Guarantor/Non-Guarantor Financial Information

6 Months Ended

May 27, 2012

Guarantor/Non-Guarantor Financial Information

Guarantor/Non-Guarantor Financial Information

Note 21: 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"), and are 100% owned subsidiaries of the Issuer, 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 May 27, 2012 and November 27, 2011, Condensed Consolidating Statements of Operations for the three months ended May 27, 2012 and May 29, 2011, and Condensed Consolidating Statements of Cash Flows for the three months ended May 27, 2012 and May 29, 2011.
  
  

  2.

  Sealy Corporation, who became a guarantor of the 2014 Notes effective May 25, 2006 and who is guarantor of the Senior Notes and a co-issuer of the Convertible Notes (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).
  
  

  3.

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

        Separate financial statements of each of the Guarantor Subsidiaries are not presented because management believes that these financial statements would not be material to investors.

SEALY CORPORATION

Supplemental Condensed Consolidating Balance Sheets

May 27, 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	$	1,655		$	—		$	15,737		$	4,130		$	59,679		$	—		$	81,201
Accounts receivable, net		—			—			6			91,782			59,477			—			151,265
Inventories		—			—			1,468			56,143			10,167			(142	)		67,636
Other current assets and deferred income taxes		7,357			—			699			37,694			5,346			—			51,096
Total current assets		9,012			—			17,910			189,749			134,669			(142	)		351,198
Property, plant and equipment, at cost		—			—			10,366			360,348			36,692			—			407,406
Less accumulated depreciation		—			—			(6,188	)		(219,056	)		(21,302	)		—			(246,546	)
		—			—			4,178			141,292			15,390			—			160,860
Other assets:
Goodwill		—			—			24,741			301,942			34,962			—			361,645
Intangible assets, net		—			—			—			944			33			—			977
Net investment in subsidiaries		(192,267	)		224,592			364,651			295,475			—			(692,451	)		—
Due from (to) affiliates		307,851			(416,859	)		522,076			(131,599	)		(91,669	)		(189,800	)		—
Debt issuance costs, net and other assets		—			—			14,535			13,958			20,386			—			48,879
		115,584			(192,267	)		926,003			480,720			(36,288	)		(882,251	)		411,501
Total assets	$	124,596		$	(192,267	)	$	948,091		$	811,761		$	113,771		$	(882,393	)	$	923,559
Liabilities and Stockholders' (Deficit) Equity
Current liabilities:
Current portion—long-term obligations	$	—		$	—		$	—		$	1,365		$	347		$	—		$	1,712
Accounts payable		—			—			208			59,036			24,783			—			84,027
Accrued customer incentives and advertising		—			—			—			18,811			7,339			—			26,150
Accrued compensation		—			—			386			17,014			3,916			—			21,316
Accrued interest		—			—			1,228			12,418			—			—			13,646
Other accrued liabilities		—			—			437			23,677			6,758			—			30,872
Total current liabilities		—			—			2,259			132,321			43,143			—			177,723
Long-term obligations		189,245			—			721,101			39,255			—			(189,245	)		760,356
Other liabilities		—			—			—			43,388			6,415			—			49,803
Deferred income tax liabilities		—			—			139			(139	)		326			—			326
Stockholders' equity (deficit)		(64,649	)		(192,267	)		224,592			596,936			63,887			(693,148	)		(64,649	)
Total liabilities and stockholders' equity (deficit)	$	124,596		$	(192,267	)	$	948,091		$	811,761		$	113,771		$	(882,393	)	$	923,559

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

Three Months Ended May 27, 2012

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	—		$	21,973		$	225,251		$	70,377		$	(5,570	)	$	312,031
Cost and expenses:
Cost of goods sold		—			—			11,932			136,947			41,785			(5,653	)		185,011
Selling, general and administrative		—			—			2,031			84,177			20,290			—			106,498
Amortization expense		—			—			—			72			—			—			72
Royalty (income) expense, net		—			—			—			(5,590	)		—			—			(5,590	)
Income from operations		—			—			8,010			9,645			8,302			83			26,040
Interest expense		—			103			21,353			632			377			—			22,465
Refinancing and extinguishment of debt		—			—			2,012			—			—			—			2,012
Other (income) expense, net		—			—			—			(3	)		(154	)		—			(157	)
Loss (income) from equity investees		(1,743	)		(1,842	)		2,758			—			—			827			—
Loss (income) from non- guarantor equity investees		—			—			—			(5,609	)		—			5,609			—
Capital charge and intercompany interest allocation		—			—			(19,359	)		18,809			550			—			—
Income (loss) before income taxes		1,743			1,739			1,246			(4,184	)		7,529			(6,353	)		1,720
Income tax provision (benefit)		65			(4	)		(596	)		(1,345	)		2,016			2			138
Equity in earnings of unconsolidated affiliates		—			—			—			—			1,233			—			1,233
Income (loss) from continuing operations		1,678			1,743			1,842			(2,839	)		6,746			(6,355	)		2,815
Loss from discontinued operations		—			—			—			—			(1,137	)		—			(1,137	)
Net income (loss)	$	1,678		$	1,743		$	1,842		$	(2,839	)	$	5,609		$	(6,355	)	$	1,678

