SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A-2
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 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 August
12, 1998 was approximately 25,014,800.
Page 1 of 27
Exhibit List on Page 21 of 27
<PAGE>
FOAMEX INTERNATIONAL INC.
<TABLE>
<CAPTION>
INDEX
Page
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of Operations - Thirteen Week and Twenty-Six
Week Periods Ended June 28, 1998 and June 29, 1997 3
Condensed Consolidated Balance Sheets as of June 28, 1998 and December 28, 1997 4
Condensed Consolidated Statements of Cash Flows - Twenty-Six Week Periods Ended
June 28, 1998 and June 29, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
Part II. Other Information 21
Exhibit List 21
Signatures 27
</TABLE>
Foamex International Inc. (the "Company") is filing this Form 10-Q/A-2
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 second 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
<TABLE>
<CAPTION>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
13 Week Periods Ended 26 Week Periods Ended
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
--------- --------- --------- ---------
(thousands except per share data)
<S> <C> <C> <C> <C>
NET SALES $298,479 $ 239,887 $ 610,769 $ 469,007
COST OF GOODS SOLD 243,513 195,107 506,233 381,430
--------- --------- --------- ---------
GROSS PROFIT 54,966 44,780 104,536 87,577
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 21,806 16,100 44,849 32,087
RESTRUCTURING AND OTHER CHARGES (CREDITS) (700) -- (700) --
--------- --------- --------- ---------
INCOME FROM OPERATIONS 33,860 28,680 60,387 55,490
INTEREST AND DEBT ISSUANCE EXPENSE 17,281 13,474 34,808 27,442
OTHER INCOME (EXPENSE), NET (1,046) 448 (1,745) 1,086
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 15,533 15,654 23,834 29,134
PROVISION FOR INCOME TAXES 6,213 6,184 9,531 11,528
--------- --------- --------- ---------
INCOME BEFORE EXTAORDINARY LOSS 9,320 9,470 14,303 17,606
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT,
NET OF INCOME TAXES (43) (42,189) (1,917) (42,599)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 9,277 $ (32,719) $ 12,386 $ (24,993)
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE:
INCOME BEFORE EXTRAORDINARY LOSS $ 0.37 $ 0.37 $ 0.58 $ 0.70
EXTRAORDINARY LOSS -- (1.66) (0.08) (1.69)
--------- --------- --------- ---------
EARNINGS (LOSS) PER SHARE $ 0.37 $ (1.29) $ 0.50 $ (0.99)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES 25,012 25,298 24,977 25,304
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE:
INCOME BEFORE EXTRAORDINARY LOSS $ 0.36 $ 0.36 $ 0.55 $ 0.67
EXTRAORDINARY LOSS -- (1.62) (0.07) (1.63)
--------- --------- --------- ---------
EARNINGS (LOSS) PER SHARE $ 0.36 $ (1.26) $ 0.48 $ (0.96)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES 26,124 26,042 26,090 26,086
========= ========= ========= =========
</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>
June 28, December 28,
ASSETS 1998 1997
CURRENT ASSETS: (thousands, except number of shares)
<S> <C> <C>
Cash and cash equivalents $ 18,175 $ 12,044
Accounts receivable, net 180,588 175,684
Inventories 123,020 120,299
Other current assets 77,160 62,901
----------- ------------
Total current assets 398,943 370,928
PROPERTY, PLANT AND EQUIPMENT, NET 231,827 233,435
COST IN EXCESS OF ASSETS ACQUIRED, NET 215,711 218,219
DEBT ISSUANCE COSTS, NET 15,932 18,889
DEFERRED INCOME TAXES 34,168 26,960
OTHER ASSETS 23,303 25,192
------------ ------------
TOTAL ASSETS $ 919,884 $ 893,623
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings $ 7,320 $ 6,598
Current portion of long-term debt 5,117 12,931
Current portion of long-term debt - related party 7,020 -
Accounts payable 105,238 131,689
Accrued interest 10,391 10,716
Other accrued liabilities 62,639 70,513
----------- -----------
Total current liabilities 197,725 232,447
LONG-TERM DEBT 692,479 735,724
LONG-TERM DEBT - RELATED PARTY 97,180 -
OTHER LIABILITIES 34,331 38,871
----------- -----------
Total liabilities 1,021,715 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) (153,505) (164,118)
Accumulated other comprehensive income (6,368) (6,598)
