<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): MAY 2, 2000
SLEEPMASTER L.L.C.
(EXACT NAME OF REGISTRANT AS IT APPEARS IN ITS CHARTER)
<TABLE>
<CAPTION>
NEW JERSEY 333-81987 22-3341313
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
2001 LOWER ROAD
LINDEN, NEW JERSEY 07036-6520
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE): (732) 381-5000
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<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
On May 12, 2000, Sleepmaster L.L.C. ("Sleepmaster") filed a Current Report
on Form 8-K to report its acquisition of Simon Mattress Manufacturing Company
("Simon"). Pursuant to Item 7 of Form 8-K, Sleepmaster indicated that it would
file certain financial information no later than the date required under Item 7
of Form 8-K. This Amendment is filed to provide the required financial
information.
(a) Financial Statements of Business Acquired
The following audited financial statements of Simon are included herein:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1999, 1998 and 1997
Consolidated Statements of Income for the Years Ended December 31, 1999,
1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
The following unaudited interim financial statements of Simon are included
herein:
Unaudited Condensed Consolidated Balance Sheet as of March 31, 2000
Unaudited Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 2000 and 1999
Unaudited Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999
Notes to Unaudited Condensed Consolidated Financial Statements
(b) Pro Forma Financial Information
The following unaudited pro forma financial information of Sleepmaster and
Simon is included herein:
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31,
2000
Unaudited Pro Forma Condensed Consolidated Statements of Income for the
Year Ended December 31, 1999
Unaudited Pro Forma Condensed Consolidated Statement of Income for the
Three Months Ended March 31, 2000
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Information
(c) Exhibits
<TABLE>
<C> <S>
2.1 Purchase Agreement, dated April 28, 2000, by and among
Sleepmaster L.L.C., Simon Mattress Manufacturing Co. and the
stockholders listed on the Stockholders signature page
attached thereto (incorporated by reference to Exhibit 2.1
of the Form 8-K dated May 12, 2000 (File No. 333-81987)).**
3.1 Joinder to Sleepmaster Holdings L.L.C. Limited Liability
Company Operating Agreement, dated November 5, 1999, by and
among Sleepmaster Holdings L.L.C., David Deye and Stephen
Lund.*
3.2 Joinder to Sleepmaster Holdings L.L.C. Limited Liability
Company Operating Agreement, dated April 28, 2000, by and
among Sleepmaster Holdings L.L.C. and Donald S. Simon, Jr.*
4.1 Joinder to Amended and Restated Registration Rights
Agreement, dated November 5, 2000, by and among Sleepmaster
Holdings L.L.C. and David W. Deye.*
4.2 Joinder to Amended and Restated Registration Rights
Agreement, dated November 5, 2000, by and among Sleepmaster
Holdings L.L.C. and Stephen D. Lund.*
</TABLE>
2
<PAGE> 3
<TABLE>
<C> <S>
4.3 Joinder to Amended and Restated Registration Rights
Agreement, dated April 28, 2000, by and among Sleepmaster
Holdings L.L.C. and Donald S. Simon, Jr.*
9.1 Joinder to Amended and Restated Securityholders Agreement,
dated April 28, 2000, by and among Sleepmaster Holdings
L.L.C. and Donald S. Simon Jr.*
9.2 Joinder to Amended and Restated Securityholders Agreement,
dated November 5, 1999, by and among Sleepmaster Holdings
L.L.C. and Citicorp Mezanine Partners, L.P.*
9.3 Joinder to Amended and Restated Securityholders Agreement,
dated November 5, 1999, by and among Sleepmaster Holdings
L.L.C. and David W. Deye.*
9.4 Joinder to Amended and Restated Securityholders Agreement,
dated November 5, 1999, by and among Sleepmaster Holdings
L.L.C. and Stephen D. Lund.*
10.1 Second Amended and Restated Credit Agreement, dated April
28, 2000, by and among Sleepmaster L.L.C., as borrower,
Sleepmaster Holdings L.L.C., the parent, the domestic
subsidiaries of Sleepmaster L.L.C., as guarantors, First
Union National Bank, as lender and as administrative agent
and the lenders party thereto (incorporated by referenced to
Exhibit 10.1 of the Form 8-K dated May 12, 2000 (File No.
333-81987)).**
10.2 License Agreement and Memorandum of Agreement, each dated
April 17, 2000, by and between Serta, Inc. and Simon
Mattress Manufacturing Co., covering certain territories in
Hawaii.*
10.3 License Agreement and Memorandum of Agreement, each dated
November 4, 1989, by and between Serta, Inc. and Simon
Mattress Manufacturing Co., covering certain territories in
Oregon and Washington.*
10.4 License Agreement and Memorandum of Agreement, each dated
November 4, 1989, by and between Serta, Inc. and Simon
Mattress Manufacturing Co., covering certain territories in
California, Oregon and Nevada.*
10.5 Labor Agreement, effective as of November 1, 1998, by and
between Serta West, Inc. and Local Union No. 313,
International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America.*
10.6 Agreement, dated as of January 1, 1999, by and between Coyne
Mattress Co., Ltd. (a corporation merged into Simon Mattress
Manufacturing Co.) and Hawaii Teamsters and Allied Workers,
Local 996.*
10.7 Labor Agreement, dated May 1, 1997, by and between Serta
Mattress Company (for its facility in Pierce County,
Washington) and Lumber and Sawmill Workers Union Local
2633.*
10.8 Agreement, dated January 1, 1996, by and between Simon
Mattress Manufacturing Co. and Brotherhood of Teamsters
Local #490 (Drivers).*
10.9 Agreement, dated January 1, 1996, by and between Simon
Mattress Manufacturing Co. and Brotherhood of Teamsters
Local #490 (Factory).*
10.10 Employment and Management Stock Agreement, dated April 28,
2000, by and among Simon Mattress Manufacturing Co.,
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Donald S.
Simon, Jr., and Sleep Investor L.L.C.*
10.11 Employment Agreement, dated April 28, 2000, by and among
Simon Mattress Manufacturing Co., Sleepmaster Holdings
L.L.C., Sleepmaster L.L.C. and Stephen Alloway.*
99.1 Press release issued by Sleepmaster L.L.C. on May 2, 2000
(incorporated by reference to Exhibit 99.1 of the Form 8-K
dated May 12, 2000 (File No. 333-81987)).**
</TABLE>
---------------
* Filed herewith
** Previously filed
3
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Simon Mattress Manufacturing Co. and Subsidiaries
Vacaville, California
We have audited the accompanying consolidated balance sheets of The Simon
Mattress Manufacturing Co. and Subsidiaries, as of December 31, 1999, 1998 and
1997, and the related consolidated statements of income, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements 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, the evidence
supporting 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 statements
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 financial position of The Simon
Mattress Manufacturing Co. and Subsidiaries at December 31, 1999, 1998 and 1997
and the consolidated results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Stonefield Josephson, Inc.
