**UNITED      STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-Q**

| þ | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934** |
|--------|------------------------------------------------------------------------------------------------------------------------------------------|

**For      the quarterly period ended September 30, 2006**

**OR**

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

|   | **For                the transition period from ___________ to                ____________** |
|--------|----------------------------------------------------------------------------------------------|

**Commission      file number **
**333-124138**

**SIMMONS      COMPANY**

| Delaware                                                                                          |   | 20-0646221                                                |
|---------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|
|  (State                or other jurisdiction ofincorporation                or organization) |   |  (I.R.S.                Employer Identification No.) |
|                                                                                              |   |                                                      |
| One                Concourse Parkway, Suite 800, Atlanta, Georgia                                 |   | 30328-6188                                                |
|  (Address                of principal executive offices)                                     |   |  (Zip                Code)                           |

**DOCUMENTS      OR PARTS THEREOF INCORPORATED BY REFERENCE: None**

----

**PART      I — FINANCIAL INFORMATION**

**Item      1. Financial Statements**

**Simmons      Company and Subsidiaries**

**Unaudited      Condensed Consolidated Statements of Operations**

**and      Comprehensive Income**

|                                                                                                                                |   | Quarters                  Ended |    | Nine                  Months Ended |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|------------------------------------|--------|
|                                                                                                                                |   | September                  30,  |    | September                  24,     |   | September                  30, |   | September                  24, |   |
|                                                                                                                                |   | 2006                            |    | 2005                               |   | 2006 |   | 2005 |   |
| Net                  sales                                                                                                          |   | $                               | 259,766 |                               | $      | 226,843 |   | $ | 736,835 |   | $ | 640,467 |   |
| Cost                  of products sold                                                                                              |   |                            | 142,562 |                               |   | 128,926 |   |   | 411,051 |   |   | 360,348 |   |
| Gross                  profit                                                                                                       |   |                            | 117,204 |                               |   | 97,917 |   |   | 325,784 |   |   | 280,119 |   |
|                                                                                                                                |   |                            |    |                               |   |   |   |   |   |   |   |   |   |
| Operating                  expenses:                                                                                                |   |                            |    |                               |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative expenses                                                                       |   |                            | 84,089  |                               |   | 74,023 |   |   | 236,628 |   |   | 226,526 |   |
| Gain                  on sale of Sleep Country USA                                                                                  |   |                            | (43,834 | )                                  |   | - |   |   | (43,834 | ) |   | - |   |
| Amortization                  of intangibles                                                                                        |   |                            | 1,386   |                               |   | 1,418 |   |   | 4,220 |   |   | 4,276 |   |
| Licensing                  revenues                                                                                                 |   |                            | (2,199  | )                                  |   | (2,553 | ) |   | (6,498 | ) |   | (7,419 | ) |
|                                                                                                                                |   |                            | 39,442  |                               |   | 72,888 |   |   | 190,516 |   |   | 223,383 |   |
|                                                                                                                                |   |                            |    |                               |   |   |   |   |   |   |   |   |   |
| Operating                  income                                                                                                   |   |                            | 77,762  |                               |   | 25,029 |   |   | 135,268 |   |   | 56,736 |   |
|                                                                                                                                |   |                            |    |                               |   |   |   |   |   |   |   |   |   |
| Interest                  expense, net                                                                                              |   |                            | 18,041  |                               |   | 18,008 |   |   | 61,932 |   |   | 51,781 |   |
| Income                  before income taxes                                                                                         |   |                            | 59,721  |                               |   | 7,021 |   |   | 73,336 |   |   | 4,955 |   |
| Income                  tax expense                                                                                                 |   |                            | 17,799  |                               |   | 3,021 |   |   | 22,920 |   |   | 2,088 |   |
| Net                  income                                                                                                         |   |                            | 41,922  |                               |   | 4,000 |   |   | 50,416 |   |   | 2,867 |   |
|                                                                                                                                |   |                            |    |                               |   |   |   |   |   |   |   |   |   |
| Other                  comprehensive income:                                                                                        |   |                            |    |                               |   |   |   |   |   |   |   |   |   |
| Foreign                  currency translation adjustment                                                                            |   |                            | 37      |                               |   | 5 |   |   | 152 |   |   | (1 | ) |
| Comprehensive                  income                                                                                               |   | $                               | 41,959  |                               | $      | 4,005 |   | $ | 50,568 |   | $ | 2,866 |   |
|                                                                                                                                |   |                            |    |                               |   |   |   |   |   |   |   |   |   |
|                                                                                                                                |   |                            |    |                               |   |   |   |   |   |   |   |   |   |
| The                  accompanying notes are an integral part of these condensed consolidated                  financial statements. |

----

**Simmons      Company and Subsidiaries**

**Condensed      Consolidated Balance Sheets**

|                                                                                                                                                                                                                                                                                                                     |   | September                    30, |      | December                    31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|---------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                     |   | 2006                             |      | 2005*                           |   |
|                                                                                                                                                                                                                                                                                                                     |   | (Unaudited)                      |      |                            |   |
| **ASSETS**                                                                                                                                                                                                                                                                                                               |   |                             |      |                            |   |
| Current                    assets:                                                                                                                                                                                                                                                                                       |   |                             |      |                            |   |
| Cash                    and cash equivalents                                                                                                                                                                                                                                                                             |   | $                                | 101,680   |                            | $      | 24,622 |   |
| Accounts                    receivable, less allowances for doubtful receivables, discounts                    and                    returns of $5,328 and $4,032                                                                                                                                                       |   |                             | 84,860    |                            |   | 74,682 |   |
| Inventories                                                                                                                                                                                                                                                                                                              |   |                             | 24,819    |                            |   | 28,579 |   |
| Deferred                    income taxes                                                                                                                                                                                                                                                                                 |   |                             | 2,716     |                            |   | 2,865 |   |
| Assets                    held for sale                                                                                                                                                                                                                                                                                  |   |                             | -         |                            |   | 19,116 |   |
| Other                    current assets                                                                                                                                                                                                                                                                                  |   |                             | 17,603    |                            |   | 14,093 |   |
|  Total                    current assets                                                                                                                                                                                                                                                                            |   |                             | 231,678   |                            |   | 163,957 |   |
|                                                                                                                                                                                                                                                                                                                     |   |                             |      |                            |   |   |   |
| Property,                    plant and equipment, net                                                                                                                                                                                                                                                                    |   |                             | 54,230    |                            |   | 53,613 |   |
| Goodwill                                                                                                                                                                                                                                                                                                                 |   |                             | 481,211   |                            |   | 481,280 |   |
| Intangible                    assets, net                                                                                                                                                                                                                                                                                |   |                             | 532,963   |                            |   | 536,963 |   |
| Other                    assets                                                                                                                                                                                                                                                                                          |   |                             | 34,755    |                            |   | 44,964 |   |
|                                                                                                                                                                                                                                                                                                                     |   | $                                | 1,334,837 |                            | $      | 1,280,777 |   |
|                                                                                                                                                                                                                                                                                                                     |   |                             |      |                            |   |   |   |
| *                    Derived from the Company's 2005 audited consolidated financial                    statements,                    but does not include all disclosures                    required by accounting principles generally accepted in the United                    States                    of America |   |
|                                                                                                                                                                                                                                                                                                                     |   |                             |      |                            |   |   |   |
| The                    accompanying notes are an integral part of these condensed consolidated                    financial statements.                                                                                                                                                                                  |   |                             |      |                            |   |   |   |

----

**Simmons        Company and Subsidiaries**

**Condensed        Consolidated Balance Sheets**

|                                                                                                                                                                                                                                                                                                                                                         |   | September                          30, |      | December                          31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|-----------|---------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                         |   | 2006                                   |      | 2005*                                 |   |
|                                                                                                                                                                                                                                                                                                                                                         |   | (Unaudited)                            |      |                                  |   |
| **LIABILITIES                          AND STOCKHOLDERS' EQUITY**                                                                                                                                                                                                                                                                                            |   |                                   |      |                                  |   |
| Current                          liabilities:                                                                                                                                                                                                                                                                                                                |   |                                   |      |                                  |   |
| Current                          maturities of long-term debt                                                                                                                                                                                                                                                                                                |   | $                                      | 413       |                                  | $      | 1,602 |   |
| Accounts                          payable                                                                                                                                                                                                                                                                                                                    |   |                                   | 45,107    |                                  |   | 42,713 |   |
| Liabilities                          held for sale                                                                                                                                                                                                                                                                                                           |   |                                   | -         |                                  |   | 9,968 |   |
| Accrued                          liabilities                                                                                                                                                                                                                                                                                                                 |   |                                   | 64,485    |                                  |   | 60,509 |   |
| Total                          current liabilities                                                                                                                                                                                                                                                                                                           |   |                                   | 110,005   |                                  |   | 114,792 |   |
|                                                                                                                                                                                                                                                                                                                                                         |   |                                   |      |                                  |   |   |   |
| Non-current                          liabilities:                                                                                                                                                                                                                                                                                                            |   |                                   |      |                                  |   |   |   |
| Long-term                          debt                                                                                                                                                                                                                                                                                                                      |   |                                   | 891,221   |                                  |   | 906,148 |   |
| Deferred                          income taxes                                                                                                                                                                                                                                                                                                               |   |                                   | 165,026   |                                  |   | 144,418 |   |
| Other                                                                                                                                                                                                                                                                                                                                                        |   |                                   | 13,536    |                                  |   | 11,072 |   |
| Total                          liabilities                                                                                                                                                                                                                                                                                                                   |   |                                   | 1,179,788 |                                  |   | 1,176,430 |   |
|                                                                                                                                                                                                                                                                                                                                                         |   |                                   |      |                                  |   |   |   |
| Commitments                          and contingencies                                                                                                                                                                                                                                                                                                       |   |                                   |      |                                  |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                         |   |                                   |      |                                  |   |   |   |
| Stockholders'                          equity:                                                                                                                                                                                                                                                                                                               |   |                                   |      |                                  |   |   |   |
| Class                          A common stock, $.01 par value: Authorized - 4,000,000                          shares issued and                          outstanding - 3,878,307 shares                                                                                                                                                                     |   |                                   | 39        |                                  |   | 39 |   |
| Class                          B common stock, $.01 par value: Authorized, issued and                          outstanding -                          688,235 shares                                                                                                                                                                                         |   |                                   | 7         |                                  |   | 7 |   |
| Additional                          paid-in capital                                                                                                                                                                                                                                                                                                          |   |                                   | 102,523   |                                  |   | 102,337 |   |
| Retained                          earnings                                                                                                                                                                                                                                                                                                                   |   |                                   | 54,959    |                                  |   | 4,648 |   |
| Accumulated                          other comprehensive income                                                                                                                                                                                                                                                                                              |   |                                   | 286       |                                  |   | 134 |   |
| Deferred                          compensation                                                                                                                                                                                                                                                                                                               |   |                                   | -         |                                  |   | (361 | ) |
| Treasury                          stock, at cost, 61,403 and 46,860 shares of class A common                          stock and                          47,867 and 48,411 shares of class B common stock                                                                                                                                                    |   |                                   | (2,765    | )                                     |   | (2,457 | ) |
| Total                          stockholders' equity                                                                                                                                                                                                                                                                                                          |   |                                   | 155,049   |                                  |   | 104,347 |   |
|                                                                                                                                                                                                                                                                                                                                                         |   | $                                      | 1,334,837 |                                  | $      | 1,280,777 |   |
|                                                                                                                                                                                                                                                                                                                                                         |   |                                   |      |                                  |   |   |   |
| *                          Derived from the Company's 2005 audited consolidated financial                          statements,                          but does not include all disclosures                          required by accounting principles generally accepted in                          the United States                          of America |
|                                                                                                                                                                                                                                                                                                                                                         |   |                                   |      |                                  |   |   |   |
| The                          accompanying notes are an integral part of these condensed                          consolidated                          financial statements.                                                                                                                                                                                 |   |                                   |      |                                  |   |   |   |

