Exhibit 99.1
| Contact: Mark D. Boehmer | |
| VP & Treasurer | |
| (336) 861- 3603 | |
|
| |
| FOR IMMEDIATE RELEASE | |
SEALY MATTRESS CORPORATION REPORTS CONTINUED STRONG SALES AND EARNINGS IMPROVEMENTS
Sales Growth of 10.2% and Net Income Increase of 11.2% in the First Quarter
ARCHDALE, North Carolina (April 12, 2006) – Sealy Mattress Corporation reported net sales of $395.7 million for the quarter ended February 26, 2006, an increase of 10.2% from $359.0 million for the same period a year earlier. Gross profit was $176.7 million or 44.7% of sales as compared with $159.1 or 44.3% of sales for the same period a year earlier. Net income was $24.3 million, compared with $21.9 million from the same period a year ago an increase of 11.2%. Adjusted EBITDA(1), as defined in the credit agreement governing the senior secured credit facilities of Sealy Mattress Company, a wholly-owned subsidiary, was $63.9 million for the quarter ended February 26, 2006 compared with $59.6 million a year earlier, an increase of 7.2%.
“We are pleased with our start to 2006”, said David J. McIlquham, Sealy’s Chairman and Chief Executive Officer. “During the quarter we saw continued strong consumer demand for our brands worldwide. In addition, we completed the majority of the Stearns & Foster product rollout and introduced the new Posturepedic line to retailers at the Las Vegas Furniture Market in January 2006. The rollout of the new Posturepedic line began in late March and should be complete by the end of our fourth quarter.”
On April 12, 2006, Sealy Mattress Corporation’s parent company, Sealy Corporation, completed an initial public offering (“IPO”) of its common stock. Approximately $82.5 million of the net proceeds received by Sealy Corporation from the IPO will be contributed to Sealy Mattress Corporation to be used as follows: (i) approximately $54.3 million to retire approximately $48.5 million aggregate principal amount of the Company’s 8.25% Senior Subordinated Notes (the “Notes”) due in 2014, along with prepayment penalties and accrued interest thereon; (ii) $11.0 million to terminate the management services agreement with Kohlberg Kravis Roberts & Co. L.P.; and (iii) approximately $17.2 million to pay a transaction-related bonus to members of management.
As a result of its initial public offering Sealy Corporation will begin filing quarterly financial information with the United States Securities and Exchange Commission. We expect that its quarterly report on Form 10-Q for the first quarter of fiscal year 2006 will be completed and filed by May 21, 2006. A quarterly conference call will be held after this Form 10-Q has been filed with the SEC.
Sealy is the largest bedding manufacturer in the world with sales of nearly $1.5 billion in 2005. 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. 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.
(1) Please see the attached tables below for a reconciliation of Adjusted EBITDA to net income and cash flow from operations.
SEALY MATTRESS CORPORATION
Condensed Consolidated Statements of Operations
(in thousands)
(unaudited)
|
| Quarter Ended |
| ||||
|
| February 26, |
| February 27, |
| ||
Net sales |
| $ | 395,735 |
| $ | 359,023 |
|
|
|
|
|
|
| ||
Cost of goods sold |
| 219,038 |
| 199,973 |
| ||
|
|
|
|
|
| ||
Gross Profit |
| 176,697 |
| 159,050 |
| ||
|
|
|
|
|
| ||
Selling, general and administrative |
| 123,604 |
| 108,331 |
| ||
Amortization of intangibles |
| 122 |
| 175 |
| ||
Royalty income, net of royalty expense |
| (3,689 | ) | (2,628 | ) | ||
|
|
|
|
|
| ||
Income from operations |
| 56,660 |
| 53,172 |
| ||
Interest expense |
| 16,616 |
| 17,799 |
| ||
Other income, net |
| (187 | ) | (93 | ) | ||
|
|
|
|
|
| ||
Income before income tax expense |
| 40,231 |
| 35,466 |
| ||
Income tax expense |
| 15,646 |
| 13,613 |
| ||
|
|
|
|
|
| ||
Income before cumulative effect of a change in accounting principle |
| 24,585 |
| 21,853 |
| ||
Cumulative effect on prior years (to November 28, 2005) of the adoption of FASB Interpretation No. 47, net of related tax benefit of $191 |
| 287 |
| — |
| ||
|
|
|
|
|
| ||
Net income |
| $ | 24,298 |
| $ | 21,853 |
|
SEALY MATTRESS CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
|
| February 26, |
| November |
| ||
|
| (Unaudited) |
|
|
| ||
Assets |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 13,760 |
| $ | 36,554 |
|
Accounts receivable, net of allowances for bad debts, cash discounts and returns |
| 203,977 |
| 175,414 |
| ||
Inventories |
| 66,485 |
| 60,141 |
| ||
Assets held for sale |
| 1,405 |
| 1,405 |
