SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
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
8, 2000 was 25,059,994.
<PAGE>
<TABLE>
<CAPTION>
FOAMEX INTERNATIONAL INC.
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements.
<S> <C>
Condensed Consolidated Statements of Operations (unaudited) -
Quarterly and Year to Date Periods Ended June 30, 2000 and 1999 3
Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2000
and December 31, 1999 4
Condensed Consolidated Statements of Cash Flows (unaudited) - Year to Date
Periods Ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.25
Part II. Other Information
Item 1. Legal Proceedings. 26
Item 2. Changes in Securities. 26
Item 4. Submission of Matters to a Vote of Security Holders. 26
Item 6. Exhibits and Reports on Form 8-K. 27
Signatures 28
</TABLE>
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
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(thousands, except per share data)
<S> <C> <C> <C> <C>
NET SALES $319,109 $313,029 $644,971 $635,892
COST OF GOODS SOLD 271,736 269,252 554,262 548,518
-------- -------- -------- --------
GROSS PROFIT 47,373 43,777 90,709 87,374
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 18,234 18,466 37,056 37,294
RESTRUCTURING AND OTHER CHARGES - 3,667 3,222 7,124
-------- -------- -------- --------
INCOME FROM OPERATIONS 29,139 21,644 50,431 42,956
INTEREST AND DEBT ISSUANCE EXPENSE 18,771 17,675 37,400 35,371
INCOME FROM EQUITY INTEREST IN JOINT VENTURE 440 - 732 -
OTHER INCOME (EXPENSE), NET (874) (287) (1,805) 3,064
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 9,934 3,682 11,958 10,649
PROVISION FOR INCOME TAXES 1,948 505 2,189 1,459
-------- -------- -------- --------
NET INCOME $ 7,986 $ 3,177 $ 9,769 $ 9,190
======== ======== ======== ========
EARNINGS PER SHARE
BASIC $ 0.32 $ 0.13 $ 0.39 $ 0.37
======== ======== ======== ========
DILUTED $ 0.32 $ 0.13 $ 0.39 $ 0.37
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES - BASIC 25,060 25,053 25,059 25,053
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
AND EQUIVALENTS - DILUTED 25,092 25,083 25,274 25,173
========= ======== ======== ========
</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>
ASSETS June 30, 2000 December 31, 1999
------------- -----------------
CURRENT ASSETS (thousands, except share data)
<S> <C> <C>
Cash and cash equivalents $ 2,231 $ 6,577
Accounts receivable, net of allowances of $9,802
in 2000 and $9,549 in 1999 189,414 166,571
Inventories 96,199 97,882
Other current assets 21,304 23,662
-------- --------
Total current assets 309,148 294,692
-------- --------
Property, plant and equipment 389,616 384,978
Less accumulated depreciation (173,291) (163,145)
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 216,325 221,833
COST IN EXCESS OF ASSETS ACQUIRED, net of accumulated
amortization of $26,159 in 2000 and $23,252 in 1999 212,148 215,258
DEBT ISSUANCE COSTS, net of accumulated
amortization of $8,659 in 2000 and $6,791 in 1999 17,098 18,966
OTHER ASSETS 26,683 30,564
-------- --------
TOTAL ASSETS $781,402 $781,313
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Short-term borrowings $ 2,494 $ 1,627
Current portion of long-term debt 7,705 7,866
Current portion of long-term debt - related party 11,408 10,530
Accounts payable 100,039 86,576
Accrued employee compensation and benefits 17,879 17,878
Accrued interest 8,906 9,741
Accrued customer rebates 18,652 22,823
Other accrued liabilities 31,671 32,005
-------- --------
Total current liabilities 198,754 189,046
LONG-TERM DEBT 667,589 646,544
LONG-TERM DEBT - RELATED PARTY 38,610 78,753
OTHER LIABILITIES 33,202 33,351
-------- --------
Total liabilities 938,155 947,694
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' 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 27,048,994 and 27,045,480 shares, respectively;
Outstanding 25,059,994 and 25,056,480 shares, respectively 270 270
Additional paid-in capital 87,499 87,475
Accumulated deficit (208,176) (217,945)
Accumulated other comprehensive income (loss) (7,923) (7,758)
Other (28,423) (28,423)
-------- --------
Total stockholders' deficit (156,753) (166,381)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $781,402 $781,313
======== ========
</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
June 30, June 30,
2000 1999
-------- --------
(thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 9,769 $ 9,190
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 17,271 16,798
Amortization of debt issuance costs, debt discount,
debt premium and deferred swap adjustment and gain 615 193
Asset writedowns and other charges 626 2,073
(Gain) loss on disposition of assets 604 (4,217)
Other operating activities 2,603 6,534
Changes in operating assets and liabilities, net (12,434) (12,259)
-------- --------
Net cash provided by operating activities 19,054 18,312
-------- --------
INVESTING ACTIVITIES
Capital expenditures (10,596) (10,820)
Proceeds from sale of assets 3,571 16,313
Other investing activities (445) 924
-------- --------
Net cash provided by (used for) investing activities (7,470) 6,417
-------- --------
FINANCING ACTIVITIES
Net proceeds from short-term borrowings 867 1,743
Net proceeds from (repayments of) revolving loans 40,160 (4,463)
Repayment of long-term debt (18,493) (14,395)
Repayment of long-term debt - related party (39,265) (4,388)
Increase (decrease) in cash overdrafts 777 (4,938)
Debt issuance costs - (7,993)
Other financing activities 24 249
-------- --------
Net cash used for financing activities (15,930) (34,185)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,346) (9,456)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 6,577 12,572
-------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,231 $ 3,116
======== ========
</TABLE>
The accompanying notes are an integral part
of the condensed consolidated financial statements.
5
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Basis of Presentation
The condensed consolidated financial statements are unaudited, but in the
opinion of management include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly Foamex International Inc.'s
(the "Company") financial position and results of operations. These interim
financial statements should be read in conjunction with the financial statements
and related notes included in the 1999 Annual Report on Form 10-K. Results for
interim periods are not necessarily indicative of trends or of results for a
full year.
Change in Control
Trace International Holdings, Inc. ("Trace") is a privately held company,
which owned approximately 29% of the Company's outstanding voting common stock
at July 31, 2000, and whose former Chairman also serves as the Company's
Chairman. The Company's common stock owned by Trace is pledged as collateral
against certain of Trace's obligations. Certain credit agreements and promissory
notes of the Company's subsidiaries, pursuant to which approximately $453.3
million of principal was outstanding as of June 30, 2000, provides that a
"change of control" would be an event of default and could result in the
acceleration of such indebtedness. "Change of control" means, for this purpose,
that (i) a person or related group, other than Trace, beneficially owns more
than 25% of the Company's outstanding voting stock and (ii) such voting stock
constitutes a greater percentage of such voting stock than the amount
beneficially owned by Trace. Additionally, certain indentures of Foamex L.P. and
Foamex Capital Corporation ("FCC") relating to senior subordinated notes of
$248.0 million contain similar "change of control" provisions, which require
Foamex L.P. and FCC to tender for such notes at a price in cash equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if there is such a "change of control".
On July 21, 1999, the Company was informed by Trace that it filed a
petition for relief under Chapter 11 of the Bankruptcy Code in Federal Court in
New York City. Subsequently, on January 24, 2000, an order was signed converting
the Trace bankruptcy from Chapter 11 to Chapter 7 of the Bankruptcy Code. A
trustee was appointed to oversee the liquidation of Trace's assets. Neither
Trace's bankruptcy filing nor the conversion to Chapter 7 constituted a "change
of control" under the provisions of the debt agreements described above. A
"change of control" could take place however, if the bankruptcy court allows the
Trace creditors to foreclose on and take ownership of the Company's common stock
owned by Trace, or otherwise authorizes a sale or transfer of these shares,
under circumstances in which a person or related group, other than Trace,
acquired more than 25% of the Company's outstanding voting stock and owned a
greater percentage of such voting stock than the amount beneficially owned by
Trace.
