FOAMEX INTERNATIONAL ANNOUNCES THIRD QUARTER 2002 RESULTS
- Announces Steps to Enhance
Profitability and Address Raw Material Price Increases
- Reaches Agreement With Bank Lenders On
Amendments To Debt Covenants
Revenue Growth Continues
_________________________________________________
LINWOOD, PA, November 18, 2002 –
Foamex International Inc. (Nasdaq: FMXI), 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 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.
Financial Tables
