-Income from Operations Grows 21.6%--Adjusted EBITDA Grows 14.7%--Operating & Adjusted EBITDA Margin Expansion-
Sep. 29, 2009 (PR Newswire) --
TRINITY, N.C., Sept. 29 /PRNewswire-FirstCall/ -- Sealy Corporation (NYSE: ZZ), the bedding industry's largest global manufacturer, today announced results for its third quarter of fiscal 2009.
Income from operations for the third fiscal quarter increased $7.0 million to $39.2 million compared to the same period in the prior year. As a percent of sales, income from operations increased 325 basis points to 11.2% from the same prior year period.
Adjusted EBITDA for the third fiscal quarter increased to $53.7 million from $46.8 million, while Adjusted EBITDA margin increased 380 basis points to 15.4% compared to the same prior year period.
Net sales for the third fiscal quarter were $349.6 million compared to $405.0 million in the same prior year period.
Gross Profit for the third fiscal quarter was $146.1 million compared to $164.1 in the same prior year period, while Gross Margin increased 126 basis points over the same time period, to 41.8%.
Net income for the third fiscal quarter was $12.1 million versus net income of $10.9 million for the comparable prior year period. Third quarter 2009 earnings per diluted share, based on a 279.2 million diluted share count, was $0.05, compared to earnings per diluted share, based on a 93.5 million diluted share count, of $0.12 in the prior year. A reconciliation for the increase in shares outstanding can be found in the attached schedules.
"We were pleased with the results from the continued execution of our 2009 strategic initiatives to grow profitable market share; successfully roll out the new Stearns & Foster line; build stronger partnerships with our retailers and suppliers; improve our gross margins; permanently reduce our operating cost structure; and maximize our financial flexibility. These actions have all contributed to the year-over-year and sequentially improving results that we are reporting today," stated Larry Rogers, Sealy's President and Chief Executive Officer.
"While the global macro economic and retail environments remain challenging, we believe our focus on the aspects of our business that we can control is paying off. One prominent example of this is the success that we are seeing in the luxury bedding market with our new Stearns & Foster line. Efforts like this are enabling us to begin to realize improvements in our operations and positioning us to benefit more when the economy improves," added Mr. Rogers.
Total U.S. net sales were $256.8 million, a decrease of 13.3% from the third quarter of fiscal 2008. Wholesale domestic net sales, which exclude third party sales from Sealy's component plants, were $251.8 million, compared to $289.0 million in the third quarter of 2008. A weak retail environment negatively impacted domestic revenue performance. In the U.S., Wholesale Average Unit Selling Price (AUSP) increased 0.1% while unit volume declined 12.9% on a year-over-year basis.
International net sales decreased $16.0 million, or 14.7%, from the third quarter of 2008 to $92.8 million. Excluding the effects of currency fluctuation, International net sales declined 4.3% from the third quarter of 2008. This decline was primarily due to declines in finished goods sales in Europe and, to a lesser extent, the weak retail environment in our Latin American businesses.
Consolidated gross profit was $146.1 million compared to $164.1 million in the third quarter of fiscal 2008. Gross profit margin was 41.8%, an increase of 126 basis points compared to the prior year third quarter. U.S. gross profit margin increased 109 basis points to 43.9%. The increase in gross profit margin was driven primarily by lower material costs as the related commodity prices remained below prior year levels through the third quarter and continued improvements in manufacturing efficiencies, which were partially offset by less absorption of fixed costs as a result of lower volume.
Selling, general, and administrative (SG&A) expenses were $110.3 million for the third quarter of fiscal 2009, an improvement of $22.6 million, versus the comparable period a year earlier. The reduction in SG&A expenses is primarily due to actions taken by management to reduce the Company's cost structure. Volume driven variable expenses declined $14.9 million. Fixed operating costs, exclusive of compensation expense, decreased $17.0 million primarily due to a $10.1 million reduction in national advertising expenses as well as reductions in other operating expenditures. Compensation expense increased by $9.3 million primarily due to increases for incentive-based payments, defined contribution plan payments, and non-cash compensation expense related to new equity grants.
