form8k.htm



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 8-K


CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934


Date of report (Date of earliest event reported): January 20, 2011

TEMPUR-PEDIC INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)


Delaware
001-31922
33-1022198
(State or other jurisdiction of incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)
     


1713 Jaggie Fox Way
Lexington, Kentucky  40511
(Address of principal executive offices) (Zip Code)
 

 
(800) 878-8889
(Registrant’s telephone number, including area code)

N/A
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 


 

    Item 2.02  Results from Operations and Financial Condition
 
    On January 20, 2011, Tempur-Pedic International Inc. issued a press release to announce its financial results for the quarter and full year ended December 31, 2010, provide financial guidance for the 2011 fiscal year and announce a new share repurchase authorization for $200.0 million. A copy of the press release is attached as Exhibit 99.1 to this current report on Form 8-K and is incorporated herein by reference.
 
    The information in this report (including Exhibit 99.1) shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
 
    Item 7.01 Regulation FD Disclosure
 
    The information furnished under Item 2.02 of this Form 8-K (including Exhibit 99.1 furnished herewith) is hereby incorporated by reference under this Item 7.01 as if fully set forth herein.
 
    Item 9.01  Financial Statements and Exhibits

(d)   Exhibits

     
Exhibit
  
Description
  
 
 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
  Tempur-Pedic International Inc.  
       
Date: January 20, 2011
By:
/s/ DALE E. WILLIAMS  
    Dale E. Williams  
    Executive Vice President and Chief Financial Officer  
       
 
 

EXHIBIT LIST
     
Exhibit
  
Description
  
 
 
ex991.htm
GRAPHIC
 
TEMPUR-PEDIC REPORTS RECORD FOURTH QUARTER AND FULL YEAR EARNINGS
 
-- Reports Fourth Quarter Sales Up 20% and EPS Up 74% at $0.66
 
-- Fourth Quarter Gross Margin Up 340 Basis Points to 51.9% and Operating Margin Up 520 Basis Points to 24.5%
 
-- Announces New $200 Million Share Repurchase Program
 
-- Issues Financial Guidance For 2011

LEXINGTON, KY, January 20, 2011 – Tempur-Pedic International Inc. (NYSE: TPX), the leading manufacturer, marketer and distributor of premium mattresses and pillows worldwide, today announced financial results for the fourth quarter and year ended December 31, 2010. The Company also announced a $200 million share repurchase program and issued financial guidance for 2011.

FOURTH QUARTER FINANCIAL SUMMARY
 
●  
Earnings per share (EPS) were $0.66 per diluted share in the fourth quarter of 2010 as compared to EPS of $0.38 per diluted share in the fourth quarter of 2009. The Company reported net income of $46.3 million for the fourth quarter of 2010 as compared to net income of $29.1 million in the fourth quarter of 2009.
 
●  
Net sales increaed 20% to $292.7 million in the fouth quarter of 2010 from $244.8 million in the fourth quarter of 2009. On a constant currency basis, net sales increased 21%. Net sales in the North American segment increased 31%, while international segment net sales increased 1%. On a constant currency basis, international segment net sales increased 6%.

●  
Mattress sales increased 20% globally. Mattress sales increased 32% in the North American segment and decreased 1% in the international segment. On a constant currency basis, international mattress sales increased 4%. Pillow sales increased 18% globally. Pillow sales increased 31% in North America and 8% internationally. On a constant currency basis, international pillow sales increased 11%.

●  
Gross profit margin was 51.9% as compared to 48.5% in the fourth quarter of 2009. The gross profit margin increased as a result of improved efficiencies in manufacturing, fixed cost leverage related to higher production volumes and favorable product mix, partially offset by higher commodity costs and geographic mix.

●  
Operating profit margin was 24.5% as compared to 19.3% in the fourth quarter of 2009.

●  
The Company generated $44.5 million of operating cash flow as compared to $14.6 million in the fourth quarter of 2009.

 ●  
During the quarter, the Company reduced Total debt by $29.0 million to $407.0 million and increased cash by $15.6 million to $53.6 million. As of December 31, 2010, the Company’s ratio of Funded debt to EBITDA was 1.45 times, well within the covenant in its credit facility, which requires that this ratio 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.
 
