<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                Amendment No. 1
                                       To
                                   Form 10-Q

[x]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the quarterly period ended March 27, 2004

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from __________ to __________

      Commission file number 333-76723

                            SIMMONS BEDDING COMPANY
                      (formerly known as Simmons Company)
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                     13-3875743
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

One Concourse Parkway, Suite 800, Atlanta, Georgia               30328-6188
--------------------------------------------------         ---------------------
     (Address of principal executive offices)                    (Zip Code)

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

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No

      Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). [ ] Yes [X] No

      The number of shares of the registrant's common stock outstanding as of
May 11, 2004 was 100.

<PAGE>
Explanatory Note:

This Amendment No. 1 to the quarterly report on Form 10-Q for the period ended
March 27, 2004 is being filed to update the Form 10-Q for comments received from
the Securities and Exchange Commission related to our Form S-4 filings.

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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

                    Simmons Bedding Company and Subsidiaries
                 Condensed Consolidated Statements of Operations
                                 (in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                              Successor    |   Predecessor
                                                              ---------    |   -----------
                                                            Quarter Ended  |  Quarter Ended
                                                               March 27,   |    March 29,
                                                                 2004      |      2003
                                                                 ----      |      ----
<S>                                                         <C>            |  <C>
Net sales                                                   $     223,320  |  $     186,615
Cost of products sold                                             119,865  |         98,233
                                                            -------------  |  -------------
     Gross profit                                                 103,455  |         88,382
                                                            -------------  |  -------------
                                                                           |
Operating expenses:                                                        |
    Selling, general and administrative expenses                   85,261  |         70,244
    Amortization of intangibles                                     3,486  |             72
    Transaction expenses                                                -  |            772
    Licensing fees                                                 (2,581) |         (2,614)
                                                            -------------  |  -------------
                                                                   86,166  |         68,474
                                                            -------------  |  -------------
     Operating income                                              17,289  |         19,908
                                                                           |
    Interest expense, net                                          11,093  |          7,379
                                                            -------------  |  -------------
     Income before income taxes                                     6,196  |         12,529
Income tax expense                                                  2,231  |          5,049
                                                            -------------  |  -------------
     Net income                                                     3,965  |          7,480
                                                                           |
Other comprehensive income:                                                |
    Foreign currency translation adjustment                            (2) |             91
                                                            -------------  |  -------------
     Comprehensive income                                   $       3,963  |  $       7,571
                                                            =============  |  =============
</TABLE>

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

                                       2
<PAGE>

                    Simmons Bedding Company and Subsidiaries
                      Condensed Consolidated Balance Sheets
                                 (in thousands)


<TABLE>
<CAPTION>
                                                    March 27,    December 27,
                                                      2004          2003*
                                                      ----          -----
                                                   (Unaudited)
<S>                                               <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents                       $        859   $      3,670
  Accounts receivable, less allowances for
   doubtful receivables, discounts, returns and
   allowances of $5,913 and $4,960                      83,506         65,868
  Inventories                                           29,445         31,355
  Deferred income taxes                                    778            973
  Other current assets                                  17,931         22,616
  Assets held for sale                                   5,823          8,564
                                                  ------------   ------------
       Total current assets                            138,342        133,046
                                                  ------------   ------------

Property, plant and equipment, net                      53,097         53,228
Goodwill, net                                          789,818        792,230
Intangible assets, net                                 155,712        159,198
Other assets                                            46,697         45,417
                                                  ------------   ------------
                                                  $  1,183,666   $  1,183,119
                                                  ============   ============
</TABLE>

*Derived from the Company's 2003 audited Consolidated Financial Statements.

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

                                       3

<PAGE>

                    Simmons Bedding Company and Subsidiaries
                      Condensed Consolidated Balance Sheets
                                 (in thousands)

<TABLE>
<CAPTION>
                                                 March 27,    December 27,
                                                   2004          2003*
                                                   ----          -----
                                                (Unaudited)
<S>                                            <C>            <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Current maturities of long-term debt         $      5,916   $      9,512
  Accounts payable                                   43,321         39,956
  Accrued wages and benefits                         13,569         20,230
  Accrued advertising and incentives                 21,092         21,612
  Accrued interest                                    9,325          1,238
  Other accrued expenses                             12,388         10,868
  Liabilities held for sale                           2,641          2,064
                                               ------------   ------------
    Total current liabilities                       108,252        105,480
                                               ------------   ------------

Non-current liabilities:
  Long-term debt                                    752,021        760,741
  Deferred income taxes                              21,556         23,719
  Other                                              17,597         12,902
                                               ------------   ------------
    Total liabilities                               899,426        902,842
                                               ------------   ------------

Commitments and contingencies

Common stockholder's equity:
  Common stock, $.01 par value; 3,000 shares
    authorized; 100 issued and outstanding                1              1
  Additional paid-in capital                        287,449        287,449
  Accumulated deficit                                (3,225)        (7,190)
  Accumulated other comprehensive income                 15             17
                                               ------------   ------------
    Total common stockholder's equity               284,240        280,277
                                               ------------   ------------
                                               $  1,183,666   $  1,183,119
                                               ============   ============
</TABLE>

*Derived from the Company's 2003 audited Consolidated Financial Statements.

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

                                       4
<PAGE>

                    Simmons Bedding Company and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                 (in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             Successor    |   Predecessor
                                                                           -------------  |  -------------
                                                                           Quarter Ended  |  Quarter Ended
                                                                             March 27,    |    March 29,
                                                                               2004       |       2003
                                                                               ----       |       ----
<S>                                                                        <C>            |  <C>
Cash flows from operating activities:                                                     |
Net income                                                                 $       3,965  |  $       7,480
Adjustments to reconcile net income to net cash                                           |
  provided by (used in) operating activities:                                             |
     Depreciation and amortization                                                 7,621  |          5,740
     Provision for bad debts                                                         915  |            918
     Provision for deferred income taxes                                           1,435  |          2,875
     Non-cash interest expense                                                       472  |            740
     Non-cash stock compensation expense                                           3,308  |            830
     Other, net                                                                        -  |           (250)
Net changes in operating assets and liabilities:                                          |
     Accounts receivable                                                         (17,946) |         (6,759)
     Inventories                                                                   4,285  |         (2,934)
     Other current assets                                                          4,524  |         (8,237)
     Accounts payable                                                              3,993  |         (6,504)
     Accrued liabilities                                                           2,392  |         (7,879)
     Other, net                                                                   (3,408) |          3,866
                                                                           -------------  |  -------------
  Net cash provided by (used in) operating activities                             11,556  |        (10,114)
                                                                           -------------  |  -------------
                                                                                          |
Cash flows from investing activities:                                                     |
     Purchases of property, plant and equipment                                   (1,817) |           (442)
     Other, net                                                                        6  |           (111)
                                                                           -------------  |  -------------
  Net cash used in investing activities                                           (1,811) |           (553)
                                                                           -------------  |  -------------
                                                                                          |
Cash flows from financing activities:                                                     |
     Payments of Successor Senior Credit Facility, net                           (11,675) |              -
     Payments of other Successor debt                                               (641) |              -
     Repurchase of SC Holdings, Inc. minority interest and                                |
       payment of SC Holdings, Inc. debt                                               -  |        (18,653)
     Proceeds from Predecessor Senior Credit Facility, net                             -  |         26,200
     Payments of other Predecessor debt                                                -  |         (2,306)
     Payments of financing fees                                                     (238) |              -
                                                                           -------------  |  -------------
  Net cash provided by (used in) financing activities                            (12,554) |          5,241
                                                                           -------------  |  -------------
Net effect of exchange rate changes on cash                                           (2) |             91
                                                                           -------------  |  -------------
Change in cash and cash equivalents                                               (2,811) |         (5,335)
Cash and cash equivalents, beginning of period                                     3,670  |          7,108
                                                                           -------------  |  -------------
Cash and cash equivalents, end of period                                   $         859  |  $       1,773
                                                                           =============  |  =============
</TABLE>

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

                                       5
<PAGE>

                    Simmons Bedding Company and Subsidiaries
      Consolidated Statements of Changes in Stockholder's Equity (Deficit)
                      (in thousands, except share amounts)

<Table>
<Caption>
                                                                                                       ACCUMULATED
                                                                      ADDITIONAL                          OTHER           TOTAL
                                            COMMON       COMMON        PAID-IN       ACCUMULATED     COMPREHENSIVE    STOCKHOLDER'S
                                            SHARES        STOCK        CAPITAL         DEFICIT          INCOME           EQUITY
                                            ------       ------       ----------      -----------     -------------    -------------
<S>                                         <C>          <C>          <C>             <C>             <C>              <C>
DECEMBER 27, 2003 (AUDITED)                   100          $  1        $ 287,449       $ (7,190)           $ 17          $ 280,277

