748015--2/23/2007--SEALY

related topics

{debt, indebtedness, cash}

{cost, regulation, environmental}

{product, market, service}

{customer, product, revenue}

{product, liability, claim}

{operation, international, foreign}

{stock, price, operating}

{property, intellectual, protect}

{cost, operation, labor}

{personnel, key, retain}

{cost, contract, operation}

The bedding industry is highly competitive, and if we are unable to compete effectively, we may lose customers and our sales may decline. Our new product launches may not be successful due to development delays, failure of new products to achieve anticipated levels of market acceptance and significant costs associated with failed product introductions, which could adversely affect our revenues and profitability. We may experience fluctuations in our operating results due to seasonality, which could make sequential quarter to quarter comparison an unreliable indication of our performance. A substantial decrease in business from our significant customers could have a material adverse effect on our sales and market share. Our profitability may be materially and adversely affected by increases in the cost of petroleum-based products, steel and other raw materials. Our profitability may be materially and adversely affected by any interruption in supply from third party vendors. We are dependent upon a single supplier for certain polyethylene structural components in our mattress units. The process to produce these components is proprietary to the supplier and a disruption in their supply could materially and adversely affect our operations. Our significant international operations are subject to foreign exchange, tariff, tax, inflation and political risks and our ability to expand in certain international markets is limited by the terms of licenses we have granted to manufacture and sell Sealy products. The loss of the services of one or more members of our senior management team could impair our ability to execute our business strategy and adversely affect our business. We have a substantial amount of indebtedness, which may adversely affect our cash flow, our ability to comply with our debt covenants, repay our indebtedness and operate our business. Despite our current leverage, we may still be able to incur significant additional indebtedness. This could further exacerbate the risks that we face. The terms of the senior secured credit facilities and the indenture governing the 2014 notes may restrict our current and future operations, particularly our ability to respond to changes in our business or to take certain actions. The time and expense of defending against challenges to our trademarks, patents and other intellectual property could divert our management s attention and substantial financial resources from our business. Our goodwill and ability to differentiate our products in the marketplace could be negatively affected if we were unsuccessful in defending against such challenges. We are a holding company and rely on dividends, interest and other payments, advances and transfers of funds from our subsidiaries to enable us to pay dividends. Regulatory requirements relating to our products may increase our costs, alter our manufacturing processes and impair our product performance. Environmental, health and safety requirements could expose us to material liabilities and changes in our operations as a result of environmental contamination, among other things. A change or deterioration in labor relations could disrupt our business or increase costs, which could lead to a material decline in sales or profitability. Our pension plan is currently underfunded and we will be required to make cash payments to the plan, reducing the cash available for our business.

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748015--2/23/2007--SEALY_CORP