Foamex International Inc.
Foamex International Inc.
Sales: $1.3 billion (1995)
Stock Exchanges: NASDAQ
SICs: 2821 Plastics Materials& Resins; 6719 Holding
Companies, Not Elsewhere Classified
Foamex International Inc. (FMXI) is North America’s largest manufacturer and marketer of flexible polyurethane foam and foam products, through its subsidiary, Foamex L.P. Its foams are used in four markets: carpet cushions and other carpet products (it controls approximately 36 percent of the carpet cushion market); cushioning foams for furniture, bedding, packaging, and health care; automotive foams for protective material in headliners and doors, seat upholstery, floor mats, sound absorbers, and interior trims, with about a 60 percent market share; and technical foams for products ranging from batteries to baby diapers. In November 1995, the company decided to focus completely on its core foam products through its Continuous Improvement Process program. As a result, FMXI put on the market its subsidiary, JPS Automotive L.P., which makes carpets and other textiles for the automobile industry, and its subsidiary, Perfect Fit Industries, a manufacturer of mattress pads, pillows, and draperies. It sold Perfect Fit in 1906. Foamex International is ultimately controlled by Marshall Cogan through his holding company, Trace International Holdings, Inc. The company conducts its operations in 43 locations in the United States, Mexico, and Canada. Revenues in 1995 were $1.3 billion.
In 1983, “21” International Holdings, owned by financiers Marshall Cogan and Stephen Swid, bought Scott Paper’s foam division, its first investment in the polyurethane foam industry.
Foam sales in 1984 came to $82 million. In 1986, Cogan and Swid split up. Swid bought the music publishing division of CBS Inc., and Cogan, who kept most of the conglomerate’s assets, bought Foamex Products, a former division of Firestone Tire& Rubber. Two years later he added three regional foam producers: Miller Companies’ Millfoam, Sheller-Globe’s Tupelo, and Reeves Brothers’ Curon. By 1989, Cogan had built foam sales to $422 million. In 1990 he acquired a U.S. foam business owned by Recticel S.A., the largest European foam producer. To consolidate his growing foam activities, Cogan created a holding company, Foamex L.P.
1991-1994: A Growing Company
With the passage of the Clean Air Act at the beginning of the decade, foam manufacturers had to reduce emissions during their production process. In 1992, Foamex L.P., in partnership with Recticel S.A. of Belgium and equipment supplier Beamach Group Ltd., began working on a new technology to eliminate chlorofluorocarbons and volatile organic blowing agents from the production of flexible foam.
Meanwhile, Cogan kept buying companies for Foamex L.P. In 1993, the company made three big acquisitions: Great Western Foam Co., a major foam producer on the West Coast; General Felt Industries, a leading manufacturer of carpet cushions; and Perfect Fit Industries, a North Carolina company that made and distributed decorative bedding, pillows, mattress pads, and drapes. In September 1993, Cogan created Foamex International Inc. in order to acquire a 99 percent interest in Foamex L.P. and, in December, completed an initial public offering. Foamex International acquired a direct 95 percent limited partnership interest in Foamex L.P., and FMXI, Inc., a wholly owned subsidiary of the company, acquired a four percent managing general partnership interest.
In March 1994, the company bought TEFSA (Transformation De Espumas Y Fieltros S.A. de C.V.), a leading Mexican foam manufacturer, for $4.5 million. In June, it bought JPS Automotive, a leading supplier of automotive textiles, including molded floor carpet systems, headliner fabric, airbag fabric, and other interior and trunk trim components. The total JPS Auto cost was approximately $264 million.
Foamex International appeared to be well positioned with the vertical integration of its new subsidiaries. The purchase of Perfect Fit increased the company’s access to products using cushioning foams, one of the largest product categories in the polyurethane industry. Scott Star, Perfect Fit’s director of merchandising, explained the benefits in a March 1994 interview with HFN. “As a subsidiary of Foamex International, Perfect Fit produces the raw materials that are used in its products, possesses unsurpassed processing capabilities and quality standards, and is armed with a vast distribution network…. These strengths … will allow Perfect Fit to deliver innovative, feature-rich products at highly competitive prices.” With money and equipment from its new parent, the Perfect Fit Home Comfort Products division opened three new manufacturing plants.
