Exhibit 99.1
Contact: Mark D. Boehmer
VP & Treasurer
(336) 861- 3603
FOR IMMEDIATE RELEASE
SEALY REPORTS CONTINUED STRONG SALES AND EARNINGS IMPROVEMENTS
Sales Growth of 11.8% for Fiscal Year 2005, Net Debt Reduction of $112 Million
ARCHDALE, North Carolina (February 27, 2006) — Sealy Mattress Corporation reported net sales of $364.6 million for the quarter ending November 27, 2005, an increase of 13.2% from $322.0 million for the same period a year earlier. Gross profit was $159.5 million or 43.7% of sales as compared with $139.4 or 43.3% of sales for the same period a year earlier. Net income was $16.6 million, compared with $12.2 million from the same period a year ago. For the year ending November 27, 2005, Sealy reported net sales of $1,469.6 million, an increase of $155.6 million or 11.8% from $1,314.0 million in fiscal 2004. Gross profit was $651.6 million or 44.3% of sales as compared with $573.9 million or 43.7% a year earlier. Net income was $73.7 million or 5.0% of sales, as compared to a net loss of $38.3 million a year earlier. The 2004 net loss included a pretax charge of $133.1 million for recapitalization expenses. Adjusted EBITDA(1), as defined in the credit agreement governing its senior secured credit facilities, was $233.1 million for the year ending November 27, 2005 compared with $200.0 million a year earlier, an increase of 16.6%. Sealy’s debt, net of cash, at November 27, 2005 was $839.4 million, down $112.1 million from the end of the prior fiscal year end.
(1) Please see the attached tables below for a reconciliation of Adjusted EBITDA to net income and cash flow from operations.
“We are pleased with our 2005 results,” said David J. McIlquham, Sealy’s Chairman and Chief Executive Officer. “During the year, Sealy generated record sales levels as a result of continued strong consumer demand for our brands worldwide and new product introductions. That strong demand combined with our continuing focus on improving efficiencies in our facilities and our ongoing focus on working capital improvements allowed us to reduce our debt, net of cash by $112.1 million during the year.”
During late August and September, 2005 the Gulf Coast hurricanes caused a significant temporary disruption to the supply of an essential raw material used to manufacture polyurethane foam, a material used in the majority of Sealy’s bedding products. As a result, there was a temporary foam shortage that affected many North American manufacturers. Sealy experienced some limited impact on production schedules across all of its North American mattress plants for approximately four weeks during the fourth quarter. By re-prioritizing production and delivery schedules and locating alternative sources of foam products, Sealy successfully limited the impact of this disruption. The company was able to resume normal production and delivery schedules by the end of October. This disruption did not have a material impact on Sealy’s financial results for fiscal 2005.
Sealy also announced its annual fiscal year end conference call for Tuesday, February 28th at 2:00 pm EST. The dial-in number is: (888) 423-3271(Domestic), (612) 288-0337(International).
Sealy is the largest bedding manufacturer in the world with sales of $1,469 million in 2005. The Company manufactures and markets a broad range of mattresses and foundations under the Sealy ®, Sealy
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Posturepedic ®, Stearns & Foster ®, and Bassett ® brands. Sealy has the largest market share and highest consumer awareness of any bedding brand in North America. Domestically, Sealy has 25 plants and sells its products to 2,900 customers with more than 7,000 retail outlets. 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.
