Good day and welcome to the Sealy Corporations first quarter fiscal 2008 earnings conference call. Today’s conference is being recorded. At this time I would like to turn the call over to Mr. Kenneth Walker, Senior Vice President, General Counsel and Secretary of Sealy Corporation.

Good afternoon everyone. I want to thank you for joining us on Sealy’s financial first quarter 2008 investor conference call. Before we begin let me remind you that in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995 the company knows that certain matters to be discussed by members of management during this call may constitute forward-looking statements. Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Sealy to be materially different from the performance indicated or implied by such statements. Such risk factors are set forth in the company’s annual report on form 10K for the year ended December 2, 2007. Now I’ll turn the call over to Larry Rogers, Interim Chief Executive Officer of Sealy Corporation.

Good afternoon. Thank you, Ken. I’d like to also thank all of you for joining us on our call to discuss Sealy’s first quarter results. Joining me today are Jeff Ackerman our Chief Financial Officer and Mark Boehmer our Treasurer. On this call I will give an overview of our first quarter results as well as an update on the progress we are making on our Posturepedic launch and our strategic operating initiatives. Jeff will go into more detail on our first quarter results and then we will open the line to your questions. I want to start out by expressing my commitment to lead Sealy as its Interim CEO during this important time in our evolution. I have been with the company nearly 29 years and during that time I have had the benefit of overseeing many aspects of our domestic and international businesses. My transition into the Interim CEO role has been very smooth thus far thanks to our comprehensive succession plans and the breadth and depth of our management team. I have been responsible for managing our long-standing relationships with our customers for many years and I will continue to strengthen these efforts. I have also already been fully involved in developing our key strategic initiatives including leading the important launch of our new Posturepedic line. As previously communicated, we are conducting a search for a permanent CEO. In the mean time we will focus our efforts on what we can control including continuing to execute on the strategic initiatives that we outlined on our last call. We do not expect any significant changes to this strategy, but we do intend to be proactive from a product and cost perspective. We are disappointed in our overall results for the first quarter which were below our expectations coming…

Thanks Larry. I would now like to walk you through the financial details. For the first quarter total sales were $391.9 million, a decrease of 5% compared to the prior year. Net income was $16.2 million or $0.17 per diluted share compared to $24.6 million or $0.26 per diluted share in the same period of 2007. I’ll now go into more detail on the components of our first quarter sales results. Total domestic net sales fell by 11.2% year-over-year to $281.3 million. Wholesale domestic net sales, which exclude sales to third parties from our [component] plants were down 11.7% to $276.8 million and were impacted by a 10.5% drop in our unit volume and a 1.4% decrease in our average unit selling price (AUSP). Our domestic AUSP fell slightly in the quarter on a year-over-year basis due to a shift in our inner spring mix. However, our AUSP started to increase sequentially up 0.7% from the fourth quarter due to the pricing increase we implemented which started to take effect in January. In order to maintain year-over-year comparability starting with our first quarter we made the decision to provide wholesale domestic AUSP and unit growth data. By excluding sales from our component plant in the U.S. we believe these metrics will yield better insight into our core business. The decline in our wholesale domestic unit volume is primarily attributable to company specific factors such as customers transitioning to our new Posturepedic line and the store closures that Larry mentioned earlier. In addition we continue to experience a lower mix of Sealy promotional product sales due to the success of the Sealy Posturepedic Reserve Line which offers higher AUSP’s but lower sales velocity. Over time we expect many of these slots to be replaced by our new Posturepedic products. All of…

Operator, just before we open up the line I would just like to clarify one thing. Our leverage requirement in the first quarter is 4.5 to 1, I apologize – not 5.5 to 1. As I said in the second quarter that does step down to 4.25 to 1. So now we’d like to open the lines for questions. So operator if you could please do that.

Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question at this time please do so by pressing the * key followed by the digit 1 on your touchtone telephone. If you are using a speaker phone please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal. We will take as many questions as time permits. Once again please press *1 on your touchtone telephone to ask your question and we will pause for just a moment to give everyone the opportunity to signal. We’ll take our first question from Albert Kabili with Goldman Sachs.