----

**Simmons      Company and Subsidiaries**

**Unaudited      Condensed Consolidated Statements of Cash      Flows**

|                                                                                                                                |   | Nine                  Months Ended |     |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|----------|
|                                                                                                                                |   | September                  30,     |     | September                  24, |   |
|                                                                                                                                |   | 2006                               |     | 2005 |   |
| Cash                  flows from operating activities:                                                                              |   |                               |     |   |   |
| Net                  income                                                                                                         |   | $                                  | 50,416   |   | $ | 2,867 |   |
| Adjustments                  to reconcile net income to net cash                                                                    |   |                               |     |   |   |   |   |
| provided                  by operating activities:                                                                                  |   |                               |     |   |   |   |   |
|  Depreciation                  and amortization                                                                                |   |                               | 21,885   |   |   | 20,204 |   |
|  Provision                  for bad debts, net                                                                                 |   |                               | 1,296    |   |   | (525 | ) |
|  Provision                  for deferred income taxes                                                                          |   |                               | 20,955   |   |   | 1,268 |   |
|  Non-cash                  interest expense                                                                                    |   |                               | 21,979   |   |   | 14,788 |   |
|  Gain                  on sale of Sleep Country USA                                                                            |   |                               | (43,834  | ) |   | - |   |
|  Non-cash                  stock compensation expense                                                                          |   |                               | 530      |   |   | 2 |   |
| Net                  changes in operating assets and liabilities:                                                                   |   |                               |     |   |   |   |   |
|  Accounts                  receivable                                                                                          |   |                               | (10,334  | ) |   | 5,766 |   |
|  Inventories                                                                                                                   |   |                               | 3,270    |   |   | 1,772 |   |
|  Other                  current assets                                                                                         |   |                               | (2,881   | ) |   | 3,781 |   |
|  Accounts                  payable                                                                                             |   |                               | 2,943    |   |   | 6,160 |   |
|  Accrued                  liabilities                                                                                          |   |                               | 4,319    |   |   | (12,685 | ) |
|  Other,                  net                                                                                                   |   |                               | (5,684   | ) |   | (11,504 | ) |
| Net                  cash provided by operating activities                                                                          |   |                               | 64,860   |   |   | 31,894 |   |
|                                                                                                                                |   |                               |     |   |   |   |   |
| Cash                  flows from investing activities:                                                                              |   |                               |     |   |   |   |   |
|  Purchases                  of property, plant and equipment                                                                   |   |                               | (9,228   | ) |   | (3,662 | ) |
|  Purchase                  of certain assets of Simmons Juvenile Products, Inc.                                                |   |                               | -        |   |   | (3,337 | ) |
|  Proceeds                  from sale of Sleep Country USA, net                                                                 |   |                               | 52,743   |   |   | - |   |
|  Other,                  net                                                                                                   |   |                               | -        |   |   | 7 |   |
| Net                  cash provided by (used in) investing activities                                                                |   |                               | 43,515   |   |   | (6,992 | ) |
|                                                                                                                                |   |                               |     |   |   |   |   |
| Cash                  flows from financing activities:                                                                              |   |                               |     |   |   |   |   |
|  Borrowings                  under New Senior Credit Facility, net                                                             |   |                               | 480,000  |   |   | - |   |
|  Payments                  of senior credit facility, net                                                                      |   |                               | (369,933 | ) |   | (11,668 | ) |
|  Repayment                  of senior unsecured term loan                                                                      |   |                               | (140,000 | ) |   | - |   |
|  Payments                  of other debt                                                                                       |   |                               | (160     | ) |   | (221 | ) |
|  Payments                  of financing fees                                                                                   |   |                               | (973     | ) |   | - |   |
|  Purchase                  of treasury stock                                                                                   |   |                               | (403     | ) |   | (368 | ) |
| Net                  cash used in financing activities                                                                              |   |                               | (31,469  | ) |   | (12,257 | ) |
|                                                                                                                                |   |                               |     |   |   |   |   |
| Net                  effect of exchange rate changes on cash                                                                        |   |                               | 152      |   |   | (1 | ) |
| Change                  in cash and cash equivalents                                                                                |   |                               | 77,058   |   |   | 12,644 |   |
| Cash                  and cash equivalents, beginning of period                                                                     |   |                               | 24,622   |   |   | 24,206 |   |
| Cash                  and cash equivalents, end of period                                                                           |   | $                                  | 101,680  |   | $ | 36,850 |   |
|                                                                                                                                |   |                               |     |   |   |   |   |
|                                                                                                                                |   |                               |     |   |   |   |   |
| The                  accompanying notes are an integral part of these condensed consolidated                  financial statements. |

----

**Simmons      Company and Subsidiaries **

**Condensed      Consolidated Statement of Changes in Stockholders’ Equity**

|                                                                                                                                                                               |   |                                   |      |                                   |   |           |   |       |     |        |   |         |   | **Accumulated**   |    |             |   | **Common**                             |   |              |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|-----------|----------------------------------------|--------|----------------|--------|------------|----------|-------------|--------|--------------|--------|-------------------|---------|------------------|--------|----------------------------------------|--------|-------------------|--------|
|                                                                                                                                                                               |   | **Class                            A** |      | **Class                            B** |   | **Additional** |   |       |     | **Other**   |   |         |   | **Stock**         |    | **Total**        |   |
|                                                                                                                                                                               |   | **Common**                             |      | **Common**                             |   | **Common**     |   | **Common** |     | **Paid-In** |   | **Retained** |   | **Comprehensive** |    | **Deferred**     |   | **Held                            In** |   | **Stockholders'** |   |
|                                                                                                                                                                               |   | **Shares**                             |      | **Stock**                              |   | **Shares**     |   | **Stock**  |     | **Capital** |   | **Earnings** |   | **Income**        |    | **Compensation** |   | **Treasury**                           |   | **Equity**        |   |
|                                                                                                                                                                               |   |                                   |      |                                   |   |           |   |       |     |        |   |         |   |              |    |             |   |                                   |   |              |   |
| **December                            31, 2005 (audited)**                                                                                                                         |   |                                   | 3,831,447 |                                   | $      | 39             |   |       | 639,824  |        | $      | 7            |   | $                 | 102,337 |             | $      | 4,648                                  |   | $                 | 134    |   | $ | (361 | ) | $ | (2,457 | ) | $ | 104,347 |   |
|                                                                                                                                                                               |   |                                   |      |                                   |   |           |   |       |     |        |   |         |   |              |    |             |   |                                   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Net                            income                                                                                                                                              |   |                                   | -         |                                   |   | -              |   |       | -        |        |   | -            |   |              | -       |             |   | 50,416                                 |   |              | -      |   |   | - |   |   | - |   |   | 50,416 |   |
| Other                            comprehensive income:                                                                                                                             |   |                                   |      |                                   |   |           |   |       |     |        |   |         |   |              |    |             |   |                                   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|  Change                            in foreign currency translation                                                                                                            |   |                                   | -         |                                   |   | -              |   |       | -        |        |   | -            |   |              | -       |             |   | -                                      |   |              | 152    |   |   | - |   |   | - |   |   | 152 |   |
|  Comprehensive                            income                                                                                                                              |   |                                   |      |                                   |   |           |   |       |     |        |   |         |   |              |    |             |   | 50,416                                 |   |              | 152    |   |   | - |   |   | - |   |   | 50,568 |   |
|  Issuance                            of Class B common stock held in treasury                                                                                                 |   |                                   | -         |                                   |   | -              |   |       | 103,060  |        |   | -            |   |              | 12      |             |   | (105                                   | )      |              | -      |   |   | - |   |   | 95 |   |   | 2 |   |
|  Non-cash                            stock compensation expense                                                                                                               |   |                                   | -         |                                   |   | -              |   |       | -        |        |   | -            |   |              | 530     |             |   | -                                      |   |              | -      |   |   | - |   |   | - |   |   | 530 |   |
|  Adoption                            of Statement of Financial Standards 123R                                                                                                 |   |                                   | -         |                                   |   | -              |   |       | -        |        |   | -            |   |              | (361    | )                |   | -                                      |   |              | -      |   |   | 361 |   |   | - |   |   | - |   |
|  Tax                            windfall resulting from restricted stock awards                                                                                               |   |                                   | -         |                                   |   | -              |   |       | -        |        |   | -            |   |              | 5       |             |   | -                                      |   |              | -      |   |   | - |   |   | - |   |   | 5 |   |
|  Purchase                            of treasury stock at cost                                                                                                                |   |                                   | (14,543   | )                                      |   | -              |   |       | (102,516 | )           |   | -            |   |              | -       |             |   | -                                      |   |              | -      |   |   | - |   |   | (403 | ) |   | (403 | ) |
|                                                                                                                                                                               |   |                                   |      |                                   |   |           |   |       |     |        |   |         |   |              |    |             |   |                                   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| **September                            30, 2006 (unaudited)**                                                                                                                      |   |                                   | 3,816,904 |                                   | $      | 39             |   |       | 640,368  |        | $      | 7            |   | $                 | 102,523 |             | $      | 54,959                                 |   | $                 | 286    |   | $ | - |   | $ | (2,765 | ) | $ | 155,049 |   |
|                                                                                                                                                                               |   |                                   |      |                                   |   |           |   |       |     |        |   |         |   |              |    |             |   |                                   |   |              |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                               |   |                                   |      |                                   |   |           |   |       |     |        |   |         |   |              |    |             |   |                                   |   |              |   |   |   |   |   |   |   |   |   |   |   |
| The                            accompanying notes are an integral part of these condensed                            consolidated                            financial statements. |   |                                   |      |                                   |   |           |   |       |     |        |   |         |

----

**Simmons      Company and Subsidiaries **

**Notes      to the Unaudited Condensed Consolidated Financial      Statements**

**A.**
**Basis      of Presentation **

**B.**
**Acquisitions      and Disposals**

----

**Simmons        Company and Subsidiaries **

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

|                        |   | **Two                  Months Ended** |   | **Quarter                  Ended** |   | **Eight                  Months Ended** |   | **Nine                  Months Ended** |   |
|-----------------------------|--------|---------------------------------------|--------|------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                        |   | **August                  29,**       |   | **September                  24,** |   | **August                  29,**         |   | **September                  24,**     |   |
|                        |   | **2006**                              |   | **2005**                           |   | **2006**                                |   | **2005**                               |   |
| Net                  sales  |   | $                                     | 15.0   |                               | $      | 21.6                                    |   | $                                      | 61.5   |   | $ | 59.5 |   |
| Net                  income |   | $                                     | 0.3    |                               | $      | 1.3                                     |   | $                                      | 3.1    |   | $ | 3.0 |   |

*Accounting      for the Impairment or Disposal of Long-Lived Assets, *

| **ASSETS                  HELD FOR SALE**           |   |
|-----------------------------------------------------|--------|
| Accounts                  receivable, net           |   | $ | 1,349 |   |
| Inventory                                           |   |   | 4,471 |   |
| Other                  current assets               |   |   | 992 |   |
| Property,                  plant and equipment, net |   |   | 4,747 |   |
| Goodwill                                            |   |   | 6,951 |   |
| Intangible                  assets, net             |   |   | 327 |   |
| Other                  assets                       |   |   | 279 |   |
| Total                  assets held for sale         |   | $ | 19,116 |   |
|                                                |   |   |   |   |
|                                                |   |   |   |   |
| **LIABILITIES                  HELD FOR SALE**      |
| Accounts                  payable                   |   | $ | 2,318 |   |
| Accrued                  liabilities                |   |   | 4,630 |   |
| Other                  long-term liabilities        |   |   | 3,020 |   |
| Total                  liabilities held for sale    |   | $ | 9,968 |   |
|                                                |   |   |   |   |