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
Consolidated Balance Sheets
(in thousands, except share amounts)
| | November 27,
2005 | | November 28,
2004 | |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 36,554 | | $ | 22,779 | |
Accounts receivable (net of allowance for doubtful accounts, discounts and returns, 2005—$20,409; 2004—$14,776) | | 175, 414 | | 172,829 | |
Inventories | | 60,141 | | 51,923 | |
Assets held for sale | | 1,405 | | 8,983 | |
Prepaid expenses and other current assets | | 12,372 | | 18,713 | |
Deferred income taxes | | 16,555 | | 23,898 | |
| | | | | |
| | 302,441 | | 299,125 | |
| | | | | |
Property, plant and equipment—at cost: | | | | | |
Land | | 11,671 | | 11,887 | |
Buildings and improvements | | 89,140 | | 86,125 | |
Machinery and equipment | | 218,898 | | 203,678 | |
Construction in progress | | 9,226 | | 8,229 | |
| | | | | |
| | 328,935 | | 309,919 | |
Less accumulated depreciation | | 160,958 | | 145,740 | |
| | | | | |
| | 167,977 | | 164,179 | |
| | | | | |
Other assets: | | | | | |
Goodwill | | 384,646 | | 387,508 | |
Other intangibles—net of accumulated amortization (2005—$4,755; 2004—$4,658) | | 4,559 | | 4,555 | |
Debt issuance costs, net, and other assets | | 32,812 | | 41,910 | |
| | | | | |
| | 422,017 | | 433,973 | |
| | | | | |
Total Assets | | $ | 892,435 | | $ | 897,277 | |
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SEALY MATTRESS CORPORATION
Consolidated Balance Sheets
(in thousands, except share amounts)
| | November 27,
2005 | | November 28,
2004 | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT | | | | | |
Current liabilities: | | | | | |
Current portion-long-term obligations | | $ | 12,769 | | $ | 8,542 | |
Accounts payable | | 119,558 | | 96,566 | |
Accrued expenses: | | | | | |
Customer incentives and advertising | | 37,958 | | 35,829 | |
Compensation | | 44,138 | | 37,142 | |
Interest | | 18,414 | | 27,366 | |
Other | | 47,360 | | 49,795 | |
| | | | | |
| | 280,197 | | 255,240 | |
| | | | | |
Due to parent company | | 6,231 | | 3,376 | |
Long-term obligations, net of current portion | | 863,209 | | 965,795 | |
Other noncurrent liabilities | | 43,659 | | 45,774 | |
Deferred income taxes | | 12,356 | | 10,835 | |
Commitments and contingencies | | — | | — | |
| | | | | |
Stockholders’ deficit: | | | | | |
Common stock, $0.01 par value; Authorized 1,000 shares; Issued (2005 — 1,000; 2004—1,000) | | — | | — | |
| | | | | |
Additional paid-in capital | | 458,620 | | 458,620 | |
Accumulated deficit | | (774,475 | ) | (848,158 | ) |
Accumulated other comprehensive income | | 2,638 | | 5,795 | |
| | | | | |
| | (313,217 | ) | (383,743 | ) |
| | | | | |
Total Liabilities and Stockholders’ Deficit | | $ | 892,435 | | $ | 897,277 | |
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SEALY MATTRESS CORPORATION
Consolidated Statements Of Operations
(in thousands)
| | Year Ended | |
| | November 27,
2005 | | November 28,
2004 | | November 30,
2003 | |
Net sales—Non-affiliates | | $ | 1,469,574 | | $ | 1,306,990 | | $ | 1,157,887 | |
Net sales—Affiliates | | — | | 7,030 | | 31,973 | |
| | | | | | | |
Total net sales | | 1,469,574 | | 1,314,020 | | 1,189,860 | |
| | | | | | | |
Cost and expenses: | | | | | | | |
Cost of goods sold—Non-affiliates | | 817,978 | | 736,074 | | 676,414 | |
Cost of goods sold—Affiliates | | — | | 4,035 | | 18,693 | |
| | | | | | | |
Total cost of goods sold | | 817,978 | | 740,109 | | 695,107 | |
| | | | | | | |
Gross Profit | | 651,596 | | 573,911 | | 494,753 | |
Selling, general and administrative (including provisions for bad debts $3,231, $3,149, and $5,047, respectively) | | 456,187 | | 430,881 | | 398,400 | |
Recapitalization expense | | — | | 133,134 | | — | |
Plant/Business closing and restructuring charges | | — | | 624 | | 1,825 | |
Amortization of intangibles | | 566 | | 1,208 | | 1,103 | |
Royalty income, net of royalty expense | | (13,220 | ) | (14,171 | ) | (12,472 | ) |
| | | | | | | |
Income from operations | | 208,063 | | 22,235 | | 105,897 | |
Interest expense | | 71,563 | | 69,928 | | 68,525 | |
Other (income) expense, net | | 5,353 | | (861 | ) | 907 | |
| | | | | | | |
Income (loss) before income taxes | | 131,147 | | (46,832 | ) | 36,465 | |
Income tax expense (benefit) | | 57,464 | | (8,549 | ) | 18,196 | |
| | | | | | | |
Net income (loss) | | $ | 73,683 | | $ | (38,283 | ) | $ | 18,269 | |
See accompanying notes to consolidated financial statements.
