##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 24, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the transition period from ___ to ___
 Commission
file number 333-113861
 SIMMONS
BEDDING COMPANY
  Delaware
    
    13-3875743(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)One Concourse Parkway, Suite 800, Atlanta, Georgia
    
    30328-6188(Address of principal executive offices)
    
    (Zip Code)Registrants telephone number, including area code
    
    (770) 512-7700
 þ o
 o þ
 o o




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Internal Controls and ProceduresPART II   OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Simmons Bedding Company and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income
 Quarter Ended
    
    
    Nine Months EndedSeptember 24,
    
    
    September 25,
    
    
    September 24,
    
    
    September 25,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    226,843
    
    
    $
    238,221
    
    
    $
    640,467
    
    
    $
    663,336Cost of products sold
    
    
    128,926
    
    
    
    127,050
    
    
    
    360,348
    
    
    
    357,160Gross profit
    
    
    97,917
    
    
    
    111,171
    
    
    
    280,119
    
    
    
    306,176Operating expenses:Selling, general and
administrative expenses
    
    
    73,949
    
    
    
    86,844
    
    
    
    226,075
    
    
    
    246,124Plant closure charges
    
    
    32
    
    
    
    
    
    
    
    72
    
    
    
    764Amortization of intangibles
    
    
    1,418
    
    
    
    1,220
    
    
    
    4,276
    
    
    
    3,509Transaction expenses
    
    
    
    
    
    
    57
    
    
    
    177
    
    
    
    305Licensing fees
    
    
    (2,553
    )
    
    
    (2,435
    )
    
    
    (7,419
    )
    
    
    (7,497
    )72,846
    
    
    
    85,686
    
    
    
    223,181
    
    
    
    243,205Operating income
    
    
    25,071
    
    
    
    25,485
    
    
    
    56,938
    
    
    
    62,971Interest expense, net
    
    
    13,547
    
    
    
    10,737
    
    
    
    38,939
    
    
    
    32,718Income before income taxes
    
    
    11,524
    
    
    
    14,748
    
    
    
    17,999
    
    
    
    30,253Income tax expense
    
    
    3,969
    
    
    
    5,309
    
    
    
    6,282
    
    
    
    10,891Net income
    
    
    7,555
    
    
    
    9,439
    
    
    
    11,717
    
    
    
    19,362Other comprehensive income:Foreign currency translation
adjustment
    
    
    5
    
    
    
    42
    
    
    
    (1
    )
    
    
    32Comprehensive income
    
    $
    7,560
    
    
    $
    9,481
    
    
    $
    11,716
    
    
    $
    19,394
  2




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##### Table of Contents



Simmons Bedding Company and Subsidiaries
Condensed Consolidated Balance Sheets
 September 24,
    
    
    December 25,2005
    
    
    2004 *(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    36,850
    
    
    $
    23,854Accounts receivable, less allowances for
doubtful receivables, discounts and returns
of $4,606 and $5,131
    
    
    80,192
    
    
    
    85,433Inventories
    
    
    31,528
    
    
    
    33,300Deferred income taxes
    
    
    1,411
    
    
    
    2,445Other current assets
    
    
    16,423
    
    
    
    20,204Total current assets
    
    
    166,404
    
    
    
    165,236Property, plant and equipment, net
    
    
    58,445
    
    
    
    62,842Goodwill
    
    
    492,732
    
    
    
    488,686Intangible assets, net
    
    
    538,707
    
    
    
    542,983Other assets
    
    
    43,643
    
    
    
    41,987$
    1,299,931
    
    
    $
    1,301,734
 
 *
    
    Derived from the Companys 2004 audited Consolidated Financial Statements.  3




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##### Table of Contents



Simmons Bedding Company and Subsidiaries
Condensed Consolidated Balance Sheets
 September 24,
    
    
    December 25,2005
    
    
    2004 *(Unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    438
    
    
    $
    4,124Accounts payable
    
    
    60,540
    
    
    
    54,380Accrued liabilities
    
    
    56,294
    
    
    
    68,977Total current liabilities
    
    
    117,272
    
    
    
    127,481Non-current liabilities:Long-term debt
    
    
    739,811
    
    
    
    748,015Deferred income taxes
    
    
    159,322
    
    
    
    154,775Other
    
    
    11,203
    
    
    
    10,856Total liabilities
    
    
    1,027,608
    
    
    
    1,041,127Commitments and contingenciesCommon stockholders equity:Common stock, $.01 par value; 3,000 sharesauthorized; 100 issued and outstanding
    
    
    1
    
    
    
    1Additional paid-in capital
    
    
    243,052
    
    
    
    243,052Retained earnings
    
    
    29,141
    
    
    
    17,424Accumulated other comprehensive income
    
    
    129
    
    
    
    130Total common stockholders equity
    
    
    272,323
    
    
    
    260,607$
    1,299,931
    
    
    $
    1,301,734
 
 *
    
    Derived from the Companys 2004 audited Consolidated Financial Statements.  4




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Simmons Bedding Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
 Nine Months EndedSeptember 24,
    
    
    September 25,2005
    
    
    2004Net cash provided by operating activities
    
    $
    32,278
    
    
    $
    59,641Cash flows from investing activities:Purchases of property, plant and equipment
    
    
    (3,662
    )
    
    
    (15,216
    )Proceeds from the sale of Gallery Corp., net
    
    
    
    
    
    
    6,327Purchase of certain assets of Simmons Juvenile Products, Inc.
    
    
    (3,337
    )
    
    
    (19,668
    )Other, net
    
    
    7
    
    
    
    2,231Net cash used in investing activities
    
    
    (6,992
    )
    
    
    (26,326
    )Cash flows from financing activities:Payments to affiliate, net
    
    
    (400
    )
    
    
    (1,296
    )Payments of senior credit facility, net
    
    
    (11,668
    )
    
    
    (11,675
    )Payments of other debt
    
    
    (221
    )
    
    
    (6,146
    )Payments of financing fees
    
    
    
    
    
    
    (870
    )Net cash used in financing activities
    
    
    (12,289
    )
    
    
    (19,987
    )Net effect of exchange rate changes on cash
    
    
    (1
    )
    
    
    32Change in cash and cash equivalents
    
    
    12,996
    
    
    
    13,360Cash and cash equivalents, beginning of period
    
    
    23,854
    
    
    
    3,670Cash and cash equivalents, end of period
    
    $
    36,850
    
    
    $
    17,030
  5




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Simmons Bedding Company and Subsidiaries
Consolidated Statement of Changes in Stockholders Equity
 AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    TotalCommon
    
    
    Common
    
    
    Paid-In
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income
    
    
    EquityDecember 25, 2004 (audited)
    