Other (9,795) (9,795)
------------ ----------
(82,629) (94,217)
Common Stock held in treasury, at cost:
1,989,000 shares at June 28, 1998 and December 28, 1997 (19,202) (19,202)
----------- -----------
Total stockholders' equity (deficit) (101,831) (113,419)
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 919,884 $ 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>
26 Week Periods Ended
June 28, June 29,
1998 1997
--------- ---------
(thousands)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 12,386 $(24,993)
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 16,770 10,815
Net amortization of debt issuance costs, debt discount
and debt premium 23 6,847
Extraordinary loss on early extinguishment of debt 1,579 37
Other operating activities 11,481 (565)
Changes in operating assets and liabilities, net (64,341) (38,334)
--------- ---------
Net cash used for operating activities (22,102) (46,193)
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures (15,482) (16,432)
Acquisitions, net of cash acquired (4,399) --
Decrease in restricted cash -- 12,143
Other investing activities (406) 35
--------- ---------
Net cash used for investing activities (20,287) (4,254)
--------- ---------
FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 722 256
Net proceeds from revolving loans 82,426 49,000
Proceeds from long-term debt 129,000 453,500
Repayment of long-term debt (132,767) (450,026)
Debt issuance cost (1,598) (14,746)
Purchase of treasury stock -- (1,890)
Dividends paid (1,246) --
Transfer of General Felt (28,698) --
Other financing activities 681 (488)
--------- ---------
Net cash provided by financing activities 48,520 35,606
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,131 (14,841)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 12,044 22,203
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 18,175 $ 7,362
========= =========
</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.'s (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 June 28, 1998, the condensed consolidated statements of operations
for the thirteen week and twenty-six week periods ended June 28, 1998 and June
29, 1997 and the condensed consolidated statements of cash flows for the
twenty-six week periods ended June 28, 1998 and June 29, 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.
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 second quarter
of 1998. As a result, the Company has restated the accompanying 1998 condensed
consolidated financial statements to reflect adjustments that related to the
second quarter of 1998, as follows:
<TABLE>
<CAPTION>
Thirteen Weeks ended June 28, 1998
As Previously
Reported Adjustments As Restated
Statement of Operations:
<S> <C> <C> <C>
Net Sales $ 298,479 $ -- $ 298,479
Cost of Goods Sold 241,557 1,956 243,513
--------- --------- ---------
Gross Profit 56,922 (1,956) 54,966
Selling, General and Administrative 20,861 945 21,806
Restructuring and Other Charges (Credits) -- (700) (700)
--------- --------- ---------
Income (Loss) from Operations 36,061 (2,201) 33,860
Interest and Debt Issuance Expense 17,531 (250) 17,281
Other Income (Expense), net (1,046) -- (1,046)
--------- --------- ---------
Income (Loss) before Provision for Income Taxes 17,484 (1,951) 15,533
Provision for Income Taxes 6,993 (780) 6,213
--------- --------- ---------
Income (Loss) before Extraordinary Loss 10,491 (1,171) 9,320
Extraordinary Loss (43) -- (43)
--------- --------- ---------
Net Income (Loss) $ 10,448 $ (1,171) $ 9,277
========= ========= =========
Basic earnings per share:
Income before extraordinary item $ 0.42 $ (0.05) $ 0.37
Extraordinary loss -- -- --
--------- --------- ---------
Earnings per share $ 0.42 $ (0.05) $ 0.37
========= ========= =========
Diluted earnings per share:
Income before extraordinary item $ 0.40 $ (0.04) $ 0.36
Extraordinary loss -- -- --
--------- --------- ---------
Earnings per share $ 0.40 $ (0.04) $ 0.36
========= ========= =========
</TABLE>
6
<PAGE>
2. RESTATEMENT OF FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Twenty-six Weeks ended June 28, 1998
As Previously
