SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ........... to ................
Commission file numbers: 33-82028; 33-82028-01
FOAMEX-JPS AUTOMOTIVE L.P.
FOAMEX-JPS CAPITAL CORPORATION
(Exact Name of registrant as Specified in its Charter)
Delaware 13-3770906
Delaware 13-3770901
(State or other Jurisdiction of (I.R.S. Employer
incorporation or Organization) Identification Number)
1000 Columbia Avenue, Linwood, PA 19061
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 859-3000
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether Foamex-JPS Automotive L.P. (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods that
Foamex-JPS Automotive L.P. was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
Indicate by check mark whether Foamex-JPS Capital Corporation (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter periods
that Foamex-JPS Capital Corporation was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES NO X (The
Foamex-JPS Capital Corporation Exchange Act reports were timely transmitted to
the SEC, but contained incorrect codes; therefore, such reports may not be
deemed to have been timely filed).
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
None of the voting securities of Foamex-JPS Automotive L.P. or Foamex-JPS
Capital Corporation are held by non- affiliates.
As of April 7, 1997, there were 1,000 shares of Foamex-JPS Capital
Corporation's common stock outstanding.
Foamex-JPS Automotive L.P. and Foamex-JPS Capital Corporation meet the
conditions set forth in General Instructions (J)(1)(a) and (b) of Form 10-K and
are therefore filing this form with the reduced disclosure format.
DOCUMENTS INCORPORATED BY REFERENCE
None
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FOAMEX-JPS AUTOMOTIVE L.P.
FOAMEX-JPS CAPITAL CORPORATION
INDEX
Page
Part I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote
of Security Holders 13
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 13
Item 6. Selected Consolidated Financial Data 14
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 24
Part III 24
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 25
Signatures 33
The Registrants will furnish a copy of any exhibit to this Form 10-K upon
the payment of a fee equal to the Registrants' reasonable expense in furnishing
such exhibit.
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PART I
ITEM 1. BUSINESS
GENERAL
Foamex-JPS Automotive L.P. ("FJPS") was formed and initially
capitalized on May 13, 1994. FJPS was formed for the purposes of, among other
things, obtaining a 98% limited partnership interest in Foamex L.P. which was
contributed by Foamex International Inc. ("Foamex International") on June 28,
1994 and acquiring a 99% limited partnership interest in JPS Automotive L.P.
(collectively with its subsidiaries, "JPS Automotive") with an investment of
approximately $89.1 million in cash on June 28, 1994. In April 1996, Foamex
International contributed the foam products operations of Foamex Latin America,
Inc. ("Foamex Mexico") to FJPS (99%) and to FJGP Inc. ("FJGP") (1%) who then
contributed its investment in Foamex Mexico to FJPS. FJPS subsequently
contributed its 100% investment in Foamex Mexico to Foamex L.P. The contribution
was accounted for in a manner similar to a pooling of interests since the
entities are under common control. Accordingly, all periods presented have been
restated to reflect the financial condition and results of operations of Foamex
Mexico. Foamex International owns a 99% limited partnership interest in FJPS and
FJGP Inc. ("FJGP"), a wholly-owned subsidiary of Foamex International, owns a 1%
general partnership interest in FJPS.
In 1995, Foamex L.P. announced an operational plan to improve
profitability. The operational plan consisted of (i) reducing layers of
management through organizational realignment, (ii) the consolidation of foam
production, fabrication or branch locations, (iii) implementing additional
procedures to reduce manufacturing costs, including process redesign to
eliminate non-value added operations, (iv) reducing selling, general and
administrative expenses through cost containment and (v) reducing inventory
levels through improved forecasting and the effect of plant consolidations. In
December 1995, Foamex L.P. recorded restructuring and other charges of $39.2
million relating to (i) the consolidation of thirteen foam production,
fabrication or branch locations (the "1995 restructuring plan"), (ii) other
charges, primarily relating to merger and acquisition activities of Foamex L.P.
and (iii) the completion of a 1993 restructuring plan. During 1996, Foamex L.P.
completed the consolidation of twelve foam production, fabrication or branch
locations; however, one of the facilities originally identified for closure will
continue to operate because of improved economics and the lack of synergy to be
achieved from relocating the manufacturing process. In addition, Foamex L.P. has
approved a plan to close two facilities that were not originally identified in
the 1995 restructuring plan. As a result of these changes to the 1995
restructuring plan and the favorable termination of certain lease agreements and
other matters, Foamex L.P. recorded a $6.4 million net restructuring credit
which included a restructuring credit of $11.3 million associated with Foamex
L.P.'s decision not to close the facility identified as part of the 1995
restructuring plan and $1.7 million of restructuring credits relating primarily
to the favorable termination of certain lease agreements and other matters
associated with the 1995 restructuring plan, offset by $6.6 million of
restructuring charges relating to the closure of two facilities during 1997 (the
"1996 restructuring plan"). There can be no assurance that Foamex L.P. will be
able to successfully complete its restructuring plans.
During 1996, Foamex L.P. completed the sale of Perfect Fit Industries,
Inc. ("Perfect Fit"), FJPS sold its 99% interest in JPS Automotive and JPSGP
Inc., another wholly-owned subsidiary of Foamex International, distributed its
1% general partnership interest in JPS Automotive to Foamex International.
Foamex International then sold its 1% interest in JPS Automotive. Perfect Fit
operated in the home comfort products business segment of Foamex L.P. and was
acquired in November 1993 for $69.1 million which included 364,820 shares of
Foamex International's common stock valued at $5.5 million. JPS Automotive was
acquired in June 1994 for $290.3 million which included the assumption and
issuance of long-term debt by JPS Automotive of approximately $205.6 million.
The consolidated financial statements of FJPS have been restated for
discontinued operations and includes a loss in the equity from discontinued
operations of approximately $142.0 million.
FJPS has substantially no operations other than through its holding of
its limited partnership interest in Foamex L.P. As the holder of a limited
partnership interest in Foamex L.P., FJPS does not participate in the management
of, or control Foamex L.P. Foamex L.P. is a significant manufacturer and
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marketer of flexible polyurethane foam and foam products in North America.
Foamex L.P.'s products include (i) foam for carpet cushion and other carpet
products, (ii) cushioning foams for furniture, bedding, packaging and health
care, (iii) foams for automotive trim and accessories and (iv) technical foams
for filtration, consumer products and packaging.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Annual Report on Form 10-K
and those that may be made in the future by or on behalf of FJPS and Foamex L.P.
which are identified as forward- looking, FJPS and Foamex L.P. notes that there
are various factors that could cause actual results to differ materially from
those set forth in any such forward-looking statements, such as raw material
price increases, general economic conditions, the level of automotive production
and carpet cushion production, the implementation and estimated annualized
savings of the operational plan, changes in environmental legislation and
environmental conditions and the level of housing starts. The forward-looking
statements contained in this Annual Report on Form 10-K were prepared by
management and are qualified by, and subject to, significant business, economic,
competitive, regulatory and other uncertainties and contingencies, all of which
are difficult or impossible to predict and many of which are beyond the control
of FJPS and Foamex L.P. Accordingly, there can be no assurance that the
forward-looking statements contained in this Annual Report on Form 10-K will be
realized or that actual results will not be significantly higher or lower. The
forward-looking statements have not been audited by, examined by, complied by or
subjected to agreed-upon procedures by independent accountants, and no
third-party has independently verified or reviewed such statements. Readers of
this Annual Report on Form 10-K should consider these facts in evaluating the
information contained herein. In addition, the business and operations of FJPS
and Foamex L.P. are subject to substantial risks which increase the uncertainty
inherent in the forward-looking statements contained in this Annual Report on
Form 10-K. The inclusion of the forward-looking statements contained in this
Annual Report on Form 10-K should not be regarded as a representation by FJPS
and Foamex L.P. or any other person that the forward-looking statements
contained in this Annual Report on Form 10-K will be achieved. In light of the
foregoing, readers of this Annual Report on Form 10-K are cautioned not to place
undue reliance on the forward-looking statements contained herein.
The principal executive offices of FJPS are located at 1000 Columbia
Avenue, Linwood, Pennsylvania 19061 and its telephone number is (610) 859-3000.
References in this Report to "FJPS" mean Foamex-JPS Automotive L.P.
and, where relevant, its subsidiary and Foamex L.P. The diagram on the following
page depicts the relationship's between FJPS and certain of its affiliates as of
December 29, 1996.
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DIAGRAM OMITTED
A description of the diagram is as follows:
Trace International Holdings Inc. and subsidiaries has a 44.7% interest in
Foamex International Inc. and a 1% non- managing general partnership interest in
Foamex L.P.
Foamex International Inc. has a 99% limited partnership interest in Foamex-JPS
Automotive L.P. and a 100% corporate interest in FJGP Inc. and FMXI, Inc. FJGP
Inc. has a 1% managing general partnership interest in Foamex-JPS Automotive
L.P. and FMXI, Inc. has a 1% managing general partnership interest in Foamex
L.P.
Foamex-JPS Automotive L.P. has a 98% limited partnership interest in Foamex L.P.
and a 100% corporate interest in Foamex-JPS Capital Corporation.
Foamex L.P. has a 100% corporate interest in General Felt Industries, Inc.,
Foamex Canada Inc., Foamex Capital Corporation and Foamex Latin America, Inc.
General Felt Industries, Inc. has a 100% corporate interest in Foamex Fibers
Inc.
Foamex Latin America, Inc. has a 100% corporate interest in Grupo Foamex Mexico,
S.A. de C.V., Foamex De Mexico S.A. de C.V and Transformacion De Espumas Y
Fieltros, S.A. de C.V.
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FOAMEX L.P.
Flexible Polyurethane Foam Products
Foamex L.P. is a manufacturer and distributor of quality flexible
polyurethane foam and foam products to satisfy the specific needs of customers.
Foamex L.P.'s foam manufacturing and distribution facilities enable it to source
production efficiently and meet the needs of its customers throughout North
America. Such facilities are also important for satisfying all of the foam
requirements of large national customers in a timely and cost effective manner.
Foamex L.P.'s operations are conducted together with its wholly-owned
subsidiaries General Felt, Foamex Fibers, Foamex Canada, and Foamex Mexico.
Foamex L.P. operates in the foam products business segment with net sales
being derived from four major product categories: carpet cushion, cushioning
foams, automotive foams and technical foams. Management's Discussion and
Analysis of Financial Condition and Results of Operations provides net sales by
product category for the past three fiscal years.
Foamex L.P. supplies cushioning foams to major bedding and furniture
manufacturers such as Sealy, Simmons, and Ethan Allen. Foamex L.P.'s packaging
foams are supplied to distributors and manufacturers of computers and other
electronic devices, including Seagate Technology and CompUSA. Foamex L.P.
distributes its automotive foam products to original equipment manufacturers
("OEMs") and major tier one suppliers such as Lear Corporation, Johnson
Controls, Inc., and Delphi Interiors and Lighting. Many of these relationships
allow Foamex L.P. to work with customers during the design phase for new
products and new applications for existing products, thereby increasing the
likelihood that Foamex L.P. will be a principal supplier for these products.
The introduction of new products and new applications for existing products
is an integral component of Foamex L.P.'s growth strategy. During 1996, Foamex
L.P. introduced Reflex(TM) and Nexol(TM) for the cushioning and packaging
industries, respectively. These products were created using patented variable
pressure foaming technology ("VPF(TM)"). Reflex(TM) materials, which include
cushion wraps and cushion cores, are advanced polymer cushioning products
designed to improve comfort, quality and durability in upholstered furniture.
Nexol(TM) expands Foamex L.P.'s capabilities in meeting the special packaging
requirements of sensitive and fragile products such as electronic components.
Also, during the past few years, Foamex L.P. developed new automotive foam
applications, including thermoformable foam headliners and energy absorbing
foams, and introduced ComfortWear(TM), a branded, high resilience prime carpet
cushion. In addition, Foamex L.P. has developed, and is the exclusive producer
of, a reticulated foam for the precise metering of ink for Hewlett-Packard
inkjet printers and the attendant replacement ink cartridges.
Carpet Cushion
Foamex L.P. is one of the largest manufacturers and distributors of prime,
bonded, sponge rubber and felt carpet cushion in North America. Foamex L.P. also
manufactures synthetic "grass" turf, primarily for the residential market.
Synthetic turf is tufted from polypropylene yarn in a variety of colors,
textures and qualities. In addition, Foamex L.P. manufactures a variety of
textured carpeting and wall coverings primarily using solution dyed
polypropylene staple fiber. Such needlepunch carpets have generally been used as
indoor/outdoor floor covering but, through the development of patterned products
and stylized color lines, have found increasing acceptance in both residential
and commercial applications.
Foamex L.P. developed ComfortWear(TM), a quality prime carpet cushion, which
was introduced in February 1994 in conjunction with significant consumer and
trade promotions. ComfortWear(TM) currently is sold in retail outlets throughout
the United States. ComfortWear(TM) is marketed through floor covering retailers
in the United States such as Sears, New York Carpet World, and Carpetland USA.
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Cushioning Foams
Foamex L.P. is one of the largest manufacturers of cushioning foams in North
America. These foams are used by the bedding industry in quilts, toppers, cores
and border rolls for mattresses and by the furniture industry for seating
products. Cushioning foams are generally sold in large volumes on a regional
basis because of high shipping costs. Due to its size and the strategic location
of its production facilities, Foamex L.P. believes it will continue to have an
advantage over small regional producers in supplying large national accounts
with all of their foam requirements.
The development and introduction of value added products continues to be a
priority of Foamex L.P. and has included (i) Reflex(TM) and Nexol(TM) discussed
below, (ii) viscoelastic or "memory" foams for the bedding industry, which
maintain their resiliency better than other foams and materials and (iii) Latex
Plus, a urethane-based replacement for latex, a material used in bedding
products. Foamex L.P.'s most recent product introductions have included
Reflex(TM) and Nexol(TM) for the cushioning and packaging industries,
respectively, which were created using the VPF(TM) manufacturing process.
Reflex(TM) materials, which include cushion wraps and cushion cores, are
advanced polymer cushioning products designed to improve comfort, quality and
durability in upholstered furniture. Nexol(TM) expands Foamex L.P.'s
capabilities in meeting the special packaging requirements of sensitive and
fragile products such as electronic components.
Foamex L.P.'s cushioning foams for bedding products are sold to mattress
customers, such as Sealy Mattress Co., Simmons, Serta, and Spring Air Company,
both directly and through independent fabrication operators located across the
United States. Also, Foamex L.P. supplies cut-to-size seat cushions, backs and
other pieces to the furniture industry, including to Berkline, Action, and
Schnadig.
Automotive Foams
Foamex L.P. is one of the largest suppliers of the trim foam requirements of
the North American operations of American and Japanese automotive manufacturers.
Depending on the automotive manufacturer and/or the application, foam is
supplied by Foamex L.P. either directly to the manufacturer or indirectly
through sub-suppliers. Automotive foams are used for trim pads, door panel
parts, headliners, acoustical purposes, flame and adhesive laminates and rolls
for tri-lamination. Tri-laminated foam is applied to automotive fabrics to form
a foam/fabric composite that results in cost savings and aesthetic value for the
automotive manufacturer.
The domestic automotive manufacturers have narrowed their supply base during
recent years, increasing the percentage and dollar amount of components that
they purchase from outside suppliers. As a result, a smaller number of companies
are supplying an increasing percentage of these manufacturers' needs. Foamex
L.P. believes it has benefited from this trend, which favors suppliers with
quality facilities and products, cost efficient plants, long-standing
relationships, strong design, technical and product development support and
broad product lines. Management believes this outsourcing trend will continue,
particularly for components such as foam, trim and accessories that represent a
small portion of the overall cost of a vehicle.
During 1996, Foamex L.P. entered into a strategic alliance with Recticel,
s.a. ("Recticel") to design, manufacture and market polyurethane products for
the automotive industry in order to meet the worldwide requirements of the OEMs
and the major tier one suppliers such as Lear Corporation, Johnson Controls,
Inc., and Delphi Interiors and Lighting. Under this alliance, both companies
will jointly supply the automotive suppliers with products manufactured in North
America by Foamex L.P. and in Europe by Recticel.
Foamex L.P. believes that the automotive manufacturers' just-in-time
inventory requirements will provide Foamex L.P. with a competitive advantage due
to the quality of Foamex L.P.'s foam products, its flexible manufacturing
capacity and its strategically located manufacturing facilities that enable
Foamex L.P. to minimize shipping time and costs. In addition, management expects
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foam usage per vehicle to increase because manufacturers have generally
increased their investment in upgrading automobile and light truck interiors to
improve comfort, attractiveness, safety and noise absorption capabilities.
Foamex L.P.'s new product development and flexible manufacturing capabilities
allow it to produce quality products to satisfy changing specifications.
Examples of Foamex L.P.'s ability to react to changing industry requirements
include thermoformable headliners, tri-laminates and energy absorbing foams. For
example, Foamex L.P. is one of the first suppliers to introduce a thermoformable
headliner, Custom Fit(TM), made from rigid polyurethane foam. The use of foam
headliners is expected to continue to grow due to concerns for automotive
workers' safety caused by fiberglass processing. Foamex L.P. intends to continue
manufacturing and supplying foam and fabric components, such as tri-laminated
material for automotive seating. The use of tri-laminates has become
increasingly prevalent due to significant cost savings for manufacturers and
improved aesthetics for consumers. Automotive suppliers are increasingly
offering integrated systems which lower overall cost and improve quality
relative to previous sourcing methods in which individually sourced components
were assembled and installed by the OEMs.
Automotive manufacturers are increasingly requiring the production facilities
of their suppliers to meet certain high quality standards. Eventually, all tier
one and tier two automotive supplier facilities worldwide must adhere to the
QS-9000 quality manufacturing standards set by United States automotive
manufacturers. In 1996, Foamex L.P. completed QS-9000 and ISO-9001 certification
for its eight facilities which supply the automotive industry. Foamex L.P. was
one of the first polyurethane manufacturers to be QS-9000 certified which
demonstrates its commitment to producing the highest quality products and
meeting the needs of its customers.
Technical Foams
Foamex L.P. believes that it is one of the foam industry's prime innovators
and producers of industrial, specialty and safety foams (collectively,
"technical foams"). Technical foams consist of reticulated foams and other
custom polyester and polyether foams, which are sometimes combined with other
materials to yield specific properties. Reticulation is the thermal or chemical
process used to remove the membranes from the interconnecting cells within foam.
This leaves a porous, skeletal structure allowing for the free flow of gases
and/or liquids.
Reticulated foams are well suited for filtration, reservoiring, sound
absorption and sound transmission. Industrial applications include carburetors,
computer cabinets, ink pad reservoirs, high speed inkjet printers and speaker
grills. Medical applications include oxygenators for cardiopulmonary bypass
surgery, instrument holders for sterilization, pre-op scrubbers impregnated with
anti-microbial agents and EKG pads containing conductive gels. Other technical
foams have unique characteristics such as flame retardancy and fluid absorption.
In addition, felting and lamination with other foams or materials give these
composites specific properties. Additional products sold within this group
include foams for refrigerated supermarket produce counters, mop heads, paint
brushes, diapers and cosmetic applications.
Foamex L.P. utilizes advertising in trade journals and related media in order
to attract customers and, more generally, to create an awareness of its
capabilities for technical foams. In addition, due to the highly specialized
nature of most technical foams, Foamex L.P.'s research staff works with
customers to design, develop and manufacture each product to specification.
Marketing and Sales
Foamex L.P. has a marketing and sales force of approximately 194 employees.
Product business managers direct sales efforts towards each of the end-user
markets (i.e., carpet cushion, cushioning foams, automotive foams and technical
foams).
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Foamex L.P.'s carpet cushion marketing program includes the broad
distribution of products to both the retail and wholesale levels. Furthermore,
promotions, marketing and advertising expenditures are important in positioning
Foamex L.P.'s carpet cushions as premium, trade branded products.
Bedding and furniture products are sold directly by Foamex L.P. to customers
and also through third party independent fabricators. The key strategic elements
supporting growth in these areas are a focus on marketing and sales efforts,
high quality, cost competitive products and low freight costs through optimal
plant location. Plant locations are critical in this regionalized line of
business where the transportation cost typically comprises a significant portion
of product cost.
Foamex L.P. has been a leading supplier of automotive foam products to the
automotive industry for more than 30 years. Automotive foam products are
predominantly sold directly through a bidding process in which each customer's
requirements for a particular time period are awarded to a foam supplier. Foamex
L.P. has consistently been awarded contracts with OEM's and major tier one
suppliers such as Lear Corporation, Johnson Controls, Inc.
and Delphi Interiors and Lighting.
Foamex L.P. markets most of its technical foams through a network of
independent fabrication and distribution companies in North America, the United
Kingdom, and South Korea. Such fabricators or distributors often further process
or finish these products to meet the specific needs of the end-user. Foamex
L.P.'s technical foams service unique end-user requirements and are generally
sold at relatively high margins. This line of business is characterized by a
diversity and complexity of both customers and applications.
Customers
During the past three fiscal years, no one customer accounted for more than
10.0% of Foamex L.P.'s net sales. However, 1996 net sales to the five largest
customers comprised $225.4 million or 24.3% of Foamex L.P.'s net sales,
including net sales to Lear Corporation, Johnson Controls, Inc., and Sealy
Mattress Co. of approximately $62.0 million, $57.7 million and $42.1 million or
approximately 6.7%, 6.2% and 4.5% of net sales, respectively.
Manufacturing and Raw Materials
Foamex L.P. produces bulk and fabricated flexible polyurethane foam at 46
locations in North America with a total of approximately 6.8 million square feet
of floor space. Management believes that Foamex L.P.'s manufacturing facilities
are well suited for their intended purposes and are in good condition (see
"Properties"). The manufacturing facilities are strategically located to service
their major customers since high freight cost in relation to the cost of the
foam product generally results in distribution being most cost effective within
200 to 300 miles from each facility.
In 1996, raw materials accounted for approximately 74% of the manufacturing
costs of Foamex L.P. The two principal chemicals in polyurethane foam, toulene
diisocyanate ("TDI") and polyol, accounted for approximately 52% of raw material
cost. Foamex L.P.'s largest supplier of raw materials is The Dow Chemical
Company. Foamex L.P. generally has alternative chemical suppliers for each major
raw material and Foamex L.P. believes that it could find alternative sources of
supply should it cease doing business with any one of its major suppliers. The
price of TDI and polyol is influenced by demand, manufacturing capacity and oil
and natural gas prices.
Foamex L.P.'s principal suppliers of raw materials used in the manufacturing
of the foam increased the price of raw materials several times during 1995 and
1994. In response, Foamex L.P. increased selling prices, where possible, for
cushioning, automotive and technical foam products depending on the product. The
1995 results of operations were adversely affected by the delays in, or the
inability to, implement selling price increases to offset these raw material
cost increases. Foamex L.P. did not experience any significant price increases
during 1996; however, there can be no assurance that chemical suppliers will not
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increase raw material costs in the future or that Foamex L.P. will be able to
implement selling price increases to offset any such raw material cost
increases.
Foamex L.P. is subject to extensive and changing environmental laws and
regulations. See "Legal Proceedings -- Environmental Matters" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Environmental Matters."
Employees
As of December 29, 1996, Foamex L.P. employed 4,453 persons, with 3,972 of
such employees involved in manufacturing, 287 in administration and 194 involved
in sales and marketing. Approximately 728 of these employees are located outside
the United States. Also, approximately 1,338 of these employees are covered by
collective bargaining agreements with labor unions, which agreements expire on
various dates from 1997 through 2001. Foamex L.P. considers relations with its
employees to be good.
Competition
The flexible polyurethane foam industry is highly competitive. With respect
to flexible polyurethane foam, competition is based primarily on price, quality
of products and service. Foamex L.P.'s larger competitors in the polyurethane
foam industry include E. R. Carpenter Company, Crain Industries Inc., Hickory
Springs Manufacturing Company, Vitafoam, Inc., General Foam Corporation,
Flexible Foam Products, Inc., and Crest Foam Industries, Inc. None of such
competitors compete in all of the product categories in which Foamex L.P. does
business.
International and Domestic Operations and Export Sales
Foamex L.P. has manufacturing operations in the United States, Canada, and
Mexico. Net sales to customers in foreign markets in 1996, 1995 and 1994 were
$76.0 million (8.2% of net sales), $73.3 million (8.5% of net sales) and $66.6
million (8.0% of net sales), respectively.
Patents and Trademarks
Foamex L.P. owns various patents and trademarks registered domestically and
in numerous foreign countries. The registered processes and products were
developed through on-going research and development activities to improve
quality, reduce costs and expand markets through the development of new
applications for flexible polyurethane foam products. Foamex L.P. uses several
trademarks and tradenames for product identification, the majority of which are
used in the carpet cushion and technical foams product lines. Foamex L.P.
believes its business is not dependent upon any individual patent, trademark or
tradename.
Research and Development
Foamex L.P. believes it has a leading research and development capability in
the flexible polyurethane foam industry. This capability gives Foamex L.P. a
significant advantage in the on-going development of new products and new
applications for existing products. Foamex L.P. has research and development
facilities located in Hayward, California; Dalton, Georgia; and Eddystone,
Pennsylvania employing approximately 28 full-time employees. Expenditures for
research and development amounted to $2.5 million, $3.2 million and $2.7 million
for 1996, 1995 and 1994, respectively.
Foamex L.P. and Recticel, have exchanged know-how, trade secrets, engineering
and other data, designs, specifications, chemical formulations, technical
information, market information and drawings which are necessary or useful for
the manufacture, use or sale of foam products and it is anticipated that they
will continue to do so in the future. Foamex L.P., Recticel, and Beamech Group
Limited, an unaffiliated third party ("Beamech"), have an interest in a Swiss
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<PAGE>
corporation that develops new manufacturing technology for the production of
polyurethane foam including the VPF(TM) manufacturing process. Foamex L.P.,
Recticel, and their affiliates have a royalty-free license to use technology
developed by the Swiss corporation.
ITEM 2. PROPERTIES
As of December 29, 1996, Foamex L.P. conducted its operations through 59
manufacturing and distribution facilities, of which 18 are owned and 41 are
leased. Total floor space in use at the owned manufacturing and distribution
facilities is approximately 3.7 million square feet and total floor space in use
at the leased manufacturing and distribution facilities is approximately 3.5
million square feet. Fifty-one of these facilities are located in 36 cities in
the United States, five facilities are located in two cities in Canada and three
facilities are located in three cities in Mexico. The 1997 annual base rental
with respect to such leased facilities is approximately $7.4 million under
leases expiring from 1997 to 2005. Foamex L.P. does not anticipate any problem
in renewing or replacing any of such leases expiring in 1997. In addition,
Foamex L.P. has approximately 1.1 million square feet of idle space of which
approximately 0.5 million is leased.
Foamex L.P. maintains administrative and sales offices in Linwood,
Pennsylvania; Hayward, California; Chicago, Illinois; and New York, New York.
ITEM 3. LEGAL PROCEEDINGS
Environmental Matters
Foamex L.P. is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with Foamex
L.P.'s compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on its operations, financial
position, capital expenditures or competitive position. As of December 29, 1996,
Foamex L.P. has environmental accruals of approximately $4.1 million for
environmental matters. In addition, as of December 29, 1996, Foamex L.P. has
receivables of approximately $0.9 million relating to indemnification for
environmental liabilities, net of an allowance of approximately $1.0 million
relating to potential disagreements regarding the scope of the indemnification.
Foamex L.P. believes that realization of the net receivables established for
indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide for
the establishment of federal emission standards for hazardous air pollutants
including methylene chloride and TDI, principal raw materials used in the
manufacturing of foam. Foamex L.P. completely eliminated the use of
chlorofluorocarbons and methylchloroform by the end of 1995. The 1990 CAA
Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
Foamex L.P. has reported to appropriate state authorities that it has found
soil contamination in excess of state standards at facilities in Orlando,
Florida; La Porte, Indiana; Conover, North Carolina; Cornelius, North Carolina;
Fort Wayne, Indiana; Philadelphia, Pennsylvania; and at a former facility in
Dallas, Texas and groundwater contamination in excess of state standards at the
Orlando, Conover, Philadelphia, and Cornelius facilities. Foamex L.P. 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. Foamex L.P., based on engineering estimates of the remaining potential
remediation costs for these facilities, has accruals of $3.2 million for the
estimated cost of completing remediation and established a net receivable of
$0.9 million on the basis of indemnifications by Trace International Holdings,
Inc. ("Trace Holdings") and Recticel Foam Corporation ("RFC") associated with
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<PAGE>
the partnership formation of Foamex L.P. Foamex L.P. has completed remediation
of soil contamination at a former Trenton, New Jersey manufacturing facility
closed in October 1993 and is awaiting final closure approvals from the New
Jersey Department of Environmental Protection regarding the remediation of soil
contamination and monitoring of groundwater at the former Trenton facility.
Also, Foamex L.P. has completed remediation at its Mesquite, Texas facility and
is awaiting a certificate of completion under the Texas Voluntary Clean Up
program.
Federal regulations require that by the end of 1998 all underground storage
tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. Foamex L.P. 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. Foamex
L.P. has accrued $0.4 million for the estimated removal and remediation costs,
if any, associated with these USTs. However, the full extent of contamination,
and accordingly, the actual cost of such remediation cannot be predicted with
any degree of certainty at this time. Foamex L.P. believes that its USTs do not
pose a significant risk of environmental liability because of its monitoring
practices for USTs and conditional approval for the permanent in-place closure
for certain USTs. However, there can be no assurance that such USTs will not
result in significant environmental liability in the future.
Foamex L.P. has been designated as a Potentially Responsible Party ("PRP") by
the United States Environmental Protection Agency (the "EPA") with respect to
thirteen sites with an estimated total liability to Foamex L.P. for the thirteen
sites of less than approximately $0.5 million. Estimates of total cleanup costs
and fractional allocations of liability are generally provided by the EPA or the
committee of PRP's with respect to the specified site. In each case, the
participation of Foamex L.P. is considered to be immaterial.
