SEALY CORPORATION 
By TRINITY, N.C., Jan. 18, 2012 /PRNewswire/ -- Sealy Corporation (NYSE: ZZ), a leading global bedding manufacturer, today announced results for its fiscal fourth quarter 2011.
Fiscal 2011 4th Quarter Recap for Continuing Operations
-- Net sales decreased by $27.3 million to $269.3 million, compared to the
same prior year quarter.
-- Gross profit decreased by $24.8 million to $98.1 million compared to the
same prior year quarter.
-- Income from operations decreased by $25.1 million to $3.7 million
compared to the same prior year quarter.
-- Net loss from continuing operations was $(14.0) million or $(0.14) per
diluted share, compared to net income from continuing operations of $3.5
million or $0.03 per diluted share in the prior year quarter. The
corresponding share counts for 2011 and 2010 fourth quarter EPS were
100.9 million and 296.2 million, respectively. For further information
on the calculation of diluted shares, please see the attached
Reconciliation of Fully Diluted Sharecount schedule.
-- Adjusted EBITDA decreased by $24.7 million to $15.1 million compared to
the same prior year quarter.
"We were disappointed with our performance in the fourth quarter and the full fiscal year 2011," stated Larry Rogers, Sealy's President and Chief Executive Officer. "These results were not in line with the goals that we set forth in the beginning of 2011 and we are making operational changes to improve our future business results."
Fiscal 2011 Fourth Quarter Results
Total U.S. net sales decreased 9.6% to $203.0 million from the fourth quarter of fiscal 2010. Excluding third party sales from the component plants, wholesale unit volume decreased 5.7%. The decrease in unit volume was driven primarily by a decrease in sales of products at lower price points due to increased competition. Net sales were also unfavorably impacted by a change in estimates for non-warrantable product returns and an increase in subsidies charged as deductions to revenues, partially offset by reductions in Cost of Goods Sold ("COGS") and Selling, General and Administrative ("SG&A") expenses. For further information on the changes in Net Sales, COGS and SG&A, please see the attached Reconciliation of Certain Fourth Quarter Financial Results to Prior Year schedule.
International net sales decreased $5.7 million, or 7.9%, from the fourth quarter of fiscal 2010 to $66.3 million. The decrease in international net sales was primarily due to lower sales in the Canadian market which saw a decline in unit volume of lower priced, Sealy promotional product and reduced promotional activity for Posturepedic. Excluding the effects of currency fluctuation, international net sales decreased 6.4% from the fourth quarter of fiscal 2010.
Gross profit for the fourth fiscal quarter decreased by $24.8 million to $98.1 million from the prior year quarter. Gross margin decreased 5.0 percentage points to 36.4%. The decrease as a percentage of net sales was primarily due to a decrease in gross profit margin in the U.S. and Canadian operations. U.S. gross profit margin decreased 5.8 percentage points to 35.0%. Higher raw material and other inflation, especially related to foam and steel, negatively impacted gross margin by 3.5 percentage points. The above mentioned shift in subsidies and higher product launch costs associated with the Next Generation Stearns & Foster line further reduced gross margin.
Selling, general, and administrative expenses were $98.9 million for the fourth quarter of fiscal 2011, a decrease of $0.1 million versus the comparable period a year earlier. As a percentage of net sales, this expense was 36.7% and 33.4% for the quarters ended November 27, 2011 and November 28, 2010, respectively, an increase of 3.3 percentage points. The increase as a percentage of sales was primarily a result of deleveraging of the fixed cost structure along with higher advertising costs.
Income from operations for the fourth quarter decreased $25.1 million to $3.7 million.
Net loss from continuing operations for the fourth quarter was $(0.14) per diluted share. Net loss from discontinued operations for the period was $(0.01) per diluted share. As described below, the net loss from discontinued operations includes the operational results related to the European and Brazilian businesses and the related losses on disposition.
Cash flow from operations was $26.9 million driven primarily by improvements in working capital.
Fiscal 2011 Full Year Results
Net sales for the fiscal year ended November 28, 2011 increased 1.0% to $1,230.2 million from $1,219.5 million for the prior fiscal year. Gross profit was $478.7 million, or 38.9% of net sales, versus $509.5 million, or 41.8% of net sales, for the prior fiscal year. For the 2011 fiscal year, net loss from continuing operations was $(5.7) million, net loss from discontinued operations was $(4.2) million and net loss for the fiscal year was $(9.9) million. Adjusted EBITDA decreased 29.0% to $126.3 million, or 10.3% of net sales, from $177.9 million, or 14.6% of net sales, in the prior fiscal year. For further information on the change in Adjusted EBITDA, please see the attached Reconciliation of 2011 Adjusted EBITDA to Prior Year schedule.
