Guarantor/Non-Guarantor Financial Information

12 Months Ended

Dec. 02, 2012

Guarantor/Non-Guarantor Financial Information

Guarantor/Non-Guarantor Financial Information

Note 28: Guarantor/Non-Guarantor Financial Information

        Sealy Corporation, Sealy Mattress Corporation (a 100% owned subsidiary of Sealy Corporation) and each of the subsidiaries of Sealy Mattress Company (the "Issuer") that guarantee the Senior Notes, the Convertible Notes and the 2014 Notes (the "Guarantor Subsidiaries"), are 100% owned subsidiaries of the Issuer, and have fully and unconditionally guaranteed, on a joint and several basis, the obligation to pay principal and interest with respect to the Senior Notes, the Convertible Notes and the 2014 Notes (collectively, the "Guaranteed Notes") of the Issuer. Substantially all of the Issuer's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Issuer's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Issuer's subsidiaries, could limit the Issuer'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 Guaranteed Notes. Although holders of the Guaranteed Notes will be direct creditors of the Issuer's principal direct subsidiaries by virtue of the guarantees, the Issuer has subsidiaries ("Non-Guarantor Subsidiaries") that are not included among the Guarantor Subsidiaries, and such subsidiaries will not be obligated with respect to the Guaranteed Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Issuer, including the holders of the Guaranteed Notes.

        The following supplemental condensed consolidating financial statements present:

•         1.     Condensed consolidating balance sheets as of December 2, 2012 and November 27, 2011 and condensed consolidating statements of operations and cash flows for the fiscal years ended December 2, 2012, November 27, 2011 and November 28, 2010.

          2.     Sealy Corporation (as "Guarantor Parent"), Sealy Mattress Corporation (a guarantor), the Issuer, combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method. See Note 1 for further details.

          3.     Elimination entries necessary to consolidate the Guarantor Parent and all of its subsidiaries.

        There are no material contingencies, guarantees or redeemable stock requirements outstanding pertaining to Sealy Corporation as a standalone entity. The long-term obligations recorded on the separate company financial statements for Sealy Corporation presented below relate to the Company's Convertible Notes, the terms of which are further discussed in Note 8. Sealy Corporation has not received cash dividends from any of its subsidiaries or its equity method investees during the fiscal years ended December 2, 2012, November 27, 2011 and November 28, 2010.

SEALY CORPORATION

Supplemental Condensed Consolidating Balance Sheets

December 2, 2012

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and equivalents	$	155		$	—		$	237		$	42,391		$	85,371		$	—		$	128,154
Accounts receivable, net		—			—			45			83,043			69,531			—			152,619
Inventories		—			—			1,545			55,760			15,218			(159	)		72,364
Other current assets and deferred income taxes		2,867			—			432			45,488			4,150			—			52,937
Total current assets		3,022			—			2,259			226,682			174,270			(159	)		406,074
Property, plant and equipment, at cost		—			—			10,509			374,522			38,975			—			424,006
Less accumulated depreciation		—			—			(6,273	)		(231,037	)		(22,673	)		—			(259,983	)
		—			—			4,236			143,485			16,302			—			164,023
Other assets:
Goodwill		—			—			24,741			301,942			36,546			—			363,229
Intangible assets, net		—			—			—			—			14,710			—			14,710
Net investment in subsidiaries		—			221,350			373,737			282,728			—			(877,815	)		—
Due from (to) affiliates		328,968			—			529,218			—			—			(858,186	)		—
Debt issuance costs, net and other assets		—			—			20,084			17,379			19,846			—			57,309
		328,968			221,350			947,780			602,049			71,102			(1,736,001	)		435,248
Total assets	$	331,990		$	221,350		$	954,275		$	972,216		$	261,674		$	(1,736,160	)	$	1,005,345
Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
Current portion—long-term obligations	$	—		$	—		$	—		$	1,483		$	2,562		$	—		$	4,045
Accounts payable		—			—			242			69,700			30,854			—			100,796
Accrued customer incentives and advertising		—			—			—			24,421			10,243			—			34,664
Accrued compensation		—			—			385			27,917			4,763			—			33,065
Accrued interest		—			—			1,304			13,180			—			—			14,484
Other accrued liabilities		6			—			3,699			26,886			5,322			—			35,913
Deferred income tax liabilities		—			—			—			—			3,000			—			3,000
Total current liabilities		6			—			5,630			163,587			56,744			—			225,967
Long-term obligations		194,399			—			726,963			38,516			42			(194,399	)		765,521
Investments in subsidiaries		195,558			—			—			—			—			(195,558	)		—
Due to affiliates		—			416,908			—			100,740			145,584			(663,232	)		—
Other liabilities		—			—			—			53,075			7,174			—			60,249
Deferred income tax liabilities		(453	)		—			332			121			93			—			93
Redeemable noncontrolling interest		—			—			—			—			11,035			—			11,035
Stockholders' equity (deficit)		(57,520	)		(195,558	)		221,350			616,177			41,002			(682,971	)		(57,520	)
Total liabilities and stockholders' equity (deficit)	$	331,990		$	221,350		$	954,275		$	972,216		$	261,674		$	(1,736,160	)	$	1,005,345