  Net income                                   --            --               --          3,965              --              3,965
  Other comprehensive
    income (loss):
    Change in foreign
      currency translation                     --            --               --             --              (2)                (2)
                                                                                       --------            ----          ---------
  Comprehensive income (loss)                  --            --               --          3,965              (2)             3,963
                                             ----          ----        ---------       --------            ----          ---------
MARCH 27, 2004 (UNAUDITED)                    100          $  1        $ 287,449       $ (3,225)           $ 15          $ 284,240
                                             ====          ====        =========       ========            ====          =========
</Table>

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

                                       6
<PAGE>

                    Simmons Bedding Company and Subsidiaries
             Notes to Condensed Consolidated Financial Statements
                                 (Unaudited)

A.    Basis of Presentation

     For purposes of this report the "Company" or "Simmons" refers to Simmons
Bedding Company, formerly known as Simmons Company, and its subsidiaries,
collectively. The Condensed Consolidated Financial Statements of the Company are
unaudited, and have been prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP") for interim
financial information and the rules and regulations of the Securities and
Exchange Commission (the "Commission"). The accompanying unaudited condensed
consolidated financial statements contain all adjustments, which, in the opinion
of management, are necessary to present fairly the financial position of the
Company as of March 27, 2004, and its results of operations and cash flows for
the periods presented herein. All adjustments in the periods presented herein
are normal and recurring in nature unless otherwise disclosed. These unaudited
condensed consolidated financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended December 27, 2003.
Operating results for the period ended March 27, 2004 are not necessarily
indicative of future results that may be expected for the year ending December
25, 2004.

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

B.    Company Name Change

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

C.    The Acquisition

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

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

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

      -  The Company's portfolio of brands;

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

      -  The Company's superior manufacturing platform;

      -  The Company's historical and projected earnings; and

      -  The Company's management team and corporate culture.

      The financing for the Acquisition (including the refinancing of
outstanding debt) was provided by (i) borrowings under a new $480.0 million
Senior Secured Credit Facility, consisting of a $405.0 million term loan
facility and a $75.0 million revolving credit facility, which refinanced the
Company's existing senior and subordinated loans, (ii) borrowings under a new
$140.0 million senior unsecured term loan facility; (iii) issuance of $200.0
million senior subordinated notes; and (iv) $387.8 million of capital provided
by Thomas H. Lee Equity Fund V, L.P. and its affiliates (collectively "THL"),
affiliates of Fenway Partners, Inc. ("Fenway") and management of the Company.

     As a result of the Acquisition, THL acquired approximately 75.8% of the
voting stock of THL Bedding Holding Company ("THL Holding"), the Company's
indirect parent, since renamed Simmons Company. In connection with the stock
purchase and the mergers, Fenway acquired 9.0% of voting stock of

                                       7
<PAGE>

THL Holding and the Company's management and directors acquired 15.2% of the
voting stock of THL Holding, after giving effect to restricted stock issued to
management under THL Holding's equity incentive plan.

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

      The Acquisition was accounted for as a purchase as prescribed by
Statement of Financial Accounting Standards No. 141, Business Combinations, in
accordance with Emerging Issues Task Force ("EITF") No. 88-16, Basis in
Leveraged Buyout Transactions. This guidance requires the continuing residual
interest retained by the continuing management investors, as a result of the
Transactions, be reflected at its predecessor basis. In accordance with EITF
Issue No. 90-12, Allocating Basis to Individual Assets and Liabilities for
Transactions within the Scope of Issue No. 88-16, a step-up of assets and
liabilities to fair value was recorded in purchase accounting for the remaining
interest in the Company acquired by THL and Fenway. The amount of carryover
basis determined was reflected as a deemed dividend of $100.4 million in the
opening consolidated balance sheet.

                                       8
<PAGE>
      The purchase price allocation has not been finalized, and a tentative
allocation has been made using the values that have been determined and the
preliminary estimates for the values that have not yet been determined. The
valuation of certain identifiable intangible assets is expected to be completed
in the second quarter of 2004. The Company does not expect the final valuation
to have a material impact on previously reported operating results. Following is
a summary of the estimated fair values of the assets acquired and liabilities
assumed as of the date of the Acquisition:

(in thousands)

<TABLE>
<S>                                                  <C>
Current assets..................................     $   137,296
Property, plant and equipment...................          54,446
Goodwill........................................         789,818
Other assets....................................          50,385
Intangibles.....................................         159,511
                                                     -----------
  Total assets acquired.........................       1,191,456
                                                     -----------
Current liabilities.............................          91,775
Acquisition costs...............................          24,939
Non-current liabilities.........................          59,873
                                                     -----------
  Total liabilities assumed.....................        (176,587)
                                                     -----------
  Deemed dividend...............................         100,388
                                                     -----------
  Purchase price................................     $ 1,115,257
                                                     ===========
</TABLE>

      There were no pre-acquisition contingencies related to the Acquisition.
Since the Acquisition was accounted for as a stock purchase, the respective tax
bases of the assets and liabilities were not changed. Goodwill was assigned to
the wholesale and retail segments in the amounts of $773.1 million and $16.7
million, respectively.

D.    Assets/Liabilities Held For Sale

      The Company sold its Mattress Gallery operations in a stock transaction on
May 1, 2004 to Pacific Coast Mattress, Inc. ("PCM") for cash proceeds of $6.5
million plus the cancellation of all intercompany debts with the exception of
current trade payables owed by Mattress Gallery to the Company. No gain or loss
will be recognized on the sale since Mattress Gallery was recorded at fair value
in connection with the Acquisition (see Note B to the unaudited condensed
consolidated financial statements for further explanation). Following the sale,
the Company will continue to guarantee approximately $3.0 million of Mattress
Gallery's obligations under certain store and warehouse leases that expire over
various periods through 2010. In connection with the sale, the Company entered
into a five-year supply agreement with PCM.

      In accordance with the provisions of Statement of Financial Accounting
Standard ("SFAS") No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company has reflected assets and liabilities for Mattress
Gallery as held for sale in the consolidated balance sheets. The Company has not
reflected the results of operations for Mattress Gallery as discontinued
operations since the Company will have an ongoing interest in the cash flows of
the operations through a long-term supply agreement. For the quarter ended March
27, 2004, Mattress Gallery's net sales and net loss were $9.9 million and
$2.4 million, respectively. For the quarter ended March 29, 2003, Mattress
Gallery's net sales and net loss were $8.3 million and $1.0 million,
respectively.

                                       9
<PAGE>

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

<TABLE>
<CAPTION>
                                         March 27,    December 27,
                                           2004           2003
                                           ----           ----
<S>                                     <C>           <C>
         Assets Held for Sale

Accounts receivable, net                $      915     $    1,522
Inventories                                  2,621          4,996
Other current assets                           382            221
Property, plant and equipment, net           1,083          1,057
Other assets                                   822            768
                                        ----------     ----------
      Total assets held for sale        $    5,823     $    8,564
                                        ==========     ==========

         Liabilities Held for Sale

Accounts payable                        $    1,131     $      503
Other current liabilities                    1,156          1,207
Other long-term liabilities                    354            354
                                        ----------     ----------
      Total liabilities held for sale   $    2,641     $    2,064
                                        ==========     ==========
</TABLE>

E.    Inventories

      A summary of inventories, exclusive of inventories included in assets held
for sale, follows (amounts in thousands):

<TABLE>
<CAPTION>
                                    March 27,    December 27,
                                      2004           2003
                                      ----           ----
<S>                               <C>            <C>
Raw materials                     $     14,755   $     13,005
Work-in-progress                           976          1,099
Finished goods                          10,853         12,476
Inventory held at retail stores          2,861          4,775
                                  ------------   ------------
                                  $     29,445   $     31,355
                                  ============   ============
</TABLE>

                                       10
<PAGE>

F.    Warranties

      The Company's warranty policy provides a 10-year non-prorated warranty
service period on all first quality products, except for certain products for
the hospitality industry which have varying non-prorated warranty periods
generally ranging from five to ten years. The Company's policy is to accrue the
estimated costs of warranty coverage at the time a sale is recorded. The
following table presents a reconciliation of the Company's warranty liability as
of March 27, 2004 and March 29, 2003 (amounts in thousands):

<TABLE>
<CAPTION>
                                 For the Quarters Ended
                                 -----------------------
                                  March 27, | March 29,
                                    2004    |    2003
                                    ----    |    ----
<S>                              <C>        | <C>
Balance at beginning of period   $    3,803 | $    3,434
Additional warranties issued            914 |      1,048
Warranty settlements                   (886)|       (865)
                                 ---------- | ----------
Balance at end of period         $    3,831 | $    3,617
                                 ========== | ==========
</TABLE>

      The Company had no revisions in the estimate of the warranty accrual for
the quarters ended March 27, 2004 and March 29, 2003.

