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): November 25, 2019
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
(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:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | ||
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of exchange on which registered |
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 7.01. Regulation FD Disclosure.
On November 25, 2019, Tempur Sealy International, Inc. (the "Company") released an updated investor presentation (the "Investor Presentation"). The Investor Presentation will be used from time to time in meetings with investors. A copy of the Investor Presentation is furnished herewith as Exhibit 99.1.
The information disclosed pursuant to this Item 7.01 (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 any such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Number | Description |
99.1 | |
104.1 | Cover page interactive data file (embedded within the Inline XBRL document) |
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.
Date: November 25, 2019
Tempur Sealy International, Inc. | ||
By: | /s/ Bhaskar Rao | |
Name: | Bhaskar Rao | |
Title: | Executive Vice President & Chief Financial Officer | |
Tempur Sealy International, Inc. (TPX) “Success is strengthening our Iconic Brands while driving higher ROIC through focused execution” 1 © 2019 Tempur Sealy International, Inc.
Tempur Sealy International, Inc. Overview: (TPX) • Strong global brands serving all price points • Omni-channel distribution balanced between wholesale and direct to consumer • Global manufacturing footprint • Structural growth industry, with high ROIC and robust free cash flow • Industry is relatively concentrated in US and fragmented globally TPX North International Consolidated America 3Q19 Sales $821M $682M $139M 100% 83% 17% Forward-Looking Statements: This investor presentation contains statements that may be characterized as “forward looking” within the meaning of federal securities laws. Please review carefully the cautionary statements and other information included in the Appendix under “Forward looking Statements”. Non-GAAP Financial Information: This presentation includes non-GAAP financial measures. Please refer to the footnotes and the explanations about such © 2019 Tempur Sealy International, Inc. non-GAAP financial measures, including reconciliations to the corresponding GAAP financial measures, in the Appendix at the end of this presentation. Footnotes: Please refer to the footnotes at the end of this presentation. 2
Long-term Focused Key initiatives: • Develop the highest quality bedding products in all the markets we serve • Promote our worldwide brands with compelling marketing • Optimize our powerful omni-distribution platform to be where consumers want to shop • Drive increases in EBITDA(1) (1) This financial measure is not recognized under U.S. Generally Accepted Accounting Principles (“GAAP”). Please refer to “Use of Non-GAAP Financial Measures & Constant Currency Information” in the Appendix. 3 © 2019 Tempur Sealy International, Inc.
Global Manufacturing Footprint 35 International Facilities 22 North American Facilities Wholly owned and Joint Venture Tempur-Pedic Facility Joint Venture Licensee 4 © 2019 Tempur Sealy International, Inc.
Powerful Omni-Distribution Platform Largest pillar of world-wide distribution Wholesale In process with significant distribution gains DTC Significant worldwide revenue growth Web Highly profitable and expanding gross margins DTC Company Luxury showroom experience Owned Significant worldwide revenue growth Stores Highly profitable 5 © 2019 Tempur Sealy International, Inc.
Direct to Consumer • Distribution network made up of high growth, high Global Direct Revenue margin, Web, Call Center, and Company-owned stores $120 • Strong growth within the direct channel, growing 62% $100 in the third quarter of 2019 $80 • Long-term direct target: 25% of consolidated net sales $60 NORTH AMERICAN INTERNATIONAL $40 SALES CHANNEL SALES CHANNEL $20 12% 22% $- Q3 2017 Q3 2018 *Q3 2019 (In millions) Intl NA 88% 78% Q3 global direct channel sales grew 108% over 2 years *Excluding Sleep Outfitters, Q3 global direct channel sales grew 67% over 2 years Direct Wholesale Direct Wholesale 6 © 2019 Tempur Sealy International, Inc.
Winning Online TempurPedic.com Most profitable online bedding company in the world High growth and high margins Alternative Channels (Web-based Retailers) Dedicated sales team with focus on eMarketplace sales growth High growth and stable margins Traditional Retailers Online TPX proprietary Retail Edge training providing shopper-focused solutions High growth and stable margins Compressed Bedding Products High-end Mid-level Value Tempur Cloud® (Testing) Cocoon by Sealy™ (Significant growth) Sealy-to-go (Significant growth) 7 © 2019 Tempur Sealy International, Inc.
