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Tempur-Pedic Reports Fourth Quarter and Full Year Earnings
- Pro Forma EPS Up 29% and GAAP EPS Up 20% in Fourth Quarter
- Company To Introduce New Products and Technology in 2007
- Initiates Quarterly Cash Dividend and Share Repurchase Program
LEXINGTON, Ky., Jan. 25 /PRNewswire-FirstCall/ -- Tempur-Pedic International Inc. (NYSE: TPX), the leading manufacturer, marketer and distributor of premium mattresses and pillows worldwide, today announced record earnings per share and net sales for the fourth quarter and year ended December 31, 2006. The Company also announced financial guidance for 2007, the initiation of a quarterly dividend and a share repurchase program.
FOURTH QUARTER 2006 FINANCIAL SUMMARY
- Pro forma earnings per share (EPS) were $0.40 per diluted share in the fourth quarter of 2006 as compared to $0.31 per diluted share in the fourth quarter of 2005. GAAP EPS increased to $0.36 per diluted share from $0.30 per diluted share in the fourth quarter of 2005.
- Net sales rose 19% to $256.6 million in the fourth quarter of 2006 from $215.6 million in the fourth quarter of 2005. Retail sales increased 23% worldwide. Domestic retail sales increased 29% and international retail sales increased 12%. Sales in the U.S. furniture and bedding retail channel were especially strong, with an increase of 39%.
- Cash flow provided by operations increased 41% to $32.7 million in the fourth quarter of 2006 from $23.2 million in the fourth quarter of 2005.
- Worldwide, mattress unit growth increased 16%. Domestic mattress unit growth was particularly robust, increasing 23%. International mattress unit growth was up 8%.
- Worldwide, pillow unit growth increased 13%. Domestic pillow unit volume increased 25%. Domestic pillow units and revenue represented new all-time quarterly records.
FULL YEAR 2006 FINANCIAL SUMMARY
- Pro forma EPS was $1.32 per diluted share for the full year 2006 as compared to $1.04 per diluted share for the full year 2005. GAAP EPS was $1.28 per diluted share for the full year 2006 as compared to $0.97 per diluted share for the full year 2005.
- Net sales for the full year 2006 totaled $945.0 million, 13% higher than net sales for the full year 2005. Retail channel sales worldwide increased 19%.
- Cash flow provided by operations rose 62% to $165.8 million for the full year 2006, up from $102.2 million for 2005.
Pro forma results exclude the impact related to the previously disclosed early redemption of the Company's senior subordinated debt as well as the favorable impact of an income tax ruling. GAAP and pro forma 2006 results include $3.8 million of stock-based compensation expense, an increase of 31% compared to prior year, resulting from the Company's adoption of FAS 123 R. For a complete discussion of pro forma adjustments, see the Supplemental Information included later in this press release.
President and Chief Executive Officer H. Thomas Bryant commented, "Tempur- Pedic International delivered a great year during what was a challenging environment for our industry. We are very pleased with pro forma earnings per share above the high end of our guidance while meeting our expectations for net sales."
"In the fourth quarter, our U.S. operations continued to demonstrate outstanding performance, resulting in significantly improved mattress unit growth and account productivity. We continued to grow market share and gained retail floor space. Our initiatives to improve pillow sales are having the desired impact as domestic unit volumes and sales hit an all-time quarterly high. In addition, domestic pillow sales were positively impacted by the recent introduction of the Symphony pillow.
"Internationally, we experienced excellent retail and third party growth in the fourth quarter. While our pillow business in Japan continued to be weak, for the first time in over two years international pillow sales and units were up. Our international mattress business gained market share with unit volumes increasing 8%."
Bryant continued, "In 2007, we will focus our efforts on increasing market share by improving account productivity, expanding retail floor space, growing brand awareness and introducing key new products around the world. We will selectively expand retail accounts and our sales team. In addition, we will roll out company-wide the successful pillow initiatives we tested in 2006."
New Technology and Product Introductions
The Company announced its latest technological innovation, 'The BellaSonna Bed by Tempur-Pedic™.' The mattress features TEMPUR material as the sleep surface and a patented support base called T-Flex™. T-Flex features a matrix of hundreds of individually-adjusting cylinders made from a new form of latex. This new product will have a suggested retail price of $4099 for a queen size mattress.
The Company announced the introduction of the 'SymphonyBed by Tempur- Pedic™' with suggested retail price of $1399 for a queen size mattress. The Company will also be rolling out several new mattress models across international markets as well as new pillows globally. The TEMPUR Scandinavian Supreme™ line, which includes three distinct mattress models, was launched at European trade shows in January 2007.
