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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 29, 2003
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 COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1007444
- -------------------------------- ------------------------------------
(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 13, 2003 was 31,964,452.
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Simmons Company and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands)
(Unaudited)
Quarter Ended
-------------------------
March 29, March 30,
2003 2002
---------- ----------
(Restated)*
Net sales $ 186,615 $ 186,807
Cost of products sold 98,233 96,742
---------- ----------
Gross profit 88,382 90,065
---------- ----------
Operating expenses:
Selling, general and administrative expenses 65,924 69,283
Non-cash variable stock compensation expense 830 3,127
Amortization of intangibles 72 752
Other 772 -
---------- ----------
67,598 73,162
---------- ----------
Operating income 20,684 16,903
Interest expense, net 6,291 7,259
Other expense, net 876 294
---------- ----------
Income before income taxes 13,117 9,350
Income tax expense 5,309 3,636
---------- ----------
Net income 8,308 5,714
Other comprehensive income:
Foreign currency translation adjustment 91 15
---------- ----------
Comprehensive income $ 8,399 $ 5,729
========== ==========
* Restatement for the acquisition of an entity under common control.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
Simmons Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
March 29, December 28,
2003 2002*
------------ ------------
(Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 1,773 $ 7,108
Accounts receivable, less allowances for
doubtful receivables, discounts, returns and
allowances of $5,925 and $5,245 72,256 67,192
Inventories 23,431 21,049
Deferred income taxes 3,342 3,342
Other current assets 24,044 20,781
Assets held for sale 37,677 36,540
------------ ------------
Total current assets 162,523 156,012
------------ ------------
Property, plant and equipment, net 34,550 37,673
Goodwill, net 165,519 165,519
Intangible assets, net 6,819 6,711
Deferred income taxes 21,372 24,505
Other assets 16,464 16,677
------------ ------------
$ 407,247 $ 407,097
============ ============
*Derived from the Company's 2002 audited Consolidated Financial Statements and
restatement for the acquisition of an entity under common control (Note 2).
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
Simmons Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
March 29, December 28,
2003 2002*
------------ ------------
(Restated)
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current maturities of long-term debt $ 464 $ 19,039
Accounts payable 34,517 38,711
Accrued wages and benefits 13,129 18,051
Accrued advertising and incentives 17,519 18,310
Accrued interest 1,631 5,084
Other accrued expenses 10,928 12,046
Liabilities held for sale 14,020 12,828
------------ ------------
Total current liabilities 92,208 124,069
------------ ------------
Non-current liabilities:
Long-term debt 268,012 249,401
Accrued stock compensation 27,607 26,778
Other 12,966 14,660
------------ ------------
Total liabilities 400,793 414,908
------------ ------------
Commitments and contingencies
Redemption obligation-ESOP 60,802 61,218
Common stockholder's deficit:
Common stock, $.01 par value; 50,000 shares
authorized; 31,964 issued and outstanding 320 320
Additional paid-in capital 6,282 -
Accumulated deficit (60,897) (69,205)
Accumulated other comprehensive loss (53) (144)
------------ ------------
Total common stockholder's deficit (54,348) (69,029)
------------ ------------
$ 407,247 $ 407,097
============ ============
*Derived from the Company's 2002 audited Consolidated Financial Statements and
restatement for the acquisition of an entity under common control (Note 2).
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
Simmons Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Quarter Ended
-----------------------------
March 29, March 30,
2003 2002
------------ ------------
(Restated)
Cash flows from operating activities:
Net income $ 8,308 $ 5,714
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,740 5,146
Provision for bad debts 918 1,215
Provision for deferred income taxes 3,134 3,779
Non-cash interest expense 584 705
Non-cash variable stock option compensation expense 830 3,127
Other, net (250) -
Net changes in operating assets and liabilities:
Accounts receivable (6,759) (12,291)
Inventories (2,934) 2,592
Other current assets (4,785) (3,903)
Accounts payable (6,504) 2,785
Accrued liabilities (8,556) 1,805
Other, net 74 3,042
------------ ------------
Net cash provided by (used in) operating activities (10,200) 13,716
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (442) (605)
Proceeds from disposals of property, plant and
equipment, net 14 210
Acquisition and development of intellectual property (125) (3,014)
------------ ------------
Net cash used in investing activities (553) (3,409)
------------ ------------
Cash flows from financing activities:
Repurchase of SC Holdings, Inc. minority interest (25) -
Distributions to Simmons Holdings (2,025) (2,250)
Repayment of SC Holdings, Inc. debt to stockholder (628) -
Payments of SC Holdings, Inc. bank debt (18,000) (1,250)
Proceeds from (payments of) Senior Credit Facility, net 26,200 (7,850)
Payments of other long-term debt (195) (166)
------------ ------------
Net cash provided by (used in) financing activities 5,327 (11,516)
------------ ------------
Net effect of exchange rate changes on cash 91 15
------------ ------------
Change in cash and cash equivalents (5,335) (1,194)
Cash and cash equivalents, beginning of period 7,108 3,264
------------ ------------
Cash and cash equivalents, end of period $ 1,773 $ 2,070
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
Simmons Company and Subsidiaries
Consolidated Statements of Changes in Stockholder's Deficit
(in thousands, except share amounts)
Accumulated
Additional Other Total
Common Common Paid-In Accumulated Comprehensive Stockholder's
