. At the option of the borrower, portions of the outstanding loans
under the Foamex L.P. Credit Facility will be convertible into Eurodollar rate
loans bearing interest at a rate generally equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29, 1996, there were approximately $11.7 million in letters of credit
outstanding under the Foamex L.P. Credit Facility. As of December 29, 1996,
there was unused availability of approximately $33.3 million under the Foamex
L.P. Credit Facility.
Subordinated Note Payable
This note payable was issued to John Rallis ("Rallis"), the Chief
Operating Officer of the Company, on May 6, 1993 by Foamex L.P. in connection
with the acquisition of Great Western Foam Products Corporation and certain
related entities and assets (collectively, "Great Western"). The note bears
interest at a maximum rate of 6% per annum and the principal amount is payable
in three equal annual installments beginning May 6, 1999.
Other
As of December 29, 1996, other debt is comprised primarily of capital
lease obligations, equipment financing associated with an aircraft and
borrowings by Foamex Mexico.
F-17
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Interest Rate Swap Agreements
The Company enters into interest rate swaps to lower funding costs
and/or to manage interest costs and exposure to changing interest rates. The
Company does not hold or issue financial instruments for trading purposes. The
Company has an interest rate swap agreement, as amended, with a notional amount
of $150.0 million through December 2001. Under the swap agreement, the Company
has made variable payments based on LIBOR through December 1996 and is obligated
to make fixed payments at 5.30% per annum for the twelve months ended in
December 1997 and variable payments based on LIBOR for the remainder of the
agreement, in exchange for fixed payments by the swap partner at 5.81% per annum
through December 1996, and 6.50% per annum for the remainder of the agreement,
payable semiannually in arrears. The swap partner has the ability to terminate
the swap agreement after the December 1997 payment if the LIBOR rate the Company
is to pay for any period thereafter is equal to or less than 4.50% per annum.
Interest expense will be subject to fluctuations in LIBOR during the term of the
swap agreement except during 1997. The Company is exposed to credit loss in the
event of nonperformance by the swap partner; however, the occurrence of this
event is not anticipated.
Also, the Company has an interest rate swap agreement, as amended, for
a notional amount of $150.0 million through December 2001. Under this swap
agreement, the Company has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for variable payments by the swap partner at the rate of LIBOR plus
0.80% per annum for the six months ended in June 1995, LIBOR plus 0.72% per
annum for the six months ended in December 1995, LIBOR plus 2.45% per annum for
the six months ended in June 1996, LIBOR plus 2.39% per annum for the six months
ended in December 1996 and fixed payments at 6.50% per annum for the remainder
of the term of the agreement, payable semiannually in arrears. The swap partner
has the ability to terminate the swap agreement after the December 1997 payment
if the LIBOR rate the Company is to pay for any period thereafter is equal to or
less than 4.50% per annum. Interest expense will be subject to fluctuations in
LIBOR during the term of the swap agreement except during 1997. The effect of
the two interest rate swaps described above was a favorable adjustment to
interest expense of $3.7 million, $1.4 million and $3.0 million for 1996, 1995
and 1994, respectively. The Company is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated.
Debt Restrictions and Covenants
The indentures, credit agreement and other indebtedness agreements
contain various covenants, including restrictions on payments of distributions
to the Company by its subsidiaries, the incurrence of additional indebtedness,
the sale of assets, mergers and consolidations and transactions with affiliates.
In addition, certain agreements contain a provision that, in the event of a
defined change of control, the indebtedness must be repaid, in certain cases, at
the option of the holder. Also, the Company's subsidiaries are required under
certain of these agreements to maintain specified financial ratios of which the
most restrictive is the maintenance of net worth and interest coverage ratios,
as defined. Under the most restrictive of the distribution restrictions,
approximately $4.9 million was available to be paid to the Company by its
subsidiaries as of December 29, 1996.
F-18
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
During 1996, the Company received consents and/or waivers from its
lenders and bondholders in connection with the sale of Perfect Fit and JPS
Automotive and other related matters.
As of December 29, 1996, the Company was in compliance with the
covenants of the indentures, credit agreements and other indebtedness agreements
and expects to be in compliance with these covenants for the foreseeable future.
Future Obligations on Long-Term Debt
Scheduled maturities of long-term debt are shown below:
Year End Long-Term Debt
(thousands)
1997 $ 14,260
1998 4,770
1999 6,108
2000 107,401
2001 3,109
Thereafter 399,246
--------
Total 534,894
Less unamortized discount 37,831
--------
Total $497,063
========
In addition, the Company has approximately $0.8 million of total
capital lease obligations that are payable in 1997 through 2000 in annual
amounts of approximately $0.2 million.
9. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
The Company maintains noncontributory defined benefit pension plans for
salaried and certain hourly employees. The salaried plan provides benefits that
are based principally on years of credited service and level of compensation.
