SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[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 28, 1997
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 6, 1998 was $228,650,566.
The number of shares outstanding of the registrant's common stock as of
April 6, 1998 was 25,003,475.
DOCUMENTS INCORPORATED BY REFERENCE
None
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FOAMEX INTERNATIONAL INC.
INDEX
<TABLE>
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Page
Part I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote 14
of Security Holders
Part II
Item 5. Market for Registrant's Common Equity and 14
Related Stockholder Matters
Item 6. Selected Consolidated Financial Data 15
Item 7. Management's Discussion and Analysis 17
of Financial Condition and Results
of Operations
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants 25
on Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners 32
and Management
Item 13. Certain Relationships and Related Transactions 34
Part IV
Item 14. Exhibits, Financial Statement Schedules 37
and Reports on Form 8-K
Signatures 43
</TABLE>
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 advanced polymer foam products. As of April 6,
1998, the Company's operations are conducted through its wholly-owned
subsidiaries, Foamex L.P. and Foamex Carpet Cushion, Inc. ("Foamex Carpet"). The
Company was incorporated in 1993 and is the successor of Foamex L.P.
On March 16, 1998, the Company announced that its Board of Directors
received an unsolicited buyout proposal from Trace International Holdings, Inc.
("Trace Holdings"), the Company's principal stockholder. Trace Holdings proposed
to acquire all of the outstanding common stock of the Company not currently
owned by Trace Holdings and its subsidiaries for a cash price of $17.00 per
share. Also, Trace Holdings informed the Board of Directors that financing for
the buyout transaction would be arranged through Donaldson, Lufkin & Jenrette
Securities Corporation and The Bank of Nova Scotia/Scotia Capital Markets. As of
March 16, 1998, Trace Holdings and its subsidiaries beneficially owned
approximately 11,475,000 shares or approximately 46% of the outstanding common
stock of the Company. In response to Trace Holding's offer, the Company's Board
of Directors has appointed a special committee to determine the advisability and
fairness of the proposed buyout to the Company's stockholders other than Trace
Holdings and its subsidiaries. Trace Holding's proposed buyout is subject to a
number of conditions, including the negotiations of definitive documents (which
are expected to contain customary closing conditions); the filing of a
disclosure statement and other documents with the Securities and Exchange
Commission; regulatory filings; and approval of the transaction by a majority of
the Company's stockholders.
On February 27, 1998, the Company and certain of its affiliates completed
a series of transactions designed to simplify the Company's structure and to
provide future operational flexibility. Prior to the consummation of these
transactions, the Company defeased the $4.5 million outstanding principal amount
of its 9 1/2% senior secured notes due 2000. Foamex L.P. settled its
intercompany payables to General Felt Industries, Inc. ("General Felt") with
$4.8 million in cash and a $34.0 million principal amount promissory note
supported by a $34.5 million letter of credit under the Foamex L.P. credit
facility (the "Foamex/GFI Note"). The initial transaction resulted in the
transfer from Foamex L.P. to Trace Foam LLC of all of the outstanding common
stock of General Felt, in exchange for (i) the assumption by Trace Foam LLC of
$129.0 million of Foamex L.P.'s indebtedness and (ii) the transfer by Trace Foam
LLC to Foamex L.P. of a 1% non-managing general partnership interest in Foamex
L.P. As a result, General Felt ceased being a subsidiary of Foamex L.P. and was
relieved from all obligations under Foamex L.P.'s 9 7/8% senior subordinated
notes due 2007 and 13 1/2% senior subordinated notes due 2005. Upon consummation
of the initial transaction, Foamex Carpet, a newly formed wholly-owned
subsidiary of the Company, the Company, Trace Foam LLC, and General Felt entered
into an Asset Purchase Agreement dated February 27, 1998, in which General Felt
sold substantially all of its assets (other than the Foamex/GFI Note and its
operating facility in Pico Rivera, California) to Foamex Carpet in exchange for
(i) $20.0 million in cash and (ii) a promissory note issued by Foamex Carpet to
Trace Foam LLC in the amount of $70.2 million. The $20.0 million cash payment
was funded with a distribution by Foamex L.P. Upon consummation of these
transactions contemplated by the Asset Purchase Agreement, Foamex Carpet entered
into a credit agreement with these institutions from time to time party thereto,
as issuing banks, and Citicorp USA, Inc. and The Bank of Nova Scotia, as
administrative agents, which provides for up to $20.0 million in revolving
credit borrowings. These transactions were accounted for in a manner similar to
a pooling of interests since the entities were under common control. Foamex
Carpet will conduct the carpet cushion business previously conducted by General
Felt. Also, Trace Foam LLC has retained ownership of one of General Felt's
operating facilities which is being leased to Foamex Carpet and the $34.0
million Foamex/GFI Note.
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On December 23, 1997, the Company acquired Crain Industries, Inc.
("Crain") pursuant to a merger agreement with Crain Holdings Corp. for a
purchase price of approximately $213.7 million, including the assumption of debt
with a face value of approximately $98.6 million (and an estimated fair value of
approximately $112.3 million) (the "Crain Acquisition"). In addition, fees and
expenses associated with the Crain Acquisition are approximately $13.2 million.
The Crain Acquisition provided a fully integrated manufacturer, fabricator and
distributor of a broad range of flexible polyurethane foam and foam products
which are sold to a diverse customer base, principally in the furniture, bedding
and carpet cushion markets. In connection with the Crain Acquisition, the
Company approved a restructuring/consolidation plan for the two entities. The
Company recorded restructuring charges of $21.1 million relating to
restructuring the Company's operations in connection with the Crain Acquisition
and related transactions. In addition, the Company recorded approximately $1.5
million of severance and related costs and $8.5 million for costs associated
with the shut down and consolidation of certain acquired facilities.
On October 6, 1997, the Company sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, net of post-closing adjustments which were
finalized in December 1997. The Company used the net proceeds of the sale to
reduce borrowings under the Foamex L.P. credit facility by approximately $38.8
million.
On June 12, 1997, the Company substantially completed a refinancing plan
(the "Refinancing Plan") designed to reduce the Company's interest expense and
increase its financing flexibility. The Refinancing Plan included a tender offer
to purchase $489.7 million of the Company's public debt, the payment of $5.2
million of Foamex L.P.'s term loan borrowings under an existing credit facility
and the payment of related fees and expenses. In addition, the tender offer
included amending the existing indentures to remove substantially all of the
restrictive covenants. The Company purchased $459.0 million of public debt under
the tender offer and incurred an extraordinary loss on the early extinguishment
of debt of approximately $42.0 million (net of income tax benefit of $25.7
million). The Refinancing Plan was funded by $347.0 million of borrowings under
a new credit facility (the "Credit Facility") and the net proceeds from the
issuance of $150.0 million principal amount of senior subordinated notes. As a
result of the Refinancing Plan, the Company's total long-term debt increased by
$63.9 million. The Company expects the Refinancing Plan to result in decreased
interest expense as compared to the debt structure prior to the Refinancing
Plan, assuming no material changes in interest rates. The Company's future
interest expense will vary based on a variety of factors, including fluctuations
in interest rates in general. As a result of the Refinancing Plan, variable rate
debt comprised a larger percentage of the Company's overall indebtedness than in
the past, and as a result, future fluctuations in interest rates will have a
greater impact on the Company's interest expense than in the past.
On October 1, 1997, the Company redeemed approximately $26.2 million of
the approximately $30.7 million of the Company's outstanding public debt that
was not tendered as part of the Refinancing Plan. These redemptions were funded
with borrowings under the Credit Facility. In connection with these redemptions,
the Company incurred an extraordinary loss on the early extinguishment of debt
of approximately $1.3 million (net of income taxes). The remaining outstanding
public debt of approximately $4.5 million that was not tendered as part of the
Refinancing Plan was defeased in February 1998.
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
increases, general economic conditions, the level of automotive production,
carpet cushion production and housing starts, the implementation of the
restructuring/consolidation plan and changes in environmental legislation and
environmental conditions. The forward-looking statements contained in this
Annual Report on Form 10-K were
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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.
5
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Flexible Polyurethane Foam Products
The Company is a manufacturer and distributor of quality flexible
polyurethane foam and advanced polymer foam products designed to satisfy the
specific needs of customers. The Company's 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 operates in the foam products business segment with net sales
being derived from six major product categories: carpet cushion, cushioning
foams, furniture foams, automotive foams, consumer products and specialty and
technical foams. The Company added the consumer products category in connection
with the December 23, 1997 Crain Acquisition, therefore, historical operations
will not include the consumer products category. 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 introduction of new products and new applications for existing
products is an integral component of the Company's growth strategy. During the
last several years, the Company introduced ReflexJ for the bedding, furniture
and other cushioning industries using patented variable pressure foaming
technology ("VPFJ"). The Company also introduced Plushlife for the carpet
cushion markets and Powerthane for automotive applications. In addition, the
Company developed new automotive foam applications, including thermoformable
foam headliners and energy absorbing foams. The Company's relationships with its
customers 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.
Carpet Cushion
The Company is one of the largest manufacturers and distributors of
prime, bonded, sponge rubber and felt carpet cushion in North America. Prime
carpet cushion is made from polyurethane foam buns, whereas bonded carpet
cushion is made from various types of scrap foam which are shredded into small
pieces, processed and then bonded using a chemical adhesive. In February 1997,
the Company introduced Plushlife , a proprietary bonded carpet cushion product,
which combines two cushions into a single structure to absorb the energy of foot
traffic and enhance comfort.
The Company's carpet cushion products are marketed through floor covering
retailers such as Sears, Shaw Industries and Home Depot.
Cushioning Foams
The Company is one of the largest manufacturers of cushioning foams in
North America. The Company manufactures and sells flexible polyurethane foam and
polyester fiber to bedding and other cushioning manufacturers both directly and
indirectly through independent fabrication operations. These foams are used by
the bedding industry in quilts, toppers, cores and border rolls for mattresses.
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 regional producers in supplying large national accounts with all
of their foam requirements.
The development and introduction of value added products continues to be
a priority of the Company and has included (i) Relex (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 (TM), a
urethane-based replacement for latex, a material used in bedding products. One
of the Company's most recent product introductions is Reflex (TM) for the
cushioning and furniture industries which was 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.
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The Company's cushioning foams for bedding products are sold to mattress
customers, such as Sealy, Simmons, Serta, and Spring Air Company, both directly
and indirectly through independent fabrication operations located across the
United States. The Company also sells cushioning foam for use in a number of
other markets.
Furniture Foams
The Company manufactures and sells flexible polyurethane foam and
polyester fiber to furniture manufacturers both directly and indirectly through
independent fabrication operations. These foams are used by the furniture
industry for seating products. These 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 regional producers in supplying large
national accounts with all of their foam requirements.
The development and introduction of value added products continues to be
a priority of the Company and has included Reflex materials, which include
cushion wraps and cushion cores, are advanced polymer cushioning products
designed to improve comfort, quality and durability in upholstered furniture.
The Company supplies cut-to-size seat cushions, back and other pieces to
the furniture industry, including to Berkline, Action, and Schnadig. The use of
these foams also include packaging materials for products such as computer and
electronic components and applications in certain sporting good products and in
recreational vehicles.
Automotive Foams
The Company is one of the largest suppliers of foam requirements for the
North American operations of 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. Also, automotive suppliers are increasingly offering
integrated systems which lower the overall cost and improve quality relative to
previous sourcing methods in which individually sourced components were
assembled and installed.
The Company has 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 automotive manufacturers and
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'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, advanced cutting
technology and energy absorbing foams. For example, the Company is one of the
first suppliers to introduce a thermoformable headliner, Customfit , made from
rigid polyurethane foam. Also, 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.
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Automotive manufacturers are increasingly requiring the production
facilities of their suppliers to meet certain high quality standards. For
example, all tier one and tier two automotive supplier facilities worldwide will
eventually be required to meet the QS-9000 quality manufacturing standards set
by the United States automotive manufacturers. In 1996, the Company completed
QS-9000 and ISO-9001 certification for its eight domestic 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.
Specialty and Technical Foams
Specialty and 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 surgery,
instrument holders for sterilization, pre-op scrubbers impregnated with
anti-microbial agents and EKG pads containing conductive gels. Other specialty
and 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.
Consumer Products
The Company sells flexible polyurethane foam and polyester fiber for use
in therapeutic sleep products such as mattress pads and bed pillows, which are
manufactured for the health care and consumer markets. The Company also
manufactures and markets a broad line of home furnishing products to retailers
throughout the United States. The Company's home furnishing products include a
broad range of products such as leisure furniture, futon sofas, bean bag chairs,
floor pillows and pet beds.
Marketing and Sales
As of December 28, 1997, the Company has a marketing and sales force of
approximately 208 employees. The marketing and sales force are directed by an
executive vice president for each product category. The Company's relationships
with its customers 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 Company's carpet cushion marketing program includes the broad
distribution of products to both the retail and wholesale levels. Furthermore,
promotions, marketing and advertising expenditures are important in positioning
the Company's carpet cushion as a premium, trade branded product.
Cushioning foams and furniture foams are primarily sold directly to
customers and also through third party independent fabricators. Plant locations
are critical in this regionalized line of business where the transportation cost
typically comprises a significant portion of product cost.
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 manufacturers and major tier one suppliers such as Lear
Corporation, Johnson Controls, Inc., and Delphi Interiors and Lighting.
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The Company markets most of its specialty and 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 utilizes advertising in trade journals and related media
in order to attract customers and, more generally, to create an awareness of its
capabilities for specialty and technical foams. In addition, due to the highly
specialized nature of most specialty and technical foams, the Company's research
staff works with customers to design, develop and manufacture each product to
specification.
The Company's consumer products sales efforts are primarily regionally
based with each salesperson selling to local accounts. The Company sells its
consumer products to major retailers throughout the United States including
Wal-Mart.
Customers
During the past three fiscal years, no one customer accounted for more
than 10.0% of the Company's net sales.
Raw Materials
The Company's primary raw material manufacturing cost consists of two
principal chemicals (i) toluene diisocyanate ("TDI") and (ii) polyol. The
Company's largest suppliers of these raw materials are The Dow Chemical Company,
Arco Chemical, and BASF. 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 over
the past several years. In response, the Company increases selling prices, where
possible. (See "Management Discussion and Analysis of Financial Condition and
Results of Operations"). The Company is unaware of any significant price
increases in the near future; 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.
Manufacturing
The Company is committed to the highest quality standards for its
products, a standard maintained in part by continuous improvements to its
production processes and upgrades and investments to its manufacturing
equipment. The Company maintains quality assurance and testing equipment to
ensure the manufactured products will consistently meet customer quality
requirements.
As of December 28, 1997, the Company manufactured and/or fabricated foam
products at 61 locations in North America with a total of approximately 8.4
million square feet of floor space (excluding 16 locations with 2.6 million
square feet of floor space that are planned to close in connection with the
restructuring/consolidation plan). 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.
Automotive manufacturers are increasingly requiring the production
facilities of their suppliers to meet certain high quality standards. For
example, all tier one and tier two automotive supplier facilities worldwide will
eventually be required to meet 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
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certified which demonstrates its commitment to producing the highest quality
products and meeting the needs of its customers.
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 28, 1997, the Company employed 6,414 persons, with 5,704
of such employees involved in manufacturing, 502 in administration and 208
involved in sales and marketing (including 640 position that are being
eliminated as part of the restructuring/consolidation plan). Approximately 1,095
of these employees are located outside the United States. Also, approximately
1,450 of these employees are covered by collective bargaining agreements with
labor unions, which agreements expire on various dates from 1998 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, 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 1997, 1996 and 1995
were $85.0 million (9.1% of net sales), $76.0 million (8.2% of net sales) and
$73.3 million (8.5% 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. While the Company
considers its patents and trademarks to be a valuable asset, it does not believe
that its competitive position is dependent on patent protection or that its
operations are 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's primary research and
development facility is located in Eddystone, Pennsylvania. The Company employs
approximately 35 full-time research and development employees. Expenditures for
research and development amounted to $2.4 million, $2.5 million and $3.2 million
for 1997, 1996 and 1995, respectively, excluding expenditures by Crain for
research and development prior to the Crain Acquisition.
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 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
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("Beamech"), have an interest in a Swiss corporation that develops new
manufacturing technology for the production of polyurethane foam including the
VPFJ 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 28, 1997, the Company conducted its operations at 67
manufacturing and distribution facilities which includes 22 facilities that were
acquired on December 23, 1997 in connection with the Crain Acquisition,
excluding 22 facilities that will be closed in connection with the various
restructuring/consolidation plan. As of December 28, 1997, 19 of these
facilities were owned and 48 were leased. Total floor space in use at the owned
manufacturing and distribution facilities is approximately 3.4 million square
feet and total floor space in use at the leased manufacturing and distribution
facilities is approximately 5.1 million square feet. Fifty-nine of these
facilities are located in thirty-nine 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 1998 annual base rental with respect to such
leased facilities is approximately $8.7 million under leases expiring from 1998
to 2007. The Company does not anticipate any problem in renewing or replacing
any of such leases expiring in 1998. In addition, the Company has approximately
1.0 million square feet of idle space of which approximately 0.2 million is
leased.
The Company maintains administrative and sales offices in Linwood,
Pennsylvania; St. Louis, Missouri; Chicago, Illinois; Southfield, Michigan;
Atlanta, Georgia; 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 1997, 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 28, 1997, the Company has environmental accruals of approximately
$9.3 million for environmental matters. In addition, as of December 28, 1997,
the Company has receivables of approximately $1.1 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, propylene oxide and TDI, materials used in the
manufacturing of foam. On December 27, 1996, the United States Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that will require manufacturers of slab stock polyurethane foam and foam
fabrication plants to reduce emissions of methylene chloride. Because these
regulations are subject to change prior to finalization, the Company cannot
accurately predict the actual cost of their implementation. The Company does not
believe implementation of the regulations will require it to make material
expenditures at facilities owned prior to December 23, 1997, due to the
Company's use of alternative technologies which does not utilize methylene
chloride and its ability to shift current production to the facilities which use
these alternative technologies; however, material expenditures may be required
at the facilities formerly operated by Crain. The 1990 CAA Amendments also may
result in the imposition of additional standards regulating air emissions from
polyurethane foam manufacturers, but these standards have not yet been proposed
or promulgated.
In addition to general regulatory requirements, state laws have resulted
or will result in more stringent regulations regarding the use and emission of
methylene chloride. Several former Crain facilities have been
11
<PAGE>
required to meet greater state restrictions regarding emission limits and/or
quantities used of this chemical. For example, in California, methylene chloride
usage was phased out at the end of 1995, while in Kent, Washington, and Easton,
Pennsylvania, the former Crain facilities, pursuant to consent decrees as well
as applicable laws, must over a period of time phase out methylene chloride
usage. Through the development of the Enviro-Cure process, which uses ambient or
refrigerated air to remove the heat of reaction during the foam curing process,
the Company anticipates that methylene chloride usage can be reduced by up to 90
percent and, when used in conjunction with the Vertifoam process, completely.
Crain has installed the Enviro-Cure process at its manufacturing facilities in
Ft. Smith, Arkansas; Compton, California; San Leandro, California; Elkhart,
Indiana; Tupelo, Mississippi; and Conover, North Carolina. Where regulations
require the elimination of methyl-chloroform and methylene chloride, Crain has
installed a CARDIO system, which eliminates the use of methyl-chloroform. During
1996, Crain installed the CARDIO system at its Compton, California; Easton,
Pennsylvania; and Kent, Washington plants. However, see "Legal Proceedings"
below.
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
time. The Company, based on estimates of the remaining potential remediation
costs for these facilities and facilities acquired in the Crain Acquisition, has
accruals of $3.7 million for the estimated cost of completing remediation and
established a net receivable of $1.1 million on the basis of indemnifications by
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 $0.1 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, including
at the former Crain facilities, 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.
On April 10, 1997, the Occupational Health and Safety Administration
promulgated new standards governing employee exposure to methylene chloride,
which is used as a blowing agent in some of the Company's manufacturing
processes. The Company does not believe that it will be required to make any
material expenditures at facilities owned prior to December 23, 1997 to comply
with these new standards due to its use of alternative technologies which does
not use methylene chloride and its ability to shift production to facilities
which use these technologies; however, material expenditures may be required at
the facilities formerly operated by Crain.
The Company has been designated as a Potentially Responsible Party
("PRP") by the United States Environmental Protection Agency (the "EPA") with
respect to thirteen sites with an estimated total liability to the Company for
the thirteen sites of less than approximately $0.5 million. Estimates of total
clean-up costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of the Company is considered to be immaterial.
12
<PAGE>
On May 5, 1997, there was an accidental spill at one of the Company's
manufacturing facilities. The spill was contained on site and cleaned-up for an
approximate cost of $0.6 million. 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 4, 1998, 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. Three
of these cases seek to allege claims on behalf of all breast implant recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. In addition, three cases have been filed alleging claims on behalf
of approximately 700 residents of Australia, New Zealand, England, and Ireland.
The Company believes that the number of suits and claimants may increase. 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.
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. 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. 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 indemnification provided by
Trace Holdings, the coverage provided by Trace Holdings and the Company's
liability insurance and 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. 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.
In November 1997, a complaint was filed in the United States District
Court for the Southern District of Texas alleging that various defendants,
including Crain through the use of the CARDIO process licensed from a third
party, infringed on a patent held by plaintiff. The Company is negotiating with
the licensor of the process for the assumption of the defense of the action by
the licensor; however, the action is in the preliminary stages, and there can be
no assurance as to the ultimate outcome of the action.