Reported Adjustments As Restated
Statement of Operations:
<S> <C> <C> <C>
Net Sales $ 612,269 $ (1,500) $ 610,769
Cost of Goods Sold 504,151 2,082 506,233
--------- --------- ---------
Gross Profit 108,118 (3,582) 104,536
Selling, General and Administrative 43,238 1,611 44,849
Restructuring and Other Charges (Credits) -- (700) (700)
--------- --------- ---------
Income (Loss) from Operations 64,880 (4,493) 60,387
Interest and Debt Issuance Expense 35,308 (500) 34,808
Other Income (Expense), net (1,745) -- (1,745)
--------- --------- ---------
Income (Loss) before Provision for Income Taxes 27,827 (3,993) 23,834
Provision for Income Taxes 11,128 (1,597) 9,531
--------- --------- ---------
Income (Loss) before Extraordinary Loss 16,699 (2,396) 14,303
Extraordinary Loss (1,917) -- (1,917)
--------- --------- ---------
Net Income (Loss) $ 14,782 $ (2,396) $ 12,386
========= ========= =========
Basic earnings per share:
Income before extraordinary item $ 0.67 $ (0.09) $ 0.58
Extraordinary loss (0.08) -- (0.08)
--------- --------- ---------
Earnings per share $ 0.59 $ (0.09) $ 0.50
========= ========= =========
Diluted earnings per share:
Income before extraordinary item $ 0.64 $ (0.09) $ 0.55
Extraordinary loss (0.07) -- (0.07)
--------- --------- ---------
Earnings per share $ 0.57 $ (0.09) $ 0.48
========= ========= =========
Cash Flows:
Net cash used for operating activities $ (21,541) $ (561) $ (22,102)
Net cash used for investing activities (20,848) 561 (20,287)
</TABLE>
<TABLE>
<CAPTION>
As of June 28, 1998
As Previously
Reported Adjustments As Restated
Balance Sheet:
<S> <C> <C> <C>
Current assets $ 401,803 $ (2,860) $ 398,943
Total assets 922,597 (2,713) 919,884
Current liabilities 198,042 (317) 197,725
Total liabilities 1,022,032 (317) 1,021,715
Stockholders' deficit (99,435) (2,396) (101,831)
</TABLE>
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.
7
<PAGE>
3. CRAIN ACQUISITION (continued)
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 fiscal year 1997.
<TABLE>
<CAPTION>
13 Week Period 26 Week Period
Ended June 29, 1997 Ended June 29, 1997
(thousands, except per share data)
<S> <C> <C>
Net sales $ 319,312 $ 626,080
=========== ===========
Income before extraordinary loss $ 11,173 $ 17,011
=========== ===========
Pro forma basic earnings per share $ 0.44 $ 0.67
=========== ===========
Pro forma diluted earnings per share $ 0.43 $ 0.65
=========== ===========
</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
<TABLE>
<CAPTION>
Inventories consist of:
June 28, December 28,
1998 1997
------------ ------------------
(thousands)
<S> <C> <C>
Raw materials and supplies $ 78,344 $ 75,487
Work-in-process 16,887 15,620
Finished goods 27,789 29,192
--------- ---------
Total $123,020 $120,299
======== ========
5. LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY
Long-term debt consists of:
June 28, December 28,
1998 1997
------------- ------------------
Credit Facility: (thousands)
Term Loan A $ - $ 76,700
Term Loan B 83,344 109,725
Term Loan C 75,766 99,750
Term Loan D 109,725 110,000
Revolving credit facility 137,354 54,928
9 7/8% Senior subordinated notes due 2007 150,000 150,000
13 1/2% Senior subordinated notes due 2005 (includes
$12,824 and $13,720 of unamortized debt premium) 110,824 111,720
9 1/2% Senior secured notes due 2000 - 4,523
Industrial revenue bonds 7,000 7,000
Subordinated note payable (net of unamortized
debt discount of $709 and $1,198) 6,306 6,129
Other 17,277 18,180
--------- ---------
697,596 748,655
</TABLE>
8
<PAGE>
5. LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
<TABLE>
<CAPTION>
June 28, December 28,
1998 1997
--------- ------------
(thousands)
<S> <C> <C>
Less current portion 5,117 12,931
--------- ------------
Long-term debt-unrelated parties $692,479 $735,724
========= ============
Long-term debt - related party consists of:
Foamex/GFI Note $ 34,000 $ -
Note payable to Foam Funding LLC 70,200 -
--------- ------------
104,200 -
Less current portion - related party 7,020 -
---------- ------------
Long-term debt - related party $ 97,180 $ -
========= ============
</TABLE>
Refinancing Associated with Transfer of General Felt Industries, Inc.
