##### 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 June 25, 2005
 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 333-113861
 SIMMONS BEDDING COMPANY
  Delaware
    
    13-3875743(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)
 (770) 512-7700
 þ o
 o þ
    1




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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 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-3.1 AMENDED AND RESTATED BY-LAWSEX-31.1 302 CERTIFICATION OF CEOEX-31.2 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Simmons
Bedding Company and Subsidiaries
 Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
 Quarter Ended
    
    Six Months EndedJune 25,
    
    June 26,
    
    June 25,
    
    June 26,2005
    
    2004
    
    2005
    
    2004Net sales
    
    $
    208,042
    
    
    $
    201,795
    
    
    $
    413,624
    
    
    $
    425,115Cost of products sold
    
    
    117,256
    
    
    
    110,245
    
    
    
    231,422
    
    
    
    230,110Gross profit
    
    
    90,786
    
    
    
    91,550
    
    
    
    182,202
    
    
    
    195,005Operating expenses:Selling, general and
administrative expenses
    
    
    73,056
    
    
    
    73,605
    
    
    
    152,126
    
    
    
    158,866Plant closure charges
    
    
    40
    
    
    
    764
    
    
    
    40
    
    
    
    764Amortization of intangibles
    
    
    1,417
    
    
    
    (1,197
    )
    
    
    2,858
    
    
    
    2,289Transaction expenses
    
    
    177
    
    
    
    662
    
    
    
    177
    
    
    
    662Licensing fees
    
    
    (2,815
    )
    
    
    (2,481
    )
    
    
    (4,866
    )
    
    
    (5,062
    )71,875
    
    
    
    71,353
    
    
    
    150,335
    
    
    
    157,519Operating income
    
    
    18,911
    
    
    
    20,197
    
    
    
    31,867
    
    
    

    37,486Interest expense, net
    
    
    13,203
    
    
    
    10,888
    
    
    
    25,392
    
    
    
    21,981Income before income taxes
    
    
    5,708
    
    
    
    9,309
    
    
    
    6,475
    
    
    
    15,505Income tax expense
    
    
    2,029
    
    
    
    3,351
    
    
    
    2,313
    
    
    
    5,582Net income
    
    
    3,679
    
    
    
    5,958
    
    
    
    4,162
    
    
    
    9,923Other comprehensive income:Foreign currency translation
adjustment
    
    
    (9
    )
    
    
    (8
    )
    
    
    (6
    )
    
    
    (10
    )Comprehensive income
    
    $
    3,670
    
    
    $
    5,950
    
    
    $
    4,156
    
    
    $
    9,913
  2




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##### Table of Contents



Simmons Bedding Company and Subsidiaries
 Condensed Consolidated Balance Sheets
 June 25,
    
    December 25,2005
    
    2004*(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    31,368
    
    
    $
    23,854Accounts receivable, less allowances for
doubtful receivables, discounts and returns
of $5,024 and $5,131
    
    
    71,915
    
    
    
    85,433Inventories
    
    
    32,482
    
    
    
    33,300Deferred income taxes
    
    
    1,448
    
    
    
    2,445Other current assets
    
    
    17,893
    
    
    
    20,204Total current assets
    
    
    155,106
    
    
    
    165,236Property, plant and equipment, net
    
    
    60,034
    
    
    
    62,842Goodwill
    
    
    492,560
    
    
    
    488,686Intangible assets, net
    
    
    540,125
    
    
    
    542,983Other assets
    
    
    38,800
    
    
    
    41,987$
    1,286,625
    
    
    $
    1,301,734
 
 *
    
    Derived from the Companys 2004 audited Consolidated Financial Statements.  3




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##### Table of Contents



Simmons Bedding Company and Subsidiaries
 Condensed Consolidated Balance Sheets
 June 25,
    
    December 25,2005
    
    2004*(Unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    839
    
    
    $
    4,124Accounts payable
    
    
    51,652
    
    
    
    54,380Accrued liabilities
    
    
    56,132
    
    
    
    68,977Total current liabilities
    
    
    108,623
    
    
    
    127,481Non-current liabilities:Long-term debt
    
    
    746,474
    
    
    
    748,015Deferred income taxes
    
    
    155,655
    
    
    
    154,775Other
    
    
    11,110
    
    
    
    10,856Total liabilities
    
    
    1,021,862
    
    
    
    1,041,127Commitments and contingenciesCommon stockholders equity:Common stock, $.01 par value; 3,000 shares
authorized; 100 issued and outstanding
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    243,052
    
    
    
    243,052Retained earnings
    
    
    21,586
    
    
    
    17,424Accumulated other comprehensive income
    
    
    124
    
    
    
    130Total common stockholders equity
    
    
    264,763
    
    
    
    260,607$
    1,286,625
    
    
    $
    1,301,734
 
 *
    
    Derived from the Companys 2004 audited Consolidated Financial Statements.  4




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Simmons Bedding Company and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
 Six Months EndedJune 25,
    
    June 26,2005
    
    2004Cash flows from operating activities:Net income
    
    $
    4,162

    
    
    $
    9,923Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    13,121
    
    
    
    10,719Provision for bad debts, net
    
    
    (107
    )
    
    
    2,542Provision for deferred income taxes
    
    
    1,299
    
    
    
    4,274Non-cash interest expense
    
    
    1,172
    
    
    
    908Non-cash stock compensation expense
    
    

    
    
    
    
    3,308Net changes in operating assets and liabilities:Accounts receivable
    
    
    13,625
    
    
    
    (11,553
    )Inventories
    
    
    818
    
    
    
    3,108Other current assets
    
    
    2,311
    
    
    
    5,774Accounts payable
    
    
    (2,728
    )
    
    
    7,616Accrued liabilities
    
    
    (12,804
    )
    
    
    6,689Other, net
    
    
    (2,321
    )
    
    
    (5,110
    )Net cash provided by operating activities
    
    
    18,548
    
    
    
    38,198Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (2,586
    )
    
    
    (6,728
    )Proceeds from the sale of Gallery Corp., net
    
    
    
    
    
    
    6,495Purchase of certain assets of Simmons Juvenile Products, Inc.
    