Although it is possible that new information or future developments could
require Foamex L.P. 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 Foamex L.P.'s
operations, financial position, capital expenditures or competitive position.
The possibility exists, however, that new environmental legislation and/or
environmental regulations may be adopted, or other environmental conditions may
be found to exist, that may require expenditures not currently anticipated and
that may be material.
Legal Proceedings
As of March 21, 1997, Foamex L.P. and Trace Holdings were two of multiple
defendants in actions filed on behalf of approximately 5,000 recipients of
breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, Foamex L.P. and Trace Holdings were granted summary judgements and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of the 903 foreign plaintiffs were dismissed on the grounds that the
cases could not be brought in the United States courts. This decision is subject
to appeal. Foamex L.P. believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from Foamex
L.P. or Trace Holdings. Neither Foamex L.P. nor Trace Holdings recommended,
authorized, or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings' consolidated
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<PAGE>
financial position or results of operations. In addition, Foamex L.P. is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990. Although Trace Holdings has paid Foamex
L.P.'s litigation expenses to date pursuant to such indemnification and
management believes Trace Holdings likely will be in a position to continue to
pay such expenses, there can be no absolute assurance that Trace Holdings will
be able to provide such indemnification. Based on information available at this
time with respect to the potential liability, and without taking into account
the indemnification provided by Trace Holdings and the coverage provided by
Trace Holdings' and Foamex L.P.'s liability insurance, Foamex L.P. believes that
the proceedings should not ultimately result in any liability that would have a
material adverse effect on the financial position or results of operations of
Foamex L.P. If management's assessment of Foamex L.P.'s liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on Foamex L.P.
During 1996, the Richard Lee Cobble et al. v. Steve Cansler et al. lawsuit
--------------------------------------------------
was settled without liability to Foamex L.P.
Foamex L.P. 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 Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on Foamex L.P.'s consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Item 4 is omitted pursuant to General Instruction I(c) of Form 10-K.
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDERS
MATTERS
FJPS is a privately held company with no established public trading market
for its equity securities. The equity securities are held by Foamex
International and FJGP, a wholly-owned subsidiary of Foamex International. FJCC
Inc. ("FJCC") is a wholly-owned subsidiary of FJPS.
For the years ended December 29, 1996, December 31, 1995 and for the period
from May 13, 1994 (date of initial capitalization) to January 1, 1995, FJPS made
distributions to its partners of approximately $1.7 million, $2.4 million and
$2.5 million, respectively.
The general and limited partnership interest in FJPS were issued in 1994 to
FJGP and Foamex International in exchange for an initial capital contribution of
$30 and $2,970, respectively. The common stock of FJCC was issued to FJPS in
1994 in exchange for an initial capital contribution of $1,000. The foregoing
issuances were made in reliance upon the exemption from registration set forth
in Section 4(2) of the Securities Act relating to sales by an issuer not
involving any public offering.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial data
of FJPS:
<TABLE>
<CAPTION>
Period from
Year Ended Year Ended May 13, 1994 to
December 29, 1996 December 31, 1995 January 1, 1995
(thousands)
<S> <C> <C> <C>
Statements of Operations data:
Interest and debt issuance expense $ 9,611 $ 8,173 $ 3,599
Equity in earnings (loss) of
unconsolidated limited partnership 52,588 (47,185) 19,667
Income (loss) from continuing operations 42,955 (55,443) 16,069
Equity in income (loss) from discontinued
operations (142,037) 1,956 6,312
Net income (loss) (100,956) (53,487) 22,381
Balance Sheet data (at period end):
Total assets $ 55,528 $ 145,392 $ 191,603
Long-term debt 114,061 114,825 99,391
Other liabilities 11,378 58 14
Partners' equity (deficit) (69,911) 30,509 92,198
</TABLE>
FOAMEX L.P.:
The following table presents selected historical consolidated financial
data of Foamex L.P. and subsidiaries after being restated for discontinued
operations for all periods presented (see Note 3 to the consolidated financial
statements). The results of operations of acquired businesses (as noted below)
are included from the dates of their respective acquisitions. The financial data
should be read in conjunction with the financial statements and related notes
thereto of Foamex L.P. included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year(1)(2)
1996(3) 1995(4) 1994 1993(5) 1992
(thousands)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales $ 926,351 $ 862,834 $ 833,660 $ 684,310 $ 501,751
Income (loss) from continuing operations 53,661 (48,126) 38,011 (7,926) 22,011
Net income (loss) 9,699 (53,243) 39,241 (17,653) 22,011
Balance Sheet Data (at period end):
Total assets $ 586,157 605,892 654,176 575,528 340,900
Long-term debt 392,617 433,956 441,757 414,445 285,762
Partners' equity (deficit) 12,832 (12,604) 52,548 49,386 (39,061)
<FN>
- --------------------------------------------------------------------------------
(1) Foamex L.P. has a 52-53 week fiscal year ending on the Sunday closest
to the end of the calendar year. Each fiscal year presented was 52
weeks with the exception of 1992 which was 53 weeks.
(2) Fiscal years 1993 through 1995 have been restated for discontinued
operations and fiscal years 1994 and 1995 have been restated for the
contribution of Foamex Mexico.
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<PAGE>
(3) Includes restructuring credits of $6.4 million (see Note 4 to
consolidated financial statements).
(4) Includes restructuring and other charges of $39.2 million (see Note 4
to the consolidated financial statements).
(5) Includes the results of operations of General Felt and Great Western
from March 23, 1993 and May 1, 1993, respectively, and thus may not be
comparable to other periods.
</FN>
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
FJPS's results of operations include its equity in the earnings (loss)
of Foamex L.P., its equity in the discontinued operations of JPS Automotive and
interest and debt issuance cost associated with the issuance of the Discount
Debentures (as defined). FJPS was formed on May 13, 1994 and acquired its
partnership interests in Foamex L.P. and JPS Automotive on June 28, 1994. FJPS
has no direct control or influence over Foamex L.P. Control is exercised by
Foamex International through its ownership of the managing general partners of
Foamex L.P. and FJPS. FJPS had no operations prior to June 28, 1994.
During 1996, Foamex L.P. completed the sale of Perfect Fit, FJPS sold
its 99% interest in JPS Automotive and JPSGP, another wholly-owned subsidiary of
Foamex International, distributed its 1% general partnership interest in JPS
Automotive to Foamex International. Foamex International then sold its 1%
interest in JPS Automotive. The consolidated financial statements of FJPS have
been restated for discontinued operations and includes a loss in the equity from
discontinued operations of $142.0 million. (See Note 3 to the consolidated
financial statements for further discussion).
In April 1996, Foamex International contributed the foam products
operations of Foamex Latin America, Inc. ("Foamex Mexico") to FJPS (99%) and to
FJGP (1%) who then contributed its investment in Foamex Mexico to FJPS. FJPS
subsequently contributed its 100% investment in Foamex Mexico to Foamex L.P. The
contribution was accounted for in a manner similar to a pooling of interests
since the entities are under common control. Accordingly, all periods presented
have been restated to reflect the financial condition and results of operations
of Foamex Mexico.
FJCC is solely a co-issuer of the discount debentures and FJCC has no
other material operations.
Liquidity and Capital Resources
FJPS's only source of cash to meet its obligations, including paying
the principal of, premium, if any, or interest on the Discount Debentures when
due, are capital contributions, loans, advances or other payments, from its
partners or distributions, loans, advances or other payments from Foamex L.P.
Foamex L.P. is subject to significant contractual restrictions on its ability to
pay dividends or make loans, advances and payments to FJPS. FJPS does not
anticipate funding any operating cash requirements of Foamex L.P.
Cash Flow from Investing Activities
During December 1996, FJPS received approximately $16.9 million of net
sale proceeds relating to the sale of its partnership interests in JPS
Automotive. FJPS used such net sales proceeds to prepay a portion of an
intercompany note payable to Foamex L.P.
On June 28, 1994, FJPS acquired a 99% limited partnership interest in
JPS Automotive for aggregate consideration of approximately $89.1 million ($83.2
million in cash and the assumption of $5.9 million of JPS Automotive's
acquisition cost liabilities). The net proceeds from the Discount Debentures (as
defined) and the FJPS Note (as defined) were used to fund the consideration for
the acquisition of the interests in JPS Automotive. In addition, on June 28,
1994, Foamex International contributed a 98% limited partnership interest in
Foamex L.P. to FJPS, with an historical basis of approximately $69.6 million.
Cash Flow from Financing Activities
FJPS and FJCC issued $116.7 million aggregate principal amount ($57.0
million initial cash proceeds) of Discount Debentures on June 28, 1994. The
original issue discount of $59.7 million will be amortized using the weighted
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<PAGE>
average to maturity method over the life of the issue. The Discount Debentures
mature on July 1, 2004. No cash interest is payable on the Discount Debentures
prior to January 1, 2000; rather, the Discount Debentures accrete on a daily
basis and compound semiannually at the rate of 13.50% per annum from the date of
issuance through June 30, 1996, at the rate of 13.75% per annum from July 1,
1996 through June 30, 1997, and at the rate of 14.00% per annum from July 1,
1997 through June 30, 1999, in each case subject to increase in the event that
FJPS and FJCC do not repay indebtedness in connection with certain equity
offerings. Thereafter, interest accrues at the rate of 14.00% per annum and is
payable semiannually in cash commencing January 1, 2000. Debt issuance costs
associated with the issuance of the Discount Debenture was $4.5 million of which
$1.3 million was paid by the partners of FJPS.
During 1996, in connection with the sale of JPS Automotive, FJPS
obtained a waiver of certain covenants contained in the indenture for the
Discount Debentures in exchange for a payment of 1% of the accreted value of the
Discount Debentures outstanding at September 30, 1996.
A promissory note (the "FJPS Note") in the aggregate principal amount
of $87.9 million was issued by FJPS on June 28, 1994. Foamex L.P. purchased the
note for $35.3 million in cash. FJPS used the proceeds from the sale of the FJPS
Note, in part, for its capital contribution to JPS Automotive in connection with
the acquisition of JPS Automotive. No interest is payable on the FJPS Note prior
to July 2000; rather, the FJPS Note accretes on a daily basis and compound
semiannually at the rate of 15.50% per annum through June 1996; 15.75% per annum
thereafter through June 1997; and 16.00% per annum thereafter through June 2000.
Interest will be payable in cash at 16.00% per annum from July 2000 through the
maturity date. In December 1996, FJPS repaid approximately $18.4 million of the
FJPS Note and a prepayment premium of $0.2 million using a portion of the
proceeds from the sale of its partnership interests in JPS Automotive in
exchange for certain waivers and amendments of the FJPS Note. FJPS has the right
to reborrow such amount, subject to the limitations in the Foamex L.P. credit
agreement, solely for the purpose of funding a purchase price adjustment
payment, if any, in connection with the JPS Automotive sale.
FOAMEX L.P.:
Foamex L.P. operates in the flexible polyurethane foam and foam
products industry, together with its wholly- owned subsidiaries, General Felt
Industries, Inc. ("General Felt"), Foamex Fibers, Inc. ("Foamex Fibers"), Foamex
Canada Inc. ("Foamex Canada"), and Foamex Latin America, Inc. ("Foamex Mexico").
The following discussion should be read in conjunction with the consolidated
financial statements and related notes thereto of Foamex L.P. included in this
report.
On April 7, 1997, Foamex International announced that it has initiated
an evaluation of its current capital structure, which includes the long-term
debt of Foamex L.P., with the intention of reducing interest expense and
improving financing flexibility. There can be no assurance however, that the
Company will be able to successfully reduce interest expense or improve
financing flexibility. Also, the affect of any change in the current capital
structure on the consolidated financial statements of Foamex L.P. can not be
determined at this time.
During 1996, Foamex L.P. sold Perfect Fit Industries, Inc. ("Perfect
Fit") which comprised the home comfort products business segment of Foamex L.P.
The consolidated financial statements of Foamex L.P. have been restated for
discontinued operations and includes a net loss of $41.8 million (net of a $1.2
million income tax benefit) on the disposal of this business segment which
includes provisions for operating losses during the phase-out period (see Note 3
to the consolidated financial statements for further discussion). In addition,
during April 1996, Foamex International contributed the foam products operations
of Foamex Mexico to Foamex L.P. The contribution was accounted for in a manner
similar to a pooling of interests since the entities were under common control.
Accordingly, all prior periods presented have been restated to reflect the
results of operations and financial position of Foamex Mexico.
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<PAGE>
Foamex L.P.'s results of operations have been affected by various
factors, including the implementation of an operational plan in 1995 to improve
profitability and unrecovered raw material cost increases during 1995. The
operational plan consisted of (i) reducing layers of management through
organizational realignment, (ii) the consolidation of foam production,
fabrication or branch locations, (iii) implementing additional procedures to
reduce manufacturing costs, including process redesign to eliminate non-value
added operations, (iv) reducing selling, general and administrative expenses
through cost containment and (v) reducing inventory levels through improved
forecasting and the effect of plant consolidations. In December 1995, Foamex
L.P. recorded restructuring and other charges of $39.2 million relating to (i)
the consolidation of thirteen foam production, fabrication or branch locations
(the "1995 restructuring plan"), (ii) other charges, primarily relating to
merger and acquisition activities of Foamex L.P. and (iii) the completion of a
1993 restructuring plan. During 1996, Foamex L.P. completed the consolidation of
twelve foam production, fabrication or branch locations; however, one of the
facilities originally identified for closure in the 1995 restructuring plan will
continue to operate because of improved economics and the lack of synergy to be
achieved from relocating the manufacturing process. In addition, Foamex L.P. has
approved a plan to close two facilities that were not originally identified in
the 1995 restructuring plan. As a result of these changes to the 1995
restructuring plan and the favorable termination of certain lease agreements and
other matters, Foamex L.P. recorded a $6.4 million net restructuring credit
which included a restructuring credit of $11.3 million associated with Foamex
L.P.'s decision not to close the facility identified as part of the 1995
restructuring plan and $1.7 million of restructuring credits relating primarily
to the favorable termination of certain lease agreements and other matters
associated with the 1995 restructuring plan, offset by $6.6 million of
restructuring charges relating to the closure of two facilities during 1997 (the
"1996 restructuring plan"). There can be no assurance that Foamex L.P. will be
able to successfully complete its restructuring plans.
Foamex L.P.'s automotive foam customers are predominantly automotive
original equipment manufacturers or other automotive suppliers. As such, the
sales of these product lines are directly related to the overall level of
passenger car and light truck production in North America. Also, Foamex L.P.'s
sales are sensitive to sales of new and existing homes, changes in personal
disposable income and seasonality. Foamex L.P. typically experiences two
seasonally slow periods during each year, in early July and in late December,
due to scheduled plant shutdowns and holidays.
RESULTS OF OPERATIONS
1996 Compared to 1995
Net sales for 1996 were $926.4 million as compared to $862.8 million in
1995, an increase of $63.6 million or 7.4%. Carpet cushion net sales for 1996
increased 7.5% to $291.3 million from $271.0 million in 1995 primarily due to
increased selling prices initiated during the second quarter of 1996 as well as
increased volume of shipments due to improved carpet sales. Cushioning foam net
sales for 1996 increased 7.4% to $332.9 million from $310.0 million in 1995
primarily due to increased net sales volume from both new and existing customers
of bedding related products, increased selling prices initiated at the beginning
of 1996 and a full year of results for a company acquired in April 1995 which
manufactures cushioning products. Automotive foam net sales for 1996 increased
5.5% to $231.9 million from $219.8 million in 1995 primarily due to a continued
increase in net sales of tri-laminates and composite headliners and increased
selling prices initiated at the beginning of 1996. Technical foam net sales for
1996 increased 13.4% to $70.3 million from $62.0 million in 1995 primarily due
to increased selling prices and increased net sales volume.
Gross profit as a percentage of net sales increased to 16.5% for 1996
from 11.7% in 1995 primarily due to selling price increases and improved
material and production efficiencies, which includes (i) selling price increases
during 1996 to offset the adverse affect of the 1995 and 1994 raw material cost
increases, (ii) reductions in customer deductions for pricing disputes,
promotional programs and other matters and (iii) reductions in salaries and
other overhead costs associated with the implementation of the 1995
restructuring plan.
Income from operations was $102.9 million for 1996 as compared to a
loss from operations of $2.0 million in 1995. The increase was primarily due to
an increase in gross profit margins as discussed above, a decrease in
restructuring and other charges (credits) of $45.7 million and a decrease in
selling, general and administrative expenses of $6.7 million for 1996 as
compared to 1995. The decrease in restructuring and other charges (credits) is
comprised of the $39.2 million charge for restructuring and other charges in
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<PAGE>
1995 plus the net restructuring credit of $6.4 million in 1996. The 1996 net
restructuring credit is comprised of a $11.3 million credit due to Foamex L.P.'s
decision not to close a facility which was part of the 1995 restructuring plan
and $1.7 million of credits relating primarily to the favorable termination of
lease agreements and other matters relating to the 1995 restructuring plan,
offset by $6.6 million of restructuring charges relating to the 1996
restructuring plan which primarily consists of the closure of two facilities
during 1997. The decrease in selling, general and administrative expenses is the
result of reductions in the provision for uncollectible accounts of
approximately $3.9 million, salaries and employee costs of approximately $3.7
million and a reduction of approximately $2.0 million in environmental accruals
offset by increases in selling expenses associated with the increased net sales
volume and management realignment in connection with the 1995 operational plan.
Income from continuing operations before provision for income taxes was
$61.4 million for 1996 as compared to a loss from continuing operations before
provision for income taxes of $46.7 million in 1995. The increase is primarily
due to the reasons cited above and a decrease in interest and debt issuance
expense of $1.3 million. The decrease in interest and debt issuance expense is
primarily due to a $2.3 million increased benefit from interest rate swap
agreements offset by the amount of interest allocated to discontinued operations
in 1996 as compared to 1995. See Note 3 to the consolidated financial statements
for further discussion.
Foamex L.P., as a limited partnership, is not subject to federal and
certain state income taxes. However, the consolidated financial statements
include a provision for income taxes which primarily relates to the federal and
state income taxes of corporate subsidiaries and subsidiaries located in foreign
jurisdictions that file separate income tax returns. See Note 10 to the
consolidated financial statements for further discussion.
The loss from discontinued operations of $42.1 million (net of $2.6
million income tax benefit) in 1996 relates to the net loss on the sale of the
home comfort products business segment which consisted primarily of the net
assets of Perfect Fit and the operating loss of Perfect Fit through the closing
date. See Note 3 to the consolidated financial statements for further
discussion.
The extraordinary loss on early extinguishment of debt of $1.9 million
primarily relates to the write-off of debt issuance costs and redemption
premiums associated with the early extinguishment of $30.6 million of long-term
debt. See Note 11 to the consolidated financial statements for further
discussion.
Operating results in 1997 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
continued implementation of the operational plan to improve Foamex L.P.'s
profitability, (ii) the completion of Foamex International's evaluation of the
current capital structure of Foamex L.P., (iii) raw material price increases, if
any, by Foamex L.P.'s chemical suppliers and (iv) Foamex L.P.'s success in
passing on to its customers selling price increases to recover such raw material
cost increases, if any. Also, effective in January 1997, Foamex L.P.'s
operations in Mexico became subject to highly inflationary accounting for
financial reporting purposes. Translation adjustments resulting from
fluctuations in the exchange rate between the Mexican Peso and the U.S. dollar
will be included in Foamex L.P.'s consolidated statement of operations as
compared to partners' equity (deficit). Large fluctuations in the Mexican Peso
exchange rate could have an adverse impact on Foamex L.P.'s results of
operations.
1995 Compared to 1994
Net sales for 1995 were $862.8 million as compared to $833.7 million
in 1994, an increase of $29.1 million or 3.5%. Carpet cushion net sales for 1995
decreased 7.4% to $271.0 million from $292.5 million in 1994 primarily due to
reduced net sales volume of certain carpet cushion products resulting from weak
carpet sales and a change in product mix to carpet cushion with lower selling
prices. In addition, carpet cushion selling prices were under pressure from an
excess supply of low priced scrap foam, the primary component of rebond carpet
cushion. Cushioning foam net sales for 1995 increased 7.2% to $310.0 million
from $289.2 million in 1994 primarily due to the April 1995 acquisition of a
company which manufactures cushioning products and increased selling prices
offset by a reduction in net sales volume due to competitive pricing pressures
and reduced demand for certain cushioning foam products. Automotive foam net
sales for 1995 increased 11.0% to $219.8 million from $198.0 million in 1994
primarily due to increased net sales volume of tri-laminates and composite
headliner products offset by a reduction in net sales volume of other automotive
foam products. Technical foam net sales for 1995 increased 14.8% to $62.0
million from $54.0 million in 1994 primarily due to increased selling prices and
increased net sales volume.
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Gross profit as a percentage of net sales decreased to 11.7% for 1995
from 17.1% for 1994. This unfavorable relationship was primarily due to net
unrecovered raw material cost increases of approximately $25.0 million during
1995. In addition, the decrease in gross profit margins for 1995 as compared to
1994 was also associated with (i) approximately $7.7 million of increased
customer deductions for pricing disputes, promotion programs and other matters,
(ii) approximately $3.5 million of increased employee benefits accruals
associated with insurance and pension plans and other accruals, (iii)
approximately $1.5 million of inventory write-offs associated with scrap foam
inventory and discontinued or slow moving product lines, (iv) an increase in net
sales of automotive tri-laminates, which have a lower-margin than other foam
products, (v) under-utilization of manufacturing capacities due to reduced net
sales volume of certain product lines and (vi) carpet cushion selling prices
remaining under pressure from an excess supply of low priced scrap foam, the
primary component of rebond carpet cushion.
A loss from operations of $2.0 million was incurred for 1995 as
compared to income of $85.3 million for 1994. The decrease in income from
operations was primarily due to (i) the reduction in gross profit margins as a
percentage of net sales as discussed above, (ii) an increase in selling, general
and administrative expenses of $6.4 million for 1995 as compared to 1994
including an increase of $3.7 million in the provision for uncollectible
accounts and (iii) restructuring and other charges of $39.2 million (as
discussed below).
In 1995, Foamex L.P. approved the 1995 restructuring plan to
consolidate thirteen foam production, fabrication or branch locations to
concentrate resources as a result of industry conditions and better position
itself to achieve its strategic growth objectives. Foamex L.P. recorded
restructuring and other charges of $39.2 million which were comprised of charges
of $35.6 million associated with the consolidation of the foam production,
fabrication or branch locations, $2.2 million associated with the completion of
the 1993 restructuring plan and $1.4 million associated with merger and
acquisition activities of Foamex L.P. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns, $15.1
million for plant closure and operating lease obligations and $3.8 million for
personnel reductions. The $3.8 million cost for personnel reductions primarily
represents severance and employee benefit costs associated with the elimination
of manufacturing and administrative personnel. See Note 4 to the consolidated
financial statements for further discussion.
A net loss of $53.2 million was incurred for 1995 as compared to net
income of $39.2 million for 1994. The decrease is primarily due to (i) the
reasons cited above and (ii) an increase in interest and debt issuance expense
of $3.0 million. The increase in interest and debt issuance expense was
primarily associated with (i) a decrease of $1.6 million in the benefit received
from interest rate swap agreements in 1995 as compared to 1994 and (ii) an
increase in term loan interest expense due to a full year of borrowings in 1995
as compared to 1994.
Foamex L.P., as a limited partnership, is not subject to federal and
certain state income taxes. However, the consolidated financial statements
include a provision for income taxes which primarily relates to the federal and
state income taxes of corporate subsidiaries and subsidiaries located in foreign
jurisdictions that file separate income tax returns. See Note 10 to the
consolidated financial statements for further discussion.
Foamex Capital Corporation ("FCC")
FCC is solely a co-issuer of certain indebtedness of Foamex L.P. and
FCC has no other material operations.
Liquidity and Capital Resources
Liquidity
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. Foamex L.P. believes that
cash flow from operating activities, cash on hand and periodic borrowings under
its revolving credit agreement, if necessary, will be adequate to meet operating
cash requirements. The ability to meet the operating cash requirements could be
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impaired if Foamex L.P. was to fail to comply with any of the covenants
contained in the Foamex L.P. credit facility (the "Foamex L.P. Credit Facility")
and such noncompliance was not cured by Foamex L.P. or waived by the lenders.
Foamex L.P. was in compliance with the covenants in the Foamex L.P. Credit
Facility as of December 29, 1996 and expects to be in compliance with the
covenants for the foreseeable future.
Cash and cash equivalents increased $20.4 million during 1996 to $21.0
million at December 29, 1996 from $0.6 million at December 31, 1995 primarily
due to a $18.4 million payment received on a note from a partner (see Note 13 to
the consolidated financial statements) and improved operating results, offset by
the increased use of cash and cash equivalents by the operating assets and
liabilities of Foamex L.P., capital expenditures and scheduled debt repayments.
Cash and cash equivalents decreased $19.4 million during 1995 to $0.6 million at
December 31, 1995 from $20.0 million at January 1, 1995 primarily due to capital
expenditures, scheduled debt repayments and the acquisition of a manufacturing
company in April 1995. Working capital increased $65.8 million during 1996 to
$137.1 million at December 29, 1996 from $71.3 million at December 31, 1995
primarily due to (i) improved operating results, (ii) an increase in cash
resulting from the payment received on a note with a partner and (iii) an
increase in net operating assets and liabilities, which was offset by working
capital used for capital expenditures and scheduled debt repayments. Net
operating assets and liabilities (comprised of accounts receivable, inventories
and accounts payable) increased $19.9 million during 1996 to $144.0 million at
December 29, 1996 from $124.1 million at December 31, 1995 primarily due to
increased accounts receivable and inventories offset by an increase in accounts
payable. The increase in accounts receivable and inventories are primarily
associated with the improved operating results of Foamex L.P. In addition, raw
material inventories increased due to increased year end purchases associated
with a potential cost increase that did not occur. The increase in accounts
payable is primarily associated with the year end purchase of raw material
inventories. Working capital decreased $57.1 during 1995 to $71.3 million at
December 31, 1995 from $128.4 million at January 1, 1995 primarily due to (i)
the reduction of cash and cash equivalents as discussed above and (ii) an
increase in accrued restructuring charges. Net operating assets and liabilities
(comprised of accounts receivable, inventories and accounts payable) decreased
$12.1 million to $124.1 million at December 31, 1995 as compared to $136.2
million at January 1, 1995. The decrease was primarily due to a decrease in
inventories. The 1996 and 1995 restructuring plans include approximately $16.6
million of cash charges of which $10.1 million has been incurred as of December
29, 1996.
As of December 29, 1996, there were no revolving credit borrowings
under the Foamex L.P. Credit Facility with unused availability of approximately
$33.3 million which includes approximately $11.7 million associated with letters
of credit outstanding which are supported by the Foamex L.P. Credit Facility.
Borrowings by Foamex Canada as of December 29, 1996 were $3.7 million under
Foamex Canada's revolving credit agreement with unused availability of
approximately $0.7 million at an interest rate of 5.25%.
Cash Flow from Operating Activities
Cash flow from continuing operations was $36.7 million, $36.5 million
and $50.6 million in 1996, 1995 and 1994, respectively. Cash flow from
continuing operations remained consistent for 1996 as compared to 1995 primarily
as a result of improved operating results from continuing operations offset by
an increased use of cash by the operating assets and liabilities. Cash flow from
continuing operations decreased in 1995 as compared to 1994 primarily as a
result of the reduction in operating results from continuing operations.
Cash Flow from Investing Activities
From the beginning of 1994 through 1996, Foamex L.P. spent
approximately $63.9 million on capital improvements. The expenditures included:
(i) installation of new variable pressure foaming technology ("VPF(TM)") in the
Verona, Mississippi and Orange, California facilities; (ii) initiation of the
construction of a facility in Mexico City, Mexico to improve manufacturing
efficiencies and to meet the growing demand for foam products; and (iii)
installation of more efficient foam production line systems and fabricating
equipment in a number of manufacturing facilities. Foamex L.P. expects to
maintain capital expenditures at the current levels for the foreseeable future
by focusing spending primarily on the maintenance of existing equipment and on
the installation of the VPF(TM) manufacturing process.
During 1996, Foamex L.P. received net sale proceeds of approximately
$42.7 million in connection with the sale of Perfect Fit which was finalized in
1996. The net sale proceeds were used to repurchase long-term debt (see Note 11
to the consolidated financial statements) and for the payment of certain
retained liabilities, with the remainder held as restricted cash as of December
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29, 1996 for the repurchase of additional long-term debt during 1997. As of
February 26, 1997, Foamex L.P. has repurchased approximately $8.0 million of
long-term debt with restricted cash.
On June 28, 1994, Foamex L.P. purchased an $87.9 million principal
amount note due 2006 from its 98% limited partner Foamex-JPS Automotive L.P.
("FJPS") for $35.3 million (the "FJPS Note"). The FJPS Note will not pay
interest until July 2000. Instead, principal will accrete (from the initial
purchase price of $35.3 million) on a daily basis and compound semiannually at
the rate of 15.50% per annum through June 1996; 15.75% per annum thereafter
through June 1997; and 16.00% per annum thereafter through June 2000. Interest
will be due semiannually in cash at 16.00% per annum from July 2000 through the
maturity date. In December 1996 in exchange for certain waivers and amendment of
the FJPS Note, FJPS repaid $18.4 million of the FJPS Note and a waiver payment
of $0.2 million using a portion of the proceeds from the sale of its partnership
interest in JPS Automotive L.P. FJPS has the right to reborrow such amount,
subject to limitations in the Foamex L.P. Credit Facility, solely for the
purpose of funding a purchase price adjustment payment, if any, in connection
with the JPS Automotive L.P. sale. The intercompany note has been classified in
partners' equity (deficit) and the accreted principal of $16.3 million for the
period from June 28, 1994 to December 29, 1996 has been included in the FJPS
Note. The FJPS Note may be redeemed at the option of FJPS, in whole or in part,
at any time at the redemption prices (expressed as percentages of the Accreted
Value (as defined) if on or prior to July 1, 2000, and thereafter, expressed as
percentages of the principal amount) initially equal to 108% for the
twelve-month period commencing July 1, 1994 declining to 100% on or after July
1, 2005. If FJPS does not repay indebtedness with at least 85% of the net
proceeds of any Equity Offering (as defined), the rate at which the FJPS Note
accretes and the interest rate on the FJPS Note will increase.
