TEMPUR SEALY INTERNATIONAL, INC. 
By LEXINGTON, Ky., Nov. 6, 2013 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE: TPX), the world's largest bedding provider, today announced financial results for the third quarter ended September 30, 2013. The Company also confirmed financial guidance for 2013.
THIRD QUARTER FINANCIAL SUMMARY
-- Earnings per diluted share ("EPS") under U.S. generally accepted
accounting principles ("GAAP") in the third quarter of 2013 were $0.65
compared to GAAP EPS of ($0.03) in the third quarter of 2012. The 2013
results reflect transaction and integration costs related to the
acquisition of Sealy Corporation ("Sealy") and interest fees related to
the Company's refinancing of its Term A Facility under its senior
secured credit facility. The 2012 loss reflects tax charges related to
the Sealy acquisition.
-- Adjusted EPS were $0.73 in the third quarter of 2013 as compared to
adjusted EPS of $0.70 in the third quarter of 2012. The Company
completed its acquisition of Sealy in March 2013, and results for 2012
do not include Sealy.
-- GAAP net income in the third quarter of 2013 was $40.2 million as
compared to a GAAP net loss of $2.0 million for the third quarter of
2012. The Company reported adjusted net income of $44.9 million for the
third quarter of 2013 as compared to adjusted net income of $42.3
million for the third quarter of 2012. For additional information
regarding adjusted EPS and adjusted net income (which are non-GAAP
measures), please refer to the reconciliations and other information
included in the attached schedules.
-- Total net sales increased 111.4% to $735.5 million in the third quarter
of 2013 from $347.9 million in the third quarter of 2012. The net sales
increase was due to the inclusion of $389.9 million of Sealy net sales
for the third quarter of 2013.
-- Gross profit margin was 40.6% as compared to 49.2% in the third quarter
of 2012. The gross profit margin decreased primarily as a result of the
inclusion of Sealy, which has lower margins than the Tempur North
America and Tempur International segments, and changes in product mix,
offset partially by lower sourcing costs.
-- Operating income was $81.2 million as compared to $63.4 million in the
third quarter of 2012. Operating income in the third quarter of 2013
included $8.5 million of transaction and integration costs related to
the Sealy acquisition. The higher operating income reflects the
inclusion of Sealy.
-- Adjusted EBITDA (which is a non-GAAP measure) for the third quarter of
2013 was $115.5 million. EBITDA (which is a non-GAAP measure) for the
third quarter of 2012 was $69.3 million.
-- The Company ended the quarter with consolidated funded debt less
qualified cash of $1.8 billion. The ratio of consolidated funded debt
less qualified cash to adjusted EBITDA was 4.3 times, calculated on a
combined basis for Tempur-Pedic and Sealy in accordance with the
Company's new senior secured credit facility. For additional information
regarding EBITDA, adjusted EBITDA and consolidated funded debt less
qualified cash (which are non-GAAP measures) please refer to the
reconciliations and other information included in the attached
schedules.
Tempur Sealy International, Inc. CEO Mark Sarvary commented, "Overall our third quarter was in line with our expectations. The steps we have taken to improve Tempur North America's performance showed progress and led to a slight sales increase during the quarter. Our Sealy business also showed growth during the quarter. However, Tempur International results were slightly below our plan due to continued weakness in Europe. The integration with Sealy continues to progress well, cost synergies continue to track to our plan, and we remain very excited about our ability to capture significant revenue synergies."
Business Segment Highlights
The Company's business segments include Tempur North America, Tempur International, and Sealy. The Company's "Bedding" product sales include mattresses, foundations, and adjustable foundations and "Other products" include pillows and various other comfort products and components.
Tempur North America net sales increased 0.6% to $242.4 million in the third quarter of 2013 from $240.9 million in the third quarter of 2012. Bedding net sales increased 0.2% to $220.6 million in the third quarter of 2013 from $220.1 million in the third quarter of 2012. Net sales of Other products increased 4.8% to $21.8 million from $20.8 million in the third quarter of 2012.
Tempur International net sales decreased 3.6% to $103.2 million in the third quarter of 2013 from $107.0 million in the third quarter of 2012. Bedding net sales decreased 4.7% to $76.5 million in the third quarter of 2013 from $80.3 million in the third quarter of 2012. Net sales of Other products of $26.7 million were unchanged as compared to the third quarter of 2012.
Sealy net sales for the third quarter of 2013 were $389.9 million. Bedding net sales were $365.2 million and net sales of Other products were $24.7 million.
