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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 29, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

For the quarterly period ended: May 30, 2004

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 333-117081-27

SEALY MATTRESS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		20-1178482 (I.R.S. Employer Identification No.)
Sealy Drive One Office Parkway Trinity, North Carolina (Address of principal executive offices)*		27370 (Zip Code)
(336) 861-3500 Registrant's telephone number, including area code

(336) 861-3500 Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

The number of shares of the registrant's common stock outstanding as of June 30, ~~2004~~2005 was 1,000.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SEALY MATTRESS CORPORATION Condensed Consolidated Statements of Operations (Inin thousands) (~~Unaudited~~unaudited)

			Quarter Ended May 30, 2004			Quarter Ended June 1, 2003
			Quarter Ended May 29, 2005			Quarter Ended May 30, 2004
Net sales—Non-affiliates			$	~~315~~355,~~113~~890		$	~~261~~315,~~619~~113
Net sales—Affiliates (Note 14)				1,441			8,157
Net sales—Affiliates				—			1,441
		Total net sales		~~316~~355,~~554~~890			~~269~~316,~~776~~554
Costs and expenses:
	Cost of goods sold—Non-affiliates			~~179~~198,~~110~~777			~~157~~179,~~069~~110
	Cost of goods sold—Affiliates (Note 14)			827			4,881
	Cost of goods sold—Affiliates			—			827
		Total cost of goods sold		~~179~~198,~~937~~777			~~161~~179,~~950~~937
		Gross profit		~~136~~157,~~617~~113			~~107~~136,~~826~~617
	Selling, general and administrative			~~105~~110,~~747~~462			92105,~~716~~747
	Recapitalization expense			~~132,740~~—			—132,740
	Stock based compensation			—			450
	Amortization of intangibles			112			296
	Amortization of intangibles			296			273
	Royalty income, net			(3,716	)		(3,319	)
	Royalty income, net			(3,319	)		(2,848	)
Income (loss) from operations				50,255			(98,847	)
Income (loss) from operations				(98,847	)		17,235
	Interest expense			18,405			16,914
	Interest expense			16,914			16,875
	Other (income) expense, net			6,183			(308	)
	Other (income) expense, net (Note 7)			(308	)		1,797
Income (loss) before income taxes				25,667			(115,453	)
Loss before income tax benefit				(115,453	)		(1,437	)
Income tax expense (benefit)				18,006			(33,295	)
Income tax benefit				(33,295	)		(419	)
Net income (loss)			$	7,661		$	(82,158	)
Net loss			$	(82,158	)	$	(1,018	)

See accompanying notes to condensed consolidated financial statements.

SEALY MATTRESS CORPORATION Condensed Consolidated Statements of Operations (Inin thousands) (~~Unaudited~~unaudited)

			Six Months Ended May 30, 2004			Six Months Ended June 1, 2003
			Six Months Ended May 29, 2005			Six Months Ended May 30, 2004
Net sales—Non-affiliates			$	~~627~~714,~~722~~913		$	~~539~~627,~~022~~722
Net sales—Affiliates (Note 14)				7,030			19,065
Net sales—Affiliates				—			7,030
		Total net sales		~~634~~714,~~752~~913			~~558~~634,~~087~~752
Costs and expenses:
	Cost of goods sold—Non-affiliates			~~359~~398,~~503~~750			~~316~~359,~~021~~503
	Cost of goods sold—Affiliates (Note 14)			4,035			11,284
	Cost of goods sold—Affiliates			—			4,035
		Total cost of goods sold		~~363~~398,~~538~~750			~~327~~363,~~305~~538
		Gross profit		~~271~~316,~~214~~163			~~230~~271,~~782~~214
	Selling, general and administrative			~~207~~218,~~373~~793			~~185~~207,373
	Recapitalization expense			~~132,740~~—			132,740
	Stock based compensation			—			990
	Amortization of intangibles			287			590
	Amortization of intangibles			590			533
	Royalty income, net			(6,344	)		(6,703	)
	Royalty income, net			(6,703	)		(5,561	)
Income (loss) from operations				103,427			(62,786	)
Income (loss) from operations				(62,786	)		49,447
	Interest expense			36,204			33,858
	Interest expense			33,858			33,952
	Other (income) expense, net			6,090			(742	)
	Other (income) expense, net (Note 7)			(742	)		1,501
Income (loss) before income taxes				61,133			(95,902	)
Income (loss) before income tax expense				(95,902	)		13,994
Income tax expense (benefit)				31,619			(25,005	)
Income tax expense (benefit)				(25,005	)		5,919
Net income (loss)			$	29,514		$	(70,897	)
Net income (loss)			$	(70,897	)	$	8,075

See accompanying notes to condensed consolidated financial statements.

SEALY MATTRESS CORPORATION Condensed Consolidated Balance Sheets (Inin thousands) (~~Unaudited~~unaudited)

		May 30, 2004			November 30, 2003*
		May 29, 2005			November 28, 2004*
ASSETS
Current assets:
	Cash and cash equivalents	$	2425,~~998~~038		$	~~101~~22,~~100~~779
	Accounts receivable—Non-affiliates, net		166,854			160,984
	Accounts receivable, net of allowances for bad debts, cash discounts and returns		185,440			172,829
	Accounts receivable—Affiliates, net (Note 14)		—			1,758
	Inventories		56,278			51,923
	Inventories		52,115			49,413
	Assets held for sale		4,270			8,983
	Prepaid expenses, deferred taxes and other current assets		66,579			43,404
	Deferred income taxes		11,636			23,898
			310,546			356,659
	Prepaid expenses and other current assets		13,201			18,713
Property, plant and equipment, at cost			305,170			299,718
			295,863			299,125
Less: accumulated depreciation			137,331			128,893
Property, plant and equipment, at cost			319,683			309,919
			167,839			170,825
Less: accumulated depreciation			(152,720	)		(145,740	)
			166,963			164,179
Other assets:
	Goodwill		~~381~~384,~~215~~240			~~381~~387,~~891~~508
	Other intangibles, net		4,~~891~~470			54,~~364~~555
	Long-term notes receivable (Note 14)		—			13,323
	Debt issuance costs, net, and other assets		35,894			41,910
	Debt issuance costs, net, and other assets		46,894			31,004
			424,604			433,973
			433,000			431,582
		$	887,430		$	897,277
		$	911,385		$	959,066
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Current portion of long-term obligations	$	1120,~~889~~676		$	478,~~623~~542
	Accounts payable		94103,~~510~~558			8596,~~478~~566
	Accrued interest		1018,~~806~~548			2327,~~565~~366
	Accrued incentives and advertising		32,~~724~~525			35,~~546~~829
	Accrued compensation		2432,~~319~~511			2737,~~583~~142
	Other accrued expenses		5741,~~913~~901			4449,~~839~~795
			232,161			264,634
			249,719			255,240
Long-term obligations, net			1,045,979			699,630
Due to parent company			6,094			3,376
Other noncurrent liabilities			40,509			48,851
Long-term obligations, net			931,457			965,795
Deferred income taxes			18,199			22,113
Other noncurrent liabilities			43,355			45,774
Stockholders' equity (deficit):
Deferred income taxes			15,652			10,835
	Common stock		—			324
Stockholders' deficit:
	Additional paid-in capital		454,420			146,240
	Common stock		—			—
	Accumulated deficit		(874,073	)		(201,497	)
	Additional paid-in capital		458,620			458,620
	Accumulated other comprehensive loss		(5,810	)		(8,165	)
	Accumulated deficit		(818,644	)		(848,158	)
	Common stock held in treasury, at cost		—			(13,064	)
	Accumulated other comprehensive loss		1,177			5,795
			(425,463	)		(76,162	)
			(358,847	)		(383,743	)
		$	~~911~~887,~~385~~430		$	~~959~~897,~~066~~277

*: Condensed from audited financial statements.
See accompanying notes to condensed consolidated financial statements.

SEALY MATTRESS CORPORATION Condensed Consolidated Statements of Cash Flows (Inin thousands) (~~Unaudited~~unaudited)

				Six Months Ended May 30, 2004			Six Months Ended June 1, 2003
				Six Months Ended May 29, 2005			Six Months Ended May 30, 2004
Net cash provided by (used in) operating activities:				$	~~(45~~34,~~102~~735	)	$	9(44,~~161~~921	)
Cash flows from investing activities:
	Purchase of property, plant and equipment				(1114,~~433~~807	)		(511,~~909~~442	)
	Cash received from affiliate note and investment				13,573			13,611
	Cash received on affiliate note and investment				—			13,573
	Proceeds from the sale of property, plant and equipment				14,~~444~~648			—1,444
			Net cash provided by investing activities		3,584			7,702
			Net cash provided by (used for) investing activities		(10,159	)		3,575
Cash flows from financing activities:
	Cash flows associated with financing of the recapitalization (Note 2):
	Cash flows associated with financing of the recapitalization:
		Proceeds from issuance of common stock			~~436,050~~—			—436,050
		Treasury stock repurchase (including direct expenses of $7,608)			~~(748,141~~—	)		—(748,141	)
		Proceeds from the issuance of new long-term debt			~~1,050,000~~—			—1,050,000
		Repayment of existing long-term debt			~~(737,128~~—	)		—(737,128	)
		Debt issuance costs			~~(35,987~~—	)		—(35,987	)
	Proceeds from issuance of notes to refinance Tranche debt				—			51,500
	Repayments of senior secured term loan				(35,000	)		—
	Prepayment of refinanced Tranche debt				—			(49,000	)
	Net borrowings under revolving credit facilities				5,261			—
	Debt issuance costs				—			(3,480	)
	Other borrowings				8,149			563
	Borrowings (repayments) of other long-term obligations, net				559			(8,171	)
	Equity contributions from exercise of stock options				—			63
	Equity contributions from exercise of stock options				63			87
	Other				1			—
			Net cash used in financing activities		(3421,~~584~~589	)		(934,~~064~~580	)
Change in cash and cash equivalents					(76,102	)		7,799
Effect of exchange rate changes on cash					(728	)		(176	)
Change in cash and cash equivalents					2,259			(76,102	)
Cash and cash equivalents:
	Beginning of period				~~101~~22,~~100~~779			27101,~~443~~100
	End of period			$	2425,~~998~~038		$	3524,~~242~~998
Supplemental disclosures:
Selected non-cash items:
	Non-cash compensation			$	—		$	990
	Depreciation and amortization				12,171			11,457
	Write-off of deferred debts costs and dedesignated cash flow hedge associated with the early extinguishment of Tranche debt				—			2,531
	Non-cash expenses associated with the recapitalization (Note 2)				41,342			—
Non-cash interest expense associated with:
	Junior Subordinated Notes				—			2,756
	Debt issuance costs				2,638			2,806
	(Premium) discount on Senior Subordinated Notes, net				(277	)		390
	Net interest income associated with interest rate swap and cap agreements				(1,087	)		(32	)
Cash used in operating activities in connection with recapitalization (Note 2)					(78,133	)		—

See accompanying notes to condensed consolidated financial statements

SEALY MATTRESS CORPORATION

Notes to Consolidated Financial Statements

Note 1: Basis of Presentation

The condensed consolidated interim financial statements are unaudited, and certain information and footnote disclosures related thereto normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying unaudited consolidated financial statements were prepared following the same policies and procedures used in the preparation of the audited financial statements and reflect all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of Sealy Mattress Corporation and its subsidiaries (the "Company"). The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. These consolidated financial statements should be read in conjunction with the company's Annual Report ~~of Sealy Corporation~~ on Form 10-K for the year ended November 3028, ~~2003~~2004.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures on contingent assets and liabilities at quarter end and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates.

On April 6, 2004, Sealy Corporation, owner of 100% of the Company's common stock, completed a merger with affiliates of Kohlberg Kravis Roberts & Co., L.P. ("KKR") whereby KKR acquired 92% of Sealy Corporation's capital stock for $740.5 million. Certain of Sealy Corporation's previous stockholders, including affiliates of Bain Capital, LLC and others, retained an 8% interest in Sealy Corporation's stock. The merger was accounted for as a recapitalization. ~~See Note 2 for further details on the recapitalization.~~ Subsequent to the recapitalization, anthe ~~intermediate holding~~ Company, ~~Sealy Mattress Corporation,~~ received as contributed capital all of Sealy Corporation's 100% interest in Sealy Mattress Company. ~~Sealy~~The ~~Mattress~~Company ~~Corporation has~~ also replaced Sealy Corporation as the parent-guarantor of the 8.25% Senior Subordinated Notes due 2014 issued by Sealy Mattress Company. Accordingly, ~~Sealy~~the ~~Mattress~~Company ~~Corporation~~ is now the reporting guarantor- parent company and as a result of being an entity under common control has reflected the ~~operation~~operations of Sealy Corporation prior to April 6, 2004 in a manner similar to a pooling-of-interests. Additionally, all assets, liabilities, and stockholders' deficit of Sealy Corporation existing upon the completion of the recapitalization as of April 6, 2004 ~~has~~have been pushed down to and included with those of ~~Sealy Mattress Corporation as of May 30, 2004. Therefore, all reported amounts as of and for~~ the ~~three and six months~~ ~~ended~~Company ~~May 30,~~for ~~2004 are comparable in~~ all ~~material respects to those for the prior~~ periods presented ~~herein except as to common stock and additional paid-in capital, which reflect the respective outstanding shares of Sealy Mattress Corporation and Sealy Corporation~~. Subsequent to the recapitalization, none of the activity of Sealy Corporation has been or will be included in the consolidated financial statements of ~~Sealy~~the ~~Mattress Corporation~~ Company and ~~subsidiaries~~its ~~(see Note 17)~~subsidiaries.

Certain reclassifications of previously reported financial information were made to conform to the ~~2004~~2005 presentation.

Note 2: ~~Merger~~Subsequent ~~and Recapitalization~~ Event

On ~~April~~June 630, ~~2004~~2005, ~~Sealy~~the ~~Corporation completed a merger with affiliates of KKR whereby KKR acquired approximately 92% of Sealy Corporation~~Company's ~~capital~~parent, ~~stock. Certain of~~ Sealy Corporation~~'s current stockholders~~, ~~including~~filed ~~affiliates~~a ofRegistration ~~Bain~~Statement ~~Capital,~~on ~~LLC~~Form S-1 ~~and~~with ~~others (~~the ~~"Rollover~~Securities ~~Stockholders"),~~and ~~retained~~Exchange Commission ~~approximately~~in anconnection 8%with ~~interest~~a inproposed ~~Sealy~~initial ~~Corporation's stock.~~public Inoffering ~~connection~~of ~~with~~its ~~the~~common ~~merger,~~stock. ~~Sealy~~The ~~Corporation~~proceeds ~~recapitalized~~from ~~substantially~~any ~~all~~such ofoffering ~~its~~are ~~outstanding~~anticipated ~~debt.~~to ~~The~~be ~~following~~used, ~~table~~among ~~summarizes~~other ~~the~~things, ~~estimated~~to ~~sources~~redeem ~~and~~a ~~uses~~portion of ~~cash in connection~~the ~~with~~Company's ~~the~~senior ~~recapitalization~~subordinated asnotes ifdue ~~all~~in 2014.

Note 3: Recapitalization Expense

In connection with the recapitalization of April 6, 2004, the Company incurred approximately $132.7 million of expense during the three months ended May 30, 2004. Included in recapitalization expense was $70.2 million related to debt breakage costs, merger advisory fees, management retention

~~amounts~~bonuses ~~were~~and ~~funded~~other ~~as of the date of the recapitalization~~costs, ~~although approximately~~ $1445.46 million ~~included~~of instock ~~fees,~~compensation ~~expenses~~expense ~~and~~resulting ~~other~~from ~~transaction~~the ~~costs~~settlement ~~below~~or ~~are~~modification ~~included~~of inexisting ~~other~~options, ~~accrued expenses~~$11.8 million inprimarily related to the write-off ~~accompanying~~of ~~balance~~previous ~~sheet~~debt atissuance ~~May 30~~costs, ~~2004~~ and ~~have~~various ~~yet~~other tonon-cash becharges ~~disbursed:~~of approximately $5.1 million.

Sources:			Uses:
(in millions)
Available cash	$	128.0	Purchase outstanding equity	$	740.5
Settlement of MFI Note		13.6	Repayment of existing debt and
Senior secured term loan facility		560.0	accrued interest		751.1
Senior unsecured term loan		100.0	Redemption of existing stock options		21.0
Senior subordinated notes		390.0	Fees, expenses and other
Equity contribution		436.1	transaction costs		115.1
Total sources	$	1,627.7	Total uses	$	1,627.7

Note 4: Stock Option and Restricted Stock Plans

~~Sealy Corporation's~~Certain ~~capital~~employees ~~stock~~of ~~outstanding immediately prior to~~ the ~~merger,~~Company ~~except~~have ~~with~~been ~~respect~~granted tooptions ~~those shares~~ to bepurchase ~~retained by~~ the ~~Rollover~~common ~~Stockholders,~~stock ~~was cancelled and exchanged for aggregate cash consideration~~ of ~~approximately~~the ~~$740.5 million.~~Company's parent, Sealy Corporation. ~~issued~~Such ~~new~~options ~~Class A~~are ~~Common~~accounted ~~Stock~~for by tothe ~~KKR~~Company and ~~the~~reported ~~Rollover~~herein ~~Stockholders~~as ~~retained~~if ~~their Class A~~granted ~~Common~~by ~~Stock~~the ~~in proportion to their respective ownership interests~~Company. ~~All~~As ~~outstanding~~permitted ~~amounts~~by ~~under~~FAS 123, ~~the~~"Accounting ~~existing~~for ~~Senior~~Stock-Based ~~Credit Agreement were repaid. On April 6~~Compensation", ~~2004,~~ the Company ~~closed~~ ~~tender~~continues ~~offers with respect~~ to ~~the~~account ~~outstanding~~for ~~$300 million~~its ~~aggregate~~stock ~~principal~~option ~~amount~~and stock ofincentive ~~the~~plans ~~9.875%~~in ~~Senior~~accordance ~~Subordinated~~with ~~Notes~~Accounting ~~and~~Principles ~~the~~Board ~~outstanding~~("APB") ~~$128 million~~Opinion ~~aggregate principal amount of 10~~No.~~875%~~ 25, ~~Senior~~"Accounting ~~Subordinated Discount Notes~~ for ~~cash~~Stock inIssued ~~amounts equal~~ to ~~103.542%~~Employees", and ~~103.875%~~makes ofno ~~the~~charges ~~principal~~(except ~~amounts,~~to ~~respectively.~~the ~~Approximately~~extent ~~91%~~required ~~and~~by APB ~~99%~~Opinion ~~of the 9~~No.~~875%~~ 25) ~~Senior Subordinated~~against ~~Notes~~earnings ~~and~~with ~~10.875%~~respect ~~Senior~~to ~~Subordinated~~options ~~Discount~~granted. ~~Notes~~FAS ~~were tendered~~No. 148, ~~respectively,~~"Accounting ~~and~~for ~~the~~Stock-Based ~~remaining~~Compensation-Transition ~~amount was called~~ and ~~paid~~Disclosure byan ~~the~~Amendment ~~Company~~of onFASB ~~May 6, 2004 for approximately~~Statement ~~$31~~No.2 ~~million~~123" ~~including~~does ~~approximately~~however ~~$1.1 million~~require interim disclosure of ~~accrued~~pro ~~interest~~forma ~~and~~information ~~prepayment~~regarding ~~premiums~~net ofincome ~~approximately~~and ~~$1.0 million.~~earnings ~~The~~per ~~Company~~share ~~also~~determined ~~repaid~~as if the ~~$50 million outstanding~~Company ~~balance~~had ofaccounted for its ~~existing~~stock ~~10%~~options ~~Junior~~under ~~Subordinated~~the fair ~~Notes~~value method.

~~The~~For ~~Company~~purposes ~~entered into new senior credit facilities consisting~~ of athis ~~$125 million~~pro ~~senior~~forma secured revolving credit facility with a six-year maturity and a $560 million senior secured term loan facility with an eight-year maturity. Annual maturities will be 1% of the original principal amount for the first seven yearsdisclosure, ~~with~~ the ~~balance of~~estimated ~~the~~fair ~~facility~~value ~~to be repaid at final maturity. The Company will also be required to prepay the term loans to the extent~~ of ~~50% of excess cash flow (as defined in~~ the ~~credit~~options ~~agreement).~~is The senior credit facilities bear interest at a floating rate. The Company also borrowed $100 million under a senior unsecured term loan. This loan will be due in nine years and bears interest at a floating rate. There are required prepayment provisions in the event of a change in control or to the extent of certain excess proceeds from any asset sales. The Company also issued $390 million aggregate principal amount of new Senior Subordinated Notes due 2014. The notes bear interest at 8.25% payable semi-annually on June 15 and December 15. The Company incurred approximately $36.0 million of costs associated with establishing the new senior credit facilities and the senior unsecured term loan and the issuance of the new Senior Subordinated Notes. Such costs are included in the above total amount for estimated fees, expenses and other costs and will be amortized as ~~interest~~an expense over the ~~term~~options' ofvesting ~~the respective debt~~periods.

	Three months ended						Six months ended
	May 29, 2005			May 30, 2004			May 29, 2005			May 30, 2004
	(in thousands)
Net income (loss), as reported	$	7,661		$	(82,158	)	$	29,514		$	(70,897	)
Add: Stock-based compensation expense included in reported net income net of related tax effects.		56			27,337			150			27,337
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax		(391	)		(26,048	)		(777	)		(26,088	)

Pro forma net income (loss)	$	7,326		$	(80,869	)	$	28,887		$	(69,648	)

~~All~~The stock options to purchase the Sealy Corporation's common stock outstanding immediately prior to the merger, whether or not vested, other than certain options held by members of management that those members elected to rollover (the "Rollover Options") were cancelled and converted into a right to receive cash consideration upon the completion of the merger. Accordingly, the Company ~~paid~~recognized approximately $~~21.~~0.1 million toand ~~settle~~$0.2 million ~~the~~of ~~options which were not rolled over, resulting in a charge to~~ expense during the ~~quarter~~three and six months ended May 3029, ~~2004.~~2005, ~~The~~respectively, ~~Rollover~~resulting ~~Options,~~from ~~which~~accretion ~~had intrinsic value~~ of ~~approximately~~an ~~$24.6 million~~obligation ~~upon~~to ~~the~~three ~~completion~~executives of the ~~merger,~~Company ~~now~~for ~~have~~their anright ~~expiration~~to ~~date~~put ~~which~~to ~~was~~Sealy ~~extended beyond that of the previously existing options~~Corporation, ~~resulting~~ inupon atheir ~~new measurement date. Consequently~~retirement, ashares ~~non-cash charge to expense~~ of ~~$24.6 million~~Sealy ~~was~~Corporation ~~recorded~~currently ~~during~~held ~~the~~as ~~quarter~~vested ~~ended~~or ~~May 30,~~partially vested ~~2004~~options.

