##### Table of Contents



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 April 1, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 333-124138
 SIMMONS COMPANY
 
  Delaware
    
    20-0646221(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)One Concourse Parkway, Suite 800, Atlanta, Georgia
    
    30328-6188(Address of principal executive offices)
    
    (Zip Code)
 (770) 512-7700
  þ o
  Large accelerated filer: o
    
    Accelerated filer: o
    
    Non-accelerated filer: þ
  o þ
  DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE: None




---



TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Internal Controls and ProceduresPART II   OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEX-10.1 RESTRICTED STOCK AGREEMENTEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Simmons Company and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
and Comprehensive Income (Loss)
 Quarter EndedApril 1,
    
    
    March 26,2006
    
    
    2005Net sales
    
    $
    235,867
    
    
    $
    205,582Cost of products sold
    
    
    136,439
    
    
    
    114,166Gross profit
    
    
    99,428
    
    
    
    91,416Operating expenses:Selling, general and
administrative expenses
    
    
    70,906
    
    
    
    79,161Amortization of intangibles
    
    
    1,417
    
    
    
    1,441Licensing fees
    
    
    (2,288
    )
    
    
    (2,051
    )70,035
    
    
    
    78,551Operating income
    
    
    29,393
    
    
    
    12,865Interest expense, net
    
    
    19,176
    
    
    
    16,414Income (loss) before income taxes
    
    
    10,217
    
    
    
    (3,549
    )Income tax expense (benefit)
    
    
    3,784
    
    
    
    (1,357
    )Net income (loss)
    
    
    6,433
    
    
    
    (2,192
    )Other comprehensive income (loss):Foreign currency translation
adjustment
    
    
    44
    
    
    
    3Comprehensive income (loss)
    
    $
    6,477
    
    
    $
    (2,189
    )
  2




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##### Table of Contents



Simmons Company and Subsidiaries
Condensed Consolidated Balance Sheets
 April 1,
    
    
    December 31,2006
    
    
    2005*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,388
    
    
    $
    24,622Accounts receivable, less allowances for
doubtful receivables, discounts, and returns
of $4,474 and $4,032
    
    
    79,175
    
    
    
    76,032Inventories
    
    
    29,031
    
    
    
    33,050Deferred income taxes
    
    
    2,917
    
    
    
    2,865Other current assets
    
    
    19,602
    
    
    
    15,085Total current assets
    
    
    152,113
    
    
    
    151,654Property, plant and equipment, net
    
    
    59,066
    
    
    
    58,360Goodwill
    
    
    488,208
    
    
    
    488,230Intangible assets, net
    
    
    535,872
    
    
    
    537,290Other assets
    
    
    42,964
    
    
    
    45,243$
    1,278,223
    
    
    $
    1,280,777
 
 *
    
    Derived from the Companys 2005 audited Consolidated Financial Statements.  3




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##### Table of Contents



Simmons Company and Subsidiaries
Condensed Consolidated Balance Sheets
 April 1,
    
    
    December 31,2006
    
    
    2005*(Unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    413
    
    
    $
    1,602Accounts payable
    
    
    47,766
    
    
    
    45,031Accrued liabilities
    
    
    65,075
    
    
    
    65,139Total current liabilities
    
    
    113,254
    
    
    
    111,772Non-current liabilities:Long-term debt
    
    
    891,953
    
    
    
    906,148Deferred income taxes
    
    
    147,770
    
    
    
    144,418Other
    
    
    14,729
    
    
    
    14,092Total liabilities
    
    
    1,167,706
    
    
    
    1,176,430Commitments and contingenciesCommon stockholders equity:Class A common stock, $.01 par value:Authorized - 4,000,000 sharesIssued and outstanding - 3,878,307 shares
    
    
    39
    
    
    
    39Class B common stock, $.01 par value:Authorized, issued and outstanding - 688,235
shares
    
    
    7
    
    
    
    7Additional paid-in capital
    
    
    101,885
    
    
    
    102,337Retained earnings
    
    
    11,081
    
    
    
    4,648Accumulated other comprehensive income
    
    
    178
    
    
    
    134Deferred compensation
    
    
    
    
    
    
    (361
    )Treasury stock, at cost, 60,118 and 46,860 shares of
class A common stock and 44,245 and
48,411 shares
of class B common stock
    
    
    (2,673
    )
    
    
    (2,457
    )Total common stockholders equity
    
    
    110,517
    
    
    
    104,347$
    1,278,223
    
    
    $
    1,280,777
 
 *
    
    Derived from the Companys 2005 audited Consolidated Financial Statements.  4




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##### Table of Contents



Simmons Company and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
 Quarter EndedApril 1,
    
    
    March 26,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    6,433
    
    
    $
    (2,192
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    7,281
    
    
    
    6,462Provision for bad debts, net
    
    
    442
    
    
    
    936Provision for deferred income taxes
    
    
    3,322
    
    
    
    (1,509
    )Non-cash interest expense
    
    
    5,569
    
    
    
