TRINITY, N.C., June 30 /PRNewswire-FirstCall/ -- Sealy Corporation
(NYSE: ZZ), the bedding industry's largest global manufacturer,
today announced results for its second quarter of fiscal 2009. Net
sales for the second fiscal quarter were $298.5 million compared to
$375.4 million in the same prior year period. Gross Profit declined
$26.2 million to $122.2 million compared to the same period in the
prior year, while Gross Profit Margin increased 140 basis points
over the same time period. Income from operations declined $6.3
million to $29.1 million compared to the same period in the prior
year. As a percent of sales, income from operations increased 40
basis points from the same prior year period. Adjusted EBITDA
decreased to $41.6 million from $49.8 million, while Adjusted
EBITDA margin increased 60 basis points to 13.9% compared to the
same prior year period. Net loss for the second quarter was $(5.2)
million or $(0.06) per diluted share versus net income of $12.0
million or $0.13 per diluted share for the comparable period last
year. Results for the quarter included charges of $11.9 million net
of tax or $0.13 per diluted share related to the Company's
refinancing of its senior credit facility on May 29, 2009 and
rights for Convertible Notes. "During the second quarter, we were
able to strengthen our competitive position, execute consistently
on our strategic initiatives, and substantially improve our
operating performance compared to the first quarter of fiscal 2009,
despite the continuation of challenging global macro-economic
conditions and a difficult retail environment," stated Larry
Rogers, Sealy's President and Chief Executive Officer. "We
continued to be intensely focused on positively affecting those
areas of our business that we can control, including establishing
stronger working partnerships with our retailers and suppliers,
providing customers with the right Sealy products to address their
current needs, unveiling our new Stearns & Foster line, and
reducing our cost base to reflect the weaker revenue environment,"
added Mr. Rogers. Total U.S. net sales were $222.5 million compared
to $258.7 million in the second quarter of 2008. Wholesale domestic
net sales, which exclude third party sales from Sealy's component
plants, were $217.9 million, compared to $252.9 million in the
second quarter of 2008. A soft retail environment negatively
impacted domestic revenue performance. In the U.S., Average Unit
Selling Price (AUSP) decreased 0.7% and unit volume declined 13.2%
on a year-over-year basis. International net sales decreased $40.7
million, or 34.9%, from the second quarter of 2008 to $76.0
million. Excluding the effects of currency fluctuation, net sales
declined 22.2% from the second quarter of 2008. This decline was
primarily due to the weak retail environment in Canada and Europe.
Gross profit was $122.2 million, a decrease of $26.2 million
compared to the same quarter in fiscal 2008, but an increase of
$3.9 million from the fiscal 2009 first quarter results. This
sequential improvement was primarily due to the easing of material
cost inflation and continued improvements in manufacturing
efficiencies, partly offset by deleveraging of overhead expenses on
lower volumes and a decrease in international gross profit. During
the second quarter of fiscal 2008, Gross Profit benefited from a
change in accounting estimates related to the Company's domestic
warrantable and other product return reserves, which resulted in an
increase to sales of approximately $3.7 million, a reduction of
Cost of Sales of approximately $4.5 million, and a corresponding
increase in Gross Profit, Income from Operations and Adjusted
EBITDA of $8.2 million. Domestic gross profit decreased by $9.9
million to $96.4 million compared to the prior year period, but
increased by $2.0 from the fiscal 2009 first quarter. Price
increases implemented in July 2008 and continued improvements in
manufacturing efficiencies, were partially offset by higher raw
material costs and deleveraging of overhead expenses on lower
volumes. Consolidated gross profit margin was 40.9%, an increase of
140 basis points compared to the prior year quarter, and an
increase of 280 basis points from the fiscal 2009 first quarter
results. Selling, general, and administrative (SG&A) expenses
were $95.6 million, an improvement of $20.8 million, or 17.9%,
versus the comparable period a year earlier. The reduction in
SG&A expenses is primarily due to a $9.5 million decline in
volume-driven variable expenses. In addition, fixed operating and
promotional costs decreased $7.6 million from the prior year
period, primarily due to lower product launch costs, national
advertising and decreased salary and fringe benefit-related costs.
