<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarter ended June 30, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition from _________ to _________.
Commission file number 333-81987
SLEEPMASTER L.L.C.
(Exact name of registrant as it appears in its charter)
New Jersey 22-3341313
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
2001 Lower Road, Linden, New Jersey 07036-6520
(Address of principal executive offices) (Zip Code)
(732) 381-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
All of the registrant's voting and nonvoting membership interests are held by
affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
Class A common units, no par value - 8,000 units as of August 14, 2000
Class B common units, no par value - 0 units as of August 14, 2000
<PAGE> 2
SLEEPMASTER L.L.C.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - Financial Information (unaudited)
Item 1 - Financial Statements
Condensed Consolidated Statements of Income for the
Three and Six Months Ended June 30, 2000 and 1999.................. 3
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 ............................................. 4
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2000 and 1999........................ 5
Notes to Condensed Consolidated Financial Statements.................. 6-16
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................. 17-20
Item 3 - Quantitative and Qualitative Disclosures about
Market Risk........................................................... 20
PART II - Other Information
Item 1 - Legal Proceedings..................................................... 21
Item 6 - Exhibits and Reports on Form 8-K...................................... 21
Signatures................................................................. 22
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SLEEPMASTER L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ -----------------------
2000 1999 2000 1999
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales $ 63,663 $ 39,759 $ 120,164 $ 73,986
Costs and expenses:
Cost of sales 39,306 24,807 74,545 46,068
Selling, general and administrative
expenses 16,534 9,829 30,789 18,214
Amortization of intangibles 1,030 458 1,872 836
Interest expense, net 5,796 2,848 10,333 4,878
Other expense (income), net 22 43 54 (43)
--------- --------- --------- --------
Income before income taxes and
extraordinary items 975 1,774 2,571 4,033
Provision for income taxes 381 833 1,005 1,748
--------- --------- --------- --------
Income before extraordinary items $ 594 $ 941 $ 1,566 $ 2,285
Extraordinary items, net of income taxes (208) (3,167) (208) (3,167)
--------- --------- --------- --------
Net income (loss) $ 386 $ (2,226) $ 1,358 $ (882)
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
SLEEPMASTER L.L.C.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,437 $ 2,842
Accounts receivable, less allowance for doubtful accounts
of $3,562 and $2,360 39,480 24,217
Accounts receivable--other 1,985 1,691
Inventories 14,584 7,531
Other current assets 5,464 613
Deferred income taxes -- 720
--------- ---------
Total current assets 74,950 37,614
--------- ---------
Property, plant and equipment, net 46,344 20,967
Intangible assets, net 334,959 130,824
Other assets 13,203 7,290
Deferred income taxes -- 12,292
--------- ---------
Total assets $ 469,456 $ 208,987
========= =========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 25,883 $ 14,264
Accrued advertising and sales allowances 8,164 5,755
Accrued interest 1,878 2,077
Payable to sellers in connection
with purchase of Crescent 11,293 --
Other current liabilities 11,952 6,472
Current portion of long-term debt 9,889 5,010
Deferred income taxes 161 --
--------- ---------
Total current liabilities 69,220 33,578
--------- ---------
Long-term debt 283,569 161,603
Other liabilities 1,426 1,463
Deferred income taxes 59,946 --
--------- ---------
Total long-term liabilities 344,941 163,066
--------- ---------
Commitments and contingencies
Redeemable cumulative preferred interests 21,644 20,423
Members' Equity (Deficit):
Class A common interests 53,854 12,229
Class B common interests -- --
Accumulated deficit (20,335) (20,472)
Foreign currency translation adjustment 132 163
--------- ---------
Total members' equity (deficit) 33,651 (8,080)
--------- ---------
Total liabilities and members' equity (deficit) $ 469,456 $ 208,987
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
SLEEPMASTER L.L.C.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30
---------------------------------
2000 1999
------------ --------------
<S> <C> <C>
Net cash provided by operating activities $ 19,849 $ 4,161
Cash flows from investing activities:
Purchases of property, plant and equipment, net (1,966) (1,971)
Proceeds from sale of asset -- 11
Acquisitions, net of cash acquired (160,960) (41,470)
--------- ---------
Net cash used in investing activities (162,926) (43,430)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of senior subordinated notes 25,000 115,000
Proceeds from long-term debt 179,861 --
Payments on long-term debt (88,116) (64,281)
Loan origination fees/bond issuance costs (5,898) (5,787)
Penalties on early extinguishment of debt -- (3,645)
Borrowings under revolving line of credit 12,700 --
Payments on revolving line of credit (11,500) --
Capital contributions 41,625 --
Distributions -- (748)
--------- ---------
Net cash provided by financing activities. 153,672 40,539
--------- ---------
Net increase in cash and cash equivalents 10,595 1,270
Cash and cash equivalents, beginning of period 2,842 162
--------- ---------
Cash and cash equivalents, end of period $ 13,437 $ 1,432
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
SLEEPMASTER L.L.C.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
the accounts of Sleepmaster L.L.C. ("Sleepmaster") and all majority-owned
domestic and foreign subsidiaries (the "Company"). All material intercompany
transactions and balances have been eliminated. The interim statements are
unaudited and, in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation of the Company's financial position as of June 30, 2000 and the
results of its operations and cash flows for the interim periods presented. The
condensed consolidated balance sheet data at December 31, 1999 is derived from
the audited financial statements which are included in the Company's Form 10-K/A
for the year ended December 31, 1999 and which should be read in connection with
these financial statements. In accordance with the rules of the Securities and
Exchange Commission, these financial statements do not include all disclosures
required by generally accepted accounting principles.