    
    100
    
    
    $
    1
    
    
    $
    243,052
    
    
    $
    17,424
    
    
    $
    130
    
    
    $
    260,607Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,717
    
    
    
    
    
    
    
    11,717Other comprehensive
income:Change in foreign
currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,717
    
    
    
    (1
    )
    
    
    11,716September 24, 2005
(unaudited)
    
    
    100
    
    
    $
    1
    
    
    $
    243,052
    
    
    $
    29,141
    
    
    $
    129
    
    
    $
    272,323
  6




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A. Basis of Presentation
    B. Acquisitions and Dispositions
   7




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Current assets
    
    $
    3,665Property, plant and equipment
    
    
    23Goodwill
    
    
    4,034Intangibles
    
    
    18,000Total assets acquired
    
    
    25,722Current liabilities
    
    
    (2,476
    )Non-current liabilities
    
    
    (224
    )Total liabilities assumed
    
    
    (2,700
    )Purchase price
    
    $
    23,022
  8




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C. Inventories
  September 24,
    
    
    December 25,2005
    
    
    2004Raw materials
    
    $
    15,690
    
    
    $
    18,135Work-in-progress
    
    
    1,214
    
    
    
    1,236Finished goods
    
    
    9,987
    
    
    
    9,934Inventory held at retail stores
    
    
    4,637
    
    
    
    3,995$
    31,528
    
    
    $
    33,300
 D. Goodwill
  WholesaleBedding
    
    
    Retail
    
    
    ConsolidatedBalance as of December 25, 2004
    
    $
    476,394
    
    
    $
    12,292
    
    
    $
    488,686Juvenile Acquisition contingent consideration (see Note
B)
    
    
    3,337
    
    
    
    
    
    
    
    3,337Adjustment of pre-acquisition tax liability
    
    
    583
    
    
    
    
    
    
    
    583Adjustment of valuation allowance on deferred tax asset
recorded in conjunction with the Acquisition
    
    
    
    
    
    
    202
    
    
    
    202Tax benefit allocated to reduce goodwill
    
    
    (76
    )
    
    
    
    
    
    
    (76
    )Balance as of September 24, 2005
    
    $
    480,238
    
    
    $
    12,494
    
    
    $
    492,732
  9




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E. Warranties
  (1)
    
    The Company records the amount of warranties issued during the period based upon the
units sold, the cumulative average return rate for the previous ten years, and the
estimated average cost to settle a warranty claim.(2)
    
    The Company adjusts the accruals related to pre-existing warranties for the estimated
average costs to settle warranty claims and changes in its estimate of the number of future
warranty returns due to changes in the cumulative average return rate for the previous ten
years.(3)
    
    The Company reduces the accrual for warranty settlements during the period based upon
the number of warranty returns recorded at the estimated cost to settle warranty claims.
The estimated costs to settle warranty claims is based upon the average manufacturing cost
per unit, including freight, less anticipated cost recovery resulting from the selling of
returned products to as-is and outlet customers.
  For the
    
    
    For theQuarters Ended
    
    
    Nine Months EndedSeptember 24,
    
    
    September 25,
    
    
    September 24,
    
    
    September 25,2005
    
    
    2004
    
    
    2005
    
    
    2004Balance at beginning of period
    
    $
    3,115
    
    
    $
    2,979
    
    
    $
    2,715
    
    
    $
    3,148Additional warranties issued
    
    
    688
    
    
    
    624
    
    
    
    1,713
    
    
    
    1,649Accruals related to pre-existing
warranties (including changes
in estimates)
    
    
    (11
    )
    
    
    
    
    
    
    247
    
    
    
    (267
    )Warranty settlements
    
    
    (490
    )
    
    
    (411
    )
    
    
    (1,373
    )
    
    
    (1,338
    )Balance at end of period
    
    $
    3,302
    
    
    $
    3,192
    
    
    $
    3,302
    
    
    $
    3,192
  10




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F. Long-Term Debt
  September 24,
    
    
    December 25,2005
    
    
    2004Senior credit facility:Revolving loan
    
    $
    
    
    
    $
    Tranche C term loan
    
    
    384,933
    
    
    
    396,600Total senior credit facility
    
    
    384,933
    
    
    
    396,600Senior unsecured term loan
    
    
    140,000
    
    
    
    140,000Industrial
revenue bonds and other
    
    
    15,316
    
    
    
    15,5397.875% senior subordinated notes due 2014
    
    
    200,000
    
    
    
    200,000740,249
    
    
    
    752,139Less current portion
    
    
    (438
    )
    
    
    (4,124
    )$
    739,811
    
    
    $
    748,015
   11




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Eurodollar
    
    BaseRate
    
    RateRevolving loan
    
    
    2.50
    %
    
    
    1.50
    %Tranche C term loan
    
    
    2.50
    %
    
    
    1.50
    %Senior unsecured term loan
    
    
    3.75
    %
    
    
    2.75
    %
    12




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Supplemental Consolidating Condensed Statements of Operations
For the Quarter Ended September 24, 2005
 Issuer and GuarantorsSimmonsBedding
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    (19,472
    )
    
    $
    244,274
    
    
    $
    2,041
    
    
    $
    
    
    
    $
    226,843Cost of products sold
    
    
    479
    
    
    
    126,852
    
    
    
    1,595
    
    
    
    
    
    
    
    128,926Gross profit
    
    
    (19,951
    )
    
    
    117,422
    
    
    
    446
    
    
    
    
    
    
    
    97,917Operating expenses:Selling, general and administrative expenses
    
    
    45,776
    
    
    
    27,726
    
    
    
    447
    
    
    
    
    
    
    
    73,949Plant closure charges
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    32Amortization of intangibles
    
    
    807
    
    
    
    611
    
    
    
    
    
    
    
    
    
    
    
    1,418Intercompany fees
    
    
    (71,928
    )
    
    
    71,736
    
    
    
    192
    
    
    
    
    
    
    
    Licensing fees
    
    
    (296
    )
    
    
    (2,067
    )
    
    
    (190
    )
    
    
    
    
    
    
    (2,553
    )(25,641
    )
    
    
    98,038
    
    
    
    449
    
    
    
    
    
    
    
    72,846Operating income (loss)
    
    
    5,690
    
    
    
    19,384
    
    
    
    (3
    )
    
    
    
    
    
    
    25,071Interest expense, net
    
    
    13,292
    
    
    
    205
    
    
    
    50
    
    
    
    
    
    
    
    13,547Income from subsidiaries
    
    
    18,826
    
    
    
    
    
    
    
    
    
    
    
    (18,826
    )
    