----

**Simmons        Company and Subsidiaries **

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

**C.      **
**Inventories      **

|                            |   | **September                  30,** |   | **December                  31,** |   |
|---------------------------------|--------|------------------------------------|--------|-----------------------------------|--------|
|                            |   | **2006**                           |   | **2005**                          |   |
| Raw                  materials  |   | $                                  | 15,376 |                              | $      | 18,541 |   |
| Work-in-progress                |   |                               | 807    |                              |   | 1,261 |   |
| Finished                  goods |   |                               | 8,636  |                              |   | 8,777 |   |
|                            |   | $                                  | 24,819 |                              | $      | 28,579 |   |

**D.**
**Goodwill      **

| Balance                  at beginning of period           |   | $      | 488,230 |   |
|-----------------------------------------------------------|--------|--------|---------|--------|
| Sale                  of SCUSA                            |   |   | (6,951  | )      |
| Tax                  benefit allocated to reduce goodwill |   |   | (68     | )      |
| Balance                  at end of period                 |   | $      | 481,211 |   |

----

**Simmons        Company and Subsidiaries **

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

**E.**
**Warranties**

|                                                |   | **Quarters                      Ended** |   | **Nine                      Months Ended** |   |
|-----------------------------------------------------|--------|-----------------------------------------|--------|--------------------------------------------|--------|
|                                                |   | **September                      30,**  |   | **September                      24,**     |   | **September                      30,** |   | **September                      24,** |   |
|                                                |   | **2006**                                |   | **2005**                                   |   | **2006** |   | **2005** |   |
| Balance                      at beginning of period |   | $                                       | 2,943  |                                       | $      | 3,115 |   | $ | 3,009 |   | $ | 2,715 |   |
| Additional                      warranties issued   |   |                                    | 432    |                                       |   | 699 |   |   | 1,429 |   |   | 1,713 |   |
| Warranty                      settlements           |   |                                    | (357   | )                                          |   | (423 | ) |   | (1,241 | ) |   | (1,373 | ) |
| Revisions                      of estimate          |   |                                    | (142   | )                                          |   | (89 | ) |   | (321 | ) |   | 247 |   |
| Balance                      at end of period       |   | $                                       | 2,876  |                                       | $      | 3,302 |   | $ | 2,876 |   | $ | 3,302 |   |
|                                                |   |                                    |   |                                       |   |   |   |   |   |   |   |   |   |

**F.**
**Long-Term      Debt **

|                                                                                                                |   | **September                    30,** |    | **December                    31,** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|---------|-------------------------------------|--------|
|                                                                                                                |   | **2006**                             |    | **2005**                            |   |
| Senior                    credit facility:                                                                          |   |                                 |    |                                |   |
| Revolving                    loan                                                                                   |   | $                                    | -       |                                | $      | - |   |
| Tranche                    C term loan                                                                              |   |                                 | -       |                                |   | 369,933 |   |
| Tranche                    D term loan                                                                              |   |                                 | 480,000 |                                |   | - |   |
| Total                    senior credit facility                                                                     |   |                                 | 480,000 |                                |   | 369,933 |   |
| Senior                    unsecured term loan                                                                       |   |                                 | -       |                                |   | 140,000 |   |
| 7.875%                    senior subordinated notes due 2014                                                        |   |                                 | 200,000 |                                |   | 200,000 |   |
| 10.0%                    senior discount notes, due 2014, net of discount of $72,195 and                    $86,172 |   |                                 | 196,805 |                                |   | 182,828 |   |
| Other,                    including capital lease obligations                                                       |   |                                 | 14,829  |                                |   | 14,989 |   |
|                                                                                                                |   |                                 | 891,634 |                                |   | 907,750 |   |
| Less                    current portion                                                                             |   |                                 | (413    | )                                   |   | (1,602 | ) |
|                                                                                                                |   | $                                    | 891,221 |                                | $      | 906,148 |   |

----

**Simmons        Company and Subsidiaries **

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

*Modification      of Debt Instruments with Different Terms*

|                                   |   | **Eurodollar** |   | **Base** |   |
|----------------------------------------|--------|----------------|--------|----------|--------|
|                                   |   | **Rate**       |   | **Rate** |   |
| Revolving                    loan      |   |           | 2.25   | %        |   | 1.25 | % |
| Tranche                    D term loan |   |           | 2.00   | %        |   | 1.00 | % |

----

**Simmons        Company and Subsidiaries **

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

----

**Simmons      Company and Subsidiaries **

**Notes      to the Unaudited Condensed Consolidated Financial      Statements**

**Supplemental      Consolidating Condensed Statements of Operations**

**For      the Quarter Ended September 30, 2006**

|                                                          |   |       |   | Issuer                  and Guarantors |   |         |   |          |    |         |   |
|---------------------------------------------------------------|--------|------------|--------|----------------------------------------|--------|--------------|--------|---------------|---------|--------------|--------|
|                                                          |   |       |   | Simmons                                |   |         |   |          |    |         |   |   |   |
|                                                          |   | Parent     |   | Bedding                                |   | Guarantor    |   | Non-Guarantor |    |         |   |   |   |
|                                                          |   | Guarantors |   | Company                                |   | Subsidiaries |   | Subsidiaries  |    | Eliminations |   | Consolidated |   |
| Net                  sales                                    |   | $          | -      |                                   | $      | (18,241      | )      | $             | 275,369 |         | $      | 2,638 |   | $ | - |   | $ | 259,766 |   |
| Cost                  of products sold                        |   |       | -      |                                   |   | 820          |   |          | 139,797 |         |   | 1,945 |   |   | - |   |   | 142,562 |   |
| Gross                  profit                                 |   |       | -      |                                   |   | (19,061      | )      |          | 135,572 |         |   | 693 |   |   | - |   |   | 117,204 |   |
| Operating                  expenses:                          |   |       |   |                                   |   |         |   |          |    |         |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative expenses |   |       | 7      |                                   |   | 56,260       |   |          | 27,368  |         |   | 453 |   |   | - |   |   | 84,089 |   |
| Gain                  on sale of Sleep Country USA            |   |       | -      |                                   |   | -            |   |          | (43,834 | )            |   | - |   |   | - |   |   | (43,834 | ) |
| Amortization                  of intangibles                  |   |       | -      |                                   |   | 808          |   |          | 578     |         |   | - |   |   | - |   |   | 1,386 |   |
| Intercompany                  fees                            |   |       | -      |                                   |   | (82,961      | )      |          | 82,714  |         |   | 247 |   |   | - |   |   | - |   |
| Licensing                  revenues                           |   |       | -      |                                   |   | (278         | )      |          | (1,715  | )            |   | (205 | ) |   | - |   |   | (2,199 | ) |
|                                                          |   |       | 7      |                                   |   | (26,171      | )      |          | 65,112  |         |   | 495 |   |   | - |   |   | 39,442 |   |
|  Operating                  income (loss)                |   |       | (7     | )                                      |   | 7,112        |   |          | 70,460  |         |   | 198 |   |   | - |   |   | 77,762 |   |
| Interest                  expense, net                        |   |       | 4,934  |                                   |   | 12,862       |   |          | 197     |         |   | 48 |   |   | - |   |   | 18,041 |   |
| Income                  from subsidiaries                     |   |       | 43,924 |                                   |   | 44,752       |   |          | -       |         |   | - |   |   | (88,676 | ) |   | - |   |
|  Income                  before income taxes             |   |       | 38,983 |                                   |   | 39,002       |   |          | 70,263  |         |   | 150 |   |   | (88,676 | ) |   | 59,721 |   |
| Income                  tax expense (benefit)                 |   |       | (2,939 | )                                      |   | (4,925       | )      |          | 25,580  |         |   | 82 |   |   | - |   |   | 17,799 |   |
|  Net                  income                             |   | $          | 41,922 |                                   | $      | 43,924       |   | $             | 44,683  |         | $      | 68 |   | $ | (88,676 | ) | $ | 41,922 |   |

----

**Simmons      Company and Subsidiaries **

**Notes      to the Unaudited Condensed Consolidated Financial      Statements**

**Supplemental      Consolidating Condensed Statements of Operations**

**For      the Quarter Ended September 24, 2005**

|                                                          |   |       |   | Issuer                  and Guarantors |   |         |   |          |    |         |   |
|---------------------------------------------------------------|--------|------------|--------|----------------------------------------|--------|--------------|--------|---------------|---------|--------------|--------|
|                                                          |   |       |   | Simmons                                |   |         |   |          |    |         |   |   |   |
|                                                          |   | Parent     |   | Bedding                                |   | Guarantor    |   | Non-Guarantor |    |         |   |   |   |
|                                                          |   | Guarantors |   | Company                                |   | Subsidiaries |   | Subsidiaries  |    | Eliminations |   | Consolidated |   |
| Net                  sales                                    |   | $          | -      |                                   | $      | (19,472      | )      | $             | 244,274 |         | $      | 2,041 |   | $ | - |   | $ | 226,843 |   |
| Cost                  of products sold                        |   |       | -      |                                   |   | 480          |   |          | 126,850 |         |   | 1,596 |   |   | - |   |   | 128,926 |   |
| Gross                  profit                                 |   |       | -      |                                   |   | (19,952      | )      |          | 117,424 |         |   | 445 |   |   | - |   |   | 97,917 |   |
| Operating                  expenses:                          |   |       |   |                                   |   |         |   |          |    |         |   |   |   |   |   |   |   |   |   |
| Selling,                  general and administrative expenses |   |       | 42     |                                   |   | 46,192       |   |          | 27,340  |         |   | 449 |   |   | - |   |   | 74,023 |   |
| Amortization                  of intangibles                  |   |       | -      |                                   |   | 807          |   |          | 611     |         |   | - |   |   | - |   |   | 1,418 |   |
| Intercompany                  fees                            |   |       | -      |                                   |   | (72,347      | )      |          | 72,155  |         |   | 192 |   |   | - |   |   | - |   |
| Licensing                  revenues                           |   |       | -      |                                   |   | (296         | )      |          | (2,066  | )            |   | (191 | ) |   | - |   |   | (2,553 | ) |
|                                                          |   |       | 42     |                                   |   | (25,644      | )      |          | 98,040  |         |   | 450 |   |   | - |   |   | 72,888 |   |
|  Operating                  income (loss)                |   |       | (42    | )                                      |   | 5,692        |   |          | 19,384  |         |   | (5 | ) |   | - |   |   | 25,029 |   |
| Interest                  expense, net                        |   |       | 4,461  |                                   |   | 13,293       |   |          | 204     |         |   | 50 |   |   | - |   |   | 18,008 |   |
| Income                  from subsidiaries                     |   |       | 7,555  |                                   |   | 18,826       |   |          | -       |         |   | - |   |   | (26,381 | ) |   | - |   |
|  Income                  (loss) before income taxes      |   |       | 3,052  |                                   |   | 11,225       |   |          | 19,180  |         |   | (55 | ) |   | (26,381 | ) |   | 7,021 |   |
| Income                  tax expense (benefit)                 |   |       | (948   | )                                      |   | 3,670        |   |          | 265     |         |   | 34 |   |   | - |   |   | 3,021 |   |
|  Net                  income (loss)                      |   | $          | 4,000  |                                   | $      | 7,555        |   | $             | 18,915  |         | $      | (89 | ) | $ | (26,381 | ) | $ | 4,000 |   |

