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 March 29, 2008





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


(Exact
name of registrant as specified in its charter)





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





Registrant’s
telephone number, including area code (770)
512-7700





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days





Yes:           þ                      No:            ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  (See definitions of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act).





Large
accelerated filer:  ̈                                     Accelerated
filer:  ̈                        Non-accelerated
filer: þ                         
Smaller reporting company:  ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes:            ̈                      No:           þ





The
number of shares of the registrant’s common stock outstanding as of May 6, 2008:
100





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 Income


and
Comprehensive Income (Loss)


(In
thousands)





Quarters
      EndedMarch
      29,
              
              
              March
      31,2008
              
              
              2007Net
      sales
              
              $
              276,881
              
              
              $
              267,406Cost
      of products sold
              
              
              167,207
              
              
              
              159,215Gross
      profit
              
              
              109,674
              
              
              
              108,191Operating
      expenses:Selling,
      general and administrative expenses
              
              
              88,551
              
              
              
              84,708Amortization
      of intangibles
              
              
              1,589
              
              
              
              1,479Licensing
      revenues
              
              
              (2,568
              )
              
              
              (3,193
              )87,572
              
              
              
              82,994Operating
      income
              
              
              22,102
              
              
              
              25,197Interest
      expense, net
              
              
              17,815
              
              
              
              18,389Income
      before income taxes
              
              
              4,287
              
              
              
              6,808Income
      tax expense
              
              
              1,772
              
              
              
              2,395Net
      income
              
              
              2,515
              
              
              
              4,413Other
      comprehensive income (loss):Foreign
      currency translation adjustment
              
              
              (5,364
              )
              
              
              1,254Comprehensive
      income (loss)
              
              $
              (2,849
              )
              
              $
              5,667The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.
 1


Simmons
Company and Subsidiaries


Condensed
Consolidated Balance Sheets


(In
thousands)





March
      29,
              
              
              December
      29,2008
              
              
              
              2007*(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              17,972
              
              
              $
              27,520Accounts
      receivable, less allowances for doubtful receivables,discounts
      and returns of $3,894 and $4,550
              
              
              124,066
              
              
              
              119,984Inventories
              
              
              39,148
              
              
              
              35,207Deferred
      income taxes
              
              
              6,036
              
              
              
              5,953Prepaid
      expenses
              
              
              9,783
              
              
              
              11,167Other
      current assets
              
              
              8,357
              
              
              
              8,161Total
      current assets
              
              
              205,362
              
              
              
              207,992Property,
      plant and equipment, net
              
              
              90,909
              
              
              
              87,449Goodwill
              
              
              538,568
              
              
              
              540,126Intangible
      assets, net
              
              
              600,165
              
              
              
              604,547Other
      assets
              
              
              40,934
              
              
              
              37,539Total
      assets
              
              $
              1,475,938
              
              
              $
              1,477,653*
      Derived from the Company's 2007 audited consolidated financial statements,
      but does not include alldisclosures
      required by accounting principles generally accepted in the United States
      of AmericaThe
      accompanying notes are an integral part of these condensed consolidated
      financial statements.
 2


Simmons
Company and Subsidiaries


Condensed
Consolidated Balance Sheets


(In
thousands, except share amounts)





March
      29,
              
              
              December
      29,2008
              
              
              
              2007*(Unaudited)LIABILITIES
      AND STOCKHOLDER'S EQUITYCurrent
      liabilities:Current
      maturities of long-term debt
              
              $
              675
              
              
              $
              772Accounts
      payable
              
              
              79,267
              
              
              
              72,484Accrued
      liabilities
              
              
              81,405
              
              
              
              96,366Total
      current liabilities
              
              
              161,347
              
              
              
              169,622Long-term
      debt
              
              
              923,731
              
              
              
              900,716Deferred
      income taxes
              
              
              190,687
              
              
              
              190,321Other
              
              
              31,365
              
              
              
              28,842Total
      liabilities
              
              
              1,307,130
              
              
              
              1,289,501Commitments
      and contingenciesStockholder's
      equity:Common
      stock, $0.01 par value: authorized - 1,000 shares; issued - 100
      shares
              
              
              1
              
              
              
              1Additional
      paid-in capital
              
              
              100,610
              
              
              
              100,613Retained
      earnings
              
              
              54,737
              
              
              
              68,714Accumulated
      other comprehensive income
              
              
              13,460
              
              
              
              18,824Total
      stockholder's equity
              
              
              168,808
              
              
              
              188,152Total
      liabilities and stockholder's equity
              
              $
              1,475,938
              
              
              $
              1,477,653*
      Derived from the Company's 2007 audited consolidated financial statements,
      but does not include alldisclosures
      required by accounting principles generally accepted in the United States
      of AmericaThe
      accompanying notes are an integral part of these condensed consolidated
      financial statements.
 3


Simmons
Company and Subsidiaries


Unaudited
Condensed Consolidated Statements of Cash Flows


(In
thousands)





Quarters
      EndedMarch
      29,
              
              
              March
      31,2008
              
              
              2007Cash
      flows from operating activities:Net
      income
              
              $
              2,515
              
              
              $
              4,413Adjustments
      to reconcile net income to net cashused
      in operating activities:Depreciation
      and amortization
              
              
              8,216
              
              
              
              7,348Provision
      for bad debts
              
              
              910
              
              
              
              958Provision
      for deferred income taxes
              
              
              735
              
              
              
              1,934Non-cash
      interest expense
              
              
              6,093
              
              
              
              5,556Non-cash
      stock compensation expense
              
              
              (3
              )
              
              
              119Net
      changes in operating assets and liabilities:Accounts
      receivable
              
              
              (8,611
              )
              
              
              (16,524
              )Inventories
              
              
              (4,128
              )
              
              
              (5,489
              )Other
      current assets
              
              
              1,136
              
              
              
              (1,110
              )Accounts
      payable
              
              
              7,003
              
              
              
              14,858Accrued
      liabilities
              
              
              (17,640
              )
              
              
              (8,300
              )Other,
      net
              
              
              (747
              )
              
              
              (9,157
              )Net
      cash used in operating activities
              
              
              (4,521
              )
              
              
              (5,394
              )Cash
      flows from investing activities:Purchases
      of property, plant and equipment
              
              
              (5,292
              )
              
              
              (4,227
              )Other,
      net
              
              
              -
              
              
              
              (96
              )Net
      cash used in investing activities
              
              
              (5,292
              )
              
              
              (4,323
              )Cash
      flows from financing activities:Borrowings
      on revolving loan
              
              
              17,500
              
              
              
              -Payments
      of other debt
              
              
              (143
              )
              
              
              (141
              )Dividend
      to Simmons Holdco, Inc.
              
              
              (16,492
              )
              
              
              -Purchase
      of common stock
              
              
              -
              
              
              
              (1
              )Net
      cash provided by (used in) financing activities
              
              
              865
              
              
              
              (142
              )Net
      effect of exchange rate changes on cash
              
              
              (600
              )
              
              
              48Change
      in cash and cash equivalents
              
              
              (9,548
              )
              
              
              (9,811
              )Cash
      and cash equivalents, beginning of period
              
              
              27,520
              
              
              
              20,784Cash
      and cash equivalents, end of period
              
              $
              17,972
              
              
              $
              10,973The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.
 4


Simmons
Company and Subsidiaries


Unaudited
Condensed Consolidated Statement of Changes in Stockholder’s Equity


(In
thousands, except share amounts)




Accumulated
      Other Comprehensive Income (Loss)Additional
              
              
              
              
              
              Net
      Unrealized Gain (Loss) From
              
              
              TotalCommon
              
              
              Common
              
              
              Paid-In
              
              
              Retained
              
              
              Currency
              
              
              Benefit
              
              
              Stockholder'sShares
              
              
              Stock
              
              
              Capital
              
              
              Earnings
              
              
              Translation
              
              
              Plans
              
              
              EquityDecember
      29, 2007 (audited)
              
              
              100
              
              
              $
              1
              
              
              $
              100,613
              
              
              $
              68,714
              
              
              $
              19,179
              
              
              $
              (355
              )
              
              $
              188,152Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,515
              
              
              
              -
              
              
              
              -
              
              
              
              2,515Foreign
      currency translation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,364
              )
              
              
              -
              
              
              
              (5,364
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,515
              
              
              
              (5,364
              )
              
              
              -
              
              
              
              (2,849
              )Stock
      compensation expense
              
              
              -
              
              
              
              -
              
              
              
              (3
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3
              )Dividend
      to Simmons Holdco, Inc.
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (16,492
              )
              
              
              -
              
              
              
              -
              
              
              
              (16,492
              )March
      29, 2008 (unaudited)
              
              
              100
              
              
              $
              1
              
              
              $
              100,610
              
              
              $
              54,737
              
              
              $
              13,815
              
              
              $
              (355
              )
              
              $
              168,808The
      accompanying notes are an integral part of these consolidated financial
      statements.
 5
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements





A.
            Basis
      of Presentation





Simmons
Company (“Holdings”) is a holding company with no operating
assets.  Through its wholly-owned subsidiary THL-SC Bedding Company,
which is also a holding company, Simmons Company owns the common stock of
Simmons Bedding Company.  All of Simmons Company’s business operations
are conducted by Simmons Bedding Company and its direct and indirect
subsidiaries (collectively “Simmons Bedding”).  Simmons Company,
together with its subsidiaries (collectively the “Company” or “Simmons
Company”), is one of the largest bedding manufacturers in North
America.