The hourly plans provide benefits that are based principally on stated amounts
for each year of credited service.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service cost $2,471 $2,087 $2,452
Interest cost 3,997 3,742 3,541
Actual return on plan assets (8,841) (5,682) 624
Net amortization and deferral 4,643 1,807 (4,649)
------- ------- -------
Total $2,270 $1,954 $1,968
======= ======= =======
</TABLE>
F-19
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
The Company's funding policy is to contribute annually an amount that
both satisfies the minimum funding requirements of the Employee Retirement
Income Security Act of 1974 and does not exceed the full funding limitations of
the Internal Revenue Code of 1986, as amended (the "Code"). Plan investments
consist primarily of corporate equity and debt securities, mutual life insurance
funds and cash equivalents. During 1996, the discount rate was adjusted to
7.50%. The following table sets forth the funded status of the Company's
underfunded plans and the amounts recognized in the accompanying consolidated
balance sheets as of December 29, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
Actuarial present value of accumulated
benefit obligations:
<S> <C> <C>
Vested benefits $55,336 $52,762
Nonvested benefits 2,137 1,916
-------- --------
Accumulated benefit obligations $57,473 $54,678
======== ========
Total projected benefit obligations $58,775 $55,810
Fair value of plan assets 53,734 44,441
-------- --------
Projected benefit obligations in excess
of plan assets (5,041) (11,369)
Unrecognized net loss from past experience
difference from that assumed and effect
of changes in assumptions 1,099 6,394
Additional minimum liability (2,694) (5,265)
-------- --------
Accrued pension cost $(6,636) $(10,240)
======== ========
</TABLE>
Significant assumptions used in determining the plans' funded status
are as follows:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
<S> <C> <C>
Expected long-term rates of return on plan assets 9.50% 9.00%
Discount rates on projected benefit obligations 7.50% 7.25%
Rates of increase in compensation levels (where applicable) 4.00% 4.00%
</TABLE>
F-20
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
Defined Contribution Plan
The Company maintains a defined contribution plan which is qualified
under Section 401(k) of the Code and is available for eligible employees who
elect to participate in the plan. Employee contributions are voluntary and
subject to certain limitations as imposed by the Code. During 1996 and 1995, the
Company provided contributions amounting to a 25% match of employees'
contributions up to 4% of eligible compensation. The Company also provides an
additional 25% match of employees' contributions up to 4% of eligible
compensation made to a fund which invests in the Company's common stock. In
addition, the Company may make discretionary contributions amounting to a 25%
match of employees' contributions up to 4% of eligible compensation. Prior to
1995, Company contributions were discretionary and provided a 50% match of
employees' contributions up to 3% of eligible compensation. The expense for
these contributions for 1996, 1995 and 1994 was approximately $0.8 million, $0.7
million and $0.4 million, respectively.
Postretirement Benefits
In addition to providing pension benefits, the Company provides
postretirement health care and life insurance for eligible employees. During
1996, certain employees accepted an early retirement program resulting in a
special termination loss of $0.6 million. During 1995, changes were made to
postretirement benefits offered to certain employees which resulted in a
curtailment loss of $0.6 million. These plans are unfunded and the Company
retains the right, subject to existing agreements, to modify or eliminate these
benefits.
The components of 1996, 1995 and 1994 expense for postretirement
benefits are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service costs for benefits earned $12 $24 $172
Interest cost on liability 67 83 192
Net amortization and deferral (53) (13) 134
Special termination/curtailment loss 576 619 --
----- ----- -----
Net periodic postretirement benefit cost $602 $713 $498
===== ===== =====
</TABLE>
The accumulated postretirement benefit obligation at December 29, 1996
and December 31, 1995 resulted in an unfunded obligation of $2.1 million and
$1.6 million, respectively.
A 9% and 10% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1996 and 1995, respectively. This
rate was assumed to gradually decrease to 5% by the year 2000. Increasing the
weighted average assumed health care cost trend rates by one percentage point
would have an insignificant impact on the accumulated postretirement benefit
obligation and service and interest cost. The discount rate used was 7.50% and
7.25% as of December 29, 1996 and December 31, 1995, respectively.
F-21
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
Postemployment Benefits
The Company provides certain postemployment benefits to former or
inactive employees and their dependents during the time period following
employment but before retirement. At December 29, 1996 and December 31, 1995,
the Company's liability for postemployment benefits was insignificant for each
period.
Other
In December 1994, the Company changed its method of compensating
certain employees for vacation, which increased income from operations by $4.3
million for 1994.