G.    Long-Term Debt

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

<TABLE>
<CAPTION>
                                                       March 27,    December 27,
                                                         2004           2003
                                                         ----           ----
<S>                                                  <C>            <C>
Senior Credit Facility:
  New Revolving Loan                                 $          -   $      3,275
  New Tranche B Term Loan                                 396,600        405,000
                                                     ------------   ------------
    Total Senior Credit Facility                          396,600        408,275
Senior Unsecured Term Loan                                140,000        140,000
Industrial Revenue Bonds, 7.00%, due 2017                   9,700          9,700
Industrial Revenue Bonds, 3.24%, due 2016                   4,000          4,000
Banco Santander Loan, 3.15%, due 2013                       2,044          2,116
7.875% Senior Subordinated Notes due 2014                 200,000        200,000
10.25% Series B Senior Subordinated Notes due 2009          5,284          5,284
Other, including capital lease obligations                    309            878
                                                     ------------   ------------
                                                          757,937        770,253
Less current portion                                       (5,916)        (9,512)
                                                     ------------   ------------
                                                     $    752,021   $    760,741
                                                     ============   ============
</TABLE>

      In connection with the Acquisition on December 19, 2003, the Company
entered into a new Senior Credit Facility (the "Senior Credit Facility"), a
Senior Unsecured Term Loan Facility and issued 7.875% Senior Subordinated
Notes, the aggregate proceeds of which repaid the

                                       11
<PAGE>

outstanding amounts under the old senior credit facility, notes payable to
former shareholders, a junior subordinated payment-in-kind note and a portion of
the Company's 10.25% Senior Subordinated Notes.

      The Senior Credit Facility provides for a $75.0 million revolving credit
facility. The revolving credit facility will expire on the earlier of (a)
December 19, 2009 or (b) such other date as the revolving credit commitments
thereunder shall terminate in accordance with the terms of the Senior Credit
Facility. The Senior Credit Facility also provided for a $405.0 million Tranche
B term loan facility. The Company prepaid $8.4 million of the Tranche B Term
Loan in the first quarter of 2004. The Tranche B Term Loan has a final scheduled
maturity date of December 19, 2011.

      As of March 27, 2004, the Company had availability to borrow $64.5 million
under the Revolving Loan Facility after giving effect to $10.5 million that was
reserved for the Company's reimbursement obligations with respect to outstanding
letters of credit. The remaining availability under the Revolving Loan Facility
may be utilized to meet the Company's current working capital requirements,
including issuance of stand-by and trade letters of credit. The Company also may
utilize the remaining availability under the Revolving Loan Facility to fund
distributions, acquisitions and capital expenditures.

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

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

<TABLE>
<CAPTION>
                                                    Eurodollar   Base
                                                       Rate      Rate
                                                    ----------  -----
<S>                                                 <C>         <C>
Revolving Loan Facility.......................         2.50%    1.50%
Tranche B Term Loan...........................         2.75%    1.75%
Senior Unsecured Term Loan....................         3.75%    2.75%
</TABLE>

      The weighted average interest rates per annum in effect as of March 27,
2004 for the Tranche B Term Loan and Senior Unsecured Term Loan were 4.14% and
5.13%, respectively.

      The use of interest rate risk management instruments, such as collars and
swaps, is required under the terms of the Senior Credit Facility. The Company is
required to maintain protection against fluctuations in interest rates, and may
do so through utilizing Eurodollar Rate loans having twelve-month interest
periods or through one or more interest rate agreements. In order to address
interest rate risk, the Company has developed and implemented a policy to
utilize extended Eurodollar contracts to minimize the impact of near term
Eurodollar rate increases. On January 26, 2004, the Company elected to set its
interest rate at the twelve-month Eurodollar Rate for approximately $325.0
million of the Tranche B Term Loan and for the $140.0 million Senior Unsecured
Term Loan, which fixed the Eurodollar Rate at 1.375% through January 26, 2005
for approximately 86% of floating rate debt outstanding as of March 27, 2004.
Additionally, to further address interest rate risk, the Company entered into an
interest rate cap

                                       12
<PAGE>

agreement on February 11, 2004 for a notional amount of $170.0 million which
capped the Eurodollar Rate, plus margin, at 5.0% for the period from January 26,
2005 through January 26, 2006.

      On April 12, 2004 the remaining 10.25% Series B Senior Subordinated Notes
outstanding were repurchased at 105.125% of the principal amount thereof for a
total payment of $5.3 million.

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

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

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

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

                                       13
<PAGE>

                    Simmons Bedding Company and Subsidiaries
          Supplemental Consolidating Condensed Statements of Operations
                      For the Quarter Ended March 27, 2004
                                 (in thousands)

                                    Successor

<TABLE>
<CAPTION>
                                                         Issuer and
                                                         Guarantors
                                                -----------------------------
                                                   Simmons
                                                   Bedding        Guarantor     Non-Guarantor
                                                   Company       Subsidiaries    Subsidiaries   Eliminations    Consolidated
                                                -------------   -------------   -------------   -------------   -------------
<S>                                             <C>             <C>             <C>             <C>             <C>
Net sales                                       $     (12,166)  $     233,061   $       2,425   $          --   $     223,320
Cost of products sold                                     313         117,699           1,853              --         119,865
                                                -------------   -------------   -------------   -------------   -------------
 Gross margin                                         (12,479)        115,362             572              --         103,455
                                                -------------   -------------   -------------   -------------   -------------
Operating expenses:
 Selling, general and administrative expenses          56,019          28,697             545              --          85,261
 Amortization of intangibles                            2,669             817              --              --           3,486
 Intercompany fees                                    (53,929)         53,708             221              --              --
 Licensing fees                                          (346)         (2,098)           (137)             --          (2,581)
                                                -------------   -------------   -------------   -------------   -------------
                                                        4,413          81,124             629              --          86,166
                                                -------------   -------------   -------------   -------------   -------------
  Operating income (loss)                             (16,892)         34,238             (57)             --          17,289
Interest expense, net                                  10,888             196               9              --          11,093
Income from subsidiaries                              (20,690)             --              --          20,690              --
                                                -------------   -------------   -------------   -------------   -------------
  Income (loss) before income taxes                    (7,090)         34,042             (66)        (20,690)          6,196
Income tax expense (benefit)                          (11,055)         13,279               7              --           2,231
                                                -------------   -------------   -------------   -------------   -------------
  Net income (loss)                             $       3,965   $      20,763   $         (73)  $     (20,690)  $       3,965
                                                =============   =============   =============   =============   =============
</TABLE>

                                       14
<PAGE>

                    Simmons Bedding Company and Subsidiaries
          Supplemental Consolidating Condensed Statements of Operations
                      For the Quarter Ended March 29, 2003
                                 (in thousands)

                                   Predecessor

<TABLE>
<CAPTION>
                                                          Issuer and
                                                          Guarantors
                                                 -----------------------------
                                                    Simmons
                                                    Bedding        Guarantor     Non-Guarantor
                                                    Company      Subsidiaries     Subsidiaries    Eliminations    Consolidated
                                                 -------------   -------------   -------------   -------------   -------------
<S>                                              <C>             <C>             <C>             <C>             <C>
Net sales                                        $     (12,552)  $     197,025   $       2,142   $          --   $     186,615
Cost of products sold                                      215          96,427           1,591              --          98,233
                                                 -------------   -------------   -------------   -------------   -------------
  Gross margin                                         (12,767)        100,598             551              --          88,382
                                                 -------------   -------------   -------------   -------------   -------------
Operating expenses:
  Selling, general and administrative expenses          43,908          25,867             469              --          70,244
  Amortization of intangibles                               --              72              --              --              72
  Transaction expenses                                     586             186              --              --             772
  Intercompany fees                                    (57,397)         57,199             198              --              --
  Licensing fees                                          (272)         (2,222)           (120)             --          (2,614)
                                                 -------------   -------------   -------------   -------------   -------------
                                                       (13,175)         81,102             547              --          68,474
                                                 -------------   -------------   -------------   -------------   -------------
    Operating income (loss)                                408          19,496               4              --          19,908
Interest expense (income), net                           6,707             677              (5)             --           7,379
Income from subsidiaries                               (11,489)             --              --          11,489              --
                                                 -------------   -------------   -------------   -------------   -------------
    Income (loss) before income taxes                    5,190          18,819               9         (11,489)         12,529
Income tax expense (benefit)                            (2,290)          7,328              11              --           5,049
                                                 -------------   -------------   -------------   -------------   -------------
    Net income (loss)                            $       7,480   $      11,491   $          (2)  $     (11,489)  $       7,480
                                                 =============   =============   =============   =============   =============
</TABLE>

