Welcome to the Sealy Corporation’s 2009 fiscal fourth quarter and full year earnings conference call. (Operator Instructions) At this time I would like to turn the conference call over to Mr. Mark Boehmer, Vice President and Treasurer of Sealy Corporation. Please go ahead, Sir.

Good afternoon. Thank you for joining Sealy’s 2009 fiscal fourth quarter and full-year 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 risks and other factors are set forth in the company’s Annual Report on Form 10-K. A reconciliation of adjusted EBITDA and adjusted EBITDA margins can be found in our earnings release which is posted on our website at www.sealy.com. I will now turn the call over to Lawrence Rogers, President and Chief Executive Officer of Sealy Corporation.

Good afternoon. Thank you Mark. I want to also thank all of you for joining us on this call to discuss Sealy’s 2009 fiscal fourth quarter and full year results. Joining me today are Jeff Ackerman, our Chief Financial Officer and Mark Boehmer, our Treasurer. I am pleased to say that during our fiscal fourth quarter our operating and financial performance continued to improve in the context of moderating of still challenging market conditions. Total net sales were $332 million and represent our first year-over-year increase since Q4 2007. Gross profit was $131 million or 39.5% of net sales, a 331 basis point improvement from the prior year driven by a 371 basis point improvement in our US market. Income from operations was $19.6 million, an improvement of $43.6 million from the same prior-year period and adjusted EBITDA was $37 million or 11.1% of sales, a 465 basis point improvement over Q4 2008. In addition, with our strong cash flow performance we drove down the leverage on our balance sheet. Our net debt to EBITDA ratio improved to 3.2 times from 3.76 times at the end of the third quarter of 2009. These results represent a continuing improvement in our business as we build momentum on these financial metrics both from a dollar amount and in terms of margin. Let me now put our performance in the context of current industry conditions. We continue to see positive momentum building for bedding industry demand in the midst of a strengthening economic recovery. As we have stated previously, we are seeing a lot of consumer activity surrounding the traditional promotional sales periods but haven’t seen the sales follow through to the degree that we would like. What has been encouraging is that a number of the traditional industry demand drivers are beginning…

Thanks Larry. I would now like to provide some more detailed support for our financial performance during our fiscal fourth quarter. Our net sales were $332.1 million, an increase of 1.9% compared to the prior year period. Wholesale domestic net sales which exclude third-party sales from our component plants, grew 7.3% to $227.7 million compared to the fourth quarter of 2008. This increase was primarily due to a 7.9% increase in unit volume as we saw improving consumer demand for our products compared to Q4 2008 partially offset by a 0.6% decline in AUSP given the aggressive nature of the market. International net sales were $99.1 million, a decrease of 6.6% or a decline of 8.8% on a constant currency basis. On a local currency basis our European sales were essentially flat to prior year while our Canadian sales were down 17.9% as a result of a challenging retail environment and reduced promotional activity. Our gross profit was $131.1 million and our gross profit margin was 39.5%, an improvement of 331 basis points compared to the fourth quarter of 2008. US gross margin was 41.5%, an improvement of 371 basis points. International gross margin increased 191 basis points. In the US the increase in gross profit margin was driven primarily by lower material costs and continued improvements in manufacturing efficiencies. The gross margin improvement in our international businesses was primarily due to our European business which was favorably impacted by material cost reductions, cost reductions, cost improvement initiatives and pricing. We continued to make progress in right sizing our cost structure as our SG&A expenses as a percentage of net sales improved by 163 basis points to 34.3% from 35.9% in the fourth quarter of 2008. This represents a $3.1 million improvement in our SG&A expenses for the quarter. Volume…

Thanks Jeff. Let me conclude by saying that our confidence in the long-term viability of the mattress industry has not wavered. Our industry has historically experienced strong growth coming out of recessionary periods. Furthermore, we are increasingly optimistic about our prospects for the 2010 fiscal year given our recent operating performance and more examples of stabilization in demand. Our improved outlook is further supported by the reestablishment of our year-over-year revenue growth and our adjusted EBITDA performance. We believe our company has never been in a stronger strategic position to gain profitable market share and drive increasing value for our shareholders. Thank you. Operator would you please open up the line for questions?