SEALY CORPORATION

Supplemental Condensed Consolidating Balance Sheets

November 27, 2011

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and equivalents	$	1,655		$	—		$	9,123		$	50,170		$	47,027		$	—		$	107,975
Accounts receivable, net		—			—			—			69,345			57,149			—			126,494
Inventories		—			—			1,476			47,391			8,293			(158	)		57,002
Other current assets and deferred income taxes		9,153			—			1,154			34,427			5,890			—			50,624
Total current assets		10,808			—			11,753			201,333			118,359			(158	)		342,095
Property, plant and equipment, at cost		—			—			10,174			359,908			36,033			—			406,115
Less accumulated depreciation		—			—			(5,902	)		(213,043	)		(20,425	)		—			(239,370	)
		—			—			4,272			146,865			15,608			—			166,745
Other assets:
Goodwill		—			—			24,741			301,942			34,343			—			361,026
Intangible assets, net		—			—			—			1,088			28			—			1,116
Net investment in subsidiaries		(196,903	)		219,918			368,983			161,796			(1	)		(553,793	)		—
Due from (to) affiliates		290,797			(416,821	)		546,305			(143,182	)		(91,275	)		(185,824	)		—
Debt issuance costs, net and other assets		—			—			16,649			12,654			18,909			—			48,212
		93,894			(196,903	)		956,678			334,298			(37,996	)		(739,617	)		410,354
Total assets	$	104,702		$	(196,903	)	$	972,703		$	682,496		$	95,971		$	(739,775	)	$	919,194
Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
Current portion—long-term obligations	$	—		$	—		$	—		$	1,286		$	298		$	—		$	1,584
Accounts payable		—			—			186			45,985			22,603			—			68,774
Accrued customer incentives and advertising		—			—			—			18,014			8,024			—			26,038
Accrued compensation		—			—			392			14,416			2,793			—			17,601
Accrued interest		—			—			1,271			12,803			—			—			14,074
Other accrued liabilities		(2	)		—			465			21,997			5,966			—			28,426
Total current liabilities		(2	)		—			2,314			114,501			39,684			—			156,497
Long-term obligations		185,268			—			750,332			39,965			—			(185,268	)		790,297
Other liabilities		—			—			—			46,086			6,329			—			52,415
Deferred income tax liabilities		—			—			139			72			338			—			549
Stockholders' equity (deficit)		(80,564	)		(196,903	)		219,918			481,872			49,620			(554,507	)		(80,564	)
Total liabilities and stockholders' equity (deficit)	$	104,702		$	(196,903	)	$	972,703		$	682,496		$	95,971		$	(739,775	)	$	919,194