As of November 28, 2011, the Company's debt net of cash was $683.9 million and Net Debt to Adjusted EBITDA ratio (excluding the Convertible Payment In Kind Notes) was 3.95x.
"As we look forward into 2012, we expect the industry to continue to experience higher growth in upper and lower priced product rather than growth in products at the middle price points. Accordingly, we are focused on a successful launch of our Next Generation Stearns & Foster and the development of our new Specialty Division at the upper price points of the market and recapturing momentum at the lower price points. We are also continuing our successful digital marketing strategy and driving growth across our multiple business models in the international markets. With new organizational and operational changes being implemented across our business we believe we are positioned to improve sales and Adjusted EBITDA performance in 2012," concluded Mr. Rogers.
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.
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.
Conference Call
The Company will hold a conference call today to discuss its fiscal fourth quarter 2011 results at 5:00 p.m. (Eastern Standard Time). The conference call can be accessed live over the phone by dialing 1-877-941-4774, or for international callers, 1-480-629-9760. A replay will be available one hour after the call and can be accessed by dialing 1-877-870-5176, or for international callers, 1-858-384-5517. The passcode for the live call and the replay is 4501834. The replay will be available until January 25, 2012.
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 www.sealy.com. The on-line replay will be available for a limited time beginning immediately following the call in the Investors section of the Company's website at www.sealy.com.
About Sealy
Sealy owns one of the largest bedding brands in the world, with sales of $1.2 billion in fiscal 2011. The Company manufactures and markets a broad range of mattresses and foundations under the Sealy(R), Sealy Posturepedic(R), Sealy Embody(TM), 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 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.
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
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
November 27, November 28,
2011 2010
ASSETS
Current assets:
Cash and
equivalents $107,975 $109,255
Accounts
receivable,
net of
allowances for
bad debts,
cash discounts
and returns 126,494 140,778
Inventories 57,002 57,178
Other current
assets 29,275 19,543
Deferred income
tax assets 21,349 19,127
Total current assets 342,095 345,881
------- -------
Property, plant and equipment - at cost 406,115 385,470
Less accumulated depreciation (239,370) (217,398)
166,745 168,072
------- -------
Other assets:
Goodwill 361,026 361,958
Intangible
assets, net 1,116 1,387
Deferred income
tax assets 1,772 6,140
Other assets,
including debt
issuance
costs, net 46,440 53,319
410,354 422,804
Total assets $919,194 $936,757
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion
- long-term
obligations $1,584 $2,166
Accounts
payable 68,774 66,507
Accrued
incentives and
advertising 26,038 34,510
Accrued
compensation 17,601 22,390
Accrued
interest 14,074 14,359
Other accrued
liabilities 28,426 37,198
Total current liabilities 156,497 177,130
Long-term obligations, net of current portion 790,297 793,084
Other liabilities 52,415 53,357
Deferred income tax liabilities 549 825
Stockholders' deficit:
Common stock 1,010 979
Additional
paid-in
capital 935,512 911,066
Accumulated
deficit (1,016,577) (1,006,689)
Accumulated
other
comprehensive
income (509) 7,005
Total shareholders' deficit (80,564) (87,639)
Total liabilities and shareholders' deficit $919,194 $936,757
======== ========
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
------------------
November 27, November 28,
2011 2010
Net sales $269,259 $296,554
Cost of goods sold 171,135 173,676
------- -------
Gross profit 98,124 122,878
Selling, general and administrative expenses 98,927 98,991
Amortization expense 72 72
Royalty income, net of royalty expense (4,617) (5,058)
------ ------
Income from operations 3,742 28,873
Interest expense 22,434 21,341
Refinancing and extinguishment of debt (42) -
Other income, net (114) (68)
---- ---
(Loss) income before income
taxes (18,536) 7,600
Income tax (benefit) provision (3,675) 5,018
Equity in earnings of unconsolidated affiliates 836 909
--- ---
Income from continuing