Shares Stock Capital Deficit (Loss) Income Deficit
------------ ------------ ------------ ------------ ------------- -------------
Balance at December 29, 2001 31,964,452 $ 320 $ 16,919 $ (66,467) $ (125) $ (49,353)
Net income - - - 1,570 - 1,570
Other comprehensive loss:
Change in foreign currency
translation - - - - (19) (19)
------------ ------------- -------------
Comprehensive income - - - 1,570 (19) 1,551
Increase in redemption
obligation - ESOP based on
fair market value - - (13,324) (3,815) - (17,139)
Distributions to Holdings - - (3,595) (493) - (4,088)
------------ ------------ ------------ ------------ ------------- -------------
Balance at December 28, 2002 31,964,452 320 - (69,205) (144) (69,029)
Net income - - - 8,308 - 8,308
Other comprehensive income:
Change in foreign currency
translation - - - - 91 91
------------ ------------- -------------
Comprehensive income - - - 8,308 91 8,399
Contribution of stockholder's
debt to SC Holdings, Inc. - - 7,916 - - 7,916
Acquisition of SC Holdings,
Inc. minority interest - - (25) - - (25)
Decrease in redemption
obligation - ESOP based on
fair market value - - 416 - - 416
Distributions to Holdings - - (2,025) - - (2,025)
------------ ------------ ------------ ------------ ------------- -------------
Balance at March 29, 2003
(unaudited) 31,964,452 $ 320 $ 6,282 $ (60,897) $ (53) $ (54,348)
============ ============ ============ ============ ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
6
Simmons Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
For purposes of this report the "Company" refers to Simmons Company and
its subsidiaries, collectively. The Condensed Consolidated Financial Statements
of the Company have been prepared in accordance with generally accepted
accounting principles 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 29, 2003, 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 28, 2002. Operating results for the period
ended March 29, 2003 are not necessarily indicative of future results that may
be expected for the fiscal year ending December 27, 2003.
2. Business Combination
On February 28, 2003, the Company acquired the assets of SC Holdings,
Inc. ("Sleep Country") from an affiliate of Fenway Partners, Inc. ("Fenway") for
approximately $18.4 million, plus additional contingent consideration based upon
future performance. Sleep Country is a leading mattress retailer in the Pacific
Northwest which operates 48 stores under the Sleep Country USA and Mattress
Gallery names. This acquisition was financed from borrowings under the Company's
Senior Credit Facility. Sleep Country used the proceeds received to repay bank
debt of $17.8 million plus $0.1 million of interest and Fenway debt of
$0.6 million.
Because the Company and Sleep Country were controlled by affiliates of
Fenway, at the time of the acquisition the Company is required to account for
the acquisition as a transfer of assets within a group under common control.
Under this accounting methodology, the Company and Sleep Country are treated as
if they had been combined for accounting and financial reporting purposes for
the periods in which both entities were controlled by Fenway (from March 1,
2000). As a result, the Company's consolidated financial statements have been
restated for all periods prior to the business combination to reflect the
combined results of the Company and Sleep Country as of the beginning of the
earliest period presented. In addition to combining the separate historical
results of the Company and Sleep Country, the consolidated financial statements
include all adjustments necessary to conform accounting methods and
presentation, to the extent they were different, and to eliminate significant
intercompany transactions.
In the next 90 days, the Company intends to file under Form 8-K a
revised Annual Report on Form 10-K for the year ended December 28, 2002 to
restate fiscal years 2000, 2001 and 2002 to reflect the combined results of the
Company and Sleep Country.
7
Selected combining financial data for the three months ended March 29,
2003 and March 30, 2002 are as follows:
March 29, 2003
- -----------------------------------------------------------------------------
Simmons
(in thousands) Company Sleep Country Adjustments Combined
------------ ------------- ------------ ------------
Net sales $ 176,295 $ 13,972 $ (3,652) $ 186,615
Net income (loss) 8,430 (119) (3) 8,308
March 30, 2003
- -----------------------------------------------------------------------------
Simmons
(in thousands) Company Sleep Country Adjustments Combined
------------ ------------- ------------ ------------
Net sales $ 177,247 $ 12,197 $ (2,637) $ 186,807
Net income (loss) 5,688 (17) 43 5,714
3. Assets/Liabilities Held For Sale
In April 2003, the Company's management and its Board, continuing its
strategy to focus on the wholesale bedding business, determined that pursuing a
planned sale of the Company's retail operations in one or more transactions in
2003 was in its best interest. However, no assurances can be given that a
proposed transaction or transactions will be completed or will be completed on
terms favorable to the Company.
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 its
retail segment as held for sale in the balance sheet.
8
The components of the assets and liabilities held for sale as of March
29, 2003 are as follows (amounts in thousands):
Assets Held for Sale
Accounts receivable, net 2,099
Inventories 5,248
Other current assets 1,126
Property, plant and equipment, net 5,371
Goodwill, net 22,383
Intangible assets, net 477
Other assets 973
---------
Total assets held for sale $ 37,677
=========
Liabilities Held for Sale
Accounts payable $ 2,834
Other current liabilities 5,054
Other long-term liabilities 6,132
---------
Total liabilities held for sale $ 14,020
=========
In the fourth quarter of 2002, Sleep Country recognized a goodwill
impairment of $20.3 million. The review of the goodwill for impairment was
necessary due to the continued weakness in the retail economy and the failure of
Sleep Country to reach the sales and profit levels included in its original
impairment test as of January 1, 2002.