On or about March 17, 1998, five purported class action lawsuits were
filed in the Delaware Chancery Court, New Castle County, against the Company,
directors of the Company, Trace Holdings, and individual officers and directors
of Trace Holdings:
Brickell Partners v. Marshall S. Cogan, et al., No. 16260NC;
Mimona Capital v. Salvatore J. Bonanno, et al., No. 16259NC;
Daniel Cohen v. Foamex International Inc., No. 16263;
Eileen Karisinki v. Foamex International Inc., et al., No. 16261NC and
13
<PAGE>
John E. Funky Trust v. Salvatore J. Bonanno, et al., No. 16267.
A sixth purported class action lawsuit, Barnett Stepak v. Foamex
International Inc., et al., No. 16277, was filed on or about March 23, 1998
against the same defendants. The complaints in the six actions allege, among
other things, that the defendants have violated fiduciary and other common law
duties purportedly owned to the Company's stockholders in connection with the
Trace Holdings proposal to acquire all of the shares of the Company's common
stock. The complaints seek, among other things, class certification, a
declaration that the defendants have breached their fiduciary duties to the
class, preliminary and permanent injunctions baring implementation of the
proposed transaction, rescission of the transaction if consummated, unspecified
compensatory damages, and costs and attorneys' fees.
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".
On March 16, 1998, the Company announced that its Board of Directors
received an unsolicited buyout proposal from Trace Holdings, the Company's
principal stockholder. Trace Holdings proposed to acquire all of the outstanding
common stock of the Company not currently owned by Trace Holdings and its
subsidiaries for a cash price of $17.00 per share. Also, Trace Holdings informed
the Board of Directors that financing for the buyout transaction would be
arranged through Donaldson, Lufkin & Jenrette Securities Corporation and The
Bank of Nova Scotia/Scotia Capital Markets. As of March 16, 1998, Trace Holdings
and its subsidiaries beneficially owned approximately 11,475,000 shares or
approximately 46% of the outstanding common stock of the Company. In response to
Trace Holding's offer, the Company's Board of Directors has appointed a special
committee to determine the advisability and fairness of the proposed buyout to
the Company's stockholders other than Trace Holdings and its subsidiaries. Trace
Holding's proposed buyout is subject to a number of conditions, including the
negotiations of definitive documents (which are expected to contain customary
closing conditions); the filing of a disclosure statement and other documents
with the Securities and Exchange Commission; regulatory filings; and approval of
the transaction by a majority of the Company's stockholders.
The following table sets forth the high and low bid prices for the common
stock on the NMS based on information supplied by NASDAQ.
<TABLE>
<CAPTION>
High Low
1998
<S> <C> <C> <C>
Quarter Ended March 29, 1998 18 3/8 10 7/8
1997
Quarter Ended December 28, 1997 14 3/4 9 3/8
Quarter Ended September 28, 1997 15 1/4 9 1/2
Quarter Ended June 29, 1997 15 1/4 12
Quarter Ended March 30, 1997 22 1/8 15
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
High Low
1996
<S> <C> <C> <C>
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
</TABLE>
As of April 6, 1998, there were approximately 200 holders of record of
the common stock.
In December 1997, the Board of Directors approved a dividend of $0.05 per
share for holders of record as of January 9, 1998; and was paid on January 19,
1998. This was the only cash dividend paid by the Company on its common stock
during the past two fiscal years. 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 wholly-owned
subsidiaries Foamex L.P. and Foamex Carpet. Consequently, the Company's ability
to pay dividends is dependent upon the earnings of Foamex L.P. and Foamex Carpet
and any future subsidiaries of the Company and the distribution of those
earnings to the Company and loans or advances by Foamex L.P., Foamex Carpet and
any such future subsidiaries of the Company. The ability of Foamex L.P. and
Foamex Carpet 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. and Foamex
Carpet for the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial
data of the Company. 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>
<S> <C> <C> <C> <C> <C>
Fiscal Year (1)(2)
1997 (3) 1996 (4) 1995 (5) 1994 1993 (6)
--------- ---------- ---------- ---------- ----------
(thousands except for earnings per share)
Statements of Operations Data:
Net sales $931,095 $926,351 $862,834 $833,660 $684,310
Income (loss) from continuing
operations 4,131 32,492 (50,750) 22,211 (5,440)
Basic earnings per share from
continuing operations (7) (8) 0.16 1.28 1.92 0.83 -
Diluted earnings per share from
continuing operations (7) (8) 0.16 1.26 1.92 0.83 -
Balance Sheet Data (at period end):
Total assets $893,623 $619,846 $748,242 $786,895 $612,124
Long-term debt 735,724 483,344 514,954 502,980 414,445
Stockholders' equity (deficit) (113,419) (58,103) 29,383 92,145 64,306
<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 comprised of
52 weeks.
2. Fiscal years 1993 through 1995 were restated for discontinued operations.
15
<PAGE>
3. The Statements of Operations Data includes restructuring and other charges
of $21.1 million (see Note 4 to the consolidated financial statements), but
does not include the results of operations of Crain which was acquired
December 23, 1997 since the effect is insignificant. The Balance Sheet Data
includes the estimated fair value of the net assets acquired in the Crain
Acquisition.
4. Includes restructuring credits of $6.5 million (see Note 4 to the
consolidated financial statements).
5. Includes restructuring and other charges of $41.4 million (see Note 4 to
the consolidated financial statements).
6. Includes the results of operations of General Felt and Great Western Foam
Products Corporation from March 23, 1993 and May 1, 1993, respectively, and
thus may not be comparable to other periods.
7. In December 1993, the Company completed an initial public offering of
common stock, therefore, earnings (loss) per share for 1993 is not
applicable.
8. As of December 28, 1997, the Company adopted SFAS 128 "Earnings Per Share"
and has restated all prior periods presented.
</FN>
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company operates in the flexible polyurethane foam and foam products
industry. The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto of the Company
included in this Annual Report on Form 10-K.
The Company is the largest manufacturer and distributor of flexible
polyurethane and advanced polymer foam products in North America. During 1997,
1996 and 1995, the Company's products were utilized primarily in five
end-markets; (i) carpet cushion and other carpet products, (ii) cushioning
foams, including bedding products, (iii) furniture products for furniture
manufacturers and distributors, (iv) automotive applications, including trim and
accessories, and (v) specialty and technical applications, including those for
filtration, gasketing and sealing. As a result of the Crain Acquisition, the
Company has added a sixth end market: consumer products. The Company has
recently refocused its business on the flexible polyurethane and advanced
polymer foam business by the Crain Acquisition in December 1997 and the
divesting of non-foam business segments. Management believes that a focus in the
foam business will allow the Company to concentrate management, financial and
operational resources and will position the Company to pursue its growth
strategy of developing new products, improving profitability and expanding
internationally.
On March 16, 1998, the Company announced that its Board of Directors
received an unsolicited buyout proposal from Trace Holdings, the Company's
principal stockholder. Trace Holdings proposed to acquire all of the outstanding
common stock of the Company not currently owned by Trace Holdings and its
subsidiaries for a cash price of $17.00 per share. Also, Trace Holdings informed
the Board of Directors that financing for the buyout transaction would be
arranged through Donaldson, Lufkin & Jenrette Securities Corporation and The
Bank of Nova Scotia/Scotia Capital Markets. As of March 16, 1998, Trace Holdings
and its subsidiaries beneficially owned approximately 11,475,000 shares or
approximately 46% of the outstanding common stock of the Company. In response to
Trace Holding's offer, the Company's Board of Directors has appointed a special
committee to determine the advisability and fairness of the proposed buyout to
the Company's stockholders other than Trace Holdings and its subsidiaries. Trace
Holding's proposed buyout is subject to a number of conditions, including the
negotiations of definitive documents (which are expected to contain customary
closing conditions); the filing of a disclosure statement and other documents
with the Securities and Exchange Commission; regulatory filings; and approval of
the transaction by a majority of the Company's stockholders.
On February 27, 1998, the Company and certain of its affiliates completed
a series of transactions designed to simplify the Company's structure and to
provide future operational flexibility. Prior to the consummation of these
transactions, the Company defeased the $4.5 million outstanding principal amount
of its 9 1/2% senior secured notes due 2000. Foamex L.P. settled its
intercompany payables to General Felt with $4.8 million in cash and a $34.0
million principal amount promissory note supported by a $34.5 million letter of
credit under the Foamex L.P. credit facility (the "Foamex/GFI Note"). The
initial transaction resulted in the transfer from Foamex L.P. to Trace Foam LLC
of all of the outstanding common stock of General Felt, in exchange for (i) the
assumption by Trace Foam LLC of $129.0 million of Foamex L.P.'s indebtedness and
(ii) the transfer by Trace Foam LLC to Foamex L.P. of a 1% non-managing general
partnership interest in Foamex L.P. As a result, General Felt ceased being a
subsidiary of Foamex L.P. and was relieved from all obligations under Foamex
L.P.'s 9 7/8% senior subordinated notes due 2007 and 13 1/2% senior subordinated
notes due 2005. Upon consummation of the initial transaction, Foamex Carpet, a
newly formed wholly-owned subsidiary of the Company, the Company, Trace Foam
LLC, and General Felt entered into an Asset Purchase Agreement dated February
27, 1998, in which General Felt sold substantially all of its assets (other than
the Foamex/GFI Note and its operating facility in Pico Rivera, California) to
Foamex Carpet in exchange for (i) $20.0 million in cash and (ii) a promissory
note issued by Foamex Carpet to Trace Foam LLC in the amount of $70.2 million.
The $20.0 million cash payment was funded by a distribution by Foamex L.P. Upon
consummation of these transactions contemplated by the Asset Purchase Agreement,
Foamex Carpet entered into a credit agreement with the institutions from time to
time party thereto, as issuing banks, and Citicorp USA, Inc. and The Bank of
Nova Scotia, as administrative agents, which provides for up to $20.0 million in
revolving credit borrowings. These transactions were accounted for in a manner
similar to a pooling of interests since the entities were under common
17
<PAGE>
control. Foamex Carpet will conduct the carpet cushion business previously
conducted by General Felt. Also, Trace Foam LLC has retained ownership of one of
General Felt's operating facilities which is being leased to Foamex Carpet and
the $34.0 million Foamex/GFI Note.
On December 23, 1997, the Company acquired Crain pursuant to a merger
agreement with Crain Holdings Corp. for a purchase price of approximately $213.7
million, including the assumption of debt with a face value of approximately
$98.6 million (and an estimated fair value of approximately $112.3 million) (the
"Crain Acquisition"). In addition, fees and expenses associated with the Crain
Acquisition are approximately $13.2 million. The Crain Acquisition provided a
fully integrated manufacturer, fabricator and distributor of a broad range of
flexible polyurethane foam and foam products which are sold to a diverse
customer base, principally in the furniture, bedding and carpet cushion markets.
Management believes that the Crain Acquisition (i) strengthens the Company's
market position as the leading North American producer of foam products, (ii)
offers increased penetration in the Company's existing product lines and adds
complementary product lines such as consumer products, (iii) strengthens the
Company's operations geographically, (iv) provides several proprietary
foam-producing processes which serve to lower overall production costs and are
environmentally friendly, and (v) offers opportunities for significant overhead
cost reductions and purchasing and freight cost efficiencies. In connection with
the Crain Acquisition, the Company approved a restructuring/consolidation plan
for the two entities. The Company recorded restructuring charges of $21.1
million relating to the restructuring of the Company's operations in connection
with the Crain Acquisition and related transactions. In addition, the Company
recorded approximately $1.5 million of severance and related costs and $8.5
million for costs associated with the shut down and consolidation of certain
acquired facilities.
On October 6, 1997, the Company sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sale price was
approximately $41.0 million, net of post-closing adjustments which were
finalized in December 1997. The Company used the net proceeds of the sale to
reduce borrowings under the credit facility by approximately $38.8 million. The
Company incurred an extraordinary loss on early extinguishment of debt of
approximately $0.6 million (net of income taxes).
On June 12, 1997, the Company substantially completed a refinancing plan
(the "Refinancing Plan") designed to reduce the Company's interest expense and
increase its financing flexibility. The Refinancing Plan included a tender offer
to purchase $489.7 million of the Company's public debt, the payment of $5.2
million of Foamex L.P.'s term loan borrowings under an existing credit facility
and the payment of related fees and expenses. In addition, the tender offer
included amending the existing indentures to remove substantially all of the
restrictive covenants. The Company purchased $459.0 million of public debt under
the tender offer and incurred an extraordinary loss on the early extinguishment
of debt of approximately $42.0 million (net of income tax benefits of $25.7
million). The Refinancing Plan was funded by $347.0 million of borrowings under
a new credit facility (the "Credit Facility") and the net proceeds from the
issuance of $150.0 million principal amount of senior subordinated notes. As a
result of the Refinancing Plan, the Company's total long-term debt increased by
$63.9 million. The Company expects the Refinancing Plan to result in decreased
interest expense as compared to the debt structure prior to the Refinancing
Plan, assuming no material change in interest rates. The Company's future
interest expense will vary based on a variety of factors, including fluctuations
in interest rates in general. As a result of the Refinancing Plan, variable rate
debt comprised a larger percentage of the Company's overall indebtedness than in
the past, and as a result, future fluctuations in interest rates will have a
greater impact on the Company's interest expense than in the past.
On October 1, 1997, the Company redeemed approximately $26.2 million of
the approximately $30.7 million of the Company's outstanding public debt that
was not tendered as part of the Refinancing Plan. These redemptions were funded
with borrowings under the Credit Facility. In connection with these redemptions,
the Company incurred an extraordinary loss on the early extinguishment of debt
of approximately $1.3 million (net of income taxes). The remaining outstanding
public debt of approximately $4.5 million that was not tendered as part of the
Refinancing Plan was defeased in February 1998.
18
<PAGE>
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 were 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
9 to the consolidated financial statements for further discussion).
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.
Operating results for 1998 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
consolidation of the Crain Acquisition, (ii) continued implementation of the
continuous improvement program to improve the Company's profitability, (iii)
additional raw material cost increases, if any, by the Company's chemical
suppliers, (iv) the Company's success in passing on to its customers selling
price increases to recover such raw material cost increases and (v) fluctuations
in interest rates.
RESULTS OF OPERATIONS
1997 Compared to 1996
Net sales for 1997 were $931.1 million as compared to $926.4 million in
1996, an increase of $4.7 million or 0.5%. Carpet cushion net sales for 1997
decreased 6.0% to $273.9 million from $291.3 million in 1996 primarily due to
(i) the sale in early October 1997 of a facility which manufactured needlepunch,
tufted carpeting, and artificial grass products which had net sales of
approximately $8.3 million in the fourth quarter of 1996, (ii) reduction in
rebond carpet cushion selling prices due to lower trim material costs, and (iii)
a shift in product mix from higher price carpet cushion to lower price carpet
cushion. Cushioning foam net sales for 1997 increased 6.2% to $225.0 million
from $211.9 million in 1996 primarily due to increased net sales volume from
both new and existing customers of bedding related products. Automotive foam net
sales for 1997 increased 1.0% to $234.2 million from $231.9 million in 1996
primarily due to increased selling prices for certain products initiated at the
beginning of 1997. Furniture net sales for 1997 were constant $121.7 million as
compared to $121.0 million for 1996. Specialty and technical foam net sales for
1997 increased 8.5% to $76.3 million from $70.3 million in 1996 primarily due to
increased net sales volume.
Gross profit as a percentage of net sales decreased to 15.4% for 1997
from 16.5% in 1996 primarily due to unfavorable impact of unrecovered raw
material cost increases, product mix change to lower margin products and the
sale in early October 1997 of a facility which manufactured needlepunch, tufted
carpeting and artificial grass products.
Income from operations was $55.1 million for 1997 as compared to $101.4
million in 1996. The decrease was primarily due to a decrease in gross profit
margins as discussed above, 1997 restructuring and other charges of $21.1
million as compared to a restructuring credit of $6.5 million in 1996, and an
increase in selling, general and administrative expenses of $8.8 million for
1997 as compared to 1996. The 1997 restructuring and other charges related to
the restructuring of the Company's operations in connection with the Crain
Acquisition. The increase in selling, general and administrative expenses is the
result of increases in the provision for uncollectible accounts, employee
compensation and incentives, research and development costs, and travel and
promotion costs associated with the launching of new products and international
expansion.
Income from continuing operations was $4.1 million or $0.16 diluted
earnings per share for 1997 as compared to $32.5 million or $1.26 diluted
earnings per share in 1996. The decrease is primarily due to the reasons cited
above offset by an decrease in interest and debt issuance expense of $3.3
million. The decrease in
19
<PAGE>
interest and debt issuance expense is primarily due to the favorable impact of
the 1997 Refinancing Plan.
The 1997 effective income tax rate for continuing operations was
approximately 38.0% as compared to 33.9% for 1996. The 1996 income taxes
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
divestiture of a subsidiary that historically incurred taxable losses.
The loss from discontinued operations of $2.0 million (net of $1.3
million income tax benefit) in 1997 relates to the final post-closing settlement
with Collins & Aikman regarding the December 1996 sale of JPS Automotive. The
loss from discontinued operations of $114.5 million in 1996 relates to the net
loss on the 1996 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. See Note 9 to the consolidated financial
statements for further discussion.
The extraordinary loss on early extinguishment of debt of $44.5 million
(net of $27.3 million income tax benefit) primarily relates to the write-off of
debt issuance costs and redemption premiums associated with the early
extinguishment of long-term debt in connection with the 1997 Refinancing Plan.
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. Combined cushioning
foam and furniture 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. Specialty and 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 effect 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 (loss) 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
20
<PAGE>
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 $1.26 diluted per
share for 1996 as compared to a loss from continuing operations of $50.8 million
or $1.92 diluted 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 9 to the
consolidated financial statements) and (ii) an increase in the accretion of the
Foamex-JPS Automotive L.P. senior secured discount debentures 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.
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. See Note 9 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 7 to the
consolidated financial statements for further discussion.
Liquidity and Capital Resources
Liquidity
The Company is a holding company whose operations, as a result of the
February 27, 1998 transactions, are conducted through two wholly-owed
subsidiaries, Foamex L.P. and Foamex Carpet. The liquidity requirements of the
Company consist primarily of the operating cash requirements of its two
principal subsidiaries. Prior to February 27, 1998, substantially all of the
Company's operations were conducted through Foamex L.P., which at the time was a
99% owned subsidiary, hence the discussion of historical trends of liquidity and
capital resources related primarily to Foamex L.P.
Foamex L.P.'s operating cash requirements consist principally of working
capital requirements, scheduled payments of principal and interest on
outstanding indebtedness and capital expenditures. The Company believes that
cash flow from Foamex L.P.'s operating activities, cash on hand and periodic
borrowings under the Credit Facility, if necessary, will be adequate to meet
Foamex L.P.'s liquidity requirements. The ability to meet such liquidity
requirements could be impaired if Foamex L.P. were to fail to comply with any
covenants contained in the Credit Facility and such noncompliance was not cured
by Foamex L.P. or waived by the lenders. Foamex L.P. was in compliance with the
covenants in the Credit Facility as of December 28, 1997 and the Company expects
Foamex L.P. to be in compliance with such covenants for the foreseeable future.
The ability of Foamex L.P. to make distributions to the Company is restricted by
the terms of its financing agreements; therefore, neither the Company nor Foamex
Carpet is expected to have access to the cash flow generated by Foamex L.P. for
the foreseeable future.
21
<PAGE>
Foamex Carpet's operating cash requirements consist principally of
working capital requirements, schedule payments of principal and interest on
outstanding indebtedness and capital expenditures. The Company believes that
cash flow from Foamex Carpet's operating activities, cash on hand and periodic
borrowings under Foamex Carpet's credit facility (the "Foamex Carpet Credit
Facility"), if necessary, will be adequate to meet Foamex Carpet's liquidity
requirements. The ability to meet such liquidity requirements could be impaired
if Foamex Carpet were to fail to comply with any covenants contained in the
Foamex Carpet Credit Facility and such noncompliance was not cured by Foamex
Carpet or waived by the lenders. The Company expects Foamex Carpet to be in
compliance with such covenants for the foreseeable future. The ability of Foamex
Carpet to make distributions to the Company is restricted by the terms of its
financing agreements; therefore, neither the Company nor Foamex L.P. is expected
to have access to the cash flow generated by Foamex Carpet for the foreseeable
future.
Cash and cash equivalents decreased $10.2 million during 1997 to $12.0
million at December 28, 1997 from $22.2 million at December 29, 1996 primarily
due to the decrease in net cash provided by operating activities. 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 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. Working capital increased $1.9 million during
1997 to $138.5 million at December 28, 1997 from $136.6 million at December 29,
1996 primarily due to the increase in operating assets. Net operating assets and
liabilities (comprised of accounts receivable, inventories and accounts payable)
increased $21.4 million during 1997 to $164.3 million at December 28, 1997 from
$142.9 million at December 29, 1996 primarily due to increases in accounts
receivable and inventories offset by an increase in accounts payable. These
increases are primarily associated with the Crain Acquisition. 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 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 $19.9 million to $142.9 million at
December 29, 1996 as compared to $123.0 million at December 31, 1995. The
increase was primarily due to increases in accounts receivable and inventories
offset by an increase 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 year end purchase
of raw material inventories. The Company's restructuring/consolidation plan
includes accruals of approximately $26.9 million of cash charges of which $15.6
million is expected to be paid during 1998.
