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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 2003
Commission file numbers 1-11432; 1-11436
FOAMEX L.P.
FOAMEX CAPITAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 05-0475617
Delaware 22-3182164
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 Columbia Avenue
Linwood, PA 19061
- ------------------------------- -------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (610) 859-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Foamex L.P. and Foamex Capital Corporation meet the conditions set forth in
General Instruction H(1)(a) and (b) of Form 10-Q and are therefore filing this
form with the reduced disclosure format.
The number of shares of Foamex Capital Corporation's common stock outstanding as
of May 2, 2003 was 1,000.
FOAMEX L.P.
FOAMEX CAPITAL CORPORATION
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements.
Condensed Consolidated Statements of Operations (unaudited) - Quarters
Ended March 30, 2003 and March 31, 2002 3
Condensed Consolidated Balance Sheets as of March 30, 2003 (unaudited) and
and December 29, 2002 4
Condensed Consolidated Statements of Cash Flows (unaudited) - Quarters
Ended March 30, 2003 and March 31, 2002 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations. 21
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 26
Item 4. Control and Procedures. 26
Part II. Other Information
Item 1. Legal Proceedings. 27
Item 6. Exhibits and Reports on Form 8-K. 27
Signatures 28
Certification of Chief Executive Officer 29
Certification of Chief Financial Officer 30
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
FOAMEX L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Quarters Ended
-------------------------------
March 30, March 31,
2003 2002
---------- ----------
(thousands)
NET SALES $327,770 $314,062
COST OF GOODS SOLD 296,490 276,384
-------- --------
GROSS PROFIT 31,280 37,678
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 20,189 17,187
RESTRUCTURING, IMPAIRMENT AND OTHER CREDITS - (1,538)
-------- --------
INCOME FROM OPERATIONS 11,091 22,029
INTEREST AND DEBT ISSUANCE EXPENSE 19,111 18,629
INCOME FROM EQUITY INTEREST IN JOINT VENTURES 366 730
OTHER INCOME (EXPENSE), NET (1,243) 382
-------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE (8,897) 4,512
PROVISION FOR INCOME TAXES 207 233
-------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF AN
ACCOUNTING CHANGE (9,104) 4,279
CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE - (71,966)
-------- --------
NET LOSS $ (9,104) $(67,687)
======== ========
The accompanying notes are an integral part of the
unaudited condensed consolidated financial statements.
3
FOAMEX L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 30, 2003 December 29, 2002
-------------- -----------------
ASSETS (unaudited)
CURRENT ASSETS (thousands)
Cash and cash equivalents $ 3,094 $ 4,363
Accounts receivable, net of allowances of $9,814 in 2003
and $10,311 in 2002 210,160 191,546
Inventories 110,874 98,010
Other current assets 21,349 22,558
---------- ----------
Total current assets 345,477 316,477
---------- ----------
Property, plant and equipment 420,750 418,569
Less accumulated depreciation (242,711) (236,531)
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT 178,039 182,038
GOODWILL 125,630 125,321
DEBT ISSUANCE COSTS, net of accumulated
amortization of $16,493 in 2003 and $14,079 in 2002 34,413 36,827
OTHER ASSETS 35,809 34,620
---------- ----------
TOTAL ASSETS $ 719,368 $ 695,283
========== ==========
LIABILITIES AND PARTNERS' DEFICIENCY
CURRENT LIABILITIES
Current portion of long-term debt $ 30 $ 46
Accounts payable 122,781 87,394
Accrued employee compensation and benefits 26,812 26,330
Accrued interest 24,210 14,173
Accrued customer rebates 14,001 18,813
Cash overdrafts 9,052 17,737
Other accrued liabilities 29,146 33,953
---------- ----------
Total current liabilities 226,032 198,446
LONG-TERM DEBT 742,864 738,540
ACCRUED EMPLOYEE BENEFITS 48,682 48,022
OTHER LIABILITIES 15,113 16,061
---------- ----------
Total liabilities 1,032,691 1,001,069
---------- ----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIENCY
General partner (249,211) (240,107)
Limited partner - -
Accumulated other comprehensive loss (54,891) (56,458)
Notes receivable from related party (9,221) (9,221)
---------- ----------
Total partners' deficiency (313,323) (305,786)
---------- ----------
TOTAL LIABILITIES AND PARTNERS' DEFICIENCY $ 719,368 $ 695,283
========== ==========
The accompanying notes are an integral part of the
unaudited condensed consolidated financial statements.
4
FOAMEX L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Quarters Ended
------------------------
March 30, March 31,
2003 2002
--------- ---------
(thousands)
OPERATING ACTIVITIES
Net loss $(9,104) $(67,687)
Adjustments to reconcile net loss to net cash provided
by (used for) operating activities:
Cumulative effect of an accounting change - 71,966
Depreciation and amortization 6,144 8,280
Amortization and write off of debt issuance costs, debt premium
and debt discount 1,439 4,980
Other operating activities (195) 5
Changes in operating assets and liabilities, net 7,515 (41,945)
------- --------
Net cash provided by (used for) operating activities 5,799 (24,401)
------- --------
INVESTING ACTIVITIES
Capital expenditures (2,223) (6,354)
Collection of note receivable from partner - 2,250
Other investing activities (1,208) (55)
------- --------
Net cash used for investing activities (3,431) (4,159)
------- --------
FINANCING ACTIVITIES
Proceeds from (repayments of) revolving loans 5,066 (125,000)
Proceeds from long-term debt - 356,590
Repayments of long-term debt (18) (140,686)
Repayments of long-term debt - related party - (31,590)
Increase (decrease) in cash overdrafts (8,685) 12,932
Debt issuance costs - (24,691)
Other financing activities - 105
------- --------
Net cash provided by (used for) financing activities (3,637) 47,660
------- --------
Net increase (decrease) in cash and cash equivalents (1,269) 19,100
Cash and cash equivalents at beginning of period 4,363 15,059
------- --------
Cash and cash equivalents at end of period $ 3,094 $ 34,159
======= ========
Supplemental Information:
Cash paid for interest $ 7,635 $ 15,292
======= ========
The accompanying notes are an integral part of the
unaudited condensed consolidated financial statements.
5
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization
Foamex L.P. operates in the flexible polyurethane and advanced polymer foam
products industry. Foamex L.P.'s operations are conducted directly and through
its wholly-owned subsidiaries, Foamex Canada Inc. ("Foamex Canada"), Foamex
Latin America, Inc. ("Foamex Mexico") and Foamex Asia, Inc. ("Foamex Asia").
Foamex Carpet Cushion, Inc. ("Foamex Carpet") was converted to a limited
liability company and was contributed by Foamex International Inc. ("Foamex
International") to Foamex L.P. on March 25, 2002. The contribution of Foamex
Carpet has been accounted for as a merger of entities under common control and
has been recorded in a manner similar to a pooling of interests. Accordingly,
the condensed consolidated financial statements include the accounts of Foamex
Carpet for all periods presented. On December 30, 2002, Foamex Carpet
distributed certain assets, liabilities and its business to Foamex L.P.
Financial information concerning the business segments of Foamex L.P. is
included in Note 7.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited
and do not include certain information and disclosures required by accounting
principles generally accepted in the United States of America for complete
financial statements. However, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments considered necessary to present
fairly Foamex L.P.'s consolidated financial position and results of operations,
have been included. These interim financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in Foamex L.P.'s 2002 Annual Report on Form 10-K. Results for interim
periods are not necessarily indicative of trends or of results for a full year.
Certain amounts in the condensed consolidated statement of operations for the
quarter ended March 31, 2002 have been reclassified to conform to the current
period presentation.
Accounting Changes - Extinguishment of Debt
On April 30, 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("SFAS No. 145") was issued. The provisions
of this Statement related to the rescission of Statement 4 are applied in fiscal
years beginning after May 15, 2002. Any gain or loss on extinguishment of debt
that was classified as an extraordinary item in prior periods presented that
does not meet the criteria in Opinion 30 for classification as an extraordinary
item is reclassified. Foamex L.P. has reclassified the extraordinary item
originally reported in the quarter ended March 31, 2002 to interest and debt
issuance expense of $4.3 million with the related tax benefit of $0.1 million
included in provision for income taxes.
2. CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE
Foamex L.P. has adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). As required by
SFAS No. 142, Foamex L.P. performed a transitional impairment test on its
goodwill during 2002. The resulting impairment loss of $72.0 million has been
recorded as a cumulative effect of an accounting change in the quarter ended
March 31, 2002.
Goodwill at March 30, 2003 increased by $0.3 million from December 29, 2002
as a result of foreign currency translation adjustments.
3. RESTRUCTURING, IMPAIRMENT AND OTHER CREDITS
During the quarter ended March 31, 2002, Foamex L.P. recorded a
restructuring credit of $2.1 million related to the collection of deferred rent
receivable which had been fully reserved for and an other charge for certain
expenses of $0.6 million relating to the 2001 restructuring plan.
The following table sets forth the components of Foamex L.P.'s
restructuring accruals and activity for the quarter ended March 30, 2003:
6
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3. RESTRUCTURING, IMPAIRMENT AND OTHER CREDITS (continued)
Quarter Ended March 30, 2003
-----------------------------------------------------------------
Plant Closure Personnel
Total and Leases Reductions Impairment Other
----- ------------- ---------- ---------- -------
(millions)
Balance at December 29, 2002 $22.8 $12.6 $8.2 $ - $2.0
Cash receipts (spending) (4.0) (1.3) (2.5) - (0.2)
----- ----- ---- ---- ----
Balance at March 30, 2003 $18.8 $11.3 $5.7 $ - $1.8
===== ===== ==== ==== ====
Foamex L.P. expects to spend approximately $11.2 million during the twelve
months ending March 28, 2004, with the balance to be spent through 2012.
4. INVENTORIES
The components of inventory are listed below.
March 30, December 29,
2003 2002
---------- ------------
(thousands)
Raw materials and supplies $ 73,218 $60,588
Work-in-process 17,481 16,737
Finished goods 20,175 20,685
-------- -------
Total $110,874 $98,010
======== =======
5. LONG-TERM DEBT
The components of long-term debt are listed below.
March 30, December 29,
2003 2002
---------- ------------
Foamex L.P. Amended Credit Facility (thousands)
Term Loan B (1) $ 39,262 $ 39,262
Term Loan C (1) 35,693 35,693
Term Loan D (1) 51,700 51,700
Term Loan E (1) 16,290 16,290
Term Loan F (1) 19,243 19,243
Revolving credit facility (1) 56,889 51,823
10 3/4% Senior secured notes due 2009 (2) (3) 313,730 314,237
9 7/8% Senior subordinated notes due 2007 (2) 148,500 148,500
13 1/2% Senior subordinated notes due 2005 (includes
$2,248 and $2,486 of unamortized debt premium) (2) 53,833 54,071
Industrial revenue bonds 7,000 7,000
Other (net of unamortized debt discount of $126 in 2003
and $137 in 2002) 754 767
-------- --------
742,894 738,586
Less current portion 30 46
-------- --------
Long-term debt $742,864 $738,540
======== ========
7
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT (continued)
(1) Debt of Foamex L.P., guaranteed by Foamex International and FMXI, Inc.
(2) Debt of Foamex L.P. and Foamex Capital Corporation.
(3) Includes $13.7 million and $14.2 million of deferred credit on interest
rate swap transactions.
Amended Credit Facility
The Foamex L.P. Amended Credit Facility consists of (1) the revolving
credit facility, which is a non-amortizing revolving credit facility provided by
a syndicate of lenders (the "$100.0 Million Revolving Credit Facility"), which
provides working capital for Foamex L.P. and its subsidiary guarantors and
funding for other general corporate purposes, (2) Term B, C and D loans, (3) a
Term E Loan in the initial amount of $31.6 million, the proceeds of which were
borrowed at closing and used to repay in full the obligations outstanding under
a note payable to Foam Funding LLC, a related party, and (4) a Term F Loan in
the initial amount of $25.0 million, the proceeds of which were borrowed at
closing and used to repay indebtedness outstanding under the prior revolving
credit facility. The remaining obligations outstanding under the prior revolving
credit facility were repaid with a portion of the proceeds from the issuance of
the 10 3/4% senior secured notes ("10 3/4% Senior Secured Notes") as described
below.
The commitments under the $100.0 Million Revolving Credit Facility are
available to Foamex L.P. in the form of (1) revolving credit loans, (2) swing
loans (subject to a $20.0 million sublimit) and (3) letters of credit (subject
to a $40.0 million sublimit). At March 30, 2003, Foamex L.P. had available
borrowings of $22.5 million and letters of credit outstanding of $20.6 million.
A portion of the net proceeds from the 10 3/4% Senior Secured Notes was
used to repay a portion of the existing term loans, the Term E Loan and the Term
F Loan. Loans made under the $100.0 Million Revolving Credit Facility will
mature and the commitments under them will terminate on June 30, 2005. The Term
B Loan, the Term E Loan and the Term F Loan will mature on June 30, 2005, the
Term C Loan will mature on June 30, 2006 and the Term D Loan will mature on
December 29, 2006. Each of the Term Loans will be subject to amortization on a
quarterly basis; however, after giving effect to the prepayments of the Term
Loans, quarterly amortization payments will commence for the Term B Loan, the
Term E Loan and the Term F Loan in 2004, for the Term C Loan in 2005 and for the
Term D Loan in 2006.
Foamex L.P. is required to make mandatory prepayments of loans under the
Amended Credit Facility with: (1) the net cash proceeds received from sales of
assets by Foamex L.P. or certain of its subsidiaries, (2) the net cash proceeds
received from certain issuances by Foamex L.P., or any of its subsidiaries of
indebtedness for borrowed money or equity interests and (3) 75% of excess cash
flow in any fiscal year, such percentage to be reduced to 50% if the ratio of
outstanding obligations under the Amended Credit Facility to EBDAIT (as defined)
for such fiscal year is reduced to specified levels, subject, in each case, to
certain limited exceptions.
Foamex L.P. is permitted to make voluntary prepayments and/or permanently
reduce the commitments under the $100.0 Million Revolving Credit Facility in
whole or in part, without premium or penalty, subject to reimbursement of the
lenders' redeployment costs in the case of prepayment of LIBO, as defined, rate
borrowings, other than at the end of any interest period. All voluntary
prepayments of Term Loans will be applied to such tranches of Term Loans as
Foamex L.P. may select.
Foamex International, FMXI, Inc. and each of Foamex L.P.'s domestic
subsidiaries will continue to guarantee the repayment of the obligations under
the Amended Credit Facility. The Amended Credit Facility is secured by a
first-priority lien (subject to permitted liens) on substantially the same
collateral that secures the obligations under the existing credit facility,
which includes substantially all of our material tangible and intangible assets.
In addition, all of the partnership interests, all of the capital stock or other
equity interests of our domestic subsidiaries (including Foamex Carpet) and 65%
of the capital stock or other equity interests of Foamex L.P.'s first-tier
foreign subsidiaries are pledged as part of the security for the obligations
under the Amended Credit Facility.
8
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT (continued)
Borrowings under the Amended Credit Facility bear interest at a floating
rate based upon (and including a margin over), at our option, (1) the higher of
(a) the funding agent's prime rate and (b) 0.50% in excess of the Federal
Reserve reported weighted average overnight rate for federal funds or (2) the
higher of (x) 2.50% per annum and (y) the LIBO rate, as defined, as determined
by the funding agent. The effective interest rates at March 30, 2003 for Term
Loans B, C, D, E and F ranged between 7.00% and 7.38%. The effective average
interest rate for revolving loans at March 30, 2003 was 7.55%. The rates
increase 25 basis points each quarter that Foamex L.P.'s leverage ratio, as
defined, exceeds 5.00 to 1.00. Once the leverage ratio is reduced below this
level, the cumulative amount of any 25 basis point adjustment to the interest
rates on borrowings are reset to zero. At March 30, 2003 and December 29, 2002,
the calculated leverage ratios were 10.76 to 1.00 and 8.66 to 1.00,
respectively. Accordingly, a 25 basis point rate increase became effective on
April 4, 2003 and a second 25 basis point rate increase will become effective
during the quarter ending June 29, 2003.
