SEALY CORPORATION 
By TRINITY, N.C., Jan. 23, 2013 /PRNewswire/ -- Sealy Corporation (NYSE: ZZ), a leading global bedding manufacturer, today announced results for its fiscal fourth quarter and full year 2012. The fiscal year ended December 2, 2012 was a 53-week year compared to a 52-week fiscal year ended November 27, 2011.
Fiscal 2012 4th Quarter Recap for Continuing Operations
-- Net sales increased by $88.9 million or 33.0% to $358.1 million,
compared to the same prior year quarter. The increase in net sales
attributable to the 53rd week was approximately $37.1 million, which
added growth of 13.8% over the prior year quarter.
-- Gross profit increased by $43.8 million to $141.9 million compared to
the same prior year quarter. The increase due to the 53(rd) week was
approximately $14.5 million.
-- Gross profit margin increased approximately 320 bps to 39.6% of sales
compared to 36.4% in the same prior year quarter.
-- Income from operations increased by $12.3 million to $16.1 million
compared to the same prior year quarter.
-- Net loss from continuing operations attributable to common shareholders
was $2.7 million or $0.03 per diluted share, compared to net loss from
continuing operations of $14.0 million or $0.14 per diluted share in the
prior year quarter. Excluding the impact of restructuring expense,
merger costs and income tax expense on repatriated foreign earnings, our
adjusted EPS was $0.04. Please see the attached reconciliation of
adjusted EPS.
-- Adjusted EBITDA increased by $20.1 million to $35.2 million compared to
the same prior year quarter. The increase due to the 53(rd) week was
approximately $3.9 million.
"We were pleased with our performance in 2012 as we continued to execute on our strategic initiatives," stated Larry Rogers, Sealy's President and Chief Executive Officer. "Strong product offerings in both the specialty and innerspring lines, compelling advertising and continued financial discipline led to these financial results and we are working to ensure these trends continue."
Fiscal 2012 Fourth Quarter Results
Total U.S. net sales increased 32.9% to $269.7 million from the fourth quarter of fiscal 2011. The increase in net sales attributable to the 53rd week was approximately $27.7 million. Also contributing to the increase in U.S. net sales was a 13.3% increase in wholesale unit volume, coupled with a 15.8% increase in wholesale average unit selling price. The significant improvement in both of these metrics was primarily driven by the success of the Optimum by Sealy Posturepedic and Next Generation Stearns & Foster product lines, both of which sell at higher price points in the market.
International net sales increased $22.1 million, or 33.3%, from the fourth quarter of fiscal 2011 to $88.4 million. The increase in net sales attributable to the 53(rd) week was approximately $9.3 million. This increase was primarily attributable to the strong sales performance of Canada, Mexico and South America. In Canada, local currency sales increases of 28.1% translated into increases of 31.8% in U.S. dollars due to the strengthening of the Canadian dollar versus the U.S. dollar. Excluding the effects of currency fluctuation, international net sales increased 32.1% from the fourth quarter of fiscal 2011.
Gross profit for the fourth fiscal quarter increased by $43.8 million to $141.9 million from the prior year quarter. Gross margin increased 3.2 percentage points to 39.6%. The increase as a percentage of net sales was primarily due to increases in gross profit margins in U.S. operations partially offset by declines in Canada. U.S. gross profit margin increased 4.8 percentage points to 39.8%. The increase as a percentage of net sales was primarily attributable to improved operational efficiencies on higher sales volumes and an improvement in manufacturing processes which resulted in a 2.4 percentage point increase in U.S. gross profit margin. Additionally, the leveraging of fixed costs due to the higher sales volumes contributed a 2.6 percentage point improvement in gross margin. The local currency gross profit margin in Canada was 37.6% as a percentage of net sales which represents a decrease of 4.6 percentage points from fiscal 2011. This decrease was primarily driven by the impact of promotional activities to gain market share, and higher raw material costs.
Selling, general, and administrative expenses were $127.8 million for the fourth quarter of fiscal 2012, an increase of $28.9 million versus the comparable period a year earlier. A portion of this increased expense was driven by the 53(rd) week. The increased variable expense was primarily driven by higher cooperative advertising and promotional costs, and the increased fixed expense was driven primarily by higher incentive compensation and an increase in defined contribution costs and professional fees. As a percentage of net sales, this expense was 35.7% and 36.7% for the quarters ended December 2, 2012 and November 27, 2011, respectively, a decrease of 1.0 percentage points.
Cash flow from operations was $50.7 million for the fourth quarter of fiscal 2012, driven primarily by improvements in working capital. As a result of our cash generation and the repatriation of a portion of our non US cash, subsequent to the end of the fiscal year, the Company redeemed an additional $35 million of its senior notes.
Fiscal 2012 Full Year Results
Net sales for the fiscal year ended December 2, 2012 increased 9.6% to $1,347.9 million from $1,230.2 million for the prior fiscal year. Gross profit was $539.5 million, or 40.0% of net sales, versus $478.7 million, or 38.9% of net sales, for the prior fiscal year. For the 2012 fiscal year, net income attributable to common shareholders from continuing operations was $2.0 million and net loss from discontinued operations was $2.0 million, resulting in overall net income for the fiscal year of $0.0 million. Adjusted EBITDA increased 18.9% to $150.1 million, or 11.1% of net sales, from $126.3 million, or 10.3% of net sales, in the prior fiscal year. For further information on the change in Adjusted EBITDA, please see the attached Reconciliation of 2012 Adjusted EBITDA to Prior Year schedule.
As of December 2, 2012, the Company's debt net of cash was $641.4 million and Net Debt to Adjusted EBITDA ratio (excluding the Convertible Payment In Kind Notes) was 2.94x.
"We were pleased to deliver improved year over year net sales, gross margin, net income and Adjusted EBITDA results in 2012. As we move into 2013, we expect to drive growth across our entire portfolio in both our domestic and international markets," concluded Mr. Rogers.
Transaction Update
Sealy and Tempur-Pedic certified to substantial compliance with the Request for Additional Information ("Second Request") issued by the Federal Trade Commission under the Hart-Scott-Rodino Act on January 22, 2013. By agreement of the parties with the FTC, the FTC has up to 45 days following substantial compliance to complete its review of the transaction.
Results from Discontinued Operations
During the fourth quarter of 2010, the company divested the assets of its manufacturing operations in France and Italy, which represented all of the assets in its Europe segment. In addition, the company discontinued manufacturing operations in Brazil. The company has transitioned to a license arrangement with third parties in both of these markets. These businesses are accounted for as discontinued operations, and accordingly, the company has reclassified its financial data for all periods presented to reflect these actions. Unless otherwise noted, the reported financial data pertains to Sealy's continuing operations.
Non-GAAP Measures
Sealy provides information regarding Adjusted EBITDA and Adjusted EBITDA Margin which are not recognized terms under GAAP (Generally Accepted Accounting Principles) and do not purport to be alternatives to operating income or net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. The Company presents Adjusted EBITDA, because the covenants contained in the Company's senior debt agreements are based upon these measures and Adjusted EBITDA is a material component of those covenants. Additionally, management uses Adjusted EBITDA to evaluate the Company's operating performance. The Company also presents Adjusted EBITDA margin, which is Adjusted EBITDA reflected as a percentage of net sales because it believes that this measure provides useful incremental information to investors regarding the Company's operating performance. Additionally, these measures are not intended to be measures of available cash flow for management's discretionary use, as these measures do 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 and Adjusted EBITDA Margin to the Company's net income is provided in the attached schedule.
