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

                                AMENDMENT NO. 1
                                       TO
                                   FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      FOR THE YEAR ENDED DECEMBER 27, 2003

                        COMMISSION FILE NUMBER 333-76723

                            SIMMONS BEDDING COMPANY
                      (formerly known as Simmons Company)
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               Delaware                                         13-3875743
    (STATE OR OTHER JURISDICTION OF                          (I.R.S. EMPLOYER
    INCORPORATION OR ORGANIZATION)                          IDENTIFICATION NO.)

                        One Concourse Parkway, Suite 800
                             Atlanta, Georgia 30328
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (770) 512-7700

                               ------------------

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

                               ------------------

                                                  NAME OF EACH EXCHANGE
                TITLE OF EACH CLASS                 ON WHICH REGISTERED
        --------------------------------       ----------------------------
                   Not applicable                     Not applicable

                               ------------------

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

         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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                    Yes: [X] No: [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of The Act).

                                    Yes: [ ] No: [X]

         There were 100 shares of the registrant's common stock outstanding on
March 23, 2004.

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Explanatory Note:

This Amendment No. 1 to the Annual Report on Form 10-K for the year ended
December 27, 2003 is being filed to update the Form 10-K for comments received
from the Securities and Exchange Commission related to our Form S-4 filings.

         Effective July 14, 2004, our indirect parent, THL Bedding Holding
Company, changed its name to Simmons Company and we changed our name from
Simmons Company to Simmons Bedding Company.

         As used within this report, the terms "Company," "we," "our," and "us"
refers to Simmons Bedding Company, a Delaware corporation, and its subsidiaries.

                                     PART I

ITEM 1.  BUSINESS.

OVERVIEW

         Founded in 1870, Simmons Bedding Company is a leading manufacturer and
distributor of branded bedding products in the United States and a world leader
in Pocketed Coil(R) innerspring technology. We sell a broad range of mattresses
and foundations under our well-recognized brand names, including Simmons(R),
Beautyrest(R), BackCare(R) and Deep Sleep(R). In 2002, we added to our product
line-up with the introduction of BackCare Kids(R) mattresses, LivingRight(TM)
adjustable foundations, and a broader assortment of products to serve the
premium bedding segments. Sales of conventional bedding, which include
fully-assembled mattresses and foundations, account for substantially all of our
sales.

         We manufacture a full range of mattresses and foundations, with
particular emphasis on products targeted to sell at retail price points above
$799 per queen set. Additionally, we focus on selling queen and larger size
mattresses. For the year ended December 27, 2003, we derived approximately 57%
of our sales from these higher-end retail price points and approximately 83% of
our sales from these larger size mattresses. We believe these product categories
offer faster growth and higher gross margins than other bedding segments.
Primarily as a result of these factors, our AUSP for the year ended December 27,
2003 was approximately 50% above the industry average as reported by ISPA.

         We manufacture and supply conventional bedding to approximately 3,400
retail customers, representing over 11,000 outlets, throughout the nation and in
Puerto Rico. Our customers include furniture stores, specialty sleep shops,
department stores and rental stores. We support our customers with significant
local and national brand advertising and promotional spending, as well as
extensive customer support services. We operate 17 strategically located
manufacturing facilities across the United States and in Puerto Rico through our
wholly owned subsidiaries, The Simmons Manufacturing Co., LLC and Simmons
Caribbean Bedding, Inc. We are currently constructing two additional
manufacturing facilities.

         We also distribute branded products on a contract sales basis directly
to institutional users of bedding products, such as the hospitality industry and
certain agencies of the U.S. government, through our wholly owned subsidiary,
Simmons Contract Sales, LLC. In addition, we license our trademarks, patents and
other intellectual property to various domestic and foreign manufacturers
principally through our wholly owned subsidiary, Dreamwell, Ltd.

         Unlike many of our competitors that operate as associations of
independent licensees, we have national in-house manufacturing capabilities. We
believe that there are a number of important advantages to operating nationally,
including the ability to service multi-state accounts, maintain more consistent
quality of products and leverage research and development activities. Our
just-in-time manufacturing capability enables us to manufacture and ship
approximately 76% of our products to our retail customers within five business
days of receiving their order, and to minimize our working capital requirements.

         We have proven research and development capabilities. Guided by our
Better Sleep Through Science(R) philosophy, we apply extensive research to
design, develop, manufacture and market innovative sleep products to provide
consumers with a better night's sleep. Over our 134-year history, our
innovations have included our patented "no flip" mattress, the first
mass-produced innerspring mattress, the Pocketed Coil(R) innerspring, the
"Murphy Bed" and the Hide-a-Bed(R) sofa.


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We also operate 17 retail outlet stores located throughout the United States
through our wholly owned subsidiary, World of Sleep Outlets, LLC, and over 100
retail mattress stores operating under the Mattress Gallery and Sleep Country
USA names in California, Oregon and Washington.

RECENT HISTORY OF THE COMPANY

         In November 2003, THL Bedding Company acquired Simmons Holdings, Inc.
for approximately $1.115 billion. Concurrently with the closing of this
transaction, each of THL Bedding Company and Simmons Company merged with and
into Simmons Holdings with Simmons Holdings continuing as the surviving
corporation. Simmons Holdings was renamed Simmons Company and later renamed
Simmons Bedding Company. We refer to the acquisition and mergers, together with
the related acquisitions of voting securities of THL Bedding Holding Company, as
the "Acquisition." As a result of the Acquisition, Thomas H. Lee Equity Fund V,
L.P. and its affiliates ("THL") currently hold approximately 76% of the voting
stock of THL Bedding Holding Company. In connection with the stock purchase and
the mergers, Fenway acquired 9.0% of voting stock of THL Holding and the
Company's management and directors acquired 15.2% of the voting stock of THL
Holding, after giving effect to restricted stock issued to management under THL
Holding's equity incentive plan.

         Concurrently with the closing of the transactions described above, we
entered into the following financing transactions, which we refer to, together
with the Acquisition, as the "Transactions":

         -        our new senior secured credit facilities, consisting of a
                  $405.0 million term loan facility and a $75.0 million
                  revolving credit facility (of which approximately $3.3 million
                  was drawn on the closing date and approximately $10.5 million
                  was used to support standby letters of credit) (collectively,
                  the "new senior secured credit facility");

         -        a new $140.0 million senior unsecured term loan facility (the
                  "new senior unsecured facility");

         -        the repayment of all outstanding amounts under Simmons
                  Company's existing senior credit facility and the termination
                  of all commitments under that facility;

         -        the consummation of a tender offer and consent solicitation
                  initiated by THL Bedding Company on November 18, 2003 for the
                  $150.0 million aggregate principal amount outstanding of
                  Simmons Company's 10.25% Senior Subordinated Notes due 2009.
                  Holders of $144.9 million aggregate principal amount of the
                  existing Simmons notes had tendered their notes in connection
                  with the tender offer; and

         -        the repayment of all outstanding indebtedness of Simmons
                  Holdings, Inc. including $22.9 million of 17.5% Junior
                  Subordinated Payment-In-Kind Notes due October 29, 2011 and
                  $4.7 million of debt owed to former stockholders of Simmons
                  Holdings, Inc.


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INDUSTRY

         We compete in the U.S. wholesale bedding industry, which generated
sales of approximately $5.0 billion in 2003, according to ISPA. While there are
approximately 700 bedding manufacturers in the United States, four companies,
Simmons, Sealy, Serta and Spring Air accounted for approximately 59% of the
bedding industry's wholesale revenues for 2003, according to Furniture/Today, an
industry publication. The remainder of the domestic conventional bedding
market primarily consists of hundreds of smaller independent local and regional
manufacturers. We are one of only two bedding industry companies that have
national, in house manufacturing capabilities. We believe that there are
advantages to operating nationally, including the ability to better service
multi-state accounts, maintain more consistent quality of products and better
leverage research and development activities.

         The U.S. bedding industry is characterized by growing unit demand,
rising AUSPs and stability in various economic environments. Annual growth of
total bedding industry sales has averaged approximately 5.9% over the last
twenty years. During this period, there has been just one year in which industry
revenues declined (0.3% in 2001). This stability and resistance to economic
downturns is due largely to replacement purchases, which account for
approximately 80% of bedding industry sales. In addition, high shipping costs
and the short lead times demanded by mattress retailers have limited Asian
imports to less than 3% of the U.S. market according to the International Trade
Association.

         We believe that current and projected demographic trends are
favorable for the bedding industry and, in particular, for the premium segment
of the market on which we focus. According to ISPA, 20% of the 21.5
million mattress units sold in the U.S. in 2002 were sold at retail price points
greater than $1,000, up 32% from the year before. The factors contributing to
growth in the premium segments include:

         -        the greater relative profitability that higher-end products
                  provide to our retail customers;

         -        the rapid growth in the 45-64 year old segment of the
                  population, a group that tends to have more discretionary
                  income and purchases a disproportionate share of bedding
                  products relative to the general population;

         -        the growing number and size of bedrooms in homes in the last
                  twenty years; and

         -        the increasing consumer awareness of the health benefits of
                  sleep.

COMPETITION

         While there are approximately 700 bedding manufacturers in the United
States, four companies, Simmons, Sealy, Serta and Spring Air, account for more
than 60% of the industry's wholesale revenues. We believe that we principally
compete against these three competitors on the basis of brand recognition,
product selection, quality and customer service programs, including cooperative
advertising, sales force training and marketing assistance. We believe we
compare favorably to our primary competitors in each of these areas. In
addition, only Simmons and Sealy have national, company-operated manufacturing
and distribution capabilities.

         The rest of the U.S. conventional bedding market consists of several
smaller national manufacturers, with the remainder being independent local and
regional manufacturers. These local and regional manufacturers generally focus
on the sale of lower price point products. While we primarily manufacture
differentiated bedding products targeted for mid- to upper-end price points, we
also offer a full line of bedding products to our retailer base in order for
these retailers to maintain their competitive positioning.


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PRODUCTS

         We provide our retail customers with a full range of mattress products
that are targeted to cover a breadth of marketplace price points ($199 to $8,999
per queen set) and offer consumers better sleep quality benefits related to
common causes of poor sleep. Our focus on the sleep quality benefits of our
products differs from the majority of the industry in our employment of
differentiated product constructions designed to address specific consumer sleep
needs and marketing programs that promote these better sleep benefits, instead
of the traditional comfort and price feature selling.

         Our mattress products are built from foam and/or one of two spring unit
construction techniques: Pocketed Coil(R) (Marshall Coil) springs or open coil
constructions. The Beautyrest(R) line of products utilizes our patented Pocketed
Coil(R) and Pocketed Cable Coil(TM) technology spring construction. Pocketed
Coil(R) spring technology involves springs whose rows are joined at the center
third of the coils. This patented way of attaching rows of coils allows for each
coil to depress independently of the adjacent coils, resulting in better
conformability to the sleeping body and the reduction of motion transferred
across the bed from one partner to the other. In addition, we recently developed
the patent pending Pocketed Cable Coil(TM) technology, which utilizes stranded
wire for each coil to provide significantly more durability and enhanced motion
separation benefits.

         Our open coil products differ from traditional open coil mattresses in
the design of our coil. Our BackCare(R) products offer a unique gradient-zoned
support, featuring five distinct comfort and support zones that mirror the
natural s-shape of the spine, providing additional firmness in the lower back
and thigh for better support. We also use other open coil units in our Deep
Sleep(R) line targeted at the under $500 queen price category. The coil units
used in these products are also unique to our products.

         In 2000, we introduced the first full line of mattresses that consumers
never need to flip. This patented design offers enhanced sleep benefits and
product durability, along with the consumer convenience of never having to flip
their mattresses. Every mattress we manufacture features this innovative "no
flip" design.

         Beautyrest(R), our flagship premium product, has been our primary brand
since we introduced it in 1925 and is expected to continue generating the
majority of our sales. In October 2003, we introduced the new Beautyrest(R) 2004
line, which continues to offer the Pocketed Coil(R) technology and also offers
new features, including the new Pocketed Cable Coil(TM) technology. We began
shipping this line in December 2003. Mattresses featuring the Pocketed Cable
Coil(TM) technology target retail price points at or above $1,299 per queen set.
Beautyrest(R) is sold primarily through furniture stores, mattress specialty
stores and department stores. All Beautyrest(R) retail floor samples display
"Corner Streamer" labels that allow consumers to choose the benefit package most
appealing to them, to compare mattress features with that of competitive
products, and to compare the motion separation benefit to other Beautyrest(R)
models.

         Beautyrest(R) World Class(TM) Exceptionale(TM), Latitudes(TM),
Dreamwell(R) and Joseph Abboud(R) products are the luxury price point extensions
of the Beautyrest(R) line. Unlike other mattress brands, which generally build
their luxury line by adding foam, fiber and non-sleep-related accessories to
their mainstream product, the Beautyrest(R) luxury products primarily feature
our exclusive Pocketed Coil(R)-on-Pocketed Coil(R) construction. This unique
construction offers a different comfort level from the mainstream price point
Beautyrest(R) models and the combined benefits of comfort and reduced motion
transfer.

         BackCare(R), our second flagship brand, was introduced in 1995 and
redesigned in late 2002 with advanced "gradient support" benefits and with
our patented "no flip" design. BackCare(R) gradient support, with varying
levels of firmness for different zones of the sleeping body, features a zoned
coil unit, titanium re-enforced lumbar support and new zoned foams that work
together to offer support that mirrors the natural s-shape of the human spine.
BackCare Advanced(TM) offers the BackCare(R) gradient support in a series of
unique constructions featuring foam core constructions in conjunction with
contour memory foam and contour natural foam. It also features an allergy care
fiber which is an environmentally-secure way of helping to reduce indoor
allergens in the mattress that can cause allergic reactions, including asthma.



                                       4
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         BackCare Kids(R) was introduced in 2002 specifically for the unique
sleep needs of children. BackCare Kids(R) offers three benefits, an allergy
care fiber to help reduce allergens in the bed that can cause allergic
reactions, a Moisture Ban(TM) liquid repellant, and a RiteHeight(TM) option for
bunk beds, trundle beds and day beds that are designed for a lower height
mattress.

         Deep Sleep(R) was introduced in 2001 and redesigned in 2002. The Deep
Sleep(R) product line is targeted at the traditional under $500 queen price
points. This product line offers comfort, durability and value, utilizing a
unique product construction in comparison to competitive open coil units,
offering benefits not available from traditional open coil mattresses.

         Olympic(R) Queen, the first new size in mattresses distributed on a
national basis since we began distributing king and queen sizes nationally
in 1958, was introduced in 2001. The Olympic(R) Queen offers consumers 10% more
sleeping surface than a traditional queen, without requiring the replacement of
the traditional queen frame with a wider frame. This patent-pending product,
which is available in our Beautyrest(R), BackCare(R) and Deep Sleep(R) lines, is
targeted at queen size mattress owners who would prefer a wider mattress, but
are unwilling to purchase a larger bed because of their existing queen bed frame
or the size of their bedroom. We offer specially designed Egyptian cotton
Olympic(R) Queen sheets for our Olympic(R) Queen mattresses which are sold by
our retailers and through our internet website, www.simmons.com.

         LivingRight(TM) adjustable foundations were introduced in late 2002 as
part of the BackCare(R) and BackCare Advanced (TM) product lines and are now a
feature available in the Beautyrest(R) 2004 line. This product line began
rolling out at retail stores in the first quarter of 2003. LivingRight(TM)
foundations broaden the traditionally older consumer profile for adjustable beds
to the broader market of all adults, reflecting the trend towards using the bed
as more than just a place to sleep (reading in bed, working on the computer,
watching television, gathering with the family, etc.). The unique
LivingRight(TM) design incorporates the benefits of adjustability in a
foundation that looks more like a standard foundation than traditional
adjustable beds.

         In 2003, we also launched a number of products in the premium segments.
We introduced the new sang(TM) product line, our entry into visco-elastic sleep
systems, with retail price points ranging from $1,899 to $2,499 for queen sets.
Through our Windsor Bedding subsidiary, we launched several high-end luxury
mattress lines, currently under the names Columbia Fine Bedding(TM) and
Slumberland(R), with retail price points ranging from $2,899 to $8,999 for queen
sets.

CUSTOMERS

         Our strong brand names and reputation for high quality products,
innovation and service to our customers, together with the highly attractive
retail margins associated with bedding products, have enabled us to establish a
strong customer base throughout the United States and across all major
distribution channels, including furniture stores, specialty sleep shops,
department stores and rental stores. We manufacture and supply conventional
bedding to over 11,000 outlets, representing approximately 3,400 retail
customers.

         We also distribute branded products on a contract sales basis directly
to institutional users of bedding products such as the hospitality industry and
certain agencies of the U.S. government. Major commercial accounts include
Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") La Quinta Inns, Inc., and
Best Western International, Inc. In 1999, Starwood selected our Beautyrest(R)
mattress as the product for their Heavenly Bed(R) program, a luxury hotel room
program targeted at their preferred customer club members.

Our ten largest customers accounted for 29.8% of our product shipments for the
year ended December 27, 2003. No one customer represented more than 4.2% of
product shipments for the year ended December 27, 2003.


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SALES, MARKETING AND ADVERTISING

         Our products are sold by approximately 220 local field sales
representatives, backed by sales management at each of our manufacturing
facilities, as well as national account representatives that give direction and
support for sales to national accounts. This selling infrastructure provides
retailers with coordinated national marketing campaigns, as well as local
support tailored to the competitive environments of each individual market.
Additionally, we use 35 independent sales representatives, principally in the
area of contract sales.

         Our sales support focuses on two areas:

         -        cooperative promotional advertising and other retail support
                  programs designed to complement individual retailer's
                  marketing programs; and

         -        national consumer communications designed to establish and
                  build brand awareness among consumers.

         We develop advertising and retail sales incentive programs specifically
for individual retailers. Point-of-sale materials, including mattresses and
foundation displays that we design and supply, highlight the differentiating
features and benefits of our products. In addition, we offer training for retail
sales personnel through an internally developed sales representative training
program. We believe that our sales training and consumer education programs are
the most effective in the industry. We have designed these programs, which are
delivered on-site at our retailers' facilities, our manufacturing facilities or
our research and education center, Simmons Institute of Technology and Education
("SITE"), to teach retail floor salespeople product knowledge and sales skills.
We seek to improve our retailers' unit sales, and increase their sales of
higher-end bedding. We also help establish individual incentive programs for our
customers and their sales personnel. Our sales force is trained extensively in
advertising, merchandising and salesmanship, all of which increase the value of
the marketing support they provide to retailers. We believe that our focus on
better sleep and on the training of our sales representatives and our customers'
retail salespeople differentiates us from our large competitors.

SUPPLIERS

         We purchase substantially all of our conventional bedding raw materials
centrally in order to maximize economies of scale and volume discounts. The
major raw materials that we purchase are wire, spring components, lumber, foam,
insulator pads, innersprings and fabrics and other roll goods consisting of
foam, fiber and non-wovens. We obtain a large percentage of our required raw
materials from a small number of suppliers and for the year ended December 27,
2003, we bought approximately 77% of our raw material needs from ten suppliers.
We believe that supplier concentration is common in the bedding industry.

         We have long-term supply agreements with several suppliers, including
L&P and National Standard Company. L&P supplies the majority of several
components, including certain spring components, insulator pads, wire, fiber,
quilt backing and flange material, to the bedding industry. For the year ended
December 27, 2003, we purchased approximately one-third of our raw materials
from L&P. To ensure a long-term and adequate supply of various components, we
have entered into agreements with L&P, generally expiring in the year 2010, for
the supply of grid tops and open coil innersprings. Among other things, these
agreements generally require us to purchase a majority of our requirements of
several components from L&P. National Standard Company, a new supplier, provides
stranded wire used to manufacture our Pocketed Cable Coil(TM) products.

         With the exception of L&P and National Standard Company, we believe
that we could replace our other suppliers, if or when the need arises, within 90
days as we have already identified and use alternative sources.


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SEASONALITY/OTHER

         For the past several years there has not been significant seasonality
in our wholesale bedding business. Our retail bedding business, which accounted
for $97.9 million, or 12.1%, of net sales for the year ended December 27, 2003
has historically experienced, and we expect will continue to experience,
seasonal and quarterly fluctuations in net sales and operating income. As is the
case with many bedding retailers, our retail business is subject to seasonal
influences, characterized by strong sales for the months of May through
September, which impact our second and third quarter results.

MANUFACTURING AND FACILITIES

         We currently operate 18 bedding manufacturing facilities in 16 states
and Puerto Rico. We are in the process of closing our Columbus, Ohio plant and
we anticipate opening a new plant in July 2004. We manufacture most conventional
bedding to order and use "just-in-time" inventory techniques in our
manufacturing processes to more efficiently serve our customers' needs and to
minimize our inventory carrying costs. We generally schedule, produce and ship
over 75% of our bedding orders within five business days of receipt of the
order. This rapid delivery capability allows us to minimize our inventory of
finished products and better satisfy customer demand for prompt shipments.

         We invest substantially in new product development, enhancement of
existing products and improved operating processes, which we believe is crucial
to maintaining our strong industry position. We keep abreast of bedding industry
developments through sleep research conducted by industry groups and by our own
marketing and engineering departments. We also participate in the Better Sleep
Council, an industry association that promotes awareness of sleep issues, and
ISPA. Our marketing and manufacturing departments work closely with the
engineering staff to develop and test new products for marketability and
durability.

         We also seek to reduce costs and improve productivity by continually
developing more efficient manufacturing and distribution processes at SITE, our
state-of-the-art 38,000 square foot research and education center in Atlanta,
Georgia. As of December 27, 2003, we had 18 engineers and technicians employed
full-time at SITE. These employees ensure that we maintain high quality products
by conducting product and materials testing, designing manufacturing facilities
and equipment and improving process engineering and development. We believe that
our engineering staff gives us a competitive advantage over most of our
competitors who do not have significant in-house engineering resources.

WARRANTIES AND PRODUCT RETURNS

         Our conventional bedding products generally offer ten-year limited
warranties against manufacturing defects. We believe that our warranty terms are
generally consistent with those of our primary national competitors. The
historical costs to us of honoring warranty claims have been within management's
expectations. We have also experienced non-warranty returns for reasons
generally related to order entry errors and shipping damage. We resell our
non-warranty returned products primarily through as-is furniture dealers and our
World of Sleep outlet stores.

PATENTS AND TRADEMARKS

         We own many trademarks, including Simmons(R), Beautyrest(R),
BackCare(R), Deep Sleep(R), Olympic(R) Queen and Pocketed Coil(R), most of which
are registered in the United States and in many foreign countries. We protect
portions of our manufacturing equipment and processes as trade secrets and
through patents. We possess several patents on the equipment and processes used
to manufacture our Pocketed Coil(R) innersprings. We do not consider our overall
success to be dependent upon any particular intellectual property rights. We
cannot assure that the degree of protection offered by the various patents will
be sufficient, that patents will be issued in respect of pending patent
applications, that it will be commercially reasonable or cost effective to
enforce our patents, or that we will be able to protect our technological
advantage upon the expiration of our



                                       7
<PAGE>
patents. If we were unable to maintain the proprietary nature of our
intellectual property, our financial condition or results of operations could be
materially adversely affected.

LICENSING

         During the late 1980's and early 1990's, we disposed of most of our
foreign operations and secondary domestic lines of business via license
arrangements. We now license internationally the Simmons(R) mark and many of our
trademarks, processes and patents generally on an exclusive perpetual or
long-term basis to third-party manufacturers which produce and distribute
conventional bedding products within their designated territories. These
licensing agreements allow us to reduce exposure to political and economic risk
abroad by minimizing investments in those markets. We currently have 18 foreign
licensees and 14 foreign sub-licensees that have rights to sell Simmons-branded
products in nearly 100 countries.

         As of December 27, 2003, we had 11 domestic third-party licensees. Some
of these licensees manufacture and distribute juvenile bedding,
healthcare-related bedding and furniture and non-bedding upholstered furniture,
primarily on perpetual, long-term or automatically renewable terms.
Additionally, we have licensed the Simmons(R) mark and other trademarks,
generally for limited terms, to manufacturers of occasional use airbeds, feather
and down comforters, sheets and synthetic comforter sets, pillows, mattress
pads, blankets, bed frames, futons, specialty sleep items and other products.

         In 2001, 2002 and 2003, our licensing agreements as a whole generated
royalties and technology fees of $9.5 million, $9.0 million and $10.6 million,
respectively. These royalty and technology fees are accounted for as a reduction
in selling, general and administrative expenses in the accompanying consolidated
statements of operations.

EMPLOYEES

         As of December 27, 2003, we had approximately 3,200 full-time
employees. Approximately 1,000 of these were represented by labor unions.
Employees at eight of our eighteen manufacturing facilities were represented by
various labor unions with separate collective bargaining agreements. Collective
bargaining agreements typically are negotiated for two- to four-year terms. Most
of our union contracts expire in 2004 or 2005. Employees of our new
manufacturing plant under construction will not be represented by a labor union.

         The locations where our employees are covered by collective bargaining
agreements and the contract expiration dates are as follows:

<TABLE>
<CAPTION>
              FACILITY                LABOR UNION                                                EXPIRATION DATE
              --------                -----------                                                ---------------
<S>                                   <C>                                                        <C>
              Atlanta                 United Steel Workers of America                            October 2005
              Columbus(1)             United Steel Workers of America                            October 2004
              Columbus(1)             International Association of Machinists                    February 2004
              Dallas                  United Steel Workers of America                            October 2004
              Honolulu                International Longshoremen and Warehousemen's Union        January 2005
              Kansas City             United Steel Workers of America                            April 2004
              Los Angeles             United Steel Workers of America                            October 2005
              Los Angeles             International Brotherhood of Teamsters                     October 2006
              Piscataway              United Steel Workers of America                            October 2005
              Piscataway              International Association of Machinists                    November 2004
              San Leandro             United Furniture Workers                                   April 2004
</TABLE>

--------------

(1) Plant scheduled to cease operations in April 2004.

         We consider overall relations with our workforce to be satisfactory. We
have had no labor-related work stoppages in over twenty years.


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REGULATORY MATTERS

         As a manufacturer of bedding and related products, we use and dispose
of a number of substances, such as glue, lubricating oil, solvents, and other
petroleum products, that may subject us to regulation under numerous federal and
state statutes governing the environment. Among other statutes, we are subject
to the Federal Water Pollution Control Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and Recovery
Act, the Clean Air Act and related state statutes and regulations. We have made
and will continue to make capital and other expenditures to comply with
environmental requirements. We also have incurred and will continue to incur
costs related to certain remediation activities. Under various environmental
laws, we may be held liable for the costs of remediating releases of hazardous
substances at any properties currently or previously owned or operated by us or
at any site to which we sent hazardous substances for disposal. We are currently
addressing the clean-up of environmental contamination at and in the vicinity of
our former facility in Jacksonville, Florida, and have submitted a final
remediation plan for our former facility in Linden/Elizabeth, New Jersey. While
the current estimate of such liabilities is not material to our operations,
future liability for such matters is difficult to predict.

         We have a reserve based upon our best estimate to reflect our potential
liability for environmental matters. Because of the uncertainties associated
with environmental remediation, the costs incurred with respect to the potential
liabilities could exceed our recorded reserves.

         Our conventional bedding and other product lines are subject to various
federal and state laws and regulations relating to flammability, sanitation and
other standards. We believe that we are in material compliance with all such
laws and regulations.

         The state of California adopted new flame retardant regulations related
to manufactured mattresses and foundations which will be effective January 1,
2005. These regulations could be preempted by the U.S. Consumer Product Safety
Commission, which is also considering new rules related to open flame resistance
standards. Other jurisdictions are also considering similar standards. These
regulations, or any new regulations adopted nationally or elsewhere, may
adversely affect our manufacturing processes and material costs. We have
developed product solutions that are intended to enable us to meet the
regulations.

FORWARD LOOKING STATEMENTS

"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995. When used in this Annual Report on Form 10-K/A, the words "believes,"
"anticipates," "expects," "intends," "projects" and similar expressions are used
to identify forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements relate
to future financial and operating results, including expected benefits from our
Better Sleep Through Science(R) philosophy. Any forward-looking statements
contained in this report represent our management's current expectations, based
on present information and current assumptions, and are thus prospective and
subject to risks and uncertainties which could cause actual results to differ
materially from those expressed in such forward-looking statements. Actual
results could differ materially from those anticipated or projected due 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
            ("SEC"), including the Form 10-K for 2002 and the Form 10-Qs for the
            first, second and third quarters of 2003.

All forward-looking statements attributable to us or persons acting on our
behalf apply only as of the date of this Annual Report on Form 10-K and are
expressly qualified in their entirety by the cautionary statements included in
this Annual Report on Form 10-K. 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.



                                       9
<PAGE>
ITEM 2.  PROPERTIES.

Our corporate offices are located in approximately 49,000 square feet of leased
office space at One Concourse Parkway, Atlanta, Georgia 30328. The following
table sets forth selected information regarding manufacturing and other
facilities we operated as of December 27, 2003:

<TABLE>
<CAPTION>
                                                              DATE          YEAR OF LEASE       SQUARE
LOCATION                                                     OCCUPIED         EXPIRATION        FOOTAGE
--------                                                     --------         ----------        -------
<S>                                                          <C>            <C>               <C>
Manufacturing facilities:
Mableton, Georgia (Atlanta)...............................       1992               2007        148,300
Charlotte, North Carolina.................................       1993               2010        174,960
Grove City, Ohio (Columbus) (1)...........................       1987               2004        190,000
Coppell, Texas (Dallas)...................................       1998               2008        140,981
Aurora, Colorado (Denver).................................       1998               2008        129,000
Fredericksburg, Virginia..................................       1994               2009        128,500
Honolulu, Hawaii..........................................       1993               2008         63,280
Jacksonville, Florida(2) .................................       1973               2004        205,729
Janesville, Wisconsin.....................................       1982              Owned        290,190
Shawnee Mission, Kansas (Kansas City).....................       1997              Owned        130,000
Compton, California (Los Angeles).........................       1974               2005        222,000
Tolleson, Arizona (Phoenix)...............................       1997               2007        103,408
Piscataway, New Jersey....................................       1988               2004        264,908
Salt Lake City, Utah......................................       1998               2008         77,500
San Leandro, California...................................       1992               2007        250,600
Sumner, Washington (Seattle)..............................       2003               2014        235,000
Agawam, Massachusetts (Springfield).......................       1993               2006        125,000
Trujillo Alto, Puerto Rico................................       1998              Owned         50,000
                                                                                              ---------
  Subtotal................................................                                    2,929,356

Other facilities in Atlanta, Georgia:
Corporate Headquarters....................................       2000               2011         49,045
SITE (Norcross, Georgia)..................................       1995               2005         38,000
SITE Showroom (Norcross, Georgia).........................       2002               2005          4,534
Gwinnett Storage..........................................       2002               2005          6,660
</TABLE>


-----------

(1)      Plant scheduled to cease operations in April 2004. Current lease
         expires in July 2004. One new plant opened in March 2004 and a second
         plant is scheduled to open in July 2004.

(2)      Plant ceased operations in December 2003. Lease expired in January
         2004.

         Management believes that our facilities, taken as a whole, have
adequate productive capacity and sufficient manufacturing equipment to conduct
business at levels exceeding current demand.

         In addition, as of December 27, 2003, we operated 17 retail outlet
stores through our World of Sleep Outlets, LLC subsidiary and 56 retail mattress
stores in the aggregate and an office/warehouse through our Gallery Corp.
subsidiary, and 47 retail mattress stores and two additional office/warehouses
through our SC Holdings, Inc. subsidiary.


                                       10
<PAGE>
ITEM 3.  LEGAL PROCEEDINGS.

         From time to time, we have been involved in various legal proceedings.
We believe that all current litigation is routine in nature and incidental to
the conduct of our business, and that none of this litigation, if determined
adversely to us, would have a material adverse effect on our financial condition
or results of our operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matters were submitted to a vote of security holders during the
fourth quarter of 2003.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         There is no established public trading market for any class of common
equity of the Company. As of December 27, 2003, there was one holder of record
of the Company's common shares.

         No dividends have been paid on any class of common equity of the
Company during the last three fiscal years. Any payment of future dividends and
the amounts thereof will be dependent upon the Company's earnings, fiscal
requirements and other factors deemed relevant by the Company's Board of
Directors. The ability of the Company to pay dividends on its common stock is
restricted by the terms of the Senior Credit Facility, Senior Unsecured Term
Loan and the Indenture governing the New Notes.

RECENT SALES OF UNREGISTERED SECURITIES

         We have not issued nor sold securities within the past three years
pursuant to offerings that were not registered under the Securities Act of 1933,
as amended (the "Securities Act"), except on December 19, 2003 as part of the
Transactions, we issued $200.0 million in principal amount of 7.875% senior
subordinated notes due 2014 to Goldman, Sachs & Co., Deutsche Bank Securities
Inc., and UBS Investment Bank for $ 194.5 million.

         The proceeds of the transaction set forth above were used to repay all
outstanding amounts under Simmons Bedding Company's Senior Credit Facility and
the termination of all commitments under that facility, the consummation of a
tender offer and consent solicitation initiated by THL Bedding Company on
November 18, 2003 for the $150.0 million aggregate principal amount outstanding
of Simmons Company's 10.25% Senior Subordinated Notes due 2009, the repayment of
all outstanding indebtedness of Simmons Holdings, Inc. including $22.9 million
of 17.5% Junior Subordinated Payment-In-Kind Notes due October 29, 2011 and $4.7
million of debt owed to former stockholders of Simmons Holdings, Inc.

         The transaction set forth above was undertaken in reliance upon
exemption from the registration requirements of the Securities Act afforded by
Section 4(2), Rule 144A under the Securities Act and/or Regulation D and
Regulation S promulgated thereunder, as sales not involving a public offering.

ITEM 6. SELECTED FINANCIAL DATA.


        SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA

         Set forth below is selected historical consolidated financial and other
operating data for Simmons Bedding Company. We derived our historical Statement
of Operations and Balance Sheet data for 1999, 2000, 2001, 2002 and 2003 from
our consolidated financial statements. The Company's capital structure changed
significantly as a result of the December 19, 2003 acquisition and the
concurrent and subsequent refinancing of debt. Due to required purchase
accounting adjustments relating to the Transactions the consolidated financial
and other data for the period subsequent to the acquisition (the "Successor"
period) is not comparable to such data for the periods prior to the acquisition
(the "Predecessor" periods). The accompanying selected historical consolidated
financial and other operating data contain all adjustments that, in the opinion
of management, are necessary to present fairly the financial position of Simmons
for the periods presented. All adjustments in the periods presented herein are
normal and recurring in


                                       11
<PAGE>

nature unless otherwise disclosed. The information presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our consolidated financial statements
and related notes and other financial information appearing elsewhere herein.