FULL YEAR FINANCIAL SUMMARY
 
●  
Earnings per share (EPS) were $2.16 per diluted share for the full year 2010 as compared to EPS of $1.12 per diluted share for the full year 2009. The Company reported net income of $157.1 million for the full year 2010 as compared to net income of $85.0 million for the full year 2009.
 
●  
Net sales increased 33% to $1,105.4 million for the full year 2010 from $831.2 million for the full year 2009. On a constant currency basis, net sales increased 34%. Net sales in the North American segment increased 47%, while international segment net sales increased 9%. On a constant currency basis, international segment net sales increased 11%.

 ●  
Gross profit margin was 50.2% for the full year 2010 as compared to 47.4% for the full year 2009. The gross profit margin increased as a result of improved efficiencies in manufacturing and fixed cost leverage related to higher production volumes, partially offset by higher commodity costs and geographic mix.

●  
Operating profit margin was 22.2% as compared to 17.4% for the full year 2009.

●  
The Company generated $184.1 million of operating cash flow as compared to $135.0 million for the full year 2009.

●  
During 2010, the Company purchased 8.5 million shares of its common stock at an average price of $29.41 for a total cost of $250.0 million.
 
Chief Executive Officer Mark Sarvary commented, “In 2010 we delivered strong financial results and at the same time executed well on our strategic growth initiatives; we strengthened the product range and greatly improved how well consumers understand and appreciate the unique benefits of Tempur-Pedic. In 2011 we will implement the next phases of our plan to become the world’s favorite mattress and pillow brand. We will continue to enhance our product range both in the U.S. and internationally, increase our investment in consumer communication and broaden distribution in all geographies."
 
 

 
Share Repurchase Program
The Company announced that the Board of Directors has authorized a new share repurchase program of up to an incremental $200.0 million. Stock repurchases under this program may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as management and a committee of the Board deem appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, financing and regulatory requirements and other market conditions. Repurchases may be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. This share repurchase program replaces the Company’s prior share repurchase authorization, and may be limited, suspended or terminated at a ny time without prior notice.

Chief Financial Officer Dale Williams stated, "The new share repurchase program reflects our confidence in long term growth opportunities and our commitment to increase shareholder value. With high returns on capital, we project operating cash flow will be far in excess of our modest capital needs over the next several years."

Financial Guidance
The Company issued full year 2011 guidance for net sales and earnings per share. It currently expects net sales for 2011 to range from $1.230 billion to $1.280 billion. It currently expects EPS for 2011 to range from $2.60 to $2.75 per diluted share. 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 EPS guidance does not assume any benefit from a potential reduction in shares outstanding related to its share repurchase program.

Conference Call Information
Tempur-Pedic International will host a live conference call to discuss financial results today, January 20, 2011 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," "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 for building on its 2010 performance in 2011, and for net sales and earnings per share for 2011. All forward looking statements are based upon current expectations and beliefs and various assumptions. There can be no assurance that the C ompany 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; th e 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; 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 w hich 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 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(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.

Investor Relations Contact:
Barry Hytinen
Senior Vice President
800-805-3635
 
 

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


 
Three Months Ended
     
Twelve Months Ended
   
 
December 31,
     
December 31,
   
 
2010
 
2009
 
       Chg %
 
2010
 
2009
 
       Chg %
Net sales
$ 292,703   $ 244,794     19.6%   $ 1,105,421   $ 831,156     33.0%
Cost of sales
  140,880     125,953           549,994     437,414      
Gross profit
  151,823     118,841     27.8%     555,427     393,742     41.1%
Selling and marketing expenses
  53,449     45,105           199,722     153,440      
General, administrative and other expenses
  26,766     26,510           109,803     95,357      
Operating income
  71,608     47,226     51.6%     245,902     144,945     69.7%
                                   
Other expense, net:
                                 
Interest expense, net
  (3,458 )   (3,990 )         (14,501 )   (17,349 )    
Other income (expense), net
  32     37           (536 )   441      
Total other expense
  (3,426 )   (3,953 )         (15,037 )   (16,908 )    
                                   