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Operations

Year Ended December 2, 2012

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	—		$	93,342		$	959,245		$	308,174		$	(12,891	)	$	1,347,870
Cost and expenses:
Cost of goods sold		—			—			50,812			585,906			184,535			(12,890	)		808,363
Selling, general and administrative		—			—			10,495			357,600			86,950			—			455,045
Asset impairment loss		—			—			—			827			—			—			827
Amortization expense		—			—			—			289			389			—			678
Restructuring expenses		—			—			—			2,421			—			—			2,421
Royalty (income) expense, net		—			—			—			(20,070	)		—			—			(20,070	)
Income from operations		—			—			32,035			32,272			36,300			(1	)		100,606
Interest expense		—			318			84,996			2,455			1,536			—			89,305
Refinancing and extinguishment of debt		—			—			3,748			—			—			—			3,748
Other (income) expense, net		—			—			45			(13	)		(637	)		—			(605	)
Loss (income) from equity investees		2,648			2,330			(3	)		—			—			(4,975	)		—
Loss (income) from non- guarantor equity investees		—			—			—			(24,258	)		—			24,258			—
Capital charge and intercompany interest allocation		(307	)		—			(52,804	)		50,634			2,477			—			—
Income (loss) before income taxes		(2,341	)		(2,648	)		(3,947	)		3,454			32,924			(19,284	)		8,158
Income tax provision (benefit)		(2,351	)		—			(1,617	)		3,450			13,066			—			12,548
Equity in earnings of unconsolidated affiliates		—			—			—			—			5,175			—			5,175
Income (loss) from continuing operations		10			(2,648	)		(2,330	)		4			25,033			(19,284	)		785
Loss from discontinued operations		—			—			—			—			(1,962	)		—			(1,962	)
Net income (loss)		10			(2,648	)		(2,330	)		4			23,071			(19,284	)		(1,177	)
Net loss attributable to noncontrolling interests		—			—			—			—			1,187			—			1,187
Net income (loss) attributable to common shareholders	$	10		$	(2,648	)	$	(2,330	)	$	4		$	24,258		$	(19,284	)	$	10

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Operations

Year Ended November 27, 2011

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	—		$	85,993		$	893,141		$	271,546		$	(20,529	)	$	1,230,151
Cost and expenses:
Cost of goods sold		—			—			47,832			566,171			158,158			(20,712	)		751,449
Selling, general and administrative		7			—			7,969			329,743			76,516			—			414,235
Amortization expense		—			—			—			289			—			—			289
Royalty (income) expense, net		—			—			—			(19,413	)		—			—			(19,413	)
Income from operations		(7	)		—			30,192			16,351			36,872			183			83,591
Interest expense		—			307			83,614			2,355			1,467			—			87,743
Refinancing and extinguishment of debt		—			—			1,222			—			—			—			1,222
Other (income) expense, net		—			—			—			(7	)		(444	)		—			(451	)
Loss (income) from equity investees		9,549			9,242			5,938			—			—			(24,729	)		—
Loss (income) from non- guarantor equity investees		—			—			—			(20,926	)		—			20,926			—
Capital charge and intercompany interest allocation		(303	)		—			(48,977	)		45,782			3,498			—			—
Income (loss) before income taxes		(9,253	)		(9,549	)		(11,605	)		(10,853	)		32,351			3,986			(4,923	)
Income tax provision (benefit)		635			—			(2,363	)		(3,979	)		9,789			22			4,104
Equity in earnings of unconsolidated affiliates		—			—			—			—			3,371			—			3,371
Income (loss) from continuing operations		(9,888	)		(9,549	)		(9,242	)		(6,874	)		25,933			3,964			(5,656	)
Loss from discontinued operations		—			—			—			775			(5,007	)		—			(4,232	)
Net income (loss)	$	(9,888	)	$	(9,549	)	$	(9,242	)	$	(6,099	)	$	20,926		$	3,964		$	(9,888	)

