<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarter ended June 2, 1996 Commission file number 1-8738
----------------------- ------
SEALY CORPORATION *
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3284147
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
520 PIKE STREET
SEATTLE, WASHINGTON 98101
- ----------------------------------------- -----------------------------
(Address of principal executive offices)* (Zip Code)
Registrant's telephone number, including area code (206) 625-1233
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 and Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------------- ------------
The number of shares of the registrant's common stock outstanding as of JULY 10,
1996 was 29,351,577.
* All Corporate and administrative services are provided by Sealy, Inc., 10th
Floor Halle Building, 1228 Euclid Avenue, Cleveland, Ohio 44115.
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
-----------------------------
Item 1 - Financial Statements
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (NOTE A)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
JUNE 2, 1996 MAY 31, 1995
------------- -------------
<S> <C> <C>
Net Sales $165,177 $153,189
-------- --------
Cost and expenses:
Cost of goods sold 96,242 86,813
Selling, general and administrative 51,747 46,139
Amortization of intangibles 3,514 3,514
Interest expense, net 6,983 7,925
-------- --------
158,486 144,391
-------- --------
Income before income tax 6,691 8,798
Income tax 3,782 4,063
-------- --------
Net income $ 2,909 $ 4,735
======== ========
Earnings per common share $ .10 $ .15
Weighted average number of
common shares and equivalents
outstanding during period 30,119 30,666
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (NOTE A)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 2, 1996 MAY 31, 1995
-------------- -------------
<S> <C> <C>
Net Sales $324,653 $303,084
-------- --------
Cost and expenses:
Cost of goods sold 186,134 170,758
Selling, general and administrative 103,721 98,877
Amortization of intangibles 7,029 7,029
Interest expense, net 14,519 15,864
-------- --------
311,403 292,528
-------- --------
Income before income tax 13,250 10,556
Income tax 7,487 6,037
-------- --------
Net income $ 5,763 $ 4,519
======== ========
Earnings per common share $ .19 $ .15
Weighted average number of
common shares and equivalents
outstanding during period 30,156 30,818
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SEALY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 2, NOVEMBER 30,
1996 1995
----------- ----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,039 $ 17,348
Accounts receivable, less allowance for doubtful
accounts (1996 - $7,979; 1995 - $7,475) 77,889 82,288
Inventories (Note B) 39,972 35,356
Prepaid expenses and deferred taxes 18,978 13,424
--------- ---------
146,878 148,416
Property, plant and equipment - at cost 163,330 159,699
Less: accumulated depreciation (30,286) (25,161)
--------- ---------
133,044 134,538
Other assets:
Goodwill and other intangibles - net of
accumulated amortization
(1996 - $46,903; 1995 - $39,871) 471,906 478,938
Debt issuance costs and other assets 12,810 14,289
--------- --------
484,716 493,227
--------- --------
$764,638 $776,181
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SEALY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 2, NOVEMBER 30,
1996 1995
------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion - long-term obligations $ 18,654 $ 17,488
Accounts payable 30,642 37,037
Accrued incentives and advertising 17,407 25,579
Other accrued expenses 39,471 36,218
--------- ---------
106,174 116,322
Long-term obligations (Note C) 300,483 269,449
Other noncurrent liabilities 28,549 30,554
Deferred income taxes 29,326 28,975
Stockholders' equity:
Common stock 295 295
Additional paid-in capital 257,228 258,336
Retained earnings 43,687 73,387
Foreign currency translation adjustment (1,104) (1,137)
--------- ---------
300,106 330,881
Commitments and contingencies (Note D) -- --
--------- ---------
$ 764,638 $ 776,181
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SEALY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 2, 1996 MAY 31, 1995
-------------- -------------
<S> <C> <C>
Net cash (used in)/provided by operating
activities $ (236) $ 12,478
Net cash used in investing activities:
Property, plant and equipment, net (3,810) (1,602)
Net cash used for financing activities:
Proceeds from/(Repayment of) long-term
obligations, net 32,200 (6,990)
Dividend paid (35,463) --
-------- --------
(3,263) (6,990)
-------- --------
Change in cash and cash equivalents (7,309) 3,886
Cash and cash equivalents:
Beginning of period 17,348 21,309
-------- --------
End of period $ 10,039 $ 25,195
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Income taxes $ 11,113 $ 3,557
Interest paid $ 12,986 $ 14,782
Selected noncash expenses:
Depreciation $ 5,304 $ 4,871
Performance share plan $ 881 $ (3,086)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE> 7
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 2, 1996 AND MAY 31, 1995
================================================================================
NOTE A -- BASIS OF PRESENTATION
This report covers Sealy Corporation and its subsidiaries (collectively,
the "Company").