In April 1995, Foamex L.P. acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for an aggregate consideration of approximately $8.0 million,
including related fees and expenses of approximately $0.3 million, with an
initial cash payment of $7.2 million.
In March 1994, Foamex International acquired Transformacion De Espumas
Y Fieltros, S.A. de C.V. ("TEFSA") for an aggregate purchase price of $4.5
million, including related fees and expenses of approximately $0.4 million, to
be paid over a three year period with an initial cash payment of $1.7 million.
During 1996, Foamex International contributed its interest in Foamex Mexico to
Foamex L.P. Also, during 1996 Foamex L.P. made a scheduled cash payment of
approximately $0.8 million in accordance with the purchase agreement. The final
payment of approximately $0.8 million will be made in April 1997.
Cash Flow from Financing Activities
As of December 29, 1996, Foamex L.P. had repurchased long-term debt of
approximately $30.6 million with the net proceeds from the sale of Perfect Fit.
In addition, Foamex L.P. had repurchased long-term debt of approximately $8.0
million through February 26, 1997 with restricted cash.
During 1996, Foamex Mexico borrowed $1.5 million under two promissory
notes that bear interest at LIBOR (5.69% at December 29, 1996) plus 3/8% and
mature on June 30, 1997.
Foamex L.P. made cash distributions to its partners, pursuant to a tax
sharing agreement, of approximately $3.5 million, $2.4 million and $3.3 million
in 1996, 1995 and 1994, respectively.
Interest Rate Swap Agreements
Foamex L.P. enters into interest rate swaps to lower funding costs
and/or to manage interest costs and exposure to changing interest rates. Foamex
L.P. does not hold or issue financial instruments for trading purposes. Foamex
L.P. has an interest rate swap agreement, as amended, with a notional amount of
$150.0 million through December 2001. Under the swap agreement, Foamex L.P. has
made variable payments based on LIBOR through December 1996 and is obligated to
make fixed payments at 5.30% per annum for the twelve months ended in December
1997 and variable payments at a rate equal to LIBOR for the remainder of the
agreement, in exchange for fixed payments by the swap partner at 5.81% per annum
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through December 1996, and 6.50% per annum for the remainder of the agreement,
payable semiannually in arrears. The swap partner has the ability to terminate
the swap agreement after the December 1997 payment if the LIBOR rate Foamex L.P.
is to pay for any period thereafter is equal to or less than 4.50% per annum.
Interest expense will be subject to fluctuations in LIBOR during the term of the
swap agreement except during 1997. Foamex L.P. is exposed to credit loss in the
event of nonperformance by the swap partner; however, the occurrence of this
event is not anticipated.
Also, Foamex L.P. has an interest rate swap agreement, as amended, for
a notional amount of $150.0 million through December 2001. Under this swap
agreement, Foamex L.P. has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for variable payments by the swap partner at the rate of LIBOR plus
0.80% per annum for the six months ended in June 1995, LIBOR plus 0.72% per
annum for the six months ended in December 1995, LIBOR plus 2.45% per annum for
the six months ended in June 1996, LIBOR plus 2.39% per annum for the six months
ended in December 1996 and fixed payments at 6.50% per annum for the remainder
of the term of the agreement, payable semiannually in arrears. The swap partner
has the ability to terminate the swap agreement after the December 1997 payment
if the LIBOR rate Foamex L.P. is to pay for any period thereafter is equal to or
less than 4.50% per annum. Foamex L.P. is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated. Interest expense will be subject to fluctuations in LIBOR during
the term of the swap agreement except during 1997.
The effect of the two interest rate swaps described above was a
favorable adjustment to interest expense of $3.7 million, $1.4 million and $3.0
million for 1996, 1995 and 1994, respectively.
Environmental Matters
Foamex L.P. is subject to extensive and changing environmental laws
and regulations. Expenditures to date in connection with Foamex L.P.'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 Foamex L.P. in connection with
environmental matters as of December 29, 1996 was $4.1 million. In addition, as
of December 29, 1996 Foamex L.P. has net receivables of $0.9 million for
indemnification of environmental liabilities from former owners, net of a $1.0
million allowance relating to potential disagreements regarding the scope of the
indemnification. Although it is possible that new information or future
developments could require Foamex L.P. to reassess its potential exposure to all
pending environmental matters, including those described in the footnotes to
Foamex L.P.'s consolidated financial statements, management believes that, based
upon all currently available information, the resolution of all such pending
environmental matters will not have a material adverse effect on Foamex L.P.'s
operations, financial position, capital expenditures or competitive position.
Inflation and Other Matters
There was no significant impact on Foamex L.P.'s operations as a
result of inflation during the prior three year period. See "Results of
Operations 1995 versus 1994" for a discussion of the impact of raw material
price increases. In some circumstances, market conditions or customer
expectations may prevent Foamex L.P. from increasing the price of its products
to offset the inflationary pressures that may increase its costs in the future.
New Accounting Pronouncement
In October 1996, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities", which provides guidance on specific accounting issues
that are present in the recognition, measurement, display and disclosure of
environmental remediation liabilities. SOP 96-1 is effective for fiscal years
beginning after December 15, 1996. Accordingly, Foamex L.P. will adopt SOP 96-1
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during the first quarter of 1997. Management believes that the adoption of this
statement will not have a material impact on its results of operations or
financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
An index to the financial statements and financial statement schedules
is set forth in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Part III is omitted pursuant to General Instruction I(c) of Form 10-K.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF REGISTRANTS:
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-3
Consolidated Statements of Operations for the Years Ended December 29, 1996,
December 31, 1995 and for the Period from May 13, 1994 (date of initial
capitalization) to January 1, 1995 F-4
Consolidated Statements of Cash Flows for the Years Ended December 29, 1996,
December 31, 1995 and for the Period from May 13, 1994 (date of initial
capitalization) to January 1, 1995 F-5
Consolidated Statements of Partners' Equity (Deficit) for the Years Ended December 29, 1996,
December 31, 1995 and for the Period from May 13, 1994 (date of initial
capitalization) to January 1, 1995 F-6
Notes to Consolidated Financial Statements F-7
FOAMEX-JPS CAPITAL CORPORATION:
Report of Independent Accountants F-16
Balance Sheets as of December 29, 1996 and December 31, 1995 F-17
Notes to Balance Sheets F-18
FINANCIAL STATEMENTS OF EQUITY INVESTEE:
FOAMEX L.P. AND SUBSIDIARIES:
Report of Independent Accountants F-19
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-20
Consolidated Statements of Operations for the years 1996, 1995 and 1994 F-22
Consolidated Statements of Cash Flows for the years 1996, 1995 and 1994 F-23
Consolidated Statements of Partners' Equity (Deficit) for the years 1996, 1995 and 1994 F-24
Notes to Consolidated Financial Statements F-25
FINANCIAL STATEMENTS OF GUARANTOR:
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES:
Report of Independent Accountants F-47
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-48
Consolidated Statements of Operations for the years 1996, 1995 and 1994 F-50
Consolidated Statements of Cash Flows for the years 1996, 1995 and 1994 F-51
Consolidated Statements of Stockholders' Equity (Deficit) for the years 1996, 1995 and 1994 F-52
Notes to Consolidated Financial Statements F-53
FINANCIAL STATEMENT SCHEDULES:
Foamex L.P. and Subsidiaries Financial Statement Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
(b) Reports on Form 8-K
Form 8-K reporting an event which occurred on December 11, 1996
(consummation of the sale of JPS Automotive L.P.).
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Form 8-K/A amending the earliest Form 8-K reporting an event which occurred
on December 11, 1996 (financial statement in connection with consummation of the
sale of JPS Automotive L.P.).
(c) Exhibits
3.1(a) - Restated Certificate of Incorporation of Foamex International.
3.2(a) - By-laws of Foamex International.
3.3(i) - First Amended and Restated Agreement of Limited Partnership of
FJPS.
3.4(i) - Certificate of Incorporation of FJCC.
3.5(i) - By-laws of FJCC.
3.6(i) - Certificate of Incorporation of FJGP.
3.7(i) - By-laws of FJGP.
3.8(a) - Fourth Amended and Restated Agreement of Limited Partnership
of Foamex L.P., dated as of December 14, 1993, by and among FMXI
and Trace Foam, as general partners, and Foamex International,
as a limited partner (the "Partnership Agreement").
3.9(n) - First Amendment to the Fourth Amendment and Restated Agreement
of Limited Partnership of Foamex L.P., dated June 28, 1994.
3.10(a) - Certificate of Incorporation of FMXI.
3.11(a) - By-laws of FMXI.
3.12(e) - Certificate of Incorporation of FCC.
3.13(e) - By-laws of FCC.
3.14(c) - Certificate of Incorporation of GFI Acquisition Corp.
3.15(c) - Certificate of Amendment to the Certificate of Incorporation
of GFI Acquisition Corp.
3.16(c) - Certificate of Amendment to the Certificate of Incorporation
of General Felt.
4.1(b) - Indenture, dated as of June 3, 1993, among Foamex L.P. and
FCC, as joint and several obligors, General Felt, as Guarantor,
and Shawmut Bank, National Association ("Shawmut"), as trustee,
relating to $160,000,000 principal amount of 9 1/2% Senior
Secured Notes due 2000, including form of Senior Secured Note.
4.2(a) - First Supplemental Indenture, dated as of November 18, 1993,
among Foamex International and FCC, as Issuers, General Felt and
Perfect Fit, as Guarantors and Shawmut, as trustee, relating to
the Senior Secured Notes.
4.3(a) - Second Supplemental Indenture, dated as of December 14, 1993,
among Foamex L.P. and FCC, as Issuers, Foamex International,
General Felt and Perfect Fit, as Guarantors and Shawmut, as
trustee, relating to the Senior Secured Notes.
4.3.1(t) - Third Supplemental Indenture, dated as of August 1, 1996, by
and among Foamex L.P. and FCC, as Issuers, Foamex International,
as parent guarantor, General Felt, as guarantor, Perfect Fit, as
withdrawing guarantor, and Fleet National Bank ("Fleet"), as
trustee relating to the Senior Secured Notes.
4.4(b) - Company Pledge Agreement, dated as of June 3, 1993, by Foamex
L.P. in favor of Shawmut, as trustee for the holders of the
Senior Secured Notes.
4.5(b) - Company Pledge Agreement, dated as of June 3, 1993, by FCC in
favor of Shawmut, as trustee for the holders of the Senior
Secured Notes.
4.6(b) - Subsidiary Pledge Agreement, dated as of June 3, 1993, by
General Felt in favor of Shawmut, as trustee for the holders of
the Senior Secured Notes.
4.7(b) - Company Security Agreement, dated as of June 3, 1993, by
Foamex L.P. and FCC in favor of Shawmut, as trustee for the
holders of the Senior Secured Notes.
4.8(b) - Subsidiary Security Agreement, dated as of June 3, 1993, by
General Felt in favor of Shawmut, as trustee for the holders of
the Senior Secured Notes.
4.9(b) - Collateral Assignment of Patents and Trademarks, dated as of
June 3, 1993, by Foamex L.P. in favor of Shawmut, as trustee for
the holders of the Senior Secured Notes.
4.10(b) - Collateral Assignment of Patents and Trademarks, dated as of
June 3, 1993, by FCC in favor of Shawmut, as trustee for the
holders of the Senior Secured Notes.
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4.11(b) - Collateral Assignment of Patents and Trademarks, dated as of
June 3, 1993, by General Felt in favor of Shawmut, as trustee
for the holders of the Senior Secured Notes.
4.12(c) - Indenture, dated as of October 13, 1992, among Foamex L.P.,
FCC and The Connecticut National Bank, as trustee, relating to
$150,000,000 principal amount of 11 1/4% Senior Notes due 2002,
including form of Senior Note.
4.13(d) - First Supplemental Indenture, dated as of March 23, 1993,
among Foamex L.P. and FCC, as joint and several obligors,
General Felt, as Guarantor, and Shawmut Bank Connecticut,
National Association (formerly The Connecticut National Bank
("Shawmut Connecticut")), as trustee, relating to the Senior
Notes.
4.14(a) - Second Supplemental Indenture, dated as of November 18, 1993,
among Foamex L.P. and FCC, as Issuers, General Felt and Perfect
Fit, as Guarantors and Shawmut Connecticut, as trustee, relating
to the Senior Notes.
4.15(a) - Third Supplemental Indenture, dated as of December 14, 1993,
among Foamex L.P. and FCC, as Issuers, Foamex International,
General Felt and Perfect Fit, as Guarantors, and Shawmut
Connecticut, as trustee, relating to the Senior Notes.
4.16(m) - Fourth Supplemental Indenture, dated as of October 31, 1994,
among Foamex L.P. and FCC as Issuers, Foamex International as
Parent Guarantor, General Felt and Perfect Fit as Guarantors and
Shawmut Connecticut, as Trustee, relating to the Senior Notes.
4.17(t) - Fifth Supplemental Indenture, dated as of August 1, 1996,
among Foamex L.P. and FCC as Issuers, Foamex International as
Parent Guarantor, General Felt, as Guarantor, and Fleet National
Bank, as Trustee relating to the Senior Notes.
4.18(c) - Indenture, dated as of October 13, 1992, among Foamex L.P.,
FCC and Shawmut Bank, ("Shawmut"), as trustee, relating to
$126,000,000 principal amount of 117/8% Senior Subordinated
Debentures due 2004, including form of Senior Subordinated
Debenture.
4.19(d) - First Supplemental Indenture, dated as of March 23, 1993,
among Foamex L.P. and FCC, as joint and several obligors,
General Felt, as Guarantor, and Shawmut, as trustee, relating to
the Senior Subordinated Debentures.
4.20(a) - Second Supplemental Indenture, dated as of November 18, 1993,
among Foamex L.P. and FCC, as Issuers, General Felt and Perfect
Fit, as Guarantors and Shawmut, as trustee, relating to the
Senior Subordinated Debentures.
4.21(t) - Fourth Supplemental Indenture, dated as of August 1, 1996,
among Foamex L.P. and FCC, as Issuers, Foamex International, as
Parent Guarantor, General Felt, as Guarantor, Perfect Fit, as
Withdrawing Guarantor, and Fleet National Bank, as Trustee,
relating to the Senior Subordinated Debentures.
4.22(b) - Third Supplemental Indenture, dated as of December 14, 1993,
among Foamex L.P. and FCC, as Issuers, Foamex International,
General Felt and Perfect Fit, as Guarantors and Shawmut, as
trustee, relating to the Senior Subordinated Debentures.
4.23(i) - Indenture, dated as of June 28, 1994, among FJPS and FJCC, as
Issuers, Foamex International, as guarantor, and Shawmut
Connecticut, as trustee, relating to $116,745,000 principal
amount of Senior Secured Discount Debentures due 2004, including
form of Senior Secured Discount Debenture.
4.24(i) - Senior Note, dated June 28, 1994, in the aggregate principal
amount of $87,943,103.14 due July 1, 2006, executed by FJPS to
Foamex L.P.
4.25(x) - Consent, Waiver and Amendment Agreement, dated December 11,
1996, between FJPS and Foamex L.P.
4.26(t) - Commitment letter, dated July 9, 1996, from The Bank of Nova
Scotia to Foamex Canada Inc.
4.27(d) - Agreement of Undertaking, dated as of December 31, 1991,
between Foamex L.P. and The Bank of Nova Scotia.
4.28(t) - Third Amended and Restated Credit Agreement, dated as of July
30, 1996, among Foamex L.P., General Felt, Trace Foam, FMXI,
Citibank, N.A., The Bank of Nova Scotia, the institutions from
time to time parties thereto as lenders, the institutions
parties thereto as issuing banks and Citibank, N.A. and The Bank
of Nova Scotia, as Administrative Agents (the "Credit
Agreement").
27
<PAGE>
4.29(t) - First Amendment to Third Amended and Restated Credit
Agreement, dated September 30, 1996, among Foamex L.P., General
Felt, Trace Foam, FMXI, Citibank, N.A., The Bank of Nova Scotia,
the institutions from time to time parties thereto as lenders,
the institutions parties thereto as issuing banks and Citibank,
N.A. and The Bank of Nova Scotia, as Administrative Agents (the
"Credit Agreement").
4.30(x) - Second Amendment to Third Amended and Restated Credit
Agreement, dated November 27, 1996, among Foamex L.P., General
Felt, Trace Foam, FMXI, Citibank, N.A., The Bank of Nova Scotia,
the institutions from time to time parties thereto as lenders,
the institutions parties thereto as issuing banks and Citibank,
N.A. and The Bank of Nova Scotia, as Administrative Agents (the
"Credit Agreement").
4.31(a) - Guaranties, dated November 18, 1993, executed by each of
Foamex L.P., General Felt and Perfect Fit, as guarantor,
respectively, in favor of Citibank, N.A., as Administrative
Agent, for the ratable benefit of the lenders and the issuing
banks, guaranteeing the obligations of one another under the
Credit Agreement.
4.32(a) - Guaranty, dated November 18, 1993, executed by FCC in favor of
Citibank, N.A., as Administrative Agent, for the ratable benefit
of the lenders and the issuing banks, guaranteeing the
obligations of Foamex L.P., General Felt and Perfect Fit under
the Credit Agreement.
4.33(i) - Amended and Restated Guaranty, dated as of June 28, 1994,
executed by Foamex International in favor of Citibank, N.A. and
The Bank of Nova Scotia, as Administrative Agents, for the
ratable benefit of the lenders and the issuing banks under the
Credit Agreement.
4.34(q) - First Amendment to Amended and Restated Guaranty, dated June
30, 1995, executed by Foamex International in favor of Citibank,
N.A. and The Bank of Nova Scotia, as Administrative Agents, for
the ratable benefit of the lenders and the issuing banks under
the Credit Agreement.
4.35(q) - Second Amendment to Amended and Restated Guaranty, dated
February 27, 1996, executed by Foamex International in favor of
Citibank, N.A. and The Bank of Nova Scotia, as Administrative
Agents, for the ratable benefit of the lenders and the issuing
banks under the Credit Agreement.
4.36(t) - Third Amendment to Amended and Restated Guaranty, dated
February 27, 1996, executed by Foamex International in favor of
Citibank, N.A. and The Bank of Nova Scotia, as Administrative
Agents, for the ratable benefit of the lenders and the issuing
banks under the Credit Agreement.
4.37(a) - Security Agreements, dated November 18, 1993, executed by each
of Foamex L.P., General Felt, Perfect Fit and FCC, respectively,
and Citibank N.A., as Administrative Agent for the lenders and
the issuing banks under the Credit Agreement.
4.38(i) - Amendatory Agreement, dated as of June 28, 1994, among Foamex
L.P., General Felt, Perfect Fit, FCC and Citibank, N.A., as
collateral agent under the Credit Agreement.
4.39(s) - Form of Amendatory Agreement, dated as of July 30, 1996, among
Foamex L.P., General Felt, FCC, and Citibank, N.A., as
collateral agent under the Credit Agreement.
4.40(a) - Intercreditor Agreement, dated as of November 18, 1993, by and
between Citibank, N.A., as Administrative Agent under the Credit
Agreement and Shawmut, as trustee under the Foamex L.P. Senior
Secured Note Indenture.
4.41(a) - Subordinated Promissory Note, dated as of May 6, 1993, in the
original principal amount of $7,014,864 executed by Foamex L.P.
to John Rallis ("Rallis").
4.42(a) - Marely Loan Commitment Agreement, dated as of December 14,
1993, by and between Foamex International and Marely.
4.43(a) - DLJ Loan Commitment Agreement, dated as of December 14, 1993,
by and between Foamex International and DLJ Funding.
4.44(s) - Promissory Note, dated July 7, 1996, in the aggregate
principal amount of $4,372,516, executed by Trace Holdings to
Foamex L.P.
10.1(b) - Interest Rate and Currency Exchange Agreement, dated as of
June 14, 1993, among Foamex L.P., FCC, and Salomon Brothers
Holdings Company Inc ("Salomon Holdings").
10.2(x) - Assignment Agreement, dated as of December 16, 1996, among
Foamex L.P., FCC, and Solomon Holdings.
28
<PAGE>
10.3(m) - Swap Agreement, dated as of March 31, 1994, and amended in
November 1994, by and between Foamex L.P. and Citibank, N.A.
10.4(x) - Revised Confirmation Letter Agreements, dated as of January 7,
1997, by and between Foamex L.P. and Citibank, N.A.
10.5(b) - Revised Swap Transaction Letter Agreement, dated as of June
10, 1993, among Foamex L.P., FCC and Salomon Holdings.
10.6(d) - Reimbursement Agreement, dated as of March 23, 1993, between
Trace Holdings and General Felt.
10.7(d) - Shareholder Agreement, dated December 31, 1992, among
Recticel, s.a., Recticel Holding Noord B.V., Foamex L.P.,
Beamech Group Limited, LME-Beamech, Inc., James Brian Blackell
and Prefoam AG relating to foam technology sharing arrangement.
10.8(e) - Asset Transfer Agreement, dated as of October 2, 1990, between
Trace Holdings and the Foamex L.P. (the "Trace Holdings Asset
Transfer Agreement").
10.9(e) - First Amendment, dated as of December 19, 1991, to the Trace
Holdings Asset Transfer Agreement.
10.10(e) - Amended and Restated Guaranty, dated as of December 19, 1991,
made by Trace Foam in favor of Foamex L.P.
10.11(e) - Asset Transfer Agreement, dated as of October 2, 1990, between
RFC and Foamex L.P. (the "RFC Asset Transfer Agreement").
10.12(e) - First Amendment, dated as of December 19, 1991, to the RFC
Asset Transfer Agreement.
10.13(e) - Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
Protocol").
10.14(d) - The 5.03 Protocol Assumption Agreement, dated as of October
13, 1992, between RFC and Foamex L.P.
10.15(d) - Letter Agreement between Trace Holdings and Recticel regarding
the Recticel guaranty, dated as of July 22, 1992.
10.16(i) - Supply Agreement, dated June 28, 1994, between Foamex L.P. and
Foamex International.
10.17(i) - First Amended and Restated Tax Sharing Agreement, dated as of
December 14, 1993, among Foamex L.P., Trace Foam, FMXI and
Foamex International.
10.18(i) - Tax Sharing Agreement, dated as of June 28, 1994, among FJPS
and Foamex International. 10.19(t) - Tax Distribution Advance
Agreement, dated as of December 11, 1996, by and between Foamex
L.P. and FJPS.
10.20 - Agreement and Plan of Merger, dated as of March 11,1 993,
among Foamex L.P., GFI Acquisition, Inc. and General Felt.
10.21 - Agreement and Plan of Merger, dated as of March 1, 1993, among
Great Wester, Rallis, Foamex L.P. and Kyoto Merger, Inc.
10.22(d) - Trace Foam Management Agreement between Foamex L.P. and Trace
Foam, dated as of October 13, 1992.
10.23(i) - Affirmation Agreement re: Management Agreement, dated as of
December 14, 1993 between Foamex L.P. and Trace Foam.
10.24(d) - Agreement and Plan of Merger, dated as of March 11, 1993,
among Foamex L.P., GFI Acquisition, Inc. and General Felt.
10.25(c) - Agreement and Plan of Merger, dated as of March 1, 1993, among
Great Western, Rallis, Foamex L.P. and Kyoto Merger, Inc.
10.26(e)(p) - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.27(e)(p) - Trace Holdings 1987 Nonqualified Stock Option Plan.
10.28(e)(p) - Equity Growth Participation Program.
10.29(m)(p) - The Foamex Group Salaried Employee Pension Plan (formerly, The
General Felt Industries, Inc. Retirement Plan for Salaried
Employees, effective as of January 1, 1995.
10.30(o) - Foamex/GFI 401(k) Savings Plan dated July 1, 1995.
10.31(a)(p) - Foamex International's 1993 Stock Option Plan.
10.32(a)(p) - Foamex International's Non-Employee Director Compensation
Plan.
10.33(a)(p) - Employment Agreement, dated as of May 6, 1993, by and between
Foamex L.P. and Rallis.
10.34(f)(p) - Employment Agreement, dated as of February 1, 1994, by and
between Foamex L.P. and William H. Bundy.
29
<PAGE>
10.35(p) - Employment Agreement, dated as of July 26, 1995, by and
between Foamex L.P. and Salvatore J. Bonanno.
10.36(a) - Stock Exchange Agreement, dated as of October 25, 1993, among
Perfect Fit, the stockholders which are parties thereto,
Holdings and Foamex L.P. (the "Perfect Fit Stock Exchange
Agreement").
10.37(a) - Amendment No. 1 to the Perfect Fit Stock Exchange Agreement,
dated November 18, 1993.
10.38(a) - 1993 Recticel Master Agreement, dated as of November 4, 1993,
by and among Trace Holdings, Trace Foam, RFC, Foamex
International, Recticel s.a., MGM, FCD Sub and Foamex L.P.
10.39(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and RFC.
10.40(a) - Withdrawal Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and RFC.
10.41(a) - 1993 Agreement of Terms, dated as of November 4, 1993, by and
among Trace Holdings, Trace Foam, Foamex L.P., Foamex
International and GBNY.
10.42(a) - 1993 Marely Master Agreement, dated as of November 4, 1993, by
and among Foamex International, Trace Holdings, Trace Foam,
Foamex L.P. and Marely.
10.43(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and Marely.
10.44(a) - Warrant Exchange Agreement, dated as of December 14, 1993, by
and between Foamex International and Marely.
10.45(a) - Redemption and Withdrawal Agreement, dated as of December 14,
1993, by and between Foamex L.P. and Marely.
10.46(a) - 1993 DLJ Master Agreement, dated as of November 4, 1993, by
and among Foamex International, Trace Holdings, Trace Foam, DLJ
Funding and Foamex L.P.
10.47(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and DLJ Funding.
10.48(a) - Warrant Exchange Agreement, dated as of December 14, 1993, by
and between Foamex International and DLJ Funding.
10.49(a) - Redemption and Withdrawal Agreement, dated as of December 14,
1993, by and between Foamex L.P. and DLJ Funding.
10.50(a) - 1993 Rallis Master Agreement, dated as of November 4, 1993, by
and among Foamex International, Trace Holdings, Trace Foam,
Rallis and Foamex L.P.
10.51(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and Rallis.
10.52(a) - Partial Redemption Agreement, dated as of December 14, 1993,
by and between Foamex L.P. and Rallis.
10.53(c) - Exchange Agreement Regarding Admission of Limited Partner and
Put Option, dated as of May 1, 1993, among Rallis, Pegasus
Properties, Foamex L.P. and Trace Holdings.
10.54(a) - Amended and Restated Put Option Agreement, dated as of
December 14, 1993, by and between Trace Holdings and Rallis.
10.55(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and Trace Holdings.
10.56(a) - Redemption and Withdrawal Agreement, dated as of December 14,
1993, by and between Foamex L.P. and Trace Holdings.
10.57(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and Trace Foam.
10.58(a) - Withdrawal Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and Trace Foam.
10.59(a) - Exchange Agreement, dated as of December 14, 1993, by and
between Foamex International and FCD Sub.
10.60(a) - Redemption and Withdrawal Agreement, dated as of December 14,
1993, by and between Foamex L.P. and FCD Sub.
30
<PAGE>
10.61(a) - Release and Termination Agreement, dated as of December 14,
1993, by and among Trace Holdings, Trace Foam, Foamex L.P., RFC,
Marely, DLJ, MGM, FCD Sub, Recticel s.a., SGB, GBNY, and
Wilmington Trust Company.
10.62(f) - Stock Purchase Agreement, dated as of December 23, 1993, by
and between Transformacion de Espumas y Fieltros, S. A., the
stockholders which are parties thereto, and Foamex L.P.
10.63(r) - Agreement and Plan of Merger, as amended, dated as of June 11,
1996, by and among PFI Subsidiary, Inc., PFI Acquisition Corp.,
Jody B. Vitale, Perfect Fit, General Felt, and Foamex L.P.
10.64(v) - Equity Purchase Agreement, dated as of August 28, 1996, by and
among JPSGP Inc., Foamex-JPS Automotive L.P., and Collins &
Aikman Products Co.
10.65(v) - Amendment No. 1 to Equity Purchase Agreement, by and among
JPSGP Inc., Foamex-JPS Automotive L.P., and Collins & Aikman
Products Co., dated as of December 11, 1996.
21 - Subsidiaries of the Registrant.
__________________
(a) Incorporated herein by reference to the Exhibit to Foamex
International's Registration Statement on Form S-1, Registration No.
33-69606.
(b) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P. and FCC on Form S-4, Registration No.
33-65158.
(c) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P., FCC and General Felt on Form S-1,
Registration Nos. 33-60888, 33-60888-01, and 33-60888-02.
(d) Incorporated herein by reference to the Exhibit to the Form 10-K
Statement of Foamex L.P. and FCC for fiscal 1992.
(e) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex L.P. and FCC on Form S-1, Registration Nos.
33-49976 and 33-49976-01.
(f) Incorporated herein by reference to the Exhibit to the Form 10-K of
Foamex International for fiscal 1993.
(g) Incorporated herein by reference to the Exhibit to JPS Automotive's
Registration Statement on Form S-1, Registration No. 33-75510.
(h) Incorporated by reference to the Exhibit to the Form 10-Q of Foamex
International for the quarterly period ended July 3, 1994.