These
condensed consolidated financial statements of the Company are unaudited, and
have been prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”) and Rule 10-01 of Regulation S-X for interim
financial information. The accompanying unaudited condensed consolidated
financial statements contain all adjustments, which, in the opinion of
management, are necessary to present fairly the financial position of the
Company as of March 29, 2008, and its results of operations and cash flows for
the periods presented herein.  All adjustments in the periods
presented herein are normal and recurring in nature unless otherwise
disclosed.  These unaudited condensed consolidated financial
statements should be read in conjunction with the Company’s Annual Report on
Form 10-K for the year ended December 29, 2007.  Operating results for
the period ended March 29, 2008 are not necessarily indicative of future results
that may be expected for the fiscal year ending December 27, 2008 or for any
future period.





The
preparation of unaudited condensed consolidated financial statements in
conformity with GAAP includes some amounts that are based upon management
estimates and judgments. Future actual results could differ from such current
estimates.





B.           Inventories





A summary
of inventories follows (in thousands):





March
      29,
              
              
              December
      29,2008
              
              
              2007Raw
      materials
              
              $
              25,765
              
              
              $
              22,669Work-in-progress
              
              
              1,117
              
              
              
              1,122Finished
      goods
              
              
              12,266
              
              
              
              11,416$
              39,148
              
              
              $
              35,207


C.           Goodwill





The changes in the carrying amount of
goodwill for the quarter ended March 29, 2008 are as follows (in
thousands):





Domestic
              
              
              Canada
              
              
              ConsolidatedBalance
      as of December 29, 2007
              
              $
              500,221
              
              
              $
              39,905
              
              
              $
              540,126Foreign
      currency translation adjustment
              
              
              -
              
              
              
              (1,554
              )
              
              
              (1,554
              )Other
              
              
              (4
              )
              
              
              -
              
              
              
              (4
              )Balance
      as of March 29, 2008
              
              $
              500,217
              
              
              $
              38,351
              
              
              $
              538,568


D.           Warranties





The conventional innerspring bedding
products that the Company currently manufactures generally include a
non-prorated warranty of ten years.  The conventional specialty
bedding products that the Company currently manufactures generally include a
non-prorated warranty of twenty to twenty-five years.  The Company’s
juvenile bedding products have warranty periods ranging from five years to a
lifetime.  The Company records the estimated cost of warranty claims
when its products are sold.  The Company’s new products undergo
extensive quality control testing and are generally constructed using similar
techniques and materials of our historical products.  Therefore, the
Company estimates the cost of warranty claims based on historical sales and
warranty returns and the current average costs to settle a warranty
claim.  The Company includes the estimated impact of recoverable
salvage value in the calculation of the current average costs to settle a
warranty claim.





The
following table presents a reconciliation of the Company’s warranty accrual for
the quarters ended March 29, 2008 and March 31, 2007 (in
thousands):





March
      29,
              
              
              March
      31,2008
              
              
              2007Balance
      at beginning of period
              
              $
              4,291
              
              
              $
              3,668Additional
      warranties issued
              
              
              770
              
              
              
              543Warranty
      settlements
              
              
              (546
              )
              
              
              (443
              )Accruals
      related to pre-existing warranties (including change in
      estimate)
              
              
              61
              
              
              
              85Balance
      at end of period
              
              $
              4,576
              
              
              $
              3,853
 6
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements





E.
            Long-Term
      Debt





A summary
of long-term debt follows (in thousands):





March
      29,
              
              
              December
      29,2008
              
              
              2007Senior
      credit facility:Revolving
      loan
              
              $
              17,500
              
              
              $
              -Tranche
      D term loan
              
              
              465,000
              
              
              
              465,000Total
      senior credit facility
              
              
              482,500
              
              
              
              465,0007.875%
      senior subordinated notes due 2014
              
              
              200,000
              
              
              
              200,00010.0%
      senior discount notes, due 2014, net of discount of$41,264
      and $46,835, respectively
              
              
              227,736
              
              
              
              222,165Other,
      including capital lease obligations
              
              
              14,170
              
              
              
              14,323924,406
              
              
              
              901,488Less
      current portion
              
              
              (675
              )
              
              
              (772
              )$
              923,731
              
              
              $
              900,716


The
Company has a $75.0 million revolving loan facility which can be used for
borrowings and letters of credit.  At March 29, 2008, $17.5 million
was outstanding under the revolving loan facility and the Company had
approximately $48.2 million available to borrow after taking into account $9.3
million that was reserved for the Company’s reimbursement obligations with
respect to outstanding letters of credit.





The
weighted average interest rate per annum in effect as of March 29, 2008 for the
senior credit facility was 5.6%.





As of March 29, 2008, the Company was
in compliance with all of its financial covenants in its loan
agreements.





7


Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements


F.            Segment
Information





The Company has determined that it has
two reportable segments organized by geographic area, Domestic (including Puerto
Rico) and Canada.  Both segments manufacture, sell and distribute
premium branded bedding products to retail customers and institutional users of
bedding products, such as the hospitality industry.





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





The
following tables summarize our segment information for the quarters ended March
29, 2008 and March 31, 2007:





Quarter
      Ended March 29, 2008(In
      thousands)Domestic
                  
                  
                  Canada
                  
                  
                  Eliminations
                  
                  
                  TotalsNet
      sales to external customers
                  
                  $
                  245,002
                  
                  
                  $
                  31,879
                  
                  
                  $
                  -
                  
                  
                  $
                  276,881Intersegment
      net sales
                  
                  
                  63
                  
                  
                  
                  -
                  
                  
                  
                  (63
                  )
                  
                  
                  -Adjusted
      EBITDA
                  
                  
                  30,292
                  
                  
                  
                  2,689
                  
                  
                  
                  -
                  
                  
                  
                  32,981Depreciation
      and amortization expense
                  
                  
                  6,881
                  
                  
                  
                  1,335
                  
                  
                  
                  -
                  
                  
                  
                  8,216Expenditures
      for long-lived assets
                  
                  
                  4,413
                  
                  
                  
                  879
                  
                  
                  
                  -
                  
                  
                  
                  5,292Segment
      assets
                  
                  
                  1,437,384
                  
                  
                  
                  174,134
                  
                  
                  
                  (135,580
                  )
                  
                  
                  1,475,938Reconciliation
      of net income to Adjusted EBITDA:Net
      income (loss)
                  
                  $
                  3,418
                  
                  
                  $
                  (903
                  )
                  
                  $
                  -
                  
                  
                  $
                  2,515Depreciation
      and amortization
                  
                  
                  6,881
                  
                  
                  
                  1,335
                  
                  
                  
                  -
                  
                  
                  
                  8,216Income
      taxes
                  
                  
                  2,253
                  
                  
                  
                  (481
                  )
                  
                  
                  -
                  
                  
                  
                  1,772Interest
      expense, net
                  
                  
                  15,814
                  
                  
                  
                  2,001
                  
                  
                  
                  -
                  
                  
                  
                  17,815Interest
      income
                  
                  
                  17
                  
                  
                  
                  114
                  
                  
                  
                  -
                  
                  
                  
                  131Transaction
      expenses including integration costs
                  
                  
                  107
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  107Non-recurring
      professional service fees
                  
                  
                  408
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  408Relocation
      of manufacturing and Canada corporate facilities
                  
                  
                  485
                  
                  
                  
                  73
                  
                  
                  
                  -
                  
                  
                  
                  558Reorganization
      expense including management severance
                  
                  
                  275
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  275Management
      fees
                  
                  
                  (35
                  )
                  
                  
                  523
                  
                  
                  
                  -
                  
                  
                  
                  488ERP
      system implementation costs
                  
                  
                  482
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  482(Gain)
      loss on foreign currency
                  
                  
                  404
                  
                  
                  
                  (605
                  )
                  
                  
                  -
                  
                  
                  
                  (201
                  )State
      taxes in lieu of income taxes
                  
                  
                  106
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  106Other
                  
                  
                  (323
                  )
                  
                  
                  632
                  
                  
                  
                  -
                  
                  
                  
                  309Adjusted
      EBITDA
                  
                  $
                  30,292
                  
                  
                  $
                  2,689
                  
                  
                  $
                  -
                  
                  
                  $
                  32,981
 8
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements


Quarter
      Ended March 31, 2007(In
      thousands)Domestic
              
              
              Canada
              
              
              Eliminations
              
              
              TotalsNet
      sales to external customers
              
              $
              238,002
              
              
              $
              29,404
              
              
              $
              -
              
              
              $
              267,406Intersegment
      net sales
              
              
              225
              
              
              