operations (14,025) 3,491
Loss from discontinued operations (1,182) (7,971)
Net loss $(15,207) $(4,480)
======== =======
Earnings (loss) per common share-Basic
Income (loss) from continuing
operations per common share $(0.14) $0.04
Loss from discontinued
operations per common share (0.01) (0.08)
----- -----
(Loss) earnings per common share-Basic $(0.15) $(0.04)
====== ======
Earnings (loss) per common share-Diluted
Income (loss) from continuing
operations per common share $(0.14) $0.03
Loss from discontinued
operations per common share (0.01) (0.03)
----- -----
Earnings (loss) per common share-Diluted $(0.15) $ -
====== =======================
Weighted average number of common shares
outstanding:
Basic 100,865 97,579
Diluted 100,865 296,156
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Twelve Months Ended
-------------------
November 27, November 28,
2011 2010
---- ----
Net sales $1,230,151 $1,219,471
Cost of goods sold 751,449 709,971
------- -------
Gross profit 478,702 509,500
Selling, general and administrative expenses 414,235 398,053
Amortization expense 289 289
Royalty income, net of royalty expense (19,413) (17,529)
------- -------
Income from operations 83,591 128,687
Interest expense 87,743 85,617
Refinancing and extinguishment of debt 1,222 3,759
Other income, net (451) (226)
---- ----
(Loss) income before income
taxes (4,923) 39,537
Income tax provision 4,104 18,488
Equity in earnings of unconsolidated affiliates 3,371 3,611
----- -----
Income (loss) from continuing
operations (5,656) 24,660
Loss from discontinued operations (4,232) (38,399)
Net loss $(9,888) $(13,739)
======= ========
Earnings (loss) per common share-Basic
Income (loss) from continuing
operations per common share $(0.06) $0.26
Loss from discontinued
operations per common share (0.04) (0.40)
----- -----
(Loss) earnings per common share-Basic $(0.10) $(0.14)
====== ======
Earnings (loss) per common share-Diluted
Income (loss) from continuing
operations per common share $(0.06) $0.14
Loss from discontinued
operations per common share (0.04) (0.13)
----- -----
Earnings (loss) per common share-Diluted $(0.10) $0.01
====== =====
Weighted average number of common shares outstanding:
Basic 99,261 95,934
Diluted 99,261 289,857
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Twelve Months Ended
-------------------
November 27, November 28,
2011 2010
---- ----
Operating activities:
Net loss $(9,888) $(13,739)
Adjustments to
reconcile net
income to
net cash provided
by (used in)
operating
activities:
Depreciation and
amortization 24,234 28,676
Deferred income
taxes 1,905 1,121
Amortization of
deferred gain
on sale-
leaseback (624) (646)
Paid in kind
interest on
convertible
notes 19,994 16,109
Amortization of
discount on new
senior secured
notes 1,485 1,431
Amortization of
debt issuance
costs and other 4,673 4,750
Impairment
charges 288 22,963
Share-based
compensation 13,243 15,864
Excess tax
benefits from
share-based
payment
arrangements - (417)
(Gain) loss on
sale of assets (215) 260
Write-off of
debt issuance
costs related
to debt
extinguishments 643 2,709
Loss on
repurchase of
senior notes 300 1,050
Dividends
received from
unconsolidated
affiliates 1,011 -
Equity in
earnings of
unconsolidated
affiliates (3,371) -
Loss on
disposition of
subsidiary 206 2,399
Other, net (2,217) 2,618
Changes in
operating assets
and liabilities:
Accounts
receivable 10,296 (3,226)
Inventories (666) (12,115)
Prepaid expenses
and other
current assets (6,418) (3,628)
Other assets 4,271 (3,791)
Accounts payable 4,774 (4,873)
Accrued expenses (24,382) (8,711)
Other
liabilities (5,790) (338)
Net cash provided by operating activities 33,752 48,466
------ ------
Investing activities:
Purchase of
property, plant
and equipment (22,408) (16,578)
Proceeds from sale
of property, plant
and equipment 227 124
Net proceeds
(outflow) from
disposition of
subsidiary - (340)
Repayments of loans
and capital from
unconsolidated
affiliate - 3,205
Net cash used in
investing activities (22,181) (13,589)
------- -------
Financing activities:
Proceeds from
issuance of long-
term obligations 3,387 4,702
Repayments of long-
term obligations (4,619) (15,068)
Repayment of senior
secured notes,
including premium
of $300 and $1,050 (10,300) (36,050)
Repurchase of
common stock
associated with
vesting of
employee share-
based (3,746) (4,806)
awards
Exercise of
employee stock
options, including
related excess tax
benefits 630 714
Debt issuance costs (147) -