Good afternoon guys. I guess a quick question for you, Larry. If you could just talk about the new Posturepedic line. How much of the sales impact in the first quarter do you think is just the result of the new Posturepedic line?

We didn’t start rolling out the Posturepedic line until the middle of March so the reality is there is no impact to the first quarter based on the new line.

I guess what I was asking more was would there be a negative impact to sales as customers were waiting for the new line to come in. Could you talk about that a little bit and have you seen a pick up as this line is launching?

Well typically you are accurate as we go through the launch of a new line people start to suspend purchasing of the current line and clearly that coupled with the current economic reality we are dealing with did have an impact on our business in the first quarter. It is a little bit difficult to really quantify what that is, but clearly we saw a typical slow down that comes from a line transition.

Okay. Is there a way maybe to help answer this question by price point or just looking at the Posturepedic line? How were sales in the quarter versus the other lines?

I would say that our sales of Posturepedic again showed evidence of a line transition. We had a good response in our specialty products as we indicated in the comments earlier. But the reality would be Posturepedic was tailing off in the first quarter.

Okay. And as we are looking at the second quarter can you talk about some of the trends you have been seeing in March and April? Have we seen a pick up versus February? How is the new Posturepedic line doing in the early adopters?

Al, this is Jeff. In March, as Larry indicated, we just started shipping. So to get any kind of read out on what the sell through is I think is a bit premature. I will say, though, we are very pleased with the initial feedback and the progress we have made so far on the launch and also the mix of products that our retailers are ordering.

Okay. Then if we could shift to the SG&A a bit, there was a sequential or year-over-year decrease in SG&A by about $10 million. Can you talk about what the key drivers were? I know you mentioned there were some cost cutting activity, but there was also advertising reductions as well. Can you just talk about how much was driven by advertising reductions versus other types of cost cuts? What level is sustainable in terms of the cost savings you achieved in the first quarter?

Al, the primary reductions were really a combination of lower advertising costs and lower compensation costs and those were being off set by some increased delivery costs. We actually saw just more spending efficiency and so on our advertising costs and that was the single largest driver. So year-on-year that was the biggest improvement and again that was just really improvement on rate there. As I said we did also incur some…in addition to the higher delivery costs we did incur some costs around severance but that should going forward have a benefit annualized of about $2 million.

Okay so on the lower advertising costs you mentioned it was rates. Are you advertising at the same level but you were able to save a lot on the rates you pay? Is it driven on the mediums you were using? Give us a sense if you can on that.

Al I can take that. This is Larry. As we mentioned on previous calls we were going to begin an initiative to make sure we were maximizing our co-op advertising spend. That wasn’t necessarily designed to do anything but get a fair and equitable return on investment. We have been partnering with our customers and having conversations on their commitment to spend equal parts of their monies as we invest ours and we are getting a better play in those areas. So what you are seeing is more of an optimization of co-op advertising than anything else.

Okay. Got it. I guess the last question would be on the dividend. At what point would you think about re-initiating the dividend? Jeff I guess a question for you related to that is how comfortable are you with the step down and leverage show in the second quarter? Do you feel you can meet that given all the higher roll out costs that we are going to see in the second quarter?

Sure. Al, first off let me answer your first question and the answer to that is we will, as we have always done, is we will review the quarterly dividend every quarter with our board. As far as the covenant for the second quarter as you said we see a step down from 4.5 to 4.25. We are in at 3.9 right now. There is really no single driver on this. What we are seeing is we just looked at all the volatility we are seeing in the credit markets, we are seeing in commodity costs, we are seeing in the retail markets, and so we are just taking what we believe are prudent actions and that is aggressively managing our working capital, looking for further cost reductions, reducing capEx and then lastly make a decision to suspend the dividend. Again, the thing that I’d like people to keep in mind is the rates that we have right now are very attractive on our debt and we are focused on maintaining that and maintaining those rates and our financial flexibility.