<Table>
<Caption>
                                                       PREDECESSOR
                            ---------------------------------------------------------------------     |        SUCCESSOR
                             FOR THE      FOR THE      FOR THE      FOR THE                           |     ----------------
                               YEAR         YEAR         YEAR         YEAR         PERIOD FROM        |       PERIOD FROM
                              ENDED        ENDED        ENDED        ENDED        DEC. 29, 2002       |      DEC. 20, 2003
                             DEC. 25,     DEC. 30,     DEC. 29,     DEC. 28,     THROUGH DEC. 19,     |     THROUGH DEC. 27,
                               1999         2000         2001         2002             2003           |           2003
                            ----------   ----------   ----------   ----------    ----------------     |     ----------------
                            (52 WEEKS)   (53 WEEKS)   (52 WEEKS)   (52 WEEKS)                         |
                                                         (DOLLARS IN THOUSANDS)                       |
<S>                         <C>          <C>          <C>          <C>            <C>                 |      <C>
STATEMENT OF OPERATIONS                                                                               |
  DATA:                                                                                               |
Net sales.................   $550,062     $699,741     $655,209     $708,595        $ 797,616         |       $    8,717
Cost of products sold.....    348,920      414,102      379,131      369,617          410,081         |            7,596
                             --------     --------     --------     --------        ---------         |       ----------
  Gross profit............    201,142      285,639      276,078      338,978          387,535         |            1,121
Operating expenses:                                                                                   |
Selling, general and                                                                                  |
  administrative                                                                                      |
  expenses(1).............    168,205      259,795      241,800      284,164          373,040         |            4,442
Amortization of                                                                                       |
  intangibles.............      7,628       10,530       11,414        1,246              306         |              311
Licensing fees............     (7,717)      (8,437)      (9,501)      (9,002)         (10,361)        |             (276)
Other(2)..................      7,169        7,117       10,698       20,285           22,399         |               --
                             --------     --------     --------     --------        ---------         |       ----------
  Operating income (loss).     25,857       16,634       21,667       42,285            2,151         |           (3,356)
Interest expense, net(3)..     38,220       39,989       39,450       32,000           45,092         |            4,661
  Income (loss) before                                                                                |
     income taxes and                                                                                 |
     minority interest....    (12,363)     (23,355)     (17,783)      10,285          (42,941)        |           (8,017)
Income tax expense                                                                                    |
  (benefit)...............     (1,673)      (4,813)      (7,676)      12,005           (8,845)        |             (827)
Minority interest in                                                                                  |
  loss....................         --         (421)        (470)      (1,109)              --         |               --
                             --------     --------     --------     --------        ---------         |       ----------
  Net income (loss).......   $(10,690)    $(18,121)    $ (9,637)    $   (611)       $ (34,096)        |       $   (7,190)
                             ========     ========     ========     ========        =========         |       ==========
                                                                                                      |
BALANCE SHEET DATA:                                                                                   |
Working capital(4)........   $ 55,253     $ 37,338     $ 26,320     $ 10,326                          |       $   26,908
Cash and cash                                                                                         |
  equivalents.............      4,533        5,765        3,264        7,108                          |            3,670
Total assets..............    407,049      469,378      432,175      411,031                          |        1,183,119
Total debt................    347,751      365,060      340,583      290,782                          |          770,253
Total common stockholder's                                                                            |
  equity (deficit)........    (30,318)     (33,567)     (61,321)     (81,336)                         |          280,277
OTHER DATA:                                                                                           |
EBITDA(5)...............     $ 44,014     $ 42,452     $ 58,369     $ 82,922        $  24,407         |       $   (2,696)
Variable stock                                                                                        |
 compensation expense...           --          574       14,847       15,561           68,415         |               --
Transaction related                                                                                   |
 expenditures including,                                                                              |
 cost of products                                                                                     |
 sold...................           --           --           --           --           22,399         |            1,727
Plant opening, closing                                                                                |
 charges................           --           --           --           --            4,137         |              286
Management fees.........        1,501        2,102        2,764        2,353            2,844         |               49
Capital expenditures....        9,041       15,556        5,729        7,961            8,791         |               --
</Table>

---------------

(1) Includes predecessor variable stock compensation expense related to
    director, consultant and employee regular and superincentive stock options
    of $0, $0.6 million, $14.8 million, $15.6 million and $68.4 million for the
    years ended 1999, 2000, 2001, 2002 and the period from December 29, 2002
    through December 19, 2003, respectively.

(2) Includes ESOP expense of $7.2 million, $7.1 million and $2.8 million for the
    years ended 1999, 2000 and 2001, respectively; goodwill impairment charges
    of $7.9 million and $20.3 million for the years ended 2001 and 2002,
    respectively; and $21.5 million of transaction expenses related to THL's
    acquisition of Simmons Company for Predecessor '03.

(3) Includes for the period December 29, 2002 through December 19, 2003 tender
    premium of $10.8 million for Repurchased Notes and $8.9 million of
    unamortized debt issuance costs expensed related to debt repaid in
    connection with the Acquisition.

(4) Defined as current assets (excluding cash and assets held for sale), less
    current liabilities (excluding current maturities of long-term debt and
    liabilities held for sale).


                                       12
<PAGE>

(5) EBITDA is a non-GAAP financial measure that is defined as net income before
    interest expense, income taxes, depreciation and amortization. We use EBITDA
    as a supplemental tool to measure our operating performance and, after
    applying various adjustments, as a basis for determining the following:

     - the allocation of our resources to our different business segments;

     - the return on investment of acquisitions;

     - the compensation of our management;

     - the vesting of our restricted stock;

     - the valuation of our Company for impairment purposes; and

     - our compliance with our debt covenants.

    We rely on EBITDA as a supplemental tool for measuring our operating
    performance because we are and have historically had a highly-leveraged
    capital structure which results in significant interest expense and minimal
    cash tax expense. We believe EBITDA provides useful information to the
    holders of our notes and security analysts by assisting them in making
    informed investment decisions as we have historically been valued and sold
    based upon multiples of EBITDA. EBITDA differs from Adjusted EBITDA, which
    is defined by our senior credit facility (see "Management's Discussion and
    Analysis of Financial Condition and Results of Operations -- Liquidity and
    Capital Resources").

    EBITDA has important limitations as an analytical tool, and should not be
    considered in isolation or as a substitute for analysis of our results as
    reported under GAAP. For example, EBITDA does not reflect:

     - our cash expenditures, or future requirements, for capital expenditures
       or contractual commitments;

     - changes in, or cash requirements for, our working capital needs;

     - the significant interest expense, or the cash requirements necessary to
       service interest or principal payments, on our debts;

     - tax payments that represent a reduction in cash available to us; and

     - any cash requirements for the assets being depreciated and amortized that
       may have to be replaced in the future.

     Because of these and other limitations, we rely primarily on our results
under GAAP and use EBITDA only supplementally. The following table sets forth
the reconciliation of our net income for the periods provided to EBITDA:

<Table>
<Caption>
                                                        PREDECESSOR                                    |     SUCCESSOR
                       -----------------------------------------------------------------------------   |   -------------
                                                                                       PERIOD FROM     |   PERIOD FROM
                       FOR THE YEAR    FOR THE YEAR    FOR THE YEAR    FOR THE YEAR    DEC. 29, 2002   |   DEC. 20, 2003
                         ENDED           ENDED           ENDED           ENDED          THROUGH        |     THROUGH
                       DEC. 25, 1999   DEC. 30, 2000   DEC. 29, 2001   DEC. 28, 2002   DEC. 19, 2003   |   DEC. 27, 2003
                       -------------   -------------   -------------   -------------   -------------   |   -------------
<S>                    <C>             <C>             <C>             <C>             <C>             |   <C>
Net income (loss)....    $(10,690)       $(18,121)       $ (9,637)       $   (611)       $(34,096)     |     $  (7,190)
Depreciation and                                                                                       |
  amortization.......      17,959          24,800          35,711          39,335          22,059      |           656
Income taxes.........      (1,673)         (4,813)         (7,676)         12,005          (8,845)     |          (827)
Interest expense,                                                                                      |
  net................      38,220          39,989          39,450          32,000          45,092      |         4,661
Interest income......         198             597             521             193             197      |             4
                         --------        --------        --------        --------        --------      |     ---------
  EBITDA.............    $ 44,014        $ 42,452        $ 58,369        $ 82,922        $ 24,407      |     $  (2,696)
                         ========        ========        ========        ========        ========      |     =========
</Table>


                                       13

<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.


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

OVERVIEW

     We are a leading manufacturer and distributor of branded bedding products
in the United States. We sell a broad range of mattresses and foundations under
our well recognized brand names, including Simmons(R), Beautyrest(R), our
flagship product line introduced in 1925, and BackCare(R).

     Our operations are managed and reported in two segments. For the year ended
December 27, 2003, we derived over 90% of our sales from our wholesale bedding
segment, which consists primarily of the manufacture, sale and distribution of
premium branded bedding products. Our wholesale bedding segment sells to a
diverse nationwide base of approximately 3,400 retail customers representing
over 11,000 outlets, including furniture stores, specialty sleep shops,
department stores, and rental stores. Our wholesale bedding segment also sells
mattresses to our retail bedding segment, which as of December 27, 2003 operated
over 100 specialty sleep stores in California, Oregon and Washington that sell
to consumers principally premium branded bedding products.

     Highlights for the year 2003 included the following:

     - Our wholesale bedding segment sales growth rate of 12.5% was almost
       double that of the industry as reported by ISPA. Our growth rate was
       attributable to focusing on selling premium products targeted to sell at
       retail price points above $799 per queen set and on selling queen and
       larger size mattresses. In 2003, we derived approximately 57% of our
       sales from mattresses with retail price points of $799 and above (39%
       from above $1,000) and approximately 83% of our sales from queen and
       larger size mattresses.

     - We continue to focus on product innovation, most notably the rollout of
       the BackCare(R) 2003 product line, which increased BackCare(R) unit sales
       and AUSP by 5.1% and 36.6%, respectively, for the year ended December 27,
       2003. Additionally, we introduced the Beautyrest(R) 2004 product line,
       featuring our patent pending Pocketed Cable Coil(TM) technology, in
       October 2003.

     - Our wholesale bedding segment made strides toward improving our
       manufacturing network by commencing construction on two new bedding
       manufacturing facilities in Hazleton, Pennsylvania and Waycross, Georgia
       and closing our manufacturing facility in Jacksonville, Florida. The
       Hazleton facility commenced operations in March 2004 and our Waycross
       facility commenced operations in August of 2004.

     - The Acquisition was accounted for using the purchase method of
       accounting. As a result, the Acquisition affected our results of
       operations in certain significant respects. The purchase price of $1.1
       billion was allocated to the tangible and intangible assets acquired and
       assumed liabilities based upon their respective fair values as of the
       date of the Acquisition. The allocation of the purchase price of the
       assets acquired in the Acquisition, will result in a significant increase
       in our amortization expense. In addition, due to the increased borrowings
       to finance the Acquisition, our interest expense increased significantly
       following the Acquisition.

     The following provides the details of these highlights and insights into
our financial statements, including critical accounting estimates used in
preparing the financial statements, a discussion of our results of operations
and our liquidity and capital resources.


                                       14

<PAGE>


Critical Accounting Policies

     In preparing the consolidated financial statements in conformity with GAAP,
our management must make decisions that impact the reported amounts and the
related disclosures. Those decisions include the selection of the appropriate
accounting principles to be applied and the assumptions on which to base
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those
related to allowance for doubtful accounts, impairment of long-lived assets,
intangible assets, warranties, cooperative advertising and rebate programs,
variable stock compensation, income taxes, litigation and contingencies. We base
our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. Our management
believes the critical accounting policies described below are the most important
to the fair presentation of our financial condition and results. The following
policies require management's more significant judgments and estimates in the
preparation of our consolidated financial statements.

     Allowance for doubtful accounts.  Our management must make estimates of the
uncollectibility of our accounts receivable. Management specifically analyzes
accounts receivable and analyzes historical bad debts, customer concentrations,
customer credit-worthiness, current economic trends and changes in our customer
payment terms when evaluating the adequacy of the allowance for doubtful
accounts. Actual losses for uncollectible accounts have generally been
consistent with management's estimates. However, deteriorating financial
conditions of certain key customers or a significant slow down in the economy
could have a material

                                       15
<PAGE>
negative impact on our ability to collect on accounts, in which case additional
allowances may be required. This could result in a material charge to earnings.
Our accounts receivable balance was $65.9 million and $67.4 million, net of
allowance for doubtful accounts of $5.0 million and $5.2 million, respectively,
as of December 27, 2003 and December 28, 2002, respectively.

     Impairment of long-lived assets.  We assess all our long-lived assets for
impairment whenever events or circumstances indicate its carrying value may not
be recoverable. Management assesses whether there has been an impairment by
comparing anticipated undiscounted future cash flows from operating activities
with the carrying value of the asset. The factors considered by management in
this assessment include operating results, trends and prospects, as well as the
effects of obsolescence, demand, competition and other economic factors. If an
impairment is deemed to exist, management records an impairment charge equal to
the excess of the carrying value over the fair value of the impaired assets.
This could result in a material charge to earnings.

     Intangible assets.  We test goodwill for impairment on an annual basis by
comparing the fair value of our reporting units to their carrying values. Fair
value is determined by the assessment of future discounted cash flows.
Additionally, goodwill is tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair
value of an entity below its carrying value. These events or circumstances would
include a significant change in the business climate, legal factors, operating
performance indicators, competition, sale or disposition of a significant
portion of the business, or other factors.

     As part of the adoption of SFAS 142, we performed initial valuations during
the first quarter of 2002 to determine if any impairment of goodwill existed and
determined that no impairment of goodwill existed. In accordance with SFAS 142,
we tested goodwill again at December 28, 2002 for impairment by comparing the
fair value of our reporting units to their carrying values. As a result, our
retail segment recognized a goodwill impairment of $20.3 million in 2002.
Management determined that no other impairment of goodwill existed as of
December 27, 2003.

     We evaluate trademarks, which are considered indefinite-lived intangible
assets, for impairment at least annually or whenever events or circumstances
indicates their carrying value might be impaired. In performing this assessment,
management considers operating results, trends and prospects, as well as the
effects of obsolescence, demand, competition and other economic factors. The
carrying value of trademarks are considered impaired when its carrying value
exceeds its fair market value. In such an event, an impairment loss is
recognized equal to the amount of that excess. Fair value is determined
primarily using either the projected cash flows discounted at a rate
commensurate with the risk involved or an appraisal. The determination of fair
value involves numerous assumptions by management, including expectations on
possible variations in the amounts or timing of cash flow, the risk-free
interest rate and other factors considered in managements projected future
operating results. We review the classification of trademarks as
indefinite-lived intangible assets every reporting period.

     In connection with the Acquisition, we identified and valued certain
definite and indefinite-lived intangible assets based upon a preliminary
valuation. We are in the process of finalizing the valuation. The final
valuation could result in certain intangible assets preliminarily identified as
indefinite-lived being classified as definite-lived and a different allocation
of the purchase price within the identifiable intangible asset classification.
We anticipate finalizing the valuation in the second quarter of 2004. We do not
expect the final valuation to have a material impact on previously reported
results.

     Warranty accrual.  Our management must make estimates of potential future
product returns related to current period product revenue for our wholesale
segment. Management analyzes historical returns when evaluating the adequacy of
the warranty accrual. Significant management judgments and estimates must be
made and used in connection with establishing the warranty accrual in any
accounting period. Our warranty policy provides a ten-year non-prorated warranty
service period on all first quality products currently manufactured, except for
certain products for the hospitality industry which have varying non-prorated
warranty periods ranging from five to ten years. Our policy is to accrue the
estimated cost of warranty coverage at the time the sale is recorded. As of
December 27, 2003 and December 28, 2002, we had a warranty accrual of $3.8
million and $3.4 million, respectively.

     Cooperative advertising and rebate programs.  We enter into agreements with
our customers to provide funds for advertising and promotion of our products. We
also enter into volume and other rebate programs with certain customers whereby
funds may be rebated to the customer. When sales are made to these customers, we
record accrued liabilities pursuant to these agreements. Management regularly
assesses these liabilities based on forecasted and actual sales and claims and
management's knowledge of customer purchasing habits to determine whether all
the cooperative advertising earned will be used by the customer, whether the
cooperative advertising costs meet the requirement for classification as
selling, general and administrative expense versus a reduction of sales, and
whether the customer will meet the requirements to receive rebated funds. Costs
of these programs totaled $99.8 million, $86.4 million and $75.9 million for the
fiscal years of 2003, 2002 and 2001, respectively.

     Variable stock compensation expense.  Prior to the Acquisition, we recorded
variable stock compensation expense, related to director and employee regular
stock options, utilizing the intrinsic value method as prescribed by Accounting
Principle Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25") and related interpretations. Management estimated the employee service
period over which the compensation was awarded, generally four to five years.
Additionally, because the vesting of the plan options was dependent upon
achieving an annual Adjusted EBITDA target or as otherwise established by the
compensation committee of the board of directors, management estimated the
ultimate number of shares that would vest. We recorded additional adjustments to
variable stock compensation expense for changes in

                                       16

<PAGE>
the intrinsic value of vested regular options in a manner similar to a stock
appreciation right because the option holder could compel the Company to settle
the award by transferring cash or other assets rather than our common stock. We
determined the fair market value of the Predecessor common stock, including
option shares, on a quarterly basis based upon a quarterly valuation performed
by Houlihan Lokey Howard & Zukin Financial Advisors, Inc. Estimates were used in
determining the fair market value of our common stock. In connection with the
Acquisition, the stock option plans were terminated and certain members of our
management deferred $19.8 million of their proceeds from the Acquisition into a
deferred compensation plan of Simmons. The proceeds were deemed invested in
shares of Class A common stock of Simmons. These shares were convertible into
cash or common stock based upon the outcome of certain events such as a change
of control or initial public offering. These shares had a put option that gave
the holder the right to cash settlement under certain circumstances outside the
control of Simmons and were marked to market based upon a quarterly valuation of
the common stock of Simmons performed by Houlihan Lokey Howard & Zukin Financial
Advisors, Inc. The changes in the market value of the liability were recorded as
variable stock compensation expense. The valuation of the shares was based upon
our intrinsic value, which was estimated based upon our historical and
forecasted operating results, market conditions and historical comparable
transactions. The deferred compensation plan was terminated on June 3, 2004.

     We recorded variable stock compensation expense of $0, $68.4 million,
$15.6 million and $14.8 million for the period from December 20, 2003 through
December 27, 2003, the period from December 29, 2002 to December 19, 2003, and
for fiscal years 2002 and 2001, respectively. We had a liability of $0 and $26.8
million for variable stock compensation expense as of December 27, 2003 and
December 28, 2002, respectively.

     Income taxes.  Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and to operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized as income or expense in the period that
includes the effective date of enactment. A valuation allowance is established,
when necessary, to reduce deferred tax assets to amounts expected to be
realized.

     At December 27, 2003, we had net operating loss carryforward benefits for
federal income tax purposes of $94.1 million. These carryforward benefits
included $14.6 million which were generated by Sleep Country and are subject to
limitations imposed by the Internal Revenue Code. We must generate approximately
$143.0 million of taxable income to realize our deferred tax asset, net of
valuation allowances. The net operating loss carryforwards expire on various
dates through 2022. Our management must make estimates regarding the future
realization of these net operating loss benefits. Realization of the net
operating loss carryforward benefits is dependent upon future profitable
operations and reversals of existing temporary differences. Although realization
is not assured, we believe it is more likely than not that most of the net
recorded benefits will be realized through the reduction of future taxable
income. However, due to the uncertainty regarding the realization of Sleep
Country's net tax benefits as of December 27, 2003, we recorded a valuation
allowance of $10.2 million against Sleep Country's net deferred tax assets,
which consist of net operating loss carryforwards.

     Litigation and contingent liabilities.  From time to time, we are party
to or a target of lawsuits, claims, investigations and proceedings, including
product liability, personal injury, patent and intellectual property,
commercial, contract, environmental, health and safety, and employment matters,
which are handled and defended in the ordinary course of business. We accrue a
liability for these matters when it is probable that a liability has been
incurred and the amount can be reasonably estimated. We believe the amounts
reserved are adequate for these pending matters; however, results of operations
could be negatively affected by significant litigation adverse to us.

                                        17

<PAGE>

RESULTS OF OPERATIONS

     GAAP does not permit combining the results of our Predecessor period
(December 29, 2002 through December 19, 2003) with our Successor period
(December 20, 2003 through December 27, 2003) in our consolidated financial
statements. Accordingly, the consolidated statements of operations included
elsewhere in this prospectus do not present results for the twelve months ended
December 27, 2003. However, in order to provide investors with useful
information and to facilitate understanding of our 2003 results in the context
of 2002 and 2001 financial information presented, the following table presents
historical financial information for the Predecessor period and the Successor
period and on a pro forma basis for the year ended December 27, 2003 as if the
Transactions had occurred on December 29, 2002.

<Table>
<Caption>
                                                   PREDECESSOR                      SUCCESSOR
                                  ---------------------------------------------   -------------
                                                                   PERIOD FROM     PERIOD FROM     PRO FORMA
                                  FOR THE YEAR    FOR THE YEAR    DEC. 29, 2002   DEC. 20, 2003   FOR THE YEAR
                                      ENDED           ENDED          THROUGH         THROUGH          ENDED
                                  DEC. 29, 2001   DEC. 28, 2002   DEC. 19, 2003   DEC. 27, 2003   DEC. 27, 2003
                                  -------------   -------------   -------------   -------------   -------------
      <S>                         <C>             <C>             <C>             <C>             <C>
      Net sales.................      100.0%          100.0%          100.0%          100.0%          100.0%
      Cost of products sold.....       57.9%           52.2%           51.4%           87.1%           51.3%
                                      -----           -----           -----          ------          ------
        Gross profit............       42.1%           47.8%           48.6%           12.9%           48.7%
      Selling, general and
        administrative
        expenses................       36.9%           40.1%           46.8%           51.0%           39.2%
      ESOP expense..............        0.4%            0.0%            0.0%            0.0%            0.0%
      Goodwill impairment.......        1.2%            2.9%            0.0%            0.0%            0.0%
      Amortization of
        intangibles.............        1.7%            0.2%            0.0%            3.6%            1.7%
      Transaction expenses......        0.0%            0.0%            2.8%            0.0%            0.1%
      Plant closure charges.....        0.0%            0.0%            0.0%            0.0%            0.0%
      Licensing fees............       (1.4)%          (1.3)%          (1.3)%          (3.2)%          (1.3)%
                                      -----           -----           -----          ------          ------
        Operating income........        3.3%            5.9%            0.3%          (38.5)%           9.0%
      Interest expense, net.....        6.0%            4.5%            5.7%           53.5%            5.4%
                                      -----           -----           -----          ------          ------
        Income (loss) before
           income taxes and
           minority interest....       (2.7)%           1.4%           (5.4)%         (92.0)%           3.6%
      Income taxes (benefit)....       (1.1)%           1.7%           (1.1)%          (9.5)%           1.4%
                                      -----           -----           -----          ------          ------
        Income (loss) before
           minority interest....       (1.6)%          (0.3)%          (4.3)%         (82.5)%           2.2%
      Minority interest in
        loss....................        0.1%            0.2%            0.0%            0.0%            0.0%
                                      -----           -----           -----          ------          ------
      Net income (loss).........       (1.5)%          (0.1)%          (4.3)%         (82.5)%           2.2%
                                      =====           =====           =====          ======          ======
</Table>

     The pro forma information for the year ended December 27, 2003 includes the
following adjustments to operating results to reflect the Transactions as though
it had occurred on December 29, 2002:

     - adjustment to cost of products sold of $(3.7) million, or 0.5% of net
       sales, to (i) reduce depreciation expense by $(2.9) million as a result
       of the extension of the remaining average useful lives, partially offset
       by the increases in the bases of property, plant and equipment; (ii)
       reduce by $(1.7) million inventory recorded at fair market value as a
       result of the Acquisition and sold during the eight day period ended
       December 27, 2003; and (iii) increase amortization of favorable leases by
       $0.9 million due to the step-up to fair market value of leases;

     - adjustment to selling, general and administrative expense of $(61.1)
       million, or 7.6% of net sales, to (i) reduce depreciation expense by
       $(3.2) million as a result of the extension of the remaining average
       useful lives, partially offset by the increases in the bases of property,
       plant and equipment; (ii) reduce management fees by $(1.4) million to
       reflect the change in our equity-sponsor management agreement resulting
       from the Acquisition; (iii) reduce variable stock compensation by $(68.4)
       million to reflect the elimination of our stock option plans and deferred
       compensation plan; and (iv) a $11.4 million increase in the variable
       stock compensation expense resulting from the estimated increase in the
       value of the deemed A common stock held in the deferred compensation
       plan of Simmons Company;

     - adjustment to amortization of intangibles of $4.4 million, or 0.5% of net
       sales, to reflect the additional amortization as a result of increases to
       the bases of our intangible assets;

     - adjustment to interest expense, net of $(6.5) million, or 0.8% of net
       sales, to reflect the additional interest expense associated with the new
       debt, net of the interest expense associated with the old debt retired
       and the elimination of one-time financing charges resulting from the
       Transactions; and

     - adjustment to income tax expense of $20.8 million based upon our pro
       forma effective tax rate of 29% which resulted from the elimination of
       non-deductible expenses associated with the Transactions.

     These pro forma financial adjustments do not purport to represent what our
results of operations or financial condition would actually have been had the
Transactions occurred on December 29, 2002 or to project our results of
operations or financial condition for any future period or date.

 PRO FORMA YEAR ENDED DECEMBER 27, 2003 COMPARED TO YEAR ENDED DECEMBER 28, 2002

     The following pro forma data for the year ended December 27, 2003 ("pro
forma year ended December 27, 2003") are based on the historical financial
statements for the Predecessor period of 2003 and Successor period of 2003,
presented on a pro forma basis giving effect to the Acquisition as if it had
occurred on December 29, 2002 as described above under "Results of Operations."

     For the Predecessor period of 2003, our net sales were $797.6 million and
cost of products sold was $410.1 million. Our selling, general and
administrative expenses were $373.0 million. Amortization of intangibles was
$0.3 million. Transaction expenses were $22.4 million. Our licensing fees were
$10.4 million. Interest expense, net was $45.1 million and the income tax
benefit was $8.8 million.

     For the Successor period of 2003, our net sales were $8.7 million and cost
of products sold was $7.6 million. Our selling, general and administrative
expenses were $4.4 million. Amortization of intangibles was $0.3 million. Our
licensing fees were $0.3 million. Interest expense, net was $4.7 million and the
income tax benefit was $0.8 million.

     Net sales.  Net sales for the pro forma year ended December 27, 2003
increased $97.7 million, or 13.8%, to $806.3 million from $708.6 million for the
year ended December 28, 2002.

     Wholesale bedding segment sales increased $82.1 million, or 12.5%, to
$741.0 million for the pro forma year ended December 27, 2003 from $659.0
million for fiscal year 2002. For the pro forma year ended December 27, 2003 and
fiscal year 2002, our wholesale bedding net sales reflect a reduction of $49.5
million and $52.4 million, respectively, for cash consideration paid to our
customers for certain promotional programs and volume rebates in accordance with
EITF 01-9. The wholesale bedding segment sales increase was primarily due to an
increase in both unit shipments and AUSP of 5.6% compared to 2002. Our AUSP
benefited from a shift in sales mix toward our higher priced Beautyrest(R) and
BackCare(R) products. Unit volume growth resulted from additional floor
placements at new and existing customers and an improved retail sales
environment in the second half year.

     Our pro forma year ended December 27, 2003 wholesale bedding sales,
exclusive of EITF 01-9 sales reductions, which is the methodology used by ISPA
in calculating industry sales, were up 11.4% over the prior year. In comparison,
ISPA reported that for 2003 total U.S. bedding manufacturers' sales were up 5.8%
over the prior year, comprised of an increase in unit shipments and AUSP of 1.8%
and 3.9%, respectively. According to Furniture/Today, our 2003 industry market
share is 15.7%.

     Our retail segment sales for the pro forma year ended December 27, 2003
increased $26.1 million, or 36.4%, to $97.9 million from $71.8 million for
fiscal year 2002. On a comparable store basis, sales for our retail stores
increased 14.9% for the pro forma year ended December 27, 2003 versus 2002. The
retail segment sales increase was due principally to (i) the acquisition of 26
retail stores in Southern California from Mattress Discounters Corporation
("Mattress Discounters") in December 2002; (ii) an increase in advertising
expenditures which led to higher sales; and (iii) an improving retail sales
environment.


                                        18

<PAGE>
     Cost of Products Sold.  Cost of products sold, as a percentage of net
sales, for the pro forma year ended December 27, 2003 decreased 0.9 percentage
points to 51.3% from 52.2% in fiscal year 2002, resulting in a gross margin
increase to 48.7% for the pro forma year ended December 27, 2003 from 47.8% for
2002.

     Our wholesale segment gross margin increased 0.4 percentage points to 46.4%
for the pro forma year ended December 27, 2003 from 46.0% for 2002. Our gross
margin increased due to a reduction in depreciation expense of $1.9 million, or
0.3% of wholesale segment net sales, due to the remaining useful lives of our
property, plant and equipment being extended from an average of three years to
seven years as a result of the valuation of the property, plant and equipment in
connection with the Acquisition. Additionally, our wholesale segment gross
margin increased 1.3 percentage points due to better absorption of our fixed
manufacturing costs as a result of our unit volume growth. Offsetting these
improvements were cost increases of (i) 1.0 percentage point due to supplier
price increases for certain raw material components without a corresponding
price increase in our Beautyrest(R) product line in 2003; and (ii) 0.3
percentage points due to higher labor costs resulting from increased production
demands resulting from our unit volume growth.

     Our retail segment gross margin decreased 0.7 percentage points to 50.3%
for the pro forma year ended December 27, 2003 from 51.0% for 2002. The decrease
was due to the discounting of inventory acquired from Mattress Discounters in
December 2003 and the discounting of inventory in late 2003 that was being
replaced with vendors' new product lines.

     Selling, General and Administrative Expenses.  For the pro forma year ended
December 27, 2003, selling, general and administrative expenses, as a percentage
of net sales, decreased 0.9 percentage points to 39.2% from 40.1% in fiscal year
2002.

     Our wholesale segment selling, general and administrative expenses
increased 0.2 percentage points to 34.1% of wholesale segment net sales for the
pro forma year ended December 27, 2003 from 34.3% for fiscal year 2002. Variable
stock compensation expense decreased $4.1 million due to the termination of the
Predecessor stock option plans. Our pro forma year ended December 27, 2003
include the reduction of depreciation expense by $2.9 million, or 0.4% of
wholesale segment net sales, due to the remaining useful lives of our property,
plant and equipment being extended from an average of three years to seven years
as a result of the valuation of the property, plant and equipment in connection
with the Acquisition. Additionally, our selling, general and administrative
expenses for the pro forma year ended December 27, 2003 reflect the $1.4
million, or 0.2% of wholesale segment net sales, reduction in management fees
due to the cancellation of the Fenway management agreement and the entering into
the new THL Managers V, LLC management agreement in connection with the
Acquisition. Offsetting these improvements in our selling, general and
administrative expenses, our promotional expenditures increased $20.5 million,
or 1.6 percentage points, due to (i) more expenditures meeting the criteria of a
selling expense in accordance with EITF 01-9 because of our focus on increasing
customer compliance with our co-op advertising guidelines; and (ii) a shift in
our sales mix toward customers and products that receive more advertising and
selling support subsidies.

     Our retail segment selling, general and administrative expenses decreased
8.8 percentage points to 47.6% of retail segment net sales for the pro forma
year ended December 27, 2003 from 56.4% for fiscal year 2002. This decrease was
attributable to our increase in retail sales resulting in greater leverage of
our fixed retail selling, general and administrative expenses.

     Amortization of Intangibles.  Amortization of intangibles decreased $16.5
million, or 76.9%, to $5.0 million for the pro forma year ended December 27,
2003 from $21.5 million in fiscal year 2002. The pro forma year ended December
27, 2003 amortization is less than fiscal year 2002 due to our retail segment
recognizing a $20.3 million non-cash goodwill impairment charge in the fourth
quarter of 2002.

     Interest Expense, Net.  Interest expense, net, increased $11.3 million, or
35.3%, to $43.3 million for the pro forma year ended December 27, 2003, from
$32.0 million in fiscal year 2002 due to an increase in our average outstanding
borrowings for the pro forma year ended December 27, 2003 resulting from the
Acquisition. Our interest paid in pro forma 2003 was $53.6 million, a 114.6%
increase from $24.9 million paid in 2002, due principally to payments of (i)
$10.8 million in tender fees as previously noted; (ii) Junior. Subordinated PIK
note interest of $13.7 million; and (iii) $3.5 million in bridge loan commitment
fees.

     Income Taxes.  Our combined federal, state and foreign effective income tax
expense rate of 32.2% for the pro forma year ended December 27, 2003 differs
from the federal statutory rate of 35.0% primarily from a reduction of the prior
year valuation allowance on net operating losses utilized as a result of Sleep
Country's income for the pro forma year ended December 27, 2003. Our combined
federal, state and foreign effective income tax rate of 116.7% for fiscal year
2002 was greater than the federal statutory rate due principally to a 100%
valuation allowance for Sleep Country's loss in 2002.

     Net Income (Loss).  For the reasons set forth above, our net income was
$28.0 million for the pro forma year ended December 27, 2003 compared to net
loss of $0.6 million for the year ended December 28, 2002.


                                       19



<PAGE>


 YEAR ENDED DECEMBER 28, 2002 COMPARED TO YEAR ENDED DECEMBER 29, 2001

     Net Sales.  Net sales for the year ended December 28, 2002 increased $53.4
million, or 8.1%, to $708.6 million in 2002 from $655.2 million in 2001. Our
sales increase is primarily attributable to an increase in wholesale bedding
segment sales, partially offset by a decrease in retail segment sales.

     Wholesale bedding segment sales increased $57.1 million, or 9.5%, to $659.0
million in fiscal year 2002 from $601.8 million in fiscal year 2001. The
wholesale bedding segment sales increase was primarily due to (i) a 10.7%
increase in bedding AUSP resulting from a shift in sales mix toward higher
priced products which increased sales by $68.5 million in the aggregate; (ii) an
increase in customers added over the last year and (iii) the adoption of EITF
01-9, Accounting for Consideration Given by a Vendor to a Customer or Reseller
of the Vendor's Products, at the beginning of fiscal year 2002, which resulted
in the reclassification of certain payments to customers, such as co-operative
advertising expenditures, promotional money expenditures, volume rebates and
amortization of supply agreements, from selling, general and administrative
expenses and cost of products sold to a reduction of revenue. Payments treated
as a sales reduction were $26.6 million less in 2002 than in 2001. Our adoption
of a more stringent proof of advertising policy late in 2001 resulted in less
co-operative advertising expenditures being classified as a reduction of revenue
in fiscal year 2002. The amounts reclassified from selling, general and
administrative expenses and cost of products sold totaled $49.7 million and $0.7
million, respectively, in fiscal year 2002 versus $76.3 million and $0.8
million, respectively, in fiscal year 2001. The increase in 2002 net sales was
partially offset by a 5.7% decrease in bedding unit sales volume largely due to
the loss of high volume, low margin business resulting from customer
bankruptcies in the August 2000 to July 2001 period and a general economic
slowdown. The aggregate sales decline in 2002 for customers which filed for
bankruptcy and ceased business in 2001 totaled approximately $18 million.