    4,777Non-cash stock compensation expense
    
    
    2
    
    
    
    Net changes in operating assets and liabilities:Accounts receivable
    
    
    (3,585
    )
    
    
    7,069Inventories
    
    
    4,019
    
    
    
    (182
    )Other current assets
    
    
    (4,517
    )
    
    
    4,320Accounts payable
    
    
    2,735
    
    
    
    (3,126
    )Accrued liabilities
    
    
    (64
    )
    
    
    (12,352
    )Other, net
    
    
    (1,325
    )
    
    
    (5,407
    )Net cash provided by (used in) operating activities
    
    
    20,312
    
    
    
    (1,204
    )Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (3,309
    )
    
    
    (1,378
    )Other, net
    
    
    15
    
    
    
    1Net cash used in investing activities
    
    
    (3,294
    )
    
    
    (1,377
    )Cash flows from financing activities:Payments of senior credit facility, net
    
    
    (19,933
    )
    
    
    (3,655
    )Payments of other debt
    
    
    (54
    )
    
    
    (88
    )Proceeds from issuance of common stock
    
    
    2
    
    
    
    Purchase of common stock
    
    
    (311
    )
    
    
    (67
    )Net cash used in financing activities
    
    
    (20,296
    )
    
    
    (3,810
    )Net effect of exchange rate changes
    
    
    44
    
    
    
    3Change in cash and cash equivalents
    
    
    (3,234
    )
    
    
    (6,388
    )Cash and cash equivalents, beginning of period
    
    
    24,622
    
    
    
    24,206Cash and cash equivalents, end of period
    
    $
    21,388
    
    
    $
    17,818
  5




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##### Table of Contents



Simmons Company and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders Equity
 Accumulated
    
    
    
    
    
    CommonClass A
    
    Class B

    
    Additional
    
    
    
    
    
    Other
    
    
    
    
    
    Stock
    
    TotalCommon
    
    Common
    
    Common
    
    Common
    
    Paid-In
    
    Retained
    
    Comprehensive
    
    Deferred
    
    Held In
    
    StockholdersShares
    
    Stock
    
    Shares
    
    Stock
    
    Capital
    
    Earnings
    
    Income
    

Compensation
    
    Treasury
    
    EquityDecember 31, 2005 (audited)
    
    
    3,831,447
    
    
    $
    39
    
    
    
    639,824
    
    
    $
    7
    
    
    $
    102,337
    
    
    $
    4,648
    
    
    $
    134
    
    
    $
    (361
    )
    
    $
    (2,457
    )
    
    $
    104,347Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,433
    
    
    
    
    
    
    

    


    
    
    
    
    
    
    6,433Other comprehensive income:Change in foreign
currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    



    


    
    
    
    
    
    
    44Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,433
    
    
    
    44
    
    

    


    


    
    
    
    
    
    
    6,477Issuance of Class B common
stock held in treasury
    
    
    
    
    
    
    
    
    
    
    72,840
    
    
    
    
    
    
    
    (93
    )
    
    
    
    
    
    
    
    
    

    


    


    
    
    95
    
    
    
    2Non-cash stock compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    

    


    


    
    
    
        

    
    2Adoption of
FASB Statement of Financial Standards No. 123R
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (361
    )
    
    
    
    
    
    
    
    


    
    
361
    


    
    
    
    
    
    
    Purchase of treasury stock,
at cost
    
    
    (13,258
    )
    
    
    
    
    
    
    (68,674
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

    


    


    
    
    (311
    )
    
    
    (311
    )April 1, 2006 (unaudited)
    
    
    3,818,189
    
    
    $
    39
    
    
    
    643,990
    
    
    $
    7
    
    
    $
    101,885
    
    
    $
    11,081
    
    
    $
    178
    
    
$

    


    
    $
    (2,673
    )
    
    $
    110,517
  6




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##### Table of Contents



Simmons Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
 A. Basis of Presentation
    B. Inventories
  April 1,
    
    
    December 31,2006
    
    
    2005Raw materials
    
    $
    14,626
    
    
    $
    18,541Work-in-progress
    
    
    898
    
    
    
    1,261Finished goods
    
    
    9,000
    
    
    
    8,777Inventory held at retail stores
    
    
    4,507
    
    
    
    4,471$
    29,031
    
    
    $
    33,050
 7




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##### Table of Contents



C. Goodwill
  WholesaleBedding
    
    
    Retail
    
    
    ConsolidatedBalance as of December 31, 2005
    
    $
    481,279
    
    
    $
    6,951
    
    
    $
    488,230Tax benefit allocated to reduce goodwill
    
    
    (22
    )
    
    
    
    
    
    
    (22
    )Balance as of April 1, 2006
    
    $
    481,257
    
    
    $
    6,951
    
    
    $
    488,208
 D. Warranties
  1)
    
    The Company records the amount of warranties issued during the period based upon
its units sold, the cumulative average return rate for the previous ten years, and the
estimated average cost to settle a warranty claim.2)
    