4. Inventories
A summary of inventories, exclusive of inventories included in assets
held for sale, follows (amounts in thousands):
March 29, December 28,
2003 2002
---------- ------------
Raw materials $ 12,534 $ 11,198
Work in progress 1,194 1,240
Finished goods 9,703 8,611
---------- ------------
$ 23,431 $ 21,049
========== ============
9
5. Warranty
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 the sale is recorded. Accrued
warranties totaled $3.6 million and $3.4 million, respectively, as of March 29,
2003 and December 28, 2002. The following table presents a reconciliation of the
Company's warranty liability at March 29, 2003 (amounts in thousands):
Dollar Amount of
Liability
----------------
Balance at December 28, 2002 $ 3,434
2003 warranty provisions 1,048
2003 warranty settlements (865)
---------
Balance at March 29, 2003 $ 3,617
=========
6. Long-Term Debt
A summary of long-term debt follows (amounts in thousands):
March 29, December 28,
2003 2002
------------ ------------
Senior Credit Facility:
Revolving Loan Facility $ 26,200 $ -
Tranche A Term Loan 14,500 14,500
Tranche B Term Loan 42,505 42,505
Tranche C Term Loan 19,006 19,006
------------ ------------
Total Senior Credit Facility 102,211 76,011
SC Holdings, Inc. Bank Debt - 18,000
Industrial Revenue Bonds, 7.00%, due 2017 9,700 9,700
Industrial Revenue Bonds, 3.27%, due 2016 4,200 4,200
Banco Santander Loan, 3.77% 2,276 2,329
10.25% Series Subordinated Notes due 2009 150,000 150,000
SC Holdings, Inc. Stockholder Debt - 8,065
Other, including capital lease obligations 89 135
------------ ------------
268,476 268,440
Less current portion (464) (19,039)
------------ ------------
$ 268,012 $ 249,401
============ ============
The 10.25% Series B Senior Subordinated Notes ("New Notes") bear
interest at the rate of 10.25% per annum and are payable semi-annually in
arrears in cash on March 15 and September 15. The New Notes are subordinated in
right of payment to all existing and future senior indebtedness of the Company.
10
The New Notes are redeemable at the option of the Company on or after
March 15, 2004 at prices decreasing from 105.125% of the principal amount
thereof to par on March 15, 2007 and thereafter. The Company is required to
redeem the outstanding notes based upon certain events as described in the
indenture for 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 an unsecured,
senior subordinated basis by all of our active domestic subsidiaries. Exclusive
of the allocation of the debt and related interest of the Company, the total net
sales, total assets, cash used in operations, income before income taxes, and
stockholder's equity of the three active non-guarantor international
subsidiaries combined was $2.1 million, $7.7 million, $(1.1) million,
$0.0 million, and $6.6 million, respectively, as of and for the quarter ended
March 29, 2003.
The Senior Credit Facility, as amended, provided for loans of up to
$136.0 million, consisting of a Term Loan Facility of $76.0 million and a
Revolving Loan Facility of $60.0 million. Our indebtedness under the Senior
Credit Facility bears interest at a floating rate, is guaranteed by Simmons
Holdings, Inc., the Company's parent company ("Simmons Holdings"), and all of
the Company's active domestic subsidiaries, and is collateralized by
substantially all of the Company's assets.
Borrowings under the Senior Credit Facility bear interest at our choice
of LIBOR or Prime plus the following applicable interest rate margins as
follows:
LIBOR Prime
----- -----
Revolving Loan Facility 2.00% 1.00%
Tranche A Term Loan 2.00% 1.00%
Tranche B Term Loan 3.25% 2.25%
Tranche C Term Loan 3.50% 2.50%
The weighted average interest rates per annum in effect as of March 29,
2003 for the Revolving Loan Facility, Tranche A term, Tranche B term and Tranche
C term loans were 3.84%, 3.42%, 4.69% and 5.00%, respectively.
The Company is exposed to market risk from changes in interest rates.
In order to address this risk, the Company has developed and implemented a
policy to utilize six-month LIBOR contracts to minimize the impact of near term
LIBOR base rate increases. On November 27, 2002 the Company elected to set its
interest rate at the six-month LIBOR rate for approximately $40.0 million of the
Term Loan Facility, which fixed the LIBOR base rate at 1.50% through May 22,
2003 for approximately 37% of floating rate debt outstanding as of March 29,
2003.
11
As of March 29, 2003, the Company had availability to borrow $28.4
million under the Revolving Credit Facility after giving effect to $26.2 million
in borrowings and $5.4 million reserved for the Company's reimbursement
obligations with respect to outstanding letters of credit. The remaining
availability under the Revolving Credit 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 Credit Facility to fund distributions to
Simmons Holdings, acquisitions and capital expenditures.
The Senior Credit Facility requires the Company to maintain certain
financial ratios including fixed-charge, cash interest coverage and leverage
ratios. The Senior Credit Facility also contains covenants which, among other
things, limit capital expenditures, the incurrence of additional indebtedness,
investments, dividends, transactions with affiliates, asset sales, mergers and
consolidations, prepayments of other indebtedness, liens and encumbrances and
other matters customarily restricted in such agreements. As of March 29, 2003,
the Company was in compliance with all of its financial covenants.