     Wholesale bedding segment sales, exclusive of the aforementioned EITF 01-9
reclassifications, of $709.4 million in 2002 increased $30.5 million, or 4.5%,
from $678.9 million in 2001. This methodology for calculating sales is
comparable to that used by ISPA in calculating market share. ISPA estimated that
2002 industry sales were up 3.8% over the prior year, comprised of an increase
in unit shipments and AUSP of 0.7% and 3.1%, respectively.

     Retail segment sales decreased $5.6 million, or 7.3%, to $71.8 million in
fiscal year 2002 from $77.4 million in fiscal year 2001. On a comparable store
basis, sales for our retail stores decreased 8.5% in fiscal year 2002 versus
2001. The retail segment sales decline was due principally to the general
economic slowdown and a reduction in advertising expenditures.

     Cost of Products Sold.  As a percentage of net sales, cost of products sold
in fiscal year 2002 decreased 5.7 percentage points to 52.2% from 57.9% in
fiscal year 2001. Our 2002 gross margin improvement to 47.8% reflects expansion
of both wholesale bedding segment and retail segment gross margins.

     Our 2002 wholesale bedding segment gross margin improvement of 6.4
percentage points to 46.0% reflects (i) the above mentioned lower EITF 01-9
sales reduction in fiscal year 2002 as compared to fiscal year 2001; (ii) the
above mentioned 10.7% increase in AUSP; (iii) a 5.5 percentage point decrease in
material costs due in part to our "Zero Waste" cost reduction initiative which
began in fiscal year 2001 and continued in fiscal year 2002; and (iv) a 0.7
percentage point decrease in labor costs due to management of factory headcount
and labor hours due to a reduction in sales volume. The average factory worker
headcount for fiscal year 2002 was 6.8% less than fiscal year 2001. Exclusive of
the EITF 01-9 reclassifications mentioned above, our wholesale bedding gross
margin improved 3.4 percentage points in fiscal year 2002 to 49.8%.

     Our 2002 retail segment gross margin improvement of 2.3 percentage points
to 51.0% resulted principally from a shift in sales mix toward products that
have higher margins.

                                        20
<PAGE>
     Selling, General and Administrative Expenses.  As a percentage of net
sales, selling, general and administrative expenses for fiscal year 2002
increased 3.2 percentage points to 40.1% from 36.9% in fiscal year 2001. The
2002 increase was attributable to additional wholesale bedding segment selling,
general, and administrative expenses, partially offset by a decrease in our
retail segment selling, general and administrative expenses.

     Our wholesale bedding segment selling, general and administrative expenses,
as a percentage of net sales, increased 4.2 percentage points to 37.0% in fiscal
year 2002. The 2002 increase was principally attributable to the above mentioned
adoption of EITF 01-9 resulting in $49.7 million and $76.3 million in fiscal
year 2002 and fiscal year 2001, respectively, of costs historically
characterized as selling, general and administrative expenses being
characterized as a reduction of revenue. In fiscal year 2002, selling, general
and administrative expenses, inclusive of the expenditures characterized as a
reduction of revenue due to the adoption of EITF 01-9, increased 1.0 percentage
points to 39.3% from 38.3% in fiscal year 2001. This increase was primarily
attributable to a 0.8 percentage points increase in co-operative advertising
expenditures due to a shift in our sales mix toward products that have higher
subsidies and selling expenses.

     Our retail segment selling, general and administrative expenses, as a
percentage of net sales, increased 1.7 percentage points to 56.4% in fiscal year
2002 due principally to a decrease in retail sales, partially offset by a
reduction in advertising expenses.

     ESOP Expense.  In fiscal year 2001, we allocated the remaining ESOP shares
to plan participants. Therefore, beginning with the first quarter of 2002, we no
longer incurred an expense associated with the ESOP plan.

     Amortization of Intangibles.  Amortization of intangibles increased $2.2
million to $21.5 million in fiscal year 2002 from $19.3 million in fiscal year
2001. This increase was principally due to our retail segment recognizing a
non-cash goodwill impairment charge in the fourth quarter of 2002 of $20.3
million related to our Sleep Country subsidiary. A review of Sleep Country's
goodwill for impairment was necessary due to the continued weakness in the
retail economy and the failure of Sleep Country to reach the sales and profit
levels included in its original impairment test as of January 1, 2002. Exclusive
of Sleep Country's goodwill impairment charge, amortization of intangibles
decreased in fiscal year 2002 due to (i) our retail segment recognizing a
non-cash impairment charge in the fourth quarter of 2001 of $7.9 million to
write down the goodwill of our wholly-owned subsidiary Gallery Corp. to market
value with no similar impairment charge being required in fiscal year 2002; (ii)
the adoption of SFAS No. 142 ("SFAS 142"), Goodwill and Other Intangible Assets,
at the beginning of our 2002 fiscal year; and (iii) a $1.8 million decrease in
amortization of patents due to the expiration of certain patents. As a result of
the adoption of SFAS 142 at the beginning of 2002, we discontinued the
amortization of goodwill and performed a transitional test of goodwill
impairment, which resulted in no impairment charge. Had this accounting
pronouncement been adopted at the beginning of 2001, amortization of
intangibles, exclusive of impairment charges, would have been reduced by $8.3
million to $3.1 million in 2001.

     Interest Expense, Net.  Interest expense, net decreased $7.5 million, or
18.9%, to $32.0 million in fiscal year 2002 from $39.5 million in 2001 due
primarily to (i) decreased average outstanding borrowings; (ii) lower Prime and
LIBOR base rates in 2002; and (iii) lower interest rate margins on our then
existing senior credit facility obligations. Our interest paid in 2002 was $24.9
million, a 14.7% decrease from $29.2 million paid in 2001.

     Income Tax Expense.  Our effective income tax rate of 116.7% for fiscal
year 2002 differed from the federal statutory rate primarily due to the change
in the valuation allowance against Sleep Country's net deferred tax asset, state
income taxes and non-deductible interest expense. Our effective income tax
benefit

                                       21

<PAGE>

rate of 43.2% for fiscal year 2001 differed from the federal statutory rate
primarily due to the net change in deferred tax valuation allowances, and the
benefit of state net operating losses and foreign tax credits, partially offset
by the amortization and impairment of goodwill not being tax deductible.

     Minority Interest in Loss.  Minority interest in Sleep Country's loss
increased $0.6 million to $1.1 million in fiscal year 2002 from a loss of $0.5
million in fiscal year 2001.

     Net Loss.  For the reasons set forth above, we had net loss of $0.1 million
in fiscal year 2002 compared to a net loss of $9.7 million in fiscal year 2001.

LIQUIDITY AND CAPITAL RESOURCES

     Our principal sources of cash to fund liquidity needs are (i) cash provided
by operating activities and (ii) borrowings available under our senior credit
facility. Our primary use of funds consists of payments of principal and
interest for our debt, capital expenditures, acquisitions, and funding for
working capital increases. Barring any unexpected significant external or
internal developments, we expect current cash balances on hand, cash provided by
operating activities and borrowings available under our senior credit facility
to be sufficient to meet our short-term and long-term liquidity needs.

     Our senior credit facility is comprised of a $405.0 million term loan
facility, the "Tranche B Term Loan," which will mature in 2011, and a $75.0
million Revolving Loan Facility (of which approximately $61.2 million was
available for borrowings as December 27, 2003 after giving effect to $3.3
million of borrowings and $10.5 million that was reserved for standby letters of
credit), which will mature in 2009. We are 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 senior secured
credit facility has occurred or would occur after giving effect to that
incurrence and certain other conditions are satisfied. The senior credit
facility is guaranteed by THL-SC Bedding Company and by all our domestic
subsidiaries. Our and the guarantors' obligations are secured by all or
substantially all of our and the guarantors' assets, including a pledge of our
stock, a pledge of stock of all our domestic subsidiaries and our pledge of 65%
of stock of our foreign subsidiaries. We also have a Senior Unsecured Term Loan
Facility of $140.0 million, which will mature in June 2012. The senior unsecured
term loan facility is guaranteed by THL-SC Bedding Company and all our domestic
subsidiaries.

     The senior credit facility and the senior unsecured term loan bear interest
at our choice of the Eurodollar Rate or Base Rate (both as defined), plus the
following applicable interest rate margins as follows:

<Table>
<Caption>
                                                              EURODOLLAR   BASE
                                                                 RATE      RATE
                                                              ----------   -----
<S>                                                           <C>          <C>
Revolving Loan Facility.....................................    2.50%      1.50%
Tranche B Term Loan.........................................    2.75%      1.75%
Senior Unsecured Term Loan..................................    3.75%      2.75%
</Table>

     The weighted average interest rates per annum in effect as of December 27,
2003 for the Revolving Loan Facility, Tranche B Term Loan and Senior Unsecured
Term Loan were 3.69%, 3.94% and 4.94%, respectively.

     Under the Tranche B Term Loan, quarterly amortization payments of
approximately $1.0 million are required during the first seven years, with the
balance of the facility to be repaid quarterly during the eighth year. There are
no scheduled amortization payments prior to the maturity date of the Senior
Unsecured Term Loan.

     Our senior credit facility requires us to meet a minimum interest
coverage ratio and a maximum leverage ratio, and includes a maximum capital
expenditures limitation. In addition, the senior credit facility contains
certain restrictive covenants which, 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
those agreements. The senior credit facility also contains certain customary
events of defaults, subject to cure periods as appropriate.

     We are required to make prepayments of the loans outstanding under the
senior credit facility under certain circumstances, including with 100% of the
net cash proceeds of certain asset sales and casualty or condemnation events to
the extent such proceeds are not reinvested in Simmons' business within a
specified period of time and with 100% of the proceeds of certain types of debt
incurred by it. Additionally, depending on our leverage ratio, we may be
required to prepay its senior secured loans with up to 50% of its excess cash
flow from each fiscal year and with up to 50% of the net cash proceeds of
certain equity issuances.

     We are also required to make prepayments of the loans outstanding under its
senior unsecured term loan in the event of a change of control at 101% of the
unpaid principal amount thereof. Furthermore, Simmons Bedding may be required to
make an offer to repurchase its senior unsecured loans with proceeds of certain
asset sales, and any such offer required to be made within the first three years
after the closing date of the senior unsecured credit facility must be
accompanied by payment of a call premium, calculated on a sliding scale. We are
not required to use any proceeds it receives from an equity offering to repay
loans outstanding under its senior unsecured term loan facility.

     Our long-term obligations contain various financial tests and covenants. We
were in compliance with those covenants as of the year ended December 27, 2003.
The most restrictive covenants relate to ratios of Adjusted EBITDA to interest
coverage (interest coverage ratio), total debt to Adjusted EBITDA (total
leverage ratio), and maximum capital expenditures all as defined in the senior
credit facility. The minimum interest coverage and maximum leverage ratios are
computed based on our results for the last twelve months ended. More
specifically, the  senior credit facility's covenants require:

     - a minimum interest coverage ratio, with compliance levels ranging from an
       interest coverage of no less than 2.25:1.00 from March 31, 2004 through
       December 31, 2004; 2.30:1.00 from March 31, 2005 through December 31,
       2005; 2.40:1.00 from March 31, 2006 to December 31, 2006; 2.55:1.00 from
       March 31, 2007 through December 31, 2007; 2.75:1.00 from March 31, 2008
       through December 31, 2008; and 3.0:1.00 as of March 31, 2009 and each
       fiscal quarter ending thereafter.

     - a maximum total leverage ratio, with compliance levels ranging from total
       leverage of no greater than 6.85:1.00 from March 31, 2004 through
       December 31, 2004; 6.50:1.00 from March 31, 2005 through December 31,
       2005; 6.00:1.00 as of March 31, 2006 and June 30, 2006; 5.75:1.00 as of
       September 30, 2006 and December 31, 2006; 5.00:1.00 from March 31, 2007
       through December 31, 2007; 4.50:1.00 from March 31, 2008 through December
       31, 2008; and 4.00:1.00 as of March 31, 2009 and each fiscal quarter
       ending thereafter.

     - a maximum capital expenditure limitation of $20.0 million per fiscal
       year, with the ability to rollforward to future years unused amounts from
       the previous fiscal year, and also subject to adjustments for certain
       acquisitions and other events.

     We expect to meet such covenants in 2004. Adjusted EBITDA (as defined in
the  senior credit facility) differs from the term "EBITDA" as it is commonly
used. In addition to adjusting net income to exclude interest expense, income
taxes, and depreciation and amortization, adjusted EBITDA (as defined in the
senior credit facility) also adjusts net income by excluding items or expenses
not typically excluded in the calculation of "EBITDA" such as management fees;
ESOP expenses, the aggregate amount of the fees, costs and cash expenses paid by
Simmons in connection with the consummation of the Acquisition (including,
without limitation, bonus and option payments); other non-cash items reducing
Consolidated Net Income (including, without limitation, non-cash purchase
accounting adjustments and debt extinguishment costs); the cure amount, if any,
received by Simmons in respect of that period; any extraordinary, unusual or
non-recurring gains or losses or charges or credits; and any reasonable expenses
or charges related to any issuance of securities, investments permitted,
permitted acquisitions, recapitalizations, asset sales permitted or indebtedness
permitted to be incurred, less other non-cash items increasing consolidated net
income, all of the foregoing as determined on a consolidated basis for Simmons
in conformity with GAAP. Adjusted EBITDA is presented herein because it is a
material component of the covenants contained within the aforementioned credit
agreements. Non-compliance with those covenants could result in the requirement
to immediately repay all amounts outstanding under those agreements which could
have a material adverse effect on our results of operations, financial position
and cash flow. While the determination of "unusual and nonrecurring losses" is
subject to interpretation and requires judgment, we believe the items listed
below are in accordance with the senior credit facility. Adjusted EBITDA does
not represent net income or cash flow from operations as those terms are defined
by GAAP and does not necessarily indicate whether cash flows will be sufficient
to fund cash needs.

     Our senior unsecured term loan facility does not contain any financial
maintenance covenants, but does contain affirmative covenants similar to those
contained in our senior credit facility. Additionally, the senior unsecured


                                         22

<PAGE>
term loan contains negative covenants similar to those contained in the
senior credit facility, except that certain negative covenants, including
limitations on indebtedness, asset sales and restricted junior payments are
substantially similar to those contained in the indenture for the 7.875% Senior
Subordinated Notes.

     The use of interest rate risk management instruments is required under the
terms of the senior credit facility. We are required to maintain protection
against fluctuations in interest rates, and may do so through utilizing
Eurodollar Rate loans having twelve-month interest periods or through one or
more interest rate agreements, such as collars and swaps.

     In order to address interest rate risk, we have developed and implemented a
policy to utilize extended Eurodollar contracts to minimize the impact of near
term Eurodollar rate increases. On January 26, 2004, we elected to set the
interest rate at the twelve-month Eurodollar Rate for approximately $325.0
million of the Tranche B Term Loan and the $140.0 million senior unsecured term
loan, which fixed the Eurodollar Rate at 1.375% through January 26, 2005 for
approximately 84% of our floating rate debt outstanding as of December 27, 2003.
Additionally, to further address interest rate risk, we entered into an interest
rate cap agreement on February 11, 2004 for a notional amount of $170.0 million
which capped the Eurodollar Rate at 5.0% for the period of January 26, 2005
through January 26, 2006.

     On December 19, 2003, we completed a financing, which consisted of the sale
of $200.0 million of 7.875% Senior Subordinated Notes due 2014 (the "Old Notes")
pursuant to a private offering. The Old Notes bear interest at the rate of
7.875% per annum, which is payable semi-annually in cash in arrears on January
15 and July 15. The notes mature on January 15, 2014. The Old Notes are
subordinated in right of payment to all our existing and future senior
indebtedness. We plan to issue 7.875% Senior Subordinated Notes due 2014 (the
"Registered Notes") in exchange for all Old Notes, pursuant to an exchange offer
whereby holders of the Old Notes will receive Registered Notes which have been
registered under the Securities Act of 1933 (the "Securities Act"), as amended,
but are otherwise identical to the Old Notes.

     At any time prior to January 17, 2007, we may redeem up to 40% of the
aggregate principal amount of the Registered Notes at a price of 107.875% in
connection with an Equity Offering, as defined. With the exception of an Equity
Offering, the Registered Notes are redeemable at our option beginning January
15, 2009 at prices decreasing from 103.938% of the principal amount thereof to
par on January 15, 2012 and thereafter. We are not required to make mandatory
redemption or sinking fund payments with respect to the Registered Notes.

     The indenture for the Registered Notes requires us and our subsidiaries to
comply with certain restrictive covenants, including a restriction on dividends;
and limitations on the incurrence of indebtedness, certain payments and
distributions, and sales of the our assets and stock.

     The Registered Notes are fully and unconditionally guaranteed on an
unsecured, senior subordinated basis by THL-SC Bedding Company and all of our
active domestic subsidiaries.

     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. Historically we have not been obligated to pay federal
income taxes as a result of net operating loss carryforwards; however, we expect
to be obligated to pay federal income taxes beginning in 2005.

     Our operating activities provided cash of $56.5 million for the year ended
December 27, 2003, compared to $75.6 million for the year ended December 28,
2002. The following items principally account

                                        23

<PAGE>
for the cash provided from operations for each of the periods: (i) operating
income, exclusive of transaction expenses, variable stock compensation and
goodwill impairment, of $92.9 million for the year ended December 27, 2003
versus $80.6 million for the comparable prior year period; and (ii) an increase
in working capital, exclusive of assets and liabilities held for sale, of $16.6
million versus a decrease of $16.0 million for the comparable prior year period.

     Capital expenditures totaled $8.8 million for the year ended December 27
2003. We expect to spend an aggregate of approximately $19 million for capital
expenditures in fiscal year 2004. We believe that annual capital expenditure
limitations in our senior credit facility will not significantly inhibit us from
meeting our ongoing capital expenditure needs.

     We have identified a potential buyer for our Mattress Gallery subsidiary,
which is considered an asset held for sale, and anticipate a closing by the end
of our second quarter. We do not believe that such sale will have a significant
impact on our liquidity.

     The following table sets forth our contractual obligations as of December
27, 2003 (dollars in thousands):

<Table>
<Caption>
                                                   NEXT        2-3       4-5       AFTER
CONTRACTUAL OBLIGATIONS                 TOTAL      YEAR       YEARS     YEARS     5 YEARS
-----------------------              ----------   -------   --------   --------   --------
<S>                                  <C>          <C>       <C>        <C>        <C>
Long-term debt(1)..................  $  770,253   $ 9,512   $  9,028   $  8,926   $742,787
Interest payments on long-term
  debt(2)..........................     375,578    43,255     85,113     84,418    162,792
Capital lease obligations..........         389       277        112         --         --
Operating leases - wholesale
  segment..........................      57,179    14,504     22,447     11,750      8,478
Operating leases - retail
  segment..........................      36,367    10,216     15,064      7,423      3,664
Component purchase commitments.....      21,600    12,800      8,800         --         --
                                     ----------   -------   --------   --------   --------
  Total contractual obligations....  $1,261,366   $90,564   $140,564   $112,517   $917,721
                                     ==========   =======   ========   ========   ========
Other commercial commitments:
  Standby letters of credit........  $   10,515   $10,515   $     --   $     --   $     --
                                     ==========   =======   ========   ========   ========

</Table>

---------------

(1) Includes $5.3 million of 10.25% Series B Senior Subordinated Notes that will
    be redeemed in April 2004.

(2) Anticipated interest payments based on current interest rates and amounts
    outstanding as of December 27, 2003.

     In addition, under the terms of the management agreement entered into in
connection with the Acquisition, we are required to pay an affiliate of Thomas
H. Lee Partners an aggregate fee of no less than $1.5 million a year. Under its
terms, the management agreement will be terminated by THL upon the consummation
of an equity offering and we will be required to pay THL a termination fee equal
to the net present value of the fees payable to THL for a period of seven years
from the date of termination.

SEASONALITY/OTHER

     For the past several years, there has not been significant seasonality in
our wholesale bedding business. Our retail bedding business, which accounted for
$97.9 million, or 12.1%, of net sales for the year ended December 27, 2003, has
historically experienced, and we expect will continue to experience, seasonal
and quarterly fluctuations in net sales, operating income and Adjusted EBITDA.
As is the case with many bedding retailers, our retail business is subject to
seasonal influences, characterized by strong sales for the months of May through
September, which impacts our second and third quarter results.

                                        24


<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      The following discussion about our risk-management activities includes
forward-looking statements that involve risk and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.
See Item 1 "Business -- Forward-Looking Statements" for additional information.

MARKET RISK

     The principal market risks to which we are exposed that may adversely
affect our results of operations and financial position include changes in
future commodity prices and interest rates. We seek to minimize or manage these
market risks through normal operating and financing activities and through the
use of interest rate cap agreements, where practicable. We do not trade or use
instruments with the objective of earning financial gains on the interest rate
fluctuations, nor do we use instruments where there are not underlying
exposures.

  INTEREST RATE RISK

     We are exposed to market risk from changes in interest rates. In order to
address this risk, the senior credit facility requires us to adopt interest rate
protection measures on our variable rate indebtedness such that 50% of our
consolidated funded indebtedness is either fixed or protected.

     We have developed and implemented a policy to utilize extended Eurodollar
contracts to minimize the impact of near term Eurodollar rate increases. On
January 26, 2004, we elected to set the interest rate at the twelve-month
Eurodollar Rate for approximately $325.0 million of the Tranche B Term Loan and
the $140.0 million senior unsecured term loan, which fixed the Eurodollar Rate
at 1.375% through January 26, 2005 for approximately 86% of our floating rate
debt outstanding as of June 26, 2004. Additionally, to further address interest
rate risk, we entered into an interest rate cap agreement on February 11, 2004
for a notional amount of $170.0 million, which capped the Eurodollar Rate at
5.0% for the period of January 26, 2005 through January 26, 2006.

     All other factors remaining unchanged, a hypothetical 10% increase or
decrease in interest rates for one year on our variable rate financial
instruments would not have a material impact on earnings during 2004, but would
result in an additional $2.4 million of interest expense in 2005.

  COMMODITY PRICE RISK

     The major raw materials that we purchase for production are wire, spring
components, lumber, cotton, insulator pads, innerspring, fabrics and roll goods
consisting of foam, fiber, ticking and non-wovens. The price and availability of
these raw materials are subject to market conditions affecting supply and
demand. In particular, many of our goods can be impacted by fluctuations in
petrochemical prices and steel prices. We currently do not have a hedging
program in place to manage fluctuations in commodity prices.


                                       25

<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors of
Simmons Bedding Company

     In our opinion, the accompanying consolidated balance sheet and the
related consolidated statement of operations and comprehensive loss, changes in
stockholder's equity and cash flows present fairly, in all material respects,
the financial position of Simmons Bedding Company ("Simmons Bedding") at
December 27, 2003, and the results of its operations and its cash flows for the
period from December 20, 2003 through December 27, 2003 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed on page 81
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.




PricewaterhouseCoopers LLP
Atlanta, Georgia
March 19, 2004, except as to Note S, for which the date is August 20, 2004











                                       26
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES
            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
Simmons Bedding Company

         In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations and comprehensive loss; changes
in stockholders' equity (deficit) and cash flows present fairly, in all
material respects, the financial position of Simmons Bedding Company ("Simmons
Bedding") at December 28, 2002, and the results of its operations and its cash
flows for the period from December 29, 2002 through December 19, 2003 and each
of the two years in the period ended December 28, 2002 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed on page 81
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

PricewaterhouseCoopersLLP
Atlanta, Georgia
March 19, 2004, except as to Note S, for which the date is August 20, 2004


                                       27
<PAGE>

                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                               SUCCESSOR   |                PREDECESSOR
                                              ------------ | ------------------------------------------
                                              PERIOD FROM  | PERIOD FROM
                                              DECEMBER 20, | DECEMBER 29,
                                              2003 THROUGH | 2002 THROUGH    YEAR ENDED     YEAR ENDED
                                              DECEMBER 27, | DECEMBER 19,   DECEMBER 28,   DECEMBER 29,
                                                  2003     |     2003           2002           2001
                                              ------------ | ------------   ------------   ------------
                                                           |       (IN THOUSANDS)
<S>                                           <C>          | <C>            <C>            <C>
Net sales...................................    $ 8,717    |   $797,616       $708,595       $655,209
Cost of products sold.......................      7,596    |    410,081        369,617        379,131
                                                -------    |   --------       --------       --------
     Gross margin...........................      1,121    |    387,535        338,978        276,078
                                                -------    |   --------       --------       --------
Operating expenses:                                        |
  Selling, general and administrative                      |
     expenses...............................      4,442    |    373,040        284,164        241,800
  ESOP expense..............................         --    |         --             --          2,816
  Goodwill impairment.......................         --    |         --         20,285          7,882
  Amortization of intangible assets.........        311    |        306          1,246         11,414
  Licensing fees............................       (276)   |    (10,361)        (9,002)        (9,501)
  Transaction expenses......................         --    |     22,399             --             --
                                                -------    |   --------       --------       --------
                                                  4,477    |    385,384        296,693        254,411
                                                -------    |   --------       --------       --------
     Operating income (loss)................     (3,356)   |      2,151         42,285         21,667
  Interest expense, net.....................      4,661    |     45,092         32,000         39,450
                                                -------    |   --------       --------       --------
     Income (loss) before income taxes and                 |
       minority interest in loss............     (8,017)   |    (42,941)        10,285        (17,783)
Income tax expense (benefit)................       (827)   |     (8,845)        12,005         (7,676)
                                                -------    |   --------       --------       --------
     Loss before minority interest in                      |
       loss.................................     (7,190)   |    (34,096)        (1,720)       (10,107)
Minority interest in loss...................         --    |         --          1,109            470
                                                -------    |   --------       --------       --------
     Net loss...............................     (7,190)   |    (34,096)          (611)        (9,637)
Other comprehensive income (loss):                         |
  Foreign currency translation adjustment...         17    |        207            (19)           (61)
                                                -------    |   --------       --------       --------
     Comprehensive loss.....................    $(7,173)   |   $(33,889)      $   (630)      $ (9,698)
                                                =======    |   ========       ========       ========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       28

<PAGE>

                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                              DECEMBER 27,   DECEMBER 28,
                                                                  2003           2002
                                                              ------------   ------------
                                                                 (IN THOUSANDS, EXCEPT
                                                                    SHARE AMOUNTS)
<S>                                                           <C>            <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................   $    3,670  |   $  7,108
  Accounts receivable, less allowances for doubtful                        |
     receivables, discounts and returns of $4,960 and                      |
     $5,286, respectively...................................       65,868  |     67,415
  Inventories...............................................       31,355  |     23,472
  Deferred income taxes.....................................          973  |      3,141
  Other current assets......................................       22,616  |     16,881
  Assets held for sale......................................        8,564  |     12,909
                                                               ----------  |   --------
     Total current assets...................................      133,046  |    130,926
                                                               ----------  |   --------
Property, plant and equipment, net..........................       53,228  |     41,312
Goodwill, net...............................................      792,230  |    180,779
Intangible assets, net......................................      159,198  |      7,243
Deferred income taxes.......................................           --  |     28,255
Other assets................................................       45,417  |     22,516
                                                               ----------  |   --------
                                                               $1,183,119  |   $411,031
                                                               ==========  |   ========
                                                                           |
                     LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)        |
Current liabilities:                                                       |
  Current maturities of long-term debt......................   $    9,512  |   $ 22,125
  Accounts payable..........................................       39,956  |     43,429
  Accrued liabilities.......................................       53,948  |     57,278
  Liabilities held for sale.................................        2,064  |      5,139
                                                               ----------  |   --------
     Total current liabilities..............................      105,480  |    127,971
                                                               ----------  |   --------
Non-current liabilities:                                                   |
  Long-term debt............................................      760,741  |    268,657
  Accrued stock compensation................................           --  |     26,778
  Deferred income taxes.....................................       23,719  |         --
  Other.....................................................       12,902  |      7,743
                                                               ----------  |   --------
     Total liabilities......................................      902,842  |    431,149
                                                               ----------  |   --------
Redemption obligation -- ESOP...............................           --  |     61,218
Commitments and contingencies (Notes M and Q)                              |
Stockholder's equity (deficit):                                            |
  Predecessor common stock A, $.01 par value; 40,000,000                   |
     shares authorized; 23,752,324 issued and outstanding...           --  |        242
  Predecessor common stock B, $.01 par value; 400,000 shares               |
     authorized; 379,119 issued and outstanding.............           --  |          4
  Successor common stock, $.01 par value; 3,000 shares                     |
     authorized; 100 issued and outstanding.................            1  |         --
  Additional paid-in-capital................................      287,449  |         --
  Accumulated deficit.......................................       (7,190) |    (71,635)
  Accumulated other comprehensive income (loss).............           17  |       (144)
  Common stock held in treasury, at cost....................           --  |     (9,803)
                                                               ----------  |   --------
     Total stockholder's equity (deficit)...................      280,277  |    (81,336)
                                                               ----------  |   --------
                                                               $1,183,119  |   $411,031
                                                               ==========  |   ========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                       29

<PAGE>

                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
<Table>
<Caption>
                                                            CLASS A             CLASS B
                                                      -------------------   ----------------   ADDITIONAL
                                    COMMON   COMMON     COMMON     COMMON   COMMON    COMMON    PAID-IN     ACCUMULATED
                                    SHARES   STOCK      SHARES     STOCK    SHARES    STOCK     CAPITAL       DEFICIT
                                    ------   ------   ----------   ------   -------   ------   ----------   -----------
                                                           (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                 <C>      <C>      <C>          <C>      <C>       <C>      <C>          <C>
PREDECESSOR
DECEMBER 30, 2000.................                    23,752,324    $242    379,119   $   4    $  14,460     $ (41,569)
  Net loss........................                            --      --        --       --           --        (9,637)
  Other comprehensive income:
    Change in foreign currency
      translation.................                            --      --        --       --           --            --
                                                                                                             ---------
  Comprehensive loss..............                                    --                              --        (9,637)
  Fair value of SC Holdings, Inc.
    warrants issued to
    Affiliate.....................                            --      --        --       --          300            --
  Excess of ESOP expense at fair
    market value over cost........                            --      --        --       --        1,743            --
  Increase in redemption
    obligation -- ESOP based on
    fair market value.............                            --      --        --       --      (16,503)       (2,679)
  Common stock repurchased........                            --      --        --       --           --            --
                                                      ----------    ----    -------   -----    ---------     ---------
DECEMBER 29, 2001.................                    23,752,324     242    379,119       4           --       (53,885)
  Net loss........................                            --      --        --       --           --          (611)
  Other comprehensive loss:
    Change in foreign currency
      translation.................                            --      --        --       --           --            --
                                                                                                             ---------
  Comprehensive loss..............                            --      --        --       --           --          (611)
  Increase in redemption
    obligation -- ESOP based on
    fair market value.............                            --      --        --       --           --       (17,139)
  Common stock repurchased........                            --      --        --       --           --            --
                                                      ----------    ----    -------   -----    ---------     ---------
DECEMBER 28, 2002.................                    23,752,324     242    379,119       4           --       (71,635)
  Net loss........................                            --      --        --       --           --       (34,096)
  Other comprehensive income:
    Change in foreign currency
      translation.................                            --      --        --       --           --            --
                                                                                                             ---------
  Comprehensive income (loss).....                            --      --        --       --           --       (34,096)
  Contribution of debt to an
    affiliate of SC Holdings, Inc.                            --      --        --       --        7,916            --
  Acquisition of SC Holdings, Inc.
    minority interest.............                            --      --        --       --          (25)           --
  Increase in redemption
    obligation -- ESOP based on
    fair market value.............                            --      --        --       --       (7,891)      (26,772)
  Common stock repurchased........                            --      --        --       --           --            --
                                                      ----------    ----    -------   -----    ---------     ---------
DECEMBER 19, 2003.................                    23,752,324    $242    379,119   $   4    $      --     $(132,503)
                                     ===     =====    ==========    ====    =======   =====    =========     =========
-----------------------------------------------------------------------------------------------------------------------
SUCCESSOR
DECEMBER 20, 2003 (reflects the
  new basis of 100 common shares
  in connection with the
  Acquisition)....................   100     $   1                                             $ 387,837     $      --
  Deemed dividend to reflect
    carryover basis...............    --        --                                              (100,388)           --
  Net loss........................    --        --                                                    --        (7,190)
  Other comprehensive income:
    Change in foreign currency
      translation.................    --        --                                                    --            --
                                                                                                             ---------
  Comprehensive income (loss).....    --        --                                                    --        (7,190)
                                     ---     -----                                             ---------     ---------
DECEMBER 27, 2003.................   100     $   1                                             $ 287,449     $  (7,190)
                                     ===     =====                                             =========     =========

</TABLE>


                                       30
<PAGE>
<TABLE>
<CAPTION>
                                     ACCUMULATED     COMMON
                                        OTHER        STOCK          TOTAL
                                    COMPREHENSIVE   HELD IN     STOCKHOLDERS'
                                        LOSS        TREASURY   EQUITY (DEFICIT)
                                    -------------   --------   ----------------
                                       (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                 <C>             <C>        <C>
PREDECESSOR
DECEMBER 30, 2000.................      $ (64)      $ (6,640)     $ (33,567)
  Net loss........................         --             --         (9,637)
  Other comprehensive income:
    Change in foreign currency
      translation.................        (61)            --            (61)
                                        -----       --------      ---------
  Comprehensive loss..............        (61)            --         (9,698)
  Fair value of SC Holdings, Inc.
    warrants issued to
    Affiliate.....................         --             --            300
  Excess of ESOP expense at fair
    market value over cost........         --             --          1,743
  Increase in redemption
    obligation -- ESOP based on
    fair market value.............         --             --        (19,182)
  Common stock repurchased........         --           (917)          (917)
                                        -----       --------      ---------
DECEMBER 29, 2001.................       (125)        (7,557)       (61,321)
  Net loss........................         --             --           (611)
  Other comprehensive loss:
    Change in foreign currency
      translation.................        (19)            --            (19)
                                        -----       --------      ---------
  Comprehensive loss..............        (19)            --           (630)
  Increase in redemption
    obligation -- ESOP based on
    fair market value.............         --             --        (17,139)
  Common stock repurchased........         --         (2,246)        (2,246)
                                        -----       --------      ---------
DECEMBER 28, 2002.................       (144)        (9,803)       (81,336)
  Net loss........................         --             --        (34,096)
  Other comprehensive income:
    Change in foreign currency
      translation.................        207             --            207
                                        -----       --------      ---------
  Comprehensive income (loss).....        207             --        (33,889)
  Contribution of debt to an
    affiliate of SC Holdings, Inc.         --             --          7,916
  Acquisition of SC Holdings, Inc.
    minority interest.............         --             --            (25)
  Increase in redemption
    obligation -- ESOP based on
    fair market value.............         --             --        (34,663)
  Common stock repurchased........         --         (7,383)        (7,383)
                                        -----       --------      ---------
DECEMBER 19, 2003.................      $  63       $(17,186)     $(149,380)
                                        =====       ========      =========
------------------------------------------------------------------------------------------------
SUCCESSOR
DECEMBER 20, 2003 (reflects the
  new basis of 100 common shares
  in connection with the
  Acquisition)....................      $  --                     $ 387,838
  Deemed dividend to reflect
    carryover basis...............         --                      (100,388)
  Net loss........................         --                        (7,190)
  Other comprehensive income:
    Change in foreign currency
      translation.................         17                            17
                                        -----                     ---------
  Comprehensive income (loss).....         17                        (7,173)
                                        -----                     ---------
DECEMBER 27, 2003.................      $  17                     $ 280,277
                                        =====                     =========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                       31
<PAGE>