    The Company adjusts the accruals related to pre-existing warranties for the
estimated average cost to settle a warranty claim and changes in its estimate of the
number of future warranty returns resulting from changes in its cumulative average return
rate for the previous ten years.3)
    
    The Company reduces the accrual for warranty settlements during the period based
upon the number of warranty returns recorded at the estimated cost to settle warranty
claims. The estimated cost to settle a warranty claims is based upon the average
manufacturing cost per unit, including freight, less anticipated cost recovery resulting
from the selling of returned product to as-is dealers and through the Companys owned
retail outlet stores to consumers.
 8




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##### Table of Contents



April 1,
    
    
    March 26,2006
    
    
    2005Balance at beginning of period
    
    $
    3,009
    
    
    $
    2,715Additional warranties issued
    
    
    624
    
    
    
    512Warranty settlements
    
    
    (263
    )
    
    
    (757
    )Revision of estimate
    
    
    (100
    )
    
    
    388Balance at end of period
    
    $
    3,270
    
    
    $
    2,858
 E. Long-Term Debt
  April 1,
    
    
    December 31,2006
    
    
    2005Senior credit facility:Revolving loan
    
    $
    
    
    
    $
    Tranche C term loan
    
    
    350,000
    
    
    
    369,933Total senior credit facility
    
    
    350,000
    
    
    
    369,933Senior unsecured term loan
    
    
    140,000
    
    
    
    140,0007.875% senior subordinated notes due 2014
    
    
    200,000
    
    
    
    200,00010.0% senior discount notes, due 2014, net of discount
of $81,569 and $86,172
    
    
    187,431
    
    
    
    182,828Other, including capital lease obligation
    
    
    14,935
    
    
    
    14,989892,366
    
    
    
    907,750Less current portion
    
    
    (413
    )
    
    
    (1,602
    )$
    891,953
    
    
    $
    906,148
   9




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##### Table of Contents



Eurodollar
    
    BaseRate
    
    RateRevolving Loan
    
    
    2.50
    %
    
    
    1.50
    %Tranche C Term Loan
    
    
    2.50
    %
    
    
    1.50
    %Senior Unsecured Term Loan
    
    
    3.75
    %
    
    
    2.75
    %
    10




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Operations
For the Quarter Ended April 1, 2006
 Issuer and GuarantorsSimmonsParent
    
    
    Bedding
    
    
    Subsidiary
    
    
    Non-GuarantorGuarantors
    
    
    Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    (29,252
    )
    
    $
    263,294
    
    
    $
    1,825
    
    
    $
    
    
    
    $
    235,867Cost of products sold
    
    
    
    
    
    
    815
    
    
    
    134,297
    
    
    
    1,327
    
    
    
    
    
    
    
    136,439Gross profit
    
    
    
    
    
    
    (30,067
    )
    
    
    128,997
    
    
    
    498
    
    
    
    
    
    
    
    99,428Operating expenses:Selling, general and administrative expenses
    
    
    24
    
    
    
    42,624
    
    
    
    27,845
    
    
    
    413
    
    
    
    
    
    
    
    70,906Amortization of intangibles
    
    
    
    
    
    
    807
    
    
    
    610
    
    
    
    
    
    
    
    
    
    
    
    1,417Intercompany fees
    
    
    
    
    
    
    (78,176
    )
    
    
    78,015
    
    
    
    161
    
    
    
    
    
    
    
    Licensing fees
    
    
    
    
    
    
    (278
    )
    
    
    (1,833
    )
    
    
    (177
    )
    
    
    
    
    
    
    (2,288
    )24
    
    
    
    (35,023
    )
    
    
    104,637
    
    
    
    397
    
    
    
    
    
    
    
    70,035Operating income (loss)
    
    
    (24
    )
    
    
    4,956
    
    
    
    24,360
    
    
    
    101
    
    
    
    
    
    
    
    29,393Interest expense, net
    
    
    4,658
    
    
    
    14,279
    
    
    
    212
    
    
    
    27
    
    
    
    
    
    
    
    19,176Income from subsidiaries
    
    
    9,372
    
    
    
    15,805
    
    
    
    
    
    
    
    
    
    
    
    (25,177
    )
    
    
    Income before income taxes
    
    
    4,690
    
    
    
    6,482
    
    
    
    24,148
    
    
    
    74
    
    
    
    (25,177
    )
    
    
    10,217Income tax expense (benefit)
    
    
    (1,743
    )
    
    
    (2,890
    )
    
    
    8,368
    
    
    
    49
    
    
    
    
    
    
    
    3,784Net income
    
    $
    6,433
    
    
    $
    9,372
    
    
    $
    15,780
    
    
    $
    25
    
    
    $
    (25,177
    )
    
    $
    6,433
 11




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Operations
For the Quarter Ended March 26, 2005
 Issuer and GuarantorsSimmonsParent
    
    
    Bedding
    
    
    Subsidiary
    
    
    Non-GuarantorGuarantors
    
    
    Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    
    
    
    $
    (16,033
    )
    