(i) Incorporated herein by reference to the Exhibit to the Registration
Statement of FJPS, FJCC and Foamex International on Form S-4,
Registration No. 33-82028.
(j) Incorporated herein by reference to the Exhibit to the quarterly report
on Form 10-Q of JPS Automotive L.P. and JPS Automotive Products Corp.
for the fiscal quarter ended October 2, 1994.
(k) Incorporated herein by reference to the Exhibit to the quarterly report
on Form 10-Q of Foamex L.P. and Foamex L.P. Capital Corporation, and
General Felt Industries, Inc. for the fiscal quarter ended October 2,
1994.
(l) Incorporated herein by reference to the Exhibit to the Registration
Statement on Form S-1 of Foamex International, Registration No.
33-85488.
31
<PAGE>
(m) Incorporated herein by reference to the Exhibit to the Form 10-K of
Foamex International for fiscal 1994.
(n) Incorporated herein by reference to the Exhibit to the Form 10-K of
Foamex L.P. for fiscal 1994.
(o) Incorporated herein by reference to the Exhibit to the Form 10-Q of
Foamex L.P. for the quarterly period ended July 2, 1995.
(p) A management contract or compensatory plan or arrangement required to
be filed as an Exhibit pursuant to Item 14(c) of this report.
(q) Incorporated herein by reference to the Exhibit to the Form 10-K of
Foamex L.P. for fiscal 1995.
(r) Incorporated herein by reference to the Exhibit to the Form 8-K of
Foamex L.P. dated June 11, 1996.
(s) Incorporated herein by reference to the Exhibit to the Form 10-Q of
Foamex L.P. for the quarterly period ended June 30, 1996.
(t) Incorporated herein by reference to the Exhibit to the Form 10-Q of
Foamex L.P. for the quarterly period ended September 30, 1996.
(u) Incorporated herein by reference to the Exhibit to the Form 8-K of
Foamex International reporting an event which occurred on August 28,
1996.
(v) Incorporated herein by reference to the Exhibit to the Form 8-K of
Foamex International reporting an event which occurred on December 11,
1996.
(w) Incorporated herein by reference to the Exhibit to the Form 10-K of
Foamex L.P. for the fiscal year ended December 29, 1996.
Certain instruments defining the rights of security holders have been
excluded herefrom in accordance with Item 601(b)(4)(iii) of Regulation S-K. The
Registrant hereby agrees to furnish a copy of any such instrument to the
Commission upon request.
(d) Schedules
The schedules of Foamex L.P. listed in the accompanying Index to
Financial Statement Schedules are filed as part of this Annual Report on Form
10-K.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 7th day of
April, 1997.
FOAMEX-JPS AUTOMOTIVE L.P.
By: FJGP Inc.
General Partner
By:/s/ Marshall S. Cogan
Marshall S. Cogan
Chairman of the Board and
President
FOAMEX-JPS CAPITAL CORPORATION
By:/s/ Marshall S. Cogan
Marshall S. Cogan
Chairman of the Board and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on its behalf by the
registrant and in the capacities and on the dates indicated:
Signatures Title Date
/s/ Marshall S. Cogan Chairman of the Board, President April 7, 1997
- ------------------------- and Director of FJGP and FJCC
Marshall S. Cogan
/s/ Philip N. Smith, Jr. Director, Vice President and April 7, 1997
- ------------------------- Secretary of FJGP and Director,
Philip N. Smith, Jr. Vice President and Secretary of
of FJCC
/s/ Kenneth R. Fuette Senior Vice President of April 7, 1997
- ------------------------- Finance (Chief Financial
Kenneth R. Fuette Officer and Chief Accounting
Officer) of FJGP and FJCC
33
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF REGISTRANTS:
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 29, 1996 and December 31,
1995 F-3
Consolidated Statements of Operations for the Years Ended December 29, 1996,
December 31, 1995 and the Period from May 13, 1994 (date of initial
capitalization) to January 1, 1995 F-4
Consolidated Statements of Cash Flows for the Years Ended December 29, 1996,
December 31, 1995 and the Period from May 13, 1994 (date of initial
capitalization) to January 1, 1995 F-5
Consolidated Statements of Partners' Equity (Deficit) for the Years Ended December 29, 1996,
December 31, 1995 and the Period from May 13, 1994 (date of initial
capitalization) to January 1, 1995 F-6
Notes to Consolidated Financial Statements F-7
FOAMEX-JPS CAPITAL CORPORATION:
Report of Independent Accountants F-16
Balance Sheets as of December 29, 1996 and December 31, 1995 F-17
Notes to Balance Sheets F-18
FINANCIAL STATEMENTS OF EQUITY INVESTEE:
FOAMEX L.P. AND SUBSIDIARIES:
Report of Independent Accountants F-19
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-20
Consolidated Statements of Operations for the Years 1996, 1995 and 1994 F-22
Consolidated Statements of Cash Flows for the Years 1996, 1995 and 1994 F-23
Consolidated Statements of Partners' Equity (Deficit) for the Years 1996, 1995 and 1994 F-24
Notes to Consolidated Financial Statements F-25
FINANCIAL STATEMENTS OF GUARANTOR:
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES:
Report of Independent Accountants F-47
Consolidated Balance Sheets as of December 29, 1996 and December 31, 1995 F-48
Consolidated Statements of Operations for the Years 1996, 1995 and 1994 F-50
Consolidated Statements of Cash Flows for the Years 1996, 1995 and 1994 F-51
Consolidated Statements of Stockholders' Equity (Deficit) for the Years 1996, 1995 and 1993 F-52
Notes to Consolidated Financial Statements F-53
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Foamex-JPS Automotive L.P.:
We have audited the accompanying consolidated balance sheets of Foamex-JPS
Automotive L.P. and subsidiary ("FJPS") as of December 29, 1996 and December 31,
1995 and the related consolidated statements of operations, cash flows and
partners' equity (deficit) for the years in the period ended December 29, 1996
and December 31, 1995 and the period from May 13, 1994 (date of initial
capitalization) to January 1, 1995. These financial statements are the
responsibility of FJPS's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of FJPS as of
December 29, 1996 and December 31, 1995, and the consolidated results of their
operations and their cash flows for the years in the periods ended December 29,
1996 and December 31, 1995 and the period from May 13, 1994 (date of initial
capitalization) to January 1, 1995 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-2
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Cash $ 2 $ 2
Investment in unconsolidated limited partnership 51,800 36,269
Investment in discontinued operations -- 105,054
Debt issuance costs, net 3,726 4,067
--------- ---------
TOTAL ASSETS $ 55,528 $ 145,392
========= =========
LIABILITIES & PARTNERS' EQUITY (DEFICIT)
Intercompany payable $ 53 $ 58
Long-term debt - equity affiliates 33,180 44,444
Long-term debt 80,881 70,381
Other liabilities 11,325 --
--------- ---------
Total liabilities 125,439 114,883
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
PARTNERS' EQUITY (DEFICIT):
General partner (579) 448
Limited partner (57,293) 44,378
Other (12,039) (14,317)
--------- ---------
Total partners' equity (deficit) (69,911) 30,509
--------- ---------
TOTAL LIABILITIES & PARTNERS' EQUITY (DEFICIT) $ 55,528 $ 145,392
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
For the For the Period from
Year Ended Year Ended May 13, 1994 to
December 29, 1996 December 31, 1995 January 1, 1995
(thousands)
<S> <C> <C> <C>
OTHER INCOME (EXPENSE), NET $ (22) $ (85) $ 1
INTEREST AND DEBT
ISSUANCE EXPENSE 9,611 8,173 3,599
--------- --------- ---------
LOSS BEFORE EQUITY IN EARNINGS
(LOSS) OF UNCONSOLIDATED
LIMITED PARTNERSHIPS (9,633) (8,258) (3,598)
EQUITY IN EARNINGS (LOSS) OF
UNCONSOLIDATED LIMITED
PARTNERSHIP 52,588 (47,185) 19,667
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 42,955 (55,443) 16,069
--------- --------- ---------
EQUITY IN INCOME (LOSS) FROM
DISCONTINUED OPERATIONS (142,037) 1,956 6,312
--------- --------- ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS (99,082) (53,487) 22,381
EQUITY IN EXTRAORDINARY LOSS (1,874) -- --
--------- --------- ---------
NET INCOME (LOSS) $(100,956) $ (53,487) $ 22,381
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
For the For the Period from
Year Ended Year Ended May 13, 1994 to
December 29, 1996 December 31, 1995 January 1, 1995
(thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(100,956) $ (53,487) $ 22,381
Adjustments to reconcile net income
(loss) to cash used for operating activities:
Amortization of debt issuance costs
and debt discount 9,611 8,173 3,599
Equity in (earnings) loss of unconsolidated
limited partnership (52,588) 47,185 (19,667)
Equity in (income) loss from discontinued operations 142,037 (1,956) (6,312)
Equity in extraordinary loss 1,874 -- --
Other assets and liabilities, net 22 85 (9)
--------- --------- ---------
Net cash used for operating activities -- -- (8)
--------- --------- ---------
INVESTING ACTIVITIES:
Proceeds from sale of partnership interest 16,888 -- --
Investment in unconsolidated limited partnership -- -- (89,100)
Cash distributions from unconsolidated subsidiaries 3,477 2,368 2,516
--------- --------- ---------
Net cash provided by (used for)
investing activities 20,365 2,368 (86,584)
--------- --------- ---------
FINANCING ACTIVITIES:
Repayment of senior note payable (18,439) -- --
Waiver payment (184) -- --
Proceeds from sale of senior secured discount
debentures -- -- 57,000
Proceeds from sale of senior note payable -- -- 35,300
Cash contributions by partners -- -- 3
Debt issuance costs -- -- (3,193)
Cash distributions to partners (1,742) (2,368) (2,516)
--------- --------- ---------
Net cash provided by (used for) financing activities (20,365) (2,368) 86,594
--------- --------- ---------
NET INCREASE IN CASH -- -- 2
CASH AT BEGINNING OF PERIOD 2 2 --
--------- --------- ---------
CASH AT END OF PERIOD $ 2 $ 2 $ 2
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 29, 1996, December
31, 1995 and for the Period from May 13, 1994
(date of initial capitalization) to January 1,
1995
<TABLE>
<CAPTION>
General Limited
Partner Partner Other Total
(thousands)
<S> <C> <C> <C> <C>
Balances at May 13, 1994 $ 2 $ -- $ -- $ 2
Contributions by partners 805 79,786 (8,260) 72,331
Distributions (25) (2,491) -- (2,516)
Net income 223 22,158 -- 22,381
--------- --------- --------- ---------
Balances at January 1, 1995 1,005 99,453 (8,260) 92,198
Contributions by partners 2 221 -- 223
Distributions (24) (2,344) -- (2,368)
Additional pension liability adjustment -- -- (3,223) (3,223)
Foreign currency translation adjustment -- -- 472 472
Increase in note receivable from Trace Holdings -- -- (1,346) (1,346)
Purchase of note from Foamex International -- -- (1,960) (1,960)
Net loss (535) (52,952) -- (53,487)
--------- --------- --------- ---------
Balances at December 31, 1995 448 44,378 (14,317) 30,509
Distributions (17) (1,725) -- (1,742)
Additional pension liability adjustment -- -- 2,323 2,323
Foreign currency translation adjustment -- -- (45) (45)
Net loss (1,010) (99,946) -- (100,956)
--------- --------- --------- ---------
Balances at December 29, 1996 $ (579) $ (57,293) $ (12,039) $ (69,911)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex-JPS Automotive L.P. ("FJPS") was formed and initially
capitalized on May 13, 1994. FJPS was formed for the purposes of, among other
things, acquiring a 98% limited partnership interest in Foamex L.P. contributed
from Foamex International Inc. ("Foamex International") and a 99% limited
partnership interest in JPS Automotive L.P. Foamex International owns a 99%
limited partnership interest in FJPS, and FJGP Inc., a wholly-owned subsidiary
of Foamex International, owns a 1% general partnership interest in FJPS.
Foamex-JPS Capital Corporation ("FJCC"), a wholly-owned subsidiary of
FJPS, was formed and initially capitalized on May 13, 1994. FJCC engages in
business activities related to borrowing money for the benefit of FJPS.
During 1996, Foamex L.P. sold Perfect Fit Industries, Inc. ("Perfect
Fit") which comprised the home comfort products business segment of Foamex L.P.
In addition, FJPS sold its partnership interest in JPS Automotive L.P. which
operated in the automotive textile business segment. The consolidated financial
statements of FJPS have been restated for discontinued operations and includes a
loss in the equity from discontinued operations of $142.0 million. (See Note 3
for further discussion).
In April 1996, Foamex International contributed the foam products
operations of Foamex Mexico to FJPS (99%) and to FJGP Inc. (1%) who then
contributed its investment in Foamex Mexico to FJPS. FJPS subsequently
contributed its 100% investment in Foamex Mexico to Foamex L.P. The contribution
was accounted for in a manner similar to a pooling of interests since the
entities are under common control. Accordingly, all periods presented have been
restated to reflect the financial condition and results of operations of Foamex
Mexico.
FJPS's consolidated financial statements consist of the consolidated
results of operations of FJPS, including its wholly-owned subsidiary FJCC, and
its 98% equity interest in Foamex L.P. FJPS's share of earnings (loss) of its
unconsolidated limited partnership is reflected in income as earned and
distributions will be credited against the investment in unconsolidated limited
partnerships when received. FJPS has no employees or operations of its own nor
do its partners incur any expenses on its behalf.
The statements of operations and cash flows include the equity in
undistributed earnings of Foamex L.P. for the years ended December 29, 1996 and
December 31, 1995 and the period from June 28, 1994 to January 1, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of FJPS and
its subsidiary. Intercompany accounts and transactions have been eliminated in
consolidation. The equity method is being used to account for the operations of
Foamex L.P. since control is exercised by Foamex International through its
ownership of the managing general partner.
Fiscal Year
FJPS's fiscal year ends on the Sunday closest to the thirty-first day
of December. Fiscal years 1996 and 1995 are composed of fifty-two weeks and
ended on December 29, 1996 and December 31, 1995.
F-7
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 7, 8 and 10).
Debt Issuance Costs
Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the interest method. Accumulated amortization as of December 29, 1996 and
December 31, 1995 was approximately $0.8 million and $0.4 million, respectively.
Income Taxes
FJPS, as a limited partnership, is not subject to United States Federal
income taxes; therefore, no current or deferred provision has been provided for
such taxes. The partners will provide for their respective shares of income or
loss in their federal and applicable state income tax returns. FJPS has a tax
sharing agreement that provides for the payment of distributions to the partners
for amounts that would be required to be paid if FJPS were a corporation filing
separate tax returns.
Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the current year's presentation.
3. DISCONTINUED OPERATIONS
On December 11, 1996, FJPS completed the sale of its partnership
interests in JPS Automotive for a sale price of approximately $220.1 million
including the assumption of $200.1 million of JPS Automotive's indebtedness. The
sale is subject to a post-closing adjustment which is expected to be finalized
during the second quarter of 1997. The sale included substantially all of the
net assets of JPS Automotive. Actual and estimated transaction expenses related
to the sale amounted to approximately $8.9 million. FJPS has recorded an
estimated net loss on the sale of JPS Automotive of approximately $99.5 million.
During 1996, Foamex L.P. finalized the sale of the outstanding common
stock of Perfect Fit, a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included substantially all of the net
assets of the home comfort products segment of Foamex L.P. Actual and estimated
transaction expenses related to the sale totaled approximately $1.5 million.
Foamex L.P. has recorded a loss on the sale of Perfect Fit of approximately
$41.8 million, which includes the loss on disposal and a loss of $1.3 million
relating to operating losses during the phase-out period. FJPS has recorded a
loss in the equity from discontinued operations of $41.2 million relating to the
sale of Perfect Fit. A valuation allowance has been provided for the capital
loss relating to the sale of Perfect Fit since Foamex L.P. has determined that
capital gain taxable income is not likely to be sufficient to recognize the
deferred tax asset relating to the capital loss carryforward.
F-8
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS (continued)
FJPS's financial statements have been restated to reflect the sales of
Perfect Fit and JPS Automotive. In addition, interest and debt issuance expense
of FJPS was allocated to discontinued operations based on the estimated debt to
be retired from the net proceeds from the sale of JPS Automotive. A summary of
the operating results for the discontinued operations is as follows:
<TABLE>
<CAPTION>
1996 (1) 1995 1994
(thousands)
<S> <C> <C> <C>
Equity in income (loss) of discontinued operations $(140,659) $ 3,429 $ 7,065
Allocation of interest and debt issuance expense 1,378 1,473 753
--------- --------- ---------
Equity in income (loss) of discontinued operations $(142,037) $ 1,956 $ 6,312
========= ========= =========
<FN>
(1) FJPS's discontinued operations includes the operations of Perfect Fit
through June 1996 and JPS Automotive through September 1996.
</FN>
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIPS
The contribution to FJPS of a 98% limited partnership interest in
Foamex L.P. by Foamex International on June 28, 1994 was accounted for using the
equity method on an historical basis, since the entities were under common
control. Foamex International's historical basis in the 98% limited partnership
interest of Foamex L.P. was $69.6 million at June 28, 1994.
On June 28, 1994, FJPS invested approximately $89.1 million in JPS
Automotive, including $83.2 million in cash and the assumption of $5.9 million
of JPS Automotive's acquisition cost liabilities, to acquire a 99% limited
partnership interest which was accounted for using the equity method.
5. LONG-TERM DEBT
Long term debt as of December 29, 1996 and December 31, 1995 consists
of:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Senior secured discount debentures due 2004, Series B (net of
unamortized debt discount of $35,864
and $46,365, respectively) $ 80,881 $ 70,381
Senior note payable to Foamex L.P. due 2006
(net of unamortized debt discount of $36,324
and $43,499, respectively) 33,180 44,444
-------- --------
Total long term debt $114,061 $114,825
======== ========
</TABLE>
F-9
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT (continued)
o The Senior Secured Discount Debentures Series A due 2004 ("Discount
Debentures") in the aggregate principal amount of $116.7 million
($57.0 million initial cash proceeds) were issued on June 28, 1994
by FJPS and FJCC, as a unit with warrants to acquire 600,000 shares
of the Foamex International common stock at an exercise price of
$11.53 per share. On December 5, 1994, an exchange offer was
consummated and all the Discount Debentures series A were exchanged
for Discount Debentures series B. The terms of the Discount
Debentures series B are substantially identical in all respects
(including principal amount, interest rate, maturity and ranking)
to the terms of the Discount Debentures series A, except that the
Discount Debentures series B, are freely transferable by holders
thereof and are not subject to any covenant regarding registration
under the Securities Act of 1933, as amended. The Discount
Debentures are collateralized by a first priority lien granted by
FJPS on a 43.44% limited partnership interest in Foamex L.P. and
are guaranteed on a senior basis by Foamex International. The
original issue discount of $59.7 million will be amortized using
the weighted average to maturity method over the life of the issue.
No cash interest is payable on the Discount Debentures prior to
January 1, 2000; rather the Discount Debentures accrete on a daily
basis and compound semiannually at the rate of 13.50% per annum
from the date of issuance through June 30, 1996, at the rate of
13.75% per annum from July 1, 1996 through June 30, 1997 and at the
rate of 14.00% per annum from July 1, 1997 through June 30, 1999,
in each case subject to increase in the event the Discount
Debentures are not redeemed at the option of FJPS and FJCC as
described below. Thereafter, interest accrues at the rate of 14.00%
per annum and is payable semiannually in cash commencing January 1,
2000.
The Discount Debentures may be redeemed at the option of FJPS and
FJCC in whole or in part, at any time after July 1, 1999, initially
at 110% of their principal amount, plus accrued interest to the
redemption date, and declining to 100% on or after July 1, 2002.
Prior to July 1, 1997, at the option of FJPS and FJCC, (i) up to
50% of the original aggregate principal amount of the Discount
Debentures will be redeemable at a redemption price equal to 110%
of the Accreted Value (as defined in the indenture with respect to
such debentures) (the "Discount Debenture Indenture") of such
Discount Debentures and (ii) additional Discount Debentures will be
redeemable at a redemption price equal to 112% of the Accreted
Value of such Discount Debentures from the proceeds of an Equity
Offering (as defined in the Discount Debenture Indenture). In
addition, at any time on or prior to July 1, 1997, FJPS and FJCC
may redeem all, but not less than all of the outstanding Discount
Debentures from the net proceeds of an Equity-Linked Offering (as
defined in the Discount Debenture Indenture) at the redemption
prices set forth in the preceding paragraph. If FJPS and FJCC do
not exercise such redemption rights with at least 85% of the net
proceeds of an Equity-Linked Offering, the rate at which the
Discount Debentures shall accrete and the interest rate on the
Discount Debentures will increase based on a formula.
Subject to certain qualifications and exceptions, covenants and
provisions contained therein, the Discount Debenture Indenture
restricts, among other things, (i) the incurrence of additional
indebtedness, (ii) the payment of dividends on and redemptions of
capital stock, (iii) the use of proceeds from the sale of assets
and subsidiary stock, (iv) transactions with affiliates and (v) the
creation of certain liens. The Discount Debenture Indenture also
restricts the ability of FJPS and FJCC to consolidate or merge with
or into, or to transfer all or substantially all of their assets
with or into, or to transfer all or substantially all of their
assets to, another person. Under the most restrictive of such
payment restrictions, approximately $4.9 million was available to
be paid by FJPS at December 29, 1996.
F-10
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT (continued)
o The senior note payable to Foamex L.P. due 2006 (the "FJPS Note"),
in the aggregate principal amount of $87.9 million was issued by
FJPS on June 28, 1994. Foamex L.P. purchased the note for $35.3
million. FJPS used the proceeds from the sale of the FJPS Note, in
part, for its capital contribution to JPS Automotive in connection
with the JPS Automotive Acquisition. The FJPS Note will not pay
interest until July 2000. Instead, principal will accrete (from the
initial purchase price of $35.3 million) on a daily basis and
compound semiannually at the rate of 15.50% per annum through June
1996; 15.75% per annum thereafter through June 1997; and 16.00% per
annum thereafter through June 2000. Interest will be payable in
cash at 16.00% per annum from July 2000 through the maturity date.
In December 1996 in exchange for certain waivers and amendment of
the FJPS Note, FJPS repaid $18.4 million of the FJPS Note and a
waiver payment of $0.2 million using a portion of the proceeds from
the sale of its partnership interest in JPS Automotive L.P. FJPS
has the right to reborrow such amount, subject to limitations in
the Foamex L.P. Credit Facility, solely for the purpose of funding
a purchase price adjustment payment, if any, in connection with the
JPS Automotive L.P. sale. The FJPS Note may be redeemed at the
option of FJPS, in whole or in part, at any time at the redemption
prices (expressed as percentages of the Accreted Value (as defined)
if on or prior to July 1, 2000, and thereafter, expressed as
percentages of the principal amount) initially equal to 108% for
the twelve-month period commencing July 1, 1994 declining to 100%
on or after July 1, 2005. If FJPS does not repay indebtedness with
at least 85% of the net proceeds of any Equity Offering (as
defined), the rate at which the FJPS Note accretes and the interest
rate on the FJPS Note will increase.
6. PARTNERS' EQUITY (DEFICIT)
The other component consists of the following:
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment $ 3,433 $ 3,388 $ 3,860
Additional pension liability 2,360 4,683 1,460
Note receivable from Trace Holdings 4,286 4,286 2,940
Note receivable from Foamex International 1,960 1,960 --
------- ------- -------
$12,039 $14,317 $ 8,260
======= ======= =======
</TABLE>
7. ENVIRONMENTAL MATTERS
Foamex L.P.
Foamex L.P. is subject to extensive and changing federal, state, local
and foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with Foamex
L.P.'s compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on Foamex L.P.'s operations,
F-11
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. ENVIRONMENTAL MATTERS (continued)
financial position, capital expenditures or competitive position. As of December
29, 1996, Foamex L.P. has environmental accruals of approximately $4.1 million
for environmental matters. In addition, as of December 29, 1996 Foamex L.P. has
net receivables of approximately $0.9 million relating to indemnification for
environmental liabilities, net of an allowance of approximately $1.0 million
relating to potential disagreements regarding the scope of the indemnification.
Foamex L.P. believes that realization of the receivables established for
indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")
provide for the establishment of federal emission standards for hazardous air
pollutants including methylene chloride and TDI, principal raw materials used in
the manufacturing of foam. Foamex L.P. completely eliminated the use of
chlorofluorocarbons and methylchloroform by the end of 1995. The 1990 CAA
Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
Foamex L.P. 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. Foamex L.P. has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 29, 1996, Foamex L.P. has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. Foamex L.P. 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. Foamex
L.P. has accrued $0.4 million for the estimated removal and remediation, if any,
associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. Foamex L.P. believes that its USTs do not pose
a significant risk of environmental liability because of Foamex L.P.'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.
Foamex L.P. has been designated as a Potentially Responsible Party
("PRP") by the United States Environmental Protection Agency (the "EPA") with
respect to thirteen sites, with an estimated total liability to Foamex L.P. for
the thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of Foamex L.P. is considered to be immaterial.
Although it is possible that new information or future developments
could require Foamex L.P. 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 Foamex
L.P.'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.
F-12
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LITIGATION
As of February 26, 1997, Foamex L.P. and Trace Holdings were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, Foamex L.P. and Trace Holdings were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of 903 foreign plaintiffs were dismissed on the grounds that the cases
could not be brought in the United States courts. This decision is subject to
appeal. Foamex L.P. believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from Foamex
L.P. or Trace Holdings. Neither Foamex L.P. nor Trace Holdings recommended,
authorized or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings' consolidated
financial position or results of operations. In addition, Foamex L.P. is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to capitalization of Foamex L.P. in October 1990. Although
Trace Holdings has paid Foamex L.P.'s litigation expenses to date pursuant to
such indemnification and management believes Trace Holdings likely will be in a
position to continue to pay such expenses, there can be no absolute assurance
that Trace Holdings will be able to provide such indemnification. Based on
information available at this time with respect to the potential liability, and
without taking into account the indemnification provided by Trace Holdings and
the coverage provided by Trace Holdings' and Foamex L.P.'s liability insurance,
Foamex L.P. believes that the proceedings should not ultimately result in any
liability that would have a material adverse effect on the financial position or
results of operations of Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on Foamex L.P.
Foamex L.P. 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 Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on Foamex L.P.'s consolidated financial position.
F-13
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. SUMMARIZED FINANCIAL INFORMATION OF EQUITY AFFILIATES
The following table presents summarized financial information on a
combined 100% basis of the principal company accounted for by the equity method.
Accounts presented include: Foamex L.P. (98%) as of December 29, 1996 and
December 31, 1995 and for the years then ended and for the period from May 13,
1994 to January 1, 1995:.
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
Current assets $ 288,920 $ 225,526 $ 259,911
Noncurrent assets 297,237 380,366 394,265
Current liabilities 151,830 154,204 131,481
Noncurrent liabilities 421,495 464,292 470,331
Note receivable from Partner 33,180 44,444 38,167
Net sales 926,351 862,834 833,660
Gross profit 153,232 100,749 142,395
Income loss from continuing operations 53,661 (48,126) 38,011
Income (loss) from discontinued operations (42,050) (5,117) 1,230
Net income (loss) 9,699 (53,243) 39,241
</TABLE>
In 1995, Foamex L.P. approved a restructuring plan (the "1995
restructuring plan") to consolidate thirteen foam production, fabrication or
branch locations, to concentrate resources as a result of industry conditions
and to better position itself to achieve its strategic growth objectives. Foamex
L.P. recorded restructuring and other charges of $39.2 million which was
comprised of $35.6 million associated with the consolidation of the foam
production, fabrication or branch locations, $2.2 million associated with the
completion of a 1993 restructuring plan and $1.4 million associated with merger
and acquisition activities of Foamex L.P. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns (net of
estimated sale proceeds), $15.1 million for plant closure and operating lease
obligations and $3.8 million for personnel reductions. The $3.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
In 1996, Foamex L.P. determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, Foamex L.P. approved a plan
to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters,
Foamex L.P. recorded a $6.4 million net restructuring credit which included a
restructuring credit of $11.3 million associated with Foamex L.P.'s decision not
to close the facility identified as part of the 1995 restructuring plan and $1.7
million of restructuring credits relating primarily to the favorable termination
of certain lease agreements and other matters relating to the 1995 restructuring
plan, offset by $6.6 million of restructuring charges relating to the closure of
the two facilities during 1997 (the "1996 restructuring plan").
F-14
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on FJPS's assessment of available market information and
appropriate valuation methodologies.
The estimated fair values of FJPS's financial instruments as of
December 29, 1996 are as follows:
Carrying Amount Fair Value
(thousands)
Liabilities:
Long-term debt $114,061 $127,743
======== ========
The fair value of long-term debt is estimated using quoted market
prices, where available, or discounted cash flows.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgement and therefore, cannot be determined with precision. Changes in
assumption could significantly affect the estimates.
11 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Period from
Year Ended Year Ended May 13, 1994 to
December 29, 1996 December 31, 1995 January 1, 1995
<S> <C> <C> <C>
Noncash items:
Accretion on the FJPS note $7,031 $ 6,152 $ 2,867
Debt issuance costs paid by partner - 223 1,107
Partners' contributions of Foamex L.P. - - 69,622
</TABLE>
F-15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Foamex-JPS Capital Corporation:
We have audited the accompanying balance sheets of Foamex-JPS Capital
Corporation ("FJCC") as of December 29, 1996 and December 31, 1995. These
balance sheets are the responsibility of FJCC's management. Our responsibility
is to express an opinion on these balance sheets based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits of the balance sheets provide a reasonable basis for our
opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of FJCC as of December 29, 1996 and
December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-16
<PAGE>
FOAMEX-JPS CAPITAL CORPORATION (A
Wholly-Owned Subsidiary of Foamex-JPS Automotive L.P.)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
<S> <C> <C>
Cash $1,000 $1,000
====== ======
Commitments and Contingencies $ -- $ --
------ ------
Stockholder's Equity:
Common stock, par value $.01 per share;
1,000 shares authorized, issued and outstanding 10 10
Additional paid-in capital 990 990
------ ------
Total Stockholder's Equity $1,000 $1,000
====== ======
</TABLE>
The accompanying notes are an integral part of the
balance sheets.