Okay. So you think you have enough flexibility with the dividend cut and the working capital to make the 4.25 ratio. You talked about $15-20 sequential increase in SG&A, a pretty big jump and hit to earnings in the short term anyway.

I do think at this time we are taking all the right actions. The second quarter is going to be challenging. As I mentioned we are having success with the new Posturepedic line but also included in that then, as I mentioned, is increased floor sample costs, increased product launch costs and those are probably going to be $15-20 million if you look increased sequentially from the first quarter. So we are just taking all the actions we believe are necessary to deliver the results we need to based on all the forward visibility we have.

Okay. I’ll turn it over and jump back in the queue. Thank you guys.

The next question comes from the line of Keith Hughes of Suntrust Robinson Humphrey.

Thank you. Just following up on some of your prepared commentary. Can you just give us an idea of how much specialty is of your business currently?

Keith, it is Larry. I don’t think we have ever shared that as a percentage of our total business. It is becoming a larger portion of our business all the time. I think our comments were more directed to the increase is off a much larger base than previously and it is now at the point where an increase of that nature is meaningful to us.

Keith, you have seen our presentation and we were in 2006 we thought about a 6% share of the business of what we believe is a $1.6 million segment of the industry. I think our growth rate is in there.

That is currently domestic only, is that correct?

Yes, the numbers we are referring to is our domestic specialty business.

Domestic specialty business, okay. And on the dividend suspension I am still a little confused at why the timing right now? Given where you are on the ratios, why wasn’t this done for example last year? Usually companies suspend dividends when they are in a lot worse financial shape than you are in now. Can you give us a little clarity on that?

Yes. Look, as I said before we are focused on maintaining our financial flexibility and right now Keith as I mentioned there is so much uncertainty and so much volatility that we are seeing again in the credit markets, what we are seeing with commodity prices and in the retail environment, again we thought this was a prudent thing to do to maintain that financial flexibility.

Okay. Is it fair to say that with those proceeds now is that going to go towards debt reduction in the future?

By suspending the dividend on an annual rate that is almost $30 million a year. We are really not changing our focus on the uses of cash. It is what we have always been saying. We are going to focus on investing in the business and then focus on de-leveraging.

Okay. That’s all my questions. Thank you.

The next question comes from the line of Chad [Bowman] with Raymond James. Chad [Bowman] - Raymond James: Good afternoon guys. Can you hear me okay? Would you be able to break out for us in advertising spent co-op versus national during the quarter?

The vast preponderance of that is co-op. Chad [Bowman] - Raymond James: Okay. And given some of the difficulties of Select Comfort as well as Tempurpedic here recently has that caused you at all to re-think the direct to consumer sort of national advertising strategy that you are working on right now?

Chad this is Larry. I don’t think it is causing us to change our strategy. It is causing us to be very thoughtful about the strategy. It is making us a little more cautious before we pull the trigger and we are stepping back and watching this market unfold. So it is not a change in strategy, it is merely being a little more cautious. I think caution is probably a pretty good buy word considering the economic environment we are all facing. Chad [Bowman] - Raymond James: Okay. And Jeff maybe a little clarification in regards to the reorganization charge? I guess how should we think about that in terms of the mix between SG&A and cost of goods sold? To be clear are you seeing some of that $2 million in annualized benefit already or when do you expect that to fully kick in?

We…your first question was whether or not the benefit would turn up in SG&A or cost of goods sold. That would almost exclusively show up in SG&A. All the actions were taken at the end of the first quarter so over time sort of going forward on an annualized basis we anticipate $2 million benefit. Chad [Bowman] - Raymond James: Okay. And maybe if you could give me an update you guys had talked about re-branding the latex spring free product. Where do you stand with that? What would you anticipate as the timing of that?

We are proceeding with the re-branding Chad and we would think you should see some action relative to the new branding in the third quarter of this particular year. Chad [Bowman] - Raymond James: Alright. Thank you, guys.

The next question comes from the line of Joel Harvard with Hilliard Lyons.