Walnut Creek, California
April 14, 2000
4
<PAGE> 5
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 5,025,491 $ 2,501,547 $ 1,710,717
Marketable securities............................. 820,057 768,855 506,687
Accounts receivable, net.......................... 5,133,753 3,656,633 4,000,335
Inventory......................................... 2,176,358 2,281,816 2,530,086
Prepaid expenses.................................. 162,559 24,402 81,998
Prepaid income taxes.............................. -- 679,930 --
Other current assets.............................. 1,150,204 566,052 59,404
Deferred income taxes............................. 59,400 -- 129,900
Net assets of discontinued operations............. -- -- 158,662
----------- ----------- -----------
Total current assets...................... 14,527,822 10,479,235 9,177,789
PROPERTY AND EQUIPMENT NET OF ACCUMULATED
DEPRECIATION...................................... 7,048,329 5,528,883 5,672,417
OTHER ASSETS........................................ 943,523 967,621 598,340
----------- ----------- -----------
$22,519,674 $16,975,739 $15,448,546
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 3,323,600 $ 1,238,392 $ 2,170,191
Accrued advertising expenses...................... 363,775 529,913 522,107
Other current liabilities......................... 1,074,046 883,614 686,273
Income taxes payable.............................. 372,370 -- 307,559
Deferred income taxes............................. -- 18,500 --
----------- ----------- -----------
Total current liabilities................. 5,133,791 2,670,419 3,686,130
----------- ----------- -----------
LONG-TERM LIABILITIES:
Deferred licensee obligation...................... 180,483 42,107 --
----------- ----------- -----------
Total long-term liabilities............... 180,483 42,107 --
----------- ----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 10,000 shares
authorized; 1,820, 1670 and 1,670 shares issued
and outstanding in 1999, 1998 and 1997,
respectively................................... -- -- --
Additional paid in capital........................ 634,633 344,833 344,833
Retained earnings................................. 16,508,158 13,586,400 11,235,257
Accumulated other comprehensive income............ 352,409 331,980 182,326
Note receivable from officer...................... (289,800) -- --
----------- ----------- -----------
Total stockholders' equity................ 17,205,400 14,263,213 11,762,416
----------- ----------- -----------
$22,519,674 $16,975,739 $15,448,546
=========== =========== ===========
</TABLE>
See accompanying independent auditors' report and notes to consolidated
financial statements.
5
<PAGE> 6
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
GROSS REVENUE............................. $61,620,057 $58,204,624 $44,679,434
LESS DISCOUNTS AND RETURNS................ 2,599,269 2,431,725 1,886,856
----------- ----------- -----------
Net revenue........................ 59,020,788 55,772,899 42,792,578
COST OF SALES............................. 36,117,883 33,816,421 25,787,313
----------- ----------- -----------
GROSS PROFIT.............................. 22,902,905 21,956,478 17,005,265
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 18,869,553 17,152,066 13,981,505
----------- ----------- -----------
INCOME FROM OPERATIONS.................... 4,033,352 4,804,412 3,023,760
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest and dividend income, net....... 208,391 141,325 144,935
Other income, net....................... 348,882 159,024 43,261
Casualty loss recovery.................. 101,671 -- --
Gain (loss) on disposition of property
and equipment........................ (23,638) 6,965 52,000
----------- ----------- -----------
Total other income.............. 635,306 307,314 240,196
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES............................ 4,668,658 5,111,726 3,263,956
PROVISION FOR INCOME TAXES................ 1,630,000 1,988,500 1,361,700
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS......... $ 3,038,658 $ 3,123,226 $ 1,902,256
----------- ----------- -----------
DISCONTINUED OPERATIONS, NET OF INCOME
TAXES:
LOSS FROM DISCONTINUED OPERATIONS......... -- (234,280) (263,797)
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS.............................. -- (439,273) --
----------- ----------- -----------
TOTAL DISCONTINUED OPERATIONS............. -- (673,553) (263,797)
----------- ----------- -----------
NET INCOME................................ $ 3,038,658 $ 2,449,673 $ 1,638,459
=========== =========== ===========
</TABLE>
See accompanying independent auditors' report and notes to consolidated
financial statements.
6
<PAGE> 7
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
----------------- PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL INCOME EARNINGS INCOME
------ -------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997............. 1,703 $351,647 $ 9,768,194 $ 62,236
COMPREHENSIVE INCOME:
Net income........................... $1,638,459 1,638,459
Other items of comprehensive income:
Unrealized holding gain on
marketable securities classified
as available for sale, net of
related income tax of $79,700.... 120,090 120,090
----------
Comprehensive income................... $1,758,549
==========
STOCK REDEMPTION....................... (33) (6,814) (89,652)
DIVIDENDS.............................. (81,744)
----- -------- -------- ----------- --------
BALANCE AT DECEMBER 31, 1997........... 1,670 344,833 11,235,257 182,326
COMPREHENSIVE INCOME:
Net income........................... $2,449,673 2,449,673
Other items of comprehensive income:
Unrealized holding gain on
marketable securities classified
as available for sale, net of
related income tax of $99,000.... 149,654 149,654
----------
Comprehensive income................... $2,599,327
==========
DIVIDENDS.............................. (98,530)
----- -------- -------- ----------- --------
BALANCE AT DECEMBER 31, 1998........... 1,670 344,833 13,586,400 331,980
COMPREHENSIVE INCOME:
Net income........................... $3,038,658 3,038,658
Other items of comprehensive income:
Unrealized holding gain on
marketable securities classified
as available for sale, net of
related income tax of $16,400.... 20,429 20,429
----------
Comprehensive income................... $3,059,087
==========
ISSUANCE OF COMMON STOCK............... 150 289,800
DIVIDENDS.............................. (116,900)
----- -------- -------- ----------- --------
BALANCE AT DECEMBER 31, 1999........... 1,820 $634,633 $16,508,158 $352,409
===== ======== ======== =========== ========
<CAPTION>
TOTAL
STOCKHOLDER STOCKHOLDERS'
LOAN EQUITY
------------ -------------
<S> <C> <C>
BALANCE AT JANUARY 1, 1997............. $10,182,077
COMPREHENSIVE INCOME:
Net income........................... 1,638,459
Other items of comprehensive income:
Unrealized holding gain on
marketable securities classified
as available for sale, net of
related income tax of $79,700.... 120,090
Comprehensive income...................
STOCK REDEMPTION....................... (96,466)
DIVIDENDS.............................. (81,744)
-------- -----------
BALANCE AT DECEMBER 31, 1997........... 11,762,416
COMPREHENSIVE INCOME:
Net income........................... 2,449,673
Other items of comprehensive income:
Unrealized holding gain on
marketable securities classified
as available for sale, net of
related income tax of $99,000.... 149,654
Comprehensive income...................
