<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1996
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number _____________________
SIMMONS COMPANY
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1007444
- ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Concourse Parkway, Suite 600, Atlanta, Georgia 30328
- -------------------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 512-7700
-----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ ] Yes [X] No
The number of shares of the registrant's common stock outstanding as of
August 12, 1996 was 31,964,452.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Simmons Company and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
------------- -------------
Quarter Ended Quarter Ended
June 29, 1996 July 1, 1995
------------- -------------
<S> <C> <C>
Net sales $ 121,163 $ 119,362
Costs and expenses:
Cost of products sold 75,559 70,818
Selling, general and administrative 41,466 40,866
ESOP expense 1,186 1,134
Amortization of intangible assets 1,994 1,438
--------- ---------
120,205 114,256
--------- ---------
958 5,106
Interest expense, net 4,978 2,009
Other deductions, net 312 130
--------- ---------
Income (loss) before income taxes and
extraordinary item (4,332) 2,967
Provision for income tax benefit (expense) 957 (1,317)
--------- ---------
Income (loss) before extraordinary item (3,375) 1,650
Extraordinary loss from early extinguishment
of debt, net of an income tax benefit
of $1,137 1,706 --
--------- ---------
Net (loss) income $ (5,081) $ 1,650
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 3
Simmons Company and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
--------------- -------------------------------
Period from Period from
March 22, December 31, Two
1996 1995 Quarters
through through Ended
June 29, 1996 March 21, 1996 July 1, 1995
--------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 134,049 $ 106,431 $ 228,015
Costs and expenses:
Cost of products sold 84,601 66,630 137,922
Selling, general and administrative 46,092 35,846 78,384
ESOP expense 1,295 1,203 2,267
Amortization of intangible assets 2,112 1,324 2,876
--------- --------- ---------
134,100 105,003 221,449
--------- --------- ---------
(51) 1,428 6,566
Interest expense, net 5,439 1,489 3,938
Other deductions, net 4,621 96 327
--------- --------- ---------
Income (loss) before income taxes and
extraordinary item (10,111) (157) 2,301
Provision for income tax benefit (expense) 3,268 (282) (1,021)
--------- --------- ---------
Income (loss) before extraordinary item (6,843) (439) 1,280
Extraordinary loss from early extinguishment
of debt, net of an income tax benefit
of $1,137 1,706 -- --
--------- --------- ---------
Net (loss) income $ (8,549) $ (439) $ 1,280
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
Simmons Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
--------- ------------
June 29, December 30,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,130 $ 9,185
Accounts receivable, less allowance for
doubtful accounts of $5,702 and $4,600 in 1996
and 1995, respectively 53,578 49,453
Inventories 19,755 18,293
Deferred income taxes 7,165 7,565
Other current assets 6,825 5,372
-------- --------
Total current assets 95,453 89,868
Property, plant and equipment, net 31,367 23,410
Patents, net of accumulated amortization of
$672 and $13,198 in 1996 and 1995, respectively 16,366 14,275
Goodwill, net of accumulated amortization of
$1,440 and $26,831 in 1996 and 1995, respectively 189,235 121,573
Deferred income taxes 9,607 --
Other assets 13,112 5,366
-------- --------
$355,140 $254,492
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
Simmons Company and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
--------- ------------
June 29, December 30,
1996 1995
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,892 $ 22,712
Accrued liabilities 32,772 37,800
Current maturities of long-term obligations 4,528 2,661
--------- ---------
Total current liabilities 62,192 63,173
Noncurrent liabilities:
Long-term obligations 194,980 91,107
Deferred income taxes -- 6,537
Postretirement benefit obligations other than pensions 7,519 7,999
Other 12,713 8,352
--------- ---------
Total liabilities 277,404 177,168
--------- ---------
Redeemable preferred stock -- 680
Redeemable common stock under ESOP, net of related
unearned compensation of $29,674 -- 32,272
Series A Preferred Stock--ESOP, net of related
unearned compensation of $27,057 1,295 --
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)
Accumulated deficit (8,549) (78,894)
Foreign currency translation adjustment (10) (288)
Treasury stock, 0 and 1,727 shares in 1996 and 1995,
respectively, at cost -- (5,779)
--------- ---------
Total common stockholders' equity 76,441 44,372
--------- ---------
$ 355,140 $ 254,492
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
Simmons Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
