Oct 23, 2012

Tempur-Pedic Reports Third Quarter Results

Tempur-Pedic Reports Third Quarter Results 42.2 KB

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
		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.

News Provided by Acquire Media

Share this on:
Facebook
LinkedIn
Twitter

Tempur-Pedic Reports Third Quarter Results

Open:

High:

Last:

Change:

Volume: