October 23, 2012

Tempur-Pedic Reports Third Quarter Results


- Reports Third Quarter GAAP EPS of $(0.03); Adjusted EPS of $0.70
- Lowers Financial Guidance for 2012

LEXINGTON, Ky., Oct. 23, 2012 /PRNewswire/ -- Tempur-Pedic International Inc. (NYSE: TPX), the leading manufacturer, marketer and distributor of premium mattresses and pillows worldwide, today announced financial results for the third quarter ended September 30, 2012. The Company also announced revised financial guidance for 2012.

THIRD QUARTER FINANCIAL SUMMARY

  • Earnings per diluted share (EPS) under U.S. generally accepted accounting principles (GAAP) in the third quarter of 2012 were $(0.03), and reflect the tax provision recorded in connection with the anticipated repatriation of foreign earnings together with certain transaction costs related to the proposed Sealy acquisition. Adjusted EPS were $0.70 in the third quarter of 2012 as compared to GAAP EPS of $0.90 per diluted share in the third quarter of 2011.
  • GAAP net loss in the third quarter of 2012 was $(2.0) million. The Company reported adjusted net income of $42.3 million for the third quarter of 2012 as compared to GAAP net income of $61.9 million in the third quarter of 2011. For additional information regarding adjusted EPS and adjusted net income (which are non-GAAP measures), please refer to the reconciliation and other information included in the attached schedule.
  • Net sales decreased 9% to $347.9 million in the third quarter of 2012 from $383.1 million in the third quarter of 2011. On a constant currency basis, net sales decreased 7%. Net sales in the North American segment decreased 14% and International segment net sales increased 3%. On a constant currency basis, International segment net sales increased 11%.
  • Mattress sales decreased 11% globally in the third quarter of 2012. Mattress sales decreased 15% in the North American segment and increased 1% in the International segment. On a constant currency basis, International mattress sales increased 10%. Pillow sales increased 11% globally. Pillow sales increased 5% in North America and increased 16% internationally. On a constant currency basis, International pillow sales increased 23%.
  • Gross profit margin was 49.2% as compared to 52.4% in the third quarter of 2011. The gross profit margin decreased primarily as a result of product mix and increased promotions and discounts, offset partially by geographic mix.
  • Operating income decreased 34% to $63.4 million, or 18.2% of sales as compared to $96.6 million, or 25.2% of sales in the third quarter of 2011 reflecting deleverage throughout the income statement driven by lower sales. Operating income in the third quarter of 2012 included $3.6 million of transaction costs related to the proposed Sealy acquisition, as well as a benefit of $8 million related to an  adjustment to long-term incentive stock compensation following a re-evaluation of the probability of meeting certain related required financial metrics.
  • The Company generated $67.2 million of operating cash flow as compared to $75.0 million in the third quarter of 2011.

Chief Executive Officer Mark Sarvary commented, "Changes in the competitive environment that we experienced during the second quarter in North America continued to have an adverse impact on our third quarter performance. We recently launched a broad series of new initiatives in response to the new competitive landscape in North America, and while it remains early, we are seeing some stabilization as a result. The initiatives are more expensive than we initially estimated, however we are committed to returning to growth.  Internationally, our third quarter results reflect a softening in demand due to macroeconomic weakness in Europe. We remain very confident in our Company's growth potential and our strong brand, and are very excited about our proposed combination with Sealy Corporation. Together, Tempur and Sealy will have a portfolio of highly complementary brands, products, technologies, and geographic footprints that provides a platform for growth."

Financial Guidance
The Company is lowering its outlook for full year 2012 net sales to approximately $1.40 billion. In addition, the Company is lowering its full year 2012 earnings guidance. The Company currently expects 2012 adjusted EPS of approximately $2.55. 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 EPS guidance does not include tax provisions expected to be recorded in the fourth quarter in connection with the decision to repatriate foreign earnings, transaction costs related to the proposed Sealy acquisition or any benefit from a potential further reduction in shares outstanding related to its share repurchase program. In addition, the Company's net sales and adjusted EPS guidance assumes that the Sealy transaction is not completed during 2012.

Conference Call Information
Tempur-Pedic International will host a live conference call to discuss financial results today, October 23, 2012 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.tempurpedic.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," "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 recent initiatives; the Company's growth potential and strong brand; and the proposed merger with Sealy Corporation, including anticipated cost and revenue synergies; and expectations regarding the Company's net sales and adjusted EPS for the full year 2012. 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.