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Operations

Year Ended November 28, 2010

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	—		$	82,045		$	902,131		$	262,125		$	(26,830	)	$	1,219,471
Cost and expenses:
Cost of goods sold		—			—			49,007			540,751			147,056			(26,843	)		709,971
Selling, general and administrative		4			—			7,552			320,241			70,256			—			398,053
Asset impairment loss		—			—			—			—			—			—			—
Amortization expense		—			—			—			289			—			—			289
Restructuring expenses and asset impairment		—			—			—			—			—			—			—
Royalty (income) expense, net		(1	)		—			—			(17,528	)		—			—			(17,529	)
Income from operations		(3	)		—			25,486			58,378			44,813			13			128,687
Interest expense		1			319			81,618			2,507			1,172			—			85,617
Refinancing and extinguishment of debt and interest rate derivatives		—			—			3,759			—			—			—			3,759
Other (income) expense, net		—			—			—			1			(227	)		—			(226	)
Loss (income) from equity investees		16,983			16,664			14,384			—			—			(48,031	)		—
Loss (income) from non- guarantor equity investees		—			—			—			3,707			—			(3,707	)		—
Capital charge and intercompany interest allocation		(319	)		—			(55,765	)		51,682			4,402			—			—
Income (loss) before income taxes		(16,668	)		(16,983	)		(18,510	)		481			39,466			51,751			39,537
Income tax provision (benefit)		(3,181	)		—			(1,846	)		10,860			12,523			132			18,488
Equity in earnings of unconsolidated affiliates		—			—			—			—			3,611			—			3,611
Income (loss) from continuing operations		(13,487	)		(16,983	)		(16,664	)		(10,379	)		30,554			51,619			24,660
Loss from discontinued operations		(252	)		—			—			(3,886	)		(34,261	)		—			(38,399	)
Net income (loss)	$	(13,739	)	$	(16,983	)	$	(16,664	)	$	(14,265	)	$	(3,707	)	$	51,619		$	(13,739	)

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Cash Flows

Year Ended December 2, 2012

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation		Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	—		$	—	$	34,050		$	20,374		$	27,684		$	—	$	82,108
Investing activities:
Purchase of property, plant and equipment		—			—		(554	)		(11,892	)		(3,468	)		—		(15,914	)
Proceeds from the sale of property, plant, and equipment		—			—		90			2,057			236			—		2,383
Acquisition of Comfort Revolution		—			—		—			—			159			—		159
Advances to Comfort Revolution		—			—		(7,833	)		—			—			—		(7,833	)
Net activity in investment in and advances from (to) subsidiaries and affiliates		(1,604	)		—		2,319			(14,000	)		13,285			—		—
Net cash provided by (used in) investing activities		(1,604	)		—		(5,978	)		(23,835	)		10,212			—		(21,205	)
Financing activities:
Equity received upon exercise of stock including related excess tax benefits		104			—		—			—			—			—		104
Repurchase of common stock		—			—		—			(3,059	)		—			—		(3,059	)
Proceeds from issuance of long term obligations		—			—		—			—			5,236			—		5,236
Repayments of long-term obligations		—			—		—			(1,259	)		(10,187	)		—		(11,446	)
Repayment of senior secured notes		—			—		(36,050	)		—			—			—		(36,050	)
Borrowings under revolving credit facilities		—			—		29,000			—			—			—		29,000
Repayments of revolving credit facilities		—			—		(29,000	)		—			—			—		(29,000	)
Debt issuance costs		—			—		(908	)		—			—			—		(908	)
Other		—			—		—			—			—			—		—
Net cash provided by (used in) financing activities		104			—		(36,958	)		(4,318	)		(4,951	)		—		(46,123	)
Effect of exchange rate changes on cash		—			—		—			—			5,399			—		5,399
Change in cash and equivalents		(1,500	)		—		(8,886	)		(7,779	)		38,344			—		20,179
Cash and equivalents:
Beginning of period		1,655			—		9,123			50,170			47,027			—		107,975
End of period	$	155		$	—	$	237		$	42,391		$	85,371		$	—	$	128,154