The Revolving Credit Facility expires on October 29, 2004. The Company
expects that it will have the ability to renew the existing facility or have the
ability to find new financing with comparable terms prior to expiration. If the
Company is unable to renew its existing arrangement or obtain new financing,
this could have an adverse affect on the Company's ability to fund operations.
7. Segment Information
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, established standards for reporting information about operating
segments in financial statements. Operating segments are defined as components
of an enterprise engaging in business activities about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker or group in deciding how to allocate resources and in assessing
performance. The Company operates in two business segments, (1) wholesale
bedding and (2) retail bedding. The wholesale bedding segment consists of the
manufacture, sale and distribution of premium branded bedding products, as well
as the licensing of intellectual property to other manufacturers. The retail
bedding segment operates specialty sleep stores in California, Washington and
Oregon, that sell to consumers principally premium branded bedding products.
The Company intends to sell its retail bedding segment in 2003 and has
classified the assets and liabilities for this segment as held for sale in the
accompanying balance sheets (see footnote 3 for further explanation).
12
The Company evaluates performance and allocates resources based on net
sales, operating income and earnings before income taxes, depreciation and
amortization. The accounting policies of the reportable segments are the same as
those described in the summary of significant accounting policies as reported in
the Company's Annual Report on Form 10-K for the year ended December 28, 2002.
Wholesale bedding sales to the retail bedding segment are recorded at market
value, but are eliminated upon consolidation. The following table summarizes
segment information:
March 29, 2003
- ---------------------------------------------------------------------------------------------------------
Wholesale
(in thousands) Bedding Retail Eliminations Totals
- ---------------------------------------------------------------------------------------------------------
Net sales $ 172,143 $ 22,261 $ (7,789) $ 186,615
Operating income (loss) 20,754 219 (189) 20,784
Income (loss) before income taxes 14,918 (1,112) (189) 13,617
Depreciation and amortization expense 5,305 435 - 5,740
Segment assets 412,973 40,441 (46,167) 407,247
Expenditures for long-lived assets 307 135 - 442
March 30, 2002
- ---------------------------------------------------------------------------------------------------------
Wholesale
(in thousands) Bedding Retail Eliminations Totals
- ---------------------------------------------------------------------------------------------------------
Net sales $ 172,991 $ 17,105 $ (3,289) $ 186,807
Operating income (loss) 17,524 (416) (205) 16,903
Income (loss) before income taxes 10,465 (870) (245) 9,350
Depreciation and amortization expense 4,802 344 - 5,146
Segment assets 399,433 56,997 (24,084) 432,346
Expenditures for long-lived assets 282 323 - 605
In the "Eliminations" column of each period presented above, the
segment assets consists primarily of investments in subsidiaries, receivables
and payables, and gross wholesale bedding profit in ending retail inventory. The
segment operating loss elimination consists of the removal of the wholesale
bedding profit in ending retail inventory.
8. Contingencies
On or about December 11, 2001, FDL, Inc. ("FDL") filed a complaint,
which has been amended twice since the original filing, against the Company in
the United States District Court for the Southern District of Indiana. FDL
alleges that the Company licensed trademark rights to FDL that the Company
licensed to another licensee under a separate agreement, and based on that
allegation, purports to assert claims for fraud, breach of contract, false
representation, and for declarations that the license agreement between FDL and
the Company is terminated and/or rescinded and that FDL is entitled to use the
trademarks at issue in connection with certain products. The Company denied the
material allegations of the amended complaint and asserted counterclaims against
FDL, alleging that FDL has breached its contract with the Company by failing to
pay overdue royalties under the license agreement, refusing to permit the
Company to conduct audits and inspections of FDL's books and records, and
selling products bearing the
13
Company's trademarks outside the geographic territory permitted in the license
agreement between FDL and the Company. FDL also has asserted claims against
United Sleep Products Denver, Inc. ("United Sleep"), a licensee of the Company,
alleging that United Sleep tortiously interfered with FDL's business
relationship with the Company; infringed and diluted the Company's trademarks;
engaged in unfair competition; and violated the provisions of the Lanham Act.
The Company has entered into an agreement with United Sleep, under which the
Company has assumed the defense of United Sleep in the action and agreed to
indemnify it with respect to the claims FDL presently has asserted against it.
The case presently is set for trial on November 3, 2003. The Company intends to
vigorously defend this lawsuit.
From time to time, we have been involved in various legal proceedings.
We believe that all current litigation is routine in nature and incidental to
the conduct of our business, and that none of this litigation, if determined
adversely to us, would have a material adverse effect on our financial condition
or results of our operations.
At March 29, 2003, Simmons Holdings had $21.0 million of outstanding
Junior Subordinated PIK Notes payable to an affiliate of Fenway, which bear
interest at 17.5% per annum and are due on October 29, 2011. Simmons Holdings is
unable to repay the debt without receiving dividends from the Company. The
Company's indenture for the New Notes and Senior Credit Facility restrict the
payment of dividends by the Company to Simmons Holdings.
9. Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, Accounting for Exit or
Disposal Activities ("SFAS 146"). SFAS 146 addresses the recognition,
measurement, and reporting of costs that are associated with exit and disposal
activities, including costs related to terminating a contract that is not a
capital lease and termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit arrangement that is not
an ongoing benefit arrangement or an individual deferred-compensation contract.