~~The Company incurred approximately $77.8~~Note million of other cash costs primarily associated with debt breakage costs, merger advisory fees, management retention bonuses and other costs, of which $70.2 million was charged to expense during the quarter ended May 30, 2004, with the remaining $7.6 million of direct costs related to the repurchase of shares charged against paid-in capital. Also during the quarter ended May 30, 2004, the Company incurred non-cash charges of approximately $11.8 million primarily related to the write-off of previous debt issuance costs, and various other non-cash charges of approximately $5~~.1 million related to the recapitalization.~~ : Inventories

Note 3: Inventories

The major components of inventories were as follows:

	May 30, 2004		November 30, 2003
	May 29, 2005		November 28, 2004
	(In thousands)
	(in thousands)
Raw materials	$	2527,~~016~~618	$	2627,~~575~~269
Work in process		1720,~~751~~034		1416,~~699~~626
Finished goods		98,~~348~~626		8,~~139~~028
	$	5256,~~115~~278	$	4951,~~413~~923

~~Note 4: Warranty Costs~~6

~~The Company's warranty policy provides a 10-year non-prorated warranty service period on all currently manufactured Sealy Posturepedic, Stearns~~Note &6: Assets ~~Foster and~~Held ~~Bassett~~for bedding products and some other Sealy-branded products. The Company's policy is to accrue the estimated cost of warranty coverage at the time the sale is recorded. The change in the company's accrued warranty obligations from November 30, 2003 to May 30, 2004 was as follows: Sale

	May 30, 2004
	(In thousands)
Accrued warranty obligations at November 30, 2003	$	9,135
Warranty claims		(7,429	)
2004 warranty provisions		7,339
Accrued warranty obligations at May 30, 2004	$	9,045

Property, plant and equipment being held for disposal is reported at the lower of the carrying amount or fair value less costs to sell. Such assets which meet the criteria of FAS 144 to be reported as "assets held for sale" are shown as such in the accompanying balance sheets, and consist of land and buildings at the Company's closed manufacturing facilities which are being actively marketed for sale and which the Company expects to sell within one year. The $4.7 million decline in assets held for sale from November 28, 2004 to May 27, 2005 primarily results from the December, 2004 sale of the Company's Randolph, Massachusetts facility, which was closed in May, 2004. The sale resulted in a gain of approximately $0.2 million, which is included in income from operations for the six months ended May 27, 2005.

Note 7: Warranty Costs

The Company's warranty policy provides a 10-year non-prorated warranty service period on all currently manufactured Sealy Posturepedic, Stearns & Foster and Bassett bedding products and some other Sealy-branded products, and a 20-year warranty on its new TrueForm™ product line introduced late in the first quarter of fiscal 2005. The Company's policy is to accrue the estimated cost of warranty coverage at the time the sale is recorded. The change in the company's accrued warranty obligations for the periods ending May 29, 2005, November 28, 2004, and May 30, 2004 was as follows (in thousands):

	May 29, 2005			November 28, 2004			May 30, 2004
Accrued warranty obligations at beginning of period	$	13,857		$	9,135		$	9,135
Warranty claims		(8,173	)		(14,607	)		(7,429	)
Warranty provisions		7,822			19,329			7,339

Accrued warranty obligations at end of period	$	13,506		$	13,857		$	9,045

Note 8: Goodwill and Other Intangible Assets

In accordance with FAS 142, the Company reviews the carrying amounts of goodwill and certain other intangibles for impairment at least annually, or when events or circumstances indicate that their carrying value may not be recoverable from future cash flows. The Company has not recorded any impairment charges during the six months ended May 29, 2005 or May 30, 2004.

The changes in the carrying amount of goodwill for the six months ended May 29, 2005, are as follows (in thousands):

Balance as of November 28, 2004	$	387,508
Decrease due to foreign currency translation		(3,268	)

Balance as of May 29, 2005	$	384,240

Total other intangibles of $4.5 million (net of accumulated amortization of $4.7 million) as of May 29, 2005 primarily consist of acquired licenses, which are amortized on the straight-line method over periods ranging from 5 to 15 years, and an intangible asset consisting of unamortized pension prior service costs of $1.2 million.

Note 59: ~~Plant~~Other ~~Closure~~(Income) Expense, Net

~~On May 1,~~Other ~~2004~~(income) ~~the~~expense, ~~Company~~net ~~closed~~for ~~its~~the ~~manufacturing~~three ~~facility~~and atsix ~~Randolph,~~months ~~Massachusetts.~~ended ~~Accordingly~~May 29, ~~the~~2005 ~~Company~~includes ~~incurred restructuring charges of~~ approximately $0.6.2 million ~~during~~of ~~the~~expense ~~quarter,~~incurred ~~primarily~~in ~~associated~~ connection with ~~severance~~the ~~and~~refinancing ~~retention~~of ~~costs.~~the ~~The~~ Company's ~~also~~senior ~~incurred~~secured ~~additional~~credit ~~period~~agreement ~~costs~~on inApril 14, ~~the~~2004 ~~quarter~~(see asNote 10—Long-Term ~~the business was primarily shifted to the new Albany facility~~Obligations).

~~Note~~ Other (income) expense, net includes interest income of $0.1 ~~6: Goodwill~~million and ~~Other~~$0.2 million ~~Intangible~~for ~~Assets~~ the three and six months ended May 29, 2005 and $0.3 million and $0.7 million for the three and six months ended May 30, 2004, respectively.

~~The~~Note 10: Long-Term Company performs an annual assessment of its goodwill for impairment as of the beginning of the fiscal fourth quarter. The Company also assesses its goodwill and other intangible assets for impairment when events or circumstances indicate that their carrying value may not be recoverable from future cash flows. Obligations

~~The changes~~Long-term indebt ~~the~~as ~~carrying amount~~ of ~~goodwill~~May 29, ~~for~~2005 ~~the~~and ~~six months ended May~~November 3028, 2004, ~~are~~consisted asof ~~follows~~the ~~(in thousands)~~following:

	May 29, 2005			November 28, 2004
Balance as of November 30, 2003	$	381,891
Decrease due to foreign currency translation		(676	)
	(in thousands)
Balance as of May 30, 2004	$	381,215
Senior Revolving Credit Facility	$	9,968		$	5,000
Senior Secured Term Loan		535,000			470,000
Senior Unsecured Term Loan		—			100,000
Senior Subordinated Notes		390,000			390,000
Other		17,165			9,337
		952,133			974,337
Less current portion		(20,676	)		(8,542	)
	$	931,457		$	965,795

~~Total~~The ~~other~~total ~~intangibles~~borrowing ofcapacity under the senior revolving credit facility is $~~4.9~~125 million, ~~(net~~ of ~~accumulated~~which ~~amortization~~up ofto $~~14.8~~25 million) asmay ofbe borrowed in Canada. At May 3029, ~~2004~~2005, amounts ~~primarily~~outstanding ~~consist~~under the senior revolving credit facility included $10.0 million under the Canadian portion of ~~acquired~~the ~~licenses~~facility. At May 29, ~~which~~2005, ~~are~~the Company had approximately ~~amortized~~$85.2 million ontotal available under the ~~straight-line~~revolving ~~method~~credit ~~over~~facility ~~periods~~after ~~ranging~~taking ~~from~~into 5account toletters 15of credit issued totaling $29.8 ~~years~~million.

~~Note~~ Annually, the Company may be required to make principal prepayments equal to 50% of excess cash flow for the preceding fiscal year, as defined in its senior secured credit agreement. At May ~~7: Other~~29, 2005, the Company estimates that the amount of such required prepayment (~~Income~~net of voluntary prepayments made during the six months ended May 29, 2005), ~~Expense~~that would be due in the first quarter of fiscal 2006 with respect to any excess cash flow for the 2005 fiscal year is approximately $8.8 million. Such amount is classified as part of the current portion of long-term obligations at May 29, ~~Net~~ 2005.

~~Other~~On April 14, 2005, the Company entered into the Second Amended and Restated Credit Agreement (~~Income)~~the ~~expense~~"Second Amended and Restated Credit Agreement"), ~~net~~which ~~includes~~amended ~~interest~~and ~~income~~restated the Amended and Restated Credit Agreement, dated as of ~~$0.3~~August ~~million~~8, 2004 (the "Existing Credit Agreement"). The Second Amended and Restated Credit Agreement amended the Existing Credit Agreement to refinance the $~~0.7~~465 million ~~for~~outstanding under the ~~three~~existing ~~and~~senior ~~six~~secured ~~months~~term ~~ended~~loans ~~May~~plus an additional $100 30million new term loan borrowings, ~~2004~~the ~~and~~proceeds of which were used to repay the $~~0.7~~100 million outstanding under the Company's senior unsecured term loan due April 6, 2013. The Second Amended and $1Restated Credit Agreement also reduced the applicable interest rate margin charged on the senior secured term loan, provided certain financial leverage ratio tests are met.~~0 million~~ ~~for~~In addition, the ~~three~~Second Amended and ~~six~~Restated ~~months~~Credit ~~ended~~Agreement ~~June 1~~provides the Company with greater flexibility to make dividend distributions to its parent, ~~2003~~Sealy Corporation, ~~respectively.~~or to repay certain

Other (Income) expense, net in the three and six months ended June 1, 2003 also includes a $2.0 million write-off of previously deferred derivative losses recorded in accumulated other comprehensive loss and $0.5 million of deferred debt costs associated with the early extinguishment of debt in May 2003. See also Note 10.

~~Note~~subordinated debt, provided certain leverage ratio tests and other conditions are met. The terms and conditions of the Company's $125 ~~8: Long~~million senior revolving credit facility were unchanged by the Second Amended and Restated Credit Agreement. In connection with the amendment and restatement, the Company incurred a charge of $6.2 million during the three months ended May 29, 2005, including $3.3 million for the write-~~Term~~off ~~Obligations~~ of deferred finance charges primarily related to the senior unsecured term loan, $2.0 million of prepayment penalties related to the senior unsecured term loan, and $0.9 million of related fees and expenses (see Note 9—Other (Income) Expense, Net).

~~Long-term debt as of May~~Note ~~30,~~11: Recently ~~2004~~Issued ~~and~~Accounting ~~November 30, 2003 consisted of the following:~~ Pronouncements

	May 30, 2004		November 30, 2003
	(in thousands)
Senior Secured Term Loan Facility	$	560,000	$	—
Senior Revolving Credit Facility		—		—
Senior Unsecured Term Loan		100,000		—
Senior Subordinated Notes		390,000		—
Senior AXELs Credit Agreement		—		259,139
Senior Subordinated Notes (net of premium of $2,816)		—		302,816
Senior Subordinated Discount Notes		—		128,000
Junior Subordinated Notes		—		49,989
Other		7,868		7,309
		1,057,868		747,253
Less current portion		11,889		47,623
	$	1,045,979	$	699,630

In November of 2004, the FASB issued SFAS 151, "Inventory Costs, an amendment of ARB No. 43 Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires that those items be recognized as current-period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for fiscal years beginning after June 15, 2005. The Company will adopt this statement as of the beginning of fiscal 2006, and does not expect that it will have a material impact on our financial position or results of operations.

~~See~~In ~~Note~~December 2004, the FASB issued FAS 123 (Revised), "Share-Based Payment" ("FAS 123R") which replaces FAS 123 and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). This statement requires compensation costs relating to share-based payment transactions to be recognized in financial statements based upon the fair value of the award. FAS 123R eliminates the option to account for the cost of stock-based compensation using the intrinsic value method as allowed under APB 25. Having no publicly traded equity securities, the Company is considered a "nonpublic entity" as defined in the statement. FAS 123R is effective for nonpublic entities for fiscal years beginning after December 15, 2005. Therefore, the Company expects to adopt FAS 123R as of the beginning of its fiscal year ending December 2, 2007. The Company currently measures compensation costs related to its share-based awards under APB 25, as allowed by FAS 123, and provides pro forma disclosure in the notes to the financial statements of the effects of accounting for ~~additional~~share-based ~~information~~payments under ~~regarding~~FAS 123, ~~new~~as ~~debt~~required ~~issued~~by that standard (Note 4). The Company expects the adoption of FAS 123R to have an impact on its results of operations. The Company is still in ~~association~~the process ~~with~~of evaluating the ~~recapitalization~~extent of such impact.

Note 912: ~~Recently~~Hedging ~~Issued Accounting Pronouncements~~ Strategies

In ~~January 2003~~2000, the ~~Financial~~Company ~~Accounting~~entered ~~Standards~~into ~~Board~~an ~~issued~~interest ~~FASB~~rate ~~Interpretation~~swap ~~No. 46,~~agreement ~~"Consolidation~~that effectively converted $236 million of ~~Variable~~its ~~Interest~~floating-rate ~~Entities"~~debt ~~("FIN~~to a 46fixed-~~R",~~rate asbasis ~~revised~~through December ~~2003~~2006, ~~with~~thereby ~~respect~~hedging toagainst ~~effective~~the ~~dates).~~impact ~~The~~of ~~primary~~interest ~~objectives~~rate ofchanges ~~FIN~~on ~~46-R~~future ~~are~~interest toexpense ~~provide~~(forecasted ~~guidance~~cash onflows). ~~the~~Use ~~identification~~ of ~~entities~~hedging ~~for which~~contracts ~~control~~allows isthe ~~achieved~~Company ~~through~~to ~~means~~reduce ~~other~~its ~~than~~overall ~~through~~exposure ~~voting~~to ~~rights ("variable~~ interest ~~entities"~~rate orchanges, ~~"VIEs")~~since gains and ~~how~~losses toon ~~determine~~these ~~when~~contracts ~~and~~will ~~which~~offset ~~business~~losses ~~enterprise~~and ~~should~~gains ~~consolidate~~on the ~~VIE~~transactions ~~(the "primary~~being ~~beneficiary")~~hedged. ~~This~~The ~~new~~Company formally ~~model~~documents ~~for~~all ~~consolidation~~hedged ~~applies~~transactions toand anhedging ~~entity~~instruments, ~~which~~and ~~either~~assesses, ~~(1) the~~both ~~equity~~at ~~investors~~inception ~~(if~~of ~~any)~~the docontract ~~not~~and ~~have~~on aan ~~controlling~~ongoing ~~financial~~basis, ~~interest~~whether ~~or (2)~~ the ~~equity~~ ~~investment~~hedging atinstruments ~~risk~~are iseffective ~~insufficient~~in tooffsetting changes ~~finance~~in ~~that~~cash ~~entity's~~flows ~~activities~~of ~~without~~the ~~receiving~~hedged ~~additional subordinated financial support from other parties~~transaction. InThe ~~addition,~~fair ~~FIN~~values ~~46-R~~of ~~requires that both~~ the ~~primary~~interest ~~beneficiary~~rate ~~and~~agreements ~~all~~are ~~other~~estimated ~~enterprises~~by ~~with~~obtaining aquotes ~~significant~~from ~~variable~~brokers ~~interest~~and inare athe ~~VIE~~estimated ~~make~~amounts ~~additional~~that ~~disclosures. FIN 46-R is effective for~~ the Company's ~~second~~would ~~quarter~~receive ofor ~~2004~~pay ~~with~~to ~~transitional~~terminate ~~disclosure~~the ~~required~~agreements ~~with~~at ~~these~~the ~~financial~~reporting ~~statements.~~date, ~~The~~taking ~~Company~~into ~~adopted~~consideration ~~these~~current ~~provisions~~interest inrates ~~its~~and ~~second quarter, however~~ the ~~Company~~current ~~does~~creditworthiness ~~not~~of ~~believe~~the itcounterparties. isEffective ~~a primary~~June 3, ~~beneficiary~~2002, ofthe aCompany ~~VIE~~dedesignated orthe ~~holds~~interest ~~any~~rate ~~significant~~swap ~~interests~~agreement orfor ~~involvement~~hedge inaccounting. As a ~~VIE,~~result ~~therefore adoption~~ of ~~FIN~~the ~~46-R~~dedesignation, ~~did~~$12.9 million ~~not~~previously ~~have~~recorded anin ~~impact~~accumulated onother ~~the~~comprehensive ~~Company's~~loss ~~consolidated financial statements.~~

In December 2003, The FASB issued FAS 132 (Revised), "Employers' Disclosure about Pensions and Other Postretirement Benefits." A revision of the pronouncement originally issued in 1998, FAS 132R expands employers' disclosure requirements for pension and postretirement benefits to enhance information about plan assets, obligations, benefit payments, contributions, and net benefit cost. FAS 132R does not change the accounting requirements for pensions and other postretirement benefits. This statement is effective for fiscal years ending after December 15, 2003, with interim-period

~~disclosure~~as ~~requirements~~of ~~effective~~the ~~for~~date ~~interim~~of ~~periods~~dedesignation ~~beginning~~was ~~after~~being ~~December 15,~~amortized ~~2003~~into interest expense over the remaining life of the interest rate swap agreement. ~~Accordingly,~~Due to the ~~Company~~retirement ~~has~~of ~~implemented~~the ~~FAS 132R~~existing ~~beginning~~debt in connection with ~~its~~the April 2004 recapitalization, the remaining $4.7 million previously recorded in accumulated other comprehensive loss was charged to expense during the second fiscal quarter of 2004. Prior to the recapitalization, for the three and six months ended May 30, 2004, $0.2 ~~The~~and ~~adoption~~$0.9 million was amortized into interest expense. Prior to June 3, 2002, the changes in the fair market value of ~~this~~the ~~statement~~interest ~~did~~rate ~~not~~swap ~~have~~were anrecorded ~~impact~~in onaccumulated other comprehensive income (loss). Subsequent to June 3, 2002, changes in the ~~Company's~~fair ~~financial~~market ~~position~~value orof ~~results~~the interest rate swap are recorded in interest expense. For the three and six months ended May 29, 2005, $(0.1) million and $0.3 million, and for the three and six months ended May 30, 2004, $1.7 million and $0.5 million, respectively, was recorded as net interest expense as a result of ~~operations~~the cash requirements of the swap net of the non-cash interest associated with the change in its fair market value. At May 29, 2005 and November 28, 2004, the fair value carrying amount of this instrument was recorded as follows:

Note 10: Hedging Strategies

	May 29, 2005		November 28, 2004
	(in thousands)
Accrued interest	$	720	$	1,162
Other accrued expenses		2,039		3,030
Other noncurrent liabilities		911		2,250

	$	3,670	$	6,442

~~In 2000, the Company entered into an interest rate swap agreement that effectively converted $236 million of its floating-rate debt to a~~During ~~fixed-rate basis through December 2006, thereby hedging against~~ the ~~impact~~second ofquarter ~~interest rate changes on future interest expense (forecasted cash flows). Use~~ of ~~hedging contracts allows the Company to reduce its overall exposure to interest rate changes~~2002, ~~since gains and losses on these contracts will offset losses and gains on~~ the ~~transactions being hedged. The~~ Company ~~formally~~ ~~documents~~entered ~~all~~into ~~hedged~~another transactions and hedging instruments, and assesses, both at inception of the contract and on an ongoing basis, whether the hedging instruments are effective in offsetting changes in cash flows of the hedged transaction. The fair values of the interest rate ~~agreements~~swap ~~are~~agreement ~~estimated by obtaining quotes from brokers and are the estimated amounts~~ that ~~the~~has ~~Company would receive or pay to terminate~~ the ~~agreements~~effect ~~at the reporting date, taking into consideration current interest rates and the current creditworthiness~~ of ~~the~~reestablishing ~~counterparties.~~as ~~Effective~~floating ~~June 3, 2002, the Company dedesignated the interest~~ rate ~~swap~~debt ~~agreement for hedge accounting. As a result of~~ the ~~dedesignation,~~ $~~12.9~~236 million ~~previously recorded in accumulated other comprehensive loss~~of asdebt ofpreviously ~~the~~converted ~~date~~to offixed ~~dedesignation~~rate isdebt ~~being~~through ~~amortized~~December 2006. ~~into~~This interest ~~expense over the remaining life of the interest~~ rate swap agreement. ~~For~~has ~~the~~not ~~three~~been ~~and~~designated ~~six months ended May 30, 2004, $0.2 million and $0.9 million, and~~ for ~~the~~hedge ~~three~~accounting and ~~six months ended June 1~~, ~~2003~~accordingly, ~~$1.0 million~~any ~~and $2.0 million, was amortized into interest expense, respectively. Prior to June 3, 2002, the~~ changes in the fair ~~market value of the interest rate swap were recorded in accumulated other comprehensive income (loss). Subsequent to June 3, 2002, changes~~ ~~in the fair market~~ value ~~of the interest rate swap~~ are recorded in interest expense. For the three and six months ended May 3029, ~~2004~~2005, ~~$(1.7)~~a ~~million~~deminimis amount and $0.54 million, and for the three and six months ended ~~June~~May 130, ~~2003~~2004, $21.87 million and $70.54 million, respectively, was recorded as a reduction of net interest expense as a result of the cash ~~requirements~~interest ofreceived on the swap net of the non-cash interest associated with the change in its fair market value. At May 3029, ~~2003~~2005 and November 3028, ~~2003~~2004, the fair value carrying amount of this instrument was $~~(10~~0.1) 6 million and $~~(14~~2.9) 2 million, respectively, ~~which~~with is$0.6 million and $1.8 million recorded asin ~~follows:~~prepaid expenses and other current assets, and a deminimis amount and $0.3 million recorded in noncurrent assets, respectively.