DIVIDENDS.............................. (98,530)
-------- -----------
BALANCE AT DECEMBER 31, 1998........... 14,263,213
COMPREHENSIVE INCOME:
Net income........................... $ 3,038,658
Other items of comprehensive income:
Unrealized holding gain on
marketable securities classified
as available for sale, net of
related income tax of $16,400.... 20,429
Comprehensive income...................
ISSUANCE OF COMMON STOCK............... (289,800)
DIVIDENDS.............................. (116,900)
-------- -----------
BALANCE AT DECEMBER 31, 1999........... (289,800) $17,205,400
======== ===========
</TABLE>
See accompanying independent auditors' report and notes to consolidated
financial statements.
7
<PAGE> 8
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income................................................ $ 3,038,658 $ 2,449,673 $ 1,638,459
----------- ----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
(USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization......................... 1,099,639 1,074,902 764,742
Casualty loss recovery................................ (101,671) -- --
Provision for doubtful accounts....................... 132,761 40,459 684,894
Provision for deferred income taxes................... (94,300) 49,400 (76,700)
Dividends reinvested in marketable securities......... (14,373) (13,514) (12,770)
Loss (gain) on disposition of property and
equipment........................................... 23,638 (6,965) (52,000)
CHANGES IN ASSETS AND LIABILITIES, NET OF ACQUISITION:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable................................... (1,609,881) (1,007,291) (1,020,091)
Inventory............................................. (685,826) 248,270 (86,106)
Prepaid expenses...................................... (138,157) 57,596 (39,512)
Prepaid income taxes.................................. 679,930 (679,930) --
Other current assets.................................. 231,869 36,756 (59,403)
Other assets.......................................... 40,698 (140,000) 17,500
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued expenses................. 1,900,722 (726,652) 1,347,130
Income taxes payable.................................. 372,370 (307,559) 78,677
Deferred licensee obligation.......................... 138,376 42,107 --
----------- ----------- -----------
Total adjustments................................... 1,975,795 (1,332,421) 1,546,361
----------- ----------- -----------
Net cash provided by operating activities........... 5,014,453 1,117,252 3,184,820
----------- ----------- -----------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Purchase of property and equipment........................ (2,378,163) (1,163,684) (1,037,928)
Acquisition, net of cash acquired......................... -- -- (2,569,141)
Investment in Bedtime Stores, Inc......................... -- (175,761) (100,000)
Proceeds from sale of property and equipment.............. 4,554 10,000 52,000
----------- ----------- -----------
Net cash used for investing activities.............. (2,373,609) (1,329,445) (3,655,069)
----------- ----------- -----------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Redemption of stock....................................... -- -- (96,466)
Dividends paid............................................ (116,900) (98,530) (81,744)
----------- ----------- -----------
Net cash used for financing activities.............. (116,900) (98,530) (178,210)
----------- ----------- -----------
LOSS FROM DISCONTINUED OPERATIONS........................... -- 1,101,553 452,397
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH............................. 2,523,944 790,830 (196,062)
CASH AND CASH EQUIVALENTS, beginning of year................ 2,501,547 1,710,717 1,906,779
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 5,025,491 $ 2,501,547 $ 1,710,717
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid......................................... $ 672,000 $ 2,499,200 $ 1,173,361
=========== =========== ===========
Interest paid............................................. $ 798 $ 1,296 $ 430
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Unrealized holding gain for marketable securities......... $ 36,829 $ 248,654 $ 199,790
=========== =========== ===========
Deferred tax effect on unrealized holding gain for
marketable securities................................... $ 16,400 $ 99,000 $ 79,700
=========== =========== ===========
Stock issued for note receivable.......................... $ 289,800
===========
</TABLE>
See accompanying independent auditors' report and notes to consolidated
financial statements.
8
<PAGE> 9
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business Activity:
The Company is engaged in the manufacturing and sale of bedding products,
which are principally box springs and mattresses under Serta, Inc. licenses,
which are sold to both institutional purchasers and retailers in Northern
California, Oregon, Washington, Idaho, Nevada, Hawaii and Alaska.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
The Simon Mattress Manufacturing Company, Coyne Mattress Manufacturing Company,
and Simon Investment Company, all California corporations. All significant
intercompany transactions and balances have been eliminated in consolidation.
Coyne Mattress Manufacturing Company was established in 1997. This
subsidiary purchased certain assets of an existing manufacturing facility in
Hawaii and acquired the license to manufacture Serta products in that region.
Simon Investment Company invests corporate cash and in 1997 created a
subsidiary called Bedtime Stores, Inc. to acquire certain retail store assets
and operations under foreclosure proceedings. Operations commenced with an
effective date in late 1997 and were disposed of during 1998.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents:
For purposes of the statement of cash flows, cash equivalents include all
highly liquid debt instruments with original maturities of three months or less
which are not securing any corporate obligations.
Inventory:
Inventory is valued at the lower of cost (first-in, first-out) or market.
Property and Equipment:
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using straight-line and accelerated methods over the
following estimated useful lives of the assets:
<TABLE>
<S> <C>
Building............................................... 20-39 years
Machinery and equipment................................ 5-10 years
Software............................................... 3 years
Office equipment and furnishings....................... 5-7 years
Transportation equipment............................... 5-7 years
Leasehold improvements................................. 20-39 years
</TABLE>
9
<PAGE> 10
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets:
Intangible assets consist of goodwill and are stated at cost less
accumulated amortization. Amortization is being provided by use of the
straight-line method over fifteen years.
Advertising Costs:
The Company expenses advertising costs as incurred. Advertising expense for
1999, 1998 and 1997 was $6,147,204, $5,982,534 and $4,627,631, respectively.
Concentrations:
Credit Risk
The Company maintains its cash balances in various financial institutions,
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
Labor
The Company employs factory labor and truck drivers subject to collective
bargaining agreements at their various manufacturing locations. These agreements
expire at various dates through November 2002.
Long-Lived Assets:
The Company reviews its long-lived assets and certain intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of any asset may not be fully recoverable. The measurement of
impairment losses to be recognized is based on the difference between the fair
values and the carrying amounts of the assets. Impairment would be recognized in
operating results if a diminution in value occurred. At December 31, 1999, the
Company does not believe that any such changes have occurred.
Income Taxes:
Deferred income taxes are provided for temporary differences between
financial and taxable income. The temporary differences result from differences
between the basis of marketable securities, inventory and accrued expenses used
for financial and tax reporting purposes.