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SEALY MATTRESS CORPORATION
Consolidated Statements Of Cash Flows
(in thousands)
| | Year Ended | |
| | November 27,
2005 | | November 28,
2004 | | November 30,
2003 | |
Cash flows from operating activities: | | | | | | | |
Net income (loss) | | $ | 73,683 | | $ | (38,283 | ) | $ | 18,269 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | | 21,873 | | 25,367 | | 24,902 | |
Non-cash charges related to debt extinguishments | | 3,400 | | — | | — | |
Impairment charges | | — | | — | | 1,825 | |
Deferred income taxes | | 8,588 | | (16,231 | ) | (718 | ) |
Non-cash interest expense: | | | | | | | |
Discount (premium) on Senior Subordinated Notes, net | | — | | (227 | ) | 15 | |
Junior Subordinated Note | | — | | — | | 4,742 | |
Amortization of debt issuance costs and other | | 4,094 | | 3,376 | | 4,814 | |
Non-cash charges associated with recapitalization: | | | | | | | |
Stock based compensation | | — | | 24,571 | | — | |
Write off of deferred debt charges | | — | | 14,377 | | — | |
Other | | — | | 3,279 | | — | |
Other, net | | 3,217 | | 2,227 | | (3,134 | ) |
Changes in operating assets and liabilities: | | | | | | | |
Accounts receivable | | (2,585 | ) | (10,087 | ) | 5,753 | |
Inventories | | (8,218 | ) | (2,510 | ) | 4,020 | |
Prepaid expenses and other current assets | | 5,555 | | 594 | | (2,332 | ) |
Accounts payable | | 22,992 | | 11,088 | | 16,388 | |
Accrued expenses | | 1,112 | | 19,754 | | 7,761 | |
Other liabilities | | (2,664 | ) | 6,207 | | 4,757 | |
| | | | | | | |
Net cash provided by operating activities | | 131,047 | | 43,502 | | 87,062 | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchase of property, plant and equipment | | (29,354 | ) | (22,773 | ) | (13,291 | ) |
Cash received from affiliate notes and investments | | — | | 13,573 | | 13,611 | |
Proceeds from sale of property, plant and equipment | | 9,979 | | 1,768 | | 257 | |
| | | | | | | |
Net cash provided by (used in) investing activities | | (19,375 | ) | (7,432 | ) | 577 | |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Cash flows associated with financing of the recapitalization : | | | | | | | |
Proceeds from issuance of common stock | | — | | 436,050 | | — | |
Treasury stock repurchase | | — | | (748,146 | ) | — | |
Proceeds from issuance of new long-term obligations | | — | | 1,050,000 | | — | |
Repayment of existing long-term debt | | — | | (737,128 | ) | — | |
Debt issuance costs | | — | | (36,403 | ) | — | |
Repayments of long-term obligations | | (120,642 | ) | (90,000 | ) | — | |
Issuance of public notes | | — | | — | | 51,500 | |
Repayments of long-term obligations | | — | | — | | (62,237 | ) |
Net borrowings on revolving credit facilities | | 13,171 | | 5,000 | | — | |
Other borrowings | | 7,624 | | 1,953 | | 1,098 | |
Equity issuances | | — | | 63 | | 103 | |
Other | | 2,249 | | 2,552 | | (5,119 | ) |
| | | | | | | |
Net cash used in financing activities | | (97,598 | ) | (116,059 | ) | (14,655 | ) |
| | | | | | | |
Effect of exchange rate changes on cash | | (299 | ) | 1,668 | | 673 | |
| | | | | | | |
Change in cash and cash equivalents | | 13,775 | | (78,321 | ) | 73,657 | |
Cash and cash equivalents: | | | | | | | |
Beginning of period | | 22,779 | | 101,100 | | 27,443 | |
| | | | | | | |
End of period | | $ | 36,554 | | $ | 22,779 | | $ | 101,100 | |
| | | | | | | |
Supplemental disclosures: | | | | | | | |
Taxes paid (net of tax refunds $168, $2,292 and $512 in fiscal 2005, 2004 and 2003, respectively) | | $ | 40,683 | | $ | 6,440 | | $ | 22,382 | |
Interest paid | | $ | 76,421 | | $ | 62,635 | | $ | 50,211 | |
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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.