Company-Owned North American Store Strategy High-End Targeted Opportunity Broad Based Opportunity – Strategic Representation Sleep Outfitters®: o Regional bedding retailer that is strategically important to the markets it serves for Tempur Sealy o Store count: 98 o Tempur, Sealy and Stearns & Foster merchandising Wide range of ASP products: $300 - $4,500 o (2) o Average revenue per store between $0.8-$0.9M Tempur Retail Stores®: o 50 High-end retail destinations, with complementary co-tenants, in high demographic areas o Strategic market placement (125-150 store vision) o Brand Ambassadors - Tempur-Pedic only products o Consumer niche – prefer direct from manufacturer Premium ASP offering: $2,000 - $4,500 o (2) o Average revenue per store between $1.5-$2.0M 8 © 2019 Tempur Sealy International, Inc.
BRANDS & PRODUCTS 9 © 2019 Tempur Sealy International, Inc.
Product Segments Three Months Ended Bedding Other Net Sales September 30, 2019 Products Products Consolidated $ 752M $ 69M $ 821M YoY Growth 12.1% 18.2% 12.5% North America $ 641M $ 41M $ 682M YoY Growth 13.8% 26.2% 14.5% International $ 112M $ 27M $ 139M YoY Growth 3.0% 7.9% 4.0% Nine Months Ended Bedding Other Net Sales September 30, 2019 Products Products Consolidated $ 2,045M $ 190M $ 2,235M YoY Growth 10.6% 6.7% 10.3% North America $ 1,709M $ 105M $ 1,814M YoY Growth 13.0% 9.4% 12.8% International $ 336M $ 85M $ 421M YoY Growth -0.1% 3.5% 0.6% 10 © 2019 Tempur Sealy International, Inc.
U.S. Portfolio of Products TEMPUR MATERIAL HYBRID INNERSPRING MEMORY FOAM TEMPUR® STEARNS & FOSTER® SEALY CONFORM® SEALY HYBRID® COCOON BY TEMPUR BREEZE® SEALY SEALY (Bed in a Box) (Bed in a Box) TEMPUR ADAPT™ STEARNS & FOSTER® SEALY RESPONSE® OTHER SPECIALTY ADJUSTABLE BASES PILLOWS 11 © 2019 Tempur Sealy International, Inc.
TEMPUR-PEDIC® Launched the innovative, new breeze°, …designed to improve product mix, completes the largest rollout in Tempur history… with all night cooling. 12 © 2019 Tempur Sealy International, Inc.
STRONGEST TEMPUR-PEDIC PRODUCT OFFERING TEMPUR-ADAPT® FAMILY TEMPUR-BREEZE® FAMILY ADAPT™ PROADAPT® LUXEADAPT™ PRObreeze°™ LUXEbreeze°™ SOFT SOFT SOFT MEDIUM MEDIUM MEDIUM FIRM FIRM FIRM HYBRID HYBRID HYBRID $2,199 $2,999 $3,699* $3,999* $4,699* Product Launched in 2018 Product Launched early 2019 * Pricing updates to go into effect February 2020 13 © 2019 Tempur Sealy International, Inc.
NEW TEMPUR-LUXEbreeze°™ NEXT LEVEL COOLING COMFORT – Up to 8° cooler* OUTSIDE SMARTCLIMATE® MAX DUAL COVER SYSTEM An enhanced zip-off cover with double the cool- to-touch power combined with a super-stretch inner layer so you feel cooler when you lie down INSIDE PURECOOL+™ Phase Change Material Exclusive, next-generation technology absorbs excess heat so you feel cooler while you fall asleep TEMPUR-CM+™ Material Advanced TEMPUR® Material redesigned with 13” PROFILE maximum airflow for all-night cooling comfort SRP** Ventilated TEMPUR-APR® Material $4,699 Our most pressure –relieving material ever – SOFT FIRM now with an all-new, ultra-breathable design for all-night cooling comfort *Ave. heat index v. TEMPUR-ProAdapt® models **Pricing updates to go into effect February 2020 14 © 2019 Tempur Sealy International, Inc.