              -
              
              
              
              (225
              )
              
              
              -Adjusted
      EBITDA
              
              
              32,479
              
              
              
              3,622
              
              
              
              -
              
              
              
              36,101Depreciation
      and amortization expense
              
              
              6,287
              
              
              
              1,061
              
              
              
              -
              
              
              
              7,348Expenditures
      for long-lived assets
              
              
              3,816
              
              
              
              411
              
              
              
              -
              
              
              
              4,227Segment
      assets
              
              
              1,375,379
              
              
              
              147,467
              
              
              
              (115,987
              )
              
              
              1,406,859Reconciliation
      of net income to Adjusted EBITDA:Net
      income (loss)
              
              $
              4,440
              
              
              $
              (27
              )
              
              $
              -
              
              
              $
              4,413Depreciation
      and amortization
              
              
              6,287
              
              
              
              1,061
              
              
              
              -
              
              
              
              7,348Income
      taxes
              
              
              2,429
              
              
              
              (34
              )
              
              
              -
              
              
              
              2,395Interest
      expense, net
              
              
              16,603
              
              
              
              1,786
              
              
              
              -
              
              
              
              18,389Interest
      income
              
              
              334
              
              
              
              33
              
              
              
              -
              
              
              
              367Reorganization
      expense includingmanagement
      severance
              
              
              497
              
              
              
              123
              
              
              
              -
              
              
              
              620Management
      fees
              
              
              465
              
              
              
              -
              
              
              
              -
              
              
              
              465Transaction
      related expenses
              
              
              585
              
              
              
              -
              
              
              
              -
              
              
              
              585Non-cash
      stock compensation expense
              
              
              119
              
              
              
              -
              
              
              
              -
              
              
              
              119Conversion
      costs associated with meeting newflammability
      standard
              
              
              913
              
              
              
              -
              
              
              
              -
              
              
              
              913Loss
      on foreign currency transactions
              
              
              -
              
              
              
              95
              
              
              
              -
              
              
              
              95State
      taxes in lieu of income taxes
              
              
              130
              
              
              
              -
              
              
              
              -
              
              
              
              130Other
              
              
              (323
              )
              
              
              585
              
              
              
              -
              
              
              
              262Adjusted
      EBITDA
              
              $
              32,479
              
              
              $
              3,622
              
              
              $
              -
              
              
              $
              36,101
 
  9
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements


G.           Commitments
and Contingencies





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





Simmons Holdco, Inc. (“Simmons
Holdco”), a holding company that wholly owns the Company, has a $300.0 million
senior unsecured loan (“Toggle Loan”).  The Company does not guarantee
nor have any of its assets pledged as collateral under the Toggle
Loan.  The Toggle Loan is structurally subordinated in right of
payment to any existing and future liabilities of the Company. Although the
Company is not obligated to make cash distributions to service principal and
interest on the Toggle Loan, Simmons Holdco is dependent on the cash flow of the
Company to meet the interest and principal payments under the Toggle
Loan.  The Toggle Loan is not included in the financial statements of
the Company.  In February 2008, the Company provided $16.3 million of
cash in the form a dividend to Simmons Holdco so that the interest coupon on the
Toggle Loan could be paid.  Simmons Holdco has elected to pay its next
interest payment of $12.3 million due on the Toggle Loan in August 2008 in
cash.





H.           Accounting
Pronouncements





In September 2006, the Financial
Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”).  SFAS 157 addresses the measurement of fair value by
companies when they are required to use a fair value measure for recognition or
disclosure purposes under GAAP.  SFAS 157 provides a common definition
of fair value to be used throughout GAAP, which is intended to make the
measurement of fair value more consistent and comparable and improve disclosures
about those measures.  SFAS 157 clarifies the principal that fair
value should be based on the assumptions market participants would use when
pricing an asset or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions.  In
February 2008, the Financial Accounting Standards Board (“FASB”) issued
Financial Statement Position (“FSP”) No. 157-1, Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address
Fair Value Measurements for Purposes of Lease Classification or Measurement
under Statement 13,  which removed leasing transactions
accounted for under Statement 13 and related guidance from the scope of SFAS
157, and  FSP No. 157-2, Partial Deferral of the Effective
Date of Statement 157 (“FSP 157-2”), which deferred the effective date of
SFAS 157 for all nonfinancial assets and liabilities, except those that are
recognized or disclosed in the financial statements at fair value at least
annually, to fiscal years beginning after November 15, 2008.  The
Company implemented SFAS 157 for financial assets and liabilities at the
beginning of its fiscal year 2008 and elected to defer the adoption of SFAS 157
for nonfinancial assets and liabilities until the beginning of its fiscal year
2009 as allowed under FSP 157-2.  The implementation of SFAS 157 for
financial assets and liabilities did not have a material impact on the Company’s
consolidated financial position and results of operations.  The
Company is still assessing the impact of adopting SFAS 157 for nonfinancial
assets and liabilities will have to its consolidated financial position and
results of operations.  The major categories of assets and liabilities
that are measured at fair value, for which the Company has not applied the
provisions of SFAS 157, are as follows: reporting units measured at fair value
in the first step of the Company’s goodwill impairment testing and
indefinite-lived intangible assets measured at fair value for impairment
testing.





In February 2007, the FASB issued
SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities - Including an Amendment
of FASB Statement No. 115(“SFAS
159”).  SFAS 159 permits an entity to choose to measure many financial
instruments and certain other items at fair value at specified election dates.
 Upon adoption, an entity shall report unrealized gains and losses on items
for which the fair value option has been elected in earnings at each subsequent
reporting date.  Most of the provisions apply only to entities that
elect the fair value option.  However, the amendment to SFAS No. 115,
Accounting for Certain
Investments in Debt and Equity Securities, applies to all entities with
available for sale and trading securities.  SFAS 159 was adopted by
the Company at the beginning of fiscal year 2008 and has determined not to apply
the fair value option to any of its financial assets and
liabilities.





In
December 2007, the FASB issued SFAS 141 (Revised 2007), Business Combinations (“SFAS
141R”).  SFAS 141R replaces FASB Statement No. 141, Accounting for Business
Combinations. SFAS 141R requires
that the acquisition method of accounting be used in all business combinations
and for an acquirer to be identified for each business
combination.  SFAS 141R defines the acquirer as the entity that
obtains control of one or more businesses in the business combination and
establishes the acquisition date as the date that the acquirer achieves
control.  It requires an acquirer to recognize the assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date, measured at their fair values as of that date.  SFAS
141R will be effective for the Company and business combinations for which the
acquisition date is on or after the beginning of fiscal year
2009.  The impact on the Company of adopting SFAS 141R will depend on
the nature, terms and size of the business combinations completed after the
effective date.





In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“SFAS 160”).  SFAS 160
amends ARB No. 51, Consolidated Financial
Statements.  SFAS 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements.  SFAS 160 will be effective for the Company at the
beginning of fiscal year 2009.  The Company currently does not have a
non-controlling interest in a subsidiary; therefore, the adoption of SFAS 160
would not have any impact on the Company’s consolidated financial statements and
results of operations.





In March 2008, the FASB issued SFAS No.
161,Disclosures about
Derivative Instruments and Hedging Activities.  SFAS 161
enhances the disclosure framework of FASB Statement No. 133,Accounting for Derivative
Instruments and Hedging Activities,as amended (“SFAS
133”).  SFAS 161 expands the disclosures to provide an enhanced
understanding of (1) how and why an entity uses derivative instruments, (2) how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations, and (3) how derivative instruments affect an
entity’s financial position, financial performance, and cash
flows.  SFAS 161 will be effective for the Company at the beginning of
fiscal year 2009.  The Company is in the process of evaluating the
impact of this guidance on its consolidated financial statements and results of
operations.





I.
            Guarantor
      / Non-Guarantor Statements





Simmons Bedding’s 7.875% senior
subordinated notes due 2014 are fully and unconditionally guaranteed, on a joint
and several basis, and on an unsecured, senior subordinated basis by Holdings
and THL-SC Bedding (the “Parent Guarantors”) and all of Simmons Bedding’s active
domestic subsidiaries (the “Subsidiary Guarantors”).  All of the
Subsidiary Guarantors are 100% owned by Simmons Bedding.  The
Company's Puerto Rico and foreign subsidiaries are not guarantors of the 7.875%
senior subordinated notes due 2014 (the “Non-Guarantor
Subsidiaries”).  The Supplemental Consolidating Condensed Financial
Statements provide additional guarantor/non-guarantor information.





10
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements





Supplemental
Consolidating Condensed Statements of Operations


For
the Quarter Ended March 29, 2008


(In
thousands)





Issuer
      and GuarantorsSimmonsParent
              
              
              Bedding
              
              
              Guarantor
              
              
              Non-GuarantorGuarantors
              
              
              Company
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedNet
      sales
              
              $
              -
              
              
              $
              (22,152
              )
              
              $
              265,281
              
              
              $
              33,815
              
              
              $
              (63
              )
              
              $
              276,881Cost
      of products sold
              
              
              -
              
              
              
              802
              
              
              
              141,917
              
              
              
              24,551
              
              
              
              (63
              )
              
              
              167,207Gross
      profit
              
              
              -
              
              
              
              (22,954
              )
              
              
              123,364
              
              
              
              9,264
              
              
              
              -
              
              
              
              109,674Operating
      expenses:Selling,
      general and administrative expenses
              
              
              -
              
              
              
              58,824
              
              
              
              22,413
              
              
              
              7,314
              
              
              
              -
              
              
              
              88,551Amortization
      of intangibles
              
              
              -
              
              
              
              739
              
              
              
              600
              
              
              
              250
              
              
              
              -
              
              
              
              1,589Intercompany
      fees
              
              
              -
              
              
              
              (83,998
              )
              
              
              82,700
              
              
              
              1,298
              
              
              
              -
              
              
              
              -Licensing
      revenues
              
              
              -
              
              
              
              (401
              )
              
              
              (1,933
              )
              
              
              (234
              )
              
              
              -
              
              
              
              (2,568
              )-
              
              
              
              (24,836
              )
              
              
              103,780
              
              
              
              8,628
              
              
              
              -
              
              
              
              87,572Operating
      income
              
              
              -
              
              
              
              1,882
              
              
              
              19,584
              
              
              
              636
              
              
              
              -
              
              
              
              22,102Interest
      expense, net
              
              
              5,643
              
              
              
              9,923
              
              
              
              210
              
              
              
              2,039
              
              
              
              -
              
              
              
              17,815Income
      from subsidiaries
              
              
              6,295
              
              
              
              13,672
              
              
              
              -
              
              
              
              -
              
              
              
              (19,967
              )
              
              
              -Income
      (loss) before income taxes
              
              
              652
              
              
              
              5,631
              
              
              
              19,374
              
              
              
              (1,403
              )
              
              
              (19,967
              )
              
              
              4,287Income
      tax expense (benefit)
              
              
              (1,863
              )
              
              
              (664
              )
              
              
              4,781
              
              
              
              (482
              )
              
              
              
              
              
              
              1,772Net
      income (loss)
              
              $
              2,515
              
              
              $
              6,295
              
              
              $
              14,593
              
              
              $
              (921
              )
              
              $
              (19,967
              )
              
              $
              2,515
 11
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements


Supplemental
Consolidating Condensed Statements of Operations


For
the Quarter Ended March 31, 2007


(In
thousands)





Issuer
      and GuarantorsSimmonsParent
              
              
              Bedding
              
              
              Guarantor
              
              
              Non-GuarantorGuarantors
              
              
              Company
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedNet
      sales
              
              $
              -
              
              
              $
              (24,568
              )
              
              $
              260,222
              
              
              $
              31,977
              
              
              $
              (225
              )
              
              $
              267,406Cost
      of products sold
              
              
              -
              
              
              
              628
              
              
              
              136,658
              
              
              
              22,154
              
              
              
              (225
              )
              
              
              159,215Gross
      profit
              
              
              -
              
              
              
              (25,196
              )
              
              
              123,564
              
              
              
              9,823
              
              
              
              -
              
              
              
              108,191Operating
      expenses:Selling,
      general and administrative expenses
              
              
              (10
              )
              
              
              55,877
              
              
              
              21,793
              
              
              
              7,048
              
              
              
              -
              
              
              
              84,708Amortization
      of intangibles
              
              
              -
              
              
              
              739
              
              
              
              526
              
              
              
              214
              
              
              
              -
              
              
              
              1,479Intercompany
      fees
              
              
              -
              
              
              
              (89,646
              )
              
              
              88,886
              
              
              
              760
              
              
              
              -
              
              
              
              -Licensing
      revenues
              
              
              -
              
              
              
              (297
              )
              
              
              (2,731
              )
              
              
              (165
              )
              
              
              -
              
              
              
              (3,193
              )(10
              )
              
              
              (33,327
              )
              
              
              108,474
              
              
              
              7,857
              
              
              
              -
              
              
              
              82,994Operating
      income
              
              
              10
              
              
              
              8,131
              
              
              
              15,090
              
              
              
              1,966
              
              
              
              -
              
              
              
              25,197Interest
      expense, net
              
              
              5,141
              
              
              
              11,535
              
              
              
              (97
              )
              
              
              1,810
              
              
              
              -
              
              
              
              18,389Income
      from subsidiaries
              
              
              7,791
              
              
              
              8,321
              
              
              
              -
              
              
              
              -
              
              
              
              (16,112
              )
              
              
              -Income
      before income taxes
              
              
              2,660
              
              
              
              4,917
              
              
              
              15,187
              
              
              
              156
              
              
              
              (16,112
              )
              
              
              6,808Income
      tax expense (benefit)
              
              
              (1,753
              )
              
              
              (2,874
              )
              
              
              7,029
              
              
              
              (7
              )
              
              
              -
              
              
              
              2,395Net
      income
              
              $
              4,413
              
              
              $
              7,791
              
              
              $
              8,158
              
              
              $
              163
              
              
              $
              (16,112
              )
              
              $
              4,413


12
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements


Supplemental
Consolidating Condensed Balance Sheets


As
of March 29, 2008


(In
thousands)





Issuer
      and GuarantorsSimmonsParent
              
              
              Bedding
              
              
              Subsidiary
              
              
              Non-GuarantorGuarantors
              
              
              Company
              
              
              Guarantors
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              -
              
              
              $
              1,510
              
              
              $
              248
              
              
              $
              16,214
              
              
              $
              -
              
              
              $
              17,972Accounts
      receivable
              
              
              -
              
              
              
              -
              
              
              
              98,340
              
              
              
              25,790
              
              
              
              (64
              )
              
              
              124,066Inventories
              
              
              -
              
              
              
              37
              
              
              
              33,301
              
              
              
              5,810
              
              
              
              -
              
              
              
              39,148Other
              
              
              -
              
              
              
              8,720
              
              
              
              13,195
              
              
              
              2,261
              
              
              
              -
              
              
              
              24,176Total
      current assets
              
              
              -
              
              
              
              10,267
              
              
              
              145,084
              
              
              
              50,075
              
              
              
              (64
              )
              
              
              205,362Property,
      plant and equipment, net
              
              
              -
              
              
              
              26,065
              
              
              
              41,047
              
              
              
              23,797
              
              
              
              -
              
              
              
              90,909Goodwill
      and other intangibles, net
              
              
              -
              
              
              
              70,597
              
              
              
              960,948
              
              
              
              107,188
              
              
              
              -
              
              
              
              1,138,733Other
      assets
              
              
              31,298
              
              
              
              129,010
              
              
              
              566
              
              
              
              3,463
              
              
              
              (123,403
              )
              
              
              40,934Net
      investment in and advances to (from) affiliates
              
              
              365,386
              
              
              
              897,780
              
              
              
              299,757
              
              
              
              (3,414
              )
              
              
              (1,559,509
              )
              
              
              -Total
      assets
              
              $
              396,684
              
              
              $
              1,133,719
              
              
              $
              1,447,402
              
              
              $
              181,109
              
              
              $
              (1,682,976
              )
              
              $
              1,475,938LIABILITIES
      AND STOCKHOLDER'S EQUITYCurrent
      liabilities:Current
      maturities of long-term debt
              
              $
              -
              
              
              $
              -
              
              
              $
              300
              
              
              $
              375
              
              
              $
              -
              
              
              $
              675Accounts
      payable and accrued liabilities
              
              
              140
              
              
              
              48,667
              
              
              
              96,905
              
              
              
              26,480
              
              
              
              (11,520
              )
              
              
              160,672Total
      current liabilities
              
              
              140
              
              
              
              48,667
              
              
              
              97,205
              
              
              
              26,855
              
              
              
              (11,520
              )
              
              
              161,347Long-term
      debt
              
              
              227,736
              
              
              
              682,500
              
              
              
              12,500
              
              
              
              84,484
              
              
              
              (83,489
              )
              
              
              923,731Deferred
      income taxes
              
              
              -
              
              
              
              31,164
              
              
              
              176,162
              
              
              
              11,820
              
              
              
              (28,459
              )
              
              
              190,687Other
      non-current liabilities
              
              
              -
              
              
              
              20,610
              
              
              
              6,282
              
              
              
              4,473
              
              
              
              -
              
              
              
              31,365Total
      liabilities
              
              
              227,876
              
              
              
              782,941
              
              
              
              292,149
              
              
              
              127,632
              
              
              
              (123,468
              )
              
              
              1,307,130Stockholder's
      equity
              
              
              168,808
              
              
              
              350,778
              
              
              
              1,155,253
              
              
              
              53,477
              
              
              
              (1,559,508
              )
              
              
              168,808Total
      liabilities and stockholder's equity
              
              $
              396,684
              
              
              $
              1,133,719
              
              
              $
              1,447,402
              
              
              $
              181,109
              
              
              $
              (1,682,976
              )
              