On July 31, 2000, the Company announced that it had entered into an
agreement (the "Exchange Agreement") with The Bank of Nova Scotia relating to a
portion of the 7,197,426 shares of the Company's common stock pledged by Trace
to The Bank of Nova Scotia. The Exchange Agreement provides for the transfer of
the pledged stock to The Bank of Nova Scotia in a manner that will not
constitute a "change of control" as described above. Under the Exchange
Agreement, The Bank of Nova Scotia will initially receive 1,500,000 shares of
the Company's common stock from the Trace bankruptcy estate and exchange these
common stock shares for 15,000 shares of a new class of the Company's non-voting
non-redeemable convertible preferred stock (the "Series B Preferred Stock").
Each share of the Series B Preferred Stock can be converted into 100 shares of
the Company's common stock; but, only if such conversion would not trigger a
"change of control" event, as discussed above. The Series B Preferred Stock
would be entitled to dividends only if a dividend is declared on the Company's
common stock, rank senior to any future preferred stock issued by the Company
and be entitled to a liquidation preference of $100 per share. Following this
exchange, The Bank of Nova Scotia will become the owner of less than 25% of the
outstanding shares of the Company's common stock when the remaining 5,697,426
shares of the Company's common stock are transferred to The Bank of Nova Scotia
from the Trace bankruptcy estate.
These transactions are conditioned upon a settlement agreement between The
Bank of Nova Scotia and the trustee for the Trace bankruptcy being approved by
the bankruptcy court. Upon completion of these transactions, Trace will no
longer own any shares of the Company's common stock.
6
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION (continued)
Management believes that it is unlikely that a "change of control" will
occur as a result of Trace's bankruptcy proceedings particularly in light of the
Exchange Agreement. However, if the transactions contemplated by the Exchange
Agreement are not consummated, the Company would seek to resolve the issues that
may arise should the "change of control" provisions be triggered, by requesting
waivers of such provisions and/or refinancing certain debt, if necessary. There
can be no assurance that the Company or its subsidiaries will be able to do so,
or that the Company will be able to obtain waivers of such provisions. Such
circumstances would raise substantial doubt about the Company's ability to
continue as a going concern if the transactions contemplated by the Exchange
Agreement are not consummated. The accompanying financial statements were
prepared on a going-concern basis and do not include any adjustments that might
result from the outcome of the Trace bankruptcy filing.
Future Accounting Changes - Accounting for Derivatives and Hedging Activities
As previously reported, Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133") will require the fair value of derivatives be recognized in the
consolidated balance sheets. Changes in the fair value of derivatives will be
recognized in earnings or in other comprehensive income, essentially depending
on the structure and purpose of the derivatives. During 2000, SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities",
which amends SFAS No. 133 on a limited number of issues, was issued. The
statements will be effective for all quarters of all fiscal years beginning
after June 15, 2000, which is the first calendar quarter of 2001 for the
Company. The Company continues to evaluate the impact that the adoption of these
SFAS's will have on its results of operations or financial position.
Future Accounting Changes - Revenue Recognition and Presentation
The Securities and Exchange Commission (the "SEC") has issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". SAB No. 101 will be effective (as amended by SAB No. 101B) in the
fourth quarter of 2000 for the Company. SAB No. 101 outlines the SEC's position
that revenue should not be recognized until it is realized or realizable,
including the criteria that need to be met. The Company's current policy is that
revenue recognition from sales, net of discounts and estimated returns,
allowances and rebates, is recognized when products are shipped at which time
title passes to the customer. The Company continues to evaluate the impact, if
any, that the adoption of SAB No. 101 will have on results of operations.
During July 2000, the Emerging Issues Task Force (the "EITF") of the
Financial Accounting Standards Board reached a consensus on an issue concerning
the components of revenue. EITF No. 00-10 "Accounting for Shipping and Handling
Revenues and Costs" essentially requires that shipping and handling costs that
are billed to a customer be included in revenue. Accordingly, the Company has
determined that a portion of shipping costs billed to customers will require a
reclassification from cost of sales to revenue, but continues to work on
accumulating the dollar impact. EITF No. 00-10 will be effective in the fourth
calendar quarter of 2000 and will require reclassification of prior periods.
2. BUYOUT PROPOSALS
As previously reported in the Annual Report on Form 10-K for 1999, on
February 9, 2000, the Company announced that it was in discussions with respect
to a proposal involving the acquisition of all of the Company's outstanding
common stock for cash. On April 5, 2000, the Company announced that discussions
with the potential buyer were terminated with no agreement having been reached.
The Company subsequently terminated the engagement of J.P. Morgan & Company,
Inc. ("JP Morgan"), which acted as financial advisor in connection with such
transaction. During the second quarter of 2000, the Company ended discussions
with JP Morgan concerning an additional engagement.
3. INCOME TAXES
The effective tax rates in 2000 and 1999 reflect the partial reversal of
the deferred income tax asset valuation allowance recognized in 1998. The
valuation allowance was reduced to reflect the utilization of Federal loss
carryforwards that reduced the current tax component of the Federal tax
provision. Additionally, the valuation
7
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. INCOME TAXES (continued)
allowance was reduced to offset the net deferred Federal tax liability generated
in 2000 and 1999. The effective tax rate was higher in 2000 compared to 1999
primarily due to a greater percentage of income from foreign sources.
4. EARNINGS PER SHARE
The following table shows the amounts used in computing earnings per share.
<TABLE>
<CAPTION>
Quarterly Periods Ended Year to Date Periods Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(thousands, except per share amounts)
Basic earnings per share
<S> <C> <C> <C> <C>
Net income $ 7,986 $ 3,177 $ 9,769 $ 9,190
======= ======= ======= =======
Average common stock outstanding 25,060 25,053 25,059 25,053
======= ======= ======= =======
Basic earnings per share $ 0.32 $ 0.13 $ 0.39 $ 0.37
======= ======= ======= =======
Diluted earnings per share
Net income available for common stock
and dilutive securities $ 7,986 $ 3,177 $ 9,769 $ 9,190
======= ======= ======= =======
Average common stock outstanding 25,060 25,053 25,059 25,053
Common stock equivalents resulting
from stock options (a) 32 30 215 120
------- ------- ------- -------
Average common stock and dilutive
equivalents 25,092 25,083 25,274 25,173
======= ======= ======= =======
Diluted earnings per share $ 0.32 $ 0.13 $ 0.39 $ 0.37
======= ======= ======= =======
<FN>
(a) The number of stock options that were not included in the diluted earnings
per share calculations because the exercise price was greater than the
average market price totaled 1,897,100 and 963,800 for the second quarter
of 2000 and 1999, respectively. The number of stock options not included in
the diluted earnings per share calculations for the first half of 2000 was
1,286,600 and 1,005,900 in the first half of 1999.
</FN>
</TABLE>
5. COMPREHENSIVE INCOME
The components of comprehensive income are listed below.
<TABLE>
<CAPTION>
Quarterly Periods Ended Year to Date Periods Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
(thousands)
<S> <C> <C> <C> <C>
Net income $ 7,986 $ 3,177 $ 9,769 $ 9,190
Foreign currency translation adjustments (471) 399 (165) 811
------- ------- ------- -------
Total comprehensive income $ 7,515 $ 3,576 $ 9,604 $10,001
======= ======= ======= =======
</TABLE>
8
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
6. RESTRUCTURING AND OTHER CHARGES
During the first quarter of 2000, restructuring and other charges of
approximately $3.2 million were recorded. The provision included $2.1 million in
work force reduction costs for 30 employees, including certain executives, and
employees impacted by the closure of certain operations related to a VPFSM
capacity increase in North Carolina. Additionally, facility closure costs
totaled $0.3 million and related equipment writedowns were $0.4 million. The
first quarter 2000 provision also included $0.4 million related to changes in
estimates to prior year plans.