(2) MARKETABLE SECURITIES:
Investments in marketable securities are classified as available-for-sale
in accordance with Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". Accordingly,
the investment is recorded at fair market value with the corresponding
unrealized gain or loss, net of the income tax effect, included as accumulated
other comprehensive income in stockholders' equity. The actual cost is used to
calculate realized gains and losses. The cost and fair market value of
marketable securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cost.......................................... $231,447 $217,074 $203,560
Net unrealized holding gain................... 588,610 551,781 303,127
-------- -------- --------
Fair market value............................. $820,057 $768,855 $506,687
======== ======== ========
</TABLE>
10
<PAGE> 11
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACCOUNTS RECEIVABLE:
A summary of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Beginning of year............................. $ -- $ 25,320 $ --
Provision for doubtful accounts............... 132,761 40,459 684,894
Accounts recovered (written off).............. 1,217 (65,779) (659,574)
-------- -------- ---------
End of year................................... $133,978 $ -- $ 25,320
======== ======== =========
</TABLE>
(4) INVENTORY:
A summary is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials................................. $1,752,776 $1,690,861 $1,835,641
Work in progress.............................. 22,773 162,982 179,312
Finished goods................................ 400,809 427,973 515,133
---------- ---------- ----------
$2,176,358 $2,281,816 $2,530,086
========== ========== ==========
</TABLE>
(5) OTHER CURRENT ASSETS:
A summary is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Note receivable relating to sale of Bedtime
Stores, Inc................................. $ -- $543,303 $ --
Casualty loss recovery........................ 1,101,735 -- --
Interest receivable........................... 17,350 -- --
Other current assets.......................... 31,119 22,749 59,404
---------- -------- -------
$1,150,204 $566,052 $59,404
========== ======== =======
</TABLE>
The Company's operating plant in Puyallup, Washington, suffered a fire loss
on November 10, 1999. This loss was fully covered by insurance. Insurance
proceeds of approximately $1,300,000 were received by April, 2000.
11
<PAGE> 12
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) PROPERTY AND EQUIPMENT:
A summary is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Buildings................................... $ 5,366,979 $ 4,957,281 $4,957,281
Machinery and equipment..................... 3,783,619 3,737,908 3,140,574
Software.................................... 1,684,936 -- --
Office equipment and furnishings............ 790,962 630,259 471,961
Transportation equipment.................... 687,232 577,467 458,211
Leasehold improvements...................... 107,443 107,443 107,443
----------- ----------- ----------
12,421,171 10,010,358 9,135,470
Less accumulated depreciation............... 6,583,488 5,620,785 4,602,363
----------- ----------- ----------
5,837,683 4,389,573 4,533,107
Land and improvements....................... 1,139,310 1,139,310 1,139,310
Construction in progress.................... 71,336 -- --
----------- ----------- ----------
$ 7,048,329 $ 5,528,883 $5,672,417
=========== =========== ==========
</TABLE>
(7) OTHER ASSETS:
A summary is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Intangible assets, net of accumulated
amortization of $82,191, $41,493 and
$1,660...................................... $515,309 $556,007 $595,840
Deposits for property and equipment........... -- 269,114 --
Rent receivable............................... 285,714 -- --
Other receivable.............................. 140,000 140,000 --
Serta, Inc. shares............................ 2,500 2,500 2,500
-------- -------- --------
$943,523 $967,621 $598,340
======== ======== ========
</TABLE>
(8) LINE OF CREDIT:
The Company has available a revolving line of credit for $500,000 which
expires July 2000. The line is unsecured and bears interest at the bank's
reference rate. There were no outstanding borrowings on this line at December
31, 1999, 1998 or 1997.
(9) LICENSEE OBLIGATIONS:
The Company is a licensee and shareholder in Serta, Inc. The Company is
subject to the corporate by-laws and the "Serta, Inc. Rules and Regulations"
which govern use of the Serta name, quality standards and merchandising.
12
<PAGE> 13
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Licensee Fees
Base fees and royalty fees due under Serta, Inc. by-laws are assessed on
the first day of the budget (calendar) year, are secured by an installment note,
and are payable in equal monthly amounts over the year. For 2000, the company is
obligated to pay fees of approximately $2,918,000. During 1999, 1998 and 1997,
licensee fees approximated $2,600,000, $2,004,000 and $1,749,000, respectively.
Deferred Licensee Obligation
As part of an arrangement sponsored by the licensor, the Company is part of
a Success Sharing Program under which deferred obligation amounts are accrued at
December 31, 1998, 1999 and 2000. The accrual is based upon sales for each year
and the total of all three years' accruals will be payable in equal installments
beginning in 2001 and continuing through 2005. The payments will include
interest beginning in 2001 at a rate to be determined. The deferred licensee
obligation totaled $180,483 and $42,107 at December 31, 1999 and 1998,
respectively.
(10) INCOME TAXES:
The provision for income taxes includes currently payable and deferred
amounts as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense:
Federal..................................... $1,455,400 $1,635,100 $1,230,400
States...................................... 268,900 304,000 208,000
---------- ---------- ----------
1,724,300 1,939,100 1,438,400
Deferred tax expense (benefit)................ (94,300) 49,400 (76,700)
---------- ---------- ----------
$1,630,000 $1,988,500 $1,361,700
========== ========== ==========
</TABLE>
The major components of the deferred tax asset (liability) are as follows:
<TABLE>
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses............................ $184,500 $ 89,700 $ 171,600
Effect of uniform capitalization on
inventory................................ 68,300 51,700 32,100
State income taxes.......................... 42,800 59,900 47,000
-------- --------- ---------
295,600 201,300 250,700
Deferred tax liabilities:
Unrealized holding gain for marketable
securities............................... (236,200) (219,800) (120,800)
-------- --------- ---------
$ 59,400 $ (18,500) $ 129,900
======== ========= =========
</TABLE>
A reconciliation of the difference between the statutory federal income tax
rate and the Company's effective income tax rate applied to income before income
taxes and loss from discontinued operations is as follows:
<TABLE>
<S> <C> <C> <C>
Statutory federal tax rate.................... 35% 35% 35%
Multi-state income tax provision.............. 3 4 7
-- -- --
Effective tax rate............................ 38% 39% 42%
== == ==
</TABLE>
13
<PAGE> 14
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) MAJOR CUSTOMER:
During 1999 and 1997 one customer accounted for approximately 17% and 10%,
respectively, of total sales. Accounts receivable from this customer was
approximately $714,000 and $298,000 as of December 31, 1999 and 1997,
respectively. During 1998, no customer accounted for more than 10% of the
Company's sales.
(12) MAJOR VENDORS:
Purchases from two vendors represented approximated 32%, 38% and 39% of
total purchases for 1999, 1998 and 1997, respectively. Included in accounts
payable and accrued expenses for these vendors at December 31, 1999, 1998 and
1997, is approximately $716,000, $630,000 and $531,000, respectively.