(Operator Instructions) The first question comes from the line of Analyst for Budd Bugatch – Raymond James. Analyst for Budd Bugatch – Raymond James: You mentioned in your comments about 2010 you expect to grow above industry growth rates. I know there are a couple of different very prominent forecasts out there for 2010. Would you care to hazard a guess at what you think the industry will do or what is incorporated in that statement?

I will start out with it and Jeff may be welcomed of course to step in with any additional comments. There are a couple of numbers floating around out there. I believe the ISPA organization has floated a 7.9% or let’s call it an 8% growth number and a recent straw poll taken by Furniture Today a week or so ago kind of places the industry number around 3%. So I guess those are the two goalposts. 3% and 8%. We still believe regardless of what number is correct that given our performance we will outperform the marketplace and continue to gain profitable market share. Analyst for Budd Bugatch – Raymond James: You talked about unfavorable pricing trends and maybe aggressive marketing conditions. I would imagine with Stearns & Foster tripling year-over-year mix was at least neutral if not favorable. Could you elaborate a little bit on the pricing commentary and how do you think that plays out over the next few quarters?

First of all to build a base for this answer, like all retailers during the holidays bedding retailers felt that discounting was necessary to drive traffic into the stores if they were to compete for the consumer dollar. Economic conditions while they are moderating, pricing pressures won’t necessarily vacate this market. They will lessen but I am not so sure they will vacate. We really believe that based on the evidence we experienced in 2009 that introduction of new products is probably the most significant way for retailers to offset this pricing dynamic and so we are pretty focused on continuing to create and produce a good line of introductions in 2010 starting with our Specialty products which we are going to reintroduce in the Vegas market in a couple of weeks and of course the Personality Beds that extend the Stearns & Foster pricing not to mention the Posturepedic 60th Anniversary products that are also in the wings ready to roll out. Analyst for Budd Bugatch – Raymond James: SG&A did increase about $3 million sequentially despite the lower sales. Was compensation expense the major driver of that and if so how do we model that SG&A run rate going forward?

The way to think about that, we did have a little bit of an increase there but the compensation expense was the biggest driver on that. As you think about that going forward really the part to keep in mind is on a year-over-year basis the increase related to stock based compensation which is non-cash. That was about $5 million.

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

Raw materials, could you give us an update on where you stand currently in terms of any increases you are seeing and in the market?

As you will probably recall our raw materials prices we get those locked in pretty much on a quarterly basis so any increase in commodity prices will impact us on a bit of a delay basis. I assume you are asking the question because of the more recent increase in the price of oil?

That and steel too. That is a little more near-term. Whatever you are seeing on those two issues.

As I said any changes there we would see on a lag basis. Oil, for others on the call we don’t buy oil. That gets used in chemicals made for making foam. We are a couple of steps away from that. It has to kind of cascade down through the supply chain before it impacts us. I think more importantly as we think about materials costs we are looking at probably in the back half of the year some of those oil related raw materials really increasing in the back half of the year.

From your current comments it sounds like raising price on existing lines is probably not an option. Is that fair to say?

We are obviously not going to talk about what we are going to do from a pricing standpoint in this environment.

Moving onto Stearns & Foster you had a lot of positive comments there. The up 300% number, when you think when you look at the Stearns & Foster business was the year-ago period really the bottom or are there a lot more easier comps coming in the business there?

I would say that a year ago in the fourth quarter if it wasn’t the bottom it was getting close to it. So if that gives you any kind of an opportunity to model that. Clearly the result we have seen from Stearns & Foster has surpassed our and our retailers’ expectations. The enthusiasm is still very, very fresh and still very high relative to the product launch and we think there might be another wave, if you will, with the Stearns & Foster Personality Beds that we are in the process of rolling out in the next few months.

You talked about 10% EBITDA growth. Is that what you are looking for?

Yes.

Would that be off this $168 million adjusted number for 2009?

Correct.

The non-cash compensation in the quarter which was slightly over $5 million is that going to be a recurring number at that level? It was under $1 million in the prior-year period. Any sort of help there.

It relates to equity grants that were made at the time of the refinancing. So yes it will continue on going forward at that level.

