SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 0-22624
FOAMEX INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 05-0473908
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Columbia Avenue
Linwood, PA 19061
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (610) 859-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
The number of shares of the registrant's common stock outstanding as of November
16, 1998 was approximately 25,014,800.
Page 1 of 30
Exhibit List on Page 23 of 30
<PAGE>
FOAMEX INTERNATIONAL INC.
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - Quarterly and Year to Date Periods
Ended September 30, 1998 and September 28, 1997 3
Condensed Consolidated Balance Sheets as of September 30, 1998 and December 28, 1997 4
Condensed Consolidated Statements of Cash Flows - Year to Date Periods Ended
September 30, 1998 and September 28, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 16
Part II. Other Information 23
Exhibit List 23
Signatures 30
</TABLE>
Foamex International Inc. (the "Company") is filing this Form 10-Q/A to
reflect adjustments to accounts receivable, inventory and other assets and
liabilities during the fourth quarter of 1998 related to prior periods
including, but not limited to, the third quarter of 1998. The Company has
updated its Management's Discussion and Analysis of Financial Condition and
Results of Operations to reflect only such adjustments, but has not updated such
disclosure to reflect other developments since the original filing. Reference is
made to the Company's subsequent reports under the Securities Exchange Act of
1934, as amended, which have been filed with the Securities and Exchange
Commission.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
Quarterly Periods Ended Year to Date Periods Ended
September 30, September 28, September 30, September 28,
1998 1997 1998 1997
--------- --------- --------- ---------
(thousands except per share data)
<S> <C> <C> <C> <C>
NET SALES $ 332,510 $ 233,434 $ 943,279 $ 702,441
COST OF GOODS SOLD 281,191 195,395 787,424 576,825
--------- --------- --------- ---------
GROSS PROFIT 51,319 38,039 155,855 125,616
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 24,006 15,766 68,855 47,853
RESTRUCTURING AND OTHER CHARGES (CREDITS) -- -- (700) --
--------- --------- --------- ---------
INCOME FROM OPERATIONS 27,313 22,273 87,700 77,763
INTEREST AND DEBT ISSUANCE EXPENSE 18,402 12,080 53,210 39,522
OTHER INCOME (EXPENSE), NET (3,200) 324 (4,945) 1,410
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,711 10,517 29,545 39,651
PROVISION FOR INCOME TAXES 2,285 4,002 11,816 15,530
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY LOSS 3,426 6,515 17,729 24,121
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT,
NET OF INCOME TAXES -- -- (1,917) (42,599)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 3,426 $ 6,515 $ 15,812 $ (18,478)
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE:
INCOME BEFORE EXTRAORDINARY LOSS $ 0.14 $ 0.26 $ 0.71 $ 0.96
EXTRAORDINARY LOSS -- -- (0.08) (1.69)
--------- --------- --------- ---------
EARNINGS (LOSS) PER SHARE $ 0.14 $ 0.26 $ 0.63 $ (0.73)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES 25,015 24,959 24,989 25,189
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE:
INCOME BEFORE EXTRAORDINARY LOSS $ 0.13 $ 0.26 $ 0.67 $ 0.94
EXTRAORDINARY LOSS -- -- (0.07) (1.66)
--------- --------- --------- ---------
EARNINGS (LOSS) PER SHARE $ 0.13 $ 0.26 $ 0.60 $ (0.72)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES 26,118 25,435 26,146 25,645
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements.
3
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
September 30, December 28,
ASSETS 1998 1997
CURRENT ASSETS: (thousands, except number of shares)
<S> <C> <C>
Cash and cash equivalents $ 10,044 $ 12,044
Accounts receivable, net 198,814 175,684
Inventories 137,044 120,299
Other current assets 56,898 62,901
----------- -----------
Total current assets 402,800 370,928
PROPERTY, PLANT AND EQUIPMENT, NET 231,282 233,435
COST IN EXCESS OF ASSETS ACQUIRED, NET 214,076 218,219
DEBT ISSUANCE COSTS, NET 15,406 18,889
DEFERRED INCOME TAXES 34,168 26,960
OTHER ASSETS 23,811 25,192
----------- -----------
TOTAL ASSETS $ 921,543 $ 893,623
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings $ 6,058 $ 6,598
Current portion of long-term debt 5,117 12,931
Current portion of long-term debt - related party 7,020 --
Accounts payable 127,416 131,689
Accrued interest 9,723 10,716
Other accrued liabilities 48,198 70,513
----------- -----------
Total current liabilities 203,532 232,447
LONG-TERM DEBT 689,664 735,724
LONG-TERM DEBT - RELATED PARTY 93,670 --
OTHER LIABILITIES 34,212 38,871
----------- -----------
Total liabilities 1,021,078 1,007,042
----------- -----------
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 27,003,823 and 25,014,823 shares, respectively;
Outstanding 25,014,823 and 24,919,680 shares, respectively 270 269
Additional paid-in capital 86,769 86,025
Retained earnings (accumulated deficit) (150,079) (164,118)
Accumulated other comprehensive income (7,498) (6,598)
Other (9,795) (9,795)
----------- -----------
(80,333) (94,217)
Common Stock held in treasury, at cost:
1,989,000 shares at September 30, 1998 and December 28, 1997 (19,202) (19,202)
----------- -----------
Total stockholders' equity (deficit) (99,535) (113,419)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 921,543 $ 893,623
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements.
4
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Year to Date Periods Ended
September 30, September 28,
1998 1997
--------- ---------
(thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 15,812 $ (18,478)
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 25,624 16,409
Amortization of debt issuance costs, debt discount
and debt premium (16) 7,380
Extraordinary loss on early extinguishment of debt 1,579 37
Other operating activities 15,660 9,274
Changes in operating assets and liabilities, net (76,353) (26,808)
--------- ---------
Net cash used for operating activities (17,694) (12,186)
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (23,173) (25,865)
Acquisition, net of cash acquired (4,399) --
Decrease in restricted cash -- 12,143
Loan to shareholder -- (5,000)
Other investing activities 832 (2,930)
--------- ---------
Net cash used for investing activities (26,740) (21,652)
--------- ---------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 185 1,179
Net proceeds from revolving loans 81,489 31,000
Proceeds from long-term debt 129,000 453,500
Repayment of long-term debt (138,355) (450,270)
Debt issuance cost (1,598) (15,617)
Purchase of treasury stock -- (5,739)
Dividends paid (1,246) --
Transfer of General Felt (28,698) --
Other financing activities 1,657 (502)
--------- ---------
Net cash provided by financing activities 42,434 13,551
--------- ---------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (2,000) (20,287)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 12,044 22,203
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 10,044 $ 1,916
========= =========
</TABLE>
The accompanying notes are an integral part of
the condensed consolidated financial statements.
5
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Foamex International Inc. and subsidiaries (the "Company") condensed
consolidated balance sheet as of December 28, 1997 has been condensed from the
audited consolidated balance sheet at that date. The condensed consolidated
balance sheet as of September 30, 1998, the condensed consolidated statements of
operations for the quarterly and year to date periods ended September 30, 1998
and September 28, 1997 and the condensed consolidated statements of cash flows
for the year to date periods ended September 30, 1998 and September 27, 1997
have been prepared by the Company and have not been audited by the Company's
independent accountants. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation of the financial position, results of operations and cash flows
have been included.