    
    (3,337
    )
    
    
    Other, net
    
    
    
    
    
    
    105Net cash used in investing activities
    
    
    (5,923
    )
    
    
    (128
    )Cash flows from financing activities:Proceeds from (payments to) affiliate, net
    
    
    (279
    )
    
    
    925Payments of senior credit facility, net
    
    
    (4,668
    )
    
    
    (11,675
    )Payments of other debt
    
    
    (158
    )
    
    
    (6,002
    )Payments of financing fees
    
    
    
    
    
    
    (601
    )Net cash used in financing activities
    
    
    (5,105
    )
    
    
    (17,353
    )Net effect of exchange rate changes on cash
    
    
    (6
    )
    
    
    (10
    )Change in cash and cash equivalents
    
    
    7,514
    
    
    
    20,707Cash and cash equivalents, beginning of period
    
    
    23,854
    
    
    
    3,670Cash and cash equivalents, end of period
    
    $
    31,368
    
    
    $
    24,377
  5




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Simmons Bedding Company and Subsidiaries
Consolidated Statement of Changes in Stockholders Equity
 AccumulatedAdditional
    
    
    
    
    
    Other
    
    TotalCommon
    
    Common
    
    Paid-In
    
    Retained
    
    Comprehensive
    
    StockholdersShares
    
    Stock
    
    Capital
    
    Earnings
    
    Income
    
    EquityDecember 25, 2004 (audited)
    
    
    100
    
    
    $
    1
    
    
    $
    243,052
    
    
    $
    17,424
    
    
    $
    130
    
    
    $
    260,607Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,162
    
    
    
    
    
    
    
    4,162Other comprehensive
income:Change in foreign
currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,162
    
    
    
    (6
    )
    
    
    4,156June 25, 2005 (unaudited)
    
    
    100
    
    
    $
    1
    
    
    $
    243,052
    
    
    $
    21,586
    
    
    $
    124
    
    
    $
    264,763
  6




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A. Basis of Presentation
     B. Inventories
  June 25,
    
    December 25,2005
    
    2004Raw materials
    
    $
    17,419
    
    
    $
    18,135Work-in-progress
    
    
    1,049
    
    
    
    1,236Finished goods
    
    
    9,577
    
    
    
    9,934Inventory held at retail stores
    
    
    4,437
    
    
    
    3,995$
    32,482
    
    
    $
    33,300
 C. Acquisitions and Dispositions
  7




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8




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Current assets
    
    $
    3,665Property, plant and equipment
    
    
    23Goodwill
    
    
    4,034Intangibles
    
    
    18,000Total assets acquired
    
    
    25,722Current liabilities
    
    
    (2,476
    )Non-current liabilities
    
    
    (224
    )Total liabilities assumed
    
    
    (2,700
    )Purchase price
    
    $
    23,022
   D. Goodwill
  WholesaleBedding
    
    Retail
    
    ConsolidatedBalance as of December 25, 2004
    
    $
    476,394
    
    
    $
    12,292
    
    
    $
    488,686Juvenile Acquisition contingent consideration (see Note C)
    
    
    3,337
    
    
    
    
    
    
    
    3,337Tax benefit allocated to reduce goodwill
    
    
    (23
    )
    
    
    
    
    
    
    (23
    )Balance as
of March 26, 2005
    
    
    479,708
    
    
    
    12,292
    
    
    
    492,000Adjustment
of pre-acquisition tax liability
    
    
    583
    
    
    
    
    
    
    
    583Tax benefit
allocated to reduce goodwill
    
    
    (23
    )
    
    
    
    
    
    
    (23
    )$
    480,268
    
    
    $
    12,292
    
    
    $
    492,560
  9




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E. Warranties
  For the
    
    For theQuarters Ended
    
    Six Months EndedJune 25,
    
    June 26,
    
    June 25,
    
    June 26,2005
    
    2004
    
    2005
    
    2004Balance at beginning of period
    
    $
    3,810
    
    
    $
    3,831
    
    
    $
    3,699
    
    
    $
    3,803Additional warranties issued
    
    
    1,111
    
    
    
    1,381
    
    
    
    2,085
    
    
    
    2,295Warranty settlements
    
    
    (1,433
    )
    
    
    (1,204
    )
    
    
    (2,919
    )
    
    
    (2,090
    )Revis ions of estimate
    
    
    692
    
    
    
    138
    
    
    
    1,315
    
    
    
    138Balance at end of period
    
    $
    4,180
    
    
    $
    4,146
    
    
    $
    4,180
    
    
    $
    4,146
 F. Long-Term Debt
  June 25,
    
    December 25,2005
    
    2004Senior credit facility:Revolving loan
    
    $
    
    
    
    $
    Tranche C term loan
    
    
    391,932
    
    
    
    396,600Total senior credit facility
    
    
    391,932
    
    
    
    396,600Senior unsecured term loan
    
    
    140,000
    
    
    
    140,000Industrial revenue bonds, 7.00%, due 2017
    
    
    9,700
    
    
    
    9,700Industrial revenue bonds, 3.62%, due 2016
    
    
    3,800
    
    
    
    3,800Banco Santander loan, 3.15%, due 2013
    
    
    1,796
    
    
    
    1,9027.875% senior subordinated notes due 2014
    
    
    200,000
    
    
    
    200,000Other, including capital lease obligations
    
    
    85
    
    
    
    137747,313
    
    
    
    752,139Less current portion
    
    
    (839
    )
    
    
    (4,124
    )$
    746,474
    
    
    $
    748,015
  10




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Eurodollar
    
    BaseRate
    
    RateRevolving loan
    
    
    2.50
    %
    
    
    1.50
    %Tranche C term loan
    
    
    2.50
    %
    
    
    1.50
    %Senior unsecured term loan
    
    
    3.75
    %
    
    
    2.75
    %
    11




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Supplemental Consolidating Condensed Statements of Operations
For the Quarter Ended June 25, 2005
 Issuer and GuarantorsSimmonsBedding
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    (17,784
    )
    
    $
    222,739
    
    
    $
    3,087
    
    
    $
    
    
    
    $
    208,042Cost of products sold
    
    
    305
    
    
    
    114,771
    
    
    
    2,180
    
    
    
    
    
    
    
    117,256Gross profit
    
    
    (18,089
    )
    
    
    107,968
    
    
    
    907
    
    
    
    
    
    
    
    90,786Operating expenses:Selling, general and
administrative expenses
    
    
    48,869
    
    
    
    23,540
    
    
    
    647
    
    
    
    
    
    
    
    73,056Plant closure charges
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    40Amortization of intangibles
    
    
    807
    
    
    
    610
    
    
    
    
    
    
    
    
    
    
    
    1,417Intercompany fees
    
    
    (71,072
    )
    
    
    70,817
    
    
    
    255
    
    
    
    
    
    
    
    Transaction expenses
    
    
    171
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    177Licensing fees
    
    
    (265
    )
    
    
    (2,400
    )
    
    
    (150
    )
    
    
    
    
    
    
    (2,815
    )(21,490
    )
    
    
    92,613
    
    
    
    752
    
    
    
    
    
    
    
    71,875Operating income
    
    
    3,401
    
    
    
    15,355
    
    
    
    155
    
    
    
    
    