                                       15
<PAGE>

                    Simmons Bedding Company and Subsidiaries
               Supplemental Consolidating Condensed Balance Sheets
                              As of March 27, 2004
                                 (in thousands)

<TABLE>
<CAPTION>

                                                         Issuer and
                                                         Guarantors
                                                 ---------------------------
                                                   Simmons
                                                   Bedding        Guarantor    Non-Guarantor
                                                   Company      Subsidiaries    Subsidiaries  Eliminations   Consolidated
                                                 ------------   ------------   -------------  ------------   ------------
<S>                                              <C>            <C>            <C>            <C>            <C>
               ASSETS
Current assets:
  Cash and cash equivalents ..................   $        809   $       (602)  $        652   $         --   $        859
  Accounts receivable ........................            148         81,777          1,581             --         83,506
  Inventories ................................             --         28,683            762             --         29,445
  Other ......................................          7,758         16,399            375             --         24,532
                                                 ------------   ------------   ------------   ------------   ------------
     Total current assets ....................          8,715        126,257          3,370             --        138,342
                                                 ------------   ------------   ------------   ------------   ------------
Property, plant and equipment, net ...........         12,701         36,094          4,302             --         53,097
Goodwill and other intangibles, net ..........        924,268         21,262             --             --        945,530
Other assets .................................         22,621         23,288            788             --         46,697
Net investment in and advances to
  (from) subsidiaries ........................        137,528         48,900           (843)      (185,585)            --
                                                 ------------   ------------   ------------   ------------   ------------
                                                 $  1,105,833   $    255,801   $      7,617   $   (185,585)  $  1,183,666
                                                 ============   ============   ============   ============   ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Current maturities of long-term debt .......   $      5,285   $        399   $        232   $         --   $      5,916
  Accounts payable and accrued liabilities ...         40,067         61,027          1,242             --        102,336
                                                 ------------   ------------   ------------   ------------   ------------
     Total current liabilities ...............         45,352         61,426          1,474             --        108,252
Long-term debt ...............................        736,600         13,570          1,851             --        752,021
Deferred income taxes ........................         25,514         (4,344)           386             --         21,556
Other non-current liabilities ................         14,127          3,042            428             --         17,597
                                                 ------------   ------------   ------------   ------------   ------------
     Total liabilities .......................        821,593         73,694          4,139             --        899,426
                                                 ------------   ------------   ------------   ------------   ------------
Stockholder's equity .........................        284,240        182,107          3,478       (185,585)       284,240
                                                 ------------   ------------   ------------   ------------   ------------
                                                 $  1,105,833   $    255,801   $      7,617   $   (185,585)  $  1,183,666
                                                 ============   ============   ============   ============   ============
</TABLE>

                                       16
<PAGE>

                    Simmons Bedding Company and Subsidiaries
               Supplemental Consolidating Condensed Balance Sheets
                             As of December 27, 2003
                                 (in thousands)

<TABLE>
<CAPTION>

                                                         Issuer and
                                                         Guarantors
                                                 ---------------------------
                                                   Simmons                        Non-
                                                   Bedding       Guarantor      Guarantor
                                                   Company      Subsidiaries   Subsidiaries   Eliminations   Consolidated
                                                 ------------   ------------   ------------   ------------   ------------
<S>                                              <C>            <C>            <C>            <C>            <C>
               ASSETS
Current assets:
  Cash and cash equivalents ..................   $        615   $        667   $      2,388   $         --   $      3,670
  Accounts receivable ........................            784         62,934          2,150             --         65,868
  Inventories ................................             --         30,495            860             --         31,355
  Other ......................................          9,898         20,795          1,460             --         32,153
                                                 ------------   ------------   ------------   ------------   ------------
     Total current assets                              11,297        114,891          6,858             --        133,046
                                                 ------------   ------------   ------------   ------------   ------------
Property, plant and equipment, net ...........          9,500         39,353          4,375             --         53,228
Goodwill and other intangibles, net ..........        926,090         25,338             --             --        951,428
Other assets .................................         22,722         22,695             --             --         45,417
Net investment in and advances to
     subsidiaries ............................        164,895         54,868             --       (219,763)            --
                                                 ------------   ------------   ------------   ------------   ------------
                                                 $  1,134,504   $    257,145   $     11,233   $   (219,763)  $  1,183,119
                                                 ============   ============   ============   ============   ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Current maturities of long-term debt .......   $      8,322   $        958   $        232   $         --   $      9,512
  Accounts payable and accrued liabilities ...         12,428         79,535          4,005             --         95,968
                                                 ------------   ------------   ------------   ------------   ------------
     Total current liabilities ...............         20,750         80,493          4,237             --        105,480
Long-term debt ...............................        745,238         13,575          1,928             --        760,741
Deferred income taxes ........................         24,545         (1,222)           396             --         23,719
Other non-current liabilities ................          9,532          2,955            415             --         12,902
Net due to subsidiaries ......................         54,162             --            706        (54,868)            --
                                                 ------------   ------------   ------------   ------------   ------------
     Total liabilities .......................        854,227         95,801          7,682        (54,868)       902,842
                                                 ------------   ------------   ------------   ------------   ------------
Stockholder's equity .........................        280,277        161,344          3,551       (164,895)       280,277
                                                 ------------   ------------   ------------   ------------   ------------
                                                 $  1,134,504   $    257,145   $     11,233   $   (219,763)  $  1,183,119
                                                 ============   ============   ============   ============   ============
</TABLE>

                                       17
<PAGE>

                    Simmons Bedding Company and Subsidiaries
          Supplemental Consolidating Condensed Statements of Cash Flows
                      For the Quarter Ended March 27, 2004
                                 (in thousands)

                                    Successor
<TABLE>
<CAPTION>

                                                   Issuer and
                                                   Guarantors
                                           ---------------------------
                                             Simmons                        Non-
                                             Bedding       Guarantor     Guarantor
                                             Company      Subsidiaries   Subsidiaries   Eliminations   Consolidated
                                           ------------   ------------   ------------   ------------   ------------
<S>                                        <C>            <C>            <C>            <C>            <C>
Net cash provided by operating
  activities ...........................   $        959   $     10,454   $        143   $         --   $     11,556
                                           ------------   ------------   ------------   ------------   ------------
Cash flows from investing activities:
  Purchase of property, plant and
     equipment, net ....................           (617)        (1,200)            --             --         (1,817)
  Other, net ...........................             --              6             --             --              6
                                           ------------   ------------   ------------   ------------   ------------
  Net cash used in investing
     activities ........................           (617)        (1,194)            --             --         (1,811)
                                           ------------   ------------   ------------   ------------   ------------
Cash flows from financing activities:
  Repayment of long-term obligations ...        (11,676)          (563)           (77)            --        (12,316)
  Receipt from (distribution to)
   subsidiaries ........................         11,766         (9,966)        (1,800)            --             --
  Debt issuance costs ..................           (238)            --             --             --           (238)
                                           ------------   ------------   ------------   ------------   ------------
Net cash used in financing activities ..           (148)       (10,529)        (1,877)            --        (12,554)
                                           ------------   ------------   ------------   ------------   ------------
Net effect of exchange rate change .....             --             --             (2)            --             (2)
Change in cash and cash equivalents ....            194         (1,269)        (1,736)            --         (2,811)
Cash and cash equivalents:
     Beginning of period ...............            615            667          2,388             --          3,670
                                           ------------   ------------   ------------   ------------   ------------
     End of period .....................   $        809   $       (602)  $        652   $         --   $        859
                                           ============   ============   ============   ============   ============
</TABLE>

                                       18
<PAGE>

                    Simmons Bedding Company and Subsidiaries
          Supplemental Consolidating Condensed Statements of Cash Flows
                      For the Quarter Ended March 29, 2003
                                 (in thousands)

                                   Predecessor

<TABLE>
<CAPTION>

                                                        Issuer and
                                                        Guarantors
                                                ---------------------------
                                                  Simmons                         Non-
                                                  Bedding       Guarantor      Guarantor
                                                  Company      Subsidiaries   Subsidiaries   Eliminations   Consolidated
                                                ------------   ------------   ------------   ------------   ------------
<S>                                             <C>            <C>            <C>            <C>            <C>
Net cash provided by (used in)
operating activities ........................   $    (27,610)  $     17,154   $        342   $         --   $    (10,114)
                                                ------------   ------------   ------------   ------------   ------------
Cash flows from investing activities:
  Purchase of property, plant and
     equipment, net .........................           (159)          (250)           (33)            --           (442)
  Purchase of intangible assets .............             --           (111)            --             --           (111)
                                                ------------   ------------   ------------   ------------   ------------
  Net cash used in investing activities .....           (159)          (361)           (33)            --           (553)
                                                ------------   ------------   ------------   ------------   ------------
Cash flows from financing activities:
  Borrowings on long-term obligations, net ..         23,953        (18,653)           (59)            --          5,241
Receipt from (distribution to) subsidiary ...          1,500             --         (1,500)            --             --
                                                ------------   ------------   ------------   ------------   ------------
Net cash (used in) provided by
  financing activities ......................         25,453        (18,653)        (1,559)            --          5,241
                                                ------------   ------------   ------------   ------------   ------------
Net effect of exchange rate change ..........             --             --             91                            91
Change in cash and cash equivalents .........         (2,316)        (1,860)        (1,159)            --         (5,335)
Cash and cash equivalents:
     Beginning of period ....................          2,316          2,821          1,971             --          7,108
                                                ------------   ------------   ------------   ------------   ------------
     End of period ..........................   $         --   $        961   $        812   $         --   $      1,773
                                                ============   ============   ============   ============   ============
</TABLE>

H.    Segment Information

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

      On May 1, 2004, the Company sold one of its retail bedding subsidiaries.
The assets and liabilities for this subsidiary were classified as held for sale
in the accompanying balance sheets (see Note C to the consolidated financial
statements for further explanation).