Thank you. Good afternoon everybody. Larry, it was always my presumption and I haven’t had a chance to speak with you to get your perspective on this so sorry about the venue, but it was always my presumption that the strategy of shifting co-op ad from the independent retailer was going to be something that may involve a little bit of pain. I’m trying to understate this a little bit. How is the company managing that? You have made it clear in previous comments that you want to be careful and prudent and cautious in how you approach it, but is it still very much a commitment on the part of management and can you give a sense of where you think that could go over the course of the next year or two?

Well let me see if I can separate those questions. First of all our approach as I stated going to be very targeted and focused on a return on invest.

That was a good comment.

We really believe that there are opportunities to perhaps bifurcate different parts of our portfolio and by that I mean you might see a different strategy on the specialty part of our business than you might on the more well-developed spring part of our business. We are having conversations with customers as you alluded to. We continue that journey. As you might imagine in this difficult economic environment we need to be careful as we move with our customer base.

I’ll take that as another careful answer. This next one is a little easier but it is really wide. Given your experience with the company and within the industry, your comments earlier likening the current environment to the 70’s gave me a bit of a shudder. Is there some ray of sunshine there? We’ll leave the macros added. But how can you share with us how you managed to help the company manage its way through an environment of that nature?

Typically, Joel, stronger companies come out of those environments even stronger yet. We believe we are going to continue to focus on the basics of the business. We talked about managing those things we can control. It has been referred that the suspension of the dividend is something we have already taken initiative on. We are bigger. We have a more diversified portfolio and we have the geographic footprint that I believe is going to allow us to weather this particular economic downturn. We have a meaningful competitive advantage given that we have the ability, and we’ve said on previous calls, our focus is to grow the business 1/3 in domestic inner spring, 1/3 specialty and 1/3 internationally. Clearly with the comments today I think you’ve seen good growth in specialty and international. We’re going to stay the course and continue to I guess do the common things uncommonly well.

I appreciate the answer. Jeff, a couple of follow-up’s for you real quick. The $20 million in incremental product launch costs that was for Q2? Did I hear that correct?

That is sequential. It is an increase of $15-20 million from Q1 into Q2.

I think you anticipated the rest of that question. And last, could you give us the units versus pricing dynamics in the Canadian market again?

It was down 7% in units and up 1% in AUSP.

Thank you very much. Good luck guys.

The next question comes from the line of Ike Borcia with Morgan Keegan.

Hi. Good afternoon. I’m calling in for Laura Champine. Two questions. You had mentioned domestic sales being down and one of the factors was the bank seizing some of your customers. Is there anyway you can quantify the negative impact that had on you during the quarter?

We haven’t broken that out. I don’t think for competitive reasons we are going to but I’ll just reiterate that the single largest decrease was at accounts that are transitioning into new lines. Then secondarily it was related to accounts that had to close. But again we expect over the longer term that due to the breadth of our distribution that business goes somewhere else and we will be there to pick it up and over the long term the effect of that will be marginalized.

Okay. Lastly, on the last call you mentioned you felt the incremental FR costs in the first half of this year would be $14-16 million. Is that still standing? Should we expect $9-11 million in Q2?

I’m not updating that. We were at $14-16 and at $5 in the first quarter.

Thank you.

We’ll take our next question from [Kerry] Martinson with Deutsche Bank. [Kerry] Martinson - Deutsche Bank: Good afternoon. In terms of the top line that you’ve lost from customers that have gone into bankruptcy is it a reasonable assumption that we’re not going to see those sales get replaced any time soon?

Actually when you look at one of the larger retailers that has gone out of business we have had a property management company move in, acquire the stores and shop them with current furniture and mattress specialty stores. So if I was to give you an example the Levitz stores in Southern California are going to re-open under re-branded Ashley stores. Ashley is a significant customer of ours so we think we have the opportunity to replace some of this business in a fairly short fashion. I think that speaks to the point that Jeff made earlier that the consumer does not go away. Perhaps the retailer does. But with 20 and under customers in the USA we have a strong base and typically over a reasonable period we get that business back. [Kerry] Martinson - Deutsche Bank: Okay. That is certainly good news. In terms of the launch that you are going to have the second quarter, how far will you be rolled out ahead of the Memorial Day start up selling season?