------------- ------------------------------
Period from Period from
March 22, December 31, Two
1996 1995 Quarters
through through Ended
June 29, 1996 March 21, 1996 July 1, 1995
------------- -------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (8,549) $ (439) $ 1,280
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 3,234 2,108 4,876
Non-cash interest expense -- 322 594
Amortization of deferred debt issuance costs 196 84 152
ESOP expense 1,295 1,203 2,267
Extraordinary loss 1,706 -- --
Provision for bad debts 536 566 2,066
Provision for deferred income taxes -- (164) (1,118)
Other, net (522) 66 (721)
Net changes in assets and liabilities:
Accounts receivable (3,495) (1,732) (16,277)
Inventories (1,691) 1,229 (4,160)
Other assets and liabilities (3,896) (531) 897
Accounts payable 9,430 (7,250) 13,109
Accrued liabilities (9,001) 6,787 4,325
--------- ------- --------
Net cash provided by (used in) operating
activities (10,757) 2,339 7,290
--------- ------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,486) (1,567) (1,059)
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 (179,101) (1,567) (1,059)
--------- ------- --------
Cash flows from financing activities:
Proceeds from Predecessor revolving line of
credit and long-term borrowings -- 3,334 11,842
Predecessor principal payments on revolving
line of credit, long-term debt and capital
lease obligations -- (3,490) (15,673)
Payments of Predecessor debt (75,914) -- --
Proceeds of Successor debt 298,700 -- --
Payments of Successor debt (110,000) -- --
Payments of financing costs (8,940) -- --
Proceeds from issuance of Successor common
stock 85,000 -- --
Treasury stock purchases -- (660) (5,309)
--------- ------- --------
Net cash provided by (used in) financing
activities 188,846 (816) (9,140)
--------- ------- --------
Net effect of exchange rate changes on cash (8) 9 73
--------- ------- --------
Decrease in cash and cash equivalents (1,020) (35) (2,836)
Cash and cash equivalents, beginning of period 9,150 9,185 8,477
--------- ------- --------
Cash and cash equivalents, end of period $ 8,130 $ 9,150 $ 5,641
========= ======= ========
Supplemental cash flow information:
Cash paid for interest $ 2,709 $ 803 $ 2,519
========= ======= ========
Cash paid for income taxes $ 93 $ 2,315 $ 376
========= ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE> 7
Simmons Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
For purposes of this report the "Company" refers to Simmons Company and
Subsidiaries, collectively.
The Condensed Consolidated Financial Statements of the Company have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission (the "SEC"). In the opinion of the management of the
Company, these statements include all adjustments necessary for a fair
presentation of the results of all interim periods reported herein. All
adjustments are of a normal recurring nature unless otherwise disclosed.
Management believes that the disclosures made are adequate for a fair
presentation of results of operations, financial position and cash flows. These
condensed consolidated financial statements should be read in conjunction with
the year-end consolidated financial statements and accompanying notes included
in the Company's registration statement on Form S-4, as amended, dated July 31,
1996. Operating results for the periods ended June 29, 1996, are not necessarily
indicative of future results that may be expected for the year ending December
28, 1996.
2. The Acquisition
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. 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.
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 allocation of the purchase price was, in
certain instances, based on preliminary information and is therefore subject to
revision when additional asset and liability valuations are obtained.
The financing for the Acquisition (including the refinancing of
outstanding debt) was provided for 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.
In connection with the Acquisition, the Simmons ESOP sold 6,001,257
shares of the Company's common stock (representing all of the allocated shares)
for cash, and converted each of the remaining 5,670,406 shares of common stock
of the Company (unallocated shares) into one share of Series A.
7
<PAGE> 8
Simmons Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited)
Preferred Stock. The Series A Preferred Stock is convertible into
common stock of the Company on a one-to-one basis and is entitled to an
aggregate liquidation preference of $28.4 million ($5.00 per share). The ESOP
also has the right, upon the occurrence of certain events, to require the
Company to purchase the stock owned by the ESOP for $5.00 per share.
On April 18, 1996, the Company issued $100.0 million in 10.75% Senior
Subordinated Notes, pursuant to an offering (the "Offering") (See Note 4). The
proceeds of the offering were used to retire loans under the Subordinated Loan
Facility mentioned above.