NEW TEMPUR-PRObreeze°™ ADVANCED ALL-NIGHT COOLING - Up to 3° cooler* OUTSIDE SMARTCLIMATE® DUAL COVER SYSTEM A zip-off, cool-to-touch outer layer combined with a super-stretch inner layer so you feel cooler when you lie down INSIDE PURECOOL+™ Phase Change Material Exclusive, next-generation technology absorbs excess heat so you feel cooler while you fall asleep TEMPUR-CM+™ Material 12” PROFILE Advanced TEMPUR® Material redesigned with maximum airflow for all-night cooling comfort $3,999 SRP** HYBRID MEDIUM *Ave. heat index v. TEMPUR-ProAdapt® models (excludes PRObreeze°™ firm) **Pricing updates to go into effect February 2020 15 © 2019 Tempur Sealy International, Inc.
2019 New Products 16 © 2019 Tempur Sealy International, Inc.
Stearns & Foster Reinvented ALL-NEW & EXCLUSIVE Coil Technologies PROPRIETARY and EXCLUSIVE Memory Foam engineered by: ALL-NEW Natural + Cooling System 17 © 2019 Tempur Sealy International, Inc.
NEW Stearns & Foster Collection: ESTATE™ Starting at $1,499 LUX ESTATE® Starting at $2,299 LUX ESTATE HYBRID™ Starting at $2,799 RESERVE™ Starting at $3,999 18 © 2019 Tempur Sealy International, Inc.
RECENT MANAGEMENT COMMENTS 19
Third Quarter 2019 Net Sales Increased 13%, Direct Channel Sales Increased 62% Margins Expanded, Net Income, EBITDA(1) and EPS Up Highlights Significantly Versus Third Quarter 2018 Three Months Ended September 30th Reported %Change 2019 2018 Constant %Change Currency(1) Net Sales $821.0 $729.5 12.5% 13.4% Net Income 73.3 42.3 73.3% 75.4% EBITDA(1) 150.7 112.7 33.7% 34.9% EPS 1.31 0.77 70.1% 72.7% Adjusted EBITDA(1) $149.9 $127.7 17.4% 18.5% Adjusted EPS(1) 1.30 1.02 27.5% 29.4% ($ in millions, except for EPS and % values) (1) This financial measure is not recognized under U.S. Generally Accepted Accounting Principles (“GAAP”). Please refer to “Use of Non-GAAP Financial Measures & Constant Currency Information” in the Appendix. 20 © 2019 Tempur Sealy International, Inc.
The new facility decreases our borrowing costs, provides Amended Credit increased operating flexibility and significantly extends our debt maturities Facility This transaction represents the lowest interest rate spread on a like for like leverage in the company’s history Prior Structure New Amended* Combination of Revolving and Facilities Same Term Loan Maturities 5 Years / 2021 5 Years / 2024 Accordion Unlimited provided Secured $500 million Leverage Ratio < 2.50x, plus $550 million LTM Net Interest Rate If Net Leverage is ≥ 3.50x If Net Leverage is ≥ 3.50x Libor + 175.0 bps Libor + 162.5 bps Financial Covenants Maximum Secured: 3.50x Same Maximum Total: 5.00x (leverage ratios may be increased Minimum Interest Coverage: in connection with certain 3.00x acquisitions) *with other generally borrower friendly provisions 21 © 2019 Tempur Sealy International, Inc.
Leverage ratio (3) moving to lower end of 3.0x to 4.0x range Debt Structure Fixed rate debt represents around 2/3 of total debt; capital structure contains long dated maturities Capital Allocation: Invest in the highest ROIC opportunities . We believe in a consistent measured share repurchase pace and maintaining future optionality (3) LEVERAGE MANDATORY MATURITY PROFILE(4) 4.00x 3.84x $600 Term A Loan 2023 Bond $450 3.65x 2026 Bond $329 3.22x $23 $21 $21 $21 $32 3.00x 1Q19 2Q19 3Q19 2019 2020 2021 2022 2023 2024 2025 2026 Rating Agency Ratings • S&P: BB- reaffirmed as of October 2019 • Moody’s: Ba3 reaffirmed as of October 2019 (1) This financial measure is not recognized under U.S. Generally Accepted Accounting Principles (“GAAP”). Please refer to “Use of Non-GAAP Financial Measures & Constant Currency Information” in the Appendix. 22 © 2019 Tempur Sealy International, Inc.