The accompanying unaudited condensed consolidated financial statements
should be read together with the Company's Annual Report on Form 10-K for the
year ended November 30, 1995.
The accompanying unaudited condensed consolidated financial statements
contain all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of the Company at June 2, 1996, and its
results of operations and cash flows for the periods presented herein. All
adjustments in the periods presented herein are normal and recurring in nature.
In 1995, the Company changed its fiscal year to a 52-53 week fiscal year
ending on the Sunday closest to November 30 for years beginning December 1, 1995
and thereafter. As a result, the second quarter of fiscal 1996 began on March 4,
1996 and ended on June 2, 1996 as compared to March 1 and May 31, 1995 for the
second quarter of fiscal 1995. The impact of one less calendar day in the second
quarter of fiscal 1996 and of two additional calendar days in the six-month
period ended June 2, 1996 was not material.
Certain prior year amounts have been reclassified to conform with the
current year presentation. In particular, $794,000 of expenses included in
selling, general and administrative expenses for the second quarter of fiscal
1995 and $1,588,000 for the six months ended May 31, 1995 are now included in
cost of goods sold.
NOTE B -- INVENTORIES
The major components of inventories were as follows:
<TABLE>
<CAPTION>
JUNE 2, NOVEMBER 30,
1996 1995
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials $24,005 $19,861
Work in process 10,197 11,195
Finished goods 5,770 4,300
------- -------
$39,972 $35,356
======= =======
</TABLE>
7
<PAGE> 8
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 2, 1996 AND MAY 31, 1995
================================================================================
NOTE C -- LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
JUNE 2, NOVEMBER 30,
1996 1995
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Secured Credit Agreement:
Revolving Credit Facility $ 41,000 $ --
Term Loan Facility 77,887 85,000
9 1/2% Senior Subordinated Notes Due 2003 200,000 200,000
Other 250 1,937
-------- --------
319,137 286,937
Less current portion 18,654 17,488
-------- --------
$300,483 $269,449
======== ========
</TABLE>
The Secured Credit Agreement provides for loans of up to $203 million as
of June 2, 1996, and consists of the $125 million Revolving Credit Facility and
the $78 million Term Loan Facility. The Revolving Credit Facility is inclusive
of a $30 million discretionary letter of credit facility ("Letters of Credit")
and a discretionary swing loan facility of up to $5 million. The Revolving
Credit Facility terminates and is due and payable on November 30, 1999.
The Term Loan Facility is a $78 million term loan as of June 2, 1996, with
a final maturity of November 30, 1999 and amortizes in fiscal quarterly
principal payments. As a result of prepayments by the Company applied pro rata
over the remaining mandatory payments, the current amortization schedule is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING PRINCIPAL PAYMENT
(IN THOUSANDS)
<S> <C> <C>
12/01/96 $14,835
11/30/97 18,545
11/29/98 13,352
11/28/99 22,254
12/03/00 8,901
-------
$77,887
=======
</TABLE>
Under terms of the Secured Credit Agreement, the Company is obligated to
pay a commitment fee rate of 0.375% per annum on the unused portion of the
Revolving Credit Facility. The fee, which is payable quarterly in arrears, is
reduced or increased depending on certain financial ratios. Two separate
interest rate options exist under the Secured Credit Agreement and are available
to the Company at its option as follows:
(a) A Floating Rate which is the greater of
(i) A Corporate Base Rate plus a margin, if applicable, or
(ii) A Federal Funds Rate plus 0.25% plus a margin, if applicable, or
(b) A Eurodollar Rate plus an applicable margin.
