Simmons charges lead to $492.2 million annual loss

Sales decline 8.7% in 2008 to $1.03 billion

David Perry -- Furniture Today, June 11, 2009

ATLANTA — Bedding major Simmons, in the midst of a financial restructuring expected to result in the sale of the company, reported a net loss of $492.2 million for 2008 as net sales fell 8.7% from the previous year to $1.03 billion.

The loss included $547.6 million in non-cash goodwill and trademark impairment charges. In 2007, the company had reported net income of $23.9 million.

In the fourth quarter, the net loss was $487.4 million, including the impairment charges, compared with net income of $6.2 million in the year-earlier quarter.

For the year, Simmons reported an operating loss of $503.7 million. In addition to the impairment charges, the results included operational and financial restructuring costs totaling $21.3 million.

Simmons also said that given its defaults on its debt covenants and other factors, its independent accounting firm has expressed "substantial doubt about Simmons' ability to continue as a going concern."

But the company said it continues to operate normally and without interruption, and had cash on hand of $57.3 million as of May 30.

"As we make progress in our restructuring, Simmons continues to perform with innovations in all aspects of our business and an offering of a full complement of industry-leading bedding products to our customers," said Simmons President Steve Fendrich.

The company said that domestic net sales in 2008 fell 9.4% from a year earlier, to $908.2 million. In conventional bedding domestic sales, unit volume declined 14.1% but the drop was partially offset by an increase in average unit selling price of 5.6%.

Gross profit for 2008 was $379.9 million or 36.9% of net sales, compared with $450.6 million or 40% of net sales in 2007.

Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, was $115.7 million or 11.3% of net sales, compared with $157 million or 13.9% of net sales in 2007.

For the fourth quarter, net sales decreased 23.8% to $205.5 million. Domestic net segment sales were down 22.3% to $185.9 million as conventional bedding unit volume declined 22.5%, partially offset by an increase in average unit selling price of 0.3%.

"The economic environment in which we operated in 2008 was a very difficult one, particularly in the fourth quarter, and was highlighted by a significant decline in consumer spending and large increases in raw material costs," said Fendrich.

"Despite this operating environment we believe our products continued to gain market share as evidenced by the fourth quarter being the 12th consecutive quarter that our year-over-year sales performance was better than that reported by the International Sleep Products Assn. leading manufacturer reporting sample," he said.

Simmons had not previously reported its third- or fourth-quarter results for last year.

The company said it plans to report its first-quarter 2009 results by the end of June.