General Felt Industries was the leader in the $800 million carpet cushion industry, making all types of padding to go under carpets: rubber, natural felt, synthetic felt, recycled textile fiber cushion, and both prime and recycled polyurethane cushion. In 1994, Foamex engineers developed a prime polyurethane carpet cushion that absorbed shocks better because of its unique hexagonal design containing five times as many air pockets as other prime cushions. In a departure from normal practice within the industry, Foamex gave the new cushion a brand name, Comfort-Wear, and launched a print and television advertising campaign aimed at consumers. According to the ads, Comfort Wear offered a more luxurious feel than standard padding and was 40 percent more durable. Its ability to extend the life of a carpet allowed Foamex to offer a five-year warranty on any no-mat/no-crush carpeting installed on it. By combining the ads with promotional displays at major floor covering retailers, people buying carpet asked for ComfortWear by name, a first for carpet padding.
The acquisitions helped 1994 sales grow to $1.08 billion, up from $696 million in 1993. In late 1994, however, prices for raw materials such as TDI and polyol began to climb. By the fourth quarter of 1995, Foamex was paying about 70 cents a pound for polyol, 25 percent more than the year before, and about $1 for a pound of TDI, a 30 percent hike. These were the highest prices in 13 years. Although the company could pass on about half the added costs to its own customers, it was having to absorb the remainder, approximately $25 million. At the same time, carpet sales weakened, causing a drop in the volume of carpet cushion needed by retailers. Although net sales for 1995 were higher than in 1994, most of that was due to the increase in automotive textiles sales resulting from a full year of operations for JPS Automotive. Gross profit, on the other hand, decreased 13.4 percent.
The company was also confronted with various legal problems. Bulk foam purchased from Foamex L.P. and Trace Holdings was used to make a polyurethane foam covering for certain silicone gel implants. As a result, Foamex L.P. and Trace Holdings, along with other defendants, were parties in suits filed on behalf of more than 4,000 recipients of breast implants. Foamex L.P. was also one of several defendants accused of violating Tennessee hazardous waste regulations at its plant in Morristown.
1995 and Beyond: New Focus, New Products
As chemical prices began to rise, Foamex International’s support of new technologies began to pay off. The Foamex/ Recticel/Beamach research partnership came up with a new, proprietary production method called variable pressure foaming (VPF). Foamex installed its first VPF line in Mississippi in 1994. The new process was important in two ways. First, it exceeded the federal emission standards for eliminating chlorofluorocarbons and volatile organic blowing agents. Second, it made it possible to create foam with new types of molecular structures that gave them unique mass and hardness characteristics no one else in North America could duplicate.
Under conventional production methods, TDI and polyol were combined with water and poured onto an open conveyor mold. In VPF, production took place in a closed chamber, which eliminated chlorofluorocarbons from production, making the manufacturing of flexible foam environmentally friendly.
The closed chamber also provided direct control of air pressure, temperature, and humidity, any of which can be regulated to change the density of the foam. As the foam rose, its density was determined by the pressure in the chamber. The higher the chamber pressure, the higher the density of the foam; the lower the pressure, the lower the density. As a result, the process could produce low-density, ultrasoft foams not previously available. In addition, the foams coming out of the chamber were free of defects. “We’ re creating whole new polymers,” Vincent Bonaddio, Foamex’s manager of research applications development, told Plastics World a May 1996 article.
By 1996, the company had developed three new categories of foams with VPF: Ultrafirm, Ultrasoft, and Breathable. New markets opened by VPF included replacement products for the polyester fiberfill used in upholstered furniture and bed pillows, alternatives for polystyrene and polyethylene packaging materials, and a new, breathable polymer for medical and consumer applications. Action Furniture by Lane was one of the first customers for the new products, using a VPF product with very low compression in certain recliners. Berkline and King Hickory soon followed, using VPF on upholstered furniture products. The new product was popular because it did not mat or lose shape as quickly as fiberfill.
Our mission is to be the premier supplier of foam and related products in markets in which we compete; to maintain our dominant market position in North America, and by the year 2000 to be the premier global company supplying products that add comfort and value; to maintain good employee relations; and to develop, produce and market innovative products that provide comfort and value to our customers.
Foamex engineers also used VPF in their efforts to design a more energy-absorbent polymer for the automobile industry. In August 1995 new federal safety regulations began requiring car makers to provide better head protection inside cars and light trucks and greater side impact protection over the next five years. “We had the technology set to go when the regulations came out,” a Foamex manager told U.S. Auto Scene. Foamex’s energy-absorbent foams were already being used by Ford and Chrysler in dashboards and door panels. And scientists at Lawrence Livermore Laboratory, a federal energy and military research facility, were conducting computer modeling of the VPF process to help find the most efficient polymers as quickly as possible. Industry observers saw the regulations adding $40 million per year to the foam market, and the company saw opportunities for introducing energy-absorbing forms into side support pillars, headliners, and sun visors.