    
    
    18,911Interest expense, net
    
    
    12,975
    
    
    
    199
    
    
    
    29
    
    
    
    
    
    
    
    13,203Income from subsidiaries
    
    
    14,173
    
    
    
    
    
    
    
    
    
    
    
    (14,173
    )
    
    
    Income before income taxes
    
    
    4,599
    
    
    
    15,156
    
    
    
    126
    
    
    
    (14,173
    )
    
    
    5,708Income tax
expense (benefit)
    
    
    920
    
    
    
    1,266
    
    
    
    (157
    )
    
    
    
    
    
    
    2,029Net income
    
    $
    3,679
    
    
    $
    13,890
    
    
    $
    283
    
    
    $
    (14,173
    )
    
    $
    3,679
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Supplemental Consolidating Condensed Statements of Operations
For the Quarter Ended June 26, 2004
 Issuer and GuarantorsSimmonsBedding
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    (19,064
    )
    
    $
    217,898
    
    
    $
    2,961
    
    
    $
    
    
    
    $
    201,795Cost of products sold
    
    
    281
    
    
    
    107,882
    
    
    
    2,082
    
    
    
    
    
    
    
    110,245Gross margin
    
    
    (19,345
    )
    
    
    110,016
    
    
    
    879
    
    
    
    
    
    
    
    91,550Operating expenses:Selling, general and
administrative expenses
    
    
    45,223
    
    
    
    27,902
    
    
    
    480
    
    
    
    
    
    
    
    73,605Amortization of intangibles
    
    
    (2,007
    )
    
    
    810
    
    
    
    
    
    
    
    
    
    
    
    (1,197
    )Plant closure charges
    
    
    
    
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    764Transaction expenses
    
    
    162
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    662Intercompany fees
    
    
    (52,956
    )
    
    
    52,708
    
    
    
    248
    
    
    
    
    
    
    
    Licensing fees
    
    
    (174
    )
    
    
    (2,161
    )
    
    
    (146
    )
    
    
    
    
    
    
    (2,481
    )(9,752
    )
    
    
    80,523
    
    
    
    582
    
    
    
    
    
    
    
    71,353Operating income (loss)
    
    
    (9,593
    )
    
    
    29,493
    
    
    
    297
    
    
    
    
    
    
    
    20,197Interest expense, net
    
    
    10,676
    
    
    
    201
    
    
    
    11
    
    
    
    
    
    
    
    10,888Income from subsidiaries
    
    
    18,715
    
    
    
    
    
    
    
    
    
    
    
    (18,715
    )
    
    
    Income
(loss) before income taxes
    
    
    (1,554
    )
    
    
    29,292
    
    
    
    286
    
    
    
    (18,715
    )
    
    
    9,309Income tax
expense (benefit)
    
    
    (7,512
    )
    
    
    10,792
    
    
    
    71
    
    
    
    
    
    
    
    3,351Net income
    
    $
    5,958
    
    
    $
    18,500
    
    
    $
    215
    
    
    $
    (18,715
    )
    
    $
    5,958
 13




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Operations
For the Six Months Ended June 25, 2005
 Issuer and GuarantorsSimmonsBedding
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    (33,817
    )
    
    $
    442,133
    
    
    $
    5,308
    
    
    $
    
    
    
    $
    413,624Cost of products sold
    
    
    593
    
    
    
    226,917
    
    
    
    3,912
    
    
    
    
    
    
    
    231,422Gross margin
    
    
    (34,410
    )
    
    
    215,216
    
    
    
    1,396
    
    
    
    
    
    
    
    182,202Operating expenses:Selling, general and
administrative expenses
    
    
    100,349
    
    
    
    50,650
    
    
    
    1,127
    
    
    
    
    
    
    
    152,126Plant closure charges
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    40Amortization of intangibles
    
    
    1,615
    
    
    
    1,243
    
    
    
    
    
    
    
    
    
    
    
    2,858Intercompany fees
    
    
    (142,807
    )
    
    
    142,348
    
    
    
    459
    
    
    
    
    
    
    
    Transaction expenses
    
    
    171
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    177Licensing fees
    
    
    (529
    )
    
    
    (4,009
    )
    
    
    (328
    )
    
    
    
    
    
    
    (4,866
    )(41,201
    )
    
    
    190,278
    
    
    
    1,258
    
    
    
    
    
    
    
    150,335Operating income
    
    
    6,791
    
    
    
    24,938
    
    
    
    138
    
    
    
    
    
    
    
    31,867Interest expense, net
    
    
    24,940
    
    
    
    400
    
    
    
    52
    
    
    
    
    
    
    
    25,392Income from subsidiaries
    
    
    23,711
    
    
    
    
    
    
    
    
    
    
    
    (23,711
    )
    
    
    Income before income taxes
    
    
    5,562
    
    
    
    24,538
    
    
    
    86
    
    
    
    (23,711
    )
    
    
    6,475Income tax expense (benefit)
    
    
    1,400
    
    
    
    1,039
    
    
    
    (126
    )
    
    
    
    
    
    
    2,313Net income
    
    $
    4,162
    
    
    $
    23,499
    
    
    $
    212
    
    
    $
    (23,711
    )
    
    $
    4,162
 14




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Operations
For the Six Months Ended June 26, 2004
 Issuer and GuarantorsSimmons
    
    
    
    
    
    Non-Bedding
    
    Guarantor
    
    GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet sales
    
    $
    (31,230
    )
    
    $
    450,959
    
    
    $
    5,386
    
    
    $
    
    
    
    $
    425,115Cost of products sold
    
    
    594
    
    
    
    225,581
    
    
    
    3,935
    
    
    
    
    
    
    
    230,110Gross margin
    
    
    (31,824
    )
    
    
    225,378
    
    
    
    1,451
    
    
    
    
    
    
    
    195,005Operating expenses:Selling, general and
administrative expenses
    
    
    101,239
    
    
    
    56,598
    
    
    
    1,029
    
    
    
    
    
    
    
    158,866Amortization of intangibles
    
    
    661
    
    
    
    1,628
    
    
    
    
    
    
    
    
    
    
    
    2,289Plant closure charges
    
    
    
    
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    764Transaction expenses
    
    
    162
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    662Intercompany fees
    
    
    (106,880
    )
    
    
    106,417
    
    
    
    463
    
    
    
    
    
    
    
    Licensing fees
    
    
    (520
    )
    
    
    (4,259
    )
    
    
    (283
    )
    
    
    
    
    
    
    (5,062
    )(5,338
    )
    
    
    161,648
    
    
    
    1,209
    
    
    
    
    
    
    
    157,519Operating income (loss)
    
    
    (26,486
    )
    
    
    63,730
    
    
    
