Foamex International Announces Third Quarter 2002 Results; Announces Steps to Enhance Profitability and Address Raw Material Price Increases
LINWOOD, Pa.--Nov. 18, 2002--Reaches Agreement With Bank Lenders On Amendments To Debt Covenants;
Revenue Growth Continues
Foamex International Inc. , the leading manufacturer of flexible polyurethane and advanced polymer foam products in North America, today announced results for its third quarter and year-to-date period ended September 29, 2002, as well as immediate steps the Company will be implementing to enhance profitability.
The Company also announced that it has reached an agreement with its bank lenders to amend the covenants to the Foamex L.P. credit agreement.
Third Quarter 2002 Results
Sales
Net sales for the third quarter were $340.8 million, up 4.5% from $326.2 million in the third quarter of 2001 primarily due to improved sales in the Company's Automotive Products segment, partially offset by lower sales in the Foam Products segment. Gross profit was $30.1 million in 2002, down 37% from $47.4 million in 2001, primarily reflecting higher raw material costs resulting from 20% to 25% increases in the price of chemicals from major suppliers that went into effect in June, as well as higher manufacturing costs. Gross profit as a percentage of sales in 2002 decreased to 9% from 15% in 2001.
Earnings
Foamex had a net loss for the third quarter of $7.2 million, or $0.30 per diluted share, including restructuring, impairment and other credits of $3.7 million and a net $0.8 million credit for extraordinary items related to the repurchase of senior subordinated debt. The Company had net income of $7.3 million, or $0.28 per diluted share, in the third quarter of 2001.
Income from operations was $4.0 million for the 2002 third quarter, compared to income from operations of $25.5 million in the third quarter of 2001. Third quarter 2002 income from operations was negatively affected by higher raw material costs, higher manufacturing costs, and increased selling, general and administrative expenses primarily related to one-time, non-recurring items as well as higher professional service fees and employee related expenses partially offset by reduced goodwill amortization and lower bad debt expense.
EBITDA for the 2002 third quarter was $12.3 million, down 63% from the 2001 period.
Interest and debt issuance expense for the quarter was $16.5 million, an increase of 6% from the 2001 quarter, due to higher debt levels as a result of the refinancing the Company completed in March 2002. Consolidated net debt at September 29, 2002 was $671.9 million. Net debt at the end of the second quarter of 2002 was $670.1 million. Debt at the end of the third quarter of 2002 was increased by a deferred credit of $14.8 million related to the unwinding of the Company's interest rate swaps on its 10 3/4% Senior Secured Notes. Without this deferred gain, net debt was $657.1 million.
In addition to the raw material price increases that went into effect in June, the Company's major chemical suppliers announced price increases of an additional 10% effective October 1. As a result of these increases, the Company anticipates that fourth quarter gross profit will be substantially lower than that reported in the fourth quarter of 2001.
Thomas Chorman, President and Chief Executive Officer of Foamex said: "Our third quarter results largely reflect the industry-wide raw material price increases and one-time, non-recurring SG&A expenses related to a planned initial public offering of a minority interest in our Symphonex division and the decision to terminate the potential sale of our carpet cushion business. While we continue to face an extremely challenging market, we are taking aggressive steps to return the Company to profitability, including implementing additional price increases to our customers, expanding our raw material supply base, and moving forward on profit enhancement initiatives to reduce costs and increase efficiency. We are pleased to have the continued support of our bank lending group as we move forward to implement this plan."
Profit Enhancement Initiatives
Foamex has begun implementation of several new initiatives to enhance profitability, increase efficiency and reduce costs, including:
| - | Implementing additional price increases for its foam products effective in November; |
| - | Reviewing its relationships with marginally profitable accounts; |
| - | Implementing a company-wide cost reduction program; and |
| - | Leveraging the Company's raw material purchasing capabilities to expand its supply base. |
As a result of these initiatives and ones previously implemented under Project Transformation, Foamex expects to realize incremental annualized cost savings of approximately $18-20 million, of which approximately $6-8 million are related to new actions beyond those planned under Project Transformation, which was announced on December 26, 2001.