3. Inventories
Inventories consisted of the following at June 29, 1996 and December
30, 1995 (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
--------- ------------
June 29, December 30,
1996 1995
------- ------------
<S> <C> <C>
Raw materials $11,703 $11,807
Work in progress 2,250 1,942
Finished goods 5,802 4,544
------- -------
$19,755 $18,293
======= =======
</TABLE>
4. Long-Term Obligations
Long-term obligations consisted of the following at June 29, 1996 and
December 30, 1995 (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
--------- ------------
June 29, December 30,
1996 1995
--------- --------
<S> <C> <C>
Senior loans:
Old Tranche A term loan -- $ 36,045
Old Tranche C term loan -- 17,700
New Tranche A term loan $ 40,000 --
New Tranche B term loan 35,000 --
Revolving loan 13,700 2,000
Adjustable rate senior subordinated notes -- 2,618
Adjustable rate junior subordinated notes -- 24,328
10.75% Senior Subordinated Notes due 2006 100,000 --
Industrial Revenue Bonds, 7.00%, due 2017 9,700 9,700
Other, including capital lease obligations 1,108 1,377
--------- --------
199,508 93,768
Less current portion (4,528) (2,661)
--------- --------
$ 194,980 $ 91,107
========= ========
</TABLE>
8
<PAGE> 9
Simmons Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited)
In connection with the Acquisition, the Company entered into a new
Senior Credit Facility (the "Senior Credit Facility"). 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, the 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:
<TABLE>
<CAPTION>
Revolving Tranche A Tranche B
Credit Loan Term Loan Term Loan
----------- ---------- ---------
<S> <C> <C> <C>
Alternate base rate margin 1.25% 1.25% 1.75%
Eurodollar rate (LIBOR-based) 2.50% 2.50% 3.00%
</TABLE>
The interest rates in effect at June 29, 1996 for the revolving credit,
Tranche A term, and Tranche B term loans were 9.5%, 8.0%, and 8.5%,
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 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 June 29, 1996, the amount under the revolving credit portion of the
Senior Credit Facility that was available to be drawn was approximately $20.1
million, after giving effect to $13.7 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. As of June 29, 1996 the Company was in
compliance with respect to all covenants.
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
9
<PAGE> 10
Simmons Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements - Continued
(Unaudited)
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"Note Indenture").
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.
Subsequent to June 29, 1996 the Company has and will continue through
5:00 p.m. New York City time, on September 4, 1996, unless extended by the
Company in its sole discretion, to issue 10.75% Series A Senior Subordinated
Notes due 2006 (the "New Notes") pursuant to an exchange offer whereby holders
of the Notes have the opportunity to receive New Notes which have been
registered under the Securities Act of 1933, as amended, but are otherwise
identical to the Old Notes.
Future maturities of long-term obligations as of June 29, 1996 are as
follows (in thousands):
<TABLE>
<S> <C>
1996 $ 2,334
1997 5,200
1998 7,200
1999 9,200
2000 11,200
Thereafter 164,374
-------
$199,508
=======
</TABLE>
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Simmons Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
INTRODUCTION
The Company employed the purchase method of accounting for the
Acquisition completed in March 1996. As a result of the required purchase
accounting adjustments, the post-Acquisition financial statements for the period
from March 22, 1996 to June 29, 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
six month period ended June 29, 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 June 29, 1996) and
are not indicative of the results that would actually have been obtained if the
Acquisition had occurred on December 30, 1995.
SECOND QUARTER ENDED JUNE 29, 1996 AS COMPARED TO SECOND QUARTER ENDED JULY 1,
1995
Net Sales. Net sales for the quarter ended June 29, 1996 increased
1.5%, or $1.8 million, from $119.4 million in 1995 to $121.2 million in 1996.
This increase was due primarily to a 1.1% increase in unit sales volume while
average unit selling price remained flat versus 1995. The growth in unit sales
volume resulted from increased contract bedding sales and the continued growth
of the BackCare(R) product line.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
for the quarter ended June 29, 1996 increased 3.1 percentage points from 59.3%
in 1995 to 62.4% in 1996. The increase is primarily attributable to: (i)
introductory selling prices associated with the introduction of the Company's
new product line, and (ii) a higher product mix concentration of contract and
promotional bedding.
Selling, General and Administrative Expenses. As a percentage of net
sales, selling, general and administrative expenses have remained flat at 34.2%.
A 0.6 percentage point increase in expenditures related to the Company's
reengineering program and a 0.5 percentage point increase in distribution costs,
were offset by a 1.1 percentage point improvement due to higher total revenues
which increased at a slightly greater rate than selling, general and
administrative expenses.
Amortization of Intangible Assets. Amortization of intangible assets
for the quarter ended June 29, 1996 increased $0.6 million due in part to the
effect of an increase in goodwill resulting from
11
<PAGE> 12
Simmons Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
purchase accounting adjustments made in connection with the Acquisition in March
1996.
Interest Expense, Net. Interest expense, net increased $3.0 million to
$5.0 million due primarily to interest expense on increased total indebtedness,
which resulted from the issuance of senior subordinated notes and a new senior
credit facility as financing for the Acquisition. ("See Notes to Condensed
Consolidated Financial Statements")
Provision (Benefit) for Income Taxes. The Company's effective tax rates
for the quarters ended June 30, 1996 and July 1, 1995 differ from the federal
statutory rate because of non tax-deductible amortization of goodwill and the
utilization, in 1995, of net operating loss carryforwards.
Extraordinary Item. The Company recorded a $1.7 million charge, net of
an income tax benefit of $1.1 million, representing the remaining unamortized
debt issuance costs related to long term obligations repaid as a result of the
refinancing for the Acquisition.
Net (Loss) Income. For the reasons set forth above, the quarter ended
June 29, 1996 resulted in a loss of $5.1 million, as compared to a net income of
$1.7 million in July 1, 1995.
