Tempur-Pedic Reports Third Quarter Earnings
LEXINGTON, Ky., Oct 16, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- 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, 2008. The Company also announced a series of initiatives to further strengthen its industry-leading financial flexibility, including a repatriation of foreign earnings and a suspension of its cash dividend, with such funds redirected to reduce debt. The Company also announced revised financial guidance for 2008.
THIRD QUARTER FINANCIAL SUMMARY
-- Earnings per share (EPS) were $0.32 per diluted share in the third quarter of 2008 as compared to $0.49 per diluted share in the third quarter of 2007. The Company reported net income of $24.1 million for the third quarter of 2008 as compared to $38.8 million in the third quarter of 2007.
-- Net sales declined 14% to $252.8 million in the third quarter of 2008 from $294.1 million in the third quarter of 2007. Net sales in the domestic segment declined 17%, while international segment net sales declined 7%. On a constant currency basis, international segment net sales decreased 13%.
-- Mattress units declined 15% globally. Mattress units declined 18% domestically and 10% internationally. Pillow units declined 10% globally. Pillow units declined 18% domestically and were relatively unchanged internationally.
-- Gross profit margin was 41.7% as compared to 48.2% in the third quarter of 2007. The gross profit margin declined as a result of significant weakness in the high margin Direct channel, increased commodity costs and fixed cost de-leverage related to lower volumes, partially offset by improved manufacturing productivity.
-- Operating profit margin was 17.0% as compared to 23.0% in the third quarter of 2007. Operating profit margin decline resulted from gross profit margin declines partially offset by reductions in operating expenses. The Company recorded an incremental $1.0 million of bad debt expense related to a specific customer bankruptcy.
-- Reflecting the Company's focus on improving working capital, operating cash flow increased 30% to $72.6 million in the third quarter of 2008 from $55.7 million in the third quarter of 2007. During the quarter, the Company reduced inventories by $23.8 million to $69.7 million.
-- During the quarter, the Company reduced Total Debt by $37.8 million to $518.8 million. In addition, the Company increased its cash balance by $19.3 million to $87.7 million. As of September 30, 2008, the Company's ratio of total Funded Debt to EBITDA was 2.45 times, well within the covenant in its credit facility that this ratio will not exceed 3.00 times. For additional information about EBITDA and Funded Debt (which are non-GAAP measures), please refer to the reconciliation and other information included in the attached schedule.
Chief Executive Officer Mark Sarvary commented, "During the third quarter we executed well. The economic climate worsened and we responded quickly to improve earnings. We reduced our operating expenses and improved our balance sheet by substantially reducing debt.
"Having said that, we are facing the most challenging economic environment in memory, and we see no reason to assume the economic climate will recover in the short term. Therefore, we are taking actions now to further improve our financial flexibility and strengthen the business. I am confident that when the economic climate improves, this great company will be exceptionally well positioned."
Initiatives to Further Strengthen Financial Flexibility
The Company announced it plans to repatriate approximately $140 million of foreign earnings. This will enable the Company to immediately utilize its $75 million cash held abroad to reduce its outstanding debt. It will also shift some of its domestic segment leverage to the international segment, thereby allowing for more rapid overall debt reduction going forward from cash flow in both its domestic and international segments. The Company anticipates recording a tax charge of approximately $13 million in the fourth quarter related to the repatriation, with the final tax effect to be based on the timing and amount of the actual distribution.
The Company also announced it will suspend its cash dividend and redirect those funds to reduce debt. The Company further announced it will continue to reduce capital expenditures, drive working capital efficiencies and minimize discretionary spending.
Chief Financial Officer Dale Williams commented, "We are pleased with our cash flows and I would like to credit our operating teams around the world for their efforts in this area. Through a repatriation of foreign earnings, suspending the dividend, and modest debt rebalancing between our domestic and international segments, we will reduce debt faster.
Williams continued, "These actions coupled with working capital and expense management should give us the flexibility to operate without risk of breaching our credit facility covenants even if the market continues to deteriorate, while ensuring our ability to invest in marketing and R&D. Although we believe de-leveraging is the prudent course in this environment, we will continue to have access to substantial incremental borrowing capacity under our existing revolving credit facility and will be able to access this liquidity in the future as appropriate to invest in such activities as growth initiatives and stock buybacks."
2008 Financial Guidance
Given the extraordinary macro economic events of recent weeks, the Company now believes fourth quarter sales will fall below prior expectations and has revised full year 2008 guidance for net sales and earnings per share. It currently expects net sales for 2008 to range from $930 million to $950 million. It currently expects EPS for 2008 to range from $0.90 to $1.00 per diluted share. This guidance does not take into account a potential tax charge related to the proposed repatriation of foreign earnings discussed above. 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.