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Cash Flows

Year Ended November 27, 2011

(in thousands)

	Sealy Corporation		Sealy Mattress Corporation		Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	—	$	—	$	24,871		$	(4,405	)	$	13,286		$	—	$	33,752
Investing activities:
Purchase of property, plant and equipment		—		—		(688	)		(19,267	)		(2,453	)		—		(22,408	)
Proceeds from the sale of property, plant, and equipment		—		—		—			20			207			—		227
Net activity in investment in and advances from (to) subsidiaries and affiliates		15		—		(13,813	)		19,574			(5,776	)		—		—
Net cash provided by (used in) investing activities		15		—		(14,501	)		327			(8,022	)		—		(22,181	)
Financing activities:
Equity received upon exercise of stock including related excess tax benefits		630		—		—			—			—			—		630
Repurchase of common stock		—		—		—			(3,746	)		—			—		(3,746	)
Proceeds from issuance of long term obligations		—		—		—			—			3,387			—		3,387
Repayments of long-term obligations		—		—		—			(1,114	)		(3,505	)		—		(4,619	)
Repayment of senior secured notes		—		—		(10,300	)		—			—			—		(10,300	)
Debt issuance costs		—		—		(147	)		—			—			—		(147	)
Other		—		—		(34	)		—			—			—		(34	)
Net cash provided by (used in) financing activities		630		—		(10,481	)		(4,860	)		(118	)		—		(14,829	)
Effect of exchange rate changes on cash		—		—		—			—			1,978			—		1,978
Change in cash and equivalents		645		—		(111	)		(8,938	)		7,124			—		(1,280	)
Cash and equivalents:
Beginning of period		1,010		—		9,234			59,108			39,903			—		109,255
End of period	$	1,655	$	—	$	9,123		$	50,170		$	47,027		$	—	$	107,975

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Cash Flows

Year Ended November 28, 2010

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation		Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash provided by operating activities	$	—		$	—	$	24,638		$	7,152		$	16,676		$	—	$	48,466
Investing activities:
Purchase of property, plant and equipment		—			—		(169	)		(13,770	)		(2,639	)		—		(16,578	)
Proceeds from the sale of property, plant, and equipment		—			—		27			13			84			—		124
Net proceeds from sale of subsidiary		—			—		—			—			(340	)		—		(340	)
Repayments of loans and capital investments from unconsolidated affiliate		—			—		—			—			3,205			—		3,205
Net activity in investment in and advances from (to) subsidiaries and affiliates		(61	)		—		(8,438	)		4,913			3,586			—		—
Net cash provided by (used in) investing activities		(61	)		—		(8,580	)		(8,844	)		3,896			—		(13,589	)
Financing activities:
Equity received upon exercise of stock including related excess tax benefits		714			—		—			—			—			—		714
Repurchase of common stock associated with vesting of employee share-based awards		—			—		—			(4,806	)		—			—		(4,806	)
Proceeds from issuance of long term obligations		—			—		—			—			4,702			—		4,702
Repayments of long-term obligations		—			—		—			(2,344	)		(12,724	)		—		(15,068	)
Repayment of senior secured notes		—			—		(36,050	)		—			—			—		(36,050	)
Debt issuance costs		—			—		—			—			—			—		—
Other		—			—		(8	)		—			—			—		(8	)
Net cash used in financing activities		714			—		(36,058	)		(7,150	)		(8,022	)		—		(50,516	)
Effect of exchange rate changes on cash		—			—		—			—			(6,533	)		—		(6,533	)
Change in cash and equivalents		653			—		(20,000	)		(8,842	)		6,017			—		(22,172	)
Cash and equivalents:
Beginning of period		357			—		29,234			67,950			33,886			—		131,427
End of period	$	1,010		$	—	$	9,234		$	59,108		$	39,903		$	—	$	109,255