LEXINGTON, Ky., Oct. 27, 2016 /PRNewswire/ -- Tempur Sealy
International, Inc. (NYSE: TPX) today announced financial results
for the third quarter ended September 30, 2016. The
Company also confirmed financial guidance for the full year
2016.
THIRD QUARTER 2016 FINANCIAL
SUMMARY
- Total net sales decreased 5.4% to $832.4
million from $880.0 million in
the third quarter of 2015. On a constant currency
basis(1), total net sales decreased 4.6%, with a
decrease of 5.8% in the North
America business segment and an increase of 1.8% in the
International business segment.
- Gross margin under U.S. generally accepted accounting
principles ("GAAP") was 43.5% as compared to 40.9% in the third
quarter of 2015.
- GAAP operating income increased 18.2% to $131.1 million, or 15.7% of net sales, as
compared to $110.9 million, or 12.6%
of net sales, in the third quarter of 2015. Operating income in the
third quarter of 2015 included $5.5
million of integration costs, $5.2
million of additional costs related to executive management
transition and retention compensation and $2.4 million of restructuring costs. Operating
income increased 5.7% as compared to adjusted operating
income(1) of $124.0
million, or 14.1% of net sales, in the third quarter of
2015.
- GAAP net income increased 93.5% to $77.8
million as compared to $40.2
million in the third quarter of 2015. GAAP net income
increased 11.3% to $77.8 million as
compared to adjusted net income(1) of $69.9 million in the third quarter of 2015. The
Company had no adjustments to GAAP net income in the third quarter
of 2016.
- Earnings before interest, tax, depreciation and amortization
("EBITDA")(1) increased 27.7% to $155.0 million as compared to $121.4 million for the third quarter of 2015.
EBITDA(1) increased 8.9% as compared to adjusted
EBITDA(1) of $142.3
million in the third quarter of 2015.
- GAAP earnings per diluted share ("EPS") increased 106.3% to
$1.32 as compared to $0.64 in the third quarter of 2015. GAAP EPS
increased 18.9% to $1.32 as compared
to adjusted EPS(1) of $1.11 in the third quarter of 2015.
- The Company ended the third quarter of 2016 with total debt of
$1.7 billion and consolidated funded
debt less qualified cash(1) of $1.6 billion. Leverage based on the ratio of
consolidated funded debt less qualified cash to adjusted
EBITDA(1) was 3.19 times for the trailing twelve months
ended September 30, 2016 as compared
to 3.30 times for the trailing twelve months ended September 30, 2015.
- During the third quarter of 2016, the Company repurchased 1.4
million shares of its common stock for a total cost of $96 million. As of September 30, 2016, the Company had approximately
$280 million available under its
existing share repurchase authorization.
Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, "We are pleased to
report record EBITDA and GAAP EPS for the quarter. The
flexibility of our business model was displayed this quarter as our
top line sales were below our original expectations yet we
delivered significant margin expansion and 19% EPS growth. We
continue to effectively execute on our core strategy to drive our
long term operating performance."
THIRD QUARTER KEY
HIGHLIGHTS
|
|
(in millions,
except percentages and per
common share amounts)
|
Three Months
Ended
|
|
|
|
% Change
Constant
Currency(1)
|
September 30,
2016
|
|
September 30,
2015
|
|
%
Change
|
|
Net sales
|
$
|
832.4
|
|
|
$
|
880.0
|
|
|
(5.4)
|
%
|
|
(4.6)
|
%
|
Net income
|
77.8
|
|
|
40.2
|
|
|
93.5
|
%
|
|
98.5
|
%
|
EPS
|
1.32
|
|
|
0.64
|
|
|
106.3
|
%
|
|
110.9
|
%
|
Adjusted
EPS(1)
|
1.32
|
|
|
1.11
|
|
|
18.9
|
%
|
|
21.6
|
%
|
EBITDA(1)
|
155.0
|
|
|
121.4
|
|
|
27.7
|
%
|
|
30.2
|
%
|
Adjusted
EBITDA(1)
|
155.0
|
|
|
142.3
|
|
|
8.9
|
%
|
|
11.1
|
%
|
|
(1) This is a
non-GAAP financial measure. Please refer to "Non-GAAP Financial
Measures and Constant Currency Information" below.
|
Business Segment Highlights
The Company's business segments include North America and International. Corporate
operating expenses are not included in either of the business
segments and are presented separately as a reconciling item to
consolidated results.