              $
              1,475,938


13
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements


Supplemental
Consolidating Condensed Balance Sheets


As
of December 29, 2007


(In
thousands)





Issuer
      and GuarantorsSimmonsParent
              
              
              Bedding
              
              
              Subsidiary
              
              
              Non-GuarantorGuarantors
              
              
              Company
              
              
              Guarantors
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              -
              
              
              $
              8,241
              
              
              $
              4,087
              
              
              $
              15,192
              
              
              $
              -
              
              
              $
              27,520Accounts
      receivable
              
              
              -
              
              
              
              -
              
              
              
              93,399
              
              
              
              26,726
              
              
              
              (141
              )
              
              
              119,984Inventories
              
              
              -
              
              
              
              37
              
              
              
              30,041
              
              
              
              5,129
              
              
              
              -
              
              
              
              35,207Other
              
              
              -
              
              
              
              9,859
              
              
              
              13,008
              
              
              
              2,414
              
              
              
              -
              
              
              
              25,281Total
      current assets
              
              
              -
              
              
              
              18,137
              
              
              
              140,535
              
              
              
              49,461
              
              
              
              (141
              )
              
              
              207,992Property,
      plant and equipment, net
              
              
              -
              
              
              
              24,818
              
              
              
              38,423
              
              
              
              24,208
              
              
              
              -
              
              
              
              87,449Goodwill
      and other intangibles, net
              
              
              -
              
              
              
              71,335
              
              
              
              961,552
              
              
              
              111,786
              
              
              
              -
              
              
              
              1,144,673Other
      assets
              
              
              29,508
              
              
              
              126,973
              
              
              
              586
              
              
              
              3,695
              
              
              
              (123,223
              )
              
              
              37,539Net
      investment in and advances to (from) affiliates
              
              
              380,949
              
              
              
              910,379
              
              
              
              287,881
              
              
              
              (2,219
              )
              
              
              (1,576,990
              )
              
              
              -Total
      assets
              
              $
              410,457
              
              
              $
              1,151,642
              
              
              $
              1,428,977
              
              
              $
              186,931
              
              
              $
              (1,700,354
              )
              
              $
              1,477,653-LIABILITIES
      AND STOCKHOLDER'S EQUITYCurrent
      liabilities:Current
      maturities of long-term debt
              
              $
              -
              
              
              $
              -
              
              
              $
              300
              
              
              $
              472
              
              
              $
              -
              
              
              $
              772Accounts
      payable and accrued liabilities
              
              
              140
              
              
              
              66,681
              
              
              
              86,762
              
              
              
              25,168
              
              
              
              (9,901
              )
              
              
              168,850Total
      current liabilities
              
              
              140
              
              
              
              66,681
              
              
              
              87,062
              
              
              
              25,640
              
              
              
              (9,901
              )
              
              
              169,622Long-term
      debt
              
              
              222,165
              
              
              
              665,000
              
              
              
              12,500
              
              
              
              87,919
              
              
              
              (86,868
              )
              
              
              900,716Deferred
      income taxes
              
              
              -
              
              
              
              32,859
              
              
              
              171,284
              
              
              
              12,773
              
              
              
              (26,595
              )
              
              
              190,321Other
      non-current liabilities
              
              
              -
              
              
              
              20,754
              
              
              
              3,867
              
              
              
              4,221
              
              
              
              -
              
              
              
              28,842Total
      liabilities
              
              
              222,305
              
              
              
              785,294
              
              
              
              274,713
              
              
              
              130,553
              
              
              
              (123,364
              )
              
              
              1,289,501Stockholder's
      equity
              
              
              188,152
              
              
              
              366,348
              
              
              
              1,154,264
              
              
              
              56,378
              
              
              
              (1,576,990
              )
              
              
              188,152Total
      liabilities and stockholder's equity
              
              $
              410,457
              
              
              $
              1,151,642
              
              
              $
              1,428,977
              
              
              $
              186,931
              
              
              $
              (1,700,354
              )
              
              $
              1,477,653


14
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements


Supplemental
Consolidating Condensed Statements of Cash Flows


For
the Quarter Ended March 29, 2008


(In
thousands)





Issuer
      and GuarantorsSimmonsParent
              
              
              Bedding
              
              
              Guarantor
              
              
              Non-GuarantorGuarantors
              
              
              Company
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedNet
      cash provided by (used in) operating activities
              
              $
              (3
              )
              
              $
              (29,627
              )
              
              $
              23,660
              
              
              $
              1,449
              
              
              $
              -
              
              
              $
              (4,521
              )Cash
      flows from investing activities:Purchase
      of property, plant and equipment, net
              
              
              -
              
              
              
              (2,391
              )
              
              
              (2,022
              )
              
              
              (879
              )
              
              
              -
              
              
              
              (5,292
              )Other
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      cash used in investing activities
              
              
              -
              
              
              
              (2,391
              )
              
              
              (2,022
              )
              
              
              (879
              )
              
              
              -
              
              
              
              (5,292
              )Cash
      flows from financing activities:Dividend
      to Simmons Holdco, Inc.
              
              
              (16,492
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (16,492
              )Borrowings
      on revolving loan
              
              
              -
              
              
              
              17,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              17,500Repayment
      of long-term obligations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (143
              )
              
              
              -
              
              
              
              (143
              )Receipt
      from (distribution to) affiliates
              
              
              16,495
              
              
              
              7,787
              
              
              
              (25,477
              )
              
              
              1,195
              
              
              
              -
              
              
              
              -Net
      cash provided by (used in) financing activities
              
              
              3
              
              
              
              25,287
              
              
              
              (25,477
              )
              
              
              1,052
              
              
              
              -
              
              
              
              865Net
      effect of exchange rate changes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (600
              )
              
              
              -
              
              
              
              (600
              )Change
      in cash and cash equivalents
              
              
              -
              
              
              
              (6,731
              )
              
              
              (3,839
              )
              
              
              1,022
              
              
              
              -
              
              
              
              (9,548
              )Cash
      and cash equivalents:Beginning
      of period
              
              
              -
              
              
              
              8,241
              
              
              
              4,087
              
              
              
              15,192
              
              
              
              -
              
              
              
              27,520End
      of period
              
              $
              -
              
              
              $
              1,510
              
              
              $
              248
              
              
              $
              16,214
              
              
              $
              -
              
              
              $
              17,972


15
 Simmons
Company and Subsidiaries
 Notes
to Unaudited Condensed Consolidated Financial
Statements


Supplemental
Consolidating Condensed Statements of Cash Flows


For
the Quarter Ended March 31, 2007


(In
thousands)





Issuer
      and GuarantorsSimmonsParent
              
              
              Bedding
              
              
              Guarantor
              
              
              Non-GuarantorGuarantors
              
              
              Company
              
              
              Subsidiaries
              
              
              Subsidiaries
              
              
              Eliminations
              
              
              ConsolidatedNet
      cash provided by (used in) operating activities
              
              $
              68
              
              
              $
              (21,737
              )
              
              $
              15,805
              
              
              $
              470
              
              
              $
              -
              
              
              $
              (5,394
              )Cash
      flows from investing activities:Purchase
      of property, plant and equipment, net
              
              
              -
              
              
              
              (2,970
              )
              
              
              (729
              )
              
              
              (528
              )
              
              
              -
              
              
              
              (4,227
              )Other,
      net
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (96
              )
              
              
              -
              
              
              
              (96
              )Net
      cash used in investing activities
              
              
              -
              
              
              
              (2,970
              )
              
              
              (729
              )
              
              
              (624
              )
              
              
              -
              
              
              
              (4,323
              )Cash
      flows from financing activities:Payment
      of other long-term obligations
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (141
              )
              
              
              -
              
              
              
              (141
              )Purchase
      of treasury stock
              
              
              (1
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1
              )Receipt
      from (distribution to) affiliates
              
              
              (67
              )
              
              
              17,870
              
              
              
              (18,216
              )
              
              
              413
              
              
              
              -
              
              
              
              -Net
      cash provided by (used in) financing activities
              
              
              (68
              )
              
              
              17,870
              
              
              
              (18,216
              )
              
              
              272
              
              
              
              -
              
              
              
              (142
              )Net
      effect of exchange rate changes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              48
              
              
              
              -
              
              
              
              48Change
      in cash and cash equivalents
              
              
              -
              
              
              
              (6,837
              )
              
              
              (3,140
              )
              
              
              166
              
              
              
              -
              
              
              
              (9,811
              )Cash
      and cash equivalents:Beginning
      of period
              
              
              -
              
              
              
              9,841
              
              
              
              5,606
              
              
              
              5,337
              
              
              
              -
              
              
              
              20,784End
      of period
              
              $
              -
              
              
              $
              3,004
              
              
              $
              2,466
              
              
              $
              5,503
              
              
              $
              -
              
              
              $
              10,973


16


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





This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our audited consolidated financial
statements as of December 29, 2007, including related notes, and Management’s
Discussion and Analysis of Financial Condition and Results of Operations
contained in our 2007 Annual Report on Form   10-K, and the
unaudited interim financial statements included elsewhere in this
report.