    $
    219,394
    
    
    $
    2,221
    
    
    $
    
    
    
    $
    205,582Cost of products sold
    
    
    
    
    
    
    288
    
    
    
    112,146
    
    
    
    1,732
    
    
    
    
    
    
    
    114,166Gross profit
    
    
    
    
    
    
    (16,321
    )
    
    
    107,248
    
    
    
    489
    
    
    
    
    
    
    
    91,416Operating expenses:Selling, general and administrative expenses
    
    
    91
    
    
    
    51,480
    
    
    
    27,105
    
    
    
    485
    
    
    
    
    
    
    
    79,161Amortization of intangibles
    
    
    
    
    
    
    807
    
    
    
    634
    
    
    
    
    
    
    
    
    
    
    
    1,441Intercompany fees
    
    
    
    
    
    
    (71,734
    )
    
    
    71,531
    
    
    
    203
    
    
    
    
    
    
    
    Licensing fees
    
    
    
    
    
    
    (265
    )
    
    
    (1,607
    )
    
    
    (179
    )
    
    
    
    
    
    
    (2,051
    )91
    
    
    
    (19,712
    )
    
    
    97,663
    
    
    
    509
    
    
    
    
    
    
    
    78,551Operating income (loss)
    
    
    (91
    )
    
    
    3,391
    
    
    
    9,585
    
    
    
    (20
    )
    
    
    
    
    
    
    12,865Interest expense, net
    
    
    4,225
    
    
    
    11,966
    
    
    
    200
    
    
    
    23
    
    
    
    
    
    
    
    16,414Income from subsidiaries
    
    
    483
    
    
    
    9,538
    
    
    
    
    
    
    
    
    
    
    
    (10,021
    )
    
    
    Income (loss) before income taxes
    
    
    (3,833
    )
    
    
    963
    
    
    
    9,385
    
    
    
    (43
    )
    
    
    (10,021
    )
    
    
    (3,549
    )Income tax expense (benefit)
    
    
    (1,641
    )
    
    
    480
    
    
    
    (227
    )
    
    
    31
    
    
    
    
    
    
    
    (1,357
    )Net income (loss)
    
    $
    (2,192
    )
    
    $
    483
    
    
    $
    9,612
    
    
    $
    (74
    )
    
    $
    (10,021
    )
    
    $
    (2,192
    )
 12




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##### Table of Contents



Supplemental Consolidating Condensed Balance Sheets
As of April 1, 2006
 Issuer and GuarantorsSimmonsParent
    
    
    Bedding
    
    
    Subsidiary
    
    
    Non-GuarantorGuarantors
    
    
    Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    
    
    
    $
    17,753
    
    
    $
    967
    
    
    $
    2,668
    
    
    $
    
    
    
    $
    21,388Accounts receivable
    
    
    
    
    
    
    
    
    
    
    77,815
    
    
    
    1,360
    
    
    
    
    
    
    
    79,175Inventories
    
    
    
    
    
    
    
    
    
    
    28,268
    
    
    
    763
    
    
    
    
    
    
    
    29,031Other
    
    
    
    
    
    
    11,769
    
    
    
    10,393
    
    
    
    357
    
    
    
    
    
    
    
    22,519Total current assets
    
    
    
    
    
    
    29,522
    
    
    
    117,443
    
    
    
    5,148
    
    
    
    
    
    
    
    152,113Property, plant and equipment, net
    
    
    
    
    
    
    11,452
    
    
    
    42,628
    
    
    
    4,986
    
    
    
    
    
    
    
    59,066Goodwill and other intangibles, net
    
    
    
    
    
    
    66,896
    
    
    
    957,119
    
    
    
    65
    
    
    
    
    
    
    
    1,024,080Other assets
    
    
    3,173
    
    
    
    37,301
    
    
    
    2,020
    
    
    
    470
    
    
    
    
    
    
    
    42,964Net investment in and advances to
(from) affiliates
    
    
    280,612
    
    
    
    884,545
    
    
    
    186,131
    
    
    
    (2,120
    )
    
    
    (1,349,168
    )
    
    
    $
    283,785
    
    
    $
    1,029,716
    
    
    $
    1,305,341
    
    
    $
    8,549
    
    
    $
    (1,349,168
    )
    
    $
    1,278,223LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    200
    
    
    $
    213
    
    
    $
    
    
    
    $
    413Accounts payable and accrued liabilities
    
    
    146
    
    
    
    46,438
    
    
    
    65,474
    
    
    
    783
    
    
    
    
    
    
    
    112,841Total current liabilities
    
    
    146
    
    
    
    46,438
    
    
    
    65,674
    
    
    
    996
    
    
    
    
    
    
    
    113,254Long-term debt
    
    
    187,431
    
    
    
    690,000
    
    
    
    13,100
    
    
    
    1,422
    
    
    
    
    
    
    
    891,953Deferred income taxes
    
    
    (14,309
    )
    
    
    (9,398
    )
    
    
    171,287
    
    
    