As of December 28, 1997, there were $54.9 million of revolving credit
borrowings under the Credit Facility with unused availability of approximately
$73.9 million which includes approximately $16.0 million associated with letters
of credit outstanding which are supported by the Credit Facility. Borrowings by
Foamex Canada, Inc. as of December 28, 1997 were $3.6 million under Foamex
Canada Inc.'s revolving credit agreement with unused availability of
approximately $2.0 million at an interest rate of 6.50%.
Cash Flow from Operating Activities
Cash flow from continuing operations was $0.4 million, $41.3 million and
$25.5 million in 1997, 1996 and 1995, respectively. Cash flow from continuing
operations decreased in 1997 as compared to 1996 primarily as a result of the
use of approximately $44.0 million of cash for premiums and costs associated
with the debt extinguishment during 1997 offset by decreased cash used for
operating assets and liabilities. 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.
22
<PAGE>
Cash Flow from Investing Activities
From the beginning of 1995 through 1997, the Company spent approximately
$79.2 million on capital improvements. The expenditures included: (i)
installation of new variable pressure foaming technology ("VPFJ") in the Orange,
California facility; (ii) the construction of a facility in Mexico City, Mexico
to improve manufacturing efficiencies and to meet the growing local demand for
foam products; (iii) the expansion and modernization of a facility in Orlando,
Florida to improve manufacturing efficiencies, and (iv) installation of more
efficient foam production line systems and fabricating equipment in a number of
manufacturing facilities. The Company expects to increase capital expenditures
for the foreseeable future as a result of the Crain Acquisition and the
installation of VPFJ manufacturing process.
On December 23, 1997, the Company acquired Crain pursuant to a merger
agreement with Crain Holdings for a purchase price of approximately $213.7
million, including the assumption of debt with a face value of approximately
$98.6 million (and an estimated fair value of approximately $112.3 million). In
addition, fees and expenses associated with the Crain Acquisition are
approximately $13.2 million. The Crain Acquisition was primarily funded with
$118.0 million of bank borrowings under the Credit Facility.
On October 6, 1997, Foamex L.P. sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, net of post-closing adjustments which were
finalized in December 1997.
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 and for
the payment of certain retained liabilities. The JPS Automotive sale price was
finalized in December 1997.
During 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.
During 1994, the Company acquired Transformacion De Espumas Y Fieltros,
S.A. de C.V. ("TEFSA") which required the purchase price to be paid over a three
year period. During 1997, 1996 and 1995, the Company made scheduled cash
payments of approximately $0.9 million, $0.8 million and $0.8 million,
respectively, in accordance with the purchase agreement. The final payment was
made in 1997.
Cash Flow from Financing Activities
On June 12, 1997, the Company substantially completed the Refinancing
Plan designed to reduce the Company's interest expense and increase its
financing flexibility. The Refinancing Plan included a tender offer to purchase
$489.7 million of the Company's public debt, the payment of $5.2 million of
Foamex L.P.'s term loan borrowings under an existing credit facility and the
payment of related fees and expenses. In addition, the tender offer included
amending the existing indentures to remove substantially all of the restrictive
covenants. The Company purchased $459.0 million of public debt under the tender
offer and incurred an extraordinary loss on the early extinguishment of debt of
approximately $42.0 million (net of income tax benefit of $25.7 million). The
Refinancing Plan was funded by $347.0 million of borrowings under the Credit
Facility and the net proceeds from the issuance of $150.0 million principal
amount of senior subordinated notes. As a result of the Refinancing Plan, the
Company's total long-term debt increased by $63.9 million. The Company expects
the Refinancing Plan to result in decreased interest expense as compared to the
debt structure prior to the Refinancing Plan, assuming no material changes in
interest rates. The Company's future interest expense will vary based on a
variety of factors, including fluctuations in interest rates in general. As a
result of the Refinancing Plan, variable rate debt comprised a larger percentage
of the Company's overall indebtedness than in the past, and as a result, future
fluctuations in interest rates will have a greater impact on the Company's
interest expense than in the past.
23
<PAGE>
On October 1, 1997, the Company redeemed approximately $26.2 million of
the approximately $30.7 million of the Company's outstanding public debt that
was not tendered as part of the Refinancing Plan. The redemption was funded with
borrowings under the Credit Facility. In connection with these redemptions, the
Company incurred an extraordinary loss on the early extinguishment of debt of
approximately $1.3 million (net of income tax). The remaining outstanding public
debt of $4.5 million that was not tendered as part of the Refinancing Plan was
defeased in February 1998.
On October 6, 1997, the Company sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, net of post-closing adjustments which were
finalized in December 1997. The Company used the net proceeds of the sale to
reduce borrowings under the Credit Facility by approximately $38.8 million.
During 1997 and 1996, the Company repurchased long-term debt of
approximately $42.4 million with the net proceeds from the sale of Perfect Fit.
During 1997, 1996 and 1995, the Company purchased shares of its common
stock, respectively, for an aggregate cost of $5.7 million, $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.
In connection with the Refinancing Plan, the Company's existing interest
rate swap agreements with a notional amount of $300.0 million were considered to
be effectively terminated since the underlying debt was extinguished. These
interest rate swap agreements had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreements, the Company entered into an amendment of the existing interest rate
swap agreements resulting in one interest rate swap agreement with a notional
amount of $150.0 million through June 2007. Accordingly, the $8.2 million fair
value liability has been recorded as a deferred credit which will be amortized
as a reduction in interest and debt issuance expense on a straight-line basis
through June 2007. On January 8, 1998, the Company entered into a new amendment
to its interest rate swap agreement. The new amendment provides for an interest
rate swap agreement with a notional amount of $150.0 million through June 2002.
Under the new amendment, the Company is obligated to make fixed payments of
5.78% per annum through December 1998 and variable payments based on LIBOR at
the beginning of each six month period for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 6.44% per annum for the life
of the agreement, payable semiannually in arrears. The newly amended interest
rate swap agreement can be terminated by the swap partner at the end of each six
month period commencing December 1999.
The Company is exposed to credit loss in the event of a nonperformance by
the swap partner; however, the occurrence of this event is not anticipated. The
effect of interest rate swaps was a favorable adjustment to interest and debt
issuance expense of $2.2 million, $3.7 million and $1.4 million for 1997, 1996
and 1995, 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 28, 1997 was $4.3 million. In addition, as
of December 28, 1997, the Company has net receivables of approximately $1.1
million for
24
<PAGE>
indemnification of environmental liabilities from former owners, net of
approximately $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" 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.
The Company has and will continue to make certain investments in its
software systems and applications to ensure the Company is Year 2000 compliant.
The Company plans to continue to make modifications to the identified software
during 1998 and test the changes during 1998. The financial impact to the
Company has not been and is not anticipated to be material to its financial
position or results of operation in any given year.
New Accounting Standards
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share," was issued by the Financial Accounting Standards Board in
February 1997. The Company adopted SFAS No. 128 effective with the 1997
financial statements.
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board in June 1997. This statement requires all items that must be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The Company will adopt SFAS No. 130 for 1998.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Restated Information," was
issued by the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected financial
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
adopt SFAS No. 131 for year ended 1998 reporting. Management is evaluating the
impact, if any, the standard will have on the Company's present segment
reporting.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
An index to the financial statements and the required financial statement
schedules is set forth in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers of the Company.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position(s) Held
<S> <C> <C>
Andrea Farace 42 Chairman of the Board and Chief
Executive Officer
Marshall S. Cogan 60 Vice Chairman
Robert J. Hay 72 Chairman Emeritus
Rolf E. Christensen 52 Chief Operating Officer
John H. Gutfreund 68 Director
Stuart J. Hershon 60 Director
Etienne Davignon 65 Director
John V. Tunney 63 Director
Kenneth R. Fuette 53 Executive Vice President, Chief
Financial Officer and Chief
Administrative Officer
Barry Zimmerman 61 Executive Vice President,
Manufacturing Services and
Corporate Development
Philip N. Smith, Jr. 55 Senior Vice President, Secretary and
General Counsel
Phil Allen 58 Executive Vice President, Carpet
Cushion Products
Gregory M. Barbe 43 Executive Vice President, Cushioning
Products
Gregory W. Brown 42 Executive Vice President, Automotive
Products
Christine A. Henisee 51 Executive Vice President, Business
Development and Technology
Stephen Drap 48 Executive Vice President,
Manufacturing and Customer
Service, Technology
38 Products
Darrel Nance Executive Vice President, Cushioning
Products
Pete Wallace 38 Executive Vice President,
Manufacturing Technology
</TABLE>
Mr. Farace began serving as Chairman and Chief Executive Officer of the
Company and certain affiliated entities in May 1997. Mr. Farace has also served
as Chairman of the Board of General Felt since May 1997. Mr. Farace has also
served as a director of the Company since February 1996. Mr. Farace served as
President and a director of Trace Holdings from December 1994 and December 1993,
respectively, to December 1997. Prior to December 1993, Mr. Farace held several
executive positions within Trace Holdings beginning in April 1991. Mr. Farace
was Senior Executive of C.I.R. S.p.A. from May 1990 to March 1991. Prior to
that, Mr. Farace was a Managing Director at Shearson Lehman Hutton, Inc. Mr.
Farace is a director of Trace Foam and CHF Industries, Inc., both of which are
subsidiaries of Trace Holdings. Additionally, Mr. Farace is a director of the
Managed High Income Portfolio, Inc. and a member of the Advisory Board of the
Italy Fund, all of which are NYSE-listed mutual funds.
26
<PAGE>
Mr. Cogan has been the Vice Chairman of the Board and Chairman of the
Executive Committee of the Company since its inception in September 1993, served
as Chairman and Chief Executive Officer from January 1994 through May 1997. Mr.
Cogan has been a director of Trace Foam since December 1991, Chairman of the
Board and President of Trace Foam since January 1992. He has been the principal
stockholder, Chairman or Co-Chairman of the Board and Chief Executive Officer or
Co-Chief Executive Officer of Trace Holdings since 1974. He has also been a
member of the Board of Director of Recticel since February 1993. Mr. Cogan was
named Chairman and Chief Executive Officer of United Auto Group Inc., an
affiliate of Trace Holdings, in April 1997. He has also served as Chairman,
Director and Managing General Partner of other companies formerly owned by the
Company, including JPSGP Inc., and JPS, and companies formerly owned by Trace
Holdings, including Color Tile, Inc., General Felt, Knoll International Inc. and
Sheller-Globe Corporation. Prior to forming Trace Holdings, he was senior
partner at Cogan, Berlind, Weill & Levitt and subsequently CBWL - Hayden Stone,
Inc. Additionally, Mr. Cogan serves on the Board of Directors of American
Friends of the Israel Museum, the Board of Trustees of the Museum of Modern Art,
the Boston Latin School and New York University Medical Center. Mr. Cogan also
serves on several committees of Harvard University.
Mr. Hay has been Chairman Emeritus and a director of the Company since
September 1993. Mr. Hay was Chairman and Chief Executive Officer of Foamex L.P.
from January 1993 to January 1994. Mr. Hay was President of Foamex L.P. and its
predecessor from 1972 through 1992. Mr. Hay began his career in 1948 as a
chemist with The Firestone Tire and Rubber Company, a predecessor of Foamex L.P.
Mr. Christensen has been Chief Operating Officer since March 1998. Prior
to that Mr. Christensen served as Executive Vice President, Technical Products.
Mr. Christensen has served in several management position since joining the
Company in 1967.
Mr. Fuette has been Executive Vice President, Chief Financial Officer and
Chief Administrative Officer of the Company since July 1997. Prior to that, Mr.
Fuette served as a Senior Vice President of Finance, Chief Financial Officer and
Chief Accounting Officer from July 1997. Mr. Fuette served as controller of
Foamex L.P. or its predecessor from 1977 to 1995.
Mr. Zimmerman has been Executive Vice President, Manufacturing Services
and Corporate Development of the Company since July 1997 and Chairman, President
and a director of Foamex Mexico since September 1993 and Vice President of FMXI
and General Felt since April 1995. Mr. Zimmerman has been a Senior Vice
President of Foamex L.P. from October 1995 to November 1996 and a Senior Vice
President or Vice President and Managing Director of Trace Holdings since
October 1986. Prior to that, Mr. Zimmerman held several executive positions
within Trace Holdings beginning in August 1978. Mr. Zimmerman has been a
director of Trace Foam since October 1990. Mr. Zimmerman has served as director
of FCC since July 1992.
Mr. Smith has been Senior Vice President or Vice President, Secretary and
General Counsel of the Company since its inception in September 1993. Mr. Smith
has been a Vice President of Trace Foam since December 1991 and a Vice President
of Trace Foam since December 1991. Mr. Smith has been a Senior Vice President or
Vice President and the Secretary or Assistant Secretary and General Counsel of
Trace Holdings since January 1988 and has overseen and been actively involved in
transaction negotiations, litigation, stockholder and director relations and
other corporate legal matters. Prior to joining Trace Holdings, he was the sole
shareholder of a professional corporation which was a partner of Akin, Gump,
Strauss, Hauer & Feld, L.L.P.
Mr. Allen has been Executive Vice President of Foamex Carpet Cushion
since September 1997 and served as Vice President, Sales and Marketing for
General Felt since 1993. Mr. Allen has served in various management position
since joining the Company in 1993.
Mr. Barbe has been Executive Vice President of the Foam Products group
since March 1998 and Executive Vice President, Cushioning Products since July
1997. Mr. Barbe served as Vice President of Sales from April 1994 to July 1997.
Prior to joining the Company, Mr. Barbe was the director of Marketing for Sealy
brand products at Sealy, Inc. from 1990 to 1994. Prior to that, Mr. Barbe held
several sales and marketing positions at three different units of the General
Electric Company.
27
<PAGE>
Mr. Brown has been the Executive Vice President, Automotive Products
since July 1997. Prior to joining the Company, Mr. Brown served as Vice
President of Marketing and Sales for the Guardian Industries Exterior Trim Group
and served as Vice President of Business Development at DC Inc. and President at
DCT Material Handling Inc.
Ms. Henisee has been Executive Vice President, Business Development and
Technology since July 1997. Prior to joining the Company in 1996, Ms. Henisee
held various management positions with Scott Paper Co. Ms. Henisee also serves
on the Board of Episcopal Academy.
Mr. Drap has been Executive Vice President, Technical Products since
March 1998. Prior to that, Mr. Drap served as Vice President, Manufacturing and
Customer Service, Technical Products. Mr. Drap has held various management
positions since joining the Company in 1980.
Mr. Nance has been Executive Vice President of Foam Products since March
1998. Prior to joining the Company, Mr. Nance held several position within Crain
since 1994.
Mr. Wallace has been the Executive Vice President, Manufacturing
Technology since March 1998. Prior to joining the Company, Mr. Wallace served as
Vice President of Crain and as General Manager of the Newnan Facility. Prior to
that, Mr. Wallace held several positions at Reeves Brothers Curon Division.
ITEM 11. EXECUTIVE COMPENSATION
The summary compensation table below contains information concerning
annual and long-term compensation provided to the Chief Executive Officer and
the four next most highly compensated executive officers of the Company in 1997
for services rendered in all capacities during the fiscal years 1997, 1996 and
1995.
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation Securities Underlying All Other
Year Salary Bonus Options/SARs(2) Compensation(3)
<S> <C> <C> <C> <C>
Andrea Farace 1997 $430,769 $350,000 350,000 -
Chairman of the Board and 1996 200,004 - - -
Chief Executive Officer 1995 200,004 - 16,296 -
Marshall S. Cogan 1997 $848,077 $500,000 170,833 -
Vice Chairman 1996 750,000 - 100,000 -
1995 750,000 - 229,167 -
Salvatore J. Bonanno (4) 1997 $437,000 $200,000 50,000 8,000
President and Chief Operating 1996 201,850 250,000 25,000 7,500
Officer 1995 77,308 100,000 49,590 -
Barry Zimmerman 1997 $316,000 $115,000 - 8,000
Executive Vice President, 1996 306,730 50,000 - 7,500
Manufacturing Services and 1995 300,000 - 17,569 6,000
Corporate Development
Kenneth R. Fuette 1997 $256,131 $145,000 - 7,623
Executive Vice President, 1996 194,562 - 7,616 4,001
Chief Financial Officer and 1995 130,200 30,000 7,384 1,366
Chief Administrative Officer
</TABLE>
28
<PAGE>
(1) As none of the above executive officers received perquisites in excess of
the lesser of $50,000 or 10% of their reported salary and bonus, any other
annual compensation required to be reported, any restricted stock awards,
or any long-term compensation payouts, information relating to "Other
Annual Compensation", "Restricted Stock Awards" and "LTIP Payouts" is
inapplicable and has therefore been omitted from the table.
(2) The 1995 options represent options granted in connection with a repricing
of the options under the stock option exchange program discussed below.
(3) The amounts shown represent the Company's matching contribution to the
Company's 401(k) plan on behalf of Mr. Bonanno, Mr. Zimmerman and Mr.
Fuette. Mr. Cogan and Mr. Farace did not participate in a 401(k) plan.
(4) Mr. Bonnano served as President of the Company from May 1997 to March 1998.
Mr. Bonnano also served as President of Foamex L.P. from July 1995 to March
1997 and as Chief Operating Office of Foamex L.P. from July 1997 to March
1998, at which time he resigned from the Company. Prior to joining Foamex
L.P., Mr. Bonanno was employed with Chrysler Corporation for thirty years,
most recently serving as the General Manager of International Manufacturing
Operations.
Employment Agreements
The Company does not have any employment agreements with its chief
executive officer or, with the exception of Salvatore J. Bonanno, any of the
other Named Executive Officers who are currently employed by the Company. The
Securities and Exchange Commission requires disclosure of any employment
agreement between the Company and any Named Executive Officer, whether or not
such officer is still employed by the Company.
On June 26, 1995, Foamex L.P. entered into an employment agreement with
Salvatore J. Bonanno, Executive Vice President of Manufacturing of the Company
and President of Foamex L.P. The agreement provides for a three-year employment
term, which employment may be automatically extended for two additional one-year
terms unless either party gives written notice as set forth therein. The
employment agreement provides that as compensation for all services rendered by
Mr. Bonanno, he will receive an annual salary at the rate of $150,000 per annum
for the period from June 26, 1995 through June 30, 1996; and at the rate of
$250,000 per annum commencing as of July 1, 1996. In addition, Mr. Bonanno will
be paid a bonus of $100,000 on or before December 31, 1995 and a bonus of
$150,000 on or before June 30, 1996. Mr. Bonanno will be eligible to earn an
additional bonus of $100,000 based upon the attainment of Company performance
targets (including but not limited to, an earnings target) for that period,
which targets as required to be mutually established in good faith between
Foamex L.P. and Mr. Bonanno. Also, Mr. Bonanno will participate in certain
employee benefit plans and receive certain other perquisites. Mr. Bonanno's
employment agreement also provides for the grant by the Company's Compensation
Committee to Mr. Bonanno of non-qualified options to purchase 55,000 shares of
Common Stock at a per share price equivalent to the closing price of the Common
Stock on June 26, 1995, which options were exercisable on the date of grant as
to 20% of the Common Stock subject thereto, and an additional 20% exercisable on
each of the first four anniversaries of the date of grant. The employment
agreement further provides that upon termination of the employment agreement (i)
by Foamex L.P. for "cause", (ii) by Mr. Bonanno other than for "good reason" (as
such terms are defined therein) or (iii) by reason of either party's election
not to extend the employment agreement as provided therein, Foamex L.P. shall
pay Mr. Bonanno, in addition to any amounts earned but not yet paid, an amount
equal to one-year's then current base salary (payable in twelve equal monthly
installments). In the event the employment agreement is terminated (i) by Foamex
L.P. other than for "cause" or (ii) by Mr. Bonanno for "good reason," Mr.
Bonanno shall be entitled to receive the greater of (a) one-year's then current
base salary or (b) continued payment of Mr. Bonanno's then current base salary
for the remainder of the term of the agreement, subject to certain provisions
set forth therein (payable in twelve equal monthly installments). Additionally,
during the period for which Mr. Bonanno is receiving continued payment of base
salary, Mr. Bonanno would be entitled to receive health care benefits, to
continue to participate in other employee benefit plans to the extent
permissible under such plans and to receive a supplemental annual pension
benefit equal to (i) the annual pension benefit that would have been payable to
Mr. Bonanno under the Retirement Plan (as defined therein) had Mr. Bonanno
continued to earn credited service under
29
<PAGE>
the Retirement Plan until February 1, 1999, reduced by (ii) the annual pension
benefit payable to Mr. Bonanno under the Retirement Plan. The employment
agreement prohibits Mr. Bonanno from owning any controlling or substantial stock
or other beneficial interest in any business enterprise which is engaged in, or
competitive with, any business engaged in by Foamex L.P. Additionally, the
employment agreement provides that for a period of one year following his
termination date, Mr. Bonanno may not, among other things, engage in any
business activities reasonably determined by Foamex L.P. to be competitive with
any substantial type or kind of business activities conducted by Foamex L.P. at
the time of termination.