North America net
sales decreased 5.8% to $698.5
million from $741.2 million in
the third quarter of 2015. On a constant currency
basis(1), North America
net sales decreased 5.8%. GAAP gross margin was 41.5% as compared
to 38.8% in the third quarter of 2015. GAAP operating margin was
18.4% as compared to 16.0% in the third quarter of 2015, driven
primarily by gross margin improvement and lower operating expense
inclusive of additional advertising spend.
North America gross margin
improved 240 basis points to 41.5% as compared to adjusted gross
margin(1) of 39.1% in the third quarter of 2015. Gross
margin improvements were primarily driven by operational
improvements, pricing actions and product mix. The increase in
North America gross margin drove a
200 basis point increase in the Company's North America operating margin to 18.4% as
compared to adjusted operating margin(1) of 16.4% in the
third quarter of 2015.
International net
sales decreased 3.5% to $133.9 million from $138.8
million in the third quarter of 2015. On a constant
currency basis(1), International net sales increased
1.8%. GAAP gross margin was 53.8% as compared to 51.8% in the third
quarter of 2015. GAAP operating margin was 19.1% as compared to
16.6% in the third quarter 2015, driven primarily by the increase
in gross margin.
International gross margin increased 110 basis points to
53.8% as compared to adjusted gross margin(1) of 52.7%
in the third quarter of 2015. The increase in gross margin was
primarily driven by operational improvements and improved product
mix. The increase in International gross margin drove a 60 basis
point increase in the Company's International operating margin to
19.1% as compared to adjusted operating margin(1) of
18.5% in the third quarter of 2015.
Corporate GAAP operating expense decreased 25.2% to
$22.8 million from $30.5 million in the third quarter of 2015. In
the third quarter of 2015, the Company recorded $4.9 million of additional costs related to
executive management transition and retention compensation,
$2.0 million of integration costs
and $0.5 million of restructuring costs. Corporate
operating expense decreased 1.3% to $22.8
million as compared to adjusted operating
expense(1) of $23.1
million in the third quarter of 2015.
Balance Sheet
As of September 30, 2016, the Company reported $89.0 million in cash and cash equivalents and
$1.7 billion in total debt, as
compared to $153.9 million in cash
and cash equivalents and $1.5 billion
in total debt as of December 31,
2015.
Financial Guidance
The Company also today confirmed its financial guidance for
2016. For the full year 2016, the Company currently expects
adjusted EBITDA(1) to range from $500
million to $525 million.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference
call to discuss financial results today, October 27, 2016 at
8:00 a.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.tempursealy.com. After the
conference call, a webcast replay will remain available on the
investor relations section of the Company's website for 30
days.
Non-GAAP Financial Measures and Constant Currency
Information
For additional information regarding adjusted net income,
adjusted EPS, adjusted gross profit, adjusted gross margin,
adjusted operating income (expense), adjusted operating margin,
EBITDA, adjusted EBITDA, consolidated funded debt, and consolidated
funded debt less qualified cash (all of which are non-GAAP
financial measures), please refer to the reconciliations and other
information included in the attached schedules. For information on
the methodology used to present information on a constant currency
basis, please refer to "Constant Currency Information" included in
the attached schedules.
(1)
|
This is a non-GAAP
financial measure. Please refer to "Non-GAAP Financial Measures and
Constant Currency Information" below.
|
Forward-looking Statements
This press release contains "forward-looking statements," within
the meaning of the 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," "guidance," "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
expectations regarding adjusted EBITDA for 2016 and performance
generally for 2016 and subsequent periods. 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.
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
risks associated with the Company's capital structure and debt
level; general economic, financial and industry conditions,
particularly in the retail sector, as well as consumer confidence
and the availability of consumer financing; changes in product and
channel mix and the impact on the Company's gross margin; changes
in interest rates; the impact of the macroeconomic environment in
both the U.S. and internationally on the Company's business
segments; 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 and the timing and success of product launches; the
effects of consolidation of retailers on revenues and costs;
changes in demand for the Company's products by significant
retailer customers; the Company's ability to expand brand
awareness, distribution and new products; 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; the outcome of various pending tax
audits or other tax, regulatory or investigation proceedings;
changing commodity costs; the effect of future legislative or
regulatory changes; and disruptions to the implementation of the
Company's strategic priorities and business plan caused by abrupt
changes in the Company's senior management team and Board of
Directors.
Other potential risk factors include the risk factors discussed
under the heading "Risk Factors" under ITEM 1A of Part 1 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 2015. There may be other
factors that may cause the Company's actual results to differ
materially from the forward-looking statements. The Company
undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such
statement is made.
About Tempur Sealy International, Inc.