Operating results for the three and six months ended June 30, 2000 are
not necessarily indicative of the results that may be expected for any other
interim period or for the year ending December 31, 2000.
Certain reclassifications of previously reported financial information
were made to conform to the 2000 presentation.
2. ACQUISITIONS
On April 28, 2000, Sleepmaster acquired all the capital stock of Simon
Mattress Manufacturing Co. ("Simon ")for approximately $42,164,000 in cash.
Sleepmaster financed the acquisition using proceeds from a second amended and
restated credit facility.
On June 30, 2000, Sleepmaster acquired all the capital stock of
Crescent Sleep Products Company ("Crescent") for approximately $117,539,000 in
cash and the assumption of $8,900,000 of industrial revenue bonds. Sleepmaster
financed the acquisition using proceeds from a third amended and restated credit
facility, the issuance of an additional $25,000,000 of senior subordinated
notes, and $41,500,000 of equity from a group of investors and certain members
of Crescent's management.
These acquisitions were accounted for under the purchase method and,
accordingly, Simon's and Crescent's results are included in the consolidated
financial statements since their respective dates of acquisition. The assets
acquired and liabilities assumed have been recorded at their estimated fair
values at the dates of acquisition. The excess of the purchase price over the
estimated fair values of the net assets acquired has been recorded as goodwill
and is being amortized over 40 years.
A summary of the purchase price allocations (in thousands) is as
follows:
<TABLE>
<CAPTION>
Simon Crescent
----- --------
<S> <C> <C>
Current assets...................................$ 11,850 $ 12,476
Property, plant and equipment................... 8,756 15,970
Other assets.................................... 787 5,956
Goodwill........................................ 45,322 160,730
Current liabilities............................. (6,033) (8,985)
Long-term debt.................................. -- (8,900)
Other liabilities............................... (18,059) (58,970)
------ --------
Total.................................. $ 42,623 $ 118,277
</TABLE>
6
<PAGE> 7
The following summarized unaudited pro forma financial information (in
thousands) for the six month periods ended June 30, 2000 and 1999 assumes that
the acquisitions of Simon and Crescent were consummated on January 1, 1999. This
information is not necessarily indicative of the results that the Company would
have achieved had these events actually occurred on such dates or of the
Company's actual or future results.
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
---- ----
<S> <C> <C>
Net sales............................... $ 176,592 $ 134,480
Income before extraordinary items....... 1,790 1,822
</TABLE>
Income before extraordinary items excludes one- time transaction
related expenses of approximately $2,300,000.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
<S> <C> <C>
Raw materials.................................................... $ 10,339 $ 5,402
Work-in-process.................................................. 1,039 476
Finished goods................................................... 3,206 1,653
---------------- ----------------
Total inventories....................................... $ 14,584 $ 7,531
================ ================
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
<S> <C> <C>
Goodwill......................................................... $ 241,183 $ 35,176
Licenses......................................................... 100,249 100,249
---------------- ----------------
341,432 135,425
Less: accumulated amortization................................... 6,473 4,601
---------------- ----------------
$ 334,959 $ 130,824
================ ================
</TABLE>
The purchase price, in excess of the fair values of assets and
liabilities acquired of both Simon and Crescent, has been allocated to goodwill
in the balance sheet at June 30, 2000. The Company believes that the only
identifiable intangible asset to which the purchase price will be allocated is
the Serta license acquired. Furthermore, the Company believes that amortization
period for the license is the same as the amortization period for goodwill. The
Company is currently in the process of determining the appropriate amounts which
will be allocated to the licenses.
5. DEBT
On April 28, 2000, the Company expanded and restated its existing
credit facility to provide for an aggregate amount of borrowings of up to
$103,875,000, comprising a $33,000,000 revolving credit facility, a $35,875,000
amortizing term loan facility and a $35,000,000 incremental amortizing term
loan facility (the "Second Amended and Restated Credit Facility"). The terms of
the Second Amended and Restated Credit Facility were substantially equivalent
to those of the prior facility. Borrowings under the Second Amended and
Restated Credit Facility were used to finance the acquisition of Simon.