The Amended Credit Facility contains affirmative and negative covenants
that, subject to certain exceptions, are substantially similar to those
contained in the prior credit facility. The Amended Credit Facility also
includes the following financial covenants, as defined therein: (1) a minimum
net worth test; (2) a minimum ratio of EBDAIT to cash interest expense; (3) a
minimum ratio of EBDAIT to fixed charges; and (4) a maximum ratio of funded debt
to EBDAIT. These covenants are substantially the same as those contained in the
prior credit facility with appropriate changes to take into account the issuance
of the Senior Secured Notes and the contribution of Foamex Carpet to Foamex L.P.
The Amended Credit Facility also requires the refinancing of the 13 1/2% senior
subordinated notes on or prior to March 1, 2005.
The Amended Credit Facility contains events of default including, but not
limited to, nonpayment of principal, interest, fees or other amounts when due,
violation of covenants, inaccuracy of representations and warranties in any
material respect, cross default and cross acceleration to certain other
indebtedness, bankruptcy, ERISA, material judgments and change of control.
Certain of these events of default are subject to grace periods and materiality
qualifications. See the Debt Covenants section of this Note.
10 3/4% Senior Secured Notes
The 10 3/4% Senior Secured Notes were issued by Foamex L.P. and Foamex
Capital Corporation on March 25, 2002 and are due on April 1, 2009. The notes
are guaranteed on a senior basis by all of Foamex L.P.'s domestic subsidiaries
that guarantee the Amended Credit Facility. The notes are secured on a
second-priority basis (subject to permitted liens) on substantially the same
collateral that secures the obligations under the Amended Credit Facility. The
notes rank effectively junior to all senior indebtedness that is secured by
first priority liens and senior in right of payment to all subordinated
indebtedness. Interest is payable April 1 and October 1. The notes may be
redeemed at the option of Foamex L.P., in whole or in part, at any time on or
after April 1, 2006. The initial redemption is at 105.375% of their principal
amount, plus accrued and unpaid interest, if any, thereon to the date of
redemption and declining annually to 100.0% on or after April 1, 2008.
Additionally, on or before April 1, 2005, up to 35.0% of the principal amount of
the notes may be redeemed at a redemption price equal to 110.750% of the
principal amount, plus accrued and unpaid interest, if any, thereon to the date
of redemption with the net proceeds of one or more equity offerings.
Upon the occurrence of a change of control, as defined, each holder will
have the right to require Foamex L.P. to tender for such notes at a price in
cash equal to 101.0% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, if there is such a "change of control".
Foamex L.P. was required to cause a registration statement under the
Securities Act of 1933 to be effective within 180 days of March 25, 2002. Foamex
L.P. filed the registration statement, but it was not effective until January
30, 2003 and therefore it is liable for liquidated damages from September 23,
2002 until the date the registration statement became effective. The liquidated
damages are at the rate of $15,000 per week for the first 90 days, escalating by
$15,000 per week for each additional 90 days. The amount accrued for liquidated
damages at March 30, 2003 was $0.3 million. The liquidated damages were paid, as
required, on April 1, 2003.
9
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT (continued)
Effective May 1, 2002, Foamex L.P. completed a series of interest rate swap
transactions with notional amounts aggregating $300.0 million. Foamex L.P.
designated, documented and accounted for these interest rate swaps as fair value
hedges of its 10 3/4% Senior Secured Notes due April 1, 2009. The risk being
hedged in these transactions was the change in fair value of its 10 3/4% Senior
Secured Notes based on changes in the benchmark interest rate, LIBOR. The effect
of these interest rate swap transactions was to convert the fixed interest rate
on the 10 3/4% Senior Secured Notes to floating rates reset twice per year to
correspond with the interest payment dates for the 10 3/4% Senior Secured Notes.
On September 18, 2002, Foamex L.P. unwound the interest rate swap transactions
in exchange for net cash proceeds of $18.4 million, including $3.6 million
realized through lower effective interest rates while the swap transactions were
in effect. The unwinding resulted in a deferred credit of $14.8 million which is
being amortized through April 1, 2009, using the effective interest rate method.
9 7/8% Senior Subordinated Notes
The 9 7/8% Senior Subordinated Notes were issued by Foamex L.P. and Foamex
Capital Corporation and are due on June 15, 2007. The notes represent
uncollateralized general obligations of Foamex L.P. and are subordinated to all
Senior Debt, as defined in the Indenture. Interest is payable June 15 and
December 15. The notes may be redeemed at the option of Foamex L.P., in whole or
in part, at any time on or after June 15, 2002. The initial redemption is at
104.938% of their principal amount, plus accrued and unpaid interest, if any,
thereon to the date of redemption and declining annually to 100.0% on or after
June 15, 2005.
Upon the occurrence of a change of control, as defined, each holder will
have the right to require Foamex L.P. to tender for such notes at a price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest thereon, if there is such a "change of control". The notes are
subordinated in right of payment to all senior indebtedness and are pari passu
in right of payment to the 13 1/2% Senior Subordinated Notes (described below).
13 1/2% Senior Subordinated Notes
The 13 1/2% Senior Subordinated Notes were issued by Foamex L.P. and Foamex
Capital Corporation and are due on August 15, 2005. The notes represent
uncollateralized general obligations of Foamex L.P. and are subordinated to all
Senior Debt, as defined in the Indenture. Interest is payable semiannually on
February 15 and August 15. The notes may be redeemed at the option of Foamex
L.P., in whole or in part, at any time on or after August 15, 2000. The initial
redemption was 106.75% of their principal amount, plus accrued and unpaid
interest, if any, thereon to the date of redemption and declining annually to
100.0% on or after August 15, 2004. At March 30, 2003 the redemption price was
103.375% plus accrued and unpaid interest.
Upon the occurrence of a change of control, as defined, each holder will
have the right to require Foamex L.P. to tender for such notes at a price in
cash equal to 101% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, thereon, if there is such a "change of control". The
notes are subordinated in right of the payment of all senior indebtedness and
are pari passu in right of payment to the 9 7/8% Senior Subordinated Notes
(described above).
Industrial Revenue Bonds ("IRBs")
IRB debt includes a $1.0 million bond that matures in 2005 and a $6.0
million bond that matures in 2013. Interest is based on a variable rate, as
defined, with options available to Foamex L.P. to convert to a fixed rate. At
March 30, 2003, the interest rate was 1.25% on the $1.0 million bond and 1.15%
on the $6.0 million bond. The maximum interest rate for either of the IRBs is
15.0% per annum.
If Foamex L.P. exercises its option to convert the bonds to a fixed
interest rate structure, the IRBs are redeemable at the option of the
bondholders. The obligations are collateralized by certain properties, which
have an approximate net carrying value of $10.8 million at March 30, 2003.
10
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT (continued)
Other
Other debt includes a non-interest bearing promissory note with a principal
amount of $0.9 million at March 30, 2003 issued in connection with increasing
Foamex L.P.'s interest in an Asian joint venture to 70.0% in 2001. The
promissory note had unamortized discount of $0.1 million at March 30, 2003.
Debt Covenants
The indentures, the Amended Credit Facility and other indebtedness
agreements contain certain covenants that limit, among other things, the ability
of Foamex L.P. (i) to pay distributions or redeem equity interests, (ii) to make
certain restrictive payments or investments, (iii) to incur additional
indebtedness or issue Preferred Equity Interest, as defined, (iv) to merge,
consolidate or sell all or substantially all of its assets or (v) to enter into
certain transactions with affiliates or related persons. In addition, certain
agreements contain provisions that, in the event of a defined change of control
or the occurrence of an undefined material adverse change in the ability of the
obligor to perform its obligations, the indebtedness must be repaid, in certain
cases, at the option of the holder. Also, Foamex L.P. is required under certain
of its agreements to maintain specified financial ratios of which the most
restrictive are the maintenance of net worth, interest coverage, fixed charge
coverage and leverage ratios, as defined. Under the most restrictive of the
distribution restrictions, as of March 30, 2003, Foamex L.P. was able to
distribute to its partners, only to the extent to enable its partners to meet
their tax payment liabilities and Foamex International's normal operating
expenses of up to $1.0 million annually, so long as no event of default has
occurred.