                                       19
<PAGE>
       The Company evaluates segment performance and allocates resources based
on net sales and Adjusted EBITDA. Adjusted EBITDA differs from the term "EBITDA"
as it is commonly used. In addition to adjusting net income to exclude interest
expense, income taxes, depreciation and amortization, Adjusted EBITDA also
adjusts net income by excluding items or expenses not typically excluded in the
calculation of "EBITDA" such as management fees; non-cash stock compensation
expenses; and other unusual or non-recurring items. Management believes the
aforementioned is the most informative representation of how management
evaluates performance. Adjusted EBITDA does not represent net income or cash
flow from operations as those terms are defined by GAAP and does not necessarily
indicate whether cash flows will be sufficient to fund cash needs.

       The following table summarizes segment information:

                                    SUCCESSOR
                                 MARCH 27, 2004
<TABLE>
<CAPTION>
                                         Wholesale
                                          Bedding         Retail      Eliminations      Totals
                                        ------------   ------------   ------------   ------------
                                                               (IN THOUSANDS)
<S>                                     <C>            <C>            <C>            <C>
Net sales to external customers         $    198,213   $     25,107   $          -   $    223,320
Intersegment net sales                         8,889              -         (8,889)             -
Adjusted EBITDA                               36,756          1,105           (561)        37,300
Depreciation and amortization expense          7,304            317              -          7,621
Expenditures for long-lived assets             1,351            466              -          1,817
Segment assets                             1,147,918         34,936            812      1,183,666

Reconciliation of EBITDA and Adjusted
EBITDA to net income (loss):
  Net income (loss)                     $      8,198    $    (3,672)  $       (561)  $      3,965
  Depreciation and amortization                7,304            317              -          7,621
  Income taxes                                 2,461           (230)             -          2,231
  Interest expense, net                       11,041             52              -         11,093
  Interest income                                 44              -              -             44
                                        ------------    -----------   ------------   ------------
  EBITDA                                      29,048         (3,533)          (561)        24,954
  Variable stock compensation expense          3,308              -              -          3,308
  Transaction related expenditures,
   including cost of products sold             2,640          3,813              -          6,453
  Plant opening, closing charges               2,229              -              -          2,229
  Other expense                                 (469)           825              -            356
                                        ------------    -----------   ------------   ------------
  Adjusted EBITDA                       $     36,756    $     1,105   $       (561)  $     37,300
                                        ============    ===========   ============   ============
</TABLE>

                                   PREDECESSOR
                                 MARCH 29, 2003

<TABLE>
<CAPTION>
                                         Wholesale
                                          Bedding         Retail      Eliminations      Totals
                                        ------------   ------------   ------------   ------------
                                                               (IN THOUSANDS)
<S>                                     <C>            <C>            <C>            <C>
Net sales to external customers         $    164,354   $     22,261   $          -   $    186,615
Intersegment net sales                         7,789              -         (7,789)             -
Adjusted EBITDA                               28,387            867           (188)        29,066
Depreciation and amortization expense          5,305            435              -          5,740
Expenditures for long-lived assets               247            195              -            442
Segment assets                               417,157         40,441        (46,167)       411,431

Reconciliation of EBITDA and Adjusted
EBITDA to net income (loss):
  Net income (loss)                     $      8,778    $    (1,110)  $       (188)  $      7,480
  Depreciation and amortization                5,306            434              -          5,740
  Income taxes                                 5,049              -              -          5,049
  Interest expense, net                        6,835            554              -          7,379
  Interest income                                 50              -              -             50
                                        ------------    -----------   ------------   ------------
  EBITDA                                      26,018           (132)          (188)        25,698
  Variable stock compensation expense            830              -              -            830
  Transaction related expenditures,
   including cost of products sold               584            188              -            772
  Plant opening, closing charges                 777              -              -            777
  Other expense                                  178            811              -            989
                                        ------------    -----------   ------------   ------------
  Adjusted EBITDA                       $     28,387    $       867   $       (188)  $     29,066
                                        ============    ===========   ============   ============
</TABLE>

      In the "Eliminations" column of each period presented above, the segment
assets consist primarily of investments in subsidiaries, receivables and
payables and gross wholesale bedding profit in ending retail inventory. The
segment Adjusted EBITDA elimination has been adjusted to eliminate the
wholesale bedding profit in ending retail inventory.

I.    Contingencies

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

                                       20
<PAGE>

J.    Accounting Pronouncements

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

                                       21
<PAGE>

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

      This Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's
consolidated financial statements, including related notes, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the 2003 Annual Report on Form 10-K, and the unaudited interim
financial statements included elsewhere in this report.

RECENT EVENTS

Labor Unions

      The United Furniture Workers labor union at our San Leandro, California
manufacturing facility ratified a two-year collective bargaining agreement on
April 30, 2004. This agreement was retroactive to April 1, 2004, and we do not
expect the new agreement to have a significant impact on our future operating
results.

      The United Steel Workers of America collective bargaining agreement at our
Kansas City, Kansas manufacturing facility expired on April 19, 2004. We are
continuing to negotiate a collective bargaining agreement with the labor union.
We do not believe the expiration of the agreement will have a significant impact
on our operations.

Plant Closing/Openings

      Our Columbus, Ohio manufacturing facility was closed in April 2004. We
expect to incur approximately $1.0 million of severance and retention, rent,
utilities, and disposal of equipment and inventory costs during the second
quarter of fiscal year 2004 related to this closing. The Company will also incur
additional period costs, principally incremental distribution costs, for the
remainder of 2004 as business is shifted to other manufacturing facilities.

     Our new manufacturing facility in Hazleton, Pennsylvania opened on March
15, 2004. Additionally we are currently constructing a new manufacturing
facility in Waycross, Georgia, which is expected to open in the third quarter of
2004. We estimate that these manufacturing facilities will incur approximately
$3.1 million of non-recurring start-up costs in the second and third quarter of
2004.

Sale of Mattress Gallery

      We sold our Mattress Gallery retail operations on May 1, 2004 for
cash proceeds of $6.5 million plus the cancellation of all intercompany debts
with the exception of certain trade payables owed by Mattress Gallery to
Company and its affiliates. The cancellation of intercompany debts was recorded
as a capital contribution to Mattress Gallery. No gain or loss was recorded on
the sale since Mattress Gallery was recorded at fair value in connection with
the Acquisition. Following the sale, the Company continues to guarantee
approximately $3.0 million of Mattress Gallery's obligations under certain
store and warehouse leases that expire over various periods through 2010. In
connection with the sale, we entered into a five-year supply agreement with
PCM. We have not reflected the results of operations for Mattress Gallery prior
to its sale as discontinued operations since we have an ongoing interest in the
cash flows of the operations through the five-year supply agreement.

      Mattress Gallery had net sales, gross profit and Adjusted EBITDA of $40.0
million, $19.2 million and $1.1 million, respectively, for the year ended
December 27, 2003. Mattress Gallery had net sales, gross profit and Adjusted
EBITDA of $12.9 million, $4.1 million and $(0.2) million, respectively, for the
four months ended May 1, 2004. Our wholesale segment had net sales to Mattress
Gallery of $18.9 million and $6.6 million for the year ended December 27, 2003
and the four months ended May 1, 2004.

      The following table reconciles Mattress Gallery's net loss to EBITDA and
Adjusted EBITDA for the year ended December 27, 2003 and the four months ended
May 1, 2004 (In thousands):

<Table>
<Caption>

                                                            Four Months
                                          Year Ended           Ended
                                         Dec. 27, 2003      May 1, 2004
                                         -------------      -----------
<S>                                      <C>                <C>
Net loss                                    $(1,279)          $(3,297)
Depreciation and amortization                   167                 7
Interest expense                                168                55
                                            -------           -------
  EBITDA                                       (944)           (3,235)
Management fees                               1,307               324
Transaction related expenditures,
  including cost of products sold               267             2,720
Non-recurring other charges                     432               (31)
                                            -------           -------
Adjusted EBITDA                             $ 1,062           $  (222)
                                            =======           ========
</Table>

RESULTS OF OPERATIONS

      Our capital structure changed significantly as a result of the Acquisition
and the concurrent refinancing of our debt. Due to required purchase accounting
adjustments relating to the transaction, the consolidated financial and other
data for the period subsequent to the acquisition (the "Successor" periods) are
not comparable to such data for the periods prior to the acquisition (the
"Predecessor" periods). In order to provide investors with useful information
and to facilitate understanding of our results for the quarters ended March 27,
2004 and March 29, 2003, the following pro forma results of operations are
presented to give effect to the Acquisition as if it had been consummated on
December 29, 2002, the first day of our fiscal year 2003.

      The pro forma information for the three months ended March 27, 2004
includes the following adjustments resulting from the Acquisition:

      -  adjustment to cost of products sold of $(6.5) million, or 1.5% of net
         sales, for inventory recorded at fair market value as a result of the
         Acquisition and sold during the three months ended March 27, 2004;

      -  adjustment to income tax expense of $2.5 million to reflect the tax
         effects of the pro forma adjustments based upon an effective tax rate
         of 38.0%.

      The pro forma information for the quarter ended March 29, 2003 includes
the following adjustments resulting from the Acquisition:

      -  adjustment to cost of products sold of $(0.8) million, or 0.4% of net
         sales, to (i) reduce depreciation expense by $(1.0) million as a result
         of the extension of the remaining average useful lives, partially
         offset by the increases in the bases of property, plant and equipment
         and (ii) increase amortization of favorable leases by $0.2 million due
         to the step-up to fair market value of leases resulting from the
         Acquisition;

      -  adjustment to selling, general and administrative expense of $(2.2)
         million, or 1.1% of net sales, to (i) reduce depreciation expense by
         $(1.0) million as discussed above; (ii) reduce management fees by
         $(0.3) million to reflect the change in our equity-sponsor management
         agreement resulting from the Acquisition; and (iii) reduce variable
         stock compensation expense by $(0.9) million to reflect the elimination
         of our stock option plans;

      -  adjustment to amortization of intangibles of $3.4 million, or 1.8% of
         net sales, to reflect the additional amortization resulting from the
         Acquisition;

      -  adjustment to interest expense, net of $4.3 million, or 2.3% of net
         sales, to reflect the additional interest expense associated with the
         new debt resulting from the Acquisition, net of the interest expense
         associated with the old debt retired as a result of the Acquisition
         and the elimination of one-time financing charges resulting from the
         Acquisition; and

      -  adjustment to income tax expense of $(1.8) million to reflect the tax
         effects of the Acquisition and termination of the deferred compensation
         plan pro forma adjustments based upon an effective tax rate of 38%.

      The pro forma adjustments are based upon available information and certain
assumptions that we believe are reasonable under the circumstances. The pro
forma financial information does not purport to represent what our results of
operations would actually have been had the Acquisition occurred on December 29,
2002 or to project our results of operations for any future period.

      The following table sets forth historical information and pro forma
financial information based upon the adjustments discussed above for the first
quarter of 2004 and 2003 (in thousands):

<Table>
<Caption>
                                    SUCCESSOR                          PREDECESSOR
                           ---------------------------         ---------------------------
                                             PRO FORMA                           PRO FORMA
                            QUARTER           QUARTER           QUARTER           QUARTER
                             ENDED             ENDED             ENDED             ENDED
                           MARCH 27,         MARCH 27,         MARCH 29,         MARCH 29,
                             2004              2004              2003              2003
                           ---------         ---------         ---------         ---------
<S>                        <C>               <C>               <C>               <C>
Net sales                  $223,320          $223,320          $186,615          $186,615
Cost of products sold       119,865           113,381            98,233            97,396
                           --------          --------          --------          --------
  Gross margin              103,455           109,939            88,382            89,219
Selling, general and
 administrative expenses     85,261            85,261            70,244            68,076
Amortization of
  intangibles                 3,486             3,486                72             3,480
Transaction expenses             --                --               772               772
Licensing fees               (2,581)           (2,581)           (2,614)           (2,614)
                           --------          --------          --------          --------
  Operating income           17,289            23,773            19,908            19,505
Interest expense, net        11,093            11,093             7,379            11,662
                           --------          --------          --------          --------
  Income before
    income taxes              6,196            12,680            12,529             7,843
Income tax expense            2,231             4,695             5,049             3,268
                           --------          --------          --------          --------
  Net income               $  3,965          $  7,985          $  7,480          $  4,575
                           ========          ========          ========          ========

</Table>
         The following table sets forth historical financial information and pro
forma financial information based upon the adjustments discussed above for the
first quarter of 2004 and 2003 as a percentage of net sales:

<Table>
<Caption>
                                                    SUCCESSOR                          PREDECESSOR
                                           ---------------------------         ---------------------------
                                                             PRO FORMA                           PRO FORMA
                                            QUARTER           QUARTER           QUARTER           QUARTER
                                             ENDED             ENDED             ENDED             ENDED
                                           MARCH 27,         MARCH 27,         MARCH 29,         MARCH 29,
                                             2004              2004              2003              2003
                                           ---------         ---------         ---------         ---------
<S>                                        <C>               <C>               <C>               <C>
Net sales                                     100.0%            100.0%            100.0%            100.0%
Cost of products sold                          53.7%             50.8%             52.6%             52.2%
                                             ------            ------            ------            ------
  Gross profit                                 46.3%             49.2%             47.4%             47.8%
Selling, general and administrative
expenses                                       38.2%             38.2%             37.6%             36.5%
Amortization of intangibles                     1.6%              1.6%              0.0%              1.9%
Transaction expenses                            0.0%              0.0%              0.5%              0.4%
Licensing fees                                 (1.2)%            -1.2%             (1.4)%            (1.4)%
                                             ------            ------            ------            ------
  Operating income                              7.7%             10.6%             10.7%             10.4%
Interest expense, net                           5.0%              5.0%              4.0%              6.2%
                                             ------            ------            ------            ------
  Income before income taxes and
    minority interest                           2.7%              5.6%              6.7%              4.2%
Income tax expense                              1.0%              2.1%              2.7%              1.7%
                                             ------            ------            ------            ------
  Income before minority interest               1.7%              3.5%              4.0%              2.5%
Minority interest in loss                       0.0%              0.0%              0.0%              0.0%
                                             ------            ------            ------            ------
  Net income                                    1.7%              3.5%              4.0%              2.5%
                                             ======            ======            ======            ======
</Table>
                                       22
<PAGE>

PRO FORMA QUARTER ENDED MARCH 27, 2004 AS COMPARED TO PRO FORMA QUARTER ENDED
MARCH 29, 2003

         The following pro forma data for the quarters ended March 27, 2004 and
March 29, 2003 ("pro forma quarter ended March 27, 2004" and "pro forma quarter
ended March 29, 2003", respectively) are based on the historical financial
statements for the successor period of 2004 and predecessor period of 2003,
presented on a pro forma basis giving effect to the Acquisition as if it
occurred on December 29, 2002 as described above under "Results of Operations".

         Net Sales. Net sales for the pro forma quarter ended March 27, 2004
increased $36.7 million, or 19.7%, to $223.3 million from $186.6 million for
the pro forma quarter ended March 29, 2003.

         Wholesale bedding segment net sales increased $35.0 million, or 20.3%,
to $207.1 million for the pro forma quarter ended March 27, 2004 from $172.1
million for the pro forma quarter ended March 29, 2003. For the pro forma first
quarter of 2004 and the pro forma first quarter of 2003, our wholesale bedding
segment net sales reflect a reduction of $12.6 million and $12.9 million,
respectively, for cash consideration paid to our customers for certain
promotional programs and volume rebates in accordance with Emerging Issues Task
Force of the Financial Accounting Standards Board ("EITF") 01-9, "Accounting for
Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's
Product" ("EITF 01-9"). The wholesale bedding segment net sales increase was
primarily due to an increase in both unit shipments and AUSP of 8.5% and 9.4%,
respectively, compared to the pro forma first quarter of 2003. Our unit
shipments growth resulted primarily from additional floor placements at new and
existing customers and an improved retail sales environment. Our improvements in
AUSP were primarily attributable to a shift in our sales mix toward our higher
priced Beautyrest(R) and BackCare(R) product lines.