Charges and Other Costs
The Company incurred various charges as a result of the Sealy acquisition. Transaction costs recorded in the third quarter of 2013 were $1.2 million and integration costs were $7.3 million. In addition, the Company incurred $0.7 million in interest fees related to the Company's refinancing of its Term A Facility under its new senior secured credit facility, which was completed in July 2013.
Financial Guidance
The Company confirmed its full year 2013 financial guidance.
The following guidance commentary reflects current expectations with respect to a full year of Tempur-Pedic results and Sealy results from March 18, 2013:
-- Net sales to range from $2.425 billion to $2.450 billion
-- Adjusted EBITDA to range from $370 million to $385 million
-- Adjusted EPS to range from $2.25 to $2.40 per diluted share, including
depreciation and amortization of approximately $0.14 per share
associated with the Sealy purchase price allocation ("PPA")
The Company noted its expectations are based on information available at the time of this release, and are subject to changing conditions, many of which are outside the Company's control. The Company noted its adjusted EBITDA and adjusted EPS guidance does not include transaction and integration costs related to the Sealy acquisition.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference call to discuss financial results today, November 6, 2013 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 800-850-2903. The dial-in number for international callers is 224-357-2399. The call is also being webcast and can be accessed on the investor relations section of the Company's website, http://www.tempursealy.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company's website for 30 days.
Forward-looking Statements
This release contains "forward-looking statements," within the meaning of federal securities laws, which include information concerning one or more of the Company's plans, objectives, goals, strategies, and other information that is not historical information. When used in this release, the words "estimates," "expects," "guidance," "anticipates," "projects," "plans," "proposed," "intends," "believes," and variations of such words or similar expressions are intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to the Company's expectations regarding ongoing efforts to improve performance in the Tempur North America segment, integration, cost synergies, revenue synergies and growth, and expectations regarding the Company's net sales, adjusted EBITDA and adjusted EPS for 2013 and related assumptions. All forward looking statements are based upon current expectations and beliefs and various assumptions. There can be no assurance that the Company will realize these expectations or that these beliefs will prove correct.
Numerous factors, many of which are beyond the Company's control, could cause actual results to differ materially from those expressed as forward-looking statements. These risk factors include risks associated with the Company's new capital structure and increased debt level; the ability to successfully integrate Sealy into the Company's operations and realize cost and revenue synergies and other benefits from the transaction; general economic, financial and industry conditions, particularly in the retail sector, as well as consumer confidence and the availability of consumer financing; changes in interest rates; uncertainties arising from global events; the effects of changes in foreign exchange rates on the Company's reported earnings; consumer acceptance of the Company's products; industry competition; the efficiency and effectiveness of the Company's advertising campaigns and other marketing programs; the Company's ability to increase sales productivity within existing retail accounts and to further penetrate the Company's retail channel, including the timing of opening or expanding within large retail accounts and the timing of product launches; the Company's ability to expand brand awareness, distribution and new products; the Company's ability to continuously improve and expand its product line, maintain efficient, timely and cost-effective production and delivery of its products, and manage its growth; the effects of strategic investments on the Company's operations; changes in foreign tax rates and changes in tax laws generally, including the ability to utilize tax loss carry forwards; the outcome of various pending tax audits or other tax proceedings; changing commodity costs; the risk that the Company's final purchase price allocation relating to the Sealy acquisition could be significantly different from the Company's initial estimated purchase price allocation; and the effect of future legislative or regulatory changes.