----

**Simmons      Company and Subsidiaries **

**Notes      to the Unaudited Condensed Consolidated Financial      Statements**

**Supplemental      Consolidating Condensed Statements of Operations**

**For      the Nine Months Ended September 30, 2006**

|                                                                    |   |       |   | Issuer                            and Guarantors |   |         |   |          |    |         |   |
|-------------------------------------------------------------------------|--------|------------|--------|--------------------------------------------------|--------|--------------|--------|---------------|---------|--------------|--------|
|                                                                    |   |       |   | Simmons                                          |   |         |   |          |    |         |   |   |   |
|                                                                    |   | Parent     |   | Bedding                                          |   | Guarantor    |   | Non-Guarantor |    |         |   |   |   |
|                                                                    |   | Guarantors |   | Company                                          |   | Subsidiaries |   | Subsidiaries  |    | Eliminations |   | Consolidated |   |
| Net                            sales                                    |   | $          | -      |                                             | $      | (69,981      | )      | $             | 800,133 |         | $      | 6,683 |   | $ | - |   | $ | 736,835 |   |
| Cost                            of products sold                        |   |       | -      |                                             |   | 2,497        |   |          | 403,578 |         |   | 4,977 |   |   | - |   |   | 411,051 |   |
| Gross                            profit                                 |   |       | -      |                                             |   | (72,478      | )      |          | 396,555 |         |   | 1,706 |   |   | - |   |   | 325,784 |   |
| Operating                            expenses:                          |   |       |   |                                             |   |         |   |          |    |         |   |   |   |   |   |   |   |   |   |
| Selling,                            general and administrative expenses |   |       | 74     |                                             |   | 149,465      |   |          | 85,836  |         |   | 1,253 |   |   | - |   |   | 236,628 |   |
| Gain                            on sale of Sleep Country USA            |   |       | -      |                                             |   | -            |   |          | (43,834 | )            |   | - |   |   | - |   |   | (43,834 | ) |
| Amortization                            of intangibles                  |   |       | -      |                                             |   | 2,422        |   |          | 1,798   |         |   | - |   |   | - |   |   | 4,220 |   |
| Intercompany                            fees                            |   |       | -      |                                             |   | (238,695     | )      |          | 238,060 |         |   | 635 |   |   | - |   |   | - |   |
| Licensing                            revenues                           |   |       | -      |                                             |   | (834         | )      |          | (5,106  | )            |   | (558 | ) |   | - |   |   | (6,498 | ) |
|                                                                    |   |       | 74     |                                             |   | (87,642      | )      |          | 276,754 |         |   | 1,330 |   |   | - |   |   | 190,516 |   |
| Operating                            income (loss)                      |   |       | (74    | )                                                |   | 15,164       |   |          | 119,801 |         |   | 376 |   |   | - |   |   | 135,268 |   |
| Interest                            expense, net                        |   |       | 14,159 |                                             |   | 47,010       |   |          | 627     |         |   | 136 |   |   | - |   |   | 61,932 |   |
| Income                            from subsidiaries                     |   |       | 59,119 |                                             |   | 82,005       |   |          | -       |         |   | - |   |   | (141,124 | ) |   | - |   |
| Income                            before income taxes                   |   |       | 44,886 |                                             |   | 50,159       |   |          | 119,174 |         |   | 240 |   |   | (141,124 | ) |   | 73,336 |   |
| Income                            tax expense (benefit)                 |   |       | (5,530 | )                                                |   | (8,960       | )      |          | 37,275  |         |   | 134 |   |   | - |   |   | 22,920 |   |
| Net                            income                                   |   | $          | 50,416 |                                             | $      | 59,119       |   | $             | 81,899  |         | $      | 106 |   | $ | (141,124 | ) | $ | 50,416 |   |

----

**Simmons        Company and Subsidiaries**

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

**Supplemental        Consolidating Condensed Statements of Operations**

**For        the Nine Months Ended September 24, 2005**

|                                                            |   |       |   | Issuer                    and Guarantors |   |         |   |          |    |         |   |
|-----------------------------------------------------------------|--------|------------|--------|------------------------------------------|--------|--------------|--------|---------------|---------|--------------|--------|
|                                                            |   |       |   | Simmons                                  |   |         |   |          |    |         |   |   |   |
|                                                            |   | Parent     |   | Bedding                                  |   | Guarantor    |   | Non-Guarantor |    |         |   |   |   |
|                                                            |   | Guarantors |   | Company                                  |   | Subsidiaries |   | Subsidiaries  |    | Eliminations |   | Consolidated |   |
| Net                    sales                                    |   | $          | -      |                                     | $      | (53,289      | )      | $             | 686,407 |         | $      | 7,349 |   | $ | - |   | $ | 640,467 |   |
| Cost                    of products sold                        |   |       | -      |                                     |   | 1,073        |   |          | 353,767 |         |   | 5,508 |   |   | - |   |   | 360,348 |   |
| Gross                    profit                                 |   |       | -      |                                     |   | (54,362      | )      |          | 332,640 |         |   | 1,841 |   |   | - |   |   | 280,119 |   |
| Operating                    expenses:                          |   |       |   |                                     |   |         |   |          |    |         |   |   |   |   |   |   |   |   |   |
| Selling,                    general and administrative expenses |   |       | 202    |                                     |   | 146,712      |   |          | 78,036  |         |   | 1,576 |   |   | - |   |   | 226,526 |   |
| Amortization                    of intangibles                  |   |       | -      |                                     |   | 2,422        |   |          | 1,854   |         |   | - |   |   | - |   |   | 4,276 |   |
| Intercompany                    fees                            |   |       | -      |                                     |   | (215,154     | )      |          | 214,503 |         |   | 651 |   |   | - |   |   | - |   |
| Licensing                    revenues                           |   |       | -      |                                     |   | (825         | )      |          | (6,075  | )            |   | (519 | ) |   | - |   |   | (7,419 | ) |
|                                                            |   |       | 202    |                                     |   | (66,845      | )      |          | 288,318 |         |   | 1,708 |   |   | - |   |   | 223,383 |   |
|  Operating                    income (loss)                |   |       | (202   | )                                        |   | 12,483       |   |          | 44,322  |         |   | 133 |   |   | - |   |   | 56,736 |   |
| Interest                    expense, net                        |   |       | 12,842 |                                     |   | 38,233       |   |          | 604     |         |   | 102 |   |   | - |   |   | 51,781 |   |
| Income                    from subsidiaries                     |   |       | 11,717 |                                     |   | 42,537       |   |          | -       |         |   | - |   |   | (54,254 | ) |   | - |   |
|  Income                    (loss) before income taxes      |   |       | (1,327 | )                                        |   | 16,787       |   |          | 43,718  |         |   | 31 |   |   | (54,254 | ) |   | 4,955 |   |
| Income                    tax expense (benefit)                 |   |       | (4,194 | )                                        |   | 5,070        |   |          | 1,304   |         |   | (92 | ) |   | - |   |   | 2,088 |   |
|  Net                    income                             |   | $          | 2,867  |                                     | $      | 11,717       |   | $             | 42,414  |         | $      | 123 |   | $ | (54,254 | ) | $ | 2,867 |   |

----

**Simmons        Company and Subsidiaries**

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

**Supplemental        Consolidating Condensed Balance Sheets**

**As        of September 30, 2006**

|                                                                     |   |       |    | Issuer                      and Guarantors |   |         |   |          |      |         |   |
|--------------------------------------------------------------------------|--------|------------|---------|--------------------------------------------|--------|--------------|--------|---------------|-----------|--------------|--------|
|                                                                     |   |       |    | Simmons                                    |   |         |   |          |      |         |   |   |   |
|                                                                     |   | Parent     |    | Bedding                                    |   | Guarantor    |   | Non-Guarantor |      |         |   |   |   |
|                                                                     |   | Guarantors |    | Company                                    |   | Subsidiaries |   | Subsidiaries  |      | Eliminations |   | Consolidated |   |
| **ASSETS**                                                               |   |       |    |                                       |   |         |   |          |      |         |   |   |   |
| Current                      assets:                                     |   |       |    |                                       |   |         |   |          |      |         |   |   |   |
| Cash                      and cash equivalents                           |   | $          | -       |                                       | $      | 93,565       |   | $             | 5,276     |         | $      | 2,839 |   | $ | - |   | $ | 101,680 |   |
| Accounts                      receivable                                 |   |       | -       |                                       |   | -            |   |          | 83,803    |         |   | 1,057 |   |   | - |   |   | 84,860 |   |
| Inventories                                                              |   |       | -       |                                       |   | -            |   |          | 24,114    |         |   | 705 |   |   | - |   |   | 24,819 |   |
| Other                                                                    |   |       | -       |                                       |   | 10,168       |   |          | 9,759     |         |   | 392 |   |   | - |   |   | 20,319 |   |
|  Total                      current assets                          |   |       | -       |                                       |   | 103,733      |   |          | 122,952   |         |   | 4,993 |   |   | - |   |   | 231,678 |   |
| Property,                      plant and equipment, net                  |   |       | -       |                                       |   | 12,625       |   |          | 36,713    |         |   | 4,892 |   |   | - |   |   | 54,230 |   |
| Goodwill                      and other intangibles, net                 |   |       | -       |                                       |   | 65,281       |   |          | 948,828   |         |   | 65 |   |   | - |   |   | 1,014,174 |   |
| Other                      assets                                        |   |       | 3,241   |                                       |   | 29,781       |   |          | 1,418     |         |   | 315 |   |   | - |   |   | 34,755 |   |
| Net                      investment in and advances to (from) affiliates |   |       | 330,662 |                                       |   | 854,344      |   |          | 212,424   |         |   | (1,269 | ) |   | (1,396,162 | ) |   | - |   |
|                                                                     |   | $          | 333,903 |                                       | $      | 1,065,764    |   | $             | 1,322,336 |         | $      | 8,996 |   | $ | (1,396,162 | ) | $ | 1,334,837 |   |
|                                                                     |   |       |    |                                       |   |         |   |          |      |         |   |   |   |   |   |   |   |   |   |
| **LIABILITIES                      AND STOCKHOLDERS' EQUITY**            |   |       |    |                                       |   |         |   |          |      |         |   |   |   |   |   |   |   |   |   |
| Current                      liabilities:                                |   |       |    |                                       |   |         |   |          |      |         |   |   |   |   |   |   |   |   |   |
| Current                      maturities of long-term debt                |   | $          | -       |                                       | $      | -            |   | $             | 200       |         | $      | 213 |   | $ | - |   | $ | 413 |   |
| Accounts                      payable and accrued liabilities            |   |       | 145     |                                       |   | 48,936       |   |          | 59,333    |         |   | 1,178 |   |   | - |   |   | 109,592 |   |
|  Total                      current liabilities                     |   |       | 145     |                                       |   | 48,936       |   |          | 59,533    |         |   | 1,391 |   |   | - |   |   | 110,005 |   |
| Long-term                      debt                                      |   |       | 196,806 |                                       |   | 680,000      |   |          | 13,098    |         |   | 1,317 |   |   | - |   |   | 891,221 |   |
| Deferred                      income taxes                               |   |       | (18,097 | )                                          |   | (12,806      | )      |          | 195,765   |         |   | 164 |   |   | - |   |   | 165,026 |   |
| Other                      non-current liabilities                       |   |       | -       |                                       |   | 9,910        |   |          | 3,418     |         |   | 208 |   |   | - |   |   | 13,536 |   |
|  Total                      liabilities                             |   |       | 178,854 |                                       |   | 726,040      |   |          | 271,814   |         |   | 3,080 |   |   | - |   |   | 1,179,788 |   |
| Stockholders'                      equity                                |   |       | 155,049 |                                       |   | 339,724      |   |          | 1,050,522 |         |   | 5,916 |   |   | (1,396,162 | ) |   | 155,049 |   |
|                                                                     |   | $          | 333,903 |                                       | $      | 1,065,764    |   | $             | 1,322,336 |         | $      | 8,996 |   | $ | (1,396,162 | ) | $ | 1,334,837 |   |

