Exhibit 99.1
| Contact: | Mark D. Boehmer |
| | VP & Treasurer |
| | (336) 861- 3603 |
| | |
| | FOR IMMEDIATE RELEASE |
SEALY REPORTS A 94% INCREASE IN NET INCOME
HIGH POINT, North Carolina (April 13, 2005) – Sealy Mattress Corporation, the world’s largest manufacturer of bedding products, today announced results for the fiscal first quarter ending February 27, 2005.
For the quarter, Sealy reported sales of $359.0 million, an increase of 12.8% from $318.2 million for the same period a year ago. Net income was $21.9 million, an increase of 94.1% from $11.3 million a year earlier. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the quarter was $58.8 million, compared with $42.6 million a year earlier, an increase of 38%. For the quarter, Adjusted EBITDA, as defined in the credit agreement governing our senior secured credit facilities, was $59.6 million. Please see the attached tables below for a reconciliation of EBITDA and Adjusted EBITDA to net income and cash flow from operations.
“We are extremely pleased with our start in 2005,” said David J. McIlquham, Sealy’s Chairman and Chief Executive Officer. “We continue to achieve strong mix improvements from our new products as well as improved manufacturing efficiencies. Our ongoing effort on delivering sales, margin and EBITDA growth along with net debt reduction was recognized by Moody’s in an upgrade of our senior subordinated debt rating from a Caa1 to a B3,” said McIlquham. “Additionally, in the first quarter, we began the introduction of our new TrueForm™ visco-elastic mattress to go after the rapidly growing specialty bedding market,” said McIlquham.
Subsequent to the end of the first quarter Sealy announced its intention to amend its senior secured credit facility in April of 2005. The final terms and timing of the refinancing, if it occurs, will depend on market conditions and other factors. In connection with the amendment, amounts outstanding under the senior secured term loan would increase to $565 million, with the additional $100 million borrowing being used for the repayment of the outstanding Senior Unsecured Term Loan.
Sealy is the largest bedding manufacturer in the world with sales of $1.3 billion in 2004. The Company manufactures and markets a broad range of mattresses and foundations under the Sealy ®, Sealy Posturepedic ®, Stearns & Foster ®, and Bassett ® brands. Sealy has the largest market share and highest consumer awareness of any bedding brand in North America. Sealy employs more than 6,000 individuals, has 29 plants, and sells its products to 3,200 customers with more than 7,400 retail outlets worldwide. Sealy is also a leading supplier to the hospitality industry. For more information, please visit www.sealy.com.
This document contains forward-looking statements within the meaning of the safe harbor provisions of the Securities Litigation Reform Act of 1995. Terms such as “expect,” “believe,” “continue,” and “grow,” as well as similar comments, are forward-looking in nature. Although the Company believes its growth plans are based upon reasonable assumptions, it can give no assurances that such expectations can be attained. Factors that could cause actual results to differ materially from the Company’s expectations include: general business and economic conditions, competitive factors, raw materials purchasing, and fluctuations in demand. Please refer to the Company’s Securities and Exchange Commission filings for further information.
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Sealy also announced its quarterly conference call for Friday, April 22nd at 2 pm EST. The dial-in number is: (800) 762-6067 (Domestic), (480) 629-9566 (International).
Sealy Mattress Corporation was formed on March 31, 2004 as a wholly-owned subsidiary of Sealy Corporation and, on April 6, 2004, Sealy Corporation contributed the equity of Sealy Mattress Company to Sealy Mattress Corporation. For purposes of this press release, all financial and other information herein relating to periods prior to April 6, 2004, is that of Sealy Corporation and its consolidated subsidiaries, as the predecessor accounting entity to Sealy Mattress Corporation.