	May 30, 2004		November 30, 2003
	(in thousands)
Accrued interest	$	1,893	$	2,207
Other accrued expenses		4,957		6,464
Other noncurrent liabilities		3,297		6,198
	$	10,147	$	14,869

During the second quarter of 2002, the Company entered into another interest rate swap agreement that has the effect of reestablishing as floating rate debt the $236 million of debt previously converted to fixed rate debt through December 2006. This interest rate swap agreement has not been designated for hedge accounting and, accordingly, any changes in the fair value are recorded in interest expense. For the three and six months ended May 30, 2004, $1.7 million and $0.4 million, and for the three and six months ended June 1, 2003, $2.6 million and $7.2 million, respectively, was recorded as a reduction of net interest expense as a result of the cash interest received on the swap net of the non-cash interest associated with the change in its fair market value. At May 30, 2004 and November 30, 2003, the fair value carrying amount of this instrument was $4.2 million and $6.8 million, respectively, with $4.1 million and $5.1 million recorded in prepaid expenses and other current assets, and $0.1 million and $1.7 million recorded in noncurrent assets.

The Company also entered into an interest rate cap agreement during the second quarter of 2002 with a notional amount of $175.0 million that capped the LIBOR rate on which certain of its previous floating-rate debt was based at 8% through June 2005. This agreement has not been designated for hedge accounting and, accordingly, any changes in the fair value are recorded in interest expense. The fair value of this instrument is not material.

~~During~~In June 2004, the ~~quarter~~Company ~~ended~~entered ~~May 30,~~into ~~2004,~~an additional swap agreement that has the ~~remaining~~effect of converting $~~4.7~~200 million ~~previously~~of ~~recorded~~the infloating-rate ~~accumulated~~debt ~~other~~under ~~comprehensive~~the ~~income~~Company's new ~~was~~senior ~~charged~~credit facilities to ~~recapitalization~~a ~~expense~~fixed-rate ~~(see Note 2).~~basis Atthrough ~~May~~November 302005, ~~2004~~declining ~~and~~to $150 million through November ~~30,~~2007. ~~2003,~~The ~~accumulated~~Company ~~other~~has ~~comprehensive~~formally ~~income~~designated ~~(loss)~~this swap ~~associated~~agreement ~~with~~as a cash flow hedge and expects the hedge to be highly effective in offsetting fluctuations in the designated interest payments resulting from changes in the benchmark interest rate. Accordingly, ~~swaps~~the ~~was~~effective ~~$0 million~~portion ~~and~~of $changes in the market value of the swap is recorded in other comprehensive income (~~5.6~~loss). ~~million~~For the three and six months ended May 29, ~~respectively.~~

In June 2004, the Company entered into an additional swap agreement that has the effect of converting $200 million of the floating-rate debt under the Company's new senior credit facilities to a fixed-rate basis, declining to $150 million through November 2007. The Company has formally designated this swap agreement as a cash flow hedge and expects the hedge to be highly effective in offsetting fluctuations in the designated interest payments resulting from changes in the benchmark interest rate. Accordingly, the effective portion of changes in the market value of the swap will be recorded in other comprehensive income (loss). 10

~~To protect against the reduction in value of forecasted foreign currency cash flows resulting from purchases in a foreign currency~~2005, ~~the Company has instituted a forecasted cash flow~~ ~~hedging program~~$0.4 ~~The~~and ~~Company~~$1.1 million ~~hedges~~was ~~portions~~recorded ~~of its purchases denominated~~ in ~~foreign~~interest ~~currencies with forward and option contracts~~expense. At May 3029, ~~2004,~~2005 ~~the Company had forward contracts to sell a total of 9.0 million Mexican pesos with expiration dates ranging from June 25, 2004 through November 24, 2004,~~ and ~~forward contracts to sell a total of 15.0 million Canadian dollars with expiration dates ranging from June 1, 2004 through~~ November 1228, 2004~~. At May 30~~, ~~2004,~~ the fair value ofcarrying ~~the~~amount ~~Company's~~of ~~net obligation under~~ the ~~forward contracts~~instrument was ~~$0.1 million.~~recorded as follows:

In the accompanying statements of cash flows, the cash flows from hedging activities are included in the same categories as the hedged items. Cash flows from operating activities include increases in cash balances due to foreign exchange rate fluctuations. The effect of such foreign exchange rate fluctuations for the six months ended May 30, 2004 and June 1, 2003 was not material.

	May 29, 2005			November 28, 2004
	(in thousands)
Accrued interest payable	$	417		$	978
Other accrued expenses		154			1,420
Long term receivable		(1,003	)		(377	)

	$	(432	)	$	2,021

At May 29, 2005 and November 28, 2004, accumulated other comprehensive income (loss) associated with the interest rate swaps was $0.5 million and $(0.6) million, respectively.

To protect against the reduction in value of forecasted foreign currency cash flows resulting from purchases in a foreign currency, the Company has instituted a forecasted cash flow hedging program. The Company hedges portions of its purchases denominated in foreign currencies with forward and option contracts. The Company does not designate its foreign currency hedges for accounting purposes, therefore all changes in fair value are charged to earnings. At May 29, 2005, the Company had forward contracts to sell a total of 18.0 million Canadian dollars with expiration dates ranging from May 31, 2005 through November 15, 2005. At May 29, 2005 and November 28, 2004, the fair value of the Company's net obligation under the forward contracts was a liability of $0.8 million and $3.1 million, respectively. For the three and six months ended May 29, 2005 and May 30, 2004, the Company recognized foreign currency transaction gains of $0.4 million and $2.8 million, respectively, for 2005 and $0.3 million and $1.2 million, respectively, for 2004.

Note 13: Defined Benefit Pension Expense

The components of net periodic pension cost recognized for the Company's defined benefit pension plan for the three and six months ended May 29, 2005 and May 30, 2004 are as follows (in thousands):

	Three months ended						Six months ended
	May 29, 2005			May 30, 2004			May 29, 2005			May 30, 2004
Service cost	$	140		$	118		$	298		$	237
Interest cost		201			179			392			359
Expected return on plan assets		(194	)		(136	)		(372	)		(272	)
Amortization of unrecognized losses		10			50			73			238
Amortization of unrecognized transition asset		(22	)		(22	)		(44	)		(44	)
Amortization of unrecognized prior service cost		55			40			99			80

Net periodic pension cost*	$	190		$	229		$	446		$	598

Cash contributions	$	300		$	336		$	300		$	465

*: Net periodic pension costs recognized for the three and six months ending May 30, 2004 were based upon preliminary estimates pending the final actuarial determination of such costs in the fourth quarter of fiscal 2004.

The Company expects to make additional cash contributions to the plan of approximately $0.9 million during the remainder of 2005.

Note 11 14: ~~Defined~~Stockholders' ~~Benefit Pension Expense~~Deficit

~~The~~Activity ~~components~~in ~~of net periodic pension cost recognized for the Company~~Stockholders's ~~defined~~deficit ~~benefit~~is ~~pension plan for the three and six months ended May 30, 2004 and June 1, 2003 are~~ as follows (dollars in thousands):

		Three months ended						Six months ended
			Comprehensive Income			Common Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total
		May 30, 2004			June 1, 2003			May 30, 2004			June 1, 2003
Balance at November 28, 2004						$	—		$	458,620		$	(848,158	)	$	5,795		$	(383,743	)
Service cost		$	118		$	40		$	237		$	83
Comprehensive Income:
Interest cost			179			58			359			120
	Net income for the six months ended May 29, 2005		$	29,514			—			—			29,514			—			29,514
Expected return on plan assets			(136	)		(42	)		(272	)		(87	)
	Change in fair value of cash flow hedge			1,135			—			—			—			1,135			1,135
Amortization of unrecognized losses			50			22			238			44
	Foreign currency translation adjustment			(5,753	)		—			—			—			(5,753	)		(5,753	)
Amortization of unrecognized transition asset			(22	)		(8	)		(44	)		(17	)
Balance at May 29, 2005			$	24,896		$	—		$	458,620		$	(818,644	)	$	1,177		$	(358,847	)
Amortization of unrecognized prior service cost			40			12			80			25
Net periodic pension cost*		$	229		$	82		$	598		$	168
Cash contributions		$	336		$	129		$	465		$	236

~~The~~Total ~~Company~~comprehensive ~~expects~~income to(loss) ~~make~~for ~~additional~~the ~~cash~~three ~~contributions~~and tosix ~~the~~months ~~plan~~ended ofMay 29, ~~approximately~~2005 was $15.78 million ~~during~~and $24.9 million and for the ~~remainder~~three ofand six months ended May 30, 2004 was $(83.0) million and $(68.5) million, respectively.

Note 12 15: ~~Comprehensive~~ Income Taxes

~~Total~~As ~~comprehensive~~allowed ~~income~~under ~~(loss)~~SFAS 109, "Accounting for Income Taxes", the ~~three~~Company ~~and~~has ~~six~~historically ~~months~~not ~~ended~~provided ~~May~~for income taxes on the undistributed earnings of foreign subsidiaries that are considered to be permanently invested outside of the United States. However, the Company has evaluated the impact of the one-time favorable foreign dividend provisions enacted on October 3022, 2004, ~~was~~as ~~$(83~~part of the American Jobs Creation Act of 2004, and determined that it qualifies for certain favorable foreign withholding rates and may repatriate earnings of some of its foreign subsidiaries during the 2005 fiscal year.0 During the second fiscal quarter of 2005, the Company adopted the Dividend Reinvestment Plan ("DRP"). ~~million~~Under ~~and~~the DRP, the Company plans to repatriate $~~(68~~50 million pursuant to Section 965 of the 1986 Internal Revenue Code, as amended.5) There are no plans to repatriate foreign earnings after the close of the 2005 fiscal year. The estimated income tax liability associated with the repatriation is $7.2 million, ~~and~~which has been included in income tax expense for the three and six months ended May 29, 2005. During the three months ended ~~June~~May 129, ~~2003~~2005, ~~was~~the Company repatriated $1225.41 million, ~~and~~net of $251.43 million, ~~respectively~~foreign withholding taxes.

12Note 16: Contingencies

Activity in Stockholders' equity (deficit) is as follows (dollar amounts in thousands):

		Comprehensive Income			Common Stock			Additional Paid-in Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balance at November 30, 2003					$	324		$	146,240		$	(201,497	)	$	(13,064	)	$	(8,165	)	$	(76,162	)
Net income for the six months ended May 30, 2004		$	(70,897	)		—			—			(70,897	)		—			—			(70,897	)
Exercise of stock options			—			2			569			—			—			—			571
Purchase of treasury stock			—			—			—			—			(508	)		—			(508	)
Amortization of dedesignated cash flow hedge, net of tax			595			—			—			—			—			595			595
Foreign currency translation adjustment			(983	)		—			—			—			—			(983	)		(983	)
Effects of recapitalization:
	Stock compensation related to rollover of options		—			—			24,570			—			—			—			24,570
	Treasury stock repurchase, including direct costs		—			(302	)		(153,033	)		(608,378	)		13,572			—			(748,141	)
	Issuance of common stock		—			250			435,800			—									436,050
	Write-off of dedesignated cash flow hedge, net of tax		2,743			—			—			—			—			2,743			2,743
	Change in aggregate par value of common stock due to change in reporting entity (Note 1)		—			(274	)		274			—			—			—			—
	Cancellation of former officer's equity put option		—			—			—			6,699			—			—			6,699
Balance at May 30, 2004		$	(68,542	)	$	—		$	454,420		$	(874,073	)	$	—		$	(5,810	)	$	(425,463	)

Sealy Mattress Corporation common stock consists of 1,000 shares $0.01 par value stock, all owned by Sealy Corporation.

Note 13: Contingencies

The Company is subject to legal proceedings, claims, and litigation arising in the ordinary course of business. While the outcome of these matters is currently not determinable, management does not expect that the ultimate costs to resolve these matters will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

The Company is currently conducting an environmental cleanup at a formerly owned facility in South Brunswick, New Jersey pursuant to the New Jersey Industrial Site Recovery Act. The Company and one of its subsidiaries are parties to an Administrative Consent Order issued by the New Jersey Department of Environmental Protection. Pursuant to that order, the Company and its subsidiary agreed to conduct soil and groundwater remediation at the property. The Company does not believe that its manufacturing processes were the source of contamination. The Company sold the property in 1997. The Company and its subsidiary retained primary responsibility for the required remediation. The Company has completed essentially all soil remediation with the New Jersey Department of Environmental Protection approval, and has concluded a pilot test of the groundwater remediation system. The Company is working with the New Jersey Department of Environmental Protection to develop and implement a remediation plan for the sediment in Oakeys Brook adjoining the site.

1312

~~The~~agreed ~~Company~~to isconduct ~~also remediating~~ soil and groundwater ~~contamination~~remediation at anthe ~~inactive~~property. ~~facility~~The ~~located~~Company indoes ~~Oakville,~~not ~~Connecticut~~believe that its manufacturing processes were the source of contamination. ~~Although~~The Company sold the property in 1997. The Company isand ~~conducting~~its subsidiary retained primary responsibility for the required remediation ~~voluntarily,~~. itThe ~~obtained~~Company ~~Connecticut~~has completed essentially all soil remediation with the New Jersey Department of Environmental Protection approval, and has concluded a pilot test of the groundwater remediation ~~plan~~system. The Company has ~~completed~~received ~~essentially~~approval ~~all~~from ~~soil~~the ~~remediation~~New ~~under~~Jersey ~~the~~Department of Environmental Protection of a remediation plan ~~and~~ for the sediment in Oakeys Brook adjoining the site, which the Company expects to start in 2005. The Company is ~~currently~~also monitoring ~~groundwater~~ground water at the site. The Company ~~believes~~has ~~the~~recorded ~~contamination~~a reserve isfor ~~attributable~~$2.3 million ($2.9 million prior to ~~the~~discounting ~~manufacturing~~at ~~operations~~4.75%) ofassociated ~~previous~~with ~~unaffiliated~~this ~~occupants~~remediation ofproject, and it is reasonably possible that up to an additional $0.3 million may be incurred to complete the ~~facility~~project.

The Company is also remediating soil and groundwater contamination at an inactive facility located in Oakville, Connecticut. Although the Company is conducting the remediation voluntarily, it obtained Connecticut Department of Environmental Protection approval of the remediation plan. The Company has completed essentially all soil remediation under the remediation plan and is currently monitoring groundwater at the site. The Company has identified cadmium in the ground water at the site and intends to address that during 2005. The Company has recorded a reserve of approximately $0.4 million associated with the additional work and ongoing monitoring. The Company believes the contamination is attributable to the manufacturing operations of previous unaffiliated occupants of the facility.

The Company removed three underground storage tanks previously used for diesel, gasoline, and waste oil from its South Gate, California facility in March 1994 and remediated the soil in the area. Since August 1998, the Company has been working with the California Regional Water Quality Control Board, Los Angeles Region to monitor ground water at the site.

While the Company cannot predict the ultimate timing or costs of the South Brunswick, Oakville, and South Gate environmental matters, based on facts currently known, the Company believes that the accruals recorded are adequate and does not believe the resolution of these matters will have a material adverse effect on the financial position or future operations of the Company; however, in the event of an adverse decision, these matters could have a material adverse effect. The state of California adopted new flame retardant regulations related to manufactured mattresses and box springs which will be effective January 1, 2005. The Company expects to be in full compliance with those regulations by the effective date. The Company does not expect the impact of those regulations to be significant to the Company's results of operations or financial position.

InThe ~~2000,~~state ~~Montgomery Ward, a customer~~ of ~~Sealy,~~California ~~declared~~adopted ~~bankruptcy~~new ~~and~~flame ~~filed~~retardant ~~for~~regulations ~~protection~~related ~~under~~to ~~Chapter~~manufactured 7mattresses ofand ~~the~~box ~~U.S.~~springs ~~Bankruptcy~~which ~~Code.~~became Ineffective ~~2003~~January 1, ~~the bankruptcy trustee filed a claim of $3~~2005.~~7 million~~ ~~associated~~The ~~with certain alleged preferential payments by Montgomery Ward to Sealy. Currently, the case is in the discovery phase and the~~ Company believes ~~it has significant~~ ~~defenses~~that ~~against such claims. While the Company cannot predict the ultimate outcome, the Company believes~~ it ~~has~~is ~~adequate~~in ~~accruals~~full ~~recorded~~compliance with ~~respect~~those toregulations. ~~this~~The ~~claim~~Company ~~and~~ does not ~~believe~~expect the ~~resolution~~ impact of ~~these~~those ~~matters~~regulations ~~will~~to ~~have~~be asignificant ~~material~~to ~~adverse effect on~~ the ~~financial~~Company's ~~position~~results orof ~~future~~ operations ofor ~~the~~financial ~~Company~~position.

~~Note~~ Significant judgment ~~14: Related~~is ~~Party~~required ~~Transactions~~ in evaluating the Company's federal, state and foreign tax positions and in the determination of its tax provision. Despite the Company's belief that the its tax return positions are fully supportable, reserves have been established where the Company believes that certain tax positions are likely to be challenged and the Company may not fully prevail in overcoming these challenges. The Company may adjust these reserves as relevant circumstances evolve, such as guidance from the relevant tax authority, the Company's tax advisors, or resolution of issues in the courts. The Company's tax expense includes the impact of reserve positions and changes to reserves that it considers appropriate, as well as related interest. Because the Company is not currently undergoing examinations of any of its corporate income tax returns by tax authorities, the Company believes that it is unlikely that an audit could be initiated which would result in assessment and payment of taxes related to these positions during the remainder of 2005. The Company also cannot predict when or if any other future tax payments related to these tax positions may occur. Therefore,

The Company previously contributed cash and other assets to Mattress Holdings International LLC ("MHI"), a company which was controlled by the Company's largest stockholder, Bain Capital, LLC ("Bain"), in exchange for a non-voting interest. MHI was formed to invest in domestic and international loans, advances and investments in joint ventures, licensees and retailers. The equity ownership of MHI was transferred from Bain to the Company in November 2002. In 1999, MHI indirectly through a Bain controlled holding company acquired a minority interest in Mattress Holdings Corporation ("MHC"). MHC owns an interest in Mattress Discounters Corporation ("Mattress Discounters"), a domestic mattress retailer. In addition, MHC sold all of its equity interest in an international retailer on April 15, 2003. This international retailer had been an affiliate of the Company since MHC's acquisition in 2000. 13

Insubstantially ~~October 2002,~~all ~~Mattress~~of ~~Discounters filed a voluntary joint petition with~~ the ~~U.S.~~reserves ~~Bankruptcy Court~~ for ~~the~~these ~~District~~positions ofare ~~Maryland~~classified ~~for reorganization under Chapter 11 of the U.S. Bankruptcy Code and was operating~~ as anoncurrent ~~debtor~~liabilities in ~~possession under~~ the ~~Bankruptcy~~accompanying ~~Code.~~balance ~~Effective March 14, 2003, Mattress Discounters emerged from bankruptcy~~sheet. ~~At the time Mattress Discounters filed for bankruptcy protection, the Company had recorded in its financial statements a $12.5 million participation in~~

Note 17: Related Party Transactions

The Company previously contributed cash and other assets to Mattress Holdings International LLC ("MHI"), a company which was controlled by the Company's previous largest stockholder, Bain Capital, LLC ("Bain"), in exchange for a non-voting interest. MHI was formed to invest in domestic and international loans, advances and investments in joint ventures, licensees and retailers. The equity ownership of MHI was transferred from Bain to the Company in November 2002. In 1999, MHI, indirectly through a Bain controlled holding company, acquired a minority interest in Mattress Holdings Corporation ("MHC"). MHC owns an interest in Mattress Discounters Corporation ("Mattress Discounters"), a domestic mattress retailer.

In October 2002, Mattress Discounters filed a voluntary joint petition with the U.S. Bankruptcy Court for the District of Maryland for reorganization under Chapter 11 of the U.S. Bankruptcy Code and was operating as a debtor in possession under the Bankruptcy Code. Effective March 14, 2003, Mattress Discounters emerged from bankruptcy. At the time Mattress Discounters filed for bankruptcy protection, the Company had recorded in its financial statements a $12.5 million participation in Mattress Discounters' banking facility and $16.0 million in trade receivables. The Company had fully-reserved the trade receivables. As part of the approved bankruptcy settlement, the Company received a non-controlling minority interest in Mattress Discounters and a $12.9 million secured note, guaranteed by MHC. Other entities affiliated with Bain also received a minority interest in Mattress Discounters. Sealy consummated the sale to MHC of the $12.9 million note and the equity interest that the Company received in the Mattress Discounters bankruptcy, as well as MHI's equity interest in MHC for $13.6 million. As a result of these transactions, the Company no longer has any direct interest in Mattress Discounters other than trade receivables in the normal course of business. In addition, as a result of the acquisition by KKR on April 6, 2004, Bain relinquished its controlling interest in the Company and Mattress Discounters ceased to be considered an affiliate of the Company subsequent to that date. Fiscal 2004 sales and cost of sales to Mattress Discounters during its period of affiliation with the Company up to April 6, 2004 are reported in the statement of operations as sales and cost of sales to affiliate. The Company believes that the terms on which mattresses were supplied to Mattress Discounters while an affiliate were not materially different than those that might reasonably be obtained in a comparable transaction on an arm's length basis from a person that is not an affiliate or related party.

During the three and six months ended May 29, 2005, the Company incurred management fees of $0.5 million and $1.0 million to KKR, respectively. Also during the three and six months ended May 29, 2005, the Company incurred $0.5 million and $1.2 million for consulting services provided by Capstone Consulting LLC, the chief executive officer of which is on the Company's board of directors.

Note 18: Segment Information

The Company has determined that it has two operating segments, domestic and international, that qualify for aggregation as prescribed in SFAS 131. Accordingly, the Company has one reportable industry segment, the manufacture and marketing of conventional and specialty bedding. For the three and six months of 2005 and 2004, no one customer represented 10% or more of total net sales. Sales outside the United States for the three and six months ended May 29, 2005 and May 30, 2004 were $71.6 million and $63.8 million and $143.9 million and $127.5 million, respectively. In addition,

~~Mattress~~long-lived ~~Discounters'~~assets ~~banking~~(principally ~~facility and $16.0 million in trade receivables. The Company had fully-reserved the trade receivables. As part of the approved bankruptcy settlement~~property, ~~the~~plant ~~Company received~~and aequipment ~~non-controlling minority interest in Mattress Discounters~~ and aother ~~$12.9 million~~investments) ~~secured~~outside ~~note, guaranteed by MHC. Other entities affiliated with Bain also received a minority interest in Mattress Discounters. During~~ the ~~bankruptcy~~United ~~period,~~States ~~Mattress Discounters exited four markets. The majority of the stores in the exited markets~~ were acquired by other of the Company's current customers. The Company and Mattress Discounters also amended the existing long-term supply agreement to remove a requirement for the Company to be Mattress Discounters' exclusive supplier. The Company does not believe that any sales reductions, as a result of the amended supply agreement or the markets exited, will have a material adverse effect on the Company. Since emerging from bankruptcy, Mattress Discounters has generally been paying within stated terms. Concurrent with the previously mentioned sale of the international bedding retailer by MHC, Sealy consummated the sale to MHC of the $1250.97 million ~~note~~ and ~~the equity interest that the Company received in the Mattress Discounters bankruptcy, as well as MHI's equity interest in MHC for~~ $1353.65 million. ~~As a result of these transactions, the Company no longer has any direct interest in Mattress Discounters other than trade receivables in the normal course of business. In addition,~~ as ~~a result~~ of ~~the recapitalization discussed in Note~~May 229, ~~after~~2005 and ~~April~~November 628, 2004, ~~Mattress Discounters has ceased to be considered an affiliate of the Company~~respectively.