         Our pro forma first quarter 2004 wholesale bedding sales, exclusive of
EITF 01-9 sales deductions, which is the methodology used by ISPA in
calculating industry sales, were up 18.0% over the prior year pro forma first
quarter. In comparison, ISPA estimated that for the first quarter of 2004 total
U.S. bedding manufacturers' sales were up 16.4% over the prior year first
quarter, comprised of an increase in unit shipments and AUSP of 10.6% and 5.2%,
respectively.

         Our retail segment sales for the pro forma quarter ended March 27,
2004 increased $2.8 million, or 12.8%, to $25.1 million from $22.3 million for
the pro forma quarter ended March 29, 2003. On a comparable store basis, sales
for our retail stores increased 15.7% for the first quarter of 2004 versus the
first quarter of 2003. Retail segment sales benefited from an improved retail
sales environment and increased advertising.

         Cost of Products Sold. For the pro forma quarter ended March 27, 2004,
cost of products sold, as a percentage of net sales decreased 1.4 percentage
points to 50.8% from 52.2% for the pro forma quarter ended March 29, 2003. We
anticipate that our gross margin for the remainder of 2004 may be negatively
impacted by inflation in prices for certain raw material components.

         Our wholesale segment pro forma first quarter gross margin increased
2.0 percentage points to 47.3% for the first quarter of 2004 from 45.3% for the
pro forma quarter ended March 29, 2003 due to better absorption of
manufacturing fixed costs as a result of our unit volume growth. Partially
offsetting these improvements, our wholesale segment cost of products sold
include $1.6 million, or 0.8% of wholesale segment net sales, of plant closing
costs associated with the closing of our Jacksonville, Florida and Columbus,
Ohio manufacturing facilities. The closing costs for these manufacturing
facilities are non-recurring.


                                       23


<PAGE>
         Our retail segment pro forma first quarter gross margin decreased 0.9
percentage points to 50.2% for the pro forma quarter ended March 27, 2004 from
51.1% for the pro forma quarter ended March 29, 2003. Our retail margins
decreased primarily due to the sale of floor samples at a discount in connection
with the change-out of product lines.

         Selling, General and Administrative Expenses. For the pro forma quarter
ended March 27, 2004, selling, general and administrative expenses increased
$17.2 million, or 1.7 percentage points as a percentage of net sales, to 38.2%
from 36.5% for the pro forma quarter ended March 29, 2003.

         Our wholesale segment selling, general and administrative expenses
increased $16.5 million, or 2.5 percentage points as a percentage of wholesale
segment net sales, to 35.1% for the pro forma quarter ended March 27, 2004 from
32.6% for the pro forma quarter ended March 29, 2003. The increase as a
percentage of net sales from the pro forma first quarter of 2003 was principally
attributable to increases in variable stock compensation expense, co-operative
advertising and selling support expenditures and distribution costs, partially
offset by reduced national advertising costs and general and administrative
expenses, as a percentage of our wholesale segment net sales. Variable stock
compensation expense increased $3.4 million, or 1.7 percentage points of
wholesale segment net sales, due to the 16.7% increase in the first quarter of
2004 in value of our deemed Class A shares held in the deferred compensation
plan of THL Holding. The increase in the value of the deemed Class A shares
during the pro forma quarter ended March 27, 2004 resulted from our improved
operating results for the quarter and improved valuation comparables as of March
27, 2004. Co-operative advertising and selling support expenditures increased
$9.6 million, or 3.0 percentage points, in comparison to the prior year due
primarily to (i) more expenditures meeting the criteria of a selling expense in
accordance with EITF 01-9 in 2004 compared to pro forma first quarter of 2003
and (ii) a shift in our sales mix toward customers and products that receive
more advertising and selling support subsidies. Distribution costs increased
$2.2 million, or 0.3 percentage points, in comparison to the prior pro forma
first quarter due to (i) the shut down of the Jacksonville, Florida and
Columbus, Ohio manufacturing facilities resulting in more miles driven to
service customers and (ii) higher average fuel costs. Our sales associate
compensation increased $1.3 million in the pro forma first quarter of 2004
compared to the pro forma first quarter of 2003 due primarily to an increase in
our sales associate headcount as a result of our growth in sales. Our national
advertising costs decreased $1.0 million, or 0.7 percentage points, in
comparison to the prior pro forma first quarter due to reduced print media
costs. Our general and administrative expenses decreased $0.9 million, or 1.0
percentage points, in comparison to the prior pro forma first quarter due
primarily to (i) a national leadership meeting that took place in 2003 that did
not reoccur in 2004 and (ii) lower administrative wages as a percentage of
wholesale segment net sales due to the increase in wholesale segment net sales.

         Our retail segment selling, general and administrative expenses, as a
percentage of retail segment net sales, decreased 1.4 percentage points to 50.0%
in the pro forma first quarter of 2004 from 51.4% for the pro forma quarter
ended March 29, 2003. This decrease was primarily attributable to an increase in
retail sales resulting in greater leverage of our fixed retail selling, general
and administrative expenses.

         Amortization of Intangibles. Amortization of intangibles was $3.5
million for the pro forma quarter ended March 27, 2004 and $3.5 million for the
pro forma quarter ended March 29, 2003.

         Transaction Expenses. Transaction expenses for the pro forma quarter
ended March 27, 2003 consisted of $0.8 million in costs incurred in connection
with the acquisition of Sleep Country.

         Interest Expense, Net. For the pro forma quarter ended March 27, 2004,
interest expense, net, decreased $0.6 million, or 4.9%, to approximately $11.1
million from $11.7 million for the pro forma quarter ended March 29, 2003. This
decrease was a result of our repayment of $12.3 million of debt in the first
quarter of 2004.

         Income Taxes. The combined federal, state, and foreign effective income
tax rate of 37.0% for the pro forma quarter ended March 27, 2004 differs from
the federal statutory rate of 35.0% primarily due to a tax benefit realized as a
result of a decrease in the tax rate at which deferred tax assets and
liabilities were recorded in order to more properly reflect our overall state
income tax effective rate, the tax expense effect of a valuation allowance
increase for SC Holdings, Inc. net deferred tax assets and state income tax
expense. The combined federal, state, and foreign effective income tax rate of
41.7% for the pro forma quarter ended March 29, 2003 differed from the federal
statutory rate of 35.0% primarily due to state income tax expense and the tax
effects of non-deductible interest costs.

         Net Income. For the reasons set forth above, our net income increased
$3.4 million, or 74.5%, to $8.0 million for the pro forma quarter ended March
27, 2004 compared to $4.6 million for the pro forma quarter ended March 29,
2003.


                                       24
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

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

In the first quarter of 2004, our total debt decreased by $12.3 million to
$757.9 million and our capital expenditures were $1.8 million. We expect to
spend approximately $18 million on capital expenditures for the remainder of
fiscal year 2004. We believe that annual capital expenditure limitations in our
Senior Credit Facility will not significantly inhibit us from meeting our
ongoing capital expenditure needs.

As of March 27, 2004, the Company had availability to borrow $64.5 million under
the Revolving Loan Facility after giving effect to $10.5 million that was
reserved for the Company's reimbursement obligations with respect to outstanding
letters of credit. The weighted average interest rates per annum in effect as of
March 27, 2004 for the Tranche B Term Loan and Senior Unsecured Term Loan were
4.14% and 5.13%, respectively.

                                       25
<PAGE>

On April 12, 2004, the remaining 10.25% Series B Senior Subordinated Notes ("Old
Notes") outstanding were repurchased at 105.125% of the principal amount thereof
for a total payment of $5.3 million.

On May 1, 2004, we sold our Mattress Gallery subsidiary, which was considered an
asset held for sale as of March 27, 2004, for cash proceeds of $6.5 million to
PCM. In connection with the sale, the Company entered into a five-year supply
agreement with PCM. For the quarter ended March 27, 2004, Mattress Gallery's net
sales, operating loss and Adjusted EBITDA were $9.9 million, $2.4 million and
$0.2 million, respectively.

Our cash flows from operations for the first quarter increased $21.7 million to
a source of $11.6 million for the first quarter of 2004 from a use of $(10.1)
million for the first quarter of 2003. Our cash flow from operations increased
due primarily to reducing our cash interest payments by $6.7 million due to a
change in our semi-annual interest payment date to June from March because of
the issuance of our New Notes and the retirement of our Old Notes in connection
with the financing of the Acquisitions. Our working capital improved $6.5
million during the quarter due to the selling of inventory, written-up to fair
market value as part of the allocation of the purchase price on December 19,
2003. Additionally, our working capital improved due to an increase in our
wholesale segment inventory turns to 17 in the first quarter of 2004 from 16 in
the first quarter of 2003. Our wholesale segment accounts payable days were 33
in the first quarter of 2004, which was consistent with the first quarter of
2003. Our accounts receivable balance increased due to our growth in wholesale
segment sales in the first quarter of 2004 compared to the first quarter of
2003. Our accounts receivable days sales outstanding for our wholesale segment
were 40 for the first quarter of 2004 compared to 43 for the first quarter of
2003.

