Good day and welcome to the Sealy Corporation’s fourth quarter fiscal 2008 earnings conference call. (Operator Instructions) At this time I would like to turn the conference over to Mr. Kenneth Walker, Senior Vice President, General Counsel and Secretary of Sealy Corporation. Please go ahead sir.

Good afternoon everyone. I want to thank you for joining us on Sealy’s financial fourth 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 risk, 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 10-K for the year ending November 30, 2008. I’ll now turn the call over to Lawrence Rogers, President and Chief Executive Officer of Sealy Corporation.

Good afternoon. Thank you Ken. I want to also thank all of you for joining us on our call to discuss Sealy’s fourth quarter results. Joining me today are Jeff Ackerman, our Chief Financial Officer and Mark Boehmer, our Treasurer. On this call I will provide an overview of the industry and our fourth quarter results as well as an update on the progress we are making on our strategic operating initiatives. Jeff will go into more detail on our fourth quarter financial results and some early thoughts on 2009. Then we will open up the line for your questions. The fourth quarter was very challenging for the industry. In fact it was even more difficult than we anticipated and our results were below those of our third quarter as economic conditions in many of our global markets deteriorated even further. Despite this challenging environment we continued to focus on executing on our strategic initiatives and positively affecting the areas of our business that we can control. In particular, during the fourth quarter we made measurable progress on a number of very important fronts including amending our credit agreement and completing the launch of our new Posturepedic line as well as responding to the current environment with a focused selection of new, value priced Posturepedic and Sealy branded products and providing our retail partners with the best possible set of tools and products for this environment as well as continuing to take actions to right size the company’s cost structure including taking out an additional $9.5 million in the fourth quarter of fiscal 2008. Throughout the year Sealy continued to generate meaningful cash flow and in fiscal 2008 we paid down $22 million in debt. These results are indicative of our strength as a leader in the global bedding industry.…

Thanks Larry. I would now like to walk you through the financial details. For the fourth quarter total retail sales were $325.8 million, a decrease of $115.5 million or 26.2% compared to the prior year. The fiscal year ended November 30, 2008 with a 52-week year compared to a 53-week fiscal year ended December 2, 2007. The 53rd week in 2007 contributed net sales of approximately $32.3 million. On a comparable 52-week period, total sales decreased 20.3%. The net loss for the quarter was $42 million or $0.40 per diluted share compared to net income of $17.1 million or $0.18 per diluted share in the same period of 2007. Included in the results of the fourth quarter of 2008 were an impairment charge of $27.5 million or $0.30 per diluted share for the write off of the good will related to Sealy’s Europe and Puerto Rice reporting units and refinancing expenses of $0.03 per diluted share associated with the amendment of our credit agreement. It is important to note that the impairment is a non-cash charge to earnings and did not affect the company’s liquidity, cash flow from operating activities or debt covenants. Additionally, the 53rd week in 2007 contributed approximately $1.5 million or $0.02 per diluted share to fiscal 2007 results. I will now go into more detail on the components of our fourth quarter sales results. Total domestic net sales were $219.6 million compared to $311.4 million in the fourth quarter of 2007. Excluding the extra week in fiscal 2007 which contributed $26.2 million of net sales, domestic net sales fell by 23% year-over-year. Wholesale domestic net sales which excludes sales to third parties from our component plans were $212.2 million compared to $307.9 million in the fourth quarter of 2007. Excluding the extra week in fiscal 2007…

(Operator Instructions) The first question comes from the line of Budd Bugatch – Raymond James. Budd Bugatch – Raymond James: You gave us a little bit of color on the raw material and the sequential increase over the second half of 15%. I wonder if you could provide any more color maybe in dollars and how the third quarter looked or how it looked year-over-year fourth quarter.