~~As previously~~ ~~mentioned,~~Geographic ~~MHC~~distribution ~~sold its interest in an international bedding retailer on April 15, 2003. Consequently, this retailer is no longer an affiliate~~ of ~~Sealy and~~ sales ~~to this retailer after this date have been included in sales to non-affiliates in the statement of operations.~~ :

The following table provides affiliate sales for the three and six months ended May 30, 2004 and June 1, 2003:

			Three months ended								Six months ended
			May 29, 2005				May 30, 2004				May 29, 2005				May 30, 2004
			(in millions)
US domestic			$	284.3	79.9	%	$	252.8	79.8	%	$	571.0	79.9	%	$	507.3	79.9	%
International:
	Canada			27.5	7.7			25.5	8.1			55.9	7.8			49.7	7.8
	Europe			26.5	7.4			24.2	7.6			52.1	7.3			47.2	7.4
	Mexico			5.5	1.5			4.6	1.5			11.8	1.7			11.0	1.7
	Other international locations			12.1	3.5			9.5	3.0			24.1	3.3			19.6	3.2

		Total international		71.6	20.1			63.8	20.2			143.9	20.1			127.5	20.1

		Total company	$	355.9	100.0	%	$	316.6	100.0	%	$	714.9	100.0	%	$	634.8	100.0	%

		Three months ended May 30, 2004		Three months ended June 1, 2003		Six months ended May 30, 2004		Six months ended June 1, 2003
		($'s in thousands)
Mattress Discounters Corporation(1)		$	1,441	$	6,446	$	7,030	$	14,594
International retailer			—		1,711		—		4,471
	Total sales to affiliates	$	1,441	$	8,157	$	7,030	$	19,065

Note 19: Guarantor/Non-Guarantor Financial Information

The Parent (as defined below) and each of the subsidiaries of Sealy Mattress Company ~~believes~~(the "Issuer") that guarantee the ~~terms~~Notes (as defined below) (the "Guarantor Subsidiaries") have fully and unconditionally guaranteed, on ~~which~~a ~~mattresses~~joint ~~were~~and ~~supplied~~several basis, the obligation to ~~these~~pay ~~affiliates~~principal ~~were~~and ~~not~~interest ~~materially~~with ~~more~~respect orto ~~less~~the ~~favorable~~8.25% ~~than~~Senior ~~those~~Subordinated ~~that~~Notes ~~might~~due ~~reasonably~~2014 be(the ~~obtained~~"Notes") inof the Issuer. Substantially all of the Issuer's operating income and cash flow is generated by its subsidiaries. As a ~~comparable~~result, ~~transaction~~funds onnecessary anto ~~arm~~meet the Issuer's ~~length~~debt ~~basis~~service obligations are provided in part by distributions or advances from aits ~~person~~subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Issuer's subsidiaries, could limit the Issuer's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. Although holders of the Notes will be direct creditors of the Issuer's principal direct subsidiaries by virtue of the guarantees, the Issuer has subsidiaries ("Non-Guarantor Subsidiaries") that isare not anincluded ~~affiliate~~among orthe ~~related~~Guarantor ~~party~~Subsidiaries, and such subsidiaries will not be obligated with respect to the Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Issuer, including the holders of the Notes.

~~Included~~The infollowing ~~fees,~~supplemental ~~expenses~~consolidating ~~and~~condensed ~~other~~financial ~~transaction~~statements ~~costs~~present: ~~as shown in Note 2 are approximately $31.8 million of merger and acquisition advisory fees paid to KKR and Bain Capital, LLC.~~

1.: Consolidating condensed balance sheets as of May 29, 2005 and November 28, 2004 and consolidating condensed statements of operations for the three and six months ended May 29, 2005 and May 30, 2004 and the consolidating condensed statements of operations and cash flows for the six months ended May 29, 2005 and May 30, 2004.
2.: Sealy Corporation, for periods prior to April 6, 2004, and Sealy Mattress Corporation, as Successor to Sealy Corporation from April 6, 2004 (see Note 1) (each, for the respective period, the "Parent" and a "guarantor"), Sealy Mattress Company (the "Issuer"), combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method (see Note 1).
3.: Elimination entries necessary to consolidate the Parent and all of its subsidiaries.

~~Note~~ Separate financial ~~15: Stock~~statements ~~Option~~of ~~and~~each ~~Restricted~~of ~~Stock~~the ~~Plans~~ Guarantor Subsidiaries are not presented because management believes that these financial statements would not be material to investors.

As permitted by FAS 123, "Accounting for Stock-Based Compensation", the Company continues to account for its stock option and stock incentive plans in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and makes no charges (except to the extent required by APB Opinion No. 25) against earnings with respect to options granted. FAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure an Amendment of FASB

~~Statement~~ ~~No. 123"~~ ~~does~~ SEALY ~~however~~MATTRESS ~~require~~CORPORATION Supplemental ~~interim~~Consolidating ~~disclosure~~Condensed ofBalance ~~pro~~Sheet May 29, ~~forma~~2005 (in ~~information regarding net income and earnings per share determined as if the Company had accounted for its stock options under the fair value method.~~ thousands)

For purposes of this pro forma disclosure, the estimated fair value of the options is amortized as an expense over the options' vesting period. The Company recognized compensation expense under APB Opinion No. 25 totaling $45.6 million for the three and six months ended May 30, 2004 in connection with the recapitalization, such expense being included with recapitalization expense in the accompanying condensed consolidated statements of operations (see Note 2). The Company recognized no compensation expense for the three and six months ended June 1, 2003 as all options were granted at or above the fair market value of the stock at the date of grant.

			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets:
	Cash and cash equivalents		$	—		$	2		$	12,317		$	12,719		$	—		$	25,038
	Accounts receivable, net			—			12			128,327			57,101			—			185,440
	Inventories			—			2,595			36,096			17,587			—			56,278
	Assets held for sale			—			—			4,270			—			—			4,270
	Prepaid expenses, deferred taxes and other current assets			—			3,399			16,522			4,916			—			24,837

				—			6,008			197,532			92,323			—			295,863
Property, plant and equipment, at cost				—			7,316			243,633			68,734			—			319,683
Less: accumulated depreciation				—			(3,783	)		(127,786	)		(21,151	)		—			(152,720	)

				—			3,533			115,847			47,583			—			166,963
Other assets:
	Goodwill			—			24,741			304,773			54,726			—			384,240
	Other intangibles, net			—			—			4,158			312			—			4,470
	Net investment in and advances to (from) subsidiaries			(368,143	)		926,172			(223,815	)		(68,927	)		(265,287	)		—
	Debt issuance costs, net and other assets			—			27,984			6,659			1,251			—			35,894

				(368,143	)		978,897			91,775			(12,638	)		(265,287	)		424,604

		Total assets	$	(368,143	)	$	988,438		$	405,154		$	127,268		$	(265,287	)	$	887,430

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Current portion of long-term obligations		$	—		$	8,800		$	16		$	11,860		$	—		$	20,676
	Accounts payable			—			250			65,920			37,388			—			103,558
	Accrued interest			—			974			17,483			91			—			18,548
	Accrued incentives and advertising			—			—			28,734			3,791			—			32,525
	Accrued compensation			—			185			25,460			6,866			—			32,511
	Other accrued expenses			—			2,895			33,007			5,999			—			41,901

				—			13,104			170,620			65,995			—			249,719
Due to parent company				—			—			6,094			—			—			6,094
Long-term obligations, net				—			916,200			76			15,181			—			931,457
Other noncurrent liabilities				—			917			34,595			7,843			—			43,355
Deferred income taxes				(9,296	)		879			17,907			6,162			—			15,652
Stockholders' equity (deficit)				(358,847	)		57,338			175,862			32,087			(265,287	)		(358,847	)

		Total liabilities and stockholders' equity (deficit)	$	(368,143	)	$	988,438		$	405,154		$	127,268		$	(265,287	)	$	887,430

	Three months ended						Six months ended
	May 30, 2004			June 1, 2003			May 30, 2004			June 1, 2003
	(In thousands)
Net income (loss), as reported	$	(82,158	)	$	(1,018	)	$	(70,897	)	$	8,075
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax		(1,289	)		145			(1,249	)		290
Pro forma net income (loss)	$	(80,869	)	$	(1,163	)	$	(69,648	)	$	7,785

Note 16: Segment Information

The Company operates predominantly in one industry segment, that being the manufacture and marketing of conventional bedding.

~~Note~~ ~~17: Guarantor/Non-Guarantor~~ ~~Financial~~ SEALY ~~Information~~ MATTRESS CORPORATION Supplemental Consolidating Condensed Balance Sheet November 28, 2004 (in thousands)

The Parent (as defined below) and each of the subsidiaries of Sealy Mattress Company (the "Issuer") that guarantee the Notes (as defined below) (the "Guarantor Subsidiaries") has fully and unconditionally guaranteed, on a joint and several basis, the obligation to pay principal and interest with respect to the 8.25% Senior Subordinated Notes due 2014 (the "Notes") of the Issuer. Substantially all of the Issuer's operating income and cash flow is generated by its subsidiaries. As a result, funds necessary to meet the Issuer's debt service obligations are provided in part by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of the Issuer's subsidiaries, could limit the Issuer's ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Notes. Although holders of the Notes will be direct creditors of the Issuer's principal direct subsidiaries by virtue of the guarantees, the Issuer has subsidiaries ("Non-Guarantor Subsidiaries") that are not included among the Guarantor Subsidiaries, and such subsidiaries will not be obligated with respect to the Notes. As a result, the claims of creditors of the Non-Guarantor Subsidiaries will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of the Issuer, including the holders of the Notes.

	Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—		$	2		$	5,142		$	17,635		$	—		$	22,779
Accounts receivable, net		—			61			106,511			66,257			—			172,829
Inventories		—			1,047			35,014			15,862			—			51,923
Assets held for sale		—			—			8,983			—			—			8,983
Prepaid expenses, deferred income taxes and other current assets		—			4,616			33,933			4,062			—			42,611

		—			5,726			189,583			103,816			—			299,125
Property, plant and equipment, at cost		—			6,962			233,339			69,618			—			309,919
Less accumulated depreciation		—			(3,620	)		(123,132	)		(18,988	)		—			(145,740	)

		—			3,342			110,207			50,630			—			164,179
Other assets:
Goodwill		—			24,741			304,773			57,994			—			387,508
Other intangibles, net		—			—			4,303			252			—			4,555
Net investment in and advances to (from) subsidiaries		(389,163	)		941,617			(210,360	)		(94,885	)		(247,209	)		—
Debt issuance costs, net, and other assets		—			33,729			7,094			1,087			—			41,910

		(389,163	)		1,000,087			105,810			(35,552	)		(247,209	)		433,973

Total assets	$	(389,163	)	$	1,009,155		$	405,600		$	118,894		$	(247,209	)	$	897,277

Liabilities And Stockholders' deficit
Current liabilities:
Current portion—long-term obligations	$	—		$	—		$	22		$	8,520		$	—		$	8,542
Accounts payable		—			189			56,056			40,321			—			96,566
Accrued customer incentives and advertising		—			1,552			28,549			5,728			—			35,829
Accrued compensation		—			270			29,622			7,250			—			37,142
Accrued interest		—			2,518			24,790			58			—			27,366
Other accrued expenses		—			5,428			39,857			4,510			—			49,795

		—			9,957			178,896			66,387			—			255,240
Due to (from) parent company		3,876			(500	)		—			—			—			3,376
Long-term obligations		—			965,000			21			774			—			965,795
Other noncurrent liabilities		—			2,254			34,847			8,673			—			45,774
Deferred income taxes		(9,296	)		122			13,101			6,908			—			10,835
Stockholders' equity (deficit)		(383,743	)		32,322			178,735			36,152			(247,209	)		(383,743	)

Total liabilities and stockholders' deficit	$	(389,163	)	$	1,009,155		$	405,600		$	118,894		$	(247,209	)	$	897,277

The following supplemental consolidating condensed financial statements present:

Separate financial statements of each of the Guarantor Subsidiaries are not presented because Management believes that these financial statements would not be material to investors.

SEALY MATTRESS CORPORATION Supplemental ~~Consolidating~~Consolidated Condensed ~~Balance~~Statements ~~Sheet~~ of Operations Three Months Ended May 3029, ~~2004~~ 2005 (in thousands)

			Sealy Mattress Corporation	~~Sealy Mattress Corporation~~		Sealy Mattress Company	~~Sealy Mattress Company~~		Combined Guarantor Subsidiaries	~~Combined Guarantor Subsidiaries~~		Combined Non-Guarantor Subsidiaries	~~Combined Non-Guarantor Subsidiaries~~		Eliminations	~~Eliminations~~		Consolidated	~~Consolidated~~
ASSETS
Net sales			$	—		$	14,959		$	276,062		$	69,894		$	(5,025	)	$	355,890
Current assets:
Costs and expenses:
	Cash and cash equivalents			$	—		$	2		$	15,520		$	9,476		$	—		$	24,998
	Cost of goods sold			—			9,139			150,311			44,352			(5,025	)		198,777
	Accounts receivable—Non- affiliates, net				—			32			110,257			56,565			—			166,854
	Selling, general and administrative			—			1,500			88,027			20,935			—			110,462
	Accounts receivable—Affiliates, net				—			—			—			—			—			—
	Amortization of intangibles			—						72			40			—			112
	Inventories				—			1,280			34,933			15,902			—			52,115
	Royalty income, net			—			—			(4,265	)		549			—			(3,716	)
	Prepaid expenses, deferred taxes and other current assets				—			5,489			55,903			5,187			—			66,579
Loss from operations				—			4,320			41,917			4,018			—			50,255
					—			6,803			216,613			87,130			—			310,546
	Interest expense			100			17,960			(18	)		363			—			18,405
Property, plant and equipment, at cost					—			6,343			237,003			61,824			—			305,170
	Other (income) expense, net			—			6,248			—			(65	)		—			6,183
Less: accumulated depreciation					—			3,268			118,868			15,195			—			137,331
	Loss (income) from equity investees			(7,733	)		(9,488	)		—			—			17,221			—
					—			3,075			118,135			46,629			—			167,839
	Loss (income) from nonguarantor equity investees			—			—			802			—			(802	)		—
Other assets:
	Capital charge and intercompany interest allocation			—			(16,960	)		16,321			639			—			—
	Goodwill				—			30,367			299,147			51,701			—			381,215
Income (loss) before income taxes				7,633			6,560			24,812			3,081			(16,419	)		25,667
	Other intangibles, net				—			—			4,271			620			—			4,891
Income tax (benefit) expense				(28	)		(1,173	)		15,324			3,883			—			18,006
	Net investment in and advances to (from) subsidiaries				(425,502	)		912,178			(313,986	)		(73,736	)		(98,954	)		—
Net income (loss)			$	7,661		$	7,733		$	9,488		$	(802	)	$	(16,419	)	$	7,661
	Long-term notes receivable				—			—			—			—			—			—
	Debt issuance costs, net and other assets				—			35,445			9,055			2,394			—			46,894
					(425,502	)		977,990			(1,513	)		(19,021	)		(98,954	)		433,000
		Total assets		$	(425,502	)	$	987,868		$	333,235		$	114,738		$	(98,954	)	$	911,385
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
	Current portion of long-term obligations			$	—		$	5,600		$	—		$	6,289		$	—		$	11,889
	Accounts payable				—			159			58,428			35,923			—			94,510
	Accrued interest				—			492			10,261			53			—			10,806
	Accrued incentives and advertising				—			1,171			27,088			4,465			—			32,724
	Accrued compensation				—			74			17,898			6,347			—			24,319
	Other accrued expenses				24			19,490			33,328			5,071			—			57,913
					24			26,986			147,003			58,148			—			232,161
Long-term obligations, net					—			1,044,400			44			1,535			—			1,045,979
Other noncurrent liabilities					—			3,300			30,618			6,591			—			40,509
Deferred income taxes					(63	)		(1,202	)		15,112			4,352			—			18,199
Stockholders' equity (deficit)					(425,463	)		(85,616	)		140,458			44,112			(98,954	)		(425,463	)
		Total liabilities and stockholders' equity (deficit)		$	(425,502	)	$	987,868		$	333,235		$	114,738		$	(98,954	)	$	911,385

SEALY MATTRESS COPRORATION Supplemental Consolidating Condensed Balance Sheet November 30, 2003 (in thousands)

			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
	Cash and cash equivalents		$	—		$	31		$	90,985		$	10,084		$	—		$	101,100
	Accounts receivable—Non-affiliates, net			15			—			103,320			57,649			—			160,984
	Accounts receivable—Affiliates, net									1,758						—			1,758
	Inventories			—			1,774			33,258			14,381			—			49,413
	Prepaid expenses, deferred income taxes and other current assets			(63	)		6,510			31,794			5,163			—			43,404
				(48	)		8,315			261,115			87,277			—			356,659
Property, plant and equipment, at cost				—			6,485			231,966			61,267			—			299,718
Less accumulated depreciation				—			3,339			111,777			13,777			—			128,893
				—			3,146			120,189			47,490			—			170,825
Other assets:
	Goodwill			—			14,816			314,698			52,377			—			381,891
	Other intangibles, net			—			—			4,415			949			—			5,364
	Net investment in and advances to (from) subsidiaries and affiliates			(18,896	)		613,359			(349,653	)		(91,683	)		(153,127	)		—
	Long-term notes receivable			—			—			—			13,323			—			13,323
	Debt issuance costs, net, and other assets			96			17,946			10,535			2,427			—			31,004
				(18,800	)		646,121			(20,005	)		(22,607	)		(153,127	)		431,582
		Total assets	$	(18,848	)	$	657,582		$	361,299		$	112,160		$	(153,127	)	$	959,066
Liabilities And Stockholders' Equity (Deficit)
Current liabilities:
	Current portion—long-term obligations		$	—		$	41,918		$	—		$	5,705		$	—		$	47,623
	Accounts payable			—			204			51,851			33,423			—			85,478
	Accrued customer incentives and advertising			—			1,369			29,045			5,132			—			35,546
	Accrued compensation			—			102			21,675			5,806			—			27,583
	Accrued interest			847			1,028			21,109			581			—			23,565
	Other accrued expenses			10			7,842			31,385			5,602			—			44,839
				857			52,463			155,065			56,249			—			264,634
Long-term obligations				49,989			648,056			44			1,541			—			699,630
Other noncurrent liabilities				6,998			6,202			29,095			6,556			—			48,851
Deferred income taxes				(530	)		(1,202	)		19,590			4,255			—			22,113
Stockholders' equity (deficit)				(76,162	)		(47,937	)		157,505			43,559			(153,127	)		(76,162	)
Total liabilities and stockholders' equity (deficit)			$	(18,848	)	$	657,582		$	361,299		$	112,160		$	(153,127	)	$	959,066

SEALY MATTRESS CORPORATION

Supplemental Consolidated Condensed Statements of Operations

Three Months Ended May 30, 2004

(in thousands)

			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales—Non-affiliates			$	—		$	12,578		$	245,194		$	62,282		$	(4,941	)	$	315,113
Net sales—Affiliates				—			—			1,441			—			—			1,441
		Total net sales		—			12,578			246,635			62,282			(4,941	)		316,554
Costs and expenses:
	Cost of goods sold—Non- affiliates			—			7,998			137,028			39,025			(4,941	)		179,110
	Cost of goods sold—Non-affiliates			—			7,998			137,028			39,025			(4,941	)		179,110
	Cost of goods sold—Affiliates			—			—			827			—			—			827
		Total cost of goods sold		—			7,998			137,855			39,025			(4,941	)		179,937
		Gross profit		—			4,580			108,780			23,257			—			136,617
	Selling, general and administrative			5			3,380			82,341			20,021			—			105,747
	Stock based compensation			—			—			—			—			—			—
	Recapitalization expense			41,753			36,871			50,224			3,892			—			132,740
	Recapitalization expense			41,753			36,871			50,224			3,892						132,740
	Amortization of intangibles			—						72			224			—			296
	Royalty income, net			—			—			(3,599	)		280			—			(3,319	)
Loss from operations				(41,758	)		(35,671	)		(20,258	)		(1,160	)		—			(98,847	)
	Interest expense			582			16,089			2			241			—			16,914
	Other (income) expense, net			4			—			(139	)		(173	)		—			(308	)
	Loss (income) from equity investees			51,288			27,299			—			—			(78,587	)		—
	Loss (income) from nonguarantor equity investees			—			(3,028	)		3,734			—			(706	)		—
	Capital charge and intercompany interest allocation			(587	)		(15,291	)		15,221			657			—			—
Income (loss) before income taxes				(93,045	)		(60,740	)		(39,076	)		(1,885	)		79,293			(115,453	)
Income tax (benefit) expense				(10,887	)		(9,452	)		(11,777	)		(1,179	)		—			(33,295	)
Net income (loss)			$	(82,158	)	$	(51,288	)	$	(27,299	)	$	(706	)	$	79,293		$	(82,158	)

SEALY MATTRESS CORPORATION

Supplemental Consolidating Condensed Statements of Operations

Six Months Ended May 29, 2005

(in thousands)

		Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales		$	—		$	30,344		$	556,617		$	138,633		$	(10,681	)	$	714,913
Costs and expenses:
	Cost of goods sold		—			18,269			302,806			88,356			(10,681	)		398,750
	Selling, general and administrative		—			3,037			175,514			40,242			—			218,793
	Amortization of intangibles		—			—			144			143			—			287
	Royalty income, net		—			—			(7,367	)		1,023			—			(6,344	)

