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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 333-04841
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SIMMONS COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 06-1007444
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Concourse Parkway, Suite 600
Atlanta, Georgia 30328
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 512-7700
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
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. Yes x No
-- --
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 28, 1997 was $ 0 .
--
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The number of shares of the registrant's common stock outstanding as of March
28, 1997 is 31,964,452.
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DOCUMENTS OR PARTS THEREOF INCORPORATED BY REFERENCE: None
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PART I
ITEM 1. BUSINESS
GENERAL
Simmons Company, a Delaware corporation (the "Company"), is the second
largest bedding manufacturer in the United States. The Company manufactures and
distributes a broad range of mattresses, box springs, bedding frames and sleep
accessories under well-recognized brand names, including Beautyrest(R),
Simmons(R), BackCare(R), Maxipedic(R), Beautysleep(R), Connoisseur(R) and
Equation of Sleep(R). Sales of conventional bedding, which includes fully
assembled mattresses and box springs, accounted for approximately 99% of the
Company's 1996 net sales.
The Company manufactures and supplies conventional bedding to over
5,500 retail outlets, representing more than 2,500 customers, including
furniture stores, department stores, specialty sleep shops and warehouse
showrooms. The Company operates 17 manufacturing facilities in 15 states, and
its subsidiary operates a manufacturing facility in Puerto Rico. These
facilities are strategically located in proximity to customers, thereby reducing
transportation costs, facilitating just-in-time delivery and enhancing the
Company's ability to service large national accounts. The Company believes that
operating its manufacturing facilities affords a number of advantages over
several of its national, brand-name competitors that operate as a group of
independent licensees, including (i) producing consistently high-quality
merchandise across all facilities; (ii) allowing the Company to share its best
practices among manufacturing facilities; (iii) ensuring consistency of local
marketing for national accounts; and (iv) permitting efficient allocation of
production among manufacturing facilities to accommodate variations in regional
demand.
HISTORY OF THE COMPANY
Founded in 1871, the Company was privately held by the Simmons family
for many years and later was publicly traded. Historically, the Company was a
worldwide mattress manufacturer; in 1977 over 20% of the Company's net sales
came from international sales. In 1978, Gulf & Western Industries, Inc., which
later became Paramount Communications, Inc. ("Paramount"), acquired the Company
via a tender offer. In September 1985, Paramount sold the Company to Wickes
Companies, Inc., which in turn sold the stock to a group of private investors
led by Wesray Capital through a leveraged buyout in October 1986. During 1987
and 1988, the Company sold its European and Asian subsidiaries and several
parcels of real estate in order to pay down debt incurred to finance the
leveraged buyout.
In January 1989, 100% of the Company's stock was acquired by the
newly-created Simmons ESOP for approximately $250.0 million. Between 1989 and
1991, the Company sold additional real estate as well as its Canadian and
Mexican subsidiaries, the proceeds of which were used to repay a portion of the
Company's debt. In conjunction with a financial restructuring completed in 1991,
Merrill Lynch Capital Partners, Inc. ("MLCP") provided the Company with a $32.2
million equity investment, the proceeds of which were used to reduce further the
Company's debt, giving MLCP an approximately 60% interest in the Company.
On March 22, 1996, Simmons Holdings, Inc., a company organized on
behalf of INVESTCORP S.A. ("Investcorp"), management and certain other
investors, acquired 100% of the outstanding common stock of the Company from
affiliates of MLCP, the Simmons Company Employee Stock Ownership Plan (together
with a trust forming a part thereof, the " ESOP") and certain management
stockholders (collectively, the "Sellers") for (i) a purchase price of $253.2
million (including the refinancing or assumption of existing indebtedness and
the purchase of management stock options, and excluding the payment of fees,
expenses and compensation payable to management) plus (ii) the issuance to the
ESOP of 5,670,406 shares of the Company's Series A Preferred
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Stock, having one vote per share and a liquidation preference of $5.00 per share
(together with the financing thereof, the "Acquisition"). Financing for the
Acquisition was provided by (i) $85.0 million of capital provided by affiliates
of Investcorp, management and certain other investors, (ii) $80.4 million of
borrowings under a $115.0 million Senior Credit Facility among the Company,
certain lenders and Chase Securities (formerly known as Chemical Bank)
("Chase"), as administrative agent (the "Senior Credit Facility") and (iii)
$100.0 million of borrowings under a Subordinated Loan Facility among the
Company, certain lenders (including an affiliate of Investcorp) and Chase, as
administrative agent (the "Subordinated Loan Facility"). The Subordinated Loan
Facility was repaid on April 18, 1996 with the net proceeds of the issuance of
Senior Subordinated Notes which, in turn, were replaced with Series A Senior
Subordinated Notes due 2006 in a registered exchange offer completed in
September 1996.
INDUSTRY AND COMPETITION
The domestic conventional bedding industry accounts for over 90% of
wholesale revenues for the entire domestic bedding market, according to the
International Sleep Products Association ("ISPA"). Non-conventional bedding
products, such as flotation bedding ("waterbeds"), futons and electric
adjustable beds, account for the remainder of industry wholesale revenues. The
domestic bedding industry consists of over 800 bedding manufacturers, ranging
from small, family-owned plants to large factory-direct producers. The Company's
management estimates that its share of the conventional bedding market has grown
to approximately 15.6% in 1996 from approximately 13.1% in 1992, based on
wholesale revenue data published by ISPA.
PRODUCTS
Overview. The Company's conventional bedding, which accounted for
approximately 99% of the Company's net sales in 1996, consists primarily of
brand name bedding that varies in price, design, material and size. Retail
prices for the Company's products range from under $200 for a twin-size
promotional bedding set to approximately $3,000 for a king-size luxury set. The
Company predominantly competes in the $499 and up retail price segment, which
accounts for the top 35% of the market in terms of units sold. The Company also
manufactures and sells waterbeds, licenses the Simmons name and manufacturing
processes to third-party manufacturers abroad to produce and distribute
conventional bedding products within their designated territories and licenses
the Simmons name to third-party manufacturers domestically for use on adjustable
beds, down comforters, pillows, bed sheets, bed pads, futons, air beds and
linens.
Pocketed Coil(TM). The Company is the primary national manufacturer
that produces conventional bedding using Pocketed Coil(TM) construction. The
Company's Beautyrest(R) and Connoisseur(R) lines, which employ Pocketed Coil(TM)
innersprings, are designed to be among the most comfortable and durable premium
mattresses in the market. Unlike open coil mattresses, in which each innerspring
coil is joined to adjacent coils at the top and the bottom, Pocketed Coil(TM)
innersprings are constructed so that each row of innerspring coils is joined to
adjacent rows of coils in the center third of fabric wrapped around each coil's
pocket, thereby permitting the top and bottom of each coil to respond
independently to pressure applied to the surface of the mattress. With each coil
capable of moving independently, this design allows the mattress to contour to
the user's body, reducing excess movement.
Beautyrest(R) is the Company's flagship product utilizing the Pocketed
Coil(TM) innerspring line of bedding. In the fall of 1995, the Company's
Pocketed Coil(TM) construction was incorporated into the Connoisseur(R) line in
response to the increasing demand for top-of-the-line premium bedding. The
Connoisseur(R) line offers high-end customers a luxurious product that is
durable and that contains variable pressure foam for maximum comfort and
support.
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Conventional Coil. To provide a broad product offering, the Company
manufactures the Maxipedic(R), Beautysleep(R) and BackCare(R) product lines,
which use enhanced conventional coil technology. The Maxipedic(R) product line,
which features non-skid quilting and a steel grid that anchors the coils, is
intended to provide the Company's customers with a moderately priced
conventional coil product. Beautysleep(R) is an exclusive-label product line for
customers interested in a brand-name conventional coil product.
The BackCare(R) line mattresses are designed for today's
health-conscious consumers who seek superior support and comfort in the mattress
category of non-pocketed coil innersprings. This line combines anatomic foam
with a five-zone system, two for support and three for comfort. The foam
responds to the user's need for support under the lower back and thighs, while
offering comfort under the calves, upper shoulders and buttocks. Thus, the
five-zone system is designed to keep the back in a natural position and to help
ensure proper alignment and comfort. The BackCare(R) product line, which was
introduced in June 1995, is being sold by approximately 25% of the Company's
customers without any significant displacement of its existing product lines.
Specialty Sleep Products. The Company manufactures waterbeds, under the
name Flotation Beautyrest(R), in a limited number of its traditional bedding
plants. The Company, the only major domestic bedding manufacturer that produces
waterbeds, sells waterbeds to specialty retailers and other customers throughout
the United States.
The Company introduced in 1996 a line of ready-to-assemble ("RTA")
bedding, under the Equation of Sleep(R) product line, which the Company believes
is a potentially high-growth segment of the bedding market. This new product
developed by the Company, which can ultimately be shipped to the consumer in two
to four boxes, is intended to increase customer and retailer convenience,
require less retail and inventory floor space, and allow access to
non-traditional distribution channels such as home shopping networks, catalogs
and mass merchants.
CUSTOMERS
The Company manufactures and supplies conventional bedding to over
5,500 retail outlets, representing more than 2,500 customers including furniture
stores, department stores, specialty sleep shops and warehouse showrooms. The
Company's 10 largest customers accounted for approximately 42% of 1996 net
sales, while no single customer accounted for more than 10% of such net sales.
The majority of the Company's net sales are comprised of sales to
furniture stores, department stores, sleep shops and warehouse showrooms.
SALES, MARKETING AND ADVERTISING
The Company's products are sold by over 150 field sales representatives
and a national sales staff. Field sales representatives visit individual
retailers on a regular basis to assist showroom floor sales people with product
presentation, point-of-purchase signage and sales techniques, while the national
sales staff is responsible for national marketing and national accounts.
The Company's advertising program focuses on two areas: (i) cooperative
promotional advertising, which complements and is designed around individual
retailers' marketing programs; and (ii) national advertising, which is designed
to establish and build brand awareness with end users. The Company seeks to
build long-term brand awareness through regular national advertising and achieve
short-term sales objectives through individual commercials. One of the Company's
most successful campaigns, the "Do Not Disturb" campaign, which is ongoing, was
launched in the spring of 1995. This campaign was designed to build awareness of
the Company and of its competitive points of differentiation, especially the
advantages of the Company's use of Pocketed
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Coil(TM) technology, which was demonstrated by the Company's "Bowling Ball"
commercial that was initially aired in April 1995.
The Company has developed programs in the Company's Atlanta offices and
on-site at its retailers that are designed to teach retail floor sales people
how to match customers with their mattress comfort preference by improving the
retail floor sales person's product knowledge and sales skills. The Company's
sales force is trained in advertising, merchandising and salesmanship.
Management believes that its attention and focus on the training of its sales
representatives and its customers' retail floor sales people is one area where
the Company differentiates itself from most of its largest competitors.
SUPPLIERS
The Company purchases substantially all of its conventional bedding raw
materials (i.e., spring components, wire, lumber, foam and ticking) centrally in
order to maximize economies of scale and volume discounts. The Company sourced
approximately 80% of its 1996 raw material needs from 11 suppliers including
approximately one-third of the Company's total raw material needs from Leggett &
Platt ("L&P"). The Company has long-term supply agreements with each of L&P,
Foamex International, Inc. and Amoco Fabrics and Fiber Company for certain
components. The Company has not experienced any interruption in supply and does
not currently expect such an interruption to occur.
SEASONALITY
The volume of the Company's sales is somewhat seasonal with generally
lower sales occurring during the first quarter of each fiscal year when compared
to the remaining three quarters of the year. The Company also experiences a
seasonal fluctuation in its profitability, with a slightly lower gross profit
percentage occurring during the first quarter of each fiscal year when compared
to margin percentages obtained in the remaining part of the year. The Company
believes that seasonality of profitability is a factor that affects the
conventional bedding industry generally and is primarily due to retailers'
emphasis in the first quarter on price reductions and promotional bedding and
manufacturers' emphasis on close outs of the prior year's product lines, which
together result in lower profit margins.
ENGINEERING AND DEVELOPMENT
The Company seeks to maintain close contact with bedding industry
developments through sleep research conducted by industry groups and by the
Company's engineering department, as well as through participation in the Better
Sleep Council, an industry association that promotes awareness of sleep issues,
and ISPA. The Company's marketing and manufacturing departments work closely
with the engineering staff to develop and to test new products for marketability
and durability.
In September 1995, the Company completed the construction of the
Simmons Institute of Technology and Education ("SITE"), a state-of-the-art
38,000 square foot research center in Atlanta, Georgia. Approximately 33
engineers and technicians are employed full-time at SITE. These employees
conduct product and materials testing, design manufacturing facilities and
equipment, improve process engineering and development, and ensure high-quality
products. Management believes that the Company's engineering staff gives the
Company a competitive advantage over certain of its competitors who do not have
significant in-house engineering departments.
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WARRANTIES
The Company's conventional bedding products generally offer limited
warranties of 10 years against manufacturing defects, with certain bedding
manufactured to dealer specifications for promotional purposes carrying
warranties of one year. Management believes that its warranty terms are
generally consistent with those of its primary national competitors. The
Company's historic costs of honoring warranty claims have been an immaterial
percentage of net sales.
PATENTS, TRADEMARKS AND LICENSES
The Company owns many registered trademarks, including Simmons(R),
Beautyrest(R), Maxipedic(R), Connoisseur(R), Beautysleep(R), BackCare(R) and
Equation of Sleep(R), as well as patents, most of which are registered in the
United States and in many foreign countries. The Company considers its
trademarks, particularly Simmons(R) and Beautyrest(R), to be of material
importance to the business of the Company since they have the effect of
developing brand identification and maintaining consumer loyalty. Management is
not aware of any fact that would negatively impact the continuing use of any of
the Company's material patents, licenses, trademarks or trade names. As a result
of the disposition of certain of the Company's foreign operations through the
early 1990s, the Company now licenses the Simmons name and many of its
trademarks, processes and patents to third party manufacturers abroad to produce
and distribute conventional bedding products within their designated
territories. In addition, the Company has licensed the Simmons name and certain
trademarks, generally for limited terms, to domestic third party manufacturers
of adjustable beds, down comforters, pillows, bedsheets, bed pads, futons,
airbeds and linens.
EMPLOYEES
As of January 31, 1997, the Company had approximately 2,700 employees,
of which approximately 1,190 were represented by labor unions. Employees at nine
of the Company's manufacturing facilities are represented by unions.
Manufacturing employees at seven of the unionized plants are under a master
contract with the Upholstery Division of the United Steelworkers. There are also
agreements with Teamsters, United Furniture Workers, Longshoremen and
International Association of Machinists. Labor relations historically have been
good, with no labor-related work stoppages in over 20 years. Since 1980, the
Company has opened eight new plants, none of which is unionized. Approximately
1,400 of the Company's current employees are participants in the ESOP.
REGULATORY MATTERS
As a manufacturer of bedding and related products, the Company uses and
disposes of a number of substances, such as glue, lubricating oil, solvents, and
other petroleum products, that may cause the Company to be subject to regulation
under numerous federal and state statutes governing the environment. Among other
statutes, the Company is subject to the Federal Water Pollution Control Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conservation and Recovery Act, the Clean Air Act and related state
statutes and regulations. The Company believes that it is in material compliance
with all applicable federal and state environmental statutes and regulations.
Compliance with all such provisions which have been enacted relating to the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, is not expected to have any material adverse
effect upon the Company's business, financial condition or results of
operations. The Company is not aware of any pending federal environmental
legislation which would have a material adverse effect on the Company's
financial condition or results of operations.
The Company's conventional bedding and other product lines are subject
to various federal and state laws and regulations relating to flammability,
sanitation and other standards. The Company believes that it is in
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material compliance with all such laws and regulations.
FORWARD-LOOKING STATEMENTS
"Safe Harbor" statement under the Private Securities Litigation Reform
Act of 1995. A number of the matters and subject areas discussed in the
foregoing "Business" section and in Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that are not
historical or current facts deal with potential future circumstances and
developments. The discussion of such matters and subject areas is qualified by
the inherent risks and uncertainties surrounding future expectations generally,
and such discussion also may materially differ from the Company's actual future
experience involving any one or more of such matters and subject areas. The
Company has attempted to identify, in context, certain of the factors that it
currently believes may cause actual future experience and results to differ from
the Company's current expectations regarding the relevant matter or subject
area. The operation and results of the Company's bedding manufacturing business
may also be subject to the effect of other risks and uncertainties in addition
to the relevant qualifying factors identified elsewhere in the foregoing
"Business" section and in Part II, Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," including, but not limited
to, general economic conditions in the geographic areas and market segments in
which the Company operates, the ability to achieve further market penetration
and additional customers and distribution channels and other risks and
uncertainties described from time to time in the Company's reports filed with
the Commission.
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ITEM 2. DESCRIPTION OF PROPERTIES
The offices of the Company are located at One Concourse Parkway,
Atlanta, Georgia 30328.