Let me try and give you a little bit of color. As I said, we saw the costs on our raw materials increased 15%. I just want to clarify that was sequentially from the beginning of the third quarter and they ramped up continuously through the quarter and by the end of the quarter we were at levels about 15% higher than we began the first half of the year. As we look forward we have fairly decent visibility into our performance around cost for materials in the first half of the year so about six months out. What we anticipate is that we would see most of that price increase unwind so by the time we get to the end of the second quarter that has been fully unwound. Budd Bugatch – Raymond James: So at the end of the second quarter you will be at the same place you were at the end of the second quarter or third quarter of 2008?

We should be, again assuming commodity trends don’t change, we should be right to where we ended Q2 2008.

The only rider we would place on that is in some of the larger upstream commodity suppliers in the chemical field for instance, have the ability to restrict capacity and they try and control pricing relative to available capacity. So that would be the only watch out we would have to prepare for. Budd Bugatch – Raymond James: Would you want to hazard a dollar number on the increase you had in raw material costs in the fourth quarter over a year ago?

I’ll share that our raw material costs as a percent of our cost of goods sold is roughly 2/3. Budd Bugatch – Raymond James: When you look at your SG&A can you give us a feeling of what advertising, I know we will see that in the K and I’m not sure when you are planning to file that, what advertising and promotional expenses look like this year?

The K will be filed this evening and so you will be able to see that. For the year we were at total advertising cost of about $155 million. Budd Bugatch – Raymond James: My last question has to do with your accounts payable. We noticed the significant draw down of $55.7 million in the fourth quarter of your accounts payable and you said you had taken advantage of some discounts. What is a normal run rate going forward for payables?

We did pay down our payables at the end of the year and took advantage of some cash discounts. We are going to just manage that as we need to throughout the year. Budd Bugatch – Raymond James: A lot of days different this year versus last. Is this just an unusual end of year timing issue?

We had greater flexibility with our amended credit agreement and there were some cash discounts out there so we chose to just go take advantage of that. Budd Bugatch – Raymond James: Do you care to hazard an idea of third quarter is when we will see gross margin improvement year-over-year and up margin improvement?

As I was saying, I think that it is incredibly difficult at this point to see what the retail environment is going to do. If you look at what is going to drive our margins it is two things; first, the material prices we talked about. So in the back half of the year if nothing changed from the trend we are on right now we can see some significant improvement. The second factor is I talked about what impacted the fourth quarter was really the de-leveraging of our fixed cost base. Those are the two things that will impact us. As we look forward in 2009, Larry, I and the management team are very much focused on making sure our fixed cost structure is right sized for the revenues that we have and we are going to continue to do the things we have always done around value engineering and lean manufacturing and we are going to be continuing just to apply those principles.

The next question comes from Keith Hughes - SunTrust Robinson Humphrey.

On the raw materials you said 2/3 of cost of goods sold for raw materials. Is that correct?

Yes.

If you look at that based on the price you are seeing are you seeing a bigger decline in petrochemicals, raw steel, springs? Where is it coming from?

What we saw during the year was the largest increases were in steel.

I’m talking about since the increases. What has been coming down?

What has been coming down faster is the steel but it had a lot farther to come down as they say.

Is this the raw steel you are buying that you are turning into springs or is this the finished items you are buying?

What we do because we are vertically integrated is we are just buying drawn wire.

Can you give us the break down of gross margin domestic versus international?

Gross margin, and you are just talking about the quarter I assume, for the quarter we had for domestic was gross profit margin of 37.8% and for the quarter total international gross profit margin was 33.3%.

You mentioned earlier the new Posturepedic line that was introduced last year out performing the lines that it replaced. How is that possible given how much business is down right now just in general?

Let me talk to you just about how we think about that. What we did was we were measuring pre and post launch and we looked at the trend we were seeing on the old line and compared those to the trends we were seeing on the new line after the roll out. We are looking at that on a customer-by-customer basis.

Business in December and early parts of January. Is it worse than the numbers you have reported here in the United States?

I would say that December continued to be difficult. In January we are seeing a little bit of moderation to that trend. Of course January for us is only about 60% over so I base that comment on our point in time. Conditions out there are being drive by very tight consumer credit and the consumer sentiment you are seeing reported every day coupled with the job market does not make an easy market.