The applicable margin is zero for the Floating Rate option and 1.25% for
the Eurodollar Rate option.
8
<PAGE> 9
SEALY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 2, 1996 AND MAY 31, 1995
================================================================================
The applicable margin is reduced or increased depending on certain financial
ratios.
During the six months ended June 2, 1996, the maximum amount outstanding
under the Revolving Credit Facility, excluding Letters of Credit, was $43
million. At June 2, 1996, the Company had approximately $73 million available
under the Revolving Credit Facility, with Letters of Credit issued totaling
approximately $11 million.
All obligations of the Company under the Secured Credit Agreement are
jointly and severally guaranteed by each direct and indirect domestic subsidiary
of the Company and secured by first priority liens on and security interests in
substantially all of the assets of the Company and its domestic subsidiaries and
by first priority pledges of substantially all of the capital stock of most of
the subsidiaries of the Company.
NOTE D -- CONTINGENCIES
In accordance with procedures established under the Environmental Cleanup
Responsibility Act (now known as the Industrial Site Recovery Act), Sealy and
one of its subsidiaries are parties to an Administrative Consent Order ("ACO")
issued by the New Jersey Department of Environmental Protection ("DEP") pursuant
to which the Company and such subsidiary agreed to conduct soil and groundwater
sampling to determine the extent of environmental contamination at the plant
owned by the subsidiary in South Brunswick, New Jersey. The Company does not
believe that its manufacturing processes were a source of the contaminants found
to exist above regulatorily acceptable levels in the groundwater. As the current
owners of the facility, however, the Company and its subsidiary are primarily
responsible for the investigation and any necessary clean up plan approved by
the DEP under the terms of the ACO. In March 1994, the Company filed a claim in
the U.S. District Court for the District of New Jersey against former owners of
the site and their lenders under the Comprehensive Environmental Response,
Compensation and Liability Act seeking contribution for site investigation and
remedial costs.
In March, 1995, the DEP approved the Company's soil/remediation plans and
in June, 1995, the Company's groundwater remediation plans, which include
additional monitoring by the Company and, depending upon the results of such
monitoring, the possible installation of a groundwater containment system. By a
November 15, 1993 letter, DEP postponed any required activity by the Company to
delineate and/or remediate contaminants in the fractured bedrock located on the
site, which DEP previously had requested the Company to undertake, and which DEP
could attempt to impose in the future. Because of the nature of certain of the
contaminants, their geological location in and porosity of the fractured
bedrock, the Company and its consultant are unaware of any accepted technology
for successfully remediating the contamination either in the shallow groundwater
or the fractured bedrock. Thus, the groundwater remediation plan proposes no
remedial activity regarding groundwater in the fractured bedrock.
While the Company cannot predict the ultimate timing or cost to remediate
this facility, based on facts currently known, management believes the
previously established accrual for site investigation and remediation costs is
adequate to cover the Company's probable liability. If additional remediation is
required, however, such as the installation of a groundwater containment system,
management estimates it could cost the Company up to an additional $3 million.
Management does not believe that resolution of this matter will have a material
impact on the Company's financial position or future operations.
NOTE E -- DIVIDEND
On May 17, 1996, the Company paid a special dividend to all stockholders
and holders of Merger Warrants of record as of May 7, 1996. The dividend
amounted to approximately $35.5 million, or $1.20 per share and was financed
primarily through borrowings under the Revolving Credit Facility.
9
<PAGE> 10
Item 2 - SEALY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
QUARTER ENDED JUNE 2, 1996 AND MAY 31, 1995
NET SALES Net sales increased $12.0 million, or 7.8%. The increase is
attributable to a $16.2 million, or 10.5% increase in unit volume, partially
offset by a $4.2 million, or 2.5% decrease in the average unit selling price.
Increased unit volume is attributed to incremental placements of new Sealy
Posturepedic products, increased distribution of Stearns & Foster, along with
increased distribution of Samuel Lawrence wood bedroom furniture. These
increases were partially offset by the elimination of sleep sofa sales
attributable to the closing of this business unit in March, 1995.