(13) STOCK OPTIONS:
On January 1, 1995, the Company adopted an incentive Stock Option Plan (the
"Plan") that provides for granting of options to acquire common stock of the
Company ("Options"). Options under the Plan were issued to the Company's
President and Chief Executive Officer. A maximum of 300 shares of the Company's
common stock may be issued under the Plan. Options granted under the plan are
exercisable at a price determined by the Board of Directors at the time of grant
and is equivalent to fair market value. Options issued pursuant to the Plan vest
evenly over a ten-year period from the date of the grant and expire ten years
from the vest date.
The number and exercise price of options granted for the years ended
December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
the year.................. 300 $1,932 300 $1,932 300 $1,932
Outstanding at end of the
year...................... 150 1,932 300 1,932 300 1,932
Exercisable at end of the
year...................... -- -- 120 1,932 90 1,932
Exercised during the year... 150 1,932 -- -- -- --
</TABLE>
The company has elected, as permitted by Statements of Financial Accounting
Standard No. 123, "Accounting for Stock Based Compensation", to account for its
stock compensation arrangement under the provisions of APB No. 25, "Accounting
for Stock Issued to Employees". Accordingly, because the exercise price of the
Company's employee stock options equaled the fair value of the underlying stock
on the date of grant, no compensation expense is recognized.
(14) EMPLOYEE RETIREMENT PLAN:
Substantially all non-union employees of the Company are eligible for
participation in the Company's profit-sharing plan if they have at least 1,000
hours of service during the year end are at least 21 years of age. The Company's
policy is to accrue and fund the normal cost of the plan. The charge to income
for the profit-sharing plan totaled $266,913, $268,793 and $224,787 for 1999,
1998 and 1997, respectively.
14
<PAGE> 15
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) COYNE ACQUISITION:
On December 15, 1997, the Company purchased substantially all of the assets
of Coyne Mattress Company Ltd., a Hawaii corporation. The purchased assets
consisted of trade accounts receivable, inventory, manufacturing, delivery,
office and store equipment, intangible assets (including goodwill, business
reputation and covenants not to compete for a period of years) and Serta, Inc.
shares. The purchase price of $2,569,141 was allocated among the acquired assets
as follows:
<TABLE>
<S> <C>
Accounts receivable......................................... $ 696,292
Inventory................................................... 900,000
Property and equipment...................................... 372,849
Intangible assets........................................... 597,500
Serta, Inc. shares.......................................... 2,500
----------
$2,569,141
==========
</TABLE>
(16) LOSS FROM DISCONTINUED OPERATIONS:
In 1997, the Company acquired certain assets and operations of various
retail bedding stores out of foreclosure proceedings for $656,000 and began
operating them as BedTime Stores, Inc., a wholly owned subsidiary. In April of
1998, the Board of Directors of the Company approved a plan to sell these
operations to an unrelated third party.
Accordingly, the financial position, operating results and the loss on the
disposition of BedTime Stores, Inc. have been segregated from continuing
operations and reclassified as discontinued operations in the accompanying
consolidated financial statements. Results from the discontinued operations were
as follows --
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Revenue..................................................... $5,410,866 $271,854
========== ========
Loss from discontinued operations, net of income tax benefit
of $148,870 and $203,600 in 1998 and 1997................. $ 234,280 $263,794
========== ========
Loss on disposal of assets, net of income tax benefit of
$279,130 in 1998.......................................... $ 439,273 $ --
========== ========
</TABLE>
The net assets of discontinued operations are comprised of the following --
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
Current assets.............................................. $ 706,592
Property, plant and equipment............................... 4,000
Other assets................................................ 39,686
Current liabilities......................................... (591,616)
---------
Net assets of discontinued operations..................... $ 158,662
=========
</TABLE>
(17) COMMITMENTS:
Leases
The Company leases retail showroom space in San Francisco, California and
Honolulu, Hawaii. These leases expire February 28, 2001 and December 31, 2000,
respectively. The Company also leases a manufacturing facility in Waipahu,
Hawaii, under an agreement which expires December 31, 2007. The
15
<PAGE> 16
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Honolulu and Waipahu leases require that the Company be responsible for all
property taxes, excise taxes and insurance. The Waipahu lease also provides for
an annual 3% increase in the base rent each year beginning January 1, 2000.
The Company also leases certain equipment under noncancellable operating
leases expiring at various dates through October 2007.
The following is a schedule of future payments required under these leases
that have noncancellable lease terms in excess of one year as of December 31,
1999:
<TABLE>
<S> <C>
Year Ended December 31,
2000................................................... $ 814,600
2001................................................... 701,300
2002................................................... 615,100
2003................................................... 576,100
2004................................................... 534,000
Thereafter............................................. 1,352,800
----------
$4,593,900
==========
</TABLE>
Rent expense for all these leases for 1999, 1998 and 1997 totaled
approximately $776,900, $750,400 and $269,400, respectively.
Deferred Compensation
The Company maintains an incentive compensation agreement with its Chief
Financial Officer whereby deferred compensation is based on growth of the
Company. Deferred compensation totaled $110,876, $59,237 and $29,751 at December
31, 1999, 1998 and 1997 respectively and is included in accounts payable and
accrued liabilities. Deferred compensation expense totaled $51,639, $29,486 and
$19,583 for 1999, 1998 and 1997 respectively.
Litigation
In the ordinary course of business, the Company is involved as a defendant
in various legal proceedings. Based in part upon the advice of its counsel,
management believes that the ultimate disposition of pending litigation will not
be material to the Company's financial position or results of operations.
(18) SUBSEQUENT EVENTS:
New Facility
Subsequent to December 31, 1999, the Company paid approximately $1,512,000
toward the construction of a new facility in Vacaville, California. The
estimated construction costs will total approximately $7,000,000.
Sale of Company
The shareholders of the Company have entered into negotiations for the sale
of all of their stock. Upon closing, deferred compensation and stock options
become fully vested to the participants. Under the deferred compensation
obligation, the Company would, at closing, recognize compensation expense of
approximately $2,139,000 and a related income tax benefit of approximately
$856,000.