Let me just add on to that it is really volatile still and so at this point I think it is really hard to draw any conclusions from what we are seeing. As Larry said we are still early on and we are just looking at this business going forward assuming the pressures we saw in the fourth quarter that those could continue for some time.

The next question comes from John Baugh – Stifel Nicolaus. John Baugh – Stifel Nicolaus : I think you mentioned the expectation of consolidation at retail. Are you guessing or are you talking about what you have already seen? If it is the latter could you put some color on what you are seeing and how that may impact you? Then I’m also curious on the credit front of your mattresses that you sell in the United States how many do you think are bought on credit by the ultimate consumer and what are you hearing from your retail customers about the percentage of rejection if you will on credit versus a year ago?

Let’s start with your first question about consolidation. There is risk in this environment there is no question. That is a high level of focus for us. We are monitoring our retail relationships very closely and we are in regular communication with our customers so we are just watching closely. I don’t think one has to be too much of a clairvoyant to consider this is the toughest time that anyone has seen in recent memory and that will have an impact on some retailers. As I said in my script we are seeing tougher times for independent retailers than we are for some of the larger ones so we are anticipating there could be some consolidation. On the credit front, clearly when someone goes into a mattress store part of the sale may or may not include largely being predicated on available credit and this is a pretty aspirational category. So many people may go in shopping for that $999 advertised product but with good salesmanship in normal times they could be sold up or traded up to a $1,399 or $1,499 product. We believe that there is less of that happening today because of the tighter control of credit. We think that is going to impact. But let’s really go onto what we can do. We are continuing to make our retailers as successful as possible. We are providing them with great new products as we have done with the Posturepedic and PurEmbrace Smart Latex and we are value pricing some of our inner-spring product lines. Clearly the inflation busters we offered this past year are performing rather well and the work we are doing on the new Stearns & Foster product and some of the hybrid latex lines you will be seeing in 2009. So we are going to continue to provide them with great product with innovative features and strong advertising so they can leverage their coop advertising dollars. John Baugh – Stifel Nicolaus : Do you have any feel or any guess, again how much of Sealy mattresses are sold in the U.S. by retailers on credit?

It depends on the channel. Some channels that have access to greater amounts of credit like some of the larger department store chains clearly some of them have their own credit cards, long established relationships with the credit facility and indeed some of the larger sleep shop chains because of their size and their leverage have very strong relationships with the credit facility. John Baugh – Stifel Nicolaus : Could you maybe comment, Bud was trying to get at working capital for 2009? Could you sort of talk in the context of the 5.85? If you divide that by your current debt you’d need EBITDA of $130 million I think and G&A is around 30 or so. I think there are a few other items. So it implies EBIT needs to be 90. You didn’t run at that rate in the fourth quarter but I’m curious as to, I’m not asking you to make an earnings estimate or when you will trip covenants…that is not the question. The question is do you need to reduce debt as rapidly as you can and not pay cash discount and manage the working capital to reduce debt? Is that going to be a strategy or do you still have the flexibility to do investments or other things that come up?

This is how we are thinking about it, as you mentioned we are going to make some investments and we are going to be adapting to the market so we have got specific actions we are going after. Let me just kind of walk down P&L how I think about this. There are clear actions we are going after to drive the top line. Just like we were successful in launching the Posturepedic line we are going to apply a lot of the lessons learned there to successfully launch the Stearns & Foster line. We also have the Latex products coming. So we are focused on that. We are looking forward to seeing how material costs are going to trend and in the back half of the year that would give us some significant opportunity again if current prices hold. Then to further improve our gross profit margins we are going to be looking at value engineering and ongoing lean manufacturing initiatives. Then on the SG&A side our opportunity is a couple of easy ones. One is we are anniversarying the launch of the Posturepedic line. We are also anniversarying the cost of producing the Better Six campaign. Then we have the full year effect of the actions we took during 2008 so we will get some benefit from those. We are focused on additional items during 2009 both domestically and now with greater emphasis on our international opportunities. So we are going to, as I think we have done in the past, we are going to aggressively manage our costs and aggressively manage our working capital and opEx as dictated by the market.