The following table sets forth certain information regarding
manufacturing and certain other facilities operated by the Company as of March
28, 1997:
Approximate
Square
Location Footage
- -------------------------------------------------------- ------------
[S] [C]
Manufacturing Facilities
Atlanta, Georgia 148,300
Atlanta, Georgia 30,960
Charlotte, North Carolina 113,400
Columbus, Ohio 190,000
Dallas, Texas 106,140
Denver, Colorado 98,090
Fredericksburg, Virginia 128,500
Honolulu, Hawaii 58,530
Jacksonville, Florida 205,729
Janesville, Wisconsin 288,700
Kansas City, Missouri 85,165
Los Angeles, California 223,382
Phoenix, Arizona 54,000
Piscataway, New Jersey 265,000
San Leandro, California 260,500
Seattle, Washington 133,610
Springfield, Massachusetts 129,000
Toa Baja, Puerto Rico 24,500
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Subtotal 2,543,506
Other Facilities
Corporate Headquarters (Atlanta, Georgia) 37,500
SITE (Atlanta, Georgia) 38,000
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Total 2,619,006
The Company leases all of its facilities with the exception of its
Janesville, Wisconsin manufacturing facility, which the Company owns. The
Company's manufacturing facilities yield a combined practical capacity of over
20,000 units per day, assuming two eight hour shifts daily. Management believes
that the Company's facilities, taken as a whole, have adequate productive
capacity and sufficient manufacturing equipment to conduct business at levels
meeting current demand.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has been involved in various legal
proceedings. Management believes that all of such litigation is routine in
nature and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Company, would have a material
adverse effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for any class of common
equity of the Company. As of December 28, 1996 there is one holder of record of
the Company's common shares.
No dividends have been paid on any class of common equity of the
Company during the last three fiscal years. Pursuant to the restrictions
contained in the Senior Credit Facility and the Indenture, the Company is not
expected to be able to pay dividends on its common stock for the foreseeable
future, other than certain limited dividends permitted by the Senior Credit
Facility and the Indenture governing the Notes.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth summary historical financial and other
data of the Company (some periods of which are less than one year due to
accounting requirements for acquisition transactions) for the five years ended
December 28, 1996. The Company's capital structure changed significantly as a
result of the March 22, 1996 acquisition and the concurrent and subsequent
refinancings of debt. Due to required purchase accounting adjustments relating
to such transaction the consolidated financial and other data for the period
subsequent to the acquisition (the "Successor" period) is not comparable to such
data for the periods prior to the acquisition (the "Predecessor" periods).
The selected consolidated financial and other data set forth in the
following table has been derived from the Company's audited consolidated
financial statements. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company included
elsewhere herein.
Successor
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Period from
Combined March 22,
Year 1996
Ended through
December 28, December 28,
1996 1996
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STATEMENT OF OPERATIONS DATA:
Net sales $ 530,301 $ 423,870
Income (loss) before
extraordinary item and change
in accounting principle 2,579 3,018
Extraordinary item (1,706) (1,706)
Cumulative effect of change in
accounting principle (a) - -
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Net income (loss) $ 873 $ 1,312
========= =========
OTHER DATA:
Depreciation $ 4,342 $ 3,468
EBITDA (b) 46,414 41,644
Capital expenditures:
Normal recurring 4,726 4,203
SWIFT & UNITE 7,575 6,531
New plant facility (c) 2,612 2,612
BALANCE SHEET DATA (as of end of Periods):
Cash and cash equivalents $ 4,573 -
Total assets 367,849 -
Total long-term obligations,
including current maturities 196,815 -
Redeemable preferred
stock, net (d) 5,000 -
Redeemable common
stock, net (e) - -
Predecessor
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Period from
December 31,
1995 Year Year Year Year
through Ended Ended Ended Ended
March 21, December 30, December 31, December 25, December 26,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA: (in thousands)
Net sales $ 106,431 $489,815 $439,689 $ 391,382 $ 336,949
Income (loss) before
extraordinary item and change
in accounting principle (439) 9,411 7,994 (2,827) (7,269)
Extraordinary item - - - - -
Cumulative effect of change in
accounting principle (a) - - - (492) (5,200)
--------- -------- -------- --------- ---------
Net income (loss) $ (439) $ 9,411 $ 7,994 $ (3,319) $ (12,469)
========= ======== ======== ========= =========
OTHER DATA:
Depreciation $ 874 $ 4,027 $ 3,496 $ 3,141 $ 3,227
EBITDA (b) 4,770 39,577 33,981 29,236 26,720
Capital expenditures:
Normal recurring 523 3,021 4,496 4,972 3,659
SWIFT & UNITE 1,044 2,813 - - -
New plant facility (c) - - - - -
BALANCE SHEET DATA (as of end of Periods):
Cash and cash equivalents - $ 9,185 $ 8,477 $ 11,280 $ 7,581
Total assets - 254,492 249,891 272,533 245,158
Total long-term obligations,
including current maturities - 93,768 109,435 141,976 149,421
Redeemable preferred
stock, net (d) - 680 641 592 548
Redeemable common
stock, net (e) - 32,272 23,238 11,418 4,720
See Notes to Selected Consolidated Financial and Other Data.
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NOTES TO SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(DOLLARS IN THOUSANDS)
(a) Results from the adoption of Statement of Financial Accounting
Standards No. 106 in 1992 relating to post-retirement benefits, and
Statement of Financial Accounting Standards No. 109 in 1993 relating
to income taxes.
(b) EBITDA represents earnings before interest expense, income tax
expense, non-cash ESOP expense, depreciation and amortization,
cumulative effect of change in accounting principle and extraordinary
item, and, for the combined year ended December 28, 1996 and the
period from March 22, 1996 through December 28, 1996, excludes
amortization of the prepaid management fee of $833, in connection with
the Acquisition, excludes the effect of the purchase accounting
inventory write-up of $1,000, the compensation charge of $3,735 for
amounts payable to management, and the charge of $350 for
non-recurring fees, and excludes the credit of $281 for the
amortization of the reserve for unfavorable lease commitments.
Management believes that EBITDA is generally accepted as providing
useful information regarding a company's ability to service and/or
incur debt. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows or other consolidated net income
or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(c) The $2,612 spent in the period from March 22, 1996 through December
28, 1996 for new plant facility was refinanced with the proceeds from
the issuance of an industrial revenue bond in the first quarter of
1997.
(d) For the Successor period, consists of the Series A Preferred Stock that
was issued to the Simmons ESOP in connection with the Acquisition net
of the related unearned compensation. For the Predecessor periods,
amounts consist of preferred stock that was issued in connection with
the recapitalization of the Company in 1991 and was called for
redemption in connection with the Acquisition.
(e) Historically, under the terms of the Simmons ESOP, the participants had
the right to put their common stock to the Company under certain
circumstances. Accordingly, the fair market value of the common stock
that could have been put to the Company, along with the related amount
of unearned compensation, are classified outside of common
stockholders' equity in the predecessor financial statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion should be read in conjunction with the
"Selected Financial Data" and the Financial Statements of the Company and the
notes thereto included elsewhere herein.
GENERAL
On March 22, 1996, Simmons Holdings, Inc., a company organized on
behalf of Investcorp, management and certain other investors, acquired 100% of
the outstanding common stock of the Company from the Sellers. The Company
employed the purchase method of accounting for the Acquisition effective March
22, 1996. As a result of the required purchase accounting adjustments, the
post-Acquisition financial statements for the period from March 22, 1996 to
December 28, 1996 (the "Successor Financials") are not comparable to the
financial statements for the periods prior to the Acquisition (the "Predecessor
Financials").
RESULTS OF OPERATIONS
For purposes of the discussion below, the results of operations for the
year ended December 28, 1996 represent the mathematical addition of the
historical amounts for the Predecessor period (December 31, 1995 through March
21, 1996) and the Successor period (March 22, 1996 through December 28, 1996)
and are not indicative of the results that would actually have been obtained if
the Acquisition had occurred on December 30, 1995.
FISCAL 1996 AS COMPARED TO FISCAL 1995
Net Sales. Net sales increased 8.3%, or $40.5 million, from $489.8
million in 1995 to $530.3 million in 1996. This increase was due primarily to a
8.1% or $39.9 million increase in bedding unit sales volume, offset, in part, by
a decline in bedding average unit selling price aggregating 0.1% or $0.6
million. The growth in bedding unit sales volume resulted from increased
contract and Beautyrest(R) bedding sales and the continued growth of the
BackCare(R) product line due to incremental product placements and retailer
acceptance. The decline in average unit selling price is predominantly
attributable to a higher mix of contract bedding and the full year effect of the
introduced BackCare(R) line, which have lower average unit sales prices than the
Company's 1995 mix.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
for the year ended December 28, 1996 increased 0.7 percentage point from 59.8%
in 1995 to 60.5% in 1996. The increase is primarily attributable to: (i)
introductory selling prices associated with the introduction of the Company's
new BackCare(R) product line; (ii) a higher product mix concentration of
contract bedding; (iii) costs resulting from temporary inefficiencies due to the
redesigned layout of certain plant facilities pursuant to the Company's
reengineering project; and (iv) the sale of finished goods inventory which had
been written up, as required by generally accepted accounting principles, to
fair market value as of the date of the Acquisition. Offsetting these cost
increases, in part, was a reduction in the Company's provision for warranty
claims due to the favorable impact of expanded outlets for resale of units
returned due to minor defects.
Selling, General and Administrative Expenses. As a percentage of net
sales, selling, general and administrative expenses for the year ended December
28, 1996 improved 0.5 percentage point from 32.9% in 1995 to 32.4% in 1996. The
improvement reflects management's efforts to contain costs in these areas and
the Company's fixed expenses being spread over a larger revenue base. Also
contributing to the improvement were lower bad debt and bonus provisions
compared to 1995, lower expenses due to higher early retirement and worker
compensation amounts recorded in 1995. Offsetting these improvements, in part,
are an increase in expenditures related to the Company's UNITE reengineering
project and an increase in distribution costs due to higher volume and increased
fuel costs.
ESOP Expense. Non-cash ESOP expense in 1996 increased from
approximately $4.5 million to $5.0 million due primarily to an increase in the
fair value of shares allocated to participant accounts.
13
14
Simmons Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Amortization of Intangible Assets. Amortization of intangible assets
for the year ended December 28, 1996 increased $1.2 million due in part to the
effect of an increase in goodwill resulting from purchase accounting adjustments
made in connection with the Acquisition in March 1996.
Interest Expense, Net. Interest expense, net, increased $8.6 million to
$16.8 million due primarily to interest expense on increased total indebtedness,
which resulted from the new senior credit and subordinated loan facilities as
financing for the Acquisition, and from the issuance of senior subordinated
notes which refinanced the subordinated loan. ("See Notes to Consolidated
Financial Statements.")
Other Expense, Net. Other expense, net for the year ended December 28,
1996 increased $1.3 million to $1.7 million due primarily to non-recurring
expenses of $4.4 million incurred following the Acquisition, of which,
approximately $3.8 million was attributable to special compensation arrangements
entered into by the Company with certain members of management of the Company.
Total recurring expenses totaling $1.2 million were comprised of fees for
management advisory, consulting services and certain other fees. These expenses
were offset, in part, by a $4.0 million gain on the sale of minority interests
in certain foreign affiliates. ("See Notes to Consolidated Financial
Statements.")
Provision for Income Taxes. The Company's effective tax rates for the
years ended December 28, 1996 and December 30, 1995 differ from the federal
statutory rate primarily because of non tax-deductible amortization of goodwill
and the utilization, in 1995, of net operating loss carryforwards.
Extraordinary Item. The Company recorded an extraordinary charge, net
of related income taxes, for the write-off of debt issuance costs associated
with the long-term subordinated loan facility which was refinanced with the
proceeds of the issuance of the Senior Subordinated Notes due 2006.
Net Income. For the reasons set forth above, the year ended December
28, 1996 resulted in net income of $0.9 million as compared to $9.4 million at
December 30, 1995.
FISCAL 1995 AS COMPARED TO FISCAL 1994
Net Sales. Net sales increased 11.4%, or $50.1 million, from $439.7
million in 1994 to $489.8 million in 1995. This increase was due to a 4.3%
increase in average unit selling price and a 6.6% increase in unit volume. This
average unit selling price increase resulted primarily from a shift in product
mix to the Company's higher-priced Beautyrest(R) products. The increase in unit
volume resulted from increased sales to existing accounts and the addition of
new customers. In 1995, the Company embarked on a new national advertising
campaign to reinforce brand awareness and also initiated a program to increase
its account base, all of which together resulted in a 10% increase in its
account base in 1995.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
for the year ended December 30, 1995 decreased 1.5 percentage points from 61.3%
in 1994 to 59.8% in 1995. The decrease is primarily attributable to improved
efficiencies resulting from (i) the increased efficiencies resulting from second
shifts at 14 of the Company's manufacturing facilities and (ii) the leveraging
of fixed costs as a result of the increase in production volume in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1995 increased 17.0%, or $23.4 million, from $137.8
million in 1994 to $161.2 million in 1995. This increase was the result of a
$16.2 million increase in selling expenses and a $7.2 million increase in
general and administrative expenses. The increase in selling expenses was due
to: (i) an increase in selling support expenses due to higher sales volume and
the introduction of a program to grow the Company's account base; (ii) an
increase in salesforce compensation due to higher net sales; (iii) an increase
in national advertising related
14
15
Simmons Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
to the rollout in 1995 of a new advertising program; and (iv) an increase in
cooperative advertising expenses. The increase in general and administrative
expenses was a result of: (i) $1.3 million in expenditures related to the
Company's UNITE program, a manufacturing design and re-engineering project
initiated in 1995; (ii) an increased provision for bad debts; and (iii)
increased bonuses related to the Company's strong 1995 results. The Company
expects its expenditures related to the UNITE program to increase in 1996 by
approximately $3.0 million in connection with its plans to implement the program
at six additional manufacturing facilities. As a percentage of net sales,
selling, general and administrative expenses increased 1.6 percentage points,
from 31.3% in 1994 to 32.9% in 1995.
ESOP Expense. Non-cash ESOP expense in 1995 remained relatively
constant at approximately $4.5 million as compared to 1994.
Other Expense, Net. Other expense, net of $0.4 million in 1995
consisted of normal non-operating expenses compared to $2.5 million in 1994,
which is comprised of a non-cash charge of $2.8 million in connection with the
sale of an idle plant facility and other normal non-operating expenses of $0.6
million offset, in part by a $0.9 million gain on the sale of a parcel of land.
Interest Expense, Net. Interest expense, net remained constant at
approximately $8.2 million in 1994 and 1995, as a result of lower debt levels
that were offset by higher interest rates.
Provision for Income Taxes. Provision for income taxes increased
132.2%, or $4.3 million, from $3.2 million in 1994 to $7.5 million in 1995. The
effective income tax rates for both periods differ from the federal statutory
rate of 35.0% principally due to the utilization of net operating loss
carryforwards and the high levels of non tax-deductible amortization of
goodwill. The increase in the effective rate from 1994 to 1995 results from a
decline in the amount of net operating loss carryforwards available to be
utilized in 1995 compared to 1994.
Net Income. For the reasons set forth above, the year ended December
30, 1995 resulted in net income of $9.4 million as compared to $8.0 million at
December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of cash to fund its liquidity needs is net
cash provided by operating activities. Net cash used in operating activities was
$4.1 million for the combined periods ended December 28, 1996, compared to $28.5
million provided in 1995, due primarily to (i) lower net income in 1996 as
described above; (ii) a substantial increase in accounts receivable resulting
from fourth quarter special sales programs; and (iii) the timing of payments of
accounts payable and accrued liabilities. These uses of cash were partially
offset by increased non-cash charges for depreciation and amortization,
resulting from the Acquisition. The Company's principal uses of funds consist of
payments of principal, interest, and capital expenditures. Capital expenditures
totaled $14.9 million for the combined periods ended December 28, 1996. These
capital expenditures consisted primarily of normal recurring capital
expenditures in the amount of $5.3 million, capital expenditures relating to the
construction of a new manufacturing facility in the amount of $2.6 million and
capitalized expenditures related to the Company's systems upgrade project in the
amount of $7.6 million. The Company estimates that total normal recurring
capital expenditures will be approximately $8.5 million in 1997. In addition,
total expenditures for completing the systems upgrade project are expected to be
approximately $2.5 million in 1997. Management believes that annual capital
expenditure limitations in its Senior Credit Facility will not significantly
inhibit the Company from meeting its ongoing capital needs.
The Company may seek to make selective acquisitions in the bedding
industry. Although the Company has discussions from time to time with potential
candidates, the Company currently has no commitments with respect to any such
acquisitions.
15
16
Simmons Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
In connection with the Acquisition, the Company entered into the Senior
Credit Facility which provides for a $40.0 million revolving credit facility.
The revolving credit facility will expire on the earlier of (a) March 31, 2001
or (b) such other date as the revolving credit commitments thereunder shall
terminate in accordance with the terms of the Senior Credit Facility. The Senior
Credit Facility also provides for a $75.0 million term loan facility, which is
divided into two tranches, Tranche A and Tranche B term loans. The Tranche A
term loan has a final scheduled maturity date of March 31, 2001, and the Tranche
B term loan has a final scheduled maturity date of March 31, 2003. The interest
rates per annum in effect at December 28, 1996 for the revolving credit, Tranche
A term, and Tranche B term loans were 8.641%, 8.125% and 8.625%, respectively.
On June 11, 1996, the Company entered into two interest rate swap
agreements to effectively convert $40.0 million of the variable Tranche A and
Tranche B debt to fixed rate debt with effective interest rates of 8.8% - 9.3%.
The interest rate swap agreements have a duration of two years. At December 28,
1996, the fair value of the interest rate swap agreements was not significant.
At December 28, 1996, the Company's weighted average borrowing cost was 9.6%.