    190
    
    
    
    
    
    
    
    147,770Other non-current liabilities
    
    
    
    
    
    
    9,744
    
    
    
    4,813
    
    
    
    206
    
    
    
    (34
    )
    
    
    14,729Total liabilities
    
    
    173,268
    
    
    
    736,784
    
    
    
    254,874
    
    
    
    2,814
    
    
    
    (34
    )
    
    
    1,167,706Stockholders equity
    
    
    110,517
    
    
    
    292,932
    
    
    
    1,050,467
    
    
    
    5,735
    
    
    
    (1,349,134
    )
    
    
    110,517$
    283,785
    
    
    $
    1,029,716
    
    
    $
    1,305,341
    
    
    $
    8,549
    
    
    $
    (1,349,168
    )
    
    $
    1,278,223
 13




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Cash Flows
For the Quarter Ended April 1, 2006
 Issuer and GuarantorsSimmonsParent
    
    
    Bedding
    
    
    Subsidiary
    
    
    Non-GuarantorGuarantors
    
    
    Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    (31
    )
    
    $
    (32,268
    )
    
    $
    52,767
    
    
    $
    (156
    )
    
    $
    
    
    
    $
    20,312Cash flows from investing activities:Purchase of property, plant and
equipment, net
    
    
    
    
    
    
    (2,366
    )
    
    
    (943
    )
    
    
    
    
    
    
    
    
    
    
    (3,309
    )Other, net
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    15Net cash used in investing
activities
    
    
    
    
    
    
    (2,366
    )
    
    
    (928
    )
    
    
    
    
    
    
    
    
    
    
    (3,294
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Repayment of long-term obligations
    
    
    
    
    
    
    (19,933
    )
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    (19,987
    )Purchase of treasury stock
    
    
    (311
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (311
    )Receipt from (distribution to) affiliates
    
    
    340
    
    
    
    52,497
    
    
    
    (52,300
    )
    
    
    (537
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    31
    
    
    
    32,564
    
    
    
    (52,300
    )
    
    
    (591
    )
    
    
    
    
    
    
    (20,296
    )Net effect of exchange rate changes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    44Change in cash and cash equivalents
    
    
    
    
    
    
    (2,070
    )
    
    
    (461
    )
    
    
    (703
    )
    
    
    
    
    
    
    (3,234
    )Cash and cash equivalents:Beginning of period
    
    
    
    
    
    
    19,823
    
    
    
    1,429
    
    
    
    3,370
    
    
    
    
    
    
    
    24,622End of period
    
    $
    
    
    
    $
    17,753
    
    
    $
    968
    
    
    $
    2,667
    
    
    $
    
    
    
    $
    21,388
 14




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Cash Flows
For the Quarter Ended March 26, 2005
 Issuer and GuarantorsSimmonsParent
    
    
    Bedding
    
    
    Subsidiary
    
    
    Non-GuarantorGuarantors
    
    
    Company
    
    
    Guarantors
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    (161
    )
    
    $
    2,549
    
    
    $
    (2,829
    )
    
    $
    (763
    )
    
    $
    
    
    
    $
    (1,204
    )Cash flows from investing activities:Purchase of property, plant and
equipment, net
    
    
    
    
    
    
    (585
    )
    
    
    (782
    )
    
    
    (11
    )
    
    
    
    
    
    
    (1,378
    )Other, net
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net cash provided by (used in) investing
activities
    
    
    
    
    
    
    (584
    )
    
    
    (782
    )
    
    
    (11
    )
    
    
    
    
    
    
    (1,377
    )Cash flows from financing activities:Payments of senior credit facility, net
    
    
    
    
    
    
    (3,655
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,655
    )Receipts from (distributions to) affiliates
    
    
    (124
    )
    
    
    (1,280
    )
    
    
    184
    
    
    
    1,220
    
    
    
    
    
    
    
    Purchase of common stock
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )Payments of other debt
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    (55
    )
    
    
    
    
    
    
    (88
    )Net cash provided by (used in) financing
activities
    
    
    (191
    )
    
    
    (4,935
    )
    
    
    151
    
    
    
    1,165
    
    
    
    
    
    
    
    (3,810
    )Net effect of exchange rate change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Change in cash and cash equivalents
    
    
    (352
    )
    
    
    (2,970
    )
    
    
    (3,460
    )
    
    
    394
    
    
    
    
    
    
    
    (6,388
    )Cash and cash equivalents:Beginning of period
    
    
    352
    
    
    
    15,923
    
    
    
    7,333
    
    
    
    598
    
    
    
    
    
    
    
    24,206End of period
    
    $
    
    
    
    $
    12,953
    
    
    $
    3,873
    
    
    $
    992
    
    
    $
    
    
    
    $
    17,818
 15




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##### Table of Contents



F. Share-Based Compensation
  Share-Based Payment Accounting for Stock Issued to
Employees Accounting for Stock-Based Compensation
  16