Results
of Operations





The
following table sets forth historical consolidated financial information as a
percent of net sales:





Quarters
      EndedMarch
      29,
              
              
              March
      31,2008
              
              
              2007Net
      sales
              
              
              100.0
              %
              
              
              100.0
              %Cost
      of products sold
              
              
              60.4
              %
              
              
              59.5
              %Gross
      margin
              
              
              39.6
              %
              
              
              40.5
              %Operating
      expenses:Selling,
      general and administrative expenses
              
              
              32.0
              %
              
              
              31.7
              %Amortization
      of intangibles
              
              
              0.6
              %
              
              
              0.6
              %Licensing
      revenues
              
              
              -0.9
              %
              
              
              -1.2
              %31.6
              %
              
              
              31.0
              %Operating
      income
              
              
              8.0
              %
              
              
              9.4
              %Interest
      expense, net
              
              
              6.4
              %
              
              
              6.9
              %Income
      before income taxes
              
              
              1.5
              %
              
              
              2.5
              %Income
      tax expense
              
              
              0.6
              %
              
              
              0.9
              %Net
      income
              
              
              0.9
              %
              
              
              1.7
              %
 
  17





Quarter
Ended March 29, 2008 as Compared to the Quarter Ended March 31,
2007





Net Sales.  Our
consolidated net sales increased $9.5 million, or 3.5%, to $276.9 million for
the quarter ended March 29, 2008 compared to $267.4 million for the quarter
ended March 31, 2007 principally due to growth in our Domestic segment net
sales.  Our Domestic segment net sales increased $6.8 million, or
2.9%, to $245.1 million for the quarter ended March 29, 2008 compared to $238.2
million during the same period of 2007.  Our Domestic segment net sales
improved for the quarter ended March 29, 2008 primarily as a result of an
increase in our conventional bedding average unit selling price (“AUSP") of
7.9%, or approximately $17.4 million, partially offset by a decrease in our
conventional bedding unit volume of 3.6%, or approximately $8.2 million,
compared to the same period of 2007.  Our conventional bedding AUSP
increased primarily due to (i) our November 2007 price increase for our
innerspring products that targeted retail price points above $1,000 and all
foundations and (ii) a shift in our product sales mix to our higher priced
products.  We attribute our conventional bedding unit volume decline
principally due to the U.S. macroeconomic environment resulting in consumers
delaying or foregoing their purchases of mattresses.  Our conventional
bedding unit volume decrease was principally at retail price points below
$1,000, which was partially offset by an increase in unit volume at retail price
points above $1,000.  Our Canada segment net sales increased $2.5
million to $31.9 million for the quarter ended March 29, 2008 compared to $29.4
million for the quarter ended March 31, 2007.  In local currency, our
Canada segment net sales decreased for the quarter ended March 29, 2008 by 6.8%
compared to the same period of 2007 due to a decline in conventional bedding
AUSP and unit volume of 4.5% and 3.3%, respectively.  Our Canada
segment AUSP and unit volume decreased principally due to our customers
transitioning from the 2007 Canadian product lines into the new 2008 Canadian
product lines, which resulted in promotional pricing of the 2007
products.





Gross Profit.Our
consolidated gross profit increased $1.5 million to $109.7 million (39.6% of
consolidated net sales) for the quarter ended March 29, 2008 compared to $108.2
million (40.5% of consolidated net sales) for the quarter ended March 31,
2007.  Our Domestic segment gross profit increased $1.8 million to
$101.0 million (41.2% of Domestic segment net sales) for the quarter ended March
29, 2008 compared to $99.3 million (41.7% of Domestic segment net sales) for the
quarter ended March 31, 2007.  Our Domestic segment gross margin decreased
0.5 percentage points for the first quarter of 2008 compared to the same period
of 2007 principally due to a 13.5% increase in our conventional bedding material
costs per unit, partially offset by a 4.7% decrease in our conventional bedding
manufacturing cost per unit.  Our material cost per unit increased
primarily due to (i) the addition of flame retardant materials to meet the
Consumer Products Safety Commission’s (“CPSC”) new regulations relating to open
flame resistance standards for the mattress industry that became effective July
1, 2007; (ii) inflation in the costs of raw materials, particularly in the price
of foam, steel and lumber; and (iii) a change in our sales mix to products with
higher material content.  Our manufacturing cost per unit decreased
principally due to (i) on-going labor and overhead cost containment initiatives
and (ii) $2.7 million of incremental manufacturing costs having been incurred in
the first quarter of 2007 related to our Beautyrest product line roll out.




Our Canada gross profit
decreased $0.3 million to $8.6 million (27.1% of Canada segment net sales) for
the quarter ended March 29, 2008 compared to $8.9 million (30.3% of Canada
segment net sales) for the quarter ended March 31, 2007.  Our Canada
segment gross margins decreased 3.2 percentage points due primarily to the
promotional pricing of 2007 products.





Selling, General and
Administrative Expenses (“SG&A”).  Our consolidated
SG&A increased $3.8 million for the quarter ended March 29, 2008 to $88.6
million (32.0% of consolidated net sales) compared to $84.7 million (31.7% of
consolidated net sales) for the quarter ended March 31, 2007.  Our
Domestic segment SG&A increased $3.5 million to $81.7 million (33.3% of
Domestic segment net sales) for the quarter ended March 29, 2008 from $78.2
million (32.8% of Domestic segment net sales) for the quarter ended March 31,
2007.  Our Domestic segment SG&A increased due principally to
higher (i) variable selling expenses of $4.2 million due to an increase in
co-operative advertising expense resulting from a shift in customer sales mix;
(ii) distribution expenses of $1.5 million due primarily to rising diesel
prices; and (iii) salaries and fringes of $1.3 million principally due to an
increase in the number of salaried employees as well as salary increases
over the last year.  Partially offsetting these increases for the
quarter ended March 29, 2008, our Domestic segment SG&A had lower fixed
selling and brand development expense of $4.6 million compared to the same
period of 2007, principally due to less product roll out costs.





Amortization of
Intangibles.  For the quarter ended March 29, 2008,
amortization of intangibles increased $0.1 million to $1.6 million from $1.5
million for the quarter ended March 31, 2007.





Interest Expense, Net. For the quarter ended March 29, 2008, interest expense decreased
$0.6 million to $17.8 million from $18.4 million for the quarter ended March 31,
2007.  The decreased interest expense for the quarter ended March 29, 2008
was primarily due to lower LIBOR base rates on our senior credit facility and
lower average outstanding borrowings during the period.  Our non-cash
interest expense, which includes accretion of our senior discount notes and the
amortization of deferred financing fees, increased $0.5 million to $6.1 million
for the quarter ended March 29, 2008 compared to $5.6 million for the quarter
ended March 31, 2007.





Income Taxes.The effective
income tax rate for the quarter ended March 29, 2008 of 41.3% exceeded the
effective income tax rate of 35.2% for the quarter ended March 31, 2007
principally due to (i) the recognition of a discrete tax expense of $0.2 million
for the quarter ended March 29, 2008 and (ii) the recognition of a discrete tax
benefit of $0.4 million for the quarter ended March 31, 2007.  Both
discrete items related to a change in the tax rate used to calculate deferred
state taxes.  Excluding discrete items, the effective income tax rates
for the quarters ended March 29, 2008 and March 31, 2007 reflect the Company's
expected full year tax rate on reported income before income taxes of
approximately 36 percent and 38 percent, respectively.  The 2008 full
year tax rate is less than the 2007 full year tax rate principally due to a 2008
deduction for domestic production activities not taken in previous
years.





Liquidity
and Capital Resources





Our principal sources of cash to fund
liquidity needs are (i) cash provided by operating activities and (ii)
borrowings available under our senior credit facility.  Restrictive
covenants in our debt agreements restrict our ability to pay cash dividends and
make other distributions.  Our primary use of funds consists of
payments for working capital increases, capital expenditures, customer supply
agreements, principal and interest for our debt, distributions to service
Simmons Holdco debt and acquisitions.  Barring any unexpected
significant external or internal developments, we expect current cash balances
on hand, cash provided by operating activities and borrowings available under
our senior credit facility to be sufficient to meet our short-term and long-term
liquidity needs.





Capital expenditures totaled $5.3
million for the quarter ended March 29, 2008.  We believe that the
annual capital expenditure limitations in our senior credit facility will not
significantly inhibit us from meeting our ongoing capital expenditure
needs.  We anticipate our capital expenditures to be approximately $24
million for 2008 as a result of implementation of our new enterprise resource
planning (“ERP”) system, additional equipment for our Domestic operations and
the capital requirements of our Canadian operations.





Future principal debt payments are
expected to be paid out of cash flows from operations, borrowings under our
senior credit facility, and future refinancing of our debt.  Our
affiliates, significant shareholders, or we may from time to time, in their or
our sole discretion, purchase, repay, redeem or retire any of our outstanding
debt or equity securities (including any publicly issued debt) in privately
negotiated or open market transactions by tender offer or
otherwise.





