Tempur-Pedic Reports Third Quarter Results

- Reports Third Quarter GAAP EPS of $(0.03); Adjusted EPS of $0.70

- Lowers Financial Guidance for 2012

Oct 23, 2012, 16:05 ET from Tempur-Pedic International Inc.

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.



RELATED LINKS

http://www.tempurpedic.com