TRINITY, N.C., June 30 /PRNewswire-FirstCall/ -- Sealy Corporation (ZZ), the bedding industry's largest global manufacturer, today announced results for its second quarter of fiscal 2009.

Net sales for the second fiscal quarter were $298.5 million compared to $375.4 million in the same prior year period. Gross Profit declined $26.2 million to $122.2 million compared to the same period in the prior year, while Gross Profit Margin increased 140 basis points over the same time period. Income from operations declined $6.3 million to $29.1 million compared to the same period in the prior year. As a percent of sales, income from operations increased 40 basis points from the same prior year period. Adjusted EBITDA decreased to $41.6 million from $49.8 million, while Adjusted EBITDA margin increased 60 basis points to 13.9% compared to the same prior year period. Net loss for the second quarter was $(5.2) million or $(0.06) per diluted share versus net income of $12.0 million or $0.13 per diluted share for the comparable period last year. Results for the quarter included charges of $11.9 million net of tax or $0.13 per diluted share related to the Company's refinancing of its senior credit facility on May 29, 2009 and rights for Convertible Notes.

"During the second quarter, we were able to strengthen our competitive position, execute consistently on our strategic initiatives, and substantially improve our operating performance compared to the first quarter of fiscal 2009, despite the continuation of challenging global macro-economic conditions and a difficult retail environment," stated Larry Rogers, Sealy's President and Chief Executive Officer.

"We continued to be intensely focused on positively affecting those areas of our business that we can control, including establishing stronger working partnerships with our retailers and suppliers, providing customers with the right Sealy products to address their current needs, unveiling our new Stearns & Foster line, and reducing our cost base to reflect the weaker revenue environment," added Mr. Rogers.

Total U.S. net sales were $222.5 million compared to $258.7 million in the second quarter of 2008. Wholesale domestic net sales, which exclude third party sales from Sealy's component plants, were $217.9 million, compared to $252.9 million in the second quarter of 2008. A soft retail environment negatively impacted domestic revenue performance. In the U.S., Average Unit Selling Price (AUSP) decreased 0.7% and unit volume declined 13.2% on a year-over-year basis.

International net sales decreased $40.7 million, or 34.9%, from the second quarter of 2008 to $76.0 million. Excluding the effects of currency fluctuation, net sales declined 22.2% from the second quarter of 2008. This decline was primarily due to the weak retail environment in Canada and Europe.

Gross profit was $122.2 million, a decrease of $26.2 million compared to the same quarter in fiscal 2008, but an increase of $3.9 million from the fiscal 2009 first quarter results. This sequential improvement was primarily due to the easing of material cost inflation and continued improvements in manufacturing efficiencies, partly offset by deleveraging of overhead expenses on lower volumes and a decrease in international gross profit. During the second quarter of fiscal 2008, Gross Profit benefited from a change in accounting estimates related to the Company's domestic warrantable and other product return reserves, which resulted in an increase to sales of approximately $3.7 million, a reduction of Cost of Sales of approximately $4.5 million, and a corresponding increase in Gross Profit, Income from Operations and Adjusted EBITDA of $8.2 million.

Domestic gross profit decreased by $9.9 million to $96.4 million compared to the prior year period, but increased by $2.0 from the fiscal 2009 first quarter. Price increases implemented in July 2008 and continued improvements in manufacturing efficiencies, were partially offset by higher raw material costs and deleveraging of overhead expenses on lower volumes.

Consolidated gross profit margin was 40.9%, an increase of 140 basis points compared to the prior year quarter, and an increase of 280 basis points from the fiscal 2009 first quarter results.

Selling, general, and administrative (SG&A) expenses were $95.6 million, an improvement of $20.8 million, or 17.9%, versus the comparable period a year earlier. The reduction in SG&A expenses is primarily due to a $9.5 million decline in volume-driven variable expenses. In addition, fixed operating and promotional costs decreased $7.6 million from the prior year period, primarily due to lower product launch costs, national advertising and decreased salary and fringe benefit-related costs. Severance related costs decreased $2.7 million from the second quarter of fiscal 2008.