Certain covenants contained in the senior secured credit facilities and senior subordinated notes are based on what we refer to herein as “Adjusted EBITDA.” In those agreements, 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. For instance, the indenture governing the senior subordinated notes and the agreement governing our senior secured credit facilities each contain financial covenant ratios, specifically leverage and interest coverage ratios, that are calculated by reference to Adjusted EBITDA. Non-compliance with the financial ratio maintenance covenants contained in our senior secured credit facilities could result in the requirement to immediately repay all amounts outstanding under such facilities, while non-compliance with the debt incurrence ratios contained in the indenture governing the senior subordinated notes would prohibit us and our subsidiaries from being able to incur additional indebtedness other than pursuant to specified exceptions. In addition, under the restricted payment covenants contained in the indenture governing the senior subordinated notes, our ability to pay dividends is restricted by formula based on the amount of Adjusted EBITDA. While the determination of “unusual items” is subject to interpretation and requires judgment, we believe the adjustments listed below are in accordance with the 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. See Part II, Item 6 herein for a reconciliation of EBITDA to our cash flows from operations.
The following table sets forth a reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA:
| | Fiscal Year Ended | |
| | November 27,
2005 | | November 28,
2004 | |
Net Income (loss) | | $ | 73.7 | | $ | (38.3 | ) |
Interest cost | | 71.6 | | 69.9 | |
Income taxes | | 57.4 | | (8.5 | ) |
Depreciation and amortization | | 21.9 | | 25.4 | |
| | | | | |
EBITDA | | 224.6 | | 48.5 | |
Recapitalization expenses | | — | | 133.1 | |
Management fees to KKR | | 2.1 | | 1.4 | |
Unusual and nonrecurring losses: | | | | | |
Post-closing residual plant costs | | 0.4 | | 5.7 | |
Bank refinancing charge | | 6.3 | | — | |
Bonus to option holders related to parent company financing transaction | | — | | 4.0 | |
Other (various) | | (0.3 | ) | 7.3 | |
| | | | | |
Adjusted EBITDA | | $ | 233.1 | | $ | 200.0 | |
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The following table presents a reconciliation of EBITDA to cash flows from operations:
| | Fiscal Year Ended | |
| | November 27, 2005 | | November 28, 2004 | |
| | | | | |
EBITDA | | $ | 224.6 | | $ | 48.5 | |
Adjustments to EBITDA to arrive at cash flow from operations: | | | | | |
Cumulative effect of change in accounting principle | | — | | — | |
Interest expense | | (71.6 | ) | (69.9 | ) |
Income taxes | | (57.5 | ) | 8.5 | |
Non-cash charges against (credits to) net income: | | | | | |
Equity in losses (income) of investees | | — | | — | |
Business closure and impairment charges | | — | | — | |
Deferred income taxes | | 8.6 | | (16.2 | ) |
Non-cash interest expense | | 4.1 | | 3.1 | |
Non-cash charges related to debt extinguishments | | 3.4 | | — | |
Non-cash charges associated with the recapitalization | | — | | 42.2 | |
Other, net | | 3.2 | | 2.2 | |
Changes in operating assets & liabilities | | 16.2 | | 25.1 | |
| | | | | |
Cash flow from operations | | $ | 131.0 | | $ | 43.5 | |
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