---



##### Table of Contents



WeightedAverageNumber of
    
    Fair Value atShares
    
    Grant DateNonvested shares as of December 31, 2005
    
    
    536,652
    
    
    $
    0.84Granted
    
    
    72,840
    
    
    $
    2.43Vested
    
    
    (7,905
    )
    
    $
    2.43Forfeited
    
    
    (63,213
    )
    
    $
    0.58Nonvested shares as of April 1, 2006
    
    
    538,374
    
    
    $
    1.06
  G. Segment Information
     17




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##### Table of Contents



Quarter Ended April 1, 2006
 WholesaleBedding
    
    
    Retail
    
    
    Eliminations
    
    
    TotalsNet sales to external customers
    
    $
    212,232
    
    
    $
    23,635
    
    
    $
    
    
    
    $
    235,867Intersegment net sales
    
    
    4,715
    
    
    
    
    
    
    
    (4,715
    )
    
    
    Adjusted EBITDA
    
    
    36,109
    
    
    
    2,615
    
    
    
    (21
    )
    
    
    38,703Depreciation and amortization expense
    
    
    6,964
    
    
    
    317
    
    
    
    
    
    
    
    7,281Expenditures for long-lived assets
    
    
    2,615
    
    
    
    694
    
    
    
    
    
    
    
    3,309Segment assets
    
    
    1,257,721
    
    
    
    22,104
    
    
    
    (1,602
    )
    
    
    1,278,223Reconciliation of EBITDA and Adjusted
EBITDA to net income:Net income
    
    $
    5,079
    
    
    $
    1,375
    
    
    $
    (21
    )
    
    $
    6,433Depreciation and amortization
    
    
    6,964
    
    
    
    317
    
    
    
    
    
    
    
    7,281Income taxes
    
    
    2,983
    
    
    
    801
    
    
    
    
    
    
    
    3,784Interest expense, net
    
    
    19,172
    
    
    
    4
    
    
    
    
    
    
    
    19,176Interest income
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    84EBITDA
    
    
    34,282
    
    
    
    2,497
    
    
    
    (21
    )
    
    
    36,758Reorganization expense
    
    
    641
    
    
    
    
    
    
    
    
    
    
    
    641Management fees
    
    
    302
    
    
    
    118
    
    
    
    
    
    
    
    420Management severance
    
    
    826
    
    
    
    
    
    
    
    
    
    
    
    826Other, net
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    58Adjusted EBITDA
    
    $
    36,109
    
    
    $
    2,615
    
    
    $
    (21
    )
    
    $
    38,703
 18




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##### Table of Contents



Quarter Ended March 26, 2005
 WholesaleBedding
    
    
    Retail
    
    
    Eliminations
    
    
    TotalsNet sales to external customers
    
    $
    186,451
    
    
    $
    19,131
    
    
    $
    
    
    
    $
    205,582Intersegment net sales
    
    
    3,149
    
    
    
    
    
    
    
    (3,149
    )
    
    
    Adjusted EBITDA
    
    
    17,693
    
    
    
    2,117
    
    
    
    78
    
    
    
    19,888Depreciation and amortization expense
    
    
    6,136
    
    
    
    326
    
    
    
    
    
    
    
    6,462Expenditures for long-lived assets
    
    
    1,124
    
    
    
    254
    
    
    
    
    
    
    
    1,378Segment assets
    
    
    1,262,652
    
    
    
    25,175
    
    
    
    (1,596
    )
    
    
    1,286,231Reconciliation of EBITDA and Adjusted
EBITDA to net income (loss):Net income (loss)
    
    $
    (3,364
    )
    
    $
    1,094
    
    
    $
    78
    
    
    $
    (2,192
    )Depreciation and amortization
    
    
    6,136
    
    
    
    326
    
    
    
    
    
    
    
    6,462Income taxes
    
    
    (1,955
    )
    
    
    598
    
    
    
    
    
    
    
    (1,357
    )Interest expense, net
    
    
    16,411
    
    
    
    3
    
    
    
    
    
    
    
    16,414Interest income
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36EBITDA
    
    
    17,264
    
    
    
    2,021
    
    
    
    78
    
    
    
    19,363Management fees
    
    
    324
    
    
    
    96
    
    
    
    
    
    
    
    420Management severance
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    105Adjusted EBITDA
    
    $
    17,693
    
    
    $
    2,117
    
    
    $
    78
    
    
    $
    19,888
 H. Contingencies
  I. Accounting Pronouncements
 Accounting for Certain Hybrid Instruments
 19




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##### Table of Contents



Accounting for Servicing of Financial Assets  An
Amendment of FASB Statement No. 140
 20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
  Results of Operations
  Quarter EndedApril 1,
    