Severance related costs decreased $2.7 million from the second
quarter of fiscal 2008. Total Adjusted EBITDA was $41.6 million, or
13.9% of net sales, which represents an increase of 60 basis points
on a year-over-year basis and an increase of 240 basis points from
the fiscal 2009 first quarter. The sequential improvement was based
on improved gross profit margin performance and continued cost
improvements. Net sales for the six months ended May 31, 2009
decreased 20.7% to $608.4 million from $767.3 million for the
comparable period a year earlier. Gross profit was $240.4 million,
or 39.5% of net sales, versus $301.6 million, or 39.3% of net
sales, for the comparable period a year earlier. Adjusted EBITDA
was $77.1 million, or 12.7% of net sales, versus $101.7 million, or
13.3% of net sales, compared to the six month period in the prior
year. As of May 31, 2009, the Company's debt net of cash was $760.9
million, an increase of $4.1 million compared to $756.8 million as
of November 30, 2008. Operating cash flows in the fiscal 2009
second quarter included $15.2 million related to the termination of
interest rate swaps and financing cash flows included $20.6 million
related to debt issuance costs in conjunction with the Company's
refinancing of its senior credit facilities on May 29, 2009. "While
we expect market conditions to remain challenging, we will continue
to take measures to improve our profitability through increasing
collaboration with our retailer and supplier partners and the
introduction of new products, while aggressively right-sizing our
cost structure and maximizing our cash flow. We believe that our
company has never been in a stronger strategic position to gain
profitable market share and drive increasing value for our
shareholders," concluded Mr. Rogers. Adjusted EBITDA Within the
information above, Sealy provides information regarding Adjusted
EBITDA which is not a recognized term under GAAP (Generally
Accepted Accounting Principles) and does not purport to be an
alternative to operating income or net income as a measure of
operating performance or to cash flows from operating activities as
a measure of liquidity. Additionally, it is not intended to be a
measure of available cash flow for management's discretionary use,
as it does not consider certain cash requirements such as interest
payments, tax payments and debt service requirements. Because not
all companies use identical calculations, this presentation may not
be comparable to other similarly titled measures of other
companies. A reconciliation of Adjusted EBITDA to the Company's net
income (loss) and cash flows from operations is provided in the
attached schedule. Conference Call The Company will hold a
conference call today to discuss its fiscal second quarter 2009
results at 5:00 p.m. (Eastern Standard Time). The conference call
can be accessed live over the phone by dialing 1-800-762-8779, or
for international callers, 1-480- 629-9770. A replay will be
available one hour after the call and can be accessed by dialing
1-800-406-7325, or for international callers, 1-303-590-3030. The
passcode for the live call and the replay is 4097100. The replay
will be available until July 7, 2009. Interested investors and
other parties may also listen to a simultaneous webcast of the
conference call by logging onto the Investors section of the
Company's website at http://www.sealy.com/. The on-line replay will
be available for a limited time beginning immediately following the
call. In addition, for more information about the Refinancing,
please visit the Investors section of the Company's website at
http://www.sealy.com/, or contact the Company's Information Agent,
National City Bank, c/o The Colbent Corp., 161 Bay State Drive,
Braintree, Massachusetts 02184, (800) 622-6757. About Sealy Sealy
is the bedding industry's largest global manufacturer with sales of
$1.5 billion in fiscal 2008. The Company manufactures and markets a
broad range of mattresses and foundations under the Sealy(R), Sealy
Posturepedic(R), including SpringFree(TM), PurEmbrace(TM) and
TrueForm(R); Stearns & Foster(R), and Bassett(R) brands. Sealy
operates 25 plants in North America, and has the largest market
share and highest consumer awareness of any bedding brand on the
continent. In the United States, Sealy sells its products to
approximately 3,000 customers with more than 7,000 retail outlets.