[Kerry] we haven’t actually disclosed that. The guidance we have given as we talked about this – we are very pleased with the progress we are making. We are on track to do it in about half the time of the 2006 line and you should start to see a meaningful financial impact in the third quarter. [Kerry] Martinson - Deutsche Bank: Okay. Then in terms of the SG&A, the lower compensation costs can you give us an idea of the magnitude here? Are we talking about a couple of million dollars? 5-10? What was size there?

The total SG&A decrease was $10.2 million and again the vast majority of that was co-op so we effectively had with the compensation as off setting some of the things we saw on increase in delivery costs and some of the severance and some of those things. [Kerry] Martinson - Deutsche Bank: Okay. And in this type of an environment are you seeing a push back from your retailers on putting in price increases to off set the raw materials?

I think clearly the retailer is having a rugged fight out there right now and of course any initiative to increase the cost of them doing business and to lower the effective price they think they have in the market is meeting with some resistance. However, as we did say in the call our December 17th price increase has stuck. We saw benefit of that to the tune of [710 per point] in margin gain in the first quarter. So it is evidence that you can take price you just need to be prudent and move carefully. [Kerry] Martinson - Deutsche Bank: When you guys state that the industry headwinds have intensified, do you feel that the environment for the consumer has worsened since you gave your March 4 warning?

This is Jeff. I don’t know that we can really tell at this point. I don’t know that we’ve seen it get worse. There is a lot of factors and we talked about what those were. Again, we’re focused on what we can control. We know that we need to get our line out there and we think we can have success on that and we’re focused on that. [Kerry] Martinson - Deutsche Bank: Okay. Lastly, you mentioned coming out of a difficult time period you feel that you take share from the smaller players. Are you seeing that transition starting already in this type of an environment?

I would say it is too early to tell. But history would dictate some of that may happen, but later on. [Kerry] Martinson - Deutsche Bank: Thanks guys.

Once again if you’d like to ask a question please press *1 at this time. We’ll take the next question from [Retha Bahasiday] with Lehman Brothers. [Christian Othen] – Lehman Brothers: This is Christian [Othen] for [Retha]. Good afternoon. I’d like to start with a housekeeping question. I know you provided AUSP and volume trends for several segments. Can we get that for the overall business? I’m not sure I caught that.

I’m sorry, Christian? [Christian Othen] – Lehman Brothers: Could we get volume and AUSP trends for the overall business? I’m not sure I caught that.

Yeah, we did not provide it. Here is why, Christian. The European business as I mentioned has so much OEM business where we are selling cores as opposed to the domestic business which is focused on wholesale so it is a little bit of apples and oranges and for that reason we don’t consolidate those numbers. [Christian Othen] – Lehman Brothers: Okay. And it sounds like you are scaling back capEx a bit? Can we maybe get a capEx outlook for 2008?

Yeah, for 2008 you’ll find it in our 10Q. It is about $35-40 million right now is the outlook. [Christian Othen] – Lehman Brothers: And might you take that down a bit more?

Again, we’ll be focused on what kind of return we’re going to get on the investment in capEx and we’ll make the decision accordingly. [Christian Othen] – Lehman Brothers: Okay. As raw materials continue to increase might you look to take additional pricing actions?

Well, Christian, as I said the prices are increasing on raw materials. We are looking at really a whole variety of things and they start even with our FR costs. We’re looking for more cost effective solutions. We’re looking at opportunities to do forward buying to beat some of the price increases. We’re also looking at new ways to substitute new products and inputs that are more cost effective. So we’re working on a whole variety of things and we’re focusing first on getting the new line out and we feel like we have the opportunity to mix up the line substantially and improve our performance above $1,000 so I think we’d like to get that out and see that how that is performing and then we can start to analyze the pricing. [Christian Othen] – Lehman Brothers: Okay. I just want to understand a little better…you mentioned some new advertising initiatives. Is that a different type of advertising? Or is that going to incur additional costs?