Total Adjusted EBITDA was $41.6 million, or 13.9% of net sales, which represents an increase of 60 basis points on a year-over-year basis and an increase of 240 basis points from the fiscal 2009 first quarter. The sequential improvement was based on improved gross profit margin performance and continued cost improvements.

Net sales for the six months ended May 31, 2009 decreased 20.7% to $608.4 million from $767.3 million for the comparable period a year earlier. Gross profit was $240.4 million, or 39.5% of net sales, versus $301.6 million, or 39.3% of net sales, for the comparable period a year earlier. Adjusted EBITDA was $77.1 million, or 12.7% of net sales, versus $101.7 million, or 13.3% of net sales, compared to the six month period in the prior year.

As of May 31, 2009, the Company's debt net of cash was $760.9 million, an increase of $4.1 million compared to $756.8 million as of November 30, 2008. Operating cash flows in the fiscal 2009 second quarter included $15.2 million related to the termination of interest rate swaps and financing cash flows included $20.6 million related to debt issuance costs in conjunction with the Company's refinancing of its senior credit facilities on May 29, 2009.

"While we expect market conditions to remain challenging, we will continue to take measures to improve our profitability through increasing collaboration with our retailer and supplier partners and the introduction of new products, while aggressively right-sizing our cost structure and maximizing our cash flow.

We believe that our company has never been in a stronger strategic position to gain profitable market share and drive increasing value for our shareholders," concluded Mr. Rogers.

Adjusted EBITDA

Within the information above, Sealy provides information regarding Adjusted EBITDA which is not a recognized term under GAAP (Generally Accepted Accounting Principles) and does not purport to be an alternative to operating income or net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, it is not intended to be a measure of available cash flow for management's discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation may not be comparable to other similarly titled measures of other companies. A reconciliation of Adjusted EBITDA to the Company's net income (loss) and cash flows from operations is provided in the attached schedule.

Conference Call

The Company will hold a conference call today to discuss its fiscal second quarter 2009 results at 5:00 p.m. (Eastern Standard Time). The conference call can be accessed live over the phone by dialing 1-800-762-8779, or for international callers, 1-480- 629-9770. A replay will be available one hour after the call and can be accessed by dialing 1-800-406-7325, or for international callers, 1-303-590-3030. The passcode for the live call and the replay is 4097100. The replay will be available until July 7, 2009.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the Investors section of the Company's website at www.sealy.com. The on-line replay will be available for a limited time beginning immediately following the call.

In addition, for more information about the Refinancing, please visit the Investors section of the Company's website at www.sealy.com, or contact the Company's Information Agent, National City Bank, c/o The Colbent Corp., 161 Bay State Drive, Braintree, Massachusetts 02184, (800) 622-6757.

About Sealy

Sealy is the bedding industry's largest global manufacturer with sales of $1.5 billion in fiscal 2008. The Company manufactures and markets a broad range of mattresses and foundations under the Sealy(R), Sealy Posturepedic(R), including SpringFree(TM), PurEmbrace(TM) and TrueForm(R); Stearns & Foster(R), and Bassett(R) brands. Sealy operates 25 plants in North America, and has the largest market share and highest consumer awareness of any bedding brand on the continent. In the United States, Sealy sells its products to approximately 3,000 customers with more than 7,000 retail outlets. Sealy is also a leading supplier to the hospitality industry. For more information, please visit www.sealy.com.

This document contains forward-looking statements within the meaning of the safe harbor provisions of the Securities Litigation Reform Act of 1995. Terms such as "expect," "believe," "continue," and "grow," as well as similar comments, are forward-looking in nature. Although the Company believes its growth plans are based upon reasonable assumptions, it can give no assurances that such expectations can be attained. Factors that could cause actual results to differ materially from the Company's expectations include: general business and economic conditions, competitive factors, raw materials purchasing, and fluctuations in demand. Please refer to the Company's Securities and Exchange Commission filings for further information.

