<PAGE>   1

================================================================================


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

                                    FORM 10-Q


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

           For the quarterly period ended:     August 31, 1997
                                               ----------------

                                       OR
[ ]             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 1-8738
                               ------

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


          DELAWARE                                   36-3284147
-------------------------------          ---------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification No.)
incorporation or organization)



520 PIKE STREET, SEATTLE, WASHINGTON                             98101
-----------------------------------------                 --------------------
(Address of principal executive offices)*                      (Zip Code)


     Registrant's telephone number, including area code  (206) 625-1233
                                                         ---------------


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 Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.         Yes X    No
                             ---     ---


The number of shares of the registrant's common stock outstanding as of October
7, 1997 was 29,936,569.


* All Corporate and administrative services are provided by Sealy, Inc., 10th
  Floor Halle Building, 1228 Euclid Avenue, Cleveland, Ohio 44115.


================================================================================



<PAGE>   2



                          PART I. FINANCIAL INFORMATION
                          -----------------------------

Item 1 - Financial Statements


                                SEALY CORPORATION
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                  QUARTER ENDED       QUARTER ENDED
                                                    AUGUST 31,        SEPTEMBER 1,
                                                       1997               1996
                                                     --------           --------
                                                                     
<S>                                                  <C>                <C>     
Net sales                                            $229,919           $192,546
                                                     --------           --------

Costs and expenses:
   Cost of goods sold                                 128,055            108,112
   Selling, general and administrative                 73,583             57,238
   Amortization of intangibles                          3,298              3,552
   Interest expense, net                                8,270              7,363
                                                     --------           --------
                                                      213,206            176,265
                                                     --------           --------

         Income before income tax                      16,713             16,281
Income tax                                              8,796              9,198
                                                     --------           --------
         Net income                                  $  7,917           $  7,083
                                                     ========           ========

Earnings per common share                            $   0.26           $   0.24

Weighted average number of
  common shares and equivalents
  outstanding during period                            29,962             30,126

</TABLE>











     See accompanying notes to condensed consolidated financial statements.

                                        2

<PAGE>   3



                                SEALY CORPORATION
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                                      NINE MONTHS
                                                   NINE MONTHS           ENDED
                                                 ENDED AUGUST 31,     SEPTEMBER 1,
                                                       1997              1996
                                                    ---------           --------

<S>                                                 <C>                 <C>     
Net sales                                           $ 579,448           $517,199
                                                    ---------           --------

Costs and expenses:
   Cost of goods sold                                 323,743            294,247
   Selling, general and administrative                190,985            160,956
   Amortization of intangibles                          9,977             10,582
   Interest expense, net                               23,276             21,883
                                                    ---------           --------
                                                      547,981            487,668
                                                    ---------           --------

         Income before income tax and
            extraordinary item                         31,467             29,531
Income tax                                             17,080             16,685
                                                    ---------           --------
         Income before extraordinary item              14,387             12,846

Extraordinary item - loss from early
   extinguishment of debt (net of income
   tax benefit of $1,353)                               2,030               --
                                                    ---------           --------
         Net income                                 $  12,357           $ 12,846
                                                    =========           ========

Earnings per common share:
   Before extraordinary item                        $    0.48           $   0.43
   Extraordinary item                                   (0.07)              --
                                                    ---------           --------
   Net                                              $    0.41           $   0.43
                                                    =========           ========

Weighted average number of
  common shares and equivalents
  outstanding during period                            29,869             30,146
</TABLE>




     See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>   4



                                SEALY CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>



                                                             AUGUST 31,          DECEMBER 1,
                                                                1997                1996
                                                             ---------           ---------
<S>                                                          <C>                 <C>      
ASSETS

Current assets:
   Cash and cash equivalents                                 $   4,004           $  16,619
   Accounts receivable, less allowance for doubtful
      accounts (1997 - $11,668; 1996 - $6,814)                 109,010              77,179
   Inventories                                                  43,438              33,992
   Net assets held for sale                                       --                35,492
   Prepaid expenses and deferred taxes                          21,998              10,446
                                                             ---------           ---------
                                                               178,450             173,728