Income from operations for the third fiscal quarter increased $7.0 million to $39.2 million compared to the same period in the prior year. As a percent of sales, income from operations increased 325 basis points to 11.2% from the same prior year period. This improvement was based on improved gross profit margin performance and continued cost improvements.
Total Adjusted EBITDA was $53.7 million for the third quarter of fiscal 2009, or 15.4% of net sales, which represents an increase of 380 basis points on a year-over-year basis.
For the nine months ended August 30, 2009, Net Sales decreased 18.3% to $958.0 million from $1,172.3 million for the comparable prior year period. Gross profit was $386.5 million, or 40.3% of net sales, versus $465.7 million, or 39.7% of net sales, for the comparable prior year period a year earlier. Income from operations was $92.2 million or 9.6% of net sales compared to $108.0 million or 9.2% of net sales for the comparable prior year period. Net income was $11.6 million versus $39.1 million and net income per diluted share was $0.09 compared to $0.42 for the comparable prior year period. Results for the period included charges of $16.2 million net of tax or $0.11 per diluted share, related to the Company's refinancing of its senior credit facility on May 29, 2009 and rights for convertible notes. Total Adjusted EBITDA was $130.8 million, or 13.7% of net sales, versus $147.8 million, or 12.6% of net sales, compared for the nine months ended August 31, 2008.
As of August 30, 2009, the Company's debt net of cash was $749.6 million, a decrease of $7.2 million compared to $756.8 million as of November 30, 2008 and a decrease of $11.3 million compared to the Company's debt net of cash of $760.9 million as of May 31, 2009. The Net Debt to EBITDA ratio excluding the convertible notes was 3.76x as compared to 4.03x as of May 31, 2009.
"The completion of our comprehensive refinancing plan in July, coupled with our strong cash flow generation and our negotiated ability to pre-pay a portion of this debt, has created a stable long-term financial position with greater financial flexibility for the Company. The Company has no material amortization payments until 2014," stated Mr. Rogers.
"While we expect market conditions to remain challenging, we are starting to see positive signs in the market in terms of volume and pricing, although not with sufficient consistency to definitively conclude we are in a turnaround. We continue to remain vigilant on right sizing our cost structure and rebuilding gross margins in order to maximize our cash flow.
"We believe that our recent operating performance and successful financial restructuring leave our company 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 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. We present Adjusted EBITDA and its derivative, Adjusted EBITDA Margin, because the covenants contained in our senior debt agreements are based upon these measures and Adjusted EBITDA is a material component of those covenants. 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 income from operations is provided in the attached schedule.
Conference Call
The Company will hold a conference call today to discuss its fiscal third quarter 2009 results at 5:00 p.m. (Eastern Time). The conference call can be accessed live over the phone by dialing 1-877-941-2068, or for international callers, 1-480-629-9712. 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 4157344. The replay will be available until October 6, 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 www.sealy.com. The on-line replay will be available for a limited time beginning immediately following the call. An updated investor presentation will be posted on Wednesday, September 30th, in the Investors section of the Company's website at www.sealy.com.