The next question comes from the line of Analyst for Brad Thomas – Keybanc Capital Markets. Analyst for Brad Thomas – Keybanc Capital Markets : To expand on Keith’s question, with lower material costs looking at gross margin opportunity in 2010 what do you see here for different input drivers, headwinds, tailwinds, things of that nature?

As we look at it what we will continue to do is we will look to really leverage our Stearns & Foster line. Also the introduction of the new Specialty line and then really try and drive some productivity. Historically we have been able to drive productivity gains in the mid to high single digits in our plans. So we will look to continue that. The other thing we will do is look to just leverage our fixed cost base there.

The other thing I would add there is Q4 from a seasonal point of view is typically a lower gross margin period than certainly Q3. So you might be looking at a number that is at the lower part of the seasonality. Analyst for Brad Thomas – Keybanc Capital Markets : Concerning the re-launch of the specialty category do you have any idea of what the expected cost savings would be here relative to the Stearns & Foster re-launch? Would it be more or less? How do you sort of look at that?

I think some of that will certainly be driven by volume. While we would like to predict the success of the line and we feel very confident based on the consumer research I think it is a little early for us to be predicting any hard number relative to the Specialty.

You are looking at the product launch costs? Is that what you are referring to when you say the cost savings? I wasn’t quite sure I understood the question. Analyst for Brad Thomas – Keybanc Capital Markets : Sort of in relation to the cost savings you saw with Stearns & Foster but yes the launch costs essentially.

Just as far as launch costs I don’t know I would expect a big change year-over-year and the reason being we launched Stearns & Foster in 2009. This year we will be doing the specialty line but as Larry mentioned we have a couple of other initiatives around the Sealy brand in line as well as the 60th Anniversary of Posturepedic beds which is not a full line launch but there is clearly quite a few slots associated with that.

The next question comes from the line of Mark Rupe – Longbow Research. Mark Rupe – Longbow Research : On the gross margin for the fourth quarter relative to the third quarter I know there is a seasonality aspect but is there anything else that happened in this first quarter versus the third quarter kind of puts and takes beyond volume?

Third quarter versus fourth quarter? No, the biggest item was really on the volume because as far as materials go there was not a big shift. I would like to remind folks that the fourth quarter we were comping the price increase that we took late in the third quarter of 2008. So in the third quarter of 2009 we obviously weren’t comping the full effects of the price increase. Mark Rupe – Longbow Research : On the specialty launch coming up here as far as the margin structure on that are you anticipating that to be kind of structured in a way that it would be higher than the current run rate? Or is it going to be somewhat comparable?

I would say it will be priced according to the market needs and clearly we think we have great product and we would be certainly planning to hold margin and planning to of course it be accretive because of the volumes we expect to meet. Mark Rupe – Longbow Research : On Canada obviously it looks like it came in a little bit weaker than everybody was expecting.

There was a glitch from a promotional calendar point of view. It is not anything I would read as being a permanent issue. In fact I will tell you at the latter part of the quarter things were repaired.

The next question comes from the line of John Baugh – Stifel Nicolaus. John Baugh – Stifel Nicolaus : How do you get $0.02 on $2.5 million with 278 million shares? Is there something on the accounting there?

One of the things you have to remember when calculating the EPS was the PIK interest associated with the convertible notes is excluded. So on a full-year basis we were at $13.5 million of net income and you add back PIK interest of 5.3 and then divide that by the diluted share count. That is how you got to the $0.10 and the $0.02 works similarly. We had PIK interest in the fourth quarter of about $3.5 million so you would add that back. John Baugh – Stifel Nicolaus : Did the share count jump mid-year by about 8 million shares? Is that correct?

The fully diluted share count increased as a result of the issuance of the PIK notes. John Baugh – Stifel Nicolaus : Going forward in terms of modeling for 2010. Do we jump that about 8 million?

Every six months starting with the January 15th you should bump it by 4%. John Baugh – Stifel Nicolaus : That expires assuming you can convert in June?

June 2012. John Baugh – Stifel Nicolaus : I am curious whether you think the gains you have experienced are due to maybe some better slot positions on the floor with some of your competitors going through challenges or just strictly Stearns & Foster and new product launches?