The Company paid $3.2 million during the first half of 2000 for the various
restructuring plans recorded as of December 31, 1999 and during the first
quarter of 2000. As of June 30, 2000, the components of the net accrued
restructuring and plant consolidation balance included $8.8 million for plant
closures and leases and $3.3 million for personnel reductions. Included in
current assets was $1.5 million and in noncurrent assets was $0.2 million of
estimated proceeds for facilities actively being marketed for sale. During the
second quarter of 2000, the Company sold a facility relating to a prior year
restructuring plan for proceeds of approximately $3.6 million. Substantially all
employees impacted by the first quarter 2000 work force reduction were
terminated by the end of the second quarter of 2000. Approximately $3.3 million
is expected to be spent during the remainder of 2000 for the various
restructuring plans.
7. INVENTORIES
The components of inventory are listed below.
June 30, December 31,
2000 1999
-------- ------------
(thousands)
Raw materials and supplies $61,264 $67,520
Work-in-process 12,314 11,574
Finished goods 22,621 18,788
------- -------
Total $96,199 $97,882
======= =======
8. LONG-TERM DEBT
The components of long-term debt are listed below.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
Foamex L.P. credit facility (thousands)
<S> <C> <C>
Term loan B (a) (e) $ 77,335 $ 81,874
Term loan C (a) (e) 70,305 74,431
Term loan D (a) (e) 101,826 107,800
Revolving credit facility (a) (b) (c) (e) 153,845 113,685
Foamex Carpet credit facility (d) - -
9 7/8% senior subordinated notes due 2007 150,000 150,000
13 1/2% senior subordinated notes due 2005 (includes
$9,204 and $10,100 of unamortized debt premium) 107,204 108,100
Industrial revenue bonds 7,000 7,000
Subordinated note payable (net of unamortized
debt discount of $118 and $232) 2,220 4,444
Other 5,559 7,076
-------- --------
675,294 654,410
Less current portion 7,705 7,866
-------- --------
Long-term debt - unrelated parties $667,589 $646,544
======== ========
</TABLE>
9
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
8. LONG-TERM DEBT (continued)
The components of related party long-term debt are listed below.
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
(thousands)
<S> <C> <C>
Foamex/GFI Note (c) $ - $ 34,000
Note payable to Foam Funding LLC (f) 50,018 55,283
-------- --------
50,018 89,283
Less current portion 11,408 10,530
-------- --------
Long-term debt - related party $ 38,610 $ 78,753
======== ========
<FN>
(a) Effective January 1, 2000, the interest rate on outstanding borrowings
under the Foamex L.P. credit facility will increase by 25 basis points each
quarter that Foamex L.P.'s leverage ratio, as defined, exceeds 5.00 to
1.00. Once the leverage ratio is reduced below this level, the cumulative
amount of the 25 basis point adjustments to the interest rate on borrowings
will be eliminated. At December 31, 1999, the calculated leverage ratio was
5.48 to 1.00. Consequently, the basis point adjustment was applicable for
the calculation of interest in the first quarter of 2000. At March 31,
2000, the calculated leverage ratio was 5.51 to 1.00 and an additional 25
basis point adjustment became effective in the second quarter of 2000. At
June 30, 2000, the calculated ratio was 5.32 to 1.00. Accordingly, an
additional 25 basis point adjustment will become effective during the third
quarter of 2000.
(b) At June 30, 2000, the revolving credit facility commitment was $180.0
million, the weighted average interest rate was 10.78%, available
borrowings totaled $13.6 million and letters of credit outstanding totaled
$12.6 million. The commitment under the revolving credit facility is
reduced $2.5 million each quarter during the remaining term of the
agreement, which expires in June 2003.
(c) During the first quarter of 2000, the Foamex/GFI Note was repaid with
borrowings under the Foamex L.P. revolving credit facility. The $34.5
million letter of credit that was outstanding at year-end 1999 to
collateralize principal and interest payable under the Foamex/GFI Note was
also terminated.
(d) At June 30, 2000, available borrowings under the Foamex Carpet credit
facility totaled $14.8 million and approximately $0.2 million for a letter
of credit outstanding.
(e) As previously reported in the Annual Report on Form 10-K for 1999, excess
cash flow generated annually, as defined, is required to be used to prepay
portions of the Foamex L.P. Term B, C and D loans. The prepayment amount
determined for 1999 was $13.3 million. During the second quarter of 2000,
the payment was made as scheduled and was financed through borrowings under
the Foamex L.P. revolving credit facility.
(f) See Note 11 for disclosure of principal and interest payments.
</FN>
</TABLE>
Debt Covenants
The indentures, credit facilities and other indebtedness agreements contain
certain covenants that limit, among other things to varying degrees, the ability
of the Company's subsidiaries (i) to pay distributions or redeem equity
interests, (ii) to make certain restrictive payments or investments, (iii) to
incur additional indebtedness or issue Preferred Equity Interests, as defined,
(iv) to merge, consolidate or sell all or substantially all of its assets or (v)
to enter into certain transactions with affiliates or related persons. In
addition, certain agreements contain provisions that, in the event of a defined
change of control or the occurrence of an undefined material adverse change in
the ability of the obligor to perform its obligations, the indebtedness must be
repaid, in certain cases, at the option of the holder. Also, the Company's
subsidiaries are required under certain of these agreements to maintain
specified
10
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
8. LONG-TERM DEBT (continued)
financial ratios of which the most restrictive are the maintenance of net worth,
interest coverage, fixed charge coverage and leverage ratios, as defined. Under
the most restrictive of the distribution restrictions, the Company was available
to be paid by its subsidiaries as of June 30, 2000, funds only to the extent
necessary to enable the Company to meet its tax payment liabilities.
Foamex L.P. and Foamex Carpet Cushion, Inc. ("Foamex Carpet"), the
principal subsidiaries of the Company, were in compliance with the various
financial covenants of their loan agreements as of June 30, 2000.
9. STOCK OPTIONS
At the Annual Meeting of Stockholders on June 30, 2000, stockholders
approved amendments to the 1993 Stock Option Plan to increase from 3,000,000 to
4,750,000 the number of shares of the Company's common stock that may be issued
and to allow future option grants to qualify as "performance-based compensation"
for purposes of the Internal Revenue Code of 1986, as amended.
10. SEGMENT RESULTS
Foam Products manufactures and markets foam used by the bedding industry,
the furniture industry and the retail industry. Carpet Cushion Products
manufactures and distributes prime, rebond, sponge rubber and felt carpet
cushion. Automotive Products supplies foam primarily for automotive interior
applications. Technical Products manufactures and markets reticulated foams and
other custom polyester and polyether foams for industrial, specialty and
consumer and safety applications. The "other" column in the table below
represents certain foreign manufacturing operations in Mexico, corporate
expenses not allocated to other business segments and restructuring and other
charges.
Segment results are presented below.
<TABLE>
<CAPTION>
Carpet
Foam Cushion Automotive Technical
Products Products Products Products Other Total
-------- -------- ---------- ---------- ------- --------
(thousands)
Quarterly period ended June 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Net sales $130,753 $61,996 $92,428 $26,176 $7,756 $319,109
Income (loss) from operations 15,424 1,200 7,262 6,859 (1,606) 29,139
Depreciation and amortization 4,161 1,829 1,192 646 727 8,555
Quarterly period ended June 30, 1999
Net sales $126,315 $66,081 $90,810 $23,028 $6,795 $313,029
Income (loss) from operations 12,831 1,234 5,789 6,017 (4,227) 21,644
Depreciation and amortization 4,381 1,497 1,280 667 341 8,166
Year to date period ended June 30, 2000
Net sales $260,847 $122,042 $189,739 $53,630 $18,713 $644,971
Income (loss) from operations 28,202 (719) 14,428 14,363 (5,843) 50,431
Depreciation and amortization 8,089 4,004 2,395 1,289 1,494 17,271
Year to date period ended June 30, 1999
Net sales $267,184 $130,880 $179,581 $45,276 $12,971 $635,892
Income (loss) from operations 25,870 2,967 12,355 10,870 (9,106) 42,956
Depreciation and amortization 8,843 3,060 2,625 1,383 887 16,798
</TABLE>
11
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
11. RELATED PARTY TRANSACTIONS AND BALANCES
Foam Funding LLC Debt
During the quarter and year to date periods ended June 30, 2000,
subsidiaries of the Company paid $1.3 million and $3.3 million of interest,
respectively, on notes payable to Foam Funding LLC. During the quarter and year
to date periods ended June 30, 2000, subsidiaries of the Company paid $2.7
million and $39.3 million of principal, respectively, on notes payable to Foam
Funding LLC. Included in the principal payments was the repayment of the
Foamex/GFI Note discussed in Note 8.