At December 28, 1996, the amount under the revolving credit portion of
the Senior Credit Facility that was available to be drawn was approximately
$17.8 million, after giving effect to $16.0 million of borrowings and $6.2
million that was reserved for the Company's reimbursement obligations with
respect to outstanding letters of credit. Amounts available under the revolving
credit portion of the Senior Credit Facility may be used for working capital and
general corporate purposes, including acquisitions and capital expenditures,
subject to certain limitations under the Senior Credit Facility. Pursuant to the
terms of the Senior Credit Facility: (i) the Company may make capital
expenditures in an amount not to exceed $6.5 million in each of 1996 (commencing
March 22, 1996) and 1997, and escalating thereafter; and (ii) to the extent that
acquisitions are not permitted as capital expenditures under the Senior Credit
Facility, the Company may make acquisitions in an amount that is the lesser of
(A) $30.0 million or (B) $15.0 million plus 50% of cumulative Excess Cash Flow
(as defined in the Senior Credit Facility).
During the third quarter of 1996, the Company sold to a third party
unaffiliated with the Company, its minority interests in Simmons Asia, Ltd.
(10.0%), Simmons Bedding & Furniture (HK) Ltd. (8.1%) and Simmons Company, Ltd.
(6.8%). The sale of these minority interests resulted in a gain for financial
accounting purposes of $4.0 million. The net proceeds from the sale were used to
prepay term loan payments as required by the Senior Credit Facility.
The Senior Credit Facility contains certain covenants and restrictions
on actions by the Company and its subsidiaries. In addition, the Senior Credit
Facility requires that the Company comply with specified financial ratios and
tests, including minimum cash flow, a maximum ratio of indebtedness to cash flow
and a minimum interest coverage ratio. As of December 28, 1996, the Company was
in compliance with respect to all covenants under the Senior Credit Facility.
On April 18, 1996, the Company completed a refinancing, which consisted
of (i) the sale of $100.0 million Notes pursuant to a private offering, (ii) the
application of approximately $96.0 million (after deduction of discounts to the
Initial Purchaser and other expenses of the Offering), together with other
available funds, to repay the outstanding indebtedness under the Company's
Subordinated Loan Facility.
The Notes mature on April 15, 2006 and bear interest at the rate of
10.75% per annum from April 15, 1996 payable semiannually on April 15th and
October 15th of each year, commencing October 15, 1996. The Notes may be
redeemed at the option of the Company on or after April 15, 2001, under the
conditions and at the redemption price as specified in the Note Indenture, dated
as of April 18, 1996, under which the Notes were issued. The Notes are
subordinated to all existing and future Senior Indebtedness (as defined) of the
Company and will be effectively subordinated to all obligations of any
subsidiaries of the Company.
16
17
Simmons Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
On September 4, 1996, the Company issued 10.75% Series A Senior
Subordinated Notes due 2006 (the "New Notes") in exchange for all Notes,
pursuant to an exchange offer whereby holders of the Notes received New Notes
which have been registered under the Securities Act of 1933, as amended, but are
otherwise identical to the Notes.
Management believes that the Company will have the necessary liquidity
for the foreseeable future from cash flow from operations, and amounts available
under its revolving credit facility in the Senior Credit Facility to fund: (i)
its obligations under the Senior Credit Facility and the New Notes; (ii)
expected capital expenditures; (iii) selective acquisitions in the bedding
industry; and (iv) other needs required to manage and operate its business.
SEASONALITY
The volume of the Company's sales is somewhat seasonal with generally
lower sales occurring during the first quarter of each fiscal year when compared
to the remaining three quarters of the year. The Company also experiences a
seasonal fluctuation in its profitability, with a slightly lower gross profit
percentage occurring during the first quarter of each fiscal year when compared
to margin percentages obtained in the remaining part of the year. The Company
believes that seasonality of profitability is a factor that affects the
conventional bedding industry generally and is primarily due to retailers'
emphasis in the first quarter on price reductions and promotional bedding and
manufacturers' emphasis on close outs of the prior year's product lines, which
together result in lower profit margins.
ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 129, Disclosure of
Information About Capital Structure, which the Company is required to adopt in
1997. SFAS No. 129 requires more detailed disclosures about an entity's capital
structure. As such, SFAS No. 129 is a disclosure requirement only and will not
have an impact on the Company's financial position, annual operating results or
cash flows.
17
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
SIMMONS COMPANY
We have audited the accompanying consolidated financial statements and
the financial statement schedule listed in Item 14 of this Form 10-K of Simmons
Company. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As explained in Note 1 to the consolidated financial statements, on
March 22, 1996, an affiliate of INVESTCORP S.A. ("Investcorp") acquired 100% of
the common stock of Simmons Company.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Simmons Company and subsidiaries as of December 28, 1996 and December 30, 1995,
and the consolidated results of their operations and their cash flows for the
periods ended December 28, 1996 and March 21, 1996, and the year ended December
30, 1995 in conformity with generally accepted accounting principles. In
addition, in our opinion the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included herein.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
March 20, 1997
18
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
SIMMONS COMPANY
We have audited the accompanying consolidated statements of operations
and cash flows of Simmons Company (a Delaware corporation) for the year
ended December 31, 1994. These consolidated statements and the schedule referred
to below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and schedule
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Simmons Company and subsidiaries for the year ended December
31, 1994, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14 of this
Form 10-K is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements as of December 31, 1994 and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein as of December 31, 1994 in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 17, 1995 except for Notes 6
and 14 which are as of May 4, 1995
(not presented herein)
19
20
Simmons Company and Subsidiaries
Consolidated Balance Sheets
(in thousands)
Successor Predecessor
--------- -----------
December 28, December 30,
1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 4,573 $ 9,185
Accounts receivable, less allowance for
doubtful accounts of $5,644 and $4,600 66,634 49,453
Inventories 18,833 18,293
Deferred income taxes 9,980 7,565
Other current assets 7,768 5,372
-------- --------
Total current assets 107,788 89,868
Property, plant and equipment, net 38,079 23,410
Patents, net of accumulated amortization of
$2,071 and $13,198 14,961 14,275
Goodwill, net of accumulated amortization of
$3,577 and $26,831 187,070 121,573
Deferred income taxes 8,040 -
Other assets 11,911 5,366
-------- --------
$367,849 $254,492
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
20
21
Simmons Company and Subsidiaries
Consolidated Balance Sheets
(in thousands)
Successor Predecessor
--------- -----------
December 28, December 30,
1996 1995
-------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,800 $ 22,712
Accrued wages and benefits 7,807 9,605
Accrued advertising and incentives 17,124 13,016
Other accrued expenses 11,070 15,179
Current maturities of long-term obligations 2,701 2,661
--------- ---------
Total current liabilities 63,502 63,173
Noncurrent liabilities:
Long-term obligations 194,114 91,107
Deferred income taxes - 6,537
Postretirement benefit obligations other than pensions 7,642 7,999
Other 11,300 8,352
--------- ---------
Total liabilities 276,558 177,168
======= =======
Commitments and contingencies:
Redeemable stock:
Redeemable preferred stock - 680
Redeemable common stock under ESOP, net of related
unearned compensation of $29,664 - 32,272
Redeemable Series A Preferred Stock under ESOP, net of
related unearned compensation of $23,352 5,000 -
Common stockholders' equity:
Common stock, $.01 par value; 50,000 shares authorized,
31,964 and 36,312 shares issued, respectively 320 363
Additional paid-in capital 84,680 176,501
Unearned compensation under ESOP - (47,531)
Retained earnings (accumulated deficit) 1,312 (78,894)
Foreign currency translation adjustment (21) (288)
Treasury stock, 1,727 shares in 1995 at cost - (5,779)
--------- ---------
Total common stockholders' equity 86,291 44,372
--------- ---------
$ 367,849 $ 254,492
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
21
22
Simmons Company and Subsidiaries
Consolidated Statements of Operations
(in thousands)
Successor Predecessor
--------- ---------------------------------------------
Period from Period from
March 22, December 31,
1996 1995 Year Year
through through ended ended
December 28, March 21, December 30, December 31,
1996 1996 1995 1994
------------ ------------ ----------- -----------
Net sales $423,870 $106,431 $489,815 $439,689
Costs and expenses:
Cost of products sold 254,127 66,630 292,825 269,741
Selling, general and administrative 135,762 35,846 161,202 137,791
ESOP expense 3,797 1,203 4,533 4,463
Amortization of intangibles 5,650 1,324 5,753 5,753
-------- -------- -------- -------
399,336 105,003 464,313 417,748
-------- -------- -------- -------
Income from operations 24,534 1,428 25,502 21,941
Interest expense, net 15,277 1,489 8,185 8,197
Other expense, net 1,557 96 400 2,517
-------- -------- -------- -------
Income (loss) before income taxes and
extraordinary item 7,700 (157) 16,917 11,227
Provision for income taxes 4,682 282 7,506 3,233
-------- -------- -------- -------
Income (loss) before extraordinary item 3,018 (439) 9,411 7,994
Extraordinary loss from early extinguishment
of debt, net of income tax benefit of $1,137 1,706 - - -
-------- --------- -------- -------
Net income (loss) $ 1,312 $ (439) $ 9,411 $ 7,994
======== ======== ======== =======
The accompanying notes are an integral part of these consolidated financial
statements.
22
23
Simmons Company and Subsidiaries
Consolidated Statements of Common Stockholders' Equity
(in thousands, except common share amounts)
Retained Foreign
Additional Unearned Earnings Currency Total
Common Common Paid-In Compensation (Accumulated Translation Treasury Stockholders'
Shares Stock Capital Under ESOP Deficit) Adjustment Stock Equity
------ ----- ------- ---------- -------- ---------- ----- ------
PREDECESSOR
Balance, December 25, 1993 36,311,967 $363 $ 216,823 $(82,740) $(96,299) $(223) $ (45) $ 37,879
ESOP share allocations - - (9,541) 14,004 - - - 4,463
Income tax benefit on ESOP - - 3,721 - - - - 3,721
Net income - - - - 7,994 - - 7,994
Dividends paid or accrued on
redeemable preferred stock - - (55) - - - - (55)
Change in foreign currency
translation - - - - - (124) - (124)
Change in fair value of ESOP
shares - - (20,388) 8,567 - - - (11,821)
Purchase of treasury stock - - - - - - (121) (121)
---------- ---- --------- -------- -------- ----- ------- --------
December 31, 1994 36,311,967 363 190,560 (60,169) (88,305) (347) (166) 41,936
ESOP share allocations - - (8,065) 12,598 - - - 4,533
Income tax benefit on ESOP - - 3,145 - - - - 3,145
Net income - - - - 9,411 - - 9,411
Dividends paid or accrued on
redeemable preferred stock - - (65) - - - - (65)
Change in foreign currency
translation - - - - - 59 - 59
Change in fair value of ESOP
shares - - (9,074) 40 - - - (9,034)
Purchase of treasury stock - - - - - - (5,613) (5,613)
---------- ---- --------- -------- -------- ----- ------- --------
December 30, 1995 36,311,967 363 176,501 (47,531) (78,894) (288) (5,779) 44,372
ESOP share allocations - - (2,298) 3,501 - - - 1,203
Income tax benefit on ESOP - - 896 - - - - 896
Net income - - - - (439) - - (439)
Change in foreign currency
translation - - - - - 9 - 9
Purchase of treasury stock - - - - - - (660) (660)
---------- ---- --------- -------- -------- ----- ------- --------
March 21, 1996 36,311,967 $363 $ 175,099 $(44,030) $(79,333) $(279) $(6,439) $ 45,381
========== ==== ========= ======== ======== ===== ======= ========
SUCCESSOR
March 22, 1996 (reflects the
new basis of 31,964,452
common shares in
connection with the
Acquisition) 31,964,452 $320 $ 84,680 $ - $ - $ (2) $ - $ 84,998
Net income - - - - 1,312 - - 1,312
Change in foreign currency
translation - - - - - (19) - (19)
---------- ---- --------- -------- -------- ----- ------- --------
December 28, 1996 31,964,452 $320 $ 84,680 $ - $ 1,312 $ (21) $ - $ 86,291
========== ==== ========= ======== ======== ===== ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
23
24
Simmons Company and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Successor Predecessor
--------- ---------------------------------------
Period from Period from
March 22, December 31,
1996 1995 Year Year
through through Ended Ended
December 28, March 21, December 30, December 31,
1996 1996 1995 1994
---- ---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 1,312 $ (439) $ 9,411 $ 7,994
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 9,118 2,198 9,780 9,249
Loss on disposal of fixed assets - - - 2,823
ESOP expense 3,797 1,203 4,533 4,463
Extraordinary loss 1,706 - - -
Gain from sale of investment (4,011) - - -
Provision for bad debts 1,273 566 3,500 1,706
Provision for deferred income taxes 4,420 282 1,006 2,484
Other, net 46 472 1,415 1,215
Net changes in operating assets and liabilities:
Accounts receivable (17,288) (1,732) (10,092) 7,997
Inventories (769) 1,229 (2,533) 641
Other assets and liabilities (3,724) (531) 2,029 84
Accounts payable 9,117 (7,250) 4,400 (5,905)
Accrued liabilities (11,443) 6,341 5,064 1,629
--------- ------- -------- --------
Cash provided by (used in) operating activities (6,446) 2,339 28,513 34,380
--------- ------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment, net (13,546) (1,567) (5,834) (4,496)
Proceeds from sale of property - - - 301
Proceeds from sale of investment 4,700 - - -
Payment to the seller for the acquisition (151,625) - - -
Payments to option holders (6,950) - - -
Payments of acquisition costs (16,040) - - -
--------- ------- -------- --------
Net cash used in investing activities (183,461) (1,567) (5,834) (4,195)
--------- ------- -------- --------
Cash flows from financing activities:
Proceeds from Predecessor revolving line of credit
and long-term borrowings - 3,334 15,842 25,789
Predecessor principal payments on revolving line
of credit, long-term debt and capital lease
obligations - (3,490) (32,259) (58,532)
Payments of Predecessor debt at acquisition (76,214) - - -
Proceeds of Successor debt 317,707 - - -
Payments of Successor debt (131,400) - - -
Payments of financing costs (9,744) - - -
Proceeds from issuance of Successor
common stock 85,000 - - -
Treasury stock purchases - (660) (5,613) (121)
--------- ------- -------- --------
Net cash from (used in) financing activities 185,349 (816) (22,030) (32,864)
--------- ------- -------- --------
Net effect of exchange rate changes on cash (19) 9 59 (124)
--------- ------- -------- --------
Increase (decrease) in cash and cash equivalents (4,577) (35) 708 (2,803)
Cash and cash equivalents, beginning of period 9,150 9,185 8,477 11,280
--------- ------- -------- --------
Cash and cash equivalents, end of period $ 4,573 $ 9,150 $ 9,185 $ 8,477
========= ======= ======== ========
24
25
Simmons Company and Subsidiaries
Consolidated Statements of Cash Flows - Continued
(in thousands)
Successor Predecessor
--------- ---------------------------------
Period from Period from
March 22, December 31,
1996 1995 Year Year
through through Ended Ended
December 28, March 21, December 30, December 31,
1996 1996 1995 1994
---- ---- ---- ----
Supplemental cash flow information:
Cash paid for interest $6,224 $ 803 $5,458 $7,840
====== ====== ====== ======
Cash paid for income taxes $ 93 $2,315 $3,047 $ 749
====== ====== ====== ======
The accompanying notes are an integral part of these consolidated statements.
25
26
Simmons Company and Subsidiaries
Notes to Consolidated Financial Statements
1. THE COMPANY
Simmons Company ("Simmons" or "the Company") is one of the largest
bedding manufacturers in the United States. The Company manufactures and
distributes mattresses, box springs, bedding frames and sleep accessories.
Simmons also sells bedding products to certain institutional customers, such as
schools and government entities, and to the lodging industry. The Company also
licenses its patents and trademarks to various domestic and foreign
manufacturers.
On March 22, 1996, Simmons Holdings, Inc. ("Holdings"), through its
subsidiary formed for this purpose, Simmons Acquisition Corp. ("SAC"), acquired
100% of the outstanding common stock of the Company (the "Acquisition").
Holdings was formed to consummate the Acquisition on behalf of affiliates of
INVESTCORP S.A. ("Investcorp"), management and certain other investors.
Immediately following the completion of the Acquisition, SAC merged into the
Company, as a result of which 100% of the common stock of the Company became
owned by Holdings. For purposes of identification and description, Simmons
Company is referred to as the "Predecessor" for the period prior to the
Acquisition, the "Successor" for the period subsequent to the Acquisition, and
the "Company" for both periods. For purposes of financial reporting, the period
from December 31, 1995 through March 21, 1996 is referred to as "Predecessor
'96" and the period from March 22, 1996 through December 28, 1996 is referred to
as "Successor '96."
The purchase price for the Acquisition was approximately $269.6 million
(including approximately $94.6 million in refinancing or assumption of existing
indebtedness, purchase of certain stock options, and the payments of fees and
expenses) which was allocated to the assets and liabilities of the Company based
upon their estimated fair market value at the date of the Acquisition, under the
purchase method of accounting. The financing for the Acquisition (including the
refinancing of outstanding debt) was provided by (i) borrowings under a new
$115.0 million Senior Credit Facility, which refinanced the Company's existing
senior and subordinated loans, (ii) the $100.0 million proceeds under a new
Subordinated Loan Facility, and (iii) $85.0 million of capital provided by
affiliates of Investcorp, management and certain other investors from Holdings.