Additional information concerning these and other risks and uncertainties are discussed in the Company's filings with the Securities and Exchange Commission, including without limitation the Company's 2012 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013 under the headings "Special Note Regarding Forward-Looking Statements" and "Risk Factors." Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward-looking statements for any reason, including to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
About the Company
Tempur Sealy International, Inc. (NYSE: TPX) is the world's largest bedding provider. Tempur Sealy International develops, manufactures and markets mattresses, foundations, pillows and other products. The Company's brand portfolio includes many of the most highly recognized brands in the industry, including Tempur®, Tempur-Pedic®, Sealy®, Sealy Posturepedic®, Optimum(TM) and Stearns & Foster®. World headquarters for Tempur Sealy International, Inc. is in Lexington, KY. For more information, visit http://www.tempursealy.com or call 800-805-3635.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In millions, except per common share amounts)
(unaudited)
Three Months
Ended Nine Months Ended
September
30, September 30,
---------- -------------
2013 2012 Chg % 2013 2012 Chg %
---- ---- ---- ---- ---- ----
Net sales $735.5 $347.9 111.4% $1,786.2 $1,061.8 68.2%
Cost of sales 436.8 176.8 1,044.2 517.8
----- ----- ------- -----
Gross profit 298.7 171.1 74.6% 742.0 544.0 36.4%
Selling and marketing expenses 150.9 76.2 377.1 243.2
General, administrative and other expenses 71.9 31.5 206.9 103.8
Equity income in earnings of unconsolidated
affiliates (1.2) - (2.5) -
Royalty income, net of royalty expense (4.1) - (9.2) -
---- --- ---- ---
Operating income 81.2 63.4 28.1% 169.7 197.0 -13.9%
Other expense, net:
Interest expense, net 24.6 4.8 88.2 13.0
Other expense (income), net 0.9 (0.4) 4.0 (0.4)
--- ---- --- ----
Total other expense 25.5 4.4 92.2 12.6
Income before income taxes 55.7 59.0 -5.6% 77.5 184.4 -58.0%
Income tax provision (15.5) (61.0) (26.9) (101.1)
----- ----- ----- ------
Net income (loss) before non-controlling 40.2 (2.0) 50.6 83.3
interest
Less: net (loss) attributable to non-controlling
interest - - (0.5) -
--- --- ---- ---
Net income (loss) attributable to Tempur Sealy
International, Inc. $40.2 $(2.0) 2,110.0% $51.1 $83.3 -38.7%
===== ===== ===== =====
Earnings (loss) per common share:
Basic $0.66 $(0.03) $0.85 $1.34
===== ===== ===== =====
Diluted $0.65 $(0.03) $0.83 $1.31
===== ===== ===== =====
Weighted average common shares outstanding:
Basic 60.5 59.6 60.3 62.1
==== ==== ==== ====
Diluted 61.6 59.6 61.6 63.6
==== ==== ==== ====
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions)
September December
30, 31,
2013 2012
---- ----
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $126.6 $179.3
Accounts receivable, net 349.3 129.8
Inventories, net 182.8 93.0
Receivables from escrow - 375.0
Prepaid expenses and other
current assets 52.7 41.4
Deferred income taxes 39.2 2.6
---- ---
Total Current Assets 750.6 821.1
Property, plant and equipment,
net 411.6 186.0
Goodwill 756.4 216.1
Other intangible assets, net 758.2 63.1
Deferred income taxes 9.7 10.4
Other non-current assets 75.0 16.3
---- ----
Total Assets $2,761.5 $1,313.0
======== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable $181.7 $85.8
Accrued expenses and other
current liabilities 220.4 81.4
Deferred income taxes 0.5 26.5
Income taxes payable 33.0 15.5
Current portion of long-term
debt 39.7 -
Total Current Liabilities 475.3 209.2
Long-term debt 1,820.4 1,025.0
Deferred income taxes 287.2 31.4
Other non-current liabilities 85.2 25.1
---- ----
Total Liabilities 2,668.1 1,290.7
Redeemable non-controlling
interest 10.9 -
---- ---
Total Stockholders' Equity 82.5 22.3
---- ----
Total Liabilities and
Stockholders' Equity $2,761.5 $1,313.0
======== ======
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(unaudited)
Nine Months
Ended
September 30,
-------------
2013 2012
---- ----
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net income before
non-controlling
interest $50.6 $83.3
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization 52.5 26.9
Amortization of
stock-based
compensation 13.8 3.7
Amortization of
deferred financing
costs 5.0 1.0
Write-off of
deferred financing
costs 4.7 -
Bad debt expense 0.1 1.7
Deferred income taxes (56.4) 36.6
Equity income in
earnings of
unconsolidated
affiliates (2.3) -
Non cash interest
expense on
convertible notes 2.4 -
Loss on sale of
assets 0.6 -
Foreign currency
adjustments and
other - 1.6
Changes in operating
assets and
liabilities 33.8 (1.2)
Net cash provided by
operating activities 104.8 153.6
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Acquisition of
business, net of
cash acquired (1,172.9) (3.9)
Purchases of