Other (34) (8)
Net cash used in
financing activities (14,829) (50,516)
------- -------
Effect of exchange rate changes on cash 1,978 (6,533)
----- ------
Change in cash and equivalents (1,280) (22,172)
Cash and equivalents:
Beginning of period 109,255 131,427
End of period $107,975 $109,255
RECONCILIATION OF EBITDA TO NET INCOME
NON GAAP MEASURES
Three Months Ended: Twelve Months Ended:
------------------- --------------------
November 27, November 28, November 27, November 28,
2011 2010 2011 2010
---- ---- ---- ----
(in thousands) (percentage of net sales) (in thousands) (percentage of net sales) (in thousands) (percentage of net sales) (in thousands) (percentage of net sales)
Net (loss) income $(15,207) -5.6% $(4,480) -1.5% $(9,888) -0.8% $(13,739) -1.1%
Interest expense 22,434 8.3% 21,341 7.2% 87,743 7.1% 85,617 7.0%
Income taxes (3,675) -1.4% 5,018 1.7% 4,104 0.3% 18,488 1.5%
Depreciation and amortization (a) 6,233 2.3% 6,231 2.1% 24,234 2.0% 25,664 2.1%
----- ----- ------ ------
9,785 3.6% 28,110 9.5% 106,193 8.6% 116,030 9.5%
Adjustments for debt covenants:
Refinancing
charges - 0.0% - 0.0% 1,222 0.1% 3,759 0.3%
Non-cash
compensation 4,004 1.5% 3,103 1.0% 13,243 1.1% 15,862 1.3%
KKR
consulting
fees 322 0.1% 456 0.2% 1,303 0.1% 1,881 0.2%
Severance
charges - 0.0% 242 0.1% - 0.0% 2,150 0.2%
Discontinued
operations 891 0.3% 7,971 2.7% 4,232 0.3% 38,399 3.1%
Other
(various)
(b) 105 0.0% (29) 0.0% 102 0.0% (196) 0.0%
Adjusted EBITDA $15,107 5.6% $39,853 13.4% $126,295 10.3% $177,885 14.6%
======= ======= ======== ========
(a) Excludes depreciation from discontinued operations
(b) Consists of various immaterial adjustments
Sealy Corporation
Reconciliation of 2011 Adjusted
EBITDA to Prior Year (in
Millions)
Adjusted EBITDA
fiscal year end
2010 $177.9
Less:
Product launch cost and
national advertising (28.2)
Material and other inflation (27.8)
International (6.4) (62.4)
----
Plus:
Other 10.8
----
Adjusted EBITDA
fiscal year end
2011 $126.3
======
Sealy Corporation
Reconciliation of Certain Fourth Quarter Financial Results to Prior Year (in Millions)
Increase / (Decrease)
---------------------
Net Gross SG&A Adjusted
Sales Profit Costs EBITDA*
----- ------ ----- ------
Three Months Ended November 28, 2010 $296.6 $122.9 $99.0 $39.9
Domestic:
Volume/Price (5.8) (0.4) (1.3) 0.9
Subsidy Impact (9.7) (9.7) (5.0) (4.7)
Non Warrantable Product Returns (4.7) (1.7) - (1.7)
Material & Other Inflation - (7.1) 1.2 (8.3)
Fixed SG&A - - 0.9 (0.9)
Bad debt - - (2.3) 2.3
Non Cash Compensation - - 0.9 -
Product Launch Cost & National Advertising (1.2) (1.2) 2.5 (3.7)
Other (0.2) (0.6) 0.9 (2.5)
International (5.7) (4.1) 2.1 (6.2)
---- ---- --- ----
Three Months Ended November 27, 2011 $269.3 $98.1 $98.9 $15.1
====== ===== ===== =====
* Some of the reconciliation items are not included in the definition of Adjusted EBITDA
Sealy Corporation
Share Count
Reconciliation
Three Months Ended Twelve Months Ended:
------------------ --------------------
November 27, 2011 November 28, 2010 November 27, 2011 November 28, 2010
----------------- ----------------- ----------------- -----------------
(in thousands) (in thousands)
Numerator:
Net income from
continuing operations,
as reported $(14,025) $3,491 $(5,656) $24,660
Net income attributable
to participating
securities 26 (3) 10 (57)
Interest on convertible
notes - 4,180 - 16,109
--- ----- --- ------
Net income from
continuing operations
available to common
shareholders $(13,999) $7,668 $(5,646) $40,712
======== ====== ======= =======
Denominator:
Denominator for basic
earnings per share-
weighted average
shares 100,865 97,579 99,261 95,934
Effect of dilutive
securities:
Convertible debt - 189,047 - 183,615
Stock options - 992 - 1,087
Restricted share units - 8,151 - 8,865
Other - 387 - 356
--- --- --- ---
Denominator for diluted
earnings per share-
adjusted weighted
average shares and
assumed conversions 100,865 296,156 99,261 289,857
======= ======= ====== =======
Sealy Corporation
Interest Expense
Three Months Ended Twelve Months Ended:
------------------ --------------------
November 27, 2011 November 28, 2010 November 27, 2011 November 28, 2010
----------------- ----------------- ----------------- -----------------
(in thousands) (in thousands)
Cash
interest
expense $15,445 $15,646 $61,591 $63,121
Non-cash
interest
expense 6,988 5,695 26,152 22,496
Total
interest
expense $22,433 $21,341 $87,743 $85,617
======= ======= ======= =======
SOURCE Sealy Corporation