During the quarter and year to date periods ended June 30, 1999,
subsidiaries of the Company paid $1.9 million and $3.7 million of interest on
notes payable to Foam Funding LLC.
12. COMMITMENTS AND CONTINGENCIES
Litigation - Shareholder
On August 1, 2000, the Company announced that it had reached agreements in
principle with the plaintiffs in the stockholder actions described below
providing for the settlement and dismissal of such actions, subject to certain
conditions, including court approval.
The Shareholder Litigation. Beginning on March 17, 1998, six actions, which
were subsequently consolidated under the caption In re Foamex International Inc.
Shareholder Litigation, were filed in the Court of Chancery of the State of
Delaware, and on August 13, 1999 another action, Watchung Road Associates, L.P.,
et al. v. Foamex International Inc., et al., was filed in the same court. The
two actions were consolidated on May 3, 2000, into a single action under the
caption In re Foamex International Inc. Shareholder Litigation (the "Delaware
Action"). The Delaware Action, a purported derivative and class action on behalf
of the Company and its stockholders, originally named as defendants the Company,
certain of its current and former directors and officers, Trace and a Trace
affiliate. The complaint in the Delaware Action alleges, among other things,
that certain of the defendants breached their fiduciary duties to the Company in
connection with an attempt by Trace to acquire the Company's publicly traded
common stock as well as with a potential acquisition transaction with a group
led by Sorgenti Chemical Industries LLC, and that certain of the defendants
breached their fiduciary duties by causing the Company to waste assets in
connection with a variety of transactions entered into with Trace and its
affiliates. The Delaware Action seeks various remedies, including injunctive
relief, money damages and the appointment of a receiver for the Company.
On April 26, 1999, a putative securities class action entitled Molitor v.
Foamex International Inc., et al., was filed in the United States District Court
for the Southern District of New York naming as defendants the Company, Trace
and certain current and former officers and directors of the Company, on behalf
of stockholders who bought shares of the Company's common stock during the
period from May 7, 1998 through and including April 16, 1999. The lawsuit
alleges that the defendants violated Section 10(b) of the Securities Exchange
Act of 1934 and Rule 10b-5 by misrepresenting and/or omitting material
information about the Company's financial situation and operations, with the
result of artificially inflating the price of the Company's stock. The lawsuit
also alleges that Trace and Marshall S. Cogan violated Section 20(a) of the
Securities Exchange Act of 1934 as controlling persons of the Company. The
complaint sought class certification, a declaration that defendants violated the
federal securities laws, an award of money damages, and costs and attorneys',
accountants' and experts' fees. On May 18, 1999, a similar action entitled
Thomas W. Riley v. Foamex International Inc., et al., was filed in the same
court. The two actions were consolidated and a consolidated complaint was filed;
the consolidated suit is referred to herein as the "Federal Action".
The Settlements. Under the terms of the agreement in principle to settle
the Federal Action, members of the class of shareholders who purchased shares of
common stock between May 7, 1998 and April 16, 1999 will receive payments as
defined in the agreement. Payment to class members in the Federal Action, along
with plaintiffs'
12
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
12. COMMITMENTS AND CONTINGENCIES (continued)
lawyers' fees in the Federal Action and the Delaware Action, will be paid by the
Company's insurance carrier on behalf of the Company.
Under the terms of the agreement to settle the Delaware Action, the Company
agreed that a special nominating committee of the Board of Directors, consisting
of Robert J. Hay as chairman, Stuart J. Hershon, John G. Johnson, Jr., and John
V. Tunney, will nominate two additional independent directors to serve on the
Board. The terms of the agreement also establish the criteria for the
independence of the directors and require that certain transactions with
affiliates be approved by a majority of the disinterested members of the Board.
Both settlements are subject to final documentation and court approval,
which, if obtained, will resolve all outstanding shareholder litigation against
the Company and its current and former directors and officers. The settlements
involve no admissions or findings of liability or wrongdoing by the Company or
any individuals.
Litigation - Breast Implants
As of August 7, 2000, the Company and Trace were two of multiple defendants
in actions filed on behalf of approximately 3,623 recipients of breast implants
in various United States federal and state courts and one Canadian provincial
court, some of which allege substantial damages, but most of which allege
unspecified damages for personal injuries of various types. Three of these cases
seek to allege claims on behalf of all breast implant recipients or other
allegedly affected parties, but no class has been approved or certified by the
court. In addition, three cases have been filed alleging claims on behalf of
approximately 39 residents of Australia, New Zealand, England, and Ireland. The
Company believes that the number of suits and claimants may increase. During
1995, the Company and Trace 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.
Neither the Company nor Trace recommended, authorized, or approved the use of
its foam for these purposes. The Company is also indemnified by Trace for any
such liabilities relating to foam manufactured prior to October 1990. Trace's
insurance carrier has continued to pay the Company's litigation expenses after
Trace's filing under the Bankruptcy Code. Trace's insurance policies continue to
cover certain liabilities of Trace but if the limits of those policies are
exhausted, Trace will be unable to provide additional indemnification. While it
is not feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with counsel for the Company, and without taking into account the
indemnification provided by Trace, the coverage provided by Trace's and the
Company's liability insurance and potential indemnity from the manufacturers of
polyurethane covered breast implants, management believes that the disposition
of the 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
consolidated financial position or results of operations. If management's
assessment of the Company's liability with respect to these actions is
incorrect, such actions could have a material adverse effect on the financial
position, results of operations and cash flows of the Company.
Litigation - Other
The Company is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not, individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of the Company. If management's assessment of the
Company's liability with respect to these actions is incorrect, such actions
could have a material adverse effect on the financial position, results of
operations and cash flows of the Company.
13
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
12. COMMITMENTS AND CONTINGENCIES (continued)
Environmental
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. As of June 30, 2000, the Company had accruals of
approximately $4.3 million for environmental matters. During 1998, the Company
established an allowance of $1.2 million relating to receivables from Trace for
environmental indemnifications due to the financial difficulties of Trace.
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. The final National
Emission Standard for Hazardous Air Pollutants ("NESHAP") was promulgated
October 7, 1998. NESHAP requires a reduction of approximately 70% of the
emission of methylene chloride for the slab stock foam industry effective
October 7, 2001. The Company believes that the use of alternative technologies,
including VPFSM, which do not utilize methylene chloride and its ability to
shift current production to the facilities which use these alternative
technologies will minimize the impact of these regulations. The 1990 CAA
Amendments also may result in the imposition of additional standards regulating
air emissions from polyurethane foam manufacturers, but these standards have not
yet been proposed or promulgated.
The Company has reported to the appropriate state authorities that it has
found soil and/or groundwater contamination in excess of state standards at
seven sites. These sites are in various stages of investigation or remediation.
Accordingly, the extent of contamination and the ultimate liability is not known
with certainty for all sites. The Company has accruals of $3.1 million for the
estimated cost of remediation, including professional fees and monitoring costs,
for these sites. During 2000, Foamex L.P., a wholly owned subsidiary of the
Company, reached an indemnification agreement with the former owner of the
Morristown, Tennessee facility. The agreement allocates the incurred and future
remediation costs between the former owner and Foamex L.P. The estimated
allocation of future costs for the remediation of this facility is not
significant, based on current information known. The former owner was Recticel
Foam Corporation, a subsidiary of Recticel s.a.