During September 1998, management of the Company decided to change the
year-end reporting requirement of the Company from a fifty-two or fifty-three
week fiscal year ending on the Sunday closest to the end of the calendar year to
a calendar year ending December 31st to improve the internal reporting
requirement of the Company. On November 3, 1998, the Board of Directors and
other required third parties approved the fiscal year-end change. This change is
effective for the third fiscal quarter of 1998 which ended on September 30, 1998
and will result in a 1998 fiscal year end of December 31, 1998 as compared to
January 3, 1999; accordingly, the quarterly period ended September 30, 1998
includes an additional three days with estimated revenues of approximately $23.9
million.
Certain information and note disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These condensed
consolidated financial statements should be read in conjunction with the
Company's 1997 consolidated financial statements and notes thereto as set forth
in the Company's Annual Report on Form 10-K/A-3 for the fiscal year ended
December 28, 1997.
2. RESTATEMENT OF FINANCIAL INFORMATION
The Company identified certain adjustments to accounts receivable,
inventory and other assets and liabilities during the fourth quarter of 1998
that related to prior periods including, but not limited to, the third quarter
of 1998. As a result, the Company has restated the accompanying 1998 condensed
consolidated financial statements to reflect adjustments that related to the
third quarter of 1998, as follows:
<TABLE>
<CAPTION>
Quarterly Period Ended September 30, 1998
-----------------------------------------
As Previously
Reported Adjustments As Restated
------------- ----------- -----------
(thousands, except per share data)
Statement of Operations:
<S> <C> <C> <C>
Net Sales $ 332,710 $ (200) $ 332,510
Cost of Goods Sold 275,970 5,221 281,191
--------- --------- ---------
Gross Profit 56,740 (5,421) 51,319
Selling, General and Administrative 19,820 4,186 24,006
--------- --------- ---------
Income (Loss) from Operations 36,920 (9,607) 27,313
Interest and Debt Issuance Expense 18,652 (250) 18,402
Other Income (Expense), net (2,200) (1,000) (3,200)
--------- --------- ---------
Income (Loss) before Provision for Income Taxes 16,068 (10,357) 5,711
Provision for Income Taxes 6,428 (4,143) 2,285
--------- --------- ---------
Income (Loss) before Extraordinary Loss 9,640 (6,214) 3,426
Extraordinary Loss -- -- --
--------- --------- ---------
Net Income (Loss) $ 9,640 $ (6,214) $ 3,426
========= ========= =========
Basic earnings per share:
Income before extraordinary item $ 0.39 $ (0.25) $ 0.14
Extraordinary loss -- -- --
--------- --------- ---------
Earnings per share $ 0.39 $ (0.25) $ 0.14
========= ========= =========
</TABLE>
6
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. RESTATEMENT OF FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Quarterly Period Ended September 30, 1998
-----------------------------------------
As Previously
Reported Adjustments As Restated
-------------- ----------- ------------
(thousands, except per share data)
<S> <C> <C> <C>
Diluted earnings per share:
Income before extraordinary item $ 0.37 $ (0.24) $ 0.13
Extraordinary loss -- -- --
-------- -------- --------
Earnings per share $ 0.37 $ (0.24) $ 0.13
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year to Date Period Ended September 30, 1998
--------------------------------------------
As Previously
Reported Adjustments As Restated
------------- ----------- ------------
(thousands, except per share data)
<S> <C> <C> <C>
Statement of Operations:
Net Sales $ 944,979 $ (1,700) $ 943,279
Cost of Goods Sold 780,121 7,303 787,424
--------- --------- ---------
Gross Profit 164,858 (9,003) 155,855
Selling, General and Administrative 63,058 5,797 68,855
Restructuring and Other Charges (Credits) -- (700) (700)
--------- --------- ---------
Income (Loss) from Operations 101,800 (14,100) 87,700
Interest and Debt Issuance Expense 53,960 (750) 53,210
Other Income (Expense), net (3,945) (1,000) (4,945)
--------- --------- ---------
Income (Loss) before Provision for Income Taxes 43,895 (14,350) 29,545
Provision for Income Taxes 17,556 (5,740) 11,816
--------- --------- ---------
Income (Loss) before Extraordinary Loss 26,339 (8,610) 17,729
Extraordinary Loss (1,917) -- (1,917)
--------- --------- ---------
Net Income (Loss) $ 24,422 $ (8,610) $ 15,812
========= ========= =========
Basic earnings per share:
Income before extraordinary item $ 1.05 $ (0.34) $ 0.71
Extraordinary loss (0.07) (0.01) (0.08)
--------- --------- ---------
Earnings per share $ 0.98 $ (0.35) $ 0.63
========= ========= =========
Diluted earnings per share:
Income before extraordinary item $ 1.01 $ (0.34) $ 0.67
Extraordinary loss (0.07) -- (0.07)
--------- --------- ---------
Earnings per share $ 0.94 $ (0.34) $ 0.60
========= ========= =========
Cash Flows:
Net cash used for operating activities $ (16,147) $ (1,547) $ (17,694)
Net cash used for investing activities (28,287) 1,547 (26,740)
</TABLE>
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------------------
As Previously
Reported Adjustments As Restated
-------------- ----------- ------------
(thousands)
<S> <C> <C> <C>
Balance Sheet:
Current assets $ 411,720 $ (8,920) $ 402,800
Total assets 930,948 (9,405) 921,543
Current liabilities 204,327 (795) 203,532
Total liabilities 1,021,873 (795) 1,021,078
Stockholders' deficit (90,925) (8,610) (99,535)
</TABLE>
7
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. CRAIN ACQUISITION
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 (with an estimated fair value
of approximately $112.3 million) ("Crain Acquisition"). In addition, fees and
expenses associated with the Crain Acquisition were approximately $13.2 million.
Crain was a fully integrated manufacturer, fabricator and distributor of a broad
range of flexible polyurethane foam and foam products sold to a diverse customer
base, principally in the bedding, carpet cushion and furniture markets. The
acquisition was funded by $118.0 million in bank borrowings by Foamex L.P. under
a credit facility. The excess of the purchase price over the estimated fair
value of the net assets acquired was approximately $152.5 million.
The Crain Acquisition was accounted for as a purchase and the operations
of Crain are included in the consolidated statements of operations and cash
flows from the date of acquisition. The cost of the Crain Acquisition has been
allocated on the basis of the fair value of the assets acquired and the
liabilities assumed. The excess of the purchase price over the estimated fair
value of the net assets acquired is being amortized using the straight-line
method over forty years. The allocation of the purchase price for the Crain
Acquisition is based upon preliminary estimates and assumptions and is subject
to revision once appraisals, valuations and other studies of the fair value of
the acquired assets and liabilities have been completed. The pro forma results
listed below are unaudited and assume that the Crain Acquisition occurred at the
beginning of the 1997 fiscal year.
<TABLE>
<CAPTION>
Quarterly Period Ended Year to Date Period Ended
September 28, 1997 September 28, 1997
---------------------- -------------------------
(thousands, except per share data)
<S> <C> <C>
Net sales $ 320,847 $ 946,927
============ ===========
Income before extraordinary loss $ 6,430 $ 22,235
============ ===========
Pro forma basic earnings per share $ 0.26 $ 0.88
============ ===========
Pro forma diluted earnings per share $ 0.25 $ 0.87
============ ===========
</TABLE>
The pro forma results are not necessarily indicative of what would have
occurred if the Crain Acquisition had occurred at the beginning of the periods
presented nor are they necessarily indicative of future consolidated results.