COST OF GOODS SOLD Cost of goods sold for the quarter, as a percentage of
net sales, increased 1.6 percentage points to 58.3%. The Company experienced
inflationary raw material and labor increases, increased manufacturing costs
related to the start up of a new facility, along with the increased mix of
Samuel Lawrence bedroom furniture.
SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative
expenses increased $5.6 million primarily due to increased Performance Share
Plan ("Plan") expense of $5.0 million and other selling, general and
administrative expenses of $4.5 million, partially offset by the effect of a
prior year charge for closing the sleep sofa business of $2.7 million and a
decrease in marketing spending of $1.2 million. The increase in Plan expense is
primarily due to recording a $5.8 million reduction in the Plan's estimated
final value in the second quarter of 1995, partially offset by lower expense
recognized in the current year due to continuing changes in the estimate of the
Plan's final value. A description of the Performance Share Plan is provided in
Note 11 to the consolidated financial statements contained in the Company's Form
10-K for the year ended November 30, 1995.
The increase in other selling, general and administrative expenses is
primarily due to incentive compensation, administrative expenses for
international expansion, selling and delivery related to increased sales volume,
research and development, and executive transition expenses. The decrease in
marketing spending is due primarily to a change in the Company's marketing mix.
INTEREST EXPENSE Interest expense, net of interest income, decreased $0.9
million primarily as a result of a $50.6 million decrease in average outstanding
debt.
INCOME TAX The Company's provision for income taxes decreased $0.3
million, primarily as a result of lower pretax income. The effective income tax
rate differs from the Federal statutory rate as a result of the application of
purchase accounting, certain foreign tax rate differentials, and state and local
taxes. The effective income tax rate for 1996 is approximately 56.5%.
NET INCOME For the reasons set forth above, the Company recorded net
income of $2.9 million for the quarter ended June 2, 1996 compared to net income
of $4.7 million for the second quarter of fiscal 1995.
10
<PAGE> 11
SEALY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
SIX MONTHS ENDED JUNE 2, 1996 VS. MAY 31, 1995
NET SALES Net sales increased $21.6 million, or 7.1%. The increase is
attributable to a $22.5 million, or 7.4% increase in unit volume, partially
offset by a $0.9 million, or 0.3% decrease in the average unit selling price.
Increased unit volume is attributed to incremental placements of new Sealy
Posturepedic products, increased distribution of Stearns & Foster, along with
increased distribution of Samuel Lawrence wood bedroom furniture. These
increases were partially offset by the elimination of sleep sofa sales
attributable to the closing of this business unit in March, 1995.
COST OF GOODS SOLD Cost of goods sold, as a percentage of net sales,
increased 1.0 percentage point to 57.3%. This increase is primarily attributable
to inflationary raw material and labor increases, the start up of a new
facility, and the increased mix of Samuel Lawrence bedroom furniture.
SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative
expenses increased $4.8 million primarily due to increases in Performance Share
Plan ("Plan") expense of $4.0 million and other selling, general and
administrative expenses of $7.6 million, partially offset by a decrease in
marketing spending of $4.1 million and the effect of a prior year charge for
closing the sleep sofa business, $2.7 million. The increase in Plan expense is
primarily due to recording a $5.8 million reduction in the Plan's estimated
final value in the second quarter of 1995, partially offset by lower expense
recognized in the current year due to continuing changes in the estimate of the
Plan's final value. A description of the Performance Share Plan is provided in
Note 11 to the consolidated financial statements contained in the Company's Form
10-K for the year ended November 30, 1995.
The increase in other selling, general and administrative expenses is
primarily due to executive severance and transition expenses, selling and
delivery related to increased sales volume, administrative expenses for
international expansion, incentive compensation, and research and development.
The decrease in marketing spending is due primarily to a change in the Company's
marketing mix.
INTEREST EXPENSE Interest expense, net of interest income, decreased $1.3
million primarily as a result of a $53.8 million decrease in average outstanding
debt.