As part of the Acquisition, the Simmons Company Employee Stock
Ownership Plan (the "ESOP") sold 6,001,257 shares of the Company's common stock
(representing all of the allocated shares) to Holdings. The remaining 5,670,406
shares of common stock of the Company (unallocated shares) were converted into
5,670,406 shares of Series A Preferred Stock.
On April 18, 1996, the Company issued $100.0 million in 10.75% Senior
Subordinated Notes, pursuant to an offering (the "Offering") (See Note 8). The
proceeds of the offering were used to retire loans under the Subordinated Loan
Facility mentioned above.
The following condensed pro forma disclosure for net sales and net
income are based on the consolidated financial statements included elsewhere
herein, adjusted to give effect to (i) the Acquisition and (ii) the Offering of
the Notes and the application of the net proceeds therefrom to repay the
Subordinated Loan Facility (collectively, the "Transactions"). These pro forma
disclosures assume that the Transactions were consummated as of December 31,
1995 and January 1,1995 and do not purport to be indicative of the results that
would actually have been obtained if the Transactions had occurred on the date
indicated or of the results that may be obtained in the future.
Successor Predecessor
Pro Forma (in thousands): 1996 1996 1995
-------- -------- --------
Net sales $423,870 $106,431 $489,815
======= ======== ========
Net income (loss) $ 7,206 $ (2,549) $ 636
======= ========= ========
26
27
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- -------------------------------------------------------------------------------
2. PRINCIPAL ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of the Company and all its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Basis of Accounting
The consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles. Such financial
statements include estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities and the
amounts of revenues and expenses. Actual results could differ from those
estimates. Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the current year presentation.
Fiscal Year
The Company operates on a 52/53 week fiscal year ending on the last
Saturday in December. Fiscal years 1996 (Successor '96 and Predecessor '96,
combined) and 1995 comprised 52 weeks and fiscal 1994 comprised 53 weeks.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out
method) or net realizable value.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation expense
is determined principally using the straight-line method over the estimated
useful lives for financial reporting and accelerated methods for income tax
purposes. Expenditures that substantially increase asset values or extend useful
lives are capitalized. Expenditures for maintenance and repairs are expensed as
incurred. When property items are retired or otherwise disposed of, amounts
applicable to such items are removed from the related asset and accumulated
depreciation accounts and any resulting gain or loss is credited or charged to
income. Useful lives are generally as follows:
Buildings and improvements 10 - 25 years
Machinery and equipment 5 - 15 years
Patents and Goodwill
The Acquisition resulted in a new basis of the value of the Company's
intangible assets. Accordingly, patents were adjusted to their estimated fair
value. For all periods, the cost of patents acquired are being amortized using
the straight-line method over the estimated remaining economic lives of the
respective patents, principally over seven years. Amortization expense was
approximately $2,071,000, $438,000, $1,929,000 and $1,929,000 for Successor '96,
Predecessor '96, 1995 and 1994, respectively.
Goodwill is being amortized on a straight-line basis, over the
estimated periods benefited (principally 40 years). In 1996 goodwill increased
as a result of accounting for the Acquisition. Amortization expense was
$3,577,000, $886,000, $3,824,000 and $3,824,000 for Successor '96, Predecessor
'96, 1995 and 1994, respectively.
27
28
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- -------------------------------------------------------------------------------
At each balance sheet date, management assesses whether there has been
a permanent impairment in the value of intangible assets by comparing
anticipated undiscounted future cash flows from operating activities with the
carrying value of the intangible asset. The factors considered by management in
this assessment include operating results, trends and prospects, as well as the
effects of obsolescence, demand, competition and other economic factors.
Revenue Recognition
The Company recognizes revenue at the time the product is shipped to
the customer.
ESOP Expense
The Company follows the provisions of Statement of Position No. 93-6 of
the American Institute of Certified Public Accounts, "Employers' Accounting for
Employee Stock Ownership Plans," whereby ESOP expense is recognized as an amount
equal to the fair market value of the shares allocated to participants'
accounts. The unearned compensation balance continues to be amortized using the
shares allocated method (i.e., at cost). The difference in these two amounts, if
any, is recorded as an adjustment to additional paid-in capital.
Product Development Costs
Costs associated with the development of new products and changes to
existing products are charged to expense as incurred. These costs amounted to
approximately $862,000, $270,000, $1,245,000 and $1,100,000 for Successor '96,
Predecessor '96, 1995 and 1994, respectively, and are included in cost of
products sold in the accompanying consolidated statement of operations.
Advertising Costs
The Company records the cost of advertising as an expense when
incurred. Advertising expense was $43,652,000, $9,861,000, $49,510,000 and
$43,532,000 for Successor '96, Predecessor '96, 1995 and 1994, respectively, and
is included as a component of selling, general and administrative expenses in
the accompanying consolidated statement of operations.
Significant Concentrations of Risk
The Company manufactures and markets sleep products, including
mattresses, box springs, and flotation mattresses to retail establishments
primarily in the United States. The Company performs periodic credit evaluations
of its customers' financial condition and generally does not require collateral.
Sales to three of the Company's major customers aggregated approximately 21%,
23% and 23% of total sales for Successor '96 and Predecessor '96, combined, 1995
and 1994, respectively. Accounts receivable from one customer was approximately
14% and 16% of total accounts receivable at December 28, 1996 and December 30,
1995, respectively. However, sales to no one customer represented more than 10%
of net sales for Successor '96 and Predecessor '96, combined, 1995 or 1994.
Purchases of raw materials from one vendor represented approximately
23%, 20% and 19% of cost of products sold for Successor '96 and Predecessor '96,
combined, 1995 and 1994, respectively.
The Company maintains cash balances in excess of FDIC insurance limits
at certain large financial institutions. The Company monitors the financial
condition of such institutions and considers the risk of loss to be remote.
28
29
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- -------------------------------------------------------------------------------
3. EMPLOYEE STOCK OWNERSHIP PLAN
The Company is structured so that the employees of the Company will
have a beneficial ownership of the Company's stock through their participation
in the ESOP. At December 30, 1995, the ESOP owned 11,690,115 shares of the
Company's common stock. The funds used to purchase the common stock had been
borrowed by the ESOP pursuant to various loan agreements with the Company.
In connection with the Acquisition, the ESOP sold 6,001,257 shares of
common stock of the Company to Holdings (representing all the shares held by the
ESOP that had been allocated to plan participants as of such date) for $31.2
million in the aggregate, which amount was reinvested in diversified instruments
in the respective accounts of such participants in the ESOP. Each of the
remaining 5,670,406 shares of common stock of the Company was converted into one
share of Series A Preferred Stock. Each share of Series A Preferred Stock is
entitled to one vote, is convertible into one share of common stock of the
Company at any time at the option of the holders thereof and is entitled to a
liquidation preference of $5.00 per share. Upon the occurrence of certain
events, Holdings or the Company may cause the Series A Preferred Stock to be
converted into common stock of the Company and, following such conversion, to be
exchanged for shares of Holdings' capital stock.
The ESOP pledged all of its shares of the Company's common and
preferred stock as collateral for the loans. These shares are held by
NationsBank Trust, the ESOP trustee, in a suspense account and are released to
the ESOP participants' accounts based on debt service. As of December 30, 1995,
6,019,709 shares of common stock had been allocated to participants' accounts.
The remaining unallocated shares of common stock held in the ESOP had an
estimated fair value of approximately $29,664,000 ($5.30 per share) at December
30, 1995. As of December 28, 1996, no shares of Series A Preferred Stock had
been allocated to participants' accounts, although 1,000,000 shares of such
stock had been committed to be released. The remaining unallocated shares of
Series A Preferred Stock held in the ESOP had an estimated fair value of
approximately $23,352,000 ($5.00 per share) at December 28, 1996.
Under the ESOP, employees are eligible to participate in the ESOP
following the date when the employee has completed at least one year of service
and has reached age 21. All employees of the Company, except employees who are
covered by a negotiated collective bargaining agreement (unless the collective
bargaining agreement provides for participation in the ESOP) or who are
nonresident aliens, are covered by the ESOP. Approximately 50% of the Company's
full-time employees are participants in the ESOP. The participants and
beneficiaries of the ESOP are not subject to income tax with respect to
contributions made on their behalf until they receive distributions from the
ESOP.
Under the provisions of the ESOP, the Company is obligated to
repurchase participant shares which have been distributed under the terms of the
ESOP, as long as the shares are not publicly traded or if the shares are subject
to trading limitations. The Company repurchased approximately 58,700 shares from
ESOP participants in 1995 at prices ranging from $3.30 to $4.50 per share and
18,452 shares from ESOP participants in 1996 (prior to the Acquisition) at a
price of $4.50 per share. These shares were reflected as treasury stock in the
Predecessor periods.
Because of the Company's obligation to repurchase its shares from the
ESOP under certain circumstances for their then current fair value, the Company
has classified the redemption value of such shares in the accompanying
consolidated balance sheets as Redeemable Series A Preferred Stock under ESOP
and Redeemable Common Stock under ESOP as of December 28, 1996 and December 30,
1995, respectively. Additionally, pursuant to generally accepted accounting
principles, the Company has classified a proportional amount of unearned
compensation under ESOP in the same manner.
The Company also repurchased 1,608,019 shares at $3.30 to $4.50 per
share from non-ESOP stockholders during 1995, which is also reflected as
treasury stock in 1995.
29
30
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 28, 1996 and
December 30, 1995 (in thousands):
Successor Predecessor
December 28, December 30,
1996 1995
------------ ----------
Accounts receivable $ 77,335 $ 56,593
Allowance for doubtful accounts (5,644) (4,600)
Allowance for cash discounts and other (5,057) (2,540)
-------- --------
$ 66,634 $ 49,453
======== ========
5. INVENTORIES
Inventories consisted of the following at December 28, 1996 and
December 30, 1995 (in thousands):
Successor Predecessor
December 28, December 30,
1996 1995
----------- ---------
Raw materials $12,044 $11,807
Work-in-progress 1,888 1,942
Finished goods 4,901 4,544
------- -------
$18,833 $18,293
======= =======
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December
28, 1996 and December 30, 1995 (in thousands):
Successor Predecessor
December 28, December 30,
1996 1995
---------- ----------
Land, buildings and improvements $ 6,716 $ 8,784
Machinery and equipment 28,824 32,966
Construction in progress 4,299 844
-------- --------
39,839 42,594
Less accumulated depreciation (1,760) (19,184)
-------- --------
$ 38,079 $ 23,410
======== ========
Depreciation expense for Successor '96, Predecessor '96, 1995 and 1994
were $3,468,000, $874,000, $4,027,000 and $3,496,000, respectively.
7. OTHER ASSETS
Other assets consisted of the following at December 28, 1996 and
December 30, 1995 (in thousands):
Successor Predecessor
December 28, December 30,
1996 1995
--------- --------
Long-term note receivable $ 2,200 $2,200
Debt issuance costs, net of accumulated amortization
of $552 and $5,613, respectively 7,670 1,584
Other 2,041 1,582
------- ------
$11,911 $5,366
======= ======
30
31
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
Debt issuance costs are amortized using the effective interest method
and are included in interest expense. Amortization of $521,000, $84,000,
$679,000 and $835,000 for Successor '96, Predecessor '96, 1995 and 1994,
respectively, is included as a component of interest expense in the
accompanying consolidated statement of operations.
8. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following at December 28, 1996
and December 30, 1995 (in thousands):
Successor Predecessor
December 28, December 30,
1996 1995
----------- ----------
Senior loans:
Old Tranche A term loan $ - $ 36,045
Old Tranche C term loan - 17,700
New Tranche A term loan 35,516 -
New Tranche B term loan 34,784 -
Revolving loan 16,000 2,000
Adjustable rate senior subordinated notes - 2,618
Adjustable rate junior subordinated notes - 24,328
10.75% Series A Senior Subordinated
Notes due 2006 100,000 -
Industrial Revenue Bonds, 7.00%, due 2017 9,700 9,700
Other, including capital lease obligations 815 1,377
--------- --------
196,815 93,768
Less current portion (2,701) (2,661)
--------- --------
$ 194,114 $ 91,107
========= ========
In connection with the Acquisition on March 22, 1996, the Company
entered into a new Senior Credit Facility (the "Senior Credit Facility") the
proceeds of which refinanced the outstanding amounts under the old senior loan
facility and the adjustable rate senior and junior subordinated notes. The
Senior Credit Facility provides for a $40.0 million revolving credit facility.
The revolving credit facility will expire on the earlier of (a) March 31, 2001
or (b) such other date as the revolving credit commitments thereunder shall
terminate in accordance with the terms of the Senior Credit Facility. The Senior
Credit Facility also provides for a $75.0 million term loan facility, which is
divided into two tranches, Tranche A and Tranche B term loans. The Tranche A
term loan has a final scheduled maturity date of March 31, 2001, and the Tranche
B term loan has a final scheduled maturity date of March 31, 2003.
The interest rate under the Senior Credit Facility is based, at the
Company's option, on an Alternate Base Rate or a Eurodollar Rate (both as
defined), plus margins as follows:
Revolving Tranche A Tranche B
Credit Loan Term Loan Term Loan
--------- --------- ---------
Alternate base rate 1.25% 1.25% 1.75%
Eurodollar rate (LIBOR-based) 2.50% 2.50% 3.00%
The interest rates per annum in effect at December 28, 1996 for the
revolving credit, Tranche A term, and Tranche B term loans were 8.641%, 8.125%
and 8.625%, respectively.
Management of the Company has developed and implemented a policy to
maintain the percentage of fixed and variable rate debt within certain
parameters. The Company enters into interest rate swap agreements whereby the
Company agrees to exchange, at specified intervals, the difference between fixed
and variable interest amounts
31
32
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
calculated by reference to an agreed-upon notional principal amount linked to
LIBOR. Any differences paid or received on the interest rate swap agreement are
recognized as adjustments to interest expense over the life of the swap, thereby
adjusting the effective interest rate on the underlying obligation. On June 11,
1996, the Company entered into two interest rate swap agreements to effectively
convert $40.0 million of the variable Tranche A and Tranche B debt to fixed rate
debt with effective interest rates of 8.8% - 9.3%. The interest rate swap
agreements have a duration of two years. At December 28, 1996, the fair value of
the interest rate swap agreements was not significant.
At December 28, 1996, the amount under the revolving credit portion of
the Senior Credit Facility that was available to be drawn was approximately
$17.8 million, after giving effect to $16.0 million of borrowings and $6.2
million that was 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 acquisitions and capital expenditures.
The Senior Credit Facility contains certain covenants and restrictions
on actions by the Company and its subsidiaries. In addition, the Senior Credit
Facility requires that the Company comply with specified financial ratios and
tests, including minimum cash flow, a maximum ratio of indebtedness to cash flow
and a minimum interest coverage ratio. During the third quarter of 1996, the
Company recorded a $4.0 million gain on the sale of minority interests in
certain foreign affiliates. The net proceeds from the sale were used to prepay
term loan payments as required by the Senior Credit Facility. As of December 28,
1996, the Company was in compliance with respect to all covenants under the
Senior Credit Facility.
On April 18, 1996, the Company completed a refinancing, which consisted
of (i) the sale of $100.0 million of 10.75% Senior Subordinated Notes due 2006
("the "Notes") pursuant to a private offering, (ii) the application of
approximately $96.0 million (after deduction of discounts to the Initial
Purchaser and other expenses of the Offering), together with other available
funds, to repay the outstanding indebtedness under the Company's Subordinated
Loan Facility. The Notes mature on April 15, 2006 and bear interest at the rate
of 10.75% per annum from April 15, 1996 payable semiannually on April 15th and
October 15th of each year, commencing October 15, 1996. The Notes may be
redeemed at the option of the Company on or after April 15, 2001, under the
conditions and at the redemption price as specified in the Note Indenture, dated
as of April 18, 1996, under which the Notes were issued. The Notes are
subordinated to all existing and future Senior Indebtedness (as defined) of the
Company and will be effectively subordinated to all obligations of any
subsidiaries of the Company. On September 4, 1996, the Company issued 10.75%
Series A Senior Subordinated Notes due 2006 (the "New Notes") in exchange for
all Notes, pursuant to an exchange offer whereby holders of the Notes received
New Notes which have been registered under the Securities Act of 1933, as
amended, but are otherwise identical to the Notes.
Future maturities of long-term obligations as of December 28, 1996 are
as follows (in thousands):
1997 $ 2,701
1998 7,310
1999 9,319
2000 11,329
2001 30,739
Thereafter 135,417
--------
$196,815
========
The fair value of the Company's long-term debt is estimated based on
the current rates offered to the Company for debt of similar terms and
maturities except for the 10.75% Series A Senior Subordinated Notes due 2006
which are measured at quoted market rate. The fair value of the Company's 10.75%
Series A Senior Subordinated Notes due 2006 was $105,250,000 at December 28,
1996. All other long-term debt approximates the carrying value at December 28,
1996.
32
33
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- -------------------------------------------------------------------------------
9. OTHER EXPENSE, NET
Other expense, net is comprised of the following (in thousands):
Successor Predecessor
--------- ------------------------------------
Period from Period from
March 22, December 31,
1996 1995 Year Year
through through Ended Ended
December 28, March 21, December 30, December 31,
1996 1996 1995 1994
---- ---- ---- ----
Acquisition related:
Management compensation $ 3,735 $ - $ - $ -
Other acquisition related expense 648 - - -
Management advisory fee 833 - - -
Sale of investment (4,011) - - -
Sale of land - - - (948)
Sale of idle facility - - - 2,823
Other non-operating expenses 352 96 400 642
------- ---- ------ -------
$ 1,557 $ 96 $ 400 $ 2,517
======= ==== ====== =======
The gain on sale of investment was related to the Company's minority
interests in Simmons Asia, Ltd. (10.0%), Simmons Bedding & Furniture (HK) Ltd.