10. INCOME TAXES
Income (loss) from continuing operations before provision for income
taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
United States $46,075 $(62,015) $34,240
Foreign 3,086 (983) 1,926
------- -------- -------
Income (loss) from continuing operations
before provision (benefit) for income taxes $49,161 $(62,998) $36,166
======= ======== =======
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
1996 1995 1994
(thousands)
Continuing operations $16,669 $(12,248) $13,955
Discontinued operations (35,129) 1,691 3,517
Extraordinary loss on early extinguishment
of debt (765) - -
------- -------- -------
Total consolidated provision (benefit) for
income taxes $(19,225) $(10,557) $17,472
======= ======== =======
</TABLE>
F-22
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The total consolidated provision (benefit) for income taxes is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
Current:
<S> <C> <C> <C>
Federal $220 $(2,038) $3,236
State 760 -- --
Foreign 786 457 805
-------- -------- --------
Total current 1,766 (1,581) 4,041
-------- -------- --------
Deferred:
Federal (24,211) (9,543) 10,259
State (2,729) 856 3,193
Foreign 491 (289) (21)
-------- -------- --------
Total deferred (20,991) (8,976) 13,431
-------- -------- --------
Total consolidated provision (benefit)
for income taxes $(19,225) $(10,557) $17,472
======== ======== ========
</TABLE>
The tax effect of the temporary differences that give rise to
significant deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
(thousands)
<S> <C> <C>
Deferred tax assets:
Inventory basis differences $ 1,209 $ 2,473
Employee benefit accruals 6,247 7,733
Allowances and contingent liabilities 3,616 8,589
Restructuring and plant closing accruals 8,323 10,869
Other 6,301 2,518
Net operating loss carryforwards 37,483 20,190
Capital loss carryforwards 16,561 --
Valuation allowance for deferred tax assets (23,064) (16,979)
-------- --------
Deferred tax assets 56,676 35,393
-------- --------
Deferred tax liabilities:
Basis difference in property, plant and equipment 36,257 30,183
Net deferred tax liabilities associated with
discontinued operations -- 14,304
Other 4,944 3,277
-------- --------
Deferred tax liabilities 41,201 47,764
-------- --------
Net deferred tax assets (liabilities) $ 15,475 $(12,371)
======== ========
</TABLE>
F-23
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The Company has determined that taxable capital gains in the
foreseeable future for subsidiaries that file a separate federal income tax
return will likely not be sufficient to recognize the deferred tax asset
associated with the capital loss carryforward. Accordingly, a valuation
allowance has been provided for the deferred tax asset associated with the
capital loss carryforward and certain other deferred tax assets. During 1996,
the valuation allowance for deferred tax assets increased by $6.1 million which
included a $16.6 million increase for the capital loss carryforward, offset by
$6.9 million decrease due to reversal of preacquisition temporary differences
and $3.6 million for the reversal of valuation allowances which are reflected in
the consolidated statement of operations. The $6.9 million reversal of
preacquisition temporary differences was used to reduce cost in excess of assets
acquired. As of December 29, 1996, approximately $1.8 million of deferred tax
assets are related to preacquisition activities and if utilized will further
reduce cost in excess of assets acquired. At December 29, 1996, the Company has
$103.2 million of regular tax net operating loss carryforwards for federal
income tax purposes expiring from 2003 to 2010 of which $7.0 million was
acquired in 1993 and is subject to limitations. In addition, the Company has
$47.3 million of capital loss carryforwards that expire in 2001.
A reconciliation of the statutory federal income tax rate to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Statutory income taxes $ 17,206 $(22,049) $ 12,658
State income taxes, net of federal 1,864 (2,095) 1,977
Limitation on the utilization of tax benefits -- 7,695 --
Valuation allowance (3,621) -- (452)
Cost in excess of assets acquired 644 1,010 926
Other 576 3,191 (1,154)
-------- -------- --------
Total $ 16,669 $(12,248) $ 13,955
======== ======== ========
</TABLE>
11. EXTRAORDINARY LOSS
During 1996, the Company used $31.3 million of the net proceeds from
the sale of Perfect Fit to extinguish debt of $30.6 million and redemption
premiums of $0.6 million. The Company wrote off $1.2 million of debt issuance
costs associated with the early extinguishment of debt and incurred transaction
costs of $0.1 million. The early extinguishment of debt resulted in an
extraordinary loss of $1.1 million (net of $0.8 million income tax benefit).
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under various noncancelable lease agreements
for rental of facilities, vehicles and other equipment. Many of the leases
contain renewal options with varying terms and escalation clauses that
F-24
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES (continued)
provide for increased rentals based upon increases in the Consumer Price Index,
real estate taxes and lessors' operating expenses. Total minimum rental
commitments (excluding commitments accrued as part of the 1996 and 1995
restructuring plans) required under operating leases at December 29, 1996 are:
Third Party Related Party
Leases Leases
(thousands)
1997 $ 7,874 $ 1,767
1998 6,164 1,823
1999 4,866 1,823
2000 3,812 1,823
2001 2,883 2,265
Thereafter 4,122 5,800
------- -------
Total $29,721 $15,301
======= =======
Rental expense charged to operations under operating leases
approximated $9.6 million, $10.5 million and $10.3 million for 1996, 1995 and
1994, respectively. Substantially all such rental expense represented the
minimum rental payments under operating leases. In addition, the Company
incurred rental expense of approximately $1.7 million, $3.5 million and $3.9
million for 1996, 1995 and 1994, respectively, under leases with related
parties.
13. RELATED PARTY TRANSACTIONS AND BALANCES
The Company regularly enters into transactions with its affiliates in
the ordinary course of business.