Our read it really is never one thing. It is always a combination of many. The improvement would be driven largely by Stearns & Foster and some of the other product tweaks we have made in the marketplace. As you and I have talked one-on-one many times you can never understate the importance of great products in this industry because that is what drives sales. That is what drives customers into the stores and that is what drives our retail sales associates to sell product. John Baugh – Stifel Nicolaus : You did not make a comment, I know you are rolling out or doing something with Specialty at Vegas and this will be an emphasis but can you sort of comment on what happened in 2009 with Specialty? How it went? Was there any improvement in the fourth quarter? Full year launch? Is everybody just sort of waiting?

Clearly the above $1,000 or luxury category has been the area that has probably been impacted the most through the entire 2009 year. Our line as far as Specialty goes, while it is at the end of its tenure we need to refresh it and that is what we have planned to do and have started to work on it the latter part of our second quarter and it is now ready for market. I think the proof will be in the reception it receives. From the general trade, we have already exposed it, if you will, to our larger customers and we are pretty confident in what we are going to find. John Baugh – Stifel Nicolaus : Could you put any color on Stearns & Foster? You mentioned triple. Any reference in size or does it bubble in 2010 versus 2009?

Here is the way I would think about it. We really didn’t get Stearns & Foster launched until the third and fourth quarter so we still haven’t anniversaried, if you will, on an annual basis the first and second quarter. There should be some upside for us going into 2010.

I just want to make sure I clarify when you were asking about the share count and the impact with the PIK notes, that 4% accretion obviously when you think about our share count is only that portion of it related to the PIK notes. So that is more like 180 million. So that portion would increase by 4%, not obviously the entire share count.

The next question comes from the line of Reza Vahabzdeh – Barclay’s Capital. Reza Vahabzdeh – Barclay’s Capital: You talked about the S&F line being up 300%. Where does that leave you with the rest of your lines in the US? Was the rest of your product line also up in sales and volume?

No. As we have talked about on previous calls there has been a little bit of cannibalization of Posturepedic above $1,000 which we had expected and planned to see. Clearly I think we have already dealt with the question on Specialty and what we saw in the fourth quarter relative to it being at the end of its product cycle and us reintroducing in a couple of weeks. Clearly Stearns & Foster and I would say promotional were the strongest part of our portfolio. One of the strengths, however, that I would like to point out is that because Sealy has a number of different portfolios and a number of different technologies it allows us to focus and move our business in a positive way as we address those various portfolios. Reza Vahabzdeh – Barclay’s Capital: The increase in sales for S&F, was that partly driven by just increased slots per store or was that expanded distribution?

When you think about it, our strategy going forward as we talked last year was to limit the distribution from previous Stearns & Foster rollouts. We actually have cut back the number of dealers in a neighborhood of 40%. Clearly dealers have expanded the amount of Stearns they have on their floor compared to the previous slotting they have provided us. So fewer dealers. More slots. Better results. Reza Vahabzdeh – Barclay’s Capital: On the input cost front, you mentioned that you think costs might rise in the second half of 2010. Do you have any basic expectations for what input costs could do for you in 2010?

What we have is it will peg pretty closely to the costs of barrel per oil and steel. Those are the two biggest drivers. If you think about foam and steel it makes up over 50% of our raw materials. It should track somewhat to that. Again, as I said really on a lagged basis so that is why just kind of projecting out what we think oil and some of the related petrochemicals will do that is where we are projecting an increase in the back half of the year. Reza Vahabzdeh – Barclay’s Capital: What is the increase you are looking at or expecting at this point?

We haven’t really given that. We are still comping higher numbers in the first half of the year and we would expect that to reverse in the back half of the year. So our material costs at this time last year were still a bit higher and so we would expect to see some favorable overlap on materials in the beginning of the year but then that to reverse in the back half of the year. Reza Vahabzdeh – Barclay’s Capital: Have you seen any increase already over the last month or two?

No. Again we don’t see things really in an immediate impact. It is a bit more delayed for us.

The other thing I would like to add is we have a number of value engineering projects each year. They are focused on creating value without taking material costs out but just doing things better and differently so there is a bit of an offset that we plan through our value engineering. Reza Vahabzdeh – Barclay’s Capital: Was [inaudible] sales down 17.9% or 7.9%?