A second patented technology was developed by Foamex and JPS Automotive. Surface Modified Technology (SMT) gave Foamex the ability to produce foams with very economical and unique surface cuts. “For the first time, we can create multiple patterns, spaces and depth-of-cut in a single process throughout the entire top surface of a piece of foam,” Bonaddio explained in an article in the August 1, 1994 issue of HFN. The 1997 all-purpose vans from General Motors featured an SMT foam-backed carpet with a cut for the oil pan, allowing a nearly flat floor. The carpet also reduced overall vehicle weight by two to six pounds per vehicle and cut noise by up to four decibels, twice that of conventionally backed carpet systems. Outside the automotive area, Perfect Fit used SMT in its PowerPuff and PowerPuff Plus bed support pillows as well as in its tri-zone and single-zone foam mattress cushions. GTFs Comfort Wear pad was also an SMT product.
The third area in which Foamex introduced innovations was composites technology. This involved fusing foam with other materials, usually fabric or carpeting. Most of the new composites products were developed for the automotive industry, such as cabin filters and package shelves. One of the most important products was CustomFit, a composite process that made it possible to attach foam to fabric by heat, using a flame. This eliminated the costly cut-and-sew process and was first used in manufacturing headliners, the cushioning between the car roof and occupants’ heads. CustomFit headliners were made from layers of polyurethane, fabric, and encapsulated fiber mat and weighed less and were easier to handle and install than traditional fiberglass headliners. The first cars using the new head-liners included the Chrysler minivan, the Jeep Grand Cherokee, and the Ford Taurus and Sable.
As all this was going on, Cogan and John Rallis, president and chief operating officer of Foamex International, brought in a new leader for Foamex L.P. In July 1995 they selected Salvatore (“Sam“) Bonanno, a 30-year international manufacturing veteran of Chrysler, to be Foamex’s executive vice-president of manufacturing and president of Foamex L.P.
Bonanno joined a company heavily in debt from its acquisitions. Chemical prices kept increasing, competition intensified, and manufacturing facilities were not fully utilized. The company had grown quickly, particularly since 1993, but was not able to maintain its profit margin. Management undertook an examination of the company’s operations, and in October 1995, the Board of Directors agreed to focus the company on its core operations and reduce its total debt of $723 million to around $400 million.
The board approved a plan to consider selling JPS Automotive and Perfect Fit Industries. It also initiated a three-part plan to try to improve the profitability of the company’s foam products segment through restructuring. First, the company introduced its Continuous Improvement Plan (CIP). As described in the 1995 annual report, the CIP “requires Foamex employees to rethink each step of the manufacturing, distribution and marketing process, eliminating unnecessary procedures and constantly seeking ways to improve the quality of our products and level of our service.” To implement the plan, the company created an office of quality and productivity responsible for employee training and CIP oversight. At the same time, the company began closing underused facilities, including the consolidation of 13 foam production, fabrication, or branch locations, and increased efforts to control costs. From these activities the company hoped to save $30 million in 1996 and more than $50 million per year after that.
By the second quarter of 1996, the company was reporting record net sales of $616.3 million and savings of $11 million. Chemical prices had stabilized, and there was greater demand for carpet cushions and automotive foam. In August, Foamex completed the sale of Perfect Fit Industries for $50 million to PFI Acquisition Corp., an investor group led by Perfect Fit’s senior management. The sale of JPS Automotive, however, was still pending.
Part of the company’s long-term strategy was to expand its markets outside North America. In June the company announced a strategic alliance with Recticel S.A. to design, manufacture, and market products for the auto industry in Europe and North America. Both companies would provide auto suppliers on both continents with their products. These products included roll goods, energy absorbing foams, foams for headliners, and SMT acoustical foam components for automobile carpets.
In August Foamex International announced another international initiative, the creation of a new division, Foamex Asia. Stephen Scibelli was named president of the division and charged with expanding the company’s presence in China, Indonesia, Malaysia, the Philippines, Singapore, and Thailand.
With its cost reduction plan, restructuring, and international expansion, Foamex appeared to be on the road to financial health, according to various analysts. The major risks were the cyclical nature of its markets and the potential for increases in the price of raw materials.
Foamex, L.P. (99%); General Felt Industries, Inc.; Great Western Foam Products Corp.; JPS Automotive L.P.
Foamex Canada Inc.; Foamex Latin America Inc.; Foamex Asia Inc.
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—Ellen D. Wernick