property, plant and
equipment (28.4) (38.4)
Other 0.9 -
Net cash used in
investing activities (1,200.4) (42.3)
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Proceeds from 2012
credit agreement 2,917.6 -
Repayments of 2012
credit agreement (1,559.1) -
Proceeds from
issuance of senior
notes 375.0 -
Proceeds from 2011
credit facility 46.5 284.5
Repayments of 2011
credit facility (696.5) (220.0)
Proceeds from
issuance of common
stock 6.0 10.6
Excess tax benefit
from stock based
compensation 3.7 9.7
Treasury shares
repurchased - (152.6)
Payments of deferred
financing costs (52.0) (0.1)
Other (0.7) (2.5)
Net cash provided by
(used in) financing
activities 1,040.5 (70.4)
NET EFFECT OF
EXCHANGE RATE
CHANGES ON CASH AND
CASH EQUIVALENTS 2.4 (0.6)
--- ----
(Decrease) increase
in cash and cash
equivalents (52.7) 40.3
CASH AND CASH
EQUIVALENTS,
beginning of period 179.3 111.4
----- -----
CASH AND CASH
EQUIVALENTS, end
of period $126.6 $151.7
====== ======
Summary of Channel Sales
The following table highlights net sales information, by channel and by segment, for the three months ended September 30, 2013 and 2012:
CONSOLIDATED TEMPUR TEMPUR SEALY
NORTH AMERICA INTERNATIONAL
------------- -------------
(in millions) 2013 2012 2013 2012 2013 2012 2013 2012
---- ---- ---- ---- ---- ---- ---- ----
Retail $669.7 $306.4 $226.5 $221.2 $79.7 $85.2 $363.5 $ -
Direct 31.5 27.1 11.6 16.7 12.5 10.4 7.4 -
Other 34.3 14.4 4.3 3.0 11.0 11.4 19.0 -
---- ---- --- --- ---- ---- ---- ---
$735.5 $347.9 $242.4 $240.9 $103.2 $107.0 $389.9 $ -
====== ====== ====== ====== ====== ====== ====== === ===
Summary of Product Sales
The following table highlights net sales information, by product and by segment, for the three months ended September 30, 2013 and 2012:
CONSOLIDATED TEMPUR TEMPUR SEALY
NORTH AMERICA INTERNATIONAL
------------- -------------
(in millions) 2013 2012 2013 2012 2013 2012 2013 2012
---- ---- ---- ---- ---- ---- ---- ----
Bedding $662.3 $300.4 $220.6 $220.1 $76.5 $80.3 $365.2 $ -
Other products 73.2 47.5 21.8 20.8 26.7 26.7 24.7 -
$735.5 $347.9 $242.4 $240.9 $103.2 $107.0 $389.9 $ -
====== ====== ====== ====== ====== ====== ====== === ===
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Measures
(In millions, except per common share amounts)
The Company provides information regarding adjusted net income, adjusted earnings per share, earnings before interest, taxes, depreciation, and amortization ("EBITDA"), adjusted EBITDA, and consolidated funded debt and consolidated funded debt less qualified cash, which are not recognized terms under U.S. Generally Accepted Accounting Principles ("GAAP") and do not purport to be alternatives to net income as a measure of operating performance or total debt. A reconciliation of adjusted net income and adjusted earnings per share is provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various costs associated with the Sealy Acquisition. A reconciliation of EBITDA and adjusted EBITDA to the Company's net income and a reconciliation of total debt to consolidated funded debt and consolidated funded debt less qualified cash are also provided below. Management believes that the use of EBITDA, adjusted EBITDA, consolidated funded debt and consolidated funded debt less qualified cash also provides investors with useful information with respect to the terms of the Company's new senior secured credit facility and the Company's compliance with key financial covenants. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.
Reconciliation of GAAP net income (loss) to adjusted net income
The following table sets forth the reconciliation of the Company's reported GAAP net income (loss) for the three months ended September 30, 2013 and 2012 to the calculation of adjusted net income for the three months ended September 30, 2013 and 2012:
(in millions, except per share amounts) Three Months Three Months
Ended Ended
September 30, September 30,
2013 2012
---- ----
GAAP net income (loss) $40.2 $(2.0)
Plus:
Transaction costs, net of tax (1) 1.0 2.4
Integration costs, net of tax (1) 5.1 -
Long term debt refinance, net of tax (2) 0.5 -
Adjustment of taxes to normalized rate (3) (1.9) -
Tax provision related to repatriation of foreign
earnings(4) - 41.9
--- ----
Adjusted net income $44.9 $42.3
===== =====
GAAP earnings (loss) per share, diluted $0.65 $(0.03)
Transaction costs, net of tax (1) 0.02 0.04
Integration costs, net of tax (1) 0.08 -
Long term debt refinance, net of tax (2) 0.01 -
Adjustment of taxes to normalize rate (3) (0.03) -
Tax provision related to repatriation of foreign
earnings(4) - 0.69
--- ----
Adjusted earnings per share, diluted $0.73 $0.70
===== =====
Diluted shares outstanding 61.6 60.8
(1) Transaction and
integration represents
costs, including legal
fees, professional fees
and other charges to
align the businesses
related to the Sealy
acquisition.