4. INVENTORIES
Inventories consist of:
September 30, December 28,
1998 1997
-------- --------
(thousands)
Raw materials and supplies $ 85,425 $ 75,487
Work-in-process 19,212 15,620
Finished goods 32,407 29,192
-------- --------
Total $137,044 $120,299
======== ========
8
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
Long-term debt consists of:
<TABLE>
<CAPTION>
September 30, December 28,
1998 1997
-------- --------
Credit Facility: (thousands)
<S> <C> <C>
Term Loan A $ -- $ 76,700
Term Loan B 82,924 109,725
Term Loan C 75,385 99,750
Term Loan D 109,175 110,000
Revolving credit facility 136,953 54,928
9 7/8% Senior subordinated notes due 2007 150,000 150,000
13 1/2% Senior subordinated notes due 2005 (includes
$12,376 and $13,720 of unamortized debt premium) 110,376 111,720
9 1/2% Senior secured notes due 2000 -- 4,523
Industrial revenue bonds 7,000 7,000
Subordinated note payable (net of unamortized
debt discount of $621 and $1,198) 6,394 6,129
Other 16,574 18,180
-------- --------
694,781 748,655
Less current portion 5,117 12,931
-------- --------
Long-term debt-unrelated parties $689,664 $735,724
======== ========
Long-term debt - related party consists of:
Foamex/GFI Note $ 34,000 $ --
Note payable to Foam Funding LLC 66,690 --
-------- --------
100,690 --
Less current portion - related party 7,020 --
-------- --------
Long-term debt - related party $ 93,670 $ --
======== ========
</TABLE>
Refinancing Associated with the GFI Transaction
In connection with GFI Transaction (as defined in Note 9), Foamex L.P.
borrowed $129.0 million under a new term loan agreement which was subsequently
assumed by Foam Funding LLC and borrowed $32.0 million under its credit facility
("Credit Facility"). These funds were used to (i) repay approximately $125.1
million of existing term loans under the Credit Facility and accrued interest
thereon of approximately $0.9 million, (ii) deposit $4.8 million into an escrow
account in order to defease the 9 1/2% senior secured notes due 2000 which were
redeemed during June 1998, (iii) repay $4.8 million of indebtedness owed to
General Felt Industries, Inc. ("General Felt"), (iv) fund the $20.0 million to
acquire the net assets of General Felt in connection with the GFI Transaction
(see Note 9) and (v) pay fees and expenses of approximately $5.4 million. Also,
Foamex L.P. amended the Credit Facility to increase the availability under the
revolving credit facility from $150.0 million to $200.0 million; however, $34.5
million of this increase is used for a letter of credit to support the
Foamex/GFI Note. See Note 9 for further discussion of the GFI Transaction.
9
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
Foamex Carpet Revolving Credit
Upon consummation of the GFI Transaction (see Note 9), Foamex Carpet
Cushion, Inc. ("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.
Foamex/GFI Note
In connection with the GFI Transaction, Foamex L.P. entered into the
$34.0 million Foamex/GFI Note to settle an existing intercompany note payable to
General Felt (see Note 9). The Foamex/GFI Note matures in March 2000 with
interest payable at LIBOR plus an applicable margin. The principal amount is due
upon maturity in March 2000.
During the quarterly and year to date periods ended September 30, 1998,
the Company incurred interest expense of approximately $0.6 million and $1.4
million, respectively.
Note Payable to Foam Funding LLC
In connection with the asset purchase agreement for the GFI Transaction
(see Note 9), the Company entered into a $70.2 million promissory note with Foam
Funding LLC. The note bears interest at a base rate plus 2.0% or at LIBOR plus
3.0%. The note is payable upon demand commencing in March 2000, and if no demand
is made, matures in February 2004.
During the quarterly and year to date periods ended September 30, 1998,
the Company incurred interest expenses of approximately $1.5 million and $3.6
million, respectively.
Principal Payments
Principal payments on the Company's long-term debt and long-term debt -
related party for the remainder of 1998 and for the next five years are as
follows: 1998 - $3.4 million; 1999 - $17.6 million; 2000 - $52.2 million; 2001 -
$17.3 million; 2002 - $17.7 million; 2003 - $159.1 million; and thereafter -
$517.3 million.
6. EARLY EXTINGUISHMENT OF DEBT
In connection with the GFI Transaction (see Note 9), the Company incurred
an extraordinary loss on the early extinguishment of debt of approximately $1.9
million (net of income tax benefits of $1.2 million) for the year to date period
ended September 30, 1998. The extraordinary loss, before income tax benefit, is
comprised of approximately $2.9 million for the write-off of debt issuance costs
and approximately $0.2 million of professional fees and other costs.
During 1997, in connection with a refinancing plan, the Company incurred
an extraordinary loss on the early extinguishment of debt of approximately $42.0
million (net of income taxes 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 addition, during 1997 the
Company incurred extraordinary losses of approximately $0.6 million (net of
income taxes 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 its Perfect Fit
Industries, Inc. subsidiary. The extraordinary loss, before income tax benefit,
is comprised of approximately $0.4 million of premium payments and approximately
$0.6 million for the write-off of debt issuance costs.
10
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. 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 1998, 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 September 30, 1998, the Company has accruals of approximately $4.5 million
for environmental matters. In addition, as of September 30, 1998, the Company
has net receivables of approximately $1.1 million relating to indemnification
for environmental liabilities.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air pollutants
including methylene chloride, propylene oxide and TDI, materials used in the
manufacturing of foam. On December 27, 1996, the United States Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that will require manufacturers of slab stock polyurethane foam and foam
fabrication plants to reduce emissions of methylene chloride. Because these
regulations are subject to change prior to finalization, 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.
In addition to general regulatory requirements, state laws have resulted
or will result in more stringent regulations regarding the use and emission of
methylene chloride. Several former Crain facilities have been required to meet
greater restrictions regarding emission limits and/or quantities used of this
chemical.
On April 10, 1997, the Occupational Health and Safety Administration
promulgated new standards governing employee exposure to methylene chloride,
which is used as a blowing agent in some of the Company's manufacturing
processes. The Company does not believe that it will be required to make any
material expenditures to comply with these new standards due to its use of
alternative technologies which do not use methylene chloride and its ability to
shift production to facilities which use these technologies; however, material
expenditures may be required at the facilities formerly operated by Crain.
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 September 30, 1998, the Company has
accruals of approximately $3.9 million for the remaining potential remediation
costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. The Company has two USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. 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.
11
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. ENVIRONMENTAL MATTERS (continued)
The Company has been designated as a Potentially Responsible Party
("PRP") by the EPA with respect to nine sites with an estimated total liability
to the Company for the nine sites of less than approximately $0.5 million.
Estimates of total clean-up costs and fractional allocations of liability are
generally provided by the EPA or the committee of PRP's with respect to the
specified site. In each case, the participation of the Company is considered to
be immaterial.
Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all pending
environmental matters, including those described herein, management believes
that, based upon all currently available information, the resolution of such
environmental matters will not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position.
The possibility exists, however, that new environmental legislation and/or
environmental regulations may be adopted, or other environmental conditions may
be found to exist, that may require expenditures not currently anticipated and
that may be material.