I think what we said Christian was that we…the second stage for our marketing plans for later in the year we are very focused on making this strategy that is well-planned. We’re doing a lot of quantitative research right now. Again, its got to have a return on investment. It is not different, it is more focused. [Christian Othen] – Lehman Brothers: Potentially higher?

Potentially higher spending? Is that your question? [Christian Othen] – Lehman Brothers: Yes.

There may be some investment at the beginning of it but overall it shouldn’t have a long term impact on our business.

Again, Christian, we are going to focus on looking at what kind of a return we are going to get on our investment. If we think we can drive incremental sales and we’ll get a pay back on it then yes, we would invest more. [Christian Othen] – Lehman Brothers: Many thanks.

We’ll take our next question from Keith Hughes with Suntrust Robinson Humphrey. Keith Hughes – Suntrust Robinson Humphrey: Just a follow-up. More of a strategic question. Given some of the headwinds in the industry you have been discussing…it seems as though the high end, particularly specialty which has been pretty good compared to the rest of the industry and is now starting to feel this economic downturn, have you seen that in your order patterns? Two, given that the Posturepedic launch tends to come at the high end in the mix shift up, is that going to limit the success from the sales we’re going to see from that later in the year?

Keith, it is Larry. We saw a little bit of reaction to those headwinds in February. But we have had a terrific response to our Viscal product that I think you actually viewed at the July market. The fact with the pressure dispersion pad and the cooling effect on the [ticking] seems to have provided us with a little more length than perhaps some of our competition is seeing. We’ve also had a decent growth as you heard earlier in latex and the fact that our latex is a product that continues to gain increasing slots on a retailer’s floors; we think the growth and slots may mitigate some of that going forward. So we are pretty… Keith Hughes – Suntrust Robinson Humphrey: Have you see in your high end inner spring business, is it starting to perform below the $1,000 price point? Or is it still better performance there?

Keith, was the question was it performing better below $1,000 or above? Keith Hughes – Suntrust Robinson Humphrey: Below $1,000 or above $1,000?

Keith we haven’t broken it out that way. But as we have said in the past it is no secret our above $1,000 hasn’t been performing that well so we’re expecting with this new line to be much more competitive above $1,000. Keith Hughes – Suntrust Robinson Humphrey: Alright. Thank you.

We’ll take our next question from [Mark Group with Lebeau Research]. [Mark Group] – [Lebeau Research]: Hi. Just had a quick question on the latex product offerings following up on Keith there. I assume some of the growth as you said is coming from new slots. I’m just trying to get an idea of where you are on kind of the product curve on filling out the distribution with that product line and when might you see it kind of fully distributed?

Well there is really a couple of parts to that question, Mark. One of them is relative to our second line seeing a steady state and we need to certainly make certain that we have the ability to supply. The last thing we need is a disrupted supply chain. I think we have stated that will be steady state some time nearing the end of the third quarter. I still believe, however, there is an appetite for latex out there. We have had clear signals from our existing customer base, so we have heart for the vertical integration we have invested in. Again, part of our strategy is to be supported by vertical integration where we think it makes sense and where we get the return investment. So we’re going to stay the course on the latex product. [Mark Group] – [Lebeau Research]: Okay perfect. Just real fast, on the…can you quantify by chance how much new slots is actually driving the latex growth? I think we would all agree there is demand for latex and it is growing, but of the 24% growth is new slots growth driving ½ of that? ¼ of that?

We can’t comment on that at this point, Mark. [Mark Group] – [Lebeau Research]: Thank you.

And that does conclude this question-and-answer session. I’d like to turn the call back over to management for any additional or closing remarks.

Okay well thank you for attending our first quarter conference. We appreciate your continued interest in the company and look forward to our meeting in about 90 days and we’ll perhaps be able to discuss with more detail as 2008 unfolds. Thank you very much.

That does conclude today’s conference. Thank you for your participation. You may now disconnect.