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SEALY MATTRESS CORPORATION
Condensed Consolidated Statements of Operations
(in thousands)
(unaudited)
| | Quarter Ended | |
| | February 27,
2005 | | February 29,
2004 | |
Net sales—Non-affiliates | | $ | 359,023 | | $ | 312,609 | |
Net sales—Affiliates | | — | | 5,589 | |
Total net sales | | 359,023 | | 318,198 | |
| | | | | |
Cost of goods sold—Non-affiliates | | 199,973 | | 180,393 | |
Cost of goods sold—Affiliates | | — | | 3,208 | |
Total cost of goods sold | | 199,973 | | 183,601 | |
Gross Profit | | 159,050 | | 134,597 | |
| | | | | |
Selling, general and administrative | | 108,331 | | 101,626 | |
Amortization of intangibles | | 175 | | 294 | |
Royalty income, net of royalty expense | | (2,628 | ) | (3,384 | ) |
Income from operations | | 53,172 | | 36,061 | |
Interest expense | | 17,799 | | 16,944 | |
Other income | | (93 | ) | (434 | ) |
Income before income tax expense | | 35,466 | | 19,551 | |
Income tax expense | | 13,613 | | 8,290 | |
Net income | | $ | 21,853 | | $ | 11,261 | |
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SEALY MATTRESS CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
| | February 27,
2005 | | November 28,
2004* | |
| | (Unaudited) | | | |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 37,838 | | $ | 22,779 | |
Accounts receivable, net of allowances for bad debts, cash discounts and returns | | 197,375 | | 172,829 | |
Inventories | | 57,177 | | 51,923 | |
Assets held for sale | | 4,370 | | 8,983 | |
Prepaid expenses, deferred taxes and other current assets | | 31,299 | | 42,611 | |
| | 328,059 | | 299,125 | |
| | | | | |
Property, plant and equipment-at cost | | 312,255 | | 309,919 | |
Less: accumulated depreciation | | (148,380 | ) | (145,740 | ) |
| | 163,875 | | 164,179 | |
Other assets: | | | | | |
Goodwill | | 385,863 | | 387,508 | |
Other intangibles | | 4,411 | | 4,555 | |
Debt issuance costs, net, and other assets | | 41,061 | | 41,910 | |
| | 431,335 | | 433,973 | |
| | $ | 923,269 | | $ | 897,277 | |
| | | | | |
Liabilities and Stockholders’ Deficit | | | | | |
Current liabilities: | | | | | |
Current portion of long-term obligations | | $ | 12,025 | | $ | 8,542 | |
Accounts payable | | 107,911 | | 96,566 | |
Accrued incentives and advertising | | 33,380 | | 35,829 | |
Accrued compensation | | 41,080 | | 37,142 | |
Accrued interest | | 13,054 | | 27,366 | |
Other accrued expenses | | 43,382 | | 49,795 | |
| | 250,832 | | 255,240 | |
| | | | | |
Due to parent company | | 3,405 | | 3,376 | |
Long-term obligations, net of current portion | | 977,361 | | 965,795 | |
Other noncurrent liabilities | | 43,619 | | 45,774 | |
Deferred income taxes | | 12,647 | | 10,835 | |
Commitments and contingencies | | — | | — | |
| | | | | |
Stockholders’ deficit: | | | | | |
Common stock | | — | | — | |
Additional paid-in capital | | 458,620 | | 458,620 | |
Accumulated deficit | | (826,305 | ) | (848,158 | ) |
Accumulated other comprehensive loss | | 3,090 | | 5,795 | |
| | (364,595 | ) | (383,743 | ) |
| | $ | 923,269 | | $ | 897,277 | |
| | | | | | | | | | | |
*Condensed from audited financial statements.
