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Sealy Corporation Reports Third Quarter Fiscal 2007 Results- Net Sales Grow 7.5% -
TRINITY, N.C., Oct. 4 /PRNewswire-FirstCall/ -- Sealy Corporation (NYSE: ZZ) , the largest bedding manufacturer in the world, today announced results for its third quarter of fiscal 2007. Net sales for the third quarter ended August 26, 2007 increased 7.5% to $446.4 million from $415.1 million for the comparable period a year earlier on unit volume growth of 16.9%. Partially offsetting this increase was an 8.0% decrease in average unit selling price (AUSP). Domestic net sales increased $16.7 million or 5.2% to $335.1 million on a 10.3% increase in unit volume, partially offset by a 4.6% decrease in AUSP. The Company continues to focus on generating unit growth and experienced strong performance in the Company's Sealy Posturepedic Reserve beds along with its visco and latex specialty bedding products. The decrease in AUSP is primarily due to a shift in the share of sales coming from the Sealy Posturepedic Reserve beds and strategic pricing actions implemented in the first quarter of fiscal 2007 on selected products such as Sealy Posturepedic TrueForm. International net sales increased $14.6 million or 15.1% to $111.3 million. Excluding the effects of foreign currency fluctuation, net sales grew 9.2% in the quarter. The increase internationally represents a 32.6% increase in unit volume, partially offset by a decrease in AUSP. The changes in volume and average unit selling price were a result of increased sales of lower priced OEM products in Europe as well as select pricing actions in Canada. Mexico and Argentina also experienced strong net sales growth. Third quarter gross profit was $179.9 million, compared to $185.2 million in the prior year third quarter. As a percentage of net sales, gross profit was 40.3% compared to 44.6% in the third quarter of fiscal 2006. The decline in gross profit as a percentage of net sales was driven primarily by the addition of $9.5 million of flame retardant materials to our products in the U.S., and the above mentioned product mix changes and pricing actions. On a per unit basis, material costs increased 7.9% in the U.S. compared to the third quarter of fiscal 2006. Partially offsetting the decrease in gross profit were continued improvements in manufacturing efficiencies, including improved labor productivity and yields on raw materials. Net income for the third quarter was $21.5 million or $0.22 per fully diluted share, compared to $29.4 million or $0.30 per fully diluted share, for the comparable period a year ago. Third quarter 2007 net income includes an income tax benefit resulting from the elimination of federal and state tax exposures due to expiring statutes of limitations. The effective tax rate for the third quarter of 2007 was 19.2% compared to 28.7% in the prior year. "During the third quarter we successfully executed on our strategy to drive unit volume across all portions of the market, secure real estate with our retailers and increase Sealy's market share both domestically and internationally while delivering solid cash flow," said David J. McIlquham, Sealy's Chairman and Chief Executive Officer. "We also recognize there are areas within our innerspring business where we must improve our performance. Building on the success of our new Stearns & Foster and Sealy Posturepedic Reserve products we are committed to identifying and implementing opportunities to improve the margin and profitability of these sales as we move forward. In addition, we are continuing to build on our growth and profitability in our specialty portfolio, especially in our latex products and to that end we are evaluating changes to the business model, including our go to market strategy. Some of these initiatives for latex include: collaborating with our key retailers on a joint strategy, introducing new products by the end of the first half of fiscal 2008, introducing a marketing strategy that leverages the Sealy Posturepedic brand, and a new long-term business plan for this portion of our specialty business, each of which are intended to drive long-term shareholder value." Net sales for the nine months ended August 26, 2007 increased 6.2% to $1,260.8 million from $1,187.6 million for the comparable period a year earlier. Gross profit was $529.7 million, or 42.0% of net sales, versus $530.5 million, or 44.7% of net sales, for the comparable period a year earlier. Net income was $62.2 million versus net income of $52.5 million for the comparable period a year ago. During the third quarter, Sealy reduced its debt by $18.1 million. Year to date, debt has been reduced by $26.3 million. As of August 26, 2007, Sealy's cash and cash equivalent balance was $14.6 million versus $22.2 million as of August 27, 2006. During the quarter, under Sealy's previously announced share repurchase program, Sealy purchased 113,100 shares for aggregate proceeds of $1.7 million. Since the end of the fiscal quarter, an additional 529,000 shares were purchased for aggregate proceeds of $7.7 million as of October 3, 2007. 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 (888) 239-5208 or for international callers, (913) 981-5542. 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 approximately $1.6 billion in 2006. The company manufactures and markets a broad range of mattresses and foundations under the Sealy(R), Sealy Posturepedic(R), Stearns & Foster(R), and Bassett(R) brands. Sealy operates 26 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 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.
