Sealy Corporation Reports Fourth Quarter and Fiscal Full Year 2012 Results --4th Quarter Results from Continuing Operations-- --Adjusted EBITDA of $35.2 Million-- --Net Loss Per Share $0.03-- --Adjusted Earnings Per Share of $0.04-- PR Newswire TRINITY, N.C., Jan. 23, 2013 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 oNet 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. oGross 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. oGross profit margin increased approximately 320 bps to 39.6% of sales compared to 36.4% in the same prior year quarter. oIncome from operations increased by $12.3 million to $16.1 million compared to the same prior year quarter. oNet 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. oAdjusted 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™, Optimum™ 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 152,619 126,494 returns, 2012—$29,959; 2011—$30,104) 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 53,364 46,440 assets 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 765,521 790,297 portion 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; 1,045 1,010 2011—100,916 Additional paid-in capital 955,777 935,512 Treasury stock, at cost: 2012—655,046; (1,138) — 2011—0 Accumulated deficit (1,016,567) (1,016,577) Accumulated other comprehensive income 3,363 (509) (loss) (57,520) (80,564) Total Liabilities and Stockholders' $ 1,005,345 $ Deficit 919,194 SEALY CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands) (Unaudited) Three Months Ended December 2, November 27, 2012 2011 Net sales $ $ 269,259 358,115 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 1,892 836 affiliates 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 1,096 - interests 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 - (0.01) common share 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 - (0.01) common share 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 Gross profit 539,507 478,702 509,500 Selling, general and 455,045 414,235 398,053 administrative expenses Asset impairment loss 827 - - Amortization expense 678 289 289 Restructuring expenses 2,421 - - Royalty income, net of royalty (20,070) (19,413) (17,529) expense Income from operations 100,606 83,591 128,687 Interest expense 89,305 87,743 85,617 Refinancing and extinguishment of 3,748 1,222 3,759 debt Other income, net (605) (451) (226) Income (loss) before 8,158 (4,923) 39,537 income taxes Income tax provision 12,548 4,104 18,488 Equity in earnings of 5,175 3,371 3,611 unconsolidated affiliates Income (loss) from 785 (5,656) 24,660 continuing operations Loss from discontinued operations (1,962) (4,232) (38,399) Net loss (1,177) (9,888) (13,739) Net loss attributable to 1,187 - - noncontrolling interests Net income attributable to $ $ $ common shareholders 10 (9,888) (13,739) Earnings (loss) per common share attributable to common shareholders—Basic Income (loss) from continuing $ $ $ operations per common share 0.02 (0.06) 0.26 Loss from discontinued (0.02) (0.04) (0.40) operations per common share Earnings (loss) per common share $ $ $ attributable to common - (0.10) (0.14) shareholders—Basic Earnings (loss) per common share attributable to common shareholders—Diluted Income (loss) from continuing $ $ $ operations per common share 0.02 (0.06) 0.14 Loss from discontinued (0.02) (0.04) (0.13) operations per common share Earnings (loss) per common share $ $ $ attributable to common - (0.10) 0.01 shareholders—Diluted Weighted average number of common shares outstanding: Basic 102,470 99,261 95,934 Diluted 109,151 99,261 289,857 SEALY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Fiscal Year Ended December November November 2, 27, 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 (49) (624) (646) sale-leaseback Paid in kind interest on 24,539 19,994 16,109 convertible notes Amortization of discount on new 1,578 1,485 1,431 senior secured notes Amortization of debt issuance costs 3,975 4,673 4,750 and other Impairment charges 827 288 22,963 Share-based compensation 8,117 13,243 15,864 Excess tax benefits from - - (417) share-based payment arrangements Loss (gain) on sale of assets 327 (215) 260 Write-off of debt issuance costs 1,862 643 2,709 related to debt extinguishments Loss on repurchase of senior notes 1,050 300 1,050 Dividends received from 6,500 1,011 - unconsolidated affiliates Equity in earnings of (5,175) (3,371) - unconsolidated affiliates 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) Net cash provided by 82,108 33,752 48,466 operating activities Investing activities: Purchase of property, plant and (15,914) (22,408) (16,578) equipment Acquisition of Comfort Revolution, inclusive of cash acquired of $159 159 - (1) Proceeds from sale of property, plant 2,383 227 124 and equipment Net proceeds (outflow) from - - (340) disposition of subsidiary Advances to Comfort Revolution (7,833) - - Repayments of loans and capital from - - 3,205 unconsolidated affiliate Net cash used in (21,205) (22,181) (13,589) investing activities Financing activities: Proceeds from issuance of long-term 5,236 3,387 4,702 obligations Repayments of long-term obligations (11,446) (4,619) (15,068) Repayment of senior secured notes, including premium of $1,050, $300 and (36,050) (10,300) (36,050) $1,050 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) Net cash used in financing (46,123) (14,829) (50,516) activities Effect of exchange rate changes on 5,399 1,978 (6,533) cash 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, November 27, December 2, November 2012 2011 2012 27, 2011 (in thousands) (in thousands) Net loss $ $ (15,207) $ $ (3,894) (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 7,626 6,233 26,379 24,234 amortization 25,210 9,785 127,055 106,193 Adjustments for debt covenants: Refinancing charges 407 - 3,748 1,222 Non-cash compensation 1,551 4,004 8,117 13,243 Merger costs 2,538 - 2,538 - Comfort Revolution 895 - 1,158 - acquisition costs Discontinued 148 891 1,962 4,232 operations Noncontrolling 1,096 - 1,187 - interest Restructuring 2,421 - 2,421 - expenses Other (various) (a) 905 427 1,948 1,405 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, November December 2, November 2012 27, 2011 2012 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 9 17 (6) 10 participating securities Interest on convertible notes - (14,551) - - Net income from continuing $ $ $ $ operations available to common (2,641) (28,559) 1,966 (5,646) shareholders Denominator: Denominator for basic earnings per share—weighted average 104,194 100,865 102,470 99,261 shares Effect of dilutive securities: Convertible debt - - - - Stock options - - 449 - Restricted share units - - 5,640 - Other - - 592 - Denominator for diluted earnings per share—adjusted weighted 104,194 100,865 109,151 99,261 average shares and assumed conversions SEALY CORPORATION INTEREST EXPENSE Three Months Ended: Twelve Months Ended: December 2, November 27, December 2, November 27, 2012 2011 2012 2011 Cash interest $ 15,111 $ 15,445 $ 59,213 $ 61,591 expense Non-cash interest 8,640 6,988 30,092 26,152 expense $ 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 $ $ 9,377 $ operations, net (1) (2,650) 6,727 Net (loss) income attributable to 9 (33) (24) participating securities Interest on convertible notes (2) - 7,475 7,475 Net income (loss) from continuing $ operations available to common (2,641) $ 16,819 $ 14,178 shareholders Denominator for diluted earnings per share - adjusted weighted average 104,194 227,650 331,844 shares and assumed conversion (3) 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 4,418 earnings 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 Website: http://www.sealy.com Contact: Mark D. Boehmer, VP & Treasurer, Sealy Corporation, +1-336-862-8705
Sealy Corporation Reports Fourth Quarter and Fiscal Full Year 2012 Results
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