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SEALY MATTRESS CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | Quarter Ended | |
| | February 27,
2005 | | February 29,
2004 | |
Net cash provided by (used in) operating activities | | $ | 1,892 | | $ | (18,452 | ) |
| | | | | |
Cash flows from investing activities: | | | | | |
Purchase of property, plant and equipment, net | | (5,698 | ) | (5,342 | ) |
Proceeds from the sale of property, plant and equipment | | 4,648 | | — | |
Net cash used in investing activities | | (1,050 | ) | (5,342 | ) |
| | | | | |
Cash flows from financing activities: | | | | | |
Repayments of long-term obligations | | (5,000 | ) | — | |
Net borrowings under revolving credit facilities | | 17,251 | | — | |
Treasury stock repurchase | | — | | (508 | ) |
Equity issuances | | — | | 314 | |
Other | | 2,938 | | 817 | |
Net cash provided by financing activities | | 15,189 | | 623 | |
Effect of exchange rate changes on cash | | (972 | ) | (88 | ) |
| | | | | |
Change in cash and cash equivalents | | 15,059 | | (23,259 | ) |
Cash and cash equivalents: | | | | | |
Beginning of period | | 22,779 | | 101,100 | |
End of period | | $ | 37,838 | | $ | 77,841 | |
| | | | | |
Supplemental disclosures: | | | | | |
Selected noncash items: | | | | | |
Non-cash compensation | | $ | 156 | | $ | — | |
Depreciation and amortization | | 5,488 | | 6,123 | |
Non-cash interest expense associated with: | | | | | |
Debt issuance costs | | 1,220 | | 1,422 | |
Premium on Senior Subordinated Notes, net | | — | | (173 | ) |
Net interest income associated with interest rate swap and cap agreements | | (334 | ) | (342 | ) |
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Our new long-term obligations contain various financial tests and covenants. Our senior secured credit facilities require us to meet a minimum interest coverage ratio and a maximum leverage ratio. The indenture governing our senior subordinated notes also requires us to meet a fixed charge coverage ratio in order to incur additional indebtedness, subject to certain exceptions. We are currently in compliance with all debt covenants. The specific covenants and related definitions can be found in the applicable debt agreements, each of which we have previously filed with the Securities and Exchange Commission.
The covenants contained in our senior secured credit facilities are based on what we refer to herein as “Adjusted EBITDA”. In the senior secured credit facilities, EBITDA is defined as net income plus interest, taxes, depreciation and amortization and Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance as discussed above. Adjusted EBITDA is presented herein as it is a material component of these covenants. Non-compliance with such covenants could result in the requirement to immediately repay all amounts outstanding under such facilities. While the determination of “unusual items” is subject to interpretation and requires judgment, we believe the adjustments listed below are in accordance with covenants discussed above.
EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, they are not intended to be measures of free cash flow for management’s discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.
The following table sets forth a reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA for the three months ended February 27, 2005:
| | Three Months
Ended
February 27,
2005 | |
| | (in millions) | |
| | | |
Net Income | | $ | 21.9 | |
Interest | | 17.8 | |
Income Taxes | | 13.6 | |
Depreciation and Amortization | | 5.5 | |
| | | |
EBITDA | | $ | 58.8 | |
Management fees payable to KKR | | 0.5 | |
| | | |
Unusual items: | | | |
Post-closing residual plant costs | | 0.5 | |
Other (various) | | (0.2 | ) |
| | | |
Adjusted EBITDA | | $ | 59.6 | |
Adjusted EBITDA for the quarter ended February 29, 2004 was fixed and defined per the terms of our senior secured credit facilities as being $47.5 million.
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The following table reconciles EBITDA to cash flow from operations:
| | February 27,
2005 | | February 29,
2004 | |
| | | | | |
Net income | | $ | 21.9 | | $ | 11.3 | |
Interest | | 17.8 | | 16.9 | |
Income Taxes | | 13.6 | | 8.3 | |
Depreciation & Amortization | | 5.5 | | 6.1 | |
| | | | | |
EBITDA | | $ | 58.8 | | $ | 42.6 | |
Adjustments to EBITDA to arrive at cash flow from operations: | | | | | |
Interest expense | | (17.8 | ) | (16.9 | ) |
Income taxes | | (13.6 | ) | (8.3 | ) |
Non-cash charges against (credits to) net income | | 10.4 | | 0.8 | |
Changes in operating assets & liabilities. | | (35.9 | ) | (36.7 | ) |
| | | | | |
Cash flow from operations | | $ | 1.9 | | $ | (18.5 | ) |
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