8. LITIGATION
As of November 16, 1998, the Company and Trace International Holdings,
Inc. ("Trace Holdings") were two of multiple defendants in actions filed on
behalf of approximately 5,000 recipients of breast implants in various United
States federal and state courts and one Canadian provincial court. Some of these
actions allege substantial damages, but most of these actions 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 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. Foamex L.P. is
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990. Although Trace Holdings has paid the
Company's litigation expenses to date pursuant to such indemnification, there
can be no assurance that Trace Holdings will be able to provide such
indemnification in the future. While it is not feasible to predict or determine
the outcome of these actions, based on the Company'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. If the Company's assessment of 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(R) 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 (the "Court"), 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. A stipulation and order
12
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. LITIGATION (continued)
consolidating these six actions under the caption In re Foamex International
Inc. Shareholders Litigation Consolidated Action No 16259NC was entered by the
Court on May 28, 1998 (the "Shareholders Litigation"). The complaints in the six
actions allege, among other things, that the defendants have violated fiduciary
and other common law duties purportedly owed to the Company's stockholders in
connection with Trace Holdings' initial proposal to acquire all of the
outstanding shares of the Company's common stock (the "First Merger Agreement").
The complaints sought, among other things, class certification, a declaration
that the defendants have breached their fiduciary duties to the class,
preliminary and permanent injunctions barring implementation of the proposed
transaction, rescission of the transaction if consummated, unspecified
compensatory damages, and costs and attorneys' fees.
The parties to the Shareholders Litigation entered into a Memorandum of
Understanding, dated June 25, 1998 to settle the Shareholders Litigation,
subject to, inter alia, execution of a definitive Stipulation of Settlement and
approval by the Court following notice to the public stockholders and a hearing,
and on September 9, 1998, the parties entered into a definitive Stipulation of
Settlement. On November 10, 1998, counsel for certain of the defendants in the
Shareholders Litigation gave notice pursuant to the Stipulation of Settlement
that such defendants were withdrawing from the Stipulation of Settlement. On
November 12, 1998, the plaintiffs in the Shareholder Litigation filed an amended
class action complaint against the Company, Trace Holdings and certain
individual directors of the Company alleging that (i) they breached their
fiduciary and other common law duties purportedly owed to the Company's
stockholders in connection with Trace Holding's revised proposal to acquire all
of the outstanding shares of the Company's common stock (the "Second Merger
Agreement"), (ii) the individual defendants violated the Delaware Code in
approving the Second Merger Agreement, and (iii) Trace Holdings breached the
Stipulation of Settlement.
The Company is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. Management believes that
the disposition of these lawsuits will not individually or in the aggregate,
have a material adverse effect on the financial position or results of
operations of the Company. If the Company's assessment of liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on the Company's consolidated financial position.
9. GFI TRANSACTION
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 (collectively, the "GFI Transaction").
Prior to the consummation of these transactions, (i) Foamex L.P. and Foamex
L.P.'s wholly owned subsidiary, General Felt, entered into a supply agreement
and an administrative services agreement, (ii) Foamex L.P. repaid its
outstanding indebtedness to General Felt with $4.8 million in cash and the $34.0
million Foamex/GFI Note supported by a $34.5 million letter of credit under the
Credit Facility, (iii) Foamex L.P. contributed to General Felt $9.4 million of
outstanding net intercompany payables and intercompany loans with General Felt
and (iv) Foamex L.P. defeased the $4.5 million outstanding principal amount of
its 9 1/2% senior secured notes due 2000. The initial transaction resulted in
the transfer from Foamex L.P. to Foam Funding LLC of all of the outstanding
common stock of General Felt, in exchange for (i) the assumption by Foam Funding
LLC of $129.0 million of Foamex L.P.'s indebtedness and (ii) the transfer by
Foam Funding LLC to Foamex L.P. of a 1% non-managing general partnership
interest in Foamex L.P. As a result, General Felt ceased being a subsidiary of
Foamex L.P. and was relieved from all obligations under Foamex L.P.'s 9 7/8%
senior subordinated notes due 2007 and 13 1/2% senior subordinated notes due
2005. Upon consummation of the initial transaction, Foamex Carpet, a newly
formed wholly owned subsidiary of the Company, the Company, Foam Funding LLC,
and General Felt entered into an asset purchase agreement (the "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 Foam Funding LLC in
the amount of $70.2 million. The $20.0 million cash payment was funded with a
distribution by Foamex L.P. to the Company. Upon consummation of the transaction
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
13
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. GFI TRANSACTION (continued)
revolving credit borrowings. Foamex Carpet will conduct the carpet cushion
business previously conducted by General Felt.
No gain has been recognized on the GFI Transaction. The Company will
continue to account for these net assets using the carryover basis of Foamex
L.P. The proceeds from the $129.0 million of debt assumed by Foam Funding LLC in
the GFI Transaction was accounted for as an extinguishment of debt which
resulted in an extraordinary loss of approximately $2.0 million. The 1%
non-managing general partnership interest acquired in connection with the GFI
Transaction was accounted for as a redemption of equity. By virtue of the
transfer of General Felt stock and the subsequent merger of General Felt into
Foam Funding LLC, the Pico Rivera facility was transferred to Foam Funding LLC;
no gain was recognized on the transfer since the Company leased-back the
facility. Accordingly, the net effect resulted in a charge to stockholders'
equity (deficit) of approximately $0.5 million.
10. EARNINGS (LOSS) PER SHARE
The following table shows the amounts used in computing earnings (loss)
per share and the effect on income and the weighted average number of shares of
dilutive potential common stock.
<TABLE>
<CAPTION>
Quarterly Periods Ended Year to Date Periods Ended
----------------------- --------------------------
September 30, September 28, September 30, September 28,
1998 1997 1998 1997
------------- ------------- ------------- -------------
(thousands, except per share amounts)
<S> <C> <C> <C> <C>
Basic earnings (loss) per share:
Net income (loss) $ 3,426 $ 6,515 $ 15,812 $(18,478)
======== ======== ======== ========
Average common stock outstanding 25,015 24,959 24,989 25,189
======== ======== ======== ========
Basic earnings (loss) per share $ 0.14 $ 0.26 $ 0.63 $ (0.73)
======== ======== ======== ========
Diluted earnings (loss) per share:
Net income (loss) available for common
stock and dilutive securities $ 3,426 $ 6,515 $ 15,812 $(18,478)
======== ======== ======== ========
Average common stock outstanding 25,015 24,959 24,989 25,189
Additional common shares resulting
from stock options and warrants 1,103 476 1,157 456
-------- -------- -------- --------
Average common stock and dilutive
stock outstanding 26,118 25,435 26,146 25,645
======== ======== ======== ========
Diluted earnings (loss) per share $ 0.13 $ 0.26 $ 0.60 $ (0.72)
======== ======== ======== ========
</TABLE>
11. COMPREHENSIVE INCOME (LOSS)
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income,"
which requires disclosure of comprehensive income, as defined, including
comprehensive disclosure in interim financial statements. Comprehensive income
(loss) for the respective periods presented below is comprised of the following:
14
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. COMPREHENSIVE INCOME (LOSS) (continued)
<TABLE>
<CAPTION>
Quarterly Periods Ended Year to Date Periods Ended
----------------------- --------------------------
September 30, September 28, September 30, September 28,
1998 1997 1998 1997
-------- -------- -------- --------
(thousands)
<S> <C> <C> <C> <C>
Net income (loss) $ 3,426 $ 6,515 $ 15,812 $(18,478)
Foreign currency translation adjustments (1,130) (62) (900) (230)
-------- -------- -------- --------
Total comprehensive income (loss) $ 2,296 $ 6,453 $ 14,912 $(18,708)
======== ======== ======== ========
</TABLE>
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company operates primarily in the flexible polyurethane and advanced
polymer foam products industry. The following discussion should be read in
conjunction with the condensed consolidated financial statements and related
notes thereto of the Company included in this report. Certain information in
this report contains forward-looking statements and should be read in
conjunction with the discussion regarding forward-looking statements set forth
on pages 4 and 5 of the Company's 1997 Annual Report on Form 10-K/A-3.