On June 30, 2000, in connection with the acquisition of Crescent, the
Company issued an additional $25,000,000 of 13.4% senior subordinated notes due
November, 2009. Also on June 30, 2000, the Company entered into a third amended
and
7
<PAGE> 8
restated credit agreement to provide for an aggregate amount of borrowings of
up to $172,500,000, comprising a $40,000,000 5.5 year revolving credit
facility, a 5.5 year Tranche A term loan of $57,500,000 and a 6.5 year Tranche
B term loan of $75,000,000 (the "Third Amended and Restated Credit Facility").
This new facility includes a letter of credit sublimit of $25,000,000.
Borrowings under this credit facility bear interest at floating rates based on
LIBOR or applicable alternative base rates. Sleepmaster financed the
acquisition of Crescent using proceeds from the Third Amended and Restated
Credit Facility, the issuance of the $25,000,000 of senior subordinated notes,
and $41,500,000 of equity from a group of investors and certain members of
Crescent's management.
In connection with the Third Amended and Restated Credit Facility, the
Company wrote-off unamortized debt issuance costs. One bank included in the
syndication of banks which were part of the Second Amended and Restated Credit
Facility did not continue in the syndication of banks in connection with the
Third Amended and Restated Credit Facility and its debt was extinguished. An
extraordinary loss of $208,000, net of the associated income tax, was recorded
in connection with this extinguishment. In accordance with the Emerging Issues
Task Force No. 98-14, for three banks which continued with the syndication of
banks in connection with the Third Amended and Restated Credit Facility, a
charge to interest expense of $564,000 to write-off unamortized debt issuance
costs was recorded.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 1999, the staff of the Securities and Exchange Commission
issued SAB 101, "Revenue Recognition in Financial Statements", which addressed
some of the staff's concerns over the application of Generally Accepted
Accounting Principles for revenue recognition. The Company is currently
evaluating the impact, if any, of SAB 101, as amended, on its results of
operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for all fiscal
quarters beginning after June 15, 2000. SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. The Company presently does not have any derivative instruments or
hedging activities and, consequently, SFAS No. 133 is not expected to have a
material impact on the Company's results of operations, financial position or
cash flow.
7. SUPPLEMENTAL CASH FLOW INFORMATION
The Company recorded a charge to retained earnings (deficit)
of $1,221,000 and $1,111,000 for the six months ended June 30, 2000 and
1999, respectively, representing the accretion of redeemable cumulative
preferred interests at a compounded annual rate of 12%.
8. GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION
As of May 18, 1999 and June 30, 2000, Sleepmaster and each of its
domestic wholly owned subsidiaries ("Guarantor Subsidiaries") fully and
unconditionally guaranteed, on a joint and several basis, the obligation to pay
principal and interest with respect to the $115,000,000 of 11% senior
subordinated notes due 2009 and the $25,000,000 of 13.4% senior subordinated
notes due 2009 (the "Notes"), respectively. The Company generates funds
necessary to satisfy its debt service obligations from either its own operations
or by distributions or advances from its subsidiaries. There are no contractual
or legal restrictions that could limit the Company's ability to obtain cash from
its subsidiaries for the purpose of meeting its debt service obligations,
including the payment of principal and interest on the Notes. Although holders
of the Notes will be direct creditors of Sleepmaster's principal direct
subsidiaries by virtue of the guarantees, Sleepmaster has a foreign subsidiary
("Non-Guarantor Subsidiary") that is not included among the Guarantor
Subsidiaries and such subsidiary will not be obligated with respect to the
Notes. As a consequence, the claims of creditors of the Non-Guarantor Subsidiary
will effectively have priority with respect to the assets and earnings of this
subsidiary over the claims of creditors of Sleepmaster, including the holders of
the Notes.
The following supplemental condensed consolidating financial statements
present:
1. Condensed consolidating balance sheets as of June 30, 2000 and
December 31, 1999; condensed consolidating statements of income for
the three and six months ended June 30, 2000 and 1999, respectively;
condensed consolidating statements of cash flows for the six months
ended June 30, 2000 and 1999.
2. Sleepmaster, combined Guarantor Subsidiaries and Non-Guarantor
Subsidiary with their investments in subsidiaries accounted for using
the equity method.
3. Elimination entries necessary to consolidate Sleepmaster and all of
its subsidiaries.