Income before income taxes
  68,182     43,273     57.6%     230,865     128,037     80.3%
Income tax provision
  21,890     14,159           73,720     43,044      
    Net income
$ 46,292   $ 29,114     59.0%   $ 157,145   $ 84,993     84.9%
                                   
Earnings per common share:
                                 
Basic
$ 0.68   $ 0.39         $ 2.23   $ 1.13      
Diluted
$ 0.66   $ 0.38         $ 2.16   $ 1.12      
Weighted average common shares outstanding:
                                 
Basic
  68,220     75,029           70,348     74,934      
Diluted
  70,619     77,028           72,792     76,048      
 
 

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

 
December 31,
 
December 31,
 
 
2010
 
2009
 
ASSETS
           
             
Current Assets:
           
      Cash and cash equivalents
$
53,623
 
$
14,042
 
      Accounts receivable, net
 
115,630
   
105,576
 
      Inventories
 
69,856
   
57,686
 
      Prepaid expenses and other current assets
 
14,363
   
11,268
 
      Deferred income taxes
 
18,008
   
20,411
 
Total Current Assets
 
271,480
   
208,983
 
      Property, plant and equipment, net
 
159,807
   
172,497
 
      Goodwill
 
212,468
   
193,391
 
      Other intangible assets, net
 
68,745
   
64,717
 
      Other non-current assets
 
3,503
   
3,791
 
Total Assets
$
716,003
 
$
643,379
 
             
LIABILITIES AND STOCKHOLDERS’ EQUITY
           
             
Current Liabilities:
           
      Accounts payable
$
48,288
 
$
47,761
 
      Accrued expenses and other current liabilities
 
85,469
   
81,452
 
      Income taxes payable
 
12,477
   
7,312
 
Total Current Liabilities
 
146,234
   
136,525
 
      Long-term debt
 
407,000
   
297,470
 
      Deferred income taxes
 
32,315
   
29,865
 
      Other non-current liabilities
 
4,421
   
7,226
 
Total Liabilities
 
589,970
   
471,086
 
             
Stockholders’ Equity:
           
  Common stock, $.01 par value; 300,000 shares
  authorized; 99,215 shares issued as of December 31, 2010 and 2009, respectively
 
992
   
992
 
  Additional paid in capital
 
320,952
   
298,842
 
  Retained earnings
 
522,872
   
365,727
 
  Accumulated other comprehensive loss
 
(6,188
)  
(8,004
)
  Treasury stock at cost; 30,731 and 24,103 shares as of December 31, 2010 and 2009, respectively
 
(712,595
)  
(485,264
)
Total Stockholders’ Equity
 
126,033
   
172,293
 
Total Liabilities and Stockholders’ Equity
$
716,003
 
$
643,379
 
             
 
 

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

 
Twelve Months Ended
 
December 31,
   
2010
     
2009
 
CASH FLOWS FROM OPERATING ACTIVITIES:
             
    Net income
$
157,145
   
$
84,993
 
      Adjustments to reconcile net income to net cash provided by operating activities:
             
Depreciation and amortization
 
32,361
     
31,424
 
      Amortization of stock-based compensation
 
11,608
     
8,789
 
      Amortization of deferred financing costs
 
690
     
692
 
      Bad debt expense
 
531
     
5,936
 
      Deferred income taxes
 
500
     
(9,810
)
      Foreign currency adjustments
 
(1,666
)
   
(115
)
  Loss on disposal of equipment
 
1,201
     
564
 
  Changes in operating assets and liabilities, net of effects of acquired business:
 
 
         
Accounts receivable
 
(12,752
)
   
(10,542
)
Inventories
 
(6,710
)
   
3,738
 
Prepaid expenses and other current assets
 
(2,073
)
   
(1,884
)
Accounts payable
 
(1,145
)
   
7,808
 
Accrued expenses and other
 
(370
)
   
14,044
 
Income taxes payable
 
4,802
     
(651
)
Net cash provided by operating activities
 
184,122
     
134,986
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
             
  Payments for intangible assets and other
 
(684
)
       
  Acquisition of business, net of cash acquired
 
(18,692
)
   