SIX MONTHS ENDED JUNE 29, 1996 AS COMPARED TO SIX MONTHS ENDED JULY 1, 1995
Net Sales. Net sales for the six months ended June 29, 1996 increased
5.5%, or $12.5 million, from $228.0 million in 1995 to $240.5 million in 1996.
This increase was due primarily to a 4.7% increase in unit sales volume and a
slight increase in average unit selling price. The growth in unit sales volume
resulted from increased contract bedding sales, primarily in the flagship
Beautyrest(R) product line, and the continued growth of the BackCare(R) product
line.
Cost of Goods Sold. As a percentage of net sales, cost of goods sold
for the six months ended June 29, 1996 increased 2.4 percentage points from
60.5% in 1995 to 62.9% in 1996. The increase is primarily attributable to: (i)
introductory selling prices associated with the introduction of the Company's
new product line; (ii) a higher product mix concentration of contract and
promotional bedding; and (iii) the sale of acquired 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.
Selling, General and Administrative Expenses. As a percentage of net
sales, selling, general and administrative expenses for the six months ended
June 29, 1996 improved 0.3 percentage point, from 34.4% in 1995 to 34.1% in
1996. A 0.5 percentage point increase in expenditures related to the Company's
reengineering program and a 0.2 percentage point increase in distribution costs,
were offset by a of 1.0 percentage point improvement due to higher total
revenues which increased at a slightly greater rate than selling, general and
administrative expenses.
Amortization of Intangible Assets. Amortization of intangible assets
for the six months ended June 29, 1996 increased $0.6 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.
12
<PAGE> 13
Simmons Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Interest Expense, Net. Interest expense, net increased $3.0 million to
$6.9 million due primarily to interest expense on increased total indebtedness,
which resulted from the issuance of senior subordinated notes and a new senior
credit facility as financing for the Acquisition.
Other Deductions, Net. Other deductions, net increased $4.5 million to
$4.8 million due primarily to non-recurring expenses of $4.3 million incurred in
connection with the Acquisition. Approximately $3.8 million was attributable to
special compensation agreements entered into by the Company with certain members
of management of the Company and $0.7 million was comprised of fees for
management advisory, consulting services and certain other fees.
Provision (Benefit) for Income Taxes. The Company's effective tax rates
for the six months ended June 30, 1996 and July 1, 1995 differ from the federal
statutory rate because of non tax-deductible amortization of goodwill and the
utilization, in 1995, of net operating loss carryforwards.
Extraordinary Item. In April 1996, the Company recorded a $1.7 million
charge, net of an income tax benefit of $1.1 million, representing the remaining
unamortized debt issuance costs related to long term obligations repaid as a
result of the refinancing for the Acquisition.
Net (Loss) Income. For the reasons set forth above, the six months
ended June 29, 1996 resulted in a loss of $9.0 million, as compared to a net
income of $1.3 million at July 1, 1995.
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
$8.4 million for the combined two quarters ended June 29, 1996 compared to $7.3
million provided in 1995, due primarily to (i) increased cash interest expense;
(ii) non-recurring transaction charges associated with the Acquisition; and
(iii) the timing of payments of accounts payable. The Company's principal use of
funds consists of payments of principal, interest, and capital expenditures.
Capital expenditures totaled $6.1 million for the combined periods ended June
29, 1996. These capital expenditures consisted primarily of normal recurring
capital expenditures and capitalized expenditures related to SWIFT, a systems
upgrade project. The Company estimates that total normal recurring capital
expenditures will be approximately $5.0 million in 1996. In addition, total
expenditures for completing the SWIFT project are expected to be approximately
$7.0 million in 1996. 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.
At June 29, 1996, the amount under the revolving credit portion of the
Senior Credit Facility that was available to be drawn was approximately $20.1
million, after giving effect to $13.7 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
13
<PAGE> 14
Simmons Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
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. At June 29, 1996, the Company's weighted
average borrowing cost was 9.7%.
Management believes that the Company will have the necessary liquidity
for the foreseeable future to fund: (i) its obligations under the Senior Credit
Facility and the Notes; (ii) expected capital expenditures; (iii) selective
acquisitions in the bedding industry; and (iv) other needs required to manage
and operate its business, through cash flow from operations, and amounts
available under its revolving credit facility in the Senior Credit Facility.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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
By: /s/ Zenon S. Nie
-------------------------------------
Zenon S. Nie
Chairman of the Board of Directors,
Chief Executive Officer and Director
(Principal Executive Officer)
By: /s/ Jonathan C. Daiker
-------------------------------------
Jonathan C. Daiker
Executive Vice President-Finance and
Administration, Chief Financial Officer
and Director
(Principal Accounting Officer)
Date: August 13, 1996
16
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