    
    Income (loss) before income taxes
    
    
    11,224
    
    
    
    19,179
    
    
    
    (53
    )
    
    
    (18,826
    )
    
    
    11,524Income tax expense
    
    
    3,669
    
    
    
    266
    
    
    
    34
    
    
    
    
    
    
    
    3,969Net income (loss)
    
    $
    7,555
    
    
    $
    18,913
    
    
    $
    (87
    )
    
    $
    (18,826
    )
    
    $
    7,555
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Supplemental Consolidating Condensed Statements of Operations
For the Quarter Ended September 25, 2004
 Issuer and GuarantorsSimmonsBedding
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    (8,000
    )
    
    $
    242,717
    
    
    $
    3,504
    
    
    $
    
    
    
    $
    238,221Cost of products sold
    
    
    317
    
    
    
    123,914
    
    
    
    2,819
    
    
    
    
    
    
    
    127,050Gross profit
    
    
    (8,317
    )
    
    
    118,803
    
    
    
    685
    
    
    
    
    
    
    
    111,171Operating expenses:Selling, general and administrative expenses
    
    
    60,134
    
    
    
    25,977
    
    
    
    733
    
    
    
    
    
    
    
    86,844Amortization of intangibles
    
    
    336
    
    
    
    884
    
    
    
    
    
    
    
    
    
    
    
    1,220Transaction expenses
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57Intercompany fees
    
    
    (55,887
    )
    
    
    55,817
    
    
    
    70
    
    
    
    
    
    
    
    Licensing fees
    
    
    (259
    )
    
    
    (2,011
    )
    
    
    (165
    )
    
    
    
    
    
    
    (2,435
    )4,381
    
    
    
    80,667
    
    
    
    638
    
    
    
    
    
    
    
    85,686Operating income (loss)
    
    
    (12,698
    )
    
    
    38,136
    
    
    
    47
    
    
    
    
    
    
    
    25,485Interest expense, net
    
    
    10,531
    
    
    
    186
    
    
    
    20
    
    
    
    
    
    
    
    10,737Income from subsidiaries
    
    
    37,461
    
    
    
    
    
    
    
    
    
    
    
    (37,461
    )
    
    
    Income before income taxes
    
    
    14,232
    
    
    
    37,950
    
    
    
    27
    
    
    
    (37,461
    )
    
    
    14,748Income tax expense
    
    
    4,793
    
    
    
    485
    
    
    
    31
    
    
    
    
    
    
    
    5,309Net income (loss)
    
    $
    9,439
    
    
    $
    37,465
    
    
    $
    (4
    )
    
    $
    (37,461
    )
    
    $
    9,439
 14




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Operations
For the Nine Months Ended September 24, 2005
 Issuer and GuarantorsSimmonsBedding
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    (53,289
    )
    
    $
    686,407
    
    
    $
    7,349
    
    
    $
    
    
    
    $
    640,467Cost of products sold
    
    
    1,073
    
    
    
    353,767
    
    
    
    5,508
    
    
    
    
    
    
    
    360,348Gross profit
    
    
    (54,362
    )
    
    
    332,640
    
    
    
    1,841
    
    
    
    
    
    
    
    280,119Operating expenses:Selling, general and administrative expenses
    
    
    145,369
    
    
    
    79,130
    
    
    
    1,576
    
    
    
    
    
    
    
    226,075Plant closure charges
    
    
    
    
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    72Amortization of intangibles
    
    
    2,422
    
    
    
    1,854
    
    
    
    
    
    
    
    
    
    
    
    4,276Intercompany fees
    
    
    (213,982
    )
    
    
    213,331
    
    
    
    651
    
    
    
    
    
    
    
    Transaction expenses
    
    
    171
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    177Licensing fees
    
    
    (825
    )
    
    
    (6,075
    )
    
    
    (519
    )
    
    
    
    
    
    
    (7,419
    )(66,845
    )
    
    
    288,318
    
    
    
    1,708
    
    
    
    
    
    
    
    223,181Operating income
    
    
    12,483
    
    
    
    44,322
    
    
    
    133
    
    
    
    
    
    
    
    56,938Interest expense, net
    
    
    38,233
    
    
    
    604
    
    
    
    102
    
    
    
    
    
    
    
    38,939Income from subsidiaries
    
    
    42,537
    
    
    
    
    
    
    
    
    
    
    
    (42,537
    )
    
    
    Income before income taxes
    
    
    16,787
    
    
    
    43,718
    
    
    
    31
    
    
    
    (42,537
    )
    
    
    17,999Income tax expense (benefit)
    
    
    5,070
    
    
    
    1,304
    
    
    
    (92
    )
    
    
    
    
    
    
    6,282Net income
    
    $
    11,717
    
    
    $
    42,414
    
    
    $
    123
    
    
    $
    (42,537
    )
    
    $
    11,717
 15




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Operations
For the Nine Months Ended September 25, 2004
 Issuer and GuarantorsSimmonsBedding
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet sales
    
    $
    (39,229
    )
    
    $
    693,675
    
    
    $
    8,890
    
    
    $
    
    
    
    $
    663,336Cost of products sold
    
    
    912
    
    
    
    349,494
    
    
    
    6,754
    
    
    
    
    
    
    
    357,160Gross profit
    
    
    (40,141
    )
    
    
    344,181
    
    
    
    2,136
    
    
    
    
    
    
    
    306,176Operating expenses:Selling, general and administrative expenses
    
    
    161,286
    
    
    
    82,752
    
    
    
    2,086
    
    
    
    
    
    
    
    246,124Amortization of intangibles
    
    
    997
    
    
    
    2,512
    
    
    
    
    
    
    
    
    
    
    
    3,509Plant closure charges
    
    
    
    
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    764Transaction expenses
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305Intercompany fees
    
    
    (162,767
    )
    
    
    162,558
    
    
    
    209
    
    
    
    
    
    
    
    Licensing fees
    
    
    (778
    )
    
    
    (6,270
    )
    
    
    (449
    )
    
    
    
    
    
    
    (7,497
    )(957
    )
    
    
    242,316
    
    
    
    1,846
    
    
    
    
    
    
    
    243,205Operating income (loss)
    
    
    (39,184
    )
    
    
    101,865
    
    
    
    290
    
    
    
    
    
    
    
    62,971Interest expense, net
    
    
    32,095
    
    
    
    583
    
    
    
    40
    
    
    
    
    
    
    
    32,718Income from subsidiaries
    
    
    76,867
    
    
    
    
    
    
    
    
    
    
    
    (76,867
    )
    
    
    Income before income taxes
    
    
    5,588
    
    
    
    101,282
    
    
    
    250
    
    
    