Conference Call Information
Tempur-Pedic International will host a live conference call to discuss financial results today, October 16, 2008 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 888-438-5525. The call is also being webcast and can be accessed on the investor relations section of the Company's website, www.tempurpedic.com .
For those who cannot listen to the live broadcast, a telephone replay of the call will be available from October 16, 2008 at 8:00 p.m. Eastern Time through October 23, 2008. To listen to the replay, dial 888-203-1112, participant code 7441183.
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," "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 plans to further improve financial flexibility and the business, including plans to repatriate earnings, suspend its dividend, increase leverage internationally and pay down domestic debt, improve working capital and manage its capital expenditures and discretionary spending; the Company's strength and positioning in the future; the Company's ability to remain in compliance with its credit facility covenants and access borrowings in the future; and the Company's expectations regarding net sales and earnings per share for 2008. 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; the Company's ability to reduce expenses to align with reduced sales levels; 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 US retail channel, including the timing of opening or expanding within large retail accounts; the Company's ability to address issues in certain underperforming 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; changes in foreign tax rates, including the ability to utilize tax loss carry forwards; and rising 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." 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(R) pressure-relieving material. It is the worldwide leader in premium sleep, the fastest growing segment of the estimated $13 billion global mattress market. 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 70 countries under the TEMPUR(R) and Tempur-Pedic(R) 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 Consolidated Statements of Income (In thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 Chg % 2008 2007 Chg % Net sales $252,814 $294,094 (14)% $738,697 $817,768 (10)% Cost of sales 147,323 152,484 419,109 423,930 Gross profit 105,491 141,610 (26)% 319,588 393,838 (19)% Selling and marketing expenses 39,956 48,830 137,906 144,630 General and administrative expenses and other 22,644 25,231 73,139 72,775 Operating income 42,891 67,549 (37)% 108,543 176,433 (39)% Other income (expense), net: Interest expense, net (6,294) (8,261) (19,630) (21,394) Other income (expense), net 96 (33) (995) (536) Total other expense (6,198) (8,294) (20,625) (21,930) Income before income taxes 36,693 59,255 (38)% 87,918 154,503 (43)% Income tax provision 12,622 20,437 30,105 52,974 Net income $24,071 $38,818 (38)% $57,813 $101,529 (43)% Earnings per common share: Basic $0.32 $0.50 $0.77 $1.25 Diluted $0.32 $0.49 $0.77 $1.22 Weighted average per common share outstanding: Basic 74,815 77,725 74,704 81,522 Diluted 74,992 79,173 74,944 83,069 TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except per share amounts) September 30, December 31, 2008 2007 Chg % ASSETS Current Assets: Cash and cash equivalents $ 87,677 $ 33,315 Accounts receivable, net 137,112 163,730 Inventories 69,703 106,533 Prepaid expenses and other current assets 10,922 11,133 Deferred income taxes 14,725 11,924 Total Current Assets 320,139 326,635 (2)% Property, plant and equipment, net 190,714 208,370 Goodwill 199,523 198,286 Other intangible assets, net 67,157 68,755 Deferred financing costs and other non-current assets 4,785 4,386 Total Assets $ 782,318 $ 806,432 (3)% LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 56,159 $ 56,206 Accrued expenses and other 74,184 66,080 Income taxes payable 15,997 4,060 Current portion of long-term debt - 288 Total Current Liabilities 146,340 126,634 16 % Long-term debt 518,750 601,756 Deferred income taxes 30,404 29,645 Other non-current liabilities 2,410 259 Total Liabilities 697,904 758,294 (8)% Stockholders' Equity: Common stock, $.01 par value; 300,000 shares authorized; 99,215 shares issued as of September 30, 2008 and December 31, 2007 992 992 Additional paid in capital 289,011 283,564 Retained earnings 280,367 241,812 Accumulated other comprehensive income 2,443 13,550 Treasury stock, at cost; 24,382 and 24,681 shares as of September 30, 2008 and December 31, 2007, respectively (488,399) (491,780) Total Stockholders' Equity 84,414 48,138 75 % Total Liabilities and Stockholders' Equity $ 782,318 $ 806,432 (3)% TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES Consolidated Statement of Cash Flows (In thousands) Nine Months Ended September 30, 2008 2007 Chg % CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 57,813 $101,529 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24,847 25,326 Amortization of deferred financing costs 888 845 Amortization of stock-based