SEALY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
August 26, November 26, August 27,
2007 2006 2006
ASSETS
Current assets:
Cash and cash equivalents $14,648 $45,620 $22,206
Accounts receivable, net of
allowances for bad debts, cash
discounts and returns 229,370 193,838 208,760
Inventories 65,277 66,126 66,465
Assets held for sale - 2,338 2,338
Prepaid expenses and other current
assets 20,799 24,710 22,719
Deferred income taxes 13,434 12,627 15,823
343,528 345,259 338,311
Property, plant and equipment - at cost 434,331 397,167 359,883
Less accumulated depreciation (195,096) (178,957) (174,678)
239,235 218,210 185,205
Other assets:
Goodwill 391,786 388,204 388,279
Other intangibles, net of
accumulated amortization 11,125 13,026 14,802
Debt issuance costs, net, and other
assets 37,281 38,033 27,615
440,192 439,263 430,696
$1,022,955 $1,002,732 $954,212
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion - long-term
obligations $30,152 $18,282 $15,546
Accounts payable 139,065 118,885 116,037
Accrued incentives and advertising 44,944 40,578 38,281
Accrued compensation 32,419 35,484 31,970
Accrued interest 11,770 17,286 6,533
Other accrued expenses 45,230 57,669 42,689
303,580 288,184 251,056
Long-term obligations, net of current
portion 776,110 814,236 806,636
Other noncurrent liabilities 45,019 42,688 52,703
Deferred income taxes 10,399 10,199 11,952
Common stock and options subject to
redemption 16,244 20,263 20,263
Stockholders' deficit:
Common stock 908 904 904
Additional paid-in capital 662,862 664,609 664,588
Accumulated deficit (804,484) (846,144) (860,821)
Accumulated other comprehensive
income 12,317 7,793 6,931
(128,397) (172,838) (188,398)
$1,022,955 $1,002,732 $954,212
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited - Preliminary results)
Three Months Ended
August 26, August 27,
2007 2006
Net sales $446,380 $415,124
Cost of goods sold 266,492 229,941
Gross profit 179,888 185,183
Selling, general and administrative expenses 140,097 127,207
Amortization of intangibles 871 144
Royalty income, net of royalty expense (3,771) (3,830)
Income from operations 42,691 61,662
Interest expense 15,936 15,981
Debt extinguishment and refinancing expenses 249 4,567
Other income, net (70) (75)
Income before income tax expense 26,576 41,189
Income tax expense 5,105 11,821
Net income $21,471 $29,368
Earnings per common share---Basic $0.23 $0.32
Earning per common share---Diluted $0.22 $0.30
Weighted average number of common shares
outstanding:
Basic 91,465 90,959
Diluted 96,376 96,650
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited - Preliminary results)
Nine Months Ended
August 26, August 27,
2007 2006
Net sales $1,260,775 $1,187,571
Cost of goods sold 731,095 657,115
Gross profit 529,680 530,456
Selling, general and administrative expenses 402,542 373,922
Expenses associated with initial public offering
of common stock - 28,510
Amortization of intangibles 2,484 399
Royalty income, net of royalty expense (13,474) (11,225)
Income from operations 138,128 138,850
Interest expense 47,070 52,610
Debt extinguishment and refinancing expenses 249 9,862
Other income, net (284) (641)
Income before income tax expense 91,093 77,019
Income tax expense 28,855 24,266
Income before cumulative effect of change in
accounting principle 62,238 52,753
Cumulative effect of the adoption of FASB
Interpretation No. 47, net of related tax benefit
of $191 - 287
Net income $62,238 $52,466
Earnings per common share---Basic
Income before cumulative effect of change in
accounting principle $0.68 $0.65
Cumulative effect of a change in accounting
principle - -
Earnings per common share---Basic $0.68 $0.65
Earnings per common share---Diluted
Income before cumulative effect of change in
accounting principle $0.64 $0.60