INCOME TAX The Company's provision for income taxes increased $1.5
million, primarily as a result of increased pretax income. The effective income
tax rate differs from the Federal statutory rate as a result of the application
of purchase accounting, certain foreign tax rate differentials, and state and
local taxes. The effective income tax rate for 1996 is approximately 56.5%
compared to 57.2% in 1995.
NET INCOME For the reasons set forth above, the Company recorded net
income of $5.8 million for the six months ended June 2, 1996 as compared to net
income of $4.5 million for the six months ended May 31, 1996.
11
<PAGE> 12
SEALY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 2, 1996, net cash used in operating
activities amounted to $0.2 million due primarily to an increase in working
capital from November 30, 1995 of approximately $15.6 million. The increase in
working capital is attributed to increased inventories to support increasing
sales volume and a decrease in accounts payable and accrued incentives and
advertising. The Company's principal use of funds consists of the dividend
payment described below, payments of principal, interest, and capital
expenditures. Capital expenditures totaled $4.4 million for the six months
ended June 2, 1996. Management believes that annual capital expenditure
limitations in its Secured Credit Agreement will not significantly inhibit the
Company from meeting its ongoing capital needs. At June 2, 1996, the Company
had approximately $73 million available under its Revolving Credit Facility
with Letters of Credit issued totaling approximately $11 million. At June 2,
1996, the weighted average interest rate on the Revolving Credit and Term
Loan Facilities was 6.8%.
On May 17, 1996, the Company paid a special dividend to all stockholders
and holders of Merger Warrants of record as of May 7, 1996. The dividend
amounted to approximately $35.5 million, or $1.20 per share and was financed
primarily through borrowings under the Revolving Credit Facility. In addition,
the Company amended the Secured Credit Agreement to allow for the repurchase of
Senior Subordinated Notes at the Company's discretion and, upon Board approval,
may from time to time repurchase some of the notes in the open market.
Management believes that the Company will have the necessary liquidity for
the next several years to fund its expected capital expenditures, obligations
under its Secured Credit Agreement and Senior Subordinated Note Indenture,
environmental liabilities, and for other needs required to manage and operate
its business, through cash flow from operations, and availability under the
Revolving Credit Facility.
12
<PAGE> 13
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings.
See Note D to the Condensed Consolidated Financial Statements, Part I,
Item 1 included herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(4.15) Third Admendment to the Restated Secured Credit Agreement,
dated as of May 27, 1994, by and among Sealy Corporation,
Certain Banks and Other Financial Institutions and Banque
Paribas, Citicorp USA, Inc., Bank of America and General
Electric Capital Corporation, as Managing Agents.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
None.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Sealy Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SEALY CORPORATION
Signature Title
--------- -----
By: /s/ Ronald L. Jones President and Chief Executive Officer
-------------------------- (Principal Executive Officer)
Ronald L. Jones
By: /s/ Jesse E. Hogan Senior Vice President and Chief Financial Officer
-------------------------- (Principal Accounting Officer)
Jesse E. Hogan
Date: July 16, 1996
14
<PAGE> 1
Exhibit 4.15
As of May 1, 1996
Sealy Corporation
1228 Euclid Avenue
Cleveland, Ohio 44115-1886
Re: Third Amendment
---------------
Ladies/Gentlemen:
Please refer to the Restated Secured Credit Agreement dated as of May 27,
1994 (as previously amended, the "Credit Agreement") among Sealy Corporation, as
Borrower, various banks and other financial institutions, Banque Paribas,
Citicorp USA, Inc., Bank of America Illinois (formerly known as Continental Bank
N.A.) and General Electric Capital Corporation, as Managing Agents, and Bank of
America Illinois, as Administrative Agent. Terms defined in the Credit Agreement
are used herein as so defined.