----

**Simmons      Company and Subsidiaries**

**Notes      to the Unaudited Condensed Consolidated Financial      Statements**

**Supplemental      Consolidating Condensed Statements of Cash Flows**

**For      the Nine Months Ended September 30, 2006**

|                                                                 |   |       |   | Issuer                  and Guarantors |   |         |   |          |     |         |   |
|----------------------------------------------------------------------|--------|------------|--------|----------------------------------------|--------|--------------|--------|---------------|----------|--------------|--------|
|                                                                 |   |       |   | Simmons                                |   |         |   |          |     |         |   |   |   |
|                                                                 |   | Parent     |   | Bedding                                |   | Guarantor    |   | Non-Guarantor |     |         |   |   |   |
|                                                                 |   | Guarantors |   | Company                                |   | Subsidiaries |   | Subsidiaries  |     | Eliminations |   | Consolidated |   |
| Net                  cash provided by (used in) operating activities |   | $          | 274    |                                   | $      | (15,418      | )      | $             | 79,131   |         | $      | 873 |   | $ | - |   | $ | 64,860 |   |
| Cash                  flows from investing activities:               |   |       |   |                                   |   |         |   |          |     |         |   |   |   |   |   |   |   |   |   |
| Purchase                  of property, plant and equipment, net      |   |       | -      |                                   |   | (5,172       | )      |          | (4,056   | )            |   | - |   |   | - |   |   | (9,228 | ) |
| Proceeds                  from sale of SCUSA                         |   |       | -      |                                   |   | -            |   |          | 52,743   |         |   | - |   |   | - |   |   | 52,743 |   |
| Net                  cash provided by (used in) investing activities |   |       | -      |                                   |   | (5,172       | )      |          | 48,687   |         |   | - |   |   | - |   |   | 43,515 |   |
| Cash                  flows from financing activities:               |   |       |   |                                   |   |         |   |          |     |         |   |   |   |   |   |   |   |   |   |
| Borrowings                  under new senior credit facility, net    |   |       | -      |                                   |   | 480,000      |   |          | -        |         |   | - |   |   | - |   |   | 480,000 |   |
| Payments                  of senior credit facility, net             |   |       | -      |                                   |   | (369,933     | )      |          | -        |         |   | - |   |   | - |   |   | (369,933 | ) |
| Repayment                  of senior unsecured term loan             |   |       | -      |                                   |   | (140,000     | )      |          | -        |         |   | - |   |   | - |   |   | (140,000 | ) |
| Payment                  of other long-term obligations              |   |       | -      |                                   |   | -            |   |          | -        |         |   | (160 | ) |   | - |   |   | (160 | ) |
| Purchase                  of treasury stock                          |   |       | (403   | )                                      |   | -            |   |          | -        |         |   | - |   |   | - |   |   | (403 | ) |
| Payment                  of financing fees                           |   |       | (41    | )                                      |   | (932         | )      |          | -        |         |   | - |   |   | - |   |   | (973 | ) |
| Receipt                  from (distribution to) affiliates           |   |       | 170    |                                   |   | 125,197      |   |          | (123,971 | )            |   | (1,396 | ) |   | - |   |   | - |   |
| Net                  cash provided by (used in) financing activities |   |       | (274   | )                                      |   | 94,332       |   |          | (123,971 | )            |   | (1,556 | ) |   | - |   |   | (31,469 | ) |
| Net                  effect of exchange rate changes                 |   |       | -      |                                   |   | -            |   |          | -        |         |   | 152 |   |   | - |   |   | 152 |   |
| Change                  in cash and cash equivalents                 |   |       | -      |                                   |   | 73,742       |   |          | 3,847    |         |   | (531 | ) |   | - |   |   | 77,058 |   |
| Cash                  and cash equivalents:                          |   |       |   |                                   |   |         |   |          |     |         |   |   |   |   |   |   |   |   |   |
|  Beginning                  of period                           |   |       | -      |                                   |   | 19,823       |   |          | 1,429    |         |   | 3,370 |   |   | - |   |   | 24,622 |   |
|  End                  of period                                 |   | $          | -      |                                   | $      | 93,565       |   | $             | 5,276    |         | $      | 2,839 |   | $ | - |   | $ | 101,680 |   |

----

**Simmons      Company and Subsidiaries**

**Notes      to the Unaudited Condensed Consolidated Financial      Statement**

**Supplemental      Consolidating Condensed Statements of Cash Flows**

**For      the Nine Months Ended September 24, 2005**

|                                                                   |   |       |   | Issuer                    and Guarantors |   |         |   |          |   |         |   |
|------------------------------------------------------------------------|--------|------------|--------|------------------------------------------|--------|--------------|--------|---------------|--------|--------------|--------|
|                                                                   |   |       |   | Simmons                                  |   |         |   |          |   |         |   |   |   |
|                                                                   |   | Parent     |   | Bedding                                  |   | Guarantor    |   | Non-Guarantor |   |         |   |   |   |
|                                                                   |   | Guarantors |   | Company                                  |   | Subsidiaries |   | Subsidiaries  |   | Eliminations |   | Consolidated |   |
| Net                    cash provided by (used in) operating activities |   | $          | (384   | )                                        | $      | 18,694       |   | $             | 13,747 |         | $      | (163 | ) | $ | - |   | $ | 31,894 |   |
| Cash                    flows from investing activities:               |   |       |   |                                     |   |         |   |          |   |         |   |   |   |   |   |   |   |   |   |
| Purchase                    of property, plant and equipment, net      |   |       | -      |                                     |   | (1,662       | )      |          | (1,979 | )            |   | (21 | ) |   | - |   |   | (3,662 | ) |
| Purchase                    of Simmons Juvenile products               |   |       | -      |                                     |   | -            |   |          | (3,337 | )            |   | - |   |   | - |   |   | (3,337 | ) |
| Other                                                                  |   |       | -      |                                     |   | -            |   |          | 7      |         |   | - |   |   | - |   |   | 7 |   |
| Net                    cash used in investing activities               |   |       | -      |                                     |   | (1,662       | )      |          | (5,309 | )            |   | (21 | ) |   | - |   |   | (6,992 | ) |
| Cash                    flows from financing activities:               |   |       |   |                                     |   |         |   |          |   |         |   |   |   |   |   |   |   |   |   |
| Payments                    of deferred financing fees                 |   |       | -      |                                     |   | -            |   |          | -      |         |   | - |   |   | - |   |   | - |   |
| Repayment                    of long-term obligations                  |   |       | -      |                                     |   | (11,668      | )      |          | (47    | )            |   | (174 | ) |   | - |   |   | (11,889 | ) |
| Purchase                    of treasury stock                          |   |       | (368   | )                                        |   | -            |   |          | -      |         |   | - |   |   | - |   |   | (368 | ) |
| Receipt                    from (distribution to) affiliates           |   |       | 400    |                                     |   | 4,356        |   |          | (6,023 | )            |   | 1,267 |   |   | - |   |   | - |   |
| Net                    cash provided by (used in) financing activities |   |       | 32     |                                     |   | (7,312       | )      |          | (6,070 | )            |   | 1,093 |   |   | - |   |   | (12,257 | ) |
| Net                    effect of exchange rate changes                 |   |       | -      |                                     |   | -            |   |          | -      |         |   | (1 | ) |   |  |   |   | (1 | ) |
| Change                    in cash and cash equivalents                 |   |       | (352   | )                                        |   | 9,720        |   |          | 2,368  |         |   | 908 |   |   | - |   |   | 12,644 |   |
| Cash                    and cash equivalents:                          |   |       |   |                                     |   |         |   |          |   |         |   |   |   |   |   |   |   |   |   |
|  Beginning                    of period                           |   |       | 352    |                                     |   | 15,923       |   |          | 7,333  |         |   | 598 |   |   | - |   |   | 24,206 |   |
|  End                    of period                                 |   | $          | -      |                                     | $      | 25,643       |   | $             | 9,701  |         | $      | 1,506 |   | $ | - |   | $ | 36,850 |   |

----

**Simmons        Company and Subsidiaries **

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

**G.**
**Share-Based      Compensation**

*Share-Based      Payment*
*Accounting      for Stock Issued to Employees*
*Accounting      for Stock-Based Compensation*

** **

----

**Simmons        Company and Subsidiaries **

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

|                                                       |   |                           |    | **Weighted**                       |   |
|------------------------------------------------------------|--------|--------------------------------|---------|------------------------------------|--------|
|                                                       |   |                           |    | **Average**                        |   |
|                                                       |   | **Number                  of** |    | **Fair                  Value at** |   |
|                                                       |   | **Shares**                     |    | **Grant                  Date**    |   |
| Nonvested                  shares as of December 31, 2005  |   |                           | 536,652 |                               | $      | 0.84 |   |
| Granted                                                    |   |                           | 103,060 |                               | $      | 3.05 |   |
| Vested                                                     |   |                           | (35,040 | )                                  | $      | 2.39 |   |
| Forfeited                                                  |   |                           | (95,561 | )                                  | $      | 0.67 |   |
| Nonvested                  shares as of September 30, 2006 |   |                           | 509,111 |                               | $      | 1.54 |   |

**H.**
**Segment      Information**

----

**Simmons        Company and Subsidiaries **

**Notes        to the Unaudited Condensed Consolidated Financial        Statements**

|  **Quarter                    Ended September 30, 2006** |
|---------------------------------------------------------------|
|  (In                    thousands)                       |
|                                                          |   |   |   | Wholesale |   |   |   |   |   |   |   |
|                                                          |   |   |   | Bedding |   | Retail |   | Eliminations |   | Totals |   |
| Net                    sales to external customers            | $ | 244,798 |   | $ | 14,968 |   | $ | - |   | $ | 259,766 |   |
| Intersegment                    net sales                     |   | 3,457 |   |   | - |   |   | (3,457 | ) |   | - |   |
| Adjusted                    EBITDA                            |   | 42,039 |   |   | 1,529 |   |   | (108 | ) |   | 43,460 |   |
| Depreciation                    and amortization expense      |   | 7,603 |   |   | 226 |   |   | - |   |   | 7,829 |   |
| Expenditures                    for long-lived assets         |   | 3,050 |   |   | 402 |   |   | - |   |   | 3,452 |   |
| Segment                    assets                             |   | 1,334,837 |   |   | - |   |   | - |   |   | 1,334,837 |   |
|                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation                    of EBITDA and Adjusted      |   |   |   |   |   |   |   |   |   |
| EBITDA                    to net income:                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                    income                                 |   |   |   |   | $ | 9,755 |   | $ | 32,275 |   | $ | (108 | ) | $ | 41,922 |   |
| Depreciation                    and amortization              |   |   |   |   |   | 7,603 |   |   | 226 |   |   | - |   |   | 7,829 |   |
| Income                    taxes                               |   |   |   |   |   | 5,124 |   |   | 12,675 |   |   | - |   |   | 17,799 |   |
| Interest                    expense, net                      |   |   |   |   |   | 18,041 |   |   | - |   |   | - |   |   | 18,041 |   |
| Interest                    income                            |   |   |   |   |   | 502 |   |   | 15 |   |   | - |   |   | 517 |   |
| EBITDA                                                        |   |   |   |   |   | 41,025 |   |   | 45,191 |   |   | (108 | ) |   | 86,108 |   |
| Gain                    on sale of SCUSA                      |   |   |   |   |   | - |   |   | (43,834 | ) |   | - |   |   | (43,834 | ) |
| Transaction                    expenses                       |   |   |   |   |   | 386 |   |   | 42 |   |   | - |   |   | 428 |   |
| Management                    fees                            |   |   |   |   |   | 350 |   |   | 73 |   |   | - |   |   | 423 |   |
| State                    taxes in lieu of income taxes        |   |   |   |   |   | 148 |   |   | 57 |   |   | - |   |   | 205 |   |
| Reorganization                    costs                       |   |   |   |   |   | 65 |   |   | - |   |   | - |   |   | 65 |   |
| Other                                                         |   |   |   |   |   | 52 |   |   | - |   |   | - |   |   | 52 |   |
| Non-cash                    stock compensation                |   |   |   |   |   | 13 |   |   | - |   |   | - |   |   | 13 |   |
| Adjusted                    EBITDA                            |   |   |   |   | $ | 42,039 |   | $ | 1,529 |   | $ | (108 | ) | $ | 43,460 |   |