Bryant noted, "In 2007, we will continue to leverage our U.S. and international R&D investments and extend our innovation leadership through the introduction of multiple new products. The 'BellaSonna Bed by Tempur- Pedic™' will feature a new support base technology, which based on consumer testing we anticipate will be very popular. We also believe the 'SymphonyBed by Tempur-Pedic™' will allow us to exploit a key price point in the premium segment. In Europe, we expect our new mattress models will help us gain incremental floor space and market share."
New Manufacturing Facility Opens
The Company announced that manufacturing commenced at its Albuquerque factory as planned at the start of the year, with the dedication ceremony to occur on January 26, 2007.
Bryant said, "We are thrilled to be producing mattresses at our new facility, which we believe is the world's largest mattress factory. While we are still in the early stages of ramping up the facility, we are very pleased with our performance to date. We have recently accelerated our production plans to support the strong demand we are seeing in the U.S. Over the long term, we anticipate significant benefits including improved manufacturing productivity, lower inventory levels, reduced transportation costs and shorter cycle times."
Initiating Cash Dividend and Share Repurchase Program
The Company announced its Board of Directors has adopted a policy to pay a $0.24 per share annual cash dividend to the owners of the Company's common stock. The Board has declared a first quarter dividend of $0.06 per share that will be distributed on March 14 to stockholders of record as of February 27.
In addition, the Company's Board of Directors has approved a share buyback of up to $100 million of the Company's common stock. 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 also 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 dividend and the share repurchase program may be limited, suspended or terminated at any time without prior notice.
Chief Financial Officer Dale Williams stated, "The strength of Tempur- Pedic's cash flow generation capabilities has been proven over a long period of time. We generated $166 million in cash flow from operations during 2006 and, in the second half of the year we reduced debt by over $56 million. We firmly believe that initiating a dividend and a share repurchase program are excellent ways to leverage the business's strong cash flow dynamics as we seek to maximize shareholder value."
2007 Guidance
The Company issued full-year 2007 guidance for net sales and earnings per share. It currently expects net sales for 2007 to range from $1.04 billion to $1.07 billion, an increase of 10% to 13% over 2006. It currently expects GAAP EPS for 2007 to range from $1.50 to $1.54. This guidance reflects an increase of 14% to 17% compared to 2006 pro forma EPS of $1.32. The Company's earnings guidance reflects the Company's traditional practice of incurring heavier marketing expenditures as a percentage of sales in the first quarter of each year. The Company noted this EPS guidance includes an incremental $2 million of stock-based compensation expense as compared to 2006. The Company also 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.
Bryant concluded, "The specialty bedding category, led by Tempur-Pedic, continues to expand at the expense of the traditional innerspring mattress category. Over the long term, we expect to gain market share and improve productivity as we scale our business into a billion dollar company on our path to become the worldwide bedding leader. We are very confident in our future prospects and look forward to what we expect will be a very successful new year."
Conference Call Information
Tempur-Pedic International will host a live conference call with President and Chief Executive Officer H. Thomas Bryant and Chief Financial Officer Dale E. Williams to discuss financial results today, January 25, 2007 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 800-291-9234, conference ID#93378788. The call is also being webcast, and can be accessed at http://www.tempurpedic.com/ir.
For those who cannot listen to the live broadcast, a replay of the call will be available from January 25, 2007 at 8:00 p.m. Eastern Time through February 1, 2007. To listen to the telephone replay, dial 888-286-8010, conference ID #42432743. An archived webcast will also be available on the Tempur-Pedic International investor relations website at http://www.tempurpedic.com/ir.