On July 7, 1996, Trace International Holdings, Inc. ("Trace Holdings")
issued to Foamex L.P. a promissory note for $4.4 million in principal amount
plus accrued interest of $0.4 million, which is an extension of a promissory
note of Trace Holdings that was due in July 1996. The promissory note is due and
payable on demand or, if no demand is made, July 7, 1997, and bears interest at
9.5%, payable quarterly in arrears commencing October 1, 1996. The promissory
note is included in other stockholders' equity (deficit).
In connection with the acquisition of Great Western, Foamex L.P. issued
a promissory note to Rallis (see Note 8) and entered into lease agreements (see
Note 12) with Rallis and an affiliate of Rallis, for the rental of former Great
Western manufacturing facilities located in Orange, Ontario and Hayward,
California and a warehouse facility in Tigard, Oregon. Foamex L.P. has the
option to purchase each of these properties from Rallis or such affiliate.
Foamex L.P. was party to a lease agreement for an airplane with Trace
Aviation Corp. ("Trace Aviation"), a subsidiary of Trace Holdings. During 1995
and 1994, Foamex L.P. paid Trace Aviation $1.6 million and $2.7 million,
respectively, pursuant to the lease agreement. The lease agreement also provided
for the use of the airplane by Trace Holdings with remuneration to Foamex L.P.
based on actual usage of the plane. During 1995 and 1994, Trace Holdings paid to
Foamex L.P. $0.6 million and $0.5 million, respectively, pursuant to the
agreement. During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly-owned
subsidiary of the Company, acquired the aircraft from Trace Holdings for $3.0
million in cash and the assumption of $11.7 million of related debt. In
connection with the acquisition of the aircraft, the Foamex L.P. lease and other
agreements were terminated.
F-25
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
Foamex L.P. has a management service agreement with Trace Foam Company,
Inc. ("Trace Foam"), a wholly-owned subsidiary of Trace Holdings, pursuant to
which Trace Foam provides general managerial services of a financial, technical,
legal, commercial, administrative and/or advisory nature to Foamex L.P. for an
annual fee of $1.75 million and reimbursement of expenses incurred. Trace
Holdings rents approximately 5,900 square feet of general, executive and
administrative office space in New York, New York from Foamex L.P. on
substantially the same terms as Foamex L.P. leases such space from a third party
lessor.
During 1995 and 1994, the Company purchased approximately $2.5 million
and $11.9 million, respectively, of scrap material from Recticel Foam
Corporation ("RFC"), a former partner of Foamex L.P. and whose chairman is a
director of the Company, under a minimum annual volume agreement which expired
in June 1995.
14. STOCK OPTION PLAN
The Company's 1993 Stock Option Plan provides for the granting of
nonqualified ("NQSOs") and incentive stock options for up to 3.0 million shares
of common stock to officers and executive employees of the Company and its
subsidiaries and affiliates, the price and terms of each such option is at the
discretion of the Company, except that the term cannot exceed ten years. As of
December 29, 1996, the stock options issued under the 1993 Stock Option Plan
vest equally over a five year period with a term of ten years.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighed Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 951,343 $7.64 2,033,800 $17.28 1,998,600 $17.63
Granted 202,240 7.06 150,000 9.95 145,000 10.50
Exercised (14,914) 6.88 -- -- (740) 13.50
Forfeited (171,193) 10.80 (145,956) 14.59 (109,060) 14.70
Canceled -- -- (1,924,700) 17.15 -- --
Granted in exchange offer -- -- 838,199 6.88 -- --
---------- ------ ---------- ------ ---------- ------
Outstanding at end of year 967,476 $6.97 951,343 $7.64 2,033,800 $17.28
========== ====== ========== ====== ========== ======
Exercisable at end of year 431,863 $6.94 20,140 $14.62 573,100 $18.69
========== ====== ========== ====== ========== ======
</TABLE>
The options outstanding at December 29, 1996 have an exercise price
range of $6.88 to $10.25. During 1996, the Company granted 202,240 options with
a weighted average market price on the date of grant of $12.13. The aggregate
difference of $1.0 million between the fair market value ("FMV") of the options
at the date of grant and the option price is being charged to expense over the
vesting period (five years) of the options. During 1995, the Company granted a
total of 150,000 options which include (i) 15,000 options with a weighted
average market price on the date of grant of $9.50, (ii) 85,000 options with a
weighted average market price on the date of grant of $8.29 and (iii) 50,000
options with a weighted average market price on the date of grant of $9.50.
F-26
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14.STOCK OPTION PLAN (continued)
During 1994, the Company granted 145,000 options with a weighted average market
price on the date of grant of $10.50. Upon completion of the initial public
offering (the "IPO") in December 1993, options were granted to purchase 248,600
shares of common stock at $13.50 per share and 1,750,000 shares of common stock
at prices ranging from $15.00 to $22.50 per share. The aggregate difference of
$373,000 between the FMV ($15 per share) of the options at the date of grant and
the $13.50 option price is being charged to expense over the vesting period
(five years) of the options. Total compensation expense relating to options
amounted to approximately $0.3 million, $0.1 million and $0.1 million,
respectively, in each of 1996, 1995 and 1994, respectively.