(2) Refinance costs
represents the interest
fees incurred in
connection with the
refinancing of the Term
A Facility which
occurred in July 2013.
(3) Adjustment of taxes to
normalized rate
represents adjustments
associated with the tax
impacts of transaction
costs.
(4) Represents tax provision
recorded in connection
with the repatriation of
foreign earnings related
to the Sealy
acquisition.
Reconciliation of GAAP net income to EBITDA and adjusted EBITDA
The following table sets forth the reconciliation of the Company's reported GAAP net income to the calculation of EBITDA and adjusted EBITDA for the three months ended September 30, 2013:
Three months
ended
-----
(in millions) September 30,
2013
----
EBITDA
GAAP net income $40.2
Interest expense, net 24.6
Income taxes 15.5
Depreciation & amortization 26.7
----
EBITDA $107.0
Adjustments for financial covenant purposes:
Transaction costs 1.2
Integration costs 7.3
---
Adjusted EBITDA $115.5
======
The following table sets forth a mathematical combination related to the calculation of adjusted EBITDA in accordance with the Company's new senior secured credit facility. The following table provides useful information about how the senior secured credit facility treats adjusted EBITDA and sets forth a calculation, for the Company and Sealy on a combined basis, of reported GAAP net income to the calculation of EBITDA and adjusted EBITDA for the twelve months ended September 30, 2013:
Combined (1)
------------
(in millions)
EBITDA
GAAP net income $67.7
Interest expense, net 140.1
Income taxes 35.9
Depreciation & amortization 92.5
----
EBITDA $336.2
Adjustments for financial covenant purposes:
Transaction costs 33.9
Integration costs 14.4
Refinancing charges 2.8
Non-cash compensation 3.1
Restructuring and impairment 8.5
related charges
Discontinued operations 3.6
Other 11.7
----
Adjusted EBITDA $414.2
======
(1) Combined includes the
mathematical combination of
the Company's historical
financial results for the
twelve months ended September
30, 2013 and Sealy's
historical financial results
for the pre-acquisition
period from August 27, 2012
through March 3, 2013. Results
for Sealy for periods prior to
the Sealy acquisition do not
give effect to any purchase
accounting considerations.
This information is presented solely for the purpose of providing information to investors regarding the Company's compliance with certain financial covenants in its new senior secured credit facility that are based on adjusted EBITDA. This information does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information, and does not reflect future events that may occur after September 30, 2013 or any operating efficiencies or inefficiencies that may result from the Sealy acquisition and related financing. Therefore, the information is not necessarily indicative of results that would have been achieved had the businesses been combined during the periods presented or the results that the Company will experience going forward.
Reconciliation of long-term debt to consolidated funded debt less qualified cash
The following table sets forth the reconciliation of the Company's reported debt to the calculation of consolidated funded debt less qualified cash as of September 30, 2013. "Consolidated funded debt" and "qualified cash" are terms used in the Company's new senior secured credit facility for purposes of certain financial covenants.
As of
(in millions) September 30, 2013
------------------
GAAP basis debt $1,860.1
Plus:
Letters of credit outstanding 22.4
Consolidated funded debt 1,882.5
Less:
Domestic qualified cash (1) $62.0
Foreign qualified cash (1) 38.8
----
Consolidated funded debt less qualified cash $1,781.7
========
(1) Qualified cash as defined
in the credit agreement
equals 100.0% of
unrestricted domestic
cash plus 60.0% of
unrestricted foreign
cash. For purposes of
calculating leverage
ratios, qualified cash
is capped at $150.0
million.
Calculation of consolidated funded debt less qualified cash to Adjusted EBITDA
As of
($ in millions) September 30, 2013
------------------
Consolidated funded debt less qualified cash $1,781.7
Adjusted EBITDA 414.2
-----
4.3 times (1)
============
(1) The Company's new senior
secured credit facility
includes a financial
covenant requiring that
the ratio of
consolidated funded debt
to adjusted EBITDA be
less than 5.5 times from
March 18, 2013 through
September 30, 2013, and
less than 5.25 times
from October 1, 2013
through December 31,
2013.
SOURCE Tempur Sealy International, Inc.