                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                               SUCCESSOR                    PREDECESSOR
                                                              ------------   ------------------------------------------
                                                              PERIOD FROM    PERIOD FROM
                                                              DECEMBER 20,   DECEMBER 29,
                                                              2003 THROUGH   2002 THROUGH    YEAR ENDED     YEAR ENDED
                                                              DECEMBER 27,   DECEMBER 19,   DECEMBER 28,   DECEMBER 29,
                                                                  2003           2003           2002           2001
                                                              ------------   ------------   ------------   ------------
                                                                                   (IN THOUSANDS)
<S>                                                           <C>            <C>            <C>            <C>
Cash flows from operating activities:
Net loss....................................................    $ (7,190)      $(34,096)      $   (611)      $ (9,637)
Adjustments to reconcile net loss to net cash provided by
  operating activities:
  Depreciation and amortization.............................         656         22,059         19,050         27,829
  Variable stock compensation expense.......................          --         68,415         15,561         14,847
  Goodwill impairment charge................................          --             --         20,285          7,882
  ESOP expense..............................................          --             --             --          2,816
  Provision for doubtful accounts...........................          42          3,799          3,082          6,006
  Provision (benefit) for deferred income taxes.............        (827)        (9,087)        11,109         (9,228)
  Non-cash interest expense.................................          62          9,481          3,234          4,366
  Gain on settlement of postretirement benefits.............          --             --             --         (2,137)
  Minority interest in loss.................................          --             --         (1,109)          (470)
  Other, net................................................          --           (249)          (409)           879
Net changes in operating assets and liabilities:
  Accounts receivable.......................................       1,448         (4,165)        (3,110)         8,335
  Inventories...............................................       2,310         (4,718)         1,359          1,114
  Other current assets......................................        (661)        (5,164)        (6,731)         1,082
  Accounts payable..........................................         354         (3,750)        10,813        (10,349)
  Accrued liabilities.......................................       2,136          1,547         14,986            967
  Settlement of retiree health care obligation..............          --             --             --         (2,250)
  Other, net................................................      (1,823)        15,957        (11,904)        (6,141)
                                                                --------       --------       --------       --------
Cash provided by (used in) operating activities.............      (3,493)        60,029         75,605         35,911
                                                                --------       --------       --------       --------
Cash flows from investing activities:
  Purchases of property, plant and equipment................          --         (8,791)        (7,961)        (5,729)
  Purchase and development of intangible assets.............          --         (1,720)        (3,932)        (2,924)
  Proceeds from disposals of property, plant and
    equipment...............................................          --             38            472            444
  Payments to the sellers for the Acquisition...............    (697,883)            --             --             --
  Payments to option holders................................     (73,545)            --             --             --
  Payments of Acquisition costs.............................     (44,452)            --             --             --
                                                                --------       --------       --------       --------
Net cash used in investing activities.......................    (815,880)       (10,473)       (11,421)        (8,209)
                                                                --------       --------       --------       --------
Cash flows from financing activities:
  Repurchase of SC Holdings, Inc. minority interest and
    payment of SC Holdings, Inc. debt.......................          --        (18,653)            --             --
  Payments of Predecessor Senior Credit Facility, net.......     (51,656)       (24,356)       (53,061)       (28,796)
  Payments of other long-term borrowings....................          --         (4,936)        (5,567)        (3,471)
  Proceeds from long-term debt -- Affiliate, net............          --             --          1,123          3,756
  Repurchase of common stock................................          --         (7,383)        (2,246)          (917)
  Payments of Predecessor debt at Acquisition...............    (171,599)            --             --             --
  Proceeds of Successor debt................................     748,275             --             --             --
  Proceeds from issuance of Successor common stock..........     327,553             --             --             --
  Payments of financing costs...............................     (31,090)            --           (570)          (714)
                                                                --------       --------       --------       --------
Net cash received from (used in) financing activities.......     821,483        (55,328)       (60,321)       (30,142)
                                                                --------       --------       --------       --------
Net effect of exchange rate changes on cash.................          17            207            (19)           (61)
Increase (decrease) in cash and cash equivalents............       2,127         (5,565)         3,844         (2,501)
Cash and cash equivalents, beginning of period..............       1,543          7,108          3,264          5,765
                                                                --------       --------       --------       --------
Cash and cash equivalents, end of period....................    $  3,670       $  1,543       $  7,108       $  3,264
                                                                ========       ========       ========       ========
Supplemental cash flow information:
  Cash paid for interest....................................    $  4,136       $ 21,345       $ 24,952       $ 29,234
                                                                ========       ========       ========       ========
  Cash paid for Jr. subordinated PIK note interest..........    $ 13,744       $     --       $     --       $     --
                                                                ========       ========       ========       ========
  Cash paid for bridge loan commitment fee..................    $  3,500       $     --       $     --       $     --
                                                                ========       ========       ========       ========
  Cash paid for senior subordinated notes tender premium....    $ 10,826       $     --       $     --       $     --
                                                                ========       ========       ========       ========
  Cash paid for income taxes................................    $     --       $  1,489       $    426       $  1,647
                                                                ========       ========       ========       ========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       32

<PAGE>

                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- THE COMPANY

     Effective July 14, 2004, the Company's indirect parent, THL Bedding
Holding Company, changed its name to Simmons Company and the Company changed
its name to Simmons Bedding Company.

     Simmons Bedding Company ("Simmons" or "the Company") is one of the largest
bedding manufacturers in the United States of America. The Company operates in
two business segments, (1) wholesale bedding and (2) retail bedding. The
wholesale bedding segment consists of (i) the manufacture, sale and distribution
of premium branded bedding products; (ii) the licensing of intellectual property
to other manufacturers; and (iii) the sale of product returns, off-quality
product and excess inventory through retail outlet stores. The retail bedding
segment operates specialty sleep stores in California, Oregon and Washington
that sell to consumers principally premium-branded bedding products.

     The Company manufactures mattresses, foundations and sleep accessories
through its wholly-owned subsidiaries, The Simmons Manufacturing Co., LLC and
Simmons Caribbean Bedding, Inc. Simmons and its subsidiaries sell to a diverse
nationwide base of approximately 3,400 retail customers, representing over
11,000 outlets, including furniture stores, specialty sleep shops, department
stores and rental stores.

     Simmons also distributes branded bedding products on a contract sales basis
directly to institutional users, such as the hospitality industry and certain
agencies of the U.S. government, through the Company's wholly-owned subsidiary,
Simmons Contract Sales, LLC. The Company licenses its trademarks, patents and
other intellectual property to various domestic and foreign manufacturers
principally through its wholly-owned subsidiary, Dreamwell, Ltd.

     Additionally, the Company operated at December 27, 2003 seventeen retail
outlet stores located throughout the United States of America through the
Company's wholly-owned subsidiary, World of Sleep Outlets, LLC; 56 retail
mattress stores operating as Mattress Gallery located in Southern California
through the Company's wholly-owned subsidiary, Gallery Corp. (of which 26 stores
were added in December 2002 by assuming the leases and acquiring certain
inventory from Mattress Discounters Corporation, which was in bankruptcy, for
approximately $1.7 million); and 47 retail mattress stores operating as Mattress
Gallery and Sleep Country USA located in Oregon and Washington through the
Company's subsidiary, SC Holdings, Inc. ("Sleep Country").

     On February 28, 2003, the Company, through an agreement and plan of merger,
acquired the stock of Sleep Country from an affiliate of Fenway Partners
("Fenway") for approximately $18.4 million, plus additional contingent
consideration based upon future performance. Because the Company and Sleep
Country were controlled by affiliates of Fenway at the time of the acquisition,
the Company is required to account for the acquisition as a transfer of assets
within a group under common control. Under this accounting methodology, the
Company and Sleep Country are treated as if they had been combined in a manner
similar to the pooling of interests method for accounting and financial
reporting purposes for the periods in which both entities were controlled by
Fenway (from March 1, 2000).

  THE ACQUISITION

     In December 2003, THL Bedding Company, an affiliate of Thomas H. Lee
Partners, L.P., acquired the Company for approximately $1.115 billion, including
related acquisition costs (the "Acquisition"). Concurrently with the closing of
this transaction on December 19, 2003, each of THL Bedding Company and the
former Simmons Company merged with and into the Company with the Company
continuing as the surviving corporation. The Company, formerly known as Simmons
Holdings, Inc., was renamed Simmons Company.

     Thomas H. Lee Partners, L.P. is a leading private equity firm focused on
identifying and acquiring substantial ownership stakes in mid- to large-cap
growth companies. The purchase price for the Company was impacted by the
following factors:

     -   The Company's leading U.S. market position in the bedding industry,
         particularly in the premium segment;

     -   The Company's portfolio of brands;

     -   The Company's ability to innovate and introduce new products;

     -   The Company's superior manufacturing platform;

     -   The Company's historical and projected earnings; and

     -   The Company's management team and corporate culture.

     The financing for the Acquisition (including the refinancing of
outstanding debt) was provided by (i) borrowings under a new $480.0 million
Senior Secured Credit Facility, consisting of a $405 million term

                                       33

<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

loan facility and a $75.0 million revolving credit facility, which refinanced
the Company's existing senior and subordinated loans, (ii) borrowings under a
new $140.0 million senior unsecured term loan facility; (iii) issuance of $200.0
million senior subordinated notes; and (iv) $387.8 million of capital provided
by Thomas H. Lee Equity Fund V, L.P. and its affiliates ("THL"), affiliates of
Fenway and management of the Company.

     As a result of the Acquisition, THL acquired approximately 75.8% of the
voting stock of THL Bedding Holding Company ("THL Holding"), the Company's
indirect parent. In connection with the stock purchase and the mergers, Fenway
acquired 9.0% of voting stock of THL Holding and the Company's management and
directors acquired 15.2% of the voting stock of THL Holding, after giving effect
to restricted stock issued to management under THL Holding's equity incentive
plan.

     In connection with the Transactions, certain members of the Company's
management deferred $19.8 million of their proceeds from the Acquisition into a
deferred compensation plan of THL Holding. The deferred proceeds were deemed
invested in Class A common stock of THL Holding ("Deemed Shares"). The Deemed
Shares convert into cash or common stock of THL Holding based upon the outcome
of certain events such as a change of control or initial public offering, or
they will convert into common stock of THL Holding after ten years. The Deemed
Shares have a put option that gives the holder the right for cash settlement
under certain circumstances outside THL Holding's control. Accordingly, the
deferred compensation plan has been recorded as a liability on THL Holding and
is marked to market based upon a quarterly valuation of the common stock of THL
Holding by Houlihan Lokey Howark & Zukin Financial Advisors, Inc., an
independent valuation firm. The changes in the market value of the liability
will be recorded as variable stock compensation expense of the Company. THL
Holding is unable to repurchase Deemed Shares without receiving dividends from
the Company. The Company's New Senior Credit Facility, Senior Unsecured Term
Loan Facility, and indenture for the New Notes restrict the payment of dividends
by the Company to THL Holding for the purchase of Deemed Shares.

     The Acquisition was accounted for as a purchase as prescribed by
Statement of Financial Accounting Standards No. 141, Business Combinations, in
accordance with Emerging Issues Task Force ("EITF") No. 88-16, Basis in
Leveraged Buyout Transactions. This guidance requires the continuing residual
interest retained by the continuing management investors, as a result of the
Transactions, be reflected at its predecessor basis. In accordance with EITF
Issue No. 90-12, Allocating Basis to Individual Assets and Liabilities for
Transactions within the Scope of Issue No. 88-16, a step-up of assets and
liabilities to fair value has been recorded in purchase accounting for the
remaining interest in the Company acquired by THL and Fenway. The amount of
carryover basis determined has been reflected as a deemed dividend of $100.5
million in the consolidated balance sheet.

     The purchase price allocation has not been finalized. A tentative
allocation has been made using preliminary estimates of the values of the
intangibles. Management is reviewing the category and classification of the
intangible assets identified as definite and indefinite-lived as a result of the
Acquisition. The valuation is expected to be completed in the second quarter of
2004. The Company does not expect the final valuation to have a material impact
on previously reported operating results. Following is a summary of the
estimated fair values of the assets acquired and liabilities assumed as of the
date of the Acquisition:

<Table>
<Caption>
(IN THOUSANDS)
----------------------
<S>                                                            <C>
Current assets..............................................   $  137,296
Property, plant and equipment...............................       54,446
Goodwill....................................................      792,230
Other assets................................................       50,385
Intangibles.................................................      159,511
                                                               ----------
Total assets acquired.......................................    1,193,868
                                                               ----------
Current liabilities.........................................      (91,765)
Acquisition costs...........................................      (24,939)
Non-current liabilities.....................................      (62,295)
                                                               ----------
Total liabilities assumed...................................     (178,999)
                                                               ----------
Deemed dividend.............................................      100,388
                                                               ----------
Purchase price..............................................   $1,115,257
                                                               ==========
</Table>

     There were no pre-acquisition contingencies related to the Acquisition.
Since the Acquisition was accounted for as a stock purchase, the respective tax
basis of the assets and liabilities were not changed. As a result of the factors
discussed above, the Company recognized $792.2 million of goodwill which was
assigned to the wholesale and retail segments in the amounts of $773.1 million
and $16.7 million, respectively.

     The following condensed pro forma disclosure for net sales and net income
are based on the consolidated financial statements included elsewhere herein,
adjusted to give effect to (i) the Acquisition; and (ii) the issuance of new
debt (collectively the "Transactions"). These pro forma disclosures assume that
the Transactions were consummated as of December 30, 2001 and December 29, 2002
and do not purport to be indicative of the results that would actually have been
obtained if the Transactions had occurred on the date indicated or of the
results that may be obtained in the future.


                                       34
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                        COMBINED   |   PREDECESSOR
PRO FORMA (IN THOUSANDS):                                 2003     |       2002
-------------------------                               --------   |   -----------
<S>                                                     <C>        |   <C>
Net sales.............................................  $806,333   |     $708,595
Net income (loss).....................................  $ 21,060   |     $ (6,562)
</Table>

     For purposes of identification and description, Simmons Bedding Company is
referred to as the "Predecessor" for the period prior to the Acquisition, the
"Successor" for the period subsequent to the Acquisition, and the "Company" for
both periods. For purposes of financial reporting, the period from December 29,
2002 through December 19, 2003 is referred to as "Predecessor '03" and the
period from December 20, 2003 through December 27, 2003 is referred to as
"Successor '03." The 2003 period including both Predecessor '03 and Successor
'03 is referred to as "Combined '03."

  THE RECAPITALIZATION

     On July 16, 1998, the Company entered into a recapitalization agreement
with its subsidiary, the former Simmons Company, and REM Acquisition, Inc., a
transitory Delaware merger corporation ("REM"), sponsored by Fenway. Pursuant to
the agreement, on October 29, 1998, REM merged with and into the Company (the
"Recapitalization"), with the Company being the surviving corporation. As a
result of the Recapitalization, Simmons Holdings, LLC, an entity controlled by
funds affiliated with Fenway, acquired 75.1% of the outstanding voting shares of
the Company, and management, the ESOP and Investcorp retained approximately
5.9%, 13.7% and 5.3%, respectively, of the outstanding shares of the Company.
The Company accounted for the Recapitalization as a leveraged recapitalization,
whereby the historical bases of the assets and liabilities of the Company were
maintained through December 19, 2003.

NOTE B -- PRINCIPAL ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements of the Company include the accounts
of the Company and all of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

                                       35

<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  USE OF ESTIMATES AND RECLASSIFICATIONS

     The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("US GAAP"). Such financial statements include estimates and assumptions
that affect the reported amount of assets and liabilities, disclosure of
contingent assets and liabilities and the amounts of revenues and expenses.
Actual results could differ from those estimates.

     Certain amounts in the 2002 and 2001 financial statements and related
footnotes have been reclassified to conform with the current presentation.

  FISCAL YEAR

     The Company operates on a 52/53 week fiscal year ending on the last
Saturday in December. US GAAP does not permit the combining of Successor '03 and
Predecessor '03. The Successor '03 is eight days and the Predecessor '03 is 11
months and 19 days. Fiscal years 2002 and 2001 comprised 52 weeks.

  CASH AND CASH EQUIVALENTS

     The Company considers all highly liquid investments with an initial
maturity of three months or less to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value.

  INVENTORIES

     Inventories are stated at the lower of cost (first-in, first-out method) or
net realizable value. The cost of inventories includes raw materials, direct
labor and manufacturing overhead costs. The Company provides inventory reserves
for excess, obsolete or slow-moving inventory based on changes in customer
demand, technology developments or other economic factors.

  SUPPLY AGREEMENTS

     The Company's wholesale segment from time to time enters into long-term
supply agreements with its customers. Any initial cash outlay by the Company is
capitalized and amortized as a reduction to revenue over the life of the
contract and is ratably recoverable upon contract termination. Such capitalized
amounts are included in other assets in the Company's consolidated balance
sheets. Amortization expense related to these contracts was $0.2 million, $8.4
million, $4.6 million and $4.2 million in Successor '03, Predecessor '03, 2002
and 2001, respectively.

  PROPERTY, PLANT AND EQUIPMENT

     The Acquisition resulted in a new basis of the value of the Company's
property, plant and equipment. Accordingly, property, plant and equipment were
adjusted to their estimated fair value and estimated useful lives were adjusted.
Depreciation expense is determined principally using the straight-line method
over the estimated useful lives for financial reporting and accelerated methods
for income tax purposes. Expenditures that substantially increase asset values
or extend useful lives are capitalized. Expenditures for maintenance and repairs
are expensed as incurred. When property items are retired or otherwise disposed
of, amounts applicable to such items are removed from the related asset and
accumulated depreciation accounts and any resulting gain or loss is credited or
charged to income. Useful lives are generally as follows:

<Table>
<S>                                                           <C>
Buildings and improvements..................................  22 - 45 years
Leasehold improvements......................................   2 - 12 years
Machinery and equipment.....................................   2 - 15 years
Computers and software......................................   2 -  7 years
</Table>

                                       36
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  INTANGIBLE ASSETS

     Definite-lived intangible assets are amortized using the straight-line
method, which the Company believes is most appropriate, over their estimated
period of benefit, ranging from one to eleven years. Indefinite-lived intangible
assets, such as goodwill, brands, trademarks and other indefinite-lived
intangible assets that may be recognized upon completion of the Company's
valuation of its intangible assets, are not amortized. The Company has
tentatively identified and valued certain definite and indefinite-lived
intangible assets based upon a preliminary valuation. The Company is in the
process of finalizing the valuation. The final valuation could result in
certain intangible assets preliminarily identified as indefinite-lived being
classified as definite-lived and a different allocation of the purchase price
within the identifiable intangible asset classification. The Company does not
expect the final valuation to have a material impact on previously reported
results.

     The Company evaluates indefinite-lived intangible assets, such as
trademarks and brand names, for impairment at least annually or whenever events
or circumstances indicate their carrying value might be impaired. In performing
this assessment, management considers operating results, trends and prospects,
as well as the effects of obsolescence, demand, competition and other economic
factors. The carrying value of an indefinite-lived intangible asset is
considered impaired when its carrying value exceeds its fair market value. In
such an event, an impairment loss is recognized equal to the amount of that
excess. Fair value is determined primarily using either the projected cash
flows discounted at a rate commensurate with the risk involved or an appraisal.
The determination of fair value involves numerous assumptions by management,
including expectations on possible variations in the amounts or timing of cash
flow, the risk-free interest rate, and other factors considered in management's
projected future operating results. The Company reviews the useful lives of
indefinite-lived intangible assets every reporting period.

     The Company tests goodwill for impairment on an annual basis by comparing
the fair value of the Company's reporting units to their carrying values. Fair
value is determined by the assessment of future discounted cash flows.
Additionally, goodwill is tested for impairment between annual tests if an event
occurs or circumstances change that would more likely than not reduce the fair
value of an entity below its carrying value. These events or circumstances would
include a significant change in the business climate, legal factors, operating
performance indicators, competition, sale or disposition of a significant
portion of the business or other factors.

  IMPAIRMENT OF LONG-LIVED ASSETS

     The Company reviews all of its long-lived assets for impairment whenever
events or circumstances indicate their carrying value may not be recoverable.
Management reviews whether there has been an impairment by comparing anticipated
undiscounted future cash flows from operating activities with the carrying value
of the asset. The factors considered by management in this assessment include
operating results, trends and prospects, as well as the effects of obsolescence,
demand, competition and other economic factors. If an impairment is deemed to
exist, management would record an impairment charge equal to the excess of the
carrying value over the fair value of the impaired assets.

     As discussed in Note H to the consolidated financial statements, the
Company recognized impairment charges related to its retail segment in 2002 and
2001 of $20.3 million and $7.9 million, respectively.

  DEBT ISSUANCE COSTS

     The Company capitalizes costs associated with the issuance of debt and
amortizes the cost as additional interest expense over the lives of the debt
using the effective interest rate method. Amortization expense of $0.1 million,
$9.5 million (of which $7.1 million represented the remaining unamortized debt
issuance costs related to debt repaid in connection with the Acquisition), $4.3
million and $2.5 million for Successor '03, Predecessor '03, 2002 and 2001,
respectively, is included as a non-cash component of interest expense in the
accompanying Consolidated Statements of Operations.

     Due to the adoption of SFAS No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS
145"), $0.5 million of extraordinary expense, net of tax, related to accelerated
debt payments in 2001 has been reclassified to interest expense ($0.9 million)
with the related tax benefit ($0.4 million) reclassified to income tax benefit
in the accompanying Consolidated Statements of Operations.

  REVENUE RECOGNITION

     The Company's wholesale segment recognizes revenue, net of estimated
returns, when title and risk of ownership passes, which is generally upon
delivery of shipments. An insignificant portion of the Company's wholesale
segment revenue is derived from inventory held on consignment with certain
customers. The Company recognizes revenue on inventory held on consignment when
the title and risk of ownership have transferred to the customer, which is when
the inventory held on consignment is used. The Company accrues for estimated
costs of warranties, co-op advertising costs, promotional monies and cash
discounts at the time the corresponding sales are recognized. Sales are
presented net of cash discounts, rebates, returns and certain consideration
provided to customers such as co-operative advertising costs, promotional monies
and amortization of supply agreements. The Company uses historical trend
information regarding returns to reduce sales for estimated future returns. The
Company provides an allowance for bad debts for estimated uncollectible accounts
receivable, which is included in selling, general and administrative expenses in
the accompanying Consolidated Statements of Operations.

                                       37
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company's retail segment recognizes revenue when title and risk of
ownership passes, which is generally upon delivery of the products to customers.
The Company's retail segment allows customers to exchange products within 60
days of purchase. Historically, those returns have not been material and,
accordingly, no reserves for retail sales returns have been included in the
accompanying Consolidated Statements of Operations.

  PRODUCT DELIVERY COSTS

     Product delivery costs for our wholesale segment are billed to the
Company's customers and are included as a component of net sales. The Company's
wholesale segment incurred $0.4 million, $35.9 million, $31.4 million, and $30.9
million in shipping and handling costs associated with the delivery of finished
mattress products to its customers in Successor '03, Predecessor '03, 2002 and
2001, respectively. These costs are included in selling, general and
administrative expenses in the accompanying Consolidated Statements of
Operations.

  EMPLOYEE STOCK OWNERSHIP PLAN

     Prior to 2002, the Company recognized ESOP expense as an amount equal to
the fair market value of the shares committed to be released to participants'
accounts. As of December 29, 2001, all the plan shares had been committed to be
released to participants' accounts. The unearned compensation balance was
previously amortized using the shares allocated method (i.e., at cost). The
difference in the fair market value and the cost of the shares, if any, was
recorded as an adjustment to additional paid-in capital.

     Because of the Company's obligation to repurchase shares from the ESOP
under certain circumstances for their then current fair value, the Company has
classified the redemption value of such shares in the accompanying consolidated
balance sheets as redemption obligation -- ESOP as of December 28, 2002,
respectively. In connection with the Acquisition, the Company repurchased
3,382,739.58 shares of the Company held by the ESOP for $95.9 million which
satisfied the redemption obligation.

  STOCK OPTION PLANS

     The Company applied the intrinsic value-based method of accounting
prescribed by Accounting Principle Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB 25"), and related interpretations including FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation (an interpretation of APB No. 25), to account for its previous
employee stock option plans. Under this method, compensation expense was
recorded over the service period based upon the intrinsic value of the options
as they were earned by the employees. SFAS No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS 123, the Company adopted the
disclosure-only provisions and continued to apply the intrinsic value-based
method of accounting as described above. The accounting for awards of
stock-based compensation where an employee can compel the entity to settle the
award by transferring cash or other assets to employees rather than by issuing
equity instruments is substantially the same under SFAS 123 and APB 25.
Accordingly, SFAS 123 pro-forma disclosures are not presented.

  FOREIGN CURRENCY

     Subsidiaries located outside the United States of America generally use the
local currency as the functional currency. Assets and liabilities are translated
at exchange rates in effect at the balance sheet date and income and expense
accounts at average exchange rates during the year. Resulting translation
adjustments are recorded directly to accumulated other comprehensive income
(loss), a separate component of stockholder's deficit.

                                       38
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  PRODUCT DEVELOPMENT COSTS

     Costs associated with the development of new products and changes to
existing products are charged to expense as incurred. These costs amounted to
approximately $0.1 million, $3.0 million, $2.4 million and $1.8 million for
Successor '03, Predecessor '03, 2002 and 2001, respectively.

  REBATES

     The Company's wholesale segment provides volume rebates to certain
customers for the achievement of various purchase volume levels. The Company
recognizes a liability for the rebate at the point of revenue recognition for
the underlying revenue transactions that result in progress by the customer
towards earning the rebate. Measurement of the liability is based on the
estimated number of customers that will ultimately earn and claim the rebates or
refunds under the offer. Rebates were $0.1 million, $15.7 million, $10.4 million
and $10.6 million in Successor '03, Predecessor '03, 2002 and 2001,
respectively, and are included as a reduction of sales in the accompanying
Consolidated Statements of Operations.

  ADVERTISING COSTS

     The Company's wholesale segment records the cost of advertising, including
co-op advertising, as an expense or a reduction of net sales when incurred or no
later than when the advertisement appears or the event is run. Advertising costs
were $0.6 million, $98.5 million, $85.2 million and $72.5 million for Successor
'03, Predecessor '03, 2002 and 2001, respectively, and are included as either a
reduction of net sales or a component of selling, general and administrative
expenses in the accompanying Consolidated Statements of Operations.

     The Company's retail segment records advertising costs, including
promotional materials, and media production costs to expense as incurred. Costs
for placement of advertisements and airtime are charged to expense once
broadcast. Retail segment advertising expense, net of co-operative advertising
receipts, aggregated $0.1 million, $3.1 million, $3.6 million and $4.4 million
for Successor '03, Predecessor '03, 2002 and 2001, respectively. Co-operative
advertising receipts are recognized when vendor product is purchased.
Co-operative advertising receipts were not material, $2.9 million, $2.6 million
and $1.9 million for Successor '03, Predecessor '03, 2002 and 2001,
respectively.

  INCOME TAXES

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. A
valuation allowance is established, when necessary, to reduce deferred tax
assets to amounts expected to be realized.

  WARRANTIES

     The Company's wholesale segment warranty policy provides a 10-year
non-prorated warranty service period on all first quality products, except for
certain products for the hospitality industry which have varying non-prorated
warranty periods generally ranging from five to ten years. The Company's policy
is to accrue the estimated cost of warranty coverage at the time the sale is
recorded.

                                       39
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents a reconciliation of the Company's warranty
liability at December 27, 2003 for Successor '03, Predecessor '03, 2002 and 2001
(amounts in thousands):

<Table>
<Caption>
                                                                                                    DECEMBER 28,     DECEMBER 29,
                                                               SUCCESSOR '03    PREDECESSOR '03         2002             2001
                                                               -------------    ---------------     ------------     ------------
<S>                                                            <C>              <C>                 <C>              <C>
Balance at beginning of period..............................      $ 3,680           $ 3,434           $ 3,162          $ 2,651
Additional warranties issued................................           16             3,850             3,009            4,461
Warranty settlements........................................          (27)           (3,580)           (2,984)          (4,653)
Revisions of estimate.......................................          134               (24)              247              703
                                                                  -------           -------           -------          -------
Balance at end of period....................................      $ 3,803           $ 3,680           $ 3,434          $ 3,162
                                                                  =======           =======           =======          =======
</Table>

  ENVIRONMENTAL COSTS

     Environmental expenditures that relate to current operations are expensed
or capitalized when it is probable that a liability exists and the amount or
range of amounts can be reasonably estimated. Remediation costs that relate to
an existing condition caused by past operations are accrued when it is probable
that the costs will be incurred and can be reasonably estimated.

  DERIVATIVE INSTRUMENTS

     Effective January 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). This statement, as
amended, standardized the accounting for derivative instruments, including
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the balance sheet and measure
them at fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or in other comprehensive income, depending on
whether a derivative is designated as part of a hedging relationship and, if it
is, depending on the type of the hedging relationship. The cumulative effect
upon prior years of adopting SFAS 133 was not material.

  SIGNIFICANT CONCENTRATIONS OF RISK

     Cash and cash equivalents are maintained with several major financial
institutions in the U.S., Puerto Rico and Canada. Deposits held with banks may
exceed the amount of insurance provided on such deposits. Generally, these
deposits may be redeemed upon demand. Additionally, the Company monitors the
financial condition of such institutions and considers the risk of loss remote.

     The Company's wholesale bedding segment manufactures and markets sleep
products, including mattresses and foundations to retail establishments
primarily in the U.S. The wholesale bedding segment performs periodic credit
evaluations of its customers' financial condition and generally does not, in
most cases, require collateral. Shipments to the wholesale bedding segment's
five largest customers aggregated approximately 19%, 17% and 17% of total
wholesale shipments for each of 2003, 2002 and 2001, respectively, and no single
customer accounted for over 10% of the wholesale bedding segment's net sales.

     Purchases of raw materials from one vendor represented approximately 21%,
21% and 20% of the wholesale bedding segment cost of products sold for 2003,
2002 and 2001, respectively. The wholesale bedding segment also primarily
utilizes two third-party logistics providers which, in the aggregate, accounted
for 74%, 66% and 63% of outbound wholesale shipments in 2003, 2002 and 2001,
respectively.

  ACCOUNTING PRONOUNCEMENTS

     In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"), principally to provide guidance on the
identification of entities for which control is

                                       40
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

achieved through means other than through voting rights ("variable interest
entities" or "VIEs") and how to determine when and which business enterprise
should consolidate the VIE (the "primary beneficiary"). This new model for
consolidation applies to an entity which either (1) the equity investors (if
any) do not have a controlling financial interest or (2) the equity investment
at risk is insufficient to finance that entity's activities without receiving
additional subordinated financial support from other parties. In addition, FIN
46 requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. FIN 46 was
effective for the Company's first quarter 2003 with transitional disclosure
required with these financial statements. The Company does not have any variable
interest entities.

     In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 113 on
Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
133. The amendments set forth by SFAS 149 improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly. SFAS 149 is generally effective for contracts entered into or
modified after June 30, 2003. The guidance is to be applied prospectively. The
adoption of this Statement did not have a significant impact on the Company's
consolidated financial statements.

     In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity ("SFAS 150").
This statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. SFAS 150 improves the accounting
for certain financial instruments that, under previous guidance, issuers could
account for as equity. The new guidance requires that those instruments be
classified as liabilities in statements of financial position. The adoption of
this Statement did not have a significant impact on the Company's consolidated
financial statements.

     In December 2003, The FASB issued SFAS No. 132 (Revised), Employers'
Disclosure about Pensions and Other Postretirement Benefits ("SFAS 132R"). A
revision of the pronouncement originally issued in 1998, SFAS 132R expands
employers' disclosure requirements for pension and postretirement benefits to
enhance information about plan assets, obligations, benefit payments,
contributions, and net benefit cost. SFAS 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 requirements effective for interim periods beginning after December
15, 2003. The adoption of this Statement did not have a significant impact on
the Company's consolidated financial statements.

NOTE C -- SEGMENT INFORMATION

     Operating segments are generally organized internally by whether the
products are sold to a reseller or to an end consumer. The Company operates in
two business segments, (1) wholesale bedding and (2) retail bedding. The
wholesale bedding segment consists of (i) the manufacture, sale and distribution
of premium branded bedding products; (ii) the licensing of intellectual property
to companies that manufacture and sell products which complement the bedding
products manufactured by the Company; and (iii) the sale of product returns,
off-quality product and excess inventory through retail outlet stores. The
retail bedding segment operates specialty sleep stores in California, Oregon and
Washington, that sell to consumers principally premium branded bedding products.

     The Company is currently pursuing the sale of one of its retail bedding
subsidiaries, Mattress Gallery, and has classified the assets and liabilities
for Mattress Gallery as held for sale in the accompanying balance sheets. The
Company has not reflected the results of operations for Mattress Gallery as
discontinued operations since the Company believes it will have an ongoing
interest in the cash flows of the operations through a long-term supply
agreement (see Note D to the consolidated financial statements for further
explanation).

     The Company evaluates performance and allocates resources based on net
sales and Adjusted EBITDA. Adjusted EBITDA differs from the term "EBITDA" as it
is commonly used. In addition to adjusting net income to exclude interest
expense, income taxes, depreciation and amortization, Adjusted EBITDA also
adjusts net income by excluding items or expenses not typically excluded in the
calculation of "EBITDA" such as management fees, variable stock compensation
expense, and other unusual or non-recurring items as defined by the Company's
new Senior Credit Facility. Management believes the aforementioned approach is
the most informative representation of how management evaluates performance.
Adjusted EBITDA does not represent net income or cash flow from operations as
those terms are defined by GAAP and does not necessarily indicate whether cash
flows will be sufficient to fund cash needs.