SFAS 146 supersedes EITF Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring), and requires liabilities associated
with exit and disposal activities to be expensed as incurred. SFAS 146 is
effective for exit or disposal activities of the Company that are initiated
after December 31, 2002. The adoption of SFAS 146 did not have a material impact
on the Company's financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others ("FIN 45"), an interpretation of
SFAS Nos. 5, 57, and 107 and rescission of FASB Interpretation No. 34. FIN 45
clarifies the requirements of SFAS No. 5, Accounting for Contingencies ("SFAS
5"), relating to the guarantor's accounting for, and disclosure of, the issuance
of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the entity (i.e., the guarantor) must recognize a liability for the
fair value of the obligation it assumes under that guarantee. The FASB believes
that, in current practice, many entities might not be recognizing that
liability, believing that US GAAP does not require recognition, particularly
14
when the entity does not receive separately identifiable consideration (i.e., a
premium) for issuing the guarantee. Many guarantees are embedded in purchase or
sales agreements, service contracts, joint venture agreements, or other
commercial agreements and the guarantor in many such arrangements does not
receive a separately identifiable upfront payment for issuing the guarantee. FIN
45 is intended to improve the comparability of financial reporting by requiring
identical accounting for guarantees issued with a separately identified premium
and guarantees issued without a separately identified premium. FIN 45's
provisions for initial recognition and measurement should be applied on a
prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year end. The guarantor's previous
accounting for guarantees that were issued before December 31, 2002 cannot be
revised or restated to reflect the effect of the recognition and measurement
provisions of FIN 45. The adoption of FIN 45 did not have a material impact on
the Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Stock-Based
Compensation - Transition and Disclosure ("SFAS 148"), an amendment to SFAS No.
123, Accounting for Stock-Based Compensation ("SFAS 123"). The transition
guidance and annual disclosure provisions are effective for the Company's 2002
financial statements and the interim disclosure provisions were effective for
interim periods beginning with the Company's first quarter 2003. This statement
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
more prominent disclosures in both annual and interim financial statements
regarding the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company records estimated
compensation expense over the service period based upon the intrinsic value of
the options as they are earned by the employees and records additional
adjustments to non-cash variable stock compensation expense for changes in the
intrinsic value of vested options in a manner similar to a stock appreciation
right. Therefore, adoption of this pronouncement did not have a material impact
on the consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities ("FIN 46"), principally to provide
guidance on the identification of entities for which control is achieved through
means other than through voting rights ("variable interest entities" or "VIEs")
and how to determine when and which business enterprise should consolidate the
VIE (the "primary beneficiary"). This new model for consolidation applies to an
entity which either (1) the equity investors (if any) do not have a controlling
financial interest or (2) the equity investment at risk is insufficient to
finance that entity's activities without receiving additional subordinated
financial support from other parties. In addition, FIN 46 requires that both the
primary beneficiary and all other enterprises with a significant variable
interest in a VIE make additional disclosures. FIN 46 is effective for the
Company's first quarter 2003 with transitional disclosure required with these
financial statements. The adoption of FIN 46 did not have a material impact on
the Company's financial position or results of operations.
15
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 2002 Annual Report on Form 10-K, and the unaudited interim
financial statements included elsewhere in this report.
BUSINESS COMBINATION
On February 28, 2003, we acquired the assets of SC Holdings, Inc. ("Sleep
Country") from an affiliate of Fenway Partners, Inc. ("Fenway") for
approximately $18.4 million, plus additional contingent consideration based upon
future performance. Sleep Country is a leading mattress retailer in the Pacific
Northwest which operates 48 stores under the Sleep Country USA and Mattress
Gallery names. This acquisition was financed from borrowings under our Senior
Credit Facility. Sleep Country used the proceeds received to repay bank debt of
$17.8 million and Fenway debt of $0.6 million.
Because Sleep Country and we were controlled by affiliates of Fenway at the time
of the acquisition, we are required to account for the acquisition as a transfer
of assets within a group under common control. Under this accounting
methodology, Sleep Country and the Company are treated as if they had always
been combined for accounting and financial reporting purposes for the period in
which both entities were controlled by affiliates of Fenway (from March 1,
2000). As a result, our consolidated financial statements have been restated for
all periods prior to the business combination to reflect the combined results of
Sleep Country and us as of the beginning of the earliest periods presented. In
addition to combining the separate historical results of Sleep Country and us,
the consolidated financial statements include all adjustments necessary to
conform accounting methods and presentation, to the extent they were different,
and to eliminate significant intercompany transactions.
In the next 90 days, we intend to file under Form 8-K a revised Annual Report on
Form 10-K for the year ended December 28, 2002 to restate fiscal years 2000,
2001 and 2002 to reflect the combined results of the Company and Sleep Country.