    (76,867
    )
    
    
    30,253Income tax expense (benefit)
    
    
    (13,774
    )
    
    
    24,556
    
    
    
    109
    
    
    
    
    
    
    
    10,891Net income
    
    $
    19,362
    
    
    $
    76,726
    
    
    $
    141
    
    
    $
    (76,867
    )
    
    $
    19,362
 16




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##### Table of Contents



Supplemental Consolidating Condensed Balance Sheets
As of September 24, 2005
 Issuer and GuarantorsSimmonsBedding
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,643
    
    
    $
    9,701
    
    
    $
    1,506
    
    
    $
    
    
    
    $
    36,850Accounts receivable
    
    
    
    
    
    
    78,476
    
    
    
    1,716
    
    
    
    
    
    
    
    80,192Inventories
    
    
    
    
    
    
    30,648
    
    
    
    880
    
    
    
    
    
    
    
    31,528Other
    
    
    7,369
    
    
    
    10,021
    
    
    
    444
    
    
    
    
    
    
    
    17,834Total current assets
    
    
    33,012
    
    
    
    128,846
    
    
    
    4,546
    
    
    
    
    
    
    
    166,404Property, plant and equipment, net
    
    
    10,419
    
    
    
    42,964
    
    
    
    5,062
    
    
    
    
    
    
    
    58,445Goodwill and other intangibles, net
    
    
    67,446
    
    
    
    963,928
    
    
    
    65
    
    
    
    
    
    
    
    1,031,439Other assets
    
    
    18,592
    
    
    
    24,476
    
    
    
    575
    
    
    
    
    
    
    
    43,643Net investment in and advances to
(from) affiliates
    
    
    1,053,082
    
    
    
    
    
    
    
    
    
    
    
    (1,053,082
    )
    
    
    $
    1,182,551
    
    
    $
    1,160,214
    
    
    $
    10,248
    
    
    $
    (1,053,082
    )
    
    $
    1,299,931LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    223
    
    
    $
    215
    
    
    $
    
    
    
    $
    438Accounts payable and accrued liabilities
    
    
    40,290
    
    
    
    75,021
    
    
    
    1,523
    
    
    
    
    
    
    
    116,834Total current liabilities
    
    
    40,290
    
    
    
    75,244
    
    
    
    1,738
    
    
    
    
    
    
    
    117,272Long-term debt
    
    
    724,934
    
    
    
    13,348
    
    
    
    1,529
    
    
    
    
    
    
    
    739,811Deferred income taxes
    
    
    (8,656
    )
    
    
    167,826
    
    
    
    152
    
    
    
    
    
    
    
    159,322Other non-current liabilities
    
    
    153,660
    
    
    
    (144,074
    )
    
    
    1,650
    
    
    
    (33
    )
    
    
    11,203Total liabilities
    
    
    910,228
    
    
    
    112,344
    
    
    
    5,069
    
    
    
    (33
    )
    
    
    1,027,608Stockholders equity
    
    
    272,323
    
    
    
    1,047,870
    
    
    
    5,179
    
    
    
    (1,053,049
    )
    
    
    272,323$
    1,182,551
    
    
    $
    1,160,214
    
    
    $
    10,248
    
    
    $
    (1,053,082
    )
    
    $
    1,299,931
 17




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##### Table of Contents



Supplemental Consolidating Condensed Balance Sheets
As of December 25, 2004
 Issuer and GuarantorsSimmonsBedding
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,923
    
    
    $
    7,333
    
    
    $
    598
    
    
    $
    
    
    
    $
    23,854Accounts receivable
    
    
    
    
    
    
    82,936
    
    
    
    2,497
    
    
    
    
    
    
    
    85,433Inventories
    
    
    
    
    
    
    32,622
    
    
    
    678
    
    
    
    
    
    
    
    33,300Other
    
    
    10,426
    
    
    
    11,646
    
    
    
    577
    
    
    
    
    
    
    
    22,649Total current assets
    
    
    26,349
    
    
    
    134,537
    
    
    
    4,350
    
    
    
    
    
    
    
    165,236Property, plant and equipment, net
    
    
    11,277
    
    
    
    46,369
    
    
    
    5,196
    
    
    
    
    
    
    
    62,842Goodwill and other intangibles, net
    
    
    69,284
    
    
    
    962,320
    
    
    
    65
    
    
    
    
    
    
    
    1,031,669Other assets
    
    
    20,165
    
    
    
    21,015
    
    
    
    807
    
    
    
    
    
    
    
    41,987Net investment in and advances to
(from) affiliates
    
    
    910,120
    
    
    
    131,043
    
    
    
    19
    
    
    
    (1,041,182
    )
    
    
    $
    1,037,195
    
    
    $
    1,295,284
    
    
    $
    10,437
    
    
    $
    (1,041,182
    )
    
    $
    1,301,734LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    3,654
    
    
    $
    241
    
    
    $
    229
    
    
    $
    
    
    
    $
    4,124Accounts payable and accrued liabilities
    
    
    48,410
    
    
    
    72,350
    
    
    
    2,597
    
    
    
    
    
    
    
    123,357Total current liabilities
    
    
    52,064
    
    
    
    72,591
    
    
    
    2,826
    
    
    
    
    
    
    
    127,481Long-term debt
    
    
    732,945
    
    
    
    13,381
    
    
    
    1,689
    
    
    
    
    
    
    
    748,015Deferred income taxes
    
    
    (14,353
    )
    
    
    168,663
    
    
    
    465
    
    
    
    
    
    
    
    154,775Other non-current liabilities
    
    
    5,932
    
    
    
    4,525
    
    
    
    399
    
    
    
    
    
    
    
    10,856Total liabilities
    
    
    776,588
    
    
    
    259,160
    
    
    
    5,379
    
    
    
    
    
    
    
    1,041,127Stockholders equity
    
    
    260,607
    
    
    
    1,036,124
    
    
    
    5,058
    
    
    
    (1,041,182
    )
    
    
    260,607$
    1,037,195
    
    
    $
    1,295,284
    
    
    $
    10,437
    
    
    $
    (1,041,182
    )
    
    $
    1,301,734
  -
    
    The change in classification of a $515.0 million credit balance previously reported in
the Guarantor Subsidiaries line item net investment in and advances to (from) affiliates
and a $515.0 million debit balance previously reported in the Guarantor Subsidiaries line
item stockholders equity, to the Eliminations line items net investment in and advances
to (from) affiliates and stockholders equity. The adjustments relate principally to
the push down of certain purchase accounting adjustments to subsidiaries;-
    