(8.1%) and Simmons Company, Ltd. (6.8%).
10. EXTRAORDINARY ITEM
In April 1996, the Company recorded a $1,706,000 charge, net of
income tax benefit of $1,137,000, representing the remaining unamortized debt
issuance costs related to long-term obligations repaid as a result of the
refinancing of certain Acquisition debt.
11. LEASES
The Company leases certain facilities and equipment under
operating leases. Rent expense was $9,709,000, $2,388,000, $10,626,000 and
$10,143,000, for Successor '96, Predecessor '96, 1995 and 1994, respectively.
The following is a schedule of the future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year as of December 28, 1996 (in thousands):
1997 $ 8,917
1998 8,254
1999 7,487
2000 6,736
2001 6,562
Thereafter 17,177
------
$55,133
=======
12. SERIES A PREFERRED STOCK
The Company is authorized to issue 6,000,000 shares of preferred
stock, par value $.01 per share, 5,950,000 of which have been designated as
"Series A Preferred Stock." The remaining 50,000 shares are designated "Series C
Cumulative Redeemable Exchangeable Preferred Stock," none of which are
outstanding. At December 28, 1996, there were 5,670,406 shares outstanding of
the Series A Preferred Stock, all of which were
33
34
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
held by the ESOP.
Each share of Series A Preferred Stock is convertible, at the
option of the holder, into the number of shares of common stock of the Company
that results from multiplying the number of shares of Series A Preferred Stock
by the "Conversion Factor" in effect at the time of the conversion. At December
28, 1996 the Conversion Factor was one. However, the Conversion Factor will be
(i) proportionately increased if (A) the outstanding shares of common stock of
the Company are subdivided into a greater number of shares or a dividend
convertible into or exchangeable for common stock is paid or (B) the Investcorp
Option is exercised, and (ii) proportionately decreased if the outstanding
shares of common stock of the Company are combined into a smaller number of
shares. Shares of Series A Preferred Stock also are exchangeable for shares of
Class C Stock of Holdings upon the occurrence of certain events.
Shares of Series A Preferred Stock are redeemable for cash at the
option of the holder at a redemption price of $5.00 per share upon the
occurrence of one of the following events: (i) a sale of Holdings pursuant to
(A) a sale of 50% or more of the outstanding shares of Holdings' voting capital
stock, (B) a sale of all or substantially all of the assets of Holdings, or (C)
a merger, consolidation or recapitalization of Holdings as a result of which the
ownership of the surviving corporation's voting capital changes more than 50%;
or (ii) an initial public offering of common stock of the Company or Holdings
pursuant to an effective registration statement under the Securities Act of
1933.
In addition, holders of shares of Series A Preferred Stock have
certain "tag-along rights" and are subject to certain "drag-along rights"
pursuant to the terms of the Stockholders' Agreement following certain sales by
Holdings of shares of common stock of the Company.
Each share of Series A Preferred Stock entitles the holder thereof
to a number of votes equal to the number of votes carried by the number of
shares of common stock of the Company that would be issuable if such share of
Series A Preferred Stock were converted to common stock. In most circumstances
the ESOP Trustee votes such shares as directed by a committee appointed under
the ESOP. However, upon the occurrence of a corporate merger, consolidation,
recapitalization, liquidation, dissolution, sale of substantially all of the
assets of the Company or other similar transaction, participants in the ESOP may
direct the committee as to the manner in which such participants' allocated
shares shall be voted. Holders of Series A Preferred Stock are entitled to
receive equal per share dividends on an as-converted basis when dividends or
distributions are declared upon shares of common stock of the Company.
In the event of any involuntary or voluntary liquidation,
dissolution or winding-up of the affairs of the Company, holders of Series A
Preferred Stock are entitled to receive out of the assets of the Company
available for distribution to the shareholders, before any payments are made or
assets distributed on any common stock or on any other class or series of
capital stock of the Company, the amount of $5.00 per share. If the assets of
the Company are insufficient to permit such distribution, the entire assets of
the Company distributable to stockholders of the Company will be distributed
ratably among the holders of Series A Preferred Stock in proportion to the sum
of their respective per share liquidation values.
13. STOCK OPTION PLAN
The Company applies APB Opinion No. 25 and related interpretations
in accounting for its stock incentive plans. Financial Accounting Standards
Board ("FASB") Statement No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123") was issued by the FASB in October 1995 and, if fully adopted,
changes the methods for recognition of costs on plans similar to those of the
Company. Full adoption of the methodology described in SFAS 123 is optional;
however, proforma disclosure as if the Company adopted the cost recognition
requirements under SFAS 123 in 1996 are presented below.
At the time of the Acquisition, Holdings purchased all outstanding
vested options to acquire common stock of the Company from certain members of
management of the Company for an aggregate purchase price of approximately $6.9
million, of which $4.3 million was used by certain members of management to
purchase stock
34
35
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
of Holdings. Therefore, SFAS 123 disclosure of 1995 information is omitted, as
this information is not meaningful in light of the aforementioned transaction.
At the time of the Acquisition, the board of directors established
a Management Stock Incentive Plan (the "1996 Plan"), which provides for the
granting of nonqualified options for Class C common stock of Holdings to members
of management and certain key employees. Generally, the options outstanding
under the 1996 Plan: (i) are granted at prices which equate to or are above the
market value of the Class C stock on the date of grant, (ii) vest ratably over a
five year period based upon the achievement of an annual EBITDA amount, as
defined in the plan, or immediately upon the tenth (10th) anniversary of the
grant date and (iii) expire upon the thirtieth (30th) day following the tenth
(10th) anniversary of the grant date or other date(s) based upon certain
conditions as defined in the plan.
In connection with the Acquisition, the Company entered into an
agreement with Holdings whereby if Holdings grants any options to purchase
shares of common or Class C Stock of Holdings to a director, employee or
consultant of the Company, the Company will grant to Holdings corresponding
options, exercisable only upon exercise of the Holdings options, to purchase the
same number of shares of common stock of the Company at the same per share
exercise price and subject to substantially the same terms and conditions as the
Holdings options. All references to stock options under the 1996 Plan pertain to
the Holdings options which have been attributed to the Company for disclosure
purposes.
The fair value of each option granted in 1996 is estimated on the
grant date using the minimum present value method with the following assumptions
(i) risk free rate of return of 6.30% and 6.44%, (ii) an expected life of 7
years and (iii) no dividend payouts. The following table summarizes information
about stock options outstanding at December 28, 1996:
Options granted and outstanding at end of year 2,911,561
Option price range at end of year $2.66
Options vested at end of year 0
Weighted average fair value of options
granted during the year $0.93
Had compensation cost for the Company's 1996 grant for the 1996 Plan
been determined consistent with SFAS 123, the Company's net income applicable to
Successor '96 would have been approximately $1,155,000. The effects of applying
SFAS 123 in this proforma disclosure are not indicative of future amounts.
Prior to 1996, the board of directors had established a performance
stock option plan and a separate executive stock option plan ("the Old Plans").
The option price per share was equal to the estimated fair value on the date of
the grant. The Company had reserved shares in an amount sufficient for issuance
upon exercise of the options under the Old Plans. Stock option transactions for
both Old Plans are as follows:
December 30, December 31,
1995 1994
---- ----
Options outstanding at beginning of year 2,170,000 1,426,000
Granted 1,042,000 840,000
Canceled (160,000) (96,000)
---------- ----------
Options outstanding at end of year 3,052,000 2,170,000
========== ==========
Option price range at end of year $1.42 - 4.50 $1.42 - 3.30
Options vested at end of year 1,293,000 472,000
35
36
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
14. INCOME TAXES
The components of the provision for income taxes are as follows (in thousands):
Successor Predecessor
--------- --------------------------------------------
Period from Period from
March 22, December 31,
1996 1995 Year Year
through through Ended Ended
December 28, March 21, December 30, December 31,
1996 1996 1995 1994
---- ---- ---- ----
Current tax provision:
Federal $ - $ - $ 5,398 $ 277
State - - 1,102 208
Foreign 262 - - 264
------ ------ ------ ------
262 - 6,500 749
------ ------ ------ ------
Deferred tax provision:
Federal 3,627 231 903 2,166
State 793 51 103 318
------ ------ ------ ------
4,420 282 1,006 2,484
------ ------ ------ ------
$4,682 $ 282 $ 7,506 $3,233
====== ====== ======= ======
The reconciliation of the statutory federal income tax rate to the
effective income tax rate for Successor '96, Predecessor '96, 1995 and 1994
provision for income taxes is as follows (in thousands):
Successor Predecessor
--------- --------------------------------------------
Period from Period from
March 22, December 31,
1996 1995 Year Year
through through Ended Ended
December 28, March 21, December 30, December 31,
1996 1996 1995 1994
---- ---- ---- ----
Income taxes at federal statutory rate $2,618 $ (53) $ 5,921 $ 3,727
State income taxes, net of federal benefit 556 (18) 889 347
Goodwill amortization 1,216 301 1,491 1,491
Reduction of valuation allowance - - (1,914) (3,626)
Other, net 292 52 1,119 1,294
------ ------- ------- -------
$4,682 $ 282 $ 7,506 $ 3,233
====== ======= ======= =======
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37
SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
Components of the net deferred income tax asset (liability) at December
28, 1996 and December 30, 1995 are as follows (in thousands):
Successor Predecessor
December 28, December 30,
1996 1995
-------------- ----------
Current deferred income taxes:
Accounts receivable and inventory reserves $ 4,054 $ 2,587
Accrued liabilities not currently deductible 3,739 5,014
Net operating loss carryforwards 2,505 -
Prepaids and other assets, net currently taxable (318) (36)
-------- -------
9,980 7,565
Noncurrent deferred income taxes:
Property basis differences (2,960) (1,356)
Patents basis differences (5,205) (4,871)
ESOP liability basis differences 10,844 (7,181)
Net operating loss carryforwards 1,688 1,688
Valuation allowance (1,688) (1,688)
Other noncurrent accrued liabilities, not currently
deductible 5,361 6,871
-------- -------
8,040 (6,537)
-------- -------
Net deferred tax asset $ 18,020 $ 1,028
======== =======
At December 28, 1996, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $10,748,000, of which
$5,773,000 is limited to its utilization under the Internal Revenue Code. Due to
such limitations, the Company believes it is more likely than not that it will
not realize the benefit of the loss carryforwards and has provided a valuation
allowance of approximately $1,688,000 to fully reserve such amounts as of
December 28, 1996. These carryforwards expire through 2011.
15. RETIREMENT PLANS
The Company has a defined contribution pension plan (a 401(K) plan) for
substantially all employees other than employees subject to collective
bargaining agreements. Eligible participants may make limited contributions to
the defined contribution plan; however, no employer contributions are allowed.
Certain union employees participate in multi employer pension plans
sponsored by their respective unions. Amounts charged to pension cost,
representing the Company's required contributions to these plans for Successor
'96 and Predecessor '96, combined, 1995 and 1994, were $1,495,000, $1,366,000
and $1,403,000, respectively.
The Company had accrued $2,709,000 and $2,448,000 at December 28, 1996
and December 30, 1995, respectively, for a supplemental executive retirement
plan for a former executive. Such amounts are included in postretirement benefit
obligations other than pensions in the accompanying consolidated balance sheets.
The Company also has an unfunded nonqualified employee stock ownership
plan to provide benefits to certain employees who were not eligible to
participate in the ESOP. Benefits are to be paid in cash and are computed based
on the value of shares the participants would have received had they
participated in the ESOP. Participants are entitled to receive accrued benefits
upon termination of employment with the Company, retirement, death, or permanent
disability. Benefits vest based on the provisions of the ESOP. The Company
charged approximately $128,000, $405,000 and $582,000 to expense for Successor
'96 and Predecessor '96, combined, 1995 and 1994, respectively. The accrued
benefits under the nonqualified plan were $156,000 and $1,132,000 at December
28, 1996 and December 30, 1995, respectively, and are included in other
long-term liabilities in the accompanying consolidated balance sheets. Vested
interests of current participants in the plan were distributed upon consummation
of the Acquisition.
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SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
The Company provides certain health care and life insurance benefits to
eligible retired employees. Eligibility is defined as retirement from active
employment, having reached age 55 with 15 years of service, and previous
coverage as a salaried or nonunion employee. Additionally, dependents are
eligible to receive benefits, provided the dependent was covered prior to
retirement. The medical plan pays a stated percentage of most medical expenses
reduced for any deductible and payments made by government programs and other
group coverage. Additionally, there is a $20,000 lifetime maximum benefit for
participants age 65 and over. The Company also provides life insurance to all
retirees who retired before 1979. These plans are unfunded.
The Company accrues the cost of providing postretirement benefits,
including medical and life insurance coverage, during the active service period
of the employee.
The following table presents a reconciliation of the Plan's status at
December 28, 1996 and December 30, 1995 (in thousands):
December 28, December 30,
1996 1995
---- ----
Accumulated postretirement benefit obligation:
Retirees $ 3,177 $3,406
Fully eligible active plan participants 996 890
Other active participants 1,378 1,259
------- ------
5,551 5,555
Unrecognized prior service cost 273 303
Unrecognized net gain/(loss) (51) 88
------- ------
Accrued postretirement benefit obligation $ 5,773 $5,946
======= ======
The components of the net periodic postretirement benefit cost for
Successor '96 and Predecessor '96, combined, 1995 and 1994 are as follows (in
thousands):
December 28, December 30, December 31,
1996 1995 1994
---- ---- ----
Service cost $ 156 $ 163 $ 137
Interest cost on accumulated benefit
obligation 375 387 412
Amortization of unrecognized prior service
cost (30) (30) (30)
----- ----- -----
Net periodic postretirement benefit cost $ 501 $ 520 $ 519
===== ===== =====
Assumptions used in the computation of the accumulated postretirement
benefit obligation at December 28, 1996 and December 30, 1995 are as follows:
December 28, December 30,
1996 1995
---- ----
Discount rate 7.25% 7.0%
Initial health care cost trend rate 11.0% 11.5%
Ultimate health care cost trend rate 5.5% 5.5%
Year ultimate health care cost trend rate reached 2007 2007
If the health care cost trend rate were increased by 1% for all future
years, the accumulated postretirement benefit obligation as of December 28, 1996
would have increased 7.8%. The effect of this change on the aggregate of service
and interest cost for 1996 would have been an increase of 10.7%.
16. CONTINGENCIES
From time to time, the Company has been involved in various legal
proceedings. Management believes that all of such litigation is routine in
nature and incidental to the conduct of its business, and that none of such
litigation,
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SIMMONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
- --------------------------------------------------------------------------------
if determined adversely to the Company, would have a material adverse effect on
the financial condition or results of operations of the Company.
17. RELATED PARTY TRANSACTIONS
In connection with the Acquisition, the Company entered into an
agreement for management advisory and consulting services (the "Management
Agreement") with Investcorp International Inc. ("International") pursuant to
which the Company agreed to pay International $1.0 million per annum for a
five-year term. At the closing of the Acquisition, the Company paid
International $3.0 million for the first three years of the term of the
Management Agreement in accordance with its terms. As of December 28, 1996,
approximately $2.2 million of this payment remained unamortized and a portion of
the balance is reflected in the other current asset and other asset sections of
the balance sheet, as appropriate.
In connection with the Acquisition, the Company entered into an
agreement with Holdings pursuant to which the Company agreed to reimburse
Holdings for certain expenses incident to Holdings' ownership of the Company's
capital stock for as long as Holdings and the Company file consolidated federal
income tax returns. Such expenses include franchise taxes and other fees
required to maintain Holdings' corporate existence; operating costs incurred by
Holdings attributable to its ownership of the Company's capital stock not to
exceed $250,000 per fiscal year; federal, state and local taxes paid by Holdings
and attributable to income of the Company and its subsidiaries other than taxes
arising from the sale or exchange by Holdings of the Company's common stock; the
purchase price of capital stock or options to purchase capital stock of Holdings
owned by former employees of the Company or its subsidiaries not to exceed
$2,500,000 per year or $7,500,000, in the aggregate, permitted under the Senior
Credit Facility and the indenture relating to the Series A Senior Subordinated
Notes due 2006; and registration expenses incurred by Holdings incident to a
registration of any capital stock of Holdings under the Securities Act.
39
40
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
40
41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and principal occupation
or position of each of the directors and executive officers of the Company. Each
director of the Company will hold office until the next annual meeting of
shareholders of the Company or until his successor has been elected and
qualified. Officers of the Company are elected by the Board of Directors of the
Company and serve at the discretion of the Board of Directors.
Name Age Positions
- -----------------------------------------------------------------------
Zenon S. Nie 46 Chairman of the Board of Directors, Chief
Executive Officer and Director.
Jonathan C. Daiker 49 Executive Vice President - Finance and Administration,
Chief Financial Officer and Director.
Martin R. Passaglia 48 Senior Executive Vice President and Director.
Jon P. Hedley 36 Director.
Christopher J. O'Brien 38 Director.
Charles J. Philippin 46 Director.
Savio W. Tung 45 Director.