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 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)
August 30, November 30, August 31,
2009 2008 2008
---- ---- ----
ASSETS
Current assets:
Cash and
equivalents $99,840 $26,596 $30,699
Accounts
receivable, net of
allowances for bad
debts, cash
discounts and
returns 189,446 156,583 225,115
Inventories 57,619 64,634 73,059
Prepaid expenses
and other current
assets 23,726 30,969 26,977
Deferred income
tax assets 18,724 16,775 17,057
------ ------ ------
Total current assets 389,355 295,557 372,907
------- ------- -------
Property, plant and
equipment - at cost 440,003 449,308 462,890
Less accumulated
depreciation (220,656) (218,560) (219,754)
-------- -------- --------
219,347 230,748 243,136
------- ------- -------
Other assets:
Goodwill 360,817 357,149 393,507
Intangible assets,
net of accumulated
amortization 2,774 4,945 6,277
Deferred income
tax assets 5,650 3,392 3,909
Debt issuance
costs, net, and
other assets 53,740 29,083 31,400
------ ------ ------
422,981 394,569 435,093
Total assets $1,031,683 $920,874 $1,051,136
========== ======== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion -
long-term
obligations $11,591 $21,243 $37,937
Accounts payable 105,914 97,084 160,654
Accrued incentives
and advertising 31,610 34,542 39,861
Accrued
compensation 33,730 24,797 26,160
Accrued interest 14,843 16,432 10,765
Other accrued
liabilities 45,178 44,363 48,124
------ ------ ------
Total current
liabilities 242,866 238,461 323,501
Long-term
obligations, net of
current portion 837,836 762,162 741,680
Other liabilities 59,585 71,257 67,955
Deferred income tax
liabilities 6,538 4,962 6,990
Common stock and
options subject to
redemption - 8,856 9,424
Stockholders' deficit:
Common stock 922 917 916
Additional paid-in
capital 878,003 668,547 667,480
Accumulated deficit (991,572) (814,298) (772,318)
Accumulated other
comprehensive
income (2,495) (19,990) 5,508
Total shareholders'
deficit (115,142) (164,824) (98,414)
Total liabilities and
shareholders'
deficit $1,031,683 $920,874 $1,051,136
========== ======== ==========
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
------------------
August 30, August 31,
2009 2008
---- ----
Net sales $349,573 $404,963
Cost of goods sold 203,508 240,843
------- -------
Gross profit 146,065 164,120
Selling, general and
administrative expenses 110,256 132,892
Amortization expense 842 981
Restructuring expenses and
asset impairment - 2,448
Royalty income, net of
royalty expense (4,216) (4,422)
------ ------
Income from operations 39,183 32,221
Interest expense 22,127 14,379
Loss on rights for
convertible notes 1,820 -
Refinancing and
extinguishment of debt and
interest rate derivatives 39 -
Other income, net (14) (117)
--- ----
Income before income tax
provision 15,211 17,959
Income tax provision 3,155 7,017
----- -----
Net income $12,056 $10,942
======= =======
Earnings per common share---
Basic $0.13 $0.12
===== =====
Earnings per common share---
Diluted $0.05 $0.12
===== =====
Weighted average number of
common shares outstanding:
Basic 91,884 91,269
Diluted 279,156 93,538
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
-----------------
August 30, August 31,
2009 2008
---- ----
Net sales $958,004 $1,172,267
Cost of goods sold 571,538 706,579
------- -------
Gross profit 386,466 465,688
Selling, general and administrative
expenses 302,533 365,536
Amortization expense 2,435 2,850
Restructuring expenses and asset
impairment 1,448 2,907
Royalty income, net of royalty expense (12,186) (13,558)
------- -------
Income from operations 92,236 107,953
Interest expense 56,551 45,124
Loss on rights for convertible notes 4,549 -
Refinancing and extinguishment of debt
and interest rate derivatives 17,461 -
Gain on sale of subsidiary stock (1,292) -
Other income, net (60) (297)
--- ----
Income before income tax expense 15,027 63,126
Income tax provision 3,463 24,013
----- ------
Net income $11,564 $39,113
======= =======
Earnings per common share---Basic $0.13 $0.43
===== =====
Earnings per common share---Diluted $0.09 $0.42
===== =====
Weighted average number of
common shares outstanding:
Basic 91,836 91,044
Diluted 153,602 94,066
SEALY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