16
<PAGE> 17
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS MARCH 31, 2000
------ --------------
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,626,505
Marketable securities..................................... 823,644
Accounts receivable, net.................................. 5,874,162
Inventory................................................. 3,188,476
Other current assets...................................... 660,129
-----------
Total current assets.............................. 14,172,916
PROPERTY AND EQUIPMENT, NET................................. 6,927,928
OTHER ASSETS................................................ 938,808
-----------
TOTAL ASSETS...................................... $22,039,652
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,622,207
Accrued advertising expenses.............................. 326,863
Other current liabilities................................. 1,034,328
Income taxes payable...................................... 455,270
-----------
Total current liabilities......................... 4,438,668
-----------
LONG-TERM LIABILITY:
Deferred licensee obligation.............................. 180,483
-----------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 10,000 shares authorized; 1820
shares issued and outstanding.......................... --
Additional paid-in capital................................ 634,633
Retained earnings......................................... 16,723,259
Accumulated other comprehensive income.................... 352,409
Note receivable from officer.............................. (289,800)
-----------
TOTAL STOCKHOLDERS' EQUITY........................ 17,420,501
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $22,039,652
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
17
<PAGE> 18
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
NET SALES................................................... $14,880,444 $13,603,750
COST OF SALES............................................... 9,183,118 8,025,298
----------- -----------
GROSS PROFIT.............................................. 5,697,326 5,578,452
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 5,447,284 4,579,610
----------- -----------
INCOME FROM OPERATIONS.................................... 250,042 998,842
OTHER INCOME, NET........................................... 80,959 176,904
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES.................. 331,001 1,175,746
PROVISION FOR INCOME TAXES.................................. 115,900 441,900
----------- -----------
NET INCOME................................................ $ 215,101 $ 733,846
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
18
<PAGE> 19
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES........ $(1,240,404) $1,852,189
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (158,582) (303,104)
----------- ----------
Net cash used for investing activities............ (158,582) (303,104)
----------- ----------
NET (DECREASE) INCREASE IN CASH............................. (1,398,986) 1,549,085
CASH AND CASH EQUIVALENTS, beginning of period.............. 5,025,491 2,501,547
----------- ----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 3,626,505 $4,050,632
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
19
<PAGE> 20
THE SIMON MATTRESS MANUFACTURING CO. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of The Simon Mattress Manufacturing Co. and Subsidiaries (the
"Company"). All material intercompany transactions and balances have been
eliminated. The interim statements are unaudited and, in the opinion of
management, include all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation of the Company's
financial position as of March 31, 2000 and the results of its operations and
cash flows for the interim periods presented. In accordance with the rules of
the Securities and Exchange Commission, these financial statements do not
include all disclosures required by generally accepted accounting principles.
Operating results for the three month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for any other interim
period or for the year ending December 31, 2000.
2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
2000
----------
<S> <C>
Raw materials............................................... $2,738,806
Work-in-process............................................. 22,773
Finished goods.............................................. 426,897
----------
Total inventories................................. $3,188,476
==========
</TABLE>
3. SUBSEQUENT EVENT
On April 28, 2000, the Company sold all of its issued and outstanding
shares of its common stock to Sleepmaster L.L.C. for approximately $42,600,000
in cash. The accompanying financial statements do not reflect any adjustments
related to the sale of the Company's stock.
20
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
On April 28, 2000, Sleepmaster L.L.C. ("Sleepmaster") acquired the capital
stock of Simon Mattress Manufacturing Company ("Simon") for approximately
$42,600,000, including estimated costs of acquisition, pursuant to a stock
purchase agreement by and among Simon Mattress, Sleepmaster and the stockholders
listed on the stockholder signature page attached thereto.
The following unaudited pro forma condensed consolidated financial
information of Sleepmaster has been prepared to give effect to the acquisition
of Simon, as well as the previous acquisitions of Herr, Star, and Adam Wuest.
The following also gives effect to the issuance of the senior subordinated notes
and the application of the proceeds therefrom. The pro forma adjustments
presented are based upon available information and assumptions that Sleepmaster
believes are reasonable.
The unaudited pro forma condensed consolidated balance sheet of Sleepmaster
as of March 31, 2000 gives effect to the acquisition of Simon as if it had
occurred on March 31, 2000. The unaudited pro forma condensed consolidated
statements of income of Sleepmaster for the year ended December 31, 1999 and the
three months ended March 31, 2000 give effect to the acquisition of Simon, as if
the transaction had occurred as of January 1, 1999 and give effect to the
acquisitions of Herr, Star, and Adam Wuest, which actually occurred on February
26, 1999, May 18, 1999 and November 5, 1999 respectively, and the issuance of
the senior subordinated notes on May 18, 1999, including the application of the
net proceeds therefrom, as if the transactions had occurred as of January 1,
1999.
The pro forma financial data should be read in conjunction with
Sleepmaster's Annual Report on Form 10-K/A for the year ended December 31, 1999,
Sleepmaster's Amendment No. 4 to the Form S-4, filed on November 24, 1999, and
the historical consolidated financial statements of Simon and the accompanying
notes thereto included elsewhere herein. Sleepmaster believes that the
assumptions used in the following financial statements provide a reasonable
basis on which to present the unaudited pro forma data. The pro forma financial
data and related notes are provided for informational purposes only and do not
purport to be indicative of the financial position or results of operations that
would have actually been obtained had the acquisitions of Simon, Herr, Star, and
Adam Wuest, and the issuance of the senior subordinated notes, been completed on
the dates indicated, or to project Sleepmaster's results of operations for any
future date or period.
21
<PAGE> 22
SLEEPMASTER L.L.C.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL PRO FORMA ADJUSTMENTS FOR AS
SLEEPMASTER SIMON(A) SIMON ADJUSTED
----------- --------- --------------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents................. $ 1,746 $ 3,627 $ 42,379(b) $ 5,373
(42,379)(c)
Marketable securities..................... -- 824 824
Accounts receivable, net.................. 24,704 5,874 30,578
Accounts receivable-other................. 1,256 -- 1,256
Inventories............................... 7,883 3,188 130(d) 11,201
Other current assets...................... 1,751 660 (47)(c) 2,364
-------- ------- --------
Total current assets............ 37,340 14,173 51,596
Property, plant and equipment, net........ 20,915 6,928 27,843
Intangible assets, net.................... 129,982 505 24,946(e) 155,433
Other assets.............................. 19,457 434 1,115(b) 21,006
-------- ------- --------
42,608(c)
(42,608)(f)
Total assets.................... $207,694 $22,040 $255,878
======== ======= ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT):
Accounts payable.......................... $ 16,180 $ 2,622 $ $ 18,802
Accrued advertising and sales
allowances.............................. 4,846 327 5,173
Accrued interest.......................... 5,096 -- 5,096
Other current liabilities................. 4,408 1,379 8(b) 5,977
182(c)
Current portion of long-term debt......... 5,013 -- 5,013
-------- ------- --------
Total current liabilities....... 35,543 4,328 40,061
-------- ------- --------
Long-term debt............................ 157,248 -- 43,361(b) 200,609
Other liabilities......................... 1,456 180 1,636
-------- ------- --------
Total long-term liabilities..... 158,704 180 202,245
-------- ------- --------
Redeemable cumulative preferred
interests............................... 21,034 -- 21,034
Members' equity (deficit)................. (7,587) 17,532 125(b) (7,462)
-------- ------- --------
130(d)
(42,608)(f)
24,946(g)
Total liabilities and members'
equity (deficit).............. $207,694 $22,040 $255,878
======== ======= ========
</TABLE>
22
<PAGE> 23
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
The pro forma condensed consolidated balance sheet gives effect to the
following pro forma adjustments:
(a) Represents the acquisition of Simon, derived from the unaudited
financial statements of Simon as of March 31, 2000, included elsewhere
herein, adjusted to eliminate certain assets and liabilities not acquired
or assumed by Sleepmaster pursuant to the stock purchase agreement, as
follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
SIMON ADJUSTMENTS SIMON
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents.................. $ 3,627 $ -- $ 3,627
Marketable securities...................... 824 -- 824
Accounts receivable, net................... 5,874 -- 5,874
Inventory.................................. 3,188 -- 3,188
Other current assets....................... 660 -- 660
------- ------- -------
Total current assets............. 14,173 14,173
Property and equipment, net................ 6,928 -- 6,928
Intangible assets, net..................... 505 -- 505
Other assets............................... 434 -- 434
------- ------- -------
Total assets..................... $22,040 -- $22,040
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable........................... 2,622 -- 2,622
Accrued advertising and sales allowances... 327 -- 327
Other current liabilities.................. 1,035 (111)(1) 924
Income taxes payable....................... 455 -- 455
------- ------- -------
Total current liabilities........ 4,439 (111) 4,328
Other liabilities.......................... 180 -- 180
------- ------- -------
Total liabilities................ 4,619 (111) 4,508
------- ------- -------
Stockholders' equity....................... 17,421 111 17,532
------- ------- -------
Total liabilities and
stockholders' equity........... $22,040 $ -- $22,040
======= ======= =======
</TABLE>
---------------
(1) Deferred compensation relating to an incentive compensation
agreement with a key employee which was paid by seller. This
agreement was eliminated as of the acquisition date.