8
<PAGE> 9
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $ 18,527 $ 40,957 $ 4,467 $ (288) $ 63,663
Costs and expenses:
Cost of sales 12,614 24,147 2,833 (288) 39,306
Selling, general and
administrative expenses 4,146 11,404 984 -- 16,534
Amortization of intangibles 122 812 96 -- 1,030
Interest expense, net 3,995 1,803 (2) -- 5,796
Other expense, net 25 1 (4) -- 22
-------- -------- -------- -------- --------
(Loss) income before income
taxes and extraordinary items (2,375) 2,790 560 -- 975
(Benefit) provision for income taxes (938) 1,119 200 -- 381
-------- -------- -------- -------- --------
(Loss) income before extraordinary
items (1,437) 1,671 360 -- 594
Extraordinary items, net of
income taxes (208) -- -- -- (208)
(Income) loss from equity investees
net of tax (2,031) -- -- 2,031 --
-------- -------- -------- -------- --------
Net income (loss) $ 386 $ 1,671 $ 360 $(2,031) $ 386
======== ======== ======== ======== ========
</TABLE>
9
<PAGE> 10
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
THREE MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $ 19,060 $ 18,486 $ 2,301 $ (88) $ 39,759
Costs and expenses:
Cost of sales 12,556 10,924 1,415 (88) 24,807
Selling, general and
administrative expenses 4,513 4,805 511 -- 9,829
Amortization of intangibles 160 298 -- -- 458
Interest expense, net 2,781 60 7 -- 2,848
Other expense, net 36 -- 7 -- 43
-------- -------- -------- -------- --------
(Loss) income before income
taxes and extraordinary items (986) 2,399 361 -- 1,774
(Benefit) provision for income taxes (409) 1,112 130 -- 833
-------- -------- -------- -------- --------
(Loss) income before extraordinary items (577) 1,287 231 -- 941
Extraordinary items, net of income taxes (3,167) -- -- -- (3,167)
(Income) loss from equity
investees, net of tax (1,518) -- -- 1,518 --
-------- -------- -------- -------- --------
Net (loss) income $ (2,226) $ 1,287 $ 231 $ (1,518) $ (2,226)
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 11
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $ 37,290 $ 75,117 $ 8,276 $ (519) $120,164
Costs and expenses:
Cost of sales 25,099 44,737 5,228 (519) 74,545
Selling, general and
administrative expenses 8,632 20,343 1,814 -- 30,789
Amortization of intangibles 244 1,435 193 -- 1,872
Interest expense (income), net 6,691 3,649 (7) -- 10,333
Other expense, net 82 (3) (25) -- 54
-------- -------- -------- -------- --------
(Loss) income before income
taxes and extraordinary items (3,458) 4,956 1,073 -- 2,571
(Benefit) provision for income taxes (1,336) 1,976 365 -- 1,005
-------- -------- -------- -------- --------
(Loss) income before extraordinary items (2,122) 2,980 708 -- 1,566
Extraordinary items, net of income taxes (208) -- -- -- (208)
(Income) loss from equity investees, net
of tax (3,688) -- -- 3,688 --
-------- -------- -------- -------- --------
Net income (loss) $ 1,358 $ 2,980 $ 708 $(3,688) $ 1,358
======== ======== ======== ======== ========
</TABLE>
11
<PAGE> 12
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $ 37,245 $ 34,570 $ 2,301 $ (130) $ 73,986
Costs and expenses:
Cost of sales 24,382 20,401 1,415 (130) 46,068
Selling, general and
administrative expenses 8,867 8,836 511 -- 18,214
Amortization of intangibles 322 514 -- -- 836
Interest expense, net 4,762 109 7 -- 4,878
Other (income) expense, net (49) (1) 7 -- (43)
-------- -------- -------- -------- --------
(Loss) income before income taxes and
extraordinary items (1,039) 4,711 361 -- 4,033
(Benefit) provision for income taxes (430) 2,048 130 -- 1,748
-------- -------- -------- -------- --------
(Loss) income before extraordinary items (609) 2,663 231 -- 2,285
Extraordinary items, net of income taxes (3,167) -- -- -- (3,167)
(Income) loss from equity investees,
net of tax (2,894) -- -- 2,894 --
-------- -------- -------- -------- --------
Net (loss) income $ (882) $ 2,663 $ 231 $ (2,894) $ (882)
======== ======== ======== ======== ========
</TABLE>
12
<PAGE> 13
\
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,217 $ 140 $ 80 $ -- $ 13,437
Accounts receivable 12,395 23,787 3,303 (5) 39,480
Accounts receivable--other 1,286 644 55 -- 1,985
Intercompany receivable (payable) -- 28,652 2,175 (30,827) --
Inventories 2,674 11,452 458 -- 14,584
Other current assets 2,023 3,391 50 -- 5,464
Deferred income taxes 735 1,467 -- (2,202) --
--------- --------- --------- --------- ---------
Total current assets 32,330 69,533 6,121 (33,034) 74,950
--------- --------- --------- --------- ---------
Property, plant and equipment, net 4,724 40,692 928 -- 46,344
Intangible assets, net 16,875 302,286 15,798 -- 334,959
Intercompany receivable (payable) 70,879 -- -- (70,879) --
Investment in subsidiaries 232,239 -- -- (232,239) --
Other assets 11,450 1,724 29 -- 13,203
Deferred income taxes 12,972 5,826 -- (18,798) --