In this release, Sealy also provides information regarding Adjusted Earnings Per Share, which is GAAP earnings per share adjusted to exclude the impact of restructuring expense, merger costs and income tax expense on repatriated foreign earnings. Adjusted Earnings Per Share is not a recognized term under GAAP and does not purport to be an alternative to GAAP earnings per share as a measure of operating performance. The Company presents Adjusted Earnings Per Share because it believes that this measure provides useful incremental information to investors regarding the Company's operating performance. A reconciliation of Adjusted Earnings Per Share to the Company's GAAP earnings per share is provided in the attached schedule.
Additionally, the Company provides certain information on a constant currency basis which reflects a comparison of current period results translated at the prior period currency rates. This information is provided because the Company believes that it provides useful incremental information to investors regarding the Company's operating performance.
About Sealy
Sealy owns one of the largest bedding brands in the world, with sales of $1.3 billion in fiscal 2012. The company manufactures and markets a broad range of mattresses and foundations under the Sealy®, Sealy Posturepedic®, Sealy Embody(TM), Optimum(TM) by Sealy Posturepedic®, Stearns & Foster®, and Bassett® 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 11,000 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, fluctuations in demand and the Company's pending business combination with Tempur-Pedic. Please refer to the Company's Securities and Exchange Commission filings for further information.
The condensed consolidated statements of operations and related information presented below have been adjusted for discontinued operations presentation for all periods presented. However, the condensed consolidated balance sheets and statements of cash flows have not been adjusted for such presentation.
SEALY CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands)
December 2, November 27,
2012 2011
---- ----
ASSETS
Current assets:
Cash and equivalents $128,154 $107,975
Accounts receivable (net of allowance for
doubtful accounts, discounts and returns,
2012-$29,959; 2011-$30,104)
152,619 126,494
Inventories 72,364 57,002
Prepaid expenses 31,358 29,275
Deferred income taxes 21,579 21,349
Total current assets 406,074 342,095
------- -------
Property, plant and equipment-at cost:
Land 6,761 7,351
Buildings and improvements 128,039 128,700
Machinery and equipment 281,345 261,650
Construction in progress 7,861 8,414
----- -----
424,006 406,115
Less accumulated depreciation (259,983) (239,370)
164,023 166,745
------- -------
Other assets:
Goodwill 363,229 361,026
Other intangibles-net of accumulated
amortization
(2012-$4,614; 2011-$3,496) 14,710 1,116
Deferred income taxes 3,945 1,772
Debt issuance costs, net, and other assets 53,364 46,440
------ ------
435,248 410,354
Total Assets $1,005,345 $919,194
========== ========
December 2, November 27,
2012 2011
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion-long term obligations $4,045 $1,584
Accounts payable 100,796 68,774
Accrued expenses:
Customer incentives and advertising 34,664 26,038
Compensation 33,065 17,601
Interest 14,484 14,074
Warranty 9,785 7,522
Other 26,128 20,904
Deferred income taxes 3,000 -
Total current liabilities 225,967 156,497
------- -------
Long term obligations, net of current portion 765,521 790,297
Other noncurrent liabilities 60,249 52,415
Deferred income taxes 93 549
Commitments and contingencies - -
Redeemable noncontrolling interest 11,035 -
Stockholders' deficit:
Preferred stock, $0.01 par value; Authorized
50,000 shares;
Issued, none - -
Common stock, $0.01 par value; Authorized
600,000 shares;