16
RESULTS OF OPERATIONS
The following table sets forth certain items included in the Condensed
Consolidated Statements of Operations expressed as a percentage of net sales:
Quarter Ended
------------------------
March 29, March 30,
2003 2002
--------- ---------
Net sales 100.0% 100.0%
Cost of products sold 52.6% 51.8%
----- -----
Gross margin 47.4% 48.2%
Selling, general and administrative expenses 35.3% 37.1%
Non-cash variable stock compensation expense 0.4% 1.7%
Amortization of intangibles 0.1% 0.3%
Other operating expenses 0.4% -%
----- -----
Operating income 11.2% 9.1%
Interest expense, net 3.4% 3.9%
Other expense, net 0.5% 0.2%
----- -----
Income before income taxes 7.3% 5.0%
Income tax expense 2.8% 1.9%
----- -----
Net income 4.5% 3.1%
===== =====
QUARTER ENDED MARCH 29, 2003 AS COMPARED TO QUARTER ENDED MARCH 30, 2002
Net Sales. Net sales for the quarter ended March 29, 2003 decreased $0.2
million, or 0.1%, to $186.6 million from $186.8 million for the first quarter of
2002. This decrease was due to a decline in wholesale bedding segment sales of
$0.9 million, or 0.5%, to $172.1 million from $173.0 million for the first
quarter of 2002. The wholesale bedding sales decrease was due to an increase in
the first quarter of 2003 of $5.2 million in the aggregate of co-op advertising
expenditures, promotional monies, volume rebates, upfront fee amortization and
warranty payments classified as a reduction of sales versus a selling, general
and administrative expense or cost of products sold, compared to the first
quarter of 2002. Increases in the first quarter in our wholesale bedding unit
shipments and wholesale bedding average unit selling price of 0.1% and 2.8%,
respectively, partially offset the above mentioned sales reduction. In
comparison, the International Sleep Products Association ("ISPA") reported for
its leading U.S. Manufacturer reporting sample that in the first quarter 2003
industry unit shipments were down 3.4% and the wholesale dollar sales were up
1.1%. Our wholesale bedding sales continue to benefit from a shift in sales mix
toward higher priced products and the addition of new customers over the prior
year.
Our retail segment sales for the quarter ended March 29, 2003 increased $5.2
million, or 30.1%, to $22.3 million from $17.1 million for the first quarter of
2002, due principally to the addition
17
of 26 retail stores in Southern California in December 2002. On a comparable
store basis, sales for our retail stores increased 8.8% in the first quarter of
2003 versus the comparable period of 2002.
Cost of Products Sold. Cost of products sold, as a percentage of net sales, for
the quarter ended March 29, 2003 increased 0.8 percentage points to 52.6% from
51.8% in the first quarter 2002. Our first quarter gross margin decreased due to
(i) the above mentioned increase in selling expenses classified as a reduction
of sales; (ii) an increase in certain raw material costs resulting from supplier
price increases; and (iii) a shift in sales toward customers that purchase our
mattresses at lower gross margins, but also with less advertising and selling
support. Exclusive of the above mentioned reclassified selling expenses, our
first quarter gross margin, as a percentage of net sales, increased 50 basis
points due principally to an increase in our retail operation gross margin.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percentage of net sales, for the quarter ended
March 29, 2003 decreased 1.8 percentage points to 35.3% from 37.1% in the first
quarter of 2002. The decrease as a percentage of net sales from the first
quarter of 2002 was principally attributable to (i) the above mentioned $5.2
million increase in co-op advertising expenditures in the first quarter of 2003
classified as a reduction of sales versus a selling, general and administrative
expense; (ii) an overall reduction in co-op advertising and selling support
expenditures, as a percentage of net sales, provided to our customers; and (iii)
a 4.1 percentage point reduction in our retail bedding segment selling, general
and administrative expenses as a percentage of retail bedding segment net sales
due principally to greater leverage in fixed selling expenses resulting from the
addition of 26 retail stores in Southern California in December 2002.
Non-Cash Variable Stock Compensation Expense. Non-cash variable stock
compensation expense decreased $2.3 million to $0.8 million for the quarter
ended March 29, 2003 from $3.1 million in the first quarter 2002. The decrease
was attributable to a 0.2% decrease in the underlying value of Simmons Holdings'
common stock in the first quarter of 2003, partially offset by an increase in
the number of vested stock options outstanding at March 29, 2003 versus March
30, 2002.
Amortization of Goodwill and Intangibles. Amortization of goodwill and
intangibles decreased $0.7 million to $0.1 million for the quarter ended March
29, 2003 from $0.8 million in the first quarter of 2002 due to the expiration of
the amortization period for certain patents.
Other Operating Expenses. Other operating expenses for the first quarter 2003
consisted of $0.8 million in costs incurred in connection with the Sleep Country
acquisition.
Interest Expense, Net. Interest expense, net, decreased $1.0 million, or 13.3%,
to approximately $6.3 million for the quarter ended March 29, 2003, from $7.3
million in the first quarter of 2002 due to (i) decreased average outstanding
borrowings; (ii) lower Prime and LIBOR base rates on our Senior Credit Facility
borrowings; and (iii) lower interest rate margins on our Senior Credit Facility
obligations.
Other Expense, Net. Other expense, net, increased $0.6 million to $0.9 million
for the quarter ended March 29, 2003 compared to $0.3 million in the first
quarter of 2002. This increase is
18
attributable to (i) a write-down of an equity investment and (ii) an increase in
management advisory fees paid to Fenway Partners.
Income Taxes. Our effective income tax rates of 39.0% and 38.9% for the quarters
ended March 29, 2003 and March 30, 2002 differ from the federal statutory rate
primarily because of state income taxes.
Net Income. For the reasons set forth above, our net income increased $2.6
million, or 45.4%, to $8.3 million for the quarter ended March 29, 2003 compared
to $5.7 million in 2002.
EBITDA-Non-GAAP Financial Measure. For the reasons set forth above, we had an
EBITDA of $26.5 million, or 14.2% of net sales, for the three months ended March
29, 2003 compared to $22.0 million, or 11.8% of net sales, for the first quarter
of 2002. Our Adjusted EBITDA, as defined below, was $28.2 million, or 15.1% of
net sales, in 2003, compared to $25.2 million, or 13.5% of net sales, in 2002.