----

**Simmons          Company and Subsidiaries**

**Notes          to the Unaudited Condensed Consolidated Financial          Statements**

|   **Quarter                  Ended September 24, 2005** |   |
|-------------------------------------------------------------------|--------|
|   (In                  thousands)                       |   |
|                                                              |   |   |   | Wholesale |   |   |   |   |   |   |   |
|                                                              |   |   |   | Bedding |   | Retail |   | Eliminations |   | Totals |   |
| Net                  sales to external customers                  | $      | 205,225 |   | $ | 21,618 |   | $ | - |   | $ | 226,843 |   |
| Intersegment                  net sales                           |   | 5,050 |   |   | - |   |   | (5,050 | ) |   | - |   |
| Adjusted                  EBITDA                                  |   | 33,298 |   |   | 2,562 |   |   | (89 | ) |   | 35,771 |   |
| Depreciation                  and amortization expense            |   | 6,743 |   |   | 338 |   |   | - |   |   | 7,081 |   |
| Expenditures                  for long-lived assets               |   | 606 |   |   | 470 |   |   | - |   |   | 1,076 |   |
| Segment                  assets                                   |   | 1,279,166 |   |   | 26,549 |   |   | (2,608 | ) |   | 1,303,107 |   |
|                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation                  of EBITDA and Adjusted            |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA                  to net income:                            |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                       |   |   |   |   | $ | 2,794 |   | $ | 1,295 |   | $ | (89 | ) | $ | 4,000 |   |
| Depreciation                  and amortization                    |   |   |   |   |   | 6,743 |   |   | 338 |   |   | - |   |   | 7,081 |   |
| Income                  taxes                                     |   |   |   |   |   | 2,296 |   |   | 725 |   |   | - |   |   | 3,021 |   |
| Interest                  expense, net                            |   |   |   |   |   | 18,008 |   |   | - |   |   | - |   |   | 18,008 |   |
| Interest                  income                                  |   |   |   |   |   | 66 |   |   | (1 | ) |   | - |   |   | 65 |   |
| EBITDA                                                            |   |   |   |   |   | 29,907 |   |   | 2,357 |   |   | (89 | ) |   | 32,175 |   |
| Reorganization                  costs                             |   |   |   |   |   | 2,681 |   |   | - |   |   | - |   |   | 2,681 |   |
| Management                  fees                                  |   |   |   |   |   | 293 |   |   | 127 |   |   | - |   |   | 420 |   |
| State                  taxes in lieu of income taxes              |   |   |   |   |   | 134 |   |   | 78 |   |   | - |   |   | 212 |   |
| Plant                  opening, closing charges                   |   |   |   |   |   | 281 |   |   | - |   |   | - |   |   | 281 |   |
| Non-cash                  stock compensation expense              |   |   |   |   |   | 2 |   |   | - |   |   | - |   |   | 2 |   |
| Adjusted                  EBITDA                                  |   |   |   |   | $ | 33,298 |   | $ | 2,562 |   | $ | (89 | ) | $ | 35,771 |   |

----

**Simmons      Company and Subsidiaries**

**Notes      to the Unaudited Condensed Consolidated Financial      Statements**

|  **Nine                  Months Ended September 30, 2006** |
|-----------------------------------------------------------------|
|  (In                  thousands)                           |
|                                                            |   |   |   | Wholesale |   |   |   |   |   |   |   |
|                                                            |   |   |   | Bedding |   | Retail |   | Eliminations |   | Totals |   |
| Net                  sales to external customers                | $ | 675,290 |   | $ | 61,545 |   | $ | - |   | $ | 736,835 |   |
| Intersegment                  net sales                         |   | 12,581 |   |   | - |   |   | (12,581 | ) |   | - |   |
| Adjusted                  EBITDA                                |   | 113,740 |   |   | 6,076 |   |   | (86 | ) |   | 119,730 |   |
| Depreciation                  and amortization expense          |   | 21,010 |   |   | 875 |   |   | - |   |   | 21,885 |   |
| Expenditures                  for long-lived assets             |   | 7,449 |   |   | 1,779 |   |   | - |   |   | 9,228 |   |
| Segment                  assets                                 |   | 1,334,837 |   |   | - |   |   | - |   |   | 1,334,837 |   |
|                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation                  of EBITDA and Adjusted          |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA                  to net income:                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                  income                                     |   |   |   |   | $ | 15,869 |   | $ | 34,633 |   | $ | (86 | ) | $ | 50,416 |   |
| Depreciation                  and amortization                  |   |   |   |   |   | 21,010 |   |   | 875 |   |   | - |   |   | 21,885 |   |
| Income                  taxes                                   |   |   |   |   |   | 9,119 |   |   | 13,801 |   |   | - |   |   | 22,920 |   |
| Interest                  expense, net                          |   |   |   |   |   | 61,928 |   |   | 4 |   |   | - |   |   | 61,932 |   |
| Interest                  income                                |   |   |   |   |   | 737 |   |   | 15 |   |   | - |   |   | 752 |   |
| EBITDA                                                          |   |   |   |   |   | 108,663 |   |   | 49,328 |   |   | (86 | ) |   | 157,905 |   |
| Gain                  on sale of SCUSA                          |   |   |   |   |   | - |   |   | (43,834 | ) |   | - |   |   | (43,834 | ) |
| Reorganization                  costs                           |   |   |   |   |   | 1,519 |   |   | - |   |   | - |   |   | 1,519 |   |
| Management                  fees                                |   |   |   |   |   | 957 |   |   | 306 |   |   | - |   |   | 1,263 |   |
| Management                  severance                           |   |   |   |   |   | 867 |   |   | - |   |   | - |   |   | 867 |   |
| Transaction                  expenses                           |   |   |   |   |   | 518 |   |   | 42 |   |   | - |   |   | 560 |   |
| State                  taxes in lieu of income taxes            |   |   |   |   |   | 458 |   |   | 234 |   |   | - |   |   | 692 |   |
| Non-cash                  stock compensation                    |   |   |   |   |   | 530 |   |   | - |   |   | - |   |   | 530 |   |
| Other                                                           |   |   |   |   |   | 228 |   |   | - |   |   | - |   |   | 228 |   |
| Adjusted                  EBITDA                                |   |   |   |   | $ | 113,740 |   | $ | 6,076 |   | $ | (86 | ) | $ | 119,730 |   |

----

**Simmons      Company and Subsidiaries**

**Notes      to the Unaudited Condensed Consolidated Financial      Statements**

|  **Nine                Months Ended September 24, 2005** |
|---------------------------------------------------------------|
|  (In                thousands)                           |
|                                                          |   |   |   | Wholesale |   |   |   |   |   |   |   |
|                                                          |   |   |   | Bedding |   | Retail |   | Eliminations |   | Totals |   |
| Net                sales to external customers                | $ | 580,959 |   | $ | 59,508 |   | $ | - |   | $ | 640,467 |   |
| Intersegment                net sales                         |   | 11,613 |   |   | - |   |   | (11,613 | ) |   | - |   |
| Adjusted                EBITDA                                |   | 76,969 |   |   | 6,354 |   |   | 81 |   |   | 83,404 |   |
| Depreciation                and amortization expense          |   | 19,113 |   |   | 1,091 |   |   | - |   |   | 20,204 |   |
| Expenditures                for long-lived assets             |   | 2,762 |   |   | 900 |   |   | - |   |   | 3,662 |   |
| Segment                assets                                 |   | 1,279,166 |   |   | 26,549 |   |   | (2,608 | ) |   | 1,303,107 |   |
|                                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation                of EBITDA and Adjusted          |   |   |   |   |   |   |   |   |   |   |   |   |
| EBITDA                to net income (loss):                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net                income (loss)                              |   |   |   |   | $ | (247 | ) | $ | 3,033 |   | $ | 81 |   | $ | 2,867 |   |
| Depreciation                and amortization                  |   |   |   |   |   | 19,113 |   |   | 1,091 |   |   | - |   |   | 20,204 |   |
| Income                taxes                                   |   |   |   |   |   | 398 |   |   | 1,690 |   |   | - |   |   | 2,088 |   |
| Interest                expense, net                          |   |   |   |   |   | 51,775 |   |   | 6 |   |   | - |   |   | 51,781 |   |
| Interest                income                                |   |   |   |   |   | 113 |   |   | - |   |   | - |   |   | 113 |   |
| EBITDA                                                        |   |   |   |   |   | 71,152 |   |   | 5,820 |   |   | 81 |   |   | 77,053 |   |
| Reorganization                costs                           |   |   |   |   |   | 4,026 |   |   | - |   |   | - |   |   | 4,026 |   |
| Management                fees                                |   |   |   |   |   | 856 |   |   | 317 |   |   | - |   |   | 1,173 |   |
| Management                severance                           |   |   |   |   |   | 105 |   |   | - |   |   | - |   |   | 105 |   |
| State                taxes in lieu of income taxes            |   |   |   |   |   | 330 |   |   | 217 |   |   |   |   |   | 547 |   |
| Transaction                expenses                           |   |   |   |   |   | 177 |   |   | - |   |   | - |   |   | 177 |   |
| Plant                opening, closing charges                 |   |   |   |   |   | 321 |   |   | - |   |   | - |   |   | 321 |   |
| Non-cash                stock compensation expense            |   |   |   |   |   | 2 |   |   | - |   |   | - |   |   | 2 |   |
| Adjusted                EBITDA                                |   |   |   |   | $ | 76,969 |   | $ | 6,354 |   | $ | 81 |   | $ | 83,404 |   |

**I.**
**Contingencies      **

----

**Simmons        Company and Subsidiaries **

**Notes            to the Unaudited Condensed Consolidated Financial            Statements**

**J.**
**Accounting      Pronouncements **

*Accounting      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109      *
*Accounting      for Income Taxes*

*Fair      Value Measurements*

*Employers'      Accounting for Defined Benefit Pension and Other Postretirement Plans - An      Amendment of FASB Statements No. 87, 88, 106, and 132R*
*.      *

*Considering      the Effects of Prior Year Misstatements when Quantifying Misstatements in      Current Year Financial Statements*

----

|  **Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Recent      Events**

*Sale      of Retail Segment*

*Purchase      of Simmons Canada*

*Appointment        of a New President *

----

**Results      of Operations **

|                                                            |   | Quarters                    Ended |   | Nine                    Months Ended   |   |
|-----------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------------|--------|
|                                                            |   | September                    30,  |   |  September                    24, |   | September                    30, |   | September                    24, |   |
|                                                            |   | 2006                              |   |  2005                             |   | 2006 |   | 2005 |   |
| Net                    sales                                    |   |                              | 100.0  | %                                      |   | 100.0 | % |   | 100.0 | % |   | 100.0 | % |
| Cost                    of products sold                        |   |                              | 54.9   | %                                      |   | 56.8 | % |   | 55.8 | % |   | 56.3 | % |
| Gross                    margin                                 |   |                              | 45.1   | %                                      |   | 43.2 | % |   | 44.2 | % |   | 43.7 | % |
|                                                            |   |                              |   |                                   |   |   |   |   |   |   |   |   |   |
| Operating                    expenses:                          |   |                              |   |                                   |   |   |   |   |   |   |   |   |   |
| Selling,                    general and administrative expenses |   |                              | 32.4   | %                                      |   | 32.6 | % |   | 32.1 | % |   | 35.4 | % |
| Gain                    on sale of Sleep Country USA            |   |                              | -16.9  | %                                      |   | 0.0 | % |   | -5.9 | % |   | 0.0 | % |
| Amortization                    of intangibles                  |   |                              | 0.5    | %                                      |   | 0.6 | % |   | 0.6 | % |   | 0.7 | % |
| Licensing                    revenues                           |   |                              | -0.8   | %                                      |   | -1.1 | % |   | -0.9 | % |   | -1.2 | % |
|                                                            |   |                              | 15.2   | %                                      |   | 32.1 | % |   | 25.9 | % |   | 34.9 | % |
|                                                            |   |                              |   |                                   |   |   |   |   |   |   |   |   |   |
| Operating                    income                             |   |                              | 29.9   | %                                      |   | 11.0 | % |   | 18.4 | % |   | 8.9 | % |
|                                                            |   |                              |   |                                   |   |   |   |   |   |   |   |   |   |
| Interest                    expense, net                        |   |                              | 6.9    | %                                      |   | 7.9 | % |   | 8.4 | % |   | 8.1 | % |
| Income                    before income taxes                   |   |                              | 23.0   | %                                      |   | 3.1 | % |   | 10.0 | % |   | 0.8 | % |
| Income                    tax expense                           |   |                              | 6.9    | %                                      |   | 1.3 | % |   | 3.1 | % |   | 0.3 | % |
| Net                    income                                   |   |                              | 16.1   | %                                      |   | 1.8 | % |   | 6.8 | % |   | 0.5 | % |