compensation 6,101 5,081 Allowance for doubtful accounts 5,859 4,541 Deferred income taxes (1,634) (3,101) Foreign currency adjustments 74 661 Loss on sale of equipment and other 679 101 Changes in operating assets and liabilities: Accounts receivable 18,600 (22,585) Inventories 36,680 (14,228) Prepaid expenses and other current assets (1,287) (5,035) Accounts payable (149) 10,250 Accrued expenses and other 8,301 10,636 Income taxes 12,142 15,839 Net cash provided by operating activities 168,914 129,860 30 % CASH FLOWS FROM INVESTING ACTIVITIES: Payments for trademarks and other intellectual property (600) (636) Purchases of property, plant and equipment (7,844) (8,181) Acquisition of businesses (1,529) (5,756) Proceeds from sale of equipment 172 135 Net cash used by investing activities (9,801) (14,438) 32 % CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term revolving credit facility 65,429 347,547 Repayments of long-term revolving credit facility (89,691) (119,293) Repayments of long-term debt (1,359) (45,416) Proceeds from Series A Industrial Revenue Bonds - 15,385 Repayments of Series A Industrial Revenue Bonds (57,785) (5,765) Common stock issued, including reissuances of treasury stock 695 8,078 Excess tax benefit from stock based compensation 301 10,025 Treasury stock repurchased - (299,998) Dividends paid to stockholders (17,933) (17,895) Payments for deferred financing costs (14) (1,530) Net cash used by financing activities (100,357) (108,862) 8 % NET EFFECT OF EXCHANGE RATE CHANGES ON CASH (4,394) 1,232 Increase in cash and cash equivalents 54,362 7,792 CASH AND CASH EQUIVALENTS, beginning of period 33,315 15,788 CASH AND CASH EQUIVALENTS, end of period $ 87,677 $23,580 272 %
Summary of Channel Sales
The Company generates sales through four distribution channels: retail, direct, healthcare and third party. The retail channel sells to furniture, specialty and department stores globally. The direct channel sells directly to consumers. The healthcare channel sells to hospitals, nursing homes, healthcare professionals and medical retailers. The third party channel sells to distributors in countries where Tempur-Pedic International does not operate its own distribution company.
The following table highlights net sales information, by channel and by segment, for the third quarter of 2008 compared to 2007:
($ in thousands) CONSOLIDATED DOMESTIC INTERNATIONAL Three Months Ended Three Months Ended Three Months Ended September 30, September 30, September 30, 2008 2007 2008 2007 2008 2007 By Sales Channel Retail $ 216,226 $ 251,452 $ 147,992 $ 177,372 $ 68,234 $ 74,080 Direct 11,230 18,009 9,169 15,140 2,061 2,869 Healthcare 11,636 12,384 3,727 4,222 7,909 8,162 Third Party 13,722 12,249 5,000 3,717 8,722 8,532 Total $ 252,814 $ 294,094 $ 165,888 $ 200,451 $ 86,926 $ 93,643 Summary of Product Sales A summary of net sales by product is reported below: ($ in thousands) CONSOLIDATED DOMESTIC INTERNATIONAL Three Months Ended Three Months Ended Three Months Ended September 30, September 30, September 30, 2008 2007 2008 2007 2008 2007 Net Sales Mattresses $ 174,869 $ 207,341 $ 121,356 $ 149,221 $ 53,513 $ 58,120 Pillows 31,414 34,418 14,476 17,960 16,938 16,458 Other 46,531 52,335 30,056 33,270 16,475 19,065 Total $ 252,814 $ 294,094 $ 165,888 $ 200,451 $ 86,926 $ 93,643 TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES Reconciliation of EBITDA to Net Income and Funded Debt to Total Debt Non-GAAP Measures (In thousands)
The Company provides information regarding EBITDA and Funded Debt which are not recognized terms under GAAP (Generally Accepted Accounting Principles) and do not purport to be alternatives to net income as a measure of operating performance or Total Debt. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies. A reconciliation of EBITDA to the Company's Net income and Funded Debt to Total Debt are provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the terms of the Company's credit facility.
Reconciliation of EBITDA to Net Income
The following table sets forth the reconciliation of the Company's reported Net Income for the three months ended December 31, 2007 and the nine months ended September 30, 2008 to the calculation of EBITDA for the twelve months ended September 30, 2008:
Three Months Ended Nine Months Ended Twelve Months Ended December 31, September 30, September 30, 2007 2008 2008 Net Income $ 39,930 $ 57,813 $ 97,743 Plus: Interest Expense 9,090 19,630 28,720 Income taxes 18,441 30,105 48,546 Depreciation & Amortization 9,736 30,948 40,684 EBITDA $ 77,197 $ 138,496 $ 215,693 Reconciliation of Funded Debt to Total Debt
The following table sets forth the reconciliation of the Company's reported Total Debt to the calculation of Funded Debt:
September 30, 2008 Total Debt $ 518,750 Letters of Credit outstanding 9,898 Funded Debt $ 528,648 Calculation of Funded Debt to EBITDA For the twelve months ended September 30, 2008 Funded Debt $ 528,648 EBITDA 215,693 2.45 times
SOURCE Tempur-Pedic International Inc.
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