Federal regulations required 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 upgraded all USTs at its facilities in accordance
with these regulations. Some petroleum contamination in soils was found at one
of the sites; the extent of the contamination is currently being investigated.
The Company has accrued approximately $0.5 million for the estimated remediation
costs associated with this site. 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. Based upon investigations conducted thus far,
the Company believes that its USTs do not pose a significant risk of
environmental liability. However, there can be no assurances that such USTs will
not result in significant environmental liability in the future.
On April 10, 1997, the Occupational Health and Safety Administration
promulgated new standards governing employee exposure to methylene chloride,
which is used in some of the Company's manufacturing processes. The phase-in of
the standards was completed in 1999 and the Company has developed and
implemented a compliance program. Capital expenditures required and changes in
operating procedures are not anticipated to significantly impact the Company's
competitive position.
The Company has been designated as a Potentially Responsible Party ("PRP")
by the EPA with respect to seven sites. Estimates of total cleanup costs and
fractional allocations of liability are generally provided by the EPA
14
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
12. COMMITMENTS AND CONTINGENCIES (continued)
or the committee of PRP's with respect to the specified site. In each case and
in the aggregate, the liability of the Company is not considered to be
significant.
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, the Company 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 that new environmental legislation and/or environmental
regulations may be adopted, or other environmental conditions may be found to
exist, that would require expenditures not currently anticipated and that may be
significant.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Change in Control
Trace is a privately held company, which owned approximately 29% of the
Company's outstanding voting common stock at July 31, 2000, and whose former
Chairman also serves as the Company's Chairman. The Company's common stock owned
by Trace is pledged as collateral against certain of Trace's obligations.
Certain credit agreements and promissory notes of the Company's subsidiaries,
pursuant to which approximately $453.3 million of principal was outstanding as
of June 30, 2000, provides that a "change of control" would be an event of
default and could result in the acceleration of such indebtedness. "Change of
control" means, for this purpose, that (i) a person or related group, other than
Trace, beneficially owns more than 25% of the Company's outstanding voting stock
and (ii) such voting stock constitutes a greater percentage of such voting stock
than the amount beneficially owned by Trace. Additionally, certain indentures of
Foamex L.P. and FCC relating to senior subordinated notes of $248.0 million
contain similar "change of control" provisions, which require Foamex L.P. and
FCC to tender for such notes at a price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest thereon, if there is
such a "change of control".
On July 21, 1999, the Company was informed by Trace that it filed a
petition for relief under Chapter 11 of the Bankruptcy Code in Federal Court in
New York City. Subsequently, on January 24, 2000, an order was signed converting
the Trace bankruptcy from Chapter 11 to Chapter 7 of the Bankruptcy Code. A
trustee was appointed to oversee the liquidation of Trace's assets. Neither
Trace's bankruptcy filing nor the conversion to Chapter 7 constituted a "change
of control" under the provisions of the debt agreements described above. A
"change of control" could take place however, if the bankruptcy court allows the
Trace creditors to foreclose on and take ownership of the Company's common stock
owned by Trace, or otherwise authorizes a sale or transfer of these shares,
under circumstances in which a person or related group, other than Trace,
acquired more than 25% of the Company's outstanding voting stock and owned a
greater percentage of such voting stock than the amount beneficially owned by
Trace.
On July 31, 2000, the Company announced that it had entered into an
Exchange Agreement with The Bank of Nova Scotia relating to a portion of the
7,197,426 shares of the Company's common stock pledged by Trace to The Bank of
Nova Scotia. The Exchange Agreement provides for the transfer of the pledged
stock to The Bank of Nova Scotia in a manner that will not constitute a "change
of control" as described above. Under the Exchange Agreement, The Bank of Nova
Scotia will initially receive 1,500,000 shares of the Company's common stock
from the Trace bankruptcy estate and exchange these common stock shares for
15,000 shares of a new class of the Company's non-voting non-redeemable
convertible preferred stock (the "Series B Preferred Stock"). Each share of the
Series B Preferred Stock can be converted into 100 shares of the Company's
common stock; but, only if such conversion would not trigger a "change of
control" event, as discussed above. The Series B Preferred Stock would be
entitled to dividends only if a dividend is declared on the Company's common
stock, rank senior to any future preferred stock issued by the Company and be
entitled to a liquidation preference of $100 per share. Following this exchange,
The Bank of Nova Scotia will become the owner of less than 25% of the
outstanding shares of the Company's common stock when the remaining 5,697,426
shares of the Company's common stock are transferred to The Bank of Nova Scotia
from the Trace bankruptcy estate.
These transactions are conditioned upon a settlement agreement between The
Bank of Nova Scotia and the trustee for the Trace bankruptcy being approved by
the bankruptcy court. Upon completion of these transactions, Trace will no
longer own any shares of the Company's common stock.
Management believes that it is unlikely that a "change of control" will
occur as a result of Trace's bankruptcy proceedings particularly in light of the
Exchange Agreement. However, if the transactions contemplated by the Exchange
Agreement are not consummated, the Company would seek to resolve the issues that
may arise should the "change of control" provisions be triggered, by requesting
waivers of such provisions and/or refinancing certain debt, if necessary. There
can be no assurance that the Company or its subsidiaries will be able to do so,
or that the Company will be able to obtain waivers of such provisions. Such
circumstances would raise substantial doubt about the Company's ability to
continue as a going concern if the transactions contemplated by the Exchange
Agreement are not consummated. The accompanying financial statements were
prepared on a going-concern basis and do not include any adjustments that might
result from the outcome of the Trace bankruptcy filing.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Future Accounting Changes - Accounting for Derivatives and Hedging Activities
As previously reported, SFAS No. 133 will require the fair value of
derivatives be recognized in the consolidated balance sheets. Changes in the
fair value of derivatives will be recognized in earnings or in other
comprehensive income, essentially depending on the structure and purpose of the
derivatives. During 2000, SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", which amends SFAS No. 133 on a
limited number of issues, was issued. The statements will be effective for all
quarters of all fiscal years beginning after June 15, 2000, which is the first
calendar quarter of 2001 for the Company. The Company continues to evaluate the
impact that the adoption of these SFAS's will have on its results of operations
or financial position.
Future Accounting Changes - Revenue Recognition and Presentation
The SEC has issued SAB No. 101, which will be effective (as amended by SAB
No. 101B) in the fourth quarter of 2000 for the Company. SAB No. 101 outlines
the SEC's position that revenue should not be recognized until it is realized or
realizable, including the criteria that need to be met. The Company's current
policy is that revenue recognition from sales, net of discounts and estimated
returns, allowances and rebates, is recognized when products are shipped at
which time title passes to the customer. The Company continues to evaluate the
impact, if any, that the adoption of SAB No. 101 will have on results of
operations.
During July 2000, the EITF of the Financial Accounting Standards Board
reached a consensus on an issue concerning the components of revenue. EITF No.
00-10 "Accounting for Shipping and Handling Revenues and Costs" essentially
requires that shipping and handling costs that are billed to a customer be
included in revenue. Accordingly, the Company has determined that a portion of
shipping costs billed to customers will require a reclassification from cost of
sales to revenue, but continues to work on accumulating the dollar impact. EITF
No. 00-10 will be effective in the fourth calendar quarter of 2000 and will
require reclassification of prior periods.
Buyout Proposals
As previously reported in the Annual Report on Form 10-K for 1999, on
February 9, 2000, the Company announced that it was in discussions with respect
to a proposal involving the acquisition of all of the Company's outstanding
common stock for cash. On April 5, 2000, the Company announced that discussions
with the potential buyer were terminated with no agreement having been reached.