The Borrower, the Required Banks and the Agent agree that the Credit
Agreement shall be amended, effective as of May 1, 1996 as follows:
(a) DEFINITION OF ADJUSTED NET WORTH. The definition of "Adjusted Net
Worth" set forth in Section 1.01 shall be amended in its entirety to read as
follows:
"Adjusted Net Worth" at any time, means all amounts which, in accordance
with GAAP, would be included under stockholders' equity on the consolidated
balance sheet of the Borrower and its Subsidiaries at such time PLUS all
distributions, payments, purchases and redemptions which have been made and
were permitted solely by SECTION 6.02.06(l) since April 1, 1996; PROVIDED
that Adjusted Net Worth shall be calculated net of amounts carried on the
books of the Borrower and its Subsidiaries for
(i) any write-up in the book value of any assets of the Borrower and
its Subsidiaries resulting from a revaluation thereof subsequent to May 7,
1993,
(ii) treasury stock, and
(iii) foreign currency translation adjustments.
<PAGE> 2
(b) ADJUSTED NET WORTH COVENANT. Section 6.02.04(d) shall be amended
in its entirety to read as follows:
(d) Adjusted Net Worth at any date (excluding any adjustments for
non-cash charges relating to the Performance Share Plan in the current
Fiscal Year) to be less than 97% of the amount of Adjusted Net Worth
as of the last day of any prior Fiscal Year (beginning with the Fiscal
Year ended November 30, 1995).
(c) PURCHASES OF SENIOR SUBORDINATED NOTES. Section 6.02.06(e) shall
be amended by (i) deleting the word "and" at the end of clause (i) thereof and
substituting a comma therefor and (ii) inserting the following before the
semi-colon at the end thereof:
"and (iii) purchase, or permit any Subsidiary to purchase, Senior
Subordinated Notes from time to time"
(d) DIVIDENDS. Section 6.02.06 shall be further amended by (i)
deleting the text of subsection (g) thereto and substituting therefor
the language "[Intentionally Deleted]"; (ii) deleting the word "and" at the end
of subsection (j) thereto; (iii) deleting the "." at the end of subsection (k)
thereto and substituting "; and" therefor; and (iv) adding the following
subsection thereto:
(1) The Borrower may, to the extent that any of the following,
together with all other applicable dividends, distributions,
purchases, redemptions or retirements permitted by this SECTION
6.02.06, will not violate Section 4.05 of the Senior Subordinated Note
Indenture (without giving effect to any amendment or modification
thereto or any termination thereof), declare, pay or make any cash
dividend or distribution on any shares of any class of capital stock
of the Borrower or on any warrants, options, or other rights with
respect to any shares of any class of capital stock of the Borrower.
(e) NET DISPOSITION PROCEEDS. Section 2.11.01 shall be amended by
adding the following proviso after the word "Subsidiary" in the last line
thereof:
; PROVIDED, FURTHER, that notwithstanding the foregoing, the Borrower
shall, as promptly as practicable but not later than 45 days after
receipt by the Borrower of any Net Disposition Proceeds from the sale of
its Samuel Lawrence division, apply an amount equal to 100% of such Net
Disposition Proceeds
-2-
<PAGE> 3
to reduce the aggregate amount of the outstanding Revolving Loans
(without any prepayment of Term Loans or reduction of the Total
Revolving Credit Commitment Amount).
(f) TOTAL REVOLVING CREDIT COMMITMENT AMOUNT. Section 2.02(d) shall be
amended by inserting "(other than any Net Disposition Proceeds from the sale of
the Borrower's Samuel Lawrence division)" after the words "Net Disposition
Proceeds" in the third line thereof.
Except as amended above, all terms and provisions of the Credit
Agreement shall remain in full force and effect and are hereby ratified and
confirmed in all respects.
This Third Amendment may be executed in counterparts. This Third
Amendment shall become effective when the Administrative Agent has received
counterparts hereof signed by the Borrower and the Required Banks. This Third
Amendment shall be governed by the laws of the State of New York.