On November 15, 2002, Foamex L.P. and its bank lenders executed an
amendment to the Amended Credit Facility. Under the amendment, Foamex L.P. is
subject to minimum net worth, minimum EBDAIT, as defined, and maximum capital
expenditure covenants through periods ending December 28, 2003. The minimum
EBDAIT covenant is tested monthly, on a cumulative basis, beginning with
December 2002. Foamex L.P. was in compliance with the revised covenants as of
December 29, 2002 and throughout the quarter ended March 30, 2003. Compliance
with existing covenants on leverage, fixed charge coverage and interest coverage
ratios is suspended through periods ending September 28, 2003, but the covenants
are revised and will be reinstated thereafter. All of the financial covenants
were established based on a business plan provided to the lenders. In addition,
borrowings under the Amended Credit Facility are subject to a borrowing base
calculation, which could limit borrowings under the revolving credit facility to
less than the maximum commitment. Under the borrowing base calculation,
availability under the Revolving Credit Facility shall equal the lesser of (1)
the Revolving Credit Facility commitment or (2) the sum of 65.0% of Foamex
L.P.'s accounts receivable plus 50.0% of Foamex L.P.'s inventory plus $85.0
million, less certain other adjustments for Term Loan repayments, less the
outstanding balance of the Term Loans. As of March 30, 2003, the borrowing base
calculation did not limit borrowings under the Amended Credit Facility.
Foamex L.P.'s minimum EBDAIT covenants have higher thresholds in the second
half of 2003. Management's current plans to achieve EBDAIT covenant compliance
require customer selling price increases in response to higher raw material
costs, successful implementation of on-going cost savings initiatives, improved
operating efficiencies, improved working capital management and reduced capital
expenditures. Management is also continuing to evaluate strategic alternatives
in an effort to improve Foamex L.P.'s debt position.
11
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
5. LONG-TERM DEBT (continued)
Maturities of Long-Term Debt
Scheduled maturities of long-term debt are shown below (thousands):
Three quarters ending December 28, 2003 $ 21
2004 33,795
2005 165,282
2006 73,444
2007 148,500
Thereafter 306,000
--------
727,042
Unamortized debt premium/discount and deferred credit, net 15,852
--------
Total $742,894
========
6. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) are listed below.
Quarters Ended
--------------------------
March 30, March 31,
2003 2002
--------- ----------
(thousands)
Net loss $(9,104) $(67,687)
Foreign currency translation adjustments 1,567 (169)
------- --------
Total comprehensive loss $(7,537) $(67,856)
======= ========
7. SEGMENT RESULTS
Foam Products manufactures and markets cushioning foams for bedding,
furniture, packaging and health care applications and foam-based consumer
products, such as mattress pads and children's furniture. Carpet Cushion
Products manufactures and distributes rebond, prime, felt and rubber carpet
padding. Automotive Products supplies foam products and laminates to major tier
one suppliers and original equipment manufacturers. Technical Products
manufactures and markets reticulated foams and other specialty foams for
reservoiring, filtration, gasketing and sealing applications. The "Other" column
in the table below represents certain manufacturing operations in Mexico City,
corporate expenses not allocated to other business segments and restructuring,
impairment and other charges (credits). The restructuring, impairment and other
charges (credits) totaled $(1.5) million in the quarter ended March 31, 2002.
Segment results are presented below.
Carpet
Foam Cushion Automotive Technical
Products Products Products Products Other Total
-------- -------- ---------- ---------- -------- ----------
(thousands)
Quarter ended March 30, 2003
Net sales $118,051 $48,935 $121,145 $32,388 $ 7,251 $327,770
Income (loss) from operations $ 2,268 $(3,068) $ 7,005 $ 7,594 $(2,708) $ 11,091
Depreciation and amortization $ 2,769 $ 945 $ 687 $ 723 $ 1,020 $ 6,144
12
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
7. SEGMENT RESULTS (continued)
Carpet
Foam Cushion Automotive Technical
Products Products Products Products Other Total
-------- -------- ---------- ---------- -------- ----------
(thousands)
Quarter ended March 31, 2002
Net sales $117,482 $52,799 $104,381 $30,929 $8,471 $314,062
Income (loss) from operations $ 9,903 $(2,895) $ 8,621 $ 6,239 $ 161 $ 22,029
Depreciation and amortization $ 4,071 $ 1,893 $ 1,094 $ 719 $ 503 $ 8,280
8. RELATED PARTY TRANSACTIONS AND BALANCES
Foam Funding LLC Debt
During the quarter ended March 31, 2002, Foamex Carpet paid $0.7 million of
interest and $31.6 million of principal on notes payable to Foam Funding LLC, a
subsidiary of Trace International Holdings, Inc. ("Trace").
9. COMMITMENTS AND CONTINGENCIES
Litigation - Breast Implants
As of May 9, 2003, Foamex L.P. and Trace were two of multiple defendants in
actions filed on behalf of approximately 1,058 recipients of breast implants in
various United States federal and state courts and one Canadian provincial
court, some of which allege substantial damages, but most of which allege
unspecified damages for personal injuries of various types. Three of these cases
seek to allege claims on behalf of all breast implant recipients or other
allegedly affected parties, but no class has been approved or certified by the
court. During 1995, Foamex L.P. and Trace were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final.
Although breast implants do not contain foam, certain silicone gel implants
were produced using a polyurethane foam covering fabricated by independent
distributors or fabricators from bulk foam purchased from Foamex L.P. or Trace.
Neither Foamex L.P. nor Trace recommended, authorized, or approved the use of
its foam for these purposes. Foamex L.P. is also indemnified by Trace for any
such liabilities relating to foam manufactured prior to October 1990. Trace's
insurance carrier has continued to pay Foamex L.P.'s litigation expenses after
Trace's filing for relief under the Bankruptcy Code on July 21, 1999. Trace's
insurance policies continue to cover certain liabilities of Trace but if the
limits of those policies are exhausted, it is unlikely that Trace will be able
to continue to provide additional indemnification. While it is not feasible to
predict or determine the outcome of these actions, based on management's present
assessment of the merits of pending claims, after consultation with the general
counsel of Foamex L.P., and without taking into account the indemnification
provided by Trace, the coverage provided by Trace's and Foamex L.P.'s liability
insurance and potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that it is not reasonably possible that the
disposition of the matters that are pending or that may reasonably be
anticipated to be asserted will result in a loss that is material to Foamex
L.P.'s consolidated financial position, results of operations or cash flows. If
management's assessment of Foamex L.P.'s liability relating to these actions is
incorrect, these actions could have a material adverse effect on Foamex L.P.'s
financial position, results of operations and cash flows.
Litigation - Other
During 2001, Foamex L.P. was notified by an insurance provider concerning a
dispute involving the reimbursement of liability claims paid on behalf of Trace
before 1990. The insurance provider is contending that Foamex L.P. is liable for
claims of approximately $6.1 million. Foamex L.P. intends to strongly defend
this claim and considers the claim to be without merit. If management's
assessment of Foamex L.P.'s liability relating to these
13
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
9. COMMITMENTS AND CONTINGENCIES (continued)
actions is incorrect, these actions could have a material adverse effect on the
financial position, results of operations and cash flows.
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 Foamex L.P.'s financial
position or results of operations. If management's assessment of Foamex L.P.'s
liability relating to these actions is incorrect, these actions could have a
material adverse effect on Foamex L.P.'s consolidated financial position,
results of operations and cash flows.
As of March 30, 2003, Foamex L.P. had accrued approximately $1.2 million
for litigation and other matters in addition to the environmental matters
discussed below.
Environmental and Health and Safety
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, the discharge
or emission of materials into the environment, and the remediation of
environmental contamination, and as a result, are from time to time involved in
administrative and judicial proceedings and inquiries relating to environmental
matters. As of March 30, 2003, Foamex L.P. had accruals of approximately $2.7
million for environmental matters, including approximately $2.2 million related
to mediating and monitoring soil and groundwater contamination and approximately
$0.5 million related to PRP sites and other matters. Additional losses, if any,
in excess of amounts currently accrued, cannot be reasonably estimated at this
time. If there are additional matters or if our current estimates are incorrect,
there could be a material adverse effect on Foamex L.P.'s financial position,
results of operations and cash flows.
On August 8, 2001, the United States Environmental Protection Agency, or
"EPA," proposed a National Emission Standard for Hazardous Air Pollutants, or
"NESHAP" for Flexible Polyurethane Foam Fabrication Operations. The proposed
NESHAP regulates emissions of methylene chloride and other Hazardous Air
Pollutants and restricts air emissions from flame lamination sources. Foamex
L.P. does not believe that this standard, if adopted, will require it to make
material expenditures.