**Quarter      Ended September 30, 2006 as Compared to the Quarter Ended **
**September      24, 2005**

*Net      Sales.*

|                                                                                                                                           |   |                                 |   |    |   |  $                        increase |   |  %                        increase |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|--------------|--------|-----------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                                                           |   | 2006                                 |   |  2005   |   |  (decrease)                        |   |  (decrease)                        |   |
|                                                                                                                                           |   | (in                        millions) |   |
| Wholesale                        bedding segment                                                                                               |   | $                                    | 248.3  |         | $      | 210.3                                   |   | $                                       | 38.0   |   |   | 18.1 | % |
| Retail                        bedding segment prior to disposition of segment on August                        29,                        2006 |   |                                 | 15.0   |         |   | 21.6                                    |   |                                    | (6.7   | ) |   | -30.8 | % |
| Eliminations                                                                                                                                   |   |                                 | (3.5   | )            |   | (5.1                                    | )      |                                    | 1.6    |   |   |   |   |
| Consolidated                        net sales                                                                                                  |   | $                                    | 259.8  |         | $      | 226.8                                   |   | $                                       | 32.9   |   |   | 14.5 | % |

----

*Gross      Margin.*

|                                                                                                            |   |                                         |   |                                         |   |    |   |    |   |  Margin                    % |   |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|---------------------------------------------------|--------|--------------|--------|--------------|--------|-----------------------------------|--------|
|                                                                                                            |   | Gross                    Profit    |   |  Gross                    Margin   |   |  Point  |   |
|                                                                                                            |   | 2006                                         |   |  2005                                        |   |  2006   |   |  2005   |   |  Change                      |   |
|                                                                                                            |   | (in                    millions)   |   |                                         |   |    |   |    |   |
| Wholesale                    bedding segment                                                                    |   | $                                            | 109.3  |                                              | $      | 86.1         |   |         | 44.0   | %                                 |   | 41.0 | % |   | 3.0 | % |
| Retail                    bedding segment prior to disposition of segment on August 29,                    2006 |   |                                         | 8.0    |                                              |   | 11.9         |   |         | 53.7   | %                                 |   | 55.0 | % |   | -1.3 | % |
| Eliminations                                                                                                    |   |                                         | (0.1   | )                                                 |   | (0.1         | )      |         |   |                              |   |   |   |   |   |   |
| Consolidated                                                                                                    |   | $                                            | 117.2  |                                              | $      | 97.9         |   |         | 45.1   | %                                 |   | 43.2 | % |   | 1.9 | % |

----

*Selling,      general and administrative expenses (“SG&A”).*

|                                                                                                            |   |                             |   |                                            |   |    |   |    |   |  Margin                    % |   |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|------------------------------------------------------|--------|--------------|--------|--------------|--------|-----------------------------------|--------|
|                                                                                                            |   | SG&A                         |   |  As                    a % of Segment Net Sales |   |  Point  |   |
|                                                                                                            |   | 2006                             |   |  2005                                           |   |  2006   |   |  2005   |   |  Change                      |   |
|                                                                                                            |   | (in                    millions) |   |                                            |   |    |   |    |   |
| Wholesale                    bedding segment                                                                    |   | $                                | 76.8   |                                                 | $      | 64.2         |   |         | 30.9   | %                                 |   | 30.5 | % |   | 0.4 | % |
| Retail                    bedding segment prior to disposition of segment on August 29,                    2006 |   |                             | 7.3    |                                                 |   | 9.8          |   |         | 48.4   | %                                 |   | 45.3 | % |   | 3.1 | % |
| Consolidated                                                                                                    |   | $                                | 84.1   |                                                 | $      | 74.0         |   |         | 32.4   | %                                 |   | 32.6 | % |   | -0.2 | % |

*Amortization      of Intangibles*

*Licensing      Revenues*

*Interest      Expense*
*Net*

*Income      Taxes. *

----

**Nine      Months Ended September 30, 2006 as Compared to the Nine Months Ended September      24, 2005**

*Net      Sales.*

|                                                                                                            |   |                             |   |    |   |  $                    increase |   |  %                    increase |   |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------------|--------|-------------------------------------|--------|-------------------------------------|--------|
|                                                                                                            |   | 2006                             |   |  2005   |   |  (decrease)                    |   |  (decrease)                    |   |
|                                                                                                            |   | (in                    millions) |   |
| Wholesale                    bedding segment                                                                    |   | $                                | 687.9  |         | $      | 592.6                               |   | $                                   | 95.3   |   |   | 16.1 | % |
| Retail                    bedding segment prior to disposition of segment on August 29,                    2006 |   |                             | 61.5   |         |   | 59.5                                |   |                                | 2.0    |   |   | 3.4 | % |
| Eliminations                                                                                                    |   |                             | (12.6  | )            |   | (11.6                               | )      |                                | (1.0   | ) |   |   |   |
| Consolidated                    net sales                                                                       |   | $                                | 736.8  |         | $      | 640.5                               |   | $                                   | 96.4   |   |   | 15.0 | % |

*Gross      Margin.*

|                                                                                                            |   |                             |   |                             |   |    |   |    |   |  Margin                    % |   |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|---------------------------------------|--------|--------------|--------|--------------|--------|-----------------------------------|--------|
|                                                                                                            |   | Gross                    Profit  |   |  Gross                    Margin |   |  Point  |   |
|                                                                                                            |   | 2006                             |   |  2005                            |   |  2006   |   |  2005   |   |  Change                      |   |
|                                                                                                            |   | (in                    millions) |   |                             |   |    |   |    |   |
| Wholesale                    bedding segment                                                                    |   | $                                | 292.9  |                                  | $      | 247.9        |   |         | 42.6   | %                                 |   | 41.8 | % |   | 0.8 | % |
| Retail                    bedding segment prior to disposition of segment on August 29,                    2006 |   |                             | 33.0   |                                  |   | 32.1         |   |         | 53.6   | %                                 |   | 54.0 | % |   | -0.4 | % |
| Eliminations                                                                                                    |   |                             | (0.1   | )                                     |   | 0.1          |   |         |   |                              |   |   |   |   |   |   |
| Consolidated                                                                                                    |   | $                                | 325.8  |                                  | $      | 280.1        |   |         | 44.2   | %                                 |   | 43.7 | % |   | 0.5 | % |

----

*SG&A.*

|                                                                                                            |   |                             |   |                                            |   |    |   |    |   |  Margin                    % |   |
|-----------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|------------------------------------------------------|--------|--------------|--------|--------------|--------|-----------------------------------|--------|
|                                                                                                            |   | SG&A                         |   |  As                    a % of Segment Net Sales |   |  Point  |   |
|                                                                                                            |   | 2006                             |   |  2005                                           |   |  2006   |   |  2005   |   |  Change                      |   |
|                                                                                                            |   | (in                    millions) |   |                                            |   |    |   |    |   |
| Wholesale                    bedding segment                                                                    |   | $                                | 208.1  |                                                 | $      | 199.4        |   |         | 30.3   | %                                 |   | 33.6 | % |   | -3.3 | % |
| Retail                    bedding segment prior to disposition of segment on August 29,                    2006 |   |                             | 28.5   |                                                 |   | 27.1         |   |         | 46.3   | %                                 |   | 45.6 | % |   | 0.7 | % |
| Consolidated                                                                                                    |   | $                                | 236.6  |                                                 | $      | 226.5        |   |         | 32.1   | %                                 |   | 35.4 | % |   | -3.3 | % |

*Amortization      of Intangibles*

*Licensing      Revenues*

*Interest      Expense*
*Net*

*Income      Taxes. *

----

**Liquidity      and Capital Resources **

|                                                   |   |   |   | **Nine                  Months Ended** |   |
|--------------------------------------------------------|--------|--------|--------|----------------------------------------|--------|
|                                                   |   |   |   | **September                  30,**     |   | **September                  24,** |   |
|                                                   |   |   |   | **2006**                               |   | **2005** |   |
| Statement                  of Cash Flow Data:          |   |   |   |                                   |   |
|  Cash                flows provided by (used in): |   |        |   |                                   |   |   |   |
| Operating                  activities                  |   |   |   |                                   | $      | 64.9 |   | $ | 31.9 |   |
| Investing                  activities                  |   |   |   |                                   |   | 43.5 |   |   | (7.0 | ) |
| Financing                  activities                  |   |   |   |                                   |   | (31.5 | ) |   | (12.3 | ) |
| Net                  effect of exchange rates          |   |   |   |                                   |   | 0.2 |   |   | - |   |
| Increase                  in cash and cash equivalents |   |   |   |                                   |   | 77.1 |   |   | 12.6 |   |
| Cash                  and cash equivalents:            |   |   |   |                                   |   |   |   |   |   |   |
| Beginning                  of period                   |   |   |   |                                   |   | 24.6 |   |   | 24.2 |   |
| End                  of period                         |   |   |   |                                   | $      | 101.7 |   | $ | 36.9 |   |

----

***Nine      Months Ended September 30, 2006 as Compared to Nine Months Ended***

***September      24, 2005***

*Cash      flows provided by Operating Activities*

*Cash      flows provided by (used in) Investing Activities.*

*Cash      flows used in Financing Activities.*

***Debt***

|                                 |   | **Eurodollar** |   | **Base** |   |
|--------------------------------------|--------|----------------|--------|----------|--------|
|                                 |   | **Rate**       |   | **Rate** |   |
| Revolving                  loan      |   |           | 2.25   | %        |   | 1.25 | % |
| Tranche                  D term loan |   |           | 2.00   | %        |   | 1.00 | % |