--------- --------- --------- --------- ---------
Total assets $ 381,469 $ 420,061 $ 22,876 $(354,950) $ 469,456
========= ========= ========= ========= =========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 9,273 $ 15,848 $ 762 $ -- $ 25,883
Accrued advertising and sales allowances 3,447 4,193 524 -- 8,164
Accrued interest 1,738 140 -- -- 1,878
Payable to sellers in connection with
with purchase of Crescent 11,293 -- -- -- 11,293
Other current liabilities 3,329 7,215 1,408 -- 11,952
Intercompany payable (receivable) 30,862 -- -- (30,862) --
Deferred income taxes 43 2,122 198 (2,202) 161
Current portion of long-term debt 9,375 514 -- -- 9,889
--------- --------- --------- --------- ---------
Total current liabilities 69,360 30,032 2,892 (33,064) 69,220
--------- --------- --------- --------- ---------
Intercompany payable (receivable) -- 70,879 -- (70,879) --
Long-term debt 267,125 16,444 -- -- 283,569
Deferred income taxes -- 78,647 97 (18,798) 59,946
Other liabilities 431 320 675 -- 1,426
--------- --------- --------- --------- ---------
Total long-term liabilities 267,556 166,290 772 (89,677) 344,941
--------- --------- --------- --------- ---------
Redeemable cumulative preferred interests 21,644 -- -- -- 21,644
Members' equity (deficit) 22,909 223,739 19,212 (232,209) 33,651
--------- --------- --------- --------- ---------
Total liabilities and members' equity
(deficit) $ 381,469 $ 420,061 $ 22,876 $(354,950) $ 469,456
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,294 $ 934 $ 612 $ 2 $ 2,842
Accounts receivable 10,282 11,800 2,310 (175) 24,217
Accounts receivable--other 1,061 630 -- -- 1,691
Intercompany (payable) receivable (17) 18,144 1,503 (19,630) --
Inventories 2,378 4,637 516 -- 7,531
Other current assets 1,076 626 24 (393) 1,333
--------- --------- --------- --------- ---------
Total current assets 16,074 36,771 4,965 (20,196) 37,614
--------- --------- --------- --------- ---------
Property, plant and equipment, net 4,477 15,773 717 -- 20,967
Intangible assets, net 17,119 97,707 15,998 -- 130,824
Intercompany receivable (payable) 67,378 -- -- (67,378) --
Investment in subsidiaries 67,628 -- -- (67,628) --
Other assets 19,132 569 3 (122) 19,582
--------- --------- --------- --------- ---------
Total assets $ 191,808 $ 150,820 $ 21,683 $(155,324) $ 208,987
========= ========= ========= ========= =========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 4,984 $ 8,808 $ 645 $ (173) $ 14,264
Accrued advertising and sales allowances 3,541 1,758 456 -- 5,755
Other current liabilities 4,251 3,327 1,364 (393) 8,549
Intercompany payable (receivable) 19,599 -- -- (19,599) --
Current portion of long-term debt 4,500 510 -- -- 5,010
--------- --------- --------- --------- ---------
Total current liabilities 36,875 14,403 2,465 (20,165) 33,578
--------- --------- --------- --------- ---------
Intercompany payable (receivable) -- 67,378 -- (67,378) --
Long-term debt 153,800 7,803 -- -- 161,603
Other liabilities (437) 1,337 685 (122) 1,463
--------- --------- --------- --------- ---------
Total long-term liabilities 153,363 76,518 685 (67,500) 163,066
--------- --------- --------- --------- ---------
Redeemable cumulative preferred interests 20,423 -- -- -- 20,423
Members' (deficit) equity (18,853) 59,899 18,533 (67,659) (8,080)
--------- --------- --------- --------- ---------
Total liabilities and members' equity
(deficit) $ 191,808 $ 150,820 $ 21,683 $(155,324) $ 208,987
========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 15
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $ 23,284 $ 484 $ (240) $(3,679) $19,849
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (687) (989) (290) -- (1,966)
Acquisitions, net of cash acquired (160,960) (38) -- 38 (160,960)
Net activity in investment in
subsidiaries (3,641) -- -- 3,641 --
------- ------- ------- ------- -------
Net cash (used in) provided by investing
activities (165,288) (1,027) (290) 3,679 (162,926)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of senior
subordinated notes 25,000 -- -- -- 25,000
Proceeds from long-term debt 179,861 -- -- -- 179,861
Payments on long-term debt (87,861) (255) -- -- (88,116)
Borrowings under revolving line of credit 12,700 -- -- -- 12,700
Payments on revolving line of credit (11,500) -- -- -- (11,500)
Loan origination fees (5,898) -- -- -- (5,898)
Capital contributions 41,625 -- -- -- 41,625
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities 153,927 (255) -- -- 153,672
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents 11,923 (798) (530) -- 10,595
Cash and cash equivalents, beginning of
period 1,294 938 610 -- 2,842
------- ------- ------- ------- -------
Cash and cash equivalents, end of period $ 13,217 $ 140 $ 80 $ -- $13,437
======= ======= ======= ======= =======
</TABLE>
15
<PAGE> 16