Issued and outstanding: 2012-104,322;
2011-100,916 1,045 1,010
Additional paid-in capital 955,777 935,512
Treasury stock, at cost: 2012-655,046; 2011-0 (1,138) -
Accumulated deficit (1,016,567) (1,016,577)
Accumulated other comprehensive income (loss) 3,363 (509)
(57,520) (80,564)
------- -------
Total Liabilities and Stockholders' Deficit $1,005,345 $919,194
========== ========
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended
------------------
December 2, November 27,
2012 2011
Net sales $358,115 $269,259
Cost of goods sold 216,208 171,135
------- -------
Gross profit 141,907 98,124
Selling, general and administrative expenses 127,791 98,927
Asset impairment loss 827 -
Amortization expense 461 72
Restructuring expenses and asset impairment 2,421 -
Royalty income, net of royalty expense (5,645) (4,617)
------ ------
Income from operations 16,052 3,742
Interest expense 23,751 22,434
Refinancing and extinguishment of debt 407 (42)
Other income, net (195) (114)
---- ----
Loss before income taxes (7,911) (18,536)
Income tax provision (2,273) (3,675)
Equity in earnings of unconsolidated affiliates 1,892 836
----- ---
Loss from continuing operations (3,746) (14,025)
Loss from discontinued operations (148) (1,182)
---- ------
Net loss (3,894) (15,207)
Net loss attributable to noncontrolling interests 1,096 -
----- ---
Net (loss) income attributable
to common shareholders $(2,798) $(15,207)
======= ========
Loss per common share attributable to common shareholders-Basic
Loss from
continuing
operations per
common share $(0.03) $(0.14)
Loss from
discontinued
operations per
common share - (0.01)
---------------
Loss per common share attributable to common
shareholders-Basic $(0.03) $(0.15)
====== ======
Loss per common share attributable to common shareholders-Diluted
Loss from
continuing
operations per
common share $(0.03) $(0.14)
Loss from
discontinued
operations per
common share - (0.01)
---------------
Loss per common share attributable to common
shareholders-Diluted $(0.03) $(0.15)
====== ======
Weighted average number of common shares outstanding:
Basic 104,194 100,865
Diluted 104,194 100,865
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Twelve Months Ended
-------------------
December 2, November 27, November 28,
2012 2011 2010
----
Net sales $1,347,870 $1,230,151 $1,219,471
Cost of goods sold 808,363 751,449 709,971
------- ------- -------
539,507 478,702 509,500
Gross profit
Selling, general and
administrative
expenses 455,045 414,235 398,053
Asset impairment loss 827 - -
Amortization expense 678 289 289
Restructuring
expenses 2,421 - -
Royalty income, net
of royalty expense (20,070) (19,413) (17,529)
------- ------- -------
100,606 83,591 128,687
Income from
operations
Interest expense 89,305 87,743 85,617
Refinancing and
extinguishment of
debt 3,748 1,222 3,759
Other income, net (605) (451) (226)
---- ---- ----
Income (loss) before
income taxes 8,158 (4,923) 39,537
Income tax provision 12,548 4,104 18,488
Equity in earnings of
unconsolidated
affiliates 5,175 3,371 3,611
----- ----- -----
Income (loss) from
continuing
operations 785 (5,656) 24,660
Loss from
discontinued
operations (1,962) (4,232) (38,399)
------ ------ -------
(1,177) (9,888) (13,739)
Net loss
Net loss attributable
to noncontrolling
interests 1,187 - -
----- --- ---
$10 $(9,888) $(13,739)
Net income
attributable to
common shareholders
Earnings (loss) per
common share
attributable to
common shareholders-
Basic
$0.02 $(0.06) $0.26
Income (loss) from
continuing
operations per
common share
(0.02) (0.04) (0.40)
Loss from
discontinued
operations per
common share
Earnings (loss) per
common share
attributable to
common shareholders-
Basic $ - $(0.10) $(0.14)
================== ====== ======
Earnings (loss) per
common share
attributable to
common shareholders-
Diluted
$0.02 $(0.06) $0.14
Income (loss) from