                             SEALY CORPORATION
                  CONDENSED CONSOLIDATED BALANCE SHEET
                               (In thousands)
                     (Unaudited - Preliminary results)

                                              May 31, November 30, June 1,
                                               2009       2008      2008
     ASSETS

     Current assets:
       Cash and equivalents                   $92,498   $26,596     $44,247
       Accounts receivable, net of allowances
        for bad debts,
        cash discounts and returns            171,219   156,583     190,872
       Inventories                             57,857    64,634      74,558
       Prepaid expenses and other current
        assets                                 21,658    30,969      24,194
       Deferred income tax assets              16,928    16,775      16,446
     Total current assets                     360,160   295,557     350,317
     Property, plant and equipment - at cost  455,345   449,308     464,854
     Less accumulated depreciation           (234,201) (218,560)   (214,776)
                                              221,144   230,748     250,078
     Other assets:
       Goodwill                               360,864   357,149     397,522
       Intangible assets, net of accumulated
        amortization                            3,603     4,945       7,465
       Deferred income tax assets               5,146     3,392       6,812
       Debt issuance costs, net, and other
        assets                                 50,084    29,083      31,928
                                              419,697   394,569     443,727
     Total assets                          $1,001,001  $920,874  $1,044,122

     LIABILITIES AND STOCKHOLDERS' DEFICIT

     Current liabilities:
       Current portion - long-term
        obligations                           $16,737   $21,243     $33,908
       Accounts payable                       101,405    97,084     159,366
       Accrued incentives and advertising      24,969    34,542      25,978
       Accrued compensation                    27,703    24,797      25,115
       Accrued interest                        11,192    16,432      16,381
       Other accrued liabilities               40,877    44,363      48,568
     Total current liabilities                222,883   238,461     309,316

     Long-term obligations, net of current
      portion                                 836,646   762,162     753,427
     Rights liability for convertible notes    95,985         -           -
     Other liabilities                         69,182    71,257      71,048
     Deferred income tax liabilities            6,729     4,962       7,549

     Common stock and options subject to
      redemption                                    -     8,856       8,081

     Stockholders' deficit:
       Common stock                               920       917         907
       Additional paid-in capital             774,917   668,547     664,237
       Accumulated deficit                 (1,003,628) (814,298)   (783,260)
       Accumulated other comprehensive
        income                                 (2,633)  (19,990)     12,817
     Total shareholders' deficit             (230,424) (164,824)   (105,299)
     Total liabilities and shareholders'
      deficit                              $1,001,001  $920,874  $1,044,122



                                SEALY CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except per share data)
                          (Unaudited - Preliminary results)

                                                  Three Months Ended
                                                  May 31,    June 1,
                                                    2009      2008

     Net sales                                    $298,455  $375,375
     Cost of goods sold                            176,304   227,002

        Gross profit                               122,151   148,373

     Selling, general and administrative expenses   95,581   116,359
     Amortization expense                              778       954
     Restructuring expenses and asset impairment     1,335         -
     Royalty income, net of royalty expense         (4,600)   (4,276)

          Income from operations                    29,057    35,336

     Interest expense                               16,876    15,369
     Loss on rights for convertible notes            2,729         -
     Refinancing and extinguishment of debt and
      interest rate derivatives                     17,422         -
     Other income, net                                 (13)      (81)

     (Loss) income before income tax provision      (7,957)   20,048
     Income tax (benefit) provision                 (2,719)    8,091
              Net (loss) income                    $(5,238)  $11,957

     (Loss) earnings per common share---Basic       $(0.06)    $0.13

     (Loss) earnings per common share---Diluted     $(0.06)    $0.13
     Weighted average number of common shares
      outstanding:
        Basic                                       91,819    90,999
        Diluted                                     91,819    93,965



                               SEALY CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                         (Unaudited - Preliminary results)

                                               Six Months Ended
                                              May 31,    June 1,
                                               2009       2008

     Net sales                               $608,431  $767,304
     Cost of goods sold                       368,030   465,736