On August 31, 2002, Environment Canada, the Canadian environmental
regulatory agency, proposed a rule which would require flexible polyurethane
foam manufacturing operations to reduce methylene chloride (dichloromethane) air
emissions. The proposed rule establishes a 50.0% reduction in methylene chloride
emissions by December 1, 2003 and 100.0% reductions by January 1, 2007. Foamex
L.P. does not believe that this standard, if adopted, will require Foamex L.P.
to make material expenditures for its Canadian plants.
Foamex L.P. has reported to the appropriate state authorities that we have
found soil and/or groundwater contamination in excess of state standards at
certain locations. Seven sites are currently in various stages of investigation
or remediation. Accordingly, the extent of contamination and the ultimate
liability is not known with certainty for all sites. During 2000, Foamex L.P.
reached an indemnification agreement with the former owner of the Morristown,
Tennessee facility. The agreement allocates the incurred and future remediation
costs between the former owner and Foamex L.P. The estimated allocation of
future costs for the remediation of this facility is not significant, based on
current known information. The former owner was Recticel Foam Corporation, a
subsidiary of Recticel s.a.
Foamex L.P. has either upgraded or closed all underground storage tanks at
its facilities in accordance with applicable regulations.
The Comprehensive Environmental Response, Compensation and Liability Act,
or "CERCLA," and comparable state laws impose liability without fault for the
costs of cleaning up contaminated sites on certain classes of persons that
contributed to the release of hazardous substances into the environment at those
sites, for example, by generating wastes containing hazardous substances which
were disposed at such sites. Foamex L.P. is currently
14
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
9. COMMITMENTS AND CONTINGENCIES (continued)
designated as a Potentially Responsible Party, or "PRP," by the EPA or by state
environmental agencies or other PRPs, pursuant to CERCLA or analogous state
statutes, with respect to nine sites. Estimates of total cleanup costs and
fractional allocations of liability are often provided by the EPA, the state
environmental agency or the committee of PRPs with respect to the specified
site. Based on these estimates (to the extent available) and on known
information, in each case and in the aggregate, Foamex L.P. does not expect
additional costs, if any, to be material to liquidity, result of operations or
financial position.
In 2003, capital expenditures for safety and environmental compliance
projects are anticipated to be approximately $1.5 million. Although it is
possible that new information or future developments could require Foamex L.P.
to reassess the potential exposure relating to all pending environmental
matters, including those described above, management believes that, based upon
all currently available information, the resolution of these 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,
including the presence of previously unknown environmental contamination, may be
found to exist or a reassessment of the potential exposure to pending
environmental matters may be necessary due to new information or future
developments, that may require expenditures not currently anticipated and that
may be material.
Other
In October 2001, Foamex L.P. experienced a fire at one of its manufacturing
facilities. Costs relating to the fire aggregate approximately $1.2 million.
Foamex L.P. has filed a claim with its insurance carrier and believes it will
recover substantially all costs in excess of a deductible of $0.2 million.
10. GUARANTOR INFORMATION
The payment obligations of Foamex L.P. and Foamex Capital Corporation under
the 10 3/4% Senior Secured Notes are guaranteed by Foamex L.P.'s wholly-owned
domestic subsidiaries ("Guarantors"). Such guarantees are full, unconditional
and joint and several. Separate financial statements of the Guarantors are not
presented because Foamex L.P.'s management has determined that they would not be
material to investors. The following presents condensed consolidating balance
sheets as of March 30, 2003 and December 29, 2002 and the condensed
consolidating statements of operations and cash flows for the quarters ended
March 30, 2003 and March 31, 2002 of the Guarantors and nonguarantors. The
Guarantors include Foamex Carpet, Foamex Latin America, Inc., Foamex Mexico,
Inc., Foamex Mexico II, Inc. and Foamex Asia, Inc. On December 30, 2002, Foamex
Carpet distributed certain assets, liabilities and its business to Foamex L.P.
and accordingly, Foamex Carpet is not included as a guarantor in the financial
information as of March 30, 2003 and the quarter then ended. The nonguarantors
are Foamex Canada Inc. and Grupo Foamex de Mexico, S.A. de C.V. and its
subsidiaries. The following financial information is intended to provide
information for the Guarantors and nonguarantors of Foamex L.P. based on amounts
derived from the financial statements of Foamex L.P.
15
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. GUARANTOR INFORMATION (continued)
Condensed Consolidating Balance Sheet
As of March 30, 2003
Foamex
Capital Foamex L.P. Consolidated
Guarantors Nonguarantors Corporation (Parent) Eliminations Foamex L.P.
---------- ------------- ----------- ---------- ------------ -------------
Assets (thousands of dollars)
Current assets $ 1,273 $28,703 $ 1 $ 325,565 $(10,065) $ 345,477
Investment in subsidiaries 6,992 - - 41,601 (48,593) -
Property, plant and equipment, net - 21,224 - 156,815 - 178,039
Goodwill - 5,144 - 120,486 - 125,630
Debt issuance costs - - - 34,413 - 34,413
Other assets 12,726 1,989 - 25,294 (4,200) 35,809
------- ------- ------- ---------- -------- ----------
Total assets $20,991 $57,060 $ 1 $ 704,174 $(62,858) $ 719,368
======= ======= ======= ========== ======== ==========
Liabilities and Partners' Deficiency
Current liabilities $ 278 $23,395 $ - $ 212,263 $(9,904) $ 226,032
Long-term debt 4,924 - - 742,140 (4,200) 742,864
Other liabilities - 702 - 63,093 - 63,795
------- ------- ------- ---------- -------- ----------
Total liabilities 5,202 24,097 - 1,017,496 (14,104) 1,032,691
Partners' deficiency 15,789 32,963 1 (313,322) (48,754) (313,323)
------- ------- ------- ---------- -------- ----------
Total liabilities and partners'
deficiency $20,991 $57,060 $ 1 $ 704,174 $(62,858) $ 719,368
======= ======= ======= ========== ======== ==========
Condensed Consolidating Balance Sheet
As of December 29, 2002
Foamex
Capital Foamex L.P. Consolidated
Guarantors Nonguarantors Corporation (Parent) Eliminations Foamex L.P.
---------- ------------- ----------- ---------- ------------ -------------
Assets (thousands of dollars)
Current assets $40,111 $28,481 $ 1 $ 274,700 $(26,816) $ 316,477
Investment in subsidiaries 8,014 - - 27,243 (35,257) -
Property, plant and equipment, net 5,851 21,549 - 154,638 - 182,038
Goodwill 1,249 4,835 - 119,237 - 125,321
Debt issuance costs - - - 36,827 - 36,827
Other assets 13,706 2,384 - 40,933 (22,403) 34,620
------- ------- ------- ---------- -------- ----------
Total assets $68,931 $57,249 $ 1 $ 653,578 $(84,476) $ 695,283
======= ======= ======= ========== ======== ==========
Liabilities and Partners' Deficiency
Current liabilities $41,401 $25,065 $ - $ 158,674 $(26,694) $ 198,446
Long-term debt 713 - - 737,827 - 738,540
Other liabilities 23,623 - - 62,863 (22,403) 64,083
------- ------- ------- ---------- -------- ----------
Total liabilities 65,737 25,065 - 959,364 (49,097) 1,001,069
Partners' deficiency 3,194 32,184 1 (305,786) (35,379) (305,786)
------- ------- ------- ---------- -------- ----------
Total liabilities and partners'
deficiency $68,931 $57,249 $ 1 $ 653,578 $(84,476) $ 695,283
======= ======= ======= ========== ======== ==========
16
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. GUARANTOR INFORMATION (continued)
Condensed Consolidating Statement of Operations
For the quarter ended March 30, 2003
Foamex
Capital Foamex L.P. Consolidated
Guarantors Nonguarantors Corporation (Parent) Eliminations Foamex L.P.