continuing
operations per
common share
(0.02) (0.04) (0.13)
Loss from
discontinued
operations per
common share
Earnings (loss) per
common share
attributable to
common shareholders-
Diluted $ - $(0.10) $0.01
=================== ====== =====
Weighted average
number of common
shares outstanding:
102,470 99,261 95,934
Basic
109,151 99,261 289,857
Diluted
SEALY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Fiscal Year Ended
-----------------
December 2, November 27, November 28,
2012 2011 2010
---- ---- ----
Operating activities:
Net loss $(1,177) $(9,888) $(13,739)
Adjustments to
reconcile net
income to cash
provided by (used
in) operating
activities:
Depreciation and
amortization 26,379 24,234 28,676
Deferred income
taxes 1,646 1,905 1,121
Amortization of
deferred gain
on sale-
leaseback (49) (624) (646)
Paid in kind
interest on
convertible
notes 24,539 19,994 16,109
Amortization of
discount on new
senior secured
notes 1,578 1,485 1,431
Amortization of
debt issuance
costs and other 3,975 4,673 4,750
Impairment
charges 827 288 22,963
Share-based
compensation 8,117 13,243 15,864
Excess tax
benefits from
share-based
payment
arrangements - - (417)
Loss (gain) on
sale of assets 327 (215) 260
Write-off of
debt issuance
costs related
to debt
extinguishments 1,862 643 2,709
Loss on
repurchase of
senior notes 1,050 300 1,050
Dividends
received from
unconsolidated
affiliates 6,500 1,011 -
Equity in
earnings of
unconsolidated
affiliates (5,175) (3,371) -
Loss on
disposition of
subsidiary - 206 2,399
Other, net (2,850) (2,217) 2,618
Changes in
operating assets
and liabilities:
Accounts
receivable (20,332) 10,296 (3,226)
Inventories (20,302) (666) (12,115)
Other current
assets (4,654) (6,418) (3,628)
Other assets (1,495) 4,271 (3,791)
Accounts payable 29,856 4,774 (4,873)
Accrued expenses 28,769 (24,382) (8,711)
Other
liabilities 2,717 (5,790) (338)
82,108 33,752 48,466
Net cash
provided by
operating
activities
Investing activities:
Purchase of
property, plant
and equipment (15,914) (22,408) (16,578)
Acquisition of
Comfort
Revolution,
inclusive of cash
acquired of $159
(1) 159 -
Proceeds from sale
of property, plant
and equipment 2,383 227 124
Net proceeds
(outflow) from
disposition of
subsidiary - - (340)
Advances to Comfort
Revolution (7,833) - -
Repayments of loans
and capital from
unconsolidated
affiliate - - 3,205
Net cash used in
investing activities (21,205) (22,181) (13,589)
------- ------- -------
Financing activities:
Proceeds from
issuance of long-
term obligations 5,236 3,387 4,702
Repayments of long-
term obligations (11,446) (4,619) (15,068)
Repayment of senior
secured notes,
including premium
of $1,050, $300
and $1,050 (36,050) (10,300) (36,050)
Repurchase of
common stock
associated with
vesting of
employee share-
based (3,059) (3,746) (4,806)
awards
Exercise of
employee stock
options 104 630 714
Debt issuance costs (908) (147) -
Other - (34) (8)
(46,123) (14,829) (50,516)
Net cash
used in
financing
activities
Effect of exchange rate changes on cash 5,399 1,978 (6,533)
----- ----- ------
Change in cash and equivalents 20,179 (1,280) (22,172)
Cash and equivalents:
Beginning of period 107,975 109,255 131,427
End of period $128,154 $107,975 $109,255
Supplemental disclosures:
Taxes paid (net of
tax refunds of
$3,157, $5 and
$8,000 in fiscal
2012, 2011
and 2010,
respectively) $10,487 $16,198 $20,069
Interest paid $58,803 $61,875 $66,071
Noncash investing transaction:
Extension of
capital lease $ - $2,181 $ -
Promotional
displays
transferred to
property, plant
and equipment $10,131 $ - $ -
(1) Cash contributed to Comfort Revolution for initial
investment $10,000 $ - $ -
Reconciliation of Adjusted EBITDA to Net Income (Loss)
Non-GAAP Measure
Three Months Ended: Twelve Months Ended:
------------------- --------------------
December 2, 2012 November
27, 2011 December 2, 2012 November 27, 2011