Revised 2019 Targets 2019 Financial Targets(3) and Assumptions Adjusted EBITDA(1) $485 to $500 M Depreciation & Amortization $115 to $120 M Capital Expenditures $80 M ($60 M Maintenance) Interest Expense $85 to $90 M U.S. Federal Tax Rate Range 27% to 28% Diluted Share Count 56 M Shares (1) This financial measure is not recognized under U.S. Generally Accepted Accounting Principles (“GAAP”). Please refer to “Use of Non-GAAP Financial Measures & Constant Currency Information” in the Appendix. 23 © 2019 Tempur Sealy International, Inc.
Environmental, Social, and Governance Tempur Sealy is committed to protecting and improving our environment and communities. • In 2018, 72% of our North • Community Engagement • Majority of Directors on American facility waste • Since 2011, donated nearly the Board are Independent $300M of mattresses to • Subject executives to was recycled Social • 16,066 Barrels of Oil charity significant stock ownership • 51,152 Trees • Since 2017, more than $4M guidelines and holding in product donated to • 16,070,577 KW Hours requirements victims of natural disasters • 3,009 Tons of CO2 • Global Code of Business Governance • 21,062,772 Gallons of water • Tempur Sealy Foundation Conduct and Ethics Environment • Supporting charities that assist children and families • Internal Enterprise Risk in Central Kentucky Management • International ethics hotline • Zero tolerance policy towards improper payments and bribes 24 © 2019 Tempur Sealy International, Inc.
Thank you for your interest in Tempur Sealy International For more information please email: investor.relations@tempursealy.com 25 © 2019 Tempur Sealy International, Inc.
Appendix 26
Aspirational Plan(5) On August 7, 2017, the Company implemented a new Aspirational Program in the form of performance restricted stock units tied to challenging performance targets. This Aspirational Program builds on the challenging goals and the structure established in our original Aspirational Program adopted in 2015, with slightly revised performance goals and new performance periods, as we aligned the management team around our new aspirational targets following the termination with our largest customer in 2017. • Performance restricted stock units (“PRSUs”) for approximately 1.5 million shares of the Company’s common stock were granted to over 150 employees • PRSUs will vest based on adjusted EBITDA(1) performance measured on a rolling 4 quarter basis during two performance periods -- 2018 and 2019; and 2020 • If the minimum performance target is met for the applicable period, awards become payable shortly after the applicable period. If an officer or employee leaves for any reason prior to vesting, all of his or her PRSUs will be forfeited, subject to certain limited exceptions Achievement Schedule ~15% of total costs % of Total Grant of PRSUs That Will Vest Adjusted EBITDA January 1, 2018 – December 31, 2019 (Period 1) ≥ $650 100% $600 66% ~20% of total costs < $600 0% . Measured quarterly on a trailing four quarter period . If an award is earned in the first period the program ends, subject to a change of control provision . If an award is not earned in the first period, then ½ of the award lapses, subject to a change of control provision, and ½ of the award remains available for vesting based on performance in the second period . Prorated based on performance between $600 & $650, but is only payable at the end of the respective period (adjusted EBITDA(1) target $ in millions) 27 For more information please refer to the Company’s Form 8-K filed on August 7, 2017
Forward-Looking Statements This investor presentation contains statements that may be characterized as “forward-looking” within the meaning of the federal securities laws. Such statements might include those containing information concerning one or more of the Company’s plans; guidance; objectives; goals; strategies and other information that is not historical information. When used in this presentation, the words "assumes," “may,” "estimates," "expects," “guidance,” “anticipates,” “projects,” “plans,” “proposed,” “targets,” “intends,” “believes,” “will” 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 regarding adjusted EBITDA for 2019 and performance generally for 2019 and subsequent periods and the Company’s expectations for product launches over the next few quarters, increasing sales growth, optimizing worldwide distribution, expanding the direct-to-consumer business (including the Company’s Tempur-branded retail store presence) and ongoing productivity initiatives. Any forward- looking statements contained herein are based upon current expectations and beliefs and various assumptions. There can be no assurance that the Company will realize these expectations, meet its guidance or that these beliefs will prove to be correct. Numerous factors, many of which are beyond the Company's control, could cause actual results to differ materially from those that may be expressed as forward-looking statements in this presentation. These risk factors include the impact of the macroeconomic environment in both the U.S. and internationally (including the impact of highly inflationary economies) on the Company’s business segments and expectations regarding growth of the mattress industry; uncertainties arising from global events; the effects of strategic investments on the Company’s operations, including efforts to expand its global market