The next question comes from Joel Havard – Hillard Lyons. Joel Havard – Hillard Lyons: Jeff I think you said something to the effect of closely monitoring, and I wrote capacity but I don’t think you said that, but the point you were getting to was where you might consider further capacity reductions. Could you elaborate on that theme? I guess to put that in the context of I believe it cost you $2.5-3.5 million earlier this year to close Pennsylvania. Would you be looking at similar sized issues or at some point would you pull the trigger on something more substantive?

I don’t believe I mentioned anything about capacity reductions. Joel Havard – Hillard Lyons: Not specifically. That was my interpretation. That is where I was trying to drag you.

Larry and I are absolutely committed to doing whatever it takes in this environment to adjust our cost structure to align it with the pace of the current retail environment. So there are a variety of levers we could pull. We are going to do what is necessary. Joel Havard – Hillard Lyons: I’ll take that as a broad enough statement. Just one follow-up of a housekeeping nature. Was the 91-ish million shares average at year end or is that ending?

That was weighted average. Joel Havard – Hillard Lyons: Are we actually then closer to the high or mid 80’s?

If you are looking at the quarter? Joel Havard – Hillard Lyons: Just squeezing the dilution out?

Our diluted and basic share count is the same. Joel Havard – Hillard Lyons: Ending is still in the low 90’s then?

Right.

The next question comes from Reza Vahabzdeh – Barclay’s Capital. Reza Vahabzdeh – Barclay’s Capital: On the gross margin line what were the major contributors to the gross margin decline? Is there any way you can break it down? I am assuming raw materials and the operating leverage were the major drivers. I’m not sure it is 50/50 or how you would attribute the gross margin decline.

I guess just kind of in rough numbers on approximation I would say it is roughly 2/3 materials and 1/3 de-leveraging of the fixed cost base. Reza Vahabzdeh – Barclay’s Capital: To your comments are there tangible actions you think you can take to meaningfully offset these downward pressures on your gross margin over the next couple of quarters or will it take longer?

There are a couple of things we can do. Obviously one is we are going to continue to leverage our scale in negotiation with our suppliers but as long as the trend continues as I mentioned earlier on the raw material cost we should see improvement there. I would say that is probably the most meaningful thing initially. Was there something more specific? Reza Vahabzdeh – Barclay’s Capital: I don’t know if you talk about value engineering so I don’t know if that is going to be significant. I don’t know if there is much you can do with plants and manufacturing or headcount to help the gross margin?

Let me just first clarify again for some others on the phone. The value engineering, when we think about that it is everything from the component used to the manufacturing processes we have to the designs of our mattresses that we employ. So those are things we have a very strong team of engineers to help us out with that and there is no reason the benefit we would see in 2009 would be any different than what we have seen historically. So a couple of areas, as an example of what we would work on in that area, is flame retardant materials. We are on probably our third generation of our solution and so we are looking at ways to reduce the cost associated with that by 10%. We are also looking at ways to improve pressure point management of our products which has really been a key differentiator with our new Sealy Posturepedic line. So we are going to apply those learning’s to the new Stearns & Foster line and thereby with that line also have an opportunity to improve margins. Reza Vahabzdeh – Barclay’s Capital: On the cash flow front, is there anything you can do minor asset sales just to generate some cash flow here and there so debt levels do not increase as EBITDA is under pressure? I don’t know if there are any actions you can talk about.

I would just again say that the levers we can pull are the same ones we were using last year. So what we did was again focus on good execution of any kind of product launches, so we had Posturepedic, we had the roll out of some new products in the fourth quarter, we are going to roll out a new Stearns & Foster line, we are going to aggressively manage our costs, we are going to aggressively manage our CapEx and if we need to we believe there are things we can do around working capital. I just again want to remind folks we have generated $53.7 million of cash flow from operations during a very challenging year so there are levers we can pull. Reza Vahabzdeh – Barclay’s Capital: On new product introductory costs which you just touched on would we assume that is going to be materially less than the prior year in the first half?