Foamex International Stock Option Plan
Foamex International and its stockholders adopted the Foamex
International Inc. 1993 Stock Option Plan (the "Stock Option Plan") authorizing
the issuance of up to 3,000,000 shares of the Company's common stock pursuant to
options that may be granted under the Stock Option Plan to officers and
executive employees of the Company and its subsidiaries and affiliates.
<TABLE>
<CAPTION>
Foamex International Option Grants In Last Fiscal Year (1)
Number of Percent of
Securities Total Potential Realized
Underlying Options/SARs Exercise Market Value at Assumed
Options/ Granted to or Base Price on Annual Rate of Appreciation
SAR's Employees in Price Expiration date of for Option Term (2)
Name Granted (#) Fiscal Year ($/Sh) Date Grant 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
Andrea Farace 100,000 16.0% $14.000 05/09/07 $14.000 $ 412,145 $1,485,538
250,000 40.0% 11.125 12/26/07 11.125 1,749,113 4,432,596
Marshall S. Cogan 170,833 27.3% 11.125 12/26/07 11.125 1,195,225 3,028,935
Salvatore J. Bonanno 50,000 8.0% 11.125 12/26/07 11.125 349,823 886,519
<FN>
(1) Mr. Zimmerman and Mr. Fuette are not included in this table since no
options were granted to them during 1997.
(2) Based on December 28, 1997 market value of the Company's common stock of
$11 1/8 per share and assuming the options are held until the expiration
date.
</FN>
</TABLE>
Trace Holdings Stock Option Plan
In 1987, Trace Holdings established a Nonqualified Stock Option Plan (the
"Trace Holdings Option Plan"), under which options for the purchase of shares of
common stock of Trace Holdings may be granted to officers, directors and
employees of Trace Holdings or its affiliates. Under the Trace Holdings Option
Plan, options may generally be granted for a term not to exceed eleven years and
are exercisable at the cumulative rate of one-third per year on the fifth, sixth
and seventh anniversaries of the date of grant. Under the Trace Holdings Option
Plan, the option exercise price of an option may not be less than the fair
market value of the common stock of Trace Holdings as of the date of grant. In
1988, Trace Holdings granted options to Mr. Zimmerman to purchase 595 shares of
common stock of Trace Holdings. The options expire eleven years from the date of
grant and have an exercise price of $1,450.00 per share. No options have been
subsequently granted to named executive officers of Foamex International.
Aggregate Option Values
The following table sets forth as of December 28, 1997, the number of
options and the value of the unexercised options held by Foamex L.P.'s named
executive officers listed on the Summary Compensation Table.
30
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values (1)
Number of Securities Underlying Value of Unexercised In-the-Money
Name Unexercised Options at Fiscal Year End(2) Options at Fiscal Year End(3)
Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C>
Andrea Farace 10,287 256,009 (4) 43,720 25,538 (4)
Marshall S. Cogan 223,333 276,667 949,165 449,795
Salvatore J. Bonanno 29,836 94,754 126,803 190,205
Barry Zimmerman 11,305 6,264 48,046 26,622
595 (5) - - (6) - (6)
Kenneth R. Fuette 7,853 7,147 33,375 30,375
<FN>
(1) No stock options were exercised in 1997 and SARs are not included in the
table since none were outstanding during 1997.
(2) Except as otherwise noted, these options are for common stock of the
Company and were granted pursuant to the Foamex International Stock Option
Plan.
(3) As of December 28, 1997, the market value of the Company's common stock was
$11 1/8 per share.
(4) Excludes 100,000 options with an exercise price of $14.00. Also, excludes
10,000 shares granted to Mr. Farace by Trace Holdings under an agreement.
(5) These options are for common stock of Trace Holdings and were granted
pursuant to the Trace Holdings Option Plan.
(6) Trace Holdings is a privately held company. There is no public market for
its securities and no valuation of Trace Holdings for the purpose of
ascertaining the value of the stock options has been undertaken.
</FN>
</TABLE>
Pension Plans
The Foamex L.P. Salaried Pension Plan (the "Retirement Plan") is a
defined benefit pension plan that is qualified under the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), and in which the executive
officers are eligible to participate.
The following table illustrates estimated annual pensions under the
Retirement Plan for various compensation levels and periods of credited service,
assuming present compensation rates at all points in the past and until Normal
Retirement Date (as defined in the Retirement Plan) and a constant Social
Security Wage Base ($68,400 in 1998). The pension amount is expressed as a life
annuity with certain benefits continuing to the spouse.
<TABLE>
<CAPTION>
Pension Plan Table
Years of Credited Service
15 20 25 30 35
Current Compensation:
<S> <C> <C> <C> <C> <C>
$125,000 $27,683 $36,910 $46,138 $55,365 $64,593
$160,000 and above $36,870 $49,160 $61,450 $73,740 $86,030
</TABLE>
The Retirement Plan is a career pay plan. The Retirement Plan formula is
1.25% of annual compensation up
31
<PAGE>
to the Social Security Wage Base and 1.75% of annual compensation in excess of
the Social Security Wage Base, subject to an annual compensation limit of
$160,000. Prior to September 1, 1994, the Foamex Plan was a final average pay
plan, with retirement benefits based upon earnings for the five consecutive
years within the last ten years which yield the highest average yearly salary
("Final Average Compensation"). Annual benefit calculations under the Foamex
Plan for service prior to June 1, 1994, will be the years of credited service
multiplied by the sum of 2.0% of Final Average Compensation and 0.4% of Final
Average Compensation in excess of the average of the Social Security Wage Bases
over the 35 year period ending with the year an employee reaches age 65 (such 35
year average referred to herein as the "Covered Compensation"). For service
subsequent to May 31, 1994, but before September 1, 1994, annual benefit
calculations will be the years of credited service multiplied by the sum of 1.1%
of Final Average Compensation and 0.4% of Final Average Compensation in excess
of Covered Compensation. The actuarially determined cost of providing benefits
under the Retirement Plan is provided by the Company. The participants are
neither required nor permitted to make contributions.
The compensation used as a basis for computing pension is primarily based
on salaries set forth in the Summary Compensation Table and excludes bonuses set
forth therein. In 1997 and 1996, the compensation used as a basis for computing
the pension of each of the executive officers named in the Summary Compensation
Table was as follows: Mr. Farace, $160,000 and $150,000, respectively; Mr.
Cogan, $160,000 and $150,000, respectively; Mr. Bonanno, $160,000 and $150,000,
respectively; Mr. Zimmerman, $160,000 and $150,000, respectively; and Mr. Fuette
$160,000 and $150,000, respectively.
The estimated annual benefit under the Retirement Plan payable on
retirement at normal retirement age, or immediately if the individual has
reached normal retirement age, for each of the employees named in the Summary
Compensation Table is as follows: Mr. Farace, $66,981; Mr. Cogan, $23,190; Mr.
Bonanno, $23,930; Mr. Zimmerman, $22,025; and Mr. Fuette $99,131. These amounts
assume the employees continue their employment with the Company at present
salary levels until normal retirement age. As of December 28, 1997, the
employees named in the Summary Compensation Table had been credited with years
of service under the Retirement Plan as follows: Mr. Farace, 4.00 years; Mr.
Cogan, 4.83 years; Mr. Bonanno, 1.50 years; Mr. Zimmerman, 4.83 years; and Mr.
Fuette 28.42 years.
IRS Limitations
Under the Internal Revenue Code, a participant's compensation in excess
of $160,000 (as adjusted to reflect cost of living increases) is disregarded for
purposes of determining pension benefits. Benefits accrued for plan years prior
to 1994 on the basis of certain compensation in excess of $160,000 are
preserved. In addition, as required by law, the maximum annual pension payable
to a participant under a qualified plan in 1998 is $130,000, in the form of a
qualified joint and survivor annuity, although certain benefits are not subject
to such limitation. Such limits have been included in the calculation of
estimated annual benefit amounts listed above for each of the Named Executive
Officer. The Company does not have a non-qualified defined benefit plan to
provide payments in excess of limits imposed by the Internal Revenue Service.
Compensation Committee Interlocks and Insider Participation
The Securities and Exchange Commission requires issuers to disclose the
existence of any relationship where an executive officer of the registrant
serves (i) on the compensation committee of another entity, one of whose
executive officers served on the compensation committee of the registrant, (ii)
as a director of another entity, one of whose executive officers served on the
compensation committee of the registrant, and (iii) on the compensation
committee of another entity, one of whose executive officers served as a
director of the registrant. The Company is not aware of any such relationships.
The Company's Compensation Committee is comprised entirely of independent
outside directors. No employee of the Company serves on the Company's
Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table and the accompanying footnotes set forth, as of
December 28, 1997, the beneficial ownership of the Company by (i) each person
who is known to the Company to own beneficially more than 5.0% of
32
<PAGE>
any class of the Company's common stock, (ii) each director of the Company,
(iii) each executive officer listed in the summary compensation table and (iv)
all officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owners Beneficial Ownership (1)(2)
- ------------------------------------- ---------------------------
<S> <C> <C>
Number of Shares % of Class Outstanding
Trace International Holdings, Inc. (2) 11,475,000 46.0
375 Park Avenue, 11th Floor
New York, New York 10152
Trace Foam Sub, Inc. (2) 7,000,247 28.1
375 Park Avenue, 11th Floor
New York, New York 10152
Lion Advisors, L.P. (4) 3,347,421 13.4
1301 Avenue of the Americas
New York, New York 10019
Apollo Advisors, L.P. (4) 3,347,421 13.4
2 Manhattanville Road
Purchase, New York 10577
Andrea Farace 32,546 *
Marshall S. Cogan (2) 12,098,333 48.5
Robert J. Hay 9,944 *
Stuart J. Hershon (5) 36,166 *
Etienne Davignon 20,836 *
John V. Tunney (6) 15,200 *
Kenneth R. Fuette 11,968 *
Barry Zimmerman 19,819 *
33
<PAGE>
Salvatore J. Bonanno 29,836 *
All executive officers and directors 12,331,842 49.5
as a group (18 persons)(2)(4)(5)(6)
- ---------------------
<FN>
* Less than 1%.
(1) Each named person is deemed to be the beneficial owner of securities which
may be acquired within sixty days through the exercise of options, warrants
and rights, if any, and such securities are deemed to be outstanding for
the purpose of computing the percentage of the class beneficially owned by
such person. However, any such shares are not deemed to be outstanding for
the purpose of computing the percentage of the class beneficially owned by
any other person, except as noted.
(2) Trace Foam Sub is wholly-owned by Trace Foam, which, in turn, is
wholly-owned by Trace Holdings. The number of shares beneficially owned by
Trace Holdings includes the shares beneficially owned by Trace Foam Sub.
Additionally, 50,000 shares of the Common Stock reported herein are held in
trust for the exclusive benefit of participants under the Trace
International Holdings, Inc. Retirement Plan for Salaried Employees.
Marshall S. Cogan, Chairman of the Board and President of each of Trace
Foam Sub and Trace Foam, is the Chairman of the Board, Chief Executive
Officer and majority stockholder of Trace Holdings. Mr. Cogan disclaims
beneficial ownership of the Common Stock owned by Trace Foam Sub or Trace
Holdings.
(3) The above table includes shares of the Company's Common Stock held by
officers and directors under the Company's 401(k) Plan.
(4) Lion Advisors, L.P. ("Lion"), pursuant to an investment advisory contract
with its client, Marely I s.a. ("Marely"), possesses the sole power to vote
and dispose of 1,548,710 of the indicated shares, which shares are held for
the account of Marely. Apollo Advisors, L.P., which is an affiliate of
Lion, possesses the sole power to vote and dispose of 1,798,711 of the
shares in its capacity as managing general partner of AIF II, L.P., for
whose account the shares are held. The Common Stock presented in the table
includes 531,174 shares of Common Stock issuable to Marely and 531,175
shares issuable to AIF II, L.P. upon the exercise of warrants exercisable
at any time on or before October 12, 1999 at an exercise price of
approximately $12.30 per share.
(5) Includes 1,075 shares of Common Stock held in a trust of which Dr. Hershon
is the sole trustee.
(6) Includes 9,000 shares of Common Stock held in a trust of which Mr. Tunney
serves as a co-trustee.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company regularly enters into transactions with its affiliates on
terms it believes to be the same as could be obtained in third party
transactions. Payments to affiliates by Foamex L.P. and its subsidiaries in
connection with any such transactions are governed by the provisions of the
indentures for their public debt securities which generally provide that such
transactions be on terms comparable to those generally available in equivalent
transactions with third parties.
Technology Sharing Arrangements
In December 1992, Foamex L.P., Recticel and Beamech Group Limited
("Beamech"), an unaffiliated third party, formed a Swiss corporation to develop
new manufacturing technology for the production of polyurethane
34
<PAGE>
foam. Each of Foamex L.P., Recticel and Beamech contributed or caused to be
contributed to such corporation a combination of cash and technology valued at
$1.5 million, $3.0 million and $1.5 million, respectively, for a 25%, 50% and
25% interest, respectively, in the corporation. Foamex L.P., Recticel and their
affiliates have been granted a royalty-free license to use certain technology,
and it is expected that the corporation will license use of such technology to
other foam producers in exchange for royalty payments.
Tax Sharing Agreement
In 1992, Foamex L.P. and its partners entered into a tax sharing
agreement, as amended (the "Foamex L.P. Tax Sharing Agreement"), pursuant to
which Foamex L.P. agreed to make quarterly distributions to its partners which,
in the aggregate, will equal the tax liability that Foamex L.P. would have paid
if it had been a Delaware corporation filing separate tax returns rather than a
Delaware partnership. In connection with the IPO and the attendant reallocation
of partnership interests, the Foamex L.P. Tax Sharing Agreement was amended to
provide that 99% of the payments would be made to the Company and its
subsidiaries and 1% of the payments would be made to Trace Foam. In 1997, Foamex
L.P. made payments pursuant to the terms of the Foamex L.P. Tax Sharing
Agreement of approximately (i) $8.7 million to the Company and its subsidiaries
and (ii) $0.1 to Trace Foam.
Indemnification Regarding Environmental Matters
Pursuant to an Asset Transfer Agreement (the "RFC Asset Transfer
Agreement") between Foamex L.P. and Recticel Foam Corporation ("RFC"), Foamex
L.P. is indemnified by RFC for any liabilities incurred by Foamex L.P. arising
out of or resulting from, among other things, the ownership or use of any of the
assets transferred pursuant to the RFC Asset Transfer Agreement or the conduct
of the transferred business on or prior to October 2, 1990, including, without
limitation, any loss actually arising out of or resulting from any events,
occurrences, acts or activities occurring before October 2, 1990 or occurring
after October 2, 1990 to the extent resulting from conditions existing on or
prior to October 2, 1990, relating to (i) injuries to or the contraction of any
diseases by any person resulting from exposure to Hazardous Substances (as
defined in the RFC Asset Transfer Agreement) without regard to when such
injuries or diseases are first manifested, (ii) the generation, processing,
handling, storage or disposition of or contamination by any waste or Hazardous
Substance, whether on or off the premises from which the transferred business
has been conducted or (iii) any pollution or other damage or injury to the
environment, whether on or off the premises from which the transferred business
has been conducted. Foamex L.P. is also indemnified by RFC for any liabilities
arising under Environmental Laws (as defined in the RFC Asset Transfer
Agreement) relating to current or former RFC assets and for any liability for
property damage or bodily harm relating to products of the transferred business
shipped on or prior to October 2, 1990. Such indemnification is limited after
December 1993 unless such liability is covered by insurance. Foamex L.P. has
agreed to assume certain known environmental liabilities relating to the assets
transferred by RFC to Foamex L.P., with an estimated remediation cost of less
than $0.5 million, in exchange for a cash payment by RFC to Foamex L.P.
approximately equal to the remediation cost for such environmental liabilities.
Pursuant to the Asset Transfer Agreement, dated as of October 2, 1990, as
amended, between Trace Holdings and Foamex L.P. (the "Trace Holdings Asset
Transfer Agreement"), Foamex L.P. is indemnified by Trace Holdings for any
liabilities incurred by Foamex L.P. arising out of or resulting from, among
other things, the ownership or use of any of the assets transferred pursuant to
the Trace Holdings Asset Transfer Agreement or the conduct of the transferred
business on or prior to October 2, 1990, including, without limitation, any loss
actually arising out of or resulting from any events, occurrences, acts or
activities occurring after October 2, 1990, to the extent resulting from
conditions existing on or prior to October 2, 1990, relating to (i) injuries to
or the contraction of any diseases by any person resulting from exposure to
Hazardous Substances (as defined in the Trace Holdings Asset Transfer Agreement)
without regard to when such injuries or diseases are first manifested, (ii) the
generation, processing, handling, storage or disposition of or contamination by
any waste or Hazardous Substance, whether on or off the premises from which the
transferred business has been conducted or (iii) any pollution or other damage
or injury to the environment, whether on or off the premises from which the
transferred business has been conducted. Foamex L.P. is also indemnified by
Trace Holdings for any liabilities arising under Environmental Laws (as defined
in the Trace Holdings Asset Transfer Agreement) relating to current or former
35
<PAGE>
Trace Holdings' assets and for any liability relating to products of the
transferred business shipped on or prior to October 2, 1990.
Certain Transactions Relating to the Acquisition of General Felt
In connection with the Company's acquisition of General Felt in March
1993, Trace Holdings and General Felt entered into the General Felt
Reimbursement Agreement pursuant to which Trace Holdings has agreed to reimburse
General Felt on a pro rata basis reflecting the period of time each has occupied
the facility for costs relating to a cleanup plan for a facility in Trenton, New
Jersey formerly owned by General Felt.
Other Transactions
The Company made charitable contributions to the Trace International
Holdings, Inc. Foundation (the "Foundation") in the amount of $0.2 million in
Fiscal 1997. The Foundation is a Delaware tax-exempt private foundation.
Marshall S. Cogan, Chairman and Chief Executive Officer of the Company and
Foamex L.P., is the sole director of the Foundation.
On July 1, 1997, Trace Holdings borrowed $5.0 million pursuant to a
promissory note with an aggregate principal amount of $5.0 million issued to
Foamex L.P. on June 12, 1997. The promissory note is due and payable on demand
or, if no demand is made, on July 7, 2001, and bears interest at 2 3/8% plus
three-month LIBOR, as defined, per annum payable quarterly in arrears commencing
October 1, 1997. On June 12, 1997, a promissory note issued to Foamex L.P. by
Trace Holdings in July 1996 was amended. The amended promissory note is an
extension of a promissory note of Trace Holdings that was due in July 1997. The
aggregate principal amount of the amended promissory note was increased to
approximately $4.8 million and the maturity of the promissory note was extended.
The promissory note is due and payable on demand or, if no demand is made, on
July 7, 2001, and bears interest at 2 3/8% plus three-month LIBOR, as defined,
per annum payable quarterly in arrears. The promissory note is included in the
other components of stockholders' equity (deficit).
In connection with the Refinancing Plan, Foamex L.P. made a cash
distribution of approximately $1.5 million to Trace Foam as a result of Foamex
L.P.'s distribution to FJPS and FMXI, Inc. of the Discount Debentures, a note
with a principal amount of approximately $56.2 million (net of approximately
$20.6 million of original issue discount) due from FJPS and a promissory note in
the aggregate principal amount of $2.0 million due from the Company. The
distribution to Trace Foam reduced retained earnings (accumulated deficit) of
the Company.
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. During
June 1997, the management services agreement was amended to increase the annual
fee from $1.75 million to $3.0 million, plus 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 1997, the Company purchased approximately $1.9 million 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 various agreements, the
latest of which expired in March 1998.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial statements
Foamex International Inc. and Subsidiaries:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 28, 1997 and
December 29, 1996 F-3
Consolidated Statements of Operations for the years
ended 1997, 1996, and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended 1997, 1996, and 1995 F-6
Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended 1997, 1996, and 1995 F-7
Notes to Consolidated Financial Statements F-8
Foamex International Inc. and Subsidiaries Financial Statement Schedules:
Schedule I - Condensed Financial Information of Registrant S-2
Schedule II - Valuation and Qualifying Account S-5
(b) Reports on Form 8-K.
Form 8-K, dated October 6, 1997, reporting the sale of the Company's
needlepunch carpeting, tufted carpeting and artificial grass products
business.
Form 8-K, dated December 23, 1997, reporting the acquisition of Crain
Industries, Inc.
Form 8-K/A, dated March 9, 1998, providing pro forma financial
information relating to the acquisition of Crain Industries, Inc.
Form 8-K, dated February 28, 1998, reporting a change in corporate
structure.
(c) Exhibits
2.1(x) Transfer Agreement, dated as of February 27, 1998, by and between
Trace Foam LLC and Foamex L.P.
2.2(x) Asset Purchase Agreement, dated as of February 27, 1998, by and
among Foamex Carpet Cushion, Inc. ("Foamex Carpet"), Foamex
International, Trace Foam LLC and General Felt Industries, Inc.
("General Felt").
3.1(a) Certificate of Limited Partnership of Foamex L.P.
3.2.1(a) Fourth Amended and Restated Agreement of Limited Partnership of
Foamex L.P., dated as of December 14, 1993, by and among FMXI, Inc.
("FMXI") and Trace Foam Company, Inc. ("Trace Foam"), as general
partners, and Foamex International Inc. ("Foamex International"), as
a limited partner (the "Partnership Agreement").
3.2.2(b) First Amendment to the Partnership Agreement, dated June 28, 1994.
3.2.3(c) Second Amendment to the Partnership Agreement, dated June 12, 1997.