Property, plant and equipment - at cost                        168,419             156,063
Less:  accumulated depreciation                                (42,594)            (34,697)
                                                             ---------           ---------
                                                               125,825             121,366

Other assets:
   Goodwill and other intangibles - net of
      accumulated amortization
      (1997 - $60,561; 1996 - $50,719)                         414,498             434,304
   Debt issuance costs and other assets                         17,677              10,530
                                                             ---------           ---------
                                                               432,175             444,834
                                                             ---------           ---------   
                                                             $ 736,450           $ 739,928
                                                             =========           =========
</TABLE>













     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>   5



                                SEALY CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>



                                                     AUGUST 31,          DECEMBER 1,
                                                        1997                 1996
                                                     ---------           ---------
LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                                  <C>                 <C>      
Current liabilities:
   Current portion of long-term obligations          $      75           $  18,620
   Accounts payable                                     44,356              35,797
   Accrued incentives and advertising                   36,465              20,704
   Accrued compensation                                 14,294              14,047
   Accrued interest                                      6,918               1,708
   Other accrued expenses                               19,376              21,983
                                                     ---------           ---------
                                                       121,484             112,859

Long-term obligations                                  340,000             269,507
Other noncurrent liabilities                            34,823              34,822
Deferred income taxes                                   33,888              29,746

Stockholders' equity:
   Common stock                                            295                 294
   Additional paid-in capital                          257,363             256,489
   Retained (deficit) earnings                         (50,005)             37,418
   Foreign currency translation adjustment              (1,398)             (1,207)
                                                     ---------           ---------
                                                       206,255             292,994
Commitments and contingencies                             --                  --
                                                     ---------           ---------
                                                     $ 736,450           $ 739,928
                                                     =========           =========
</TABLE>











     See accompanying notes to condensed consolidated financial statements.

                                        5

<PAGE>   6



                                SEALY CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>



                                                                   NINE MONTHS        NINE MONTHS
                                                                      ENDED              ENDED
                                                                   AUGUST 31,         SEPTEMBER 1,
                                                                      1997               1996
                                                                    --------           --------

<S>                                                                 <C>                <C>     
Net cash provided by operating activities                           $ 19,815           $ 19,894
                                                                    --------           --------

Investing activities:
   Proceeds from sale of subsidiary                                   35,000               --
   Proceeds from sale of insulator pad operation assets                5,150               --
   Purchase of property and equipment, net                           (18,622)            (5,305)
                                                                    --------           --------
       Net cash provided by (used in) investing activities            21,528             (5,305)
                                                                    --------           --------
Financing activities:
   Dividend                                                          (99,776)           (35,463)
   Proceeds from long-term borrowings, net                            51,948             35,774
   Debt issuance costs                                                (6,130)              --
                                                                    --------           --------
       Net cash provided by (used in) financing activities           (53,958)               311
                                                                    --------           --------

Change in cash and cash equivalents                                  (12,615)            14,900
Cash and cash equivalents:
   Beginning of period                                                16,619             17,348
                                                                    --------           --------
   End of period                                                    $  4,004           $ 32,248
                                                                    ========           ========


Supplemental disclosures:
-------------------------
Cash paid for:
   Taxes, net                                                       $ 10,695           $ 12,100
   Interest                                                         $ 16,900           $ 14,409
Selected noncash expenses:
   Depreciation                                                     $  8,996           $  7,984
   Noncash compensation                                             $  1,389           $  1,321

</TABLE>



     See accompanying notes to condensed consolidated financial statements.

                                        6

<PAGE>   7


                                SEALY CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        NINE MONTHS ENDED AUGUST 31, 1997



NOTE A -- BASIS OF PRESENTATION

      This report covers Sealy Corporation and its subsidiaries (collectively,
the "Company").

      The accompanying unaudited condensed consolidated financial statements
should be read together with the Company's Annual Report on Form 10-K for the
year ended December 1, 1996.

      The accompanying unaudited condensed consolidated financial statements
contain all adjustments which, in the opinion of management, are necessary to
present fairly the financial position of the Company at August 31, 1997, and its
results of operations and cash flows for the periods presented herein. All
adjustments in the periods presented herein are normal and recurring in nature.