---------- ------------- ----------- ---------- ------------ -------------
(thousands of dollars)
Net sales $ - $26,501 $ - $305,964 $(4,695) $327,770
Cost of goods sold - 24,423 - 276,762 (4,695) 296,490
----- ------- ------ -------- ------- --------
Gross profit - 2,078 - 29,202 - 31,280
Selling, general and administrative
expenses - 1,536 - 18,653 - 20,189
Restructuring, impairment and other
charges (credits) - - - - - -
----- ------- ------ -------- ------- --------
Income from operations - 542 - 10,549 - 11,091
Interest and debt issuance expense 59 11 - 19,041 - 19,111
Equity in undistributed earnings
of affiliates (656) - - (467) 1,489 366
Other income (expense), net 49 (1,147) - (145) - (1,243)
----- ------- ------ -------- ------- --------
Loss before provision for income
taxes (666) (616) - (9,104) 1,489 (8,897)
Provision for income taxes - 207 - - - 207
----- ------- ------ -------- ------- --------
Net loss $(666) $ (823) $ - $ (9,104) $ 1,489 $ (9,104)
===== ======= ====== ======== ======= ========
17
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. GUARANTOR INFORMATION (continued)
Condensed Consolidating Statement of Operations
For the quarter ended March 31, 2002
Foamex
Capital Foamex L.P. Consolidated
Guarantors Nonguarantors Corporation (Parent) Eliminations Foamex L.P.
---------- ------------- ----------- ---------- ------------ -------------
(thousands of dollars)
Net sales $ 54,698 $28,179 $ - $272,039 $(40,854) $314,062
Cost of goods sold 51,548 24,984 - 240,706 (40,854) 276,384
-------- ------- ----- -------- -------- --------
Gross profit 3,150 3,195 - 31,333 - 37,678
Selling, general and administrative
expenses 3,058 1,474 - 12,655 - 17,187
Restructuring, impairment and other
charges (credits) - - - (1,538) - (1,538)
-------- ------- ----- -------- -------- --------
Income from operations 92 1,721 - 20,216 - 22,029
Interest and debt issuance expense 3,195 55 - 15,410 (31) 18,629
Equity in undistributed earnings
of affiliates 1,417 - - (793) 106 730
Other income (expense), net (49) 595 - (133) (31) 382
-------- ------- ----- -------- -------- --------
Income before provision for income
taxes (1,735) 2,261 - 3,880 106 4,512
Provision for income taxes (167) 799 - (399) - 233
-------- ------- ----- -------- -------- --------
Income before cumulative effect of an
accounting change (1,568) 1,462 - 4,279 106 4,279
Cumulative effect of an accounting change (29,944) (3,794) - (38,228) - (71,966)
-------- ------- ----- -------- -------- --------
Net loss $(31,512) $(2,332) $ - $(33,949) $ 106 $(67,687)
======== ======= ===== ======== ======== ========
18
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. GUARANTOR INFORMATION (continued)
Condensed Consolidating Statement of Cash Flows
For the quarter ended March 30, 2003
Foamex
Capital Foamex L.P. Consolidated
Guarantors Nonguarantors Corporation (Parent) Eliminations Foamex L.P.
---------- ------------- ----------- ---------- ------------ -------------
(thousands of dollars)
Cash Flows from Operating Activities
Net income (loss) $(666) $ (823) $ - $(9,104) $1,489 $(9,104)
Total adjustments to reconcile net
income (loss) to net cash provided
by operating activities 666 87 - 15,639 (1,489) 14,903
----- ------ ------ ------- ------ -------
Net cash provided by operating
activities - (736) - 6,535 - 5,799
----- ------ ------ ------- ------ -------
Cash Flows from Investing Activities
Capital expenditures - (155) - (2,068) - (2,223)
Other - - - (1,208) - (1,208)
----- ------ ------ ------- ------ -------
Net cash used for investing activities - (155) - (3,276) - (3,431)
----- ------ ------ ------- ------ -------
Cash Flows from Financing Activities
Proceeds from revolving loans - - - 5,066 - 5,066
Repayments of long-term debt - - - (18) - (18)
Other, net - - - (8,685) - (8,685)
----- ------ ------ ------- ------ -------
Net cash used for financing activities - - - (3,637) - (3,637)
----- ------ ------ ------- ------ -------
Net increase (decrease) in cash and
cash equivalents - (891) - (378) - (1,269)
Cash and cash equivalents at
beginning of period - 1,781 1 2,581 - 4,363
----- ------ ------ ------- ------ -------
Cash and cash equivalents at
end of period $ - $ 890 $ 1 $ 2,203 $ - $ 3,094
===== ====== ====== ======= ====== =======
19
FOAMEX L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
10. GUARANTOR INFORMATION (continued)
Condensed Consolidating Statement of Cash Flows
For the quarter ended March 31, 2002
Foamex
Capital Foamex L.P. Consolidated
Guarantors Nonguarantors Corporation (Parent) Eliminations Foamex L.P.
---------- ------------- ----------- ---------- ------------ -------------
(thousands of dollars)
Cash Flows from Operating Activities
Net income (loss) $(31,512) $(2,332) $ - $ (33,949) $ 106 $(67,687)
Total adjustments to reconcile net
income (loss) to net cash used for
operating activities 28,799 (2,069) - 16,662 (106) 43,286
-------- ------- ----- --------- ------- --------
Net cash used for
operating activities (2,713) (4,401) - (17,287) - (24,401)
-------- ------- ----- --------- ------- --------
Cash Flows from Investing Activities
Capital expenditures (85) (186) - (6,083) - (6,354)
Other - - - (27,955) 30,150 2,195
-------- ------- ----- --------- ------- --------
Net cash used for investing activities (85) (186) - (34,038) 30,150 (4,159)
-------- ------- ----- --------- ------- --------
Cash Flows from Financing Activities
Net repayments of revolving loans - - - (125,000) - (125,000)
Repayments of long-term debt (1,440) (652) - (140,034) (30,150) (172,276)
Proceeds from long-term debt - - - 356,590 - 356,590
Other, net 2,205 - - (13,859) - (11,654)
-------- ------- ----- --------- ------- --------
Net cash provided by financing activities 765 (652) - 77,697 (30,150) 47,660
-------- ------- ----- --------- ------- --------
Net increase in cash and cash equivalents (2,033) (5,239) - 26,372 - 19,100
Cash and cash equivalents at
beginning of period 2,758 7,163 1 5,137 - 15,059
-------- ------- ----- --------- ------- --------
Cash and cash equivalents at
end of period $ 725 $ 1,924 $ 1 $ 31,509 $ - $ 34,159
======== ======= ===== ========= ======= ========
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 30, 2003 COMPARED TO THE
QUARTER ENDED MARCH 31, 2002
Carpet
Foam Cushion Automotive Technical
Products Products Products Products Other Total
-------- -------- ---------- --------- ------- ---------
(thousands)
Quarter ended March 30, 2003
Net sales $118,051 $48,935 $121,145 $32,388 $ 7,251 $327,770
Income (loss) from operations $ 2,268 $(3,068) $ 7,005 $ 7,594 $(2,708) $ 11,091
Depreciation and amortization $ 2,769 $ 945 $ 687 $ 723 $ 1,020 $ 6,144
Income (loss) from operations
as a percentage of net sales 1.9% (6.3)% 5.8% 23.4% n.m.* 3.4%
Quarter ended March 31, 2002
Net sales $117,482 $52,799 $104,381 $30,929 $ 8,471 $314,062
Income (loss) from operations $ 9,903 $(2,895) $ 8,621 $ 6,239 $ 161 $ 22,029
Depreciation and amortization $ 4,071 $ 1,893 $ 1,094 $ 719 $ 503 $ 8,280
Income (loss) from operations
as a percentage of net sales 8.4% (5.5)% 8.3% 20.2% n.m.* 7.0%
* not meaningful
Income from Operations
Net sales for the quarter ended March 30, 2003 increased 4.4% to $327.8
million from $314.1 million in the quarter ended March 31, 2002. The increase
was primarily attributable to improved sales in the Automotive Products and
Technical Products segments, partially offset by a decrease in the Carpet
Cushion Products segment.
The gross profit margin was $31.3 million, or 9.5%, in the quarter ended
March 30, 2003 compared to $37.7 million, or 12.0%, in the comparable 2002
period. The decrease in gross profit is primarily due to the 32.0% to 37.0%
increases in the cost of our major chemical raw materials during the second half
of 2002. Although we have attempted to increase customer selling prices, we have
been able to recover only a portion of the increased costs of raw materials. Our
chemical suppliers have announced further chemical cost increases of
approximately 10.0% to take effect in the second quarter of 2003. We are
implementing additional customer selling price increases that we expect to fully
offset the most recent cost increases if allowed by market conditions.