Cumulative effect of a change in accounting
principle - -
Earning per common share---Diluted $0.64 $0.60
Weighted average number of common shares outstanding:
Basic 91,427 81,169
Diluted 96,586 87,185
SEALY CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited - Preliminary results)
Nine Months Ended
August 26, August 27,
2007 2006
Cash flows from operating activities:
Net income $62,238 $52,466
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 23,064 16,625
Deferred income taxes (332) 1,700
Non-cash interest expense:
Senior Subordinated PIK Notes -- 3,348
Amortization of debt issuance
costs and other 2,171 1,237
Stock-based compensation 2,411 3,040
Excess tax benefits from share-
based payment arrangements (6,443) (2,884)
(Gain) loss on sale of assets (2,318) 402
Write-off of debt issuance costs
related to debt extinguishments 709 6,302
Cumulative effect of accounting change -- 287
Other, net (1,003) (5,011)
Changes in operating assets and
liabilities:
Accounts receivable (31,275) (33,346)
Inventories 1,814 (6,324)
Prepaid expenses and other current
assets 4,012 (4,587)
Accounts payable 17,858 (4,589)
Accrued expenses (19,655) (32,295)
Other liabilities 199 511
Net cash provided by (used in)
operating activities 53,450 (3,118)
Cash flows from investing activities:
Purchase of property, plant and
equipment (33,526) (20,674)
Proceeds from sale of property,
plant and equipment 4,998 494
Net cash used in investing activities (28,528) (20,180)
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 dividends (20,578) (131,824)
Repayments of long-term obligations,
including discounts taken of
$460 in 2007 and premiums paid of
$2,703 in 2006 (37,540) (586,614)
Borrowings under new credit facility -- 440,000
Borrowings under revolving credit
facilities 116,596 137,191
Repayments under revolving credit
facilities (110,821) (150,106)
Repurchase of common stock (7,100) --
Exercise of employee stock options,
including related excess tax benefits 6,898 3,012
Debt issuance costs -- (657)
Other (2,695) 1,312
Net cash (used in) provided by
financing activities (55,240) 7,825
Effect of exchange rate changes on cash (654) 1,125
Change in cash and cash equivalents (30,972) (14,348)
Cash and cash equivalents:
Beginning of period 45,620 36,554
End of period $14,648 $22,206
EBITDA and Adjusted EBITDA EBITDA and Adjusted EBITDA are not recognized terms under GAAP (Generally Accepted Accounting Principles) 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:
Three Months Ended: Nine Months Ended:
August 26, August 27, August 26, August 27,
2007 2006 2007 2006
(in thousands)(in thousands) (in thousands) (in thousands)
Income before cumulative
effect of change in
accounting principle $21,471 $29,368 $62,238 $52,753
Interest expense 15,936 15,981 47,070 52,610
Income taxes 5,105 11,821 28,855 24,266
Depreciation and
amortization 7,881 5,632 23,064 16,625
EBITDA 50,393 62,802 161,227 146,254
Management fees to KKR - - - 775
Unusual and nonrecurring
losses:
IPO expenses - - - 28,510
Debt extinguishment or
refinancing charges 249 4,566 249 9,862
North American
realignment 1,362 - 3,274 -
Other (various)(a) 1,534 1,458 1,550 4,395
Adjusted EBITDA $53,538 $68,826 $166,300 $189,796
(a) Consists of various immaterial adjustments
The following table reconciles EBITDA to cash flow from operations:
Nine Months Nine Months
Ended: Ended:
August 26, 2007 August 27, 2006
(in thousands) (in thousands)
EBITDA $161,227 $146,254
Adjustments to EBITDA to arrive at cash flow
from operations:
Interest expense (47,070) (52,610)
Income taxes (28,855) (24,266)
Non-cash charges against (credits to) net
income (4,805) 11,018
Changes in operating assets & liabilities (27,047) (83,514)
Cash flow from operations $53,450 $(3,118)
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