In connection with the new actions, Foamex will take a pre-tax charge against earnings in the fourth quarter of 2002 in the range of approximately $5-9 million, including a $1-2 million non-cash portion.
Year-to-Date Results
Sales
Net sales for the year-to-date period ended September 29, 2002 were $1,000.8 million, up 6% from $942.3 million in the first three quarters of 2001. Gross profit was $113.7 million in the first three quarters of 2002, down 18% from $138.5 million in 2001. Gross profit as a percentage of sales in the first three quarters of 2002 decreased to 11% from 15% in 2001.
Earnings
Net income for the first three quarters of 2002 was $10.5 million, or $0.40 per diluted share, compared to $23.8 million, or $0.94 per diluted share, in 2001. Net income in the first three quarters of 2002 includes the effect of several extraordinary items and accounting changes, including:
- A $77.3 million benefit related to a deferred income tax
adjustment realized in the second quarter of 2002;
- A $1.3 million credit for the cumulative effect of a change in
accounting principle related to the write-off of negative
goodwill;
- A $68.2 million non-cash charge for the write down of goodwill
that was retroactively applied to the Company's first quarter
results in accordance with SFAS 142;
- A $0.8 million credit for extraordinary items related to the
repurchase of senior subordinated debt; and
- An extraordinary charge of $4.2 million for the write-off of
debt issuance costs in connection with the Company's debt
refinancing completed in the first quarter of 2002.
Income from operations was $49.7 million for the first three quarters of 2002, compared to $78.6 million in 2001. Results for the first three quarters of 2002 included restructuring, impairment and other credits of $5.2 million.
EBITDA for the first three quarters of 2002 was $75.1 million, down 27% from the 2001 period, primarily reflecting the impact of raw material price increases, as well as higher manufacturing costs and SG&A expenses.
Interest and debt issuance expense for the first three quarters was $48.2 million, a 2% decrease from the same period last year, due to lower average debt levels and lower effective interest rates.
Business Segment Performance
Foam Products
Foam Products net sales for the third quarter were $121.8 million, down 8% from the third quarter of 2001, primarily as a result of a reduction in business from a major bedding manufacturer. Income from operations for the third quarter was $1.1 million, down 95% from the third quarter of 2001. This was principally due to increased raw material costs, lower net sales, higher manufacturing costs, and higher SG&A expenses.
For the year-to-date period ended September 29, 2002, Foam Products sales were $358.4 million, down 6% from $381.9 in the first three quarters of 2001. Income from operations decreased 56% to $23.0 million from $52.6 million in the comparable 2001 period.
Automotive Products
Automotive Products net sales for the third quarter were $120.2 million, up 26% from the third quarter of 2001, reflecting a continued high build rate for new cars and new product programs. Income from operations for the third quarter was $4.7 million, down 5% from the same period one year ago, reflecting the impact of chemical price increases.
For the first three quarters of 2002, Automotive Products had net sales of $348.3 million, representing a 24% increase from net sales of $281.1 million in the comparable period in 2001. Income from operations increased 24% to $21.7 million in the first three quarters of 2002 from $17.5 million in the 2001 period.
Carpet Cushion Products
Carpet Cushion Products net sales for the third quarter were $61.1 million, unchanged from the third quarter of 2001, despite continued overall market weakness and the loss of one large retail customer, which exited the carpet business earlier this year. Loss from operations was $4.7 million in the third quarter of 2002, including $1.1 million in expenses resulting from the proposed sale of the segment, which was subsequently terminated. Loss from operations was $3.2 million in the third quarter of 2001.
For the three quarters ended September 29, 2002, Carpet Cushion Products sales increased by 1% to $174.3 million from $172.4 million in the comparable 2001 period. This segment had a loss from operations of $9.0 million for the first three quarters of 2002, compared to a $5.3 million loss in the 2001 period.