    The correction of intercompany balances previously netted in error against the
Guarantor Subsidiaries, Non-Guarantor Subsidiaries, and Eliminations line item
stockholders equity totaling a $491.9 million credit balance, a $1.7 million debit
balance, and a $490.2 million debit balance, respectively. The amounts have been correctly
classified in this revised presentation in the line items net investment in and advances
to (from) affiliates and stockholders equity; and-
    
    The combining of a $366.1 million credit balance previously reported in the Guarantor
Subsidiaries line item net due to (from) subsidiaries and a $366.1 million debit balance
 18




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##### Table of Contents



previously reported in the Eliminations line item net due to (from) subsidiaries into the
line item net investment in and advances to (from) affiliates.
  Supplemental Consolidating Condensed Statements of Cash Flows
For the Nine Months Ended September 24, 2005
 Issuer and GuarantorsSimmonsBedding
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    18,694
    
    
    $
    13,747
    
    
    $
    (163
    )
    
    $
    
    
    
    $
    32,278Cash flows from investing activities:Purchase of property, plant and
equipment, net
    
    
    (1,662
    )
    
    
    (1,979
    )
    
    
    (21
    )
    
    
    
    
    
    
    (3,662
    )Purchase of Simmons Juvenile Products, Inc.
    
    
    
    
    
    
    (3,337
    )
    
    
    
    
    
    
    
    
    
    
    (3,337
    )Other
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7Net cash used in investing
activities
    
    
    (1,662
    )
    
    
    (5,309
    )
    
    
    (21
    )
    
    
    
    
    
    
    (6,992
    )Cash flows from financing activities:Repayment of long-term obligations
    
    
    (11,668
    )
    
    
    (47
    )
    
    
    (174
    )
    
    
    
    
    
    
    (11,889
    )Receipt from (distribution to) affiliates
    
    
    4,356
    
    
    
    (6,023
    )
    
    
    1,267
    
    
    
    
    
    
    
    (400
    )Net cash provided by (used in) financing
activities
    
    
    (7,312
    )
    
    
    (6,070
    )
    
    
    1,093
    
    
    
    
    
    
    
    (12,289
    )Net effect of exchange rate change
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Change in cash and cash equivalents
    
    
    9,720
    
    
    
    2,368
    
    
    
    908
    
    
    
    
    
    
    
    12,996Cash and cash equivalents:Beginning of period
    
    
    15,923
    
    
    
    7,333
    
    
    
    598
    
    
    
    
    
    
    
    23,854End of period
    
    $
    25,643
    
    
    $
    9,701
    
    
    $
    1,506
    
    
    $
    
    
    
    $
    36,850
 19




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##### Table of Contents



Supplemental Consolidating Condensed Statements of Cash Flows
For the Nine Months Ended September 25, 2004
 Issuer and GuarantorsSimmonsBedding
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    (36,299
    )
    
    $
    92,929
    
    
    $
    3,011
    
    
    $
    
    
    
    $
    59,641Cash flows from investing activities:Purchase of property, plant and
equipment, net
    
    
    (1,684
    )
    
    
    (12,558
    )
    
    
    (974
    )
    
    
    
    
    
    
    (15,216
    )Proceeds from sale of Gallery Corp., net
    
    
    6,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,327Purchase of Simmons Juvenile Products, Inc.
    
    
    (19,668
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,668
    )Other, net
    
    
    2,231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,231Net cash used in investing activities
    
    
    (12,794
    )
    
    
    (12,558
    )
    
    
    (974
    )
    
    
    
    
    
    
    (26,326
    )Cash flows from financing activities:Repayment of long-term obligations, net
    
    
    (18,350
    )
    
    
    (592
    )
    
    
    (175
    )
    
    
    
    
    
    
    (19,117
    )Receipt from (distribution to) affiliates
    
    
    76,302
    
    
    
    (74,502
    )
    
    
    (1,800
    )
    
    
    
    
    
    
    Payment of financing fees
    
    
    (870
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (870
    )Net cash provided by (used in) financing
activities
    
    
    57,082
    
    
    
    (75,094
    )
    
    
    (1,975
    )
    
    
    
    
    
    
    (19,987
    )Net effect of exchange rate change
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32Change in cash and cash equivalents
    
    
    7,989
    
    
    
    5,277
    
    
    
    94
    
    
    
    
    
    
    
    13,360Cash and cash equivalents:Beginning of period
    
    
    615
    
    
    
    667
    
    
    
    2,388
    
    
    
    
    
    
    
    3,670End of period
    
    $
    8,604
    
    
    $
    5,944
    
    
    $
    2,482
    
    
    $
    
    
    
    $
    17,030
 G. Segment Information
     20




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##### Table of Contents



Quarter
Ended September 24, 2005
 WholesaleBedding
    
    
    Retail
    
    
    Eliminations
    
    
    TotalsNet sales to external customers
    
    $
    205,225
    
    
    $
    21,618
    
    
    $
    
    
    
    $
    226,843Intersegment net sales
    
    
    5,050
    
    
    
    
    
    
    
    (5,050
    )
    
    
    Adjusted EBITDA
    
    
    33,226
    
    
    
    2,484
    
    
    
    (120
    )
    
    
    35,590Depreciation and amortization expense
    
    
    6,743
    
    
    
    338
    
    
    
    
    
    
    
    7,081Expenditures for long-lived assets
    
    
    606
    
    
    
    470
    
    
    
    
    
    
    
    1,076Segment assets
    
    
    1,275,990
    
    
    
    26,549
    
    
    
    (2,608
    )
    
    
    1,299,931Reconciliation of EBITDA and AdjustedEBITDA to net income:Net income
    
    $
    6,380
    
    
    $
    1,295
    
    
    $
    (120
    )
    
    $
    7,555Depreciation and amortization
    
    
    6,743
    
    
    
    338
    
    
    
    
    
    
    
    7,081Income taxes
    
    
    3,244
    
    
    
    725
    
    
    
    
    
    
    
    3,969Interest expense, net
    
    
    13,547
    
    
    
    
    
    
    
    
    
    
    
    13,547Interest income
    
    
    57
    
    
    
    (1
    )
    
    
    
    
    
    
    56EBITDA
    
    
    29,971
    
    
    
    2,357
    
    
    
    (120
    )
    
    
    32,208Reorganization
costs (1)
    
    
    2,681
    
    
    
    
    
    
    
    
    
    
    
    2,681Management fees
    
    
    293
    
    
    
    127
    
    
    
    
    
    
    
    420Plant opening, closing charges
    
    
    281
    
    
    
    
    
    
    
    
    
    
    
    281Adjusted EBITDA
    
    $
    33,226
    
    
    $
    2,484
    
    
    $
    (120
    )
    