----

| ·   | A                minimum cash interest coverage ratio, with compliance levels ranging                from                cash interest coverage of no less than 1.85:1.00 from September 30,                2006                through December 31, 2006; 2.00:1.00 as of March 31, 2007; 2.15:1.00                from                June 30, 2007 through September 30, 2007; 2.25:1.00 as of December                31,                2007; 2.75:1.00 from March 31, 2008 through December 31, 2008; and                3.00:1.00 from March 31, 2009 through each fiscal quarter                thereafter. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | A                maximum leverage ratio, with compliance levels ranging from total                leverage                of no greater than 6.15:1.00 as of September 30, 2006; 5.90:1.00                as of                December 31, 2006; 5.60:1.00 as of March 31, 2007; 5.25:1.00 as of                June                30, 2007; 5.00:1.00 from September 30, 2007 through December 31,                2007;                4.50:1.00 from March 31, 2008 through December 31, 2008; and 4.00:1.00                from March 31, 2009 through each fiscal quarter ending                thereafter. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                    |   | **September                  30,** |   |
|-------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                    |   | **2006**                           |   |
| Calculation                  of minimum cash interest coverage ratio:   |   |                               |   |
| Simmons                  Bedding twelve months ended adjusted EBITDA(1) |   | $                                  | 143.2  |   |
| Simmons                  Bedding cash interest expense(2)               |   | $                                  | 54.6   |   |
| Actual                  interest coverage ratio(3)                      |   |                               | 2.62x  |   |
| Minimum                  permitted interest coverage ratio              |   |                               | 1.85x  |   |
|                                                                    |   |                               |   |   |
| Calculation                  of maximum leverage ratio:                 |   |                               |   |   |
| Simmons                  Company indebtedness                           |   | $                                  | 891.6  |   |
| Less:                  10% senior discount notes                        |   |                               | 196.8  |   |
| Simmons                  Bedding indebtedness                           |   |                               | 694.8  |   |
| Less:                  Simmons Bedding cash and cash equivalents(4)     |   |                               | 30.0   |   |
| Simmons                  Bedding net debt                               |   | $                                  | 664.8  |   |
| Simmons                  Bedding twelve months ended adjusted EBITDA(1) |   | $                                  | 143.2  |   |
| Actual                  leverage ratio(5)                               |   |                               | 4.64x  |   |
| Maximum                  permitted leverage ratio                       |   |                               | 6.15x  |   |

| (1)   | Simmons                Bedding’s Adjusted EBITDA for the twelve months ended September 30, 2006                adds back to net income the following items: income taxes, interest                expense, depreciation and amortization, non-cash stock compensation                expense, transaction related expenditures, plant opening and closing                charges, reorganization costs, management fees, state taxes in lieu                of                state income taxes and other non-recurring/non-cash charges as permitted                under the New Senior Credit Facility. Additionally, Adjusted EBITDA                is                adjusted to exclude the operating results of SCUSA, which was sold                on                August 29, 2006, from the beginning of the last twelve month period                and                exclude the gain on the sale of SCUSA. The following table shows                the                calculation of Simmons Bedding’s pro-forma Adjusted EBITDA to exclude                SCUSA for the last twelve months ended September                30, 2006 (in millions): |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Simmons                  Bedding twelve months ended September 30, 2006 |   | $      | 150.8 |   |
|-------------------------------------------------------------------------|--------|--------|-------|--------|
| SCUSA                  eleven months ended August 29, 2006              |   |   | 8.0   |   |
| Eliminations                  eleven months ended August 29, 2006       |   |   | (0.4  | )      |
|                                                                    |   | $      | 143.2 |   |

| (2)   | A                  calculation of Simmons Bedding’s consolidated cash interest expense, as                  defined in the New Senior Credit Facility, for the twelve months                  ended                  September 30, 2006, as follows (in                  millions): |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Simmons                  Company interest expense, net           |   | $      | 80.5  |   |
|------------------------------------------------------------------|--------|--------|-------|--------|
| Less:                  Simmons Company non-cash interest expense |   |   | (18.9 | )      |
| Simmons                  Bedding interest expense, net           |   |   | 61.6  |   |
| Add:                  Simmons Bedding interest income            |   |   | 0.9   |   |
| Less:                  Call premium included in interest expense |   |   | (0.7  | )      |
| Simmons                  Bedding gross interest expense          |   |   | 61.8  |   |
| Less:                  Simmons Bedding non-cash interest expense |   |   | (7.2  | )      |
|                                                             |   | $      | 54.6  |   |

| (3)   | Represents                ratio of Adjusted EBITDA to consolidated cash interest                expense. |
|-----------------|----------------------------------------------------------------------------------------------------------|

| (4)   | Our                senior credit facility permits a maximum of $30.0 million of cash                to be                netted against our debt for purposes of this covenant computation.                Actual                cash as of September 30, 2006 totaled $101.7                million. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5)   | Represents                ratio of consolidated indebtedness less cash and cash equivalents                to                Adjusted EBITDA. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

----

**Off-Balance      Sheet Arrangements**

**Seasonality/Other      **

**Accounting      Pronouncements **

*Accounting      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109      *
*Accounting      for Income Taxes*

*Fair      Value Measurements*

*Employers'      Accounting for Defined Benefit Pension and Other Postretirement Plans - An      Amendment of FASB Statements No. 87, 88, 106, and 132R*
*.      *

*Considering      the Effects of Prior Year Misstatements when Quantifying Misstatements in      Current Year Financial Statements*

----

**Forward      Looking Statements **

*“Safe      Harbor” statement under the Private Securities Litigation Reform Act of      1995*

| ·   | competitive                pricing pressures in the bedding industry; |
|--------------------|-----------------------------------------------------------------------|

| ·   | legal                and regulatory requirements; |
|--------------------|---------------------------------------------------|

| ·   | the                success of our new products; |
|--------------------|-------------------------------------------------|

| ·   | our                relationships with and viability of our major suppliers; |
|--------------------|-----------------------------------------------------------------------------|

| ·   | fluctuations                in costs of our raw materials; |
|--------------------|------------------------------------------------------------|

| ·   | our                relationship with significant customers and licensees; |
|--------------------|---------------------------------------------------------------------------|

| ·   | our                ability to increase prices on our products and the effect of these                price                increases on our unit sales; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | an                increase in our return rates and warranty                claims; |
|--------------------|------------------------------------------------------------------------------------|

| ·   | our                labor relations; |
|--------------------|-------------------------------------|

| ·   | departure                of our key personnel; |
|--------------------|------------------------------------------------|

| ·   | encroachments                on our intellectual property; |
|--------------------|------------------------------------------------------------|

| ·   | our                product liability claims; |
|--------------------|----------------------------------------------|

| ·   | our                level of indebtedness; |
|--------------------|-------------------------------------------|

| ·   | interest                rate risks; |
|--------------------|-------------------------------------|

| ·   | compliance                with covenants in our debt                agreements; |
|--------------------|---------------------------------------------------------------------------------|

| ·   | a                significant change to the timing of the closing of the Simmons Canada                transaction; |
|--------------------|--------------------------------------------------------------------------------------------------------------------|

| ·   | our                ability to successfully integrate Simmons Canada into its                operations; |
|--------------------|---------------------------------------------------------------------------------------------------------|

| ·   | our                ability to achieve the expected benefits from any personnel realignments;                and |
|--------------------|-----------------------------------------------------------------------------------------------------------------|

| ·   | other                risks and factors identified from time to time in our reports filed                with                the Securities and Exchange Commission                (“SEC”). |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item      3.**
**Quantitative      and Qualitative Disclosures About Market Risk **

**Market      Risk**

**Interest      Rate Risk**

**Foreign      Currency Risk**

**Commodity      Price Risk**

**Item      4.**
**Internal      Controls and Procedures **

----

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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| **PART                II -**  **OTHER                INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| **Item                1.** **Legal Proceedings**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| See                Note I to the Condensed Consolidated Financial Statements, Part 1,                Item 1                included herein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| **Item                1A. Risk Factors**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    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| There                were no material changes to the Company’s risk factors outlined in its                annual report filed with the Commission on form 10-K on March 14,                2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| **Item                2.** **Unregistered Sales of Equity Securities and Use of                Proceeds**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| **Item                3. Defaults Upon Senior Securities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| **Item                4.** **Submission of Matters to a Vote of Security                Holders**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| **Item                5.** **Other Information**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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| (a)                   On November 10, 2006, the Company issued a press release announcing                  the Company’s third quarter operating results and the appointment of Gary                  S. Matthews as its President effective December 1, 2006 (“Start Date”).                  Mr. Matthews will report to our Chairman and Chief Executive Officer,                  Charles R. Eitel, and will be responsible for the day-to-day management                  and operations of our business. Prior to joining Simmons, Mr. Matthews                  served as President and Chief Executive Officer of Sleep Innovations,                  Inc.                  from August 2005 to November 2006. From December 2001 to January                  2005, Mr.                  Matthews was employed by Bristol-Myers Squibb Company where he                  most                  recently served as President, Worldwide Consumer Medicines and                  Specialty                  Pharmaceuticals. From 1999 to 2001, Mr. Matthews served as President                  and                  Chief Executive Officer of privately-held Derby Cycle Corporation.                  From                  1996 to 1999, Mr. Matthews was employed by Diageo (Guinness) plc                  where he                  served in various roles including Managing Director Guinness, United                  Kingdom; and President and Chief Executive Officer, The Guinness                  Import                  Company, USA. Prior to joining Diageo (Guinness) plc, he served                  in various positions at PepsiCo, Inc. and McKinsey & Company. Mr.                  Matthews is also a director of Molson Coors Brewing Co. and Van                  Wagner,                  Inc. The press release is filed with this Form 10-Q as Exhibit                  99.1, its                  contents are incorporated by reference into this Item 5.In                  connection with Mr. Matthews’ appointment as President of the Company, Mr.                  Matthews signed an employment agreement dated November 10, 2006                  (the                  “Employment Agreement”). Under the terms of the Employment Agreement, Mr.                  Matthews will receive an annual salary of $575,000 subject to annual                  merit                  increases and will be eligible for an annual bonus based on the                  Company’s                  performance. Mr. Matthews will also participate in the Simmons                  Company                  Equity Incentive Plan, pursuant to which he will be issued 40,000                  shares                  of Class B common stock and options to purchase 30,000 shares of                  Class B                  common stock on the Start Date, both of which awards will be subject                  to                  vesting and terms and conditions as provided in a restricted stock                  agreement and stock option agreement, respectively. Mr. Matthews                  is also                  required to invest $250,000 of his personal funds in the Company’s Class A                  common stock on the Start Date based on the then current fair market                  value                  of the stock as determined by the Company’s Board of Directors. Also under                  the terms of the Employment Agreement, Mr. Matthews will receive,                  among                  other things, a starting bonus of $600,000 and a relocation package                  from                  the Company. Additionally,                  the Employment Agreement has an eighteen-month term with evergreen                  renewal                  provisions and contains usual and customary restrictive covenants,                  including eighteen-month non-competition provisions, non-disclosure                  of                  proprietary information provisions, provisions relating to                  non-solicitation of employees or customers and non-disparagement                  provisions. If Mr. Matthews is terminated without “cause” or departs for                  “good reason”, he will be entitled to eighteen months of severance and a                  pro-rated bonus. If Mr. Matthews is not appointed Chief Executive                  Officer                  (“CEO”) upon the departure of the Company’s current CEO, Charles R. Eitel,                  and Mr. Matthews leaves the Company within 90 days of Mr. Eitel’s                  departure, Mr. Matthews will be entitled to one-year severance                  and                  relocation expenses. The                  Employment Agreement is filed with this Form 10-Q as Exhibit 10.2,                  its                  contents are incorporated by reference into this Item 5.On                  October 6, 2006, the Company’s indirect subsidiary, Simmons Bedding                  Company (“Simmons Bedding”), entered into the Second Amendment to Lease                  with Teachers Concourse, LLC (Landlord) (referred to as the “Corporate                  Lease Amendment”). Under the Corporate Lease Amendment, Simmons Bedding                  exercised its right to lease an additional 8,946 square feet of                  space at                  its corporate headquarters in Atlanta, Georgia through September                  2011. The                  Corporate Lease Amendment is filed with this Form 10-Q as Exhibit                  10.1,                  its contents are incorporated by reference into this Item 5. (b) None |

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**Item      6. Exhibits**

| 10.1       | Second                  Amendment to Lease Agreement at Concourse between Teachers Concourse,                  LLC,                  as Landlord, and Simmons Bedding, as Tenant, dated as of October                  6,                  2006. |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
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| 10.2       | Gary                  S. Matthews Employment Agreement                                                                                                                                                                                           |
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| 31.1       | Chief                  Executive Officer Certification of the Type Described in Rule 13a                  - 14(a)                  and Rule 15d - 14(a)                                                                                          |
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| 31.2       | Chief                  Financial Officer Certification of the Type Described in Rule 13a                  - 14(a)                  and Rule 15d - 14(a)                                                                                          |
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| 32.1       | Certification                  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (furnished                  herewith)                                                                                                               |
|       |
| 32.2       | Certification                  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (furnished                  herewith)                                                                                                               |
|       |
|  99.1 |  Simmons Company                Press Release Announcing Third Quarter Results and the Appointment                of Gary                S. Matthews as President                                                                           |

| By:    | /s/                William S. Creekmuir                               |   |
|--------|-----------------------------------------------------------------------|--------|
|   | William                S. Creekmuir                                   |
|   | Executive                Vice President & Chief Financial Officer |
| Date:  | November                13, 2006                                      |

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