William L. Ayers, IV 51 Executive Vice President - Marketing and Sales.
Joseph Ulicny 54 Executive Vice President - Market Development.
Robert K. Barton 56 Senior Vice President - Human Resources.
Leo T. Brennan 62 Vice President-Materials Management.
Roger W. Franklin 41 Vice President-Finance and Treasurer.
James P. Maher 61 Divisional President.
Cleve B. Murphy 46 Divisional President.
Gary G. Pleasant 54 Divisional President.
DIRECTORS
The following sets forth the name, principal occupation and employment
and business experience during the last five years for each of the Company's
directors:
Zenon S. Nie joined the Company in 1993 as Chief Executive Officer and
was appointed Chairman in January 1994. Prior to joining the Company, Mr. Nie
served as President of the Consumer Home Fashions Division of The Bibb Company,
a textile manufacturer, from 1991 to 1993. From 1981 through 1991, Mr. Nie held
several senior management positions at Serta, Inc., a bedding manufacturer,
including President, Executive Vice President, Chief Operating Officer, Senior
Vice President-Manufacturing, Finance and Administrative and Vice
President-Strategic Planning. Mr. Nie's previous experience includes several
marketing positions at Sealy Corporation, a bedding manufacturer.
Jonathan C. Daiker joined the Company in April 1995 as Executive Vice
President-Finance and Administration, Chief Financial Officer. Prior to joining
the Company, Mr. Daiker held a number of directorships in the corporate offices
of Philips Electronics North America Corporation, a consumer electronics
manufacturer, as well as operating positions within its divisional structure
from 1981 to 1995. Most recently, he was Senior Vice President and Chief
Financial Officer for Philips Lighting Company, a manufacturer of commercial and
residential electrical lighting products. Prior to Philips, he was a senior
manager with Price Waterhouse, an accounting firm, from 1971 to 1981, and is a
Certified Public Accountant.
Martin R. Passaglia joined the Company in 1973 as a Sales
Representative. He has held various positions during his tenure including
Regional Sales Manager, Vice President and General Manager-Hawaii, Executive
Vice President-Account Development and Executive Vice President-Marketing and
was promoted to Senior Executive Vice President in January 1994.
41
42
Jon P. Hedley became a director of the Company upon its creation in
March 1996. He has been an executive of Investcorp, its predecessor or one
or more of its wholly owned subsidiaries since April 1990. Mr. Hedley is a
director of Saks Holdings, Inc. and Prime Service, Inc.
Christopher J. O'Brien became a director of the Company upon its
creation in March 1996. He has been an executive of Investcorp, its
predecessor or one or more of its wholly owned subsidiaries since December
1993. Prior to joining Investcorp, Mr. O'Brien was a Managing Director of
Mancuso & Company, a commercial lending institution, for four years. Mr.
O'Brien is a director of Prime Service, Inc.
Charles J. Philippin became a director of the Company upon its
creation in March 1996. He has been an executive of Investcorp, its
predecessor or one or more of its wholly owned subsidiaries since July
1994. Prior to joining Investcorp, Mr. Philippin was a partner of
Coopers & Lybrand L.L.P., an accounting firm. Mr. Philippin is a
director of Saks Holdings, Inc. and Prime Service, Inc.
Savio W. Tung became a director of the Company upon its creation
in March 1996. He has been an executive of Investcorp, its predecessor or one
or more of its wholly-owned subsidiaries since September 1984. Mr. Tung is a
director of Saks Holdings, Inc.
EXECUTIVE OFFICERS
The following sets forth the name, position and certain other
information with respect to the executive and certain other appointed officers
of the Company:
William L. Ayers, IV joined the Company in 1973. He has held several
sales management positions including Vice President and General Manager-Los
Angeles and Divisional Executive Vice President, and was promoted to Executive
Vice President-Sales and Marketing in February 1994.
Joseph Ulicny joined the Company in 1992 as Executive Vice
President-Finance and Chief Financial Officer. In 1995, he assumed his current
position as Executive Vice President - Market Development. Prior to joining the
Company, Mr. Ulicny served in financial executive positions with Dannon Company,
a yogurt wholesaler, for over seven years from 1985 to 1992.
Robert K. Barton joined the Company in February 1982 as Director of
Dealer Financial Services. He served as Vice President-Dealer Financial
Services, Vice President-Administration and Vice President-Human Resources prior
to assuming his current position as Senior Vice President-Human Resources in
March 1989.
Leo T. Brennan joined the Company in 1978 as Director of Purchasing and
was promoted to his current position as Vice President-Materials Management in
1985.
Roger W. Franklin joined the Company in November 1986 as Director of
Taxes. He served as Vice President-Controller prior to assuming his current
position as Vice President-Finance and Treasurer in October 1990. Prior to
joining the Company, Mr. Franklin spent almost nine years with Price Waterhouse,
an accounting firm, in both the audit and tax areas from 1978 to 1986 and is a
Certified Public Accountant.
James P. Maher joined the Company in 1989 and has served as Vice
President and General Manager-Jacksonville, Vice President and General
Manager-San Leandro and Divisional Executive Vice President. He was promoted to
his current position of Divisional President in January 1997. Before joining the
Company, Mr. Maher held senior management positions with Nachman Corporation, a
wire and bedding components manufacturer, Leggett & Platt, Inc., a manufacturer
of bedding components, and May & Company, a bedding manufacturer.
Cleve B. Murphy joined the Company in May 1995 as Divisional Executive
Vice President. He was promoted to his current position of Divisional President
in January 1997. Mr. Murphy's background includes twelve years at Sealy
Corporation., a bedding manufacturer, where he started as Sales Manager and
became one of four Regional Vice Presidents, from 1983 to 1995. Prior to his
employment with Sealy, Mr. Murphy served eight years as General Manager for
Englander, a bedding manufacturer, from 1975 to 1983 and two years with Serta,
Inc. from 1973 to 1975.
42
43
Gary G. Pleasant rejoined the Company in 1991 as Vice President and
General Manager-Seattle and was promoted to Divisional Executive Vice President,
in January 1995. He was promoted to his current position of Divisional President
in January 1997. Mr. Pleasant had been previously employed by the Company from
1966 to 1985 in various sales management positions. From 1985 to 1991, Mr.
Pleasant worked for Sealy Corporation, first as Vice President-Sales-Ohio-Sealy
and then as National Vice President-Marketing and Sales.
DIRECTOR COMPENSATION
The Company pays no additional remuneration to its employees or to
executives of Investcorp for serving as directors. See "--Executive
Compensation." There are no family relationships among any of the directors or
executive officers.
43
44
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all cash compensation earned in the
previous three years by the Company's Chief Executive Officer and each of the
other four most highly compensated executive officers whose remuneration
exceeded $100,000. The current compensation arrangements for each of these
officers are described in "Employment Arrangements" below.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation-
Awards
---------------
Securities
Annual Compensation Underlying
------------------- Options / All Other
Salary Bonus (a) SARs (b) Compensation (c)
Name and Principal Position Year ($) ($) (#) ($)
--------------------------- ---- ---- ---- --- ---
Zenon S. Nie 1996 501,458 876,823 1,800,000 14,359
Chairman & Chief Executive Officer 1995 404,167 474,896 300,000 23,142
1994 377,203 412,702 350,000 3,598
Martin R. Passaglia 1996 267,500 234,063 64,237 144,529
Senior Executive Vice President 1995 250,000 262,500 71,306 20,459
1994 250,000 242,880 - 19,909
Jonathan C. Daiker 1996 205,750 230,031 156,338 13,549
Executive Vice President - Finance & 1995 150,000 182,500 150,500 24,144
Administration, Chief Financial Officer 1994 - - - -
Joseph Ulicny 1996 172,483 150,923 30,000 9,836
Executive Vice President - Market 1995 167,200 175,962 - 19,996
Development 1994 160,210 155,383 - 18,292
Robert K. Barton 1996 171,750 150,281 63,667 130,255
Senior Vice President - Human 1995 165,500 173,775 70,500 19,801
Resources 1994 151,831 146,878 - 18,894
- ---------------
(a) Earned in year shown but paid in subsequent year.
(b) The amounts shown are the number of shares underlying options granted in the
respective years. In connection with the Acquisition, all outstanding options
issued prior to the Acquisition were purchased for an aggregate of $6,950,000,
representing the value of such options based on their exercise prices. Messrs.
Nie, Passaglia, Daiker, Ulicny and Barton received $1,812,800, $364,496,
$117,435, $308,856 and $363,867, respectively, for their options, which amounts
were invested in Class C Stock of Holdings. The 1996 amounts represent Class C
common shares of Simmons Holdings, Inc., issued in connection with the
Acquisition which are attributed to the Company through Parent Option agreement
between Holdings and the Company.
(c) Consists of (i) contributions to defined contribution plans in 1995 and
1994, respectively, in the amounts of $15,368 and $0 for Mr. Nie, $15,740 and
$18,220 for Mr. Passaglia, $0 and $0 for Mr. Daiker, $15,368 and $17,483 for Mr.
Ulicny, and $15,740 and $18,220 for Mr. Barton (1996 contributions have not been
established as of this date); (ii) premiums for term life insurance and
long-term disability insurance in 1996, 1995 and 1994, respectively, in the
amounts of $14,359, $7,774 and $3,598 for Mr. Nie, $11,185, $4,719 and $1,689
for Mr. Passaglia, $8,231, $5,334 and $0 for Mr. Daiker, $9,836, $4,628 and $809
for Mr. Ulicny, $11,908, $4,061 and $674 for Mr. Barton, respectively; (iii)
payments of benefit under non-qualified ESOP in 1996, in the amount of $133,344
and $118,347
44
45
for Mr. Passaglia and Mr. Barton, respectively; and (iii) relocation assistance
in 1996 and 1995 in the amounts of $5,228 and $18,810 for Mr. Daiker.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (a)
Individual Grants
----------------------------------
Percent of
Total Potential Realizable Value
Options / of
Number of SARs Assumed Annual Rates of
Securities Granted Stock
Underlying to Exercise Price Appreciation For
Option / Employees or Option
SARs in Fiscal Base Price Expiration Terms
-----------------------------
Name Granted (#) Year (c) ($ / Sh) Date 5% ($) 10% ($)
---- ----------- -------- -------- ---- ------ -------
Zenon S. Nie 1,800,000 61.8% $2.66 2006 7,794,000 12,420,000
Martin R. Passaglia 64,237 2.2% $2.66 2006 278,146 443,235
Jonathan C. Daiker 156,338 5.4% $2.66 2006 676,944 1,078,732
Joseph Ulicny 30,000 1.0% $2.66 2006 129,900 207,000
Robert K. Barton 63,667 2.2% $2.66 2006 275,678 439,302
(a) see note (b) above.
AGGREGATE OPTION EXERCISES AND
FISCAL YEAR-END OPTION VALUE TABLE
Number of Shares Of
Common Stock
Shares Underlying
Acquired on Value Unexercised Options at
Exercise Realized December 28, 1996
-----------------------------------------
Name (#) ($) Vested Unvested
---- ------------------ ----- ------ --------
Zenon S. Nie 681,708 1,812,800 0 1,800,000
Martin R. Passaglia 137,069 364,496 0 64,237
Jonathan C. Daiker 44,162 117,435 0 156,338
Joseph Ulicny 116,146 308,856 0 30,000
Robert K. Barton 136,833 363,867 0 63,667
RETIREMENT PLANS
The Company has one single employer defined benefit plan and two single
employer defined contribution plans (the Simmons ESOP ("ESOP") and a 401(K)
plan), and makes contributions to multi-employer pension plans. In the
aggregate, these plans cover substantially all permanent employees.
Qualified Retirement Plans.
The Company maintains several single employer retirement plans which
are intended to be qualified under Section 401(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). The Company also participates in a number of
multi-employer pension plans, from which it has no present intention to
withdraw.
Defined Contribution Plans.
The Company sponsors two single employer defined contribution pension
plans; the Simmons Retirement Savings Plan and the ESOP.
45
46
SIMMONS RETIREMENT SAVINGS PLAN. The Simmons Retirement Savings Plan
contains a cash or deferred arrangement under Section 401(K) of the Code.
Employees with 12 weeks of employment who have reached age 21 are permitted to
participate in the plan, and generally employees covered by collective
bargaining agreements are not permitted to participate, unless the agreement
expressly provides for participation.
As a result of forming the ESOP in January 1989, the Company suspended
all employer and employee contributions to this defined contribution plan during
1989 and 1990. Effective during the 1991 plan year, eligible participants could
again make limited contributions to this defined benefit plan; however, no
employer contributions were allowed. The status of plan participants was not
affected.
Presently, there are approximately 547 participants in this plan, and
participants have the ability to direct the investment of their account
balances. Eligible employees may defer the receipt of a portion of their covered
compensation up to 6% of compensation on a pre-tax basis, subject to various
limitations. Participants are fully vested in their contributions at all times.
The Company did not make any contributions to the plan during plan year 1994
(other than the pre-tax deferrals mentioned above).
ESOP. The ESOP is a defined contribution pension benefit plan that is
designed to qualify as a leveraged employee stock ownership plan within the
meaning of Section 4975(e)(7) of the Code. Assets of the ESOP are held in a
trust with respect to which NationsBank, N.A. (South) (the "ESOP Trustee")
serves as trustee. The ESOP covers otherwise eligible employees of the Company
who have completed at least one year of service for the Company, and have
reached age 21. As of December 28, 1996, approximately 1,300 employees
participated in the ESOP.
The ESOP provides benefits to each participating employee based on the
value of the Company's Series A Preferred Stock allocated to such participant's
account over the period of such participant's participation in the plan. In
general, benefits become payable to participants only following retirement or
other separation from employment.
Leveraged ESOPs differ from other defined contribution employee pension
benefit plans due to their ability to borrow funds from the employer sponsoring
the plan or from other parties in order to acquire company stock for allocation
to participants' accounts as such indebtedness is repaid. Pending such
allocation, as described below, company stock acquired by the ESOP is held by
the trustee in a suspense account. In connection with the establishment of the
ESOP in 1989, the ESOP borrowed funds from the Company for the purpose of
acquiring Company stock. As of December 28, 1996, the ESOP was indebted to the
Company in the approximate principal amount of $61.2 million. Prior to March 22,
1996, the date of the Acquistion, the ESOP held 11,671,663 shares of common
stock of the Company. On the Acquisition Closing Date, the ESOP sold 6,001,257
shares, representing all shares theretofore allocated to participants' ESOP
accounts, to Holdings for approximately $31.2 million in the aggregate, the net
proceeds of which were reinvested in diversified investments in the respective
accounts of such participants in the ESOP. Pursuant to the Merger, the remaining
5,670,406 shares, representing all unallocated shares held in the suspense
account, were converted into Series A Preferred Stock. If converted into common
stock of the Company or capital stock of Holdings, the Series A Preferred Stock
would represent direct or indirect ownership of 15.1% of the common stock of the
Company, after giving effect to such conversion (exclusive of stock options
granted under the Company's management stock incentive plan).
The Company will make annual cash contributions to the ESOP in an
amount up to 25% of eligible participant compensation, subject to certain
limitations and conditions. The ESOP will then use all such cash to repay the
internal ESOP Loan to the Company. As a result, there is no cash cost to the
Company associated with the contribution to the ESOP. As the internal ESOP Loan
is repaid, a portion of the Series A Preferred Stock will be allocated to
participant accounts and non-cash ESOP expense equal to the fair value of the
allocated shares is charged to non-cash ESOP expense. At such time as the
internal ESOP Loan is repaid in full (expected to be in approximately five
years), all shares of Series A Preferred Stock held by the ESOP will have been
allocated to plan participants.
With certain limited exceptions (such as an exception required by law
permitting certain retirement age individuals with at least 10 years of plan
participation to liquidate, over a six-year period, shares allocated to their
accounts) shares allocated to a participant's account under the ESOP cannot be
sold or otherwise transferred by the participant. The ESOP provides for
distributions to be made to participants following termination of employment.
With respect to participants whose termination of employment occurs after
becoming eligible for retirement (age 65), early retirement (age 55 with at
least 10 years of service), on account of permanent disability or death,
distribution generally is made during the plan year following the plan year in
which such termination occurs. In all other cases,
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distribution generally is made or commences to be made after the expiration of a
five plan year period following the plan year in which termination occurs.
Distributions are made in cash, based on the fair market value (as determined
pursuant to an annual appraisal) of the shares allocated to the participant's
account. Such shares are deemed to have a value of not less than the redemption
price for such shares. A participant entitled to a distribution is entitled
under law to have Company shares allocated to his or her account distributed in
kind. A participant electing to have a distribution of shares has a limited
right to require the Company to purchase such shares at fair market value over
an approximately two year period, with such value to be not less than the
redemption price, in the case of shares of Series A Preferred Stock.
Defined Benefit Plan. The Company also sponsors a single employer
defined benefit pension plan for eligible employees called the Retirement Plan
for Simmons U.S.A. Employees. This plan currently benefits only employees
covered by certain collective bargaining agreements, and has approximately 122
participants. The monthly benefit for such participants upon normal retirement
is generally determined as the sum of (i) 0.75% of monthly earnings as of
January 1, 1963 multiplied by specified credited service as of May 1, 1963, (ii)
1.0% of the first $400 of monthly earnings plus 1.75% of monthly earnings in
excess of $400 for the time period from May 1, 1963 through April 30, 1967 and
(iii) 1.25% of the first $550 of monthly earnings plus 1.75% of monthly earnings
in excess of $550 for each year and completed month of credited service,
beginning May 1, 1967. There is a reduction for benefits accrued under the
Retirement Plan for Simmons Employees, a predecessor plan that was terminated in
1987. A somewhat different formula applies to certain employees who are
represented by IAM Local 315 in New Jersey and UFWA Local 262 in California.