    $
    35,590
 
 (1)
    Reorganization costs includes $1.7 million of severance, $0.6 million of consulting
expense and $0.4 million of other expense. 21




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##### Table of Contents



Quarter Ended September 25, 2004
 WholesaleBedding
    
    
    Retail
    
    
    Eliminations
    
    
    TotalsNet sales to external customers
    
    $
    219,242
    
    
    $
    18,979
    
    
    $
    
    
    
    $
    238,221Intersegment net sales
    
    
    2,889
    
    
    
    
    
    
    
    (2,889
    )
    
    
    Adjusted EBITDA
    
    
    33,193
    
    
    
    1,335
    
    
    
    120
    
    
    
    34,648Depreciation and amortization expense
    
    
    5,708
    
    
    
    228
    
    
    
    
    
    
    
    5,936Expenditures for long-lived assets
    
    
    8,460
    
    
    
    28
    
    
    
    
    
    
    
    8,488Segment assets
    
    
    1,264,901
    
    
    
    31,226
    
    
    
    (75
    )
    
    
    1,296,052Reconciliation of EBITDA and AdjustedEBITDA to net income:Net income
    
    $
    8,190
    
    
    $
    1,129
    
    
    $
    120
    
    
    $
    9,439Depreciation and amortization
    
    
    5,708
    
    
    
    228
    
    
    
    
    
    
    
    5,936Income taxes
    
    
    5,309
    
    
    
    
    
    
    
    
    
    
    
    5,309Interest expense, net
    
    
    10,731
    
    
    
    6
    
    
    
    
    
    
    
    10,737Interest income
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    42EBITDA
    
    
    29,980
    
    
    
    1,363
    
    
    
    120
    
    
    
    31,463Plant opening, closing charges
    
    
    2,526
    
    
    
    
    
    
    
    
    
    
    
    2,526Mattress Gallery transaction expenses
    
    
    440
    
    
    
    (28
    )
    
    
    
    
    
    
    412Management fees
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    190Other
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    57Adjusted EBITDA
    
    $
    33,193
    
    
    $
    1,335
    
    
    $
    120
    
    
    $
    34,648
 22




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##### Table of Contents



Nine Months Ended September 24, 2005
 WholesaleBedding
    
    
    Retail
    
    
    Eliminations
    
    
    TotalsNet sales to external customers
    
    $
    580,959
    
    
    $
    59,508
    
    
    $
    
    
    
    $
    640,467Intersegment net sales
    
    
    11,613
    
    
    
    
    
    
    
    (11,613
    )
    
    
    Adjusted EBITDA
    
    
    76,798
    
    
    
    6,137
    
    
    
    122
    
    
    
    83,057Depreciation and amortization expense
    
    
    19,113
    
    
    
    1,091
    
    
    
    
    
    
    
    20,204Expenditures for long-lived assets
    
    
    2,762
    
    
    
    900
    
    
    
    
    
    
    
    3,662Segment assets
    
    
    1,275,990
    
    
    
    26,549
    
    
    
    (2,608
    )
    
    
    1,299,931Reconciliation of EBITDA and AdjustedEBITDA to net income:Net income
    
    $
    8,562
    
    
    $
    3,033
    
    
    $
    122
    
    
    $
    11,717Depreciation and amortization
    
    
    19,113
    
    
    
    1,091
    
    
    
    
    
    
    
    20,204Income taxes
    
    
    4,592
    
    
    
    1,690
    
    
    
    
    
    
    
    6,282Interest expense, net
    
    
    38,933
    
    
    
    6
    
    
    
    
    
    
    
    38,939Interest income
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    113EBITDA
    
    
    71,313
    
    
    
    5,820
    
    
    
    122
    
    
    
    77,255Reorganization costs (1)
    
    
    4,026
    
    
    
    
    
    
    
    
    
    
    
    4,026Management fees
    
    
    856
    
    
    
    317
    
    
    
    
    
    
    
    1,173Management severance
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    105Transaction expenses
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    177Plant opening, closing charges
    
    
    321
    
    
    
    
    
    
    
    
    
    
    
    321Adjusted EBITDA
    
    $
    76,798
    
    
    $
    6,137
    
    
    $
    122
    
    
    $
    83,057
 
 (1)
    Reorganization costs includes $2.4 million of severance, $1.3 million of consulting
expense and $0.4 million of other expense. 23




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Nine Months Ended September 25, 2004
 WholesaleBedding
    
    
    Retail
    
    
    Eliminations
    
    
    TotalsNet sales to external customers
    
    $
    600,052
    
    
    $
    63,284
    
    
    $
    
    
    
    $
    663,336Intersegment net sales
    
    
    16,916
    
    
    
    
    
    
    
    (16,916
    )
    
    
    Adjusted EBITDA
    
    
    97,795
    
    
    
    3,197
    
    
    
    (140
    )
    
    
    100,852Depreciation and amortization expense
    
    
    16,007
    
    
    
    646
    
    
    
    
    
    
    
    16,653Expenditures for long-lived assets
    
    
    14,512
    
    
    
    704
    
    
    
    
    
    
    
    15,216Segment assets
    
    
    1,264,901
    
    
    
    31,226
    
    
    
    (75
    )
    
    
    1,296,052Reconciliation of EBITDA and AdjustedEBITDA to net income (loss):Net income (loss)
    
    $
    22,558
    
    
    $
    (3,056
    )
    
    $
    (140
    )
    
    $
    19,362Depreciation and amortization
    
    
    16,007
    
    
    
    646
    
    
    
    
    
    
    
    16,653Income taxes
    
    
    11,063
    
    
    
    (172
    )
    
    
    
    
    
    
    10,891Interest expense, net
    
    
    32,614
    
    
    
    104
    
    
    
    
    
    
    
    32,718Interest income
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    117EBITDA
    
    
    82,359
    
    
    
    (2,478
    )
    
    
    (140
    )
    
    
    79,741Plant opening, closing charges
    
    
    9,477
    
    
    
    
    
    
    
    
    
    
    
    9,477Non-cash stock compensation expense
    
    
    3,308
    
    
    
    
    
    
    
    
    
    
    
    3,308Transaction related expenditures, including
cost of products sold
    
    
    3,107
    
    
    
    4,344
    
    
    
    
    
    
    
    7,451Management fees
    
    
    (49
    )
    
    
    1,331
    
    
    
    
    
    
    
    1,282Management severance
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    190Non-recurring litigation and insurance
    
    
    (650
    )
    
    
    
    
    
    
    
    
    
    
    (650
    )Other expenses
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    53Adjusted EBITDA
    
    $
    97,795
    
    
    $
    3,197
    
    
    $
    (140
    )
    