("General Felt") Common Stock
In connection with the GFI Transaction (as defined, see 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, (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.
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 thirteen week and twenty-six week periods ended June 28, 1998,
the Company incurred interest expense of approximately $0.6 million and $0.8
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
9
<PAGE>
5. LONG-TERM DEBT AND LONG-TERM DEBT - RELATED PARTY (continued)
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 thirteen week and twenty-six week periods ended June 28, 1998,
the Company incurred interest expense of approximately $1.6 million and $2.1
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 - $9.0 million; 1999 - $17.7 million; 2000 - $52.2 million; 2001 -
$17.3 million; 2002 - $17.7 million; 2003 - $159.5; and thereafter - $516.3
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 twenty-six week
period ended June 28, 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 is comprised of
approximately $0.4 million of premium payments and approximately $0.6 million
for the write-off of debt issuance costs.
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 June 28, 1998, the Company has accruals of approximately $4.7 million for
environmental matters. In addition, as of June 28, 1998, the Company has net
receivables of approximately $0.6 million relating to indemnification for
environmental liabilities.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air pollutants
including methylene chloride, propylene oxide and TDI, materials used in the
manufacturing of foam. On December 27, 1996, the United States Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that will require manufacturers of slab stock polyurethane foam and foam
fabrication plants to reduce emissions of methylene chloride. Because these
regulations are subject to change prior to finalization, 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
10
<PAGE>
7. ENVIRONMENTAL MATTERS (continued)
alternative technologies; however, material expenditures may be required at the
facilities formerly operated by Crain. The 1990 CAA Amendments also may result
in the imposition of additional standards regulating air emissions from
polyurethane foam manufacturers, but these standards have not yet been proposed
or promulgated.
In addition to general regulatory requirements, state laws have results
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 June 28, 1998, the Company has
accruals of approximately $4.1 million for the remaining potential remediation
costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. The Company has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. The
Company has accrued $0.1 million for the estimated removal and remediation, if
any, associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. The Company believes that its USTs do not pose
a significant risk of environmental liability because of the Company's
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
The Company has been designated as a Potentially Responsible Party
("PRP") by the EPA with respect to thirteen sites with an estimated total
liability to the Company for the thirteen sites of less than approximately $0.5
million. Estimates of total clean-up costs and fractional allocations of
liability are generally provided by the EPA or the committee of PRP's with
respect to the specified site. In each case, the participation of the Company is
considered to be immaterial.
Although it is possible that new information or future developments could
require the Company to reassess its potential exposure relating to all pending
environmental matters, 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 August 12, 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
11
<PAGE>
8. LITIGATION (continued)
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 and the
Company believes Trace Holdings will be in a position to continue to pay such
expenses, 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, against the Company,
directors of the Company, Trace Holdings, and individual officers and directors
of Trace Holdings: Brickell Partners v. Marshall S. Cogan, et al., No. 16260NC;
Mimona Capital v. Salvatore J. Bonanno, et al., No. 16259NC; Daniel Cohen v.
Foamex International Inc., No. 16263; Eileen Karisinki v. Foamex International
Inc., et al., No. 16261NC and John E. Funky Trust v. Salvatore J. Bonanno, et
al., No. 16267. A sixth purported class action lawsuit, Barnett Stepak v. Foamex
International Inc., et al., No. 16277, was filed on or about March 23, 1998
against the same defendants. The complaints in the six actions allege, among
other things, that the defendants have violated fiduciary and other common law
duties purportedly owed to the Company's stockholders in connection with Trace
Holdings' intitial proposal to acquire all of the outstanding shares of the
Company's common stock. 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 lawsuits entered into a memorandum of understanding
dated June 25, 1998 (the "Memorandum of Understanding"), to settle the
litigation, subject to, inter alia, execution of a definitive Stipulation of
Settlement and approval by the Delaware Chancery Court following notice to the
public stockholders and a hearing. The Memorandum of Understanding provides that
as a result of, among other things, the stockholder litigation and negotiations
among counsel for the parties to the Memorandum of Understanding, a special
meeting of stockholders will be held to vote upon and adopt a proposed merger
(the "Merger") and the related merger agreement (the "Merger Agreement") which
provides, among other things, for the public shares of the Company's common
stock to be converted into the right to receive $18.75 in cash, without
interest. The Memorandum of Understanding also acknowledged that the terms of
the Merger have been significantly improved over the terms originally proposed
by Trace Holdings on March 16, 1998, and the Company and the individual director
and officer defendants acknowledged that the filing and prosecution of the
stockholder litigation was a factor they took into account in giving fair
consideration to and entering into the Merger, and Trace Holdings acknowledged
that it took
12
<PAGE>
8. LITIGATION (continued)
into account the desirability of satisfactorily addressing the claims asserted
in the stockholder litigation in agreeing to the increased consideration to be
paid to the public stockholders pursuant to the Merger Agreement.