NOTE B -- INVENTORIES

      The major components of inventories were as follows:

<TABLE>
<CAPTION>

                                   AUGUST 31,           DECEMBER 1,
                                     1997                  1996
                                    -------               -------
                                            (IN THOUSANDS)

<S>                                 <C>                   <C>    
      Raw materials                 $26,248               $18,300
      Work in process                12,131                11,624
      Finished goods                  5,059                 4,068
                                    -------               -------

                                    $43,438               $33,992
                                    =======               =======
</TABLE>


NOTE C -- LONG-TERM OBLIGATIONS

<TABLE>

                                                     AUGUST 31,     DECEMBER 1,
                                                        1997          1996
                                                      --------      --------
                                                           (IN THOUSANDS)

<S>                                                   <C>           <C>   
      $275,000,000 Second Restated Secured
         Credit Agreement - Revolving Credit
         Facility                                     $140,000      $   --
      1994 Restated Credit Agreement:
         Revolving Credit Facility                         --         25,000
         Term Loan Facility                                --         63,052
      10 1/4% Senior Subordinated Notes Due 2003       200,000       200,000
      Other                                                 75            75
                                                      --------      --------
                                                       340,075       288,127
          Less current portion                              75        18,620
                                                      --------      --------
                                                      $340,000      $269,507
                                                      ========      ========
</TABLE>




                                        7

<PAGE>   8


                                SEALY CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        NINE MONTHS ENDED AUGUST 31, 1997



      The $275,000,000 Second Restated Secured Credit Agreement (the "1997
Credit Agreement") was consummated on February 25, 1997 and consists of a $275
million reducing revolving credit facility with a $25 million discretionary
letter of credit facility and a discretionary swing loan facility of up to $20
million ("Revolving Credit Facility"). The 1997 Credit Agreement has a final
maturity date of January 15, 2003, and provides for periodic reductions in the
amounts of available credit in accordance with the following schedule:


                                                            REMAINING
                                      COMMITMENT            REVOLVER
           REDUCTION DATE              REDUCTION            COMMITMENT
         ------------------          ------------         ------------
         November 29, 1998           $15 million          $260 million
         November 28, 1999           $20 million          $240 million
         December 3, 2000            $30 million          $210 million
         December 2, 2001            $30 million          $180 million
         June 2, 2002                $30 million          $150 million
         
         
      Additional mandatory commitment reductions will occur equal to 100% of net
after-tax cash proceeds from any sale of assets in excess of $15 million in each
fiscal year, and equal to 50% of net proceeds from the issuance of permitted
subordinated debt.

      Base rate loans and Eurodollar rate loans are based on a pricing grid
which provides for an interest rate plus a margin. The margin is adjustable
based on the Company's total senior debt to adjusted EBITDA ratio. For the first
six months of the 1997 Credit Agreement, the margin on Eurodollar rate
borrowings was 1.25%. In September, 1997, the margin decreased to 1.0%. The
initial commitment fee, which is also subject to a pricing grid, was 0.375%
during the first six months of the 1997 Credit Agreement. In September, 1997,
the commitment fee decreased to 0.3%.

      During the nine months ended August 31, 1997, the maximum amount
outstanding under the Revolving Credit Facility, excluding Letters of Credit,
was $160 million. At August 31, 1997, the Company had approximately $123 million
available under the Revolving Credit Facility, with Letters of Credit issued
totaling approximately $12 million.

      All obligations of the Company under the 1997 Credit Agreement are jointly
and severally guaranteed by each direct and indirect domestic subsidiary of the
Company and secured by first priority liens on and security interests in
substantially all of the assets of the Company and its domestic subsidiaries and
by first priority pledges of substantially all of the capital stock of most of
the subsidiaries of the Company; however, such security is subject to release
upon the Company attaining specified senior unsecured (either actual or implied)
credit ratings. The Company also is subject to certain affirmative and negative
covenants under both the 1997 Credit Agreement and the Indenture relating to its
10 1/4% Senior Subordinated Notes due 2003, including requirements and
restrictions with respect to capital expenditures, dividends, maximum leverage
and other financial ratios.