F-17
<PAGE>
FOAMEX-JPS CAPITAL CORPORATION (A
Wholly-Owned Subsidiary of Foamex-JPS Automotive L.P.)
NOTES TO BALANCE SHEETS
1. ORGANIZATION
Foamex-JPS Capital Corporation ("FJCC"), a wholly-owned subsidiary of
Foamex-JPS Automotive L.P. ("FJPS"), was formed and initially capitalized on May
13, 1994. FJCC engages in business activities related to borrowing money for the
benefit of FJPS.
2. COMMITMENTS AND CONTINGENCIES
FJCC is a joint and several obligor with FJPS on borrowings consisting
of approximately $116.7 million in aggregate principal amount of Senior Secured
Discount Debentures due 2004, Series B (the "Discount Debentures"). The Discount
Debentures, issued on June 28, 1994, are secured by a first priority lien
granted by FJPS on a 43.44% limited partnership interest in Foamex L.P. and are
guaranteed on a senior basis by Foamex International Inc. ("Foamex
International"). The Discount Debentures mature on July 1, 2004. The original
issue discount of $59.7 million will be amortized using the weighted average to
maturity method over the life of the issue. No cash interest is payable on the
Discount Debentures prior to January 1, 2000; rather the Discount Debentures
accrete on a daily basis and compounds semiannually at the rate of 13.50% per
annum from the date of issuance of the Discount Debentures through June 30,
1996, at the rate of 13.75% per annum from July 1, 1996 through June 30, 1997,
and at the rate of 14.00% per annum from July 1, 1997 through June 30, 1999, in
each case subject to increase in the event the Discount Debentures are not
redeemed at the option of FJPS and FJCC as described in the financial statements
of FJPS and in the indenture. Thereafter, interest accrues at the rate of 14.00%
per annum and is payable semiannually in cash commencing January 1, 2000.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Foamex L.P.:
We have audited the accompanying consolidated balance sheets of Foamex L.P. and
subsidiaries ("Foamex L.P.") as of December 29, 1996 and December 31, 1995, and
the related consolidated statements of operations, cash flows and partners'
equity (deficit) for each of the three years in the period ended December 29,
1996. Our audits also included the financial statement schedule as of and for
each of the three years in the period ended December 29, 1996. These financial
statements and financial statement schedule are the responsibility of Foamex
L.P.'s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Foamex L.P. and
subsidiaries as of December 29, 1996 and December 31, 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 29, 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-19
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
ASSETS 1996 1995
(thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,968 $ 638
Restricted cash 12,143 --
Accounts receivable, net of allowance for
doubtful accounts of $6,328 and $9,138 125,847 113,583
Inventories 102,610 89,952
Deferred income taxes 6,720 --
Due from related parties 1,791 1,569
Other current assets 18,841 19,784
--------- ---------
Total current assets 288,920 225,526
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 9,674 4,632
Buildings and leasehold improvements 78,082 78,169
Machinery, equipment and furnishings 185,348 176,019
Construction in progress 20,784 7,985
--------- ---------
Total 293,888 266,805
Less accumulated depreciation and
amortization (111,461) (97,739)
--------- ---------
Property, plant and equipment, net 182,427 169,066
COST IN EXCESS OF ASSETS ACQUIRED, NET 83,991 91,165
DEBT ISSUANCE COSTS, NET 14,902 18,703
NET ASSETS OF DISCONTINUED OPERATIONS -- 85,073
OTHER ASSETS 15,917 16,359
--------- ---------
TOTAL ASSETS $ 586,157 $ 605,892
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-20
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
LIABILITIES AND PARTNERS' EQUITY (DEFICIT) 1996 1995
(thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 3,692 $ 2,199
Current portion of long-term debt - unrelated parties 13,735 8,511
Accounts payable 75,621 67,658
Accounts payable to related parties 8,803 11,731
Accrued employee compensation 7,302 8,116
Accrued interest 8,871 9,591
Accrued restructuring charges 6,300 15,882
Other accrued liabilities 27,506 30,516
--------- ---------
Total current liabilities 151,830 154,204
LONG-TERM DEBT - UNRELATED PARTIES 386,800 428,416
LONG-TERM DEBT - RELATED PARTIES 5,817 5,540
DEFERRED INCOME TAXES 4,663 1,394
ACCRUED RESTRUCTURING CHARGES 4,043 3,773
OTHER LIABILITIES 20,172 25,169
--------- ---------
Total liabilities 573,325 618,496
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
PARTNERS' EQUITY (DEFICIT)
General partners 632 404
Limited partners 57,654 46,036
Note receivable from partner (33,180) (44,444)
Other (12,274) (14,600)
--------- ---------
Total partners' equity (deficit) 12,832 (12,604)
--------- ---------
TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) $ 586,157 $ 605,892
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-21
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
NET SALES $ 926,351 $ 862,834 $ 833,660
COST OF GOODS SOLD 773,119 762,085 691,265
--------- --------- ---------
GROSS PROFIT 153,232 100,749 142,395
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 56,778 63,466 57,059
RESTRUCTURING AND OTHER CHARGES (CREDITS) (6,415) 39,249 --
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 102,869 (1,966) 85,336
INTEREST AND DEBT ISSUANCE EXPENSE 43,211 44,550 41,532
OTHER INCOME (EXPENSE), NET 1,705 (205) 732
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 61,363 (46,721) 44,536
PROVISION FOR INCOME TAXES 7,702 1,405 6,525
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 53,661 (48,126) 38,011
--------- --------- ---------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (230) (5,117) 1,230
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
INCLUDING PROVISIONS FOR OPERATING
LOSSES DURING THE PHASE-OUT PERIOD, NET
OF INCOME TAXES (41,820) -- --
--------- --------- ---------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (42,050) (5,117) 1,230
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 11,611 (53,243) 39,241
EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT (1,912) -- --
--------- --------- ---------
NET INCOME (LOSS) $ 9,699 $ (53,243) $ 39,241
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-22
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
OPERATING ACTIVITIES: (thousands)
<S> <C> <C> <C>
Net income (loss) $ 9,699 $(53,243) $ 39,241
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 21,132 22,905 22,108
Amortization of debt issuance costs and debt discount 2,919 2,729 2,116
Net loss on disposal of discontinued operations 40,551 -- --
Net (income) loss from discontinued operations 1,499 5,117 (1,230)
Asset writedowns and other charges (credits) (7,364) 16,677 --
Extraordinary loss on early extinguishment of debt 1,217 -- --
Provision for uncollectible accounts 704 4,627 878
Deferred income taxes 6,010 659 5,520
Other, net (5,804) (706) 6
Changes in operating assets and liabilities, net of
acquisitions and discontinued operations:
Accounts receivable (13,130) (1,472) (24,677)
Inventories (13,078) 14,146 (21,790)
Accounts payable and accounts payable related parties 5,035 823 28,491
Accrued restructuring charges (7,000) 16,834 (3,469)
Other assets and liabilities (5,724) 7,415 3,414
-------- -------- --------
Net cash provided by continuing operations 36,666 36,511 50,608
Net cash used for discontinued operations (486) (9,175) (323)
-------- -------- --------
Net cash provided by operating activities 36,180 27,336 50,285
-------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures (23,344) (19,348) (21,201)
Acquisitions, net of cash acquired (841) (7,272) --
Proceeds from sale of discontinued operations 42,650 -- --
Purchase of note from related party -- (2,000) --
Repayment of (purchase of) note from partner 18,623 -- (35,300)
Increase in restricted cash (12,143) -- --
Capital expenditures for discontinued operations (919) (4,429) (6,565)
Other investing activities (1,276) 2,495 (1,412)
-------- -------- --------
Net cash provided by (used for) investing activities 22,750 (30,554) (64,478)
-------- -------- --------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings 1,493 (1,685) 537
Net proceeds from (repayments of) revolving loans -- (3,000) 3,000
Proceeds from long-term debt-unrelated parties 1,500 -- 40,000
Repayments of long-term debt-unrelated parties (38,116) (9,099) (3,256)
Distributions and redemptions to partners (3,487) (2,379) (3,257)
Debt issuance costs -- -- (4,816)
Other financing activities 10 -- (1,974)
-------- -------- --------
Net cash provided by (used for) financing activities (38,600) (16,163) 30,234
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 20,330 (19,381) 16,041
Cash and cash equivalents at beginning of period 638 20,019 3,978
-------- -------- --------
Cash and cash equivalents at end of period $ 20,968 $ 638 $ 20,019
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-23
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended 1996, 1995 and 1994
<TABLE>
<CAPTION>
Note
General Limited Receivable
Partners Partners from Partner Other Total
(thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 2, 1994 $ 11,338 $ 45,199 $ -- $ (7,151) $ 49,386
Net income 1,377 37,864 -- -- 39,241
Distributions (117) (4,487) -- -- (4,604)
Note receivable from partner -- -- (35,300) -- (35,300)
Accretion of note receivable
from partner 58 2,809 (2,867) -- --
Transfer of partnership interests (11,208) 11,208 -- -- --
Contribution of Foamex Latin America, Inc. -- 5,093 -- (453) 4,640
Additional pension liability -- -- -- 168 168
Foreign currency translation adjustment -- -- -- (983) (983)
-------- -------- -------- -------- --------
Balances at January 1, 1995 1,448 97,686 (38,167) (8,419) 52,548
Net loss (1,044) (52,199) -- -- (53,243)
Distributions (125) (5,603) -- -- (5,728)
Purchase of note receivable from
Foamex International -- -- -- (2,000) (2,000)
Increase in note receivable from
Trace Holdings -- -- -- (1,373) (1,373)
Accretion of note receivable from partner 125 6,152 (6,277) -- --
Additional pension liability -- -- -- (3,290) (3,290)
Foreign currency translation adjustment -- -- -- 482 482
-------- -------- -------- -------- --------
Balances at December 31, 1995 404 46,036 (44,444) (14,600) (12,604)
Net income 184 9,515 -- -- 9,699
Distributions (104) (5,108) -- -- (5,212)
Accretion of note receivable from partner 144 7,031 (7,175) -- --
Repayment of note receivable from partner -- -- 18,439 -- 18,439
Repayment premium on note receivable from partner 4 180 -- -- 184
Additional pension liability -- -- -- 2,372 2,372
Foreign currency translation adjustment -- -- -- (46) (46)
-------- -------- -------- -------- --------
Balances at December 29, 1996 $ 632 $ 57,654 $(33,180) $(12,274) $ 12,832
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-24
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex L.P., a Delaware limited partnership, is an indirect,
majority-owned subsidiary of Foamex International Inc. ("Foamex International").
Foamex L.P. is a significant manufacturer and marketer of flexible polyurethane
foam and foam products in North America. Foamex L.P.'s products include (i) foam
for carpet cushion and other carpet products, (ii) cushioning foams for
furniture, bedding, packaging and health care, (iii) foams for automotive trim
and accessories and (iv) technical foams for filtration, consumer products and
packaging.
During 1996, Foamex L.P. sold Perfect Fit Industries, Inc. ("Perfect
Fit") which comprised the home comfort products segment of Foamex L.P. The
consolidated financial statements of Foamex L.P. have been restated for
discontinued operations and includes a net loss of $41.8 million (net of $1.2
million income tax benefit) on the disposal of this business segment which
includes provisions for operating losses during the phase-out period. (See Note
3 for further discussion). In addition, during April 1996 Foamex International
contributed the foam products operations of Foamex Latin America, Inc. ("Foamex
Mexico") to Foamex L.P. The contribution was accounted for in a manner similar
to a pooling of interests since the entities were under common control.
Accordingly, all prior periods presented have been restated to reflect the
results of operations and financial position of Foamex Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Foamex
L.P. and all subsidiaries that Foamex L.P. directly or indirectly controls,
either through majority ownership or otherwise, other than the home comfort
products segment which is accounted for as discontinued operations. Intercompany
accounts and transactions for continuing operations have been eliminated in
consolidation.
The consolidated financial statements have been restated for
discontinued operations. The accompanying notes present amounts related only to
continuing operations.
Fiscal Year
Foamex L.P.'s fiscal year ends on the Sunday closest to the
thirty-first day of December. Fiscal years 1996, 1995 and 1994 were composed of
fifty-two weeks and ended on December 29, 1996, December 31, 1995 and January 1,
1995, respectively.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 4, 9, 10, 15, 16 and 17 and Cost in Excess of Net Assets
Acquired below.)
Cash and Cash Equivalents
Foamex L.P. considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. On
December 29, 1996, cash and cash equivalents included $18.4 million of
repurchase agreements collateralized by U.S. Government securities.
F-25
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted Cash
As of December 29, 1996, Foamex L.P. had restricted cash of
approximately $12.1 million. This cash was derived from the net sales proceeds
relating to the sale of Perfect Fit and is restricted by Foamex L.P.'s debt
agreements. As of February 26, 1997, Foamex L.P. has used approximately $8.4
million of the restricted cash to repurchase approximately $8.0 million of
outstanding indebtedness.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the assets.
The range of useful lives estimated for buildings is generally twenty to
thirty-five years and the range for machinery, equipment and furnishings is five
to twelve years. Leasehold improvements are amortized over the shorter of the
terms of the respective leases or the estimated useful lives of the leasehold
improvements. Depreciation expense for the years ended 1996, 1995 and 1994 was
$17.9 million, $18.7 million and $16.8 million, respectively. For income tax
purposes, Foamex L.P. uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other disposition
of items of plant and equipment, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
Debt Issuance Costs
Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the interest method. Accumulated amortization as of December 29, 1996 and
December 31, 1995 was approximately $7.5 million and $5.7 million, respectively.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for as purchases is amortized using
the straight-line method over a forty year period. At each balance sheet date
Foamex L.P. evaluates the recoverability of cost in excess of net assets
acquired using certain financial indicators such as historical and future
ability to generate income from operations based on a going concern basis.
Accumulated amortization as of December 29, 1996 and December 31, 1995 was
approximately $11.6 million and $9.1 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
F-26
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated.
Postretirement and Postemployment Benefits
Foamex L.P. accrues postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
Also, Foamex L.P. accrues postemployment benefits when it becomes probable that
such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.
Foreign Currency Accounting
The financial statements of foreign subsidiaries, except in countries
treated as highly inflationary, have been translated into U.S. dollars by using
the year end exchange rates for assets and liabilities and average exchange
rates for the statements of operations. Currency translation adjustments are
included in other partners' equity (deficit) until the entity is substantially
sold or liquidated. For operations in countries treated as highly inflationary,
certain financial statement amounts are translated at historical exchange rates,
with all other assets and liabilities translated at year end exchange rates.
These translation adjustments are reflected in the results of operations and are
insignificant for all periods presented. Also, foreign currency transaction
gains and losses are insignificant for all periods presented. The effect of
foreign currency exchange rates on cash flows is not material.
Interest Rate Swap Agreement
The differential to be paid or received under an interest rate swap
agreement is recognized as an adjustment to interest and debt issuance expense
in the current period as interest rates change.
Income Taxes
Income taxes are accounted for under the liability method, in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
Foamex L.P., as a limited partnership, is not subject to federal
income taxes; therefore no current or deferred provision has been provided for
such taxes. However, Foamex L.P. has provided for the income taxes of certain
states in which it is subject to taxes and for certain subsidiaries which are
subject to federal and state income taxes. The partners will provide for their
respective shares of income or loss in their federal or applicable state income
tax returns. Foamex L.P. has a tax sharing agreement that provides for the
payment of distributions to the partners for amounts that would be required to
be paid if Foamex L.P. was a corporation filing separate tax returns. The
ability of Foamex L.P. to make such distributions is limited by the terms of its
credit agreements and indentures. (See Note 8).
Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the current year's presentation.
F-27
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS
During 1996, Foamex L.P. finalized the sale of the outstanding common
stock of Perfect Fit, a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included substantially all of the net
assets of Foamex L.P.'s home comfort products segment. Actual and estimated
transaction expenses related to the sale totaled approximately $1.5 million.
Foamex L.P. has recorded a net loss on the sale of Perfect Fit of approximately
$41.8 million, which includes the loss on disposal and a net loss of $1.3
million (net of $1.2 million income tax benefit) relating to operating losses
during the phase-out period. Interest and debt issuance expense was allocated to
discontinued operations based on the estimated debt to be retired from the net
proceeds of the sale. A valuation allowance has been provided for the capital
loss relating to the sale of Perfect Fit since future capital gain taxable
income is not likely to be sufficient to recognize the deferred tax asset
relating to the capital loss carryforward.
Foamex L.P.'s financial statements have been restated to reflect the
discontinuation of the home comfort products segment. A summary of the operating
results for the discontinued operations is as follows:
<TABLE>
<CAPTION>
1996 (1) 1995 1994
(thousands)
<S> <C> <C> <C>
Sales $ 50,097 $ 98,464 $ 95,381
Gross profit 8,065 14,946 18,200
Income (loss) from operations 1,123 (3,058) 4,170
Interest and debt issuance expense 2,384 4,699 3,671
Other expense 348 -- --
Income (loss) from discontinued operations before income taxes (1,609) (7,757) 499
Provision (benefit) for income taxes (1,379) (2,640) (731)
Income (loss) from discontinued operations, net of income taxes (230) (5,117) 1,230
<FN>
(1) Foamex L.P.'s discontinued operations includes the operations of
Perfect Fit through June 1996.
</FN>
</TABLE>
Net assets of discontinued operations (excluding intercompany net
assets) at December 31, 1995 were as follows:
1995
(thousands)
Current assets $31,925
Property, plant and equipment, net 21,672
Cost in excess of assets acquired, net 40,333
Other assets 2,219
-------
Total assets 96,149
-------
Current liabilities 11,076
-------
Total liabilities 11,076
-------
Net assets $85,073
=======
F-28
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RESTRUCTURING AND OTHER CHARGES (CREDITS)
In 1995, Foamex L.P. approved a restructuring plan (the "1995
restructuring plan") to consolidate thirteen foam production, fabrication or
branch locations, to concentrate resources as a result of industry conditions
and to better position itself to achieve its strategic growth objectives. Foamex
L.P. recorded restructuring and other charges of $39.2 million which was
comprised of $35.6 million associated with the consolidation of the foam
production, fabrication or branch locations, $2.2 million associated with the
completion of a 1993 restructuring plan and $1.4 million associated with merger
and acquisition activities of Foamex L.P. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns (net of
estimated sale proceeds), $15.1 million for plant closure and operating lease
obligations and $3.8 million for personnel reductions. The $3.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
In 1996, Foamex L.P. determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, Foamex L.P. has approved a
plan to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters,
Foamex L.P. recorded a $6.4 million net restructuring credit which included a
restructuring credit of $11.3 million associated with Foamex L.P.'s decision not
to close the facility identified as part of the 1995 restructuring plan and $1.7
million of restructuring credits relating primarily to the favorable termination
of certain lease agreements and other matters relating to the 1995 restructuring
plan, offset by $6.6 million of restructuring charges relating to the closure of
the two facilities during 1997 (the "1996 restructuring plan").
Generally, the 1995 restructuring plan has been implemented as
originally contemplated. The following table sets forth the components of Foamex
L.P.'s restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge $ 39.2 $ 16.7 $ 15.1 $ 3.8 $ 3.6
Asset writeoff/writedowns (23.3) (20.9) -- -- (2.4)
Cash spending (0.4) -- (0.3) (0.1) --
------- ------- ------- ------ ------
Balances at December 31, 1995 15.5 (4.2) 14.8 3.7 1.2
Cash spending (9.7) -- (6.6) (2.0) (1.1)
Cash proceeds 1.0 1.0 -- -- --
1996 restructuring charge 6.6 2.4 4.1 0.1 --
Restructuring credits (13.0) (9.7) (2.8) (0.4) (0.1)
Asset adjustment for restructuring
credits 8.1 8.7 (0.6) -- --
------- ------- ------- ------ ------
Balances at December 29, 1996 $ 8.5 $ (1.8) $ 8.9 $ 1.4 $ --
======= ======= ======= ====== ======
</TABLE>
As indicated in the table above, the accrued restructuring balance at
December 29, 1996 will be used for payments relating to plant closure and leases
including rundown costs at the facilities. The $1.8 million of asset writedowns
relates to estimated proceeds and is included in noncurrent assets. Foamex L.P.
expects to incur approximately $6.3 million of charges during 1997 with the
remaining $4.0 million to be incurred through 2001. As of December 29, 1996,
Foamex L.P. has terminated approximately 270 employees and notified
approximately 40 employees in the manufacturing and administrative areas of
their impending termination in connection with the 1996 and 1995 restructuring
plans.
F-29
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. ACQUISITIONS
In April 1995, Foamex L.P. acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million, including
related fees and expenses of approximately $0.3 million, with an initial cash
payment of $7.2 million. The excess of the purchase price over the estimated
fair value of the net assets acquired was approximately $3.9 million. The
acquisition was accounted for as a purchase and the operations of the acquired
company are included in the consolidated statements of operations and cash flows
from the date of its acquisition. The excess of the purchase price over the
estimated fair value of the net assets acquired is being amortized using the
straight-line method over forty years.
6. INVENTORIES
Inventories consists of:
December 29, 1996 December 31, 1995
(thousands)
Raw materials and supplies $ 61,559 $ 49,963
Work-in process 13,453 14,451
Finished goods 27,598 25,538
-------- --------
Total $102,610 $ 89,952
======== ========
7. SHORT-TERM BORROWINGS
Short-term borrowings include borrowings outstanding under a line of
credit facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the
bank's prime rate (4.75% at December 29, 1996) plus 1/2%. The weighted average
interest rates on Foamex Canada's short-term borrowings outstanding for 1996,
1995 and 1994 were 5.9%, 8.0% and 7.3%, respectively. Borrowings under Foamex
Canada's credit facility are due on demand and are collateralized by accounts
receivable, property and inventories of Foamex Canada having an approximate net
carrying value of $17.1 million as of December 29, 1996. The unused amount under
this line of credit totaled $0.7 million as of December 29, 1996.
F-30
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 29, 1996 December 31, 1995
(thousands)
<S> <C> <C>
Unrelated parties:
9 1/2% Senior secured notes due 2000 $106,793 $116,667
11 1/4% Senior notes due 2002 141,400 150,000
11 7/8% Senior subordinated debentures due 2004 (net of
unamortized debt discount of $769 and $827) 125,056 125,173
11 7/8% Senior subordinated debentures due 2004,
Series B 7,000 7,000
Industrial revenue bonds 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 29, 1996) 11,000 30,000
Other 2,286 1,087
-------- --------
Total 400,535 436,927
Less current portion 13,735 8,511
-------- --------
Long-term debt--unrelated parties $386,800 $428,416
======== ========
Related parties:
Subordinated note payable (net of unamortized
debt discount of $1,198 and $1,475) $ 5,817 $ 5,540
======== ========
</TABLE>
9 1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest
at the rate of 9 1/2% payable semiannually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100% on or after June 1, 1999. The
Senior Secured Notes have been guaranteed, on a senior secured basis by General
Felt Industries, Inc. ("General Felt") and on a senior unsecured basis by Foamex
International. During 1996, Foamex L.P. repurchased $9.9 million of Senior
Secured Notes with the net proceeds from the sale of Perfect Fit (see Note 11).
11 1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11 1/4% payable
semiannually on each April 1 and October 1. The Senior Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part, at any time on or after October 1, 1997, initially at 104.219% of
F-31
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
their principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994, Foamex L.P. provided certain real property as
collateral for the Senior Notes, with a net book value of $37.8 million at
December 29, 1996. The Senior Notes have been guaranteed, on a senior basis, by
General Felt and Foamex International. During 1996, Foamex L.P. repurchased $8.6
million of Senior Notes with the net proceeds from the sale of Perfect Fit (see
Note 11).
11 7/8% Senior Subordinated Debentures ("Subordinated Debentures")
The Subordinated Debentures bear interest at the rate of 11 7/8%
payable semiannually on each April 1 and October 1. The Subordinated Debentures
mature on October 1, 2004. The Subordinated Debentures may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after October 1,
1997, initially at 105.938% of their principal amount, plus accrued interest,
and declining to 100% on or after October 1, 2002. The Subordinated Debentures
are subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. The Subordinated Debentures have been
guaranteed, on a senior subordinated basis, by General Felt and Foamex
International. During 1996, Foamex L.P. repurchased $0.1 million of Subordinated
Debentures with the net proceeds from the sale of Perfect Fit (see Note 11).
11 7/8% Senior Subordinated Debentures, Series B ("Series B
Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures. The Series B Debentures have
been guaranteed on a senior subordinated basis by General Felt.
Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0
million, maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.3 million at
December 29, 1996 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex L.P. to
convert to a fixed rate. The interest rates on the IRBs were 4.85% and 4.0% at
December 29, 1996 for the $6.0 million and $1.0 million bond issues,
respectively. The interest rate on the $6.0 million bond issue varies weekly
based on an interest rate that is indicative of current bidside yields on high
quality short-term, tax-exempt obligations, or if such interest rate is not
available, 70.0% of the interest rate for thirteen week United States Treasury
Bills. The maximum interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon appropriate notice,
the IRBs are redeemable at the option of the bondholders.
Term and Revolving Loans
Foamex L.P. has a credit agreement (the "Foamex L.P. Credit Facility")
with a group of banks that provide for loans of up to $85.0 million of which up
to $40.0 million was available as a term loan payable in twenty equal quarterly
installments commencing October 1994 and up to $45.0 million is available under
a revolving line of credit which expires in June 1999. In 1994, Foamex L.P. and
F-32
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility; no further term loan borrowings are available thereunder. During 1996,
Foamex L.P. and General Felt used $12.0 million of net proceeds from the Perfect
Fit sale to repay term loan borrowings. Borrowings under the Foamex L.P. Credit
Facility are collateralized by the accounts receivable of Foamex L.P. and
General Felt. Pursuant to the terms of the Foamex L.P. Credit Facility, borrowed
funds will bear interest at a floating rate equal to 1.0% per annum plus the
highest of (i) the base rate of The Bank of Nova Scotia, as in effect from time
to time, (ii) a rate that is, generally, 0.5% per annum plus a fluctuating rate
generally equal to the rate on three month certificates of deposit, subject to
certain adjustments, plus a fluctuating rate generally equal to the annual
assessment rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation or (iii) 0.5% per annum plus the federal funds rate in effect from
time to time. At the option of Foamex L.P., portions of the outstanding loan
under the Foamex L.P. Credit Facility will be convertible into Eurodollar rate
loans bearing interest at a rate generally equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29, 1996, there were approximately $11.7 million in letters of credit
outstanding under the Foamex L.P. Credit Facility. As of December 29, 1996,
there was unused availability of approximately $33.3 million under the Foamex
L.P. Credit Facility.
Subordinated Note Payable
This note payable was issued to John Rallis ("Rallis"), the Chief
Operating Officer of Foamex International, on May 6, 1993 by Foamex L.P. in
connection with the acquisition of Great Western Foam Products Corporation and
certain related entities and assets (collectively, "Great Western"). The note
bears interest at a maximum rate of 6% per annum and the principal amount is
payable in three equal annual installments beginning May 6, 1999.
Other
As of December 29, 1996, other debt is comprised primarily of capital
lease obligations and borrowings by Foamex Mexico.
Interest Rate Swap Agreements
Foamex L.P. enters into interest rate swaps to lower funding costs
and/or to manage interest costs and exposure to changing interest rates. Foamex
L.P. does not hold or issue financial instruments for trading purposes. Foamex
L.P. has an interest rate swap agreement, as amended, with a notional amount of
$150.0 million through December 2001. Under the swap agreement, Foamex L.P. has
made variable payments based on LIBOR through December 1996 and is obligated to
make fixed payments at 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 5.81% per annum through
December 1996, and 6.50% per annum for the remainder of the agreement, payable
semiannually in arrears. The swap partner has the ability to terminate the swap
agreement after the December 1997 payment if the LIBOR rate Foamex L.P. is to
pay for any period thereafter is equal to or less than 4.50% per annum. Interest
expense will be subject to fluctuations in LIBOR during the term of the swap
agreement except during 1997. Foamex L.P. is exposed to credit loss in the event
of nonperformance by the swap partner; however, the occurrence of this event is
not anticipated.
Also, Foamex L.P. has an interest rate swap agreement, as amended, for
a notional amount of $150.0 million through December 2001. Under this swap
agreement, Foamex L.P. has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
F-33
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months in December 1997 and
variable payments based on LIBOR for the remainder of the agreement, in exchange
for variable payments by the swap partner at the rate of LIBOR plus 0.80% per
annum for the six months ended in June 1995, LIBOR plus 0.72% per annum for the
six months ended in December 1995, LIBOR plus 2.45% per annum for the six months
ended in June 1996, LIBOR plus 2.39% per annum for the six months ended in
December 1996 and fixed payments at 6.50% per annum for the remainder of the
term of the agreement, payable semiannually in arrears. The swap partner has the
ability to terminate the swap agreement after the December 1997 payment if the
LIBOR rate Foamex L.P. is to pay for any period thereafter is equal to or less
than 4.50% per annum. Foamex L.P. is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated. Interest expense will be subject to fluctuations in LIBOR during
the term of the swap agreement except during 1997. The effect of the two
interest rate swaps described above was a favorable adjustment to interest
expense of $3.7 million, $1.4 million and $3.0 million for 1996, 1995 and 1994,
respectively.