(b) Represents adjustments to reflect proceeds from the issuance of
$35,000 term debt and a revolving loan borrowing of $8,361, net of
estimated closing costs of $1,115, and $125 of common interests contributed
by Sleepmaster Holdings L.L.C.
(c) Represents adjustments to record the acquisition of Simon for
$42,608, including estimated costs of acquisition.
(d) Represents adjustment of Simon's inventory to its estimated fair
value at the date of acquisition.
23
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET -- (CONTINUED)
(e) Represents adjustment to record the excess of purchase price over
the estimated fair values of the net assets acquired of Simon as follows:
<TABLE>
<S> <C>
Purchase price, including estimated costs of acquisition.... $ 42,608
Net book value of net assets acquired....................... (17,532)
Adjustment to record Simon's inventory at estimated fair
value (see adjustment(d))................................. (130)
--------
Goodwill.................................................... $ 24,946
========
</TABLE>
This acquisition will be accounted for as a purchase business
combination and the purchase price will be allocated to the fair value of
the assets and liabilities acquired. Since this is a recent acquisition,
the determination of the fair values of assets and liabilities acquired has
not yet been completed. Accordingly, the purchase price in excess of the
net book value of assets and liabilities acquired, derived from the
unaudited balance sheet of Simon at March 31, 2000, has been allocated to
goodwill for the purposes of this pro forma presentation. We believe that
the only identifiable intangible asset to which the purchase price will be
allocated is the Serta license acquired. However, we believe the license
has a perpetual life based on the agreement with Serta, Inc. since we have
the exclusive use of the license and the unilateral ability to terminate
it. Consequently, the amortization period for the license would be 40
years, the same as the amortization period for goodwill.
(f) Represents the elimination entries required to reflect the
consolidation of Simon with Sleepmaster and its existing subsidiaries.
(g) Represents adjustments to members' equity (deficit) as a result of
the acquisition of Simon as follows:
<TABLE>
<S> <C>
Goodwill(adjustment(e))..................................... $24,946
</TABLE>
24
<PAGE> 25
SLEEPMASTER L.L.C.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS AS ADJUSTED
FOR HERR, STAR, FOR, HERR, STAR,
HISTORICAL HISTORICAL HISTORICAL HISTORICAL OFFERING AND OFFERING AND HISTORICAL
SLEEPMASTER HERR(B) STAR(C) ADAM WUEST(D) ADAM WUEST ADAM WUEST SIMON(M)
----------- ---------- ---------- ------------- ---------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $171,319 $2,748 $5,753 $42,582 $ (40)(e) $222,362 $59,021
Cost of sales............ 104,924 1,697 3,533 24,292 (40)(e) 134,402 36,118
(4)(f)
-------- ------ ------ ------- -------- -------
Gross profit........... 66,395 1,051 2,220 18,290 87,960 22,903
Selling, general &
administrative
expenses............... 43,322 739 1,188 12,524 (370)(g) 57,320 18,869
(83)(i)
Amortization of
intangibles............ 2,216 3 -- -- 1,359(j) 3,578 --
-------- ------ ------ ------- -------- -------
Operating income....... 20,857 309 1,032 5,766 27,062 4,034
Interest expense,
(net)(a)............... 12,536 2 9 76 64(h) 17,421 (208)
4,734(k)
Other expense (income),
net.................... 83 (16) (9) (21) 37 (427)
-------- ------ ------ ------- -------- -------
Income before income
taxes and
extraordinary
items................ 8,238 323 1,032 5,711 9,604 4,669
Provision for
income taxes........... 3,248 126 351 2,250(n) (2,191)(l) 3,784 1,630
-------- ------ ------ ------- -------- -------
Income before
extraordinary
items................ $ 4,990 $ 197 $ 681 $ 3,461 $ 5,820 $ 3,039
======== ====== ====== ======= ======== =======
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
FOR SIMON AS ADJUSTED
----------- -----------
<S> <C> <C>
Net sales................ $281,383
Cost of sales............ $ 130(s) 170,650
--------
Gross profit........... 110,733
Selling, general &
administrative
expenses............... (99)(o) 76,038
(52)(o)
Amortization of
intangibles............ 624(p) 4,202
--------
Operating income....... 30,493
Interest expense,
(net)(a)............... 4,184(q) 21,597
200(r)
Other expense (income),
net.................... (390)
--------
Income before income
taxes and
extraordinary
items................ 9,286
Provision for
income taxes........... (1,965)(t) 3,449
--------
Income before
extraordinary
items................ $ 5,837
========
</TABLE>
25
<PAGE> 26
SLEEPMASTER L.L.C.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA AS
SLEEPMASTER SIMON(M) FOR SIMON ADJUSTED
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales................................... $56,101 $14,880 $70,981
Cost of sales............................... 34,839 9,183 44,022
------- ------- -------
Gross profit................................ 21,262 5,697 26,959
Selling, general & administrative
expenses.................................. 14,255 5,447 (25)(o) 19,677
Amortization of intangibles................. 842 -- 156(p) 998
------- ------- -------
Operating income............................ 6,165 250 6,284
Interest expense, (net)(a).................. 4,537 -- 1,043(q) 5,630
50(r)
Other expense (income), net................. 32 (81) (49)
------- ------- -------
Income before income taxes.................. 1,596 331 703
Provision for income taxes.................. 624 116 482(t) 258
------- ------- -------
Net income.................................. $ 972 $ 215 $ 445
======= ======= =======
</TABLE>
26
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
The pro forma consolidated statements of income for the year ended December
31, 1999 and the three months ended March 31, 2000 give effect to the following
pro forma adjustments:
<TABLE>
<S> <C>
(a) Interest expense, net, includes the amortization of deferred debt issuance costs of $771 and
$208 for the year ended December 31, 1999 and the three months ended March 31, 2000,
respectively.