    242
    
    
    
    
    
    
    
    37,486Interest expense, net
    
    
    21,563
    
    
    
    397
    
    
    
    21
    
    
    
    
    
    
    
    21,981Income from subsidiaries
    
    
    39,406
    
    
    
    
    
    
    
    
    
    
    
    (39,406
    )
    
    
    Income
(loss) before income taxes
    
    
    (8,643
    )
    
    
    63,333
    
    
    
    221
    
    
    
    (39,406
    )
    
    
    15,505Income tax
expense (benefit)
    
    
    (18,566
    )
    
    
    24,070
    
    
    
    78
    
    
    
    
    
    
    
    5,582Net income
    
    $
    9,923
    
    
    $
    39,263
    
    
    $
    143
    
    
    $
    (39,406
    )
    
    $
    9,923
 15




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##### Table of Contents



Supplemental Consolidating Condensed Balance Sheets
As of June 25, 2005
 Issuer and GuarantorsSimmonsBedding
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,793
    
    
    $
    15,204
    
    
    $
    1,371
    
    
    $
    
    
    
    $
    31,368Account s receivable
    
    
    565
    
    
    
    69,157
    
    
    
    2,193
    
    
    
    
    
    
    
    71,915Inventories
    
    
    
    
    
    
    31,600
    
    
    
    882
    
    
    
    
    
    
    
    32,482Other
    
    
    8,043
    
    
    
    10,738
    
    
    
    560
    
    
    
    
    
    
    
    19,341Total current assets
    
    
    23,401
    
    
    
    126,699
    
    
    
    5,006
    
    
    
    
    
    
    
    155,106Property, plant and equipment, net
    
    
    11,018
    
    
    
    43,915
    
    
    
    5,101
    
    
    
    
    
    
    
    60,034Goodwill and other intangibles, net
    
    
    67,688
    
    
    
    964,931
    
    
    
    65
    
    
    
    
    
    
    
    1,032,684Other assets
    
    
    19,451
    
    
    
    18,698
    
    
    
    652
    
    
    
    
    
    
    
    38,801Net investment in and advances to
(from) affiliates
    
    
    912,914
    
    
    
    135,775
    
    
    
    (1,771
    )
    
    
    (1,046,918
    )
    
    
    $
    1,034,472
    
    
    $
    1,290,018
    
    
    $
    9,053
    
    
    $
    (1,046,918
    )
    
    $
    1,286,625LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    395
    
    
    $
    226
    
    
    $
    218
    
    
    $
    
    
    
    $
    839Accounts payable and accrued liabilities
    
    
    44,729
    
    
    
    61,643
    
    
    
    1,412
    
    
    
    
    
    
    
    107,784Total current liabilities
    
    
    45,124
    
    
    
    61,869
    
    
    
    1,630
    
    
    
    
    
    
    
    108,623Long-term debt
    
    
    731,538
    
    
    
    13,354
    
    
    
    1,582
    
    
    
    
    
    
    
    746,474Deferred income taxes
    
    
    (13,073
    )
    
    
    168,551
    
    
    
    177
    
    
    
    
    
    
    
    155,655Other non-current liabilities
    
    
    6,120
    
    
    
    4,588
    
    
    
    402
    
    
    
    
    
    
    
    11,110Total liabilities
    
    
    769,709
    
    
    
    248,362
    
    
    
    3,791
    
    
    
    
    
    
    
    1,021,862Stockholders equity
    
    
    264,763
    
    
    
    1,041,656
    
    
    
    5,262
    
    
    
    (1,046,918
    )
    
    
    264,763$
    1,034,472
    
    
    $
    1,290,018
    
    
    $
    9,053
    
    
    $
    (1,046,918
    )
    
    $
    1,286,625
 16




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##### Table of Contents



Supplemental Consolidating Condensed Balance Sheets
As of December 25, 2004
 Issuer and GuarantorsSimmonsBedding
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,923
    
    
    $
    7,333
    
    
    $
    598
    
    
    $
    
    
    
    $
    23,854Accounts receivable
    
    
    
    
    
    
    82,936
    
    
    
    2,497
    
    
    
    
    
    
    
    85,433Inventories
    
    
    
    
    
    
    32,622
    
    
    
    678
    
    
    
    
    
    
    
    33,300Other
    
    
    10,426
    
    
    
    11,646
    
    
    
    577
    
    
    
    
    
    
    
    22,649Total current assets
    
    
    26,349
    
    
    
    134,537
    
    
    
    4,350
    
    
    
    
    
    
    
    165,236Property, plant and equipment, net
    
    
    11,277
    
    
    
    46,370
    
    
    
    5,196
    
    
    
    
    
    
    
    62,843Goodwill and other intangibles, net
    
    
    69,284
    
    
    
    962,319
    
    
    
    65
    
    
    
    
    
    
    
    1,031,668Other assets
    
    
    20,165
    
    
    
    21,015
    
    
    
    807
    
    
    
    
    
    
    
    41,987Net investment in and advances to
(from) affiliates
    
    
    910,120
    
    
    
    131,043
    
    
    
    19
    
    
    
    (1,041,182
    )
    
    
    $
    1,037,195
    
    
    $
    1,295,284
    
    
    $
    10,437
    
    
    $
    (1,041,182
    )
    
    $
    1,301,734LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    3,655
    
    
    $
    241
    
    
    $
    229
    
    
    $
    
    
    
    $
    4,125Accounts payable and accrued liabilities
    
    
    48,413
    
    
    
    72,350
    
    
    
    2,597
    
    
    
    
    
    
    
    123,360Total current liabilities
    
    
    52,068
    
    
    
    72,591
    
    
    
    2,826
    
    
    
    
    
    
    
    127,485Long-term debt
    
    
    732,945
    
    
    
    13,381
    
    
    
    1,689
    
    
    
    
    
    
    
    748,015Deferred income taxes
    
    
    (14,353
    )
    
    
    168,663
    
    
    
    465
    
    
    
    
    
    
    
    154,775Other non-current liabilities
    
    
    5,927
    
    
    
    4,525
    
    
    
    399
    
    
    
    
    
    
    
    10,851Total liabilities
    
    
    776,587
    
    
    
    259,160
    
    
    
    5,379
    
    
    
    
    
    
    
    1,041,126Stockholders equity
    
    
    260,608
    
    
    
    1,036,124
    
    
    
    5,058
    
    
    
    (1,041,182
    )
    
    
    260,608$
    1,037,195
    
    
    $
    1,295,284
    
    
    $
    10,437
    
    
    $
    (1,041,182
    )
    