    
    March 25,2006
    
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %Cost of products sold
    
    
    57.8
    %
    
    
    55.5
    %Gross profit
    
    
    42.2
    %
    
    
    44.5
    %Operating expenses:Selling, general and
administrative expenses
    
    
    30.1
    %
    
    
    38.5
    %Amortization of intangibles
    
    
    0.6
    %
    
    
    0.7
    %Licensing fees
    
    
    -1.0
    %
    
    
    -1.0
    %29.7
    %
    
    
    38.2
    %Operating income
    
    
    12.5
    %
    
    
    6.3
    %Interest expense, net
    
    
    8.1
    %
    
    
    8.0
    %Income (loss) before income taxes
    
    
    4.4
    %
    
    
    -1.7
    %Income tax expense (benefit)
    
    
    1.6
    %
    
    
    -0.6
    %Net income (loss)
    
    
    2.8
    %
    
    
    -1.1
    %
 21




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##### Table of Contents



Quarter Ended April 1, 2006 as Compared to Quarter Ended March 26, 2005
 Net sales.
 $ increase
    
    
    % increase2006
    
    
    2005
    
    
    (decrease)
    
    
    (decrease)(in millions)Wholesale bedding segment
    
    $
    217.0
    
    
    $
    189.6
    
    
    $
    27.4
    
    
    
    14.4
    %Retail bedding segment
    
    
    23.6
    
    
    
    19.1
    
    
    
    4.5
    
    
    
    23.5
    %Eliminations
    
    
    (4.7
    )
    
    
    (3.1
    )
    
    
    (1.6
    )
    
    
    49.3
    %Consolidated net sales
    
    $
    235.9
    
    
    $
    205.6
    
    
    $
    30.3
    
    
    
    14.7
    %
    22




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##### Table of Contents



Gross Margin.
 Margin %Gross Profit
    
    
    Gross Margin
    
    
    Point2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    Change(in millions)Wholesale bedding segment
    
    $
    86.9
    
    
    $
    81.0
    
    
    
    40.0
    %
    
    
    42.7
    %
    
    
    -2.7
    %Retail bedding segment
    
    
    12.5
    
    
    
    10.3
    
    
    
    53.0
    %
    
    
    53.7
    %
    
    
    -0.7
    %Eliminations
    
    
    
    
    
    
    0.1
    
    
    
    0.0
    %
    
    
    -4.7
    %
    
    
    4.7
    %Consolidated
    
    $
    99.4
    
    
    $
    91.4
    
    
    
    42.2
    %
    
    
    44.5
    %
    
    
    -2.3
    %
   Selling, general and administrative expenses (SG&A).
 Margin %SG&A
    
    
    As a % of Net Sales
    
    
    Point2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    Change(in millions)Wholesale bedding segment
    
    $
    60.7
    
    
    $
    70.7
    
    
    
    28.0
    %
    
    
    37.3
    %
    
    
    -9.3
    %Retail bedding segment
    
    
    10.2
    
    
    
    8.5
    
    
    
    43.2
    %
    
    
    44.4
    %
    
    
    -1.2
    %Consolidated
    
    $
    70.9
    
    
    $
    79.2
    
    
    
    30.1
    %
    
    
    38.5
    %
    
    
    -8.4
    %
  
    
    Our selling expenses decreased $2.5 million, or 2.1 percentage points, primarily as
a
 23




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##### Table of Contents



result of our sales force reorganization; and
    
    Our distribution expense decreased 0.6 percentage points due primarily to less
shipments having been made outside of our planned production network and improved
trailer utilization.
  
    
    Our national advertising expenses decreased $3.2 million, or 1.9 percentage points,
principally due to our 2005 HealthSmartTM national advertising campaign
being weighted towards the first quarter of 2005, whereas our 2006 Bowling Ball
campaign spending is weighted towards the second quarter of 2006;
    
    Our co-op advertising expenses decreased 1.6 percentage points due to the
classification of more expenditures as a reduction of net sales as discussed above
under Net Sales;
    
    Our selling support expenses decreased $2.0 million, or 1.4 percentage points, due
to the rollout of new product lines in the first quarter of 2005, whereas no new
product lines were rolled out in the first quarter of 2006; and
    
    Our corporate function expenses decreased $2.2 million, or 1.2 percentage points,
due to our bi-annual national leadership meeting having occurred in the first quarter
of 2005.
  Amortization of Intangibles
 Licensing Fees
 Interest Expense Net
 Income Taxes.
 24




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##### Table of Contents



Liquidity and Capital Resources
     Quarter EndedApril 1,
    
    
    March 26,2006
    
    
    2005Statement of Cash Flow Data:Cash flows provided by (used in):Operating activities
    
    $
    20.4
    
    
    $
    (1.2
    )Investing activities
    
    
    (3.3
    )
    
    
    (1.4
    )Financing activities
    
    
    (20.3
    )
    
    
    (3.8
    )Change in cash and cash equivalents
    
    
    (3.2
    )
    
    
    (6.4
    )Cash and cash equivalents:Beginning of period
    
    
    24.6
    
    
    
    24.2End of period
    
    $
    21.4
    
    
    $
    17.8
 25




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##### Table of Contents



Quarter Ended April 1, 2006 as Compared to Quarter Ended March 26, 2005
 Cash flows (used in) provided by Operating Activities
 Cash flows used in Investing Activities.
 Cash flows used in Financing Activities.
 Debt
      26




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##### Table of Contents




    
    A minimum cash interest coverage ratio, with compliance levels ranging from cash
interest coverage of no less than 1.85:1.00 from March 31, 2006 through
December 31, 2006; 2.00:1.00 as of March 31, 2007; 2.15:1.00 from June 30, 2007 through
September 30, 2007; 2.25:1.00 as of December 31, 2007; 2.75:1.00 from March 31, 2008
through December 31, 2008; and 3.00:1.00 from March 31, 2009 through each fiscal quarter
thereafter.
    
