Exhibit 99.1
SEALY CORPORATION |
Mailing Address: One Office Parkway · Trinity, North Carolina 27370 |
Telephone: 336-861-3500 · Fax: 336-861-3501 |
FOR IMMEDIATE RELEASE | Contact: | Mark D. Boehmer |
| | VP & Treasurer |
| | (336) 861- 3603 |
SEALY CORPORATION REPORTS SECOND QUARTER RESULTS
— Net Sales Grow 5.9% —
— Gross Profit Increases 7.3% —
ARCHDALE, North Carolina (July 12, 2006) — Sealy Corporation (NYSE: ZZ), the largest bedding manufacturer in the world, today announced results for its second quarter of fiscal 2006.
Net sales for the fiscal quarter ended May 28, 2006 increased 5.9% to $376.7 million from $355.9 million for the comparable period a year earlier. Domestic net sales increased 2.5% to $291.5 million as average unit selling price improved 9.0% and unit volume declined 5.9%. International net sales increased $13.6 million or 19.0% (17.4% on a constant currency basis) to $85.2 million on unit volume increases of 12.2% and average unit selling price improvement of 6.0%.
Second quarter gross profit was $168.6 million, or 44.7% of sales, versus $157.1 million, or 44.1% of sales, for the comparable period a year earlier. This increase was due primarily to improvements in Sealy’s international operations, domestic manufacturing efficiency and sales mix, as its luxury products, which retail above $1,000, continued to outpace sales of other products. Adjusted EBITDA(1) for the quarter increased to $56.9 million versus $56.0 million for the comparable period a year earlier.
Net income was $0.1 million, or $0.00 per diluted share, versus $6.4 million for the comparable period a year ago. Second quarter 2006 operating results included pretax costs of $34.2 million, or $21.0 million after tax or $0.24 per diluted share, related to the Company’s initial public offering (“IPO”) and related debt repayment. Second quarter results also include $6.4 million of incremental cost related to the launch of Sealy’s new products and $1.5 million of incremental expense for stock options versus the comparable prior year period. As previously disclosed, these incremental costs are expected to total approximately $15 million to $20 million in 2006. Second quarter 2005 operating results included pretax costs of $6.2 million, or $3.7 million after tax, related to debt refinancing.
“We are pleased with our results for the quarter and the progress we have made on our new product introductions. The Stearns & Foster roll-out is complete and approximately half of the new Posturepedic product has been rolled out,” said David J. McIlquham, Sealy’s Chairman and Chief Executive Officer. “As we have previously communicated, product upgrade cycles typically impact unit volumes in the short term as our retail partners transition the beds on their selling floors. Over the long term, such new product innovation is an important driver of our growth. This process is expected to last until the beginning of the fourth quarter domestically and is already complete in some of our international businesses that introduced major new lines in the first quarter of 2006.”
(1) Please see the attached tables below for a reconciliation of Adjusted EBITDA to net income and cash flow from operations.
Mr. McIlquham continued, “Along with ongoing strong demand in our international markets, we are focused on driving domestic unit volume through new product introductions and targeted promotions during the key summer months. We firmly believe that the strength of our brands, our position as the market share leader in the industry, combined with continued operating improvements, position Sealy to increase its annual cash flow and profitability consistently over the long term.”
Net sales for the six months ended May 28, 2006 increased 8.0% to $772.4 million from $714.9 million for the comparable period a year earlier. Gross profit was $345.3 million, or 44.7% of sales, versus $316.2 million, or 44.2% of sales, for the comparable period a year earlier. Adjusted EBITDA was $120.9 million versus $115.7 million for the comparable period a year earlier. Net income was $23.1 million, versus net income of $27.1 million for the comparable period a year ago. Six month results include $14.9 million of incremental cost related to the launch of Sealy’s new products and $1.8 million of incremental expense for stock options versus the comparable prior year.
As of May 28, 2006, Sealy’s cash and cash equivalent balance was $24.2 million versus $25.0 million at the comparable time last year. The Company had total debt of $818.0 million at May 28, 2006, compared to total debt of $1,033.8 million as of May 29, 2005.
As previously announced, the Company’s Board of Directors has authorized a quarterly cash dividend of $0.075 per common share. The dividend is payable on August 1, 2006, to common stockholders of record on July 14, 2006.