Very truly yours,
BANK OF AMERICA ILLINOIS,
as Administrative Agent and
Managing Agent
By: /s/ David M. Terrance
--------------------------------------
Title: Vice President
------------------------------------
BANK OF AMERICA ILLINOIS, as a
Bank
By: /s/ William J. Stafeil
--------------------------------------
Title: Vice President
------------------------------------
BANQUE PARIBAS, individually
and as Managing Agent
By: /s/ Clark C. King, III /s/ Peter Toal
--------------------------------------
Title: Vice President General Manager
------------------------------------
-3-
<PAGE> 4
CITICORP USA, INC.,
individually and as Managing
Agent
By: /s/ Marjorie Futornick
---------------------------
Title: Vice President
-------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, individually
and as Managing Agent
By: /s/ William Brasse
---------------------------
Title: Duly Authorized Signatory
-------------------------
COMPAGNIE FINANCIERE de CIC et
de L'UNION EUROPEENE
By: /s/ Sean Mounier /s/ Brian O'Leary
----------------------------------
Title: Vice President
-------------------------
Title: Vice President
-------------------------
CAISSE NATIONALE DE CREDIT
AGRICOLE
By: /s/ Dean Balice
-----------------------------------
Title: Senior Vice President
Branch Manager
--------------------------------
- 4 -
<PAGE> 5
CREDIT LYONNAIS CHICAGO BRANCH
By: /s/ Sandra E. Horwitz
-----------------------------------
Title: First Vice President
--------------------------------
and Branch Manager
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ Sandra E. Horwitz
-----------------------------------
Title: Authorized Signature
--------------------------------
DRESDNER BANK AG CHICAGO AND
GRAND CAYMAN BRANCHES
By: [Illegible]
-----------------------------------
Title: First Vice President
--------------------------------
By: [Illegible]
-----------------------------------
Title: Assistant Vice President
--------------------------------
FIRST BANK NATIONAL
ASSOCIATION
By: [Illegible]
-----------------------------------
Title: Vice President
--------------------------------
THE FIRST NATIONAL BANK OF
CHICAGO
By:
-----------------------------------
Title:
--------------------------------
-5-
<PAGE> 6
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
-----------------------------------
Title: Joint General Manager
--------------------------------
HELLER FINANCIAL, INC.
By: /s/ James D. Young
-----------------------------------
Title: Vice President
--------------------------------
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., CHICAGO BRANCH
By:
-----------------------------------
Title:
--------------------------------
MELLON BANK N.A.
By: /s/ J.M. Anderson
-----------------------------------
Title: Vice President
--------------------------------
NATIONAL CANADA FINANCE CORP.
By: [Illegible]
-----------------------------------
Title: Vice President
--------------------------------
By:
-----------------------------------
Title:
--------------------------------
-6-
<PAGE> 7
NATIONSBANK,, N.A.
By: /s/ Michael D. Monte
-----------------------------------
Title: Senior Vice President
--------------------------------
PNC BANK, NATIONAL ASSOCIATION
By: [Illegible]
-----------------------------------
Title: Vice President
--------------------------------
SHAWMUT BANK CONNECTICUT, N.A.
By:
-----------------------------------
Title:
--------------------------------
UNITED STATES NATIONAL BANK OF
OREGON
By:
-----------------------------------
Title:
--------------------------------
ACCEPTED AND AGREED as of
the date first written above
SEALY CORPORATION
By: [Illegible]
-----------------------------------
Title: Vice President and Treasurer
--------------------------------
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-01-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> JUN-02-1996
<CASH> 10,039
<SECURITIES> 0
<RECEIVABLES> 85,868
<ALLOWANCES> 7,979
<INVENTORY> 39,972
<CURRENT-ASSETS> 146,878
<PP&E> 163,330
<DEPRECIATION> 30,286
<TOTAL-ASSETS> 764,638
<CURRENT-LIABILITIES> 106,174
<BONDS> 300,483
<COMMON> 295
0
0
<OTHER-SE> 299,811
<TOTAL-LIABILITY-AND-EQUITY> 764,638
<SALES> 324,653
<TOTAL-REVENUES> 324,653
<CGS> 186,134
<TOTAL-COSTS> 186,134
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 916
<INTEREST-EXPENSE> 14,519
<INCOME-PRETAX> 13,250
<INCOME-TAX> 7,487
<INCOME-CONTINUING> 5,763
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,763
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
</TABLE>
