FOAMEX INTERNATIONAL ANNOUNCES
FIRST QUARTER
2002 RESULTS
_________________________________________________
LINWOOD, PA, May 14, 2002 –
Foamex International Inc. (Nasdaq: FMXI), the
leading manufacturer of flexible polyurethane and advanced polymer foam
products in North America, today announced its 2002 first quarter results.
Results
Sales
Net sales for the first quarter were $314.1 million, up 4.0% from $301.9
million in the first quarter of 2001. Gross profit was $38.2 million in
2002, down 7.1% from $41.2 million in 2001. Gross profit as a percentage of
sales in 2002 decreased to 12.2% from 13.6% in 2001.
Earnings
Net income for the quarter was $4.5 million, or $0.17 per diluted share,
compared with net income of $5.9 million, or $0.24 per diluted share in the
first quarter of 2001. Net income in 2002 was reduced by an extraordinary
charge of $4.2 million for the write-off of debt issuance costs associated
with the early extinguishment of debt in connection with the Company’s
previously announced debt refinancing. Net income in 2002 was increased by
the cumulative effect of a change in accounting principle of $1.3 million
related to the write-off of negative goodwill. Income before the
extraordinary charge and change in accounting principle was $7.3 million or
$0.28 per diluted share in the 2002 first quarter.
Income from operations was $22.1 million for
the 2002 first quarter, compared to $24.2 million in the first quarter of
2001. The first quarter of 2002 included a restructuring, impairment and
other credit of $1.5 million while the first quarter of 2001 included
goodwill amortization charges of $1.5 million. The Company experienced
higher manufacturing costs and a 4.5% increase in selling, general and
administrative expenses which was due principally to increased professional
fees.
EBITDA for the 2002 first quarter was $30.9
million, down 5.5% from the 2001 period. (The Company is transitioning from
its traditional EBDAIT disclosure to the more widely recognized EBITDA, and
will be reporting both measures through 2002. EBDAIT numbers are available
in the attached table, as are definitions of EBDAIT and EBITDA.)
Interest and debt issuance expense for the
quarter was $14.3 million, a decrease of 17.5% from the 2001 quarter, due to
lower average debt levels and interest rates. Consolidated net debt at
March 31, 2002 was $691 million.
Commenting on the results, Peter Johnson,
Foamex’s President and Chief Operating Officer, said: “The lingering effects
of an odor problem in bedding products sold by our Foam Products group
(caused by a defective raw material supplied to the Company during the
fourth quarter of 2001) hurt sales and raised manufacturing costs in the
quarter. Despite this, overall sales for the quarter were good, and
strengthened throughout the quarter. The business units’ results for this
quarter were mixed, reflecting continued economic and market instability.
We are working to reduce our costs and increase our profitability through
our Project Transformation activities, the benefits of which are mainly
loaded towards the second half of the year. During the first quarter we
focused on procurement, production site optimization and SG&A cost reduction
and we have made significant improvements in those areas. We remain
committed and focused on our business strategy and we are aggressively
working toward generating long-term shareholder value.”
Outlook
Commenting on the Company’s outlook, Thomas Chorman, Executive Vice
President and Chief Financial and Administrative Officer of Foamex said:
“The refinancing we completed in the first quarter provides Foamex with
flexibility and a much stronger balance sheet. In early May, Foamex L.P.
completed a series of interest rate swap transactions which should lower the
effective interest cost of the newly issued senior secured notes. In terms
of our operational performance, we have seen strong sales into the second
quarter and expect that momentum to continue. In the second quarter we
expect to see a very slight residual impact from costs related to odorous
foam as we work to completely resolve that issue. For the full year, we
continue to expect to deliver modest growth and to further de-leverage our
balance sheet.”