Tempur Sealy International, Inc. (NYSE: TPX) is the world's
largest bedding provider. Tempur Sealy International, Inc.
develops, manufactures and markets mattresses, foundations, pillows
and other products. The Company's brand portfolio includes many
highly recognized brands, including TEMPUR®, Tempur-Pedic®, Sealy®,
Sealy Posturepedic® and Stearns & Foster®. World headquarters
for Tempur Sealy International, Inc. is in Lexington, KY. For more information,
visit http://www.tempursealy.com or call
800-805-3635.
Investor Relations Contact:
Barry Hytinen
Executive Vice President, Chief Financial Officer
Tempur Sealy International, Inc.
800-805-3635
Investor.relations@tempursealy.com
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Operations
(in millions,
except per common share amounts)
(unaudited)
|
|
|
Three Months
Ended
|
|
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
Chg
%
|
|
September
30,
|
|
Chg
%
|
|
2016
|
|
2015
|
|
|
|
2016
|
|
2015
|
|
|
Net sales
|
$
|
832.4
|
|
|
$
|
880.0
|
|
|
(5.4)%
|
|
$
|
2,357.8
|
|
|
$
|
2,383.9
|
|
|
(1.1)%
|
Cost of
sales
|
470.3
|
|
|
520.4
|
|
|
|
|
1,367.8
|
|
|
1,448.1
|
|
|
|
Gross
profit
|
362.1
|
|
|
359.6
|
|
|
0.7%
|
|
990.0
|
|
|
935.8
|
|
|
5.8%
|
Selling and marketing
expenses
|
175.2
|
|
|
175.6
|
|
|
|
|
498.1
|
|
|
498.0
|
|
|
|
General,
administrative and other expenses
|
64.0
|
|
|
79.8
|
|
|
|
|
207.6
|
|
|
242.6
|
|
|
|
Equity income in
earnings of unconsolidated
affiliates
|
(2.4)
|
|
|
(2.0)
|
|
|
|
|
(8.6)
|
|
|
(8.4)
|
|
|
|
Royalty income, net
of royalty expense
|
(5.8)
|
|
|
(4.7)
|
|
|
|
|
(15.1)
|
|
|
(13.7)
|
|
|
|
Operating
income
|
131.1
|
|
|
110.9
|
|
|
18.2%
|
|
308.0
|
|
|
217.3
|
|
|
41.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense,
net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
20.5
|
|
|
33.2
|
|
|
|
|
65.0
|
|
|
74.1
|
|
|
|
Loss on
extinguishment of debt
|
—
|
|
|
—
|
|
|
|
|
47.2
|
|
|
—
|
|
|
|
Other expense,
net
|
0.3
|
|
|
11.8
|
|
|
|
|
—
|
|
|
12.7
|
|
|
|
Total other
expense
|
20.8
|
|
|
45.0
|
|
|
|
|
112.2
|
|
|
86.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
110.3
|
|
|
65.9
|
|
|
67.4%
|
|
195.8
|
|
|
130.5
|
|
|
50.0%
|
Income tax
provision
|
(33.7)
|
|
|
(25.0)
|
|
|
|
|
(60.2)
|
|
|
(43.6)
|
|
|
|
Net income before
non-controlling interest
|
76.6
|
|
|
40.9
|
|
|
87.3%
|
|
135.6
|
|
|
86.9
|
|
|
56.0%
|
Less: Net (loss)
income attributable to non-
controlling interest (1),(2)
|
(1.2)
|
|
|
0.7
|
|
|
|
|
(3.1)
|
|
|
2.1
|
|
|
|
Net income
attributable to Tempur Sealy
International, Inc.
|
$
|
77.8
|
|
|
$
|
40.2
|
|
|
93.5%
|
|
$
|
138.7
|
|
|
$
|
84.8
|
|
|
63.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.34
|
|
|
$
|
0.65
|
|
|
|
|
$
|
2.31
|
|
|
$
|
1.38
|
|
|
|
Diluted
|
$
|
1.32
|
|
|
$
|
0.64
|
|
|
106.3%
|
|
$
|
2.28
|
|
|
$
|
1.36
|
|
|
67.6%
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
58.2
|
|
|
62.1
|
|
|
|
|
60.1
|
|
|
61.4
|
|
|
|
Diluted
|
58.8
|
|
|
62.9
|
|
|
|
|
60.8
|
|
|
62.5
|
|
|
|
|
|
(1)
|
Net (loss) income
attributable to the Company's redeemable non-controlling interest
in Comfort Revolution, LLC for the three months ended September 30,
2016 and 2015 represented $(1.2) million and $0.5 million,
respectively. Net (loss) income attributable to the Company's
redeemable non-controlling interest in Comfort Revolution, LLC for
the nine months ended September 30, 2016 and 2015 represented
$(3.1) million and $1.0 million, respectively.