The Company subsequently terminated the engagement of JP Morgan, which acted as
financial advisor in connection with such transaction. During the second quarter
of 2000, the Company ended discussions with JP Morgan concerning an additional
engagement.
Segment Results
<TABLE>
<CAPTION>
Carpet
Foam Cushion Automotive Technical
Products Products Products Products Other Total
-------- -------- ---------- ---------- ------- --------
(thousands)
Quarterly period ended June 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Net sales $130,753 $61,996 $92,428 $26,176 $7,756 $319,109
Income (loss) from operations 15,424 1,200 7,262 6,859 (1,606) 29,139
Depreciation and amortization 4,161 1,829 1,192 646 727 8,555
Income (loss) from operations
as a percentage of net sales 11.8% 1.9% 7.9% 26.2% n.m.* 9.1%
Quarterly period ended June 30, 1999
Net sales $126,315 $66,081 $90,810 $23,028 $6,795 $313,029
Income (loss) from operations 12,831 1,234 5,789 6,017 (4,227) 21,644
Depreciation and amortization 4,381 1,497 1,280 667 341 8,166
Income (loss) from operations
as a percentage of net sales 10.2% 1.9% 6.4% 26.1% n.m.* 6.9%
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Carpet
Foam Cushion Automotive Technical
Products Products Products Products Other Total
-------- -------- ---------- ---------- ------- --------
(thousands)
Year to date period ended June 30, 2000
Net sales $260,847 $122,042 $189,739 $53,630 $18,713 $644,971
Income (loss) from operations 28,202 (719) 14,428 14,363 (5,843) 50,431
Depreciation and amortization 8,089 4,004 2,395 1,289 1,494 17,271
Income (loss) from operations
as a percentage of net sales 10.8% (0.6)% 7.6% 26.8% n.m.* 7.8%
Year to date period ended June 30, 1999
Net sales $267,184 $130,880 $179,581 $45,276 $12,971 $635,892
Income (loss) from operations 25,870 2,967 12,355 10,870 (9,106) 42,956
Depreciation and amortization 8,843 3,060 2,625 1,383 887 16,798
Income (loss) from operations
as a percentage of net sales 9.7% 2.3% 6.9% 24.0% n.m.* 6.8%
</TABLE>
* not meaningful
RESULTS OF OPERATIONS FOR THE QUARTER ENDED JUNE 30, 2000 COMPARED TO THE
QUARTER ENDED JUNE 30, 1999
Income from Operations
Net sales for the second quarter of 2000 increased 1.9% to $319.1 million
from $313.0 million in the second quarter of 1999. The increase primarily
reflected higher sales in the Foam Products, Automotive Products and Technical
Products segments and higher sales from certain of the Company's foreign
operations reported in the "Other" segment. Lower sales were recorded in the
Carpet Cushion Products segment.
Income from operations for the second quarter of 2000 was $29.1 million,
which represented a 34.6% increase from the $21.6 million recorded during the
comparable 1999 period. Results in 1999 included restructuring and other charges
of $3.7 million. Excluding the 1999 restructuring and other charges for
comparison purposes, income from operations was $25.3 million in the second
quarter of 1999. On this basis, income from operations was 9.1% of net sales in
2000 compared to 8.1% of net sales in 1999.
Higher income from operations reflected an improved gross profit margin of
14.8% in the second quarter of 2000 compared to 14.0% in same quarter of 1999.
Gross profit margins benefited from price increases in certain product lines
that became effective in the second quarter of 2000. The selling price increases
helped to offset higher raw material costs that primarily resulted from higher
oil costs. A more profitable shipment mix also contributed to the improvement.
In the second quarter of 2000, gross profits were also impacted by foreign
currency losses.
Selling, general and administrative expenses were down slightly in the
second quarter of 2000 with the benefits of cost savings initiatives implemented
during 1999 essentially offset by increases to the allowance for uncollectible
accounts receivables, higher incentive compensation accruals and professional
fees. The professional fees were associated with the Exchange Agreement
concerning the transfer of the Company's common stock pledged by Trace to The
Bank of Nova Scotia and the shareholder litigation settlement, as discussed in
Note 1 and Note 12, respectively, to the condensed consolidated financial
statements.
Foam Products
Foam Products net sales for the second quarter of 2000 increased 3.5% to
$130.8 million from $126.3 million in the second quarter of 1999. Higher sales
primarily reflected improvements in volume and the impact of selling price
increases that became effective during the second quarter. Partially offsetting
the sales gains was a sales decline in the consumer products market and the loss
of sales from the Company's packaging business that was sold in 1999. The
improvement in sales combined with operating efficiencies translated to a 20.2%
increase in income from operations, from $12.8 million in the second quarter of
1999 to $15.4 million in the second quarter of 2000. Income from operations was
11.8% of net sales in 2000, up from 10.2% in 1999.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Carpet Cushion Products
Carpet Cushion Products net sales for the second quarter of 2000 decreased
6.2% to $62.0 million from $66.1 million in the second quarter of 1999.
Competitive pressures continued in the second quarter of 2000, which resulted in
lower sales volumes and lower selling prices in certain product lines. Despite
the sales decline, income from operations of $1.2 million was on the same level
as the second quarter of 1999. Operating efficiencies and cost structure
improvements helped to mitigate the unfavorable market conditions. Income from
operations represented 1.9% of net sales in 2000 and in 1999.
Automotive Products
Automotive Products net sales for the second quarter of 2000 increased 1.8%
to $92.4 million from $90.8 million in the second quarter of 1999. The strong
automotive market continues to fuel sales gains for lamination products. Income
from operations of $7.3 million in the second quarter of 2000 compared to $5.8
million in the comparable 1999 period. The increase in income from operations
was primarily due to the favorable impact of a selling price adjustment during
the second quarter of 2000, which included adjustments for certain prior
periods. Income from operations represented 7.9% of net sales in 2000 and 6.4%
in 1999.
Technical Products
Technical Products net sales for the second quarter of 2000 increased 13.7%
to $26.2 million from $23.0 million in the second quarter of 1999. Income from
operations increased 14.0% to $6.9 million in the second quarter of 2000 from
$6.0 million in the second quarter of 1999. Income from operations represented
26.2% of net sales in 2000 compared to 26.1% in 1999. Favorable market
conditions continued to drive sales gains in Technical Products, but with a
lower-value shipment mix in the second quarter of 2000 compared to 1999.
Other
Other primarily consists of certain foreign manufacturing operations,
corporate expenses not allocated to business segments and restructuring and
other charges. The increase in net sales associated with this segment primarily
resulted from an increase in net sales from the Company's Mexico City operation.
The loss from operations was $1.6 million in the second quarter of 2000 and
included the professional fees that were associated with the Exchange Agreement
and the shareholder litigation settlement, discussed previously. The loss from
operations of $4.2 million in the second quarter of 1999 included $3.7 million
of restructuring and other charges.
Interest and Debt Issuance Expense
Interest and debt issuance expense totaled $18.8 million in the second
quarter of 2000, which represented a 6.2% increase from the 1999 second quarter
expense of $17.7 million. The increase primarily reflected higher effective
interest rates partially offset by the benefit of lower average debt levels.
Higher effective interest rates reflected market conditions and the impact of
certain provisions of the Foamex L.P. credit facility that require an
incremental interest rate margin. During the second quarter of 2000 the interest
rate margin was increased another 25 basis points to a cumulative adjustment of
50 basis points. As discussed in Note 8 to the condensed consolidated financial
statements, an additional 25 basis point adjustment will become effective during
the third quarter of 2000.
Income from Equity Interest in Joint Venture
Income from an equity interest in an Asian joint venture totaled $0.4
million for the second quarter of 2000.