Conference Call
The Company will host a conference call and audio webcast with investors, analysts and other interested parties today at 5:00 P.M. Eastern time. The live call can be accessed by dialing (800) 289-0529 or for international participants (913) 981-5523. Participants should register at least 15 minutes prior to the commencement of the call. Additionally, a live audio webcast will be available to interested parties at www.sealy.com under the Investor Relations section. Participants should allow at least 15 minutes prior to the commencement of the call to register, download and install necessary audio software.
About Sealy
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 20 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.
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SEALY CORPORATION
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| | Quarter Ended | |
| | May 28, 2006 | | May 29, 2005 | |
Net sales | | $ | 376,712 | | $ | 355,890 | |
Cost of goods sold | | 208,136 | | 198,777 | |
Gross Profit | | 168,576 | | 157,113 | |
| | | | | |
Selling, general and administrative expenses | | 123,111 | | 110,465 | |
Expenses associated with initial public offering of common stock | | 28,510 | | — | |
Amortization of intangibles | | 133 | | 112 | |
Royalty income, net of royalty expense | | (3,706 | ) | (3,716 | ) |
| | | | | |
Income from operations | | 20,528 | | 50,252 | |
Interest expense | | 17,893 | | 20,378 | |
Debt extinguishment and refinancing expenses | | 5,295 | | 6,248 | |
Other income, net | | (379 | ) | (65 | ) |
| | | | | |
Income (loss) before income tax expense (benefit) | | (2,281 | ) | 23,691 | |
Income tax expense (benefit) | | (2,407 | ) | 17,270 | |
| | | | | |
Net income | | $ | 126 | | $ | 6,421 | |
| | | | | |
Earnings per common share - Basic | | $ | — | | $ | 0.09 | |
| | | | | |
Earnings per common share - Diluted | | $ | — | | $ | 0.09 | |
| | | | | |
Weighted average number of common shares outstanding: | | | | | |
Basic | | 82,065 | | 70,323 | |
Diluted | | 88,440 | | 75,054 | |
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SEALY CORPORATION
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
| | Six Months Ended | |
| | May 28, 2006 | | May 29, 2005 | |
Net sales | | $ | 772,447 | | $ | 714,913 | |
Cost of goods sold | | 427,174 | | 398,750 | |
Gross Profit | | 345,273 | | 316,163 | |
| | | | | |
Selling, general and administrative expenses | | 246,715 | | 218,796 | |
Expenses associated with initial public offering of common stock | | 28,510 | | — | |
Amortization of intangibles | | 255 | | 287 | |
Royalty income, net of royalty expense | | (7,395 | ) | (6,344 | ) |
| | | | | |
Income from operations | | 77,188 | | 103,424 | |
Interest expense | | 36,629 | | 40,105 | |
Debt extinguishment and refinancing expenses | | 5,295 | | 6,248 | |
Other income, net | | (566 | ) | (158 | ) |
| | | | | |
Income before income tax expense | | 35,830 | | 57,229 | |
Income tax expense | | 12,445 | | 30,174 | |
| | | | | |
Income before cumulative effect of a change in accounting principle | | 23,385 | | 27,055 | |
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 | | $ | 23,098 | | $ | 27,055 | |
| | | | | |
Earnings per common share - Basic | | | | | |
Income before cumulative effect of a change in accounting principle | | $ | 0.30 | | $ | 0.38 | |
Cumulative effect of a change in accounting principle | | — | | — | |
Earnings per common share - Basic | | $ | 0.30 | | $ | 0.38 | |
| | | | | |
Earnings per common share - Diluted | | | | | |
Income before cumulative effect of a change in accounting principle | | $ | 0.28 | | $ | 0.35 | |
Cumulative effect of a change in accounting principle | | — | | — | |
Earnings per common share - Diluted | | $ | 0.28 | | $ | 0.35 | |
| | | | | |