    $
    100,852
 H. People Realignment Plan
  24




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I. Plant Closing and Opening Charges
    25




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J. Contingencies
  K. Accounting Pronouncements
 Share-Based Payment. Accounting for Stock Issued to Employees
 26




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Recent Events
 Polyurethane Foam Supply Issues and 2005 Product Line Price Increases
   People Realignment Plan
  27




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Restructuring of our Corporate Management Team
     Labor Unions
  28




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Results of Operations
  Quarters Ended
    
    
    Nine Months EndedSeptember 24,
    
    
    September 25,
    
    
    September 24,
    
    
    September 25,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of products sold
    
    
    56.8
    %
    
    
    53.3
    %
    
    
    56.3
    %
    
    
    53.8
    %Gross margin
    
    
    43.2
    %
    
    
    46.7
    %
    
    
    43.7
    %
    
    
    46.2
    %Operating expenses:Selling, general and
administrative expenses
    
    
    32.6
    %
    
    
    36.5
    %
    
    
    35.3
    %
    
    
    37.1
    %Plant closure charges
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.1
    %Amortization of intangibles
    
    
    0.6
    %
    
    
    0.5
    %
    
    
    0.7
    %
    
    
    0.5
    %Transaction expenses
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Licensing fees
    
    
    -1.1
    %
    
    
    -1.0
    %
    
    
    -1.2
    %
    
    
    -1.1
    %32.1
    %
    
    
    36.0
    %
    
    
    34.8
    %
    
    
    36.6
    %Operating income
    
    
    11.1
    %
    
    
    10.7
    %
    
    
    8.9
    %
    
    
    9.6
    %Interest expense, net
    
    
    6.0
    %
    
    
    4.5
    %
    
    
    6.1
    %
    
    
    4.9
    %Income before income taxes
    
    
    5.1
    %
    
    
    6.2
    %
    
    
    2.8
    %
    
    
    4.7
    %Income tax expense
    
    
    1.7
    %
    
    
    2.2
    %
    
    
    1.0
    %
    
    
    1.7
    %Net income
    
    
    3.4
    %
    
    
    4.0
    %
    
    
    1.8
    %
    
    
    3.0
    %
 Quarter Ended September 24, 2005 as Compared to Quarter Ended September 25, 2004
 Net sales.
 $ increase
    
    
    % increase2005
    
    
    2004
    
    
    (decrease)
    
    
    (decrease)(in millions)Wholesale bedding segment
    
    $
    210.3
    
    
    $
    222.1
    
    
    $
    (11.8
    )
    
    
    -5.3
    %Retail bedding segment
    
    
    21.6
    
    
    
    19.0
    
    
    
    2.6
    
    
    
    13.9
    %Eliminations
    
    
    (5.1
    )
    
    
    (2.9
    )
    
    
    (2.2
    )
    
    
    74.8
    %Consolidated net sales
    
    $
    226.8
    
    
    $
    238.2
    
    
    $
    (11.4
    )
    
    
    -4.8
    %
  29




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30




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Gross Margin.
 Margin %Gross Profit
    
    
    Gross Margin
    
    
    Point2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    Change(in millions)Wholesale bedding segment
    
    $
    86.1
    
    
    $
    101.2
    
    
    
    41.0
    %
    
    
    45.6
    %
    
    
    -4.6
    %Retail bedding segment
    
    
    11.9
    
    
    
    9.9
    
    
    
    55.0
    %
    
    
    51.9
    %
    
    
    3.1
    %Eliminations
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    2.4
    %
    
    
    -4.2
    %
    
    
    6.6
    %Consolidated
    
    $
    97.9
    
    
    $
    111.2
    
    
    
    43.2
    %
    
    
    46.7
    %
    
    
    -3.5
    %
   31




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Selling, general and administrative expenses (SG&A).
 Margin %SG&A
    
    
    As a % of Segment Net Sales
    
    
    Point2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    Change(in millions)Wholesale bedding segment
    
    $
    64.2
    
    
    $
    78.4
    
    
    
    30.5
    %
    
    
    35.3
    %
    
    
    -4.8
    %Retail bedding segment
    
    
    9.8
    
    
    
    8.4
    
    
    
    45.3
    %
    
    
    44.9
    %
    
    
    0.4
    %Consolidated
    
    $
    74.0
    
    
    $
    86.8
    
    
    
    32.6
    %
    
    
    36.5
    %
    
    
    -3.9
    %
   32




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Amortization of Intangibles
 Transaction Expenses.
 Licensing Fees
 Interest Expense Net
 Income Taxes.
 33




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Nine Months Ended September 24, 2005 as Compared to Nine Months Ended
September 25, 2004
 Net sales.
 $ increase
    
    
    % increase2005
    
    
    2004
    
    
    (decrease)
    
    
    (decrease)(in millions)Wholesale bedding segment
    
    $
    592.6
    
    
    $
    617.0
    
    
    $
    (24.4
    )
    
    
    -4.0
    %Retail bedding segment
    
    
    59.5
    
    
    
    63.3
    
    
    $
    (3.8
    )
    
    
    -6.0
    %Eliminations
    
    
    (11.6
    )
    
    
    (17.0
    )
    
    $
    5.4
    
    
    
    -31.3
    %Consolidated net sales
    
    $
    640.5
    
    
    $
    663.3
    
    
    $
    (22.8
    )
    
    
    -3.4
    %
  34




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Gross Margin.
 Margin %Gross Profit
    
    
    Gross Margin
    
    
    Point2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    Change(in millions)Wholesale bedding segment
    
    $
    247.9
    
    
    $
    278.0
    
    
    
    41.8
    %
    
    
    45.1
    %
    
    
    -3.2
    %Retail bedding segment
    
    
    32.1
    
    
    
    28.3
    
    
    
    54.0
    %
    
    
    44.7
    %
    
    
    9.3
    %Eliminations
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    -1.1
    %
    
    
    0.8
    %
    
    
    -1.9
    %Consolidated
    
    $
    280.1
    
    
    $
    306.2
    
    
    
    43.7
    %
    
    
    46.2
    %
    
    
    -2.5
    %
 35




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36




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Selling, general and administrative expenses (SG&A).
 Margin %SG&A
    
    
    As a % of Segment Net Sales
    
    
    Point2005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    Change(in millions)Wholesale bedding segment
    
    $
    199.0
    
    
    $
    214.9
    
    
    
    33.6
    %
    
    
    34.8
    %
    
    
    -1.2
    %Retail bedding segment
    
    
    27.1
    
    
    
    31.2
    
    
    
    45.6
    %
    
    
    49.4
    %
    
    
    -3.8
    %Consolidated
    
    $
    226.1
    
    
    $
    246.1
    
    
    