Income (loss) from operations			—			9,038			85,520			8,869			—			103,427
	Interest expense		176			35,477			(91	)		642			—			36,204
	Other (income) expense		—			6,248			—			(158	)		—			6,090
	Loss (income) from equity investees		(29,633	)		(29,078	)		—			—			58,711			—
	Loss (income) from nonguarantor equity investees		—			—			(1,623	)		—			1,623			—
	Capital charge and intercompany interest allocation		—			(33,509	)		32,124			1,385			—			—

Income (loss) before income taxes			29,457			29,900			55,110			7,000			(60,334	)		61,133
Income tax (benefit) expense			(57	)		267			26,032			5,377			—			31,619

Net income (loss)		$	29,514		$	29,633		$	29,078		$	1,623		$	(60,334	)	$	29,514

SEALY CORPORATION Supplemental Consolidated Condensed Statements of Operations Three Months Ended June 1, 2003 (in thousands)

			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales—Non-affiliates			$	—		$	11,985		$	231,199		$	53,477		$	(35,042	)	$	261,619
Net sales—Affiliates				—			—			6,873			1,284			—			8,157
		Total net sales		—			11,985			238,072			54,761			(35,042	)		269,776
Costs and expenses:
	Cost of goods sold—Non- affiliates			—			8,295			149,522			34,294			(35,042	)		157,069
	Cost of goods sold—Affiliates			—			—			4,027			854			—			4,881
		Total cost of goods sold		—			8,295			153,549			35,148			(35,042	)		161,950
		Gross profit		—			3,690			84,523			19,613			—			107,826
	Selling, general and administrative			37			3,538			72,676			16,465			—			92,716
	Stock based compensation			450			—			—			—			—			450
	Amortization of intangibles			—						73			200			—			273
	Royalty income, net			—			—			(3,092	)		244			—			(2,848	)
Income (loss) from operations				(487	)		152			14,866			2,704			—			17,235
	Interest (income) expense			1,452			14,989			(16	)		450			—			16,875
	Other (income) expense, net			—			2,531			(108	)		(626	)		—			1,797
	Loss (income) from equity investees			761			(1,490	)		—			—			729			—
	Loss (income) from nonguarantor equity investees			—			412			(1,553	)		—			1,141			—
	Capital charge and intercompany interest allocation			(1,489	)		(14,192	)		14,787			894			—			—
Income (loss) before income taxes				(1,211	)		(2,098	)		1,756			1,986			(1,870	)		(1,437	)
Income tax (benefit) expense				(193	)		(1,337	)		266			845			—			(419	)
Net income (loss)			$	(1,018	)	$	(761	)	$	1,490		$	1,141		$	(1,870	)	$	(1,018	)

SEALY MATTRESS CORPORATION

Supplemental Consolidating Condensed Statements of Operations

Six Months Ended May 30, 2004

(in thousands)

			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales—Non-affiliates			$	—		$	23,277		$	489,542		$	123,762		$	(8,859	)	$	627,722
Net sales—Affiliates				—			—			7,030			—			—			7,030
		Total net sales		—			23,277			496,572			123,762			(8,859	)		634,752
Costs and expenses:
	Cost of goods sold—Non-affiliates			—			14,995			275,804			77,563			(8,859	)		359,503
	Cost of goods sold—Affiliates			—			—			4,035			—			—			4,035
		Total cost of goods sold		—			14,995			279,839			77,563			(8,859	)		363,538
		Gross profit		—			8,282			216,733			46,199			—			271,214
	Selling, general and administrative			26			6,613			163,174			37,560			—			207,373
	Stock based compensation			—			—			—			—			—			—
	Recapitalization expense			41,753			36,871			50,224			3,892			—			132,740
	Recapitalization Expense			41,753			36,871			50,224			3,892			—			132,740
	Amortization of intangibles			—			—			144			446			—			590
	Royalty income, net			—			—			(7,250	)		547			—			(6,703	)
Income (loss) from operations				(41,779	)		(35,202	)		10,441			3,754			—			(62,786	)
	Interest expense			1,891			31,429			4			534			—			33,858
	Other (income) expense			4			—			(326	)		(420	)		—			(742	)
	Loss (income) from equity investees			40,027			16,058			—			—			(56,085	)		—
	Loss (income) from nonguarantor equity investees			—			(3,244	)		1,528			—			1,716			—
	Capital charge and intercompany interest allocation			(1,917	)		(29,821	)		30,419			1,319			—			—
Income (loss) before income taxes				(81,784	)		(49,624	)		(21,184	)		2,321			54,369			(95,902	)
Income tax (benefit) expense				(10,887	)		(9,597	)		(5,126	)		605			—			(25,005	)
Net income (loss)			$	(70,897	)	$	(40,027	)	$	(16,058	)	$	1,716		$	54,369		$	(70,897	)

SEALY MATTRESS CORPORATION

Supplemental Consolidating Condensed Statements of Cash Flows

Six Months Ended May 29, 2005

(in thousands)

		Sealy Mattress Corporation		Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash operating activities		$	—	$	1,301		$	29,727		$	3,707		$	—	$	34,735

Cash flows from investing activities:
	Purchase of property, plant and equipment, net		—		(369	)		(13,581	)		(857	)		—		(14,807	)
	Proceeds from the sale of property, plant and equipment		—		—			4,648			—			—		4,648
	Net activity in investment in and advances to (from) subsidiaries		—		39,273			(40,329	)		1,056			—		—

Net proceeds provided investing activities			—		38,904			(49,262	)		199			—		(10,159	)
Cash flows from financing activities:
	Repayments of other long-term obligations, net		—		(35,000	)		—			—			—		(35,000	)
	Net borrowings under revolving credit facilities		—		(5,000	)		55			10,206			—		5,261
	Other borrowings		—		—			—			8,149			—		8,149
	Intercompany dividend associated with international repatriation		—		—			26,449			(26,449	)		—		—
	Other		—		(205	)		206			—			—		1

Net cash used in financing activities			—		(40,205	)		26,710			(8,094	)		—		(21,589	)

Effect of exchange rate on cash			—		—			—			(728	)		—		(728	)
Change in cash and cash equivalents			—		—			7,175			(4,916	)		—		2,259
Cash and cash equivalents:
	Beginning of period		—		2			5,142			17,635			—		22,779

	End of period	$	—	$	2		$	12,317		$	12,719		$	—	$	25,038

SEALY CORPORATION Supplemental Consolidating Condensed Statements of Operations Six Months Ended June 1, 2003 (in thousands)

			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales—Non-affiliates			$	—		$	26,034		$	481,234		$	103,816		$	(72,062	)	$	539,022
Net sales—Affiliates				—			—			15,021			4,044			—			19,065
		Total net sales		—			26,034			496,255			107,860			(72,062	)		558,087
Costs and expenses:
	Cost of goods sold—Non-affiliates			—			18,047			304,408			65,628			(72,062	)		316,021
	Cost of goods sold—Affiliates			—			—			8,622			2,662			—			11,284
		Total cost of goods sold		—			18,047			313,030			68,290			(72,062	)		327,305
		Gross profit		—			7,987			183,225			39,570			—			230,782
	Selling, general and administrative			75			7,767			144,283			33,248			—			185,373
	Stock based compensation			990			—			—			—			—			990
	Amortization of intangibles			—			—			145			388			—			533
	Royalty income, net			—			—			(6,026	)		465			—			(5,561	)
Income (loss) from operations				(1,065	)		220			44,823			5,469			—			49,447
	Interest expense			2,863			30,325			4			760			—			33,952
	Other (income) expense			(1	)		2,531			(219	)		(810	)		—			1,501
	Loss (income) from equity investees			(8,650	)		(11,444	)		—			—			20,094			—
	Loss (income) from nonguarantor equity investees			—			512			(2,646	)		—			2,134			—
	Capital charge and intercompany interest allocation			(2,938	)		(28,711	)		29,800			1,849			—			—
Income (loss) before income taxes				7,661			7,007			17,884			3,670			(22,228	)		13,994
Income tax (benefit) expense				(414	)		(1,643	)		6,440			1,536			—			5,919
Net income (loss)			$	8,075		$	8,650		$	11,444		$	2,134		$	(22,228	)	$	8,075

SEALY MATTRESS CORPORATION

Supplemental Consolidating Condensed Statements of Cash Flows

Six Months Ended May 30, 2004

(in thousands)

			Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash operating activities			$	—		$	(2,403	)	$	(48,598	)	$	56,~~899~~080		$	—	$	(4544,~~102~~921	)
Cash flows from investing activities:
	Purchase of property, plant and equipment, net			—			(135	)		(10,190	)		(1,~~108~~117	)		—		(11,~~433~~442	)
	Cash received from affiliate note and investment			—			—			—			13,573			—		13,573
	Proceeds from the sale of property, plant and equipment			—			—			1,444			—			—		1,444
	Net activity in investment in and advances to (from) subsidiaries			362,017			(324,365	)		(18,121	)		(19,531	)		—		—
Net proceeds provided investing activities				362,017			(324,500	)		(26,867	)		(7,~~066~~075	)		—		3,~~584~~575
Cash flows from financing activities:
	Cash flows associated with financing of the recapitalization (Note 2):
	Cash flows associated with financing of the recapitalization:
		Proceeds from issuance of common stock		436,050			—			—			—			—		436,050
		Treasury stock repurchase (including direct expenses of $7,608)		(748,141	)		—			—			—			—		(748,141	)
		Proceeds from the issuance of new long-term debt		—			1,050,000			—			—			—		1,050,000
		Repayment of existing long-term debt		(49,989	)		(687,139	)		—			—			—		(737,128	)
		Debt issuance costs		—			(35,987	)		—			—			—		(35,987	)
	Borrowings (repayments) of other long-term obligations, net												559					559
	Other borrowings												563					563
	Equity contributions from exercise of stock options			63			—			—			—			—		63
Net cash used in financing activities				(362,017	)		326,874			—			~~559~~563			—		(34,~~584~~580	)
Effect of exchange rate on cash				—			—			—			(176	)		—		(176	)
Change in cash and cash equivalents				—			(29	)		(75,465	)		(608	)		—		(76,102	)
Cash and cash equivalents:
	Beginning of period			—			31			90,985			10,084			—		101,100
	End of period		$	—		$	2		$	15,520		$	9,476		$	—	$	24,998

2423

SEALY CORPORATION Supplemental Consolidating Condensed Statements of Cash Flows Six Months Ended June 1, 2003 (in thousands)

		Sealy Mattress Corporation			Sealy Mattress Company			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash operating activities		$	—		$	55		$	8,379		$	727		$	—	$	9,161
Cash flows from investing activities:
	Purchase of property, plant and equipment, net		—			(171	)		(5,340	)		(398	)		—		(5,909	)
	Cash received from affiliate note and investment		—			—			—			13,611			—		13,611
	Net activity in investment in and advances to (from) subsidiaries		(87	)		15,435			6,665			(22,013	)		—		—
Net proceeds provided by (used in) investing activities			(87	)		15,264			1,325			(8,800	)		—		7,702
Cash flows from financing activities:
	Proceeds from issuance of long-term obligations		—			51,500			—			—			—		51,500
	Prepayment of Tranche debt		—			(49,000	)		—			—			—		(49,000	)
	Repayment of long-term obligations, net		—			(14,336	)		9			6,156			—		(8,171	)
	Equity issuances		87			—			—			—			—		87
	Debt issuance costs		—			(3,480	)		—			—			—		(3,480	)
Net cash (used in) financing activities			87			(15,316	)		9			6,156			—		(9,064	)
Change in cash and cash equivalents			—			3			9,713			(1,917	)		—		7,799
Cash and cash equivalents:
	Beginning of period		—			28			21,881			5,534			—		27,443
	End of period	$	—		$	31		$	31,594		$	3,617		$	—	$	35,242

SEALY MATTRESS CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Business ~~Merger and Recapitalization~~Overview

AsSealy ~~more~~Mattress ~~fully~~Corporation, ~~discussed~~through inour ~~Note 2~~subsidiaries, tois the ~~Condensed~~largest ~~Consolidated~~bedding ~~Financial~~manufacturer ~~Statements~~in ~~(Part I~~the world, ~~Item~~with 1a ~~included~~wholesale ~~herein),~~domestic onmarket ~~April~~share of 21.3% in 2004. We estimate that our market share has increased slightly through May 629, ~~2004~~2005. We manufacture and market a complete line of bedding (innerspring and non-innerspring) products including mattresses and box springs, holding leading positions in key market segments such as luxury bedding products and among leading retailers. According to Home Furnishing News in 2003, the Sealy ~~Corporation~~brand ~~completed~~ranked a9th ~~merger~~among ~~with~~the ~~affiliates~~top of150 ~~Kohlberg~~home ~~Kravis~~products ~~Roberts~~brands. Our conventional bedding products include the SEALY®, SEALY POSTUREPEDIC®, STEARNS & CoFOSTER® and BASSETT® brands and account for approximately 88.4% of the our total net sales for the year ended November 28, 2004. LIn addition to our innerspring bedding, we also produce a variety of visco-elastic (memory foam) and latex foam bedding products.P. Though sales of such products were not significant in the first quarter of 2005, we expect to experience growth in these product lines in 2005 as we seek to strengthen our competitive position in the specialty bedding (~~"KKR"~~non-innerspring mattress) ~~whereby~~market. We ~~KKR~~distinguish ~~acquired~~ourselves from our major competitors by maintaining our own component parts manufacturing capability and producing substantially all of our mattress innerspring requirements and approximately 9246% of ~~Sealy~~our ~~Corporation's~~boxspring ~~capital~~component ~~stock~~parts requirements. ~~Certain~~We believe that our industry is resilient to economic downturns due in part to the large portion of ~~Sealy Corporation's~~purchases, ~~current~~approximately ~~stockholders~~70%, ~~including~~which are ~~affiliates~~for mattress replacements. The growth of ~~Bain~~the ~~Capital,~~bedding ~~LLC~~industry has been supported by economic and ~~others~~demographic (factors such as increasing disposable income among the "~~Rollover~~baby ~~Stockholders~~boomer"), ~~retained~~segment ~~approximately~~of the population, an 8%increase ~~interest~~ in ~~Sealy~~the ~~Corporation's~~number ~~stock~~of bedrooms per home and also second home purchases, and growing awareness of the health benefits of quality sleep.

InOn ~~connection~~April 6, ~~with~~2004 ~~the~~our ~~merger~~parent company, Sealy Corporation, ~~paid~~completed ~~off~~a merger with affiliates of Kohlberg Kravis Roberts & Co. L.P. ("KKR") whereby KKR acquired approximately 92% of Sealy Corporation's capital stock. In connection with the merger, we recapitalized substantially all of ~~its~~our outstanding debt. ~~and~~A ~~accrued~~full ~~interest~~description asof the effects of ~~April~~the merger and recapitalization is included in our 2004 Annual Report on Form 610-K, ~~2004~~filed ~~totaling~~with ~~$751.1~~the Securities and Exchange Commission on February ~~million~~28, 2005. ~~Sealy~~Although we incurred substantially increased levels of debt in ~~Corporation's~~the ~~capital~~recapitalization, ~~stock~~our ~~outstanding~~cost ~~immediately~~of ~~prior~~capital was reduced due to lower interest rates on the ~~merger~~new debt compared with our earlier financing, ~~except~~and our total interest costs have remained comparable with ~~respect~~those prior to ~~those~~the ~~shares~~recapitalization. toOn beApril 14, ~~retained~~2005, we further reduced our cost of capital by ~~the~~amending ~~Rollover~~and ~~Stockholders~~restating our senior secured credit agreement. The amendment provided an additional $100 million of senior secured term loans which were used to repay our senior unsecured term loans, ~~was~~reducing ~~cancelled~~our ~~and~~interest ~~exchanged~~costs ~~for~~going ~~aggregate~~forward. Due to our strong operating cash flow since the ~~consideration~~recapitalization, ofwe ~~approximately~~have been able to repay $~~740.5~~125 million ~~plus~~of ~~direct~~our ~~costs~~senior secured term debt significantly ahead of $7schedule.~~6 million~~ Our strategy for the remainder of 2005 is to continue to deleverage our business through additional prepayments of our long-term debt as permitted by our senior credit agreements and our operating cash flow.

~~Sealy~~On ~~Corporation issued new Class~~June A30, ~~common~~2005, ~~stock~~our toparent ~~KKR~~company, inSealy ~~exchange~~Corporation, ~~for~~filed ~~cash~~a inRegistration ~~the~~Statement ~~amount~~on ~~of $436.1~~Form ~~million,~~S-1 ~~and~~with the ~~Rollover~~Securities ~~Stockholders~~and ~~retained~~Exchange ~~their~~Commission ~~Class A Common Stock~~ in ~~proportion to their respective ownership interests. The Company issued new debt totaling $1,050 million consisting of a new $125 million floating rate senior secured~~connection ~~revolving credit facility~~ with a ~~six-year~~proprosed ~~maturity~~initial ~~(under~~public ~~which~~offering ~~no amounts were drawn at the time~~ of ~~the~~its ~~recapitalization),~~common astock. ~~new~~The ~~$560 million~~proceeds ~~floating~~from ~~rate~~any ~~senior~~such ~~secured~~offering ~~term~~are ~~loan facility~~anticipated ~~with~~to anbe ~~eight-year maturity~~used, ~~$100 million under~~among aother ~~floating~~things, ~~rate~~to ~~senior~~redeem ~~unsecured term loan with~~ a ~~nine-year~~portion ~~maturity, and $390 million aggregate principal amount~~ of ~~new~~our ~~Senior~~senior ~~Subordinated~~subordinated ~~Notes bearing interest at 8.25%~~notes due ~~June 15,~~in 2014.

In ~~connection with the recapitalization~~2004, ~~the~~we ~~Company~~successfully ~~incurred~~completed ~~related costs and pre-tax expenses totaling $176.3 million, including $36.0 million capitalized as deferred debt issuance costs to be amortized over~~ the ~~respective~~rollout ~~terms~~ of ~~the~~our new ~~debt~~single-sided, ~~and $7.6 million of costs charged against additional paid~~"no-inflip" ~~capital~~Sealy ~~associated~~UniCased® ~~with~~and ~~the repurchase of previously outstanding shares as noted above. The remaining $132.7~~Stearns ~~million~~& ofFoster ~~expenses~~TripLCased® ~~resulted~~product lines in ~~a pre-tax charge against earnings for~~ the ~~three~~United ~~and six months ended May 30~~States, ~~2004. Included in the charge were compensation expenses of approximately $53.4 million for the cash settlement or non-cash rollover of stock options~~Canada, ~~management retention bonuses~~ and ~~the~~Mexico, ~~cancellation~~representing ~~of an executive's contract. Also included were $11.8 million for~~ the ~~write-off~~broadest ofproduct ~~debt~~redesign ~~issuance~~in ~~costs~~our ~~and premiums associated with the previous debt, and $20~~history.~~4 million~~ ~~for~~The ~~the~~manufacture ~~payment of premium~~ and ~~consent~~sale ~~fees associated with the repayment~~ of ~~the~~these ~~previous~~products ~~public~~for ~~debt.~~our ~~The~~Sealy ~~remaining~~Posturepedic ~~charges~~lines ~~represent~~began ~~other~~in ~~non~~mid-~~recurring~~2003, ~~charges~~followed ~~primarily~~by ~~associated with advisory fees and expenses paid in connection with~~ the ~~merger~~introduction ~~and recapitalization. Of the total pre-tax charge~~ of ~~$132.7 million,~~ ~~approximately $41.3 million were non-cash charges. Cash costs and pre-tax expenses connected with~~ the ~~recapitalization,~~new ~~including the payment of certain previously accrued expenses of approximately $1.1~~Stearns ~~million,~~& ~~totaled approximately $136.1 million, of which $14.4 million was accrued but not yet disbursed at May 30, 2004.~~

~~Quarter Ended May 30, 2004 compared with Quarter Ended June 1, 2003~~ 24

~~Net~~Foster lines ~~Sales. Net~~in ~~sales~~the ~~for~~first ~~the~~fiscal quarter ~~ended~~of ~~May 30,~~ 2004,. ~~were~~Our ~~$316.6 million~~initial anprofitability ~~increase~~from the sales of these new products was limited as we worked to gain manufacturing efficiency with the new designs and ~~$46.8 million,~~supported orour ~~17.3%~~customers' ~~from~~transition to the ~~quarter~~new ~~ended~~products ~~June 1,~~with ~~2003~~price rollbacks. ~~Total~~In ~~domestic~~2004, ~~sales~~with ~~were~~these ~~$252.7 million~~issues ~~for~~substantially behind us, we began to realize the ~~second~~anticipated ~~quarter~~contribution of ~~2004~~these ~~compared~~products to our ~~$213.8 million~~sales ~~for~~growth ~~the second~~and ~~quarter~~profitability, ofwhich ~~2003.~~has ~~The~~continued ~~domestic~~into ~~sales~~the ~~increase~~first half of ~~$38~~2005.~~9 million~~ ~~was~~Our ~~attributable~~profitability tohas abeen ~~12.9%~~further ~~increase~~enhanced inby ~~volume~~rapid ~~and~~growth aamong ~~5.3%~~our ~~increase~~high-end inprice ~~average~~point ~~unit~~($1,000 ~~selling~~and up) ~~price~~luxury bedding lines. ~~The~~Our ~~increase~~shares inof ~~average unit~~the ~~selling~~Luxury ~~price~~and isUltra-Luxury ~~due~~product ~~primarily~~segments toare angreater ~~improved~~than ~~sales~~our ~~mix~~overall ~~from~~market ~~the~~share, ~~Company's~~and ~~new~~our ~~Unicased®~~Stearns & ~~Posturepedic~~Foster ~~line,~~and ~~partially~~Luxury ~~offset~~Posturepedic bylines ~~lower~~directly target these segments.

Late in the first quarter of 2005, we introduced our new TrueForm™ visco-elastic bedding product line to take advantage of the rapid growth of the specialty bedding category. This market, which includes latex foam, visco-elastic and air-adjustable mattress products, has experienced substantial growth both domestically and internationally. We believe that by successfully leveraging our strong brand advantage and our marketing and distribution capabilities, we have the potential to make significant gains in the specialty bedding category.