    $
    1,301,734
  
    
    The change in classification of a $515.0 million credit
balance previously reported in the
Guarantor subsidiaries line item net investment in and advances to (from) affiliates
and a $515.0 million debit balance previously reported in the
Guarantor subsidiaries stockholders equity, to the Eliminations line items net investment in and advances
to (from) affiliates and stockholders equity. The adjustment relates principally to
the push down of certain purchase accounting adjustments to subsidiaries;
    
    The correction of intercompany balances previously netted in error against the
Guarantor subsidiaries, Non-Guarantor subsidiaries, and Eliminations line item
stockholders equity totaling a $491.9 million
credit balance, a $1.7 million debit balance, and a $490.2
million debit balance, respectively. The amounts have been correctly classified in this revised
presentation in the line items net investment in and advances to (from) affiliates and
stockholders equity; and
    
    The combining of a $366.1 million credit balance previously reported in the Guarantor
subsidiaries line item net due to (from) subs
and a $366.1 million debit balance previously
reported in the Eliminations line item net due to
(from) subs into the line item net
investment in and advances to (from) affiliates.
  17




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Cash Flows
 For the Six Months Ended June 25, 2005
  Issuer and GuarantorsSimmonsBedding
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    4,901
    
    
    $
    14,517
    
    
    $
    (870
    )
    
    $
    
    
    
    $
    18,548Cash flows from investing activities:Purchase of property, plant and
equipment, net
    
    
    (1,364
    )
    
    
    (1,201
    )
    
    
    (21
    )
    
    
    
    
    
    
    (2,586
    )Purchase of Simmons Juvenile Products
    
    
    
    
    
    
    (3,337
    )
    
    
    
    
    
    
    
    
    
    
    (3,337
    )Net cash used in investing
activities
    
    
    (1,364
    )
    
    
    (4,538
    )
    
    
    (21
    )
    
    
    
    
    
    
    (5,923
    )Cash flows from financing activities:Repayment of long-term obligations
    
    
    (4,667
    )
    
    
    (41
    )
    
    
    (118
    )
    
    
    
    
    
    
    (4,826
    )Receipt from (distribution to)
affiliates
    
    
    
    
    
    
    (2,069
    )
    
    
    1,790
    
    
    
    
    
    
    
    (279
    )Net cash provided by (used in) financing
activities
    
    
    (4,667
    )
    
    
    (2,110
    )
    
    
    1,672
    
    
    
    
    
    
    
    (5,105
    )Net effect of exchange rate change
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Change in cash and cash equivalents
    
    
    (1,130
    )
    
    
    7,869
    
    
    
    775
    
    
    
    
    
    
    
    7,514Cash and cash equivalents:Beginning of period
    
    
    15,923
    
    
    
    7,333
    
    
    
    598
    
    
    
    
    
    
    
    23,854End of period
    
    $
    14,793
    
    
    $
    15,202
    
    
    $
    1,373
    
    
    $
    
    
    
    $
    31,368
 18




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Cash Flows
For the Six Months Ended June 26, 2004
 Issuer and GuarantorsSimmonsBedding
    
    Guarantor
    
    Non-GuarantorCompany
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    (32,692
    )
    
    $
    69,117
    
    
    $
    1,773
    
    
    $
    
    
    
    $
    38,198Cash flows from investing activities:Purchase of property, plant and
equipment, net
    
    
    (2,899
    )
    
    
    (2,852
    )
    
    
    (977
    )
    
    
    
    
    
    
    (6,728
    )Proceeds from sale of Gallery Corp., net
    
    
    6,495
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,495Other, net
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105Net cash provided by (used in) investing
activities
    
    
    3,701
    
    
    
    (2,852
    )
    
    
    (977
    )
    
    
    
    
    
    
    (128
    )Cash flows from financing activities:Repayment of long-term obligations, net
    
    
    (16,960
    )
    
    
    (601
    )
    
    
    (116
    )
    
    
    
    
    
    
    (17,677
    )Receipt from
(distribution to) affiliates
    
    
    66,127
    
    
    
    (63,402
    )
    
    
    (1,800
    )
    
    
    
    
    
    
    925Payment of financing fees
    
    
    (601
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (601
    )Net cash provided by (used in) financing
activities
    
    
    48,566
    
    
    
    (64,003
    )
    
    
    (1,916
    )
    
    
    
    
    
    
    (17,353
    )Net effect of exchange rate change
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Change in cash and cash equivalents
    
    
    19,575
    
    
    
    2,262
    
    
    
    (1,130
    )
    
    
    
    
    
    
    20,707Cash and cash equivalents:Beginning of period
    
    
    615
    
    
    
    667
    
    
    
    2,388
    
    
    
    
    
    
    
    3,670End of period
    
    $
    20,190
    
    
    $
    2,929
    
    
    $
    1,258
    
    
    $
    
    
    
    $
    24,377
 G. Segment Information
     19




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##### Table of Contents



Quarter Ended June 25, 2005
 WholesaleBedding
    
    Retail
    
    Eliminations
    
    TotalsNet sales to external customers
    
    $
    189,283
    
    
    $
    18,759
    
    
    $
    
    
    
    $
    208,042Intersegment net sales
    
    
    3,414
    
    
    
    
    
    
    
    (3,414
    )
    
    
    Adjusted EBITDA
    
    
    25,848
    
    
    
    1,537
    
    
    
    92
    
    
    
    27,477Depreciation and amortization
expense
    
    
    6,232
    
    
    
    427
    
    
    
    
    
    
    
    6,659Expenditures for long-lived assets
    
    
    1,032
    
    
    
    176
    
    
    
    
    
    
    
    1,208Segment assets
    
    
    1,260,724
    
    
    
    27,406
    
    
    
    (1,505
    )
    
    
    1,286,625Reconciliation of EBITDA and
Adjusted
EBITDA to net income:Net income
    
    $
    2,943
    
    
    $
    644
    
    
    $
    92
    
    
    $
    3,679Depreciation and amortization
    
    
    6,232
    
    
    
    427
    
    
    
    
    
    
    
    6,659Income taxes
    
    
    1,661
    
    
    
    368
    
    
    
    
    
    
    
    2,029Interest expense, net
    
    
    13,200
    
    
    
    3
    
    
    
    
    
    
    
    13,203Interest income
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    12EBITDA
    
    
    24,047
    
    
    
    1,443
    
    
    
    92
    
    
    
    25,582Reorganization costs
    
    
    1,345
    
    
    
    
    
    
    
    
    
    
    
    1,345Management fees
    
    
    239
    
    
    
    94
    
    
    
    
    
    
    
    333Transaction expenses
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    177Plant closing costs
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    40Adjusted EBITDA
    