|
|
|
(2)
|
As of September 30,
2015, the redemption value exceeded the accumulated earnings of the
Company's redeemable non-controlling interest in Comfort
Revolution, LLC. Accordingly, for the three and nine months ended
September 30, 2015, the Company recorded a $0.2 million and $1.1
million adjustment, net of tax, respectively, to adjust the
carrying value of redeemable non-controlling interest to its
redemption value. As of September 30, 2016, the accumulated
earnings exceeded the redemption value and, accordingly, a
redemption value adjustment was not necessary for the three or nine
months ended September 30, 2016.
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheet
(in
millions)
|
|
|
September 30,
2016
|
|
December 31,
2015
|
ASSETS
|
(unaudited)
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and
cash equivalents
|
$
|
89.0
|
|
|
$
|
153.9
|
|
Accounts
receivable, net
|
404.3
|
|
|
379.4
|
|
Inventories, net
|
214.3
|
|
|
199.2
|
|
Prepaid
expenses and other current assets
|
61.7
|
|
|
76.6
|
|
Total Current
Assets
|
769.3
|
|
|
809.1
|
|
Property, plant and equipment, net
|
365.1
|
|
|
361.7
|
|
Goodwill
|
719.7
|
|
|
709.4
|
|
Other
intangible assets, net
|
686.3
|
|
|
695.4
|
|
Deferred
income taxes
|
25.4
|
|
|
12.2
|
|
Other
non-current assets
|
180.4
|
|
|
67.7
|
|
Total
Assets
|
$
|
2,746.2
|
|
|
$
|
2,655.5
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
|
237.9
|
|
|
$
|
266.3
|
|
Accrued
expenses and other current liabilities
|
285.1
|
|
|
254.0
|
|
Income
taxes payable
|
23.1
|
|
|
11.2
|
|
Current
portion of long-term debt
|
66.1
|
|
|
181.5
|
|
Total Current
Liabilities
|
612.2
|
|
|
713.0
|
|
Long-term debt, net
|
1,619.0
|
|
|
1,273.3
|
|
Deferred
income taxes
|
192.2
|
|
|
195.4
|
|
Other
non-current liabilities
|
162.2
|
|
|
171.2
|
|
Total
Liabilities
|
2,585.6
|
|
|
2,352.9
|
|
|
|
|
|
Redeemable
Non-Controlling Interest
|
9.3
|
|
|
12.4
|
|
|
|
|
|
Total Stockholders'
Equity
|
151.3
|
|
|
290.2
|
|
Total Liabilities,
Redeemable Non-Controlling Interest and Stockholders'
Equity
|
$
|
2,746.2
|
|
|
$
|
2,655.5
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(in
millions)
(unaudited)
|
|
|
Nine Months
Ended
|
|
September
30,
|
|
2016
|
|
2015
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net income before
non-controlling interest
|
$
|
135.6
|
|
|
$
|
86.9
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
54.3
|
|
|
54.9
|
|
Amortization
of stock-based compensation
|
15.3
|
|
|
16.4
|
|
Amortization
of deferred financing costs
|
3.0
|
|
|
18.7
|
|
Bad debt
expense
|
3.2
|
|
|
4.4
|
|
Deferred
income taxes
|
(15.7)
|
|
|
(21.4)
|
|
Dividends
received from unconsolidated affiliates
|
7.3
|
|
|
3.0
|
|
Equity income
in earnings of unconsolidated affiliates
|
(8.6)
|
|
|
(8.4)
|
|
Non-cash
interest expense on 8.0% Sealy Notes
|
4.0
|
|
|
4.5
|
|
Loss on
extinguishment of debt
|
47.2
|
|
|
—
|
|
Loss on sale
of assets
|
0.8
|
|
|
1.2
|
|
Foreign
currency adjustments and other
|
(1.5)
|
|
|
4.7
|
|
Changes in
operating assets and liabilities
|
(135.1)
|
|
|
(31.7)
|
|
Net cash provided by
operating activities
|
109.8
|
|
|
133.2
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
Purchases of
property, plant and equipment
|
(41.9)
|
|
|
(51.1)
|
|
Proceeds from
disposition of business and other
|
—
|
|
|
6.9
|
|
Net cash used in
investing activities
|
(41.9)
|
|
|
(44.2)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Proceeds from
borrowings under long-term debt obligations
|
1,871.5
|
|
|
855.4
|
|
Repayments of