Debt Restrictions and Covenants
The indentures, credit agreement and other indebtedness agreements
contain various covenants, including restrictions on payments of distributions
by Foamex L.P. to its partners, the incurrence of additional indebtedness, the
sale of assets, mergers and consolidations and transactions with affiliates. In
addition, certain agreements contain a provision that, in the event of a defined
change of control, the indebtedness must be repaid, in certain cases at the
option of the holder. Also, Foamex L.P. is required under certain of these
agreements to maintain specified financial ratios of which the most restrictive
is the maintenance of net worth and interest coverage ratios, as defined. Under
the most restrictive of the distribution restrictions, approximately $0.7
million was available to be paid by Foamex L.P. to its partners at December 29,
1996.
As of December 29, 1996, Foamex L.P. was in compliance with the
covenants of the indentures, credit agreements and other indebtedness agreements
and expects to be in compliance with these covenants for the foreseeable future.
Future Obligations on Long-Term Debt
Scheduled maturities of long-term debt are shown below:
Year Ended Long-Term Debt
(thousands)
1997 $ 13,490
1998 4,000
1999 5,338
2000 106,631
2001 2,339
Thereafter 275,735
--------
Total 407,533
Less unamortized discount 1,967
--------
Total $405,566
========
F-34
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
In addition, Foamex L.P. has approximately $0.8 million of total
capital lease obligations that are payable in 1997 through 2000 in annual
amounts of approximately $0.2 million.
9. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
Foamex L.P. maintains noncontributory defined benefit pension plans for
salaried and certain hourly employees. The salaried plan provides benefits that
are based principally on years of credited service and level of compensation.
The hourly plans provide benefits that are based principally on stated amounts
for each year of credited service.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service cost $ 2,471 $ 2,087 $ 2,452
Interest cost 3,997 3,742 3,541
Actual return on plan assets (8,841) (5,682) 624
Net amortization and deferral 4,643 1,807 (4,649)
------- ------- -------
Total $ 2,270 $ 1,954 $ 1,968
======= ======= =======
</TABLE>
Foamex L.P.'s funding policy is to contribute annually an amount that
both satisfies the minimum funding requirements of the Employee Retirement
Income Security Act of 1974 and does not exceed the full funding limita tions of
the Internal Revenue Code of 1986, as amended (the "Code"). Plan investments
consist primarily of corporate equity and debt securities, mutual life insurance
funds and cash equivalents. During 1996, the discount rate was adjusted to
7.50%. The following table sets forth the funded status of Foamex L.P.'s
underfunded plans and the amounts recognized in the accompanying consolidated
balance sheets as of December 29, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested benefits $ 55,336 $ 52,762
Nonvested benefits 2,137 1,916
-------- --------
Accumulated benefit obligations $ 57,473 $ 54,678
======== ========
Total projected benefit obligations $ 58,775 $ 55,810
Fair value of plan assets 53,734 44,441
-------- --------
Projected benefit obligations in excess
of plan assets (5,041) (11,369)
Unrecognized net loss from past experience difference
from that assumed and effect of changes in assumptions 1,099 6,394
Additional minimum liability (2,694) (5,265)
-------- --------
Accrued pension cost $ (6,636) $(10,240)
======== ========
</TABLE>
F-35
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
Significant assumptions used in determining the plans' funded status
are as follows:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
<S> <C> <C>
Expected long-term rates of return on plan assets 9.50% 9.00%
Discount rates on projected benefit obligations 7.50% 7.25%
Rates of increase in compensation levels (where applicable) 4.00% 4.00%
</TABLE>
Defined Contribution Plan
Foamex L.P. maintains a defined contribution plan which is qualified
under Section 401(k) of the Code and is available for eligible employees who
elect to participate in the plan. Employee contributions are voluntary and
subject to certain limitations as imposed by the Code. During 1996 and 1995,
Foamex L.P. provided contributions amounting to a 25% match of employees'
contributions up to 4% of eligible compensation. Foamex L.P. also provides an
additional 25% match of employees' contributions up to 4% of eligible
compensation made to a fund which invests in Foamex International common stock.
In addition, Foamex L.P. may make discretionary contributions amounting to a 25%
match of employees' contributions up to 4% of eligible compensation. Prior to
1995, employer contributions were discretionary and provided a 50% match of
employees' contributions up to 3% of eligible compensation. The expense for
these contributions for 1996, 1995 and 1994 was approximately $0.8 million, $0.7
million and $0.4 million, respectively.
Postretirement Benefits
In addition to providing pension benefits, Foamex L.P. provides
postretirement health care and life insurance for eligible employees. During
1996, certain employees accepted an early retirement program resulting in a
special termination loss of $0.6 million. During 1995, changes were made to
postretirement benefits offered to certain employees which resulted in a
curtailment loss of $0.6 million. These plans are unfunded and Foamex L.P.
retains the right, subject to existing agreements, to modify or eliminate these
benefits.
The components of 1996, 1995 and 1994 expense for postretirement
benefits are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service costs for benefits earned $ 12 $ 24 $ 172
Interest cost on liability 67 83 192
Net amortization and deferral (53) (13) 134
Special termination/curtailment loss 576 619 --
----- ----- -----
Net periodic postretirement benefit cost $ 602 $ 713 $ 498
===== ===== =====
</TABLE>
The accumulated postretirement benefit obligation at December 29, 1996
and December 31, 1995 resulted in an unfunded obligation of $2.1 million and
$1.6 million, respectively.
F-36
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
A 9% and 10% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1996 and 1995, respectively. This
rate was assumed to gradually decrease to 5% by the year 2000. Increasing the
weighted average assumed health care cost trend rates by one percentage point
would have an insignificant impact on the accumulated postretirement benefit
obligation and service and interest cost. The discount rate used was 7.50% and
7.25% as of December 29, 1996 and December 31, 1995, respectively.
Postemployment Benefits
Foamex L.P. provides certain postemployment benefits to former or
inactive employees and their dependents during the time period following
employment but before retirement. At December 29, 1996 and December 31, 1995,
Foamex L.P.'s liability for postemployment benefits was insignificant for each
period.
Other
In December 1994, Foamex L.P. changed its method of compensating
certain employees for vacation which increased income from operations by $4.3
million for 1994.
10. INCOME TAXES
Income (loss) from continuing operations before provision for income
taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
United States $ 58,277 $(45,738) $ 42,610
Foreign 3,086 (983) 1,926
-------- -------- --------
Income (loss) from continuing operations
before provision (benefit) for income taxes $ 61,363 $(46,721) $ 44,536
======== ======== ========
</TABLE>
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Continuing operations $ 7,702 $ 1,405 $ 6,525
Discontinued operations (2,606) (2,640) (731)
------- ------- -------
Total consolidated provision (benefit)
for income taxes $ 5,096 $(1,235) $ 5,794
======= ======= =======
</TABLE>
F-37
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The total consolidated provision (benefit) for income taxes is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Current:
Federal $ 220 $ -- $ --
State 686 266 172
Foreign 786 480 833
------- ------- -------
Total current 1,692 746 1,005
------- ------- -------
Deferred:
Federal 1,665 (1,424) 3,598
State 1,248 (268) 1,212
Foreign 491 (289) (21)
------- ------- -------
Total deferred 3,404 (1,981) 4,789
------- ------- -------
Total consolidated provision (benefit)
for income taxes $ 5,096 $(1,235) $ 5,794
======= ======= =======
</TABLE>
The tax effect of the temporary differences that give rise to
significant deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Deferred tax assets:
Inventory basis differences $ 415 $ 861
Employee benefit accruals 714 976
Allowances and contingent liabilities 2,548 2,427
Restructuring and plant closing accruals 3,632 7,644
Other 221 77
Net operating loss carryforwards 5,154 8,975
Capital loss carryforwards 14,193 --
Valuation allowance for deferred tax assets (15,988) (13,473)
-------- --------
Deferred tax assets 10,889 7,487
-------- --------
Deferred tax liabilities:
Basis difference in property, plant and equipment 7,644 8,507
Other 1,188 374
-------- --------
Deferred tax liabilities 8,832 8,881
-------- --------
Net deferred tax assets (liabilities) $ 2,057 $ (1,394)
======== ========
</TABLE>
F-38
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
Foamex L.P. has determined that taxable capital gains in the
foreseeable future for a subsidiary that files a separate federal income tax
return will likely not be sufficient to recognize the deferred tax asset
associated with the capital loss carryforward of that subsidiary. Accordingly, a
valuation allowance has been provided for the deferred tax asset associated with
the capital loss carryforward and certain other deferred tax assets. During
1996, the valuation allowance for deferred tax assets increased by $2.5 million
which included a $14.2 million increase for the capital loss carryforward,
offset by $6.9 million decrease due to reversal of General Felt preacquisition
temporary differences and $4.8 million for reversal of General Felt
postacquisition temporary differences which is reflected in the consolidated
statement of operations. The $6.9 million reversal of preacquisition temporary
differences was used to reduce cost in excess of assets acquired. As of December
29, 1996, approximately $1.8 million of deferred tax assets are related to
preacquisition activities and if utilized will further reduce cost in excess of
assets acquired. At December 29, 1996, General Felt has $14.7 million of regular
tax net operating loss carryforwards for federal income tax purposes expiring
from 2003 to 2010 of which $7.0 million was acquired in 1993 and is subject to
limitations. In addition, General Felt has $40.6 million of capital loss
carryforwards that expire in 2001.
A reconciliation of the statutory federal income tax rate to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Statutory income taxes $ 21,477 $(16,352) $ 15,588
State income taxes, net of federal 1,288 266 900
Permanent difference on partnership income (11,714) 12,233 (11,009)
Limitation on the utilization of tax benefits -- 4,929 --
Valuation allowance (4,823) -- (452)
Cost in excess of assets acquired 551 554 525
Other 923 (225) 973
-------- -------- --------
Total $ 7,702 $ 1,405 $ 6,525
======== ======== ========
</TABLE>
11. EXTRAORDINARY LOSS
During 1996, Foamex L.P. used $31.3 million of the net proceeds from
the sale of Perfect Fit to extinguish debt of $30.6 million and redemption
premiums of $0.6 million. Foamex L.P. wrote off $1.2 million of debt issuance
costs associated with the early extinguishment of debt and incurred transaction
costs of $0.1 million. The early extinguishment of debt resulted in an
extraordinary loss of $1.9 million.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
Foamex L.P. is obligated under various noncancelable lease agreements
for rental of facilities, vehicles and other equipment. Many of the leases
contain renewal options with varying terms and escalation clauses that provide
F-39
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES (continued)
for increased rentals based upon increases in the Consumer Price Index, real
estate taxes and lessors' operating expenses. Total minimum rental commitments
(excluding commitments accrued as part of the 1996 and 1995 restructuring plans)
required under operating leases at December 29, 1996 are:
Third Party Related Party
Leases Leases
(thousands)
1997 $ 7,874 $ 1,767
1998 6,164 1,823
1999 4,866 1,823
2000 3,812 1,823
2001 2,883 2,265
Thereafter 4,122 5,800
------- -------
Total $29,721 $15,301
======= =======
Rental expense charged to operations under operating leases
approximated $9.6 million, $10.1 million and $9.7 million for 1996, 1995 and
1994, respectively. Substantially all such rental expense represented the
minimum rental payments under operating leases. In addition, Foamex L.P.
incurred rental expense of approximately $1.7 million, $3.5 million and $3.9
million for 1996, 1995 and 1994, respectively, under leases with related
parties.
13. RELATED PARTY TRANSACTIONS AND BALANCES
Foamex L.P. regularly enters into transactions with its affiliates in
the ordinary course of business.
During April 1996, Foamex International contributed the foam products
operations of Foamex Mexico to Foamex L.P. The contribution was accounted for in
a manner similar to a pooling of interests since the entities were under common
control. Accordingly, all prior periods presented have been restated to reflect
the results of operations and financial position of Foamex Mexico. The
restatement of prior periods was insignificant to the consolidated financial
statements.
During 1996, Foamex L.P. chartered an aircraft (which is owned by a
wholly-owned subsidiary of Foamex International) through a third party and
incurred costs of approximately $1.4 million.
In December 1995, Foamex L.P. entered into a $2.0 million promissory
note with Foamex International. The note bears interest at a rate per annum
equal to six months LIBOR plus 4.0% and is payable semiannually in June and
December. The note matures in December 1997. The note has been classified in the
other component of partners' equity (deficit).
On July 7, 1996, Trace International Holdings, Inc. ("Trace Holdings")
issued to Foamex L.P. a promissory note for $4.4 million in principal amount
plus accrued interest of $0.4 million, which is an extension of a promissory
note of Trace Holdings that was due in July 1996. The promissory note is due and
payable on demand or, if no demand is made, July 7, 1997, and bears interest at
9.5%, payable quarterly in arrears commencing October 1, 1996. The promissory
note is included in other partners' equity (deficit).
F-40
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
In connection with the acquisition of Great Western, Foamex L.P. issued
a promissory note to Rallis (see Note 8) and entered into lease agreements (see
Note 12) with Rallis and an affiliate of Rallis, for the rental of former Great
Western manufacturing facilities located in Orange, Ontario and Hayward,
California and a warehouse facility in Tigard, Oregon. Foamex L.P. has the
option to purchase each of these properties from Rallis or such affiliate.
Foamex L.P. was party to a lease agreement for an airplane with Trace
Aviation Corp. ("Trace Aviation"), a subsidiary of Trace Holdings. During 1995
and 1994, Foamex L.P. paid Trace Aviation $1.6 million and $2.7 million,
respectively, pursuant to the lease agreement. The lease agreement also provided
for the use of the airplane by Trace Holdings with remuneration to Foamex L.P.
based on actual usage of the plane. During 1995 and 1994, Trace Holdings paid to
Foamex L.P. $0.6 million and $0.5 million, respectively, pursuant to the
agreement. During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly-owned
subsidiary of Foamex International, acquired the aircraft from Trace Holdings
for $3.0 million in cash and the assumption of $11.7 million of related debt. In
connection with the acquisition of the aircraft, the Foamex L.P. lease and other
agreements were terminated.
Foamex L.P. has a management service agreement with Trace Foam Company,
Inc. ("Trace Foam"), a wholly-owned subsidiary of Trace Holdings, pursuant to
which Trace Foam provides general managerial services of a financial, technical,
legal, commercial, administrative and/or advisory nature to Foamex L.P. for an
annual fee of $1.75 million and reimbursement of expenses incurred. Trace
Holdings rents approximately 5,900 square feet of general, executive, and
administrative office space in New York, New York from Foamex L.P. on
substantially the same terms as Foamex L.P. leases such space from a third party
lessor.
During 1995 and 1994, Foamex L.P. purchased approximately $2.5 million
and $11.9 million, respectively, of scrap material from Recticel Foam
Corporation ("RFC"), a former partner of Foamex L.P. and whose chairman is a
director of Foamex International, under a minimum annual volume agreement which
expired in June 1995.
On June 28, 1994, Foamex L.P. purchased an $87.9 million principal
amount note due 2006 from its 98% limited partner Foamex-JPS Automotive L.P.
("FJPS") for $35.3 million (the "FJPS Note"). The FJPS Note will not pay
interest until July 2000. Instead, principal will accrete (from the initial
purchase price of $35.3 million) on a daily basis and compound semiannually at
the rate of 15.50% per annum through June 1996; 15.75% per annum thereafter
through June 1997; and 16.00% per annum thereafter through June 2000. Interest
will be due semiannually in cash at 16.00% per annum from July 2000 through the
maturity date. In December 1996 in exchange for certain waivers and amendment of
the FJPS Note, FJPS repaid $18.4 million of the FJPS Note and a waiver payment
of $0.2 million using a portion of the proceeds from the sale of its partnership
interest in JPS Automotive L.P. FJPS has the right to reborrow such amount,
subject to limitations in the Foamex L.P. Credit Facility, solely for the
purpose of funding a purchase price adjustment payment, if any, in connection
with the JPS Automotive L.P. sale. The FJPS Note has been classified in
partners' equity (deficit) and the accreted principal of $16.3 million for the
period from June 28, 1994 to December 29, 1996 has been included in the FJPS
Note. The FJPS Note may be redeemed at the option of FJPS, in whole or in part,
at any time at the redemption prices (expressed as percentages of the Accreted
Value (as defined) if on or prior to July 1, 2000, and thereafter, expressed as
percentages of the principal amount) initially equal to 108% for the
twelve-month period commencing July 1, 1994 declining to 100% on or after July
1, 2005. If FJPS does not repay the indebtedness with at least 85% of the net
proceeds of any Equity Offering (as defined), the rate at which the FJPS Note
accretes and the interest rate on the FJPS Note will increase.
F-41
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
In June 1994, Foamex L.P. also entered into a supply agreement with
Foamex International (the "Supply Agreement"). Pursuant to the terms of the
Supply Agreement, at the option of Foamex L.P., Foamex International will
purchase certain raw materials which are necessary for the manufacture of Foamex
L.P.'s products, and resell such materials to Foamex L.P. at a price equal to
net cost plus reasonable out of pocket expenses. Management believes that the
terms of the Supply Agreement are no less favorable than those which Foamex L.P.
could have obtained from an unaffiliated third party. During 1996 and 1995,
Foamex L.P. made $129.7 million and $105.1 million, respectively, of purchases
relating to the Supply Agreement.
As of December 29, 1996 and December 31, 1995, due to related parties
amounted to $8.8 million and $11.7 million, respectively, and represents the net
amounts payable to Foamex International and subsidiaries for purchases under the
Supply Agreement and other matters.
Foamex L.P. made charitable contributions to the Trace International
Holding, Inc. Foundation of approximately $0.2 million in each of 1996, 1995 and
1994.
On December 11, 1996, Foamex L.P. entered into a Tax Distribution
Advance Agreement with FJPS, pursuant to which FJPS is entitled to obtain
advances, in the aggregate not to exceed $17.0 million, against future
distributions under Foamex L.P.'s tax distribution agreement. As of December 29,
1996, there were no advances under this agreement.
14. PARTNERS' EQUITY (DEFICIT)
Foamex L.P. was formed as a Delaware limited partnership on September
5, 1990, and initially capitalized on October 2, 1990, in accordance with a
limited partnership agreement as amended through June 1994. In connection with a
June 1994 amendment, the ownership of Foamex L.P. changed as follows: (i) FMXI,
a wholly-owned subsidiary of Foamex International, bifurcated its 4% managing
general partnership interest into a 1% managing general partnership interest and
a 3% limited partnership interest and distributed the limited partnership
interest to Foamex International, (ii) Foamex International contributed its 95%
limited partnership interest and the 3% limited partnership interest received
from FMXI to FJPS and withdrew as a partner of Foamex L.P. and (iii) FJPS was
admitted as a partner of Foamex L.P. with a 98% limited partnership interest.
The partners also consented to the pledge by FJPS of a 43.44% limited
partnership interest in Foamex L.P. to secure the repayment of certain of FJPS's
indebtedness incurred in connection with the acquisition of JPS Automotive L.P.
by Foamex International. As of December 29, 1996 and December 31, 1995, the
partnership interests of FMXI, Inc. ("FMXI"), Trace Foam, and FJPS were 1.0%,
1.0% and 98.0%, respectively.
Cash distributions for 1996, 1995 and 1994 were paid (received) as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
FMXI $ (35) $ 12 $ 59
Trace Foam 45 -- 29
Foamex International -- -- 653
FJPS 3,477 2,367 2,516
------- ------- -------
Total $ 3,487 $ 2,379 $ 3,257
======= ======= =======
</TABLE>
F-42
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. PARTNERS' EQUITY (DEFICIT) (continued)
Other
The other component of partners' equity (deficit) consists of the
following:
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment $ 3,494 $ 3,448 $ 3,930
Additional pension liability 2,407 4,779 1,489
Note receivable from Trace Holdings 4,373 4,373 3,000
Note receivable from Foamex International 2,000 2,000 --
------- ------- -------
$12,274 $14,600 $ 8,419
======= ======= =======
</TABLE>
15. ENVIRONMENTAL MATTERS
Foamex L.P. is subject to extensive and changing federal, state, local
and foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with Foamex
L.P.'s compliance with federal, state, local and foreign environmental laws and
regulations did not have a material adverse effect on Foamex L.P.'s operations,
financial position, capital expenditures or competitive position. As of December
29, 1996, Foamex L.P. has environmental accruals of approximately $4.1 million
for environmental matters. In addition, as of December 29, 1996 Foamex L.P. has
net receivables of approximately $0.9 million relating to indemnification for
environmental liabilities, net of an allowance of approximately $1.0 million
relating to potential disagreements regarding the scope of the indemnification.
Foamex L.P. believes that realization of the net receivables established for
indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")
provide for the establishment of federal emission standards for hazardous air
pollutants including methylene chloride and TDI, principal raw materials used in
the manufacturing of foam. Foamex L.P. completely eliminated the use of
chlorofluorocarbons and methylchloroform by the end of 1995. The 1990 CAA
Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
Foamex L.P. 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. Foamex L.P. has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 29, 1996, Foamex L.P. has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
F-43
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. ENVIRONMENTAL MATTERS (continued)
standards. Foamex L.P. 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. Foamex
L.P. has accrued $0.4 million for the estimated removal and remediation, if any,
associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. Foamex L.P. believes that its USTs do not pose
a significant risk of environmental liability because of Foamex L.P.'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.
Foamex L.P. has been designated as a Potentially Responsible Party
("PRP") by the United States Environmental Protection Agency (the "EPA") with
respect to thirteen sites, with an estimated total liability to Foamex L.P. for
the thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of Foamex L.P. is considered to be immaterial.
Although it is possible that new information or future developments
could require Foamex L.P. 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 Foamex
L.P.'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.
16. LITIGATION
As of February 26, 1997, Foamex L.P. and Trace Holdings were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, Foamex L.P. and Trace Holdings were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of 903 foreign plaintiffs were dismissed on the grounds that the cases
could not be brought in the United States courts. This decision is subject to
appeal. Foamex L.P. believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from Foamex
L.P. or Trace Holdings. Neither Foamex L.P. nor Trace Holdings recommended,
authorized or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either Foamex L.P.'s or Trace Holdings' consolidated
financial position or results of operations. In addition, Foamex L.P. is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990.
F-44
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. LITIGATION (continued)
Although Trace Holdings has paid Foamex L.P.'s litigation expenses to date
pursuant to such indemnification and management believes Trace Holdings likely
will be in a position to continue to pay such expenses, there can be no absolute
assurance that Trace Holdings will be able to provide such indemnification.
Based on information available at this time with respect to the potential
liability, and without taking into account the indemnification provided by Trace
Holdings and the coverage provided by Trace Holdings' and Foamex L.P.'s
liability insurance, Foamex L.P. believes that the proceedings should not
ultimately result in any liability that would have a material adverse effect on
the financial position or results of operations of Foamex L.P. If management's
assessment of Foamex L.P.'s liability with respect to these actions is
incorrect, such actions could have a material adverse effect on Foamex L.P.
Foamex L.P. 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 Foamex L.P. If management's assessment of Foamex L.P.'s
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on Foamex L.P.'s consolidated financial position.
17. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Interest Rate Swap Agreements
Foamex L.P. has two interest rate swap agreements involving the
exchange of fixed and floating interest payment obligations without the exchange
of the underlying principal amounts. At December 29, 1996, the total notional
principal amount of these interest rate swap agreements was $300.0 million. The
counterparty to these agreements is a large international financial institution.
The interest rate swap agreements subject Foamex L.P. to financial risk that
will vary during the life of these agreements in relation to market interest
rates.
Concentration of Credit Risk
Financial instruments which potentially subject Foamex L.P. to
significant concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. Foamex L.P. maintains cash and cash
equivalents and certain other financial instruments with various large financial
institutions. Foamex L.P.'s periodic evaluation of these financial institutions
are considered in Foamex L.P.'s investment strategy.
Foamex L.P. sells foam products to the automotive, carpet, cushioning
and other industries. Foamex L.P. performs ongoing credit evaluations of its
customers and generally does not require collateral. Foamex L.P. maintains
allowance accounts for potential credit losses and such losses have been within
management's expectations.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on Foamex L.P.'s assessment of available market information and
appropriate valuation methodologies.
F-45
<PAGE>
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)
The estimated fair values of Foamex L.P.'s financial instruments as of
December 29, 1996 are as follows:
Carrying Amount Fair Value
(thousands)
Liabilities:
Long-term debt $ 406,352 $427,862
============ ========
Interest rate swaps $ -- $ 3,160
============ ========
Carrying amounts reported in the consolidated balance sheet for cash
and cash equivalents, accounts receivable, accounts payable, accrued liabilities
and short-term borrowings approximates fair value due to the short-term nature
of these instruments.
The fair value of long-term debt is estimated using quoted market
prices, where available, or discounted cash flows.
The fair value of interest rate swaps are based on the amount at which
Foamex L.P. would pay if the swaps were settled, as determined by estimates
obtained from dealers.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Cash paid for interest $43,378 $47,282 $42,734
======= ======= =======
Cash paid for income taxes $ 1,533 $ 634 $ 1,757
======= ======= =======
Noncash capital expenditures $ 165 $ 378 $ --
======= ======= =======
</TABLE>
F-46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Foamex International Inc.:
We have audited the accompanying consolidated balance sheets of Foamex
International Inc. and subsidiaries (the "Company") as of December 29, 1996 and
December 31, 1995 and the related consolidated statements of operations, cash
flows and stockholders' equity (deficit) for each of the three years in the
period ended December 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 29, 1996 and December 31, 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 29, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1997
F-47
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
ASSETS 1996 1995
(thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22,203 $ 3,322
Restricted cash 12,143 --
Accounts receivable, net of allowance for
doubtful accounts of $6,328 and $9,138 126,573 113,716
Inventories 102,610 89,952
Deferred income taxes 21,765 12,625
Due from related parties 1,866 1,644
Other current assets 19,944 25,033
--------- ---------
Total current assets 307,104 246,292
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 9,674 4,632
Buildings and leasehold improvements 78,082 78,169
Machinery, equipment and furnishings 199,993 190,708
Construction in progress 20,784 7,985
--------- ---------
Total 308,533 281,494
Less accumulated depreciation and
amortization (113,160) (98,176)
--------- ---------
Property, plant and equipment, net 195,373 183,318
COST IN EXCESS OF ASSETS ACQUIRED, NET 82,471 89,605
DEBT ISSUANCE COSTS, NET 18,628 22,770
NET ASSETS OF DISCONTINUED OPERATIONS -- 191,188
OTHER ASSETS 16,270 15,069
--------- ---------
TOTAL ASSETS $ 619,846 $ 748,242
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-48
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1996 1995
(thousands except share data)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 3,692 $ 2,199
Current portion of long-term debt - unrelated parties 14,505 9,281
Accounts payable 84,930 80,624
Accrued employee compensation 7,302 8,116
Accrued interest 9,012 9,694
Accrued restructuring charges 6,300 16,287
Other accrued liabilities 44,782 28,483
--------- ---------
Total current liabilities 170,523 154,684
LONG-TERM DEBT - UNRELATED PARTIES 477,527 509,414
LONG-TERM DEBT - RELATED PARTIES 5,817 5,540
DEFERRED INCOME TAXES 6,290 24,996
ACCRUED RESTRUCTURING CHARGES 4,043 3,773
OTHER LIABILITIES 13,749 20,452
--------- ---------
Total liabilities 677,949 718,859
--------- ---------
COMMITMENTS AND CONTINGENCIES -- --
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $1.00 per share:
Authorized 5,000,000 shares - none issued -- --
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares
Issued 26,753,262 and 26,715,960 shares, respectively;
Outstanding 25,198,862 and 25,786,260 shares, respectively 267 267
Additional paid-in capital 84,579 84,015
Retained earnings (accumulated deficit) (120,174) (37,039)
Other (9,312) (10,693)
--------- ---------
(44,640) 36,550
Common Stock held in treasury, at cost:
1,554,400 shares and 929,700, respectively (13,463) (7,167)
--------- ---------
Total stockholders' equity (deficit) (58,103) 29,383
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 619,846 $ 748,242
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-50
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
(thousands except per share amounts)
<S> <C> <C> <C>
NET SALES $ 926,351 $ 862,834 $ 833,660
COST OF GOODS SOLD 773,119 762,085 691,265
--------- --------- ---------
GROSS PROFIT 153,232 100,749 142,395
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 58,329 69,913 62,245
RESTRUCTURING AND OTHER CHARGES (CREDITS) (6,541) 41,417 --
--------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 101,444 (10,581) 80,150
INTEREST AND DEBT ISSUANCE EXPENSE 53,900 52,878 45,131
OTHER INCOME, NET 1,617 461 1,147
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION (BENEFIT) FOR INCOME TAXES 49,161 (62,998) 36,166
PROVISION (BENEFIT) FOR INCOME TAXES 16,669 (12,248) 13,955
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS 32,492 (50,750) 22,211
--------- --------- ---------
DISCONTINUED OPERATIONS:
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (584) (2,370) 3,919
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
INCLUDING PROVISIONS FOR OPERATING LOSSES
DURING THE PHASE-OUT PERIOD, NET OF INCOME
TAXES (113,896) -- --
--------- --------- ---------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (114,480) (2,370) 3,919
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS (81,988) (53,120) 26,130
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
OF DEBT, NET OF INCOME TAXES (1,147) -- --
--------- --------- ---------
NET INCOME (LOSS) $ (83,135) $ (53,120) $ 26,130
========= ========= =========
EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 1.27 $ (1.92) $ 0.83
DISCONTINUED OPERATIONS (4.47) (0.09) 0.15
EXTRAORDINARY LOSS (0.05) 0.00 0.00
--------- --------- ---------
EARNINGS (LOSS) PER SHARE $ (3.25) $ (2.01) $ 0.98
========= ========= =========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 25,616 26,472 26,684
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-51
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (83,135) $ (53,120) $ 26,130
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 22,353 23,302 22,108
Amortization of debt issuance costs and debt discount 13,903 12,192 6,468
Net loss on disposal of discontinued operations 110,137 -- --
Net loss (income) from discontinued operations 4,343 2,370 (3,919)
Asset writedowns and other charges (credits) (7,364) 16,677 --
Provision for uncollectible accounts 704 4,627 878
Deferred income taxes 14,903 (10,667) 9,914
Other, net (3,642) (72) 453
Changes in operating assets and liabilities,
net of acquisitions and discontinued operations:
Accounts receivable (13,723) (1,604) (24,677)
Inventories (13,078) 14,146 (21,790)
Accounts payable 4,306 (2,726) 49,039
Accrued restructuring charges (7,405) 17,284 (3,469)
Other assets and liabilities (1,048) 3,048 (13,031)
--------- --------- ---------
Net cash provided by continuing operations 41,254 25,457 48,104
Net cash provided by discontinued operations 16,491 4,133 6,471
--------- --------- ---------
Net cash provided by operating activities 57,745 29,590 54,575
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (23,344) (22,348) (21,201)
Acquisitions, net of cash acquired (841) (8,113) (1,712)
Proceeds from sale of discontinued operations 59,452 -- --
Increase in restricted cash (12,143) -- --
Discontinued operations investing activities (5,490) (19,411) (290,014)
Other investing activities (1,276) 2,495 (1,910)
--------- --------- ---------
Net cash provided by (used for) investing activities 16,358 (47,377) (314,837)
--------- --------- ---------
FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings 1,493 (1,685) 537
Net proceeds from (repayments of) revolving loans -- (3,000) 3,000
Proceeds from long-term debt-unrelated parties 1,500 -- 97,000
Repayments of long-term debt-unrelated parties (38,887) (9,356) (3,256)
Debt issuance costs -- (184) (9,116)
Purchase of treasury stock (6,296) (7,167) --
Discontinued operations financing activities (12,406) 1,674 179,655
Other financing activities (626) -- (687)
--------- --------- ---------
Net cash provided by (used for) financing activities (55,222) (19,718) 267,133
--------- --------- ---------
F-52
<PAGE>
Net increase (decrease) in cash and cash equivalents 18,881 (37,505) 6,871
Cash and cash equivalents at beginning of period 3,322 40,827 33,956
--------- --------- ---------
Cash and cash equivalents at end of period $ 22,203 $ 3,322 $ 40,827
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-53
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years 1996, 1995, and 1994
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-in (Accumulated Treasury
Shares Amount Capital Deficit) Other Stock
(thousands)
<S> <C> <C> <C> <C> <C>
Balances at January 2, 1994 26,684 $ 267 $ 80,566 $ (10,049) $ (6,478)
Issuance of warrants 3,000
Stock option compensation 75
Stock options exercised 10
Additional pension liability 86
Foreign currency translation adjustment (1,435)
Other (27)
Net income 26,130
--------- --------- --------- --------- --------- ---------
Balances at January 1, 1995 26,684 267 83,624 16,081 (7,827)
Issuance of common stock 32 -- 316
Stock option compensation 75
Increase in note receivable from
principal stockholder (1,373)
Additional pension liability (1,974)
Foreign currency translation adjustment 481
Purchase of treasury stock $ (7,167)
Net loss (53,120)
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1995 26,716 267 84,015 (37,039) (10,693) (7,167)
Issuance of common stock 22 -- 165
Stock option compensation 297
Stock options exercised 15 -- 102
Additional pension liability 1,427
Foreign currency translation adjustment (46)
Purchase of treasury stock (6,296)
Net loss (83,135)
--------- --------- --------- --------- --------- ---------
Balances at December 29, 1996 26,753 $ 267 $ 84,579 $(120,174) $ (9,312) $ (13,463)
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-54
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Foamex International Inc. (the "Company") is a significant manufacturer
and marketer of flexible polyurethane foam and foam products in North America
through Foamex L.P., a 99% owned subsidiary. The Company's products include (i)
foam for carpet cushion and other carpet products, (ii) cushioning foams for
furniture, bedding, packaging and health care, (iii) foams for automotive trim
and accessories and (iv) technical foams for filtration, consumer products and
packaging.