The Memorandum of Understanding also provided for certification of a
class, for settlement purposes only, consisting of the public stockholders, the
dismissal of the stockholder litigation with prejudice and the release by
plaintiffs and all members of the class of all claims and causes of action that
were or could have been asserted against Trace Holdings, the Company and the
individual defendants in the stockholder litigation or that arise out of the
matters alleged by plaintiffs. In connection with the proposed settlement, the
plaintiffs intend to apply of an award of attorney's fees and litigation
expenses in an amount not to exceed $925,000, and the defendants have agreed not
to oppose this application. Additionally, the Company has agreed to pay the cost
of sending notice of the settlement, if any, to its public shareholders.
The defendants have denied, and continued to deny, that they have
committed or have threatened to commit any violation of law or breaches of duty
to plaintiffs or the purported class. The defendants have agreed to the proposed
settlement because, among other reasons, such settlement would eliminate the
burden and expenses of further litigation and would facilitate the consummation
of a transaction that they believe to be in the best interests of the Company
and the public stockholders.
The Company is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of the
Company 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 revolving
credit borrowings. Foamex Carpet will conduct the carpet cushion business
previously conducted by General Felt.
13
<PAGE>
9. GFI TRANSACTION (continued)
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 $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 per
share and the effect on income and the weighted average number of shares of
dilutive potential common stock.
<TABLE>
<CAPTION>
13 Week Period Ended 26 Week Period Ended
-------------------- --------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
(thousands, except per share amounts)
Basic earnings (loss) per share:
<S> <C> <C> <C> <C>
Net income (loss) $ 9,277 $(32,719) $12,386 $(24,993)
======= ======== ======= ========
Average common stock outstanding 25,012 25,298 24,977 25,304
======= ======== ======= ========
Basic earnings (loss) per share $ 0.37 $ (1.29) $ 0.50 $ (0.99)
======== ========= ======== =========
Diluted earnings (loss) per share:
Net income (loss) available for common stock
and dilutive securities $ 9,277 $(32,719) $12,386 $(24,993)
======= ======== ======= ========
Average common stock outstanding 25,012 25,298 24,977 25,304
Additional common shares resulting
from stock options and warrants 1,112 744 1,113 782
-------- -------- -------- --------
Average common stock and dilutive
stock outstanding 26,124 26,042 26,090 26,086
======= ======= ======= =======
Diluted earnings (loss) per share $ 0.36 $ (1.26) $ 0.48 $ (0.96)
======== ======== ======= ========
</TABLE>
11. COMPREHENSIVE INCOME
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
for the respective periods presented below is comprised of the following:
<TABLE>
<CAPTION>
13 Week Period Ended 26 Week Period Ended
-------------------- --------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
(thousands)
<S> <C> <C> <C> <C>
Net income (loss) $ 9,277 $(32,719) $12,386 $(24,993)
Foreign currency translation adjustments 3 16 230 (168)
------- -------- ------- --------
Total comprehensive income (loss) $ 9,280 $(32,703) $12,616 $(25,161)
======= ======== ======= ========
</TABLE>
14
<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 June 25, 1998, the Company, Trace Holdings, and Trace Merger Sub Inc.