     The following table summarizes segment information as of and for the
Successor '03, Predecessor '03, December 28, 2002 and December 29, 2001:


                                       41
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                          SUCCESSOR 2003
                                         ------------------------------------------------
                                         WHOLESALE
                                          BEDDING     RETAIL    ELIMINATIONS     TOTALS
                                         ----------   -------   ------------   ----------
                                                          (IN THOUSANDS)
<S>                                      <C>          <C>       <C>            <C>
Net sales to external customers........  $    6,509   $ 2,208     $     --     $    8,717
Intersegment net sales.................         346        --         (346)            --
Adjusted EBITDA........................        (826)      (85)         307           (604)
Segment assets.........................   1,142,939    38,638        1,542      1,183,119
Depreciation and amortization
  expense..............................         638        18           --            656
Expenditures for long-lived assets.....          --        --           --             --
Reconciliation of EBITDA and Adjusted
  EBITDA to net income (loss):
  Net income (loss)....................  $   (6,824)  $  (673)    $    307     $   (7,190)
  Depreciation and amortization........         638        18           --            656
  Income taxes.........................        (827)       --           --           (827)
  Interest expense, net................       4,657         4           --          4,661
  Interest income......................           4        --           --              4
                                         ----------   -------       ------     ----------
  EBITDA...............................      (2,352)     (651)         307         (2,696)
  Transaction related expenditures,
    including cost of products sold....       1,161       566           --          1,727
  Plant opening, closing charges.......         286        --           --            286
  Management fees......................          49        --           --             49
  Other expense........................          30        --           --             30
                                         ----------   -------       ------     ----------
  Adjusted EBITDA......................  $     (826)  $   (85)      $  307     $     (604)
                                         ==========   =======       ======     ==========
</Table>

<Table>
<Caption>
                                                          PREDECESSOR 2003
                                         ------------------------------------------------
                                         WHOLESALE
                                          BEDDING     RETAIL    ELIMINATIONS     TOTALS
                                         ----------   -------   ------------   ----------
                                                          (IN THOUSANDS)
<S>                                      <C>          <C>       <C>            <C>
Net sales to external customers........  $  701,935   $95,681     $     --     $  797,616
Intersegment net sales.................      32,228        --      (32,228)            --
Adjusted EBITDA........................     120,583     5,135         (818)       124,900
Depreciation and amortization
  expense..............................      21,464       595           --         22,059
Expenditures for long-lived assets.....       7,130     1,661           --          8,791
Reconciliation of EBITDA and Adjusted
  EBITDA to net income (loss):
  Net income (loss)....................  $  (35,169)  $ 1,891     $   (818)    $  (34,096)
  Depreciation and amortization........      21,464       595           --         22,059
  Income taxes.........................      (8,845)       --           --         (8,845)
  Interest expense, net................      44,408       684           --         45,092
  Interest income......................         197        --           --            197
                                         ----------   -------       ------     ----------
  EBITDA...............................      22,055     3,170         (818)        24,407
  Variable stock compensation expense..      68,415        --           --         68,415
  Transaction related expenditures,
    including cost of products sold....      22,190       209           --         22,399
  Plant opening, closing charges.......       4,137        --           --          4,137
  Litigation and insurance.............       1,894        --           --          1,894
  Non-recurring retail segment charges.          --       432           --            432
  Management fees......................       1,513     1,331           --          2,844
  Other expense........................         379        (7)          --            372
                                         ----------   -------       ------     ----------
  Adjusted EBITDA......................  $  120,583   $ 5,135       $ (818)    $  124,900
                                         ==========   =======       ======     ==========
</Table>

<Table>
<Caption>
                                                         DECEMBER 28, 2002
                                         ------------------------------------------------
                                         WHOLESALE
                                          BEDDING     RETAIL    ELIMINATIONS     TOTALS
                                         ----------  --------   ------------   ----------
                                                          (IN THOUSANDS)
<S>                                      <C>         <C>        <C>            <C>
Net sales to external customers........   $636,826   $ 71,769     $     --     $  708,595
Intersegment net sales.................     22,131         --      (22,131)            --
Adjusted EBITDA........................    104,347       (460)        (990)       102,897
Segment assets.........................    405,298     39,733      (34,000)       411,031
Depreciation and amortization
  expense..............................     18,147      1,371         (468)        19,050
Goodwill impairment....................         --     20,285           --         20,285
Expenditures for long-lived assets.....      6,323      1,638           --          7,961
Reconciliation of EBITDA and Adjusted
  EBITDA to net income (loss):
  Net income (loss)....................   $ 26,901   $(26,990)    $   (522)    $     (611)
  Depreciation and amortization........     18,147     21,656         (468)        39,335
  Income taxes.........................     12,005         --           --         12,005
  Interest expense, net................     29,558      2,442           --         32,000
  Interest income......................        193         --           --            193
                                          --------   --------       ------     ----------
  EBITDA...............................     86,804     (2,892)        (990)        82,922
  Variable stock compensation expense..     15,561         --           --         15,561
  Litigation and insurance.............      1,304         --           --          1,304
  Non-recurring retail segment charges.         --        148           --            148
  Management fees......................         69      2,284           --          2,353
  Other expense........................        609         --           --            609
                                          --------   --------       ------     ----------
  Adjusted EBITDA......................   $104,347   $   (460)      $ (990)    $  102,897
                                          ========   ========       ======     ==========
</Table>

<Table>
<Caption>
                                                         DECEMBER 29, 2001
                                         ------------------------------------------------
                                         WHOLESALE
                                          BEDDING     RETAIL    ELIMINATIONS     TOTALS
                                         ----------  --------   ------------   ----------
                                                          (IN THOUSANDS)
<S>                                      <C>         <C>        <C>            <C>
Net sales to external customers........   $577,793   $ 77,416     $     --     $  655,209
Intersegment net sales.................     24,301         --      (24,301)            --
Adjusted EBITDA........................     86,422       (534)         350         86,238
Segment assets.........................    402,666     58,712      (29,203)       432,175
Depreciation and amortization
  expense..............................     22,823      4,578          428         27,829
Goodwill impairment....................         --      7,882           --          7,882
Expenditures for long-lived assets.....      4,957        772           --          5,729
Reconciliation of EBITDA and Adjusted
  EBITDA to net income (loss):
  Net income (loss)....................   $  9,175   $(18,734)    $    (78)    $   (9,637)
  Depreciation and amortization........     22,823     12,460          428         35,711
  Income taxes.........................     (7,676)        --           --         (7,676)
  Interest expense, net................     36,525      2,925           --         39,450
  Interest income......................        521         --           --            521
                                          --------   --------       ------     ----------
  EBITDA...............................     61,368     (3,349)         350         58,369
  Variable stock compensation expense..     14,847         --           --         14,847
  Bad debt expense.....................      4,391         --           --          4,391
  Litigation and insurance.............       (409)        --           --           (409)
  Non-recurring operational and retail
    segment charges....................      2,107      2,211           --          4,318
  Management fees......................      2,160        604           --          2,764
  Other expense........................      1,958         --           --          1,958
                                          --------   --------       ------     ----------
  Adjusted EBITDA......................   $ 86,422   $   (534)      $  350     $   86,238
                                          ========   ========       ======     ==========
</Table>

                                       42
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     In the "Eliminations" column of each period presented above, the segment
assets consists primarily of investments in subsidiaries, receivables and
payables and gross wholesale bedding profit in ending retail


                                       43
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

inventory. The segment Adjusted EBITDA has been adjusted to eliminate
the wholesale bedding profit in ending retail inventory.

NOTE D -- ASSETS/LIABILITIES HELD FOR SALE

     In April 2003, the Company initiated a sales process of its retail
operations. Following the Acquisition, the Board of Directors decided to
continue a sales process for the Gallery Corp. ("Mattress Gallery") retail
operations in California and to continue to operate the Company's Sleep Country
Oregon and Washington retail operations. The Company has identified a potential
buyer of Mattress Gallery and anticipates a closing in the second quarter of
2004.

     In accordance with the provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, the Company has reflected assets
and liabilities for Mattress Gallery as held for sale in the consolidated
balance sheets. The Company has not reflected the results of operations for its
Mattress Gallery as discontinued operations since the Company believes it will
have an ongoing interest in the cash flows of the operations through a long-term
supply agreement. Mattress Gallery had net sales and adjusted EBITDA of $0.9
million and $0.1 million, respectively, for the Successor '03 period and net
sales and adjusted EBITDA of $40.0 million and $1.0 million, respectively for
the Predecessor '03 period.

     The components of the assets and liabilities held for sale as of December
27, 2003 are as follows (amounts in thousands):

                              ASSETS HELD FOR SALE

<Table>
<S>                                                            <C>
Accounts receivable, net....................................   $1,522
Inventories.................................................    4,996
Other current assets........................................      221
Property, plant and equipment, net..........................    1,057
Other assets................................................      768
                                                               ------
  Total assets held for sale................................   $8,564
                                                               ======
</Table>

                           LIABILITIES HELD FOR SALE

<Table>
<S>                                                            <C>
Accounts payable............................................   $  503
Other current liabilities...................................    1,207
Other long-term liabilities.................................      354
                                                               ------
  Total liabilities held for sale...........................   $2,064
                                                               ======
</Table>

     The carrying amounts of the major classes of assets and liabilities of
Mattress Gallery were adjusted to reflect their estimated disposal value in
connection with the purchase price allocation related to the transactions.

NOTE E -- EMPLOYEE STOCK OWNERSHIP PLAN

     Prior to the Acquisition, the Company was structured so that many employees
of the Company had a beneficial ownership interest in the stock of the Company
through their participation in the ESOP. Through 2002, the Company made annual
contributions to the ESOP in an amount up to 25% of eligible participant
compensation, subject to certain limitations and conditions. The ESOP used all
such contributions to repay the ESOP loan. As a result, there were no cash costs
associated with the contributions to the ESOP. Following 2002, no further
Company contributions were made to the ESOP.

     ESOP assets are held in trust by State Street Bank and Trust Company, the
ESOP trustee. Prior to repayment of the ESOP loan in full in 2002, the ESOP
shares were held in a suspense account and were released to the ESOP
participants' accounts based on debt service. In 2001, 988,124 shares were
released to participants' accounts for the 2000 ESOP allocation. In 2002,
298,006 shares were released to participants'

                                       44
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accounts for the 2001 ESOP allocation. At December 28, 2002, all shares of the
Company's common stock in the ESOP were allocated, resulting in no further
scheduled allocation of shares to participants.

     Under the provisions of the ESOP, the Company was obligated to repurchase
participant shares distributed under the terms of the ESOP, as long as the
shares were not publicly traded or the shares were subject to trading
limitations. The Company regularly repurchased shares from the ESOP to provide
liquidity for cash distributions. Prior to the Acquisition, the Company
repurchased approximately 26,065 shares and 29,345 shares from the ESOP in 2003
and 2002, respectively, at an average price of $17.8891 and $15.2038 per share,
respectively. The ESOP held 3,414,300 shares as of December 28, 2002. In
connection with the Acquisition, the Company repurchased 3,382,740 shares of the
Company held by the ESOP for $95.9 million which satisfied the redemption
obligation.

     Although the ESOP no longer has a beneficial ownership of the stock of the
Company, the plan remains in existence. Approximately 35% of the Company's
full-time employees are participants in the ESOP.

NOTE F -- INVENTORIES

     Inventories consisted of the following as of December 27, 2003 and December
28, 2002 (amounts in thousands):

<Table>
<Caption>
                                                                2003    |    2002
                                                              --------- | -----------
<S>                                                           <C>       | <C>
Raw materials...............................................   $13,005  |   $11,198
Work-in-progress............................................     1,099  |     1,240
Finished goods..............................................    12,476  |     8,611
Inventory held at retail stores.............................     4,775  |     2,423
                                                               -------  |   -------
                                                               $31,355  |   $23,472
                                                               =======  |   =======
</Table>

NOTE G -- PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consisted of the following as of December 27,
2003 and December 28, 2002 (amounts in thousands):

<Table>
<Caption>
                                                                2003    |    2002
                                                              --------- | -----------
<S>                                                           <C>       | <C>
Land, buildings and improvements............................   $13,885  |   $11,883
Leasehold improvements......................................     4,322  |     9,926
Machinery and equipment.....................................    31,383  |    75,500
Construction in progress....................................     3,799  |       957
                                                               -------  |   -------
                                                                53,389  |    98,266
Less accumulated depreciation...............................      (161) |   (56,954)
                                                               -------  |   -------
                                                               $53,228  |   $41,312
                                                               =======  |   =======
</Table>

     Depreciation expense for the Successor '03, Predecessor '03, 2002 and 2001
was $0.3 million, $21.8 million, $13.7 million and $12.2 million, respectively.

                                       45
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE H -- GOODWILL AND OTHER INTANGIBLE ASSETS

     Intangible assets consisted of the following as of December 27, 2003 and
December 28, 2002 (dollar amounts in thousands):

<Table>
<Caption>
                                                     2003                            2002
                              WEIGHTED   -----------------------------   -----------------------------
                              AVERAGE    GROSS CARRYING   ACCUMULATED    GROSS CARRYING   ACCUMULATED
                                LIFE         AMOUNT       AMORTIZATION       AMOUNT       AMORTIZATION
                              --------   --------------   ------------   --------------   ------------
<S>                           <C>        <C>              <C>            <C>              <C>
Definite-lived intangible
  assets:
  Patents...................     10         $29,994          $ (66)         $17,647         $(17,049)
  Customer contracts........     11          20,078            (40)              --               --
  Licenses..................      6          15,370            (56)             398               (8)
  Contract sales............      4           8,823            (48)              --               --
  Employment contracts......      3           3,367            (25)              --               --
  Equipment leases..........      1             660            (14)              --               --
  Software..................      2           2,249            (25)              --               --
  Non-complete agreements...      2           2,838            (32)           1,100             (568)
                                            -------          -----          -------         --------
                                            $83,379          $(306)         $19,145         $(17,625)
                                            =======          =====          =======         ========
Indefinite-lived intangible
  assets:
  Brands....................                $43,505                         $    --
  Trademarks................                 29,573                           5,723
  Supplier lists............                  2,567                              --
  Domain names..............                    480                              --
                                            -------                         -------
                                            $76,125                         $ 5,723
                                            =======                         =======
</Table>

     On December 30, 2001 (the first day of fiscal year 2002), the Company
adopted SFAS 142 and ceased to amortize goodwill. Additionally, during 2002 the
Company acquired $5.7 million trademarks which the Company determined to be
indefinite-lived. As required by SFAS 142, the Company reassessed the expected
useful lives of existing intangible assets. This reassessment resulted in no
changes to the expected useful lives of the Company's patents and licenses.

     As a result of the Acquisition, the Company recorded additions of $150.8
million in intangible assets based upon preliminary valuations. In conjunction
with the Acquisition, the Company conducted a preliminary review of its
identifiable intangibles, and initially determined that $76.1 million as
detailed above meet the definition of an indefinite-lived intangible in
accordance with the criteria outlined in SFAS 142. The Company expects the final
valuation to be completed in the second quarter of 2004. The final valuation
could result in certain intangible assets preliminarily identified as
indefinite-lived being reclassified as definite-lived, and a different
allocation of the purchase price within the identifiable intangible asset
classification. The Company expects supplier lists to be classified as
definite-lived in the final valuation.

     The amortization expense for definite-lived intangible assets for the
periods from December 20, 2003 through December 27, 2003 and from December 29,
2002 through December 19, 2003 was $0.3 million in

                                       46
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

each period. The estimated amortization expense for definite-lived intangible
assets for the next five years is as follows (amount in thousands):

<Table>
<S>                                                           <C>
2004........................................................  $13,895
2005........................................................  $13,194
2006........................................................  $10,714
2007........................................................  $ 9,592
2008........................................................  $ 7,386
</Table>

     As it relates to brands, trademarks and domain names, the Company expects
both the renewal by the granting authorities and the cash flows generated from
these intangible assets to continue indefinitely. As it relates to supplier
list, the Company expects the substantial volume discounts and high level of
quality from the select group of suppliers will continue indefinitely.

     Additionally for the indefinite lived intangibles, the Company will perform
an annual valuation of the factors supporting the criteria for classification as
indefinite lived. Also as required by SFAS 142, the Company reviews its definite
lived intangible assets estimated useful lives on an annual basis.

     The following table presents the Company's Successor '03, Predecessor '03,
2002 and 2001 results on a basis comparable to the 2003 results, adjusted to
exclude amortization expense (including any related tax effects) related to
goodwill (amounts in thousands):

<Table>
<Caption>
                                                SUCCESSOR   PREDECESSOR
                                                  2003         2003       2002     2001
                                                ---------   -----------   -----   -------
<S>                                             <C>         <C>           <C>     <C>
Reported net loss.............................   $(7,190)    $(34,096)    $(611)  $(9,637)
Add back: tax effected goodwill
  amortization................................        --           --        --     8,320
                                                 -------     --------     -----   -------
Adjusted net loss.............................   $(7,190)    $(34,096)    $(611)  $(1,317)
                                                 =======     ========     =====   =======
</Table>

     In connection with the acquisition of substantially all of the retail store
locations and other assets of H&H Sleep Centers, Inc. ("H&H") and CBMC Corp.
("CBMC") by Mattress in 2000, the Company recorded $16.1 million of goodwill.
This represented the excess of the purchase price over the fair value of assets
acquired and was being amortized on a straight line basis over a twenty year
period. Due to various Mattress Gallery operating factors, in the fourth quarter
of 2001 the Company reviewed the carrying value of Mattress Gallery's goodwill
in accordance with the Company's accounting policies and recorded an impairment
charge of $7.9 million to write down the Mattress Gallery goodwill to its
estimated market value. There were no goodwill additions for the year ended
December 28, 2002.

     As part of the adoption of SFAS 142, the Company performed initial
valuations during the first quarter 2002 to determine if any impairment of
goodwill and indefinite-lived intangibles existed and determined that no
impairment of goodwill and indefinite-lived intangible assets existed. In
accordance with SFAS 142, goodwill was again tested at December 28, 2002 for
impairment by comparing the fair value of the Company's reporting units to their
carrying values. Fair values were determined by the assessment of future
discounted cash flows. As noted in the following paragraph, based upon the
impairment test performed, a goodwill impairment charge was recorded in 2002 for
the Company's retail segment. This impairment test will be performed each year
on the last day of the Company's fiscal year unless circumstances or events
necessitate an evaluation at an interim date. Additionally for the indefinite
lived intangibles, the Company will perform an annual valuation of the factors
supporting the criteria for classification as indefinite lived. Also as required
by SFAS 142, the Company reviews its definite lived intangible assets estimated
useful lives on an annual basis.

     In connection with the acquisition of 51 retail store locations and other
stock of Sleep Country USA, Inc., Sleep Country of Oregon, Inc. and Sleep Train,
Inc. by Sleep Country in 2000, the Company recorded $40.5 million of goodwill.
The goodwill represented the excess of the purchase price over the fair value of

                                       47
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assets acquired and was being amortized on a straight line basis over a fifteen
year period prior to the adoption of SFAS 142. In the fourth quarter of 2002,
Sleep Country recognized a goodwill impairment of $20.3 million. The review of
the goodwill for impairment was necessary due to the continued weakness in the
retail economy and the failure of Sleep Country to reach the sales and profit
levels included in its original impairment test as of January 1, 2002.

NOTE I -- ACCRUED LIABILITIES

     Accrued liabilities consisted of the following as of December 27, 2003 and
December 28, 2002 (amounts in thousands):

<Table>
<Caption>
                                                                2003    |    2002
                                                              --------- | -----------
<S>                                                           <C>       | <C>
Accrued wages and benefits..................................   $20,230  |   $18,051
Accrued advertising and incentives..........................    21,612  |    18,480
Accrued interest............................................     1,238  |     6,213
Other accrued expenses......................................    10,868  |    14,534
                                                               -------  |   -------
                                                               $53,948  |   $57,278
                                                               =======  |   =======
</Table>


NOTE J -- LONG-TERM DEBT

     Long-term debt consisted of the following at December 27, 2003 and December
28, 2002 (amounts in thousands):

<Table>
<Caption>
                                                                2003    |    2002
                                                              --------- |  -----------
<S>                                                           <C>       | <C>
Senior Credit Facility:                                                 |
  New Revolving Loan........................................  $  3,275  |  $     --
  Old Tranche A Term Loan...................................        --  |    14,500
  Old Tranche B Term Loan...................................        --  |    42,505
  Old Tranche C Term Loan...................................        --  |    19,006
  New Tranche B Term Loan...................................   405,000  |        --
                                                              --------  |  --------
  Total Senior Credit Facility..............................   408,275  |    76,011
Sleep Country Senior Credit Facility:                                   |
  Term Loan.................................................        --  |    16,500
  Revolving Loan............................................        --  |     1,500
                                                              --------  |  --------
  Total Sleep Country Senior Credit Facility................        --  |    18,000
Sleep Country Debt to Affiliate.............................        --  |     8,065
Senior Unsecured Term Loan..................................   140,000  |        --
Industrial Revenue Bonds, 7.00%, due 2017...................     9,700  |     9,700
Industrial Revenue Bonds, 3.33%, due 2016...................     4,000  |     4,200
Banco Santander Loan, 3.42%, due 2013.......................     2,116  |     2,329
7.875% Senior Subordinated Notes due 2014...................   200,000  |        --
10.25% Series B Senior Subordinated Notes due 2009..........     5,284  |   150,000
Notes Payable to former Shareholders........................        --  |     5,474
17.5% Junior Subordinated Payment-in-Kind due 2011, net of              |
  discount..................................................        --  |    16,488
Other, including capital lease obligations..................       878  |       515
                                                              --------  |  --------
                                                               770,253  |   290,782
Less current portion........................................    (9,512) |   (22,125)
                                                              --------  |  --------
                                                              $760,741  |  $268,657
                                                              ========  |  ========
</Table>

     In connection with the Acquisition on December 19, 2003, the Company
entered into a new Senior Credit Facility (the "New Senior Credit Facility"), a
Senior Unsecured Term Loan Facility and issued 7.875% Senior Subordinated Notes,
the aggregate proceeds of which repaid the outstanding amounts under the old
senior credit facility, notes payable to former shareholders, a junior
subordinated payment-in-kind note and a portion of the Company's 10.25% Senior
Subordinated Notes.

     The New Senior Credit Facility provides for a $75.0 million revolving
credit facility. The revolving credit facility will expire on the earlier of (a)
December 19, 2009 or (b) such other date as the revolving credit commitments
thereunder shall terminate in accordance with the terms of the New Senior Credit
Facility. The New Senior Credit Facility also provides for a $405.0 million
Tranche B Term Loan facility. The Tranche B term loan has a final scheduled
maturity date of December 19, 2011.

     As of December 27, 2003, the Company had availability to borrow $61.2
million under the Revolving Loan Facility after giving effect to $3.3 million of
borrowings and $10.5 million that was reserved for the Company's reimbursement
obligations with respect to outstanding letters of credit. The remaining
availability under the Revolving Loan Facility may be utilized to meet the
Company's current working capital


                                       48
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

requirements, including issuance of stand-by and trade letters of credit. The
Company also may utilize the remaining availability under the Revolving Loan
Facility to fund distributions, acquisitions and capital expenditures.

     The Senior Unsecured Term Loan Facility which provides for a $140.0 million
Senior Unsecured Term Loan. The Senior Unsecured Term loan has a final scheduled
maturity date of June 17, 2012.

     The New Senior Credit Facility and the Senior Unsecured Term Loan bear
interest at the Company's choice of Eurodollar Rate or Base Rate (both as
defined), plus the following applicable interest rate margins as follows:

<Table>
<Caption>
                                                              EURODOLLAR   BASE
                                                                 RATE      RATE
                                                              ----------   ----
<S>                                                           <C>          <C>
Revolving Loan Facility.....................................     2.50%     1.50%
Tranche B Term Loan.........................................     2.75%     1.75%
Senior Unsecured Term Loan..................................     3.75%     2.75%
</Table>

     The weighted average interest rates per annum in effect as of December 27,
2003 for the Revolving Loan Facility, Tranche B Term Loan and Senior Unsecured
Term Loan were 3.69%, 3.94% and 4.94%, respectively.

     The use of interest rate risk management instruments, such as collars and
swaps, is required under the terms of the New Senior Credit Facility. The
Company is required to maintain protection against fluctuations in interest
rates, and may do so through utilizing Eurodollar Rate loans having twelve-month
interest periods or through one or more interest rate agreements.

     In order to address interest rate risk, the Company has developed and
implemented a policy to utilize extended Eurodollar contracts to minimize the
impact of near term Eurodollar rate increases. On January 26, 2004, the Company
elected to set its interest rate at the twelve-month Eurodollar Rate for
approximately $325.0 million of the Tranche B Term Loan and the $140 million
Senior Unsecured Term Loan, which fixed the Eurodollar Rate at 1.375% through
January 26, 2005 for approximately 84% of floating rate debt outstanding as of
December 27, 2003. Additionally, to further address interest rate risk, the
Company entered into an interest rate cap agreement on February 11, 2004 for a
notional amount of $170.0 million which capped the Eurodollar Rate at 5.0% for
the period of January 26, 2005 through January 26, 2006.

     On December 19, 2003, the Company completed a financing, which consisted of
the sale of $200.0 million of 7.875% Senior Subordinated Notes due 2014 (the
"New Notes") pursuant to a private offering. The New Notes bear interest at the
rate of 7.875% per annum, which is payable semi-annually in cash in arrears on
January 15 and July 15. The Notes mature on January 15, 2014. The New Notes are
subordinated in right of payment to all existing and future senior indebtedness
of the Company. The Company plans to issue 7.875% Senior Subordinated Notes due
2014 (the "Exchange Notes") in exchange for all New Notes, pursuant to an
exchange offer whereby holders of the New Notes will receive Exchange Notes
which have been registered under the Securities Act of 1933, as amended, but are
otherwise identical to the New Notes.

     At any time prior to January 17, 2007, the Company may redeem up to 40% of
the aggregate principal amount of the New Notes at a price of 107.875% in
connection with an Equity Offering, as defined. With the exception of an Equity
Offering, the New Notes are redeemable at the option of the Company beginning
January 15, 2009 at prices decreasing from 103.938% of the principal amount
thereof to par on January 15, 2012 and thereafter. The Company is not required
to make mandatory redemption or sinking fund payments with respect to the New
Notes.


                                       49
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The indenture for the New Notes requires the Company and its subsidiaries
to comply with certain restrictive covenants, including a restriction on
dividends; and limitations on the incurrence of indebtedness, certain payments
and distributions, and sales of the Company's assets and stock.

     The 10.25% Series B Senior Subordinated Notes ("Old Notes") bear interest
at the rate of 10.25% per annum, which is payable semi-annually in cash in
arrears on March 15 and September 15. On November 18, 2003, the Company
initiated a tender offer for the Old Notes and a consent solicitation to remove
substantially all restrictive covenants in the indenture governing the Old
Notes. As a result of the tender offer, $144.9 million principal amount of Old
Notes were tendered at a premium of $10.4 million. On March 10, 2004, the
Company gave notice to tender on April 12, 2004 the remaining $5.1 million of
Old Notes outstanding at 105.125% of the principal amount thereof for a total
payment of $5.3 million. The Old Notes are subordinated in right of payment to
all existing and future senior indebtedness of the Company. As a result of the
Transactions, the Company marked the Old Notes to fair market value as of the
date of the Transactions.

     The New Notes and Old Notes are fully and unconditionally guaranteed on an
unsecured, senior subordinated basis by all of the Company's active domestic
subsidiaries. All of the subsidiary guarantors are 100% owned by the Company.
The following Supplemental Consolidating Condensed Financial Statements provide
additional guarantor/non-guarantor information.


                                       50
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

         SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
        FOR THE PERIOD FROM DECEMBER 20, 2003 THROUGH DECEMBER 27, 2003
                                 (IN THOUSANDS)

<Table>
<Caption>
                                          NEW ISSUER AND
                                            GUARANTORS
                                      ----------------------
                                      SIMMONS       NEW          NEW NON-
                                      BEDDING    GUARANTOR      GUARANTOR
                                      COMPANY   SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                      -------   ------------   ------------   ------------   ------------
<S>                                   <C>       <C>            <C>            <C>            <C>
Net sales...........................  $(1,363)     $9,946          $134          $  --         $ 8,717
Cost of goods sold..................       26       7,472            98             --           7,596
                                      -------      ------          ----          -----         -------
     Gross margin...................   (1,389)      2,474            36             --           1,121
                                      -------      ------          ----          -----         -------
Operating expenses:
  Selling, general and
     administrative expenses........    2,262       2,090            90             --           4,442
  Amortization of intangible
     assets.........................      305           6            --             --             311
  Intercompany fees.................      126        (134)            8             --              --
  Licensing fees....................       --        (276)           --             --            (276)
                                      -------      ------          ----          -----         -------
                                        2,693       1,686            98             --           4,477
                                      -------      ------          ----          -----         -------
     Operating income (loss)........   (4,082)        788           (62)            --          (3,356)
Interest expense, net...............    4,537         123             1             --           4,661
Income from subsidiaries............     (246)         --            --            246              --
                                      -------      ------          ----          -----         -------
     Income (loss) before income
       taxes........................   (8,373)        665           (63)          (246)         (8,017)
Income tax expense (benefit)........   (1,183)        355             1             --            (827)
                                      -------      ------          ----          -----         -------
     Net income (loss)..............  $(7,190)     $  310          $(64)         $(246)        $(7,190)
                                      =======      ======          ====          =====         =======
</Table>

         SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
        FOR THE PERIOD FROM DECEMBER 29, 2002 THROUGH DECEMBER 19, 2003
                                 (IN THOUSANDS)

<Table>
<Caption>
                                         NEW ISSUER AND
                                           GUARANTORS
                                    ------------------------
                                     SIMMONS        NEW          NEW NON-
                                     BEDDING     GUARANTOR      GUARANTOR
                                     COMPANY    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                    ---------   ------------   ------------   ------------   ------------
<S>                                 <C>         <C>            <C>            <C>            <C>
Net sales.........................  $ (46,100)    $832,212       $11,504        $     --       $797,616
Cost of goods sold................      1,116      400,774         8,191              --        410,081
                                    ---------     --------       -------        --------       --------
     Gross margin.................    (47,216)     431,438         3,313              --        387,535
                                    ---------     --------       -------        --------       --------
Operating expenses:
  Selling, general and
     administrative expenses......    257,517      113,269         2,254              --        373,040
  Amortization of intangible
     assets.......................         --          306            --              --            306
  Transaction expenses............     22,399           --            --              --         22,399
  Intercompany fees...............   (255,065)     254,101           964                             --
  Licensing fees..................     (1,007)      (8,649)         (705)             --        (10,361)
                                    ---------     --------       -------        --------       --------
                                       23,844      359,027         2,513              --        385,384
                                    ---------     --------       -------        --------       --------
     Operating income (loss)......    (71,060)      72,411           800              --          2,151
Interest expense, net.............     44,003        1,079            10              --         45,092
Income from subsidiaries..........    (47,142)          --            --          47,142             --
                                    ---------     --------       -------        --------       --------
     Income (loss) before income
       taxes......................    (67,921)      71,332           790         (47,142)       (42,941)
Income tax expense (benefit)......    (33,825)      24,734           246              --         (8,845)
                                    ---------     --------       -------        --------       --------
     Net income (loss)............  $ (34,096)    $ 46,598       $   544        $(47,142)      $(34,096)
                                    =========     ========       =======        ========       ========
</Table>

         SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 29, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                         NEW ISSUER AND
                                           GUARANTORS
                                    ------------------------
                                     SIMMONS        NEW          NEW NON-
                                     BEDDING     GUARANTOR      GUARANTOR
                                     COMPANY    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                    ---------   ------------   ------------   ------------   ------------
<S>                                 <C>         <C>            <C>            <C>            <C>
Net sales.........................  $ (48,065)    $743,047       $13,613        $     --       $708,595
Cost of goods sold................        492      360,019         9,106              --        369,617
                                    ---------     --------       -------        --------       --------
     Gross margin.................    (48,557)     383,028         4,507              --        338,978
                                    ---------     --------       -------        --------       --------
Operating expenses:
  Selling, general and
     administrative expenses......    184,262       97,289         2,613              --        284,164
  Goodwill impairment.............         --       20,285            --              --         20,285
  Amortization of intangible
     assets.......................         --          981           265              --          1,246
  Intercompany fees...............   (260,419)     259,321         1,098              --             --
  Licensing fees..................       (874)      (7,633)         (495)             --         (9,002)
                                    ---------     --------       -------        --------       --------
                                      (77,031)     370,243         3,481              --        296,693
                                    ---------     --------       -------        --------       --------
     Operating income.............     28,474       12,785         1,026              --         42,285
Interest expense, net.............     29,142        2,827            31              --         32,000
Income from subsidiaries..........      1,024           --            --          (1,024)            --
                                    ---------     --------       -------        --------       --------
     Income before income taxes...     (1,692)       9,958           995           1,024         10,285
Income tax expense (benefit)......     (1,081)      12,569           517              --         12,005
                                    ---------     --------       -------        --------       --------
     Income (loss) before minority
       interest...................       (611)      (2,611)          478           1,024         (1,720)
                                    ---------     --------       -------        --------       --------
Minority interest in loss.........         --       (1,109)           --              --         (1,109)
                                    ---------     --------       -------        --------       --------
     Net income (loss)............  $    (611)    $ (1,502)      $   478        $  1,024       $   (611)
                                    =========     ========       =======        ========       ========
</Table>

         SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 28, 2001
                                 (IN THOUSANDS)

<Table>
<Caption>
                                         NEW ISSUER AND
                                           GUARANTORS
                                    ------------------------
                                     SIMMONS        NEW          NEW NON-
                                     BEDDING     GUARANTOR      GUARANTOR
                                     COMPANY    SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   CONSOLIDATED
                                    ---------   ------------   ------------   ------------   ------------
<S>                                 <C>         <C>            <C>            <C>            <C>
Net sales.........................  $ 590,573     $ 53,385       $11,251        $     --       $655,209
Cost of goods sold................    357,044       15,371         6,716              --        379,131
                                    ---------     --------       -------        --------       --------
     Gross margin.................    233,529       38,014         4,535              --        276,078
                                    ---------     --------       -------        --------       --------
Operating expenses:
  Selling, general and
     administrative expenses......    195,032       43,290         3,478              --        241,800
  ESOP expense....................      2,816           --            --              --          2,816
  Goodwill impairment.............         --        7,882            --              --          7,882
  Amortization of intangible
     assets.......................      7,472        3,859            83              --         11,414
  Licensing fees..................     (9,075)          --          (426)                        (9,501)
                                    ---------     --------       -------        --------       --------
                                      196,245       55,031         3,135              --        254,411
                                    ---------     --------       -------        --------       --------
     Operating income.............     37,284      (17,017)        1,400              --         21,667
Interest expense, net.............     36,407        2,925           118              --         39,450
Income from subsidiaries..........     18,686           --            --         (18,686)            --
                                    ---------     --------       -------        --------       --------
     Income before income taxes...    (17,809)     (19,942)        1,282          18,686        (17,783)
Income tax expense (benefit)......     (8,172)          --           496              --         (7,676)
                                    ---------     --------       -------        --------       --------
     Income (loss) before minority
       interest...................     (9,637)     (19,942)          786          18,686        (10,107)
                                    ---------     --------       -------        --------       --------
Minority interest in loss.........         --         (470)           --              --           (470)
                                    ---------     --------       -------        --------       --------
     Net income (loss)............  $  (9,637)    $(19,472)      $   786        $ 18,686       $ (9,637)
                                    =========     ========       =======        ========       ========
</Table>

                                       51
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

              SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEETS
                            AS OF DECEMBER 27, 2003
                                 (IN THOUSANDS)