We believe that cash generated from operations, together with the borrowings
available under our Revolving Credit Facility, will be sufficient to meet our
working capital and capital expenditure needs for the foreseeable future.

Our long-term obligations contain various financial tests and covenants. We
were in compliance with such covenants as of the quarter ended March 27, 2004.
The most restrictive covenants relate to ratios of Adjusted EBITDA to interest
coverage (interest coverage ratio), total debt to Adjusted EBITDA (total
leverage ratio), and maximum capital expenditures all as defined in the Senior
Credit Facility. The minimum interest coverage and maximum leverage ratios are
computed based on our results for the last twelve months ended. More
specifically, the Senior Credit Facility's covenant require:

         -        a minimum interest coverage ratio, with compliance levels
                  ranging from an interest coverage of no less than 2.25:1:00
                  from March 31, 2004 through December 31, 2004; 2.30:1:00 from
                  March 31, 2005 through December 31, 2005; 2.40:1.00 from
                  March 31, 2006 to December 31, 2006; 2.55:1:00 from March 31,
                  2007 through December 31, 2007; 2.75:1:00 from March 31, 2008
                  through December 31, 2008; and 3.00:1:00 as of March 31, 2009
                  and each fiscal quarter ending thereafter.

         -        A maximum total leverage ratio, with compliance levels ranging
                  from total leverage of no greater than 6.85:1.00 from March
                  31, 2004 through December 31, 2004; 6.50:1:00 from March 31,
                  2005 through December 31, 2005; 6.00:1:00 as of March 31, 2006
                  and June 30, 2006; 5.75:1:00 as of September 30, 2006 and
                  December 31, 2006; 5.00:1:00 from March 31, 2007 through
                  December 31, 2007; 4.50:1:00 from March 31, 2008 through
                  December 31, 2008; and 4.00:1:00 as of March 31, 2009 and each
                  fiscal quarter ending thereafter.

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


                                      26
<PAGE>
We expect to meet such covenants in 2004. Adjusted EBITDA (as defined in
the Senior Credit Facility) differs from the term "EBITDA" as it is commonly
used. In addition to adjusting net income to exclude interest expense, income
taxes, depreciation and amortization, Adjusted EBITDA also adjusts net income
by excluding items or expenses not typically excluded in the calculation of
"EBITDA" such as management fees; ESOP expenses; the aggregate amount of the
fees, costs and cash expenses paid by the Company in connection with the
consummation of the Acquisition (including without limitation, bonus and option
payments); other non-cash items reducing consolidated net income (including,
without limitation, non-cash purchase accounting adjustments and debt
extinguishment costs); the cure amount, if any, received by Simmons in respect
of that period; any extraordinary, unusual or non-recurring gains or losses or
charges or credits; and any reasonable expenses or charges related to any
issuance of securities, investments permitted, permitted acquisitions,
recapitalizations, asset sales permitted or indebtedness permitted to be
incurred, less other non-cash items increasing consolidated net income, all of
the foregoing as determined on a consolidated basis for the Company in
conformity with GAAP. Adjusted EBITDA is presented herein because it is a
material component of the covenants contained within the aforementioned credit
agreements. Non-compliance with such covenants could result in the requirement
to immediately repay all amounts outstanding under such agreements which could
have a material adverse effect on our results of operations, financial position
and cash flow. While the determination of "unusual and nonrecurring losses" is
subject to interpretation and requires judgment, we believe the Adjusted EBITDA
presented below is in accordance with the Senior Credit Facility. Adjusted
EBITDA does not represent net income or cash flow from operations as those terms
are defined by GAAP and does not necessarily indicate whether cash flows will be
sufficient to fund cash needs.

The following is a calculation of our minimum interest coverage and maximum
leverage ratios under the Senior Credit Facility as of March 27, 2004 (amounts
In thousands, except ratios). The terms and related calculations are defined in
the Senior Credit Facility.

<TABLE>
<CAPTION>
                                                               March 27,
                                                                 2004
                                                               ---------
<S>                                                            <C>
Calculation of Minimum Cash Interest Coverage Ratio:
Twelve months ended Adjusted EBITDA(1)                         $132,524
                                                               ========
Consolidated cash interest expense(2)                          $ 42,660
                                                               ========
Actual interest coverage ratio(3)                                 3.11x
Minimum Permitted Interest Coverage Ratio                         2.25x
Calculation of Maximum Leverage Ratio:
Consolidated indebtedness                                      $757,937
Less: Cash and cash equivalents                                    (859)
                                                               --------
   Net debt                                                    $757,078
                                                               ========
Adjusted EBITDA(1)                                             $132,524
                                                               ========
Actual Leverage Ratio(4)                                          5.71x
Maximum Permitted Leverage Ratio                                  6.85x
</TABLE>

(1)      Adjusted EBITDA for the twelve months ended March 27, 2004 adds
         back to net income the following items: income taxes, interest
         expense, depreciation and amortization, variable 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.

(2)      Consolidated cash interest expense, as defined in the Senior Credit
         Facility, for the period ended March 27, 2004, as follows (in
         thousands):

<TABLE>
<CAPTION>
<S>                                          <C>
Interest expense, net                        $11,093
Interest income                                   44
                                             -------
Gross interest expense                        11,137
Less: Non-cash interest expense                  472
                                             -------
                                              10,665
                                                 X 4
                                             -------
Consolidated cash interest expense           $42,660
                                             =======
</TABLE>

(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.

SEASONALITY/OTHER

For the past several years, there has not been significant seasonality to our
wholesale bedding business. Our retail bedding business, which accounted for
$25.1 million, or 11.2%, of our consolidated net sales for the first quarter of
2004, has historically experienced, and we expect will continue to experience,
seasonal and quarterly fluctuations in net sales, operating income and Adjusted
EBITDA. As is the case with many bedding retailers, our retail business is
subject

                                       27
<PAGE>

to seasonal influences, characterized by strong sales for the months of May
through September, which impacts our second and third quarter results.

MARKET RISK

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

INTEREST RATE RISK

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

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

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

COMMODITY PRICE RISK

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

ACCOUNTING PRONOUNCEMENTS

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

FORWARD LOOKING STATEMENTS

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

      -     the level of competition in the bedding industry;

      -     legal and regulatory requirements;

      -     the success of new products;

      -     our relationships with our major suppliers;

      -     fluctuations in costs of raw materials;

      -     our relationship with significant customers and licensees;

      -     our labor relations;

      -     departure of key personnel;

      -     encroachments on our intellectual property;

      -     product liability claims;

      -     the timing, cost and success of opening new manufacturing
            facilities;

      -     our level of indebtedness;

      -     interest rate risks;

      -     future acquisitions;

      -     an increase in return rates; and

      -     other risks and factors identified from time to time in the
            Company's reports filed with the Securities and Exchange Commission
            ("SEC"), including the Form 10-K for 2003.

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

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<PAGE>

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

Information relative to our market risk sensitive instruments by major category
as of December 27, 2003 is presented under Item 7A of our Annual Report on Form
10-K for the fiscal year ended December 27, 2003. There have been no material
changes to this information as of March 27, 2004.

Item 4.     Internal Controls and Procedures

Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, as of the end of the period covered
by this report (the "Evaluation Date"). Based on this evaluation, our principal
executive officer and principal financial officer concluded as of the Evaluation
Date that our disclosure controls and procedures were effective such that the
information relating to the Company, including our consolidated subsidiaries,
required to be disclosed in our SEC reports (i) is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms, and (ii) is accumulated and communicated to the Company's management,
including our principal executive and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.

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<PAGE>

PART II - OTHER INFORMATION


Item 6.     Exhibits and Reports on Form 8-K

        (a)   Exhibits

      31.1    Chief Executive Officer Certification of the Type Described in
              Rule 13a - 14(a) and Rule 15d - 14(a)

      31.2    Chief Financial Officer Certification of the Type Described in
              Rule 13a - 14(a) and Rule 15d - 14(a)

      32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C.
              Section 1350 (furnished herewith)

      32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C.
              Section 1350 (furnished herewith)

        (b)   Reports on Form 8-K

              On March 24, 2004, the Company filed with the Commission a Form
              8-K which reported under Item 12 the Press Release dated March 18,
              2004 announcing the results of operations for the fourth quarter
              and the full fiscal year of 2003.

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                                   SIGNATURES

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

                                 SIMMONS COMPANY

By:              /s/ William S. Creekmuir
         ---------------------------------------
                     William S. Creekmuir
         Executive Vice President & Chief Financial Officer

Date:    November 8, 2004

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