In December 1995, the Stock Option Plan Committee approved a stock
option exchange program which permitted optionees of record as of that date to
exchange all options previously granted for options priced at the FMV share
price, $6.875, as of the close of business on that date. The number of new
options (the "New Options") to be exchanged for previously granted options (the
"Old Options") was determined on the basis of the ratio of the FMV on December
6, 1995 to the FMV or the discount share value of the Old Options when
originally granted. New Options could not be exercised until December 6, 1996
and expire upon the same terms as the Old Options.
The weighted average remaining contractual lives of outstanding options
at December 29, 1996 was approximately 7.7 years.
The Company applies the provisions of Accounting Principles Board
Opinion No. 25 ("Accounting for Stock Issued to Employees") and related
interpretations ("APB 25") in accounting for its stock-based compensation plans.
Accordingly, compensation expense has been recognized in the consolidated
financial statements with respect to the above plans in accordance with APB 25.
Had compensation costs for the above plans been determined based on the fair
value of the options at the grant dates under those plans consistent with the
methods under Statement of Financial Accounting Standards No. 123 ("Accounting
for Stock Based Compensation"), the Company's income from continuing operations
and earnings (loss) per share would not have been significantly affected.
15. STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
The Company is authorized to issue 5.0 million shares of preferred
stock with a par value of $1.00 per share, none of which has been issued. The
Board of Directors has the power to establish the powers, preferences, and
rights of each series which may afford the holders of any preferred stock
preferences, powers and rights (including voting rights) senior to the rights of
the holders of common stock.
Common Stock
At December 29, 1996, the Company had an aggregate of 4.8 million of
common stock shares reserved for issuance in connection with its stock option
plan (3.0 million) and outstanding warrants (1.8 million).
Warrants
In June 1994, in connection with the issuance of the Discount
Debentures, the Company issued 116,745 warrants to purchase 0.6 million shares
of common stock. Each warrant is exercisable on or before July 1, 1999 for
5.1394 shares at a cash price of $11.52 per share upon exercise. The warrants
were valued by projecting the
F-27
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCKHOLDERS' EQUITY (DEFICIT) (continued)
Company's financial results for five years. These financial results were
discounted at a rate of 18% to 20% and, with a projected price earnings ratio of
10-11x after five years, yielded a value of approximately $25.70 per warrant or
$3.0 million in total. Accordingly, additional paid in capital was increased for
the cash received attributable to the warrants and the associated debt reduced,
with such reduction to be amortized over the life of the debt.
In addition, the Company has outstanding warrants to purchase
approximately 1.2 million shares of common stock at an exercise price of
approximately $12.30 per share at any time prior to October 1999.
Treasury Stock
During 1996 and 1995, the Company purchased 624,700 and 929,700 shares
of its common stock, respectively, for an aggregate cost of $6.3 million and
$7.2 million, respectively, under programs authorized by the Board of Directors
to purchase up to 3.0 million shares of the Company's common stock.
Other
The other component of stockholders' equity (deficit) consists of the
following:
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment $3,494 $3,448 $3,929
Additional pension liability, net of income taxes 1,445 2,872 898
Note receivable from Trace Holdings 4,373 4,373 3,000
------- ------- -------
$9,312 $10,693 $7,827
======= ======= =======
</TABLE>
16. ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing federal, state, local
and foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with the
Company's compliance with federal, state, local and foreign environmental laws
and regulations did not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position. As
of December 29, 1996, the Company has environmental accruals of approximately
$4.1 million for environmental matters. In addition, as of December 29, 1996,
the Company has net receivables of approximately $0.9 million relating to
indemnification for environmental liabilities, net of an allowance of
approximately $1.0 million relating to potential disagreements regarding the
scope of the indemnification. The Company believes that realization of the
net receivables established for indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")
provide for the establishment of federal emission standards for hazardous air
pollutants including methylene chloride and TDI, principal raw materials used in
the manufacturing of foam. The Company completely eliminated the use of
chlorofluorocarbons and methylchloroform by the end of 1995. The 1990 CAA
Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
F-28
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. ENVIRONMENTAL MATTERS (continued)
The Company has reported to appropriate state authorities that it has
found soil and groundwater contamination in excess of state standards at four
facilities and soil contamination in excess of state standards at three other
facilities. The Company has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 29, 1996, the Company has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. The Company has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. The
Company has accrued $0.4 million for the estimated removal and remediation, if
any, associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. The Company believes that its USTs do not pose
a significant risk of environmental liability because of the Company's
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
The Company has been designated as a Potentially Responsible Party
("PRP") by the United States Environmental Protection Agency (the "EPA") with
respect to thirteen sites with an estimated total liability to the Company for
the thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of the Company is considered to be immaterial.