<Table>
<Caption>

                                       NEW ISSUER AND
                                         GUARANTORS
                                  -------------------------
                                   SIMMONS         NEW          NEW NON-
                                   BEDDING      GUARANTOR       GUARANTOR                    CONSOLIDATED
                                   COMPANY     SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS      TOTAL
                                  ----------   ------------   -------------   ------------   ------------
<S>                               <C>          <C>            <C>             <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents....  $      615     $    667        $ 2,388       $      --      $    3,670
   Accounts receivable..........         784       62,934          2,150              --          65,868
   Inventories..................          --       30,495            860              --          31,355
   Other........................       9,898       20,795          1,460              --          32,153
                                  ----------     --------        -------       ---------      ----------
Total current assets............      11,297      114,891          6,858              --         133,046
                                  ----------     --------        -------       ---------      ----------
Property, plant and equipment,
  net...........................       9,500       39,353          4,375              --          53,228
Goodwill and other intangibles,
  net...........................     926,090       25,338             --              --         951,428
Other assets....................      22,722       22,695             --              --          45,417
Net investment in and advances
  to subsidiaries...............     164,895       54,868             --        (219,763)             --
                                  ----------     --------        -------       ---------      ----------
                                  $1,134,504     $257,145        $11,233       $(219,763)     $1,183,119
                                  ==========     ========        =======       =========      ==========

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
   Current maturities of
     long-term debt.............  $    8,322     $    958        $   232       $      --      $    9,512
   Accounts payable and accrued
     liabilities................      12,428       79,535          4,005              --          95,968
                                  ----------     --------        -------       ---------      ----------
   Total current liabilities....      20,750       80,493          4,237              --         105,480
                                  ----------     --------        -------       ---------      ----------
Long-term debt..................     745,238       13,575          1,928              --         760,741
Deferred income taxes...........      24,545       (1,222)           396              --          23,719
Other long-term liabilities.....       9,532        2,955            415              --          12,902
Net due to subsidiaries.........      54,162           --            706         (54,868)             --
                                  ----------     --------        -------       ---------      ----------
   Total liabilities............     854,227       95,801          7,682         (54,868)        902,842
                                  ----------     --------        -------       ---------      ----------
Stockholder's equity............     280,277      161,344          3,551        (164,895)        280,277
                                  ----------     --------        -------       ---------      ----------
                                  $1,134,504     $257,145        $11,233       $(219,763)     $1,183,119
                                  ==========     ========        =======       =========      ==========
</Table>


              SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEETS
                            AS OF DECEMBER 28, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                        NEW ISSUER AND
                                          GUARANTORS
                                    -----------------------
                                    SIMMONS        NEW          NEW NON-
                                    BEDDING     GUARANTOR       GUARANTOR                    CONSOLIDATED
                                    COMPANY    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS      TOTAL
                                    --------   ------------   -------------   ------------   ------------
<S>                                 <C>        <C>            <C>             <C>            <C>
ASSETS
Current assets:
    Cash and cash equivalents.....  $  2,316     $  2,821        $ 1,971       $      --       $  7,108
    Accounts receivable...........       271       63,581          3,563              --         67,415
    Inventories...................        --       22,632            840              --         23,472
    Other.........................     8,028       23,679          1,224              --         32,931
                                    --------     --------        -------       ---------       --------
Total current assets..............    10,615      112,713          7,598              --        130,926
                                    --------     --------        -------       ---------       --------
Property, plant and equipment,
  net.............................    10,435       27,637          3,240              --         41,312
Goodwill and other intangibles,
  net.............................   165,519       22,503             --              --        188,022
Other assets......................    57,297       (6,553)            27              --         50,771
Net investment in and advances
  to subsidiaries.................    58,608      115,474          1,211        (175,293)            --
                                    --------     --------        -------       ---------       --------
                                    $302,474     $271,774        $12,076       $(175,293)      $411,031
                                    ========     ========        =======       =========       ========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
    Current maturities of
      long-term debt..............  $  2,774     $ 19,113        $   238       $      --       $ 22,125
    Accounts payable and accrued
      liabilities.................    43,608       59,551          2,687              --        105,846
                                    --------     --------        -------       ---------       --------
    Total current liabilities.....    46,382       78,664          2,925              --        127,971
                                    --------     --------        -------       ---------       --------
Long-term debt....................   245,201       21,296          2,160              --        268,657
Other long-term liabilities.......    31,009        3,037            475              --         34,521
                                    --------     --------        -------       ---------       --------
    Total liabilities.............   322,592      102,997          5,560                        431,149
                                    --------     --------        -------       ---------       --------
Redemption obligation -- ESOP.....    61,218           --             --              --         61,218
                                    --------     --------        -------       ---------       --------
Stockholder's equity (deficit)....   (81,336)     168,777          6,516        (175,293)       (81,336)
                                    --------     --------        -------       ---------       --------
                                    $302,474     $271,774        $12,076       $(175,293)      $411,031
                                    ========     ========        =======       =========       ========
</Table>


         SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
        FOR THE PERIOD FROM DECEMBER 20, 2003 THROUGH DECEMBER 27, 2003
                                 (IN THOUSANDS)

<Table>
<Caption>
                                             NEW ISSUER AND
                                               GUARANTORS
                                        ------------------------
                                         SIMMONS        NEW          NEW NON-
                                         BEDDING     GUARANTOR       GUARANTOR
                                         COMPANY    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                        ---------   ------------   -------------   ------------   ------------
<S>                                     <C>         <C>            <C>             <C>            <C>
Net cash provided by (used in)
  operating activities................  $  (4,624)    $    991        $   140        $     --      $  (3,493)
                                        ---------     --------        -------        --------      ---------
Cash flows from investing activities:
  Payments to the sellers.............   (697,883)          --             --              --       (697,883)
  Payments to option holders..........    (73,545)          --             --              --        (73,545)
  Payment of acquisition costs........    (44,452)          --             --              --        (44,452)
                                        ---------     --------        -------        --------      ---------
  Net cash used in investing
     activities.......................   (815,880)          --             --              --       (815,880)
                                        ---------     --------        -------        --------      ---------
Cash flows from financing activities:
  Borrowings on long-term
     obligations......................    525,020           --             --              --        525,020
  Equity transactions.................    327,553           --             --              --        327,553
  Debt issuance costs.................    (31,090)          --             --              --        (31,090)
                                        ---------     --------        -------        --------      ---------
Net cash provided by financing
  activities..........................    821,483           --             --              --        821,483
                                        ---------     --------        -------        --------      ---------
Net effect of exchange rate change....         --           --             17              --             17
Change in cash and cash equivalents...        979          991            157              --          2,127
Cash and cash equivalents:
     Beginning of period..............       (364)        (324)         2,231              --          1,543
                                        ---------     --------        -------        --------      ---------
     End of period....................  $     615     $    667        $ 2,388        $     --      $   3,670
                                        =========     ========        =======        ========      =========
</Table>


         SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
        FOR THE PERIOD FROM DECEMBER 29, 2002 THROUGH DECEMBER 19, 2003
                                 (IN THOUSANDS)

<Table>
<Caption>
                                             NEW ISSUER AND
                                               GUARANTORS
                                        ------------------------
                                         SIMMONS        NEW          NEW NON-
                                         BEDDING     GUARANTOR       GUARANTOR
                                         COMPANY    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                        ---------   ------------   -------------   ------------   ------------
<S>                                     <C>         <C>            <C>             <C>            <C>
Net cash provided by operating
  activities..........................  $  35,222     $ 21,493        $ 3,314        $     --      $  60,029
                                        ---------     --------        -------        --------      ---------
Cash flows from investing activities:
  Purchase of property, plant and
     equipment, net...................     (4,657)      (4,057)           (39)             --         (8,753)
  Purchase of intangible assets.......         --       (1,720)            --                         (1,720)
                                        ---------     --------        -------        --------      ---------
  Net cash used in investing
     activities.......................     (4,657)      (5,777)           (39)             --        (10,473)
                                        ---------     --------        -------        --------      ---------
Cash flows from financing activities:
  Repayment of long-term
     obligations......................    (28,846)     (18,861)          (238)             --        (47,945)
  Equity transactions.................     (4,399)          --         (2,984)             --         (7,383)
                                        ---------     --------        -------        --------      ---------
Net cash used in financing
  activities..........................    (33,245)     (18,861)        (3,222)             --        (55,328)
                                        ---------     --------        -------        --------      ---------
Net effect of exchange rate change....         --           --            207                            207
Change in cash and cash equivalents...     (2,680)      (3,145)           260              --         (5,565)
Cash and cash equivalents:
     Beginning of period..............      2,316        2,821          1,971              --          7,108
                                        ---------     --------        -------        --------      ---------
     End of period....................  $    (364)    $   (324)       $ 2,231        $     --      $   1,543
                                        =========     ========        =======        ========      =========
</Table>


         SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 28, 2002
                                 (IN THOUSANDS)

<Table>
<Caption>
                                             NEW ISSUER AND
                                               GUARANTORS
                                         -----------------------
                                         SIMMONS        NEW          NEW NON-
                                         BEDDING     GUARANTOR       GUARANTOR
                                         COMPANY    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                         --------   ------------   -------------   ------------   ------------
<S>                                      <C>        <C>            <C>             <C>            <C>
Net cash provided by operating
  activities...........................  $ 38,935     $ 30,605        $ 6,065        $     --       $ 75,605
                                         --------     --------        -------        --------       --------
Cash flows from investing activities:
  Purchase of property, plant and
     equipment, net....................    (4,804)      (3,061)           (96)             --         (7,961)
  Other, net...........................    (3,460)          --             --              --         (3,460)
                                         --------     --------        -------        --------       --------
  Net cash used in investing
     activities........................    (8,264)      (3,061)           (96)             --        (11,421)
                                         --------     --------        -------        --------       --------
Cash flows from financing activities:
  Repayment of long-term obligations...   (49,302)      (8,200)        (1,126)             --        (58,628)
  Proceeds from long-term debt.........     1,123           --             --              --          1,123
  Receipt from (distribution to)
     subsidiaries......................    23,332      (19,911)        (3,421)             --             --
  Repurchase of common stock...........    (2,246)          --             --              --         (2,246)
  Payments of financing costs..........      (570)          --             --              --           (570)
                                         --------     --------        -------        --------       --------
Net cash used in financing
  activities...........................   (27,663)     (28,111)        (4,547)             --        (60,321)
                                         --------     --------        -------        --------       --------
Net effect of exchange rate change.....        --           --            (19)             --            (19)
Change in cash and cash equivalents....     3,008         (567)         1,403              --          3,844
Cash and cash equivalents:
     Beginning of period...............      (692)       3,388            568              --          3,264
                                         --------     --------        -------        --------       --------
     End of period.....................  $  2,316     $  2,821        $ 1,971        $     --       $  7,108
                                         ========     ========        =======        ========       ========
</Table>


         SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 29, 2001
                                 (IN THOUSANDS)

<Table>
<Caption>
                                             NEW ISSUER AND
                                               GUARANTORS
                                        ------------------------
                                         SIMMONS        NEW          NEW NON-
                                         BEDDING     GUARANTOR       GUARANTOR
                                         COMPANY    SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   CONSOLIDATED
                                        ---------   ------------   -------------   ------------   ------------
<S>                                     <C>         <C>            <C>             <C>            <C>
Net cash provided by (used in)
  operating activities................  $  41,652     $ (3,664)       $(2,077)       $     --      $  35,911
                                        ---------     --------        -------        --------      ---------
Cash flows from investing activities:
  Purchase of property, plant and
     equipment, net...................     (4,757)        (532)             4              --         (5,285)
  Purchase of intangible assets.......     (2,924)          --             --              --         (2,924)
                                        ---------     --------        -------        --------      ---------
  Net cash provided by (used in)
     investing activities.............     (7,681)        (532)             4              --         (8,209)
                                        ---------     --------        -------        --------      ---------
Cash flows from financing activities:
  Repayment of long-term
     obligations......................    (29,025)      (3,242)            --              --        (32,267)
  Proceeds from long-term debt........      2,986           --            770              --          3,756
  Receipt from (distribution to)
     subsidiaries.....................     (8,123)       8,123             --              --             --
  Repurchase of common stock..........       (917)          --             --              --           (917)
  Payment of financing costs..........       (714)          --             --              --           (714)
                                        ---------     --------        -------        --------      ---------
Net cash (used in) provided by
  financing activities................    (35,793)       4,881            770                        (30,142)
                                        ---------     --------        -------        --------      ---------
Net effect of exchange rate change....         --           --            (61)             --            (61)
Change in cash and cash equivalents...     (1,822)         685         (1,364)             --         (2,501)
Cash and cash equivalents:
     Beginning of period..............      1,130        2,703          1,932              --          5,765
                                        ---------     --------        -------        --------      ---------
     End of period....................  $    (692)    $  3,388        $   568        $     --      $   3,264
                                        =========     ========        =======        ========      =========
</Table>


                                       52
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The PIK note relates to a loan from the previous majority owner. The PIK
note had a stated interest rate of 17.5%, with detachable warrants. The warrants
were valued in accordance with APB 14, Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants, recorded as discount on the PIK note and
amortized as interest expense over the repayment term of the note. There were
1,653,703 warrants to purchase shares of the Company, exercisable over seven
years, with an exercise price of $6.73 per warrant. The warrants were exercised
and the PIK note, with accrued interest, was repaid in connection with the
Acquisition.

     The New Senior Credit Facility requires the Company to maintain certain
financial ratios including cash interest coverage and total leverage ratios. The
New Senior Credit Facility also contains covenants which, among other things,
limit capital expenditures, the incurrence of additional indebtedness,
investments, dividends, transactions with affiliates, asset sales, mergers and
consolidations, prepayments of other indebtedness, liens and encumbrances and
other matters customarily restricted in such agreements. As of December 27,
2003, the Company was in compliance with all of its financial covenants.

     Future maturities of long-term debt as of December 27, 2003 are as follows
(amounts in thousands):

<Table>
<S>                                                            <C>
2004........................................................   $  9,512
2005........................................................      5,571
2006........................................................      3,457
2007........................................................      4,463
2008........................................................      4,463
Thereafter..................................................    742,787
                                                               --------
                                                               $770,253
                                                               ========
</Table>

     The fair value of the Company's long-term debt is estimated based on the
current rates offered for debt of similar terms and maturities. All long-term
debt approximates fair value as of December 27, 2003.

NOTE K -- LICENSING

     The Company licenses internationally the Simmons(R) mark and many of its
other trademarks, processes and patents generally on an exclusive long-term
basis to third-party manufacturers which produce and distribute conventional
bedding products within their designated territories. These licensing agreements
allow the Company to reduce exposure to political and economic risks abroad by
minimizing investments in those markets. The Company has eighteen foreign
licensees and fourteen sub-licensees with operations in Argentina, Australia,
Brazil, Canada, Chile, Colombia, Dominican Republic, Ecuador, El Salvador,
England, France, Hong Kong, Israel, Italy, Jamaica, Japan, Korea, Mexico,
Morocco, New Zealand, Oman, Panama, Singapore, South Africa, Sweden, Taiwan, and
Venezuela. These foreign licensees have rights to sell Simmons-branded products
in approximately 100 countries.

     Additionally, the Company has eleven domestic third-party licensees. Some
of these licensees manufacture and distribute juvenile furniture and bedding and
healthcare-related furniture, primarily on long-term or automatically renewable
terms. Additionally, the Company has licensed the Simmons(R) mark and other
trademarks, generally for limited terms, to manufacturers of upholstered
furniture, airbeds, feather and down comforters, sheets, synthetic comforter
sets, pillows, mattress pads, blankets, bed frames, metal beds, futons and
other related products.

     Licensing fees are recorded as earned, based upon the sales of licensed
products by the Company's licensees. For Successor '03, Predecessor '03, 2002
and 2001 the Company's licensing agreements as a whole generated royalties and
technology fees of approximately $0.2 million, $10.4 million, $9.0 million and
$9.5 million, respectively.

NOTE L -- LEASES AND OTHER COMMITMENTS

     The Company leases certain manufacturing facilities, retail locations and
equipment under operating leases. The Company's commitments under capital leases
are not material enough to necessitate separate disclosure. The Company's
wholesale segment rent expense was $0.5 million, $18.7 million, $17.8 million
and $16.2 million for Successor '03, Predecessor '03, 2002 and 2001,
respectively. The Company's retail segment rent expense was $0.4 million, $15.0
million, $10.6 million and $9.9 million for Successor '03, Predecessor '03, 2002
and 2001, respectively.

     The following is a schedule of the future minimum rental payments required
under operating leases that have initial or remaining non-cancelable lease terms
in excess of one year as of December 27, 2003 (amounts in thousands):

<Table>
<Caption>
                                                              WHOLESALE   RETAIL
                                                               SEGMENT    SEGMENT
                                                              ---------   -------
<S>                                                           <C>         <C>
2004........................................................   $14,504    $10,216
2005........................................................    12,511      8,599
2006........................................................     9,936      6,465
2007........................................................     7,714      4,298
2008........................................................     4,036      3,125
Thereafter..................................................     8,478      3,664
                                                               -------    -------
                                                               $57,179    $36,367
                                                               =======    =======
</Table>

     The Company has the option to renew certain manufacturing facility leases,
with the longest renewal period extending through 2023. Most of the operating
leases provide for increased rent through increases in general price levels.


                                       53
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company's wholesale segment has various purchase commitments with
certain suppliers in which the Company is committed to purchase approximately
$55 million of raw materials from these vendors in 2004. If the Company does not
reach the committed level of purchases, various additional payments could be
required to be paid to these suppliers or certain sales volume rebates could be
lost.

NOTE M -- STOCK OPTION PLANS

     In 1996, the board of directors established a management stock incentive
plan (the "1996 Plan"), which provided for the granting of non-qualified options
for Class C common stock of the Company to members of management and certain key
employees. The options outstanding under the 1996 Plan were granted at prices
which were equal to or above the market value of the Class C stock on the date
of grant. As a result of the Recapitalization, the vesting of the issued and
outstanding stock options under the 1996 plan was accelerated.

     During 1999, the Company established the 1999 Stock Option Plan ("1999
Plan"), which provided for the granting of up to 4,902,878 options for shares of
common stock to directors (including those who are not employees), all executive
officers and other employees, consultants and advisors. Under the terms of the
1999 Plan, options could be either incentive or non-qualified. Generally, the
options outstanding under the 1999 Plan were granted at prices which equate to
or are above the market value of the common stock on the date of grant, expired
after ten years, and vested ratably over a four or five year period based upon
the achievement of an annual Adjusted EBITDA target, as defined in the 1999
Plan, or as otherwise established by the Compensation Committee of the board of
directors. The incentive plan provided for issuance of regular options ("Regular
Options") and superincentive options ("Superincentive Options"). Regular Options
were subject to certain time and performance vesting restrictions and
Superincentive Options vested only in connection with the consummation of a
change of control or initial public offering of the Company and the attainment
by stockholders affiliated with Fenway of certain internal rate of return
objectives.

     In 2000, Sleep Country adopted the 2000 Stock Option Plan ("2000 Plan").
The 2000 Plan provided for the granting of 26,304 options for shares of Sleep
Country common stock. Since inception of the 2000 Plan, 11,833 incentive based
options were issued, net of cancellations, with specific performance targets. As
of December 27, 2003, no performance targets had been met, and thus, none of the
options had vested or became exercisable. Since the 2000 Plan inception, no
compensation expense has been recorded for the 2000 Plan.

     In 2002, the Company established the 2002 Stock Option Plan ("2002 Plan"),
which provided for the granting of up to 1,053,122 options for shares of common
stock to directors (including those who are not employees), all executive
officers and other employees, consultants and advisors. Under the terms of the
2002 Plan, options could be either incentive or non-qualified. Generally, the
options outstanding under the 2002 Plan were granted at prices which were equal
to the market value of the common stock on the date of grant, expired after ten
years, and vested based upon conditions specified by the Company. This plan
provided for the issuance of Regular Options and Superincentive Options. Regular
Options were subject to certain time and performance vesting restrictions and
Superincentive Options vested only in connection with the consummation of a
change of control or initial public offering of the Company and the attainment
by stockholders affiliated with Fenway of certain internal rate of return
objectives.

     Under APB 25, because the vesting of the plan options was dependent upon
achieving an annual Adjusted EBITDA target or as otherwise established by the
Compensation Committee of the board of directors, the ultimate number of vested
shares, and therefore the measurement date, was not currently determinable.
Accordingly, pursuant to APB 25, the Company recorded estimated variable stock
compensation expense as selling, general and administrative expense over the
service period based upon the intrinsic value of the options as they were earned
by the employees.


                                       54
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Additionally, the 2002, 1999 and 1996 Plans provided that the option
holders could, under certain circumstances, require the Company to repurchase
the shares underlying vested options. Therefore, pursuant to APB 25 and its
interpretations, the Company recorded additional adjustments to variable stock
compensation expense for changes in the intrinsic value of vested Regular
Options under the 1996, 1999 and 2002 Plans in a manner similar to a stock
appreciation right. The accounting for awards of stock-based compensation where
an employee can compel the entity to settle the award by transferring cash or
other assets to employees rather than by issuing equity instruments is
substantially the same under SFAS 123 and APB 25. Accordingly, SFAS 123
pro-forma disclosures were not presented.

     As a result of the Acquisition, the vesting of the issued and outstanding
Regular and Superincentive stock options under the 2002, 1999 and 1996 plans was
accelerated. On December 19, 2003, the Company repurchased the vested options
for $95.4 million which satisfied the accrued stock compensation liability of
the Company. The Company recorded variable stock compensation expense of
approximately $68.4 million, $15.6 million and $14.8 million during Predecessor
'03, 2002 and 2001, respectively. Variable stock compensation expense is a
component of selling, general and administrative expense in the accompanying
statement of operations and comprehensive income. In conjunction with the
Acquisition, all stock option plans were terminated.

     Activity for Regular and Superincentive Options (all non-qualified stock
options) during 2003, 2002 and 2001 follows:

<Table>
<Caption>
                                                                           WEIGHTED
                                                                           AVERAGE
                                                              NUMBER OF    EXERCISE
                                                                SHARES      PRICE
                                                              ----------   --------
<S>                                                           <C>          <C>
Shares outstanding at December 30, 2000.....................   5,904,296    $ 6.50
Granted.....................................................     503,878    $ 7.67
Forfeited...................................................    (740,861)   $ 6.73
Cancelled...................................................    (148,371)   $ 6.16
                                                              ----------
Shares outstanding at December 29, 2001.....................   5,518,942    $ 6.58
Granted.....................................................     410,750    $13.45
Forfeited...................................................    (862,064)   $ 6.78
Cancelled...................................................    (219,404)   $ 4.39
                                                              ----------
Shares outstanding at December 28, 2002.....................   4,848,224    $ 7.23
Granted.....................................................          --    $   --
Forfeited...................................................    (178,125)   $ 7.08
Cancelled...................................................    (166,875)   $ 7.11
                                                              ----------
Shares outstanding at December 19, 2003.....................  (4,503,224)   $ 7.24
                                                              ==========
</Table>


     In connection with the Transactions, the shares outstanding at December 19,
2003 were cancelled.


                                       55
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE N -- INCOME TAXES

     The components of the provision for income taxes are as follows (amounts in
thousands):

<Table>
<Caption>
                                               SUCCESSOR | PREDECESSOR
                                                 2003    |    2003        2002      2001
                                               --------- | -----------   -------   -------
<S>                                            <C>       | <C>           <C>       <C>
Current tax provision:                                   |
  Federal....................................    $  --   |   $    --     $    --   $    --
  State......................................       --   |        --         250        --
  Foreign....................................       --   |       241         475       496
                                                 -----   |   -------     -------   -------
                                                    --   |       241         725       496
                                                 -----   |   -------     -------   -------
Deferred tax provision:                                  |
  Federal....................................     (762)  |    (8,037)     10,014    (7,728)
  State......................................      (65)  |    (1,055)      1,225      (444)
  Foreign....................................       --   |         6          41        --
                                                 -----   |   -------     -------   -------
                                                  (827)  |    (9,086)     11,280    (8,172)
                                                 -----   |   -------     -------   -------
Income tax expense (benefit).................    $(827)  |   $(8,845)    $12,005   $(7,676)
                                                 =====   |   =======     =======   =======
</Table>

     The reconciliation of the statutory federal income tax rate to the
effective income tax rate for Successor '03, Predecessor '03, 2002 and 2001
provision for income taxes is as follows (amounts in thousands):

<Table>
<Caption>
                                               SUCCESSOR | PREDECESSOR
                                                 2003    |    2003        2002      2001
                                               --------- | -----------   -------   -------
<S>                                            <C>       | <C>           <C>       <C>
Income taxes at federal statutory rate.......   $(2,806) |  $(15,029)    $ 3,600   $(6,224)
State income taxes, net of federal benefit...       (67) |      (705)      1,433      (229)
General business tax credits.................        --  |        --      (1,500)       --
Valuation allowance, net of reversals........       159  |    (1,033)      7,915    (1,681)
Goodwill amortization........................        --  |        --          --     1,691
State net operating loss benefit.............        --  |        --          --      (655)
Foreign tax credits..........................        --  |        --        (137)     (529)
Non-deductible interest expense..............     1,225  |     4,309         454       366
Foreign intercompany dividends...............       630  |     1,041          --        --
Non-deductible transaction costs.............        --  |     6,742          --        --
Tax loss benefits not previously provided....        --  |    (4,354)         --        --
Other, net...................................        32  |       184         240      (415)
                                                -------  |  --------     -------   -------
                                                $  (827) |  $ (8,845)    $12,005   $(7,676)
                                                =======  |  ========     =======   =======
</Table>

                                       56
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Components of the Company's net deferred income tax liability as of
December 27, 2003 and net deferred income tax asset as of December 28, 2002 are
as follows (amounts in thousands):

<Table>
<Caption>
                                                                2003    |   2002
                                                              --------  | --------
<S>                                                           <C>       | <C>
Current deferred income taxes:                                          |
  Accounts receivable and inventory reserves................  $  1,030  | $  1,314
  Accrued liabilities, not currently deductible.............     4,674  |    5,405
  Prepaids and other assets, not currently taxable..........    (1,790) |   (3,612)
  Inventory bases differences...............................    (2,941) |       34
                                                              --------  | --------
     Current deferred income tax assets.....................       973  |    3,141
Noncurrent deferred income taxes:                                       |
  Property bases differences................................    (3,555) |    1,678
  Intangibles bases differences.............................   (52,290) |    5,980
  Accrued stock option compensation, not currently                      |
     deductible.............................................        --  |   10,314
  Retirement accruals.......................................     1,578  |       --
  Net operating loss carryforwards..........................    38,303  |   15,847
  Income tax credit carryforwards...........................     2,183  |    2,204
  Deferred interest expense.................................        --  |    1,519
  Other noncurrent accrued liabilities, not currently                   |
     deductible.............................................        31  |    2,077
  Valuation allowance.......................................    (9,969) |  (11,364)
                                                              --------  | --------
     Noncurrent deferred income tax assets (liabilities)....   (23,719) |   28,255
                                                              --------  | --------
  Net deferred income tax asset (liability).................  $(22,746) | $ 31,396
                                                              ========  | ========
</Table>

     At December 27, 2003, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $94.1 million, including
approximately $14.6 million of loss carryforwards generated by Sleep Country.
The Sleep Country carryforward losses are subject to use limitations imposed by
the Internal Revenue Code. The net operating loss carryforwards expire on
various dates through 2022. As of December 27, 2003, the Company had
approximately $1.7 million of general business tax credits and $1.8 million of
foreign tax credits available to offset future payments of federal income taxes.
These credits will expire in varying amounts between 2004 and 2022.

     Realization of net deferred tax assets is dependent upon future profitable
operations and future reversals of existing temporary differences. Although
realization is not assured, the Company believes it is more likely than not that
most of the net recorded benefits will be realized through the reduction of
future taxable income. However, due to the uncertainty regarding the realization
of Sleep Country's net tax benefits for the years ended December 27, 2003 and
December 28, 2002, the Company recorded valuation allowances of $10.0 million
and $11.4 million, respectively, against Sleep Country's net deferred tax
assets, which consist primarily of net operating loss carryforwards.

     Cumulative undistributed earnings of the Company's international
subsidiaries totaled approximately $2.7 million at December 27, 2003. No United
States income taxes have been provided on these earnings. Foreign tax credits
are available to reduce all or a portion of the tax liability that would arise
if these earnings were remitted; any residual tax due should not be material.

                                       57
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE O -- RETIREMENT PLANS

  SIMMONS 401(K) PLAN

     The Company has a defined contribution 401(k) plan for substantially all
employees other than employees subject to collective bargaining agreements.
Employees with 12 weeks of employment who have reached age 18 are permitted to
participate in the plan. Generally, employees covered by collective bargaining
agreements are not permitted to participate in the plan, unless the collective
bargaining agreement expressly provides for participation. Eligible participants
may make salary deferral contributions up to 17% of eligible compensation,
subject to applicable tax limitations. The Company makes employer non-elective
contributions, currently 3% of an employee's eligible compensation, once an
employee completes one year of service. All employer non-elective contributions
are immediately vested and not subject to forfeiture.

     In 2002, the Company amended the plan to provide for an additional employer
matching contribution of 50 cents on each employee dollar contributed up to 6%
of the employee's pay (subject to current tax limitations). The additional
matching contribution is provided to participants who complete 1,000 hours of
service and are employed on the last day of each plan year. The additional
matching contribution will vest 20% per year over five years.

     In Successor '03, Predecessor '03, 2002 and 2001, the Company made
contributions to the plan of $0.1 million, $3.9 million, $3.0 million and
$2.0 million, respectively, in the aggregate.

  SLEEP COUNTRY 401(K) PLAN AND PROFIT SHARING PLAN

     The Company sponsors a 401(k) savings plan and profit sharing plan for all
full-time employees of Sleep Country with three months of service. Annually, the
Company may contribute a discretionary match based on a percentage of the
employee's 401(k) deferral. The Company's contributions to these plans for
Combined '03, 2002 and 2001 were not material.

  OTHER PLANS

     Certain union employees participate in multi-employer pension plans
sponsored by their respective unions. Amounts charged to pension cost,
representing the Company's required contributions to these plans for Successor
'03, Predecessor '03, 2002 and 2001 were not material, $2.1 million, $2.0
million and $2.1 million, respectively.

     The Company had accrued $3.0 million at December 27, 2003 and $2.5 million
at December 28, 2002 for a supplemental executive retirement plan for a former
executive. Such amounts are included in other non-current liabilities in the
accompanying consolidated balance sheets.

  RETIREE HEALTH AND LIFE INSURANCE COVERAGE

     The Company accrues the cost of providing postretirement benefits,
including medical and life insurance coverage, during the active service period
of the employee. Such amounts are included in other non-current liabilities in
the accompanying consolidated balance sheets.

     In 2000, the Company limited eligibility for retiree health care benefits
to employees who had become or did become eligible (by reaching age 55 with 15
years of service) by December 31, 2001. The effect of this change was a decrease
in the benefit obligation of approximately $1.1 million. In 2001, the Company
made benefit payments of approximately $2.5 million to settle a portion of this
obligation. As a result of the settlement, the Company recorded a gain of
approximately $2.1 million during 2001 related to the reduction of the
accumulated post-retirement benefit obligation. Approximately $0.5 million and
$1.6 million of this gain is reflected in cost of products sold and selling,
general and administrative expenses, respectively, in the accompanying 2001
Consolidated Statement of Operations.

                                       58
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company currently allows former non-union employees who obtained age 55
and had 15 years of service as of December 31, 2001, and their spouses, to
continue to receive health insurance coverage under our self-insured medical
plan through age 65. The premiums for such coverage are paid by the former
non-union employees. There is no current retiree health coverage for
participants age 65 and over. This plan is unfunded.

     The Company also provides for the continuance of term life insurance under
our group life insurance for a grandfathered group of former employees. The
aggregate annual premiums for this coverage is not significant and are paid by
the Company. This liability is unfunded.

     The Company had an accrued postretirement benefit obligation of $0.7
million and $0.5 million as of December 27, 2003 and December 28, 2002,
respectively. In connection with the Acquisition, the accrued postretirement
benefit obligation was adjusted to the difference between the projected benefit
obligation and the fair value of the plan assets as of December 19, 2003. The
Company had postretirement benefit income of $0.3 million for both Predecessor
'03 and 2002.

NOTE P -- CONTINGENCIES

     From time to time, the Company has been involved in various legal
proceedings. The Company believes that all other litigation is routine in nature
and incidental to the conduct of the Company's business, and that none of this
other litigation, if determined adversely to the Company, would have a material
adverse effect on the Company's financial condition or results of its
operations.

NOTE Q -- RELATED PARTY TRANSACTIONS

     In connection with the Transactions, the Company entered into a management
agreement ("THL management agreement") with an affiliate of THL pursuant to
which THL renders certain advisory and consulting services to the Company and
each of its subsidiaries. In consideration of those services, the Company agreed
to pay THL management fees equal to the greater of $1.5 million or an amount
equal to 1.0% of the consolidated earnings before interest, taxes, depreciation
and amortization of Simmons for such fiscal year, but before deduction of any
such fee. The fees are paid semi-annually.

     The Company and Fenway had entered into a management agreement (the "Fenway
Advisory Agreement") pursuant to which Fenway provided strategic advisory
services to the Company. The Fenway Advisory Agreement was amended on October
21, 2002 to change the calculation of the annual management fee. In exchange for
advisory services, the Company had agreed to pay Fenway (i) annual management
fees of the greater of 0.25% of net sales for the prior fiscal year or 2.5% of
Adjusted EBITDA for the prior fiscal year, not to exceed $3.0 million; (ii) fees
in connection with the consummation of any acquisition transactions for Fenway's
assistance in negotiating such transactions; and (iii) certain fees and
expenses,

                                       59
<PAGE>
                    SIMMONS BEDDING COMPANY AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

including legal and accounting fees and any out-of-pocket expenses, incurred by
Fenway in connection with providing services to the Company. Prior to October
21, 2002, the annual management fee to Fenway was calculated as 0.25% of net
sales for the prior year. In conjunction with the Acquisition, the Fenway
Advisory Agreement was terminated.

     Sleep Country, Fenway and Boston Gardens Advisors, LLC ("Boston Gardens")
entered into a management agreement (the "Sleep Country Advisory Agreement")
pursuant to which Fenway and Boston Gardens provided strategic advisory services
to Sleep Country. In conjunction with the merger of Simmons Company and Sleep
Country on February 28, 2003, the Sleep Country Advisory Agreement was
terminated.

     Included in other expense in the accompanying Consolidated Statements of
Operations for Successor '03, Predecessor '03, 2002 and 2001 is $0.1 million,
$2.8 million, $2.4 million and $2.5 million, respectively, related to the
management fees for services provided by THL and Fenway to the Company and its
subsidiaries.

     In connection with the Transactions, the Company agreed to pay an affiliate
of THL a transaction fee equal to $20.0 million plus all out-of-pocket expenses
incurred by THL relating to the Transactions and the related financing.

