Sealy seeking opportunities to improve capital structure, maximize financial flexibility

By Jennifer Lanning Drey

Portland, Ore., March 31 - Sealy Corp. continues to evaluate opportunities to improve its capital structure within the company's stated goal of maximizing financial flexibility in 2009, Larry Rogers, chief executive officer of Sealy, said Tuesday during the company's fourth-quarter earnings conference call.

"Financial flexibility has a high level of focus for the management team and is especially important in this environment," Rogers said.

When asked about Sealy's interest in buying back its bonds, Rogers said it would be part of the discussions when considering the capital structure, but the CEO also noted that the company's revolving credit facility matures in April 2010.

Under a revised credit agreement currently in place between Sealy and its lenders, the company must achieve leverage ratios it has not yet met before it can buy back debt in the open market.

Other measures the company is taking to maximize its financial flexibility include reducing operating expenses and working to more effectively manage working capital.

Sealy ended the first quarter with net debt of $732 million, showing a $64 million reduction from net debt at the end of fiscal 2007. The company had $30 million outstanding on its revolving credit facility at the March 1 end of the first quarter.

Also at March 1, the company's leverage ratio of total debt to adjusted EBITDA was 4.96 to 1, compared with a maximum permitted ratio of 5.85 to 1.

The total leverage covenant steps down to 5.5 times at the end of fiscal 2009, and the company expects to remain in compliance with the stricter requirement, Rogers said.

Continued pressure likely

Sealy's net sales for the first quarter decreased to $310 million, down $82 million from the prior-year first quarter. Net income for the period was $4.7 million, compared with net income of $16.2 million in the comparable period in 2008.

The company plans to manage the business with the assumption that sales will remain under pressure for the balance of 2009, Jeffrey Ackerman, chief financial officer of Sealy, said during the call.

"Retail conditions remain challenging to date, and we have seen no indication that trends are improving," he said.

However, despite the first-quarter decline in sales, Sealy generated $20 million of cash flow from operations.

"Our cash flow from operations remains strong in this environment, and we believe this puts us in the best position to capture the opportunities when the market returns," he said.

In the meantime, Sealy will be focused on growing market share, improving gross margins, reducing expenses and successfully launching its new Stearns & Foster line.

Sealy is a Trinity, N.C.-based manufacturer and marketer of bedding products.

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