Yes and for really two reasons. One we will have a little bit of productivity around some of the learning’s from the Posturepedic launch. The other thing is that the Stearns & Foster line is just a much smaller line than the Posturepedic line so there are fewer slots but the cost of each slot is more. So again on a net basis there would be a material reduction in product launch costs.

The next question comes from Karru Martinson - Deutsche Bank.

In terms of the broader industry some of the trade publications, Furniture Today for example, are saying 2009 you should see units down about 9.3, dollars down 8.5. When you look out in terms of the magnitude of the industry is that kind of how you are approaching the year?

We think the year is pretty difficult to really forecast. We admire the stab the trade press took at really cobbling those numbers together but it is very, very unpredictable at the moment. I think it is just too early to call. We have limited visibility into retail trends, it is hard to tell when that is going to actually start to happen. We think the most prudent thing we can do is just planning that this economic situation is going to continue with us and we should right-size our organization and prepare for the worst and if something better happens then we are going to come out of this thing very sharply in terms of enhanced profitability with much lower cost basis.

Given your relative strength to the other 300 bedding manufacturers in the country…

Actually it is 650.

I was figuring by now it might be 300, that leads to the question what are the other players here on that and where are you feeling you are picking up share as both the industry consolidates and the retailers consolidate?

Clearly I think my script kind of referenced there is more pressure on the smaller retailers. Typically those are ones that aren’t national in nature. Our broad distribution and our plant network certainly allows us to service a large change whether it be sleep shops or department stores and in fact if small retailers disappear that end consumer is going to end up at those larger chains which we currently service. We think there is opportunity there in the likely consolidation amongst the smaller retailers in the country.

In the past we have talked to suppliers and some of the bedding guys here it has been protracting the bedding versus the consumer confidence has always been singled out as if the consumer feels good they will shop. When you look out at the landscape do you feel that is the case or is consumer credit really going to be a bigger issue here as we go forward?

I think both have an effect on the market but clearly consumer credit is going to be a constraint and I think we need to see it get a little better. I think as the TARP money hopefully starts to find its way down it should be helpful. We look at the history the history somewhat is a bit of a window to the future. The past four recessions we have seen in this industry as we come out of it we have had strong single digit and in many cases double digit bounces and I don’t see why we should expect any different reaction this time. We need to get our cost structure right, lower than when we went into this recession so when the top line does bounce we can really regain profitability in a very quick fashion.

The next question comes from Grant Jordan – Wachovia.

First, you talked about you expect revenue and units to be under pressure obviously. How do you think the AUSP is going to react?

I think the AUSP that we are currently seeing have really been pressure tested, certainly the last six months of this year. We also believe that if Posturepedic continues on the track it is on we have a pretty good opportunity there and indeed the re-launching of Stearns & Foster I think we have been pretty open and honest we were unhappy with the current line of Stearns & Foster and with the launching of this into the higher price segment with it being new, fresh and with some innovative features we think we have the opportunity to move ahead with one of our initiatives being average unit selling.

As one of your large competitors’ deals with some financial issues have you seen any sort of benefit to you as you are dealing with retailers?

We have just stayed real focused on our game plan. We think it behooves us because you really never know how those things are going to turn out. We are just going to stay on our plan. We are going to focus on all the initiatives I talked about in my script and Jeff and I are just dedicated to get this company right sized and we are going to deal with the economy whether they be opportunities or challenges as they come along.

That concludes our question-and-answer session. At this time I would like to turn the call back over to Larry Rogers for closing remarks.

Thank you very much for joining us on our fourth quarter and annual call. We appreciate everyone in attendance and look forward to a call at the end of our first quarter.

That does conclude today’s conference. You may now disconnect.