Income from operations for the quarter ended March 30, 2003 was $11.1
million or 3.4% of net sales, which represented a 49.7% decrease from the $22.0
million, or 7.0% of net sales, reported during the comparable 2002 period. In
addition to the reduced gross profit discussed above, the reduction in operating
income is also attributable to a $3.0 million, or 17.5%, increase in selling,
general and administrative expenses. This increase was primarily due to
increased corporate expenses related to professional fees.
Foam Products
Foam Products net sales for the quarter ended March 30, 2003 increased 0.5%
to $118.1 million from $117.5 million in the comparable 2002 period. Increases
in selling prices to customers were largely offset by decreases in volume.
Income from operations decreased 77.1%, to $2.3 million in the quarter ended
March 30, 2003 from $9.9 million in the comparable 2002 period as selling price
increases were more than offset by higher raw material costs, lower volumes and
higher short-term operating and corporate overhead costs. Income from operations
was 1.9% of net sales in 2003, down from 8.4% in 2002.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Carpet Cushion Products
Carpet Cushion Products net sales for the quarter ended March 30, 2003
decreased 7.3% to $48.9 million from $52.8 million in the comparable 2002
period. Selling price increases were more than offset by declines in volume. We
closed several carpet cushion facilities during 2002 and 2003. Loss from
operations of $3.1 million in the quarter ended March 30, 2003 compared to a
$2.9 million loss in the 2002 period as higher selling prices were offset by the
impact of higher chemical and energy costs and lower sales volume. The loss from
operations represented 6.3% of net sales in 2003 and 5.5% of net sales in 2002.
Automotive Products
Automotive Products net sales for the quarter ended March 30, 2003
increased 16.1% to $121.1 million from $104.4 million in the comparable 2002
period. The improvement primarily reflected higher sales of laminated and molded
products and plant shutdowns by major customers in the first quarter of 2002.
Income from operations decreased 18.7% to $7.0 million in the 2003 period
compared to $8.6 million in the 2002 period, due to unfavorable sales mix,
higher raw material costs and higher corporate overhead expense. Income from
operations represented 5.8% of net sales in 2003 and 8.3% of net sales in 2002.
Technical Products
Net sales for Technical Products in the quarter ended March 30, 2003
increased 4.7% to $32.4 million from $30.9 million in the comparable 2002
period. Income from operations increased 21.7% to $7.6 million in the 2003
period compared to $6.2 million in the 2002 period. The improvement was due to
increased sales of high-end products and lower operating expenses, partially
offset by higher raw material costs. Income from operations represented 23.4% of
net sales in 2003 compared to 20.2% in 2002.
Other
Other primarily consists of certain manufacturing operations in Mexico
City, corporate expenses not allocated to business segments and restructuring,
impairment and other charges (credits). The decrease in net sales associated
with this segment resulted from Foamex L.P.'s Mexico City operations. The loss
from operations primarily reflects corporate expenses not allocated to operating
segments and reflects generally higher corporate expenses in 2003. Additionally,
during the quarter ended March 31, 2002, Foamex L.P. recorded restructuring,
impairment and other credits of $1.5 million, primarily from the reimbursement
of certain lease costs.
Interest and Debt Issuance Expense
Interest and debt issuance expense was $19.1 million in the quarter ended
March 30, 2003, which represented a 2.6% increase from the comparable 2002
period expense of $18.6 million. The 2002 period included a $4.3 million charge
relating to the write-off of debt issuance costs as a result of an early
extinguishment of debt, which was previously reported as an extraordinary item.
Higher debt levels, higher effective interest rates and higher amortization of
debt issuance costs all contributed to the increase in 2003. As discussed in
Note 5 to the condensed consolidated financial statements, a provision of the
Amended Credit Facility requires an incremental interest rate margin adjustment
based on the debt leverage ratio, as defined. During the quarter ending June 29,
2003, interest expense from all borrowings under the Amended Credit Facility
will increase from two 25 basis point adjustments due to calculated debt
leverage ratios of more than 5.00 to 1.
Income from Equity Interest in Joint Ventures
The income from an equity interest in an Asian joint venture was $0.4
million for the quarter ended March 30, 2003 compared to $0.7 million in the
2002 period.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Other Income (Expense), Net
Other expense, net was $1.2 million for the quarter ended March 30, 2003
compared to $0.4 million of other income for the quarter ended March 31, 2002.
The 2003 period includes foreign currency transaction losses of $1.1 million
compared to foreign currency transaction gains of $0.6 million in 2002.
Income Tax Expense
Foamex L.P., as a limited partnership, is not subject to Federal income
taxes. Consequently, 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 subsidiaries located in foreign
jurisdictions that file separate tax returns.
Cumulative Effect of an Accounting Change
The quarter ended March 31, 2002, includes a goodwill impairment charge of
$72.0 million as a result of the adoption of SFAS No. 142.
Liquidity and Capital Resources
Our operating cash requirements consist principally of accounts receivable,
inventory and accounts payable requirements, scheduled payments of interest on
outstanding indebtedness, capital expenditures and employee benefit plans. We
believe that cash flow from our operating activities, cash on hand and periodic
borrowings under our credit facility will be adequate to meet liquidity
requirements. Scheduled principal payments on our debt are not significant until
the second half of 2004. If our cash flow is not adequate to meet liquidity
requirements, there would be a material adverse effect on our financial position
as well as our ability to continue as a going concern.
Cash and cash equivalents were $3.1 million at March 30, 2003 compared to
$4.4 million at December 29, 2002. Working capital at March 30, 2003 was $119.4
million and the current ratio was 1.5 to 1 compared to working capital at
December 29, 2002 of $118.0 million and a current ratio of 1.6 to 1.
Total debt at March 30, 2003 was $742.9 million, up $4.3 million from
December 29, 2002. As of March 30, 2003, there were $56.9 million of revolving
credit borrowings under the Foamex L.P. credit facility with $22.5 million
available for borrowings and $20.6 million of letters of credit outstanding.
Foamex Canada Inc. ("Foamex Canada") did not have any outstanding borrowings as
of March 30, 2003 under Foamex Canada's revolving credit agreement, with unused
availability of approximately $5.4 million.
In 2002, Foamex L.P. purchased and retired $49.0 million of the 13 1/2%
senior subordinated notes, including unamortized debt premium of $2.5 million,
and $1.5 million of the 9 7/8% senior subordinated notes for a total purchase
price of $48.5 million.
On November 15, 2002, Foamex L.P. and its bank lenders executed an
amendment to the Amended Credit Facility. Under the amendment, Foamex L.P. is
subject to minimum net worth, minimum EBDAIT, as defined, and maximum capital
expenditure covenants through periods ending December 28, 2003. The minimum
EBDAIT covenant is tested monthly on a cumulative basis beginning with December
2002. Foamex L.P. was in compliance with the revised covenants at December 29,
2002 and throughout the quarter ended March 30, 2003. Compliance with existing
covenants on leverage, fixed charge coverage and interest coverage ratios is
suspended through periods ending September 28, 2003, but the covenants are
revised and will be reinstated thereafter. All of the financial covenants were
established based on a business plan provided to the lenders. In addition,
borrowings under the Amended Credit Facility are subject to a borrowing base
calculation, which could limit borrowings under the revolving credit facility to
less than the maximum commitment. As of March 30, 2003, the borrowing base
calculation does not limit borrowings under the Amended Credit Facility.
On February 26, 2003, Standard and Poor's Rating Services ("S&P") announced
that it had lowered its corporate credit rating on Foamex L.P. from "B+" to "B".
In their announcement, S&P cited their view that our weak operating performance,
higher raw material costs, and a sluggish domestic economy, which if not
reversed will
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
likely elevate near-term liquidity concerns. The S&P action could have a
negative impact on the cost of our future borrowings, if any, and the extension
of trade credit.
Foamex L.P.'s minimum EBDAIT covenants have higher thresholds in the second
half of 2003. Management's current plans to achieve EBDAIT covenant compliance
require customer selling price increases in response to higher raw material
costs, successful implementation of on-going cost savings initiatives, improved
operating efficiencies, improved working capital management and reduced capital
expenditures. Management is also continuing to evaluate strategic alternatives
in an effort to reduce the cost and improve the maturity structure of our debt.