("Trace Merger Sub") entered into an Agreement and Plan of Merger (the "Merger
Agreement"), providing for the merger (the "Merger") of Trace Merger Sub with
and into the Company. Upon consummation of the Merger, the holders of the
outstanding shares of the Company's common stock, other than Trace Holdings and
its subsidiaries, will received, in exchange for their shares, $18.75 per share
in cash. Consummation of the Merger is subject to a number of conditions, many
of which are outside the control of the Company, including: (i) the approval and
adoption of the Merger Agreement by the affirmative vote of the holders of a
majority of the outstanding shares of common stock of the Company; (ii) the
absence of any injunction preventing consummation of the Merger, (iii) the
absence of a material adverse change in the business of the Company, and (iv)
the receipt of requisite financing.
On April 27, 1998, the Company's facility in Orlando, Florida was damaged
by a fire. The Company is in the process of repairing the damages to the
facility and supplying 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. After considering the
Company's insurance coverage, the Company does not believe that the fire will
have a significant impact on the Company's financial position or operations;
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. 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, pursuant to which General Felt sold
substantially all of its assets (other than the Foamex/GFI Note and its
operating facility in Pico Rivera, California) to Foamex Carpet in exchange for
(i) $20.0 million in cash and (ii) a promissory note issued by Foamex Carpet to
Foam Funding LLC in the amount of $70.2 million. The $20.0 million cash payment
was funded by 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 revolving
credit borrowings. Foamex Carpet will conduct the carpet cushion business
previously conducted by General Felt.
15
<PAGE>
On December 23, 1997, the Company acquired Crain Industries, Inc.
("Crain") pursuant to a merger agreement with Crain Holdings Corp. for a
purchase price of approximately $213.7 million, including the assumption of debt
with a face value of approximately $98.6 million (and an estimated fair value of
approximately $112.3 million) (the "Crain Acquisition"). In addition, fees and
expenses associated with the Crain Acquisition 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 $13.6 million and $24.3 million for the thirteen week and
twenty-six week periods ended June 29, 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.
13 Week Period Ended June 28, 1998 Compared to 13 Week Period
Ended June 29, 1997
Results of Operations
Net sales for the second quarter of 1998 were $298.5 million as compared
to $239.9 million in the second quarter of 1997, an increase of $58.6 million or
24.4%. Foam Products net sales for the second quarter of 1998 increased to
$143.7 million from $86.0 million in the second quarter of 1997 primarily due to
net sales from the Crain operations and increased volume from national bedding
customers and fabricators. Carpet Cushion Products net sales for the second
quarter of 1998 decreased 3.5% to $72.4 million from $75.0 million in the second
quarter of 1997 primarily due to the sale of Dalton in October 1997 which
contributed net sales of $13.6 million in 1997 and a reduction in rebond selling
prices as compared to 1997. Automotive Products net sales for the second quarter
of 1998 increased 4.9% to $62.2 million from $59.3 million in the second quarter
of 1997 primarily due to increased volume. Technical Products net sales for the
second quarter of 1998 increased 3.1% to $20.2 million from $19.6 million in the
second 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 18.4% for the
second quarter of 1998 from 18.7% in the second quarter of 1997 primarily due to
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.
Also, the gross profit percentage was lower due to the Company carrying the full
individual operating costs of both organizations during this period, offset in
part by the Company's implementation of restructuring/consolidation programs
during the second quarter of 1998 associated with the Crain Acquisition.
Income from operations increased to $33.9 million for the second quarter
of 1998 from $28.7 million in the second quarter of 1997 primarily due to the
Crain Acquisition.
Income before extraordinary loss decreased to $9.3 million for the second
quarter of 1998 as compared to $9.5 million for the second quarter of 1997. The
decrease was comprised principally of the increase in income from operations of
$5.2 million discussed above, offset by an increase of approximately $3.8
million in interest and debt issuance expense and an increase in other expense
of $1.5 million due primarily to $1.0 million of costs associated with the GFI
Transaction. 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.
16
<PAGE>
The extraordinary loss on early extinguishment of debt during the second
quarter of 1997 of approximately $42.2 million (net of income taxes of $25.9
million) primarily relates to debt extinguished in connection with the June 1997
refinancing plan.