3.2.4(v) Third Amendment to the Partnership Agreement, dated December 23,
1997.
3.2.5(x) Fourth Amendment to the Partnership Agreement, dated February 27,
1998.
3.3 Certificate of Incorporation of FMXI.
3.4 By-laws of FMXI.
3.5(k) Certificate of Incorporation of Foamex Capital Corporation ("FCC").
3.6(k) By-laws of FCC.
3.7(a) Certificate of Incorporation of Foamex International.
3.8(a) By-laws of Foamex International.
37
<PAGE>
4.1.1(d) Indenture, dated as of June 12, 1997, by and among Foamex L.P., FCC,
the Subsidiary Guarantors and The Bank of New York, as trustee,
relating to $150,000,000 principal amount of 9 7/8% Senior
Subordinated Notes due 2007 (the "9 7/8% Notes"), including the form
of Senior Subordinated Note and Subsidiary Guarantee.
4.1.2(v) First Supplemental Indenture, dated as of December 23, 1997,
between Foamex LLC ("FLLC") and The Bank of New York, as trustee,
relating to the 9 7/8% Notes.
4.1.3(x) Second Supplemental Indenture, dated as of February 27, 1998, among
Foamex L.P. and FCC, as joint and several obligors, General Felt,
Foamex Fibers, and FLLC, as withdrawing guarantors, and The Bank of
New York, as trustee, relating to the 9 7/8% Notes.
4.1.4(d) Registration Rights Agreement, dated as of June 12, 1997, by and
among Foamex L.P., FCC, General Felt, Foamex Fibers, and all future
direct or indirect domestic subsidiaries of Foamex L.P. or FCC, and
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
Brothers Inc. and Scotia Capital Markets, as Initial Purchasers.
4.2.1(v) Indenture, dated as of December 23, 1997, by and among Foamex L.P.,
FCC, the Subsidiary Guarantors, Crain Holdings Corp., as
Intermediate obligator, and The Bank of New York, as trustee,
relating to $98,000,000 principal amount of 13 1/2% Senior
Subordinated Notes due 2005 (the "13 1/2% Notes"), including the
form of Senior Subordinated Note and Subsidiary Guarantee.
4.2.2(x) First Supplemental Indenture, dated as of February 27, 1998, among
Foamex L.P. and FCC, as joint and several obligors, General Felt,
Foamex Fibers and FLLC, as withdrawing guarantors, Crain Industries,
Inc., as withdrawing intermediate obligor, and The Bank of New York,
as trustee, relating to the 13 1/2% Notes.
4.3(x) Discharge of Indenture, dated as of February 27, 1998, by and among
Foamex L.P., General Felt, Foamex International and State Street
Bank and Trust Company, as trustee, relating to the 9 1/2% Senior
Secured Notes due 2000.
4.4.1(x) Credit Agreement, dated as of June 12, 1997, as amended and restated
as of February 27, 1998, by and among Foamex L.P., and FMXI, the
institutions from time to time party thereto as lenders, the
institutions from time to time party thereto as issuing banks, and
Citicorp USA, Inc. and The Bank of Nova Scotia, as Administrative
Agents.
4.4.2(x) Second Amended and Restated Foamex International Guaranty, dated as
of February 27, 1998, made by Foamex International in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.3(x) Amended and Restated Partnership Guaranty, dated as of February 27,
1998, made by FMXI in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.4(p) Foamex Guaranty, dated as of June 12, 1997, made by Foamex L.P. in
favor of Citicorp USA, Inc., as Collateral Agent.
4.4.5(p) Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex Latin
America, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.6(p) Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.7(p) Subsidiary Guaranty, dated as of June 12, 1997, made by FCC in favor
of Citicorp USA, Inc., as Collateral Agent.
4.4.8(p) Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex
Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.9(p) Subsidiary Guaranty, dated as of June 12, 1997, made by Foamex Asia,
Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.10(p) Subsidiary Pledge Agreement, dated as of June 12, 1997, made by FCC
in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.11(p) Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Latin America, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.12(p) Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.13(p) Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.14(p) Subsidiary Pledge Agreement, dated as of June 12, 1997, made by
Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
38
<PAGE>
4.4.15(p) Foamex Security Agreement, dated as of June 12, 1997, made by Foamex
L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.16(p) Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Latin America, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.17(p) Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.18(p) Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.19(p) Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.20(p) Subsidiary Security Agreement, dated as of June 12, 1997, made by
FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.21 Intentionally omitted.
4.4.22(w) First Amendment to Foamex Pledge Agreement, dated as of December 23,
1997, by Foamex L.P. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.23(w) First Amendment to Foamex Security Agreement, dated as of December
23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.24(w) First Amendment to Foamex Patent Agreement, dated as of December 23,
1997, by Foamex L.P. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.25(w) First Amendment to Trademark Security Agreement, dated as of
December 23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.26(w) Acknowledgment of Guaranty by each of the guarantors to a Guaranty
dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.27(w) First Amendment to Pledge Agreement, dated as of December 23, 1997,
by pledgors in favor of Citicorp USA, Inc.
4.4.28(w) Crain Industries Guaranty, dated as of December 23, 1997, made by
Crain in favor of Citicorp USA, Inc.
4.4.29(x) Partnership Pledge Agreement, dated as of February 27, 1998, made by
Foamex International and FMXI in favor of Citicorp USA, Inc., as
Collateral Agent.
4.5(u) Commitment letter, dated July 17, 1997, from The Bank of Nova Scotia
to Foamex Canada Inc.
4.6(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").
4.7(a) Marely Loan Commitment Agreement, dated as of December 14, 1993, by
and between Foamex L.P. and Marely s.a. ("Marely").
4.8(a) DLJ Loan Commitment Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and DLJ Funding, Inc. ("DLJ Funding").
4.9.1(p) Promissory Note, dated June 12, 1997, in the aggregate principal
amount of $5,000,000, executed by Trace Holdings to Foamex L.P.
4.9.2(p) Promissory Note, dated June 12, 1997, in the aggregate principal
amount of $4,794,828, executed by Trace Holdings to Foamex L.P.
4.10.1(x) Credit Agreement, dated as of February 27, 1998, by and among Foamex
Carpet, the institutions from time to time party thereto as lenders,
the institutions from time to time party thereto as issuing banks
and Citicorp USA, Inc. and The Bank of Nova Scotia, as
administrative agents.
4.10.2(x) Foamex International Guaranty, dated as of February 27, 1998, made
by Foamex International in favor of Citicorp USA, Inc., as
Collateral Agent.
4.10.3(x) Foamex International Pledge Agreement, dated as of February 27,
1998, made by Foamex International in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.10.4(x) New GFI Security Agreement, dated as of February 27, 1998, made by
Foamex Carpet in favor of Citicorp USA, Inc., as Collateral Agent.
4.10.5(x) New GFI Intercreditor Agreement, dated as of February 27, 1998, by
and among Foamex Carpet, The Bank of Nova Scotia, as Administrative
Agent, and Citicorp USA, Inc., as Administrative Agent and
Collateral Agent.
4.10.6(x) FII Intercreditor Agreement, dated as of February 27, 1998, by and
between Foamex International and Citicorp USA, Inc., as Collateral
Agent.
39
<PAGE>
4.11.1(x) Promissory Note of Foamex L.P. in favor of Trace Foam LLC in the
principal amount of $34 million, dated February 27, 1998.
4.12.1(x) Promissory Note of Foamex Carpet in favor of Trace Foam LLC in the
principal amount of $70.2 million, dated February 27, 1998.
10.1.1(p) Amendment to Master Agreement, dated as of June 5, 1997, between
Citibank, N.A. and Foamex L.P.
10.1.2(p) Amended Confirmation, dated as of June 13, 1997, between Citibank,
N.A. and Foamex L.P.
10.2(h) Reimbursement Agreement, dated as of March 23, 1993, between Trace
Holdings and General Felt.
10.3(h) Shareholder Agreement, dated December 31, 1992, among Recticel, s.a.
("Recticel"), Recticel Holding Noord B.V., Foamex L.P., Beamech
Group Limited, LME-Beamech, Inc., James Brian Blackwell, and Prefoam
AG relating to foam technology sharing arrangement.
10.4.1(k) Asset Transfer Agreement, dated as of October 2, 1990, between Trace
Holdings and Foamex L.P. (the "Trace Holdings Asset Transfer
Agreement").
10.4.2(k) First Amendment, dated as of December 19, 1991, to the Trace
Holdings Asset Transfer Agreement. 10.4.3(k) n Amended and Restated
Guaranty, dated as of December 19, 1991, made by Trace Foam in favor
of Foamex L.P.
10.5.1(k) Asset Transfer Agreement, dated as of October 2, 1990, between
Recticel Foam Corporation ("RFC") and Foamex L.P. (the "RFC Asset
Transfer Agreement").
10.5.2(k) First Amendment, dated as of December 19, 1991, to the RFC Asset
Transfer Agreement.
10.5.3(k) Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
Protocol").
10.5.4(h) The 5.03 Protocol Assumption Agreement, dated as of October 13,
1992, between RFC and Foamex L.P. 10.5.5(h) n Letter Agreement
between Trace Holdings and Recticel regarding the Recticel Guaranty,
dated as of July 22, 1992.
10.6(l) Supply Agreement, dated June 28, 1994, between Foamex L.P. and
Foamex International.
10.7.1(l) First Amended and Restated Tax Sharing Agreement, dated as of
December 14, 1993, among Foamex L.P., Trace Foam, FMXI and Foamex
International.
10.7.2(d) First Amendment to Amended and Restated Tax Sharing Agreement of
Foamex L.P., dated as of June 12, 1997, by and among Foamex L.P.,
Foamex International, FMXI and Trace Foam.
10.7.3(w) Second Amendment to Amended and Restated Tax Sharing Agreement of
Foamex L.P., dated as of December 23, 1997, by and among Foamex
L.P., Foamex International, FMXI, and Trace Foam.
10.7.4 Third Amendment to Amended and Restated Tax Sharing Agreement of
Foamex L.P., dated as of February 27, 1998, by and between Foamex
L.P., Foamex International and FMXI.
10.8.1(m) Tax Distribution Advance Agreement, dated as of December 11, 1996,
by and between Foamex L.P. and Foamex-JPS Automotive.
10.8.2(d) Amendment No. 1 to Tax Distribution Advance Agreement, dated as of
June 12, 1997, by and between Foamex L.P. and Foamex International.
10.9.1(h) Trace Foam Management Agreement between Foamex L.P. and Trace Foam,
dated as of October 13, 1992.
10.9.2(l) Affirmation Agreement re: Management Agreement, dated as of December
14, 1993, between Foamex L.P. and Trace Foam.
10.9.3(d) First Amendment to Management Agreement, dated as of June 12, 1997,
by and between Foamex L.P. and Trace Foam.
10.10.1(k) Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.10.2(k) Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k) Equity Growth Participation Program.
10.10.4(o) The Foamex L.P. Salaried Pension Plan (formerly the General Felt
Industries, Inc. Retirement Plan for Salaried Employees), effective
as of January 1, 1995.
10.10.5(u) The Foamex L.P. Hourly Pension Plan (formerly "The Foamex Products
Inc. Hourly Employee Retirement Plan), as amended December 31, 1995.
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<PAGE>
10.10.6(u) Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.7(a) Foamex L.P.'s 1993 Stock Option Plan.
10.10.8(a) Foamex L.P.'s Non-Employee Director Compensation Plan.
10.11.1(o) Employment Agreement, dated as of February 1, 1994, by and between
Foamex L.P. and William H. Bundy.
10.12.1(a) Warrant Exchange Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and Marely.
10.12.2(a) Warrant Exchange Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and DLJ Funding.
10.13(t) Warrant Agreement, dated as of June 28, 1994, by and between Foamex
International and Shawmut Bank.
10.14(o) Stock Purchase Agreement, dated as of December 23, 1993, by and
between Transformacion de Espumas u Fieltros, S.A., the stockholders
which are parties thereto, and Foamex L.P.
10.15.1(r) Asset Purchase Agreement, dated as of August 29, 1997, by and among
General Felt, Foamex L.P., Bretlin, Inc. and The Dixie Group.
10.15.2(s) Addendum to Asset Purchase Agreement, dated as of October 1, 1997,
by and among General Felt, Foamex L.P., Bretlin, Inc. and The Dixie
Group.
10.16.1(x) Supply Agreement, dated as of February 27, 1998, by and between
Foamex L.P. and General Felt (as assigned to Foamex Carpet).
10.16.2(x) Administrative Services Agreement, dated as of February 27, 1998, by
and between Foamex L.P. and General Felt (as assigned to Foamex
Carpet).
10.17 Tax Sharing Agreement, dated as of February 27, 1998, between Foamex
International and Foamex Carpet.
23.1 Consent of Independent Accountants, Coopers & Lybrand, L.L.P.
27 Financial Data Schedule for the year ended December 28, 1997.
27.1 Restated Financial Data Schedule for the quarter ended September 28,
1997.
27.2 Restated Financial Data Schedule for the quarter ended June 29,
1997.
27.3 Restated Financial Data Schedule for the quarter ended March 30,
1997.
27.4 Restated Financial Data Schedule for the year ended December 29,
1996.
27.5 Restated Financial Data Schedule for the quarter ended September 29,
1996.
27.6 Restated Financial Data Schedule for the quarter ended June 30,
1996.
27.7 Restated Financial Data Schedule for the quarter ended March 31,
1996.
- ----------------------------
(a) Incorporated herein by reference to the Exhibit to Foamex L.P.'s
Registration Statement on Form S-1, Registration No. 33-69606.
(b) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
for the fiscal year ended January 1, 1995.
(c) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex reporting an event that occurred May 28, 1997.
(d) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex reporting an event that occurred June 12, 1997.
(e) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex and FCC on Form S-4, Registration No. 33-65158.
(f) Incorporated herein by reference to the Exhibit to the Form 10-Q of Foamex
for the quarterly period ended June 30, 1996.
(g) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex, FCC and General Felt on Form S-1, Registration Nos.
33-60888, 33-60888-01, and 33-60888-02.
41
<PAGE>
(h) Incorporated herein by reference to the Exhibit to the Form 10-K Statement
of Foamex and FCC for fiscal 1992.
(i) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
L.P. for fiscal 1994.
(j) Incorporated herein by reference to the Exhibit to the Form 10-Q of Foamex
for the quarterly period ended September 30, 1996.
(k) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex and FCC on Form S-1, Registration Nos. 33-49976 and
33-49976-01.
(l) Incorporated herein by reference to the Exhibit to the Registration
Statement of FJPS, FJCC and Foamex L.P. on Form S-4, Registration No.
33-82028.
(m) Incorporated herein by reference to the Exhibit to the Annual Report on
Form 10-K of Foamex for the fiscal year ended December 29, 1996.
(n) Incorporated herein by reference to the Exhibit to the Form 10-Q of Foamex
for the quarterly period ended July 2, 1995.
(o) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
L.P. for fiscal 1993.
(p) Incorporated herein by reference to the Exhibit in the Registration
Statement of Foamex on Form S-4, Registration No. 333-30291.
(q) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
L.P. for the fiscal year ended December 31, 1995.
(r) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex L.P. reporting an event that occurred on August 29, 1997.
(s) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex L.P. reporting an event that occurred on October 6, 1997.
(t) Incorporated by reference to the Exhibit to the Form 10-Q of Foamex
International for the quarterly period ended July 3, 1994.
(u) Incorporated by reference to the Exhibit to the Form 10-Q of Foamex L.P.
for the quarterly period ended September 28, 1997.
(v) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P., Foamex Capital Corporation and Foamex
International reporting an event that occurred December 23, 1997.
(w) Incorporated herein by reference to the Exhibit in the Registration
Statement of Foamex on Form S-4, Registration No. 333-45733.
(x) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex International reporting an event that occurred on February 27, 1998.
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.
42
<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 24th day of
April, 1998.
FOAMEX INTERNATIONAL INC.
By: /s/ Andrea Farace
Andrea Farace
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/ Andrea Farace Chairman of the Board, April 24, 1998
Andrea Farace Chief Executive Officer
and Director
/s/ Robert J. Hay Chairman Emeritus April 24, 1998
Robert J. Hay and Director
/s/ Marshall S. Cogan Vice Chairman April 24, 1998
Marshall S. Cogan of the Board
/s/ Kenneth R. Fuette Executive Vice President April 24, 1998
Kenneth R. Fuette (Chief Financial Officer and
Chief Administrative Officer)
/s/ Etienne Davignon Director April 24, 1998
Etienne Davignon
43
<PAGE>
/s/ John H. Gutfreund Director April 24, 1998
John H. Gutfreund
/s/ Stuart J. Hershon Director April 24, 1998
Stuart J. Hershon
/s/ John V. Tunney Director April 24, 1998
John V. Tunney
44
<PAGE>
FOAMEX INTERNATIONAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Foamex International Inc.
Index to Consolidated Financial Statements F-1
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 28, 1997
and December 29, 1996 F-3
Consolidated Statements of Operations for the years
ended 1997, 1996, and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended 1997, 1996, and 1995 F-6
Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended 1997, 1996, and 1995 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 accompanying consolidated balance sheets of Foamex
International Inc. and subsidiaries (the "Company") as of December 28, 1997 and
December 29, 1996, and the related consolidated statements of operations, cash
flows and stockholders' equity (deficit) for each of the three years in the
period ended December 28, 1997. Our audits also included the financial statement
schedules as of and for each of the three years in the period ended December 28,
1997. 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 28, 1997 and December 29, 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 28, 1997 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 consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998, except as to
the information presented in
Note 1 and Note 17, for which
the date is March 23, 1998.