Our industry continues to be challenged by the high cost of steel and petroleum products, which affect the cost of our steel innerspring and our polyurethane foam and polyethylene component parts. Thus far, we have been able to successfully address these cost pressures through a price increase announced in May of 2004 and cost reduction efforts. During the first half of 2005, the cost of these components has continued to remain elevated above their recent historical averages, and we expect this trend to continue throughout the remainder of 2005.

Historically, the bedding industry has had limited exposure to competition from imports due to high shipping costs, short lead times, the large number of finished goods SKUs and the importance of brands. Although Asian bedding manufacturers have begun to explore the feasibility of exporting their products into the United States, we do not expect that competition from Asian bedding imports will have a significant impact on our business. We believe that by focusing on further improvements in the efficiency of our supply chain, controlling costs, and continuing to invest in product innovation and our brands, we can ensure that our domestically produced products will remain competitive with Asian bedding imports. Furthermore, we believe that the relatively low labor content of our domestically produced mattresses lessens any competitive advantage provided by lower Asian labor costs.

Results of Operations

Tabular Information—Current Fiscal Quarter

The following table sets forth our summarized results of operations for three months ended May 29, 2005 and May 30, 2004, expressed in millions of dollars as well as a percentage of each year's net sales:

		For the three months ended
		May 29, 2005					May 30, 2004
		millions			percentage of net sales		millions			percentage of net sales
Total net sales		$	355.9		100.0	%	$	316.6		100.0	%
Total cost of goods sold			198.8		55.9			179.9		56.8

Gross Profit			157.1		44.1			136.7		43.2
Selling, general and administrative			110.5		31.0			105.8		33.4
Recapitalization expense								132.7		41.9
Amortization of intangibles			0.1		0.0			0.3		0.1
Royalty income, net of royalty expense			(3.7	)	(1.0	)		(3.3	)	(1.0	)

	Income (loss) from operations		50.2		14.1			(98.8	)	(31.2	)
Interest expense			18.4		5.2			16.9		5.3
Other (income) expense, net			6.1		1.7			(0.2	)	(0.1	)

	Income (loss) before income taxes		25.7		7.2			(115.5	)	(36.5	)
Income tax expense (benefit)			18.0		5.1			(33.3	)	(10.5	)

	Net income (loss)	$	7.7		2.1	%	$	(82.2	)	(26.0	)%

Effective tax rate			70.2	%				28.8	%

The following table indicates the percentage distribution of our net sales in U.S. dollars throughout our international operations:

Geographic distribution of sales:

			Three Months Ended:
			May 29, 2005		May 30, 2004
US Domestic			79.9	%	79.8	%
International:
	Canada		7.7		8.1
	Europe		7.4		7.6
	Mexico		1.5		1.5
	Other		3.5		3.0

		Total	100.0	%	100.0	%

~~sales~~ The offollowing ~~other~~table ~~higher-end~~shows ~~products~~our ~~and~~net ~~increased price roll-backs on existing products in conjunction with the roll-out of the TripLCased® Stearns & Foster line. Total international~~ sales ~~were~~and ~~$63.8 million~~margin ~~for~~profitability ~~the second quarter of 2004 compared to $56.0~~ for the ~~second~~major ~~quarter~~geographic ofregions ~~2002. Increases~~ of ~~$7.8 million,~~our ~~or 13.9%~~operations, ~~were~~including ~~primarily~~local ~~attributable to volume gains and favorable~~ currency ~~fluctuations~~results infor the ~~Canadian~~significant ~~and~~international operations: ~~European markets.~~

Cost of Goods Sold. Cost of goods sold for the quarter, as a percentage of net sales, decreased 3.2 percentage points to 56.8%. Cost of goods sold for the domestic business, as a percentage of net sales, decreased 3.5 percentage points to 55.3%. This decrease is primarily due to an increase in average unit selling price due to an improved sales mix with the Unicased product line. Cost of goods sold for the international business, as a percentage of net sales, decreased 1.7 percentage points to 62.8%. This decrease is primarily due to decreased material costs in Canada primarily attributable to favorable exchange rate fluctuations on material purchases from outside the country.

				For the Three Months Ended:
				May 29, 2005				May 30, 2004
				millions		percentage of net sales		millions		percentage of net sales
Total Domestic (US Dollars):
	Total net sales			$	284.3	100.0	%	$	252.8	100.0	%
	Total cost of goods sold				153.2	53.9			139.8	55.3

		Gross profit			131.1	46.1			113.0	44.7
Total International (US Dollars):
	Total net sales				71.6	100.0			63.8	100.0
	Total cost of goods sold				45.6	63.7			40.1	62.9

		Gross profit			26.0	36.3			23.7	37.1
Canada:
	US Dollars:
		Total net sales			27.5	100.0			25.5	100.0
		Total cost of goods sold			16.0	58.2			15.3	60.0

			Gross profit		11.5	41.8			10.2	40.0
	Canadian Dollars:
		Total net sales			33.9	100.0			34.2	100.0
		Total cost of goods sold			19.2	56.6			20.4	59.6

			Gross profit		14.7	43.4			13.8	40.4
Europe:
	US Dollars:
		Total net sales			26.5	100.0			24.2	100.0
		Total cost of goods sold			18.0	67.9			15.7	64.9

			Gross profit		8.5	32.1			8.5	35.1
	Euros:
		Total net sales			20.4	100.0			19.9	100.0
		Total cost of goods sold			13.8	67.6			12.9	64.8

			Gross profit		6.6	32.4			7.0	35.2
Other International (US Dollars):
	Total net sales				17.6	100.0			14.1	100.0
	Total cost of goods sold				11.6	65.9			9.1	64.5

		Gross profit		$	6.0	34.1	%	$	5.0	35.5	%

~~Selling,~~ ~~General,~~Quarter ~~and~~Ended ~~Administrative. Selling, general, and administrative expenses increased $13.0~~May ~~million to $105.7 million~~29, or2005 ~~33.4% of net sales,~~ compared to $92.7 million, or 34.4% of net sales. Advertising and promotion expenses increased $4.9 million over 2003 due to increased cooperative advertising expenses as business activity has risen and increased promotion expenses associated with ~~the~~Quarter ~~launch~~Ended ~~of the Company's new TripLCased design for its Stearns~~May ~~& Foster line. Delivery costs increased $3.3 million due to increased business activity and increased fuel costs. In addition~~30, sales employment costs increased $2.4 million due primarily to salaries and fringe benefits associated with additional headcount, increased travel and entertainment associated with increased business activity and increased outside sales commissions. Corporate overhead and plant administrative expenses increased $4.8 million over the second quarter of 2003 due to increased incentive compensation expense of $1.7 million due to increased business activity. Also, salary and fringe benefit expenses increased $0.8 million associated with newly created positions and the filling of previously vacant staff positions, normal merit increases and increased expense associated with a defined benefit pension plan. The Company also had increased consulting costs associated with the development of a new product development process of $0.6 million, severance associated with a European restructuring of $0.6 million and other various miscellaneous expenses of $1.1 million. These increases were partially offset by a $2.6 million decrease in bad debt expense. 2004

~~Recapitalization~~Net ~~Expense~~Sales. ~~The~~Net ~~Company~~sales ~~incurred~~for ~~approximately~~the quarter ended May 29, 2005, were $~~132~~355.79 million an increase of $39.3 million, ~~recapitalization~~or ~~expenses~~12.4% infrom ~~connection with~~the ~~its~~quarter ~~merger~~ended ~~with~~May 30, ~~affiliates~~2004. Total domestic sales were $284.3 million for the second quarter of ~~Kohlberg~~2005 ~~Kravis~~compared ~~Roberts~~to $252.8 &million Cofor the second quarter of 2004., LThe domestic sales increase of $31.P5 million was attributable to a 2.,4% ~~completed~~increase ~~April 6~~in volume and a 9.9% increase in average unit selling price, due primarily to price increases announced in May 2004 ~~(see~~to ~~Merger~~offset the effects of rising steel costs, and ~~Recapitalization).~~an improved sales mix from our new UniCased® Posturepedic and

Royalty Income, net of royalty expense. Royalty income for the three months ended May 30, 2004 increased $0.5 million over the three months ended June 1, 2003. Both the Company's domestic and international royalty revenues increased over the second quarter of 2003.

Interest Expense. Interest expense was unchanged primarily due to lower effective interest rates having been offset by higher debt levels. See also the previous discussion in Merger and Recapitalization related to the recapitalization and its effects on the Company's debt structure.

Income Tax. The company's effective income tax rate generally differs from the federal statutory rate due to the effects of certain foreign tax rate differentials and state and local income taxes. In 2004, the rate was also affected by certain non-deductible expenses associated with the recapitalization. The Company's effective tax rate for the quarter ended May 30, 2004 was 28.8%. Excluding the effects of the recapitalization, the effective rate would have been 38.9%. The Company's effective rate for the quarter ended June 1, 2003 was 29.2%. This rate was impacted by a higher projected effective tax rate for the full fiscal year as compared to the end of the quarter ended March 1, 2003 resulting in a lower tax benefit as compared to the effective rate for the six months ended June 1, 2003.

TripLCased® Stearns & ~~Six~~Foster ~~Months~~lines. ~~Ended~~Total ~~May~~international sales were $71.6 ~~30,~~million ~~2004~~for the second quarter of 2005 compared ~~with~~to ~~Six~~$63.8 million ~~Months~~for ~~Ended~~the ~~June~~second quarter of 2004, an increase of $7.8 million, or 12.2%. This increase was significantly influenced by favorable exchange rate fluctuations, most notably in our European and Canadian markets, where a local currency sales gain of 2.5% and decline of (0.1)%, ~~2003~~ respectively, translated into gains of 9.5% and 7.8%, respectively, in US Dollars. Local currency changes in our Canadian market were driven by a 10.0% increase in average unit selling price resulting from price increases implemented in response to increased material costs, the successful introduction of our UniCased® product line and improved sales mix, offset by a 10.1% decline in volume. Sales gains in the European market were primarily attributable to a 3.7% increase in volume, partially offset by a 1.1% decline in average unit selling price.

~~Net~~Cost ~~Sales~~of Goods Sold. ~~Net~~Cost ~~sales~~of goods sold for the ~~six~~quarter, ~~months~~as ~~ended~~a ~~May 30,~~percentage ~~2004~~of ~~were~~net ~~$634.8 million~~sales, andecreased ~~increase of $76~~0.79 ~~million,~~percentage orpoints to 1355.79%. ~~from~~Cost ~~the~~of ~~six~~goods ~~months~~sold ~~ended~~for ~~June 1~~the domestic business, ~~2003.~~as ~~Total~~a ~~domestic~~percentage of net sales, ~~were~~decreased ~~$507~~1.25 ~~million~~percentage ~~for~~points ~~the~~to ~~first~~53.9%. ~~six~~This ~~months~~decrease of(as ~~2004~~a ~~compared~~percentage toof ~~$447.6 million~~net ~~for~~sales) ~~the first~~is ~~six~~due ~~months~~primarily ofto ~~2003.~~the ~~The~~increase ~~domestic~~in ~~sales~~average ~~increase~~unit ofselling ~~$59.6 million~~price ~~was~~as ~~attributable~~discussed toabove, apartially ~~9.7%~~offset by ~~increase~~increased inmaterial ~~volume~~costs. ~~and~~On a ~~3.6%~~per ~~increase~~unit inbasis, ~~average~~material ~~unit~~costs ~~selling~~increased ~~price~~17.2% ~~The~~relative ~~increase~~to inthe ~~average unit~~second ~~selling~~quarter ~~price~~of is2004 due primarily to anincreased ~~improved~~steel ~~sales~~and ~~mix~~foam ~~from~~product ~~the~~costs ~~Company's~~as ~~new~~well ~~Unicased®~~as ~~Posturepedic~~changes ~~line,~~in the ~~partially offset by lower~~ sales ofmix ~~other~~toward higher price-~~end~~point products ~~and~~. ~~increased~~Variable ~~price~~conversion ~~roll-backs~~costs, onhowever, ~~existing~~decreased ~~products~~8.0%, inprimarily ~~conjunction~~due ~~with~~to ~~the~~increased ~~roll-out~~manufacturing ofefficiency ~~the~~and ~~TripLCased®~~lower ~~Stearns &~~product ~~Foster~~return ~~line~~costs. ~~Total~~Cost ~~international~~of ~~sales were~~goods ~~$127.5 million~~sold for the ~~six~~international ~~months ended May 30~~business, ~~2004~~as ~~compared~~a topercentage ~~$110.5~~of ~~for~~net ~~the six months ended June 1~~sales, ~~2003.~~increased ~~Increases of $17.~~0.8 ~~million,~~percentage orpoints 15to 63.47%, ~~were~~ primarily ~~attributable~~ due to ~~favorable~~higher ~~currency~~product ~~fluctuations~~return ~~in Canada and Europe and volume gains in the Canadian, European, and Latin American markets~~costs.

~~Cost~~Selling, ofGeneral, ~~Goods~~and ~~Sold~~Administrative. ~~Cost~~Selling, ofgeneral, ~~goods~~and ~~sold~~administrative ~~for~~expenses ~~the~~increased ~~six~~$4.7 million ~~months ended May~~to $110.5 30million, ~~2004,~~or as31.0% ~~a percentage~~ of net sales, ~~decreased 1~~compared to $105.48 ~~percentage~~million, ~~points~~or ~~to 57~~33.34%. ~~Cost~~ of ~~goods~~net ~~sold~~sales. ~~for~~As ~~the domestic business, as~~ a percentage of net sales, ~~decreased~~the 12.64 percentage ~~points~~point ~~to 55.9%. This~~ decrease ishas ~~primarily~~been ~~due~~driven toby anlower ~~increase~~national inadvertising ~~average~~costs ~~unit~~and ~~selling~~reduced ~~price~~provisions ~~due~~for tocustomer anutilization ~~improved~~of ~~sales~~promotional ~~mix~~funds. ~~with~~In ~~the~~addition, ~~Unicased~~ product ~~line.~~delivery ~~Cost~~costs ofand ~~goods~~plant ~~sold~~administrative ~~for~~expenses ~~the~~decreased ~~international business,~~ as a percentage of net sales, ~~decreased 0.7 percentage~~as ~~points~~sales togains ~~62.8%.~~have ~~This~~primarily ~~decrease~~been isrecognized ~~primarily~~through ~~due~~higher toaverage ~~lower~~unit ~~material~~selling ~~costs~~prices inas ~~Canada~~opposed ~~and~~to ~~Brazil~~volume gains.

~~Selling,~~Recapitalization ~~General, and Administrative~~Expense. ~~Selling,~~In ~~general,~~the ~~and~~quarter ~~administrative~~ended ~~expenses increase $22.0~~May ~~million to $207.4 million~~30, ~~or 32.7% of net sales~~2004, ~~compared~~we toincurred ~~$185.4 million~~approximately ~~or 33.2% of net sales. Advertising and promotional expenses increased~~ $10132.07 million ~~over 2003 due to increased~~of ~~cooperative~~recapitalization ~~advertising~~ expenses asin ~~business~~connection ~~activity~~with ~~has~~its ~~risen~~merger ~~and increased promotion expenses associated~~ with ~~the~~affiliates ~~launch~~ of ~~the~~ ~~Company's~~Kohlberg ~~new~~Kravis ~~TripLCased design for its Stearns~~Roberts & ~~Foster line~~Co., ~~Delivery costs increased $5~~L.~~1 million due to increased business activity and increased fuel costs~~P. ~~In addition~~, ~~sales employment~~completed ~~costs increased $3.8~~April ~~million due primarily to salaries and fringe benefits associated with additional headcount~~6, ~~increased~~2004 ~~travel~~(see ~~and entertainment associated with increased business activity and increased outside sales commissions. Corporate overhead and plant administrative expenses increased $6.3~~Note ~~million~~3 ~~over the first six months of 2003 due primarily~~ to ~~increased incentive compensation expense of $1.9 million due to increased business activity. Also, salary and fringe benefit expenses increased $1.2 million associated with newly created and~~ the ~~filling~~ ofunaudited ~~previously vacant staff positions, normal merit increases and increased expense associated with a defined benefit pension plan. The Company also had increased consulting costs associated~~condensed ~~with~~consolidated ~~the~~financial ~~development~~statements ofincluded ain ~~new product development process of $0.6~~Part ~~million,~~I ~~severance associated with a European restructuring~~ of ~~$0.6 million~~this ~~and~~quarterly ~~other various miscellaneous expenses of $2~~report).~~0 million.~~ ~~These increases were partially offset by a $1.9 million decrease in bad debt expense.~~

~~Recapitalization~~Royalty ~~Expense~~Income, net of royalty expense. ~~The~~Royalty ~~Company~~income ~~incurred~~for ~~approximately~~the three months ended May 29, 2005 increased $~~132~~0.74 million ofover ~~recapitalization~~the ~~expenses~~three inmonths ~~connection with~~ended ~~its~~May 30, ~~merger~~2004. ~~with~~The ~~affiliates~~increase ofis ~~Kohlberg~~due ~~Kravis~~to ~~Roberts &~~higher ~~Co.,~~royalties ~~L.P.,~~earned ~~completed~~on ~~April 6~~product licensing arrangements, ~~2004~~partially ~~(see~~offset ~~Merger~~by ~~and~~higher ~~Recapitalization)~~royalty expense under the Pirelli licensing arrangement at our European subsidiary.

~~Royalty~~Interest ~~Income,~~Expense. Interest ~~net~~expense ofincreased ~~royalty expense~~$1. ~~Royalty~~5 million ~~income~~over ~~for~~ the ~~six~~three months ended May 30, 2004 ~~increased~~primarily ~~$1.1~~due to higher debt levels resulting from the April ~~million~~6, ~~over~~2004 recapitalization as well as higher rates on the ~~six~~variable ~~months~~portion ~~ended~~of ~~June 1~~our floating rate debt, ~~2003.~~partially ~~Domestic~~offset ~~royalty~~by ~~revenue~~lower ~~increased~~fixed $0interest rates.9 Our weighted-average borrowing cost for the three months ended May ~~million~~29, ~~while~~2005 ~~international~~and ~~royalties~~May 30, ~~are~~2004 upwas $07.~~2 million~~5% and 7.4%, respectively.

~~Interest~~Income ~~Expense~~Tax. ~~Interest~~Our ~~decreased~~effective ~~$0.1~~tax rate for the three months ended May ~~million~~29, ~~primarily~~2005 and May 30, 2004 was 70.2% and 28.8%, respectively. Our effective income tax rate generally differs from the federal statutory rate due to ~~lower~~the ~~effective~~effects ~~interest~~of ~~rates~~certain ~~having~~foreign ~~been~~tax rate differentials and state and local income taxes. For ~~substantially~~the ~~offset~~quarter byended ~~higher~~May 29, ~~debt~~2005, ~~levels~~the rate was significantly increased due to the provision of approximately $7.2 million ~~See~~of ~~also~~income taxes on foreign earnings expected to be repatriated to the ~~previous~~United ~~discussion~~States induring ~~Merger~~fiscal ~~and~~2005 ~~Recapitalization~~(see ~~related~~Note 15 to the ~~recapitalization~~unaudited ~~and~~condensed ~~its~~consolidated financial statements included in Part I of this quarterly report). In the second fiscal quarter ~~effects~~of on2004, the ~~Company's~~rate ~~debt~~was ~~structure~~affected by certain non-deductible expenses associated with the recapitalization.

~~Income~~ ~~Tax. The~~Tabular ~~company's~~Information—Year ~~effective income tax rate generally differs from the federal statutory rate due~~ to the effects of certain foreign tax rate differentials and state and local income taxes. In 2004, the rate has also been affected by certain non-deductible expenses associated with the recapitalization. The Company's effective tax rate for the six months ended May 30, 2004 was 26.1%. Excluding the effects of the recapitalization, the effective rate would have been 40.8%. The Company's effective rate for the six months ended June 1, 2003 was 42.3%. Date

The ~~New~~following ~~Sealy~~table ~~Product~~sets ~~Launch~~ forth our summarized results of operations for six months ended May 29, 2005 and May 30, 2004, expressed in millions of dollars as well as a percentage of each year's net sales:

The Company annually invests significantly in research and development to improve its product offerings. In June 2003, the Company launched an entirely new line of mattresses and box springs for its Sealy Posturepedic brand. All Sealy Posturepedic brand mattresses are now manufactured with "Unicased® Construction" utilizing new proprietary processes and materials incorporated into a single-sided design. The Company also incorporated this new design into essentially all of its Stearns & Foster branded products in the first half of 2004. The Company estimates it incurred incremental promotional costs of approximately $3.6 million during the first half of 2004 compared to normal levels, primarily related to roll-back pricing of two-sided product to be discontinued. The Company expects such costs for the second half of the year to essentially return to normal levels.

		For the six months ended
		May 29, 2005					May 30, 2004
		millions			percentage of net sales		millions			percentage of net sales
Total net sales		$	714.9		100.0	%	$	634.8		100.0	%
Total cost of goods sold			398.7		55.8			363.5		57.3

Gross Profit			316.2		44.2			271.3		42.7
Selling, general and administrative			218.8		30.6			207.4		32.7
Recapitalization expense			—		—			132.7		20.9
Amortization of intangibles			0.3		0.0			0.6		0.1
Royalty income, net of royalty expense			(6.3	)	(0.9	)		(6.7	)	(1.1	)

	Income (loss) from operations		103.4		14.5			(62.7	)	(9.9	)
Interest expense			36.2		5.1			33.9		5.3
Other (income) expense, net			6.1		0.9			(0.7	)	(0.1	)

	Income (loss) before income taxes		61.1		8.5			(95.9	)	(15.1	)
Income tax expense (benefit)			31.6		4.4			(25.0	)	(3.9	)

	Net income (loss)	$	29.5		4.1	%	$	(70.9	)	(11.2	)%

Effective tax rate			51.7	%				26.1	%

The ~~Company~~following istable ~~dependent~~indicates ~~upon~~the apercentage ~~single~~distribution ~~supplier for certain key structural components~~ of ~~its~~our ~~new~~net ~~Unicased®~~sales ~~design. Such components are purchased under a four-year supply agreement, and are manufactured~~ in ~~accordance with a proprietary process of the supplier~~U. ~~Under the terms of the supply agreement, the Company is required to make minimum purchases of the components totaling $70 million through 2006~~S. ~~The~~dollars ~~Company~~throughout ~~believes~~our ~~that~~international ~~its~~operations: ~~supply requirements will exceed the minimum purchase commitments over the life of the agreement.~~

~~Liquidity~~Geographic ~~and~~distribution ~~Capital~~of ~~Resources~~sales:

The Company intends to fund its ongoing operations following the recapitalization through cash generated by operations and availability under our new senior secured credit facilities. As part of the recapitalization, the Company has incurred substantial debt, including under our new senior secured credit facilities, the senior unsecured term loan and the senior subordinated notes, with interest payments on this indebtedness substantially increasing our liquidity requirements.