        Gross profit                          240,401   301,568

     Selling, general and administrative
      expenses                                192,277   232,562
     Amortization expense                       1,593     1,869
     Restructuring expenses and asset
      impairment                                1,448       541
     Royalty income, net of royalty expense    (7,970)   (9,136)

          Income from operations               53,053    75,732

     Interest expense                          34,424    30,745
     Loss on rights for convertible notes       2,729         -
     Refinancing and extinguishment of debt
      and interest rate derivatives            17,422         -
     Gain on sale of subsidiary stock          (1,292)        -
     Other income, net                            (46)     (180)

          (Loss) income before income tax
           expense                               (184)   45,167
     Income tax provision                         308    16,996

              Net (loss) income                 $(492)  $28,171

     (Losses) earnings per common share---
      Basic                                    $(0.01)    $0.31

     (Losses) earnings per common share---
      Diluted                                  $(0.01)    $0.30

     Weighted average number of common shares
      outstanding:
        Basic                                  91,813    90,932
        Diluted                                91,813    94,758



                             SEALY CORPORATION
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)
                     (Unaudited - Preliminary results)

                                                  Six Months Ended
                                                 May 31,      June 1,
                                                   2009        2008

     Operating activities:
       Net (loss) income                           $(492)     $28,171
       Adjustments to reconcile net income to
        net cash provided by (used in) operating
        activities:
         Depreciation and amortization            15,738       17,120
         Deferred income taxes                    (5,524)       2,741
         Impairment charges                        1,326            -
         Amortization of deferred gain on sale-
          leaseback                                 (324)           -
         Amortization of debt issuance costs and
          other                                      579        1,174
         Loss on rights for convertible notes      2,729            -
         Share-based compensation                  2,229        1,998
         Excess tax benefits from share-based
          Payment arrangements                         -         (781)
         Loss on sale of assets                      451          311
         Write-off of debt issuance costs related
          to debt extinguishments                  2,113            -
         Loss on termination of interest rate
          swaps                                   15,232            -
         Payment to terminate interest rate
          swaps                                  (15,232)           -
         Gain on sale of subsidiary stock         (1,292)           -
         Other, net                                 (661)         662
       Changes in operating assets and liabilities:
         Accounts receivable                      (9,747)      21,471
         Inventories                               6,125          268
         Prepaid expenses and other current
          assets                                  14,136        1,594
         Other assets                              1,262        2,852
         Accounts payable                          1,303       18,325
         Accrued expenses                        (15,757)     (34,513)
         Other liabilities                         1,126        1,387
             Net cash provided by operating
              activities                          15,320       62,780
     Investing activities:
       Purchase of property, plant and equipment  (4,592)     (13,866)
       Proceeds from sale of property, plant and
        equipment                                 10,149           12
       Net proceeds from sale of subsidiary        1,237            -
       Investments in and loans to unconsolidated
        affiliate                                 (2,322)           -
             Net cash provided by (used in)
              Investing activities                 4,472      (13,854)
     Financing activities:
       Cash dividends                                  -       (6,811)
       Proceeds from issuance of long-term
        obligations                                2,830        1,748
       Repayments of long-term obligations        (8,995)     (16,882)
       Repayment of old senior term loans       (377,181)           -
       Proceeds from issuance of new senior
        secured notes                            335,916            -
       Proceeds from issuance of related
        party debt                               177,132            -
       Borrowings under revolving credit
        facilities                               140,616      206,258
       Repayments under revolving credit
        facilities                              (205,016)    (203,085)
       Exercise of employee stock options,
        including related excess tax benefits       (295)         803
       Debt issuance costs                       (20,553)           -
             Net cash provided by (used in)
              Financing activities                44,454      (17,969)
     Effect of exchange rate changes on cash       1,656       (1,317)
     Change in cash and equivalents               65,902       29,640
     Cash and equivalents:
       Beginning of period                        26,596       14,607
       End of period                             $92,498      $44,247



       RECONCILIATION OF EBITDA TO NET INCOME AND CASH FLOW FROM OPERATIONS
                                 NON GAAP MEASURES

                                Three Months Ended:        S

SOURCE Sealy Corporation