SLEEPMASTER L.L.C. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $ 6,899 $ (1) $ 156 $(2,893) $ 4,161
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchases of property, plant and
equipment, net (1,507) (456) (8) -- (1,971)
Proceeds from sale of assets -- 11 -- -- 11
Acquisitions, net of cash acquired (42,160) -- -- 690 (41,470)
Net activity in investment in
subsidiaries (2,925) -- -- 2,925 --
------- ------- ------- ------- -------
Net cash (used in) provided by investing
activities (46,592) (445) (8) 3,615 (43,430)
------- ------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of senior
subordinated notes 115,000 -- -- -- 115,000
Payments on long-term debt (63,996) (285) -- -- (64,281)
Loan origination fees/bond issuance costs (5,787) -- -- -- (5,787)
Penalties paid on early extinguishment of debt (3,645) -- -- -- (3,645)
Distributions (748) -- -- -- (748)
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities 40,824 (285) -- -- 40,539
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents 1,131 (731) 148 722 1,270
Cash and cash equivalents, beginning of
period 41 843 -- (722) 162
------- ------- ------- ------- -------
Cash and cash equivalents, end of period $ 1,172 $ 112 $ 148 $ -- $ 1,432
======= ======= ======= ======= =======
</TABLE>
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's results of operations and of
its liquidity and capital resources should be read in conjunction with the
Condensed Consolidated Financial Statements of the Company and the related Notes
thereto included elsewhere herein.
GENERAL
Sleepmaster acquired the stock of Crescent on June 30, 2000, the stock
of Simon on April 28, 2000, substantially all of the assets of Adam Wuest on
November 5, 1999, substantially all of the assets of Star on May 18, 1999 and
the stock of Herr on February 26, 1999. Each of these acquisitions has been
accounted for using the purchase method of accounting. The Company's historical
results of operations reflect the results of the acquired businesses since their
respective dates of acquisition. Therefore, the historical operating results of
the Company for the periods presented are not necessarily comparable.
QUARTER ENDED JUNE 30, 2000 AS COMPARED TO QUARTER ENDED JUNE 30, 1999
Net Sales. Net sales increased 60.1%, or $23.9 million, to $63.7 for
the quarter ended June 30, 2000, from $39.8 million for the quarter ended June
30, 1999. A significant portion of the increase was due to the contribution of
net sales from Star, acquired on May 18, 1999, Adam Wuest, acquired on November
5, 1999 and Simon, acquired on April 28, 2000. Net sales contributed by Star,
Adam Wuest and Simon in the second quarter of 2000 were $24.9 million. Excluding
these acquisitions, net sales increased by 3.5%, or $1.3 million, for the second
quarter of 2000. Generally, higher unit sales volumes and higher average unit
selling prices resulting from shifts in product sales mix toward higher priced
products contributed to this increase.
Cost of Sales. Cost of sales increased 58.4%, or $14.5 million, to
$39.3 for the second quarter of 2000, from $24.8 million for the second quarter
of 1999. Cost of sales as a percentage of net sales decreased from 62.4% in 1999
to 61.7% in 2000. Margins were favorably impacted by Sleepmaster successfully
obtaining volume-related cost savings on raw material purchases as a result of
the acquisitions of Star, Adam Wuest and Simon. This impact was offset by an
increase in direct labor costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased 68.2%, or $6.7 million, to $16.5
million for the second quarter of 2000 from $9.8 million for the similar period
of 1999. The increase in SG&A is primarily due to the SG&A associated with the
Company's acquisitions of Star, Adam Wuest and Simon. SG&A as a percentage of
sales increased to 26.0% in the second quarter of 2000 from 24.7% in the second
quarter of 1999. This increase is primarily attributable to the increase in
corporate costs associated with the aforementioned acquisitions.
Amortization of Intangibles. Amortization of intangibles increased $0.6
million to $1.0 million for the second quarter of 2000 from $0.4 for the second
quarter of 1999. The increase is a result of the intangible assets acquired in
connection with the acquisitions of Star, Adam Wuest and Simon.
Interest Expense, Net. Interest expense increased $3.0 million to $5.8
million for the quarter ended June 30, 2000 from $2.8 million for the quarter
ended June 30, 1999. This increase was due primarily to the cost of additional
debt financing incurred for the acquisitions of Adam Wuest and Simon, the
issuance of senior subordinated notes on May 18, 1999 and the writeoff of $0.6
million of unamortized debt issuance costs in the second quarter of 2000 which
is not considered to be extraordinary.