Business Segment
Performance
Foam Products
Foam Products net sales for the
first quarter were $117.5 million, down 7.4% from the first quarter of
2001. The decrease primarily reflects a significant loss of bedding
business from one customer due to an internet bidding process (which
occurred in 2001), and the temporary loss of bedding business in the January
and February periods. Excluding the loss, Foam Products performed strongly
with consumer spending on furniture surpassing that of the prior year. The
Company expects this trend to continue. Additionally, Foamex continues to
see solid growth in sales of Reflex TM, highly resilient foam
designed specifically for the furniture market and manufactured using
Foamex’s proprietary Variable Pressure Foaming (VPF SM)
technology. Income from operations for the first quarter was $9.9 million,
down 27.5% from the first quarter of 2001. This was in part due to unusually
high manufacturing costs incurred as the Company adjusted foam formulations
and plant procedures to ensure that customers were protected from any
further odor concerns. All plants were operating under normal conditions by
very early in the second quarter.
Carpet Cushion Products
Carpet Cushion Products net sales
for the first quarter were $52.8 million, down 1.6% from the first quarter
of 2001. The Company continues to see positive results from the price
increase initiated last year, however gains have been eroded by the
increasing cost of scrap foam. Foamex also lost a major piece of profitable
prime carpet cushion business when Sears announced their withdrawal from the
carpet market. Loss from operations was $3.0 million in the first quarter.
Automotive Products
Automotive Products net sales for
the first quarter were $104.4 million, up 23.5% from the first quarter of
2001. The improvement primarily reflected a continued high build rate of
new cars, continued development of new product programs and the impact of
the General Foam acquisition. Income from operations for the first quarter
was $9.0 million, up 80.2% from the same period one year ago.
Technical Products
Net sales for Technical Products in
the first quarter were $30.9 million, up 11.3% from the first quarter of
2001. Income from operations for the first quarter was $6.2 million, down
22.1% from the first quarter of 2001. The sales increase was due to the
acquisition of General Foam in September 2001; excluding this volume,
Technical Products sales would have been down about 15% versus the prior
year. The decline reflected the continued slow-down in the technology
industry.
Business Update
Refinancing
On
March 25, 2002, Foamex completed the previously announced sale of senior
secured notes and amendment of its credit facilities. Foamex L.P. raised
$300 million of senior secured notes, increased from an expected $200
million, in a private placement under rule 144A. These notes bear interest
at the rate of 10 3/4% and are due April 1, 2009. Prior to the refinancing,
S&P upgraded the Company’s credit ratings and Moody’s raised its outlook to
positive from stable.
Net proceeds of
$280 million were used to pay a portion of the Company’s debt outstanding.
Additionally, the financial covenants were adjusted to reflect changes in
Foamex’s capital structure and the current business environment. Under the
covenants, the Company may spend up to $48.5 million of the proceeds from
the senior secured notes to either repurchase or redeem some of its senior
subordinated notes or further reduce its bank debt.
Interest Expense Reduction
Effective May 1, 2002, the Company completed a
series of interest rate swap transactions on $300 million of long-term
debt. The effect of these interest rate swap transactions is to convert the
fixed interest rate on the Company’s 10 3/4% senior secured notes due April
1, 2009 to floating rates set twice per year. Given current market interest
rates, the Company expects to realize significant cost savings in annual
interest expense as a result.
“Project
Transformation” Operational Restructuring Program
In December, Foamex announced its
comprehensive profit enhancement plan, Project Transformation, leveraging
Foamex’s VPF technology to reduce costs, spur revenue growth, and drive
increased long-term profitability and shareholder value. The program is on
schedule and the Company expects to meet its targets. During the first
quarter, procurement savings at an annual rate of over $10 million were
identified and are being implemented.
Conference Call and
Replay
Foamex management will host a
conference call today, Tuesday, May 14, 2002, at 10:00 a.m. EDT to discuss
the Company’s first quarter 2002 results. Investors can access the
conference call in the U.S. by dialing (800)
857-3795 (international callers,
dial (415) 228-4834),
asking to be connected to the Foamex investor call led by Peter Johnson.
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 from Project Transformation, 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
and income from equity interest in joint ventures. We define EBITDA as
income 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.
Financial Tables