This plan is fully funded and accruals have been frozen. None of the named
executive officers benefits under the plan.
Multiemployer Plans. Certain union employees participate in
multi-employer pension plans sponsored by their respective unions. Amounts
charged to pension cost, representing the Company's required contributions to
these plans for the periods ended March 21, 1996 and December 28, 1996 combined,
years ended December 30, 1995 and December 25, 1994, were $1,495,000, $1,366,000
and $1,403,000, respectively.
Nonqualified Plans.
Simmons Company Nonqualified Employee Stock Ownership Plan. In 1989,
the Company instituted this nonqualified plan to provide benefits to eligible
employees similar to those benefits provided under the ESOP, described above.
This plan covers certain employees who are not eligible to participate in the
ESOP because of restrictions imposed by the ESOP on employees who elected
favorable income tax treatment under Code Section 1402 with respect to the sale
of employer securities to the ESOP. Benefits are to be paid in cash and are
computed based on the value of shares the participants would have received had
they participated in the ESOP. Participants are entitled to receive accrued
benefits upon termination of employment with the Company, retirement, death or
permanent disability. The nonqualified plan provides for bookkeeping entries to
be provided on account of each Member, to be credited with the shares of stock
which would have been allocated to the Member's accounts under the ESOP but for
the fact that the ESOP terms restricted such an allocation. The same vesting
schedule and distribution provisions apply as are described in the ESOP. The
Company charged approximately $128,000, $405,000 and $582,000 to expense for the
periods ended March 21, 1996 and December 28, 1996 combined, years ended
December 30, 1995 and December 25, 1994, respectively. The accrued benefits
under the nonqualified plan were $156,000, $1,132,000 and $786,000 at December
28, 1996, December 30, 1995 and December 31, 1994, respectively, and are
included in other long term liabilities in the accompanying balance sheets.
Vested interests of current participants in the plan were distributed upon
consummation of the Acquisition, resulting in payments to Messrs. Barton and
Passaglia of $118,347 and $133,344, respectively.
Retiree Health Coverage.
The Company provides certain health care and life insurance benefits to
eligible retired employees. Eligibility is defined as retirement from active
employment, having reached age 55 with 15 years of service, and previous
coverage as a salaried or non-union employee. Additionally, dependents are
eligible to receive benefits, provided the dependent was covered prior to
retirement. The medical plan pays a stated percentage of most medical expenses
reduced for any deductible and payments made by government programs and other
group coverage. Additionally, there is a $20,000 lifetime maximum benefit for
participants age 65 and over. The Company also provides life insurance to all
retirees who retired before 1979. These plans are unfunded.
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EMPLOYMENT ARRANGEMENTS
Zenon Nie, Chairman of the Board of Directors and Chief Executive
Officer, and the Company have entered into a three-year employment agreement
(which renews automatically on a daily basis, subject to termination upon three
years' notice). Pursuant to that agreement, Mr. Nie is entitled to receive (i) a
base salary, currently $500,000 per year, subject to further increases approved
by the Company's Board of Directors, (ii) an annual cash bonus based upon
achieving specified levels of operating income (the "Annual Incentive Plan") and
(iii) specified fringe benefits, including reimbursement of country club dues
and provision of an automobile.
Martin R. Passaglia, Senior Executive Vice President, and Jonathan C.
Daiker, Executive Vice President-Finance and Administration and Chief Financial
Officer, have entered into employment agreements with the Company, expiring on
January 1, 1997 and March 22, 1998, respectively. Mr. Passaglia's employment
agreement renews automatically for successive one-year terms, subject to
termination upon notice. Pursuant to these agreements, Messrs. Passaglia and
Daiker are entitled to receive a base salary, currently $267,500 and $213,000
per year, respectively (subject to further increases approved by the Company's
Board of Directors), and to participate in all Company incentive and fringe
benefit programs, including the Annual Incentive Plan.
Certain additional executive officers, including named executive
officers Robert K. Barton, Jonathan C. Daiker and Martin R. Passaglia have
entered into employment agreements pursuant to which such executive officers
will be entitled to continue to receive base salary for up to twelve months plus
pro rata payments under the Annual Incentive Plan in the event that their
employment is terminated other than for cause, death or disability, following a
Change of Control, as defined therein. In the case of Messrs. Daiker and
Passaglia, the agreements specify that payments due upon a termination following
a Change in Control will be the greater of amounts owing pursuant to either
these agreements or the agreements referenced in the preceding paragraph. All
executive officers are eligible to participate in the Annual Incentive Plan,
payments under which are based upon the Company's achievement of targeted levels
of operating income, as defined in the plan.
MANAGEMENT STOCK INCENTIVE PLAN
Upon the consummation of the Acquisition, Holdings adopted a Management
Stock Incentive Plan (the "Plan"), in order to provide incentives to employees
and directors of Holdings and the Company by granting them awards tied to the
Class C Stock of Holdings. The Plan is administered by a committee of the Board
of Directors of Holdings (the "Compensation Committee"), which has broad
authority in administering and interpreting the Plan. Awards to employees are
not restricted to any specified form or structure and may include, without
limitation, restricted stock, stock options, deferred stock or stock
appreciation rights (collectively, "Awards"). Options granted under the Plan may
be options intended to qualify as incentive stock options under Section 422 of
the Code or options not intended to so qualify. An Award granted under the Plan
to an employee may include a provision terminating the Award upon termination of
employment under certain circumstances or accelerating the receipt of benefits
upon the occurrence of specified events, including, at the discretion of the
Compensation Committee, any change of control of the Company.
Holdings has granted options to purchase up to 2,440,750 shares of its
Class C Stock to certain members of the Company's senior management and has
granted additional options to purchase an aggregate of up to approximately
470,811 shares of its Class C Stock to other officers and employees of the
Company. The exercise price of each option granted in connection with the
Acquisition is $2.66 per share, which is the same price per share paid by
existing holders of Class C Stock of Holdings to acquire such Class C Stock. In
addition, Holdings has granted options to purchase up to an additional 211,744
shares of its Class C Stock to certain members of the Company's senior
management at an exercise price of $3.57 per share, which are exercisable if an
option that has been granted to an affiliate of Investcorp (the "Investcorp
Option") is exercised. Holdings has granted options to acquire up to an
additional 35,418 shares of its Class C Stock to officers and employees of the
Company, at an exercise price of $3.57 per share, which are also exercisable if
the Investcorp Option is exercised. Except as noted in the preceding sentence,
the exercise price of each option granted in the future will be equal to the
fair market value of the Company's common stock at the time of the grant. Each
option will be subject to certain vesting provisions. To the extent not earlier
vested or terminated, all options will vest on the tenth anniversary of the date
of grant and will expire 30 days thereafter if not exercised. In addition,
certain holders of Class C Stock of Holdings have indicated an intent to offer
certain members of the Company's management an opportunity to purchase shares of
Class C Stock of Holdings at the same price paid by such holders.
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BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The Board of Directors is responsible for the general compensation
policies of the Company, and in particular is responsible for setting and
administering the policies that govern executive compensation. The Board
evaluates the performance of management and determines the compensation levels
for the Chief Executive Officer (the "CEO"). The CEO determines compensation
levels for all other executive officers subject to the informal approval of the
non-employee members of the Board.
The objective of the Board is to establish policies and programs to
attract and retain key executives, and to reward performance by these executives
which benefit the stockholders. The primary elements of executive compensation
are base salary, annual cash bonus, and stock option awards. The salary is based
on factors such as the individual executive officer's level of responsibility,
and comparison to similar positions in the Company and in comparable companies.
The annual cash bonuses are based on the Company's performance measured against
attainment of financial and other objectives established annually by the Board,
and on individual performance. Stock option awards are intended to align the
executive officer's interests with those of the stockholders in promoting the
long-term growth of the Company, and are determined based on the executive
officer's level of responsibility, number of options previously granted, and
contributions toward achieving the objectives of the Company. Further
information on each of these compensation elements follows.
SALARIES
Base salaries are adjusted annually, following a review by the "CEO".
In the course of the review, performance of the individual with respect to
specific objectives is evaluated, as are any increases in responsibility, and
salaries for similar positions. The specific objectives for each executive
officer are set by the individual's manager or the CEO, and will vary for each
executive position and for each year. Since this is a base salary review,
performance of the Company does not weigh heavily in the result. When all
reviews are completed, the CEO makes a recommendation to the non-employee
members of the Board for their review and final approval.
With respect to the CEO, the Board reviews and fixes his base salary
primarily on the Board's assessment of his performance and its expectations as
to his future contributions. Competitive compensation data is also a major
factor in establishing the CEO's salary, but no precise formula is applied in
considering this data. The Board's review takes place annually.
ANNUAL CASH BONUSES
For fiscal year 1996, annual cash bonuses were governed by the
Company's Management Incentive Plan which is heavily dependent on the financial
performance of the Company, and less so on individual performance. The Board of
Directors of the Company reviewed the business plan developed by management and
then approved the objectives for the year, capital expenditure plans and other
factors, and set a target amount of earnings. The Board then incorporated this
target into the Management Incentive Plan as a threshold below which no bonus
would be paid. With respect to the CEO's bonus, the Board reviewed this
separately, with the amount allocated by salary ratio as a base. Performance
factors were then considered, such as attainment of objectives in product
development, market share, representation of the Company at investor meetings,
development of management personnel, and other considerations, including in
particular for 1996, the successful completion of the Investcorp transaction.
STOCK OPTION AWARDS
Stock options are an integral part of each executives officer's
compensation and are intended to provide an incentive to continue as employees
of the Company over a long term, and to align the interests of the executive
with those of the stockholders by providing a stake in the Company. The Company
originally granted stock options in connection with the Acquisition. In making
grants the Board takes into account the total number of shares available for
grant, prior grants outstanding, and estimated requirements for future grants.
Individual awards take into account the executive officer's contributions to the
Company, scope of responsibilities, strategies and operational goals, salary and
number of unvested options.
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In determining an option grant for the CEO, the Board weighs all of the
above factors, but also recognizes the CEO's critical role in developing
strategies for the long-term benefit of the Company. Stock options are an
important element in attracting and retaining capable executives at all levels,
and this is particularly so in the case of the CEO.
The Board continually reviews the Company's compensation programs to
ensure the overall package is competitive, balanced, and that proper incentives
and rewards are provided. The Board has not formulated a policy on qualifying
executive officer compensation under new Section 162 (m) of the Code (adopted
under the Omnibus Budget and Reconciliation Act of 1993).
Board of Directors
Zenon S. Nie
Jonathan C. Daiker
Martin R. Passaglia
Jon P. Hedley
Christopher J. O'Brien
Charles J. Philippin
Savio W. Tung
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL")
authorizes a corporation to indemnify and advance reasonable expenses to any
person who was a party, is a party, or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
The Company's Amended and Restated Articles of Incorporation and Bylaws
each include indemnification provisions that mirror the language of the statute.
In addition, the Company's Bylaws provide that, subject to any limitation in the
Company's Articles of Incorporation, the Company may indemnify a director or
officer to the fullest extent permitted by law, including, without limitation,
DGCL Sec.145. Consequently, a director or officer of the Company or a person
serving at the request of the Company in the above-named capacities will be
fully indemnified against such judgments, penalties, fines, settlements and
reasonable expenses actually incurred, except if: (1) the person did not conduct
himself in good faith and did not reasonably believe his conduct was in the
corporation's best interests; or (2) in the case of any criminal action or
proceeding, the person had reasonable cause to believe his conduct was unlawful.
No indemnification may be made in respect of any claim, issue or matter as to
which such person is adjudged to be liable to the corporation unless and only to
the extent that the Court of Chancery or the court in which such action or suit
was brought determines upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
The Company's Amended and Restated Articles of Incorporation also
contain a provision eliminating liability to the Company or its shareholders for
monetary damages from breach of fiduciary duty as a director. The inclusion of
these indemnification provisions in the Company's Amended and Restated Articles
of Organization and Bylaws is intended to enable the Company to attract
qualified persons to serve as directors and officers who might otherwise be
reluctant to do so.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has two classes of issued and outstanding stock (common
stock and Series A Preferred Stock), both of which possess voting rights. At
December 28, 1996, there were 31,964,452 shares of the Company's common stock
issued and outstanding, representing 84.9% of the outstanding voting securities
of the Company, and 5,670,406 shares of Series A Preferred Stock issued and
outstanding, representing 15.1% of the outstanding voting securities of the
Company. All of the Company's common stock is owned by Holdings and all of the
Series A Preferred Stock is
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owned by the Simmons ESOP. The address of the Simmons ESOP is c /o NationsBank,
N.A. (South), as Trustee, 600 Peachtree Street, NE, Atlanta, Georgia 30308.
Of the three classes of issued and outstanding stock of Holdings (Class
A, Class C and Class D stock), only shares of Class D stock currently possess
voting rights. At December 28, 1996, there were 200,000 shares of Holdings'
Class D stock issued and outstanding. Certain of the investors in the equity of
Holdings intend to offer certain members of the Company's management an
opportunity to purchase shares of Class C stock of Holdings, which stock has no
voting rights except in certain limited circumstances. The following table sets
forth the beneficial ownership of each class of issued and outstanding voting
securities of Holdings which currently possess voting rights, as of the date
hereof, by each director of the Company, each of the executive officers of the
Company as a group and each person who beneficially owns more than 5% of the
outstanding shares of any class of voting securities of Holdings.
Class D Voting Stock:
Number of Percent of
Name Shares (a) Class (a)
---- ---------- ---------
INVESTCORP S.A. (b)(c) 200,000 100.0%
37 rue Notre-Dame,
Luxembourg
SIPCO Limited (d) 200,000 100.0%
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
Cayman Islands
CIP Limited (e)(f) 184,000 92.0%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Ballet Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Denary Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Gleam Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Highlands Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Noble Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
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Number of Percent of
Name Shares (a) Class (a)
---- ---------- ---------
Outrigger Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Quill Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Radial Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Shoreline Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
Zinnia Limited (e)(f) 18,400 9.2%
P.O. Box 2197
West Wind Building
George Town, Grand Cayman
Cayman Islands
INVESTCORP Investment Equity Limited(c) 16,000 8.0%
P.O. Box 1111
West Wind Building
George Town, Grand Cayman
Cayman Islands
(a) As used in this table, beneficial ownership means the sole or shared power
to vote, or to direct the voting of a security, or the sole or shared power to
dispose, or direct the disposition of, a security.
(b) Investcorp does not directly own any stock in Holdings. The number of shares
shown as owned by Investcorp includes all of the shares owned by INVESTCORP
Investment Equity Limited (see (c) below). Investcorp owns no stock in Ballet
Limited, Denary Limited, Gleam Limited, Highlands Limited, Noble Limited,
Outrigger Limited, Quill Limited, Radial Limited, Shoreline Limited, Zinnia
Limited, or in the beneficial owners of these entities (see (f) below).
Investcorp may be deemed to share beneficial ownership of the shares of voting
stock held by these entities because the entities have entered into revocable
management services or similar agreements with an affiliate of Investcorp,
pursuant to which each of such entities has granted such affiliate the authority
to direct the voting and disposition of the Holdings voting stock owned by such
entity for so long as such agreement is in effect. Investcorp is a Luxembourg
corporation.
(c) INVESTCORP Investment Equity Limited is a Cayman Islands corporation, and a
wholly-owned subsidiary of Investcorp.
(d) SIPCO Limited may be deemed to control Investcorp through its ownership of a
majority of a company's stock that indirectly owns a majority of Investcorp's
shares.
(e) CIP Limited ("CIP") owns no stock in Holdings. CIP indirectly owns less than
0.1% of the stock in each of Ballet Limited, Denary Limited, Gleam Limited,
Highlands Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial
Limited, Shoreline Limited and Zinnia Limited (see (f) below). CIP may be deemed
to share beneficial ownership of the shares of voting stock of Holdings held by
such entities because CIP acts as a director of such entities and the ultimate
beneficial shareholders of each of those entities have granted to CIP revocable
proxies in companies that own
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those entities' stock. None of the ultimate beneficial owners of such entities
beneficially owns individually more than 5% of Holdings' voting stock.
(f) CIP Limited, Ballet Limited, Denary Limited, Gleam Limited, Highlands
Limited, Noble Limited, Outrigger Limited, Quill Limited, Radial Limited,
Shoreline Limited and Zinnia Limited each is a Cayman Islands corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Holdings was formed to consummate the Acquisition on behalf of
affiliates of Investcorp, management and certain other investors. Financing for
the Acquisition was provided by (i) $85.0 million of capital provided by
affiliates of Investcorp, management and other investors, and (ii) borrowings in
an aggregate principal amount equal to $180.4 million, consisting of $80.4
million under the Senior Credit Facility and all the proceeds of the $100.0
million Subordinated Loan Facility. Invifin S.A., an affiliate of Investcorp
("Invifin"), provided $25.0 million of the $100.0 million Subordinated Loan
Facility. In connection with the Acquisition, the Company paid Investcorp
International Inc. ("International") advisory fees of $5.7 million. The Company
also paid $3.5 million to International for arranging the Senior Credit Facility
and $687,500 to Invifin in commitment fees in connection with the Subordinated
Loan Facility.