    $
    25,848
    
    
    $
    1,537
    
    
    $
    92
    
    
    $
    27,477
 20




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##### Table of Contents



Quarter Ended June 26, 2004
 WholesaleBedding
    
    Retail
    
    Eliminations
    
    TotalsNet sales to external customers
    
    $
    182,597
    
    
    $
    19,198
    
    
    $
    
    
    
    $
    201,795Intersegment net sales
    
    
    5,138
    
    
    
    
    
    
    
    (5,138
    )
    
    
    Adjusted EBITDA
    
    
    28,092
    
    
    
    514
    
    
    
    301
    
    
    
    28,907Depreciation and amortization expense
    
    
    2,996
    
    
    
    101
    
    
    
    
    
    
    
    3,097Expenditures for long-lived assets
    
    
    4,701
    
    
    
    215
    
    
    
    
    
    
    
    4,916Segment assets
    
    
    1,243,320
    
    
    
    29,945
    
    
    
    (2,106
    )
    
    
    1,271,159Reconciliation of EBITDA and Adjusted
EBITDA to net income (loss):Net income (loss)
    
    $
    6,168
    
    
    $
    (511
    )
    
    $
    301
    
    
    $
    5,958Depreciation and amortization
    
    
    2,996
    
    
    
    101
    
    
    
    
    
    
    
    3,097Income taxes
    
    
    3,508
    
    
    
    (157
    )
    
    
    
    
    
    
    3,351Interest expense, net
    
    
    10,840
    
    
    
    48
    
    
    
    
    
    
    
    10,888Interest income
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31EBITDA
    
    
    23,543
    
    
    
    (519
    )
    
    
    301
    
    
    
    23,325Plant opening, closing charges
    
    
    4,722
    
    
    
    
    
    
    
    
    
    
    
    4,722Mattress Gallery transaction expenses
    
    
    162
    
    
    
    500
    
    
    
    
    
    
    
    662Management fees
    
    
    (64
    )
    
    
    533
    
    
    
    
    
    
    
    469Other
    
    
    (271
    )
    
    
    
    
    
    
    
    
    
    
    (271
    )Adjusted EBITDA
    
    $
    28,092
    
    
    $
    514
    
    
    $
    301
    
    
    $
    28,907
 21




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##### Table of Contents



Six Months Ended June 25, 2005
 WholesaleBedding
    
    Retail
    
    Eliminations
    
    TotalsNet sales to external customers
    
    $
    375,734
    
    
    $
    37,890
    
    
    $
    
    
    
    $
    413,624Intersegment net sales
    
    
    6,563
    
    
    
    
    
    
    
    (6,563
    )
    
    
    Adjusted EBITDA
    
    
    43,635
    
    
    
    3,653
    
    
    
    170
    
    
    
    47,458Depreciation and amortization expense
    
    
    12,370
    
    
    
    753
    
    
    
    
    
    
    
    13,123Expenditures for long-lived assets
    
    
    2,156
    
    
    
    430
    
    
    
    
    
    
    
    2,586Segment assets
    
    
    1,260,724
    
    
    
    27,406
    
    
    
    (1,505
    )
    
    
    1,286,625Reconciliation of EBITDA and Adjusted
EBITDA to net income:Net income
    
    $
    2,254
    
    
    $
    1,738
    
    
    $
    170
    
    
    $
    4,162Depreciation and amortization
    
    
    12,370
    
    
    
    753
    
    
    
    
    
    
    
    13,123Income taxes
    
    
    1,348
    
    
    
    965
    
    
    
    
    
    
    
    2,313Interest expense, net
    
    
    25,386
    
    
    
    6
    
    
    
    
    
    
    
    25,392Interest income
    
    
    47
    
    
    
    1
    
    
    
    
    
    
    
    48EBITDA
    
    
    41,405
    
    
    
    3,463
    
    
    
    170
    
    
    
    45,038Reorganization costs
    
    
    1,345
    
    
    
    
    
    
    
    
    
    
    
    1,345Management fees
    
    
    563
    
    
    
    190
    
    
    
    
    
    
    
    753Management severance
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    105Transaction expenses
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    177Plant closing costs
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    40Adjusted EBITDA
    
    $
    43,635
    
    
    $
    3,653
    
    
    $
    170
    
    
    $
    47,458
 22




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##### Table of Contents



Six Months Ended June 26, 2004
 WholesaleBedding
    
    Retail
    
    Eliminations
    
    TotalsNet sales to external customers
    
    $
    380,810
    
    
    $
    44,305
    
    
    $
    
    
    
    $
    425,115Intersegment net sales
    
    
    14,027
    
    
    
    
    
    
    
    (14,027
    )
    
    
    Adjusted EBITDA
    
    
    64,848
    
    
    
    1,617
    
    
    
    (261
    )
    
    
    66,204Depreciation and amortization expense
    
    
    10,300
    
    
    
    417
    
    
    
    
    
    
    
    10,717Expenditures for long-lived assets
    
    
    6,052
    
    
    
    676
    
    
    
    
    
    
    
    6,728Segment assets
    
    
    1,243,320
    
    
    
    29,945
    
    
    
    (2,106
    )
    
    
    1,271,159Reconciliation of EBITDA and Adjusted
EBITDA to net income (loss):Net income (loss)
    
    $
    14,368
    
    
    $
    (4,184
    )
    
    $
    (261
    )
    
    $
    9,923Depreciation and amortization
    
    
    10,300
    
    
    
    417
    
    
    
    
    
    
    
    10,717Income taxes
    
    
    5,968
    
    
    
    (386
    )
    
    
    
    
    
    
    5,582Interest expense, net
    
    
    21,883
    
    
    
    98
    
    
    
    
    
    
    
    21,981Interest income
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75EBITDA
    
    
    52,594
    
    
    
    (4,055
    )
    
    
    (261
    )
    
    
    48,278Non-cash stock compensation expense
    
    
    3,308
    
    
    
    
    
    
    
    
    
    
    
    3,308Transaction related expenditures, including
cost of products sold
    
    
    2,640
    
    
    
    3,844
    
    
    
    
    
    
    
    6,484Plant opening, closing charges
    
    
    6,951
    
    
    
    
    
    
    
    
    
    
    
    6,951Mattress Gallery transaction expenses
    
    
    162
    
    
    
    500
    
    
    
    
    
    
    
    662Management fees
    
    
    (490
    )
    
    
    1,328
    
    
    
    
    
    
    
    838Other expenses
    
    
    (317
    )
    
    
    
    
    
    
    
    
    
    
    (317
    )Adjusted EBITDA
    
    $
    64,848
    
    
    $
    1,617
    
    
    $
    (261
    )
    