Weighted average number of common shares outstanding: | | | | | |
Basic | | 76,273 | | 70,285 | |
Diluted | | 82,458 | | 77,848 | |
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SEALY CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
| | May 28,
2006 | | November 27,
2005 | | May 29,
2005 | |
| | (Unaudited) | | | | (Unaudited) | |
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 24,207 | | $ | 36,554 | | $ | 25,038 | |
Accounts receivable, net of allowances for bad debts, cash discounts and returns | | 184,096 | | 175,414 | | 185,440 | |
Inventories | | 67,827 | | 60,141 | | 56,278 | |
Assets held for sale | | 1,405 | | 1,405 | | 4,270 | |
Prepaid expenses and other current assets | | 21,676 | | 14,320 | | 11,636 | |
Deferred income taxes | | 16,583 | | 16,555 | | 13,201 | |
| | 315,794 | | 304,389 | | 295,863 | |
| | | | | | | |
Property, plant and equipment—at cost | | 346,450 | | 328,935 | | 319,683 | |
Less: accumulated depreciation | | (171,110 | ) | (160,958 | ) | (152,720 | ) |
| | | | | | | |
| | 175,340 | | 167,977 | | 166,963 | |
Other assets: | | | | | | | |
Goodwill | | 388,286 | | 384,646 | | 384,240 | |
Other intangibles | | 4,508 | | 4,559 | | 4,470 | |
Debt issuance costs, net, and other assets | | 28,849 | | 33,116 | | 36,211 | |
| | 421,643 | | 422,321 | | 424,921 | |
| | $ | 912,777 | | $ | 894,687 | | $ | 887,747 | |
| | | | | | | |
Liabilities and Stockholders’ Deficit | | | | | | | |
Current liabilities: | | | | | | | |
Current portion of long-term obligations | | $ | 21,955 | | $ | 12,769 | | $ | 20,676 | |
Accounts payable | | 108,920 | | 119,558 | | 103,558 | |
Accrued incentives and advertising | | 31,351 | | 37,958 | | 32,525 | |
Accrued compensation | | 30,390 | | 44,138 | | 32,511 | |
Accrued interest | | 16,809 | | 18,414 | | 18,548 | |
Other accrued expenses | | 39,381 | | 47,429 | | 41,869 | |
| | | | | | | |
| | 248,806 | | 280,266 | | 249,687 | |
| | | | | | | |
Long-term obligations, net of current portion | | 796,092 | | 948,975 | | 1,013,135 | |
Other noncurrent liabilities | | 45,314 | | 43,659 | | 43,355 | |
Deferred income taxes | | 13,644 | | 12,356 | | 15,652 | |
Commitments and contingencies | | — | | — | | — | |
| | | | | | | |
Common stock and options subject to redemption | | 21,310 | | 21,654 | | — | |
| | | | | | | |
Stockholders’ deficit: | | | | | | | |
Common stock, $0.01 par value; Authorized 200,000 shares; Issued and outstanding: 2006 — 90,836; 2005 — 70,480 (including shares classified above as subject to redemption: 2006 — 263; 2005 — 263) | | 905 | | 702 | | 926 | |
Additional paid-in capital | | 662,799 | | 365,900 | | 386,702 | |
Accumulated deficit | | (883,365 | ) | (781,463 | ) | (822,887 | ) |
Accumulated other comprehensive income | | 7,272 | | 2,638 | | 1,177 | |
| | (212,389 | ) | (412,223 | ) | (434,082 | ) |
| | $ | 912,777 | | $ | 894,687 | | $ | 887,747 | |
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SEALY CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | Six Months Ended | |
| | May 28, 2006 | | May 29, 2005 | |
Cash flows from operating activities: | | | | | |
Net income | | $ | 23,098 | | $ | 27,055 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | |
Depreciation and amortization | | 10,994 | | 10,719 | |
Deferred income taxes | | 975 | | 17,344 | |
Non-cash interest expense: | | | | | |
Senior Subordinated PIK Notes | | 3,348 | | 3,886 | |
Amortization of debt issuance costs and other | | 756 | | 2,084 | |
Stock-based compensation | | 2,074 | | 251 | |
(Gain) loss on sale of assets | | 564 | | (53 | ) |
Write-off of debt issuance costs related to debt extinguishments | | 1,725 | | 3,384 | |
Cumulative effect of accounting change | | 287 | | — | |
Other, net | | (177 | ) | 314 | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | | (8,682 | ) | (12,611 | ) |