17
<PAGE> 18
Provision for Income Taxes. The provision for income taxes resulted in
an effective tax rate of 39.1% in the second quarter of 2000, down from 47.0% in
the second quarter of 1999. The effective tax rate decreased due to the
expansion of business activities into lower tax jurisdictions as a result of the
aforementioned acquisitions.
Extraordinary Items. The extraordinary item recorded in the second
quarter of 2000 consisted of a write-off of unamortized debt issuance costs of
$346,000 and was recorded in connection with the Company's third amended credit
facility. The extraordinary item recorded in the second quarter of 1999
consisted of the payment of $3.6 million in premiums on the redemption of $20
million in aggregate principal amount of Series A and Series B 12% Subordinated
Notes and repayment of $69.2 million of borrowings under the Company's former
credit facility, together with the write-off of $1.8 million of unamortized debt
issuance costs relating to such redemption and repayment on May 18, 1999
Net Income. As a result of the above factors, net income increased by
$2.6 million, to $0.4 million for the quarter ended June 30, 2000 compared to
the net loss of $2.2 million for the quarter ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Net Sales. Net sales increased 62.4%, or $46.2 million, to $120.2 for
the six months ended June 30, 2000, from $74.0 million for the six months ended
June 30, 1999. A significant portion of the increase was due to the contribution
of net sales from Herr, acquired on February 26, 1999, Star, acquired on May 18,
1999, Adam Wuest, acquired on November 5, 1999 and Simon, acquired on April 28,
2000. Net sales contributed by Herr, Star, Adam Wuest and Simon for the six
months were $53.2 million. Excluding these acquisitions, net sales increased by
5.0%, or $3.2 million, for the six months ended June 30, 2000. Generally, higher
unit sales volumes and higher average unit selling prices resulting from shifts
in product sales mix toward higher priced products contributed to this increase.
Cost of Sales. Cost of sales increased 61.8%, or $28.5 million, to
$74.5 for the first half of 2000, from $46.1 million for the first half of 1999.
Cost of sales as a percentage of net sales decreased slightly from 62.3% in 1999
to 62.0% in 2000. Margins were favorably impacted by Sleepmaster successfully
obtaining volume-related cost savings on raw material purchases as a result of
the acquisitions of Star, Adam Wuest and Simon. This impact was offset by an
increase in direct labor costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased 69.0%, or $12.6 million, to $30.8
million for the first half of 2000 from $18.2 million for the similar period
of 1999. The increase in SG&A is primarily due to the SG&A associated with the
Company's acquisitions of Herr, Star, Adam Wuest and Simon. SG&A as a percentage
of sales increased to 25.6% in 2000 from 24.6% in 1999. This increase is
primarily attributable to the increase in corporate costs associated with the
aforementioned acquisitions.
Amortization of Intangibles. Amortization of intangibles increased $1.1
million to $1.9 million for the first half of 2000 from $0.8 for the similar
period of 1999. The increase is a result of the intangible assets acquired in
connection with the acquisitions of Herr, Star, Adam Wuest and Simon.
Interest Expense, Net. Interest expense increased $5.4 million to $10.3
million for the first half of 2000 from $4.9 million for the first half of 1999.
This increase was due primarily to the cost of additional debt financing
incurred for the acquisitions of Adam Wuest and Simon, the issuance of senior
subordinated notes on May 18, 1999 and the write-off of $0.6 million of
unamortized debt issuance costs in the first half of 2000 which is not
considered to be extraordinary.
18
<PAGE> 19
Provision for Income Taxes. The provision for income taxes resulted in
an effective tax rate of 39.1% in the first half of 2000, down from 43.3% in the
first half of 1999. The effective tax rate decreased due to the expansion of
business activities into lower tax jurisdictions as a result of the
aforementioned acquisitions.
Extraordinary Items. The extraordinary item recorded in the first half
of 2000 consisted of a write-off of unamortized debt issuance costs of $346,000
and was recorded in connection with the Company's third amended credit facility.
The extraordinary item recorded in the first half of 1999 consisted of the
payment of $3.6 million in premiums on the redemption of $20 million in
aggregate principal amount of Series A and Series B 12% Subordinated Notes and
repayment of $69.2 million of borrowings under the Company's former credit
facility, together with the write-off of $1.8 million of unamortized debt
issuance costs relating to such redemption and repayment on May 18, 1999.
Net Income. As a result of the above factors, net income increased by
$2.3 million, to $1.4 million for the first half of 2000 compared to a net loss
of $0.9 million for the first half of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash to fund its liquidity needs is
net cash provided by operating activities and availability under its current
credit facility. Cash and cash equivalents increased by $10.6 million to $13.4
million as of June 30, 2000 from $2.8 million at December 31, 1999. Net cash
provided by operating activities totaled $19.8 million for the six months ended
June 30, 2000 compared to $4.2 for the six months ended June 30, 1999. The
increase in cash flows from operations is primarily a result of the acquisitions
of Herr, Star, Adam Wuest and Simon. During the first half of 1999 and 2000, net
cash of $23.3 million and $153.7 million was provided by financing activities
and arose primarily from borrowings under increased credit facilities to acquire
Herr, Adam Wuest, Simon and Crescent.