share; the ability to develop and successfully launch new products; the efficiency and effectiveness of the Company’s advertising campaigns and other marketing programs; the ability to increase sales productivity within existing retail accounts and to further penetrate the retail channel, including the timing of opening or expanding within large retail accounts and the timing and success of product launches; the ability to continuously improve and expand the Company’s product line, maintain efficient, timely and cost-effective production and delivery of products, and manage growth generally and in connection with the new or expanded supply agreements with Mattress Firm, Inc., Big Lots, Inc. and Beter Bed Holding N.V.; the effects of consolidation of retailers on revenues and costs; competition in the Company’s industry; consumer acceptance of the Company’s products; the effects of discontinued operations on the Company’s operating results and future performance; general economic, financial and industry conditions, particularly conditions relating to the financial performance and related credit issues present in the retail sector; financial distress among the Company’s business partners, customers and competitors; financial solvency and related problems experienced by other market participants; the Company’s ability to execute on its strategy to optimize and integrate the assets of Innovative Mattress Solutions, LLC (“iMS”) acquired by the Company’s affiliate Sleep Outfitters USA, LLC (“Sleep Outfitters”); the Company’s reliance on information technology and the associated risks involving potential security lapses and/or cyber- based attacks; the outcome of pending tax audits or other tax, regulatory or investigation proceedings and pending litigation; changes in foreign tax rates and changes in tax laws generally, including the ability to utilize tax loss carryforwards; the Company’s capital structure and debt level, including its ability to meet financial obligations and continue to comply with the terms and financial ratio covenants of its credit facilities; changes in interest rates; effects of changes in foreign exchange rates on the Company’s reported earnings; changing commodity costs; disruptions in the supply of raw materials, or loss of suppliers; expectations regarding the Company’s target leverage and share repurchase program; sales fluctuations due to seasonality; the effect of future legislative or regulatory changes, including changes in international trade duties, tariffs and other aspects of international trade policy; the Company’s ability to protect its intellectual property; and disruptions to the implementation of the Company’s strategic priorities and business plan caused by abrupt changes in its executive management team. Other potential risk factors include the risk factors discussed under the heading "Risk Factors" under ITEM 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There may be other factors that cause the Company’s actual results to differ materially from any of those expressed as forward-looking statements herein. Note Regarding Historical Financial Information: In this investor presentation we provide or refer to certain historical information for the Company. For a more detailed discussion of the Company’s financial performance, please refer to the Company’s SEC filings. Note Regarding Trademarks, Trade Names and Service Marks: TEMPUR®, Tempur-Pedic®, the TEMPUR-PEDIC & Reclining Figure Design®, TEMPUR-Adapt®, TEMPUR-ProAdapt®, TEMPUR-LuxeAdapt®, TEMPUR-PRObreeze™, TEMPUR-LUXEbreeze™,TEMPUR- Cloud®, TEMPUR-Contour™, TEMPUR-Rhapsody™, TEMPUR-Flex®, THE GRANDBED BY TEMPUR-PEDIC®, TEMPUR-Simplicity™, TEMPUR-Ergo®, TEMPUR-UP™, TEMPUR-Neck™, TEMPUR- Symphony™, TEMPUR-Comfort™, TEMPUR-Traditional™, TEMPUR-Home™, SEALY®, SEALY POSTUREPEDIC®, STEARNS & FOSTER®, COCOON by Sealy™ and OPTIMUM™ are trademarks, trade names or service marks of Tempur Sealy International, Inc. and/or its subsidiaries. All other trademarks, trade names and service marks in this presentation are the property of the respective owners. Limitations on Guidance: The guidance included herein is from the Company’s press release and related earnings call on October 31, 2019. The Company is neither reconfirming this guidance as of the date of this investor presentation nor assuming any obligation to update or revise such guidance. See above. 28
Footnotes 1. Adjusted Net Income, EBITDA, adjusted EBITDA, leverage, leverage ratio, and constant currency are non-GAAP financial measures. Please refer to the "Use of Non- GAAP Financial Measures and Constant Currency Information" on slide 30 for more information regarding the definitions of adjusted Net Income, EBITDA, adjusted EBITDA, leverage, leverage ratio, and constant currency, including the adjustments (as applicable) from the corresponding GAAP information. Amounts shown for 2019 financial targets on slide 23 represent management estimates of adjusted EBITDA performance based on the Company’s guidance provided on October 31, 2019. Please refer to “Forward-Looking Statements” and “Limitations on Guidance” on slide 28. The Company notes that it is unable to reconcile this forward- looking non-GAAP financial measure to GAAP net income, its most directly comparable forward-looking GAAP financial measure, without unreasonable efforts, because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP net income in 2019 but would not impact adjusted EBITDA. These items that impact comparability may include restructuring activities, the impact of the termination of contracts with customers, foreign currency exchange rates, income taxes, and other items. The unavailable information could have a significant impact on the Company's full year 2019 GAAP financial results. 