(b) Represents the results of operations of Herr prior to its acquisition for the period from
January 1, 1999 to February 25, 1999.
(c) Represents the results of operations of Star prior to its acquisition for the period from
January 1, 1999 to May 17, 1999.
(d) Represents the results of operations of Adam Wuest prior to its acquisition for the period
from January 1, 1999 to November 4, 1999.
</TABLE>
<TABLE>
YEAR ENDED
DECEMBER 31, 1999
-------
<S> <C> <C>
(e) Elimination of intercompany sales transactions......................... $ 40
(f) Decreased depreciation expense of Herr's factory machinery and
equipment based upon the application of the straight-line method of
depreciation, in conformity with Sleepmaster's accounting policy,
compared with an accelerated method used in the historical financial
statements of Herr..................................................... $ 4
(g) Represents expense associated with phantom stock compensation
arrangements for certain key employees and non-shareholder officers of
Adam Wuest that will not be continued after the acquisition. This
adjustment is solely as the result of changed circumstances that will
exist after the acquisition. The duties and responsibilities of these
employees will not be diminished or cause other costs to be incurred to
offset the pro forma adjustment to compensation expense................ $ 370
(h) Represents an adjustment to record fees associated with the letter of
credit collateralizing the economic development revenue bonds of Adam
Wuest Realty........................................................... $ 64
(i) Represents an adjustment to depreciation expense to conform
depreciation rate with that of Adam Wuest Realty....................... $ 83
(j) Represents the amortization over 40 years of the excess of purchase
price over the estimated fair values of the net assets acquired of
Herr, Star and Adam Wuest as follows:
Herr for the period from January 1, 1999 through February 25, 1999,
Star for the period from January 1, 1999 to May 17, 1999 and Adam Wuest
for the period from January 1, 1999 to November 4, 1999................ $ 1,359
(k) Interest expense on the notes.......................................... $ 4,779
Amortization of issuance costs associated with the old note offering
over the life of the notes............................................. $ 214
Elimination of interest expense as a result of the repayment of certain
indebtedness with the proceeds from the old note offering. Pro forma
interest expense associated with debt incurred in connection with the
acquisition of Herr has not been included herein since the acquisition
debt is assumed to be repaid from the proceeds from the old note
offering............................................................... $(2,860)
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
Elimination of amortization expense of debt issuance costs as a result of the
write-off thereby due to early repayment of certain indebtedness. Pro forma
amortization of debt issuance costs associated with incremental debt incurred in
connection with the acquisition of Herr has not been included herein since the
debt issuance costs are assumed to be written off when the associated debt is
repaid from the proceeds from the old note offering.. ) (247
<S> <C> <C> <C>
Elimination of interest expense associated with debt of Star not assumed by
Sleepmaster...................................................................... $ (9)
Elimination of interest expense associated with related party capital lease
obligation of Adam Wuest......................................................... $ (291)
Elimination of interest income related to Adam Wuest's cash and cash equivalents
and marketable securities........................................................ $ 216
Interest expense associated with debt incurred in connection with the acquisition
of Adam Wuest.................................................................... $ 2,667
Interest expense on economic development revenue bonds assumed in connection with
the acquisition of Adam Wuest.................................................... $ 94
Amortization of issuance costs associated with debt incurred in connection with
the acquisition of Adam Wuest.................................................... $ 171
-------
Total............................................................................ $ 4,734
=======
(l) Represents an adjustment to income tax expense for the effects of the aforementioned adjustments (e)
through (k) (39.4% effective tax rate for the year ended December 31, 1999 and for the three months
ended March 31, 2000).
(m) Derived from the audited financial statements of Simon for the year ended December 31, 1999 and from
the unaudited financial statements of Simon for the period January 1, 2000 through March 31, 2000,
included elsewhere herein.
(n) Represents an adjustment to income tax expense (39.4% effective tax rate) as a result of including the
results of operations of Adam Wuest indicated in adjustment (d). Prior to the acquisition, Adam Wuest
had elected to include its taxable income with that of its shareholders and consequently did not
provide for income taxes at the corporate level.
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
---------------------- ------------------
<S> <C> <C> <C>
(o) Represents the elimination of costs incurred and income
earned by Simon that Sleepmaster has not assumed:
Expense associated with the salary paid (including
payroll taxes) to the chairman whose employment will not
continue after the acquisition....................... $ (99) $ (25)
Expense associated with a deferred compensation agreement
with a certain key employee that will not be continued
after the acquisition................................ $ (52) --
(p) Amortization over 40 years of the excess of purchase
price over the estimated fair values of the net assets
acquired of Simon...................................... $ 624 $ 156
(q) Interest expense associated with debt incurred in
connection with the acquisition of Simon............... $4,184 $ 1,043
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
<S> <C> <C> <C>
(r) Amortization of issuance costs associated with debt
incurred in connection with the acquisition of
Simon............................................... $ 200 $ 50
If the variable rate of interest on the debt incurred in connection with the acquisition of
Simon were to increase by 1/8%, pro forma net income would decrease by $54 and $14 for the
year ended December 31, 1999 and the three months ended March 31, 2000, respectively. If
such variable rate were to decrease by 1/8%, pro forma net income would increase by $54 and
$14 for the year ended December 31, 1999 and the three months ended March 31, 2000,
respectively.
(s) Adjustment in connection with recording Simon's inventory at its estimated fair value.
(t) Represents an adjustment to income tax expense for the effects of the aforementioned
adjustments (o) through (s) (39.4% effective rate for the year ended December 31, 1999 and
for the three months ended March 31, 2000).
</TABLE>
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Linden,
State of New Jersey.
SLEEPMASTER L.L.C.
By: /s/ CHARLES SCHWEITZER
------------------------------------
President and Chief Executive
Officer
Dated: July 12, 2000
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
registrant and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ CHARLES SCHWEITZER President and Chief Executive July 12, 2000
--------------------------------------------------- Officer, Advisor
Charles Schweitzer
/s/ JAMES P. KOSCICA Executive Vice President and Chief July 12, 2000
--------------------------------------------------- Financial Officer, Advisor
James P. Koscica
</TABLE>
30