Capital expenditures totaled $2.0 million for the six months ended June
30, 2000. These capital expenditures consisted primarily of normal recurring
capital expenditures. Management expects that capital expenditures at all of its
existing facilities will be approximately $4.5 million in 2000. Management
believes that annual capital expenditure limitations under its current credit
facility will not significantly inhibit Sleepmaster from meeting its capital
needs.
On April 28, 2000, Sleepmaster amended and restated its existing credit
facility to provide for borrowings of up to $103,875,000, comprising a
$33,000,000 revolving credit facility, a $35,875,000 amortizing term loan
facility and a $35,000,000 incremental amortizing term loan facility (the
"Second Amended and Restated Credit Facility"). The terms of the Second Amended
and Restated Credit Facility were substantially equivalent to those of the prior
facility.
On June 30, 2000, the Company issued an additional $25,000,000 of 13.4%
senior subordinated notes due November 2009. Sleepmaster used the proceeds of
the senior subordinated notes to acquire all the capital stock of Crescent. Also
on June 30, 2000, in connection with the acquisition of Crescent, the Company
entered into a third amended and restated credit agreement to provide for an
aggregate amount of borrowings of up to $172,500,000, comprising a $40,000,000
revolving credit facility, a Tranche A term loan of $57,500,000 and a Tranche B
term loan of $75,000,000 (the "Third Amended and Restated Credit Facility").
Similar to the prior credit facility, the revolving credit facility includes a
sublimit for letters of credit. This new facility includes a letter of credit
sublimit of $25,000,000. At June 30, 2000, the Company had approximately $17.4
million available under its revolving credit facility with letters of credit
issued totaling approximately $18.6 million.
19
<PAGE> 20
Management believes that cash flows generated from operations, together
with its borrowing capacity, are sufficient to support the Company's operations
and general business and liquidity requirements for the foreseeable future.
YEAR 2000
In order to minimize or eliminate the effect of the Year 2000 risk on
the Company's business systems and applications, the Company identified,
evaluated, implemented and tested changes to its computer systems,
applications and software necessary to achieve Year 2000 compliance. The
computer systems and equipment successfully transitioned to the Year 2000 with
no significant issues. The Company continues to keep its Year 2000 project
management in place to monitor latent problems that could surface at key dates
or events in the future. Management does not anticipate any significant
problems related to these events. The total cost of the Year 2000 compliance
program was approximately $650,000 and was incurred principally during the
first two quarters of 1999. The Company expensed and capitalized the costs to
complete its compliance plan in accordance with appropriate accounting
policies.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from fluctuations in interest
rates, which could impact its consolidated financial position, results of
operations and cash flows. The Company manages its exposure to market risk
through its regular operating and financing activities. The Company does not
use derivative financial instruments for speculative or trading purposes and
does not maintain such instruments that may expose the Company to significant
market risk.
The Company's earnings are sensitive to changes in short-term
interest rates as a result of its borrowings under the amended and
restated credit facility. The Company also manages its portfolio of
fixed-rate debt to reduce its exposure to interest rate changes. The
fair value of the Company's fixed-rate long-term debt is sensitive to
interest rate changes. Interest rate changes would result in gains or losses
in the fair value of this debt due to differences between market interest
rates and rates at the inception of the obligation. Management does not
foresee nor expect any significant changes in its exposure to interest rate
fluctuations, or in how such exposure is managed in the near future.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This document contains forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Although the Company believes its plans are based
upon reasonable assumptions as of the current date, it can give no
assurance 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 availability and pricing; fluctuations in demand; and
retention and availability of qualified employees.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the
normal course of business, most of which involves claims for personal injury and
property damage incurred in connection with its operations. Management believes
that none of these actions will have a material adverse effect on the financial
position, results of operations or cash flows, of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
Report on Form 8-K, filed July 17, 2000, concerning the Company's
acquisition of Crescent Sleep Products Company.
Report on Form 8-K/A, filed on July 12, 2000, concerning the
Company's acquisition of Simon Mattress Manufacturing Company.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Linden,
State of New Jersey.
SLEEPMASTER L.L.C.
By: /s/ Charles Schweitzer
--------------------------------------
President and Chief Executive Officer
Dated: August 14, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ Charles Schweitzer President and Chief Executive August 14, 2000
---------------------------
Charles Schweitzer Officer, Advisor
/s/ James P. Koscica Executive Vice President and Chief August 14, 2000
---------------------------
James P. Koscica Financial Officer, Advisor
</TABLE>
22
