For Phila. foam company, recession is a blessing

Trillions of dollars in lost stock-market wealth, hundreds of thousands of home foreclosures and a soaring jobless rate: For most Americans, the Great Recession hasn't been pleasant.

But it may be the best thing that happened to Foamex Innovations Inc. - one of the Philadelphia region's most dysfunctional large corporations.

The product of a debt-fueled roll-up of medium- and small-sized foam manufacturers for cars and furniture in the 1980s and 1990s, Foamex was buried in almost $1 billion in debt before filing for bankruptcy protection this decade, not once, but twice.

The company emerged in mid-June from the second trip - a 114-day sprint through the bankruptcy process - with "zero debt," according to its chief executive officer, Jack Johnson, and a new lease on life.

The foam business was so weak, mostly because of the collapse of auto sales in early 2009, and the economic situation so desperate that Foamex's debt-holders gave up on the company. It was sold in a special bankruptcy auction for $155 million to two investor groups - MatlinPatterson Global Opportunities Partners III L.P. and Black Diamond Capital Management L.L.C.

"You see me smiling?" Johnson, a former accordion player in the Woodland String Band, asked. "We'll be able to do all these new things we talked about for years."

The privately held Foamex has a new brand name, FXI, and a new logo and colors. It's retailing pillows, pads, and mattresses to the general public through Wal-Mart.com, Samsclub.com, and Amazon.com for the first time. It even vacated a corporate headquarters in a 1950s Dupont engineering building on the Delaware River, in an industrial area near a Chester casino, for Media.

The real estate broker had about 50 buildings in need of tenants. Said Johnson: "We got six months free rent!"

Getting here wasn't a walk in the park for Johnson or Foamex's employees.

In the last two years, Foamex closed seven plants and eliminated 2,700 workers. Its total employment is now 2,021 in the United States, Canada, Mexico, and China, with 152 in the Philadelphia-area headquarters and research offices. The company sold assets, and its sales, once slightly more than $1 billion a year, are now paced at about $600 million. "Not the fun part of the job obviously," said a rueful Johnson of the corporate restructuring that led to the corporate shrinkage.

As part of the bankruptcy proceeding, the government's Pension Benefit Guaranty Corp. assumed Foamex's underfunded pension liability, which covers 5,500 workers and retirees. The plan was 48 percent funded, with $74 million in assets to cover about $153 million in liabilities. The PBGC, a federal safety net for workers in troubled companies, expects to cover $76 million of the shortfall. Foamex will not owe the government pension agency for the underfunded pensions, which allows the manufacturer to grow its post-bankruptcy business without a pension liability hanging over its head.

"We walked a pretty shaky tightrope for a while. Our big chemical suppliers had their credit vice presidents talking to our CFO continuously," Johnson said. "I was talking to the CEOs and presidents of those top 10 companies about our financial condition rather than our great products."

FXI traces its corporate roots to Scott Paper, which developed styrofoam and urethane foam lines. About half the company's products are specialties and the other half commodity foam, sold to automakers for cushions and to furniture manufacturers.

Johnson would like to boost FXI's specialty products. Two of Foamex's unique products are acoustic foam for sound-system speakers and mammogram pads for medical tests. But Johnson says he needs to keep a sizeable commodity business to maintain bargaining positions with his raw-material suppliers.

A former top executive with Arco Chemical, Johnson began a long climb up the corporate ladder in the mailroom of a South Philadelphia crude-oil refinery. His dad was a welder in South Philadelphia. Johnson is very likely one of the few CEOs who can claim a 14-year stint as a Mummer, in the Woodland String Band in his teens and twenties.

A Philly boy to the core, he talks nostalgically of stickball and of graduating from John Bartram High School.

"With the technology base and a strong financial condition that we've never had, we're going to grow the company and really excel," he said.

Finally, Foamex may be ready for a Mummer strut.