17. Reza Vahabzdeh – Barclay’s Capital: Europe was down how much, X currency? Flat?

Essentially flat. It was down a fraction of a percent.

The next question comes from the line of Grant Jordan – Wells Fargo. Grant Jordan – Wells Fargo : As you think about ways to continue to reduce debt you have a 10% call option on the [inaudible] notes, and then you also continue to buy stock back on the open market, have you made any decisions about which way you will go with that?

I will let Mark also chime in but what we will look at is kind of what the pricing is on the sub-notes and right now given the price of the sub-notes in the market it is pretty close to a push between the sub-notes and senior secured.

As Jeff said you kind of look at current economics of the two. Obviously in the fourth quarter we took advantage of where the sub was trading to do some open market purchases. We will continue to make that evaluation going forward. Grant Jordan – Wells Fargo : Any target in terms of debt reduction for the year?

Not that we have provided.

The next question comes from the line of Karru Martinson - Deutsche Bank.

To ask Grant’s question a little bit differently now that you have brought down leverage so dramatically is there a new target leverage rate you want to guide the business to?

I don’t know there is a new target. I think we have talked about in the past a total leverage ratio below three. We are not there yet. We are actually just north of four on a total leverage ratio but our objective would be to get down below three on total net debt leverage ratio.

So looking at that 4.2 number right now and bring that number down below three is the goal?

Yes.

In terms of the competitive landscape, you mentioned you had market share gains from Stearns & Foster. What is the health of your competitors? Are you seeing smaller competitors consolidating or is it still kind of gaining share from the bigger players?

Well it is a bit of a mixed bag to be frank with you. Some of the smaller players certainly have had a difficult time through 2008 and 2009 and then there is the added complication or industry disruption, if you will, with the Aeries Capital acquisition of Simmons and taking it through bankruptcy. So it is a combination of a couple of things providing opportunity. We have been taking advantage of that opportunity. Clearly we were very aggressive with our Stearns & Foster product and because it is a pocketed coil unit and we had never really actively participated for pocket coil business in the past and in doing so we believe we have unleashed and uncovered an opportunity.

On the retailer front, do you feel the worst is behind the industry in terms of bankruptcy and how do you feel about your exposure on that front?

I think Jeff mentioned we are kind of flat in our day sales outstanding so we haven’t seen any creep in terms of a negative direction from a day’s outstanding point of view. We haven’t identified anybody at the moment and the head of our sales for the US business meets with the head of accounts receivable every Friday and they are required to report to Jeff and I if there is any red flags on the horizon. The other thing I think we have done a pretty good job of is moving into help retailers that appear to be having a problem just kind of navigating some of the challenges that are out there. We have sent teams of our finance people in on a couple of locations to help a retailer work through a strategy and just better run their business. That has worked pretty well for us also. So short answer, nobody on the horizon right now we are concerned about. We have been running a pretty tight ship from a day sales outstanding.

The next question comes from the line of Todd Harkrider – Goldman Sachs. Todd Harkrider – Goldman Sachs: Early last month there was a news article that mentioned your intent to sell some of your European assets. Is that still on the table or would you consider selling any of your international assets if you got the right multiple?

I am not familiar of talks we are in so if we are in talks someone better tell me. Todd Harkrider – Goldman Sachs: So the [inaudible].

That comes as a bit of a surprise to me. But we are in an industry that is always fraught with a little bit of color and a little bit of rumor. To be frank with you, any acquisitions targets would probably come from our licensees and there are three or four of them I would consider acquiring and would be very accretive to Sealy going forward. As far as selling assets right now I am not in any active mode or in any discussions relative to that. Todd Harkrider – Goldman Sachs: Do you think you would be in a position to acquire any of those this year or would it maybe be a 2011 event?

We are in a pretty good cash position. As Jeff said earlier we will continue to invest in the business where it makes sense. Clearly our balance sheet is strong so I guess that is how I would answer that.

That concludes our question and answer session. I will now turn the call back to Larry Rogers.

Thank you everyone for your participation today and for your interest and continued support of our company. We would like to wish you a good evening and we look forward to talking to you at the end of the first quarter 2010.

This concludes today’s conference call. You may now disconnect.