borrowings under long-term debt obligations
|
(1,659.3)
|
|
|
(974.4)
|
|
Proceeds from
exercise of stock options
|
15.2
|
|
|
16.7
|
|
Excess tax benefit
from stock-based compensation
|
6.0
|
|
|
19.7
|
|
Treasury stock
repurchased
|
(319.7)
|
|
|
(1.3)
|
|
Payment of deferred
financing costs
|
(6.6)
|
|
|
(6.4)
|
|
Fees paid to
lenders
|
(7.8)
|
|
|
—
|
|
Call premium on 2020
Senior Notes
|
(23.6)
|
|
|
—
|
|
Proceeds from
purchase of treasury shares by CEO
|
—
|
|
|
5.0
|
|
Other
|
0.1
|
|
|
(2.1)
|
|
Net cash used in
financing activities
|
(124.2)
|
|
|
(87.4)
|
|
NET EFFECT OF
EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
(8.6)
|
|
|
7.7
|
|
(Decrease) increase
in cash and cash equivalents
|
(64.9)
|
|
|
9.3
|
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
153.9
|
|
|
62.5
|
|
CASH AND CASH
EQUIVALENTS, end of period
|
$
|
89.0
|
|
|
$
|
71.8
|
|
Summary of Channel
Sales
|
|
The following table
highlights net sales information, by channel and by segment, for
the three months ended September 30,
2016 and 2015:
|
|
|
Three Months Ended
September 30,
|
(in
millions)
|
Consolidated
|
|
North
America
|
|
International
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Retail
(1)
|
$
|
753.7
|
|
|
$
|
800.3
|
|
|
$
|
663.1
|
|
|
$
|
703.3
|
|
|
$
|
90.6
|
|
|
$
|
97.0
|
|
Other
(2)
|
78.7
|
|
|
79.7
|
|
|
35.4
|
|
|
37.9
|
|
|
43.3
|
|
|
41.8
|
|
|
|
$
|
832.4
|
|
|
$
|
880.0
|
|
|
$
|
698.5
|
|
|
$
|
741.2
|
|
|
$
|
133.9
|
|
|
$
|
138.8
|
|
|
|
(1)
|
The Retail channel
includes furniture and bedding retailers, department stores,
specialty retailers and warehouse clubs.
|
(2)
|
The Other channel
includes direct-to-consumer, third party distributors, hospitality
and healthcare customers.
|
|
Summary of Product
Sales
|
|
The following table
highlights net sales information, by product and by segment, for
the three months ended September 30,
2016 and 2015:
|
|
|
Three Months Ended
September 30,
|
(in
millions)
|
Consolidated
|
|
North
America
|
|
International
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Bedding
(1)
|
$
|
773.7
|
|
|
$
|
801.0
|
|
|
$
|
667.6
|
|
|
$
|
690.8
|
|
|
$
|
106.1
|
|
|
$
|
110.2
|
|
Other
(2)
|
58.7
|
|
|
79.0
|
|
|
30.9
|
|
|
50.4
|
|
|
27.8
|
|
|
28.6
|
|
|
|
$
|
832.4
|
|
|
$
|
880.0
|
|
|
$
|
698.5
|
|
|
$
|
741.2
|
|
|
$
|
133.9
|
|
|
$
|
138.8
|
|
|
|
(1)
|
Bedding products
include mattresses, foundations, and adjustable
foundations.
|
(2)
|
Other products
include pillows and various other comfort products.
|
TEMPUR SEALY INTERNATIONAL, INC. AND
SUBSIDIARIES
Reconciliation of Non-GAAP
Measures
(in millions, except percentages, ratios and per
common share amounts)
THE Company provides information regarding adjusted net income,
adjusted EPS, adjusted gross profit, adjusted gross margin,
adjusted operating income (expense), adjusted operating margin,
EBITDA, adjusted EBITDA, consolidated funded debt and consolidated
funded debt less qualified cash, which are not recognized terms
under GAAP and do not purport to be alternatives to net income and
earnings per share as a measure of operating performance or 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 its business, including costs associated with
its 2013 acquisition of Sealy Corporation and its subsidiaries and
the exclusion of other costs associated with the 2015 Annual
Meeting (including executive management transition and retention
compensation), legal settlements, costs associated with the
completion of the new credit facility and senior notes offering in
the second quarter of 2016 and other costs.