Inventories | | (7,686 | ) | (4,355 | ) |
Prepaid expenses and other current assets | | (6,644 | ) | 4,294 | |
Accounts payable | | (12,114 | ) | 6,992 | |
Accrued expenses | | (29,140 | ) | (22,387 | ) |
Other liabilities | | 778 | | (2,182 | ) |
| | | | | |
Net cash provided by (used in) operating activities | | (19,844 | ) | 34,735 | |
| | | | | |
Cash flows from investing activities: | | | | | |
Purchase of property, plant and equipment, net | | (16,047 | ) | (14,807 | ) |
Proceeds from the sale of property, plant and equipment | | 464 | | 4,648 | |
| | | | | |
Net cash used in investing activities | | (15,583 | ) | (10,159 | ) |
| | | | | |
Cash flows from financing activities: | | | | | |
Proceeds from initial public offering of common stock, net of underwriting discount and other direct costs of $24,489 | | 295,511 | | — | |
Cash dividend | | (125,000 | ) | — | |
Repayments of long-term obligations, including premiums paid of $2,703 in 2006 | | (139,317 | ) | (35,000 | ) |
Borrowings under revolving credit facilities | | 108,718 | | 178,122 | |
Repayments of amounts borrowed under revolving credit facilities | | (121,576 | ) | (172,861 | ) |
Other borrowings | | 2,594 | | 8,149 | |
Exercise of employee stock options, including related excess tax benefits | | 1,814 | | 252 | |
Other | | — | | (251 | ) |
| | | | | |
Net cash provided by (used in) financing activities | | 22,744 | | (21,589 | ) |
| | | | | |
Effect of exchange rate changes on cash | | 336 | | (728 | ) |
| | | | | |
Change in cash and cash equivalents | | (12,347 | ) | 2,259 | |
Cash and cash equivalents: | | | | | |
Beginning of period | | 36,554 | | 22,779 | |
End of period | | $ | 24,207 | | $ | 25,038 | |
6
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 the 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 and six months ended May 28, 2006 and May 29, 2005:
| | Three months ended | | Six months ended | |
| | May 28, 2006 | | May 29, 2005 | | May 28, 2006 | | May 29, 2005 | |
Income before cumulative effect of change in accounting principle | | $ | 0.1 | | $ | 6.4 | | $ | 23.4 | | $ | 27.1 | |
Interest cost | | 17.9 | | 20.4 | | 36.6 | | 40.1 | |
Income taxes | | (2.4 | ) | 17.3 | | 12.4 | | 30.2 | |
Depreciation and amortization | | 5.3 | | 5.2 | | 11.0 | | 10.7 | |
| | | | | | | | | |
EBITDA | | $ | 20.9 | | $ | 49.3 | | 83.4 | | 108.1 | |
Management fees to KKR | | 0.2 | | 0.5 | | 0.8 | | 1.0 | |
Unusual and nonrecurring losses: | | | | | | | | | |
IPO expenses | | 28.5 | | — | | 28.5 | | — | |
Post-closing residual plant costs | | 0.2 | | 0.4 | | 0.4 | | 0.8 | |
Non-cash compensation | | 1.6 | | 0.3 | | 2.1 | | — | |
Debt extinguishment or refinancing charges | | 5.3 | | 6.2 | | 5.3 | | 6.2 | |
Other (various) | | 0.2 | | (0.7 | ) | 0.4 | | (0.4 | ) |
| | | | | | | | | |
Adjusted EBITDA | | $ | 56.9 | | $ | 56.0 | | $ | 120.9 | | $ | 115.7 | |
The following table reconciles EBITDA to cash flow from operations:
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| | Six Months Ended | |
| | May 28, 2006 | | May 29, 2005 | |
Income before cumulative effect of change in accounting principle | | $ | 23.4 | | $ | 27.1 | |
Interest | | 36.6 | | 40.1 | |
Income Taxes | | 12.4 | | 30.2 | |
Depreciation & Amortization | | 11.0 | | 10.7 | |
| | | | | |
EBITDA | | 83.4 | | 108.1 | |
Adjustments to EBITDA to arrive at cash flow from operations: | | | | | |
Interest expense | | (36.6 | ) | (40.1 | ) |
Income taxes | | (12.4 | ) | (30.2 | ) |
Non-cash charges against (credits to) net income | | 9.3 | | 27.1 | |
Changes in operating assets & liabilities. | | (63.5 | ) | (30.2 | ) |
| | | | | |
Cash flow from operations | | $ | (19.8 | ) | $ | 34.7 | |
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