    $
    66,204
 H. People Realignment Plan
   23




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##### Table of Contents



I. Plant Closing and Opening Charges
    J. Contingencies
  24




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##### Table of Contents



K. Accounting Pronouncements
 Share-Based Payment  An Amendment of FAS 123 and FAS 95 Accounting for Stock Issued to
Employees
 Exchanges of
Nonmonetary Assets  An Amendment of APB Opinion No. 29
 25




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Recent Events
 People Realignment Plan
    Restructuring of our Corporate Management Team
  26




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Labor Unions
  27




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##### Table of Contents



Results of Operations
  Quarters Ended
    
    Six Months EndedJune 25,
    
    June 26,
    
    June 25,
    
    June 26,2005
    
    2004
    
    2005
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of products sold
    
    
    56.4
    %
    
    
    54.6
    %
    
    
    55.9
    %
    
    
    54.1
    %Gross margin
    
    
    43.6
    %
    
    
    45.4
    %
    
    
    44.1
    %
    
    
    45.9
    %Operating expenses:Selling, general and
administrative expenses
    
    
    35.1
    %
    
    
    36.5
    %
    
    
    36.8
    %
    
    
    37.4
    %Plant closure charges
    
    
    0.0
    %
    
    
    0.4
    %
    
    
    0.0
    %
    
    
    0.2
    %Amortization of intangibles
    
    
    0.7
    %
    
    
    -0.6
    %
    
    
    0.7
    %
    
    
    0.5
    %Transaction expenses
    
    
    0.1
    %
    
    
    0.3
    %
    
    
    0.0
    %
    
    
    0.2
    %Licensing fees
    
    
    -1.4
    %
    
    
    -1.2
    %
    
    
    -1.2
    %
    
    
    -1.2
    %34.5
    %
    
    
    35.4
    %
    
    
    36.3
    %
    
    
    37.1
    %Operating income
    
    
    9.1
    %
    
    
    10.0
    %
    
    
    7.7
    %
    
    
    8.8
    %Interest expense, net
    
    
    6.3
    %
    
    
    5.4
    %
    
    
    6.1
    %
    
    
    5.2
    %Income before income taxes
    
    
    2.7
    %
    
    
    4.6
    %
    
    
    1.6
    %
    
    
    3.6
    %Income tax expense
    
    
    1.0
    %
    
    
    1.7
    %
    
    
    0.6
    %
    
    
    1.3
    %Net income
    
    
    1.8
    %
    
    
    3.0
    %
    
    
    1.0
    %
    
    
    2.3
    %
 Quarter Ended June 25, 2005 as Compared to Quarter Ended June 26, 2004
 Net sales.
 $ increase
    
    % increase2005
    
    2004
    
    (decrease)
    
    (decrease)(in millions)Wholesale bedding segment
    
    $
    192.7
    
    
    $
    187.7
    
    
    $
    5.0
    
    
    
    2.6
    %Retail bedding segment
    
    
    18.8
    
    
    
    19.2
    
    
    
    (0.4
    )
    
    
    -2.3
    %Eliminations
    
    
    (3.5
    )
    
    
    (5.1
    )
    
    
    1.6
    
    
    
    -31.4
    %Consolidated net sales
    
    $
    208.0
    
    
    $
    201.8
    
    
    $
    6.2
    
    
    
    3.1
    %
  28




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TM ® ®
   29




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##### Table of Contents



Gross Margin.
 Margin %Gross Profit
    
    Gross Margin
    
    Point2005
    
    2004
    
    2005
    
    2004
    
    Change(in millions)Wholesale bedding segment
    
    $
    80.7
    
    
    $
    81.6
    
    
    
    41.9
    %
    
    
    43.4
    %
    
    
    -1.5
    %Retail bedding segment
    
    
    10.0
    
    
    
    9.7
    
    
    
    53.1
    %
    
    
    50.4
    %
    
    
    2.7
    %Eliminations
    
    
    0.1
    
    
    
    0.3
    
    
    
    -2.8
    %
    
    
    -5.9
    %
    
    
    3.1
    %Consolidated
    
    $
    90.8
    
    
    $
    91.6
    
    
    
    43.6
    %
    
    
    45.4
    %
    
    
    -1.8
    %
   Selling, general and administrative expenses (SG&A).
 Margin %SG&A
    
    As a % of Segment Net Sales
    
    Point2005
    
    2004
    
    2005
    
    2004
    
    Change(in millions)Wholesale bedding segment
    
    $
    64.2
    
    
    $
    63.8
    
    
    
    33.3
    %
    
    
    34.0
    %
    
    
    -0.7
    %Retail bedding segment
    
    
    8.9
    
    
    
    9.8
    
    
    
    47.2
    %
    
    
    50.8
    %
    
    
    -3.6
    %Consolidated
    
    $
    73.1
    
    
    $
    73.6
    
    
    
    35.1
    %
    
    
    36.5
    %
    
    
    -1.3
    %
 30




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TM
   Plant Closure Charges.
 Amortization of Intangibles
 Transaction
Expenses.
 Licensing Fees
 31




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##### Table of Contents



Interest Expense Net
 Income Taxes.
 Six Months Ended June 25, 2005 as Compared to Six Months Ended June 26, 2004
 Net sales.
 $ increase
    
    % increase2005
    
    2004
    
    (decrease)
    
    (decrease)(in millions)Wholesale bedding segment
    
    $
    382.3
    
    
    $
    394.8
    
    
    $
    (12.5
    )
    
    
    -3.2
    %Retail bedding segment
    
    
    37.9
    
    
    
    44.3
    
    
    
    (6.4
    )
    
    
    -14.5
    %Eliminations
    
    
    (6.6
    )
    
    
    (14.0
    )
    
    
    7.4
    
    
    
    -53.2
    %Consolidated net sales
    
    $
    413.6
    
    
    $
    425.1
    
    
    $
    (11.5
    )
    
    
    -2.7
    %
  TM TM
  32




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Gross Margin.
 Margin %Gross Profit
    
    Gross Margin
    
    Point2005
    
    2004
    
    2005
    
    2004
    
    Change(in millions)Wholesale bedding segment
    
    $
    161.7
    
    
    $
    176.8
    
    
    
    42.3
    %
    
    
    44.8
    %
    
    
    -2.5
    %Retail bedding segment
    
    
    20.2
    
    
    
    18.4
    
    
    
    53.4
    %
    
    
    41.6
    %
    
    
    11.8
    %Eliminations
    
    
    0.3
    
    
    
    (0.2
    )
    
    
    -3.7
    %
    
    
    1.9
    %
    
    
    -5.6
    %Consolidated
    
    $
    182.2
    
    
    $
    195.0
    
    
    
    44.1
    %
    
    
    45.9
    %
    
    
    -1.8
    %
  33




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Selling, general and administrative expenses (SG&A).
 Margin %SG&A
    