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Operations

Three Months Ended May 29, 2011

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	—		$	22,963		$	236,852		$	66,525		$	(5,044	)	$	321,296
Cost and expenses:
Cost of goods sold		—			—			12,878			149,552			38,897			(5,105	)		196,222
Selling, general and administrative		—			—			2,162			86,658			18,627			—			107,447
Amortization expense		—			—			—			72			—			—			72
Royalty (income) expense, net		—			—			—			(4,804	)		—			—			(4,804	)
Income from operations		—			—			7,923			5,374			9,001			61			22,359
Interest expense		—			77			20,787			530			272			—			21,666
Refinancing and extinguishment of debt		—			—			1,236			—			—			—			1,236
Other (income) expense, net		—			—			—			—			(102	)		—			(102	)
Loss (income) from equity investees		377			322			3,745			—			—			(4,444	)		—
Loss (income) from non- guarantor equity investees		—			—			—			(5,121	)		—			5,121			—
Capital charge and intercompany interest allocation		—			—			(18,858	)		17,185			1,673			—			—
Income (loss) before income taxes		(377	)		(399	)		1,013			(7,220	)		7,158			(616	)		(441	)
Income tax provision (benefit)		—			(22	)		1,335			(3,604	)		1,708			15			(568	)
Equity in earnings of unconsolidated affiliates		—			—			—			—			623			—			623
Income (loss) from continuing operations		(377	)		(377	)		(322	)		(3,616	)		6,073			(631	)		750
Loss from discontinued operations		—			—			—			(175	)		(952	)		—			(1,127	)
Net income (loss)	$	(377	)	$	(377	)	$	(322	)	$	(3,791	)	$	5,121		$	(631	)	$	(377	)

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Operations

Six Months Ended May 27, 2012

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	—		$	43,246		$	451,622		$	140,785		$	(11,332	)	$	624,321
Cost and expenses:
Cost of goods sold		—			—			23,746			279,398			83,130			(11,348	)		374,926
Selling, general and administrative		—			—			4,051			162,392			40,179			—			206,622
Amortization expense		—			—			—			144			—			—			144
Royalty (income) expense, net		—			—			—			(9,320	)		—			—			(9,320	)
Income from operations		—			—			15,449			19,008			17,476			16			51,949
Interest expense		—			155			42,482			1,268			720			—			44,625
Refinancing and extinguishment of debt		—			—			2,925			—			—			—			2,925
Other (income) expense, net		—			—			—			(4	)		(275	)		—			(279	)
Loss (income) from equity investees		(3,278	)		(3,428	)		6,001			—			—			705			—
Loss (income) from non- guarantor equity investees		—			—			—			(12,499	)		—			12,499			—
Capital charge and intercompany interest allocation		—			—			(38,584	)		37,436			1,148			—			—
Income (loss) before income taxes		3,278			3,273			2,625			(7,193	)		15,883			(13,188	)		4,678
Income tax provision (benefit)		364			(5	)		(803	)		(1,176	)		4,285			—			2,665
Equity in earnings of unconsolidated affiliates		—			—			—			—			2,408			—			2,408
Income (loss) from continuing operations		2,914			3,278			3,428			(6,017	)		14,006			(13,188	)		4,421
Loss from discontinued operations		—			—			—			—			(1,507	)		—			(1,507	)
Net income (loss)	$	2,914		$	3,278		$	3,428		$	(6,017	)	$	12,499		$	(13,188	)	$	2,914

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Operations

Six Months Ended May 29, 2011

(in thousands)