    A maximum leverage ratio, with compliance levels ranging from total leverage of no
greater than 6.25:1.00 from March 31, 2006 through June 30, 2006; 6.15:1.00 as of September
30, 2006; 5.90:1.00 as of December 31, 2006; 5.60:1.00 as of March 31, 2007; 5.25:1.00 as
of June 30, 2007; 5.00:1.00 from September 30, 2007 through December 31, 2007;
4.50:1.00 from March 31, 2008 through December 31, 2008; and 4.00:1.00 from March 31, 2009
through each fiscal quarter ending thereafter .
   27




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##### Table of Contents



April 1,2006Calculation of minimum cash interest coverage ratio:Simmons Bedding twelve months ended adjusted EBITDA(1)
    
    $
    132.6Simmons Bedding consolidated cash interest expense(2)
    
    $
    52.8Actual interest coverage ratio(3)
    
    
    2.51
    xMinimum permitted interest coverage ratio
    
    
    1.85
    xCalculation of maximum leverage ratio:Simmons Company consolidated indebtedness
    
    $
    892.3Less: 10% senior discount notes
    
    
    187.4Simmons Bedding consolidated indebtedness
    
    
    704.9Less: Simmons Bedding cash and cash equivalents
    
    
    21.4Simmons Bedding net debt
    
    $
    683.5Simmons Bedding twelve months ended adjusted EBITDA(1)
    
    $
    132.6Actual leverage ratio(4)
    
    
    5.15
    xMaximum permitted leverage ratio
    
    
    6.25
    x
 
 (1)
    
    Simmons Beddings Adjusted EBITDA for the twelve months ended April 1, 2006 adds back
to net income the following items: income taxes, interest expense, depreciation and
amortization, non-cash stock compensation expense, transaction related expenditures, plant
opening and closing charges, reorganization costs, management fees, and other
non-recurring/non-cash charges as permitted under Simmons Beddings senior credit facility.(2)
    
    A calculation of Simmons Beddings consolidated cash interest expense, as defined in
its senior credit facility, for the twelve months ended April 1, 2006, as follows (in
millions): Simmons Company interest expense, net
    
    $
    73.0Less: Simmons Company non-cash interest expense
    
    
    (17.9
    )Simmons Bedding interest expense, net
    
    
    55.1Simmons Bedding interest income
    
    
    0.3Simmons Bedding gross interest expense
    
    
    55.4Less: Simmons Bedding non-cash interest expense
    
    
    (2.6
    )$
    52.8
 
 (3)
    
    Represents ratio of Adjusted EBITDA to consolidated cash interest expense.(4)
    
    Represents ratio of consolidated indebtedness less cash and cash equivalents to
Adjusted EBITDA. 
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Off-Balance Sheet Arrangements
  Seasonality/Other
 th
 Accounting Pronouncements
 Accounting for Certain Hybrid Instruments
 Accounting for Servicing of Financial Assets  An
Amendment of FASB Statement No. 140
 Forward Looking Statements
 Safe Harbor statement under the Private Securities Litigation Reform Act of 1995
 
    
    our ability to compete effectively and competitive pricing pressures in the bedding industry;
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
    
    legal and regulatory requirements;
    
    the success of new products;
    
    our relationships with and viability of our major suppliers;
    
    fluctuations in costs of raw materials;
    
    our relationship with significant customers and licensees;
    
    our ability to increase prices on our products and the effect of these price increases
on our unit sales;
    
    an increase in return rates and warranty claims;
    
    our labor relations;
    
    departure of key personnel;
    
    encroachments on our intellectual property;
    
    product liability claims;
    
    our level of indebtedness;
    
    interest rate risks;
    
    compliance with covenants in our debt agreements;
    
    future acquisitions;
    
    our ability to achieve the expected benefits from any personnel realignments; and
    
    other risks and factors identified from time to time in the Companys reports filed with
the Securities and Exchange Commission (SEC).
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Market Risk
  Interest Rate Risk
   Commodity Price Risk
  
 Item 4. Internal Controls and Procedures
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PART II   OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 10.1
    
    Restricted Stock Agreement for Kimberly A. Samon dated May 4, 2006.31.1
    
    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)
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SIMMONS COMPANYBy:
    
    /s/ William S. CreekmuirWilliam S. CreekmuirExecutive Vice President & Chief Financial OfficerDate: May 8, 2006
 34