F-2
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
December 28, December 29,
ASSETS 1997 1996
(thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 12,044 $ 22,203
Restricted cash - 12,143
Accounts receivable, net of allowance for
doubtful accounts of $8,082 and $6,328 175,684 126,573
Inventories 120,299 101,220
Deferred income taxes 22,853 21,765
Due from related parties 1,755 1,866
Other current assets 38,293 21,334
--------- ---------
Total current assets 370,928 307,104
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 9,054 9,674
Buildings and leasehold improvements 79,876 78,082
Machinery, equipment and furnishings 234,229 199,993
Construction in progress 23,331 20,784
--------- ---------
Total 346,490 308,533
Less accumulated depreciation and
amortization (113,055) (113,160)
-------- --------
Property, plant and equipment, net 233,435 195,373
COST IN EXCESS OF ASSETS ACQUIRED, NET 218,219 82,471
DEBT ISSUANCE COSTS, NET 18,889 18,628
DEFERRED INCOME TAXES 26,960 -
OTHER ASSETS 25,192 16,270
--------- ---------
TOTAL ASSETS $893,623 $619,846
======== ========
</TABLE>
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>
<S> <C> <C>
December 28, December 29,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1997 1996
(thousands except share data)
CURRENT LIABILITIES:
Short-term borrowings $ 6,598 $ 3,692
Current portion of long-term debt 12,931 14,505
Accounts payable 131,689 84,930
Accrued employee compensation 10,827 7,302
Accrued interest 10,716 9,012
Accrued restructuring and plant consolidation 15,644 6,300
Other accrued liabilities 44,042 44,782
---------- --------
Total current liabilities 232,447 170,523
LONG-TERM DEBT 735,724 483,344
DEFERRED INCOME TAXES 2,529 6,290
ACCRUED RESTRUCTURING AND
PLANT CONSOLIDATION 11,252 4,043
OTHER LIABILITIES 25,090 13,749
---------- --------
Total liabilities 1,007,042 677,949
--------- --------
COMMITMENTS AND CONTINGENCIES - -
-------------- ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $1.00 per share:
Authorized 5,000,000 shares - none issued - -
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares
Issued 26,908,680 and 26,753,262 shares, respectively;
Outstanding 24,919,680 and 25,198,862 shares, respectively 269 267
Additional paid-in capital 86,025 84,579
Retained earnings (accumulated deficit) (164,118) (120,174)
Other (16,393) (9,312)
---------- ---------
(94,217) (44,640)
Common Stock held in treasury, at cost:
1,989,000 shares and 1,554,400, respectively (19,202) (13,463)
--------- ---------
Total stockholders' equity (deficit) (113,419) (58,103)
-------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $893,623 $619,846
======== ========
</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 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
(thousands except per share amounts)
<S> <C> <C> <C>
NET SALES $931,095 $926,351 $862,834
COST OF GOODS SOLD 787,756 773,119 762,085
-------- -------- --------
GROSS PROFIT 143,339 153,232 100,749
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 67,139 58,329 69,913
RESTRUCTURING AND OTHER CHARGES (CREDITS) 21,100 (6,541) 41,417
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 55,100 101,444 (10,581)
INTEREST AND DEBT ISSUANCE EXPENSE 50,570 53,900 52,878
OTHER INCOME, NET 2,126 1,617 461
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES 6,656 49,161 (62,998)
PROVISION (BENEFIT) FOR INCOME TAXES 2,525 16,669 (12,248)
--------- --------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 4,131 32,492 (50,750)
--------- --------- --------
DISCONTINUED OPERATIONS:
LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (1,994) (584) (2,370)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
INCLUDING PROVISION FOR OPERATING LOSSES
DURING THE PHASE-OUT PERIOD, NET OF
INCOME TAXES - (113,896) -
------------ --------- -----------
LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (1,994) (114,480) (2,370)
--------- --------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 2,137 (81,988) (53,120)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAXES (44,482) (1,147) -
--------- ---------- ------------
NET INCOME (LOSS) $(42,345) $ (83,135) $ (53,120)
======== ========= =========
BASIC EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.16 $ 1.28 $ (1.92)
======== ========== =========
NET EARNINGS (LOSS) PER SHARE $ (1.68) $ (3.28) $ (2.01)
======== ========== =========
DILUTED EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.16 $ 1.26 $ (1.92)
======== ========== =========
NET EARNINGS (LOSS) PER SHARE $ (1.65) $ (3.23) $ (2.01)
======== ========== =========
</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 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
OPERATING ACTIVITIES:
(thousands)
<S> <C> <C> <C>
Net income (loss) $ (42,345) $ (83,135) $ (53,120)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 22,047 22,353 23,302
Amortization of debt issuance costs and debt discount 7,783 13,903 12,192
Net loss on disposal of discontinued operations 1,994 110,137 -
Net loss (income) from discontinued operations - 4,343 2,370
Asset writedowns and other charges (credits) 12,041 (7,364) 16,677
Provision for uncollectible accounts 2,295 704 4,627
Deferred income taxes (1,179) 14,903 (10,667)
Other, net (5,195) (3,642) (72)
Changes in operating assets and liabilities,
net of acquisitions and discontinued operations:
Accounts receivable (4,037) (13,723) (1,604)
Inventories 12,882 (11,688) 14,146
Accounts payable 12,733 4,306 (2,726)
Accrued restructuring and plant consolidation charges 5,701 (7,405) 17,284
Other assets and liabilities (24,342) (2,438) 3,048
--------- ---------- ---------
Net cash provided by continuing operations 378 41,254 25,457
Net cash provided by discontinued operations - 16,491 4,133
------------ --------- ---------
Net cash provided by operating activities 378 57,745 29,590
---------- --------- --------
INVESTING ACTIVITIES:
Capital expenditures (33,537) (23,344) (22,348)
Acquisitions, net of cash acquired (119,065) (841) (8,113)
Proceeds from sale (settlement) of discontinued operations (13,556) 59,452 -
Proceeds from sale of assets 40,169 - -
Purchase of note from related party (5,000) - -
Decrease (increase) in restricted cash 12,143 (12,143) -
Discontinued operations investing activities - (5,490) (19,411)
Other investing activities (1,888) (1,276) 2,495
--------- ---------- ---------
Net cash provided by (used for) investing activities (120,734) 16,358 (47,377)
-------- --------- --------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings 2,894 1,493 (1,685)
Net proceeds from (repayments of) revolving loans 54,928 - (3,000)
Proceeds from long-term debt 594,499 1,500 -
Repayments of long-term debt (517,549) (38,887) (9,356)
Debt issuance costs (18,410) - (184)
Purchase of treasury stock (5,739) (6,296) (7,167)
Discontinued operations financing activities - (12,406) 1,674
Other financing activities (426) (626) -
---------- ---------- -----------
Net cash provided by (used for) financing activities 110,197 (55,222) (19,718)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents (10,159) 18,881 (37,505)
Cash and cash equivalents at beginning of period 22,203 3,322 40,827
--------- --------- --------
Cash and cash equivalents at end of period $ 12,044 $ 22,203 $ 3,322
======== ======== ========
</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 1997, 1996, and 1995
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-in (Accumulated Treasury
Shares Amount Capital Deficit) Other Stock
(thousands)
<S> <C> <C> <C> <C> <C> <C>
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)
Issuance of common stock 10 - 161
Stock option compensation 282
Stock options exercised 145 2 1,003
Additional pension liability (786)
Foreign currency translation adjustment (873)
Purchase of treasury stock (5,739)
Net loss (42,345)
Increase in note receivable from
principal stockholder (5,422)
Distribution to principal stockholder (1,599)
------ --- ------ -------- ------ -------
Balances at December 28, 1997 26,908 $269 $86,025 $(164,118) $(16,393) $(19,202)
====== ==== ======= ========= ======== ========
</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 manufacturer and
distributor of flexible polyurethane foam and advanced polymer foam products in
North America. During 1997, 1996 and 1995, the Company's products were utilized
primarily in five end markets (i) carpet cushion and other carpet products, (ii)
cushioning foams, including bedding products, (iii) automotive applications,
including trim and accessories, (iv) furniture products for furniture
manufacturers and distributors, and (v) specialty and technical applications
including, those for filtration, gasketing and sealing.
On December 23, 1997, the Company acquired Crain Industries, Inc.
("Crain") pursuant to a merger agreement with Crain Holdings Corp. for a
purchase price of approximately $213.7 million, including the assumption of debt
with a face value of approximately $98.6 million (and an estimated fair value of
approximately $112.3 million) (the "Crain Acquisition"). In addition, fees and
expenses associated with the Crain Acquisition are approximately $13.2 million.
The Crain Acquisition provides a fully integrated manufacturer, fabricator and
distributor of a broad range of flexible polyurethane foam and foam products
which are sold to a diverse customer base, principally in the furniture, bedding
and carpet cushion markets. In connection with the Crain Acquisition, the
Company approved a restructuring/consolidation plan for the two entities. The
Company recorded restructuring charges of $21.1 million relating to the
restructuring of the Company's operations in connection with the Crain
Acquisition and the related transactions. In addition, the Company recorded
approximately $1.5 million of severance and related costs and $8.5 million for
costs associated with the shut down and consolidation of certain acquired
facilities.
On March 16, 1998, the Company announced that its Board of Directors
received an unsolicited buyout proposal from Trace International Holdings, Inc.
("Trace Holdings"), the Company's principal stockholder. Trace Holdings proposed
to acquire all of the outstanding common stock of the Company not currently
owned by Trace Holdings and its subsidiaries for a cash price of $17.00 per
share. Also, Trace Holdings informed the Board of Directors that financing for
the buyout transaction would be arranged through Donaldson, Lufkin & Jenrette
Securities Corporation and The Bank of Nova Scotia/Scotia Capital Markets. As of
March 16, 1998, Trace Holdings and its subsidiaries beneficially owned
approximately 11,475,000 shares or approximately 46% of the outstanding common
stock of the Company. In response to Trace Holding's offer, the Company's Board
of Directors has appointed a special committee to determine the advisability and
fairness of the proposed buyout to the Company's stockholders other than Trace
Holdings and its subsidiaries. Trace's proposed buyout is subject to a number of
conditions, including the negotiations of definitive documents (which are
expected to contain customary closing conditions); the filing of a disclosure
statement and other documents with the Securities and Exchange Commission;
regulatory filings; and approval of the transaction by a majority of the
Company's stockholders.
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. Intercompany accounts and transactions
for continuing operations have been eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to the thirty-first
day of December. Fiscal years 1997, 1996 and 1995 were composed of fifty-two
weeks and ended on December 28, 1997, December 29, 1996 and December 31, 1995,
respectively.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 8, 11, 16, 17 and 18 and Cost in Excess of Net
Assets Acquired below.)
Revenue Recognition
Revenue from sales is recognized when products are shipped at which time
title passes to the customer.
Discounts and Billing Adjustments
A reduction in sales revenue is recognized for sales discounts when
product is invoiced or for other billing adjustments.
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 28, 1997 and December 29, 1996, cash and cash equivalents included $2.7
million and $19.6 million, respectively, of repurchase agreements collateralized
by U.S. Government securities.
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 Industries, Inc. (See Note 9) and was restricted by Foamex
L.P.'s debt agreements. During 1997, the Company used the restricted cash to
repurchase approximately $11.8 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 1997, 1996 and
1995 was $18.8 million, $19.1 million and $19.1 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.
F-9
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 effective interest method. Accumulated amortization as of December 28,
1997 and December 29, 1996 was approximately $1.4 million and $8.8 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 28, 1997 and December 29, 1996 was
approximately $12.0 million and $11.6 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or 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 asset and 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.
F-10
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (Loss) Per Share
Earnings (loss) per share amounts for 1996 and 1995 have been restated to
give effect to the application of Statement of Financing Accounting Standards
("SFAS") No. 128, "Earnings Per Share"). SFAS No. 128 requires a dual
presentation of basic and diluted earnings per share for all periods presented.
(See Note 19.)
Reclassifications
Certain amounts in the 1996 and 1995 consolidated financial statements
have been reclassified to conform with the current year's presentation.
New Accounting Standards
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board in June 1997. This statement requires all items that must be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The Company will adopt SFAS No. 130 for 1998.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Restated Information," was
issued by the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected financial
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
adopt SFAS No. 131 for year ended 1998 reporting. Management is evaluating the
impact, if any, the standard will have on the Company's present segment
reporting.
3. ACQUISITIONS
On December 23, 1997, the Company acquired Crain pursuant to a merger
agreement with Crain Holdings Corp. for a purchase price of approximately $213.7
million, including the assumption of debt with a face value of approximately
$98.6 million (with an estimated fair value of approximately $112.3 million. In
addition, fees and expenses associated with the Crain Acquisition are
approximately $13.2 million. The Crain Acquisition provides a fully integrated
manufacturer, fabricator and distributor of a broad range of flexible
polyurethane foam and foam products which are sold to a diverse customer base,
principally in the furniture, bedding and carpet cushion markets. The
acquisition was funded by $118.0 million in bank borrowings by Foamex L.P. under
the Credit Facility. The excess of the purchase price over the estimated fair
value of the net assets acquired was approximately $152.5 million. In connection
with the Crain Acquisition, the Company approved a plan to close certain
facilities. As of the acquisition date, the Company established accruals of
approximately $1.5 million of severance and related costs and $8.5 million for
costs associated with the shut down and consolidation of certain acquired
facilities.
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.
During 1994, the Company acquired Transformaci\n De Espumas Y FiJltros
S.A. de C.V. ("TEFSA") for an aggregate purchase price of approximately $4.5
million to be paid over a three-year period with an initial cash payment of $1.7
million. During 1997, 1996 and 1995, the Company made scheduled cash payments of
F-11
<PAGE>
3.ACQUISITIONS (continued)
approximately $0.9 million, $0.8 million and $0.8 million, respectively, in
accordance with the purchase agreement.
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. However, Crain's
operations for the period from December 24, 1997 to December 28, 1997 have not
been included in the consolidated statements of operations or cash flows since
the affect would be insignificant. The cost of each acquisition has been
allocated on the basis of the fair value of the assets acquired and the
liabilities assumed. The excess of the purchase price over the estimated fair
value of the net assets acquired is being amortized using the straight-line
method over forty years. The allocation of the purchase price for the Crain
Acquisition is based upon preliminary estimates and assumptions and is subject
to revision once appraisals, valuations and other studies of the fair value of
the acquired assets and liabilities have been completed. The pro forma results
listed below are unaudited and assume that the Crain Acquisition occurred at the
beginning of each year presented.
<TABLE>
<CAPTION>
1997 1996
(thousands, except per share data)
<S> <C> <C>
Net sales $1,256.7 $1,271.3
Income (loss) from continuing operations (2.4) 27.8
Pro forma basic earnings (loss) per share (0.10) 1.09
Pro forma diluted earnings (loss) per share (0.10) 1.08
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred if the Crain Acquisition had been in effect for the entire periods
presented nor are they necessarily indicative of future consolidated results.
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 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>
4. RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
During December 1997, the Company approved a restructuring plan (the
"1997 restructuring plan") to consolidate nine foam production, fabrication or
branch locations in connection with the Crain Acquisition. (See Note 3.) The
Company recorded restructuring and other charges of $21.1 million which was
comprised of $23.0 million associated with the consolidation of the foam
production, fabrication or branch locations offset by $1.9 million of
restructuring credits due primarily to the favorable termination of certain
lease agreements and other matters associated with the 1996 and 1995
restructuring plans. The components of the $23.0 million restructuring charge
include: $12.1 million for fixed assets writedowns (net of estimated sale
proceeds), $9.8 million for plant closure and operating lease obligations and
$1.1 million for personnel reductions.
In addition, the Company approved a consolidation plan to integrate the
acquired Crain facilities into the Company's existing facilities. The Company
recorded approximately $1.5 million of severance and related costs and $8.5
million for costs associated with the shut down of certain acquired facilities.
As discussed above, the 1996 and 1995 restructuring plans have been
generally implemented as originally contemplated. The following table sets forth
the components of the Company's restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge $41.4 $16.7 $15.1 $ 3.8 $ 5.8
Asset write-off/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 -
Cash spending (2.3) - (1.4) (0.9) -
1997 restructuring charge 23.0 12.1 9.8 1.1 -
Restructuring credits (1.9) 0.1 (2.3) 0.3 -
Asset write-off/writedowns (16.1) (16.1) - - -
Plant consolidation costs 10.0 - 8.5 1.5 -
------ ------ ------ ----- ------
Balance at December 28, 1997 $21.2 $(5.7) $23.5 $ 3.4 $ -
===== ===== ===== ===== ======
</TABLE>
As indicated in the table above, the accrued restructuring and plant
consolidation balance at December 28, 1997, will be used for payments relating
to plant closure and leases including rundown costs at the facilities. The $5.7
million of asset writedowns relates to estimated proceeds and is included in
noncurrent assets. The Company expects to incur approximately $15.6 million of
charges during 1998 with the remaining $11.3 million to be incurred through
2001. As of December 28, 1997, the Company has terminated all 270 employees
associated with the 1996 and 1995 restructuring plans and notified approximately
640 employees in the manufacturing and administrative areas of their impending
termination in connection with the 1997 restructuring and plant consolidation
plans.
F-13
<PAGE>
5.INVENTORIES
Inventories consists of:
December 28, December 29,
1997 1996
(thousands)
Raw materials and supplies $ 75,487 $ 60,169
Work-in process 15,620 13,453
Finished goods 29,192 27,598
-------- --------
Total $120,299 $101,220
======== ========
6.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 (6.0% at December 28, 1997) plus 1/2%. The weighted average
interest rates on Foamex Canada's short-term borrowings outstanding for 1997,
1996 and 1995 were 5.4%, 5.9% and 8.0%, 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 $20.0 million as of December 28, 1997. The unused amount under
this line of credit totaled $2.0 million as of December 28, 1997.
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS
Long-term debt consists of:
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
<S> <C> <C>
Credit Facility: (thousands)
Term Loan A (1) $ 76,700 $ --
Term Loan B (1) 109,725 --
Term Loan C (1) 99,750 --
Term Loan D (1) 110,000 --
Revolving credit facility (2) 54,928 --
9.875% Senior subordinated notes due 2007 (3) 150,000 --
13.5% Senior subordinated notes due 2005 (includes
$13,720 of unamortized debt premium) (3) 111,720 --
9 1/2% Senior secured notes due 2000 (4) 4,523 106,793
11 1/4% Senior notes due 2002 (4) -- 141,400
11 7/8% Senior subordinated debentures due 2004 (net of
unamortized debt discount of $769) (4) -- 125,056
Senior secured discount debentures due 2004, Series B
(net of unamortized debt discount of $35,864) -- 80,881
11 7/8% Senior subordinated debentures due 2004, Series B (5) -- 7,000
Industrial revenue bonds (6) 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 28, 1997) (6) -- 11,000
Subordinated note payable (net of unamortized
debt discount of $1,198 and $1,475 (5) 6,129 5,817
Other 18,180 12,902
-------- --------
748,655 497,849
Less current portion 12,931 14,505
-------- --------
Long-term debt-unrelated parties $735,724 $483,344
======== ========
</TABLE>
F-14
<PAGE>
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
(1) Subsidiary debt of Foamex L.P., guaranteed by the Company, General Felt and
Foamex Fibers.
(2) Subsidiary debt of Foamex L.P. and General Felt, guaranteed by the Company
and Foamex Fibers.
(3) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation, guaranteed
by General Felt and Foamex Fibers.
(4) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation ("FCC"),
guaranteed by the Company and General Felt.
(5) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation and
guaranteed by General Felt.
(6) Subsidiary debt of Foamex L.P.
(7) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation and
guaranteed by the Company.
Refinancing Plan
On June 12, 1997, the Company substantially completed a refinancing plan
(the "Refinancing Plan") that included the refinancing of certain long-term
indebtedness to reduce the Company's interest expense and improve financing
flexibility. In connection with the Refinancing Plan, Foamex L.P. purchased
approximately $342.3 million of aggregate principal amount of its public debt
and approximately $116.7 million of aggregate principal amount of Foamex-JPS
Automotive L.P.'s ("FJPS") senior secured discount debentures due 2004 (the
"Discount Debentures") and repaid $5.2 million of term loan borrowings under an
existing credit facility. The Company incurred an extraordinary loss on the
early extinguishment of debt associated with the Refinancing Plan of
approximately $42.0 million (net of income taxes). The Refinancing Plan was
funded by $347.0 million of borrowings under a new $480.0 million credit
facility (the "Credit Facility") and the net proceeds from the issuance of
$150.0 million of 9 7/8% senior subordinated notes due 2007.
In addition, on October 1, 1997, the Company redeemed all of the
outstanding: (i) 11 1/4% senior notes due 2002, (ii) 11 7/8% senior subordinated
debentures due 2004 and (iii) the 11 7/8% senior subordinated debentures due
2004, Series B, constituting approximately $26.0 million of the approximately
$30.0 million of outstanding public debt that was not tendered as part of the
Refinancing Plan. The redemption was funded from borrowings under the Credit
Facility. In connection with this redemption, the Company incurred an
extraordinary loss on the early extinguishment of debt of approximately $1.6
million (net of income taxes).
Credit Facility
On June 12, 1997, Foamex L.P. entered into the Credit Facility with a
group of banks that provides for up to $440.0 million term loans which expire
from June 2003 to June 2006 and borrowings of up to $150.0 million under a
revolving line of credit which expires in June 2003. The term loans are
comprised of a (i) term A loan ("Term A") which provides up to $120.0 million of
borrowings, (ii) term B loan ("Term B") of $110.0 million, (iii) term C loan
("Term C") of $100.0 million and (iv) term D loan ("Term D") of $110.0 million.
Borrowings under the Credit Facility are collateralized by substantially
all of the assets of Foamex L.P., General Felt and Foamex Fibers on a pari passu
basis with the 9 1/2% senior secured notes due 2000 and the industrial revenue
bonds (collectively, the "Notes"); however, the rights of the holders of the
applicable issue of the Notes to receive payment upon the disposition of the
collateral securing such issue of Notes has been preserved.
Pursuant to the terms of the Credit Facility, borrowed funds will bear
interest at a floating rate equal to an applicable margin, as defined, plus the
higher of (i) the base rate of The Bank of Nova Scotia, in effect from time to
time, or (ii) a rate that is equal to 0.5% per annum plus the federal funds rate
in effect from time to time. The applicable margin is determined based on the
total net debt to EBDAIT ratio, as defined, and can range from no margin up to
1.125% per annum for Term A and revolving loans, from 0.875% per annum to 1.375%
per annum for Term B, from 1.125% per annum to 1.625% per annum for Term C and
from 1.250% per annum to 1.750% per annum for Term D. At the option of Foamex
L.P., portions of the outstanding loans under the Credit Facility are
convertible into LIBOR based loans which bear interest at a floating rate equal
to an applicable margin for
F-15
<PAGE>
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
LIBOR based loans, as defined, plus the average LIBOR, as defined. The
applicable margin for LIBOR based loans is a rate that will generally equal the
applicable margin (discussed above) plus 1.0% per annum.
Foamex L.P. had a credit agreement (the "Foamex L.P. Credit Facility")
with a group of banks that provided 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 was available under
a revolving line of credit which expired 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. During 1997 and 1996, Foamex L.P. and General Felt used $3.8 million
and $12.0 million, respectively, of the net proceeds from the Perfect Fit sale
to repay term loan borrowings. The Foamex L.P. Credit Facility was repaid and
terminated in connection with the Refinancing Plan.
9 7/8% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes")
The Senior Subordinated Notes were issued by Foamex L.P. and FCC in
connection with the Refinancing Plan. The Senior Subordinated Notes bear
interest at the rate of 9 7/8% per annum payable semiannually on each June 15
and December 15, commencing December 15, 1997. The Senior Subordinated Notes
mature on June 15, 2007. The Senior Subordinated Notes may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after June 15,
2002, initially at 104.938% of their principal amount, plus accrued interest and
liquidated damages, as defined, if any, thereon to the date of redemption and
declining to 100.0% on or after June 15, 2005. In addition, at any time prior to
June 15, 2000, Foamex L.P. may on one or more occasions redeem up to 35.0% of
the initially outstanding principal amount of the Senior Subordinated Notes at a
redemption price equal to 109.875% of the principal amount, plus accrued
interest and liquidated damages, if any, thereon to the date of redemption with
the cash proceeds of one or more Public Equity Offerings, as defined. Upon the
occurrence of a change of control, as defined, each holder of Senior
Subordinated Notes will have the right to require Foamex L.P. to repurchase the
Senior Subordinated Notes at a price equal to 101.0% of the principal amount,
plus accrued interest and liquidated damages, if any, to the date of repurchase.
The Senior Subordinated Notes are subordinated in right of payment to all senior
indebtedness and are pari passu in right of payment to the subordinated note.
13 1/2% Senior Subordinated Notes due 2005 ("13 1/2% Senior Subordinated Notes")
The 13 1/2% Senior Subordinated Notes were issued in a private placement
under the Securities Act of 1933, as amended, on December 23, 1997 in connection
with the Crain Acquisition. The 13 1/2% Senior Subordinated Notes represent
unsecured general obligations of Foamex L.P. and are subordinated to all Senior
Debt (as defined in the Indenture).