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 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
our results as determined in accordance with U.S. GAAP and these
non-GAAP measures should be considered supplemental in nature and
should not be construed as more significant than comparable
measures defined by U.S. 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 about these non-GAAP measures and a reconciliation to
the nearest GAAP measure, please refer to the reconciliations on
the following pages.
Constant Currency Information
In this press release the Company refers to, and in other press
releases and 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.
Adjusted Net Income and Adjusted EPS
A reconciliation of GAAP net income to adjusted net income and a
calculation of adjusted EPS is 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 various adjustments as described in the footnotes at the
end of this release.
The following table sets forth the reconciliation of the
Company's GAAP net income to adjusted net income and a calculation
of adjusted EPS for the three months ended September 30,
2016 and 2015:
|
Three Months
Ended
|
(in millions,
except per share amounts)
|
September 30,
2016
|
|
September 30,
2015
|
GAAP net
income
|
$
|
77.8
|
|
|
$
|
40.2
|
|
German legal
settlement (1)
|
—
|
|
|
17.6
|
|
Interest expense
(2)
|
—
|
|
|
12.0
|
|
Other income
(3)
|
—
|
|
|
(9.5)
|
|
Integration costs
(4)
|
—
|
|
|
6.1
|
|
Executive management
transition and retention compensation (5)
|
—
|
|
|
5.2
|
|
Restructuring costs
(6)
|
—
|
|
|
2.4
|
|
Tax adjustments
(7)
|
—
|
|
|
(4.1)
|
|
Adjusted net
income
|
$
|
77.8
|
|
|
$
|
69.9
|
|
|
|
|
|
Adjusted earnings per
common share, diluted
|
$
|
1.32
|
|
|
$
|
1.11
|
|
|
|
|
|
Diluted shares
outstanding
|
58.8
|
|
|
62.9
|
|
Adjusted Gross Profit and Gross Margin and Adjusted Operating
Income (Expense) and Operating Margin
A reconciliation of GAAP gross profit and gross margin to
adjusted gross profit and gross margin, respectively, and GAAP
operating income (expense) and operating margin to adjusted
operating income (expense) and operating margin, respectively, is
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 various adjustments as
described in the footnotes at the end of this release.
The following table sets forth the Company's reported GAAP gross
profit and operating income (expense) for the three months ended
September 30, 2016. The Company had no adjustments to GAAP
gross profit and operating income (expense) for the three months
ended September 30, 2016.
|
Three Months Ended
September 30, 2016
|
(in millions,
except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
|
832.4
|
|
|
|
|
$
|
698.5
|
|
|
|
|
$
|
133.9
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
362.1
|
|
|
43.5
|
%
|
|
$
|
290.1
|
|
|
41.5
|
%
|
|
$
|
72.0
|
|
|
53.8
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
131.1
|
|
|
15.7
|
%
|
|
$
|
128.3
|
|
|
18.4
|
%
|
|
$
|
25.6
|
|
|
19.1
|
%
|
|
$
|
(22.8)
|
|
|
Please refer to
Footnotes at the end of this release.
|
The following table sets forth the reconciliation of the
Company's reported GAAP gross profit and operating income (expense)
to the calculation of adjusted gross profit and operating income
(expense) for the three months ended September 30, 2015:
|
Three Months Ended
September 30, 2015
|
(in millions,
except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America (8)
|
|
Margin
|
|
International (9)
|
|
Margin
|
|
Corporate (10)
|
Net sales
|
$
|
880.0
|
|
|
|
|
$
|
741.2
|
|
|
|
|
$
|
138.8
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
359.6
|
|
|
40.9
|
%
|
|
$
|
287.7
|
|
|
38.8
|
%
|
|
$
|
71.9
|
|
|
51.8
|
%
|
|
$
|
—
|
|
Adjustments
|
3.5
|
|
|
|
|
2.2
|
|
|
|
|
1.3
|
|
|
|
|
—
|
|
Adjusted gross
profit
|
$
|
363.1
|
|
|
41.3
|
%
|
|
$
|
289.9
|
|
|
39.1
|
%
|
|
$
|
73.2
|
|
|
52.7
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
110.9
|
|
|
12.6
|
%
|
|
$
|
118.4
|
|
|
16.0
|
%
|
|
$
|
23.0
|
|
|
16.6
|
%
|
|
$
|
(30.5)
|
|
Adjustments
|
13.1
|
|
|
|
|
3.0
|
|
|
|
|
2.7
|
|
|
|
|
7.4
|
|
Adjusted operating
income
(expense)
|
$
|
124.0
|
|
|
14.1
|
%
|
|
$
|
121.4
|
|
|
16.4
|
%
|
|
$
|
25.7
|
|
|
18.5
|
%
|
|
$
|
(23.1)
|
|
EBITDA, Adjusted EBITDA and Consolidated funded debt less
qualified cash
The following reconciliations are provided below:
- GAAP net income to EBITDA and adjusted EBITDA
- Total debt to consolidated funded debt less qualified cash
- Ratio of consolidated funded debt less qualified cash to
adjusted EBITDA
Management believes that presenting these non-GAAP measures
provides investors with useful information with respect to 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.