During 1996, the Company sold Perfect Fit Industries, Inc. ("Perfect
Fit") and JPS Automotive L.P. ("JPS Automotive") which comprised the home
comfort products and automotive textile business segments, respectively, of the
Company. The consolidated financial statements of the Company have been restated
for discontinued operations and includes a net loss of $113.9 million (net of
$34.9 million income tax benefit) on the disposal of these business segments
which includes provisions for operating losses during the phase-out period. (See
Note 3 for further discussion).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the
Company and all subsidiaries that the Company directly or indirectly controls,
either through majority ownership or otherwise, other than the home comfort
products and automotive textile business segments which are accounted for as
discontinued operations. Intercompany accounts and transactions for continuing
operations have been eliminated in consolidation.
The consolidated financial statements have been restated for
discontinued operations. The accompanying notes present amounts related only to
continuing operations.
Fiscal Year
The Company's fiscal year ends on the Sunday closest to the
thirty-first day of December. Fiscal years 1996, 1995 and 1994 were composed of
fifty-two weeks and ended on December 29, 1996, December 31, 1995 and January 1,
1995, respectively.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 3, 4, 9, 10, 16, 17 and 18 and Cost in Excess of Net
Assets Acquired below.)
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. On
December 29, 1996 and December 31, 1995, cash and cash equivalents included
$19.6 million and $2.7 million, respectively, of repurchase agreements
collateralized by U.S. Government securities.
F-55
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted Cash
As of December 29, 1996, the Company had restricted cash of
approximately $12.1 million. This cash was derived from the net sales proceeds
relating to the sale of Perfect Fit and is restricted by Foamex L.P.'s debt
agreements. As of February 26, 1997, the Company has used approximately $8.4
million of the restricted cash to repurchase approximately $8.0 million of
outstanding indebtedness.
Inventories
Inventories are stated at the lower of cost or market. The cost of the
inventories is determined on a first-in, first-out basis.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives of the assets.
The range of useful lives estimated for buildings is generally twenty to
thirty-five years, and the range for machinery, equipment and furnishings is
five to twelve years. Leasehold improvements are amortized over the shorter of
the terms of the respective leases or the estimated useful lives of the
leasehold improvements. Depreciation expense for the years ended 1996, 1995 and
1994 was $19.1 million, $19.1 million and $16.8 million, respectively. For
income tax purposes, the Company uses accelerated depreciation methods.
Cost of maintenance and repairs is charged to expense as incurred.
Renewals and improvements are capitalized. Upon retirement or other disposition
of items of plant and equipment, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
Debt Issuance Costs
Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the interest method. Accumulated amortization as of December 29, 1996 and
December 31, 1995 was approximately $8.8 million and $6.7 million, respectively.
Cost in Excess of Net Assets Acquired
The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for as purchases is amortized using
the straight-line method over a forty year period. At each balance sheet date
the Company evaluates the recoverability of cost in excess of net assets
acquired using certain financial indicators such as historical and future
ability to generate income from operations based on a going concern basis.
Accumulated amortization as of December 29, 1996 and December 31, 1995 was
approximately $11.6 million and $9.0 million, respectively.
Environmental Matters
Environmental expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to current or
F-56
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
future revenue generation, are expensed. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable and the costs can
be reasonably estimated.
Postretirement and Postemployment Benefits
The Company accrues postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
Also, the Company accrues postemployment benefits when it becomes probable that
such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.
Foreign Currency Accounting
The financial statements of foreign subsidiaries, except in countries
treated as highly inflationary, have been translated into U.S. dollars by using
the year end exchange rates for the assets and liabilities and average exchange
rates for the statements of operations. Currency translation adjustments are
included in other stockholders' equity (deficit) until the entity is
substantially sold or liquidated. For operations in countries treated as highly
inflationary, certain financial statement amounts are translated at historical
exchange rates, with all other assets and liabilities translated at year end
exchange rates. These translation adjustments are reflected in the results of
operations and are insignificant for all periods presented. Also, foreign
currency transaction gains and losses are insignificant for all periods
presented. The effect of foreign currency exchange rates on cash flows is not
material.
Interest Rate Swap Agreement
The differential to be paid or received under an interest rate swap
agreement is recognized as an adjustment to interest and debt issuance expense
in the current period as interest rates change.
Income Taxes
Income taxes are accounted for under the liability method, in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.
Earnings (Loss) Per Share
Earnings (loss) per share for 1996 was computed based on the weighted
average number of shares actually outstanding plus the shares that would be
outstanding assuming the exercise of dilutive stock options and warrants which
are considered to be common stock equivalents. The number of shares that would
be issued from the exercise of stock options has been reduced by the number of
shares that could have been purchased from the proceeds at the average market
price of the Company's common stock. For 1995 and 1994, common stock equivalents
have not been included since the effect would be antidilutive and/or immaterial.
Reclassifications
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the current year's presentation.
F-57
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS
On December 11, 1996, the Company completed the sale of its partnership
interests in JPS Automotive for a sale price of approximately $220.1 million
including $200.1 million of JPS Automotive's indebtedness. The sale is subject
to a post-closing adjustment which is expected to be finalized during the second
quarter of 1997. The sale included substantially all of the net assets of the
automotive textiles business segment. Actual and estimated transaction expenses
related to the sale amounted to approximately $8.9 million. The Company has
recorded a net loss on the sale of JPS Automotive of approximately $70.9 million
(net of $34.2 million income tax benefit), which includes the loss on disposal
and a net loss of $1.3 million (net of $0.7 million income tax benefit) relating
to operating losses during the phase-out period.
During 1996, the Company finalized the sale of the outstanding common
stock of Perfect Fit, a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included substantially all of the net
assets of the home comfort products segment. Actual and estimated transaction
expenses related to the sale amounted to approximately $1.5 million. The Company
has recorded a loss on the sale of Perfect Fit of approximately $43.0 million,
which includes the loss on disposal and a loss of $2.4 million relating to
operating losses during the phase-out period. A valuation allowance has been
provided for the capital loss relating to the sale of Perfect Fit since the
Company has determined that capital gain taxable income is not likely to be
sufficient to recognize the deferred tax asset relating to the capital loss
carryforward.
The Company's financial statements have been restated to reflect the
discontinuation of the home comfort products and automotive textile business
segments. In addition to the interest and debt issuance expense of JPS
Automotive, interest and debt issuance expense was allocated to discontinued
operations based on the estimated debt to be retired from the net proceeds from
the sale of Perfect Fit and JPS Automotive. A summary of the operating results
for the discontinued operations is as follows:
<TABLE>
<CAPTION>
1996 (1) 1995 1994
(thousands)
<S> <C> <C> <C>
Sales $ 244,305 $ 405,726 $ 254,174
Gross profit 38,296 69,410 50,477
Income from operations 17,072 28,009 24,026
Interest and debt issuance expense 16,905 28,575 16,463
Other expense (975) (113) (127)
Income (loss) from discontinued operations before income taxes (808) (679) 7,436
Provision (benefit) for income taxes (224) 1,691 3,517
Income (loss) from discontinued operations, net of income taxes (584) (2,370) 3,919
<FN>
(1) The Company's discontinued operations includes the operations of
Perfect Fit through June 1996 and JPS Automotive through September
1996.
</FN>
</TABLE>
F-58
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DISCONTINUED OPERATIONS (continued)
Net assets of discontinued operations (excluding intercompany net
assets) at December 31, 1995 were as follows:
1995
(thousands)
Current assets $100,574
Property, plant and equipment, net 142,863
Cost in excess of assets acquired, net 202,020
Other assets 10,642
--------
Total assets 456,099
Current liabilities 49,202
Long-term debt 204,463
Other liabilities 11,246
--------
Total liabilities 264,911
--------
Net assets $191,188
========
4. RESTRUCTURING AND OTHER CHARGES (CREDITS)
In 1995, the Company approved a restructuring plan (the "1995
restructuring plan") to consolidate thirteen foam production, fabrication or
branch locations to concentrate resources as a result of industry conditions and
better position itself to achieve its strategic growth objectives. The Company
recorded restructuring and other charges of $41.4 million which was comprised of
$35.6 million associated with the consolidation of the foam production,
fabrication or branch locations, $2.2 million associated with the completion of
a 1993 restructuring plan and $3.6 million associated with merger and
acquisition activities of the Company. The components of the $35.6 million
restructuring charge include: $16.7 million for fixed asset writedowns (net of
estimated sale proceeds), $15.1 million for plant closure and operating lease
obligations and $3.8 million for personnel reductions. The $3.8 million cost for
personnel reductions primarily represents severance and employee benefit costs
associated with the elimination of manufacturing and administrative personnel.
In 1996, the Company determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, the Company has approved a
plan to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters, the
Company recorded a $6.5 million net restructuring credit which included a
restructuring credit of $11.3 million associated with the Company's decision not
to close the facility identified as part of the 1995 restructuring plan and $1.8
million of restructuring credits relating primarily to the favorable termination
of certain lease agreements and other matters relating to the 1995 restructuring
plan, offset by $6.6 million of restructuring charges relating to the closure of
the two facilities during 1997 (the "1996 restructuring plan").
F-59
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)
Generally, the 1995 restructuring plan has been implemented as
originally contemplated. The following table sets forth the components of the
Company's restructuring and other charges:
<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge $ 41.4 $ 16.7 $ 15.1 $ 3.8 $ 5.8
Asset writeoff/writedowns (25.1) (20.9) -- -- (4.2)
Cash spending (0.4) -- (0.3) (0.1) --
------- ------- ------- ------ ------
Balances at December 31, 1995 15.9 (4.2) 14.8 3.7 1.6
Cash spending (9.9) -- (6.6) (2.0) (1.3)
Cash proceeds 1.0 1.0 -- -- --
1996 restructuring charge 6.6 2.4 4.1 0.1 --
Restructuring credits (13.1) (9.7) (2.8) (0.4) (0.2)
Asset adjustment for restructuring
credit 8.0 8.7 (0.6) -- (0.1)
------- ------- ------- ------ ------
Balances at December 29, 1996 $ 8.5 $ (1.8) $ 8.9 $ 1.4 $ --
======= ======= ======= ====== ======
</TABLE>
As indicated in the table above, the accrued restructuring balance at
December 29, 1996, will be used for payments relating to plant closure and
leases including rundown costs at the facilities. The $1.8 million of asset
writedowns relates to estimated proceeds and is included in noncurrent assets.
The Company expects to incur approximately $6.3 million of charges during 1997
with the remaining $4.0 million to be incurred through 2001. As of December 29,
1996, the Company has terminated approximately 270 employees and notified
approximately 40 employees in the manufacturing and administrative areas of
their impending termination in connection with the 1996 and 1995 restructuring
plans.
5. ACQUISITIONS
In April 1995, the Company acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million, including
related fees and expenses of approximately $0.3 million, with an initial cash
payment of $7.2 million. The excess of the purchase price over the estimated
fair value of the net assets acquired was approximately $3.9 million.
In March 1994, the Company acquired Transformacion De Espumas Y
Fieltros S.A. de C.V. ("TEFSA") for an aggregate purchase price of approximately
$4.5 million, including related fees and expenses of approximately $0.4 million,
to be paid over a three year period with an initial cash payment of $1.7
million. The excess of the purchase price over the estimated fair value of the
assets acquired was $3.7 million. During 1996 and 1995, the Company made
scheduled cash payments of $0.8 million for each year in accordance with the
purchase agreement. The final payment will be made in April 1997.
The acquisitions were accounted for as purchases and the operations of
the acquired companies are included in the consolidated statements of operations
and cash flows from their respective dates of acquisition. The excess of the
purchase price over the estimated fair value of the net assets acquired is being
amortized using the straight-line method over forty years.
F-60
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVENTORIES
Inventories consists of:
December 29, December 31,
1996 1995
(thousands)
Raw materials and supplies $ 61,559 $ 49,963
Work-in process 13,453 14,451
Finished goods 27,598 25,538
-------- --------
Total $102,610 $ 89,952
======== ========
7. SHORT-TERM BORROWINGS
Short-term borrowings include borrowings outstanding under a line of
credit facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the
bank's prime rate (4.75% at December 29, 1996) plus 1/2%. The weighted average
interest rates on Foamex Canada's short-term borrowings outstanding for 1996,
1995 and 1994 were 5.9%, 8.0% and 7.3%, respectively. Borrowings under Foamex
Canada's credit facility are due on demand and are collateralized by accounts
receivable, property and inventories of Foamex Canada having an approximate net
carrying value of $17.1 million as of December 29, 1996. The unused amount under
this line of credit totaled $0.7 million as of December 29, 1996.
8. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Unrelated parties:
9 1/2% Senior secured notes due 2000 (1) $106,793 $116,667
11 1/4% Senior notes due 2002 (1) 141,400 150,000
11 7/8% Senior subordinated debentures due 2004 (net of
unamortized debt discount of $769 and $827) (1) 125,056 125,173
Senior secured discount debentures due 2004, Series B
(net of unamortized debt discount of $35,864 and
$46,364) (2) 80,881 70,381
11 7/8% Senior subordinated debentures due 2004, Series B (3) 7,000 7,000
Industrial revenue bonds (4) 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 29, 1996)(4) 11,000 30,000
Other 12,902 12,474
-------- --------
492,032 518,695
Less current portion 14,505 9,281
-------- --------
Long-term debt--unrelated parties $477,527 $509,414
======== ========
</TABLE>
F-61
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Related parties:
Subordinated note payable (net of unamortized
debt discount of $1,198 and $1,475) (3) $5,817 $5,540
====== ======
(1) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation
and guaranteed by the Company and General Felt Industries,
Inc. ("General Felt").
(2) Subsidiary debt of Foamex-JPS Automotive L.P. and Foamex-JPS
Capital Corporation and guaranteed by the Company.
(3) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation
and guaranteed by General Felt.
(4) Subsidiary debt of Foamex L.P.
9 1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")
The Senior Secured Notes were issued on June 3, 1993 and bear interest
at the rate of 9 1/2% payable semiannually on each June 1 and December 1. The
Senior Secured Notes mature on June 1, 2000. The Senior Secured Notes are
collateralized by a first-priority lien on substantially all of the assets of
Foamex L.P. except for receivables, real estate and fixtures. The Senior Secured
Notes may be redeemed at the option of Foamex L.P., in whole or in part, at any
time on or after June 1, 1998, initially at 101.583% of their principal amount,
plus accrued interest, and declining to 100% on or after June 1, 1999. During
1996, Foamex L.P. repurchased $9.9 million of Senior Secured Notes with the net
proceeds from the sale of Perfect Fit (see Note 11).
11 1/4% Senior Notes due 2002 ("Senior Notes")
The Senior Notes bear interest at the rate of 11 1/4% payable
semiannually on each April 1 and October 1. The Senior Notes mature on October
1, 2002. The Senior Notes may be redeemed at the option of Foamex L.P., in whole
or in part, at any time on or after October 1, 1997, initially at 104.219% of
their principal amount, plus accrued interest, and declining to 100% on or after
October 1, 2000. In October 1994, Foamex L.P. provided certain real property as
collateral for the Senior Notes, with a net book value of $37.8 million at
December 29, 1996. During 1996, Foamex L.P. repurchased $8.6 million of Senior
Notes with the net proceeds from the sale of Perfect Fit (see Note 11).
11 7/8% Senior Subordinated Debentures due 2004 ("Subordinated
Debentures")
The Subordinated Debentures bear interest at the rate of 11 7/8%
payable semiannually on each April 1 and October 1. The Subordinated Debentures
mature on October 1, 2004. The Subordinated Debentures may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after October 1,
1997, initially at 105.938% of their principal amount, plus accrued interest,
and declining to 100% on or after October 1, 2002. The Subordinated Debentures
are subordinated in right of payment to all senior indebtedness, including the
Senior Secured Notes and the Senior Notes. During 1996, Foamex L.P. repurchased
$0.1 million of Subordinated Debentures with the net proceeds from the sale of
Perfect Fit (see Note 11).
F-62
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Senior Secured Discount Debentures due 2004 ("Discount Debentures")
Discount Debentures, in the aggregate principal amount of $116.7
million ($57.0 million initial cash proceeds) were issued during 1994 by
Foamex-JPS Automotive L.P. ("FJPS") and Foamex-JPS Capital Corporation ("FJCC").
In connection with this issuance, the Company issued warrants to acquire 0.6
million shares of the Company's common stock to the purchasers of the Discount
Debentures (see Note 15). The Discount Debentures are collateralized by a
first-priority lien granted by FJPS on a 43.44% limited partnership interest in
Foamex L.P. and are guaranteed on a senior basis by the Company. The original
issue discount of $59.7 million will be amortized using the weighted average to
maturity method over the life of the issue. No cash interest is payable on the
Discount Debentures prior to January 1, 2000; rather the Discount Debentures
accrete on a daily basis and compound semiannually at the rate of 13.50% per
annum from the date of issuance through June 30, 1996, at the rate of 13.75% per
annum from July 1, 1996 through June 30, 1997 and at the rate of 14.00% per
annum from July 1, 1997 through June 30, 1999, in each case subject to increase
in the event the Discount Debentures are not redeemed at the option of FJPS and
FJCC as described below. Thereafter, interest accrues at the rate of 14.00% per
annum and is payable semiannually in cash commencing January 1, 2000.
The Discount Debentures may be redeemed at the option of FJPS and FJCC,
in whole or in part, at any time after July 1, 1999, initially at 110% of their
principal amount, plus accrued interest to the redemption date, and declining to
100% on or after July 1, 2002. Prior to July 1, 1997, at the option of FJPS and
FJCC, (i) up to 50% of the original aggregate principal amount of the Discount
Debentures will be redeemable at a redemption price equal to 110% of the
Accreted Value (as defined in the indenture with respect to such debentures)
(the "Discount Debenture Indenture") of such Discount Debentures and (ii)
additional Discount Debentures will be redeemable at a redemption price equal to
112% of the Accreted Value of such Discount Debentures from the proceeds of an
Equity Offering (as defined in the Discount Debenture Indenture). In addition,
at any time on or prior to July 1, 1997, FJPS and FJCC may redeem all, but not
less than all, of the outstanding Discount Debentures from the net proceeds of
an Equity-Linked Offering (as defined in the Discount Debenture Indenture) at
the redemption prices set forth in the immediately preceding sentence. If FJPS
and FJCC do not exercise such redemption rights with at least 85% of the net
proceeds of an Equity Offering, the rate at which the Discount Debentures shall
accrete and the interest rate on the Discount Debentures will increase based on
a formula.
During 1996, the Company received consents from 100% of the holders of
the Discount Debentures for the waiver of certain provisions of the Discount
Debentures Indenture in connection with the sale of JPS Automotive.
11 7/8% Senior Subordinated Debentures, Series B ("Series B
Debentures")
The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
have terms substantially similar to the Subordinated Debentures, except that
holders of the Series B Debentures are entitled to receive proceeds from an
asset sale only if any proceeds remain after an offer to repurchase has been
made to the holders of the Subordinated Debentures.
F-63
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Industrial Revenue Bonds ("IRBs")
Two bond issues in the principal amount of $1.0 million and $6.0
million, maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.3 million at
December 29, 1996 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex L.P. to
convert to a fixed rate. The interest rates on the IRBs were 4.85% and 4.0% at
December 29, 1996 for the $6.0 million and $1.0 million bond issues,
respectively. The interest rate on the $6.0 million bond issue varies weekly
based on an interest rate that is indicative of current bidside yields on high
quality short-term, tax-exempt obligations, or if such interest rate is not
available, 70.0% of the interest rate for thirteen week United States Treasury
Bills. The maximum interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon appropriate notice,
the IRBs are redeemable at the option of the bondholders.
Term and Revolving Loans
Foamex L.P. has a credit agreement (the "Foamex L.P. Credit Facility")
with a group of banks that provide for loans of up to $85.0 million of which up
to $40.0 million was available as a term loan payable in twenty equal quarterly
installments commencing October 1994 and up to $45.0 million is available under
a revolving line of credit which expires in June 1999. In 1994, Foamex L.P. and
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility; no further term loan borrowings are available thereunder. During 1996,
Foamex L.P. and General Felt used $12.0 million of the net proceeds from the
Perfect Fit sale to repay term loan borrowings. Borrowings under the Foamex L.P.
Credit Facility are collateralized by the accounts receivable of Foamex L.P. and
General Felt. Pursuant to the terms of the Foamex L.P. Credit Facility, borrowed
funds will bear interest at a floating rate equal to 1.0% per annum plus the
highest of (i) the base rate of The Bank of Nova Scotia, as in effect from time
to time, (ii) a rate that is, generally, 0.5% per annum plus a fluctuating rate
generally equal to the rate on three month certificates of deposit, subject to
certain adjustments, plus a fluctuating rate generally equal to the annual
assessment rate paid by The Bank of Nova Scotia to the Federal Deposit Insurance
Corporation or (iii) 0.5% per annum plus the federal funds rate in effect from
time to time. At the option of the borrower, portions of the outstanding loans
under the Foamex L.P. Credit Facility will be convertible into Eurodollar rate
loans bearing interest at a rate generally equal to 3.0% per annum above the
average LIBOR rate of Citibank, N.A. and The Bank of Nova Scotia. As of December
29, 1996, there were approximately $11.7 million in letters of credit
outstanding under the Foamex L.P. Credit Facility. As of December 29, 1996,
there was unused availability of approximately $33.3 million under the Foamex
L.P. Credit Facility.
Subordinated Note Payable
This note payable was issued to John Rallis ("Rallis"), the Chief
Operating Officer of the Company, on May 6, 1993 by Foamex L.P. in connection
with the acquisition of Great Western Foam Products Corporation and certain
related entities and assets (collectively, "Great Western"). The note bears
interest at a maximum rate of 6% per annum and the principal amount is payable
in three equal annual installments beginning May 6, 1999.
Other
As of December 29, 1996, other debt is comprised primarily of capital
lease obligations, equipment financing associated with an aircraft and
borrowings by Foamex Mexico.
F-64
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
Interest Rate Swap Agreements
The Company enters into interest rate swaps to lower funding costs
and/or to manage interest costs and exposure to changing interest rates. The
Company does not hold or issue financial instruments for trading purposes. The
Company has an interest rate swap agreement, as amended, with a notional amount
of $150.0 million through December 2001. Under the swap agreement, the Company
has made variable payments based on LIBOR through December 1996 and is obligated
to make fixed payments at 5.30% per annum for the twelve months ended in
December 1997 and variable payments based on LIBOR for the remainder of the
agreement, in exchange for fixed payments by the swap partner at 5.81% per annum
through December 1996, and 6.50% per annum for the remainder of the agreement,
payable semiannually in arrears. The swap partner has the ability to terminate
the swap agreement after the December 1997 payment if the LIBOR rate the Company
is to pay for any period thereafter is equal to or less than 4.50% per annum.
Interest expense will be subject to fluctuations in LIBOR during the term of the
swap agreement except during 1997. The Company is exposed to credit loss in the
event of nonperformance by the swap partner; however, the occurrence of this
event is not anticipated.
Also, the Company has an interest rate swap agreement, as amended, for
a notional amount of $150.0 million through December 2001. Under this swap
agreement, the Company has made variable payments based on LIBOR with a cap of
5.50% per annum and a floor of 4.75% per annum for the six months ended in June
1995, variable payments based on LIBOR with a floor of 4.75% per annum for the
six months ended in December 1995, fixed payments at a rate of 5.81% per annum
for the twelve months ended in December 1996 and is obligated to make fixed
payments at a rate of 5.30% per annum for the twelve months ended in December
1997 and variable payments based on LIBOR for the remainder of the agreement, in
exchange for variable payments by the swap partner at the rate of LIBOR plus
0.80% per annum for the six months ended in June 1995, LIBOR plus 0.72% per
annum for the six months ended in December 1995, LIBOR plus 2.45% per annum for
the six months ended in June 1996, LIBOR plus 2.39% per annum for the six months
ended in December 1996 and fixed payments at 6.50% per annum for the remainder
of the term of the agreement, payable semiannually in arrears. The swap partner
has the ability to terminate the swap agreement after the December 1997 payment
if the LIBOR rate the Company is to pay for any period thereafter is equal to or
less than 4.50% per annum. Interest expense will be subject to fluctuations in
LIBOR during the term of the swap agreement except during 1997. The effect of
the two interest rate swaps described above was a favorable adjustment to
interest expense of $3.7 million, $1.4 million and $3.0 million for 1996, 1995
and 1994, respectively. The Company is exposed to credit loss in the event of
nonperformance by the swap partner; however, the occurrence of this event is not
anticipated.
Debt Restrictions and Covenants
The indentures, credit agreement and other indebtedness agreements
contain various covenants, including restrictions on payments of distributions
to the Company by its subsidiaries, the incurrence of additional indebtedness,
the sale of assets, mergers and consolidations and transactions with affiliates.
In addition, certain agreements contain a provision that, in the event of a
defined change of control, the indebtedness must be repaid, in certain cases, at
the option of the holder. Also, the Company's subsidiaries are required under
certain of these agreements to maintain specified financial ratios of which the
most restrictive is the maintenance of net worth and interest coverage ratios,
as defined. Under the most restrictive of the distribution restrictions,
approximately $4.9 million was available to be paid to the Company by its
subsidiaries as of December 29, 1996.
F-65
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT (continued)
During 1996, the Company received consents and/or waivers from its
lenders and bondholders in connection with the sale of Perfect Fit and JPS
Automotive and other related matters.
As of December 29, 1996, the Company was in compliance with the
covenants of the indentures, credit agreements and other indebtedness agreements
and expects to be in compliance with these covenants for the foreseeable future.
Future Obligations on Long-Term Debt
Scheduled maturities of long-term debt are shown below:
Year End Long-Term Debt
(thousands)
1997 $ 14,260
1998 4,770
1999 6,108
2000 107,401
2001 3,109
Thereafter 399,246
--------
Total 534,894
Less unamortized discount 37,831
--------
Total $497,063
========
In addition, the Company has approximately $0.8 million of total
capital lease obligations that are payable in 1997 through 2000 in annual
amounts of approximately $0.2 million.
9. EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans
The Company maintains noncontributory defined benefit pension plans for
salaried and certain hourly employees. The salaried plan provides benefits that
are based principally on years of credited service and level of compensation.
The hourly plans provide benefits that are based principally on stated amounts
for each year of credited service.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service cost $ 2,471 $ 2,087 $ 2,452
Interest cost 3,997 3,742 3,541
Actual return on plan assets (8,841) (5,682) 624
Net amortization and deferral 4,643 1,807 (4,649)
------- ------- -------
Total $ 2,270 $ 1,954 $ 1,968
======= ======= =======
</TABLE>
F-66
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
The Company's funding policy is to contribute annually an amount that
both satisfies the minimum funding requirements of the Employee Retirement
Income Security Act of 1974 and does not exceed the full funding limitations of
the Internal Revenue Code of 1986, as amended (the "Code"). Plan investments
consist primarily of corporate equity and debt securities, mutual life insurance
funds and cash equivalents. During 1996, the discount rate was adjusted to
7.50%. The following table sets forth the funded status of the Company's
underfunded plans and the amounts recognized in the accompanying consolidated
balance sheets as of December 29, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
(thousands)
<S> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested benefits $ 55,336 $ 52,762
Nonvested benefits 2,137 1,916
-------- --------
Accumulated benefit obligations $ 57,473 $ 54,678
======== ========
Total projected benefit obligations $ 58,775 $ 55,810
Fair value of plan assets 53,734 44,441
-------- --------
Projected benefit obligations in excess
of plan assets (5,041) (11,369)
Unrecognized net loss from past experience
difference from that assumed and effect
of changes in assumptions 1,099 6,394
Additional minimum liability (2,694) (5,265)
-------- --------
Accrued pension cost $ (6,636) $(10,240)
======== ========
</TABLE>
Significant assumptions used in determining the plans' funded status
are as follows:
<TABLE>
<CAPTION>
December 29, December 31,
1996 1995
<S> <C> <C>
Expected long-term rates of return on plan assets 9.50% 9.00%
Discount rates on projected benefit obligations 7.50% 7.25%
Rates of increase in compensation levels (where applicable) 4.00% 4.00%
</TABLE>
F-67
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
Defined Contribution Plan
The Company maintains a defined contribution plan which is qualified
under Section 401(k) of the Code and is available for eligible employees who
elect to participate in the plan. Employee contributions are voluntary and
subject to certain limitations as imposed by the Code. During 1996 and 1995, the
Company provided contributions amounting to a 25% match of employees'
contributions up to 4% of eligible compensation. The Company also provides an
additional 25% match of employees' contributions up to 4% of eligible
compensation made to a fund which invests in the Company's common stock. In
addition, the Company may make discretionary contributions amounting to a 25%
match of employees' contributions up to 4% of eligible compensation. Prior to
1995, Company contributions were discretionary and provided a 50% match of
employees' contributions up to 3% of eligible compensation. The expense for
these contributions for 1996, 1995 and 1994 was approximately $0.8 million, $0.7
million and $0.4 million, respectively.
Postretirement Benefits
In addition to providing pension benefits, the Company provides
postretirement health care and life insurance for eligible employees. During
1996, certain employees accepted an early retirement program resulting in a
special termination loss of $0.6 million. During 1995, changes were made to
postretirement benefits offered to certain employees which resulted in a
curtailment loss of $0.6 million. These plans are unfunded and the Company
retains the right, subject to existing agreements, to modify or eliminate these
benefits.
The components of 1996, 1995 and 1994 expense for postretirement
benefits are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Service costs for benefits earned $ 12 $ 24 $ 172
Interest cost on liability 67 83 192
Net amortization and deferral (53) (13) 134
Special termination/curtailment loss 576 619 --
----- ----- -----
Net periodic postretirement benefit cost $ 602 $ 713 $ 498
===== ===== =====
</TABLE>
The accumulated postretirement benefit obligation at December 29, 1996
and December 31, 1995 resulted in an unfunded obligation of $2.1 million and
$1.6 million, respectively.
A 9% and 10% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1996 and 1995, respectively. This
rate was assumed to gradually decrease to 5% by the year 2000. Increasing the
weighted average assumed health care cost trend rates by one percentage point
would have an insignificant impact on the accumulated postretirement benefit
obligation and service and interest cost. The discount rate used was 7.50% and
7.25% as of December 29, 1996 and December 31, 1995, respectively.
F-68
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFIT PLANS (continued)
Postemployment Benefits
The Company provides certain postemployment benefits to former or
inactive employees and their dependents during the time period following
employment but before retirement. At December 29, 1996 and December 31, 1995,
the Company's liability for postemployment benefits was insignificant for each
period.
Other
In December 1994, the Company changed its method of compensating
certain employees for vacation, which increased income from operations by $4.3
million for 1994.
10. INCOME TAXES
Income (loss) from continuing operations before provision for income
taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
United States $ 46,075 $(62,015) $ 34,240
Foreign 3,086 (983) 1,926
-------- -------- --------
Income (loss) from continuing operations
before provision (benefit) for income taxes $ 49,161 $(62,998) $ 36,166
======== ======== ========
</TABLE>
The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Continuing operations $ 16,669 $(12,248) $ 13,955
Discontinued operations (35,129) 1,691 3,517
Extraordinary loss on early extinguishment
of debt (765) -- --
-------- -------- --------
Total consolidated provision (benefit) for
income taxes $(19,225) $(10,557) $ 17,472
======== ======== ========
</TABLE>
F-69
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The total consolidated provision (benefit) for income taxes is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Current:
Federal $ 220 $ (2,038) $ 3,236
State 760 -- --
Foreign 786 457 805
-------- -------- --------
Total current 1,766 (1,581) 4,041
-------- -------- --------
Deferred:
Federal (24,211) (9,543) 10,259
State 2,729 856 3,193
Foreign 491 (289) (21)
-------- -------- --------
Total deferred (20,991) (8,976) 13,431
-------- -------- --------
Total consolidated provision (benefit)
for income taxes $(19,225) $(10,557) $ 17,472
======== ======== ========
</TABLE>
The tax effect of the temporary differences that give rise to
significant deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
(thousands)
<S> <C> <C>
Deferred tax assets:
Inventory basis differences $ 1,209 $ 2,473
Employee benefit accruals 6,247 7,733
Allowances and contingent liabilities 3,616 8,589
Restructuring and plant closing accruals 8,323 10,869
Other 6,301 2,518
Net operating loss carryforwards 37,483 20,190
Capital loss carryforwards 16,561 --
Valuation allowance for deferred tax assets (23,064) (16,979)
-------- --------
Deferred tax assets 56,676 35,393
-------- --------
Deferred tax liabilities:
Basis difference in property, plant and equipment 36,257 30,183
Net deferred tax liabilities associated with discontinued
operations -- 14,304
Other 4,944 3,277
-------- --------
Deferred tax liabilities 41,201 47,764
-------- --------
Net deferred tax assets (liabilities) $ 15,475 $(12,371)
======== ========
</TABLE>
F-70
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (continued)
The Company has determined that taxable capital gains in the
foreseeable future for subsidiaries that file a separate federal income tax
return will likely not be sufficient to recognize the deferred tax asset
associated with the capital loss carryforward. Accordingly, a valuation
allowance has been provided for the deferred tax asset associated with the
capital loss carryforward and certain other deferred tax assets. During 1996,
the valuation allowance for deferred tax assets increased by $6.1 million which
included a $16.6 million increase for the capital loss carryforward, offset by
$6.9 million decrease due to reversal of preacquisition temporary differences
and $3.6 million for the reversal of valuation allowances which are reflected in
the consolidated statement of operations. The $6.9 million reversal of
preacquisition temporary differences was used to reduce cost in excess of assets
acquired. As of December 29, 1996, approximately $1.8 million of deferred tax
assets are related to preacquisition activities and if utilized will further
reduce cost in excess of assets acquired. At December 29, 1996, the Company has
$103.2 million of regular tax net operating loss carryforwards for federal
income tax purposes expiring from 2003 to 2010 of which $7.0 million was
acquired in 1993 and is subject to limitations. In addition, the Company has
$47.3 million of capital loss carryforwards that expire in 2001.
A reconciliation of the statutory federal income tax rate to the
effective income tax rate on continuing operations is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Statutory income taxes $ 17,206 $(22,049) $ 12,658
State income taxes, net of federal 1,864 (2,095) 1,977
Limitation on the utilization of tax benefits -- 7,695 --
Valuation allowance (3,621) -- (452)
Cost in excess of assets acquired 644 1,010 926
Other 576 3,191 (1,154)
-------- -------- --------
Total $ 16,669 $(12,248) $ 13,955
======== ======== ========
</TABLE>
11. EXTRAORDINARY LOSS
During 1996, the Company used $31.3 million of the net proceeds from
the sale of Perfect Fit to extinguish debt of $30.6 million and redemption
premiums of $0.6 million. The Company wrote off $1.2 million of debt issuance
costs associated with the early extinguishment of debt and incurred transaction
costs of $0.1 million. The early extinguishment of debt resulted in an
extraordinary loss of $1.1 million (net of $0.8 million income tax benefit).
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is obligated under various noncancelable lease agreements
for rental of facilities, vehicles and other equipment. Many of the leases
contain renewal options with varying terms and escalation clauses that
F-71
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMMITMENTS AND CONTINGENCIES (continued)
provide for increased rentals based upon increases in the Consumer Price Index,
real estate taxes and lessors' operating expenses. Total minimum rental
commitments (excluding commitments accrued as part of the 1996 and 1995
restructuring plans) required under operating leases at December 29, 1996 are:
Third Party Related Party
Leases Leases
(thousands)
1997 $ 7,874 $ 1,767
1998 6,164 1,823
1999 4,866 1,823
2000 3,812 1,823
2001 2,883 2,265
Thereafter 4,122 5,800
-------- --------
Total $29,721 $15,301
======= =======
Rental expense charged to operations under operating leases
approximated $9.6 million, $10.5 million and $10.3 million for 1996, 1995 and
1994, respectively. Substantially all such rental expense represented the
minimum rental payments under operating leases. In addition, the Company
incurred rental expense of approximately $1.7 million, $3.5 million and $3.9
million for 1996, 1995 and 1994, respectively, under leases with related
parties.
13. RELATED PARTY TRANSACTIONS AND BALANCES
The Company regularly enters into transactions with its affiliates in
the ordinary course of business.
On July 7, 1996, Trace International Holdings, Inc. ("Trace Holdings")
issued to Foamex L.P. a promissory note for $4.4 million in principal amount
plus accrued interest of $0.4 million, which is an extension of a promissory
note of Trace Holdings that was due in July 1996. The promissory note is due and
payable on demand or, if no demand is made, July 7, 1997, and bears interest at
9.5%, payable quarterly in arrears commencing October 1, 1996.
The promissory note is included in other stockholders' equity (deficit).
In connection with the acquisition of Great Western, Foamex L.P. issued
a promissory note to Rallis (see Note 8) and entered into lease agreements (see
Note 12) with Rallis and an affiliate of Rallis, for the rental of former Great
Western manufacturing facilities located in Orange, Ontario and Hayward,
California and a warehouse facility in Tigard, Oregon. Foamex L.P. has the
option to purchase each of these properties from Rallis or such affiliate.
Foamex L.P. was party to a lease agreement for an airplane with Trace
Aviation Corp. ("Trace Aviation"), a subsidiary of Trace Holdings. During 1995
and 1994, Foamex L.P. paid Trace Aviation $1.6 million and $2.7 million,
respectively, pursuant to the lease agreement. The lease agreement also provided
for the use of the airplane by Trace Holdings with remuneration to Foamex L.P.
based on actual usage of the plane. During 1995 and 1994, Trace Holdings paid to
Foamex L.P. $0.6 million and $0.5 million, respectively, pursuant to the
agreement. During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly-owned
subsidiary of the Company, acquired the aircraft from Trace Holdings for $3.0
million in cash and the assumption of $11.7 million of related debt. In
connection with the acquisition of the aircraft, the Foamex L.P. lease and other
agreements were terminated.
F-72
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)
Foamex L.P. has a management service agreement with Trace Foam Company,
Inc. ("Trace Foam"), a wholly-owned subsidiary of Trace Holdings, pursuant to
which Trace Foam provides general managerial services of a financial, technical,
legal, commercial, administrative and/or advisory nature to Foamex L.P. for an
annual fee of $1.75 million and reimbursement of expenses incurred. Trace
Holdings rents approximately 5,900 square feet of general, executive and
administrative office space in New York, New York from Foamex L.P. on
substantially the same terms as Foamex L.P. leases such space from a third party
lessor.
During 1995 and 1994, the Company purchased approximately $2.5 million
and $11.9 million, respectively, of scrap material from Recticel Foam
Corporation ("RFC"), a former partner of Foamex L.P. and whose chairman is a
director of the Company, under a minimum annual volume agreement which expired
in June 1995.
14. STOCK OPTION PLAN
The Company's 1993 Stock Option Plan provides for the granting of
nonqualified ("NQSOs") and incentive stock options for up to 3.0 million shares
of common stock to officers and executive employees of the Company and its
subsidiaries and affiliates, the price and terms of each such option is at the
discretion of the Company, except that the term cannot exceed ten years. As of
December 29, 1996, the stock options issued under the 1993 Stock Option Plan
vest equally over a five year period with a term of ten years.
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 951,343 $ 7.64 2,033,800 $ 17.28 1,998,600 $ 17.63
Granted 202,240 7.06 150,000 9.95 145,000 10.50
Exercised (14,914) 6.88 -- -- (740) 13.50
Forfeited (171,193) 10.80 (145,956) 14.59 (109,060) 14.70
Canceled -- -- (1,924,700) 17.15 -- --
Granted in exchange offer -- -- 838,199 6.88 -- --
---------- --------- ---------- --------- ---------- ---------
Outstanding at end of year 967,476 $ 6.97 951,343 $ 7.64 2,033,800 $ 17.28
========== ========= ========== ========= ========== =========
Exercisable at end of year 431,863 $ 6.94 20,140 $ 14.62 573,100 $ 18.69
========== ========= ========== ========= ========== =========
</TABLE>
The options outstanding at December 29, 1996 have an exercise price
range of $6.88 to $10.25. During 1996, the Company granted 202,240 options with
a weighted average market price on the date of grant of $12.13. The aggregate
difference of $1.0 million between the fair market value ("FMV") of the options
at the date of grant and the option price is being charged to expense over the
vesting period (five years) of the options. During 1995, the Company granted a
total of 150,000 options which include (i) 15,000 options with a weighted
average market price on the date of grant of $9.50, (ii) 85,000 options with a
weighted average market price on the date of grant of $8.29 and (iii) 50,000
options with a weighted average market price on the date of grant of $9.50.
F-73
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. STOCK OPTION PLAN (continued)
During 1994, the Company granted 145,000 options with a weighted average market
price on the date of grant of $10.50. Upon completion of the initial public
offering (the "IPO") in December 1993, options were granted to purchase 248,600
shares of common stock at $13.50 per share and 1,750,000 shares of common stock
at prices ranging from $15.00 to $22.50 per share. The aggregate difference of
$373,000 between the FMV ($15 per share) of the options at the date of grant and
the $13.50 option price is being charged to expense over the vesting period
(five years) of the options. Total compensation expense relating to options
amounted to approximately $0.3 million, $0.1 million and $0.1 million,
respectively, in each of 1996, 1995 and 1994, respectively.
In December 1995, the Stock Option Plan Committee approved a stock
option exchange program which permitted optionees of record as of that date to
exchange all options previously granted for options priced at the FMV share
price, $6.875, as of the close of business on that date. The number of new
options (the "New Options") to be exchanged for previously granted options (the
"Old Options") was determined on the basis of the ratio of the FMV on December
6, 1995 to the FMV or the discount share value of the Old Options when
originally granted. New Options could not be exercised until December 6, 1996
and expire upon the same terms as the Old Options.
The weighted average remaining contractual lives of outstanding options
at December 29, 1996 was approximately 7.7 years.
The Company applies the provisions of Accounting Principles Board
Opinion No. 25 ("Accounting for Stock Issued to Employees") and related
interpretations ("APB 25") in accounting for its stock-based compensation plans.
Accordingly, compensation expense has been recognized in the consolidated
financial statements with respect to the above plans in accordance with APB 25.
Had compensation costs for the above plans been determined based on the fair
value of the options at the grant dates under those plans consistent with the
methods under Statement of Financial Accounting Standards No. 123 ("Accounting
for Stock Based Compensation"), the Company's income from continuing operations
and earnings (loss) per share would not have been significantly affected.
15. STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock
The Company is authorized to issue 5.0 million shares of preferred
stock with a par value of $1.00 per share, none of which has been issued. The
Board of Directors has the power to establish the powers, preferences, and
rights of each series which may afford the holders of any preferred stock
preferences, powers and rights (including voting rights) senior to the rights of
the holders of common stock.
Common Stock
At December 29, 1996, the Company had an aggregate of 4.8 million of
common stock shares reserved for issuance in connection with its stock option
plan (3.0 million) and outstanding warrants (1.8 million).
Warrants
In June 1994, in connection with the issuance of the Discount
Debentures, the Company issued 116,745 warrants to purchase 0.6 million shares
of common stock. Each warrant is exercisable on or before July 1, 1999 for
5.1394 shares at a cash price of $11.52 per share upon exercise. The warrants
F-74
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. STOCKHOLDERS' EQUITY (DEFICIT) (continued)
were valued by projecting the Company's financial results for five years. These
financial results were discounted at a rate of 18% to 20% and, with a projected
price earnings ratio of 10-11x after five years, yielded a value of
approximately $25.70 per warrant or $3.0 million in total. Accordingly,
additional paid in capital was increased for the cash received attributable to
the warrants and the associated debt reduced, with such reduction to be
amortized over the life of the debt.
In addition, the Company has outstanding warrants to purchase
approximately 1.2 million shares of common stock at an exercise price of
approximately $12.30 per share at any time prior to October 1999.
Treasury Stock
During 1996 and 1995, the Company purchased 624,700 and 929,700 shares
of its common stock, respectively, for an aggregate cost of $6.3 million and
$7.2 million, respectively, under programs authorized by the Board of Directors
to purchase up to 3.0 million shares of the Company's common stock.
Other
The other component of stockholders' equity (deficit) consists of the
following:
<TABLE>
<CAPTION>
December 29, December 31, January 1,
1996 1995 1995
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment $ 3,494 $ 3,448 $ 3,929
Additional pension liability, net of income taxes 1,445 2,872 898
Note receivable from Trace Holdings 4,373 4,373 3,000
------- ------- -------
$ 9,312 $10,693 $ 7,827
======= ======= =======
</TABLE>
16. ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing federal, state, local
and foreign environmental laws and regulations, including those relating to the
use, handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1996, expenditures in connection with the
Company's compliance with federal, state, local and foreign environmental laws
and regulations did not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position. As
of December 29, 1996, the Company has environmental accruals of approximately
$4.1 million for environmental matters. In addition, as of December 29, 1996,
the Company has net receivables of approximately $0.9 million relating to
indemnification for environmental liabilities, net of an allowance of
approximately $1.0 million relating to potential disagreements regarding the
scope of the indemnification. The Company believes that realization of the net
receivables established for indemnification is probable.
The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")
provide for the establishment of federal emission standards for hazardous air
pollutants including methylene chloride and TDI, principal raw materials used in
the manufacturing of foam. The Company completely eliminated the use of
chlorofluorocarbons and methylchloroform by the end of 1995. The 1990 CAA
Amendments also may result in the imposition of more stringent standards
regulating air emissions from the use of these chemicals by polyurethane foam
manufacturers, but these standards have not yet been promulgated.
F-75
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. ENVIRONMENTAL MATTERS (continued)
The Company has reported to appropriate state authorities that it has
found soil and groundwater contamination in excess of state standards at four
facilities and soil contamination in excess of state standards at three other
facilities. The Company has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 29, 1996, the Company has
environmental accruals of approximately $3.2 million for the remaining potential
remediation costs for these facilities based on engineering estimates.
Federal regulations require that by the end of 1998 all underground
storage tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. The Company has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. The
Company has accrued $0.4 million for the estimated removal and remediation, if
any, associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. The Company believes that its USTs do not pose
a significant risk of environmental liability because of the Company's
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.
The Company has been designated as a Potentially Responsible Party
("PRP") by the United States Environmental Protection Agency (the "EPA") with
respect to thirteen sites with an estimated total liability to the Company for
the thirteen sites of less than approximately $0.5 million. Estimates of total
cleanup costs and fractional allocations of liability are generally provided by
the EPA or the committee of PRP's with respect to the specified site. In each
case, the participation of the Company is considered to be immaterial.
Although it is possible that new information or future developments
could require the Company to reassess its potential exposure relating to all
pending environmental matters, including those described herein, management
believes that, based upon all currently available information, the resolution of
such environmental matters will not have a material adverse effect on the
Company's operations, financial position, capital expenditures or competitive
position. The possibility exists, however, that new environmental legislation
and/or environmental regulations may be adopted, or other environmental
conditions may be found to exist, that may require expenditures not currently
anticipated and that may be material.
17. LITIGATION
As of February 26, 1997, the Company and Trace Holdings were two of
multiple defendants in actions filed on behalf of approximately 5,000 recipients
of breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Five of
these cases seek to allege claims on behalf of all breast implant recipients or
other allegedly affected parties, but no class has been approved or certified by
the court. In addition, three cases have been filed alleging claims on behalf of
approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, the Company and Trace Holdings were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of 903 foreign plaintiffs were dismissed on the grounds that the cases
F-76
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. LITIGATION (continued)
could not be brought in the United States courts. This decision is subject to
appeal. The Company believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from the
Company or Trace Holdings. Neither the Company nor Trace Holdings recommended,
authorized or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either the Company's or Trace Holdings' consolidated
financial position or results of operations. In addition, the Company is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990. Although Trace Holdings has paid the
Company's litigation expenses to date pursuant to such indemnification and
management believes Trace Holdings likely will be in a position to continue to
pay such expenses, there can be no absolute assurance that Trace Holdings will
be able to provide such indemnification. Based on information available at this
time with respect to the potential liability, and without taking into account
the indemnification provided by Trace Holdings and the coverage provided by
Trace Holdings' and the Company's liability insurance, the Company believes that
the proceedings should not ultimately result in any liability that would have a
material adverse effect on the financial position or results of operations of
the Company. If management's assessment of the Company's liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on the Company.
The Company is party to various other lawsuits, both as defendant and
plaintiff, arising in the normal course of business. It is the opinion of
management that the disposition of these lawsuits will not individually or in
the aggregate, have a material adverse effect on the financial position or
results of operations of the Company. If management's assessment of the
Company's liability with respect to these actions is incorrect, such actions
could have a material adverse effect on the Company's consolidated financial
position.
18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
Interest Rate Swap Agreements
The Company has two interest rate swap agreements involving the
exchange of fixed and floating interest payment obligations without the exchange
of the underlying principal amounts. At December 29, 1996, the total notional
principal amount of these interest rate swap agreements was $300.0 million. The
counterparty to these agreements is a large international financial institution.
The interest rate swap agreements subject the Company to financial risk that
will vary during the life of these agreements in relation to market interest
rates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company maintains cash and cash
equivalents and certain other financial instruments with various large financial
institutions. The Company's periodic evaluation of these financial institutions
are considered in the Company's investment strategy.
F-77
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)
The Company sells foam products to the automotive, carpet, cushioning
and other industries. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral. The Company maintains
allowance accounts for potential credit losses and such losses have been within
management's expectations.
Disclosure about Fair Value of Financial Instruments
The following disclosures of the estimated fair value amounts have been
determined based on the Company's assessment of available market information and
appropriate valuation methodologies.
The estimated fair values of the Company's financial instruments as of
December 29, 1996 are as follows:
Carrying Amount Fair Value
(thousands)
Liabilities:
Long-term debt $ 497,849 $533,041
============ ========
Interest rate swaps $ -- $ 3,160
============ ========
Carrying amounts reported in the consolidated balance sheet for cash
and cash equivalents, accounts receivable, accounts payable, accrued liabilities
and short-term borrowings approximates fair value due to the short-term nature
of these instruments.
The fair value of long-term debt is estimated using quoted market
prices, where available, or discounted cash flows.
The fair value of interest rate swaps are based on the amount at which
the Company would pay if the swaps were settled, as determined by estimates
obtained from dealers.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
F-78
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
(thousands)
<S> <C> <C> <C>
Cash paid for interest $ 44,472 $ 47,333 $ 42,734
======== ======== ========
Cash paid (received) for income taxes, net $ (2,855) $ 3,024 $ 6,711
======== ======== ========
Noncash capital expenditures $ 165 $ 378 $ --
======== ======== ========
</TABLE>
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(thousands except per share amounts)
1996
<S> <C> <C> <C> <C>
Net sales $ 219,131 $ 240,447 $ 236,766 $ 230,007
Gross profit 36,031 38,167 39,960 39,074
Net income (loss) 6,137 (31,707) (66,623) 9,058
Earning (loss) per share 0.24 (1.24) (2.61) 0.36
1995
Net sales $ 219,542 $ 215,350 $ 217,036 $ 210,906
Gross profit 32,664 33,198 30,809 4,078
Net income (loss) 5,061 3,923 425 (62,529)
Earnings (loss) per share 0.19 0.15 0.02 (2.40)
</TABLE>
During 1996, the Company recorded a net loss on the disposal of Perfect
Fit including operating losses during the phase-out period of approximately
$43.0 million of which $39.3 million is reflected in the second quarter of 1996
(see Note 3). Also, during 1996 the Company recorded an estimated net loss on
the disposal of JPS Automotive including operating losses during the phase-out
period of approximately $70.9 million of which $69.7 million is reflected in the
third quarter of 1996 (see Note 3). During the fourth quarter of 1996, the
Company recorded a $6.5 million net restructuring credit, which is described in
Note 4.
During 1995, depressed industry conditions necessitated the closing of
certain facilities, as more fully described in Note 4, which resulted in a
pre-tax restructuring charge of $41.4 million in December 1995 and resulted in
certain unusual charges, consisting of inventory write-downs, customer credits
and rollbacks. Furthermore, the fourth quarter of 1995 included certain changes
in estimates related to recovery of environmental receivables and employee
benefit accruals. The unusual charges and change in estimates decreased gross
profit by $13.4 million and increased selling, general and administrative
expenses by $4.9 million.
F-79
<PAGE>
FOAMEX-JPS AUTOMOTIVE L.P.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Index to Financial Statement Schedule:
Foamex L.P.
Schedule II - Valuation and Qualifying Accounts S-2
All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.
S-1
<PAGE>
Schedule II
FOAMEX L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning of Costs and other End of
Period Expenses Accounts(1) Deductions Period
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 29, 1996
Allowance for Uncollectible Accounts $ 4,839 $ 704 $ 292 $ 1,911 $ 3,060
=========== ========= =========== =========== =======
Reserve for Discounts $ 4,299 $ -- $ 12,190 $ 13,221 $ 3,268
=========== ========= =========== =========== =======
Valuation Allowance $ 13,473 $ 9,370 $ (6,855)(3) $ -- $15,988
=========== ========= =========== =========== =======
YEAR ENDED DECEMBER 31, 1995(2)
Allowance for Uncollectible Accounts $ 2,324 $ 4,627 $ 324 $ 2,436 $ 4,839
=========== ========= =========== =========== =======
Reserve for Discounts $ 1,382 $ -- $ 15,056 $ 12,139 $ 4,299
=========== ========= =========== =========== =======
Valuation Allowance $ 12,432 $ 4,929 $ (3,888)(3) $ -- $13,473
=========== ========= =========== =========== =======
YEAR ENDED JANUARY 1, 1995(2)
Allowance for Uncollectible Accounts $ 2,898 $ 878 $ 146 $ 1,598 $ 2,324
=========== ========= =========== =========== =======
Reserve for Discounts $ 1,326 $ -- $ 12,582 $ 12,526 $ 1,382
=========== ========= =========== =========== =======
Reserve for Billing Adjustments $ 140 $ -- $ (140) $ -- $ --
=========== ========= =========== =========== =======
Valuation Allowance $ 12,884 $ (452) $ -- $ -- $12,432
=========== ========= =========== =========== =======
<FN>
-------------------------------------
(1) Discounts and billing adjustments reflect a reduction in net sales.
(2) Fiscal years 1995 and 1994 were restated for discontinued operations.
(3) Represents an adjustment to cost in excess of net assets relating to the
utilization of preacquisition deferred tax assets of General Felt.
</FN>
</TABLE>
S-2
SCHEDULE A
Affiliates of Foamex International Inc.
FJGP Inc.
Foamex-JPS Automotive L.P.
Foamex-JPS Capital Corporation
FMXI, Inc.
Foamex L.P.
General Felt Industries, Inc.
Foamex Aviation, Inc.
Foamex Fibers, Inc.
Foamex Canada Inc.
Foamex Capital Corporation
Foamex Latin America, Inc.
Foamex Mexico, Inc.
Foamex Mexico II, Inc.
Foamex de Mexico S.A. de C.V.
Transformacion de Espumas, S.A. de C.V. ("TEFSA")
Colochones y de Todo en Espuma, S.A. de C.V. ("CTE")
Foamex Delaware, Inc. (formerly Foamex Brazil)
Foamex do Brazil Industria e Comercia LTDA
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000927584
<NAME> FOAMEX-JPS AUTOMOTIVE LP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<EXCHANGE-RATE> 1
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,528
<CURRENT-LIABILITIES> 0
<BONDS> 125,439
0
0
<COMMON> 0
<OTHER-SE> (69,911)
<TOTAL-LIABILITY-AND-EQUITY> 55,528
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,611
<INCOME-PRETAX> 42,955
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,956)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