2. Management estimates. 3. Based on the Company’s 2019 financial targets provided in the press release dated October 31, 2019 and the related earnings call on October 31, 2019. Please refer to “Forward-Looking Statements” and “Limitations on Guidance”. 4. Based on debt outstanding at September 30, 2019. Excludes revolving debt, foreign loans and receivables securitization. Term A Loan matures on October 16, 2024 provided that the 2023 Senior Notes are repaid or refinanced at least 180 days prior to maturity. For more information please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019. 5. For more information about the aspirational plan and the terms of the aspirational PRSUs, please refer to the Company’s SEC filings. In addition, please refer to “Forward Looking Statements”. 29
Use of Non-GAAP Financial Measures and Constant Currency Information In this investor presentation and certain of its press releases and SEC filings, the Company provides information regarding adjusted net income, EBITDA, adjusted EBITDA, consolidated funded debt less qualified cash, leverage and leverage ratio which are not recognized terms under U.S. Generally Accepted Accounting Principles (“GAAP”) and do not purport to be alternatives to net income and earnings per share as a measure of operating performance or an alternative to total debt. The Company believes these non-GAAP measures provide investors with performance measures that better reflect the Company's underlying operations and trends, including trends in changes in margin and operating expenses, providing a perspective not immediately apparent from net income and operating income. The adjustments management makes to derive the non-GAAP measures include adjustments to exclude items that may cause short-term fluctuations in the nearest GAAP measure, but which management does not consider to be the fundamental attributes or primary drivers of the Company's business. The Company believes that exclusion of these items assists in providing a more complete understanding of the Company's underlying results from continuing operations and trends, and management uses these measures along with the corresponding GAAP financial measures to manage the Company's business, to evaluate its consolidated and business segment performance compared to prior periods and the marketplace, to establish operational goals and management incentive goals, and to provide continuity to investors for comparability purposes. Limitations associated with the use of these non-GAAP measures include that these measures do not present all of the amounts associated with the Company’s results as determined in accordance with GAAP. These non-GAAP measures should be considered supplemental in nature and should not be construed as more significant than comparable measures defined by GAAP. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies. For more information regarding the use of these non-GAAP financial measures, please refer to the reconciliations on the following pages and the Company’s SEC filings. Constant Currency Information In this presentation the Company refers to, and in other communications with investors the Company may refer to, net sales or earnings or other historical financial information on a "constant currency basis," which is a non-GAAP financial measure. These references to constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates. To provide information on a constant currency basis, the applicable financial results are adjusted based on a simple mathematical model that translates current period results in local currency using the comparable prior corresponding period's currency conversion rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance. EBITDA and Adjusted EBITDA A reconciliation of the Company's GAAP net income to EBITDA and adjusted EBITDA is provided on slide 31. Management believes that the use of EBITDA and adjusted EBITDA provides investors with useful information with respect to the Company’s operating performance and comparisons from period to period. Adjusted Net Income A reconciliation of the Company's GAAP net income to adjusted net income and a calculation of adjusted EPS are provided on slide 32. Management believes that the use of adjusted net income and adjusted EPS also provides investors with useful information with respect to the Company’s operating performance and comparisons from period to period. Leverage Consolidated indebtedness less netted cash to adjusted EBITDA, which the Company may refer to as leverage, is provided on slide 33 and is calculated by dividing consolidated indebtedness less netted cash, as defined by the Company’s senior secured credit facility, by adjusted EBITDA. The Company provides this as supplemental information to investors regarding the Company’s operating performance and comparisons from period to period, as well as general information about the Company's progress in reducing its leverage. 30
Adjusted EBITDA Reconciliation 31
Adjusted Net Income and Adjusted EPS 32
Leverage Reconciliation 33