The following table sets forth the reconciliation of the
Company's reported GAAP net income to the calculations of EBITDA
and adjusted EBITDA for the three months
ended September 30, 2016 and 2015:
|
Three Months
Ended
|
(in
millions)
|
September 30,
2016
|
|
September 30,
2015
|
GAAP net
income
|
$
|
77.8
|
|
|
$
|
40.2
|
|
Interest
expense
|
20.5
|
|
|
33.2
|
|
Income
taxes
|
33.7
|
|
|
25.0
|
|
Depreciation and
amortization
|
23.0
|
|
|
23.0
|
|
EBITDA
|
$
|
155.0
|
|
|
$
|
121.4
|
|
Adjustments:
|
|
|
|
German legal
settlement (1)
|
—
|
|
|
17.6
|
|
Other income
(3)
|
—
|
|
|
(9.5)
|
|
Integration costs
(4)
|
—
|
|
|
6.1
|
|
Executive management
transition and retention compensation (5)
|
—
|
|
|
4.3
|
|
Restructuring costs
(6)
|
—
|
|
|
2.2
|
|
Redemption value
adjustment on redeemable non-controlling interest, net of tax
(11)
|
—
|
|
|
0.2
|
|
Adjusted
EBITDA
|
$
|
155.0
|
|
|
$
|
142.3
|
|
The following table sets forth the reconciliation of the
Company's net income to the calculations of EBITDA and adjusted
EBITDA for the trailing twelve months ended September 30, 2016
and 2015:
|
|
Trailing Twelve
Months Ended
|
(in
millions)
|
|
September 30,
2016
|
|
September 30,
2015
|
Net income
|
|
$
|
127.4
|
|
|
$
|
131.4
|
|
Interest
expense
|
|
87.0
|
|
|
95.5
|
|
Loss on
extinguishment of debt
|
|
47.2
|
|
|
—
|
|
Income
taxes
|
|
142.0
|
|
|
64.8
|
|
Depreciation and
amortization
|
|
92.2
|
|
|
94.1
|
|
EBITDA
|
|
$
|
495.8
|
|
|
$
|
385.8
|
|
Adjustments
|
|
|
|
|
Restructuring
costs (6)
|
|
9.7
|
|
|
2.2
|
|
Integration
costs (4)
|
|
6.3
|
|
|
42.9
|
|
Executive
management transition and retention compensation
(5)
|
|
4.4
|
|
|
7.3
|
|
Pension
settlement (12)
|
|
1.3
|
|
|
—
|
|
Other income
(3)
|
|
—
|
|
|
(25.1)
|
|
German legal
settlement (1)
|
|
—
|
|
|
17.6
|
|
2015 Annual
Meeting costs (13)
|
|
—
|
|
|
6.3
|
|
Financing
costs (14)
|
|
—
|
|
|
1.0
|
|
Redemption
value adjustment on redeemable non-controlling interest, net of tax
(11)
|
|
(1.1)
|
|
|
1.1
|
|
Adjusted
EBITDA
|
|
$
|
516.4
|
|
|
$
|
439.1
|
|
|
|
|
|
|
Consolidated funded
debt less qualified cash
|
|
$
|
1,648.9
|
|
|
$
|
1,447.0
|
|
|
|
|
|
|
Ratio of consolidated
funded debt less qualified cash to Adjusted EBITDA
|
|
3.19 times
|
|
|
3.30 times
|
|
On April 6, 2016, the Company
entered into a senior secured credit agreement ("2016 Credit
Agreement") with a syndicate of banks, replacing the Company's
previous senior secured credit agreement dated December 12, 2012 ("2012 Credit Agreement").
Under the Company's 2016 Credit Agreement, adjusted EBITDA contains
certain restrictions that limit adjustments to GAAP net income when
calculating adjusted EBITDA. For the twelve months ended
September 30, 2016 and 2015, the
Company's adjustments to GAAP net income when calculating adjusted
EBITDA did not exceed the allowable amount under the 2016 Credit
Agreement.