	Sealy Corporation			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	—		$	44,121		$	461,477		$	131,554		$	(10,327	)	$	626,825
Cost and expenses:
Cost of goods sold		—			—			25,008			292,207			76,558			(10,526	)		383,247
Selling, general and administrative		—			—			4,116			170,415			36,650			—			211,181
Amortization expense		—			—			—			144			—			—			144
Royalty (income) expense, net		—			—			—			(9,775	)		—			—			(9,775	)
Income from operations		—			—			14,997			8,486			18,346			199			42,028
Interest expense		—			154			41,432			1,102			686			—			43,374
Refinancing and extinguishment of debt		—			—			1,236			—			—			—			1,236
Other (income) expense, net		—			—			—			—			(207	)		—			(207	)
Loss (income) from equity investees		1,279			1,172			8,115			—			—			(10,566	)		—
Loss (income) from non- guarantor equity investees		—			—			—			(10,732	)		—			10,732			—
Capital charge and intercompany interest allocation		—			—			(37,628	)		35,159			2,469			—			—
Income (loss) before income taxes		(1,279	)		(1,326	)		1,842			(17,043	)		15,398			33			(2,375	)
Income tax provision (benefit)		—			(47	)		3,014			(9,145	)		4,341			60			(1,777	)
Equity in earnings of unconsolidated affiliates		—			—			—			—			1,478			—			1,478
Income (loss) from continuing operations		(1,279	)		(1,279	)		(1,172	)		(7,898	)		12,535			(27	)		880
Loss from discontinued operations		—			—			—			(356	)		(1,803	)		—			(2,159	)
Net income (loss)	$	(1,279	)	$	(1,279	)	$	(1,172	)	$	(8,254	)	$	10,732		$	(27	)	$	(1,279	)

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Cash Flows

Six Months Ended May 27, 2012

(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	$	—		$	—	$	26,623		$	(24,306	)	$	11,540		$	—	$	13,857
Investing activities:
Purchase of property, plant and equipment		—			—		(199	)		(5,338	)		(1,104	)		—		(6,641	)
Proceeds from the sale of property, plant, and equipment		—			—		—			1,883			231			—		2,114
Net activity in investment in and advances from (to) subsidiaries and affiliates		(46	)		—		17,115			(17,460	)		391			—		—
Net cash provided by (used in) investing activities		(46	)		—		16,916			(20,915	)		(482	)		—		(4,527	)
Financing activities:
Equity received upon exercise of stock including related excess tax benefits		46			—		—			—			—			—		46
Repurchase of common stock		—			—		—			(188	)		—			—		(188	)
Proceeds from issuance of long term obligations		—			—		—			—			1,525			—		1,525
Repayments of long-term obligations		—			—		—			(631	)		(1,462	)		—		(2,093	)
Repayment of senior secured notes		—			—		(36,050	)		—			—			—		(36,050	)
Debt issuance costs		—			—		(875	)		—			—			—		(875	)
Other		—			—		—			—			—			—		—
Net cash provided by (used in) financing activities		46			—		(36,925	)		(819	)		63			—		(37,635	)
Effect of exchange rate changes on cash		—			—		—			—			1,531			—		1,531
Change in cash and equivalents		—			—		6,614			(46,040	)		12,652			—		(26,774	)
Cash and equivalents:
Beginning of period		1,655			—		9,123			50,170			47,027			—		107,975
End of period	$	1,655		$	—	$	15,737		$	4,130		$	59,679		$	—	$	81,201

SEALY CORPORATION

Supplemental Condensed Consolidating Statements of Cash Flows

Six Months Ended May 29, 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	$	—	$	—	$	20,882		$	(36,254	)	$	7,726		$	—	$	(7,646	)
Investing activities:
Purchase of property, plant and equipment		—		—		(126	)		(12,569	)		(544	)		—		(13,239	)
Proceeds from the sale of property, plant, and equipment		—		—		—			—			22			—		22
Net activity in investment in and advances from (to) subsidiaries and affiliates		62		—		(10,275	)		6,738			3,475			—		—
Net cash provided by (used in) investing activities		62		—		(10,401	)		(5,831	)		2,953			—		(13,217	)
Financing activities:
Equity received upon exercise of stock including related excess tax benefits		583		—		—			—			—			—		583
Repurchase of common stock		—		—		—			(67	)		—			—		(67	)
Proceeds from issuance of long term obligations		—		—		—			—			1,643			—		1,643
Repayments of long-term obligations		—		—		—			(864	)		(1,642	)		—		(2,506	)
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		583		—		(10,481	)		(931	)		1			—		(10,828	)
Effect of exchange rate changes on cash		—		—		—			—			1,728			—		1,728
Change in cash and equivalents		645		—		—			(43,016	)		12,408			—		(29,963	)
Cash and equivalents:
Beginning of period		1,010		—		9,234			59,108			39,903			—		109,255
End of period	$	1,655	$	—	$	9,234		$	16,092		$	52,311		$	—	$	79,292