The Company's products are utilized primarily in four businesses: (i)
Foam Products, consisting of cushioning foams, including bedding, furniture,
packaging, health care and foam-based consumer products such as futons, pillows,
mattress pads and juvenile furniture, (ii) Carpet Cushion Products, consisting
of carpet padding and related products, (iii) Automotive Products, consisting of
automotive trim, laminates and other accessories, and (iv) Technical Products,
consisting of reticulated and other specialty foams used for reservoiring,
filtration, gasketing and sealing.
On November 5, 1998, Trace Holdings, Trace Merger Sub, Inc. ("Trace
Merger Sub") and the Company entered into a Second Merger Agreement. Pursuant to
the terms of the Second Merger Agreement, Trace Merger Sub will be merged with
and into the Company (the "Merger") and each outstanding share of common stock
(except for shares owned by the Trace Holdings shareholders, shares owned by the
Company and shares owned by the stockholders who perfected their appraisal
rights in accordance with Delaware Law) will be converted into the right to
receive $12.00 in cash, without interest. Also on November 5, 1998, Trace
Holdings terminated the First Merger Agreement among the parties by delivering a
Notice of Termination to the Company. Trace Holdings terminated the First Merger
Agreement because the financing condition contained in the First Merger
Agreement was incapable of being satisfied on or prior to December 31, 1998.
Consummation of the Merger is subject to various conditions, including,
among others: (i) the approval and adoption of the Second Merger Agreement by
(A) the affirmative vote of holders of a majority of the outstanding shares of
common stock entitled to vote thereon, and (B) the affirmative vote of a
majority of the Independent Shares (as defined) voting with respect to the
Merger, (ii) the absence of any injunction preventing consummation of the
Merger, (iii) the obtaining of financing for the transactions contemplated by
the Second Merger Agreement on terms and conditions and in amounts reasonably
satisfactory to Trace Holdings, and (iv) other conditions that may be waived by
the parties, including: the absence of any action, suit, claim or legal,
administrative or arbitral proceeding or investigation pending before any
governmental entity seeking to restrain or prohibit, or to obtain damages in
respect of the Second Merger Agreement or the consummation of the transactions
contemplated thereby.
In April 1998, the Company's facility in Orlando, Florida was damaged by
a fire. The Company recommenced the manufacturing of Foam Products in this
facility in mid-September 1998. During this idle period, the Company supplied
local customers from other facilities. The Company believes that it has adequate
insurance coverage for business interruption and damages to the facility
associated with the fire; however, there can be no assurance that the fire will
not have a significant impact on the Company's financial position or operations.
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 (collectively, the "GFI Transaction").
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 a $38.8 million intercompany note payable to General
Felt with $4.8 million in cash and the $34.0 million Foamex/GFI Note supported
by a $34.5 million letter of credit under the Foamex L.P. Credit Facility. The
initial transaction resulted in the transfer from Foamex L.P. to Foam Funding
LLC of all of the outstanding common stock of General Felt, in exchange for (i)
the assumption by Foam Funding LLC of $129.0 million of Foamex L.P.'s
indebtedness and (ii) the transfer by Foam Funding LLC to Foamex L.P. of a 1%
non-managing general partnership interest in Foamex L.P. As a result, General
Felt ceased being a subsidiary of Foamex L.P. and was relieved from all
obligations under Foamex L.P.'s 9 7/8% senior subordinated notes due 2007 and 13
1/2% senior subordinated notes due 2005. Upon consummation of the initial
transaction, Foamex Carpet, a newly formed wholly owned subsidiary of the
Company, the Company, Foam Funding 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
Foam Funding LLC in the amount of $70.2 million. The $20.0 million cash payment
was funded by a distribution by
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Foamex L.P. to the Company. Upon consummation of the transaction 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. Foamex Carpet will
conduct the carpet cushion business previously conducted by General Felt.
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). In
addition, fees and expenses associated with the Crain Acquisition were
approximately $13.2 million.
On October 6, 1997, the Company sold substantially all of the net assets
of its needlepunch carpeting, tufted carpeting and artificial grass products
business located at its facilities in Dalton, Georgia ("Dalton"). Dalton's
revenues were $10.7 million and $35.1 million for the quarterly and year to date
periods ended September 28, 1997.
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)
variability of the Company's raw material costs by the Company's chemical
suppliers and (iv) fluctuations in interest rates.
Quarterly Period Ended September 30, 1998 Compared to Quarterly Period Ended
September 28, 1997
Results of Operations
Net sales for the third quarter of 1998 were $332.5 million as compared
to $233.4 million in the third quarter of 1997, an increase of $99.1 million or
42.4%. Foam Products net sales for the third quarter of 1998 increased to $157.0
million from $89.8 million in the third quarter of 1997 primarily due to net
sales from the Crain Acquisition, which occurred in December 1997, and increased
volume from national bedding customers and fabricators. Carpet Cushion Products
net sales for the third quarter of 1998 increased 14.1% to $82.1 million from
$72.0 million in the third quarter of 1997 primarily due to the Crain
Acquisition offset by the sale of Dalton in October 1997. Automotive Products
net sales for the third quarter of 1998 increased 40.6% to $73.6 million from
$52.3 million in the third quarter of 1997 primarily due to increased volume
associated with above normal volume to General Motors and General Motor
suppliers following the settlement of General Motor labor disputes. This
extraordinary high level of volume is not expected to continue. Technical
Products net sales for the third quarter of 1998 increased 2.6% to $19.8 million
from $19.3 million in the third quarter of 1997 primarily due to increased net
sales volume for felted, gasketing, and sealing products.
Gross profit as a percentage of net sales decreased to 15.4% for the
third quarter of 1998 from 16.3% in the third quarter of 1997 primarily due to
(i) a $2.2 million increase in cost of goods sold for the Company's operations
in Mexico; (ii) operating inefficiencies and logistics costs of $2.5 million
associated with the sales of juvenile and other consumer products sold through
mass merchandisers and discount stores; and (iii) a shift in product mix for
1998 as a result of the Crain Acquisition. Crain's principal product lines,
bedding, furniture and carpet cushion, have inherently lower gross profit
margins than the Company's historical gross profit margins.
Income from operations increased to $27.3 million for the third quarter
of 1998 from $22.3 million in the third quarter of 1997. The increase primarily
reflected the impact of the Crain Acquisition, partially offset by the items
discussed above.
Income before extraordinary loss decreased to $3.4 million for the third
quarter of 1998 as compared to $6.5 million for the third quarter of 1997. This
$3.1 million decrease is primarily due to the increase in income from operations
of $5.0 million discussed above offset by (i) an increase of approximately $6.3
million in interest and debt issuance expense, (ii) an increase in other expense
of $3.5 million, and (iii) a decrease in provision for income taxes of $1.7
million. The increase in other expense is due primarily to (i) $1.1 million of
foreign currency losses in Mexico and Canada, (ii) $1.1 million in fees
associated with financial and legal advisors used by the Company in connection
with the proposed Merger, and (iii) a $1.0 million reduction in the value of the
Company's investment in
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
the Trace Global Opportunities Fund. The increase in interest and debt issuance
expense is primarily due to the debt incurred in connection with the Crain
Acquisition offset by the favorable effects of the June 1997 refinancing plan.