Historically, we have paid minimal
federal income taxes as a result of net operating loss
carryforwards.  In 2007, we paid cash taxes of $1.3 million and we
expect cash tax payments to be slightly higher in 2008.





The
following table summarizes our changes in cash (in millions):





Quarters
      EndedMarch
      29,
              
              
              March
      31,2008
              
              
              2007Statement
      of Cash Flow Data:Cash
      flows provided by (used in):Operating
      activities
              
              $
              (4.5
              )
              
              $
              (5.4
              )Investing
      activities
              
              
              (5.3
              )
              
              
              (4.3
              )Financing
      activities
              
              
              0.9
              
              
              
              (0.1
              )Effect
      of exchange rate changes on cash
              
              
              (0.6
              )
              
              
              0.1Decrease
      in cash and cash equivalents
              
              
              (9.5
              )
              
              
              (9.8
              )Cash
      and cash equivalents:Beginning
      of period
              
              
              27.5
              
              
              
              20.8End
      of period
              
              $
              18.0
              
              
              $
              11.0


Quarter
Ended March 29, 2008 as Compared to Quarter Ended March 31, 2007





Cash flows used in Operating
Activities.  Our cash flows used in operating activities
decreased $0.9 million for the quarter ended March 29, 2008 compared to the
quarter ended March 31, 2007.  The decrease in cash flow used in
operations resulted primarily from our working capital being a $15.1 million use
of cash for the quarter ended March 29, 2008 compared to our working capital
being a $16.8 million use of cash for the quarter ended March 31,
2007.  Our working capital, as a percentage of net sales for the last
twelve months, increased to 2.4% as of March 29, 2008 compared to 2.3% as of
March 31, 2007.





Cash flows used in Investing
Activities.  For the quarter ended March 29, 2008, our cash
flows used in investing activities of $5.3 million consisted of purchases for
property, plant and equipment compared to $4.3 million for the same period a
year ago.  Our increased purchases of property, plant and equipment in
2008 was principally due to an ongoing upgrade of our Domestic segment ERP
system and purchases of new manufacturing equipment to help meet anticipated
future demand for our products.





Cash flows provided by (used in)
Financing Activities.  For the quarter ended March 29, 2008,
our financing activities resulted in a $0.9 million source of cash due to
borrowings under our revolving credit facility, partially offset by dividend
payments to Simmons Holdco, Inc.  For the quarter ended March 31,
2007, our financing activities resulted in a $0.1 million use of
cash.





Debt





As of March 29, 2008, our debt
outstanding was $924.4 million compared to $901.5 million as of December 29,
2007.  Our outstanding debt was primarily our senior credit facility,
senior subordinated notes and senior discount notes.





Senior
Credit Facility





The
senior credit facility provides for a $75.0 million revolving loan facility and
a $465.0 million tranche D term loan facility.  Our revolving credit
facility expires on December 19, 2009 and our tranche D term loan facility
expires on December 19, 2011.  As of March 29, 2008, we had $17.5
million outstanding and the availability to borrow an additional $48.2 million
under the revolving loan facility after taking into account $9.3 million that
was reserved for reimbursement obligations with respect to outstanding letters
of credit.





The senior credit facility bears
interest at the Company’s choice of the Eurodollar Rate or Base Rate (both as
defined in the senior credit facility), plus the applicable interest rate
margins as follows:





Eurodollar
              
              
              BaseRate
              
              
              RateRevolving
      loan
              
              
              2.00
              %
              
              
              1.00
              %Tranche
      D term loan
              
              
              2.00
              %
              
              
              1.00
              %





The
weighted average interest rate per annum in effect as of March 29, 2008 for the
senior credit facility was 5.6%.





The tranche D term loan has a mandatory
principal payment of $113.5 million due on March 31, 2011 and quarterly
mandatory principal payments of $117.2 million from June 30, 2011 through
maturity on December 19, 2011.  Depending on Simmons Bedding’s
leverage ratio, the Company may be required to prepay a portion of the tranche D
term loan with up to 50% of its excess cash flows (as defined in the senior
credit facility) from each fiscal year.  Based upon 2007 results, the
Company is not required to prepay a portion of the tranche D term loan in fiscal
year 2008.





Senior
Subordinated Notes





Our $200.0 million of senior
subordinated notes due 2014 (the “Subordinated Notes”) bear interest at the rate
of 7.875% per annum, which is payable semi-annually in cash in arrears on
January 15 and July 15.  The Subordinated Notes are subordinated in
right of payment to all existing and future senior indebtedness of Simmons
Bedding.





The Subordinated Notes are redeemable
at our option beginning January 15, 2009 at prices decreasing from 103.938% of
the principal amount thereof to par on January 15, 2012 and thereafter. We are
not required to make mandatory redemption or sinking fund payments with respect
to the Subordinated Notes.





Senior
Discount Notes





Our senior discount notes (“Discount
Notes”), with an aggregate principal amount at maturity of $269.0 million, bear
interest at the rate of 10.0% per annum payable semi-annually in cash in arrears
on June 15 and December 15 of each year commencing on June 15,
2010.  Prior to December 15, 2009, interest will accrue on the
Discount Notes in the form of an increase in the accreted value of the Discount
Notes.  As of March 29, 2008, the net amount of Discount Notes
outstanding was $227.7 million.  Our ability to make payments on the
Discount Notes is dependent on the earnings and distribution of funds from
Simmons Bedding to Holdings.





The
Discount Notes are redeemable at our option beginning December 15, 2009 at
prices decreasing from 105.0% of the principal amount thereof to par on December
15, 2012 and thereafter.  We are not required to make mandatory
redemption or sinking fund payments with respect to the Discount
Notes.





If
any of the Discount Notes are outstanding on June 15, 2010, we will redeem for
cash a portion of each Discount Note then outstanding in an amount equal to (i)
the excess of the aggregate amount of accrued and unpaid interest and original
issue discount on the Discount Notes over (ii) the issue price of the Discount
Notes multiplied by the yield to maturity of the Discount Notes (the “Mandatory
Principal Redemption Amount”), plus a premium equal to 5.0% (one-half of the
coupon) of the Mandatory Principal Redemption Amount.  No partial
redemption or repurchase of the Discount Notes pursuant to any other provision
of the indenture will alter our obligation to make this redemption with respect
to any Discount Notes then outstanding.  Assuming no redemptions are
made prior to June 15, 2010, we will make a mandatory principal payment of $90.2
million and an interest and premium payment of $18.0 million on that
date.





Debt
Covenants





The
senior credit facility requires Simmons Bedding to maintain certain financial
ratios, including cash interest coverage and total leverage
ratios.  The senior credit facility also contains other covenants,
which among other things, limit capital expenditures, the incurrence of
additional indebtedness, investments, dividends, transactions with affiliates,
asset sales, mergers and consolidations, prepayment of other indebtedness, liens
and encumbrances and other matters customarily restricted in such
agreements.  The financial covenants are as follows:





1)
            A
      minimum cash interest coverage ratio, with compliance levels ranging from
      cash interest coverage of no less than 2.75:1.00 from March 29, 2008
      through December 27, 2008; and 3.00:1.00 from March 28, 2009 through each
      fiscal quarter ending thereafter.





2)
            A
      maximum leverage ratio, with compliance levels ranging from total leverage
      of no greater than 4.50:1.00 from March 29, 2008 through December 27,
      2008; and 4.00:1.00 from March 28, 2009 through each fiscal quarter ending
      thereafter.





We were
in compliance with such covenants as of March 29, 2008.  However, if
our operating results fall below current expectations, we may not be able to
meet such covenants in future periods.  If we are not in compliance
with such covenants in future periods, we would be required to obtain a waiver
from our senior credit facility lenders to avoid being in default.  We
may not be able to obtain such a waiver on a timely basis or at
all.  The most restrictive covenants apply to Simmons Bedding and
relate to ratios of minimum cash interest coverage ratio and maximum leverage
ratio, all as defined in the senior credit facility.  There is also a
maximum capital expenditure limitation in the senior credit
facility.  The minimum cash interest coverage ratio and maximum
leverage ratio are computed based on Simmons Bedding’s financial results for the
last twelve months ended, adjusted for any dispositions or
acquisitions.





The indenture for the Subordinated
Notes requires Simmons Bedding to comply with certain restrictive covenants,
including restrictions on dividends, and limitations on the occurrence of
indebtedness, certain payments and distributions, and sales of Simmons Bedding’s
assets and stock.  We were in compliance with such covenants as of
March 29, 2008.





The indenture for
the Senior Discount Notes requires Holdings to comply with certain restrictive
covenants, including restrictions on dividends, and limitations on the
occurrence of indebtedness, certain payments and distributions, and sales of
Holdings’ assets and stock.  We were in compliance with such covenants
as of March 29, 2008.