The Adjusted EBITDA for our retail bedding segment was $0.8 million and $(0.1)
million for the first quarter of 2003 and 2002, respectively. The following
table sets forth a reconciliation of consolidated net income to Adjusted
EBITDA, which is a Non-GAAP financial measure:
Quarter Ended
------------------------
March 29, March 30,
2003 2002
--------- ---------
Net income $ 8,308 $ 5,714
Depreciation and amortization 5,740 5,146
Income tax expense 5,309 3,636
Interest expense 6,291 7,259
Other expense, net 876 294
--------- ---------
EBITDA(a) 26,524 22,049
Transaction fees 772 -
Non-cash variable stock compensation 830 3,127
Interest income 50 39
--------- ---------
Adjusted EBITDA(a) $ 28,176 $ 25,215
========= =========
(a) EBITDA represents earnings before interest expense, income tax
expense, depreciation and amortization, management fees, and
the impairment of an investment. Adjusted EBITDA, as defined
by our Senior Credit Facility, is calculated as EBITDA plus
interest income, transaction fees and non-cash variable stock
compensation. Management believes that EBITDA is a widely
accepted financial indicator of a company's ability to service
or incur debt and a similar measure, Adjusted EBITDA, is
utilized for purposes of the covenants contained in the Senior
Credit Facility. EBITDA and Adjusted EBITDA
are not measurements of operating performance calculated in
accordance with US GAAP and should not be considered
substitutes for operating income, net income, cash flows from
operating activities, or other statements of operations or
cash flow data prepared in accordance with US GAAP, or as
measures of profitability or liquidity. EBITDA and Adjusted
EBITDA may not be indicative of our historical operating
results, nor are they meant to be predictive of potential
future results. In
19
addition, EBITDA and Adjusted EBITDA as defined here are not
presentations accepted by the Commission. Accordingly, any
presentation of EBITDA or Adjusted EBITDA or any information
concerning EBITDA or Adjusted EBITDA which may be included in
a future filing with the Commission may be substantially
different than the presentation included herein. Our
calculation of EBITDA and Adjusted EBITDA may not be
comparable to those recorded by other companies.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of cash to fund liquidity needs are (i) cash provided by
operating activities and (ii) borrowings available under our Senior Credit
Facility. Our primary use of funds consists of payments of principal and
interest for our debt, capital expenditures, distributions to Simmons Holdings,
acquisitions, and funding for working capital increases. In the first quarter of
2003, our total debt increased by $0.1 million to $268.5 million. In comparison,
in the first quarter of 2002, total debt decreased by $7.8 million.
In the first quarter, our working capital increased approximately $25.2 million.
The working capital revenue was due principally to (i) an increase in
inventories principally due to the roll-out of the BackCare(R) 2003 product line
in the first quarter and the addition of new retail stores; (ii) an increase in
accounts receivable related to increased sales volumes; and (iii) a decrease in
accruals due to the payment of 2002 bonuses and accrued interest on the
Indenture.
Our capital expenditures totaled $0.4 million for the three months ended March
29, 2003. We expect to spend an aggregate of approximately $10.0 million for
capital expenditures in fiscal year 2003. We believe that annual capital
expenditure limitations in our Senior Credit Facility will not significantly
inhibit us from meeting our ongoing capital expenditure needs.
On February 28, 2003, we acquired the assets of Sleep Country from a related
party for approximately $18.4 million, plus additional contingent consideration
based upon future performance. This acquisition was financed from borrowings
under our Senior Credit Facility. Sleep Country used the proceeds received to
repay bank debt of $17.8 million and stockholder debt of $0.6 million. We
incurred approximately $0.8 million in costs associated with this transaction.
As of March 29, 2003, we had availability to borrow $28.4 million under our
Revolving Credit Facility after giving effect to $26.2 million in borrowings and
$5.4 million reserved for the Company's reimbursement obligations with respect
to outstanding letters of credit. We were in compliance as of March 29, 2003
with the financial covenants contained in all of our credit facilities.
We believe that cash generated from operations, together with borrowings
available under our Revolving Credit Facility, will be sufficient to meet our
working capital and capital expenditure needs in the foreseeable future.
The Revolving Credit Facility expires on October 29, 2004. We expect to have the
ability to renew the existing facility or have the ability to find new financing
with comparable terms prior to expiration. If we are unable to renew our
existing arrangement or obtain new financing, this could have an adverse affect
on our ability to fund operations.
20
SEASONALITY/OTHER
For the past several years, there has not been significant seasonality to our
business.
ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal
Activities ("SFAS 146"). SFAS 146 addresses the recognition, measurement, and
reporting of costs that are associated with exit and disposal activities,
including costs related to terminating a contract that is not a capital lease
and termination benefits that employees who are involuntarily terminated receive
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred-compensation contract. SFAS 146 supersedes
EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring), and requires liabilities associated with exit and disposal
activities to be expensed as incurred. SFAS 146 is effective for exit or
disposal activities of the Company that are initiated after December 31, 2002.
The adoption of SFAS 146 did not have a material impact on the Company's
financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"), an interpretation of SFAS Nos.