26 Week Period Ended June 28, 1998 Compared to 26 Week Period Ended
June 29, 1997
Results of Operations
Net sales for the twenty-six week period ended June 28, 1998 were $610.8
million as compared to $469.0 million for the twenty-six week period ended June
29, 1997, an increase of $141.8 million or 30.2%. Foam Products net sales for
the twenty-six week period ended June 28, 1998 increased to $298.6 million from
$170.0 million for the twenty-six week period ended June 29, 1997 primarily due
to the net sales from the Crain Acquisition, which occurred in December 1997.
Carpet Cushion Products net sales for the twenty-six week period ended June 28,
1998 increased 1.6% to $145.2 million from $142.9 million for the twenty-six
week period ended June 28, 1997 primarily due to net sales from the Crain
Acquisition offset by (i) the sale of Dalton in October 1997 which contributed
net sales of $24.3 million in 1997, (ii) reductions in rebond selling prices as
compared to 1997 and (iii) changes in product mix. Automotive Products net sales
for the twenty-six week period ended June 28, 1998 increased 5.6% to $125.7
million from $119.0 million for the twenty-six week period ended June 29, 1997
primarily due to increased volume of laminated products. Technical Products net
sales for the twenty-six week period ended June 28, 1998 increased 11.3% to
$41.3 million from $37.1 million for the twenty-six week period ended June 29,
1997 primarily due to increased net sales volume for felted, gasketing, and
sealing products.
Gross profit as a percentage of net sales decreased to 17.1% for the
twenty-six week period ended June 28, 1998 from 18.7% in the twenty-six week
period ended June 29, 1997 primarily due to 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. Also, the gross profit percentage
was lower due to the Company carrying the full individual operating costs of
both organizations during this period, offset in part by the Company's
implementation of restructuring/consolidation programs during the second quarter
of 1998 associated with the Crain Acquisition.
Income from operations increased to $60.4 million for the twenty-six week
period ended June 28, 1998 from $55.5 million in the twenty-six week period
ended June 29, 1997 primarily due to the Crain Acquisition.
Income before extraordinary loss decreased to $14.3 million for the
twenty-six week period ended June 28, 1998 as compared to $17.6 million for the
twenty-six week period ended June 29, 1997. The decrease is primarily comprised
of an increase of approximately $7.4 million in interest and debt issuance
expense and an increase in other expense of $2.8 million due primarily to $2.0
million of costs associated with the GFI Transaction, offset in part by the
increase in income from operations of $4.9 million discussed above. 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.
The extraordinary loss on early extinguishment of debt during the
twenty-six week period ended June 29, 1997 of approximately $42.6 million (net
of income taxes of $26.1 million) primarily relates to the write-off of debt
issuance costs associated with debt extinguished in connection with the June
1997 refinancing plan.
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.
17
<PAGE>
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 June 28, 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 June 28, 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 increased $6.1 million during 1998 to $18.2
million at June 28, 1998 from $12.0 million at December 28, 1997 primarily due
to increased borrowings offset by cash used for capital expenditures, the Crain
Acquisition and an increase in cash used by the operating assets and
liabilities. Working capital increased $62.7 million during 1998 to $201.2
million at June 28, 1998 from $138.5 million at December 28, 1997 primarily due
to the increase in net operating assets and a net increase in other current
assets and liabilities. 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 timing of receipt of cash for other
receivables. Net operating assets (comprised of accounts receivable, inventories
and accounts payable) increased $34.1 million during 1998 to $198.4 million at
June 28, 1998 from $164.3 million at December 28, 1997 primarily due to
increases in accounts receivable and inventories aggregating $7.6 million and a
decrease in accounts payable of $26.5 million. The decrease in accounts payable
is primarily due to the timing of payments.
As of June 28, 1998, there were $137.4 million of revolving credit
borrowings under the Credit Facility and approximately $49.7 million associated
with letters of credit outstanding which are supported by the Credit Facility
with unused availability of approximately $13.0 million. As of June 28, 1998,
Foamex Carpet Credit Facility had unused availability of approximately $19.1
million. Borrowings by Foamex Canada, Inc. as of June 28, 1998 were $4.3 million
under Foamex Canada Inc.'s revolving credit agreement with unused availability
of approximately $1.0 million.
Cash flow used for operating activities was $22.1 million for the
twenty-six weeks ended June 28, 1998 as compared to cash used of $46.2 million
for the twenty-six weeks ended June 29, 1997. This 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.