Although it is possible that new information or future developments
could require the Company to reassess its potential exposure relating to all
pending environmental matters, including those described herein, management
believes that, based upon all currently available information, the resolution of
such environmental matters will not have a material adverse effect on the
Company's operations, financial position, capital expenditures or competitive
position. The possibility exists, however, that new environmental legislation
and/or environmental regulations may be adopted, or other environmental
conditions may be found to exist, that may require expenditures not currently
anticipated and that may be material.
17. LITIGATION
As of February 26, 1997, the Company and Trace Holdings were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, the Company and Trace Holdings were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of 903 foreign plaintiffs were dismissed on the grounds that the cases
F-29
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. LITIGATION (continued)
could not be brought in the United States courts. This decision is subject to
appeal. The Company believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from the
Company or Trace Holdings. Neither the Company nor Trace Holdings recommended,
authorized or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either the Company's or Trace Holdings' consolidated
financial position or results of operations. In addition, the Company is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990. Although Trace Holdings has paid the
Company's litigation expenses to date pursuant to such indemnification and
management believes Trace Holdings likely will be in a position to continue to
pay such expenses, there can be no absolute assurance that Trace Holdings will
be able to provide such indemnification. Based on information available at this
time with respect to the potential liability, and without taking into account
the indemnification provided by Trace Holdings and the coverage provided by
Trace Holdings' and the Company's liability insurance, the Company believes that
the proceedings should not ultimately result in any liability that would have a
material adverse effect on the financial position or results of operations of
the Company. If management's assessment of the Company's liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on the Company.
The Company is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of the Company. If management's assessment of the
Company's liability with respect to these actions is incorrect, such actions
could have a material adverse effect on the Company's consolidated financial
position.
18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Interest Rate Swap Agreements
The Company has two interest rate swap agreements involving the
exchange of fixed and floating interest payment obligations without the exchange
of the underlying principal amounts. At December 29, 1996, the total notional
principal amount of these interest rate swap agreements was $300.0 million. The
counterparty to these agreements is a large international financial institution.
The interest rate swap agreements subject the Company to financial risk that
will vary during the life of these agreements in relation to market interest
rates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company maintains cash and cash
equivalents and certain other financial instruments with various large financial
institutions. The Company's periodic evaluation of these financial institutions
are considered in the Company's investment strategy.
F-30
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)
The Company sells foam products to the automotive, carpet, cushioning
and other industries. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
allowance accounts for potential credit losses and such losses have been within
management's expectations.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on the Company's assessment of available market information and
appropriate valuation methodologies.
The estimated fair values of the Company's financial instruments as of
December 29, 1996 are as follows:
Carrying Amount Fair Value
(thousands)
Liabilities:
Long-term debt $497,849 $533,041
============ ========
Interest rate swaps $ -- $3,160
============ ========
Carrying amounts reported in the consolidated balance sheet for cash
and cash equivalents, accounts receivable, accounts payable, accrued liabilities
and short-term borrowings approximates fair value due to the short- term nature
of these instruments.
The fair value of long-term debt is estimated using quoted market
prices, where available, or discounted cash flows.
The fair value of interest rate swaps are based on the amount at which
the Company would pay if the swaps were settled, as determined by estimates
obtained from dealers.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
F-31
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Cash paid for interest $44,472 $47,333 $42,734
======= ======= =======
Cash paid (received) for income taxes, net $(2,855) $ 3,024 $ 6,711
======= ======== =======
Noncash capital expenditures $ 165 $ 378 $ --
======= ======== =======
</TABLE>
F-32
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(thousands except per share amounts)
<S> <C> <C> <C> <C>
1996
Net sales $219,131 $240,447 $236,766 $230,007
Gross profit 36,031 38,167 39,960 39,074
Net income (loss) 6,137 (31,707) (66,623) 9,058
Earning (loss) per share 0.24 (1.24) (2.61) 0.36
1995
Net sales $219,542 $215,350 $217,036 $210,906
Gross profit 32,664 33,198 30,809 4,078
Net income (loss) 5,061 3,923 425 (62,529)
Earnings (loss) per share 0.19 0.15 0.02 (2.40)
</TABLE>
During 1996, the Company recorded a net loss on the disposal of Perfect
Fit including operating losses during the phase-out period of approximately
$43.0 million of which $39.3 million is reflected in the second quarter of 1996
(see Note 3). Also, during 1996 the Company recorded an estimated net loss on
the disposal of JPS Automotive including operating losses during the phase-out
period of approximately $70.9 million of which $69.7 million is reflected in the
third quarter of 1996 (see Note 3). During the fourth quarter of 1996, the
Company recorded a $6.5 million net restructuring credit, which is described in
Note 4.
During 1995, depressed industry conditions necessitated the closing of
certain facilities, as more fully described in Note 4, which resulted in a
pre-tax restructuring charge of $41.4 million in December 1995 and resulted in
certain unusual charges, consisting of inventory write-downs, customer credits
and rollbacks. Furthermore, the fourth quarter of 1995 included certain changes
in estimates related to recovery of environmental receivables and employee
benefit accruals. The unusual charges and change in estimates decreased gross
profit by $13.4 million and increased selling, general and administrative
expenses by $4.9 million.