Year to Date Period Ended September 30, 1998 Compared to Year to Date Period
Ended September 28, 1997
Results of Operations
Net sales for the year to date period ended September 30, 1998 were
$943.3 million as compared to $702.4 million for the year to date period ended
September 28, 1997, an increase of $240.8 million or 34.3%. Foam Products net
sales for the year to date period ended September 30, 1998 increased 76.0% to
$457.0 million from $259.7 million for the year to date period ended September
28, 1997 primarily due to the net sales from the Crain Acquisition, which
occurred in December 1997 and increased volume from national bedding customers
and fabricators. Carpet Cushion Products net sales for the year to date period
ended September 30, 1998 increased 5.1% to $225.9 million from $214.9 million
for the year to date period ended September 28, 1997 primarily due to net sales
from the Crain Acquisition offset by (i) the sale of Dalton in October 1997,
(ii) reductions in rebond selling prices as compared to 1997, and (iii) changes
in product mix. Automotive Products net sales for the year to date period ended
September 30, 1998 increased 16.3% to $199.3 million from $171.4 million for the
year to date period ended September 28, 1997 primarily due to increased volume
of laminated products. Technical Products net sales for the year to date period
ended September 30, 1998 increased 8.2% to $61.1 million from $56.4 million for
the year to date period ended September 28, 1997 primarily due to increased net
sales volume for felted, gasketing, and sealing products.
Gross profit as a percentage of net sales decreased to 16.5% for the year
to date period ended September 30, 1998 from 17.9% in the year to date period
ended September 28, 1997 primarily due to (i) a $2.2 million increase in cost of
goods sold recorded during the third quarter of 1998 for the Company's
operations in Mexico; (ii) operating inefficiencies and logistics costs of $2.5
million recorded during the third quarter of 1998 associated with the sales of
juvenile and other consumer products sold through mass merchandisers and
discount stores; and (iii) the shift in product mix for 1998 as a result of the
Crain Acquisition. Crain's principal product lines, bedding, furniture and
carpet cushion, have inherently lower gross profit margins than the Company's
historical gross profit margins. The 1998 gross profit percentage was also
impacted by the Company carrying the full operating costs of both organizations.
The implementation of restructuring/consolidation programs were a favorable
factor.
Income from operations increased to $87.7 million for the year to date
period ended September 30, 1998 from $77.8 million in the year to date period
ended September 28, 1997. The increase primarily reflected the impact of the
Crain Acquisition, partially offset by the items discussed above.
Income before extraordinary loss decreased to $17.7 million for the year
to date period ended September 30, 1998 as compared to $24.1 million for the
year to date period ended September 28, 1997. The decrease is primarily due to
an increase in income from operations of $9.9 million discussed above offset by
(i) an increase of approximately $13.7 million in interest and debt issuance
expense, (ii) an increase in other expense of $6.4 million; and (iii) a decrease
in provision for income taxes of $3.7 million. The increase in other expense is
due primarily to (i) $2.0 million of costs associated with the GFI Transaction,
(ii) $0.9 million of foreign currency losses in Mexico and Canada, (iii) $1.1
million in fees associated with financial and legal advisors used by the Company
in connection with the proposed Merger, and (iv) a $1.0 million reduction in the
value of the Company's investment in the Trace Global Opportunities Fund. The
increase in interest and debt issuance expense is primarily due to the debt
incurred in connection with the Crain Acquisition offset by the favorable
effects of the June 1997 refinancing plan.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Liquidity and Capital Resources
The Company is a holding company whose operations are conducted through
two wholly owned 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.
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 September 30, 1998 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.
Foamex Carpet'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 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. Foamex Carpet was in compliance with the
covenants in the Foamex Carpet Credit Facility as of September 30, 1998 and 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 $2.0 million during 1998 to $10.0
million at September 30, 1998 from $12.0 million at December 28, 1997 primarily
due to cash used for capital expenditures, the Crain Acquisition and an increase
of cash used by the operating assets and liabilities (as defined below) offset
by increased borrowings. Working capital increased $60.8 million during 1998 to
$199.3 million at September 30, 1998 from $138.5 million at December 28, 1997
primarily due to an increase in net operating assets of $44.1 million and a net
increase in other current assets and liabilities of $16.3 million. The net
increase in other current assets and liabilities is primarily associated with
the timing of payments for interest, prepaid expenses and accrued liabilities
and the receipt of cash for other receivables. The increase in net operating
assets (comprised of accounts receivable, inventories and accounts payable) of
$60.8 million during 1998 to $208.4 million at September 30, 1998 from $164.3
million at December 28, 1997 was primarily due to increases in accounts
receivable and inventories aggregating $39.7 million and a decrease in accounts
payable of $4.3 million. The increase in accounts receivable is primarily due to
an increase in net sales for September 1998 as compared to December 1997. The
increase in inventories is primarily due to increased purchases of raw materials
associated with potential price increases. The decrease in accounts payable is
primarily due to the timing of payments.
As of September 30, 1998, there were $137.0 million of revolving credit
borrowings under the Credit Facility and approximately $50.0 million associated
with letters of credit outstanding which are supported by the Credit Facility
with unused availability of approximately $73.1 million. As of September 30,
1998, Foamex Carpet Credit Facility had unused availability of approximately
$19.2 million. Borrowings by Foamex Canada Inc. as of September 30, 1998 were
$3.6 million under Foamex Canada Inc.'s revolving credit agreement with unused
availability of approximately $1.7 million.
Cash flow used for operating activities was $17.7 million for the year to
date period ended September 30, 1998 as compared to cash used of $12.2 million
for the year to date period ended September 28, 1997. This
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
decrease is primarily due to changes in the components of working capital
primarily related to (i) cash used for the increase in accounts receivable and
other receivables associated with the timing of receipts and (ii) a reduction in
accounts payable associated with the timing of payments.
Cash flow used for investing activities increased to $26.7 million for
the year to date period ended September 30, 1998 from cash used of $21.7 million
for the year to date period ended September 28, 1997 primarily due to $4.4
million paid in 1998 in connection with the Crain Acquisition offset by (i) a
decrease in restricted cash in 1997 of $12.1 million used to repay long-term
debt and (ii) cash paid in connection with a loan to shareholder of $5.0 million
in 1997.
Cash flow provided by financing activities increased to $42.4 million for
the year to date period ended September 30, 1998 as compared to cash provided of
$13.6 million for the year to date period ended September 28, 1997. This is
primarily associated with increased borrowings in 1998 under the revolving
credit facility to fund working capital needs of the Company, including the
operations of Crain acquired in December 1997, and $28.7 million used to fund
the GFI Transaction.