                                        8

<PAGE>   9


                                SEALY CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        NINE MONTHS ENDED AUGUST 31, 1997



NOTE D -- CONTINGENCIES

      In accordance with procedures established under the Environmental Cleanup
Responsibility Act (now known as the Industrial Site Recovery Act), Sealy and
one of its subsidiaries are parties to an Administrative Consent Order ("ACO")
issued by the New Jersey Department of Environmental Protection ("DEP").
Pursuant to the ACO, the Company and such subsidiary agreed to conduct soil and
groundwater investigation and remediation at the plant previously owned by the
subsidiary in South Brunswick, New Jersey. The Company does not believe that its
manufacturing processes were a source of the contaminants found to exist above
regulatorily acceptable levels in the groundwater. The Company and its
subsidiary have retained primary responsibility for the investigation and any
necessary clean up plan approved by the DEP under the terms of the ACO.

      The DEP previously approved both the Company's soil remediation plans and
its initial groundwater remediation plans. Further investigation in 1996
revealed certain additional areas of soil contamination resulting from
activities at the South Brunswick facility prior to the Company's acquisition of
the site. The Company anticipates that in 1997, subject to DEP approval, it will
complete essentially all soil remediation and will conduct a pilot test for a
Company-proposed revision to the groundwater remediation program.

      While the Company cannot predict the ultimate timing or cost to remediate
this facility, based on facts currently known, management believes the accrual
for site investigation and remediation costs is adequate to cover the Company's
reasonably estimable liability and does not believe the resolution of this
matter will have a material adverse effect on the Company's financial position
or future operations.

      In March, 1994, the Company filed a claim in the U.S. District Court for
the District of New Jersey against former owners of the site and their lenders
under the Comprehensive Environmental Response, Compensation and Liability Act
seeking contribution for site investigation and remedial costs. In March, 1997,
the Company received $1.7 million from a former owner of the site and one of the
lenders to the former owner in final settlement of this litigation.

      The Company also has voluntarily proceeded to develop a remediation plan
for isolated soil and groundwater contamination at its Oakville, Connecticut
property that the Company believes is solely attributable to the manufacturing
operations of previous unaffiliated occupants. Based on the facts currently
known, management does not believe that resolution of this matter will have a
material adverse effect on the Company's financial position or future
operations.

NOTE E -- SALE OF ASSETS

      In March, 1997, the Company divested the assets of its mattress insulator
pad manufacturing operation in South Brunswick, New Jersey for approximately net
book value.




                                      9

<PAGE>   10



Item 2 -                        SEALY CORPORATION
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


QUARTERS ENDED AUGUST 31, 1997 AND SEPTEMBER 1, 1996

      NET SALES Net sales increased $37.4 million, or 19.4% for the quarter
ended August 31, 1997, when compared to the quarter ended September 1, 1996. The
increase is attributable to a $52.2 million increase in conventional bedding
sales and a $14.8 million decrease in sales of wood bedroom furniture.

      The bedding sales results represent a 29.4% increase and is comprised of a
$47.3 million, or 26.6% increase in conventional bedding unit shipments, along
with a $4.9 million, or 2.2% increase in the average unit selling price. This
bedding performance was primarily due to strong sales of Posturepedic,
Stearns & Foster and promotional products. In addition, the Company has
successfully implemented strategic initiatives to expand distribution.
Increased sales of the Company's flagship Posturepedic line is due to a
combination of new and enhanced products, along with selective pricing
initiatives. The Stearns & Foster line of luxury bedding continues to
experience strong sales growth as a result of an increased customer base,
increased volume from existing customers and the introduction of new products.
Promotional product sales increased as a result of new and enhanced product
offerings.

      The decrease in sales of wood bedroom furniture, sold under the Samuel
Lawrence brand, is due to the sale of this business on January 15, 1997. A
description of the disposition of this business unit is provided in Note 14 to
the consolidated financial statements contained in the Company's Form 10-K for
the year ended December 1, 1996.