In connection with the Acquisition, the Company entered into an
agreement for management advisory and consulting services (the "Management
Agreement") with International pursuant to which the Company agreed to pay
International $1.0 million per annum for a five-year term. At the closing of the
Acquisition, the Company paid International $3.0 million for the first three
years of the term of the Management Agreement in accordance with its terms.
In connection with the Acquisition, the Company entered into an
agreement with Holdings pursuant to which the Company agreed to reimburse
Holdings for certain expenses incident to Holdings' ownership of the Company's
capital stock for as long as Holdings and the Company file consolidated federal
income tax returns. Such expenses include franchise taxes and other fees
required to maintain Holdings' corporate existence; operating costs incurred by
Holdings attributable to its ownership of the Company's capital stock not to
exceed $250,000 per fiscal year; federal, state and local taxes paid by Holdings
and attributable to income of the company and its subsidiaries other than taxes
arising from the sale or exchange by Holdings of the Company's common stock; the
purchase price of capital stock or options to purchase capital stock of Holdings
owned by former employees of the Company or its subsidiaries not to exceed the
amount permitted under the Senior Credit Facility and the Indenture relating to
the notes; and registration expenses incurred by Holdings incident to a
registration of any capital stock of Holdings under the Securities Act.
In connection with the Acquisition, Holdings purchased options to
acquire common stock of the Company from certain members of management of the
Company for an aggregate purchase price of approximately $6.9 million, of which
approximately $4.3 million was used by certain members of management to purchase
stock of Holdings. In addition, the Company entered into agreements with certain
members of management of the Company, pursuant to which the Company agreed to
pay an aggregate of $3,735,000 of additional compensation in connection with
their investment in Holdings. Of this amount, $2,360,000 was paid at the
Acquisition Closing Date and the balance was be paid in late 1996. Of this
amount, $1,575,609, $316,803, $102,070, $264,444 and $316,257 has been received
by Messrs. Nie, Passaglia, Daiker, Ulicny and Barton, respectively.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of Simmons Company and
its subsidiaries are included in Part II, Item 8:
Reports of Independent Accountants
Consolidated Balance Sheets at December 28, 1996 and December
30, 1995
Consolidated Statements of Operations for the period from
March 22, 1996 through December 28, 1996 (Successor Period),
period from December 31, 1995 through March 21, 1996, year
ended December 30, 1995 and year ended December 31, 1994
(Predecessor Periods)
Consolidated Statements of Common Stockholders' Equity for the
period from March 22, 1996 through December 28, 1996
(Successor Period), period from December 31, 1995 through
March 21, 1996, year ended December 30, 1995 and year ended
December 31, 1994 (Predecessor Periods).
Consolidated Statements of Cash Flows for the period from
March 22, 1996 through December 28, 1996 (Successor Period),
period from December 31, 1995 through March 21, 1996, year
ended December 30, 1995 and year ended December 31, 1994
(Predecessor Periods).
Notes to consolidated financial statements
(a)(2) Financial Statement Schedule
Schedule II - Valuation Account
(a)(3) The exhibits to this report are listed in section (c) of Item 14 below.
(b) The Company filed no reports on Form 8-K during the fourth
quarter of its fiscal year ended December 28, 1996.
(c) Exhibits:
Exhibit
Number Exhibit Description
- ------ -------------------
The following exhibits are incorporated by reference to the Company's
Registration Statement on Form S-4 (File No. 333-4841), declared effective on
August 1, 1996.
2 Agreement of Merger between Simmons Acquisition Corp. and the
Company, dated March 22, 1996
3(i) Amended and Restated Certificate of Incorporation of the
Company
3(ii) By-laws of the Company
4.1 Indenture between the Company and SunTrust Bank, as Trustee,
dated as of April 18, 1996.
10.1 Stock Purchase Agreement among certain management
stockholders, Merrill Lynch Capital Appreciation Partnership
No. B-XI, L.P., MLCP Associates L.P. No. II, ML IBK Position
Inc., Offshore LBO Partnership No. B-XI, Merrill Lynch KECALP
L.P. 1987, Merrill Lynch KECALP L.P. 1989, Merchant Banking
L.P. No. IV and the Company, Simmons Holdings, Inc., Simmons
Acquisition Corp. and NationsBank N.A. (South), solely as
Trustee for the Simmons Employee Stock
Ownership Trust, dated March 22, 1996.
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10.2 Consolidated ESOP Loan Agreement between the Company and the
Employee Stock Ownership Trust dated March 22, 1996.
10.3 Consolidated Pledge Agreement between the Company and the
Employee Stock Ownership Trust dated March 22, 1996. 10.4
Amended Agreement of Trust between the Company and
NationsBank N.A.(South) dated as of March 22, 1996.
10.5 Second Amendment to the ESOP dated March 22, 1996.
10.6 1996 Stockholders' Agreement among the Company, the Simmons
Company Employee Stock Ownership Trust and Simmons Holdings,
Inc. dated as of March 22, 1996.
10.7 Purchase Agreement between the Company and Chase Securities
Inc. dated as of April 15, 1996.
10.8 Credit Agreement among the Company, Chemical Bank, as
Administrative Agent, and lenders party thereto, dated as of
March 22, 1996.
10.9 Security Agreement made by the Company in favor of Chemical
Bank, as Administrative Agent, dated March 22, 1996.
10.10 Services and Expenses Agreement between the Company and
Holdings, dated as of March 22, 1996.
10.11 Parent Option Agreement between the Company and Holdings,
dated as of March 22, 1996.
10.12 Agreement for Management Advisory and Consulting Services
between Investcorp International, Inc. and the Company, dated
as of March 22, 1996.
10.13* The Management Stock Incentive Plan of Simmons Holdings, Inc.
established as of March 22, 1996.
10.14* Form of Stock Purchase Agreement
10.15* Form of Stock Option Agreement
10.16* Form of Bonus Stock Purchase Agreement
10.17 Form of Anti-Dilution Stock Option Agreement
10.18* Form of Bonus Agreement
10.19* Form of Stock Acquisition Agreement
10.20 Labor Agreement between the Company and the Miscellaneous
Warehousemen, Drivers and Helpers Union, Local No. 986
affiliated with the International Brotherhood of Teamsters
covering warehouse employees, truck drivers and shipping and
receiving clerks for the period August 1, 1995 to August 1,
1998.
10.21 Labor Agreement between the Company and the United Furniture
Workers of America, Local #262, A.F.L.-C.I.O. covering
production and maintenance employees working at the San
Leandro, California plant for the period August 1, 1995 to
August 1, 1998.
10.22 Labor Agreement between the Company and ILWU Local 142
covering all full-time production and maintenance employees
for the period from January 15, 1996 to January 14, 1999.
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10.23 Labor Agreement between the Company and Buckeye Local Lodge
#55 of the International Association of Machinists and
Aerospace Workers, Columbus, Ohio covering maintenance
technicians for the period from December 31, 1995 to December
31, 1997.
10.24 Labor Agreement between the Company and The International
Association of Machinists and Aerospace Workers, Local no.
315 of District No. 15, A.F.L.-C.I.O. covering all mechanics
at the Piscataway, New Jersey plant of the Company for the
period from December 10, 1995 to December 10, 1998.
10.25 Master Multi-Plan Working Agreement between the Company and
The United Steel Workers of America, A.F.L., C.I.O., C.L.C.
(Upholstery Industries Division) through its Locals 63, 424,
422, 420, 425, 173 and 515 covering various employees in the
Atlanta, Georgia; Columbus, Ohio; Dallas, Texas; Piscataway,
New Jersey; Jacksonville, Florida; Kansas City, Missouri; and
Los Angeles, California plants of the Company for the period
from October 15, 1994 to October 15, 1997.
10.26 Loan Finance and Advisory Services Agreement dated as of
March 22, 1996 between Investcorp International Inc. and the
Company.
10.27 Mergers and Acquisitions Advisory Agreement dated as of
March 22, 1996 between Investcorp International Inc. and the
Company.
10.28 Lease between the Company, as tenant, and Leadership Group,
Inc. as landlord, dated November 4, 1987, for premises in
Grove City, Ohio (i) Amendment dated April 1, 1988.
10.29 Lease between the Company, as tenant, and Security Capital
Industrial Trust, as landlord, dated December 16, 1988, for
premises in Aurora, Colorado.
10.30 Lease between the Company, as tenant, and 365 South
Randolphville, L.P., as assignee of 287 Industrial park, as
landlord, dated September 16, 1988, for premises in
Piscataway, New Jersey.
10.31 Lease between the Company, as tenant, and The Prudential
Insurance Company of America, as landlord, dated June 19,
1973, for premises in Jacksonville, Florida.
10.32 Lease between the Company, as tenant, and Hunter Industrial
Venture, as landlord, dated September 22, 1986, for premises
in Kansas City, Missouri. (i) Amendment dated July 31, 1989
(ii) Amendment dated February 27, 1990 (iii) Second
Amendment to Lease dated May 7, 1992
10.33 Lease between the Company, as tenant, and 20100 S. Alameda
Property Co. (assignee of Overton, Moore & Associates), as
landlord, dated March 12, 1974 for premises in Compton,
California. (i) First Amendment dated October 2, 1974 (ii)
Second Amendment dated as of September 17, 1984 (iii) Third
Amendment dated as of September 18, 1984 (iv) Fourth
Amendment dated as of June 28, 1993
10.34 Lease between the Company, as tenant, and Glenn Rudel (d/b/a
Rudel Development), as landlord, dated June 18, 1987, for
premises in Phoenix, Arizona. (i) Addendum dated June 18, 1987
(ii) Second Addendum dated March 28, 1989.
10.35 Lease between the Company, as tenant, and Bluefin
Associates, as landlord, dated December 4, 1987, for
premises in Agawam, Massachusetts. (i) First Amendment dated
October 5, 1993
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10.36 Lease between the Company, as tenant, and Concourse I, Ltd.,
as landlord, dated August 1, 1992, for premises in Atlanta,
Georgia.
10.37 Lease between the Company, as tenant, and John W. Rooker, as
landlord, dated October 23, 1991, for premises in Mableton,
Georgia.
(i) First Amendment dated as of December 10, 1991
(ii) Second Amendment dated as of July 14, 1992
10.38 Lease between the Company, as tenant, and CK-Childress Klein
#8 Limited Partnership, as landlord,
dated May 5, 1993, for premises in Charlotte, North Carolina.
(i) First Amendment dated February 6, 1994
10.39 Lease between the Company, as tenant, and St. Paul Properties,
Inc., as landlord, dated February 5, 1993, for premises in
Carrollton, Texas.
10.40 Lease between the Company, as tenant, and Moon & Hart, as
landlord, dated November 30, 1992, for premises in Ewa Beach,
Hawaii.
10.41 Lease between the Company, as tenant, and 1700 Fairway Drive
Associates, as landlord, dated
September 30, 1992, for premises in San Leandro, California.
(i) Amendment to Lease dated July 1, 1993
10.42 Lease between the Company, as tenant, and Hill-Raaum
investment Company, as landlord, dated December 19, 1991, for
premises in Bellevue, Washington.
10.43 Lease between Simmons Caribbean Bedding, Inc., as tenant, and
ALFA Casting Corporation, as landlord, dated May 25, 1989, for
premises in Toa Baja, Puerto Rico. (i) Modification of Lease
Agreement dated April 7, 1994
10.44 Lease between the Company, as tenant, and St. Paul Properties,
Inc., as landlord, dated October 19, 1994 for premises in
Gwinnett County, Georgia.
10.45 Lease between the Company, as tenant, and Liberty Property
Limited Partnership (assignee of Simmons Associates, L.P.), as
landlord, dated as of October 7, 1994 for premises in
Spotsylvania County, Virginia. (i) First Amendment dated as of
October 28, 1994
10.46 Lease between the Company and Eagle Warren Properties,
successors to B.F. Saul Real Estate Investment Trust, dated
July 15, 1977 for premises in Norcross, Georgia.
(i) Amendment dated August 6, 1992
10.47 Loan Agreement, dated as of November 1, 1982, between the City
of Janesville, Wisconsin and the Company, as successor by
merger to Simmons Manufacturing Company, Inc., relating to
$9,700,000 City of Janesville, Wisconsin Industrial
Development Revenue Bond (Simmons Manufacturing Company, Inc.
Project) Series 1982.
10.48 Down Products Trademark License Agreement, dated January 4,
1991 between Simmons, as Licensor, and Louisville Bedding
Co., as Licensee.
10.49 Down Products Trademark License Agreement, dated January 1,
1995 between Simmons, as Licensor, and Louisville Bedding
Co., as Licensee.
10.50 Amended and Restated Trademark License Agreement dated as of
April 14, 1986 (as restated November 28, 1990) between
Simmons, as Licensor, and Louisville Bedding Co., as Licensee.
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10.51 Trademark License Agreement, dated as of July 13, 1990
between Simmons, as Licensor, and Simmon Upholstered Furniture
Inc., as Licensee
10.52 Patent and Technology License Agreement, dated as of July
13, 1990 between Simmons, as Licensor and Simmons
Upholstered Furniture Inc., as Licensee
10.53 Agreement dated as of October 30, 1986 between Simmons, as
Licensor, and Simmons Universal Corporation, as Licensee.
10.54 Woolmark License Agreement, dated as of October 21, 1988
between the Wool Bureau Incorporated and Simmons.
10.55 Licensee Agreement, dated as of June 29, 1990 between Simmons
I.P. Inc., as Licensor, and Simmons Canada Inc., as Licensee.
10.56 Industrial Property License Agreement, Area 1-5, dated as of
April 9, 1987 between Simmons, and INFO Establishment, as
Licensor and Christie-Tyler PLC, as Licensee.
10.57 Existing Territory License Agreement, dated as of June 30,
1987 between Simmons and SJL Investments Limited.
10.58 Trademark License Agreement, dated as of May 21, 1990 as
between Simmons, as Licensor, and Compania Simmons S.A. de
C.V. as Licensee.
10.59 Master Agreement, dated as of December 7, 1993 between
Simmons and N.V. B Linea.
10.60 Assignment, dated as of December 7, 1993 between Simmons and
N.V. B Linea.
10.61 Security Agreement, dated as of December 7, 1993 between
Simmons and N.V. B Linea.
10.62 Software License Agreement, undated, between Simmons and J.D.
Edwards & Company.
10.63* Employment Agreement dated November 5, 1993 between the
Company and Zenon S. Nie as amended October 5, 1995.
The following exhibits are included in this Form 10-K:
10.64* Employment Agreement dated January 1, 1995 between the
Company and Martin R. Passaglia.
10.65* Employment Agreement dated April 1, 1995 between the Company
and Jonathan C. Daiker.
21 Subsidiaries of the Company
27 Financial Data Schedule
- ----------------------
* Identifies each exhibit that is a "management contract or compensatory plan or
arrangement" required to be filed as an exhibit to this Annual Report on Form
10-K pursuant to Item 14(c) of Form 10-K.
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59
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
AND EXCHANGE ACT OF 1934, SIMMONS COMPANY HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
SIMMONS COMPANY
SIGNATURE TITLE
--------- -----
By /s/Zenon S. Nie Chairman of the Board of Directors, Chief Executive
-------------------------------------------- Officer and Director
Zenon S. Nie (Principal Executive Officer)
Dated: March 28, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
SIMMONS COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ Zenon S. Nie Chairman of the Board of Directors, Chief March 28, 1997
- --------------------------------------------- Executive Officer and Director
Zenon S. Nie (Principal Executive Officer)
/s/ Jonathan C. Daiker Executive Vice President - Finance and March 28, 1997
- --------------------------------------------- Administration, Chief Financial Officer
Jonathan C. Daiker (Principal Financial and Accounting Officer)
/s/ Martin R. Passaglia Senior Executive Vice President and Director March 28, 1997
- --------------------------------------------
Martin R. Passaglia
/s/ Jon P. Hedley Director March 28, 1997
- --------------------------------------------
Jon P. Hedley
/s/ Christopher J. O'Brien Director March 28, 1997
- --------------------------------------------
Christopher J. O'Brien
/s/ Charles J. Philippin Director March 28, 1997
- --------------------------------------------
Charles J. Philippin
/s/ Savio W. Tung Director March 28, 1997
- --------------------------------------------
Savio W. Tung
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE
PERIOD FROM MARCH 22, 1996 THROUGH DECEMBER 28, 1996,
PERIOD FROM DECEMBER 31, 1995 THROUGH MARCH 21, 1996, YEAR
ENDED DECEMBER 30, 1995,
YEAR ENDED DECEMBER 31, 1994
FORMING A PART OF ANNUAL REPORT PURSUANT TO
THE SECURITIES AND EXCHANGE ACT OF 1934
FORM 10-K
OF
SIMMONS COMPANY
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SIMMONS COMPANY
SCHEDULE II - VALUATION ACCOUNT
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------------------------
Balance at Balance at
Beginning End of
Description of Period Additions Deductions Period
----------- --------- --------- ---------- ------
(in thousands)
SUCCESSOR
Period from March 22, 1996 through
December 28, 1996
Allowance for doubtful accounts receivable $5,063 $1,273 $692 $5,644
PREDECESSOR
Period from December 31, 1995 through
March 21, 1996
Allowance for doubtful accounts receivable $4,600 $566 $103 $5,063
Fiscal Year Ended December 30, 1995
Allowance for doubtful accounts receivable $2,267 $3,509 $1,176 $4,600
61