F-33
<PAGE>
FOAMEX INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Index to Financial Statement Schedules
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
S-1
<PAGE>
Schedule I
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
ASSETS (thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,232 $2,680
Intercompany receivables 10,516 15,220
Deferred income taxes 15,045 12,625
Other current assets 1,053 5,302
--------- ---------
Total current assets 27,846 35,827
INVESTMENT IN CONSOLIDATED SUBSIDIARIES -- 42,662
OTHER ASSETS 353 453
--------- ---------
TOTAL ASSETS $28,199 $78,942
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $9,309 $13,153
Other accrued liabilities 4,937 804
--------- ---------
Total current liabilities 14,246 13,957
LONG-TERM LIABILITIES:
Notes payable to consolidated subsidiaries (1) 8,000 12,000
Deficit in consolidated subsidiaries 62,429 --
Deferred income taxes 1,627 23,602
--------- ---------
Total liabilities 86,302 49,559
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $1.00 per share:
Authorized 5,000,000 shares - none issued -- --
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares
Issued 26,753,262 and 26,751,960
shares, respectively
Outstanding 25,198,862 and 25,786,260
shares, respectively 267 267
Additional paid-in capital 84,579 84,015
Retained earnings (accumulated deficit) (120,174) (37,039)
Other (9,312) (10,693)
--------- ---------
(44,640) 36,550
Common Stock held in Treasury, at cost:
1,554,400 shares and 929,700, respectively (13,463) (7,167)
--------- ---------
Total stockholders' equity (deficit) (58,103) 29,383
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $28,199 $78,942
========= =========
</TABLE>
(1) During 1996, JPSGP, a wholly-owned subsidiary of Foamex International,
distributed its assets and liabilities to Foamex International. JPSGP's
assets primarily consisted of its 1% partnership interest in JPS
Automotive and a $4.0 million demand note due from Foamex
International.
See notes to consolidated financial statements.
(continued)
S-2
<PAGE>
Schedule I
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994
(amounts in thousands except per share amounts)
<S> <C> <C> <C>
INTERCOMPANY SALES $179,791 $197,066 $61,297
COST OF GOODS SOLD 179,791 197,066 61,297
--------- --------- ---------
GROSS PROFIT -- -- --
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 709 5,004 4,152
RESTRUCTURING AND OTHER CHARGES (126) 2,168 --
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (583) (7,172) (4,152)
EQUITY IN EARNINGS (LOSS) OF
CONSOLIDATED SUBSIDIARIES 42,097 (57,904) 34,805
INTEREST EXPENSE 196 13 --
INTEREST INCOME 78 679 397
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAX
AND EXTRAORDINARY LOSS 41,396 (64,410) 31,050
INCOME TAX PROVISION (BENEFIT) 8,904 (13,660) 8,839
--------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 32,492 (50,750) 22,211
EQUITY IN DISCONTINUED OPERATIONS (114,480) (2,370) 3,919
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (81,988) (53,120) 26,130
EQUITY IN EXTRAORDINARY LOSS (1,147) -- --
--------- --------- ---------
NET INCOME (LOSS) $(83,135) $(53,120) $26,130
========= ========= =========
EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $1.27 $(1.92) $0.83
DISCONTINUED OPERATIONS (4.47) (0.09) 0.15
EXTRAORDINARY LOSS (0.05) -- --
--------- --------- ---------
EARNINGS (LOSS) PER SHARE $(3.25) $(2.01) $0.98
========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
<FN>
1 Equity in discontinued operation includes allocated income tax provisions
(benefits) of Foamex International of $(32.5) million, $4.3 million and
$2.8 million for 1996, 1995 and 1994, respectively.
2 Equity in extraordinary loss includes an allocated income tax benefit of
$0.8 million for 1996.
</FN>
</TABLE>
See notes to consolidated financial statements.
(continued)
S-3
<PAGE>
Schedule I
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES: (thousands)
Net income (loss) $(83,135) $(53,120) $26,130
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Deferred income taxes 8,904 (11,622) 5,603
Equity in earnings of discontinued operations 114,480 2,370 (3,919)
Extraordinary loss 1,147 -- --
Equity in earnings of consolidated subsidiaries (42,097) 57,904 (34,805)
Other 357 35 522
Changes in operating assets and liabilities,
net of acquisitions:
Intercompany receivables 2,702 4,049 (19,592)
Intercompany accounts payable -- -- (785)
Accounts payable (3,844) (7,393) 20,371
Other assets and liabilities 4,346 (3,541) (4,180)
--------- --------- ---------
Net cash provided by (used for) operating activities 2,860 (11,318) (10,655)
--------- --------- ---------
INVESTING ACTIVITIES:
Investment in consolidated subsidiaries -- (4,025) --
Proceeds from sale of discontinued operations 179 -- --
Other 1,707 2,379 (1,494)
--------- --------- ---------
Net cash provided by (used for) investing activities 1,886 (1,646) (1,494)
--------- --------- ---------
FINANCING ACTIVITIES:
Issuance of warrants -- -- 3,000
Note payable to consolidated subsidiary -- 2,000 --
Purchase of treasury stock (6,296) (7,167) --
Other 102 -- (17)
--------- --------- ---------
Net cash provided by (used for) financing activities (6,194) (5,167) 2,983
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,448) (18,131) (9,166)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,680 20,811 29,977
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,232 $2,680 $20,811
========= ========= =========
</TABLE>
Note: During 1996, 1995 and 1994, the Company received distributions from its
consolidated subsidiaries of $1.7 million, $2.4 million and $3.2 million,
respectively, in accordance with tax sharing agreements.