Certain credit agreements and promissory notes of Foamex L.P. and/or
Foamex Carpet pursuant to which approximately $500.0 million of debt has been
issued, contain provisions that would result in the acceleration of such
indebtedness if Trace were to cease to own at least 30% of the Company's
outstanding common stock. Similarly, certain indentures of Foamex L.P. and
Foamex Capital Corporation relating to approximately $248.0 million of senior
subordinated notes contain provisions that provide the holders of such senior
subordinated notes with the right to require the issuers thereof to repurchase
such senior subordinated notes at a price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if Trace
Holdings falls below certain specified ownership levels of common stock and
other persons or groups own a greater percentage of common stock than Trace
Holdings. Trace Holdings has informed the Company that it has substantial debt
obligations due at the end of December 1998 and currently does not have the
financial resources to pay these obligations. Trace Holdings intends to seek
waivers and/or modifications of such indebtedness; however, there can be no
assurance that such waivers and/or modifications will be received. If Trace
Holdings were to default on its indebtedness and the holders of such
indebtedness or other Trace Holdings creditors were to foreclose on or otherwise
attach the Company's common stock owned by Trace Holdings, such event could
trigger the acceleration and put rights described above. Although management
believes that its debt obligations would be refinanced by the Company under such
circumstances, there can be no assurance that the Company or its subsidiaries
would be able to do so. Trace Holdings has informed the Company that it
anticipates that if the proposed merger is consummated it will be able to
satisfy or restructure its outstanding obligations.
Interest Rate Swaps
In September 1998, the Company sold its existing interest rate swap
agreement for a net gain of approximately $1.0 million which is being amortized
over the life of the debt.
The effect of the Company's interest rate swap agreements were decreases
in interest and debt issuance expense of $0.3 million and $0.5 million for the
quarterly periods ended September 30, 1998 and September 28, 1997, respectively,
and $0.7 million and $2.2 million for the year to date periods ended September
30, 1998 and September 28, 1997, respectively.
Environmental Matters
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 September 30, 1998 was $4.5 million. In addition, as
of September 30, 1998, the Company has net receivables of approximately $1.1
million for 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,
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
including those described in the footnotes to the Company's condensed
consolidated financial statements, the Company 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 periods presented. In some circumstances, market
conditions or customer expectations may prevent the Company from increasing the
price of its products to offset the inflationary pressures that may increase its
costs in the future.
The Company's automotive products customers are predominantly automotive
original equipment manufacturers or other automotive suppliers. As such, the
sales of these product lines are directly related to the overall level of
passenger car and light truck production in North America. Also, the Company's
sales are sensitive to sales of new and existing homes, changes in personal
disposable income and seasonality. The Company typically experiences two
seasonally slow periods during each year, in early July and in late December,
due to scheduled plant shutdowns and holidays.
Year 2000 Compliance
The Company uses multiple business information systems as well as
manufacturing support systems that could be impacted by the "Year 2000 problem".
The Year 2000 problem arises from computer programs that have been written using
two digits rather than four to designate the year. Date-sensitive computer
software may recognize a date using "00" as the year 1900 rather than the year
2000, resulting in system failures or miscalculations, which may cause
operational disruptions.
The Company is in the process of the remediation of their business
information computer systems. The Company is also in the process of the
conversion of the former Crain systems to the Company's standard business
information computer systems. The replacement of these systems will increase the
integration of systems and allow employees at different locations to share
financial information and operations information more effectively. Remediation
of the Company business information computer systems and the conversion of the
former Crain systems should be completed in 1998. These systems and software are
Year 2000 compliant, thus handling the majority of the Company's Year 2000
business systems requirements.
The Company has a Year 2000 Executive Sponsor Team with representatives
of the Company. The Year 2000 Executive Sponsor Team is providing direction to
the Year 2000 Steering Committee within the organization. The Steering Committee
is in the process of completing an assessment of the state of readiness of the
Information Technology ("IT") and non-IT systems of the Company. These
assessments cover manufacturing systems, including laboratory information
systems and field instrumentation, and significant third party vendor and
supplier systems, including employee compensation and benefit plan maintenance
systems. The Steering Committee is also in the process of assessing the
readiness of significant customers and suppliers.
The Year 2000 assessment process for each facility consists of an
inventory of Year 2000 sensitive equipment, an assessment of the impact of
possible failures, determination of the required remediation actions, and
testing and implementation of solutions. The inventory, assessment, remediation
and testing phases should be completed in 1998, with fail safe testing and final
implementation taking place in 1999. The progress of these phases as of
September 30, 1998 is summarized as follows:
The total estimated spending of $2.4 million for the Company represents a
midpoint of an estimated range between $2.1 million and $2.7 million. These
spending estimates will be refined as phases of the assessment are completed.
Spending is funded by cash generated from operations. Preliminary estimates
indicate that from 25 to 35 percent of the estimated costs could qualify for
capitalization.
Management believes that all significant systems controlled by the
Company will be Year 2000 ready in the last half of 1999. While the Steering
Committee is communicating readiness to third party customers, as requested,
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
and is assessing the readiness of critical suppliers, there can be no assurance
that third parties with a significant business relationship will successfully
test, reprogram, and replace all of their IT and non-IT systems on a timely
basis. As part of the overall readiness, the Company is in the process of
developing contingency plans in the event of Year 2000 non-compliance of certain
systems or third parties. Details of such contingency plans will be determined
after the Steering Committee has completed its assessment of both internal and
third party systems and the potential for possible failures.
There is inherent uncertainty in the Year 2000 problem due to the
possibility of unanticipated failures by third party customers and suppliers.
Accordingly, the Company is unable, at this time, to assess the extent and
resulting materiality of the impact of possible Year 2000 failures on its
operations, liquidity or financial position. The Year 2000 assessment process is
expected to provide information that will significantly reduce the level of
uncertainty regarding the Year 2000 impact. Management believes that the
completion of the assessment as scheduled will help minimize the possibility of
any significant disruptions of Company operations.
New Accounting Standards
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board in June 1997. This statement requires all items that must be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The Company adopted SFAS No. 130 during the first
quarter of 1998 (see Note 11).
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Restated Information," was
issued by the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected financial
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
adopt SFAS No. 131 for the year ended 1998 reporting. The Company is evaluating
the impact, if any, the standard will have on its present segment reporting.
In February 1998 the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pension and Other Postretirement Benefits"
("SFAS No. 132"), which is effective for fiscal years beginning after December
15, 1997. SFAS No. 132 revised the required disclosures about pension and other
postretirement benefit plans. The Company plans to adopt SFAS No. 132 in the
fourth quarter of 1998.
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133
("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 established new procedures for accounting for
derivatives and hedging activities and supercedes and amends a number of
existing standards. The statement is effective for fiscal years beginning after
June 15, 1999.
22
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
Reference is made to the description of the legal proceedings
contained in the Company's Annual Report on Form 10-K/A-3 for the
fiscal year ended December 28, 1997 and in the Company's Quarterly
Report on Form 10-Q/A-2 for the fiscal quarter ended June 28, 1998.
The information from Notes 7 and 8 of the condensed consolidated
financial statements of the Company as of September 30, 1998
(unaudited) is incorporated herein by reference.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1(x) - Transfer Agreement, dated as of February 27, 1998, by and between
Foam Funding 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 Inc. ("Foamex International"), Foam Funding LLC and
General Felt Industries, Inc. ("General Felt").
2.3(z) - Agreement and Plan of Merger, dated as of November 5, 1998, by and
among Foamex International, Trace International Holdings, Inc. and
Trace Merger Sub Corp.
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, as a limited partner (the
"Partnership Agreement").
3.2.2(b) - First Amendment to the Partnership Agreement, dated June 28, 1994.
3.2.3(c) - Second Amendment to the Partnership Agreement, dated June 12, 1997.
3.2.4(v) - Third Amendment to the Partnership Agreement, dated December 23,
1997.
3.2.5(x) - Fourth Amendment to the Partnership Agreement, dated February 27,
1998.