Sealy is also a leading supplier to the hospitality industry. For
more information, please visit http://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 CORPORATION CONDENSED CONSOLIDATED
BALANCE SHEET (In thousands) (Unaudited - Preliminary results) May
31, November 30, June 1, 2009 2008 2008 ASSETS Current assets: Cash
and equivalents $92,498 $26,596 $44,247 Accounts receivable, net of
allowances for bad debts, cash discounts and returns 171,219
156,583 190,872 Inventories 57,857 64,634 74,558 Prepaid expenses
and other current assets 21,658 30,969 24,194 Deferred income tax
assets 16,928 16,775 16,446 Total current assets 360,160 295,557
350,317 Property, plant and equipment - at cost 455,345 449,308
464,854 Less accumulated depreciation (234,201) (218,560) (214,776)
221,144 230,748 250,078 Other assets: Goodwill 360,864 357,149
397,522 Intangible assets, net of accumulated amortization 3,603
4,945 7,465 Deferred income tax assets 5,146 3,392 6,812 Debt
issuance costs, net, and other assets 50,084 29,083 31,928 419,697
394,569 443,727 Total assets $1,001,001 $920,874 $1,044,122
LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current
portion - long-term obligations $16,737 $21,243 $33,908 Accounts
payable 101,405 97,084 159,366 Accrued incentives and advertising
24,969 34,542 25,978 Accrued compensation 27,703 24,797 25,115
Accrued interest 11,192 16,432 16,381 Other accrued liabilities
40,877 44,363 48,568 Total current liabilities 222,883 238,461
309,316 Long-term obligations, net of current portion 836,646
762,162 753,427 Rights liability for convertible notes 95,985 - -
Other liabilities 69,182 71,257 71,048 Deferred income tax
liabilities 6,729 4,962 7,549 Common stock and options subject to
redemption - 8,856 8,081 Stockholders' deficit: Common stock 920
917 907 Additional paid-in capital 774,917 668,547 664,237
Accumulated deficit (1,003,628) (814,298) (783,260) Accumulated
other comprehensive income (2,633) (19,990) 12,817 Total
shareholders' deficit (230,424) (164,824) (105,299) Total
liabilities and shareholders' deficit $1,001,001 $920,874
$1,044,122 SEALY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except per share data) (Unaudited -
Preliminary results) Three Months Ended May 31, June 1, 2009 2008
Net sales $298,455 $375,375 Cost of goods sold 176,304 227,002
Gross profit 122,151 148,373 Selling, general and administrative
expenses 95,581 116,359 Amortization expense 778 954 Restructuring
expenses and asset impairment 1,335 - Royalty income, net of
royalty expense (4,600) (4,276) Income from operations 29,057
35,336 Interest expense 16,876 15,369 Loss on rights for
convertible notes 2,729 - Refinancing and extinguishment of debt
and interest rate derivatives 17,422 - Other income, net (13) (81)
(Loss) income before income tax provision (7,957) 20,048 Income tax
(benefit) provision (2,719) 8,091 Net (loss) income $(5,238)
$11,957 (Loss) earnings per common share---Basic $(0.06) $0.13
(Loss) earnings per common share---Diluted $(0.06) $0.13 Weighted
average number of common shares outstanding: Basic 91,819 90,999
Diluted 91,819 93,965 SEALY CORPORATION CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (In thousands, except per share data)
(Unaudited - Preliminary results) Six Months Ended May 31, June 1,
2009 2008 Net sales $608,431 $767,304 Cost of goods sold 368,030
465,736 Gross profit 240,401 301,568 Selling, general and
administrative expenses 192,277 232,562 Amortization expense 1,593
1,869 Restructuring expenses and asset impairment 1,448 541 Royalty
income, net of royalty expense (7,970) (9,136) Income from
operations 53,053 75,732 Interest expense 34,424 30,745 Loss on
rights for convertible notes 2,729 - Refinancing and extinguishment
of debt and interest rate derivatives 17,422 - Gain on sale of
subsidiary stock (1,292) - Other income, net (46) (180) (Loss)
income before income tax expense (184) 45,167 Income tax provision
308 16,996 Net (loss) income $(492) $28,171 (Losses) earnings per
common share--- Basic $(0.01) $0.31 (Losses) earnings per common