    35.3
    %
    
    
    37.1
    %
    
    
    -1.8
    %
  37




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Plant Closure Charges.
 Amortization of Intangibles
 Transaction Expenses.
 Licensing Fees
 Interest Expense Net
 Income Taxes.
 38




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##### Table of Contents



Liquidity and Capital Resources
   Nine Months EndedSeptember 24,
    
    
    September 25,2005
    
    
    2004Statement of Cash Flow Data:Cash flows provided by (used in):Operating activities
    
    $
    32.3
    
    
    $
    59.6Investing activities
    
    
    (7.0
    )
    
    
    (26.3
    )Financing activities
    
    
    (12.3
    )
    
    
    (20.0
    )Increase in cash and cash equivalents
    
    
    13.0
    
    
    
    13.3Cash and cash equivalents:Beginning of period
    
    
    23.9
    
    
    
    3.7End of period
    
    $
    36.9
    
    
    $
    17.0
 Nine Months Ended September 24, 2005 as Compared to Nine Months Ended
September 25, 2004
 Cash flows provided by Operating Activities
 Cash flows used in Investing Activities.
 39




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##### Table of Contents



Cash flows used in Financing Activities.
 Debt
      (i)
    
    Consolidated EBITDA (as defined) shall be increased solely for the purpose of
measuring the relevant covenants by an amount equal to the cash received;(ii)
    
    If, after giving effect to the foregoing recalculations, the Company shall be in
compliance with the requirements of all relevant covenants, the Company shall be deemed to
have satisfied the requirements of such covenants as of the relevant date of determination
with the same effect as though there had been no failure to comply therewith at such date,
and the applicable breach or default of the financial performance covenants which had
occurred shall be deemed cured; and(iii)
    
    To the extent that the cash received are used to repay indebtedness, such
indebtedness shall not be deemed to have been repaid for purposes of calculating the
leverage ratio for the relevant period.
 40




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##### Table of Contents




    
    a minimum interest coverage ratio, with compliance levels ranging from an interest
coverage of no less than 2.30:1.00 from September 25, 2005 through December 31, 2005;
2.40:1.00 from March 31, 2006 through December 31, 2006; 2.55:1.00 from March
31, 2007 through December 31, 2007; 2.75:1.00 from March 31, 2008 through December 31,
2008; and 3.00:1.00 from March 31, 2009 through each fiscal quarter ending thereafter.
    
    A maximum leverage ratio, with compliance levels ranging from total leverage of no
greater than 6.50:1.00 from September 25, 2005 through December 31, 2005; 6.00:1.00 from
March 31, 2006 through June 30, 2006; 5.75:1.00 from September 30, 2006 through December
31, 2006; 5.00:1.00 from March 31, 2007 through December 31, 2007; 4.50:1.00 from March 31,
2008 through December 31, 2008; and 4.00:1.00 from March 31, 2009 through each fiscal
quarter ending thereafter.
    
    a maximum capital expenditure limitation of $30.0 million per fiscal year, with the
ability to roll forward to future years unused amounts from the previous fiscal year, and
also subject to adjustments for certain acquisitions and other events.
   41




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September 24,2005Calculation of minimum cash interest coverage ratio:Twelve months ended Adjusted EBITDA(1)
    
    $
    112,305Consolidated cash interest expense(2)
    
    $
    47,553Actual interest coverage ratio(3)
    
    
    2.36Minimum permitted interest coverage ratio
    
    
    2.30Calculation of maximum leverage ratio:Consolidated indebtedness
    
    $
    740,249Less: Cash and cash equivalents(4)
    
    
    30,000Net debt
    
    $
    710,249Adjusted EBITDA(1)
    
    $
    112,305Actual leverage ratio(5)
    
    
    6.32Maximum permitted leverage ratio
    
    
    6.50
 
 (1)
    
    Adjusted EBITDA for the twelve months ended September 24, 2005 adds back to net income
the following items: income taxes, interest expense, depreciation and amortization,
transaction related expenditures, plant opening and closing charges, certain litigation and
insurance charges relating to previous periods, management fees, reorganization costs 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
twelve months ended September 24, 2005, as follows (in millions): Interest expense, net
    
    $
    49,977Interest income
    
    
    130Gross interest expense
    
    
    50,107Less: Non-cash interest expense
    
    
    (2,554
    )$
    47,553
 
 (3)
    
    Represents ratio of Adjusted EBITDA to consolidated cash interest expense.(4)
    
    Our senior credit facility permits a maximum of $30.0 million of cash to be netted
against our debt for purposes of this covenant computation. Actual
cash as of September 24, 2005 totaled $36.9 million.(5)
    
    Represents ratio of consolidated indebtedness less cash and cash equivalents to
Adjusted EBITDA. 42




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##### Table of Contents



Off-Balance Sheet Arrangements
  Seasonality/Other
  Accounting Pronouncements
 Share-Based Payment. Accounting for Stock Issued to
Employees
 Forward Looking Statements
 Safe Harbor statement under the Private Securities Litigation Reform Act of 1995
 43




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##### Table of Contents




    
    competitive and pricing pressures in the bedding industry;
    
    legal and regulatory requirements;
    
    the success of new products, including HealthSmartTM, our new
Beautyrest ® premium priced products, our new Deep Sleep ® products, and
the Beautyrest ® Caresse ® products;
    
    our relationships with our major suppliers;
    
    fluctuations in costs of raw materials;
    
    the significance and duration of any disruption to our business resulting from a
shortage of polyurethane foam;
    
    our relationship with significant customers and licensees;
    
    our ability to increase prices on our products and the effect
of these price increases on our unit sales;
    
    our labor relations;
    
    departure of key personnel;
    
    encroachments on our intellectual property;
    
    product liability claims;
    
    our level of indebtedness;
    
    interest rate risks;
    
    compliance with covenants in our debt agreements;
    
    future acquisitions;
    
    an increase in return rates and warranty claims;
 44




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##### Table of Contents




    
    our ability to achieve the expected benefits from the corporate realignment; and
    
    other risks and factors identified from time to time in the Companys reports filed with
the Securities and Exchange Commission (SEC).
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Market Risk
  Interest Rate Risk
   45




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##### Table of Contents



Commodity Price Risks
   
 Item 4. Internal Controls and Procedures
  46




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##### Table of Contents



PART II   OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 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)
 47




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##### Table of Contents



SIMMONS BEDDING COMPANYBy:
    
    /s/William S. CreekmuirWilliam S. CreekmuirExecutive Vice President & Chief Financial OfficerDate:
    
    November 3, 2005
 48