The 13 1/2% Senior Subordinated Notes mature on August 15, 2005. Interest
on the 13 1/2% Senior Subordinated Notes is payable semiannually on each
February 15 and August 15. The 13 1/2% Senior Subordinated Notes bear interest
at the rate of 13 1/2% per annum. The 13 1/2% Senior Subordinated Notes may not
be redeemed prior to August 15, 2000, except in the event of a Change of Control
(as defined) or Foamex L.P. may, subject to certain requirements (as defined),
on or prior to August 15, 1998 redeem up to 33 1/3% of the aggregate original
principal amount with proceeds from an Equity Offering (as defined).
Foamex L.P. has filed a registration statement relating to an exchange
offer in which Foamex L.P. will offer to exchange the 13 1/2% Senior
Subordinated Notes issued in the private placement for new notes. The terms of
the new notes will be substantially identical in all respects (including
principal amount, interest rate, maturity and ranking) to the terms of the 13
1/2% Senior Subordinated Notes, except that the new notes will be transferable
by holders thereof without further registration under the Securities Act of
1933, as amended (except in the case of 13 1/2% Senior Subordinated Notes held
by affiliates of Foamex L.P. and FCC and for certain other holders), and are not
subject to any covenant regarding registration under the Securities Act of 1933,
as amended.
F-16
<PAGE>
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
9 1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 with interest at the
rate of 9 1/2% payable semiannually on each June 1 and December 1. The Senior
Secured Notes had a maturity date of June 1, 2000. The Senior Secured Notes were
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 were defeased in February 1998.
11 1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes had an interest rate of 11 1/4% payable semiannually on
each April 1 and October 1. The Senior Notes had a maturity date of October 1,
2002.
11 7/8% Senior Subordinated Debentures due 2004 ("Subordinated Debentures")
The Subordinated Debentures had an interest rate of 11 7/8% payable
semiannually on each April 1 and October 1. The Subordinated Debentures had a
maturity date of October 1, 2004.
Senior Secured Discount Debentures due 2004 ("Discount Debentures")
The 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 original issue discount of $59.7 million was being
amortized using the weighted average to maturity method over the life of the
issue. The Discount Debentures were repaid in full in connection with the
Refinancing Plan.
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
had terms substantially similar to the Subordinated Debentures.
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 $11.4 million at
December 28, 1997 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 4.15% and 3.85% at
December 28, 1997 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.
Subordinated Note Payable
This note payable was issued to John Rallis ("Rallis"), the former 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.
F-17
<PAGE>
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
Other
As of December 28, 1997, other debt is comprised primarily of capital
lease obligations, equipment financing associated with an aircraft and
borrowings by Foamex Mexico.
Early Extinguishment of Debt - Refinancing Plan
In connection with the Refinancing Plan, the Company incurred an
extraordinary loss on the early extinguishment of debt of approximately $42.0
million (net of income tax benefits of $25.7 million). The extraordinary loss is
comprised of approximately $39.0 million for premium and consent fee payments,
approximately $16.2 million for the write-off of debt issuance costs and debt
discount, approximately $8.2 million for the loss associated with the effective
termination and amendment of the interest rate swap agreements and approximately
$4.3 million of professional fees and other costs. In connection with the
Refinancing Plan, the Company repaid $5.2 million in term loan borrowings under
the Foamex L.P. Credit Facility and purchased approximately $459.0 million of
aggregate principal amount of public debt comprised of:
* $99.8 million of aggregate principal amount of its 9 1/2% senior secured
notes due 2000 for an aggregate consideration of 104.193% of principal plus
accrued interest, comprised of a tender price of 102.193% and a consent fee
of 2.0%;
* $130.1 million of aggregate principal amount of its 11 1/4% senior notes
due 2002 for an aggregate consideration of 105.709% of principal plus
accrued interest, comprised of a tender price of 103.709% and a consent fee
of 2.0%;
* $105.5 million of aggregate principal amount of its 11 7/8% senior
subordinated debentures due 2004 for an aggregate consideration of 107.586%
of principal plus accrued interest, comprised of a tender price of 105.586%
and a consent fee of 2.0%;
* $6.9 million of aggregate principal amount of its 11 7/8% senior
subordinated debentures, series B, due 2004 for an aggregate consideration
of 107.586% of principal plus accrued interest, comprised of a tender price
of 105.586% and a consent fee of 2.0%; and
* $116.7 million of aggregate principal amount of the Discount Debentures for
an aggregate consideration of 90.0% of principal amount, which represents
approximately 116.2% of the accreted book value as of June 12, 1997,
comprised of a tender price of 88.0% of principal amount and a consent fee
of 2.0%.
Early Extinguishment of Debt - Other
In addition, during 1997 the Company incurred extraordinary losses of
approximately $0.6 million (net of income tax benefits of $0.4 million)
associated with the early extinguishment of approximately $11.8 million of
long-term debt funded with approximately $12.1 million of the remaining net
proceeds from the sale of Perfect Fit. The extraordinary loss is comprised of
approximately $0.4 million of premium payments and approximately $0.6 million
for the write-off of debt issuance costs. The long-term debt was comprised of:
* $2.5 million of aggregate principal amount of its 9 1/2% senior secured
notes due 2000.
* $5.5 million of aggregate principal amount of its 11 1/4% senior notes due
2002.
* Bank term loan borrowings of $3.8 million under Foamex L.P.'s old credit
facility.
F-18
<PAGE>
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
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).
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.
In connection with the Refinancing Plan, the Company's existing interest
rate swap agreements with a notional amount of $300.0 million were considered to
be effectively terminated since the underlying debt was extinguished. These
interest rate swap agreements had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreements, the Company entered into an amendment of the existing interest rate
swap agreements resulting in one interest rate swap agreement with a notional
amount of $150.0 million through June 2007. Accordingly, the $8.2 million fair
value liability has been recorded as a deferred credit which will be amortized
as a reduction in interest and debt issuance expense on a straight-line basis
through June 2007. On January 8, 1998, Foamex L.P. entered into a new amendment
to its interest rate swap agreement. The new amendment provides for an interest
rate swap agreement with a notional amount of $150.0 million through June 2002.
Under the new amendment, Foamex L.P. is obligated to make fixed payments of
5.78% per annum through December 1998 and variable payments based on LIBOR at
the beginning of each six month period for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 6.44% per annum for the life
of the agreement, payable semiannually in arrears. The newly amended interest
rate swap agreement can be terminated by the swap partner at the end of each six
month period commencing December 1999.
The Company is exposed to credit loss in the event of a nonperformance by
the swap partner; however, the occurrence of this event is not anticipated. The
effect of the interest rate swaps was a favorable adjustment to interest and
debt issuance expense of $2.2 million, $3.7 million and $1.4 million for 1997,
1996 and 1995, respectively.
Debt Restrictions and Covenants
The indentures, credit facility and other indebtedness agreements contain
certain covenants that will limit, among other things, the ability of Foamex
L.P. (i) to pay distributions or redeem partnership interests, (ii) to make
certain restrictive payments or investments, (iii) to incur additional
indebtedness or issue Preferred Equity Interest, as defined, (iv) to merge,
consolidate or sell all or substantially all of its assets or (v) to enter into
certain transactions with affiliates or related persons. 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, the Company was available
to be paid by its subsidiaries as of December 28, 1997, funds only to the extent
to enable the Company to meet its operating and debt obligations.
As of December 28, 1997, the Company was in compliance with the covenants
of the indentures, credit facility and other indebtedness agreements and expects
to be in compliance with these covenants for the foreseeable future.
F-10
<PAGE>
7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)
Future Obligations on Long-Term Debt
Scheduled maturities of long-term debt are shown below (thousands):
Year End Long-Term Debt
-------- --------------
1998 $ 12,931
1999 18,672
2000 26,938
2001 19,941
2002 24,018
Thereafter 633,321
Total 735,821
Unamortized debt premium, net 12,834
Total $748,655
8. 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:
1997 1996 1995
(thousands)
Service cost $ 2,229 $ 2,471 $ 2,087
Interest cost 4,273 3,997 3,742
Actual return on plan assets (6,308) (8,841) (5,682)
Net amortization and deferral 703 4,643 1,807
------- ------- -------
Total $ 897 $ 2,270 $ 1,954
======= ======= =======
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 1997, the discount rate was adjusted to 7.0%.
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 28, 1997 and December 29, 1996:
F-20
<PAGE>
8. EMPLOYEE BENEFIT PLANS (continued)
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
(thousands)
Actuarial present value of accumulated benefit obligations:
<S> <C> <C>
Vested benefits $ 61,188 $ 55,336
Nonvested benefits 3,112 2,137
-------- --------
Accumulated benefit obligations $ 64,300 $ 57,473
======== ========
Total projected benefit obligations $ 65,948 $ 58,775
Fair value of plan assets 58,952 53,734
-------- --------
Projected benefit obligations in excess
of plan assets (6,996) (5,041)
Unrecognized net loss from past experience
difference from that assumed and effect
of changes in assumptions 4,704 1,099
Additional minimum liability (3,982) (2,694)
-------- --------
Accrued pension cost $ (6,274) $ (6,636)
======== ========
</TABLE>
Significant assumptions used in determining the plans' funded status are
as follows:
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
<S> <C> <C>
Expected long-term rates of return on plan assets 10.00% 9.50%
Discount rates on projected benefit obligations 7.00% 7.50%
Rates of increase in compensation levels (where applicable) 4.00% 4.00%
</TABLE>
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. The Company provides
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. The expense for these contributions for 1997,
1996 and 1995 was approximately $0.9 million, $0.8 million and $0.7 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.
F-21
<PAGE>
8. EMPLOYEE BENEFIT PLANS (continued)
The components of 1997, 1996 and 1995 expense for postretirement benefits
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Service costs for benefits earned $ 9 $ 12 $ 24
Interest cost on liability 71 67 83
Net amortization and deferral (56) (53) (13)
Special termination/curtailment loss 74 576 619
---- ---- ----
Net periodic postretirement benefit cost $ 98 $602 $713
==== ==== ====
</TABLE>
The accumulated postretirement benefit obligation at December 28, 1997
and December 29, 1996 resulted in an unfunded obligation of $2.0 million and
$2.1 million, respectively.
An 8% and 9% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1997 and 1996, 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 7.00% and
7.50% as of December 28, 1997 and December 29, 1996, respectively.
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 28, 1997 and December 29, 1996,
the Company's liability for postemployment benefits was insignificant for each
period.
9. DISCONTINUED OPERATIONS
On December 11, 1996, the Company sold its partnership interests in JPS
Automotive for a sale price of approximately $220.1 million including the
assumption of $200.1 million of JPS Automotive's indebtedness. 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.
During 1996, the Company 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. In December 1997, the Company recorded a loss from
discontinued operations of approximately $2.0 million (net of income taxes)
which relates to the final post-closing settlement regarding the December 1996
sale of JPS Automotive.
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 totaled approximately $1.5 million. The Company has
recorded a loss on the sale of Perfect Fit of approximately $43.0 million, which
includes the loss on disposal and a loss of $2.4 million relating to operating
losses during the phase-out period.
F-22
<PAGE>
9. DISCONTINUED OPERATIONS (continued)
The Company's financial statements were 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.
10. SALE OF ASSETS
On October 6, 1997, the Company sold substantially all of the net assets
of its needlepunch carpeting, tufted carpeting and artificial grass products
business located at its facilities in Dalton, Georgia to Bretlin, Inc. for an
aggregate sale price of approximately $41.0 million. The Company realized an
insignificant gain on the sale in 1997. The Company used $38.8 million of the
net sale proceeds to repay outstanding term loan borrowings under the Credit
Facility. In connection with this repayment, the Company incurred an
extraordinary loss on the early extinguishment of debt of approximately $0.6
million (net of income tax benefits) during 1997.
11. INCOME TAXES
Income (loss) from continuing operations before provision for income
taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
(thousands)
<S> <C> <C> <C>
United States $ 7,572 $46,075 $(62,015)
Foreign (916) 3,086 (983)
-------- -------- ----------
Income (loss) from continuing operations
before provision (benefit) for income taxes $ 6,656 $49,161 $(62,998)
======= ======= ========
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
1997 1996 1995
(thousands)
Continuing operations $ 2,525 $16,669 $(12,248)
Discontinued operations (1,330) (35,129) 1,691
Extraordinary loss on early extinguishment
of debt (27,400) (765) -
-------- --------- -----------
Total consolidated provision (benefit) for
income taxes $(26,205) $(19,225) $(10,557)
======== ======== ========
The total consolidated provision (benefit) for income taxes is summarized
as follows:
1997 1996 1995
(thousands)
Current:
Federal $ 1,958 $ 220 $ (2,038)
State 1,248 760 -
Foreign 498 786 457
--------- --------- ---------
Total current 3,704 1,766 (1,581)
-------- -------- --------
</TABLE>
F-23
<PAGE>
11. INCOME TAXES (continued)
<TABLE>
<CAPTION>
1997 1996 1995
(thousands)
Deferred:
<S> <C> <C> <C>
Federal (27,013) (24,211) (9,543)
State (2,662) 2,729 856
Foreign (234) 491 (289)
--------- ---------- ---------
Total deferred (29,909) (20,991) (8,976)
-------- -------- ---------
Total consolidated provision (benefit)
for income taxes $(26,205) $(19,225) $(10,557)
======== ======== ========
</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,
1997 1996
(thousands)
<S> <C> <C>
Deferred tax assets:
Inventory basis differences $ 1,252 $ 1,209
Employee benefit accruals 5,405 6,247
Allowances and contingent liabilities 3,600 3,616
Restructuring and plant closing accruals 14,436 8,323
Other 4,827 6,301
Net operating loss carryforwards 49,795 37,483
Capital loss carryforwards 11,202 16,561
Valuation allowance for deferred tax assets (13,407) (23,064)
-------- --------
Deferred tax assets 77,110 56,676
-------- --------
Deferred tax liabilities:
Basis difference in property, plant and equipment 27,544 36,257
Other 2,282 4,944
-------- --------
Deferred tax liabilities 29,826 41,201
-------- --------
Net deferred tax assets (liabilities) $ 47,284 $ 15,475
======== ========
</TABLE>
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. During
1997, the valuation allowance for deferred tax assets decreased by $9.7 million
which included $5.0 million for the utilization of capital loss carryforwards
associated with the sale of a facility (see Note 10), $1.9 million decrease due
to reversal of preacquisition temporary differences, $2.8 million was applied to
deferred tax assets that will not be utilized. The $1.9 million reversal of
preacquisition temporary differences was used to reduce cost in excess of assets
acquired. At December 28, 1997, the Company has $130.9 million of regular tax
net operating loss carryforwards for federal income tax purposes expiring from
2003 to 2011. In addition, the Company has $28.9 million of capital loss
carryforwards that expire in 2001.
The Company has recorded net deferred tax assets of $48.2 million.
Realization is dependent on generating sufficient taxable income to utilize the
deferred tax assets primarily representing loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax assets will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
F-24
<PAGE>
11. INCOME TAXES (continued)
A reconciliation of the statutory federal income tax rate to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Statutory income taxes $ 2,330 $17,206 $(22,049)
State income taxes, net of federal 260 1,864 (2,095)
Limitation on the utilization of tax benefits - - 7,695
Valuation allowance - (3,621) -
Cost in excess of assets acquired 553 644 1,010
Write-off excess cost 4,305 - -
Utilization of capital loss carryforwards (5,028) - -
Other 105 576 3,191
-------- --------- ---------
Total $ 2,525 $16,669 $(12,248)
======= ======= ========
</TABLE>
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 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 Company's various
restructuring/consolidation plans) required under operating leases at December
28, 1997 are:
Operating
Leases
(thousands)
1998 $11,098
1999 9,970
2000 8,338
2001 6,483
2002 6,524
Thereafter 17,322
-------
Total $59,735
=======
Rental expense charged to operations under operating leases approximated
$10.1 million, $9.6 million and $10.5 million for 1997, 1996 and 1995,
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 and $3.5 million for 1996 and 1995,
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 1, 1997, Trace Holdings borrowed $5.0 million pursuant to a
promissory note with an aggregate principal amount of $5.0 million issued to
Foamex L.P. on June 12, 1997. The promissory note is due and payable on demand
or, if no demand is made, on July 7, 2001, and bears interest at 2 3/8% plus
three-month LIBOR, as defined, per annum payable quarterly in arrears commencing
October 1, 1997. On June 12, 1997, a promissory note issued to Foamex L.P. by
Trace Holdings in July 1996 was amended. The amended promissory note is an
extension of a promissory note of Trace Holdings that was due in July 1997. The
aggregate principal
F-25
<PAGE>
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
amount of the amended promissory note was increased to approximately $4.8
million and the maturity of the promissory note was extended. The promissory
note is due and payable on demand or, if no demand is made, on July 7, 2001, and
bears interest at 2 3/8% plus three-month LIBOR, as defined, per annum payable
quarterly in arrears. The promissory note is included in the other components of
stockholders' equity (deficit).
In connection with the Refinancing Plan, Foamex L.P. made a cash
distribution of approximately $1.5 million to Trace Foam as a result of Foamex
L.P.'s distribution to FJPS and FMXI, Inc. of the Discount Debentures, a note
with a principal amount of approximately $56.2 million (net of approximately
$20.6 million of original issue discount) due from FJPS and a promissory note in
the aggregate principal amount of $2.0 million due from the Company. The
distribution to Trace Foam reduced retained earnings (accumulated deficit) of
the Company.
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,
Foamex L.P. paid Trace Aviation $1.6 million 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, Trace Holdings paid to Foamex L.P. $0.6 million 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.
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. During
June 1997, the management services agreement was amended to increase the annual
fee from $1.75 million to $3.0 million, plus 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 1997 and 1995, the Company purchased approximately $1.9 million
and $2.5 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 various agreements, the latest of which expired in March 1998.
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 28, 1997, the stock options issued under the 1993 Stock Option Plan
vest equally over a five year period with a term of ten years.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation") ("FAS No. 123"), which was effective
as of January 1, 1996, the fair value of option grants is estimated on the date
of grant using the Black-Scholes option pricing model for pro forma footnote
purposes with the following assumptions used for grants in all years; no
dividend yield, risk-free interest rates of 5.69% to 6.39% and expected option
life of three years. Expected volatility was assumed to be 40% in 1997 and 1996.
F-26
<PAGE>
14. STOCK OPTION PLAN (continued)
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
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 967,476 $ 6.97 951,343 $ 7.64 2,033,800 $17.28
Granted 625,833 11.52 202,240 7.06 150,000 9.95
Exercised (145,195) 6.88 (14,914) 6.88 - -
Forfeited (9,065) 6.88 (171,193) 10.80 (145,956) 14.59
Canceled - - - - (1,924,700) 17.15
Granted in exchange offer - - - - 838,199 6.88
------------ ------- ----------- -------- ---------- -------
Outstanding at end of year 1,439,049 $ 7.08 967,476 $ 6.97 951,343 $ 7.64
========= ====== ======== ====== ========== =======
Exercisable at end of year 467,460 $ 7.04 431,863 $ 6.94 20,140 $14.62
========= ====== ======== ====== ========== ======
</TABLE>
The options outstanding at December 28, 1997 have an exercise price range
of $6.875 to $14.00. During 1997, the Company granted 625,833 options with a
weighted average market price on the date of grant of $3.91. During 1996, the
Company granted 202,240 options with a weighted average market price on the date
of grant of $6.52. The 1996 aggregate difference of $1.1 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. 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
$0.4 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, $0.3 million and $0.1 million, respectively, in
each of 1997, 1996 and 1995, 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 28, 1997 was approximately 7.0 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 have the pro form amounts indicated below:
F-27
<PAGE>
14. STOCK OPTION PLAN (continued)
<TABLE>
<CAPTION>
1997 1996 1995
(thousands, except per share data)
Income from continuing operations:
<S> <C> <C> <C>
As reported $4,131 $32,492 $(50,750)
Pro forma 3,935 32,404 (50,891)
Basic earnings per share:
As reported 0.16 1.28 (1.92)
Pro forma 0.16 1.28 (1.92)
Diluted earnings per share:
As reported 0.16 1.26 (1.92)
Pro forma 0.15 1.26 (1.92)
</TABLE>
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 28, 1997, 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 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 1997, 1996 and 1995, the Company purchased 434,600, 624,700 and
929,700 shares of its common stock, respectively, for an aggregate cost of $5.7
million, $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.
F-28
<PAGE>
15. STOCKHOLDERS' EQUITY (DEFICIT)
Other
The other component of stockholders' equity (deficit) consists of the
following:
<TABLE>
<CAPTION>
December 28, December 29, December 31,
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment $ 4,367 $ 3,494 $ 3,448
Additional pension liability, net of income taxes 2,231 1,445 2,872
Note receivable from Trace Holdings 9,795 4,373 4,373
-------- ------- --------
$16,393 $ 9,312 $10,693
======= ======= =======
</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 1997, 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 28, 1997, the Company has environmental accruals of approximately
$4.3 million for environmental matters. In addition, as of December 28, 1997,
the Company has net receivables of approximately $1.1 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, propylene oxide and TDI, materials used in the
manufacturing of foam. On December 27, 1996, the United States Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that will require manufacturers of slab stock polyurethane foam and foam
fabrication plants to reduce emissions of methylene chloride. Because these
regulations are subject to change prior to finalization, the Company cannot
accurately predict the actual cost of their implementation. The Company does not
believe implementation of the regulations will require it to make material
expenditures at facilities owned prior to December 23, 1997, due to the
Company's use of alternative technologies which do not utilize methylene
chloride and its ability to shift current production to the facilities which use
these alternative technologies; however, material expenditures may be required
at the facilities formerly operated by Crain. The 1990 CAA Amendments also may
result in the imposition of additional standards regulating air emissions from
polyurethane foam manufacturers, but these standards have not yet been proposed
or promulgated.