There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements contained in this release. 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 general economic, financial  and industry conditions, particularly in the retail sector, as well as consumer confidence and the availability of consumer financing; 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; the Company's ability to expand brand awareness, distribution and new products in international markets; 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; and changing commodity costs. 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 Annual Report on Form 10-K under the headings "Special Note Regarding Forward-Looking Statements" and "Risk Factors." In addition, the proposed merger with Sealy presents risk factors including the ability of the parties to complete the proposed merger in a timely manner or at all; satisfaction of the conditions precedent to the proposed merger, the ability to secure regulatory approvals; the possibility of litigation (including relating to the merger itself); successful completion of acquisition financing arrangements; and the ability to successfully integrate Sealy into Tempur-Pedic's operations and realize synergies from the proposed transaction.  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-Pedic International Inc. (NYSE: TPX) manufactures and distributes mattresses and pillows made from its proprietary TEMPUR® pressure-relieving material. It is the worldwide leader in premium and specialty sleep. The Company is focused on developing, manufacturing and marketing advanced sleep surfaces that help improve the quality of life for people around the world. The Company's products are currently sold in over 80 countries under the TEMPUR® and Tempur-Pedic® brand names. World headquarters for Tempur-Pedic International is in Lexington, KY. For more information, visit http://www.tempurpedic.com or call 800-805-3635.

 

TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except per common share amounts)





Three Months Ended




Nine Months Ended





September 30,




September 30,






2012



2011


Chg %



2012



2011


Chg %


Net sales

$

347,944


$

383,085


-9.2%


$

1,061,798


$

1,051,135


1.0%


Cost of sales


176,709



182,491





517,694



499,213





















Gross profit


171,235



200,594


-14.6%



544,104



551,922


-1.4%



















Selling and marketing expenses


76,232



72,439





243,203



204,789




General, administrative and

















    other expenses


31,556



31,548





103,840



92,416





















Operating income


63,447



96,607


-34.3%



197,061



254,717


-22.6%



















Other expense, net:

















     Interest expense, net


(4,793)



(3,265)





(13,026)



(8,450)




     Other income (expense), net


383



(229)





428



(950)




          Total other expense


(4,410)



(3,494)





(12,598)



(9,400)





















Income before income taxes


59,037



93,113


-36.6%



184,463



245,317


-24.8%


Income tax provision


61,054



31,164





101,139



82,024




     Net (loss) income

$

(2,017)


$

61,949




$

83,324


$

163,293





















(Loss) earnings per common

















share:

















     Basic

$

(0.03)


$

0.93




$

1.34


$

2.41




     Diluted

$

(0.03)


$

0.90




$

1.31


$

2.34





















Weighted average common

















shares outstanding:

















     Basic


59,558



66,655





62,087



67,722




     Diluted


59,558



68,571





63,624



69,847




 

TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)



September
30, 2012


December
31, 2011







ASSETS














Current Assets:







     Cash and cash equivalents

$

151,743


$

111,367


     Accounts receivable, net


161,521



142,412


     Inventories


87,123



91,212


     Prepaid expenses and other current assets


26,143



20,088


     Deferred income taxes


14,682



14,391


Total Current Assets


441,212



379,470









     Property, plant and equipment, net


176,807



160,502


     Goodwill


216,126



213,273


     Other intangible assets, net


63,820



66,491


     Other non-current assets


15,555



8,904


Total Assets

$

913,520


$

828,640









LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY














Current Liabilities:







     Accounts payable

$

85,781


$

69,936


     Accrued expenses and other current liabilities


88,487



76,636


     Deferred income taxes


41,863



-


     Income taxes payable


18,109



20,506


Total Current Liabilities


234,240



167,078









     Long-term debt


649,500



585,000


     Deferred income taxes


18,360



24,227


     Other non-current liabilities


23,873



21,544


Total Liabilities


925,973



797,849
















Total Stockholders' (Deficit) Equity


(12,453)



30,791


Total Liabilities and Stockholders' (Deficit) Equity

$

913,520


$

828,640









 

TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)



Nine Months Ended




September 30,




2012


2011









CASH FLOWS FROM OPERATING ACTIVITIES:








     Net income

$

83,324


$

163,293



     Adjustments to reconcile net income to net cash provided by








     operating activities:








          Depreciation and amortization


26,877



25,340



          Amortization of stock-based compensation


3,661



11,135



          Amortization of deferred financing costs


1,045



689



          Bad debt expense


1,742



1,285



          Deferred income taxes


36,639



(480)



          Foreign currency adjustments and other


1,618



911



          Changes in operating assets and liabilities


(1,201)



(23,194)



Net cash provided by operating activities


153,705



178,979











CASH FLOWS FROM INVESTING ACTIVITIES:








     Purchases of property, plant and equipment


(38,394)



(18,841)



     Acquisition of businesses, net of cash acquired


(3,879)



(4,566)



     Other


(23)



(1,980)



Net cash used in investing activities


(42,296)



(25,387)











CASH FLOWS FROM FINANCING ACTIVITIES:








     Proceeds from long-term revolving credit facility


284,500



682,000



     Repayments of long-term revolving credit facility


(220,000)