share--- Diluted $(0.01) $0.30 Weighted average number of common
shares outstanding: Basic 91,813 90,932 Diluted 91,813 94,758 SEALY
CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
(Unaudited - Preliminary results) Six Months Ended May 31, June 1,
2009 2008 Operating activities: Net (loss) income $(492) $28,171
Adjustments to reconcile net income to net cash provided by (used
in) operating activities: Depreciation and amortization 15,738
17,120 Deferred income taxes (5,524) 2,741 Impairment charges 1,326
- Amortization of deferred gain on sale- leaseback (324) -
Amortization of debt issuance costs and other 579 1,174 Loss on
rights for convertible notes 2,729 - Share-based compensation 2,229
1,998 Excess tax benefits from share-based Payment arrangements -
(781) Loss on sale of assets 451 311 Write-off of debt issuance
costs related to debt extinguishments 2,113 - Loss on termination
of interest rate swaps 15,232 - Payment to terminate interest rate
swaps (15,232) - Gain on sale of subsidiary stock (1,292) - Other,
net (661) 662 Changes in operating assets and liabilities: Accounts
receivable (9,747) 21,471 Inventories 6,125 268 Prepaid expenses
and other current assets 14,136 1,594 Other assets 1,262 2,852
Accounts payable 1,303 18,325 Accrued expenses (15,757) (34,513)
Other liabilities 1,126 1,387 Net cash provided by operating
activities 15,320 62,780 Investing activities: Purchase of
property, plant and equipment (4,592) (13,866) Proceeds from sale
of property, plant and equipment 10,149 12 Net proceeds from sale
of subsidiary 1,237 - Investments in and loans to unconsolidated
affiliate (2,322) - Net cash provided by (used in) Investing
activities 4,472 (13,854) Financing activities: Cash dividends -
(6,811) Proceeds from issuance of long-term obligations 2,830 1,748
Repayments of long-term obligations (8,995) (16,882) Repayment of
old senior term loans (377,181) - Proceeds from issuance of new
senior secured notes 335,916 - Proceeds from issuance of related
party debt 177,132 - Borrowings under revolving credit facilities
140,616 206,258 Repayments under revolving credit facilities
(205,016) (203,085) Exercise of employee stock options, including
related excess tax benefits (295) 803 Debt issuance costs (20,553)
- Net cash provided by (used in) Financing activities 44,454
(17,969) Effect of exchange rate changes on cash 1,656 (1,317)
Change in cash and equivalents 65,902 29,640 Cash and equivalents:
Beginning of period 26,596 14,607 End of period $92,498 $44,247
RECONCILIATION OF EBITDA TO NET INCOME AND CASH FLOW FROM
OPERATIONS NON GAAP MEASURES Three Months Ended: Six Months Ended:
May 31, June 1, May 31, June 1, 2009 2008 2009 2008 (in (in (in (in
thousands) thousands) thousands) thousands) Net income (loss)
$(5,238) $11,957 $(492) $28,171 Interest expense 16,876 15,369
34,424 30,745 Income taxes (2,719) 8,091 308 16,996 Depreciation
and amortization 8,119 8,743 15,738 17,120 EBITDA 17,038 44,160
49,978 93,032 Unusual and nonrecurring losses: Refinancing charges
17,422 - 17,442 - Non-cash compensation 1,212 1,365 2,223 1,975
Impairment charges 1,334 - 1,334 - KKR consulting fees 890 - 1,610
- Severance charges 669 2,731 1,942 3,672 Loss on written option
derivative 2,729 - 2,729 - Gain on sale of subsidiary - - (1,292) -
Other (various) (a) 319 1,572 1,148 3,056 Adjusted EBITDA $41,613
$49,828 $77,114 $101,735 (a) Consists of various immaterial
adjustments Six Months Ended: May 31, June 1, 2009 2008 (in (in
thousands) thousands) EBITDA $49,978 $93,032 Adjustments to EBITDA
to arrive at cash flow from operations: Interest expense (34,424)
(30,745) Income taxes (308) (16,996) Non-cash charges against
(credits to) net income 1,626 6,105 Changes in operating assets
& liabilities (1,552) 11,384 Cash flow from operations $15,320
$62,780 DATASOURCE: Sealy Corporation CONTACT: Mark D. Boehmer, VP
& Treasurer, Sealy Corporation, +1-336-862-8705 Web Site:
http://www.sealy.com/
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