Other Income (Expense), Net
Other expense, net recorded for the second quarter of 2000 totaled $0.9
million and included a loss on the disposition of fixed assets and costs
incurred related to the buyout proposal discussed previously.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Income Tax Expense
The effective tax rates in 2000 and 1999 reflected the partial reversal of
the deferred income tax asset valuation allowance recognized in 1998. The
valuation allowance was reduced to reflect the utilization of Federal loss
carryforwards that reduced the current tax component of the Federal tax
provision. Additionally, the valuation allowance was reduced to offset the net
deferred Federal tax liability generated in 2000 and 1999. Compared to 1999, the
effective tax rate was higher in 2000 primarily due to a greater percentage of
income from foreign sources.
Net Income
Net income for the second quarter of 2000 was $8.0 million compared to $3.2
million recorded in the second quarter of 1999.
RESULTS OF OPERATIONS FOR THE YEAR TO DATE PERIOD ENDED JUNE 30, 2000 COMPARED
TO THE YEAR TO DATE PERIOD ENDED JUNE 30, 1999
Income from Operations
Net sales for the first half of 2000 increased 1.4% to $645.0 million from
$635.9 million for the first half of 1999. The increase primarily reflected
higher sales in the Automotive Products and Technical Products segments and
higher sales from certain of the Company's foreign operations reported in the
"Other" segment. Sales declines were recorded in the Foam Products and Carpet
Cushion Products segments.
Income from operations for the first half of 2000 was $50.4 million, 17.4%
higher than the $43.0 million recorded during the comparable period in 1999.
Results included restructuring and other charges of $3.2 million in 2000 and
$7.1 million in 1999. Restructuring and other charges recorded during 2000 are
discussed under "Other" below. Excluding the restructuring and other charges for
comparison purposes, income from operations was $53.7 million for the first half
of 2000 and $50.1 million in the first half of 1999. On this basis, income from
operations was 8.3% of net sales in 2000 compared to 7.9% of net sales in 1999.
Higher income from operations reflected an improved gross profit margin of
14.1% in the first half of 2000 compared to 13.7% in the comparable 1999 period.
Gross profit margins benefited from a higher-value shipment mix and price
increases in certain product lines that became effective in the second quarter
of 2000. The selling price increases helped to offset higher raw material costs
that primarily resulted from higher oil costs. In the first half of 2000, gross
profits were also impacted by foreign currency losses.
Selling, general and administrative expenses were down slightly in the
first half of 2000 with the benefits of cost savings initiatives implemented
during 1999 essentially offset by increases to the allowance for uncollectible
accounts receivables, higher incentive compensation accruals and professional
fees. The professional fees were associated with the Exchange Agreement
concerning the transfer of the Company's common stock pledged by Trace to The
Bank of Nova Scotia and the shareholder litigation settlement, as discussed in
Note 1 and Note 12, respectively, to the condensed consolidated financial
statements.
Foam Products
Foam Products net sales for the first half of 2000 decreased 2.4% to $260.8
million from $267.2 million in the first half of 1999. Lower sales primarily
reflected a volume decline in the consumer products market and the loss of sales
from the Company's packaging business that was sold in 1999. Despite lower
sales, income from operations in the first half of 2000 was $28.2 million, up
9.0% compared to $25.9 million in the first half of 1999. The improvement
largely reflected operating efficiencies and selling price increases implemented
during the second quarter of 2000 that helped to offset higher raw material
costs. As a percentage of net sales, income from operations was 10.8% of net
sales in 2000 up from 9.7% in 1999.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Carpet Cushion Products
Carpet Cushion Products net sales for the first half of 2000 decreased 6.8%
to $122.0 million from $130.9 million in the first half of 1999. Competitive
pressures continued in the first half of 2000, which resulted in lower sales
volumes and lower selling prices in certain product lines. As a result, a loss
from operations of $0.7 million was recorded in the first half of 2000 compared
to income from operations of $3.0 million in the comparable 1999 period. Results
in Carpet Cushion Products improved during the second quarter of 2000, but any
significant improvement in results is largely dependent on increased sales
volume.
Automotive Products
Automotive Products net sales for the first half of 2000 increased 5.7% to
$189.7 million from $179.6 million in the first half of 1999. The strong
automotive market continues to fuel sales gains for lamination products. Income
from operations increased 16.8% to $14.4 million in the first half of 2000 from
$12.4 million in the comparable 1999 period. The increase in income from
operations was primarily due to the favorable impact of a selling price
adjustment during the second quarter of 2000, which included adjustments for
certain prior periods. Income from operations represented 7.6% of net sales in
2000 and 6.9% of net sales in 1999.
Technical Products
Technical Products net sales for the first half of 2000 increased 18.5% to
$53.6 million from $45.3 million in the first half of 1999. Income from
operations increased 32.1% to $14.4 million in the first half of 2000 from $10.9
million in the comparable 1999 period. Income from operations represented 26.8%
of net sales in 2000, up from 24.0% in 1999. The improvement reflected favorable
market conditions that resulted in sales volume growth and improved operating
efficiencies.
Other
Other primarily consists of certain foreign manufacturing operations,
corporate expenses not allocated to business segments and restructuring and
other charges. The increase in net sales associated with this segment primarily
resulted from an increase in net sales from the Company's Mexico City operation.
The loss from operations of $5.8 million in the first half of 2000 included a
provision of $3.2 million for restructuring and other charges discussed below.
The loss also included the professional fees that were associated with the
Exchange Agreement and the shareholder litigation settlement, discussed
previously. The loss from operations of $9.1 million in the first half of 1999
included $7.1 million of restructuring and other charges.
During the first quarter of 2000, restructuring and other charges of
approximately $3.2 million were recorded. The provision included $2.1 million in
work force reduction costs for 30 employees, including certain executives, and
employees impacted by the closure of certain operations related to a VPFSM
capacity increase in North Carolina. Additionally, facility closure cost totaled
$0.3 million and related equipment writedowns were $0.4 million. The first
quarter 2000 provision also included $0.4 million related to changes in
estimates to prior year plans.
The Company paid $3.2 million during the first half of 2000 for the various
restructuring plans recorded as of December 31, 1999 and during the first
quarter of 2000. As of June 30, 2000, the components of the net accrued
restructuring and plant consolidation balance included $8.8 million for plant
closures and leases and $3.3 million for personnel reductions. Included in
current assets was $1.5 million and in noncurrent assets was $0.2 million of
estimated proceeds for facilities actively being marketed for sale. During the
second quarter of 2000, the Company sold a facility relating to a prior year
restructuring plan for proceeds of approximately $3.6 million. Substantially all
employees impacted by the first quarter 2000 work force reduction were
terminated by the end of the second quarter of 2000. Approximately $3.3 million
is expected to be spent during the remainder of 2000 for the various
restructuring plans.
Interest and Debt Issuance Expense
Interest and debt issuance expense totaled $37.4 million in the first half
of 2000, which represented a 5.7% increase from the 1999 first half expense of
$35.4 million. The increase reflected higher effective interest rates
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
partially offset by the benefit of lower average debt levels. Higher effective
interest rates reflected market conditions and the impact of certain provisions
of the Foamex L.P. credit facility that requires an incremental interest rate
margin. The additional interest rate margin was 25 basis points in the first
quarter of 2000 and during the second quarter of 2000 the interest rate margin
was increased another 25 basis points to a cumulative adjustment of 50 basis
points. As discussed in Note 8 to the condensed consolidated financial
statements, an additional 25 basis point adjustment will become effective during
the third quarter of 2000.
Income from Equity Interest in Joint Venture
Income from an equity interest in an Asian joint venture totaled $0.7
million for the first half of 2000.
Other Income (Expense), Net
Other expense, net recorded for the first half of 2000 totaled $1.8 million
and primarily included costs incurred related to the buyout proposal discussed
previously. Other expense in 2000 also included losses on the disposition of
fixed assets. Included in other income, net in the first half of 1999 of $3.1
million was a $4.2 million gain recorded on the sale of the corporate aircraft.