(580,500)



     Proceeds from issuance of common stock


10,553



24,419



     Excess tax benefit from stock based compensation


9,666



17,956



     Treasury shares repurchased


(152,565)



(240,000)



     Other


(2,586)



(6,192)



Net cash used in financing activities


(70,432)



(102,317)











NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS


(601)



(1,883)











Increase in cash and cash equivalents


40,376



49,392











CASH AND CASH EQUIVALENTS, beginning of period


111,367



53,623











CASH AND CASH EQUIVALENTS, end of period

$

151,743


$

103,015











 

Summary of Channel Sales

The following table highlights net sales information, by channel and by segment:






















(in thousands)






















CONSOLIDATED


NORTH AMERICA


INTERNATIONAL




Three Months Ended


Three Months Ended


Three Months Ended




September 30,


September 30,


September 30,




2012


2011


2012


2011


2012


2011


Retail


$

306,486


$

342,804


$

221,186


$

257,049


$

85,300


$

85,755


Direct



27,093



25,405



16,729



19,588



10,364



5,817


Healthcare



7,407



8,076



2,952



2,690



4,455



5,386


Third Party



6,958



6,800



-



-



6,958



6,800




$

347,944


$

383,085


$

240,867


$

279,327


$

107,077


$

103,758






















 

Summary of Product Sales

The following table highlights net sales information, by product and by segment:






















(in thousands)






















CONSOLIDATED


NORTH AMERICA


INTERNATIONAL




Three Months Ended


Three Months Ended


Three Months Ended




September 30,


September 30,


September 30,




2012


2011


2012


2011


2012


2011


Mattresses


$

228,339


$

255,805


$

164,293


$

192,683


$

64,046


$

63,122


Pillows



42,140



38,119



20,182



19,182



21,958



18,937


Other



77,465



89,161



56,392



67,462



21,073



21,699




$

347,944


$

383,085


$

240,867


$

279,327


$

107,077


$

103,758






























































 

 

TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Measures 
(In thousands, 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) and Funded debt, which are not recognized terms under U.S. GAAP (Generally Accepted Accounting Principles) 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 are 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 the repatriation of foreign earnings and transaction costs related to the proposed Sealy acquisition. A reconciliation of EBITDA to the Company's net income and a reconciliation of Total debt to Funded debt are also provided below. Management believes that the use of EBITDA and Funded debt provides investors with useful information with respect to the terms of the Company's credit facility. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.

 

Reconciliation of Net income to Adjusted Net income

The following table sets forth the reconciliation of the Company's reported Net income for the three and nine months ended September 30, 2012 to the calculation of Adjusted net income for the three and nine months ended September 30, 2012:














Three Months Ended September 30, 2012




Nine Months Ended September 30, 2012


GAAP Net income



(2,017)




83,324


Plus:









Tax provision related to repatriation of foreign earnings



41,863




41,863


Transaction costs related to proposed Sealy acquisition, net of tax



2,430




2,444


Adjusted Net income



42,276




127,631











GAAP Earnings per share, Diluted


$

(0.03)



$

1.31


Tax provision related to repatriation of foreign earnings



0.69




0.66


Transaction costs related to proposed Sealy acquisition, net of tax



0.04




0.04


Adjusted Earnings per share, diluted


$

0.70



$

2.01











Weighted average common shares outstanding:









     Diluted



60,768




63,624


 

Reconciliation of Net income to EBITDA

The following table sets forth the reconciliation of the Company's reported Net income to the calculation of EBITDA for each of the three months ended December 31, 2011, March 31, 2012, June 30, 2012 and September 30, 2012, as well as the twelve months ended September 30, 2012:






Three Months Ended


Twelve Months Ended






December 31, 2011


March 31, 2012


June 30, 2012


September 30, 2012


September 30, 2012











GAAP Net income


$

56,315


$

56,218


$

29,123


$

(2,017)


$

139,639


Plus:



















Interest Expense



3,498



4,066



4,167



4,793



16,524



Income Taxes



26,759



25,340



14,745



61,054



127,898



Depreciation and Amortization



14,513



13,052



12,006



5,480



45,051


EBITDA


$

101,085


$

98,676


$

60,041


$

69,310


$

329,112





















 

Reconciliation of Total debt to Funded debt

The following table sets forth the reconciliation of the Company's reported Total debt to the calculation of Funded debt as of September 30, 2012:










As of
September
30, 2012


GAAP basis Total debt






$

649,500


Plus:











Letters of Credit Outstanding







1,025


Funded debt






$

650,525













 

Calculation of Funded debt to EBITDA









As of
September
30, 2012


Funded Debt






$

650,525


EBITDA








329,112








1.98 times













 

SOURCE Tempur-Pedic International Inc.

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