Technical Products
Net sales for Technical Products in the third quarter at $30.5 million were up slightly from net sales of $29.5 million in the third quarter of 2001. Income from operations for the third quarter was $2.4 million, down 46% from the third quarter of 2001, including charges of $3.3 million related to the planned initial public offering of a minority interest in the Company's Symphonex division.
For the three quarters ended September 29, 2002, net sales for Technical Products increased 16% to $94.9 million from $81.7 million in the first three quarters of 2001. This increase primarily reflects sales from the acquisition of General Foam Corporation on July 25, 2001. Income from operations decreased 12% to $16.2 million in the first three quarters of 2002 from $18.5 million in the comparable period in 2001.
Conference Call and Replay
Foamex management will host a conference call today, Monday, November 18, 2002, at 10:00 a.m. EST to discuss the Company's third quarter 2002 results. Investors can access the conference call in the U.S. by dialing (888) 390-2576 (international callers, dial (484) 630-8116), asking to be connected to the Foamex investor call led by Thomas Chorman.
In addition, interested parties may listen to the conference call over the Internet at www.foamex.com. To listen, go to the website 15 minutes early to register and download and install any necessary audio software. For those unable to participate, a rebroadcast will be made available at the Company's web site after the call. It will be available shortly after the call.
About Foamex International Inc.
Foamex, headquartered in Linwood, PA, is the world's leading producer of comfort cushioning for bedding, furniture, carpet cushion and automotive markets. The Company also manufactures high-performance polymers for diverse applications in the industrial, aerospace, defense, electronics and computer industries as well as filtration and acoustical applications for the home. For more information visit the Foamex web site at http://www.foamex.com.
Forward-Looking Statements
This press release contains, and oral statements made from time to time by representatives of the Company may contain, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include, without limitation, those relating to completion of the operational restructuring as currently contemplated and the currently anticipated benefits of the restructuring, including those relating to the work force reductions, cost savings and restructuring charges, the expected benefits of expanding the use of VPF technology, the Company's ability to introduce new products, enhance sales growth and margins and the outlook for the Company's financial performance. These forward-looking statements are affected by risks, uncertainties and assumptions that the Company makes about, among other things, its ability to implement customer selling price increases in response to higher raw material costs, raw material price increases, general economic conditions, conditions in the capital markets, the interest rate environment, the level of automotive production, carpet production, furniture and bedding production and housing starts, the completion of various restructuring/consolidation plans, the achievement of management's business plans, its capital and debt structure (including various financial covenants), litigation and changes in environmental legislation and environmental conditions and other factors mentioned in the documents filed by the Company with the Securities and Exchange Commission. While the Company believes that its assumptions regarding the foregoing matters are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that the Company's forward-looking statements will prove to be accurate. Additional information that could cause actual results to vary materially from the results anticipated may be found in the Company's most recent Form 10-K and other reports filed with the Securities and Exchange Commission. Readers should be aware that any forward-looking statement made in this press release or elsewhere by the Company speaks only as of the date on which it is made, and the Company disclaims any obligation or intent to update any of the factors listed above or forward-looking statements.
Non-GAAP Measures
Information in this press release presents EBDAIT and EBITDA, as we believe the information is useful. We define EBDAIT as income from operations plus depreciation and amortization, restructuring, impairment and other charges (credits) and income from equity interest in joint ventures. We define EBITDA as income (loss) before provision for income taxes plus interest and debt issuance expense and depreciation and amortization. These non-GAAP measures should not be considered as any measure of performance or liquidity under generally accepted accounting principles such as net income and cash flows from operating activities and such measures may not be comparable to similarly titled measures of other companies.