3.3(y) - Certificate of Incorporation of FMXI.
3.4(y) - By-laws of FMXI.
3.5(k) - Certificate of Incorporation of Foamex Capital Corporation ("FCC").
3.6(k) - By-laws of FCC.
3.7(a) - Certificate of Incorporation of Foamex International.
3.8(a) - By-laws of Foamex International.
23
<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, Inc. (`Foamex Fibers"), and FLLC, as withdrawing
guarantors, and The Bank of New York, as trustee, relating to the 9
7/8% Notes.
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.
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.
24
<PAGE>
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(r) - Foamex Pledge Agreement, dated as of June 12, 1997, made by Foamex
L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.22(w) - First Amendment to Foamex Pledge Agreement, dated as of December
23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.23(w) - First Amendment to Foamex Security Agreement, dated as of December
23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.24(w) - First Amendment to Foamex Patent Agreement, dated as of December
23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.25(w) - First Amendment to Trademark Security Agreement, dated as of
December 23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.26(w) - Acknowledgment of Guaranty by each of the guarantors to a Guaranty
dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.27(w) - First Amendment to Pledge Agreement, dated as of December 23, 1997,
by pledgors in favor of Citicorp USA, Inc.
4.4.28(w) - Crain Industries Guaranty, dated as of December 23, 1997, made by
Crain in favor of Citicorp USA, Inc.
4.4.29(x) - Partnership Pledge Agreement, dated as of February 27, 1998, made
by Foamex International and FMXI in favor of Citicorp USA, Inc., as
Collateral Agent.
4.5(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.
4.11.1(x) - Promissory Note of Foamex L.P. in favor of Foam Funding LLC in the
principal amount of $34 million, dated February 27, 1998.
25
<PAGE>
4.12.1(x) - Promissory Note of Foamex Carpet in favor of Foam Funding 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.
10.1.3(w) - Amended Confirmation, dated as of February 2, 1998, between
Citibank, N.A. and Foamex L.P.
10.2(h) - Reimbursement Agreement, dated as of March 23, 1993, between Trace
Holdings and General Felt.
10.3(h) - Shareholder Agreement, dated December 31, 1992, among Recticel,
s.a. ("Recticel"), Recticel Holding Noord B.V., Foamex L.P., Beamech
Group Limited, LME-Beamech, Inc., James Brian Blackwell, and Prefoam
AG relating to foam technology sharing arrangement.
10.4.1(k) - Asset Transfer Agreement, dated as of October 2, 1990, between
Trace Holdings and Foamex L.P. (the "Trace Holdings Asset Transfer
Agreement").
10.4.2(k) - First Amendment, dated as of December 19, 1991, to the Trace
Holdings Asset Transfer Agreement. 10.4.3(k) - Amended and Restated
Guaranty, dated as of December 19, 1991, made by Trace Foam in favor
of Foamex L.P.
10.5.1(k) - Asset Transfer Agreement, dated as of October 2, 1990, between
Recticel Foam Corporation ("RFC") and Foamex L.P. (the "RFC Asset
Transfer Agreement").
10.5.2(k) - First Amendment, dated as of December 19, 1991, to the RFC Asset
Transfer Agreement.
10.5.3(k) - Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
Protocol").
10.5.4(h) - The 5.03 Protocol Assumption Agreement, dated as of October 13,
1992, between RFC and Foamex L.P.
10.5.5(h) - 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(y) - Third Amendment to Amended and Restated Tax Sharing Agreement of
Foamex L.P., dated as of February 27, 1998, by and between Foamex
L.P., Foamex International and FMXI.
10.8.1(m) - Tax Distribution Advance Agreement, dated as of December 11, 1996,
by and between Foamex 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.
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.
26
<PAGE>
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(y) - Tax Sharing Agreement, dated as of February 27, 1998, between
Foamex International and Foamex Carpet.
10.18.1(w) - Joint Venture Agreement between Hua Kee Company Limited and Foamex
Asia, Inc., dated as of July 8, 1997.
10.18.2(w) - Loan Agreement between Hua Kee Company Limited and Foamex Asia,
Inc., dated as of July 8, 1997.
27 - Amended Financial Data Schedule for the year to date period ended
September 30, 1998.
- ----------------------------
(a) Incorporated herein by reference to the Exhibit to Foamex L.P.'s
Registration Statement on Form S-1, Registration No. 33-69606.
(b) Incorporated herein by reference to the Exhibit to the Form 10-K of
Foamex for the fiscal year ended January 1, 1995.
(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) Intentionally omitted.
(f) Intentionally omitted.
(g) Intentionally omitted.
(h) Incorporated herein by reference to the Exhibit to the Form 10-K
Statement of Foamex and FCC for fiscal 1992.
(i) Intentionally omitted.
(j) Intentionally omitted.
(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.
27
<PAGE>
(m) Incorporated herein by reference to the Exhibit to the Annual Report
on Form 10-K of Foamex for the fiscal year ended December 29, 1996.
(n) Intentionally omitted.
(o) Incorporated herein by reference to the Exhibit to the Form 10-K of
Foamex L.P. for fiscal 1993.
(p) Incorporated herein by reference to the Exhibit in the Registration
Statement of Foamex on Form S-4, Registration No. 333-30291.
(q) Intentionally omitted.
(r) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex L.P. reporting an event that occurred on August 29, 1997.
(s) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex L.P. reporting an event that occurred on October 6, 1997.
(t) 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 L.P. and FCC 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.
(y) Incorporated herein by reference to the Exhibit to the Form 10-K of
Foamex International for the fiscal year ended December 28, 1997.
(z) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex International reporting an event that occurred on November 5,
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.
(b) The Company filed the following Current Reports on Form 8-K:
Form 8-K, dated June 30, 1998, reporting the signing of the Merger
Agreement on June 25, 1998.
Form 8-K/A dated September 9, 1998, reporting the acquisition of
Crain Industries, Inc.
Form 8-K dated October 5, 1998.
Form 8-K dated October 19, 1998.
Form 8-K dated November 4, 1998, reporting the change in fiscal year
end.
28
<PAGE>
Form 8-K dated November 6, 1998, reporting the signing of the Merger
Agreement on November 5, 1998.
Form 8-K/A dated November 9, 1998, reporting the change in fiscal
year end.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOAMEX INTERNATIONAL INC.
Date: November 2, 1999 By:/s/ George L. Karpinski
----------------------------------
George L. Karpinski
Senior Vice President, Treasurer
and Assistant Secretary
<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-31-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 10,044
<SECURITIES> 0
<RECEIVABLES> 198,814
<ALLOWANCES> 0
<INVENTORY> 137,044
<CURRENT-ASSETS> 402,800
<PP&E> 231,282
<DEPRECIATION> 0
<TOTAL-ASSETS> 921,543
<CURRENT-LIABILITIES> 203,532
<BONDS> 783,334
0
0
<COMMON> 270
<OTHER-SE> (99,805)
<TOTAL-LIABILITY-AND-EQUITY> 921,543
<SALES> 943,279
<TOTAL-REVENUES> 943,279
<CGS> 787,424
<TOTAL-COSTS> 787,424
<OTHER-EXPENSES> 68,855
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,210
<INCOME-PRETAX> 29,545
<INCOME-TAX> 11,816
<INCOME-CONTINUING> 17,729
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,812
<EPS-BASIC> 0.63
<EPS-DILUTED> 0.60
</TABLE>