The following is a calculation of our
minimum cash interest coverage and maximum leverage ratios under our senior
credit facility as of March 29, 2008 (dollar amounts in millions, except
ratios).  The terms and related calculations are defined in the senior
credit facility:





Calculation
      of minimum cash interest coverage ratio:Simmons
      Bedding Adjusted EBITDA(1)
              
              $
              154.0Simmons
      Bedding cash interest expense(2)
              
              $
              53.0Actual
      interest coverage ratio(3)
              
              
              2.90
              xMinimum
      permitted interest coverage ratio
              
              
              2.75
              xCalculation
      of maximum leverage ratio:Simmons
      Bedding debt(4)
              
              $
              696.7Less:  Simmons
      Bedding cash and cash equivalents
              
              
              (18.0
              )Net
      Simmons Bedding debt
              
              $
              678.7Adjusted
      EBITDA(1)
              
              $
              154.0Actual
      leverage ratio(5)
              
              
              4.41
              xMaximum
      permitted leverage ratio
              
              
              4.50
              x


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








18


The following table sets forth a
reconciliation of net income to EBITDA and Adjusted EBITDA for the twelve months
ended March 29, 2008 (in millions):







Net
      income
              
              $
              22.1Depreciation
      and amortization
              
              
              31.5Income
      taxes
              
              
              8.0Interest
      expense, net
              
              
              75.1Interest
      income
              
              
              0.3EBITDA
              
              $
              137.0Reorganization
      expenses including management severance
              
              
              2.1Management
      fees
              
              
              1.7Transaction
      related expenses
              
              
              4.1Conversion
      costs associated with meeting new flammability standard
              
              
              1.3ERP
      system implementation costs
              
              
              2.1Non-recurring
      professional service fees
              
              
              3.5Other,
      including expenses at Holdings
              
              
              2.1Pro
      forma effect of ComforPedic acquisition
              
              
              0.1$
              154.0
 (2)  A
calculation of consolidated cash interest expense, as defined in our senior
credit facility, for the twelve months ended March 29, 2008 (in
millions):





Simmons
      Company consolidated interest expense, net
              
              $
              75.1Less:  Simmons
      Company non-cash interest expense
              
              
              (21.3
              )Simmons
      Bedding interest expense, net
              
              
              53.8Add:  Simmons
      Bedding interest income
              
              
              0.3Add:  Simmons
      Bedding interest capitalized
              
              
              0.8Simmons
      Bedding gross interest expense
              
              
              54.8Less:  Simmons
      Bedding non-cash interest expense
              
              
              (1.8
              )Simmons
      Bedding cash interest expense
              
              $
              53.0


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


(4)
            A
      calculation of Simmons Bedding debt as of March 29, 2008 (in
      millions):




Simmons
      Company consolidated debt
              
              $
              924.4Less:  Simmons
      Company debt
              
              
              (227.7
              )Simmons
      Bedding debt
              
              $
              696.7


(5)
            Represents
      ratio of debt less cash and cash equivalents to Adjusted
      EBITDA.





Seasonality/Other





Our third
quarter sales are typically higher than sales for our other fiscal
quarters.  We attribute this seasonality principally to retailers’
sales promotions related to the 4th of July
and Labor Day holidays.





Accounting
Pronouncements





See Note
I in the Notes to our Unaudited Condensed Consolidated Financial Statements in
Item 1 for a full description of recent accounting pronouncements, including the
expected dates of adoption and estimated effects on our results of operations
and financial condition, which is incorporated herein by reference.





Forward
Looking Statements





“Safe Harbor” statement under the
Private Securities Litigation Reform Act of 1995.When used in this
Quarterly Report on Form 10-Q, the words “believes,” “anticipates,” “expects,”
“intends,” “projects” and similar expressions are used to identify
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.  Such forward-looking statements relate
to future financial and operating results, including expected benefits from our
products. Any forward-looking statements contained in this report represent our
management’s current expectations, based on present information and current
assumptions, and are thus prospective and subject to risks and uncertainties,
which could cause actual results to differ materially from those expressed in
such forward-looking statements.  Actual results could differ
materially from those anticipated or projected due to a number of
factors.  These factors include, but are not limited to:





·
            general
      economic and industry conditions;





·
            competitive
      pricing pressures in the bedding
industry;





·
            legal
      and regulatory requirements;





·
            the
      success of our new products and the future costs to roll out such
      products;





·
            our
      relationships with and viability of our major
  suppliers;





·
            fluctuations
      in costs of our raw materials and energy
prices;





·
            our
      relationship with and viability of 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;





·
            foreign
      currency exchange rate risks;





·
            compliance
      with covenants in our debt
agreements;





·
            our
      future acquisitions;





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





·
            our
      ability to successfully implement our new enterprise resource planning
      system; and





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





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





Item
3.                                Quantitative
and Qualitative Disclosures about Market Risk





Information
relative to our market risk sensitive instruments by major category should be
read in conjunction with the related disclosure contained in Item 7A of our
Annual Report on Form 10-K for the fiscal year ended December 29,
2007.





Market
Risk





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





Foreign
Currency Exposures





As a result of our acquisition of
Simmons Canada, our earnings are affected by fluctuations in the value of
Canadian dollar (Simmons Canada’s functional currency) as compared to the
currencies of Simmons Canada’s foreign denominated purchases (principally the
U.S. dollar).  Foreign currency forward contracts are used as economic
hedges against the earnings effects of such fluctuations.  The
potential loss in fair value on forward contracts outstanding as of March 29,
2008, resulting from a hypothetical 10% adverse change in the Canadian dollar
against the U.S. dollar, is approximately $0.6 million.  Such losses
would be largely offset by gains from the revaluation or settlement of the
underlying assets and liabilities that are being protected by the forward
contracts.  As of March 29, 2008, we had forward contracts to sell a
total of $5.8 million Canadian dollars with expiration dates ranging from April
7, 2008 to November 28, 2008.  As of March 29, 2008, the fair value of
our net liability under the forward contracts was $0.1 million.  We do
not apply hedge accounting to our forward contracts; therefore, contracts are
marked-to-market as of each reporting date through earnings.





Interest
Rate Risk





We are
exposed to market risks from changes in interest rates.  Our senior
credit facility and certain of our other debt instruments are floating rate
debt.  We currently do not have a hedging program in place to manage
fluctuations in long-term interest rates.  We have implemented a
policy to utilize extended Eurodollar contracts under the senior credit facility
to minimize the impact of near term Eurodollar rate increases.





On March
29, 2008, we had floating rate debt of $487.0 million.  All other
factors remaining unchanged, a hypothetical 10% increase or decrease in interest
rates on our floating rate debt would impact our annual interest expense by $0.6
million.





Commodity
Price Risk





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





Item
4T.                                Internal
Controls and Procedures





Disclosure
Controls and Procedures




The Company
maintains a set of disclosure controls and procedures designed to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized, and reported, within the time periods specified in SEC rules and
forms.  An evaluation was carried out under the supervision and with
the participation of the Company's management, including the Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the
Company’s disclosure controls and procedures.  Based on that
evaluation, the CEO and CFO have concluded that the Company's disclosure
controls and procedures are effective as of March 29, 2008.





Changes
in Internal Control over Financial Reporting





There has been a change in our internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, identified in
connection with the evaluation that occurred during the first quarter of 2008
that has materially affected our internal control over financial
reporting.  In July 2007, we implemented a new financial accounting
system in connection with our new ERP system.  In November 2007 and
March 2008, we implemented modules of the ERP system at certain of our
manufacturing facilities.  The remaining modules of the ERP system are
scheduled to be implemented in the first half of 2008.  The financial
accounting system implementation was undertaken to enhance our ERP system and
not in response to any identified deficiency or weakness to our internal
controls over financial reporting.  The new financial accounting
system, which has undergone rigorous review and testing, has helped strengthen
our internal control over financial reporting.  With the exception of
the continued implementation of the ERP system, there were no changes in
internal controls in the first quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.








PART
      II
      -                                           OTHER
      INFORMATIONItem
      1.                        Legal
      ProceedingsSee paragraph 1 of Note G to the
      Unaudited Condensed Consolidated Financial Statements, Part 1, Item 1
      included herein.Item
      1A.  Risk FactorsThere
      were no material changes to the Company’s risk factors outlined in its
      Annual Report filed with the SEC on Form 10-K on March 26,
      2008.Item
      2.                        Unregistered
      Sales of Equity Securities and Use of ProceedsNoneItem
      3.  Defaults Upon Senior SecuritiesNoneItem
      4.                        Submission
      of Matters to a Vote of Security HoldersNoneItem
      5.                        Other
      InformationNoneItem
      6.                        Exhibits





31.1
            Chief
      Executive Officer Certification of the Type Described in Rule 13a - 14(a)
      and Rule 15d - 14(a)31.2
            Chief
      Financial Officer Certification of the Type Described in Rule 13a - 14(a)
      and Rule 15d - 14(a)32.1
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 (furnished
      herewith)32.2
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (furnished
      herewith)


19





SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, Simmons Company has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.





SIMMONS
COMPANY








By:
            /s/ William S. CreekmuirWilliam
      S. CreekmuirExecutive
      Vice President & Chief Financial OfficerDate:
            May
      6, 2008