Foamex International Inc. and Subsidiaries
Consolidated Statements of Operations
($ Thousands, except EPS data)
(Unaudited)
Third Quarter Comparative Year to Date Comparative
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $340,823 $326,166 $1,000,783 $942,334
Cost of Goods Sold 310,735 278,757 887,071 803,853
------- ------- ------- -------
Gross Profit 30,088 47,409 113,712 138,481
Selling, General &
Administrative
Expenses 29,774 21,705 69,253 59,683
Restructuring,
Impairment
and Other Charges
(Credits) (3,674) 252 (5,212) 204
------ --- ------- ---
Income from
Operations 3,988 25,452 49,671 78,594
Interest and Debt
Issuance Expense 16,510 15,503 48,153 49,100
Income (Loss) from
Equity Interest in
Joint Venture 386 (53) 1,514 610
Other Income
(Expense), Net 370 (1,264) 133 (1,816)
--- ------ --- ------
Income (Loss) before
Provision (Benefit)
for Income Taxes (11,766) 8,632 3,165 28,288
Provision (Benefit)
for Income Taxes (3,695) 1,365 (77,546) 4,508
------- ----- -------- -----
Income (Loss) before
Extraordinary Items
and Changes (8,071) 7,267 80,711 23,780
in Accounting
Principle
Extraordinary Items,
Net of Income Taxes 829 - (3,375) -
Cumulative Effect of
Changes in
Accounting
Principle - - (66,853) -
-------
Net Income (Loss) $(7,242) $ 7,267 $ 10,483 $ 23,780
======= ====== ======= =======
--------------------------------- ----------- ------------- ----------
EBDAIT (a) $ 8,214 $ 34,495 $ 69,718 $104,826
====== ======= ======= ========
EBITDA (b) $ 12,258 $ 32,979 $ 75,063 $102,806
======= ======= ======= ========
Earnings Per Share
- Basic:
Income (Loss) before
Extraordinary Items
and Changes $ (0.33) $ 0.31 $ 3.33 $ 1.01
in Accounting
Principle
Extraordinary Items 0.03 - (0.14) -
Cumulative Effect of
Changes in
Accounting
Principle - - (2.76) -
-----
Net Income (Loss) $ (0.30) $ 0.31 $ 0.43 $ 1.01
====== ===== ===== =====
Weighted Average
Shares Outstanding 24,349 23,599 24,249 23,576
====== ====== ====== ======
Earnings Per Share
- Diluted:
Income (Loss) before
Extraordinary Items
and Changes $ (0.33) $ 0.28 $ 3.05 $ 0.94
in Accounting
Principle
Extraordinary Items 0.03 - (0.13) -
Cumulative Effect of
Changes in
Accounting
Principle - - (2.52) -
-----
Net Income (Loss) $ (0.30) $ 0.28 $ 0.40 $ 0.94
====== ===== ===== =====
Weighted Average
Shares Outstanding 24,349 25,773 26,449 25,370
====== ====== ====== ======
Notes appear on page 7.
Foamex L.P. and Subsidiaries (c)
Selected Comparative Financial Data
($ Thousands)
(Unaudited)
Third Quarter Comparative Year to Date Comparative
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $340,823 $326,166 $1,000,783 $942,334
Income from
Operations $ 4,339 $ 25,955 $ 49,824 $ 79,471
% of Sales 1.3% 8.0% 5.0% 8.4%
EBDAIT(a) $ 8,565 $ 35,008 $ 69,871 $105,733
% of Sales 2.5% 10.7% 7.0% 11.2%
EBITDA(b) $ 12,609 $ 33,564 $ 75,249 $104,019
% of Sales 3.7% 10.3% 7.5% 11.0%
Notes to Consolidated Statements of Operations and Selected
Comparative Financial Data
(a) EBDAIT consists of income from operations plus depreciation and
amortization, restructuring, impairment and other charges
(credits) and income (loss) from equity interest in joint venture.
(b) EBITDA consists of income (loss) before provision for income taxes
plus interest and debt issuance expense and depreciation and
amortization.
(c) The Selected Comparative Financial Data for Foamex L.P. and
Subsidiaries includes Foamex Carpet Cushion LLC which was
contributed to Foamex L.P. on March 25, 2002. The contribution 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.