| ||
Prepaid expenses and other current assets |
| 12,890 |
| 12,372 |
| ||
Deferred income taxes |
| 16,661 |
| 16,555 |
| ||
|
|
|
|
|
| ||
|
| 315,178 |
| 302,441 |
| ||
|
|
|
|
|
| ||
Property, plant and equipment—at cost |
| 335,415 |
| 328,935 |
| ||
Less: accumulated depreciation |
| (166,447 | ) | (160,958 | ) | ||
|
|
|
|
|
| ||
|
| 168,968 |
| 167,977 |
| ||
Other assets: |
|
|
|
|
| ||
Goodwill |
| 385,487 |
| 384,646 |
| ||
Other intangibles |
| 4,486 |
| 4,559 |
| ||
Debt issuance costs, net, and other assets |
| 32,012 |
| 32,812 |
| ||
|
|
|
|
|
| ||
|
| 421,985 |
| 422,017 |
| ||
|
|
|
|
|
| ||
|
| $ | 906,131 |
| $ | 892,435 |
|
|
|
|
|
|
| ||
Liabilities and Stockholders’ Deficit |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Current portion of long-term obligations |
| $ | 11,288 |
| $ | 12,769 |
|
Accounts payable |
| 110,473 |
| 119,558 |
| ||
Accrued incentives and advertising |
| 34,480 |
| 37,958 |
| ||
Accrued compensation |
| 46,168 |
| 44,138 |
| ||
Accrued interest |
| 10,019 |
| 18,414 |
| ||
Other accrued expenses |
| 57,164 |
| 47,360 |
| ||
|
|
|
|
|
| ||
|
| 269,592 |
| 280,197 |
| ||
|
|
|
|
|
| ||
Due to parent company |
| 6,857 |
| 6,231 |
| ||
Long-term obligations, net of current portion |
| 861,798 |
| 863,209 |
| ||
Other noncurrent liabilities |
| 43,194 |
| 43,659 |
| ||
Deferred income taxes |
| 12,492 |
| 12,356 |
| ||
Commitments and contingencies |
| — |
| — |
| ||
|
|
|
|
|
| ||
Stockholders’ deficit: |
|
|
|
|
| ||
Common stock |
| — |
| — |
| ||
Additional paid-in capital |
| 458,620 |
| 458,620 |
| ||
Accumulated deficit |
| (750,177 | ) | (774,475 | ) | ||
Accumulated other comprehensive loss |
| 3,755 |
| 2,638 |
| ||
|
|
|
|
|
| ||
|
| (287,802) |
| (313,217 | ) | ||
|
|
|
|
|
| ||
|
| $ | 906,131 |
| $ | 892,435 |
|
SEALY MATTRESS CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
| Quarter Ended |
| ||||
|
| February 26, |
| February 27, |
| ||
Net cash provided by (used in) operating activities |
| $ | (14,691 | ) | $ | 1,892 |
|
|
|
|
|
|
| ||
Cash flows from investing activities: |
|
|
|
|
| ||
Purchase of property, plant and equipment, net |
| (5,577 | ) | (5,698 | ) | ||
Proceeds from the sale of property, plant and equipment |
| 29 |
| 4,648 |
| ||
|
|
|
|
|
| ||
Net cash used in investing activities |
| (5,548 | ) | (1,050 | ) | ||
|
|
|
|
|
| ||
Cash flows from financing activities: |
|
|
|
|
| ||
Repayments of long-term obligations |
| — |
| (5,000 | ) | ||
Net borrowings (repayments) under revolving credit facilities |
| (3,295 | ) | 17,251 |
| ||
Other |
| 618 |
| 2,938 |
| ||
|
|
|
|
|
| ||
Net cash provided by (used in) financing activities |
| (2,677 | ) | 15,189 |
| ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash |
| 122 |
| (972 | ) | ||
|
|
|
|
|
| ||
Change in cash and cash equivalents |
| (22,794 | ) | 15,059 |
| ||
Cash and cash equivalents: |
|
|
|
|
| ||
Beginning of period |
| 36,554 |
| 22,779 |
| ||
|
|
|
|
|
| ||
End of period |
| $ | 13,760 |
| $ | 37,838 |
|
Our 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 new 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.
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 26, 2006 and February 27, 2005:
|
| Three Months Ended |
| ||
|
| February 26, 2006 |
| February 27, 2005 |
|
Income before cumulative effect of change in accounting principle |
| $24.6 |
| $21.9 |
|
Interest cost |
| 16.6 |
| 17.8 |
|
Income taxes |
| 15.7 |
| 13.6 |
|
Depreciation and amortization |
| 5.7 |
| 5.5 |
|
|
|
|
|
|
|
EBITDA |
| 62.6 |
| 58.8 |
|
Management fees to KKR |
| 0.5 |
| 0.5 |
|
Unusual and nonrecurring losses: |
|
|
|
|
|
Post-closing residual plant costs |
| 0.3 |
| 0.5 |
|
Non-cash compensation |
| 0.4 |
| — |
|
Other (various) |
| 0.1 |
| (0.2 | ) |
|
|
|
|
|
|
Adjusted EBITDA |
| $63.9 |
| $59.6 |
|
The following table reconciles EBITDA to cash flow from operations:
|
| February 26, |
| February 27, |
| ||
Income before cumulative effect of change in accounting principle |
| $ | 24.6 |
| $ | 21.9 |
|
Interest |
| 16.6 |
| 17.8 |
| ||
Income Taxes |
| 15.7 |
| 13.6 |
| ||
Depreciation & Amortization |
| 5.7 |
| 5.5 |
| ||
|
|
|
|
|
| ||
EBITDA |
| 62.6 |
| 58.8 |
| ||
Adjustments to EBITDA to arrive at cash flow from operations: |
|
|
|
|
| ||
Interest expense |
| (16.6 | ) | (17.8 | ) | ||
Income taxes |
| (15.7 | ) | (13.6 | ) | ||
Non-cash charges against (credits to) net income |
| (1.0 | ) | 10.4 |
| ||
Changes in operating assets & liabilities |
| (44.0 | ) | (35.9 | ) | ||
|
|
|
|
|
| ||
Cash flow from operations |
| $ | (14.7 | ) | $ | 1.9 |
|