Income Tax Expense
The effective tax rates in 2000 and 1999 reflect the partial reversal of
the deferred income tax asset valuation allowance recognized in 1998. The
valuation allowance was reduced to reflect the utilization of Federal loss
carryforwards that reduced the current tax component of the Federal tax
provision. Additionally, the valuation allowance was reduced to offset the net
deferred Federal tax liability generated in 2000 and 1999. Compared to 1999, the
effective tax rate was higher in 2000 primarily due to a greater percentage of
income from foreign sources.
Net Income
Net income for the first half of 2000 was up 6.3% to $9.8 million compared
to $9.2 million in the first half of 1999.
Liquidity and Capital Resources
The Company's operations are conducted through its 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 its credit facility will be adequate to meet its liquidity
requirements. All principal and interest payments were made as scheduled in the
first half of 2000. 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 its credit facility will be adequate to meet its liquidity
requirements. 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 totaled $2.2 million at the end of the second
quarter of 2000 compared to $6.6 million at the end of 1999. Working capital at
the end of the second quarter of 2000 was $110.4 million and the current ratio
was 1.6 to 1 compared to working capital at the end of 1999 of $105.6 million
and a current ratio of 1.6
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
to 1. Significant changes to the components of working capital included an
increase of $22.8 million in accounts receivable that was partially offset by a
$13.5 million increase in accounts payable.
Total debt at the end of the second quarter of 2000 was $727.8 million,
down $17.5 million from year-end 1999. During the first quarter of 2000, the
Foamex/GFI Note was repaid with borrowings under the Foamex L.P. revolving
credit facility. The $34.5 million letter of credit that was outstanding at
year-end 1999 to collateralize principal and interest payable under the
Foamex/GFI Note was also terminated.
As of June 30, 2000, there were $153.8 million of revolving credit
borrowings, at a weighted average interest rate of 10.78%, under the Foamex L.P.
credit facility with $13.6 million available for additional borrowings and $12.6
million of letters of credit outstanding. Borrowings by Foamex Canada Inc.
("Foamex Canada") as of June 30, 2000 were $2.5 million, at an interest rate of
8.25%, under Foamex Canada's revolving credit agreement with unused availability
of approximately $2.9 million. Foamex Carpet did not have any outstanding
borrowings under the Foamex Carpet credit facility at June 30, 2000, with unused
availability of $14.8 million and approximately $0.2 million for a letter of
credit outstanding. As of June 30, 2000, the Company's subsidiaries were in
compliance with financial covenants of their loan agreements.
Cash Flow from Operating Activities
Cash provided by operating activities in the first half of 2000 was $19.1
million compared to $18.3 million in the first half of 1999 with the combination
of earnings and working capital requirements relatively comparable in the two
periods.
Cash Flow from Investing Activities
Cash used for investing activities totaled $7.5 million for the first half
of 2000. Cash requirements for capital expenditures were $10.6 million,
partially offset by $3.6 million of proceeds from the sale of assets. In the
first half of 1999, cash flow provided by investing activities totaled $6.4
million primarily from $16.3 million of proceeds from the sale of assets,
partially offset by $10.8 million of capital expenditures. The Company expects
capital expenditures for 2000 to be approximately $25.0 million primarily as a
result of the construction of two new VPFSM machines. In addition, the Company
is continuing to explore the possible implementation of a new ERP software
system, but no significant expenditures are anticipated for the balance of 2000.
Cash Flow from Financing Activities
Cash used for financing activities was $15.9 million for the first half of
2000 compared to cash used of $34.2 million in the first half of 1999. As
discussed previously, the $34.0 million Foamex/GFI Note was repaid during the
first quarter of 2000 with borrowings under the Foamex L.P. revolving credit
facility. The remaining cash requirements for financing activities primarily
reflected other debt repayments. Cash used for financing activities was $34.2
million in the first half of 1999 primarily due to net debt repayments and debt
issuance costs.
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 the
Company's operations, financial position, capital expenditures or competitive
position. The amount of liabilities recorded by the Company in connection with
environmental matters as of June 30, 2000 was $4.3 million. 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 Note 12 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.
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Market Risk
The Company's debt securities with variable interest rates are subject to
market risk for changes in interest rates. On June 30, 2000, indebtedness with
variable interest rates totaled $468.0 million. On an annualized basis, if the
interest rates on these debt instruments increased by 1.0%, interest expense
would increase by approximately $4.7 million.
Forward-Looking Statements
This report contains forward-looking statements and should be read in
conjunction with the discussion regarding forward-looking statements set forth
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999.
24
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the "Market Risk" section under Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
25
<PAGE>
Part II - Other Information.
Item 1. Legal Proceedings.
Reference is made to the description of the legal proceedings contained
in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
The information from Note 12 of the condensed consolidated financial
statements is incorporated herein by reference.
Item 2. Changes in Securities.
Information concerning amendments to the 1993 Stock Option Plan is
incorporated herein by reference to Item 4 Submission of Matters to a
Vote of Security Holders.
Information concerning an agreement with The Bank of Nova Scotia
relating to the shares of the Company's common stock pledged by Trace to
The Bank of Nova Scotia as a result of the Trace bankruptcy filing,
including the issuance of Series B Preferred Stock in exchange for
common stock of the Company, is incorporated herein by reference from
Note 1 of the condensed consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on June 30, 2000.
Listed below is a summary of the proposals voted on.
Election of Directors
All seven of the Company's directors received the votes necessary for
election to serve for one-year terms or until their successors have been
duly elected and qualified.
Director For Withhold Authority
------------------- ---------------- ------------------
Marshall S. Cogan 13,733,710 9,790,383
Etienne Davignon 22,583,619 940,474
Robert J. Hay 22,977,124 546,969
Stuart J. Hershon 21,047,811 2,476,282
John G. Johnson, Jr. 22,343,201 1,180,892
John Televantos 22,986,316 537,777
John V. Tunney 21,021,313 2,502,780
1993 Stock Option Plan Amendments
Stockholders approved amendments to the 1993 Stock Option Plan (the
"Amended and Restated 1993 Stock Option Plan") to (i) increase from
3,000,000 to 4,750,000 the number of shares of the Company's common
stock that may be issued and (ii) allow future option grants to qualify
as "performance-based compensation" for purposes of the Internal Revenue
Code of 1986, as amended.
For Against Abstentions Broker Non-Votes
---------- --------- ----------- ----------------
18,819,730 1,776,637 815,982 2,111,744
26
<PAGE>
Selection of PricewaterhouseCoopers LLP as Independent Accountants
Stockholders approved the selection of PricewaterhouseCoopers LLP as
independent accountants for the year ending December 31, 2000.
For Against Abstentions
---------- ---------- -----------
22,669,277 79,066 775,750
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.14- Letter Agreement, dated as of July 31, 2000, between the
Company and The Bank of Nova Scotia, incorporated by
reference to the Form 8-K, dated July 31, 2000.
10.10.7- Amended and Restated 1993 Stock Option Plan incorporated
herein by reference to the Exhibit to the Company's
definitive proxy statement, dated May 31, 2000.
27- Financial Data Schedule for the quarter ended June 30, 2000.
(b) The Company filed the following Current Reports on Form 8-K for the
quarter ended June 30, 2000:
A report dated April 5, 2000, was filed for Item 5. Other Events,
concerning the termination of discussions involving a proposed buyout
of the Company.
Subsequent to quarter end, a report dated July 31, 2000, was filed for
Item 5. Other Events, concerning an agreement with The Bank of Nova
Scotia relating to the shares of the Company's common stock pledged by
Trace to The Bank of Nova Scotia as a result of the Trace bankruptcy
filing.
Subsequent to quarter end, a report dated August 1, 2000, was filed for
Item 5. Other Events, concerning an agreement in principle to settle
the shareholder litigation.
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 10, 2000 By: /s/ Robert S. Graham, Jr.
---------------------------
Robert S. Graham, Jr.
Senior Vice President, Corporate
Controller and Chief Accounting
Officer
28