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 28, 1997, the Company has
environmental accruals of approximately $3.7 million for the remaining potential
remediation costs for these facilities based on engineering estimates.
F-29
<PAGE>
16. ENVIRONMENTAL MATTERS (continued)
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 $0.1 million for the estimated removal and remediation, if
any, associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. 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
clean-up costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of the Company is considered to be immaterial.
On May 5, 1997, there was an accidental spill at one of the Company's
manufacturing facilities. The spill was contained on site and cleaned-up for an
approximate cost of $0.6 million. 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 March 4, 1998, 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. Three
of these cases seek to allege claims on behalf of all breast implant recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. In addition, three cases have been filed alleging claims on behalf
of approximately 700 residents of Australia, New Zealand, England, and Ireland.
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
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
F-30
<PAGE>
17. LITIGATION (continued)
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.
In November 1997, a complaint was filed in the United States District
Court for the Southern District of Texas alleging that various defendants,
including Crain through the use of the CARDIO process licensed from a third
party, infringed on a patent held by plaintiff. The Company is negotiating with
the licensor of the process for the assumption of the defense of the action by
the licensor; however, the action is in the preliminary stages, and there can be
no assurance as to the ultimate outcome of the action.
On or about March 17, 1998, five purported class action lawsuits were
filed in the Delaware Chancery Court, New Castle County, against the Company,
directors of the Company, Trace Holdings, and individual officers and directors
of Trace Holdings:
Brickell Partners v. Marshall S. Cogan, et al., No. 16260NC;
Mimona Capital v. Salvatore J. Bonanno, et al., No. 16259NC;
Daniel Cohen v. Foamex International Inc., No. 16263;
Eileen Karisinki v. Foamex International Inc., et al., No. 16261NC and
John E. Funky Trust v. Salvatore J. Bonanno, et al., No. 16267.
A sixth purported class action lawsuit, Barnett Stepak v. Foamex
International Inc., et al., No. 16277, was filed on or about March 23, 1998
against the same defendants. The complaints in the six actions allege, among
other things, that the defendants have violated fiduciary and other common law
duties purportedly owed to the Company's stockholders in connection with Trace
Holdings proposal to acquire all of the shares of the Company's common stock.
The complaints seek, among other things, class certification, a declaration that
the defendants have breached their fiduciary duties to the class, preliminary
and permanent injunctions baring implementation of the proposed transaction,
rescission of the transaction if consummated, unspecified compensatory damages,
and costs and attorneys' fees.
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 an interest rate swap agreement involving the exchange of
fixed and floating interest payment obligations without the exchange of the
underlying principal amounts. At December 28, 1997, the total notional principal
amount of the interest rate swap agreement was $150.0 million. The counterparty
to the agreement is a large international financial institution. The interest
rate swap agreement subjects the Company to financial risk that will vary during
the life of the agreement in relation to market interest rates.
F-31
<PAGE>
18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)
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.
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 28, 1997 are as follows:
Carrying Amount Fair Value
(thousands)
Liabilities:
Long-term debt $ 748,655 $751,143
============== ========
Interest rate swaps $ -- $ 1,015
============== ========
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 swap is based on the amount at which the
Company would pay if the swap was settled, as determined by an estimate 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.
19. EARNINGS (LOSS) PER SHARE
The following table shows the amounts used in computing earnings per
share and the effect on income and the weighted average number of shares of
dilutive potential common stock.
F-32
<PAGE>
19. EARNINGS (LOSS) PER SHARE (continued)
<TABLE>
<CAPTION>
1997 1996 1995
(thousands, except per share amounts)
Basic earnings (loss) per share:
<S> <C> <C> <C>
Net income (loss) $(42,345) $(83,135) $(53,120)
======== ======== ========
Average common stock outstanding 25,189 25,389 26,472
======== ======== ========
Basic earnings (loss) per share $ (1.68) $ (3.28) $ (2.01)
======== ======== ========
Diluted earnings (loss) per share:
Net income (loss) available for common stock
and dilutive securities $(42,345) $(83,135) $(53,120)
======== ======== ========
Average common stock outstanding 25,189 25,389 26,472
Additional common shares resulting
from stock options 511 351 --
-------- -------- --------
Average common stock and dilutive
stock outstanding 25,700 25,740 26,472
======== ======== ========
Diluted earnings (loss) per share $ (1.65) $ (3.23) $ (2.01)
======== ======== ========
</TABLE>
Earnings (loss) per share attributable to continuing operations and
discontinued operations and extraordinary loss on early extinguishment of debt
are:
<TABLE>
<CAPTION>
1997 1996 1995
Earnings (loss) per common share - basic:
<S> <C> <C> <C>
Continuing operations $0.16 $1.28 $(1.92)
Discontinued operations (0.08) (4.51) (0.09)
Extraordinary loss (1.76) (0.05) -
----- ----- ------
Net loss $(1.68) $(3.28) $(2.01)
====== ====== ======
Earnings (loss) per common share - assuming dilution:
Continuing operations $0.16 $1.26 $(1.92)
Discontinued operations (0.08) (4.45) (0.09)
Extraordinary loss (1.73) (0.04) -
----- ----- ------
Net loss $(1.65) $(3.23) $(2.01)
====== ====== ======
</TABLE>
F-33
<PAGE>
20. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Cash paid for interest $46,323 $44,472 $47,333
======= ======= =======
Cash paid (received) for income taxes, net $ 3,579 $(2,855) $ 3,024
======= ======= ========
Noncash capital expenditures $ 167 $ 165 $ 378
======== ======== =========
</TABLE>
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(thousands except per share amounts)
1997
<S> <C> <C> <C> <C>
Net sales $229,120 $239,887 $233,434 $228,654
Gross profit 42,797 44,780 38,039 17,723
Income (loss) from continuing operations 8,136 9,470 6,515 (19,990)
Net income (loss) 7,726 (32,719) 6,515 (23,867)
Basic earnings (loss) per share from
continuing operations 0.32 0.37 0.26 (0.80)
Diluted earnings (loss) per share from
continuing operations 0.31 0.37 0.26 (0.80)
1996
Net sales $219,131 $240,447 $236,766 $230,007
Gross profit 36,031 38,167 39,960 39,074
Income from continuing operating 5,843 6,605 7,356 12,688
Net income (loss) 6,137 (31,707) (66,623) 9,058
Basic earning (loss) per share from
continuing operations 0.23 0.26 0.29 0.50
Diluted earnings (loss) per share from
continuing operations 0.23 0.26 0.29 0.49
</TABLE>
During 1997, the Company recorded an extraordinary loss on the early
extinguishment of debt of approximately $42.2 million relating to the
Refinancing Plan (see Note 7) which is reflected in the second quarter of 1997.
During the fourth quarter of 1997, the Company recorded a $21.1 million
restructuring charge which is described in Note 4 and recorded approximately
$20.0 million of special charges and changes in estimates relating to inventory
writedowns, customer deductions, start-up of operations and other items. These
charges decreased gross profit by $15.6 million and increased selling, general
and administrative expenses by $4.4 million.
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 9). 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 9). During the fourth quarter of 1996, the
Company recorded a $6.5 million net restructuring credit, which is described in
Note 4.
F-24
<PAGE>
22. SUBSEQUENT EVENT
On February 27, 1998, the Company and certain of its affiliates completed
a series of transactions designed to simplify the Company's structure and to
provide future operational flexibility. Prior to the consummation of these
transactions, the Company defeased the $4.5 million outstanding principal amount
of its 9 1/2% Senior Secured Notes due 2000. Foamex L.P. settled its
intercompany payables to General Felt with $4.8 million in cash and a $34.0
million principal amount promissory note supported by a $34.5 million letter of
credit under the Credit Facility (the "Foamex/GFI Note"). The initial
transaction resulted in the transfer from Foamex L.P. to Trace Foam LLC of all
of the outstanding common stock of General Felt, in exchange for (i) the
assumption by Trace Foam LLC of $129.0 million of Foamex L.P.'s indebtedness and
(ii) the transfer by Trace Foam LLC to Foamex L.P. of a 1% non-managing general
partnership interest in Foamex L.P. As a result, General Felt ceased being a
subsidiary of Foamex L.P. and was relieved from all obligations under Foamex
L.P.'s 9 7/8% Senior Subordinated Notes due 2007 and 13 1/2% Senior Subordinated
Notes due 2005. Upon consummation of the initial transaction, Foamex Carpet, a
newly formed wholly-owned subsidiary of the Company, the Company, Trace Foam
LLC, and General Felt entered into an Asset Purchase Agreement dated February
27, 1998, in which General Felt sold substantially all of its assets (other than
the Foamex/GFI Note and its operating facility in Pico Rivera, California) to
Foamex Carpet in exchange for (i) $20.0 million in cash and (ii) a promissory
note issued by Foamex Carpet to Trace Foam LLC in the amount of $70.2 million.
The $20.0 million cash payment was funded with a distribution by Foamex L.P.
Upon consummation of these transactions contemplated by the Asset Purchase
Agreement, Foamex Carpet entered into a Credit Agreement with the institutions
from time to time party thereto, as issuing banks, and Citicorp USA, Inc. and
The Bank of Nova Scotia, as administrative agents, which provides for up to
$20.0 million in revolving credit borrowings. These transactions were accounted
for in a manner similar to a pooling of interests since the entities were under
common control. Foamex Carpet will conduct the carpet cushion business
previously conducted by General Felt. Also, Trace Foam LLC has retained
ownership of one of General Felt's operating facilities which is being leased to
Foamex Carpet and the $34.0 million Foamex/GFI Note.
F-35
<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 28, December 29,
1997 1996
ASSETS
(thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,639 $ 1,232
Intercompany receivables 14,542 10,516
Deferred income taxes 42,935 15,045
Other current assets 181 1,053
----------- ----------
Total current assets 60,297 27,846
OTHER ASSETS 772 353
----------- ----------
TOTAL ASSETS $ 61,069 $ 28,199
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 10,542 $ 9,309
Other accrued liabilities 5,056 4,937
----------- ---------
Total current liabilities 15,598 14,246
LONG-TERM LIABILITIES:
Notes payable to consolidated subsidiaries I 2,500 8,000
Tax distribution advance payable 13,618 -
Deficit in consolidated subsidiaries 142,772 62,429
Deferred income taxes - 1,627
-------------- ---------
Total liabilities 174,488 86,302
---------- --------
COMMITMENTS AND CONTINGENCIES - -
-------------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $1.00 per share:
Authorized 5,000,000 shares - none issued - -
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares
Issued 26,908,680 and 26,753,262
shares, respectively
Outstanding 24,919,680 and 25,198,862
shares, respectively 269 267
Additional paid-in capital 86,025 84,579
Retained earnings (accumulated deficit) (164,118) (120,174)
Other (16,393) (9,312)
----------- ----------
(94,217) (44,640)
Common Stock held in Treasury, at cost:
1,989,000 shares and 1,554,400, respectively (19,202) (13,463)
----------- ----------
Total stockholders' equity (deficit) (113,419) (58,103)
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 61,069 $ 28,199
=========== ========
</TABLE>
(1) During 1997, FJGP, Inc.'s, a wholly-owned subsidiary of Foamex
International, distributed its assets and liabilities to Foamex
International. FJGP Inc.'s assets primarily consisted of its 1% partnership
interest in FJPS and a $6.0 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>
1997 1996 1995
(amounts in thousands except per share amounts)
<S> <C> <C> <C>
INTERCOMPANY SALES $123,355 $179,791 $197,066
COST OF GOODS SOLD 123,355 179,791 197,066
-------- -------- --------
GROSS PROFIT - - -
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 486 709 5,004
RESTRUCTURING AND OTHER CHARGES - (126) 2,168
------------ ---------- --------
INCOME (LOSS) FROM OPERATIONS (486) (583) (7,172)
EQUITY IN EARNINGS (LOSS) OF
CONSOLIDATED SUBSIDIARIES 4,954 42,097 (57,904)
INTEREST EXPENSE 153 196 13
INTEREST INCOME 204 78 679
---------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAX
AND EXTRAORDINARY LOSS 4,519 41,396 (64,410)
INCOME TAX PROVISION (BENEFIT) 388 8,904 (13,660)
---------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 4,131 32,492 (50,750)
EQUITY IN DISCONTINUED OPERATIONSI (1,994) (114,480) (2,370)
--------- -------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 2,137 (81,988) (53,120)
EQUITY IN EXTRAORDINARY LOSSI (44,482) (1,147) -
--------- --------- -----------
NET INCOME (LOSS) $(42,345) $(83,135) $(53,120)
======== ======== ========
BASIC EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.16 $ 1.28 $ (1.92)
========= ========== =========
EARNINGS (LOSS) PER SHARE $ (1.68) $ (3.28) $ (2.01)
========= ========== =========
DILUTED EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.16 $ 1.26 $ (1.92)
========= ========== =========
EARNINGS (LOSS) PER SHARE $ (1.65) $ (3.23) $ (2.01)
========= ========== =========
</TABLE>
(1) Equity in discontinued operation includes allocated income tax provisions
(benefits) of Foamex International of $(1.3) million, $(32.5) million and
$4.3 million for 1997, 1996 and 1995, respectively.
(2) Equity in extraordinary loss includes allocated income tax benefits of
$27.3 million and $0.8 million for 1997 and 1996, respectively.
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>
1997 1996 1995
OPERATING ACTIVITIES: (thousands)
<S> <C> <C> <C>
Net income (loss) $(42,345) $(83,135) $(53,120)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred income taxes (387) 8,904 (11,622)
Equity in discontinued operations 1,994 114,480 2,370
Equity in extraordinary loss 44,482 1,147 -
Equity in (earnings)/losses of consolidated subsidiaries (4,954) (42,097) 57,904
Other 61 357 35
Changes in operating assets and liabilities,
net of acquisitions:
Intercompany receivables (4,026) 2,702 4,049
Accounts payable 1,233 (3,844) (7,393)
Other assets and liabilities 764 4,346 (3,541)
--------- --------- ---------
Net cash provided by (used for) operating activities (3,178) 2,860 (11,318)
-------- --------- --------
INVESTING ACTIVITIES:
Investment in consolidated subsidiaries - - (4,025)
Proceeds from (settlement of) sale of discontinued
operations (13,556) 179 -
Other 6,757 1,707 2,379
-------- --------- --------
Net cash provided by (used for) investing activities (6,799) 1,886 (1,646)
-------- ---------- --------
FINANCING ACTIVITIES:
Note payable to consolidated subsidiary 2,500 - 2,000
Tax advance distribution 13,618 - -
Purchase of treasury stock (5,739) (6,296) (7,167)
Proceeds from exercise of stock options 1,005 102 -
--------- ----------- -----------
Net cash provided by (used for) financing activities 11,384 (6,194) (5,167)
-------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,407 (1,448) (18,131)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,232 2,680 20,811
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,639 $ 1,232 $ 2,680
======== ========= =========
</TABLE>
Note: During 1997, 1996 and 1995, the Company received distributions from its
consolidated subsidiaries of $8.8 million, $1.7 million and $2.4 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 at
Beginning of Costs and other End of
Period Expenses Accounts(1) Deductions Period
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 28, 1997
Allowance for Uncollectible Accounts $ 3,060 $ 2,295 $ 2,898 $ 1,409 $ 6,844
======== =========== ======== =========== ========
Reserve for Discounts $ 3,268 $ -- $ 10,182 $ 12,212 $ 1,238
======== =========== ======== =========== ========
Deferred Tax Asset Valuation Allowance $ 23,064 $ (5,028) $ (1,863)(3) $ 2,766 $ 13,407
======== =========== ======== =========== ========
YEAR ENDED DECEMBER 29, 1996
Allowance for Uncollectible Accounts $ 4,839 $ 704 $ 292 $ 2,775 $ 3,060
======== =========== ======== =========== ========
Reserve for Discounts $ 4,299 $ -- $ 12,190 $ 13,221 $ 3,268
======== =========== ======== =========== ========
Deferred Tax Asset 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
======== =========== ======== =========== ========
Deferred Tax Asset Valuation Allowance $ 13,172 $ 7,695 $ (3,888)(3) $ -- $ 16,979
======== =========== ======== =========== ========
</TABLE>
(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.
S-5
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
March 4, 1998, except as to the information presented in Note 1 and Note 17, for
which the date is March 23, 1998, on our audits of the consolidated financial
statements and financial statement schedules of Foamex International Inc. and
subsidiaries as of December 28, 1997 and December 29, 1996, and for the years
ended December 28, 1997, December 29, 1996 and December 31, 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 23, 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-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Dec-28-1997
<EXCHANGE-RATE> 1
<CASH> 12,044
<SECURITIES> 0
<RECEIVABLES> 175,684
<ALLOWANCES> 0
<INVENTORY> 120,299
<CURRENT-ASSETS> 370,928
<PP&E> 233,435
<DEPRECIATION> 0
<TOTAL-ASSETS> 898,623
<CURRENT-LIABILITIES> 232,447
<BONDS> 735,724
0
0
<COMMON> 269
<OTHER-SE> (94,486)
<TOTAL-LIABILITY-AND-EQUITY> 898,623
<SALES> 931,095
<TOTAL-REVENUES> 931,095
<CGS> 787,756
<TOTAL-COSTS> 787,756
<OTHER-EXPENSES> 67,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,570
<INCOME-PRETAX> 6,656
<INCOME-TAX> 2,525
<INCOME-CONTINUING> 4,131
<DISCONTINUED> (1,994)
<EXTRAORDINARY> (44,482)
<CHANGES> 0
<NET-INCOME> (42,345)
<EPS-PRIMARY> (1.68)
<EPS-DILUTED> (1.65)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000912908
<NAME> FOAMEX INTERNATIONAL INC
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Sep-28-1997
<EXCHANGE-RATE> 1
<CASH> 1,916
<SECURITIES> 0
<RECEIVABLES> 142,410
<ALLOWANCES> 0
<INVENTORY> 94,301
<CURRENT-ASSETS> 292,103
<PP&E> 207,676
<DEPRECIATION> 0
<TOTAL-ASSETS> 642,628
<CURRENT-LIABILITIES> 175,087
<BONDS> 528,872
0
0
<COMMON> 269
<OTHER-SE> (69,203)
<TOTAL-LIABILITY-AND-EQUITY> 642,628
<SALES> 233,434
<TOTAL-REVENUES> 233,434
<CGS> 195,395
<TOTAL-COSTS> 195,395
<OTHER-EXPENSES> 15,766
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,080
<INCOME-PRETAX> 10,517
<INCOME-TAX> 4,002
<INCOME-CONTINUING> 6,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,515
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000912908
<NAME> FOAMEX INTERNATIONAL INC
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Jun-29-1997
<EXCHANGE-RATE> 1
<CASH> 7,362
<SECURITIES> 0
<RECEIVABLES> 137,101
<ALLOWANCES> 0
<INVENTORY> 106,723
<CURRENT-ASSETS> 304,269
<PP&E> 203,105
<DEPRECIATION> 0
<TOTAL-ASSETS> 647,425
<CURRENT-LIABILITIES> 157,896
<BONDS> 547,348
0
0
<COMMON> 269
<OTHER-SE> (70,391)
<TOTAL-LIABILITY-AND-EQUITY> 647,425
<SALES> 239,887
<TOTAL-REVENUES> 239,887
<CGS> 195,107
<TOTAL-COSTS> 195,107
<OTHER-EXPENSES> 16,100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,474
<INCOME-PRETAX> 15,654
<INCOME-TAX> 6,184
<INCOME-CONTINUING> 9,470
<DISCONTINUED> 0
<EXTRAORDINARY> (42,189)
<CHANGES> 0
<NET-INCOME> (32,719)
<EPS-PRIMARY> (1.29)
<EPS-DILUTED> (1.26)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000912908
<NAME> FOAMEX INTERNATIONAL INC
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Mar-30-1997
<EXCHANGE-RATE> 1
<CASH> 34,001
<SECURITIES> 0
<RECEIVABLES> 131,108
<ALLOWANCES> 0
<INVENTORY> 102,344
<CURRENT-ASSETS> 323,997
<PP&E> 198,653
<DEPRECIATION> 0
<TOTAL-ASSETS> 638,577
<CURRENT-LIABILITIES> 181,018
<BONDS> 482,637
0
0
<COMMON> 269
<OTHER-SE> (49,854)
<TOTAL-LIABILITY-AND-EQUITY> 638,577
<SALES> 229,120
<TOTAL-REVENUES> 229,120
<CGS> 186,323
<TOTAL-COSTS> 186,323
<OTHER-EXPENSES> 15,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,968
<INCOME-PRETAX> 13,480
<INCOME-TAX> 5,344
<INCOME-CONTINUING> 8,136
<DISCONTINUED> 0
<EXTRAORDINARY> (410)
<CHANGES> 0
<NET-INCOME> 7,726
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.29
</TABLE>
<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> 101,220
<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
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