There can be no assurance that we will be successful in achieving our plans or
complying with the amended covenants, as there are a number of factors beyond
our control, including raw material cost changes and customer acceptances of
selling price increases that are necessary for us to be successful.
Additionally, compliance with the financial covenants may not be met if business
conditions are not as anticipated or other unforeseen events impact results
unfavorably. In the event that such noncompliance appears likely, or occurs, we
will seek the lenders' further approval of amendments to, or waivers of, such
financial covenants. Historically, we have been able to renegotiate financial
covenants and/or obtain waivers. Management currently believes that obtaining
waivers and/or amendments in the future may be difficult, or not possible if
required. If amendments or waivers are not obtained, Foamex L.P. would be in
default and lenders could demand immediate payment of Foamex L.P.'s outstanding
debt under the Amended Credit Facility. In addition, it is possible that the
holders of Foamex L.P.'s Senior Secured Notes and Senior Subordinated Notes
could also demand immediate payment. We may not be able to secure additional
financing at a reasonable cost, or at all. The lack of financing would have a
material adverse effect on our financial position and could impair our ability
to continue as a going concern.
During 2002, we entered into an employment agreement with a Foamex
International director and a consulting agreement with another Foamex
International director. Payments under these agreements were to aggregate at
least $0.7 million and $0.2 million, respectively, on an annual basis. The
employment agreement with the Foamex International director was terminated
effective January 31, 2003 resulting in severance and other payments to the
director aggregating $0.6 million.
Foamex L.P. was required to cause a registration statement under the
Securities Act of 1933 for its 10 3/4% Senior Secured Notes to be effective
within 180 days of March 25, 2002. Foamex L.P. filed the registration statement,
but it was not effective until January 30, 2003 and therefore Foamex L.P. was
liable for liquidated damages from September 23, 2002 until January 30, 2003.
The liquidated damages were at the rate of $15,000 per week for the first 90
days, escalating by $15,000 per week for each additional 90 days until a maximum
of $150,000 per week is reached. The amount accrued for liquidated damages at
March 30, 2003 was $0.3 million. The liquidated damages were paid, as required,
on April 1, 2003.
Effective May 1, 2002, Foamex L.P. completed a series of interest rate swap
transactions with notional amounts aggregating $300.0 million. Foamex L.P.
designated, documented and accounted for these interest rate swaps as fair value
hedges of its 10 3/4% Senior Secured Notes due April 1, 2009. The risk being
hedged in these transactions was the change in fair value of the 10 3/4% Senior
Secured Notes based on changes in the benchmark interest rate, LIBOR. The effect
of these interest rate swap transactions was to convert the fixed interest rate
on the 10 3/4% Senior Secured Notes to floating rates reset twice per year to
correspond with the interest payment dates for the 10 3/4% Senior Secured Notes.
On September 18, 2002, Foamex L.P. unwound the interest rate swap transactions
in exchange for a net cash proceeds of $18.4 million, including $3.6 million
realized through lower effective interest rates while the swap transactions were
in effect. The unwinding resulted in a deferred credit of $14.8 million, which
is being amortized over the term of the 10 3/4% Senior Secured Notes, using the
effective interest rate method.
Cash Flow from Operating Activities
Cash provided by operating activities in the quarter ended March 30, 2003
was $5.8 million compared to cash used of $24.4 million in the quarter ended
March 30, 2002. Accounts receivable and inventories increased by $18.6 million
and $12.9 million, respectively, in the quarter ended March 30, 2003, while
accounts payable and cash overdrafts increased by a net of $26.7 million.
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Cash Flow from Investing Activities
Cash used for investing activities totaled $3.4 million for the quarter
ended March 30, 2003. Cash requirements included capital expenditures of $2.2
million and software development costs of $1.2 million. In the quarter ended
March 31, 2002, cash used for investing activities was $4.2 million, which
included $6.4 million of capital expenditures offset by a $2.3 million
collection of a note receivable from a partner. The estimated capital
expenditures for the full year 2003 are expected to be approximately $15.0
million.
Cash Flow from Financing Activities
Cash used for financing activities was $3.7 million for the quarter ended
March 30, 2003 compared to cash provided of $47.7 million in the comparable
period of 2002. Cash provided for the 2002 period, primarily reflected Foamex
L.P.'s March 25, 2002 refinancing.
Environmental Matters
We are subject to extensive and changing environmental laws and
regulations. Expenditures to date in connection with our compliance with such
laws and regulations did not have a material adverse effect on our operations,
financial position, capital expenditures or competitive position. The amount of
liabilities recorded in connection with environmental matters as of March 30,
2003 was $2.7 million. Although it is possible that new information or future
developments could require us to reassess our potential exposure to all pending
environmental matters, including those described in Note 9 to the condensed
consolidated financial statements, we believe that, based upon all currently
available information, the resolution of all such pending environmental matters
will not have a material adverse effect on our operations, financial position,
capital expenditures or competitive position.
Market Risk
Our debt securities with variable interest rates are subject to market risk
for changes in interest rates. On March 30, 2003, indebtedness with variable
interest rates aggregated $226.1 million. On an annualized basis, if the
interest rates on these debt instruments increased by 1.0%, interest expense
would increase by approximately $2.3 million.
Forward-Looking Statements
This report contains forward-looking statements and should be read in
conjunction with the discussion regarding forward-looking statements set forth
in our Annual Report on Form 10-K for the year ended December 29, 2002.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the "Market Risk" section under Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 4. CONTROLS AND PROCEDURES.
Foamex L.P.'s Chief Executive Officer and Chief Financial Officer have
conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14 as of a date within 90 days of
the filing of this Quarterly Report on Form 10-Q (the "Evaluation Date"). Based
on such evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that, as of the Evaluation Date, the disclosure controls and
procedures are effective in ensuring that all material information required to
be filed in this quarterly report has been made known to them in a timely
fashion. Since the Evaluation Date, there have been no significant changes in
Foamex L.P.'s internal controls, or in other factors that could significantly
affect such controls.
26
Part II - Other Information.
Item 1. Legal Proceedings.
Reference is made to the description of the legal proceedings
contained in Foamex L.P.'s Annual Report on Form 10-K for the year
ended December 29, 2002. The information from Note 9 to the condensed
consolidated financial statements is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.48+* Severance Agreement and Release by and between Foamex L.P. and
Peter Johnson, dated November 21, 2002.
10.49+* Change in Control Protection Agreement by and between Foamex
International and Marshall S. Cogan, dated April 24, 2003
10.50+* Change in Control Protection Agreement by and between Foamex
International and Thomas E. Chorman, dated April 24, 2003
10.51+* Change in Control Protection Agreement by and between Foamex
International and John V. Tunney, dated April 24, 2003
99.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
+ Management contract or compensatory plan or arrangement.
* Incorporated by reference to the Exhibit to the Form 10-Q of Foamex
International for the quarterly period ended March 30, 2003.
(b) Foamex L.P. did not file any Current Reports on Form 8-K for the
quarter ended March 30, 2003.
27
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOAMEX L.P.
By: FMXI, Inc.
Its Managing General Partner
Date: May 14, 2003 By: /s/ K. Douglas Ralph
----------------------------------
K. Douglas Ralph
Executive Vice President and Chief
Financial Officer
(Duly Authorized Officer)
FOAMEX CAPITAL CORPORATION
Date: May 14, 2003 By: /s/ K. Douglas Ralph
-----------------------------------
K. Douglas Ralph
Executive Vice President and Chief
Financial Officer
28
CERTIFICATION
I, Thomas E. Chorman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Foamex L.P. and
Foamex Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
Foamex L.P. Foamex Capital Corporation
/s/ Thomas E. Chorman /s/ Thomas E. Chorman
- ------------------------------------- ----------------------------
Thomas E. Chorman Thomas E. Chorman
President and Chief Executive Officer President
29
CERTIFICATION
I, K. Douglas Ralph, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Foamex L.P. and
Foamex Capital Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
Foamex L.P. Foamex Capital Corporation
/s/ K. Douglas Ralph /s/ K. Douglas Ralph
- ---------------------------- ----------------------------
K. Douglas Ralph K. Douglas Ralph
Executive Vice President and Executive Vice President and
Chief Financial Officer Chief Financial Officer
30