See notes to consolidated financial statements.
(continued)
S-4
<PAGE>
Schedule II
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance
Beginning of Costs and other at End
Period Expenses Accounts(1) Deductions of Period
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 29, 1996
Allowance for Uncollectible Accounts $4,839 $ 704 $292 $1,911 $3,060
========= ======== ========== ========= =======
Reserve for Discounts $4,299 $ -- $12,190 $13,221 $3,268
========= ======== ========== ========= =======
Valuation Allowance $ 16,979 $ 12,940 $ (6,855)(3) $ -- $23,064
========= ======== ========== ========= =======
YEAR ENDED DECEMBER 31, 1995 (2)
Allowance for Uncollectible Accounts $2,324 $4,627 $324 $2,436 $4,839
========= ======== ========== ========= =======
Reserve for Discounts $1,382 $ -- $15,056 $12,139 $4,299
========= ======== ========== ========= =======
Valuation Allowance $13,172 $ 7,695 $ (3,888)(3) $ -- $16,979
========= ======== ========== ========= =======
YEAR ENDED JANUARY 1, 1995 (2)
Allowance for Uncollectible Accounts $2,898 $878 $146 $1,598 $2,324
========= ======== ========== ========= =======
Reserve for Discounts $1,326 $ -- $12,582 $12,526 $1,382
========= ======== ========== ========= =======
Reserve for Billing Adjustments $140 $ -- $(140) $ -- $13,172
========= ======== ========== ========= =======
Valuation Allowance $12,884 $(452) $ 740 $ -- $13,172
========= ======== ========== ========= =======
<FN>
(1) Discounts and billing adjustments reflect a reduction in net sales.
(2) Fiscal years 1995 and 1994 were restated for discontinued operations.
(3) Represents an adjustment to cost in excess of net assets relating to the
utilization of preacquisition deferred tax assets of General Felt.
</FN>
</TABLE>
S-5
SCHEDULE A
Affiliates of Foamex International Inc.
FJGP Inc.
Foamex-JPS Automotive L.P.
Foamex-JPS Capital Corporation
FMXI, Inc.
Foamex L.P.
General Felt Industries, Inc.
Foamex Aviation, Inc.
Foamex Fibers, Inc.
Foamex Canada Inc.
Foamex Capital Corporation
Foamex Latin America, Inc.
Foamex Mexico, Inc.
Foamex Mexico II, Inc.
Foamex de Mexico S.A. de C.V.
Transformacion de Espumas, S.A. de C.V. ("TEFSA")
Colochones y de Todo en Espuma, S.A. de C.V. ("CTE")
Foamex Delaware, Inc. (formerly Foamex Brazil)
Foamex do Brazil Industria e Comercia LTDA
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Foamex International Inc. on Forms S-3 (File Nos. 33-88218, 33-85488 and
33-92156) and Forms S-8 (File Nos. 33-74264 and 33-94154) of our report dated
February 26, 1997 on our audits of the consolidated financial statements and
financial statement schedules of Foamex International Inc. and subsidiaries as
of December 29, 1996 and December 31, 1995, and for the years ended December 29,
1996, December 31, 1995 and January 1, 1995, which report is included in this
Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000912908
<NAME> FOAMEX INTERNATIONAL INC
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<EXCHANGE-RATE> 1
<CASH> 22,203
<SECURITIES> 0
<RECEIVABLES> 126,573
<ALLOWANCES> 0
<INVENTORY> 102,610
<CURRENT-ASSETS> 307,104
<PP&E> 195,373
<DEPRECIATION> 0
<TOTAL-ASSETS> 619,846
<CURRENT-LIABILITIES> 170,523
<BONDS> 483,344
0
0
<COMMON> 267
<OTHER-SE> (58,370)
<TOTAL-LIABILITY-AND-EQUITY> 619,846
<SALES> 926,351
<TOTAL-REVENUES> 926,351
<CGS> 773,119
<TOTAL-COSTS> 773,119
<OTHER-EXPENSES> 58,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,900
<INCOME-PRETAX> 49,161
<INCOME-TAX> 16,669
<INCOME-CONTINUING> 32,492
<DISCONTINUED> (114,480)
<EXTRAORDINARY> (1,147)
<CHANGES> 0
<NET-INCOME> (83,135)
<EPS-PRIMARY> (3.25)
<EPS-DILUTED> 0
</TABLE>
