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) October 23, 2012

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 October 23, 2012, Tempur-Pedic International Inc. issued a press release to announce its financial results for the third quarter ended September 30, 2012 and revised guidance for the 2012 fiscal year. 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.  
       
October 23, 2012
By:
/s/ DALE E. WILLIAMS  
    Dale E. Williams  
    Executive Vice President & Chief Financial Officer  
       
 

 
 
 

 
EXHIBIT INDEX

Exhibit
 
Description
 
 
ex911.htm
GRAPHIC
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, October 23, 2012 – 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.

Investor Relations Contact:
Mark Rupe
Vice President
Tempur-Pedic International
800-805-3635
investor.relations@tempurpedic.com
 
 
 

 
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     Nine Months Ended  
     
September 30, 2012
   
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
  $
27,631
 
               
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 & 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