			Six Months Ended:
			May 29, 2005		May 30, 2004
US Domestic			79.9	%	79.9	%
International:
	Canada		7.8		7.8
	Europe		7.3		7.4
	Mexico		1.7		1.7
	Other		3.3		3.2

		Total	100.0	%	100.0	%

The Company's new senior secured credit facilities comprise a $560 million term loan facility due in 2012 and a $125 million revolving credit facility due in 2010. At May 30, 2004, the Company had approximately $99.4 million available under the revolving credit facility including letters of credit issued totaling $25.6 million. The Company will be permitted to incur up to an additional $100.0 million of senior secured debt at the option of participating lenders, so long as no default or event of default under the new senior secured credit facilities has occurred or would occur after giving effect to such incurrence and certain other conditions are satisfied.

Borrowings under the Company's new senior secured credit facilities bear interest at the Company's choice of the Eurodollar rate or adjusted base rate ("ABR"), in each case, plus an applicable margin, subject to adjustment based on a pricing grid. On June 3, 2004, the Company entered into an interest rate swap agreement effective July 6, 2004 effectively fixing the floating portion of the interest rate at 3.725% on $200 million of the outstanding balance under the senior secured term loan through November 2005, declining to $150 million through November 2007. The term loan facility provides for quarterly principal payments of approximately $1.4 million, beginning six months from the closing of the facility with a two-quarter payment, with the balance of the facility to be repaid at maturity in 2012. On July 6, 2004, the Company borrowed $15 million under its revolving credit facility

~~and~~ The ~~used~~following ~~the~~table ~~funds~~shows toour ~~prepay~~net ~~all~~sales ~~amounts~~and ~~due~~margin ~~under~~profitability for the ~~senior~~major ~~secured~~geographic ~~term~~regions ~~loan~~of ~~through~~our ~~January 2007.~~operations, including local currency results for the significant international operations:

The $100 million senior unsecured term loan will mature in 2013 and will bear interest at the Company's choice of the Eurodollar rate or ABR, plus an applicable margin, subject to adjustment based on a pricing grid. All principal amounts outstanding under the senior unsecured term loan are to be repaid at maturity.

				For the Six Months Ended:
				May 29, 2005				May 30, 2004
				millions		percentage of net sales		millions		percentage of net sales
Total Domestic (US Dollars):
	Total net sales			$	571.0	100.0	%	$	507.3	100.0	%
	Total cost of goods sold				306.7	53.7			283.4	55.9

		Gross profit			264.3	46.3			223.9	44.1
Total International (US Dollars):
	Total net sales				143.9	100.0			127.5	100.0
	Total cost of goods sold				92.0	63.9			80.1	62.8

		Gross profit			51.9	36.1			47.4	37.2
Canada:
	US Dollars:
		Total net sales			55.9	100.0			49.7	100.0
		Total cost of goods sold			33.3	59.6			29.6	59.6

			Gross profit		22.6	40.4			20.1	40.4
	Canadian Dollars:
		Total net sales			68.4	100.0			66.1	100.0
		Total cost of goods sold			40.7	59.5			39.3	59.5

			Gross profit		27.7	40.5			26.8	40.5
Europe:
	US Dollars:
		Total net sales			52.1	100.0			47.2	100.0
		Total cost of goods sold			35.3	67.8			31.1	65.9

			Gross profit		16.8	32.2			16.1	34.1
	Euros:
		Total net sales			39.7	100.0			38.4	100.0
		Total cost of goods sold			26.8	67.5			25.2	65.6

			Gross profit		12.9	32.5			13.2	34.4
Other International (US Dollars):
	Total net sales				35.9	100.0			30.6	100.0
	Total cost of goods sold				23.4	65.2			19.4	63.4

		Gross profit		$	12.5	34.8	%	$	11.2	36.6	%

~~The newly~~ ~~issued~~Six ~~senior~~Months ~~subordinated~~Ended ~~notes consist of $390~~May ~~million aggregate principle amount maturing June 15~~29, ~~2014,~~2005 ~~bearing~~compared ~~interest~~with atSix ~~8.25%~~Months ~~per~~Ended ~~annum payable semiannually in arrears on June~~May ~~15 and December 15~~30, ~~commencing on December 15,~~ 2004~~. The Company is currently in the process of preparing an offer to exchange these notes for publicly traded securities with identical terms.~~

~~As a~~Net ~~result~~Sales. Net ofsales ~~the~~for ~~new capital structure,~~ the ~~Company's~~six ~~pro~~months ~~forma~~ended ~~estimated~~May 29, ~~annual~~2005 ~~interest~~were ~~cost is~~ $69714.19 million, ~~(including~~an increase of $480.21 million, ofor ~~amortization~~12.6% offrom ~~deferred~~the ~~debt~~six ~~costs)~~months asended ~~compared~~May 30, ~~with~~2004. ~~historical~~Total ~~interest~~domestic ~~cost~~sales ofwere $68571.50 million for the ~~most~~first ~~recent~~six ~~fiscal~~months ~~year~~of ~~ended~~2005 ~~November 30,~~compared ~~2003,~~to ~~and pro~~$507.3 million ~~forma interest cost~~ for the first ~~three and~~ six months ~~ended~~of ~~May 30,~~ 2004. isThe domestic sales increase of $1663.67 million was attributable to a 2.0% increase in volume and ~~$33~~a 10.~~6 million,~~3% ~~respectively,~~increase asin average unit selling price. The increase in average ~~compared~~unit ~~with~~selling ~~historical~~price ~~interest~~is ~~expense~~due ofprimarily ~~$16.9 million~~to ~~and~~price ~~$33.9~~increases announced in May ~~million~~2004 ~~for~~to offset the ~~three~~effects of rising steel costs, and ~~six~~an ~~months~~improved ~~ended~~sales ~~May~~mix from our new UniCased® Posturepedic and TripLCased® Stearns ~~30,~~& ~~2004~~Foster lines. Also, net

Future principal debt payments are expected to be paid out of cash flows from operations, borrowings on our new revolving credit facility, and future refinancing of our debt.

The Company expects to spend an aggregate of approximately $25 million for capital expenditures in fiscal 2004. The Company believes that annual capital expenditure limitations in our new senior secured credit facilities will not significantly inhibit us from meeting our ongoing capital expenditure needs.

The Company's cash flow from operations for the six months ended May 30, 2004 decreased $54.3 million from the six months ended June 1, 2003 to $(45.1) million, primarily due to $78.1 million of cash payments for expenses associated with the recapitalization. Excluding the effect of the recapitalization, cash flow from operations increased $23.9 million over the same period in 2003. Contributing to the improvement were higher operating margins before the effect of the recapitalization and significantly improved collections on accounts receivable over the prior year. These improvements were partially offset by higher interest payments in the first six months of 2004, due in part to the payoff of debt in connection with the recapitalization, and also to the prepayment of interest late in the 2002 fiscal year.

As a result of declines in the value of assets held in the Company's defined benefit pension plan, the Company has recognized a $4.6 million aggregate minimum pension liability at May 30, 2004. The Company will be required to make minimum funding contributions of $1.7 million during the remainder of 2004. The annual actuarial valuation of the plan, expected to be completed during the second half of 2004, may indicate the need for additional minimum funding contributions to be made in late 2004 and into 2005. Any change in the aggregate minimum liability, beyond that attributable to normal pension cost for 2004, will be determined at the end of the Company's fiscal fourth quarter and may result in a non-cash charge to other comprehensive income at that time.

The Company has approximately $14.4 million of accrued expenses associated with the recapitalization remaining to be paid at May 30, 2004. Recapitalization expenses have generated approximately $25 million of recoverable income taxes which the Company may use to reduce tax payments or apply for a carry back refund in 2004 or 2005.

The Company intends to evaluate all potential financing alternatives available from time to time in both the debt and equity markets and to optimize the capital structure over time based upon these

~~alternatives.~~sales ~~Such~~for ~~alternatives~~the ~~may~~first ~~result~~quarter of 2004 were reduced by the effects of close-out pricing on existing products in conjunction with the roll-out of our new Stearns & Foster product lines. Total international sales were $143.9 million for the six months ended May 29, 2005 compared to $127.5 for the six months ended May 30, 2004, an increase of $16.4 million, or 12.9% This increase was significantly influenced by favorable exchange rate fluctuations, most notably in our European and Canadian markets, where local currency sales gains of 3.4% and 3.5%, respectively, translated into gains of 10.4% and 12.5%, respectively, in US Dollars. Local currency sales gains in our Canadian market were driven by a 5.8% increase in average unit selling price resulting from price increases implemented in response to ~~Sealy~~increased ~~Mattress~~material ~~Corporation's~~costs ~~debt~~and ~~leverage~~the orsuccessful ~~that~~introduction of ~~its~~our ~~parent~~UniCased® ~~company~~product line, ~~Sealy~~partially ~~Corporation~~offset by a 2.2% decrease in volume. Sales gains in the European market were primarily attributable to a 4.5% increase in average unit selling price, partially offset by a 1.1% decline in volume.

~~The Company's~~Cost ~~ability~~of toGoods ~~make~~Sold. Cost ~~scheduled payments~~ of ~~principal,~~goods orsold tofor ~~pay~~ the ~~interest~~six ormonths ~~special~~ended ~~interest~~May 29, ~~if any~~2005, ~~on,~~as ora topercentage ~~refinance~~of ~~our~~net ~~indebtedness~~sales, ordecreased 1.5 percentage points to ~~fund~~55.8%. ~~planned~~Cost ~~capital expenditures~~of ~~will~~goods ~~depend~~sold onfor the ~~company's~~domestic ~~future performance~~business, ~~which,~~as to a ~~certain~~percentage ~~extent,~~of isnet ~~subject~~sales, todecreased ~~general~~2.2 percentage ~~economic,~~points ~~financial,~~to ~~competitive,~~53.7%. ~~legislative,~~This ~~regulatory~~decrease ~~and~~(as ~~other~~a ~~factors~~percentage ~~that are~~of ~~beyond~~net ~~the~~sales) ~~Company's~~is ~~control.~~due ~~Based~~primarily ~~upon~~to the ~~current~~increase ~~level~~in ofaverage ~~operations~~unit ~~and~~selling ~~certain~~price ~~anticipated~~as ~~improvements~~discussed above, ~~the~~partially ~~Company~~offset ~~believes~~by ~~that~~increased ~~cash~~material ~~flow~~costs. ~~from~~On ~~operations~~a ~~and~~per ~~available~~unit ~~cash~~basis, ~~together~~material ~~with borrowings~~costs ~~available~~increased ~~under~~15.7% relative to the ~~Company's~~first ~~new~~half ~~senior~~of ~~secured~~2004 ~~credit~~due ~~facilities,~~primarily ~~will~~to beincreased ~~adequate~~steel toand ~~meet~~foam ~~the~~product ~~Company's~~costs ~~future~~as ~~liquidity~~well ~~needs~~as ~~throughout~~changes ~~2004.~~in ~~There~~the ~~can~~sales bemix notoward ~~assurance~~higher ~~that~~price-point ~~the~~products. ~~Company~~Variable conversion costs, however, decreased ~~will~~8.2%, ~~generate~~primarily ~~sufficient~~due ~~cash~~to ~~flow~~increased ~~from~~manufacturing ~~operations~~efficiency, ~~that~~lower ~~anticipated~~health ~~revenue~~insurance ~~growth~~costs, and ~~operating~~lower ~~improvements~~product ~~will~~return becosts. ~~realized~~Cost orof ~~that~~goods ~~future~~sold ~~borrowings~~for ~~will~~the beinternational ~~available~~business, ~~under~~as ~~the~~a ~~new~~percentage ~~senior~~of ~~secured~~net ~~credit~~sales, ~~facilities~~increased in1.1 percentage anpoints ~~amount sufficient~~ to ~~enable~~63.9%. ~~the~~This ~~Company~~increase tois ~~service~~primarily ~~its~~due ~~indebtedness or~~ to ~~fund other~~higher ~~liquidity~~material ~~needs.~~costs Inand ~~addition,~~increased ~~there~~product ~~can~~return becosts, nopartially ~~assurance~~offset ~~that~~by ~~the~~increased ~~Company~~manufacturing efficiency ~~will~~in beCanada ~~able~~associated towith ~~affect~~the ~~any~~new ~~future~~product ~~refinancing~~lines ofand ~~our~~improved ~~debt~~product onmix ~~commercially~~in ~~reasonable terms or at all~~Argentina.

~~The Company's~~Selling, ~~new~~General, ~~long-term~~and ~~obligations~~Administrative. Selling, ~~contain~~general, ~~various~~and ~~financial~~administrative ~~tests~~expenses ~~and~~increased ~~covenants~~$11.4 million ~~The~~to $218.8 million, ~~Company's~~or ~~senior~~30.6% ~~secured~~of ~~credit~~net ~~facilities~~sales, ~~require~~compared ~~the Company~~ to ~~meet~~$207.4 million aor ~~minimum interest~~32.7% ~~coverage~~of ~~ratio~~net ~~and~~sales. As a ~~maximum~~percentage ~~leverage~~of ~~ratio.~~net ~~The~~sales, ~~indenture governing~~ the ~~Company's~~2.1 percentage ~~new~~point ~~senior~~decrease ~~subordinated~~has ~~notes~~been ~~also~~driven ~~requires~~by ~~the~~lower national ~~Company~~advertising tocosts ~~meet~~and areduced ~~fixed~~provisions ~~charge~~for ~~coverage~~customer ~~ratio~~utilization inof ~~order~~promotional ~~to incur~~funds. ~~additional~~In ~~indebtedness~~addition, ~~subject~~product todelivery ~~certain~~costs ~~exceptions. The specific covenants~~ and ~~related~~plant ~~definitions~~administrative ~~can~~expenses bedecreased ~~found~~as ina ~~the~~percentage ~~applicable~~of ~~debt~~net sales ~~agreements,~~as ~~each~~sales ofgains ~~which~~have ~~has~~primarily been ~~previously~~recognized ~~filed~~through ~~by the~~higher ~~Company~~average ~~with~~unit ~~the~~selling ~~Securities~~prices ~~and~~as ~~Exchange~~opposed ~~Commission~~to volume gains.

~~The covenants~~Recapitalization ~~contained in the Company's senior secured credit facilities are based on what the Company refers to herein as "Adjusted EBITDA"~~Expense. During In the ~~senior~~six ~~secured~~months ~~credit~~ended ~~facilities~~May 30, ~~EBITDA~~ ~~is defined as net income plus interest~~2004, ~~taxes,~~we ~~depreciation~~incurred ~~and~~approximately ~~amortization and Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance as discussed above~~$132.7 million ~~Adjusted EBITDA is presented herein as it is a material component~~ of recapitalization ~~these~~expenses ~~covenants.~~in ~~Non-compliance~~connection with ~~such~~our ~~covenants~~merger ~~could~~with ~~result in~~affiliates ~~the requirement to immediately repay all amounts outstanding under such facilities. While the determination~~ of ~~"unusual~~Kohlberg Kravis ~~items~~Roberts & ~~and other adjustments" is subject to interpretation and requires judgment~~Co., ~~the Company believes the adjustments listed below are in accordance with covenants discussed above~~L.P., Incompleted ~~addition~~April 6, ~~the~~2004 ~~Company~~(see ~~bases~~Note 3 ~~its~~to ~~assessment on~~ the ~~recoverability~~unaudited ofcondensed ~~its~~consolidated ~~indefinite- lived~~financial ~~goodwill~~statements onincluded ain ~~multiple~~Part I of ~~EBITDA.~~this ~~The~~quarterly ~~Company's Board of Directors also uses EBITDA as a basis for determining the fair market value of the stock at the grant date for stock option issuances~~report).

~~EBITDA and~~Royalty ~~Adjusted~~Income, ~~EBITDA are not recognized terms under GAAP and do not purport to be alternatives to~~ net ~~income as a measure~~ of ~~operating~~royalty ~~performance or to cash flows from operating activities as a measure of liquidity~~expense. Royalty ~~Additionally~~income, ~~they~~net ~~are not intended to be measures~~ of ~~free~~expense, ~~cash~~for ~~flow~~the ~~for~~six ~~management's~~months ~~discretionary~~ended ~~use~~May 29, ~~as they do not consider certain cash requirements such as~~2005 ~~interest~~decreased ~~payments, tax payments and debt service requirements~~$0.4 million ~~Because~~over ~~not~~the ~~all~~six ~~companies~~months ~~use~~ended ~~identical~~May 30, ~~calculations~~2006, ~~these~~primarily ~~presentations~~due ~~may~~to ~~not~~higher beroyalty ~~comparable~~expense tounder ~~other~~the ~~similarly~~Pirelli ~~titled~~licensing ~~measures~~arrangement ~~of other~~at ~~companies~~our European subsidiary.

Interest Expense. Interest increased $2.3 million over the six months ended May 30, 2004 primarily due to higher debt levels resulting from the April 6, 2004 recapitalization as well as higher rates on the variable portion of our floating rate debt, partially offset by lower fixed interest rates. Our weighted-average borrowing cost for the six months ended May 29, 2005 and May 30, 2004 was 7.4% and 8.1%, respectively.

Income Tax. Our effective tax rate for the six months ended May 29, 2005 and May 30, 2004 was 51.7% and 26.1%, respectively. Our effective income tax rate generally differs from the federal statutory rate due to the effects of certain foreign tax rate differentials and state and local income taxes. For the six months ended May 29, 2005, the rate was significantly increased due to the provision of approximately $7.2 million of income taxes on foreign earnings expected to be repatriated to the

~~The~~United ~~following~~States ~~table~~during ~~sets~~fiscal ~~forth~~2005 a(see ~~reconciliation~~Note 15 ofto ~~net~~the ~~loss~~unaudited tocondensed ~~EBITDA~~consolidated ~~and~~financial ~~EBITDA~~statements toincluded ~~Adjusted~~in ~~EBITDA~~Part I ~~for~~of this quarterly report). In the ~~three~~first ~~months~~half ~~ended~~of ~~May 30~~2004, ~~2004:~~ the rate was affected by certain non-deductible expenses associated with the recapitalization.

			Three Months Ended May 30, 2004
Net Loss				(82.2	)
	Interest			16.9
	Income Taxes			(33.3	)
	Depreciation & Amortization			6.1
EBITDA			$	(92.5	)
	Recapitalization expenses			132.7
	Management fees to primary owner			0.5
Unusual and nonrecurring losses:
		Post-closing residual plant costs		1.7
		Effect of price rollback programs due to introduction of new "Unicased" product		1.1
		Various other new product introduction costs		0.1
		Severance		0.6
		Other (various)		(0.1	)
Adjusted EBITDA			$	44.1

Liquidity and Capital Resources

~~The following~~ ~~table~~Principal ~~sets~~Sources ~~forth a reconciliation~~ of ~~EBITDA to cash flow from operations for the six months ended May 30, 2004 and June 1, 2003:~~ Funds

		Six Months Ended May 30, 2004			Six Months Ended June 1, 2003
Net (loss) income		$	(70.9	)	$	8.1
	Interest		33.8			33.9
	Income Taxes		(25.0	)		5.9
	Depreciation & Amortization		12.2			11.5
	EBITDA	$	(49.9	)	$	59.4
Adjustments to EBITDA to arrive at cash flow from operations:
	Interest expense		(33.8	)		(33.9	)
	Income taxes		25.0			(5.9	)
	Non-cash charges against (credits to) net income		41.1			3.8
	Changes in operating assets & liabilities.		(27.5	)		(14.2	)
Cash flow from operations		$	(45.1	)	$	9.2

Our principal sources of funds are cash flows from operations and borrowings under our senior secured revolving credit facility. Our principal use of funds consists of operating expenditures, payments of principal and interest on our senior credit agreements, capital expenditures and interest payments on our outstanding senior subordinated notes. Capital expenditures totaled $14.8 million for the six months ended May 29, 2005. We expect total 2005 capital expenditures to be approximately $30 million. We believe that annual capital expenditure limitations in our current debt agreements will not significantly prevent us from meeting our ongoing capital needs. At May 29, 2005, we had approximately $85.2 million available under our revolving credit facility after taking into account letters of credit issued totaling $29.8 million. Our net weighted average borrowing cost was 7.4% and 8.1% for the six months ended May 29, 2005 and May 30, 2004, respectively. The decline in our borrowing cost was due to lower rates on our new debt as compared with that retired in the April 2004 recapitalization and amendments to our senior credit facilities, partially offset by increases in the variable component of our floating rate debt.

~~In addition,~~ the new secured credit agreements and indenture contain certain other restrictive covenants which will, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, prepayments of other indebtedness, liens and encumbrances and other matters customarily restricted in such Debt

As part of the April 2004 recapitalization we incurred substantial debt, including new senior credit facilities consisting of a $125 million senior secured revolving credit facility with a six-year maturity, and a $560 million senior secured term loan facility with an eight-year maturity. We also borrowed $100 million under a senior unsecured term loan, due in 2013, and issued $390 million aggregate principal amount of new Senior Subordinated Notes due 2014. Since the recapitalization and through May 29, 2005, we have repaid $125.0 million of the original $560.0 million outstanding under our senior secured term loan. In doing so, we have effectively prepaid all principal payments due prior to the maturity of the loan in 2012. Most of the prepayments have been funded out of our operating cash flow, along with $10.0 million outstanding under our senior secured revolving credit facility at May 29, 2005. As of July 12, 2005, we have $12.8 million outstanding under our revolving credit facility.

Borrowings under our new senior secured credit facilities bear interest at our choice of the Eurodollar rate or adjusted base rate ("ABR"), in each case, plus an applicable margin, subject to adjustment based on a pricing grid. Annually, we may be required to make principal prepayments equal to 50% of excess cash flow for the preceding fiscal year, as defined in our senior secured credit agreement. At May 29, 2005, we estimate that the amount of such required prepayment (net of voluntary prepayments made during the six months ended May 29, 2005), that would be due in the first quarter of fiscal 2006 with respect to any excess cash flow for the 2005 fiscal year is approximately $8.8 million, such amount being classified as part of the current portion of long-term obligations at May 29, 2005.