 
  Purchases of property, plant and equipment
 
(18,141
)
   
(14,303
)
Net cash used by investing activities
 
(37,517
)
   
(14,303
)
               
CASH FLOWS FROM FINANCING ACTIVITIES:
             
  Proceeds from long-term revolving credit facility
 
308,836
     
109,333
 
  Repayments of long-term revolving credit facility
 
(197,813
)
   
(230,036
)
  Proceeds from issuance of common stock
 
28,551
     
1,623
 
  Excess tax benefit from stock-based compensation
 
5,590
     
359
 
  Treasury shares repurchased
 
(250,000
)
   
 
  Purchase of noncontrolling Interest
 
(1,540
)
   
 
Net cash used by financing activities
 
(106,376
)
   
(118,721
)
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
 
(648
)
   
(3,305
)
Increase (decrease) in cash and cash equivalents
 
39,581
     
(1,343
)
CASH AND CASH EQUIVALENTS, beginning of period
 
14,042
     
15,385
 
CASH AND CASH EQUIVALENTS, end of period $ 53,623       $ 14,042   
 
 


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.

On April 1, 2010, the Company purchased its third party distributor in Canada. Accordingly, net sales in the Canadian market are reported in the appropriate channels within the North American segment. As Canada represented essentially all sales through the North American third party channel, the Company no longer reports third party sales in this segment.

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
 
 
December 31,
 
December 31,
 
December 31,
 
 
2010
 
2009
 
2010
 
2009
 
2010
 
2009
 
Retail
$ 255,709   $ 205,184   $ 180,756   $ 130,808   $ 74,953   $ 74,376  
Direct
  18,040     16,719     14,718     14,777     3,322     1,942  
Healthcare
  9,212     10,047     3,090     2,840     6,122     7,207  
Third Party
  9,742     12,844    
    3,444     9,742     9,400  
  $ 292,703   $ 244,794   $ 198,564   $ 151,869   $ 94,139   $ 92,925  

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
 
 
December 31,
 
December 31,
 
December 31,
 
 
2010
 
2009
 
2010
 
2009
 
2010
 
2009
 
Mattresses
$ 188,736   $ 156,665   $ 134,186   $ 101,792   $ 54,550   $ 54,873  
Pillows
  37,934     32,079     19,234     14,724     18,700     17,355  
Other
  66,033     56,050     45,144     35,353     20,889     20,697  
  $ 292,703   $ 244,794   $ 198,564   $ 151,869   $ 94,139   $ 92,925  
 
 


TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
Reconciliation of Adjusted EBITDA to Net Income and Funded debt to Total debt
Non-GAAP Measures
(In thousands)

The Company provides information regarding Adjusted 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 EBITDA to the Company’s Net income and a reconciliation of Funded debt to Total debt are provided below. Management believes that the use of Adjusted EBITDA and Funded debt provides investors with useful information with respect to the terms of the Company’s credit facility.

Reconciliation of Net income to Adjusted EBITDA

The following table sets forth the reconciliation of the Company’s reported Net income to the calculation of Adjusted EBITDA for the twelve months ended December 31, 2010:

 
Twelve Months Ended
 
 
December 31, 2010
 
GAAP Net income
$ 157,145  
Plus:
     
   Interest expense
  14,501  
   Income taxes
  73,720  
   Depreciation  &  Amortization
  43,969  
   Other (1)
  563  
Adjusted EBITDA
$ 289,898  
 
(1) Includes professional costs incurred in connection with the acquisition of the Company’s Canadian distributor, which closed on April 1, 2010. In accordance with the Company’s credit facility, this amount is excluded from the calculation of Adjusted EBITDA for purposes of calculating compliance with the ratio of Funded debt to Adjusted EBITDA.

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 as of December 31, 2010:
 
As of
 
 
December 31, 2010
 
GAAP basis Total debt
$ 407,000  
Plus:
     
   Letters of credit outstanding
  12,400  
Funded debt
$ 419,400  

Calculation of Funded debt to Adjusted EBITDA
 
As of
 
 
December 31, 2010
 
Funded debt
$ 419,400  
Adjusted EBITDA
  289,898  
 
1.45 times