     Mr. Eitel owns a motor yacht, which as of November 1, 2003, he has agreed
to make available to the Company for 30 days each year for use as a venue for
corporate and other functions. As compensation for the use of Mr. Eitel's motor
yacht, commencing November 1, 2003, we have agreed to pay compensation to the
captain of Mr. Eitel's motor yacht in the amount of $80,000, plus benefits. In
fiscal year 2003, the total amount of salary and benefits paid under this
agreement was approximately $15,000. We estimate that payments in 2004 for the
services of the captain of Mr. Eitel's motor yacht will total approximately
$93,000.

     During fiscal 2003, Rousch Consulting Group, Inc. provided consulting
services to the Company for aggregate payments of approximately $160,000,
inclusive of out-of-pocket expenses of approximately $45,000. Rousch Consulting
Group, Inc. is wholly owned by Edward L. Rousch, husband of our Executive Vice
President -- Human Resources and Assistant Secretary, Rhonda C. Rousch.

NOTE R -- SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)

     Although not required, following is a condensed summary of consolidated
quarterly results for 2003. The results of operations for the Combined Fourth
Quarter represent the mathematical addition of the historical amounts for the
Predecessor period (September 28, 2003 through December 19, 2003) and the
Successor period (December 20, 2003 through December 27, 2003) and are not
indicative of the results that would have actually been obtained if the
Acquisition had occurred on September 28, 2003.

<Table>
<Caption>
                                    PREDECESSOR     PREDECESSOR      PREDECESSOR       COMBINED
                                   FIRST QUARTER   SECOND QUARTER   THIRD QUARTER   FOURTH QUARTER
                                   -------------   --------------   -------------   --------------
                                                            (IN THOUSANDS)
=<S>                                <C>             <C>              <C>             <C>
Net sales........................    $186,615         $199,299        $217,924         $202,495
Gross profit.....................      88,382           94,561         104,491          101,222
Operating income (loss)..........      19,908           12,591          24,602          (58,306)
Net income (loss)................       7,480            3,485          15,573          (67,824)
</Table>

NOTE S -- SUBSEQUENT EVENT

         As further described in Note A, the Company's indirect parent, THL
Bedding Holding Company, changed its name to Simmons Company and the Company
changed its name from Simmons Company to Simmons Bedding Company effective
July 14, 2004.


                                       60

<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

      There has been no occurrence requiring a response to this item.

ITEM 9A. CONTROLS AND PROCEDURES.

      (a) The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
filings under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Company's management, including its principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure. The Company's management, including the
principal executive officer and the principal financial officer, recognizes that
any set of controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the desired control
objectives.

      Within 90 days prior to the filing date of this annual report on Form
10-K, the Company has carried out an evaluation, under the supervision and the
participation of the Company's management, including the Company's principal
executive officer and the Company's principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on such evaluation, the Company's principal executive
officer and principal financial officer concluded that the Company's disclosure
controls and procedures are effective.

      (b) As required by Exchange Act Rule 13a-15(d), our management, including
our principal executive officer and principal financial officer, also conducted
an evaluation of the our internal controls over financial reporting to determine
whether any changes occurred during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting. Based on that evaluation, there has been no
such change during the period presented by this report.

      (c) There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


                                       61
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


                            MANAGEMENT AND DIRECTORS

     The directors and principal officers of Simmons, and their positions and
ages as of March 1, 2004, are as follows:

<Table>
<Caption>
NAME                                        AGE                    POSITION
----                                        ---                    --------
<S>                                         <C>   <C>
Charles R. Eitel..........................  54    Chairman of the Board of Directors and
                                                  Chief Executive Officer
Robert W. Hellyer.........................  44    President and Director
William S. Creekmuir......................  48    Executive Vice President, Chief Financial
                                                  Officer, Assistant Treasurer, Assistant
                                                  Secretary and Director
Rhonda C. Rousch..........................  49    Executive Vice President -- Human Resources
                                                  and Assistant Secretary
Robert M. Carstens........................  40    Senior Vice President -- Manufacturing
Kevin Damewood............................  47    Senior Vice President -- Sales and
                                                  Marketing
Kristen K. McGuffey.......................  38    Senior Vice President, General Counsel
                                                  and Secretary
Allen N. Podratsky........................  48    Senior Vice President -- Product
                                                  Development and Supply Chain Management
W. Wade Vann..............................  50    Senior Vice President and Chief Information
                                                  Officer
Brian P. Breen............................  43    Vice President -- Treasurer and Assistant
                                                  Secretary
Earl C. Brewer............................  58    Vice President -- Taxation and Assistant
                                                  Secretary
Mark F. Chambless.........................  46    Vice President, Corporate Controller and
                                                  Assistant Secretary
Donald J. Hofmann.........................  51    Vice President -- New Business Development
                                                  and Domestic Licensing
Timothy F. Oakhill........................  41    Vice President -- International Licensing
Todd M. Abbrecht..........................  35    Director
David A. Jones............................  54    Director
Albert L. Prillaman.......................  58    Director
Scott A. Schoen...........................  45    Director
George R. Taylor..........................  32    Director
</Table>

     The present principal occupations and recent employment history of each of
our executive officers and directors listed above is as follows:

     Charles R. Eitel joined Simmons in January 2000 as Chairman of the Board of
Directors and Chief Executive Officer of Simmons and Simmons Holdings, Inc.
Prior to joining Simmons, Mr. Eitel served as President and Chief Operating
Officer of Interface, Inc., a leading global manufacturer and marketer of floor
coverings, interior fabrics and architectural raised floors. Prior to serving as
Chief Operating Officer, he held the positions of Executive Vice President of
Interface, President and Chief Executive Officer of the Floor Coverings Group,
and President of Interface Flooring Systems, Inc. Mr. Eitel is a director of
Duke Realty Corporation, an industrial real estate company (REIT) based in
Indianapolis, Indiana and American Fidelity Assurance Company in Oklahoma City,
Oklahoma.

     Robert W. Hellyer joined Simmons in 1995 and has served as President and
director of Simmons and Simmons Holdings, Inc. since January 2001. Prior to
assuming his current position, Mr. Hellyer served as Executive Vice President --
Sales and Marketing, Executive Vice President -- Sales, General Manager --
Janesville and Vice President of Sales -- Janesville. Prior to joining Simmons,
Mr. Hellyer held various sales positions with Stearns & Foster. Mr. Hellyer is a
member of the Board of Trustees of ISPA.

     William S. Creekmuir joined Simmons in April 2000 and serves as Executive
Vice President, Chief Financial Officer, Assistant Treasurer, Assistant
Secretary and director of both Simmons and Simmons Holdings, Inc. Prior to
joining Simmons, Mr. Creekmuir served as Executive Vice President, Chief
Financial Officer, Secretary and Treasurer of LADD Furniture, Inc., a publicly
traded furniture manufacturer. Prior to joining LADD in 1992, he worked 15 years
with KPMG in their audit practice, the last five years of which he was a
partner, including partner in charge of their national furniture manufacturing
practice. Mr. Creekmuir is Chairman of the Statistics Committee for ISPA. Mr.
Creekmuir is also a member of the Business Advisory

                                       62
<PAGE>
Council to the Walker College of Business at Appalachian State University. Mr.
Creekmuir is a Certified Public Accountant.

     Rhonda C. Rousch joined Simmons in November 2001 and has served as
Executive Vice President -- Human Resources and Assistant Secretary since
October 2002. Prior to assuming her current position, Ms. Rousch served as
Senior Vice President -- Human Resources and Assistant Secretary. Prior to
joining Simmons, from September 2000 to November 2001, Ms. Rousch was Vice
President of Human Resources for MW Manufacturers, Inc. Prior to September 2000,
Ms. Rousch was the Director of Organizational Readiness for Harley-Davidson,
Inc.

     Robert M. Carstens joined Simmons in February 1994 and serves as Senior
Vice President of Manufacturing. Mr. Carstens previously held a variety of
positions at Simmons including Vice President of Operations, and Operations
Manager in both the Piscataway, New Jersey and Atlanta, Georgia facilities. Mr.
Carstens began his bedding manufacturing career in 1983 at Sealy Corporation,
where he held various positions including Operations Manager.

     Kevin Damewood joined Simmons in January 2000 and has served as Senior Vice
President -- Sales and Marketing since January 2004. Prior to assuming his
current position, Mr. Damewood served as Senior Vice President -- Sales since
July 2001 and prior to that he served as Vice President -- National Accounts.
Mr. Damewood also worked for Simmons from July 1996 to April 1999 as Vice
President -- Sales for the Seattle and Salt Lake City plants. Between April 1999
and December 2000, Mr. Damewood was employed with Premier Bedding Group as Vice
President of National Sales.

     Kristen K. McGuffey joined Simmons in November 2001 and has served as
Senior Vice President -- General Counsel and Secretary since August 2002. Prior
to assuming her current position, Ms. McGuffey served as Vice
President -- General Counsel and Assistant Secretary. Prior to joining Simmons,
from March 2000 to October 2001, Ms. McGuffey was employed by Viewlocity, Inc.,
with the most recent position of Executive Vice President and General Counsel.
From March 1997 to February 2000, Ms. McGuffey was a partner of and, prior to
that, an associate at Morris, Manning & Martin LLP. Prior to March 1997, Ms.
McGuffey was an associate at Paul, Hastings, Janofsky & Walker, LLP.

     Allen N. Podratsky joined Simmons in May 2000 as Senior Vice
President -- Product Development and Supply Chain Management. Prior to joining
Simmons, from February 1999 to May 2000, Mr. Podratsky was Vice President of
World-Wide Supply Chain Management for Xerox Engineering Systems, a division of
Xerox Corporation. From 1992 to February 1999, Mr. Podratsky held various
positions at Mattel, Inc. (Fisher-Price, Inc.), including Director Product
Development and Director Commodity Management -- Plastics. Mr. Podratsky is the
President of the Sleep Products Safety Council, an organization affiliated with
ISPA.

     W. Wade Vann joined Simmons in October 2000 and has served as Senior Vice
President of Information Technology and Chief Information Officer since January
2004. Prior to assuming his current position, Mr. Vann served as the Vice
President of Information Technology and Chief Information Officer. Prior to
joining Simmons, Mr. Vann held the position of Director of Information
Technology with Broyhill Furniture Industries from October 1992 to October 2000.

     Brian P. Breen joined Simmons in July 1996 and has served as Vice President
and Treasurer since January 2002. Prior to assuming his current position, Mr.
Breen served as Vice President and Assistant Treasurer since September 2000 and
prior to that served as Director of Financial Reporting of the Outlet Division.
Prior to joining Simmons Mr. Breen held various financial reporting positions
most recently serving as Controller for Six Flags Theme Parks. Mr. Breen is a
Certified Treasury Professional.


                                       63
<PAGE>
     Earl C. Brewer joined Simmons in February 2001 and has served as Vice
President of Taxation and Assistant Secretary since then. Prior to joining
Simmons, Mr. Brewer held similar positions at Oakwood Homes Corporation from
March 2000 to February 2001 and at LADD Furniture, Inc. from October 1993 to
February 2000. Mr. Brewer is a Certified Public Accountant.

     Mark F. Chambless joined Simmons in May 1995 and has served as Vice
President and Corporate Controller since February 2000. Mr. Chambless is the
Principal Accounting Officer for the Company. Prior to assuming his current
position, Mr. Chambless was the Corporate Controller from November 1995 through
February 2000 and prior to that served as a Divisional Controller. Prior to
joining Simmons, Mr. Chambless worked nine years at Sealy Corporation where he
held various positions including Plant Controller, Operations Manager and
Divisional Controller.

     Donald J. Hofmann joined Simmons in 1995 and has served as Vice President
of New Business Development and Domestic Licensing since January 2004. Prior to
assuming his current position, Mr. Hofmann has held various positions within the
Company, including Senior Vice President of Marketing and Vice President of
Advertising. Prior to joining Simmons, Mr. Hofmann held various marketing and
advertising positions, including President of Earle Palmer Brown Advertising and
Executive Vice President of Marketing at Tupperware, Inc. Mr. Hofmann is a
director of the Better Sleep Council, an organization affiliated with ISPA.

     Timothy F. Oakhill joined Simmons in January 1997 and has served as Vice
President -- International since January 2004. Prior to assuming his current
position, Mr. Oakhill managed various Simmons brands, including BackCare(R) and
Deep Sleep(R) from January 1997 to August 2003 and Beautyrest(R) from August
2003 to January 2004. Prior to joining Simmons, Mr. Oakhill served as Marketing
Manager for Eastman-Kodak Company and as an account supervisor for Bates
Worldwide.

     Todd M. Abbrecht has been a director of Simmons since December 2003,
following the consummation of the Transactions. Mr. Abbrecht is a Managing
Director of Thomas H. Lee Partners, which he joined in 1992. Prior to joining
the firm, Mr. Abbrecht was in the mergers and acquisitions department of Credit
Suisse First Boston. Mr. Abbrecht is a director of Affordable Residential
Communities, Inc., Michael Foods, Inc., and National Waterworks, Inc.

     David A. Jones has been a director of Simmons since December 2003,
following the consummation of the Transactions. Mr. Jones has served as the
Chairman of the Board of Directors and Chief Executive Officer of Rayovac
Corporation since September 1996. From 1996 to April 1998, he also served as
President. From 1995 to 1996, Mr. Jones was President, Chief Executive Officer
and Chairman of the Board of Directors of Thermoscan, Inc. Mr. Jones currently
serves on the Board of Directors of Tyson Foods, Inc. and Pentair, Inc. and
previously served on the Board of Directors for United Industries Corporation.

     Albert L. Prillaman has been a director of Simmons since December 2003,
following the consummation of the Transactions. Mr. Prillaman is Chairman of the
Board of Stanley Furniture Company, Inc., where he previously served as both
President and Chief Executive Officer. Mr. Prillaman currently serves on the
Board of Trustees of Roanoke College. Mr. Prillaman was a director of Culp, Inc.
in High Point, North Carolina, and past Chairman of the Board of the American
Furniture Manufacturers Association in High Point, North Carolina.

     Scott A. Schoen has been a director of Simmons since December 2003,
following the consummation of the Transactions. Mr. Schoen is a Managing
Director of Thomas H. Lee Partners, which he joined in 1986. Prior to joining
the firm, Mr. Schoen was in the Private Finance Department of Goldman, Sachs &
Co. Mr. Schoen is a director of AXIS Capital Holdings Limited, Affordable
Residential Communities, Inc., Syratech Corporation, TransWestern Publishing,
L.P., United Industries Corporation and Wyndham International. Mr. Schoen is a
Vice Chairman of the Board and a member of the Executive Committee of the United
Way of Massachusetts Bay. He is also a member of the Advisory Board of the Yale
School of Management.


                                       64
<PAGE>
     George R. Taylor has been a director of Simmons since December 2003,
following the consummation of the Transactions. Mr. Taylor is a Vice President
at Thomas H. Lee Partners, which he joined in 1996. Prior to joining the firm,
Mr. Taylor was at ABS Capital Partners. Mr. Taylor is a director of Syratech
Corporation.

     Each of our directors will hold office until his successor has been elected
and qualified. Our executive officers are elected by and serve at the discretion
of our Board of Directors. There are no family relationships between any of our
directors or executive officers.

COMMITTEES OF THE BOARD OF DIRECTORS

     Our board of directors for our indirect parent company, THL Holding, has
established an audit committee, a compensation committee, a nominating and
governance committee and a corporate benefits committee for itself and us. The
members of the audit committee are Messrs. Prillaman, Taylor and Jones. The
members of the compensation committee are Messrs. Schoen, Abbrecht and Eitel.
The members of the corporate benefits committee are Messrs. Creekmuir, Eitel and
Hellyer. The members of the nominating and governance committee are Messrs.
Schoen, Abbrecht and Eitel. The audit committee oversees management regarding
the conduct and integrity of our financial reporting, systems of internal
accounting and financial and disclosure controls. The audit committee reviews
the qualifications, engagement, compensation, independence and performance of
our independent auditors, their conduct of the annual audit and their engagement
for any other services. The audit committee also oversees management regarding
our legal and regulatory compliance and the preparation of an annual audit
committee report for the annual proxy statement. The compensation committee
oversees our management compensation policies and practices, including
determining and approving the compensation of the CEO and other senior executive
officers; reviewing and approving management incentive compensation policies and
programs; reviewing and approving equity compensation programs for employees and
exercising discretion over the administration of such programs and producing an
annual compensation committee report. The purpose of the nominating and
governance committee is to identify, screen and review individuals qualified to
serve as directors and recommending to the Board candidates for nomination for
election at annual meetings of the stockholders or to fill Board vacancies;
overseeing our policies and procedures for the receipt of stockholder
suggestions regarding Board composition and recommendations of candidates for
nomination by the Board; developing, recommending to the Board and overseeing
implementation of our corporate governance guidelines and principles; reviewing,
recommending to the Board approval of, if appropriate, and overseeing
implementation of the Code of Ethics for Chief Financial Officers and the Code
of Business Conduct and Ethics; and reviewing on a regular basis the overall
corporate governance of Simmons Bedding and recommending improvements when
necessary. The corporate benefits committee has the responsibility to determine
all Corporate benefits for employees of the Company and to administer our
employee benefit plans in accordance with the Company by-laws. From time to
time, the boards of directors of THL Holding or Simmons Bedding may contemplate
establishing other committees.

DIRECTOR COMPENSATION

     All members of our board of directors are reimbursed for their usual and
customary expenses incurred in connection with attending all board and other
committee meetings. Non-employee directors, Messrs. Prillaman and Jones receive
director fees of $25,000 per year and also own 2,500 shares of Class B common
stock of THL Holding, which stock is subject to time and performance-based
vesting.

AUDIT COMMITTEE FINANCIAL EXPERT

      We have no financial expert. Our board intends to seek and consider
retaining such an expert in fiscal 2004.

CODE OF ETHICS

      We have a code of ethics (the "Code of Ethics"), within the meaning of 17
CFR Section 229.406, that applies to the Company's Chief Executive Officer,
Chief Financial Officer, Corporate Controller and Vice President - Audit
Services. If the Company makes an amendment to the Code of Ethics, or grants a
waiver from a provision of the Code of Ethics to the Chief Executive Officer,
Chief Financial Officer, Corporate Controller, or Vice President - Audit
Services, then the Company will make any required disclosure of such amendment
or waiver on the Company's website (www.simmons.com) or in a current report on
Form 8-K filed with the SEC.



                                       65
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

     The following table sets forth all cash compensation earned in the previous
three years by our Chief Executive Officer and each of our other five most
highly compensated executive officers during the past year (the "Named Executive
Officers"). The compensation arrangements for each of these officers that are
currently in effect are described under the caption "Employment Arrangements"
below. The bonuses set forth below include amounts earned in the year shown but
paid in the subsequent year.

<Table>
<Caption>
                                                                                  LONG-TERM
                                                                             COMPENSATION AWARDS
                                          ANNUAL COMPENSATION                --------------------
                             ---------------------------------------------   RESTRICTED              ALL OTHER
                                                                OTHER          STOCK      OPTIONS   COMPENSATION
NAME AND PRINCIPAL POSITION  YEAR   SALARY($)   BONUS($)   COMPENSATION($)      (#)         (#)        ($)(9)
---------------------------  ----   ---------   --------   ---------------   ----------   -------   ------------
<S>                          <C>    <C>         <C>        <C>               <C>          <C>       <C>
Charles R. Eitel.........    2003   $585,717    $558,249     $29,200,225(1)  183,529(2)               $44,534
  Chairman, Chief            2002    562,083     613,039          18,800(1)       --           --      48,952
  Executive Officer          2001    528,847     275,249         105,093(1)       --           --      27,137
Robert W. Hellyer........    2003    323,440     233,680      11,263,286(3)  126,176           --      11,462
  President                  2002    311,000     258,915          11,500(3)       --           --      33,613
                             2001    293,750     111,754          66,502(3)       --           --      40,276
William S. Creekmuir.....    2003    311,000     224,692      10,955,069(4)  114,706           --      27,924
  Executive Vice             2002    300,000     249,758         177,540(4)       --           --      32,339
  President -- Chief         2001    298,750     103,715          81,910(4)       --           --      12,293
  Financial Officer
Donald J. Hofmann........    2003    195,000     101,113       2,169,168(5)    3,440           --      13,571
  Vice President -- New      2002    190,000     119,407              --          --           --      27,238
  Business Development       2001    189,164      41,853              --          --           --      27,380
  & Domestic Licensing
Mark A. Parrish(6).......    2003    152,880     110,453       2,188,762(7)       --           --       8,501
  Executive Vice             2002    259,166     215,763          11,500(7)       --       25,000      66,778
  President -- Chief         2001    120,833      88,109           6,875(7)       --      275,000      60,430
  Operations Officer
Kevin Damewood...........    2003    208,750      95,111       2,050,345(8)    6,880           --      13,700
  Senior Vice President --   2002    193,750      93,607              --          --           --      26,212
  Sales and Marketing        2001    172,987      47,137              --          --           --      19,125
</Table>

---------------

(1) Such amounts principally include (i) exercise of stock options held in
    predecessor company that were held by The Charles R. Eitel Revocable Trust,
    of which Mr. Eitel is trustee, of $29,177,145 in 2003; (ii) a car allowance
    of $12,000 in 2003, 2002 and 2001; and (iii) club initiation and membership
    fees of $11,080, $6,800 and $93,093 in 2003, 2002 and 2001, respectively.
    These items were taxable to Mr. Eitel. The personal income tax impact of a
    2001 club initiation and membership fee was assumed by Simmons which
    resulted in additional compensation of $40,009.

(2) Restricted stock shares are held by The Charles R. Eitel Revocable Trust, of
    which Mr. Eitel is the trustee.

(3) Such amounts principally include (i) exercise of stock options held in
    predecessor company of $11,254,286 in 2003; (ii) a car allowance of $9,000
    in 2003, 2002 and 2001; and (iii) moving expenses of $55,502 in 2001. These
    items were taxable to Mr. Hellyer. The personal income tax impact of the
    2001 moving expenses was assumed by Simmons which resulted in additional
    compensation of $10,315.

(4) Such amounts principally include (i) exercise of stock options held in
    predecessor company of $10,806,350 in 2003; (ii) a car allowance of $9,000
    in 2003, 2002 and 2001; (iii) commute and temporary housing expenses of
    $16,852 and $70,910 in 2002 and 2001, respectively; (iv) moving expenses of
    $120,000 in 2002; and (v) reimbursement of mortgage costs of $80,409 and
    $29,187 in 2003 and 2002, respectively. These items were taxable to Mr.
    Creekmuir. The personal income tax impact of certain commute and temporary
    housing expenses and moving expenses was assumed by Simmons which resulted
    in additional compensation of $59,310, $38,674 and $34,562 in 2003, 2002 and
    2001, respectively.

(5) Such amount represents the exercise of stock options held in predecessor
    company.

(6) Mr. Parrish is no longer employed by Simmons.

(7) Such amounts principally include (i) exercise of stock options held in
    predecessor company of $2,067,000 in 2003; (ii) severance payments of
    $116,653 in 2003; (iii) a car allowance of $5,109, $9,000 and $4,875 in
    2003, 2002 and 2001, respectively; and (iv) forgiveness of a loan of
    $112,692 in 2003. The personal income tax impact of the forgiveness of a
    loan was assumed by Simmons which resulted in additional compensation of
    $83,215 in 2003.

(8) Such amount represents the exercise of stock options held in predecessor
    company.

(9) All other compensation amounts include:

     (a)contributions to our ESOP in 2002 and 2001, respectively, in the amounts
        of $16,170 and $0 for Mr. Eitel; $17,147 and $21,911 for Mr. Hellyer;
        $14,229 and $0 for Mr. Creekmuir; $14,193 and $13,545 for Mr. Damewood;
        and $14,877 and $21,837 for Mr. Hofmann, respectively;

     (b)contributions to our 401(k) plan in 2003, 2002 and 2001, respectively,
        in the amounts of $12,000, $11,058 and $14,500 for Mr. Eitel; $12,000,
        $10,875 and $14,812 for Mr. Hellyer; $12,000, $9,750 and $6,750 for Mr.
        Creekmuir; $12,000, $10,696, and $5,100 for Mr. Damewood; $7,232, $4,550
        and $0 for Mr. Parrish; and $12,000, $11,057 and $5,100 for Mr. Hofmann,
        respectively; and


                                       66
<PAGE>
     (c)premiums for term life insurance and long-term disability insurance in
        2003, 2002 and 2001, respectively, in the amounts of $22,268, $21,724
        and $12,636 for Mr. Eitel; $7,845, $5,591 and $3,552 for Mr. Hellyer;
        $10,899, $8,340 and $5,543 for Mr. Creekmuir; $1,700, $1,323 and $480
        for Mr. Damewood; $1,269, $1,798, and $0 for Mr. Parrish; and $1,571,
        $1,304 and $443 for Mr. Hofmann, respectively. These premiums were
        taxable to Messrs. Eitel, Hellyer, Creekmuir, Damewood, Parrish, and
        Hofmann. The personal income tax impact of these items were assumed by
        Simmons for Messrs. Eitel, Hellyer and Creekmuir, which resulted in
        additional compensation in 2003, 2002 and 2001, respectively, in the
        amounts of $10,266, $9,994 and $5,756 for Mr. Eitel; $3,617, $2,543 and
        $2,452 for Mr. Hellyer; and $5,025, $3,845 and $2,548 for Mr. Creekmuir.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

      There were no  options granted in fiscal year 2003. In connection with
the transactions, all option plans were terminated.


                                       67
<PAGE>

EMPLOYMENT ARRANGEMENTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE IN
CONTROL ARRANGEMENTS

     Executive Employment Agreements.  Four of our senior executives, Charles
Eitel, William Creekmuir, Robert Hellyer and Rhonda Rousch entered into
executive employment agreements with THL Bedding Holding Company and Simmons on
substantially similar terms to their previous existing arrangements. The
agreements have two-year terms with evergreen renewal provisions and contain
usual and customary restrictive covenants, including two-year non-competition
provisions, non-disclosure of proprietary information provisions, provisions
relating to non-solicitation/no hire of employees or customers and
non-disparagement provisions. In the event of a termination without "cause" or
departure for "good reason," the terminated senior executives are entitled to
severance equal to two years salary plus an amount equal to their pro-rated
bonus for the year of termination.

     Put/Call Arrangements.  Under THL Bedding Holding Company's
Securityholders' Agreement, THL Bedding Holding Company has the right to
purchase for fair market value a management stockholder's Class A common stock
upon termination of such management stockholder's employment for any reason;
provided that, if such employee is terminated for "cause" or voluntarily quits,
Simmons may repurchase such shares at the lower of fair market value and cost.
In addition, upon termination of Charles Eitel, William Creekmuir, Robert
Hellyer or Rhonda Rousch by Simmons without "cause" or by the employee for "good
reason," such employee may require Simmons to repurchase shares of Class A
common stock held by them for fair market value. With respect to other employee
holders of Class A Common Stock, if such employee is terminated without "cause,"
then such employee may require Simmons to repurchase shares of Class A Common
Stock held by such employee for the lower of fair market value and cost. Fair
market value will be initially determined by the Board of Directors of THL
Bedding Holding Company. Under restricted stock agreements, upon termination of
employment for any reason, Simmons has the right to repurchase such terminated
employee's Class B common stock.

EMPLOYEE BENEFIT PLANS

     The THL Bedding Holding Company Equity Incentive Plan was adopted in
connection with the Transactions and is used to attract and retain the best
available personnel, to provide additional incentive to persons who provide
services to us, and to promote the success of our business. The Plan is
administered by the board of directors of THL Bedding Holding Company or, at its
election, by one or more committees consisting of one or more members who have
been appointed by that board of directors. The board of directors of THL Bedding
Holding Company is authorized to grant options, restricted stock or other awards
to our employees, directors, and consultants or any direct or indirect corporate
or other subsidiary in which we own at least 50% of the outstanding equity
interests. Restricted shares of Class B common stock representing up to fifteen
percent (15%) of the capital stock of THL Bedding Holding Company (on a fully
diluted basis) may be issued pursuant to

                                       68
<PAGE>
awards under the Plan. Awards of restricted stock shall be made pursuant to
restricted stock agreements and may be subject to vesting and other restrictions
as determined by the board of directors of THL Bedding Holding Company, or a
committee of the board. Among other things, the restricted stock agreements
provide, under certain conditions, for acceleration in vesting of the stock upon
a change in control and all restricted stock vests on the eight anniversary of
the issuance of the restricted stock. See "Certain Relationships and Related
Party Transactions -- Restricted Stock Agreement."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      Following the Acquisition, compensation decisions regarding our executive
officers are made by the compensation committee (the "Committee") of the Board
of Directors of THL Bedding Holding Company. The members of the Committee as of
December 27, 2003 are Messrs. Abbrecht, Eitel and Schoen. Mr. Eitel is our
Chairman of the Board and Chief Executive Officer. Mr. Eitel cannot vote on his
own compensation.

            COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

      The Committee is responsible for the general compensation policies of the
Company, and in particular is responsible for setting and administering the
policies that govern executive compensation. The Committee evaluates the
performance of management and determines the compensation levels for the Chief
Executive Officer (the "CEO") and the executive officers of the Company. The CEO
determines compensation levels for all other executive officers subject to the
informal approval of the Committee.

      The objective of the Committee is to establish policies and programs to
attract and retain key executives, and to reward performance by these executives
which benefit the Company. The primary elements of executive compensation are
base salary, annual cash bonus and restricted stock awards. The salary is based
on factors such as the individual executive officer's level of responsibility,
and comparison to similar positions in the Company and in comparable companies.
The annual cash bonuses are currently based on the Company's performance
measured against attainment of financial objectives. Restricted stock awards are
intended to align the executive officer's interests with those of the Company
and its stockholders in promoting the long-term growth of the Company, and are
determined based on the executive officer's level of responsibility, number of
stock options previously granted, and contributions toward achieving the
objectives of the Company. Further information on each of these compensation
elements follows.

SALARIES

      Base salaries are adjusted annually, following a review by either the CEO,
President, or Executive Vice President & Chief Financial Officer. In the course
of the review, performance of the individual with respect to specific objectives
is evaluated, as are any increases in responsibility, and salaries for similar
positions. The specific objectives for each executive officer are set by either
the CEO, President, or Executive Vice President & Chief Financial Officer, and
will vary for each executive position and for each year. Because the focus of
the review is individual achievement, performance of the Company does not weigh
heavily in the result. When all reviews are completed, the CEO makes a
recommendation to the Committee for their review and final approval.


                                       69
<PAGE>

         With respect to the CEO, the Committee reviews and fixes his base
salary primarily on the Committee's assessment of his performance and its
expectations as to his future contributions. Competitive compensation data is
also a major factor in establishing the CEO's salary, but no precise formula is
applied in considering this data. The Committee's review takes place annually.

ANNUAL CASH BONUSES

         Certain of our employees are eligible, pursuant to their employment
agreements, to receive annual cash bonuses based upon the financial performance
of the Company.


RESTRICTED STOCK AWARDS

         THL Holding has adopted a management equity incentive plan to provide
incentives to our employees and directors and the employees and directors of THL
Holding by granting them restricted stock awards of Class B common stock of THL
Holding. These restricted stock awards are intended to provide an incentive to
continue as employees over a long term, and to align their interests with the
Company by providing a stake in THL Holding. In making grants, THL Holding's
compensation committee takes into account the total number of shares available
for grant, prior grants outstanding, and estimated requirements for future
grants. Individual awards take into account the executive officer's
contributions to the Company, scope of responsibilities, strategies and
operational goals, salary and previous stock option awards under the former
management stock incentive plan. In determining a restricted stock award for the
CEO, THL Holding's compensation committee weighs all of the above factors, but
also recognizes the CEO's critical role in developing strategies for the
long-term benefit of the Company. Restricted stock awards are an important
element in attracting and retaining capable executives at all levels, and this
is particularly so in the case of the CEO.

OTHER BENEFITS

         Periodically, the Compensation Committee assesses the other benefits
provided to Executive Officers of the Company.

         The Committee continually reviews the Company's compensation programs
to ensure the overall package is competitive, balanced, and that proper
incentives and rewards are provided.

Compensation Committee:

Todd M. Abbrecht
Charles R. Eitel
Scott A. Schoen



                                       70
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

           SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Simmons Bedding Company is an indirect wholly owned subsidiary of Simmons
Company.

     The following table sets forth certain information regarding beneficial
ownership of Simmons Company by: (1) each person or entity owning any class of
Simmons Company's outstanding securities and (2) each member of the board of
directors of Simmons Company (which is identical to the board of directors of
Simmons Bedding), each of our named executive officers, each member of our
management committee and our executive officers as a group. Simmons Company's
outstanding securities consisted of 3,680,308.49 shares of Class A Common Stock
as of March 8, 2004. We have also authorized 688,235 shares of Class B Common
Stock, of which 657,139 shares were outstanding as of March 8, 2004 for issuance
pursuant to the restricted stock agreement under our equity incentive plan. See
"Certain Relationships and Related Party Transactions -- Amended and Restated
Certificate of Incorporation of Simmons Company." The Class A common stock and
Class B common stock generally have identical voting rights. To our knowledge,
each such stockholder has sole voting and investment power as to the common
stock shown unless otherwise noted. Beneficial ownership of the common stock
listed in the table has been determined in accordance with the applicable rules
and regulations promulgated under the Securities Exchange Act of 1934, as
amended.

<Table>
<Caption>
                                                   SECURITIES BENEFICIALLY OWNED
                                  ----------------------------------------------------------------
                                                 PERCENTAGE                  PERCENTAGE
                                    CLASS A      OF CLASS A     CLASS B      OF CLASS B
                                     COMMON        COMMON        COMMON        COMMON     PERCENT
NAME AND ADDRESS                     STOCK         STOCK         STOCK         STOCK      OF TOTAL
----------------                  ------------   ----------   ------------   ----------   --------
<S>                               <C>            <C>          <C>            <C>          <C>
Principal Securityholders:
  Thomas H. Lee Partners L.P.
     and Affiliates(1)..........  3,270,940.05      88.9%            --           --%       75.4%
  Fenway Partners Capital Fund
     II, L.P. and
     Affiliates(2)..............    387,837.03      10.5             --           --         8.5
Directors and Executive
  Officers:
  Charles R. Eitel(3)...........            --         *        183,529         27.0         4.2
  Robert W. Hellyer(3)..........            --         *        126,176         19.2         2.9
  William S. Creekmuir(3).......            --         *        114,706         17.5         2.6
  Kevin Damewood(3).............            --         *          6,880          1.0           *
  Mark A. Parrish(4)............            --         *             --            *           *
  Donald J. Hofmann(3)..........            --         *          3,440            *           *
  Todd M. Abbrecht(1)...........  3,270,940.05      88.9             --           --        75.4
  David A. Jones(5).............      2,000.00         *          2,500            *           *
  Albert L. Prillaman(6)........      2,500.00         *          2,500            *           *
  Scott A. Schoen(1)............  3,270,940.05      88.9             --           --        75.4
  George R. Taylor(1)...........  3,270,940.05      88.9             --           --        75.4
All directors and named
  executive officers as a group
  (11 persons)(1)...............  3,275,440.05      90.0%       439,731         66.9%       87.6%
</Table>

---------------

 *  less than 1%

(1) Includes interests owned by each of Thomas H. Lee Equity Fund V, L.P.,
    Thomas H. Lee Parallel Fund V, L.P., Thomas H. Lee Equity (Cayman) Fund V.
    L.P., Thomas H. Lee Investors Limited Partnership, 1997 Thomas H. Lee
    Nominee Trust, Putnam Investments Holdings, LLC, Putnam Investments
    Employees' Securities Company I, LLC, and Putnam Investments Employees'
    Securities Company II, LLC., Thomas H. Lee Equity Fund V, L.P. and Thomas H.
    Lee Parallel Fund V, L.P. are Delaware limited partnerships, whose general
    partner is THL Equity Advisors V, LLC, a Delaware limited liability company.
    Thomas H. Lee Equity (Cayman) Fund V, L.P. is an exempted limited
    partnership formed under the laws of the Cayman Islands, whose general
    partner is THL Equity Advisors V, LLC, a Delaware limited liability company
    registered in the Cayman Islands as a foreign company. Thomas H. Lee

                                       71
<PAGE>
     Advisors, LLC, a Delaware limited liability company, is the general partner
     of Thomas H. Lee Partners, a Delaware limited partnership, which is the
     sole member of THL Equity Advisors V, LLC. Thomas H. Lee Investors Limited
     Partnership (f/k/a THL-CCI Limited Partnership) is a Massachusetts limited
     partnership, whose general partner is THL Investment Management Corp., a
     Massachusetts corporation. The 1997 Thomas H. Lee Nominee Trust is a trust
     with US Bank, N.A. serving as Trustee. Thomas H. Lee, a Managing Director
     of Thomas H. Lee Advisors, LLC, has voting and investment control over
     common shares owned of record by the 1997 Thomas H. Lee Nominee Trust.