On April 14, 2005, we amended our senior secured credit agreement to provide for an additional $100 million of senior secured term borrowings. The proceeds from the additional borrowing were used to repay the $100 million outstanding under our senior unsecured term loan, effectively reducing the interest rate on this amount of debt by 275 basis points. The amendment also reduced the applicable interest rate margin charged on our senior secured term loan, provided certain financial leverage ratio tests are met. This amendment, along with a prior amendment on August 6, 2004, reduced the applicable margin by a total of 50 basis points. In addition, this amendment provides us with greater flexibility to make dividend distributions to our parent, Sealy Corporation, or to repay certain

~~agreements.~~subordinated ~~Each~~debt, ~~agreement~~provided ~~also~~certain ~~contains~~leverage ~~certain~~ratio ~~customary~~tests ~~events~~and other conditions are met. The terms and conditions of ~~default,~~the ~~subject~~our to$125 million ~~grace~~senior ~~periods,~~revolving ascredit ~~appropriate.~~facility ~~The~~were ~~Company~~unchanged ~~was~~by inthe amendment. ~~compliance~~In connection with ~~all~~the ~~covenants~~amendment, aswe incurred a charge of $6.2 million during the three months ended May 3029, ~~2004~~2005, ~~and~~including a non-cash charge of ~~expects~~$3.3 million for the write-off of deferred finance charges primarily related to ~~remain~~the insenior ~~compliance~~unsecured ~~for~~term loan, $2.0 million of prepayment penalties related to the ~~remainder~~senior unsecured term loan, and $0.9 million of ~~2004~~related fees and expenses.

On June 3, 2004, we entered into an interest rate swap agreement effective July 6, 2004 effectively fixing the floating portion of the interest rate at 3.725% on $200 million of the outstanding balance under the senior secured term loan through November 2005, declining to $150 million through November 2007. To retain the designation of this swap as a hedging instrument, we must select the Eurodollar rate on the hedged portion of the senior secured term loan during the term of the swap.

The outstanding Senior Subordinated Notes consist of $390 million aggregate principal amount maturing June 15, 2014, bearing interest at 8.25% per annum payable semiannually in arrears on June 15 and December 15, commencing on December 15, 2004. On September 29, 2004, we completed an exchange offer whereby all of the Senior Subordinated Notes were exchanged for publicly traded, registered securities with identical terms (other than certain terms relating to registration rights and certain interest rate provisions otherwise applicable to the original senior subordinated notes).

At May 29, 2005 we were in compliance with the covenants contained within our senior credit agreements and note indenture.

As part of our ongoing evaluation of our capital structure, we continually assess opportunities to reduce our debt, which opportunities may from time to time include voluntary prepayments of our senior secured term debt, or redemption or repurchase of a portion of our senior subordinated notes to the extent permitted by our debt covenants.

Cash Flow Analysis

The following table summarizes our changes in cash:

			Six Months Ended:
			May 29, 2005			May 30, 2004
			(in millions)
Statement of Cash Flow Data:
	Cash flows provided by (used in):
		Operating activities	$	34.7		$	(44.9	)
		Investing activities		(10.2	)		3.6
		Financing activities		(21.6	)		(34.6	)
	Effect of exchange rate changes on cash			(0.7	)		(0.2	)

	Change in cash and cash equivalents			2.2			(76.1	)
	Cash and cash equivalents:
		Beginning of period		22.8			101.1

		End of period	$	25.0		$	25.0

Six Months Ended May 29, 2005 Compared With Six Months Ended May 30, 2004

Cash Flows from Operating Activities. Our cash flow from operations increased $79.6 million to $34.7 for the six months ended May 29, 2005, compared to $(44.9) million for the six months ended May 30, 2004. This improvement was primarily due to effects of the recapitalization on cash used in operating activities during the six months ended May 30, 2004, which included approximately $78.1 million associated with recapitalization expenses.

Cash Flows from Investing Activities. Our cash flows from investing activities decreased approximately $13.8 million to a net use of $10.2 million for the six months ended May 27, 2005, compared with a net source of $3.6 million for the six months ended May 30, 2004. Cash flows provided by investing activities during the 2004 period included $13.6 million of proceeds from the sale of a note receivable from an affiliate in connection with the recapitalization. Cash flows related to investment in property, plant and equipment included purchases and disposal proceeds of $14.8 million and $4.6 million, respectively, for the six months ended May 29, 2005, and $11.4 million and $1.4 million, respectively, for the six months ended May 30, 2004. Disposal proceeds in fiscal 2005 were primarily due to the sale of the our Randolph, Massachusetts facility which was closed in the second fiscal quarter of 2004.

Cash Flows from Financing Activities. Our cash flow used in financing activities for the six months ended May 29, 2005 decreased $13.0 million from the six months ended May 30, 2004. Net cash used for 2004 financing activities was primarily the result of $35.2 million of debt issuance costs resulting from the recapitalization that were not funded with recapitalization proceeds. In 2005, cash used for financing activates included $35.0 million in voluntary prepayments of our senior secured term debt, offset by $5.3 million of borrowings under our revolving credit facility and $8.1 million of borrowings by our European subsidiary.

Income Taxes

Significant judgment is required in evaluating our federal, state and foreign tax positions and in the determination of our tax provision. Despite our belief that our tax return positions are fully supportable, we have established reserves where we believe that certain tax positions are likely to be challenged and we may not fully prevail in overcoming these challenges. We may adjust these reserves as relevant circumstances evolve, such as guidance from the relevant tax authority, our tax advisors, or resolution of issues in the courts. Our tax expense includes the impact of reserve positions and changes to reserves that we consider appropriate, as well as related interest. Because we are not currently undergoing examinations of any of our corporate income tax returns by tax authorities, we believe that it is unlikely that an audit could be initiated which would result in assessment and payment of taxes related to these positions during the remainder of 2005. We also cannot predict when or if any other future tax payments related to these tax positions may occur. Therefore, substantially all of the reserves for these positions are classified as noncurrent liabilities in our balance sheet.

We have evaluated the impact of the one-time favorable foreign dividend provisions enacted on October 22, 2004, as part of the American Jobs Creation Act of 2004, and determined that we qualify for certain favorable foreign withholding rates and may repatriate earnings of some of our foreign subsidiaries during the 2005 fiscal year. During the second fiscal quarter of 2005, we adopted the Dividend Reinvestment Plan ("DRP"). Under the DRP, we plan to repatriate $50 million pursuant to Section 965 of the 1986 Internal Revenue Code, as amended. There are no plans to repatriate foreign earnings after the close of the 2005 fiscal year. The estimated income tax liability associated with the repatriation is $7.2 million, which has been included in income tax expense for the three and six months ended May 29, 2005. During the three months ended May 29, 2005, we repatriated $25.1 million, net of $1.3 million withholding taxes.

Debt Covenants

Our long-term obligations contain various financial tests and covenants. The senior secured credit facilities require us to meet a minimum interest coverage ratio and a maximum leverage ratio. The indenture governing the senior subordinated notes also requires us to meet a fixed charge coverage ratio in order to incur additional indebtedness, subject to certain exceptions. We are currently in compliance with all debt covenants. The specific covenants and related definitions can be found in the

applicable debt agreements, each of which has been previously filed with the Securities and Exchange Commission.

Certain covenants contained in the senior secured credit facilities and senior subordinated notes are based on what we refer to herein as "Adjusted EBITDA." In those agreements, EBITDA is defined as net income plus interest, taxes, depreciation and amortization and Adjusted EBITDA is defined as EBITDA further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance. Adjusted EBITDA is presented herein as it is a material component of these covenants. For instance, the indenture governing the senior subordinated notes and the agreement governing the senior secured credit facilities of Sealy Mattress Company ("SMC") each contain financial covenant ratios, specifically leverage and interest coverage ratios, that are calculated by reference to Adjusted EBITDA. Non-compliance with the financial ratio maintenance covenants contained in SMC's senior secured credit facilities could result in the requirement to immediately repay all amounts outstanding under such facilities, while non-compliance with the debt incurrence ratios contained in the indenture governing the senior subordinated notes would prohibit SMC and its subsidiaries from being able to incur additional indebtedness other than pursuant to specified exceptions. In addition, under the restricted payment covenants contained in the indenture governing the senior subordinated notes, the ability of SMC to pay dividends is restricted by formula based on the amount of Adjusted EBITDA. While the determination of "unusual items" is subject to interpretation and requires judgment, we believe the adjustments listed below are in accordance with the covenants discussed above.

EBITDA and Adjusted EBITDA are not recognized terms under GAAP and do not purport to be alternatives to net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Additionally, they are not intended to be measures of operating cash flows available for management's discretionary use, as they do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.

The following table sets forth a reconciliation of net income to EBITDA and EBITDA to Adjusted EBITDA for the six months ended May 29, 2005:

			Six Months Ended May 29, 2005
Net Income			$	29.5
	Interest			36.2
	Income taxes			31.6
	Depreciation and amortization			10.7

EBITDA			$	108.0
	Management fees to primary owner			1.0
	Unusual and nonrecurring losses:
		Post-closing residual plant costs		0.8
		Bank refinancing charge		6.2
		Other (various)		(0.4	)

Adjusted EBITDA			$	115.6

Adjusted EBITDA for the trailing twelve month period ended May 29, 2005, used in our covenant calculations to determine compliance, was $224.0 million.

The following table sets forth a reconciliation of EBITDA to cash flow from operations for the six months ended May 29, 2005 and May 30, 2004:

		Six Months Ended May 29, 2005			Six Months Ended May 30, 2004
Net (loss) income		$	29.5		$	(70.9	)
	Interest		36.2			33.8
	Income taxes		31.6			(25.0	)
	Depreciation and amortization		10.7			12.2

	EBITDA	$	108.0		$	(49.9	)
Adjustments to EBITDA to arrive at cash flow from operations:
	Interest expense		(36.2	)		(33.8	)
	Income taxes		(31.1	)		25.0
	Non-cash charges against (credits to) net income		24.0			41.3
	Changes in operating assets and liabilities.		(30.0	)		(27.5	)

Cash flow from operations		$	34.7		$	(44.9	)

Forward Looking Statements

~~This~~"Safe ~~document~~Harbor" ~~contains~~Statement ~~forward-looking~~Under ~~statements~~the ~~within~~Private ~~the~~Securities ~~meaning~~Litigation Reform Act of 1995. When used in this Quarterly Report on Form 10-Q, the ~~safe~~words ~~harbor~~"believes," ~~provisions~~"anticipates," "expects," "intends," "projects" and similar expressions are used to identify forward-looking statements within the meaning of the Private Securities Litigation ~~Report~~Reform Act of 1995. ~~Although~~ ~~the~~Such ~~Company~~forward-looking ~~believes~~statements ~~its~~relate ~~plans~~to ~~are~~future ~~based~~financial ~~upon~~and ~~reasonable~~operational ~~assumptions~~results. asAny offorward-looking ~~the~~statements contained in this report represent our management's current ~~date~~expectations, itbased ~~can~~on ~~give~~present noinformation ~~assurances~~and ~~that~~current ~~such~~assumptions, ~~expectations~~and ~~can~~are bethus ~~attained.~~prospective ~~Factors~~and ~~that~~subject to risks and uncertainties which could cause actual ~~results~~ results to differ materially from ~~the~~those ~~Company's~~expressed ~~expectations~~in ~~include:~~such ~~general~~forward-looking ~~business~~statements. ~~and~~Actual ~~economic~~results ~~conditions,~~could ~~competitive~~differ ~~factors,~~materially ~~raw~~from ~~materials~~those ~~pricing,~~anticipated ~~and~~or ~~fluctuations~~projected indue ~~demand~~to a number of factors. These factors include, but are not limited to:

•: the level of competition in the bedding industry;
•: legal and regulatory requirements;
•: the success of new products;
•: our relationships with our major suppliers;
•: fluctuations in costs of raw materials;
•: our relationship with significant customers and licensees;
•: our labor relations;
•: departure of key personnel;
•: encroachments on our intellectual property;
•: product liability claims;
•: the timing, cost and success of opening new manufacturing facilities;
•: our level of indebtedness;
•: interest rate risks;

•: future acquisitions;
•: an increase in return rates; and
•: other risks and factors identified from time to time in the Company's reports filed with the Securities and Exchange Commission.

All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements include in this Quarterly Report on From 10-Q. Except as may be required by law, we undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information relative to the Company's market risk sensitive instruments by major category at November 3028, ~~2003~~2004 is presented under Item 7a of ~~Sealy Corporation's~~the ~~Annual~~our Annual Report on Form 10-K for the fiscal year ended November 3028, ~~2003~~2004.

Foreign Currency Exposures

~~The~~Our ~~Company's~~ earnings are affected by fluctuations in the value of ~~its~~our subsidiaries' functional currency as compared to the currencies of ~~its~~our foreign denominated purchases. Foreign currency forward, swap and option contracts are used to hedge against the earnings effects of such fluctuations. The result of a uniform 10% change in the value of the U.S. dollar relative to currencies of countries in which ~~the~~we ~~Company~~manufacture ~~manufactures~~ or ~~sells~~sell ~~its~~our products would not be material to our earnings or financial position. This calculation assumes that each exchange rate ~~would~~ would change in the same direction relative to the U.S. dollar.

To protect against the reduction in value of forecasted foreign currency cash flows resulting from purchases in a foreign currency, we have instituted a forecasted cash flow hedging program. We hedge portions of our purchases denominated in foreign currencies with forward and option contracts. At May 29, 2005, we had forward contracts to sell a total of 18.0 million Canadian dollars with expiration dates ranging from May 31, 2005 through November 15, 2005. At May 29, 2005, the fair value of our net obligation under the forward contracts was $0.8 million. We do not designate our foreign currency hedges for accounting purposes, therefore all changes in fair value are charged to earnings.

Interest Rate Risk

As more fully discussed in Note 1012 to ~~the~~our Condensed Consolidated Financial Statements (Part I, Item 1 included herein), ~~the~~we ~~Company~~ had entered into ~~two~~ two interest rate swap agreements associated with debt existing prior to the April 2004 recapitalization. Although the related debt was repaid in connection with the recapitalization, the related swaps remain in effect and are scheduled to expire in December 2006. Because the first swap converted a portion of ~~the~~our ~~Company's~~ floating rate debt to a fixed rate and a subsequent swap effectively re-established a floating rate on the same debt, the effect of the two instruments on both cash flows and earnings is largely off-setting. As a result of the recapitalization and repayment of the related debt, $4.7 million of changes in fair value previously recorded in accumulated other comprehensive loss were included in recapitalization expenses charged against earnings during the three and six months ended May 30, 2004 (see Merger and Recapitalization). The combined fair value carrying amount of these swap instruments at May 3029, ~~2004~~2005 and November 3028, ~~2003~~2004 was a net obligation of $53.91 million and $84.13 million, respectively.

~~The~~We ~~Company~~ had also entered into an interest rate cap agreement associated with previous debt that caps the floating rate on the debt at 8% through June 2005. The agreement also ~~remains~~ remains in effect following the repayment of the related debt. This agreement has not been designated for hedge accounting and, accordingly, any changes in the fair value are recorded in interest expense. The fair value of this instrument is not material.

~~A 10% increase or decrease in market interest rates that effect the Company's interest rate derivative instruments would not have a material impact on earnings during the next fiscal year.~~ 37

33 On June 3, 2004, we entered into an interest rate swap agreement effective July 6, 2004 effectively fixing the floating portion of the interest rate at 3.725% on $200 million of our outstanding balance under the senior secured term loan through November 2005, declining to $150 million through November 2007. The fair value of this swap instrument was an asset of $0.4 million at May 29, 2005 and an obligation of $2.0 million at November 28, 2004.

OnA ~~June 3,~~10% ~~2004,~~increase ~~the~~or ~~Company~~decrease ~~entered~~in ~~into~~market an interest ~~rate~~rates ~~swap~~that ~~agreement~~affect ~~effective~~our ~~July 6,~~interest ~~2004~~rate ~~effectively~~derivative ~~fixing~~instruments ~~the~~would ~~floating~~not ~~portion~~have ofa ~~the~~material ~~interest~~impact ~~rate at 3.725%~~ on ~~$200 million~~ ofour ~~the~~earnings ~~outstanding~~during ~~balance under~~ the ~~senior~~next ~~secured~~fiscal ~~term loan through November 2005, declining to $150 million through November 2007~~year.

ToBased ~~protect~~on ~~against~~ the ~~reduction~~unhedged inportion ~~value~~ of ~~forecasted~~our ~~foreign~~variable ~~currency~~rate ~~cash~~debt ~~flows~~outstanding ~~resulting~~at ~~from~~May 29, ~~purchases in foreign currency~~2005, ~~the Company has instituted~~ a ~~forecasted cash flow hedging program~~12.5 ~~The~~basis ~~Company~~point ~~hedges~~increase ~~portions~~or ofdecrease ~~its purchases denominated~~ in ~~foreign~~variable ~~currencies~~interest ~~with~~rates ~~forward~~would ~~and~~have ~~options~~an ~~contracts~~approximately $0. ~~See also Note~~4 10million todollar ~~the~~impact ~~unaudited~~on ~~condensed~~our ~~consolidated financial~~annual ~~statements~~interest expense.

~~Worldwide~~Commodity ~~Steel~~Price ~~Prices~~Risks

The ~~world~~cost ~~demand for steel over the last two years has increased due to a number~~ of ~~factors,~~our ~~including increased~~ steel ~~imports~~innerspring ~~into~~and ~~Asia.~~our ~~Worldwide~~polyurethane ~~production~~foam ~~has not~~and ~~been~~polyethylene ~~able~~component toparts ~~keep~~are upimpacted ~~with~~by ~~the~~volatility ~~increased demand, due~~ in ~~part to decreased productive capacity in~~ the ~~United States. Furthermore, the weakening of the U.S. Dollar has raised the relative~~ price of steel ~~imported~~and ~~into the United States~~petroleum. ~~Consequently,~~We expect the ~~Company believes that the~~ cost of ~~cold rolled steel and steel drawn wire which are used in~~ the ~~production of the spring units and other~~ components ~~within~~to ~~the~~remain ~~mattress~~elevated ~~and~~above ~~box~~their ~~springs~~recent ~~will~~historical ~~increase~~averages ~~significantly~~throughout ~~during 2004~~2005. InThus ~~response to these increases~~far, ~~effective~~we ~~May 1,~~have ~~2004,~~been ~~the~~able ~~Company increased the prices charged~~ to ~~its customers.~~successfully ~~The~~address ~~Company~~these ~~does~~cost ~~not~~pressures ~~believe~~through ~~that~~a ~~world~~price increase ~~steel~~announced ~~prices~~in orMay ~~this~~of ~~price~~2004 ~~increase~~and tocost ~~our~~reduction ~~customers~~efforts. ~~will~~We ~~materially~~do ~~impact~~not ~~its~~engage ~~long-term~~in ~~operations~~commodity ~~and~~hedging ~~financial position~~programs.

Item 4. Internal Control and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the "Evaluation Date"). Based on this evaluation, our principal executive officer and principal financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission ("SEC") reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Company's management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

34 In connection with the evaluation of our disclosure controls and procedures for the year ended November 28, 2004, and in connection with observations by our independent registered public accountants identified in their audit of our consolidated financial statements, management identified certain deficiencies in our financial statement close process primarily related to the review and approval process for various account analyses and reserve/accrual calculations and the consolidated financial/balance sheet review process. Management has discussed these deficiencies with our Audit Committee and we are currently addressing these deficiencies. Beginning with the financial statement close process for the first fiscal quarter of 2005, we instituted an enhanced management review and approval process for various reserves and accruals. In addition, we enhanced our balance sheet review procedures for the individual plant locations. The Company continued these enhanced procedures for the financial statement close process for the quarter ended May 29, 2005. We expect to continue improving the financial statement close process in 2005 as we continue to prepare for compliance with Section 404 of the Sarbanes-Oxley Act of 2002. Due to the recently announced one-year delay in the required compliance schedule for non-accelerated filers, we will be required to issue a management report on our assessment of internal controls over financial reporting in our Annual Report on Form 10-K for the year ended November 26, 2006.

There were no other changes in our internal control over financial reporting identified in connection with the foregoing evaluation that occurred during the first quarter of 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 1316 to the Condensed Consolidated Financial Statements, Part I, Item 1 included herein.

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 6. Exhibits and Reports on Form 8-K

(a): Exhibits:
31.1: Chief Executive Officer Certification of the Quarterly Financial Statements
31.2: Chief Financial Officer Certification of the Quarterly Financial Statements
32: Certification Pursuant to 18 U.S.C. Section 1350
(b): Reports on Form 8-K:

31.1		Chief Executive Officer Certification of the Quarterly Financial Statements
31.2		Chief Financial Officer Certification of the Quarterly Financial Statements
32		Certification Pursuant to 18 U.S.C. Section 1350

Press release announcing the financial results for the three months ended February 27, 2005, filed April 19, 2005.

~~Various reports and press releases regarding the completion~~ Report of ~~the~~entry ~~merger~~into ~~with~~a ~~affiliates~~material ofdefinitive ~~Kohlberg~~agreement ~~Kravis~~and ~~Roberts~~entry &into ~~Co.,~~a ~~L.P.,~~direct ~~filed~~financial onobligation ~~April~~regarding 6,the ~~2004;~~amendment ~~Press~~and ~~release announcing~~restatement ~~financial~~of ~~results~~our ~~for~~senior ~~the~~secured ~~fiscal~~credit ~~first~~facility ~~quarter~~on ~~ended February 29~~April 14, ~~2004~~ 2005, filed April 15 20, ~~2004~~2005.

35Regulation FD disclosure regarding the June 30, 2005 filing of a Registration Statement on Form S-1 by our parent, Sealy Corporation, in connection with a proposed initial public offering of common stock, filed June 30, 2005.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Sealy Mattress Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SEALY MATTRESS CORPORATION

Signature		Title

/s/ DAVID J. MCILQUHAM David J. McIlquham		Chief Executive Officer and President (Principal Executive Officer)
/s/ JAMES B. HIRSHORN James B. Hirshorn		Executive Vice President and Chief Financial Officer (Principal Accounting Officer)

Date: July 1413, ~~2004~~2005

3640

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

PART II. OTHER INFORMATION
SIGNATURES

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