18
<PAGE>
Cash flow used for investing activities was $20.3 million for the
twenty-six week period ended June 28, 1998 as compared to cash used of $4.3
million for the twenty-six week period ended June 29, 1997. The increase in cash
used for investing activities in 1998 is primarily due to $4.4 million paid in
1998 in connection with the Crain Acquisition offset by a decrease in restricted
cash in 1997 of $12.1 million used to repay long-term debt.
Cash flow provided by financing activities increased to $48.5 million for
the twenty-six week period ended June 28, 1998 as compared to cash provided of
$35.6 million for the twenty-six week period ended June 29, 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.
Interest Rate Swaps
The Company enters into interest rate swaps to lower funding costs and/or
to manage interest costs and exposure to changing interest rates. The Company
does not hold or issue financial instruments for trading purposes.
On January 8, 1998, the Company entered into an amended interest rate
swap agreement, which provides for an interest rate swap agreement with a
notional amount of $150.0 million through June 2002. Under this agreement, the
Company is obligated to make fixed payments of 5.78% per annum through December
1998 and variable payments based on LIBOR at the beginning of each six month
period for the remainder of the agreement, in exchange for fixed payments by the
swap partner at 6.44% per annum for the life of the agreement, payable
semiannually in arrears. The newly amended interest rate swap agreement can be
terminated by the swap partner at the end of each six month period commencing
December 1999.
The Company is exposed to credit loss in the event of a nonperformance by
the swap partner; however, the occurrence of this event is not anticipated. The
effect of the interest rate swap agreement was a favorable adjustment to
interest and debt issuance expense of $0.2 million and $0.8 million for the
thirteen week periods ended June 28, 1998 and June 29, 1997, respectively, and
$0.4 million and $1.7 million for the twenty-six week periods ended June 28,
1998 and June 29, 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 June 28, 1998 was $4.7 million. In addition, as of
June 28, 1998, the Company has net receivables of approximately $0.6 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, including those
described in the footnotes to the Company's 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
19
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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 has and will continue to make certain investments in its
software systems and applications to ensure the Company is Year 2000 compliant.
The Company plans to continue to make modifications to the identified software
during 1998 and test the changes during 1998. The financial impact to the
Company has not been and is not anticipated to be material to its financial
position or results of operations in any given year.
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.
20
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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-2 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 accompanying condensed
consolidated financial statements of the Company as of June 28, 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 June 25, 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.
21
<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.
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4.4.16(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Latin America, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.17(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.18(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.19(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.20(p) - Subsidiary Security Agreement, dated as of June 12, 1997, made by
FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.21(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.
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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.
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.
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<PAGE>
10.10.3(k) - Equity Growth Participation Program.
10.10.4(o) - The Foamex L.P. Salaried Pension Plan (formerly the General Felt
Industries, Inc. Retirement Plan for Salaried Employees), effective
as of January 1, 1995.
10.10.5(u) - The Foamex L.P. Hourly Pension Plan (formerly "The Foamex Products
Inc. Hourly Employee Retirement Plan), as amended December 31, 1995.
10.10.6(u) - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.7(a) - Foamex L.P.'s 1993 Stock Option Plan.
10.10.8(a) - Foamex L.P.'s Non-Employee Director Compensation Plan.
10.11.1(o) - Employment Agreement, dated as of February 1, 1994, by and between
Foamex L.P. and William H. Bundy.
10.12.1(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 twenty-six week period
ended June 28, 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.
25
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(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.
(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 June 25, 1998.
26
<PAGE>
Certain instruments defining the rights of security holders have been
excluded herefrom in accordance with Item 601(b)(4)(iii) of Regulation S-K. The
registrant hereby agrees to furnish a copy of any such instrument to the
Commission upon request.
(b) The Company filed the following Current Reports on Form 8-K:
Form 8-K/A, dated May 12, 1998, reporting the restated financial
statements of Foamex L.P. elating to the GFI Transaction.
Form 8-K, dated June 30, 1998, reporting the signing of the Merger
Agreement on June 25, 1998.
27
<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: August 13, 1999 By: /s/ George L. Karpinski
-----------------------------
George L. Karpinski
Senior Vice President, Treasurer
and Assistant Secretary
28
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
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0
0
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