Foamex International Inc. Reports Third Quarter Results
3 November 2000
Foamex International Inc. Reports Third Quarter Results; Transfer of Shares to The Bank of Nova Scotia Completed; Continued Debt Reduction Will Result in Future Interest Savings
LINWOOD, Pa.--Nov. 2, 2000--Foamex International Inc. , the leading manufacturer of flexible polyurethane and advanced polymer foam products, today announced earnings before depreciation, amortization, interest and taxes (EBDAIT) of $37.1 million for its third quarter, which ended September 30, 2000. EBDAIT in 2000 represents a 3.2% decrease from the $38.3 million EBDAIT reported in the third quarter of 1999.
Expense Reduction Offset by Raw Material Increases
Net sales for the quarter were $309.7 million, a decrease of 6.3% from the $330.6 million reported in the prior year period.
Gross profit was $44.7 million, a decrease of 8.4% from $48.8 million in the third quarter of 1999. As a percent of revenues, gross profit was 14.4% in the third quarter of 2000 compared with 14.8% in the same quarter of 1999.
The company recorded restructuring charges of $2.8 million in the third quarter of 2000, compared with restructuring charges of $3.0 million in the third quarter of 1999.
Third quarter 2000 SG&A expenses were $17.4 million, a 10.7% decrease from $19.5 million in the prior year.
Operating income was $24.5 million, a decrease of 7.0% from the $26.3 million reported in the third quarter last year. Excluding restructuring charges, operating income was $27.3 million in the third quarter of this year compared with $29.3 million in the third quarter of last year, a decrease of 6.8%.
Interest and debt issuance expense for the quarter was $19.3 million, a 2.7% increase over $18.7 million in the third quarter of last year, as the impact of the company's reduced debt level was offset by higher interest rates.
The provision for income taxes was $1.1 million, compared with $1.0 million in the third quarter of 1999.
Net income was $3.8 million or $0.15 per diluted share, compared with $6.1 million or $0.24 per diluted share for the third quarter of 1999.
John Televantos, Chief Operating Officer and President of the company's Foam Business Group, said, "Our third quarter results were impacted by higher raw material prices, together with erosion in demand and selling prices in some of the markets we serve. This combination more than offset reductions in manufacturing operating costs and SG&A expenses."
Year-to-date performance
For the nine-months ended September 30, 2000, net sales were $961.5 million, a decrease of 1.3% from the $974.0 million reported in the prior year period.
Gross profit was $135.4 million, a decrease of 0.5% from $136.2 million in the first nine months of 1999. As a percent of sales, gross profit was 14.1% of sales in 2000 and 14.0% in 1999.
SG&A expenses for the period were $54.5 million, a decrease of 4.1% from $56.8 million in the same period last year.
Year-to-date restructuring charges were $6.1 million in 2000, compared with $10.1 million in the first nine months of 1999.
Operating income was $74.9 million, an increase of 8.1% over the $69.3 million reported for the first nine months of 1999. Excluding restructuring charges in both periods, operating income increased 2.0% in the first nine months of 2000, from $79.4 million to $81.0 million.
Interest and debt issuance expense for the period was $56.7 million, a 4.7% increase over $54.1 million for the same period last year.
Year-to-date provision for income taxes was $3.3 million, compared with $2.5 million for the same period last year.
Net income for the period was $13.6 million or $0.54 per diluted share, compared with $15.3 million or $0.61 per diluted share for the first nine months of 1999.
EBDAIT for the nine months of 2000 was $108.7 million, a 3.4% increase over $105.2 million for the same period of 1999.
Continued Debt Reduction to Result in Lower Interest Rates
"We continued our progress in debt reduction, lowering total debt to $672 million at September 30, 2000," noted President and Chief Executive Officer, John G. Johnson, Jr. "That represents a total debt reduction of more than $73 million in the first nine months of 2000, and more than $128 million in the past seven quarters. Just as importantly, the debt leverage ratio for Foamex L.P. at the end of the quarter was less than 5 to 1, which will result in the elimination of interest rate surcharges on the Foamex L.P. credit facility. While debt levels will be higher at year-end, the surcharge elimination translates to more than $2.5 million in annual interest savings based on anticipated borrowing levels."