---------------- --------- ---------------- -----------------
(in thousands) (in thousands)
Net loss $(3,894) $(15,207) $(1,177) $(9,888)
Interest expense 23,751 22,434 89,305 87,743
Income taxes (2,273) (3,675) 12,548 4,104
Depreciation and amortization 7,626 6,233 26,379 24,234
----- ----- ------ ------
25,210 9,785 127,055 106,193
Adjustments for debt covenants:
407 - 3,748 1,222
Refinancing charges
1,551 4,004 8,117 13,243
Non-cash compensation
2,538 - 2,538 -
Merger costs
895 - 1,158 -
Comfort Revolution acquisition costs
148 891 1,962 4,232
Discontinued operations
1,096 - 1,187 -
Noncontrolling interest
2,421 - 2,421 -
Restructuring expenses
905 427 1,948 1,405
Other (various) (a)
Adjusted EBITDA $35,171 $15,107 $150,134 $126,295
======= ======= ======== ========
(a) Consists of various immaterial adjustments
SEALY CORPORATION
SHARE COUNT RECONCILIATION
Three Months Ended Twelve Months Ended
------------------ -------------------
December 2, 2012 November 27, 2011 December 2, 2012 November 27, 2011
---------------- ----------------- ---------------- -----------------
(in thousands) (in thousands)
Numerator:
Net income from
continuing
operations, as
reported $(2,650) $(14,025) $1,972 $(5,656)
Net income
attributable to
participating
securities 9 17 (6) 10
Interest on
convertible notes - (14,551) - -
--- ------- --- ---
Net income from
continuing
operations
available to common
shareholders $(2,641) $(28,559) $1,966 $(5,646)
======= ======== ====== =======
Denominator:
Denominator for
basic earnings per
share-weighted
average shares 104,194 100,865 102,470 99,261
Effect of dilutive
securities:
Convertible debt - - - -
Stock options - - 449 -
Restricted share
units - - 5,640 -
Other - - 592 -
--- --- --- ---
Denominator for
diluted earnings
per share-adjusted
weighted average
shares and assumed
conversions 104,194 100,865 109,151 99,261
======= ======= ======= ======
SEALY CORPORATION
INTEREST EXPENSE
Three Months Ended: Twelve Months Ended:
------------------- --------------------
December 2, 2012 November 27, 2011 December 2, 2012 November 27, 2011
---------------- ----------------- ---------------- -----------------
Cash interest expense $15,111 $15,445 $59,213 $61,591
Non-cash interest expense 8,640 6,988 30,092 26,152
----- ----- ------ ------
$23,751 $22,433 $89,305 $87,743
======= ======= ======= =======
Sealy Corporation
Non-GAAP Earnings Per Share
Three Months Ended December 2, 2012
(amounts and shares presented in thousands)
As reported Adjustments As adjusted
----------- ----------- -----------
Net income (loss) from continuing operations, net (1) $(2,650) $9,377 $6,727
Net (loss) income attributable to participating
securities 9 (33) (24)
Interest on convertible notes (2) - 7,475 7,475
--- ----- -----
Net income (loss) from continuing operations available
to common shareholders $(2,641) $16,819 $14,178
Denominator for diluted earnings per share -adjusted
weighted average shares and assumed conversion (3)
104,194 227,650 331,844
------- -------
Income (loss) from continuing operations per common
share -Diluted $(0.03) $0.04
====== =====
(1) Includes the following adjustments to net
income from continuing operations:
Restructuring expense $2,421
Merger costs 2,538
Income tax expense on
repatriation of foreign
earnings 4,418
-----
Total $9,377
======
(2) Reflects the inclusion of convertible note interest as the
impact of the adjustments in (1) above causes the
Convertible Notes to become dilutive for the purposes of
calculating diluted earnings per share.
(3) Reflects the inclusion of outstanding share-based awards
and convertible notes that are considered dilutive based
on the inclusion of the adjustments in (1) above:
Convertible notes 221,156
Stock options 518
Restricted share units 5,333
Other 643
227,650
=======
SOURCE Sealy Corporation