-----------------
August 30, August 31,
2009 2008
---- ----
Operating activities:
Net income $11,564 $39,113
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 23,840 25,763
Deferred income taxes (7,303) 1,847
Impairment charges 1,326 873
Amortization of deferred gain on
sale-leaseback (485) -
Paid in kind interest on convertible
notes 1,820 -
Amortization of discount on new
senior secured notes 351 -
Amortization of debt issuance
costs and other 2,925 1,761
Loss on rights for convertible notes 4,549 -
Share-based compensation 7,381 2,550
Excess tax benefits from share-based
payment arrangements - (781)
Loss on sale of assets 383 348
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 (2,458) 1,083
Changes in operating assets and liabilities:
Accounts receivable (27,628) (16,538)
Inventories 5,684 715
Prepaid expenses and other current
assets 14,080 2,549
Other assets (1,434) 3,049
Accounts payable 5,195 25,731
Accrued expenses 6,752 (26,824)
Other liabilities (7,150) 3,539
------ -----
Net cash provided by
operating activities 40,213 64,778
------ ------
Investing activities:
Purchase of property, plant and
equipment (8,669) (21,102)
Proceeds from sale of property, plant
and equipment 10,385 34
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 631 (21,068)
--- -------
Financing activities:
Cash dividends - (6,811)
Proceeds from issuance of long-term
obligations 3,343 8,114
Repayments of long-term obligations (15,668) (23,821)
Repayment of old senior term loans (377,181) -
Proceeds from issuance of new senior
secured notes 335,916 -
Proceeds from issuance of related party
notes 177,132 -
Repayment of related party notes (83,284) -
Proceeds from issuance of convertible
notes, net 83,284 -
Borrowings under revolving credit
facilities 140,904 277,658
Repayments under revolving credit
facilities (205,304) (281,085)
Exercise of employee stock options,
including
related excess tax benefits (330) 824
Debt issuance costs (27,421) -
Net cash provided by (used in)
financing activities 31,391 (25,121)
------ -------
Effect of exchange rate
changes on cash 1,009 (2,497)
----- ------
Change in cash and
equivalents 73,244 16,092
Cash and equivalents:
Beginning of period 26,596 14,607
------- -------
End of period $99,840 - $30,699
======= =======
RECONCILIATION OF ADJUSTED EBITDA TO OPERATING INCOME AND ADJUSTED
EBITDA MARGIN TO OPERATING MARGIN NON GAAP MEASURES
Three Months Ended:
------------------------------------------------
August 30, August 31,
2009 2008
--------------------- ----------------------
(percentage (percentage
(in of net (in of net
thousands) sales) thousands) sales)
Income from operations $39,183 11.2% $32,221 8.0%
Depreciation and
amortization 8,102 2.3% 8,643 2.1%
Adjustments for debt
covenants:
Non-cash compensation 5,164 1.5% 555 0.1%
KKR consulting fees 655 0.2% 546 0.1%
Severance charges 229 0.1% 66 0.0%
Restructuring related
costs - 0.0% 2,189 0.5%
Product line
discontinuance - 0.0% 1,356 0.3%
Other (a) 334 0.1% 1,212 0.3%
--- -----
Adjusted EBITDA $53,667 15.4% $46,788 11.6%
======= =======
Nine Months Ended:
------------------------------------------------
August 30, August 31,
2009 2008
------------------------ ----------------------
(percentage (percentage
(in of net (in of net
thousands) sales) thousands) sales)
Income from operations $92,236 9.6% $107,953 9.2%
Depreciation and
amortization 23,840 2.5% 25,763 2.2%
Adjustments for debt
covenants:
Non-cash compensation 7,387 0.8% 2,530 0.2%
KKR consulting fees 2,196 0.2% 546 0.0%
Severance charges 2,171 0.2% 3,271 0.3%
Restructuring related
costs - 0.0% 2,894 0.2%
Product line
discontinuance - 0.0% 1,356 0.1%
Other (a) 2,951 0.3% 3,495 0.3%
----- -----
Adjusted EBITDA $130,781 13.7% $147,808 12.6%
======== ========
(a) Consists of various immaterial adjustments
Sealy Corporation
Fully Diluted Share Count Reconciliation
(in thousands)
Three Months Nine Months
------------ -----------
Fully Diluted Shares 8/31/08 93,538 94,066
Change in basic shares 615 792
Convertible Notes 177,088 60,549
Reduction in stock options (269) (1,756)
Reduction in restricted
shares (148) (154)
Restricted share unit grants 8,172 -
Other 160 105
--- ---
Fully Diluted Shares 8/30/09 279,156 153,602
SOURCE Sealy Corporation