Share Transfer to The Bank of Nova Scotia Completed
The company also announced that the transfer of shares pledged to The Bank of Nova Scotia as a result of the Trace bankruptcy has now been completed. Marshall S. Cogan, Chairman of Foamex, commented, "We are pleased that we were able to accomplish an orderly transfer of the shares, and are proud to have ScotiaBank as a major shareholder of our company."
Outlook
Commenting on the company's results, Mr. Johnson said, "The raw material price increases and the market conditions that limited our earnings performance for the third quarter are likely to continue through the remainder of this year. However, continued progress on cost control, expense reduction and productivity improvements should enable us to begin to improve margins as we move into the new calendar year.
"In addition, we continue to make prudent investments in technology to support future growth opportunities," Johnson noted. "Our capital expenditures for the year will total about $25 million.
"The new thermal reticulation line we installed at our Eddystone facility earlier this year is fully operational," Johnson continued, "and we are now in the process of qualifying its production for use in sensitive filtration applications. Also, construction of our third Variable Pressure Foaming (VPF(SM)) line at Cornelius, North Carolina is ahead of schedule and on budget."
Earlier this year, Foamex announced an expansion program that would increase VPF(SM) from 20% of its total manufacturing capacity currently to 45% by the end of 2001. In addition to the Cornelius facility, the company is constructing a new VPF(SM) line at Auburn, Indiana, scheduled for completion in the third quarter of next year.
Johnson explained that the company's proprietary VPF(SM) technology produces foam in a closed chamber, eliminating the need for auxiliary blowing agents such as methylene chloride. NESHAP regulations require a significant reduction in methylene chloride emissions by October 2001, a goal which will be costly to achieve with conventional foam manufacturing methods.
Foamex International Inc. and Subsidiaries
Consolidated Statement of Operations
($ Thousands, except EPS data)
3rd Quarter Year to Date
Comparative Comparative
2000 1999 2000 1999
Net Sales (a) $309,666 $330,563 $961,506 $973,998
Gross Profit 44,729 48,813 135,438 136,187
Selling, General &
Administrative
Expenses 17,394 19,484 54,450 56,778
Restructuring and
Other Charges 2,842 2,988 6,064 10,112
Income from Operations 24,493 26,341 74,924 69,297
Interest and Debt
Issuance Expense 19,255 18,740 56,655 54,111
Income from Equity
Interest in Joint
Venture 282 - 1,014 -
Other Income (Expense),
Net (662) (459) (2,467) 2,605
Income Before Provision
for Income Taxes 4,858 7,142 16,816 17,791
Provision for Income
Taxes 1,073 1,014 3,262 2,473
Net Income $ 3,785 $ 6,128 $ 13,554 $ 15,318
EBDAIT (b) $37,073 $38,303 $108,729 $105,181
Earnings Per Share:
Basic Earnings Per
Share $ 0.15 $ 0.24 $ 0.54 $ 0.61
Weighted Average
Shares Outstanding 25,060 25,053 25,059 25,053
Diluted Earnings
Per Share $ 0.15 $ 0.24 $ 0.54 $ 0.61
Weighted Average
Shares Outstanding 25,193 25,342 25,247 25,229
Notes appear on page 6.
Foamex L.P. and Subsidiaries
Selective Comparative Financial Data
($ Thousands)
3rd Quarter Year to Date
Comparative Comparative
2000 1999 2000 1999
Net Sales $286,371 $302,819 $889,579 $894,925
Income from Operations 21,873 23,025 67,632 63,936
% of Sales 7.6% 7.6% 7.6% 7.1%
EBDAIT(b) $33,762 $34,290 $98,919 $97,257
% of Sales 11.8% 11.3% 11.1% 10.9%
Notes to Consolidated Statements of Operations and Selective
Comparative Financial Data
(a) In response to a new accounting pronouncement, net sales for all
periods presented include the reclassification of certain freight
costs that were previously reported in cost of goods sold.
(b) EBDAIT consists of earnings before depreciation, amortization,
interest, income taxes, restructuring and other charges and
non-operating income and expense. EBDAIT is not intended to
represent cash flow for the period.