5, 57, and 107 and rescission of FASB Interpretation No. 34. FIN 45 clarifies
the requirements of SFAS No. 5, Accounting for Contingencies ("SFAS 5"),
relating to the guarantor's accounting for, and disclosure of, the issuance of
certain types of guarantees. FIN 45 requires that upon issuance of a guarantee,
the entity (i.e., the guarantor) must recognize a liability for the fair value
of the obligation it assumes under that guarantee. The FASB believes that, in
current practice, many entities might not be recognizing that liability,
believing that US GAAP does not require recognition, particularly when the
entity does not receive separately identifiable consideration (i.e., a premium)
for issuing the guarantee. Many guarantees are embedded in purchase or sales
agreements, service contracts, joint venture agreements, or other commercial
agreements and the guarantor in many such arrangements does not receive a
separately identifiable upfront payment for issuing the guarantee. FIN 45 is
intended to improve the comparability of financial reporting by requiring
identical accounting for guarantees issued with a separately identified premium
and guarantees issued without a separately identified premium. FIN 45's
provisions for initial recognition and measurement should be applied on a
prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year end. The guarantor's previous
accounting for guarantees that were issued before December 31, 2002 cannot be
revised or restated to reflect the effect of the recognition and measurement
provisions of FIN 45. The adoption of FIN 45 did not have a material impact on
the Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Stock-Based Compensation -
Transition and Disclosure ("SFAS 148"), an amendment to SFAS No. 123, Accounting
for Stock-Based Compensation ("SFAS 123"). The transition guidance and annual
disclosure provisions are effective for the Company's 2002 financial statements
and the interim disclosure provisions were
21
effective for interim periods beginning with the Company's first quarter 2003.
This statement provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS
123 to require more prominent disclosures in both annual and interim financial
statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
records estimated compensation expense over the service period based upon the
intrinsic value of the options as they are earned by the employees and records
additional adjustments to non-cash variable stock compensation expense for
changes in the intrinsic value of vested options in a manner similar to a stock
appreciation right. Therefore, adoption of this pronouncement did not have a
material impact on the consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"), principally to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities" or "VIEs") and how to
determine when and which business enterprise should consolidate the VIE (the
"primary beneficiary"). This new model for consolidation applies to an entity
which either (1) the equity investors (if any) do not have a controlling
financial interest or (2) the equity investment at risk is insufficient to
finance that entity's activities without receiving additional subordinated
financial support from other parties. In addition, FIN 46 requires that both the
primary beneficiary and all other enterprises with a significant variable
interest in a VIE make additional disclosures. FIN 46 is effective for the
Company's first quarter 2003 with transitional disclosure required with these
financial statements. The adoption of FIN 46 did not have a material impact on
the Company's financial position or results of operations.
FORWARD LOOKING STATEMENTS
"Safe Harbor" statement under the Private Securities Litigation Reform Act of
1995. When used in this Quarterly Report on Form 10-Q, the words "believes,"
"anticipates," "expects," "intends," "projects" and similar expressions are used
to identify forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements relate
to future financial and operating results, including expected benefits from our
Better Sleep Through Science(R) philosophy. Any forward-looking statements
contained in this report represent 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, anticipated
sales growth, success of new products, increased market share, reduction of
manufacturing costs, generation of free cash flow and reduction of debt, changes
in consumer confidence or demand, planned sale of our retail operations, and
other risks and factors identified from time to time in the Company's reports
filed with the Securities and Exchange Commission, including the Form 10-K for
2002 and the Form 10-Qs for the first, second, and third quarters of 2002. The
Company undertakes no obligation to update or revise any forward-looking
statements, either to reflect new developments, or for any other reason.
22
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information relative to our market risk sensitive instruments by major category
at December 28, 2002 is presented under Item 7A of our Annual Report on Form
10-K for the fiscal year ended December 28, 2002. There have been no material
changes to this information as of March 29, 2003.
Item 4. Disclosure Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's
management, including the Chief Executive Officer and Chief Financial Officer,
have conducted an evaluation of the Company's disclosure controls and
procedures as of a date within 90 days of filing this quarterly report. Based on
their evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the applicable Securities and Exchange Commission rules and forms.
(b) Changes in Internal Controls and Procedures. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of the most recent
evaluation of these controls by the Company's Chief Executive Officer and Chief
Financial Officer, including any corrective actions with regard to significant
deficiencies and material weaknesses.
23
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Chief Executive Officer Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Chief Financial Officer Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On March 7, 2003, the Company filed with the Commission a Form
8-K which reported under Item 7 the Press Release dated March
3, 2003 announcing the results of operations for the fourth
quarter and the full fiscal year of 2002.
24
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: May 13, 2003
25
CERTIFICATE OF CHIEF EXECUTIVE OFFICER
I, the Chief Executive Officer of Simmons Company (the "registrant"), certify
that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any
untruestatement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosures
controls and procedures as of a date within 90 days prior to
the filing of this quarterly report (the "Evaluation Date");
and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated this 13th day of May 2003.
/s/ Charles R. Eitel
----------------------------------------------
Charles R. Eitel, Chief Executive Officer
CERTIFICATE OF CHIEF FINANCIAL OFFICER
I, the Chief Financial Officer of Simmons Company (the "registrant"), certify
that:
1. I have reviewed this quarterly report on Form 10-Q of the registrant;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosures
controls and procedures as of a date within 90 days prior to
the filing of this quarterly report (the "Evaluation Date");
and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated this 13th day of May 2003
/s/ William S. Creekmuir
---------------------------------
William S. Creekmuir, Chief Financial Officer