     Each of Scott A. Schoen and Todd M. Abbrecht are Managing Directors of
     Thomas H. Lee Advisors, LLC. George R. Taylor is a Vice President of Thomas
     H. Lee Advisors, LLC. Each of Messrs. Schoen, Abbrecht and Taylor may be
     deemed to beneficially own Class A Common Stock held of record by Thomas H.
     Lee Equity Fund V, L.P., Thomas H. Lee Parallel Fund V, L.P. and Thomas H.
     Lee Equity (Cayman) Fund V. L.P. Each of these individuals disclaims
     beneficial ownership of such units except to the extent of their pecuniary
     interest therein.

     The address of Thomas H. Lee Equity Fund V, L.P., Thomas H. Lee Parallel
     Fund V, L.P., Thomas H. Lee Equity (Cayman) Fund V, L.P., Thomas H. Lee
     Investors Limited Partnership, the 1997 Thomas H. Lee Nominee Trust, Scott
     A. Schoen, Todd M. Abbrecht and George R. Taylor is 75 State Street,
     Boston, MA 02109. Putnam Investments Holdings LLC, Putnam Investments
     Employees' Securities Company I, LLC and Putnam Investments Employees'
     Securities Company II, LLC are co-investment entities of Thomas H. Lee
     Partners and each disclaims beneficial ownership of any securities other
     than the securities held directly by such entity. The address for the
     Putnam entities is One Post Office Square, Boston, MA 02109.

(2)  Includes interest owned by Simmons Holdings, LLC, FPIP, LLC and FPIP Trust,
     LLC. The address for Fenway Capital Fund II, L.P. is 152 West 57th Street,
     59th Floor, New York, New York 10019.

(3)  Excludes investment in Deferred Compensation Plan discussed herein that
     tracks the Class A Common Stock even though no actual purchase of Class A
     Common Stock is made. The address of Charles Eitel, Robert Hellyer, William
     Creekmuir, Donald Hofmann and Kevin Damewood is c/o Simmons Bedding
     Company, One Concourse Parkway, Suite 800, Atlanta, Georgia 30328.

(4)  Mark Parrish is no longer employed by Simmons Bedding.

(5)  The address for David A. Jones is 7440 Wildercliff Drive, Atlanta, Georgia
     30328.

(6)  The address for Albert L. Prillaman is c/o Stanley Furniture Company,
     1641 Fairystone Park Highway, P.O. Box 30, Stanleytown, Virginia 24168.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

              CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

  MANAGEMENT AGREEMENT

     Pursuant to the management agreement entered into in connection with the
Transactions, THL Managers V, LLC renders certain advisory and consulting
services to Simmons and each of its subsidiaries. In consideration of those
services, Simmons agreed to pay to THL Managers V, LLC, an affiliate of Thomas
H. Lee Partners, semi-annually, an aggregate per annum management fee equal to
the greater of:

     - $1,500,000; or

     - an amount equal to 1.0% of the consolidated earnings before interest,
       taxes, depreciation and amortization of Simmons for such fiscal year, but
       before deduction of any such fee.

                                       72
<PAGE>

     In connection with the Transactions, Simmons agreed to pay THL Managers V,
LLC at the closing of the Transactions a transaction fee equal to $20,000,000
plus all out-of-pocket expenses incurred by Thomas H. Lee Partners prior to the
closing of the transaction for services rendered by it in connection with the
Transactions.

     Simmons also agreed to indemnify THL Managers V, LLC and its affiliates
from and against all losses, claims, damages and liabilities arising out of or
related to the performance by Thomas H. Lee Partners Managers V, LLC of the
services pursuant to the management agreement.

  AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THL BEDDING HOLDING
COMPANY

     The Amended and Restated Certificate of Incorporation of THL Bedding
Holding Company contains, among other provisions, the following terms:

     Description of the Capital Stock of THL Bedding.  THL Bedding Holding
Company has two classes of common stock -- Class A common stock and Class B
common stock. The Class A common stock is held by THL, Fenway Partners and those
members of management who elected to acquire such shares in connection with the
Acquisition. The Class A common stock earns a preferred return of 6% per annum.
Each holder of Class A common stock is entitled to one vote (or a fraction
thereof) for each share (or fraction thereof) of Class A common stock owned by
such holder. THL Bedding Holding Company is also authorized to issue Class B
common stock, which has identical rights to the Class A common stock, except
with respect to distributions (as described below). The Class B common stock is
restricted and subject to vesting as described in restricted stock agreements
with the holders. Each holder of Class B common stock is entitled to one vote
(or a fraction thereof) for each share (or fraction thereof) of Class B common
stock issued to such holder.

     The Class A common stock and Class B common stock will be entitled to
receive distributions in the following priority:

     - holders of Class A common stock will be entitled to receive an amount
       equal to a 6% cumulative, compounding quarterly, preferred return on
       their invested capital;

     - holders of Class A common stock will be entitled to receive a return of
       their invested capital; and

     - holders of the Class A common stock and Class B common stock will be
       entitled to share in all remaining distributions on a pro rata basis
       based on the aggregate outstanding shares of Class A common stock and
       Class B common stock.

  SECURITYHOLDERS' AGREEMENT

     Pursuant to the Securityholders' Agreement entered into in connection with
the Acquisition, securities of THL Bedding Holding Company are subject to
certain restrictions on transfer, other than certain exempt transfers as defined
in the Securityholders' Agreement, as well as the other provisions described
below.


     The Securityholders' Agreement provides that all parties to the agreement
will vote all their shares to elect and continue in office the board of
directors of THL Bedding Holding Company, consisting of up to nine directors
composed of:

     - five persons designated by THL;

     - one person who will be the Chief Executive Officer of Simmons Company;
       and

     - up to three independent persons designated by the nominating and
       governance committee.


                                       73
<PAGE>

     The Securityholders' Agreement also provides:

     - holders of Class A Common Stock with customary "tag-along" rights with
       respect to transfers of shares of THL Bedding Holding Company
       beneficially owned by THL;

     - THL Bedding Holding Company and then THL with a "right of first refusal"
       with respect to transfers of shares of THL Bedding Holding Company held
       by the management stockholders and Fenway Partners;

     - holders of Class A Common Stock with customary "preemptive rights";

     - THL with "drag-along" rights with respect to all shares of Class A common
       stock and Class B common stock in a sale of THL Bedding Holding Company
       or its subsidiaries; and

     - four Simmons senior managers holding Class A Common Stock with the right
       to "put" all or a portion of their shares to THL Bedding Holding Company
       at fair market value if terminated without cause or for good reason.

     - THL Bedding Holding Company the right to purchase all or a portion of a
       terminated management stockholder's shares of THL Bedding Holding
       Company; and

     - employees, other than the four Simmons senior managers, holding Class A
       Common Stock right to "put" all or a portion of their shares to THL
       Bedding Holding Company at the lower of fair market value and cost if
       terminated without cause.

     Upon a public offering, the fair market value of THL Bedding Holding
Company will be determined by its Board of Directors. The shares of Class A
common stock (including those deemed held in our deferred compensation plan)
will be exchanged for shares of Class B common stock (or, with respect to
participants in the deferred compensation plan, a deemed investment in Class B
common stock), with the number of shares of Class B common stock to be based
upon the value of the Class A common stock (including shares deemed held in the
deferred compensation plan) at the time of the offering. To the extent we have
cash available and to the extent not restricted by market conditions related to
the offering, the holders of Class A common stock (and participants in the
deferred compensation plan) will be entitled to receive in cash, unless
otherwise determined by the Board of Directors of THL Bedding Holding Company,
an amount up to their original investment plus the 6% accrued yield. Any amounts
received in cash by the holders of Class A common stock will reduce the value of
the Class A common stock used to compute the number of shares of Class B common
stock to be issued in such exchange.

  EQUITY REGISTRATION RIGHTS AGREEMENT

     THL is entitled to request up to four registrations of the Class A common
stock of THL Bedding Holding Company under the Securities Act at any time after
the closing of the Acquisition. In connection therewith, each signatory of the
registration rights agreement agrees that it will vote, or cause to be voted,
all common stock over which such person has power to vote to effect any stock
split deemed necessary to facilitate the effectiveness of a requested
registration. All holders of vested common stock are entitled to piggyback
rights on any registration by THL Bedding Holding Company.

  DEFERRED COMPENSATION PLAN

     Certain members of management who were entitled to receive option proceeds
in connection with the Acquisition elected to become participants in a deferred
compensation plan whereby deferred compensation accounts will be deemed to be
invested in Class A common stock (although no actual Class A common stock will
be purchased) and will track distributions to be made to the holders of Class A
common stock.

  RESTRICTED STOCK AGREEMENT

     Certain members of management were entitled to purchase shares of Class B
common stock at a purchase price of $0.01 per share pursuant to a Restricted
Stock Agreement. Twenty-five percent of the shares of Class B common stock
become eligible for vesting at the end of each of 2004, 2005, 2006 and 2007.
Vesting is subject to annual performance targets and includes catch-up
provisions and acceleration upon a change of



                                       74
<PAGE>
 control. Upon a manager's termination, THL Bedding Holding Company is entitled
to repurchase (1) unvested shares of Class B common stock for the lesser of fair
market value or the original purchase price, and (2) vested shares of Class B
common stock at fair market value.

  CONSULTING SERVICES

     During fiscal 2003, Rousch Consulting Group, Inc. provided consulting
services to Simmons for aggregate payments of approximately $160 thousand,
inclusive of out-of-pocket expenses of approximately $45 thousand. Rousch
Consulting Group, Inc. is wholly owned by Edward L. Rousch, husband of our
Executive Vice President -- Human Resources and Assistant Secretary, Rhonda C.
Rousch.

  TRANSACTIONS WITH MR. EITEL

     Mr. Eitel owns a motor yacht, which as of November 1, 2003, he has agreed
to make available to the Company for 30 days each year for use as a venue for
corporate and other functions. As compensation for the use of Mr. Eitel's motor
yacht, commencing November 1, 2003, we have agreed to pay compensation to the
captain of Mr. Eitel's motor yacht in the amount of $80 thousand per year, plus
benefits, and to pay up to $25 thousand annually, including benefits, as
compensation of any first mate which Mr. Eitel may hire. In fiscal year 2003,
the total amount of salary and benefits paid under this agreement was
approximately $15 thousand. We estimate that payments in 2004 for the services
of the captain of Mr. Eitel's motor yacht will total approximately $93 thousand.

     During fiscal 2003, Mr. Eitel paid Simmons approximately $10 thousand as
reimbursement of the costs associated with his personal use of our corporate
aircraft. Beginning in fiscal 2004, we have agreed not to require Mr. Eitel to
reimburse us for his use of our corporate aircraft.

  PURCHASE OF SLEEP COUNTRY

     On February 28, 2003, we acquired the stock of SC Holdings, Inc. ("Sleep
Country"), a mattress retailer with 47 stores in the Pacific Northwest, from a
fund affiliated with Fenway Partners for approximately $18.4 million, plus
additional contingent consideration based upon future performance. This
acquisition was financed from borrowings under our existing senior credit
facility. Sleep Country used the proceeds received to repay bank debt of $17.8
million and debt to an affiliate of $0.6 million. In connection with the
acquisition, we paid a fund affiliated with Fenway Partners and a former
shareholder of Sleep Country approximately $14.8 million additional final
consideration.

  AGREEMENT WITH FENWAY

     Prior to the date of the Acquisition, Fenway provided strategic advisory
services to us. In exchange for advisory services, beginning October 21, 2002,
we paid Fenway (i) annual management fees of the greater of 0.25% of net sales
for the prior fiscal year or 2.5% of Adjusted EBITDA for the prior fiscal year,
not to exceed $3.0 million; (ii) fees in connection with the consummation of any
acquisition transactions for Fenway's assistance in negotiating such
transactions; and (iii) certain fees and expenses, including legal and
accounting fees and any out-of-pocket expenses, incurred by Fenway in connection
with providing services to us. Prior to October 21, 2002, the annual management
fee to Fenway was calculated as 0.25% of net sales for the prior year. In
conjunction with the Acquisition, the Fenway Advisory Agreement was terminated.

     Prior to the date of the Acquisition, Fenway Partners provided strategic
advisory services to our subsidiaries, Sleep Country and SC US Acquisition Corp.
In exchange for advisory services, we paid Fenway Partners (i) annual management
fees equal to the greater of 0.25% of net sales of Sleep Country for the prior
fiscal year or $150,000; and (ii) fees in connection with the consummation of
any acquisition transactions for Fenway Partners' assistance in negotiating
those transactions. In conjunction with the Acquisition, the Management Advisory
Agreement was terminated.

     Included in other expense in the accompanying Consolidated Statements of
Operations for Successor '03, Predecessor '03, 2002 and 2001 is $0.1 million,
$2.8 million, $2.4 million and $2.8 million, respectively, related to the
management fees for services provided by THL and Fenway to us and our
subsidiaries.

  AGREEMENT WITH FENWAY PARTNERS RESOURCES, INC.

     Prior to the date of the Acquisition, Fenway Partners Resources, Inc.
provided financial, managerial and operational advisory services to Simmons
Bedding. Beginning in April 2002, we paid Fenway Partners Resources, Inc.
$150,000 per year for those services plus out-of-pocket expenses. The president
of Fenway Partners Resources Inc. is Dale Morrison, who served as a director of
Simmons Bedding until the Acquisition. In conjunction with the Acquisition, the
Consulting Agreement was terminated.



                                       75
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Aggregate fees were billed to us by our principal accountants,
PricewaterhouseCoopers LLP, for audit services related to the two most recent
fiscal years and for other professional services billed in the most recent two
fiscal years were as follows:

<TABLE>
<CAPTION>
                                                    2002           2003
                                                 ---------       --------
<S>                                           <C>
                     Audit Fees                   $258,378       $160,591
                     Audit-Related Fees              8,052         55,338
                     Tax Fees                      139,804        450,217
                     All Other Fees                109,700        328,674
                                                  --------       --------
                     Total                        $515,934       $994,820
                                                  ========       ========
</TABLE>


                                       76
<PAGE>
                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1)   The following consolidated financial statements of Simmons Company and
         its subsidiaries are included in Part II, Item 8:

                  Report of Independent Accountants

                  Consolidated Statements of Operations for the period from
                  December 20, 2003 through December 27, 2003, period from
                  December 29, 2002 through December 19, 2003, and for the years
                  ended December 28, 2002 and December 29, 2001

                  Consolidated Balance Sheets at December 27, 2003 and December
                  28, 2002

                  Consolidated Statement of Changes in Stockholders' Equity
                  (Deficit) for the period from December 20, 2003 through
                  December 27, 2003, period from December 29, 2002 through
                  December 19, 2003, and for the years ended December 28, 2002
                  and December 29, 2001

                  Consolidated Statements of Cash Flows for the period from
                  December 20, 2003 through December 27, 2003, period from
                  December 29, 2002 through December 19, 2003, and for the years
                  ended December 28, 2002 and December 29, 2001

                  Notes to the consolidated financial statements

(a)(2)   Financial Statement Schedule

                  Schedule II - Valuation Accounts

(a)(3)   The exhibits to this report are listed in section (c) of Item 14 below.

(b)      Reports on Form 8-K filed during the fourth quarter:

         A report on Form 8-K was filed on November 12, 2003, reporting our
         results of operations for the quarter and nine months ended September
         27, 2003.

         A report on Form 8-K was filed on November 17, 2003, reporting our
         Fifth Amendment to the Credit Guaranty Agreement dated as of October
         29, 1998 and announcing the sale of the Company to an affiliate of
         Thomas H. Lee Partners.

         A report on Form 8-K was filed on November 19, 2003, reporting THL
         Bedding Company commenced a cash tender offer and consent solicitation
         for any and all of the $150,000,000 aggregate principal amount of
         10.25% Senior Subordinated Notes due 2009 of the Company.

         A report on Form 8-K was filed on November 25, 2003, reporting the
         Company, has entered into an ESOP Stock Sale Agreement (the "ESOP Stock
         Sale Agreement") by and among THL Bedding Company , Holdings and State
         Street Bank and Trust Company, solely in its capacity as trustee of the
         Simmons Company Employee Stock Ownership Trust (the "Trust") dated as
         of November 21, 2003.

         A report on Form 8-K was filed on December 2, 2003, reporting our
         results of operations for the ten months and last twelve months ended
         November 1, 2003.

         A report on Form 8-K was filed on December 5, 2003, announcing THL
         Bedding Company received the requisite consents to amend the indenture
         relating to the Company's Senior Subordinated Notes.


                                       77
<PAGE>

                                 EXHIBIT INDEX

     (a) The following exhibits are filed with or incorporated by reference into
this Registration Statement. For the purpose of this exhibit index, references
to "the Registrant" include Simmons Bedding Company, both prior to and following
the transactions that occurred on December 19, 2003. For a description of these
transactions, see "Transactions." The exhibits which are denominated by an
asterisk (*) were previously filed as a part of, and are hereby incorporated by
reference from either the (i) Registration Statement on Form S-4 under the
Securities Act of 1933 for the Registrant, File No. 333-76723 or its amendments
(referred to as "S-4"), (ii) Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000 (referred to as "9/30/00 10-Q"), (iii) Annual Report on Form
10-K for the year ended December 29, 2001 (referred to as "2001 10-K"), (iv)
Quarterly Report on Form 10-Q for the quarter ended March 30, 2002 (referred to
as "3/30/02 10-Q"), (v) Quarterly Report on Form 10-Q for the quarter ended June
29, 2002 (referred to as "6/29/02 10-Q"), (vi) Quarterly Report on Form 10-Q for
the quarter ended September 28, 2002 (referred to as "9/28/02 10-Q"), (vii)
Annual Report on Form 10-K for the year ended December 28, 2002 (referred to as
"2002 10-K") or (viii) Annual Report on Form 10-K for the year ended December
27, 2003 (referred to as "2003 10-K"). Exhibits filed herewith are denominated
by a plus sign (+).

<Table>
<Caption>
 NUMBER                                  DESCRIPTION
 ------                                  -----------
<S>        <C>   <C>
 *2.1            Agreement and Plan of Merger dated as of December 19, 2003,
                 by and between THL Bedding Company and Simmons Holdings,
                 Inc. (2003 10-K).
 *2.2            Agreement and Plan of Merger dated as of December 19, 2003,
                 by and between Simmons Company and Simmons Holdings, Inc.
                 (2003 10-K).
 *3.1            Amended and Restated Certificate of Incorporation of Simmons
                 Company (2003 10-K).
 *3.2            Certificate of Ownership and Merger of Simmons Company with
                 and into Simmons Holdings, Inc. (2003 10-K).
 *3.3            By-laws of Simmons Company (2003 10-K).
</Table>



                                      78
<PAGE>
<Table>
<Caption>
 NUMBER                                  DESCRIPTION
 ------                                  -----------
<S>        <C>   <C>
 *4.1            Indenture dated as of December 19, 2003, among Simmons
                 Company (f/k/a THL Bedding Company), the Guarantors party
                 thereto and Wells Fargo Bank Minnesota, National
                 Association, as trustee (2003 10-K).
 *4.2            Exchange and Registration Rights Agreement dated as of
                 December 19, 2003, Simmons Company (f/k/a THL Bedding
                 Company), Goldman, Sachs & Co., Deutsche Bank Securities,
                 UBS Securities LLC, and the Guarantors party thereto (2003
                 10-K).
 *4.3            Indenture dated as of March 19, 1999, between Simmons
                 Company and SunTrust Bank, as trustee (S-4).
 *4.3.1          Supplemental Indenture dated as of December 2, 2003 by and
                 among Simmons Company and SunTrust Bank, as trustee (2003
                 10-K).
*10.1            Labor Agreement between The Simmons Manufacturing Company,
                 LLC and The International Union of Electronic, Electrical,
                 Salaried Machine & Furniture Workers and Communication
                 Workers of America, A.F.L. -- C.I.O., Local 8962FW for all
                 employees at the San Leandro, California plant of the
                 Company excluding executives, sales employees, office
                 workers, supervisors, foremen, timekeepers, watchmen,
                 Teamsters or persons in any way identified with management
                 for the period from April 1, 2004 to April 1, 2006 (S-4).
*10.2            Labor Agreement between the Company and The United Steel
                 Workers of America, Local No. 13-02, for all employees at
                 the Shawnee, Kansas plant of the Company excluding
                 executives, sales employees, office employees, supervisors,
                 timekeepers, and mechanics, for the period from April 22,
                 2002 to April 19, 2004 (9/28/02).
*10.4            Labor Agreement between the Company and The United Steel
                 Workers, Local No. 422 for all production and maintenance
                 employees at the Dallas, Texas plant of the Company
                 excluding supervisors, foremen, factory clerks, office
                 employees, time keepers, watchmen or persons in any way
                 identified with management for the period from October 16,
                 2001 to October 15, 2004 (2001 10-K).
*10.5            Labor Agreement between the Company and The United Steel
                 Workers, Local No. 2401 for all production at the Atlanta,
                 Georgia plant of the Company excluding office workers,
                 supervisors, foremen, inspectors, watchmen, plant guards,
                 departmental coordinators, carload checkers or persons in
                 any way identified with management for the period from
                 October 16, 2001 to October 15, 2005 (2001 10-K).
*10.6            Labor Agreement between the Company and The United Steel
                 Workers, Local No. 515U for all employees at the Los
                 Angeles, California plant of the Company excluding
                 executives, sales employees, office workers, and supervisors
                 for the period from October 16, 2001 to October 15, 2005
                 (2001 10-K).
*10.7            Labor Agreement between the Company and The United Steel
                 Workers, Local No. 420 for employees at the Piscataway, New
                 Jersey plant of the Company excluding watchmen, office
                 janitors, maintenance department employees, truck drivers,
                 tool makers, machinists, supervisors, porters, matrons, main
                 office, clerical, and maintenance helpers for the period of
                 October 16, 2001 to October 15, 2005 (2001 10-K).
*10.8            Labor Agreement between the Company and The United Steel
                 Workers, Local No. 424 for all production employees at the
                 Columbus, Ohio plant of the Company excluding executives,
                 sales employees, office workers, timekeepers, watchmen,
                 office janitors, maintenance department employees, truck
                 drivers, foremen, supervisors, private chauffeurs, main
                 office, clerical, and engine room and power plant employees
                 for the period from October 16, 2001 to October 15, 2004
                 (2001 10-K).
*10.9            Lease Agreement at Concourse between Concourse I, Ltd., as
                 Landlord, and the Company, as Tenant, dated as of April 20,
                 2000, as amended (9/30/00 10-Q).
</Table>
                                       79
<PAGE>
<Table>
<Caption>
 NUMBER                                  DESCRIPTION
 ------                                  -----------
<S>              <C>
*10.10           Lease between Beaver Ruin Business Center-Phase V between
                 St. Paul Properties, Inc., as Landlord, and the Company, as
                 Tenant, dated as of October 19, 1994, as amended by Addendum
                 to Lease, dated as of September 1, 1995 (S-4).
*10.11           Loan Agreement, dated as of November 1, 1982, between the
                 City of Janesville, Wisconsin and the Company, as successor
                 by merger to Simmons Manufacturing Company, Inc., relating
                 to $9,700,000 City of Janesville, Wisconsin Industrial
                 Development Revenue Bond, Series A (S-4).
*10.12           Loan Agreement between the City of Shawnee and the Company
                 relating to the Indenture of Trust between City of Shawnee,
                 Kansas and State Street Bank and Trust Company of Missouri,
                 N.A., as Trustee, dated as of December 1, 1996 relating to
                 $5,000,000 Private Activity Revenue Bonds, Series 1996
                 (S-4).
*10.13           Loan Agreement dated as of December 12, 1997 between Simmons
                 Caribbean Bedding, Inc. and Banco Santander Puerto Rico
                 (S-4).
*10.14           Simmons Retirement Savings Plan adopted February 1, 1987, as
                 amended and restated January 1, 2002 (3/30/02 10-Q).
*10.14.1         First Amendment to the Simmons Retirement Savings Plan
                 effective for years beginning after December 31, 2001
                 (3/30/02 10-Q).
*10.16           Retirement Plan for Simmons Company Employees adopted
                 October 31, 1987, as amended and restated May 1, 1997
                 (3/30/02 10-Q).
*10.16.1         First Amendment to the Retirement Plan for Simmons Company
                 Employees effective for years ending after December 31, 2001
                 (3/30/02 10-Q).
*10.17           Stock Purchase Agreement dated as of November 17, 2003, by
                 and among Simmons Holdings, Inc., THL Bedding Company and
                 the sellers named therein (2003 10-K).
*10.18           ESOP Stock Sale Agreement dated as of November 21, 2003, by
                 and among Simmons Holdings, Inc., State Street Bank and
                 Trust Company, solely in its capacity as trustee, of the
                 Simmons Company Employee Stock Ownership Trust, and THL
                 Bedding Company (2003 10-K).
*10.19           Amendment to Employee Stock Ownership Plan Trust Agreement
                 dated as of December 16, 2003, between Simmons Company and
                 State Street Bank and Trust Company as trustee under the
                 Trust Agreement (2003 10-K).
*10.20           Management Agreement dated as of December 19, 2003, by and
                 between Simmons Company and THL Managers V, LLC (2003 10-K).
*10.21           Senior Manager Restricted Stock Agreement dated as of
                 December 19, 2003, between THL Bedding Company and Charles
                 R. Eitel (2003 10-K).
*10.22           Senior Manager Restricted Stock Agreement dated as of
                 December 19, 2003, between THL Bedding Company and Robert W.
                 Hellyer (2003 10-K).
*10.23           Senior Manager Restricted Stock Agreement dated as of
                 December 19, 2003, between THL Bedding Company and William
                 S. Creekmuir (2003 10-K).
*10.24           Senior Manager Restricted Stock Agreement dated as of
                 December 19, 2003, between THL Bedding Company and Rhonda C.
                 Rousch (2003 10-K).
*10.25           Restricted Stock Agreement dated as of December 19, 2003,
                 between THL Bedding Holding Company and the persons named
                 therein (2003 10-K).
*10.26           THL Bedding Holding Company Equity Incentive Plan (2003
                 10-K).
*10.27           THL Bedding Holding Company Deferred Compensation Plan (2003
                 10-K).
*10.28           Employment Agreement dated as of December 19, 2003, among
                 THL Bedding Holding Company, Simmons Company and Charles R.
                 Eitel (2003 10-K).
*10.29           Employment Agreement dated as of December 19, 2003, among
                 THL Bedding Holding Company, Simmons Company and Robert W.
                 Hellyer (2003 10-K).
*10.30           Employment Agreement dated as of December 19, 2003, among
                 THL Bedding Holding Company, Simmons Company and William S.
                 Creekmuir (2003 10-K).
*10.31           Employment Agreement dated as of December 19, 2003, among
                 THL Bedding Holding Company, Simmons Company and Rhonda C.
                 Rousch (2003 10-K).
*10.32           Management Subscription and Stock Purchase Agreement dated
                 as of December 19, 2003, by and among THL Bedding Holding
                 Company and the persons named therein (2003 10-K).
*10.33           Credit and Guaranty Agreement, dated as of December 19,
                 2003, among THL Bedding Company, as Company, THL-SC Bedding
                 Company and certain subsidiaries of the Company, as
                 Guarantors, the financial institutions listed therein, as
                 Lenders, UBS Securities LLC, as Joint Lead Arranger and as
                 Co-Syndication Agent, Deutsche Bank AG, New York Branch, as
                 Administrative Agent, General Electric Capital Corporation,
                 as Co-Documentation Agent, CIT Lending Services Corporation,
                 as Co-Documentation Agent and Goldman Sachs Credit Partners
                 L.P., as Sole Bookrunner, a Joint Lead Arranger and as
                 Co-Syndication Agent (2003 10-K).
*10.34           Senior Unsecured Term Loan and Guaranty Agreement, dated
                 December 19, 2003, among THL Bedding Company, as Company,
                 THL-SC Bedding Company and certain subsidiaries of the
                 Company, as Guarantors, the financial institutions listed
                 therein, as Lenders, Goldman Sachs Credit Partners L.P., as
                 Sole Bookrunner, a Joint Lead Arranger and as Co-Syndication
                 Agent, UBS Securities LLC, as Joint Lead Arranger and as
                 Co-Syndication Agent, and Deutsche Bank AG, New York Branch,
                 as Administrative Agent (2003 10-K).
*10.35           Assumption Agreement, dated December 19, 2003, made by
                 Simmons Holdings, Inc., Simmons Company and certain
                 subsidiaries of Simmons, as Guarantors, in favor of Deutsche
                 Bank, AG, New York Branch, as Administrative Agent for banks
                 and other financial institutions or entities, the Lenders,
                 parties to the Credit Agreement and Term Loan Agreement
                 (2003 10-K).
*10.36           Pledge and Security Agreement, dated December 19, 2003,
                 between each of the grantors party thereto and Deutsche Bank
                 AG, New York Branch, as the Collateral Agent (2003 10-K).
*10.37           2002 Stock Option Plan (2002 10-K).
*10.38           Simmons Company Employee Stock Ownership Plan adopted
                 January 31, 1988, as amended and restated December 29, 2001
                 (3/30/02 10-Q).
*10.38.1         First Amendment to the Simmons Company Employee Stock
                 Ownership Plan effective for years ending after December 31,
                 2001 (3/30/02 10-Q).
*12.1            Computation of ratio of earnings to fixed charges.
*21.1            Subsidiaries of Simmons Company.
*24.1            Power of Attorney (included on the signature pages hereto)
 31.1            Chief Executive Officer Certification of the Type Described in
                 Rule 13a-14(a) and Rule 15d-14(a)
 31.2            Chief Financial Officer Certification of the Type Described in
                 Rule 13a-14(a) and Rule 15d-14(a)
 32.1            Certification of Chief Executive Officer pursuant to 18 U.S.C.
                 Section 1350
 32.2            Certification of Chief Financial Officer pursuant to 18 U.S.C.
                 Section 1350
</Table>

                                            80
<PAGE>
                            SIMMONS BEDDING COMPANY

                        SCHEDULE II -- VALUATION ACCOUNTS


VALUATION ACCOUNTS

<Table>
<Caption>

            Col. A                                   Col. B             Col. C             Col. D             Col. E
      ------------------                         ---------------    ---------------    ---------------   --------------
                                                    Balance at                                              Balance at
                                                   Beginning of                                               End of
         Description                                  Period           Additions          Deductions          Period
         -----------                               ------------        ---------          ----------        ----------
<S>                                              <C>                <C>                <C>                <C>

Fiscal year ended December 27, 2003
  Doubtful accounts                                 $     3,134        $   3,840          $    4,054        $    2,920
  Discounts and returns, net                              2,152               --                 112             2,040
                                                    -----------        ---------          ----------        ----------
                                                    $     5,286        $   3,840          $    4,166        $    4,960
                                                    ===========        =========          ==========        ==========

Fiscal year ended December 28, 2002
  Doubtful accounts                                 $     1,879        $   3,082          $    1,827        $    3,134
  Discounts and returns, net                              2,885               --                 733             2,152
                                                    -----------        ---------          ----------        ----------
                                                    $     4,764        $   3,082          $    2,560        $    5,286
                                                    ===========        =========          ==========        ==========


Fiscal year ended December 29, 2001
  Doubtful accounts                                 $     4,312        $   6,172          $    8,605        $    1,879
  Discounts and returns, net                              5,190               --               2,305             2,885
  Tax valuation allowance                                 3,999               --               3,999                --
                                                    -----------        ---------          ----------        ----------
                                                    $    13,501        $   6,172          $   14,909        $    4,764
                                                    ===========        =========          ==========        ==========
</Table>

                                       81
<PAGE>
                                             SIGNATURES

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

<Table>
<S>                         <C>
SIMMONS BEDDING COMPANY

(Registrant)

NOVEMBER 8, 2004            By: /S/ William S. Creekmuir
                                ------------------------------------------------
                                William S. Creekmuir, Executive Vice President &
                                Chief Financial Officer
                                (Principal Financial Officer)
</Table>

KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William S. Creekmuir, jointly and
severally, his attorneys-in-fact, each with full power of substitution, for him
in any and all capacities, to sign any and all amendments to this Form 10-K, and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said attorneys-in-fact or his substitutes, may do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

<TABLE>
<S>                                                               <C>
/S/ Charles R. Eitel                                              November 8, 2004
-----------------------------------------------------
Charles R. Eitel, Chairman of the Board of Directors;
Director; and Chief Executive Officer
(Principal Executive Officer)


/S/ Todd M. Abbrecht                                              November 8, 2004
-----------------------------------------------------
Todd M. Abbrecht, Director


/S/ William P. Carmichael                                         November 8, 2004
-----------------------------------------------------
William P. Carmichael, Director


/S/ David A. Jones                                                November 8, 2004
-----------------------------------------------------
David A. Jones, Director


/S/ B. Joseph Messner                                             November 8, 2004
-----------------------------------------------------
B. Joseph Messner, Director


/S/ Albert L. Prillaman                                           November 8, 2004
-----------------------------------------------------
Albert L. Prillaman, Director
</TABLE>


                                       82
<PAGE>
<TABLE>
<S>                                                               <C>
/S/ Scott A. Schoen                                               November 8, 2004
-----------------------------------------------------
Scott A. Schoen, Director

/S/ George R. Taylor                                              November 8, 2004
-----------------------------------------------------
George R. Taylor, Director

/S/ Mark F. Chambless                                             November 8, 2004
-----------------------------------------------------
Mark F. Chambless, Vice President &
Corporate Controller;
(Principal Accounting Officer)
</TABLE>


                                       83