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. All forward-looking statements, including without limitation, statements relating to the impact of initiatives to accelerate growth, maintain costs and improve manufacturing productivity, the rollout and market acceptance of new products, increase in brand awareness, growth in international sales, and expectations regarding floor expansion in the retail channel, market share gains and net sales and net earnings per share for 2007, 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 and industry conditions and consumer confidence; 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 furniture 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 its product line, maintain efficient, timely and cost- effective production and delivery of its products, and manage its growth; 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 premium mattresses and pillows made from its proprietary TEMPUR® pressure- relieving material. It is the worldwide leader in specialty sleep, the fastest growing segment of the estimated $12 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® 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 Consolidated Statements of Income (In thousands, except per share amounts)
Three Months Ended Twelve Months Ended December 31, December 31, 2006 2005 Chg % 2006 2005 Chg %
Net sales $256,580 $215,643 19 % $945,045 $836,732 13 % Cost of sales 129,835 106,997 484,507 412,790
Gross profit 126,745 108,646 17 % 460,538 423,942 9 %
Selling and marketing expenses 44,557 37,661 171,787 162,808 General and administrative expenses 20,197 15,989 75,718 67,823 Research and development expenses 697 752 3,728 2,696
Operating income 61,294 54,244 13 % 209,305 190,615 10 %
Other income (expense), net:
Interest expense, net (6,518) (4,958) (23,920) (20,264) Loss on extinguishment of debt (10,722) (3,528) (10,722) (4,245) Other income (expense), net 244 (225) 102 366 Total other expense (16,996) (8,711) (34,540) (24,143)
Income before income taxes 44,298 45,533 174,765 166,472
Income tax provision 13,844 15,172 62,443 67,143 Net income $30,454 $30,361 0 % $112,322 $99,329 13 %
Earnings per share: Basic $ 0.37 $ 0.32 $ 1.32 $ 1.01 Diluted $ 0.36 $ 0.30 $ 1.28 $ 0.97
Weighted average shares outstanding: Basic 83,110 95,762 84,922 98,012 Diluted 85,653 99,563 87,530 102,144
TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except per share amounts)
December 31, December 31, 2006 2005 Chg % ASSETS
Current Assets: Cash and cash equivalents $ 15,788 $ 17,855 Accounts receivable, net 142,059 111,726 Inventories 61,736 81,064 Prepaid expenses and other current 8,002 11,072 assets Income taxes receivable 588 19 Deferred income taxes 9,383 6,532 Total Current Assets 237,556 228,268 4 %
Property, plant and equipment, net 215,428 193,224 Goodwill 198,207 199,962 Other intangible assets, net 70,826 73,908 Deferred financing and other non- 3,649 6,949 current assets, net Total Assets $ 725,666 $ 702,311 3 %
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities: Accounts payable $ 48,297 $ 33,639 Accrued expenses and other 63,973 56,570 Current portion of long-term debt 19,497 30,770 Total Current Liabilities 131,767 120,979 9 %
Long-term debt 341,635 313,711 Deferred income taxes 38,536 40,386 Other non-current liabilities 380 906 Total Liabilities 512,318 475,982 8 %
Stockholders' Equity: Common stock, $.01 par value; 300,000 shares authorized; 99,215 shares issued in 2006 and in 2005 992 992 Additional paid in capital 264,709 255,369 Deferred stock compensation, net of amortization of $12,312 in 2005 -- (2,196) Retained earnings 140,608 46,245 Accumulated other comprehensive 3,992 1,137 income Treasury stock, at cost; 15,993 and 6,767 shares in 2006 and in 2005, (196,953) (75,218) respectively Total Stockholders' Equity 213,348 226,329 (6 %)
Total Liabilities and Stockholders' Equity $ 725,666 $ 702,311 3 %
TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES Consolidated Statement Of Cash Flows (In Thousands)
Twelve Months Ended December 31, 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $112,322 $ 99,329 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 24,828 24,999 Amortization of deferred financing costs 1,868 2,153 Loss on extinguishment of debt 10,722 4,245 Amortization of stock-based compensation 3,847 2,883 Allowance for doubtful accounts 3,464 2,666 Deferred income taxes (1,304) 4,657 Foreign currency adjustments 41 1,022 Loss on sale of equipment and other 488 754 Changes in operating assets and liabilities: Accounts receivable (27,608) (27,273) Inventories 21,284 (18,448) Prepaid expenses and other current assets 3,327 258 Accounts payable 11,265 1,653 Accrued expenses and other 2,530 (1,772) Income taxes (1,259) 5,123 Net cash provided by operating activities 165,815 102,249
CASH FLOWS FROM INVESTING ACTIVITIES: Payments for trademarks and other intellectual property (936) (2,014) Purchases of property, plant and equipment (37,211) (84,881) Proceeds from sale of equipment 286 311 Net cash used by investing activities (37,861) (86,584)
CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term revolving credit facility 277,772 368,500 Repayments of long-term revolving credit (92,500) (302,500) facility Proceeds from issuance of long-term debt -- 109,858 Repayments of long-term debt (73,329) (173,688) Proceeds from issuance of Series A Industrial Revenue Bonds -- 53,925 Repayment of Series A Industrial Revenue Bonds (5,760) -- Repayments of senior subordinated notes (97,500) -- Redemption premium on senior subordinated notes (7,620) -- Common stock issued, including reissuances of treasury stock 4,045 2,551 Excess tax benefit from stock based compensation 7,693 -- Stock repurchased (144,000) (76,000) Payments for deferred financing costs (1,277) (2,601) Net used by financing activities (132,476) (19,955)
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH 2,455 (6,223)
Decrease in cash and cash equivalents (2,067) (10,513)
CASH AND CASH EQUIVALENTS, beginning of period 17,855 28,368
CASH AND CASH EQUIVALENTS, end of period $ 15,788 $ 17,855
Supplemental Information Pro Forma Net Income
To further provide investors useful information, pro forma net income is presented for the three and twelve months ended December 31, 2006 and represents the Company's GAAP net income before income tax expense on loss on debt extinguishment arising from the write-off of deferred financing costs and the cash redemption premium paid in connection with the early redemption in December 2006 of the Company's 10 1/4% Senior Subordinated Notes due 2010 and a recent favorable income tax ruling.