      COST OF GOODS SOLD Cost of goods sold for the quarter, as a percentage of
net sales, decreased 0.4 percentage points to 55.7%. This improvement is
primarily attributable to the elimination of the lower margin wood bedroom
furniture sales, partially offset by an increase in bedding cost of goods sold.
The increase in bedding cost of goods sold as a percentage of net sales is
primarily attributable to the introduction of lower price point Posturepedic
products, along with selective pricing initiatives, partially offset by
economies of scale from increased sales volume.

      SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative
expenses increased $16.3 million due to increased bedding related expenses,
partially offset by the elimination of wood bedroom furniture related expenses.
The increase in bedding related selling, general and administrative expenses is
primarily due to increases in marketing spending, $10.6 million, delivery
expenses, $1.6 million and incentive compensation $1.5 million. Increased
marketing spending is due to increased sales volume, along with an increased
spending rate for cooperative advertising and promotions. The increase in
delivery expenses is due to the increase in sales volume. The Company also
experienced a $2.4 million increase in bad debt and other financing expenses,
primarily as a result of the bankruptcy filing of one of its major customers,
Montgomery Ward.

      INTEREST EXPENSE Interest expense, net of interest income, increased $0.9
million, primarily as a result of increased average debt levels resulting from
the February 1997 dividend and increased rate related to the February 1997
restructure of the Notes.

      INCOME TAX The Company's provision for income taxes decreased $0.4 million
primarily due to a lower effective tax rate, partially offset by increased
income tax provision related to increased pretax income. The effective income 
tax rate differs from the Federal statutory rate as a result of the 
application of purchase accounting, certain foreign tax rate differentials, 
and state and local taxes. The effective income tax rate for the quarter ended
August 31, 1997 is approximately 53% as compared to 56% for the quarter ended
September 1, 1996.

      NET INCOME For the reasons set forth above, the Company recorded net
income of $7.9 million for the quarter ended August 31, 1997 versus net income
of $7.1 million for the quarter ended September 1, 1996.

                                       10

<PAGE>   11



                                SEALY CORPORATION
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NINE MONTHS ENDED AUGUST 31, 1997 AND SEPTEMBER 1, 1996

      NET SALES Net sales increased $62.2 million, or 12.0% for the nine months
ended August 31, 1997, when compared to the nine months ended September 1, 1996.
The increase is attributable to a $106.4 million increase in conventional
bedding sales and a $44.2 million decrease in sales of wood bedroom furniture.

      The bedding sales results represent a 22.7% increase and is comprised of a
$98.9 million, or 21.1% increase in conventional bedding unit shipments, along
with a $7.5 million, or 1.3% increase in the average unit selling price. This
bedding performance was primarily due to strong sales of Posturepedic,
Stearns & Foster and promotional products. In addition, the Company has
successfully implemented strategic initiatives to expand distribution.
Increased sales of the Company's flagship Posturepedic line is due to a
combination of new and enhanced products, along with selective pricing
initiatives. The Stearns & Foster line of luxury bedding continues to
experience strong sales growth as a result of an increased customer base,
increased volume from existing customers and the introduction of new products.
Promotional product sales increased as a result of new and enhanced product
offerings.

      The decrease in sales of wood bedroom furniture, sold under the Samuel
Lawrence brand, is due to the sale of this business on January 15, 1997. A
description of the disposition of this business unit is provided in Note 14 to
the consolidated financial statements contained in the Company's Form 10-K for
the year ended December 1, 1996.

      COST OF GOODS Sold Cost of goods sold, as a percentage of net sales,
decreased 1.0 percentage point to 55.9%. This improvement is primarily
attributable to the impact of lower sales of the lower margin wood bedroom
furniture, partially offset by an increase in bedding cost of goods sold. The
increase in bedding cost of goods sold as a percentage of net sales is primarily
attributable to the introduction of lower price point Posturepedic products,
along with selective pricing initiatives, partially offset by economies of scale
from increased sales volume.

      SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative
expenses increased $30.0 million due to increased bedding related expenses,
partially offset by the elimination of wood bedroom furniture related expenses.
The increase in bedding related selling, general and administrative expenses is
primarily due to increases in marketing spending, $21.6 million, delivery
expenses, $3.4 million and incentive compensation $2.3 million. Increased
marketing spending is due to increased sales volume, along with an increased
spending rate for cooperative advertising and promotions, partially offset by
lower national advertising. The increase in delivery expenses is due to the
increase in sales volume. The Company also experienced a $3.7 million increase
in bad debt and other financing expenses, primarily as a result of the
bankruptcy filing of one of its major customers, Montgomery Ward.

      INTEREST EXPENSE Interest expense, net of interest income, increased $1.4
million, primarily as a result of increased average debt levels resulting from
the February 1997 dividend and increased rate related to the February 1997
restructure of the Notes.

      INCOME TAX The Company's provision for income taxes increased $0.4 million
primarily due to an increase in pretax income in 1997, partially offset by a
lower effective tax rate. The effective income tax rate differs from the Federal
statutory rate as a result of the application of purchase accounting, certain
foreign tax rate differentials, and state and local taxes. The effective income
tax rate for the nine months ended August 31, 1997 is approximately 54.3% as
compared to 56.5% in the nine months ended September 1, 1996.

      EXTRAORDINARY ITEM The Company recorded a $2.0 million charge, net of
income tax benefit of $1.4 million, representing the write-off of the remaining
unamortized debt issuance costs related to long-term obligations repaid as a
result of the February 25, 1997 refinancing.

      NET INCOME For the reasons set forth above, the Company recorded net
income of $12.4 million for the period ended August 31, 1997 versus net income
of $12.8 million for the period ended September 1, 1996.

                                       11

<PAGE>   12





                                SEALY CORPORATION
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


LIQUIDITY AND CAPITAL RESOURCES

      The Company's principal sources of funds are cash flows from operations
and borrowings under its Revolving Credit Facility. The Company's principal use
of funds consists of payments of principal and interest on its secured
indebtedness, the dividend described below, capital expenditures and interest
payments on its outstanding Notes. Capital expenditures totaled $19.3 million
for the nine months ended August 31, 1997 as compared to $7.2 million for the
nine months ended September 1, 1996. The increase in capital spending is
primarily attributable to the Company's system upgrade project. Management
believes that annual capital expenditure limitations in its 1997 Credit
Agreement will not significantly inhibit the Company from meeting its ongoing
capital needs. At August 31, 1997, the Company had approximately $123 million
available under its Revolving Credit Facility with Letters of Credit issued
totaling approximately $12 million. The weighted average interest rate on the
Revolving Credit Facility at August 31, 1997 was 7.1%.

      On January 15, 1997, the Company sold its subsidiary that manufactured
wood bedroom furniture under the Samuel Lawrence brand name. Gross proceeds from
the sale of $35.0 million were used to reduce amounts outstanding under the 1994
Restated Credit Agreement.

      On February 6, 1997, the Company's Board of Directors authorized the
payment of a dividend to all stockholders and holders of Merger Warrants of
record as of February 27, 1997. The dividend, which was paid on February 28,
1997 amounted to approximately $99.8 million, or $3.31 per share and was
financed through borrowings under the Revolving Credit Facility.

      Management believes that the Company will have the necessary liquidity
through cash flow from operations, and availability under the Revolving Credit
Facility for the next several years to fund its expected capital expenditures,
obligations under its credit agreement and subordinated note indenture,
environmental liabilities, and for other needs required to manage and operate
its business.



                                       12

<PAGE>   13



                           PART II. OTHER INFORMATION
                           --------------------------


Item 1.    Legal Proceedings.

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

Item 6.    Exhibits and Reports on Form 8-K

           (a)   Exhibits:

                 27.1      Financial Data Schedule.

           (b)   Reports on Form 8-K:

                 None


                                       13

<PAGE>   14




                                   SIGNATURES


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


                                SEALY CORPORATION



          Signature                                 Title
          ---------                                 -----



By: /s/ Ronald L. Jones                 President and Chief Executive Officer
    ---------------------------         (Principal Executive Officer)
         Ronald L. Jones                



By: /s/ Richard F. Sowerby              Vice President Controller
    ---------------------------         (Principal Accounting Officer)
         Richard F. Sowerby             







Date: October 15, 1997


                                       14