    As a % of Segment Net Sales
    
    Point2005
    
    2004
    
    2005
    
    2004
    
    Change(in millions)Wholesale bedding segment
    
    $
    134.8
    
    
    $
    136.1
    
    
    
    35.3
    %
    
    
    34.5
    %
    
    
    0.8
    %Retail bedding segment
    
    
    17.3
    
    
    
    22.8
    
    
    
    45.8
    %
    
    
    51.5
    %
    
    
    -5.7
    %Consolidated
    
    $
    152.1
    
    
    $
    158.9
    
    
    
    36.8
    %
    
    
    37.4
    %
    
    
    -0.6
    %
 TM
   34




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Plant Closure Charges.
 Amortization of Intangibles
 Transaction Expenses.
 Licensing Fees
 Interest Expense Net
 Income Taxes.
 35




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##### Table of Contents



Liquidity and Capital Resources
   Six Months EndedJune 25,
    
    June 26,2005
    
    2004Statement of Cash Flow Data:Cash flows provided by (used in):Operating activities
    
    $
    18.5
    
    
    $
    38.2Investing activities
    
    
    (5.9
    )
    
    
    (0.1
    )Financing activities
    
    
    (5.1
    )
    
    
    (17.4
    )Increase in cash and cash equivalents
    
    
    7.5
    
    
    
    20.7Cash and cash equivalents:Beginning of period
    
    
    23.9
    
    
    
    3.7End of period
    
    $
    31.4
    
    
    $
    24.4
 Six Months Ended June 25, 2005 as Compared to Six Months Ended June 26, 2004
 Cash flows provided by Operating Activities
 Cash flows used in Investing Activities.
 36




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##### Table of Contents



Cash flows used in Financing Activities.
 Debt
     37




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##### Table of Contents




    
    a minimum interest coverage ratio, with compliance levels ranging from an interest
coverage of no less than 2.30:1.00 from June 30, 2005 through December 31, 2005; 2.40:1.00
from March 31, 2006 through December 31, 2006; 2.55:1.00 from March 31, 2007
through December 31, 2007; 2.75:1.00 from March 31, 2008 through December 31, 2008; and
3.00:1.00 from March 31, 2009 through each fiscal quarter ending thereafter.
    
    A maximum leverage ratio, with compliance levels ranging from total leverage of no
greater than 6.50:1.00 from June 30, 2005 through December 31, 2005; 6.00:1.00 from March
31, 2006 through June 30, 2006; 5.75:1.00 from September 30, 2006 through December 31,
2006; 5.00:1.00 from March 31, 2007 through December 31, 2007; 4.50:1.00 from March 31,
2008 through December 31, 2008; and 4.00:1.00 from March 31, 2009 through each fiscal
quarter ending thereafter.
    
    a maximum capital expenditure limitation of $30.0 million per fiscal year, with the
ability to roll forward to future years unused amounts from the previous fiscal year, and
also subject to adjustments for certain acquisitions and other events.
   38




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June 25,2005Calculation of minimum cash interest coverage ratio:Twelve months ended Adjusted EBITDA(1)
    
    $
    112,139Consolidated cash interest expense(2)
    
    $
    44,926Actual interest coverage ratio(3)
    
    
    2.50Minimum permitted interest coverage ratio
    
    
    2.30Calculation of maximum leverage ratio:Consolidated indebtedness
    
    $
    747,313Less: Cash and cash equivalents(4)
    
    
    30,000Net debt
    
    $
    717,313Adjusted EBITDA(1)
    
    $
    112,139Actual leverage ratio(5)
    
    
    6.40Maximum permitted leverage ratio
    
    
    6.50
 
 (1)
    
    Adjusted EBITDA for the twelve months ended June 25, 2005 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, certain litigation and insurance charges relating to previous periods, retail
segment charges relating to previous periods, management fees, and other
non-recurring/non-cash charges as permitted under our senior credit facility.
Additionally, Adjusted EBITDA is adjusted to include the operating results of our Simmons
Juvenile division as though we operated this division as of the beginning of the twelve
months ended June 25, 2005.(2)
    
    Consolidated cash interest expense, as defined in the senior credit facility, for the
twelve months ended June 25, 2005, as follows (in millions): Interest expense, net
    
    $
    47,170Interest income
    
    
    114Gross interest expense
    
    
    47,284Less: Non-cash interest expense
    
    
    (2,358
    )$
    44,926
 (3)
    
    Represents ratio of Adjusted EBITDA to consolidated cash interest expense.(4)
    
    Our senior credit facility permits a maximum of $30.0 million of cash to be netted
against our debt for purposes of this covenant computation. Actual cash at June 25, 2005
totaled $31.4 million.(5)
    
    Represents ratio of consolidated indebtedness less cash and cash equivalents to
Adjusted EBITDA.
 39




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##### Table of Contents



Off-Balance Sheet Arrangements
   Seasonality/Other
  Accounting Pronouncements
 Share-Based Payment Accounting for Stock Issued
to Employees
 Exchanges of
Nonmonetary Assets  An Amendment of APB Opinion No. 29
 40




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##### Table of Contents



Forward Looking Statements
 Safe Harbor statement under the Private Securities Litigation Reform Act of 1995
 
    
    competitive and pricing pressures in the bedding industry;
    
    legal and regulatory requirements;
    
    the success of new products, including
HealthSmartTM, our new
Beautyrest® premium priced products, our new Deep
Sleep® products, and
the
Beautyrest® Caresse®
products;
    
    our relationships with our major suppliers;
    
    fluctuations in costs of raw materials;
    
    our relationship with significant customers and licensees;
    
    our labor relations;
    
    departure of key personnel;
    
    our ability to achieve the expected benefits from the
people realignment plans;
    
    encroachments on our intellectual property;
    
    product liability claims;
    
    the timing, cost and success of opening new manufacturing facilities;
    
    our level of indebtedness;
    
    interest rate risks;
 41




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##### Table of Contents




    
    compliance with covenants in our debt agreements;
    
    future acquisitions;
    
    an increase in return rates; and
    
    other risks and factors identified from time to time in the Companys reports filed with
the Securities and Exchange Commission (SEC).
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Market Risk
  Interest Rate Risk
   42




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##### Table of Contents



Commodity Price Risks
  
 Item 4. Internal Controls and Procedures
  43




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 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
 3.1
    
    Amended and Restated By-Laws of Simmons Bedding Company.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)
 44




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##### Table of Contents



SIMMONS BEDDING COMPANYBy:
    
    /s/William S. CreekmuirWilliam S. CreekmuirExecutive Vice President & Chief Financial OfficerDate:
    
    August 9, 2005
 45