The Company believes that excluding the above items provide a measure that is more representative of ongoing costs and therefore more comparable to the Company's historical operations. The following is a reconciliation of GAAP net income to pro forma net income and per share amounts:
TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES Reconciliation of GAAP Net Income to Pro Forma Net Income (In thousands, except per share data)
Three Months Ended Twelve Months Ended December 31, December 31, 2006 2005 2006 2005 GAAP net income $ 30,454 $ 30,361 $ 112,322 $ 99,329
Loss on extinguishment of debt, net of tax 6,703 2,212 6,703 2,212
Income taxes (3,079) (1,508) (3,079) 4,983
Pro forma net income $ 34,078 $ 31,065 $ 115,946 $ 106,524
GAAP net income per share, diluted $ 0.36 0.30 1.28 0.97
Loss on extinguishment of debt, net of tax 0.08 0.02 0.08 0.02
Income taxes (0.04) (0.01) (0.04) 0.05
Pro forma net income per share, diluted $ 0.40 $ 0.31 $ 1.32 $ 1.04
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 fourth quarter of 2006 compared to 2005:
($ in thousands) CONSOLIDATED DOMESTIC INTERNATIONAL Three Months Ended Three Months Ended Three Months Ended December 31, December 31, December 31, 2006 2005 2006 2005 2006 2005 By Sales Channel
Retail $ 204,334 $ 166,580 $ 135,169 $ 104,838 $ 69,165 $ 61,742 Direct 22,530 24,768 19,418 20,882 3,112 3,886 Healthcare 13,376 11,844 3,522 2,654 9,854 9,190 Third Party 16,340 12,451 5,045 3,605 11,295 8,846 Total $ 256,580 $ 215,643 $ 163,154 $ 131,979 $ 93,426 $ 83,664
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 December 31, December 31, December 31, 2006 2005 2006 2005 2006 2005 Net Sales Mattresses $ 172,782 $ 142,418 $ 115,822 $ 93,466 $ 56,960 $ 48,952 Pillows 38,872 33,367 19,471 15,222 19,401 18,145 Other 44,926 39,858 27,861 23,291 17,065 16,567 Total $ 256,580 $ 215,643 $ 163,154 $ 131,979 $ 93,426 $ 83,664
Units Sold(1) Mattresses 204,351 176,221 110,700 89,689 93,651 86,532 Pillows 753,966 669,529 392,170 313,004 361,796 356,525
(1) Units sold represent net sales after consideration of returned mattresses and pillows and excludes units shipped to fulfill warranty claims and promotional activities.
The following table highlights net sales information, by channel and by segment, for the full year of 2006 compared to 2005:
($ in thousands)
CONSOLIDATED DOMESTIC INTERNATIONAL
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, December 31, December 31,
2006 2005 2006 2005 2006 2005
By Sales
Channel
Retail $ 759,792 $ 638,977 $ 517,917 $ 426,069 $241,875 $ 212,908
Direct 85,482 103,197 75,239 88,555 10,243 14,642
Healthcare 45,205 45,949 12,610 10,998 32,595 34,951
Third Party 54,566 48,609 16,015 10,664 38,551 37,945
Total $ 945,045 $ 836,732 $ 621,781 $ 536,286 $323,264 $ 300,446
Summary of Product Sales
A summary of net sales by product is reported below:
($ in thousands)
CONSOLIDATED DOMESTIC INTERNATIONAL
Twelve Months Ended Twelve Months Ended Twelve Months Ended
December 31, December 31, December 31,
2006 2005 2006 2005 2006 2005
Net Sales
Mattresses $ 651,901 $ 566,460 $ 455,666 $ 391,942 $196,235 $ 174,518
Pillows 126,335 126,227 60,111 54,014 66,224 72,213
Other 166,809 144,045 106,004 90,330 60,805 53,715
Total $ 945,045 $ 836,732 $ 621,781 $ 536,286 $323,264 $ 300,446
Units
Sold(1)
Mattresses 774,484 685,316 450,433 383,663 324,051 301,653
Pillows 2,463,107 2,535,981 1,192,423 1,100,725 1,270,684 1,435,256
(1) Units sold represent net sales after consideration of returned mattresses and pillows and excludes units shipped to fulfill warranty claims and promotional activities.
SOURCE Tempur-Pedic International Inc.
CONTACT: Tempur-Pedic Investor Relations,
+1-800-805-3635