The ratio of adjusted EBITDA under the Company's 2016 Credit
Agreement to consolidated funded debt less qualified cash is 3.19
times for the trailing twelve months ending September 30, 2016. The Company's 2016 Credit
Agreement requires the Company to maintain a ratio of consolidated
funded debt less qualified cash to Adjusted EBITDA of less than
5.00:1.00 times.
The following table sets forth the reconciliation of the
Company's reported total debt to the calculation of consolidated
funded debt less qualified cash as of September 30, 2016 and
2015. "Consolidated funded debt" and "qualified cash" are terms
used in the Company's 2016 Credit Agreement and 2012 Credit
Agreement for purposes of certain financial covenants.
(in
millions)
|
September 30,
2016
|
|
September 30,
2015
|
Total debt,
net
|
$
|
1,685.1
|
|
|
$
|
1,459.4
|
|
Plus: Deferred
financing costs (15)
|
10.9
|
|
|
26.9
|
|
Total debt
|
1,696.0
|
|
|
1,486.3
|
|
Plus: Letters of
credit outstanding
|
19.8
|
|
|
19.8
|
|
Consolidated funded
debt
|
$
|
1,715.8
|
|
|
$
|
1,506.1
|
|
Less:
|
|
|
|
Domestic qualified
cash (16)
|
33.8
|
|
|
40.0
|
|
Foreign qualified
cash (16)
|
33.1
|
|
|
19.1
|
|
Consolidated funded
debt less qualified cash
|
$
|
1,648.9
|
|
|
$
|
1,447.0
|
|
Footnotes:
(1)
|
German legal
settlement represents the previously announced €15.5 million ($17.6
million) settlement the Company reached in 2015 with the German
Foreign Cartel Office ("FCO") to fully resolve the FCO's antitrust
investigation, and related legal fees.
|
(2)
|
Interest expense
represents non-cash interest costs related to the accelerated
amortization of deferred financing costs associated with the $493.8
million voluntary prepayment of the Company's term loans,
subsequent to the issuance by the Company of $450.0 million
aggregate principal amount of 5.625% senior notes due
2023.
|
(3)
|
Other income includes
income from a partial settlement of a legal dispute.
|
(4)
|
Integration costs
represents costs, including legal fees, professional fees,
compensation costs and other charges related to the transition of
manufacturing facilities, and other costs related to the continued
alignment of the North America business segment related to the
Sealy acquisition.
|
(5)
|
Executive management
transition and retention compensation represents certain costs
associated with the transition of certain of the Company's
executive officers following the 2015 Annual Meeting.
|
(6)
|
Restructuring costs
represents costs associated with headcount reduction and store
closures.
|
(7)
|
Tax adjustments
represent adjustments associated with the aforementioned items and
other discrete income tax events.
|
(8)
|
Adjustments for the
North America business segment represent executive management
retention costs, integration costs (which include compensation
costs, professional fees and other charges related to the
transition of manufacturing facilities) and other costs to support
the continued alignment of the North America business segment
related to the Sealy acquisition.
|
(9)
|
Adjustments for the
International business segment represent executive management
retention costs and integration costs incurred in connection with
the introduction of Sealy products in certain international
markets.
|
(10)
|
Adjustments for
Corporate represent executive management transition and retention
costs and integration costs which include professional fees and
other charges to align the business related to the Sealy
acquisition.
|
(11)
|
Redemption value
adjustment on redeemable non-controlling interest represents an
adjustment to the carrying value of the redeemable non-controlling
interest to its redemption value.
|
(12)
|
Pension settlement
represents pension expense recorded in conjunction with a
settlement offered to terminated, vested participants in a defined
benefit pension plan.
|
(13)
|
2015 Annual Meeting
costs represent additional costs related to the Company's 2015
Annual Meeting and related issues.
|
(14)
|
Financing costs
represent costs incurred in connection with the amendment of the
2012 Credit Agreement.
|
(15)
|
The Company presents
deferred financing costs as a direct reduction from the carrying
amount of the related debt in the Condensed Consolidated Balance
Sheets. For purposes of determining total debt for financial
covenants, the Company has added these costs back to total debt,
net as calculated per the Condensed Consolidated Balance
Sheet.
|
(16)
|
Qualified cash as
defined in the 2016 Credit Agreement and 2012 Credit Agreement
equals 100.0% of unrestricted domestic cash plus 60.0% of
unrestricted foreign cash. For purposes of calculating leverage
ratios, qualified cash is capped at $150.0 million.
|
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SOURCE Tempur Sealy International, Inc.