LEXINGTON, Ky., July 27,
2017 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE:
TPX) today announced financial results for the second quarter
ended June 30, 2017. The Company also updated its
financial guidance for the full year 2017.
SECOND QUARTER 2017 FINANCIAL
SUMMARY
- Total net sales decreased 18.0% to $659.3 million from $804.4
million in the second quarter of 2016. On a constant
currency basis(1), total net sales decreased 17.2%, with
a decrease of 21.0% in the North
America business segment and an increase of 1.6% in the
International business segment.
- Gross margin was 40.7% as compared to 41.9% in the second
quarter of 2016.
- Operating income decreased 43.5% to $56.6 million as compared to $100.2 million in the second quarter of
2016.
- Net income under U.S. generally accepted accounting principles
("GAAP") increased 15.0% to $24.5
million as compared to $21.3
million in the second quarter of 2016. GAAP net income
decreased 56.0% to $24.5 million as
compared to adjusted net income(1) of $55.7 million in the second quarter of 2016. The
Company had no adjustments to GAAP net income in the second quarter
of 2017. The Company incurred a $47.2
million loss on extinguishment of debt in the second quarter
of 2016 in connection with financing activities in 2016.
- Earnings before interest, tax, depreciation and amortization
("EBITDA")(1) decreased 30.6% to $85.8 million as compared to $123.7 million for the second quarter of 2016.
EBITDA(1) decreased 31.2% as compared to adjusted
EBITDA(1) of $124.7
million in the second quarter of 2016. The Company had no
adjustments to EBITDA in the second quarter of 2017.
- GAAP earnings per diluted share ("EPS") increased 28.6% to
$0.45 as compared to $0.35 in the second quarter of 2016. GAAP EPS
decreased 51.1% to $0.45 as compared
to adjusted EPS(1) of $0.92 in the second quarter of 2016.
- The Company ended the second quarter of 2017 with total debt
and consolidated funded debt less qualified cash(1) of
$1.9 billion. Leverage based on the
ratio of consolidated funded debt less qualified cash to adjusted
EBITDA(1) was 3.74 times for the trailing twelve months
ended June 30, 2017.
KEY HIGHLIGHTS
(in millions,
except percentages and per
common share amounts)
|
Three Months
Ended
|
|
%
Change
|
|
% Change
Constant
Currency (1)
|
June 30,
2017
|
|
June 30,
2016
|
Net sales
|
$
|
659.3
|
|
|
$
|
804.4
|
|
|
(18.0)
|
%
|
|
(17.2)
|
%
|
Net income
|
24.5
|
|
|
21.3
|
|
|
15.0
|
%
|
|
20.2
|
%
|
EPS
|
0.45
|
|
|
0.35
|
|
|
28.6
|
%
|
|
34.3
|
%
|
Adjusted EPS
(1)
|
0.45
|
|
|
0.92
|
|
|
(51.1)
|
%
|
|
(48.9)
|
%
|
EBITDA
(1)
|
85.8
|
|
|
123.7
|
|
|
(30.6)
|
%
|
|
(29.2)
|
%
|
Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, "We are pleased with
our sales and EBITDA performance, despite the loss of our largest
customer, and, we are encouraged that our business trends
accelerated throughout the quarter. While worldwide industry trends
continue to be a bit sluggish, we have outperformed our
expectations and are raising the midpoint of our 2017 financial
guidance."
(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 21.4% to $525.4
million from $668.2 million in
the second quarter of 2016. On a constant currency
basis(1), North America
net sales decreased 21.0% compared to the second quarter of 2016.
Gross margin was 37.9% as compared to 40.0% in the second quarter
of 2016. Operating margin was 10.6% as compared to 15.5% in the
second quarter of 2016.
In the second quarter of 2017, net sales to Mattress Firm were
$1.2 million prior to the termination
of our contract at the beginning of the quarter. In the second
quarter of 2016, net sales to Mattress Firm were $191.4 million. Excluding Mattress Firm,
North America net sales increased
10% driven by growth across all of our brands.
North America gross margin
declined 210 basis points as compared to the second quarter of
2016. This was driven primarily by fixed cost deleverage on lower
unit volume and unfavorable brand mix. This was slightly offset by
improved productivity across our operations, channel mix, and lower
floor model discounts. North
America operating margin declined 490 basis points as
compared to the second quarter of 2016. The decline in operating
margin was driven by the gross margin decline as well as
unfavorable operating expense leverage, and increased investments
in our brand advertising campaign.
International net
sales decreased 1.7% to $133.9 million from $136.2
million in the second quarter of 2016. On a constant
currency basis(1), International net sales increased
1.6% compared to the second quarter of 2016. Gross margin was 52.1%
as compared to 51.1% in the second quarter of 2016. Operating
margin was 19.6% as compared to 17.0% in the second quarter
2016.
International gross margin increased 100 basis points as
compared to the second quarter of 2016. The increase was primarily
driven by favorable mix, which was partially offset by new product
introductions. International operating margin increased 260 basis
points as compared to the second quarter of 2016. The increase in
operating margin was primarily driven by the improvement in gross
margin, as well as, expense management, and improved performance in
our Asia joint venture operations,
which was offset by increased investments in our advertising.
Corporate operating expense decreased to $25.5 million from $26.3
million in the second quarter of 2016.
Balance Sheet
As of June 30, 2017, the Company reported $38.5 million in cash and cash equivalents and
$1.9 billion in total debt, as
compared to $65.7 million in cash and
cash equivalents and $1.9 billion in
total debt as of December 31,
2016.
Financial Guidance
The Company also today updated its financial guidance for 2017.
For the full year 2017, the Company currently expects adjusted
EBITDA(1) to range from $425
million to $450 million.
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.
(1) This is a non-GAAP financial measure. Please refer to
"Non-GAAP Financial Measures and Constant Currency Information"
below.
The Company also noted that its 2017 outlook for adjusted EBITDA
is a non-GAAP financial measure that excludes or has otherwise been
adjusted for items impacting comparability. The Company
further noted 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 2017 but would not impact adjusted EBITDA. These items that
impact comparability may include restructuring activities, the
impact of the termination of contracts with Mattress Firm, foreign
currency exchange rates, income taxes, and other items. The
unavailable information could have a significant impact on the
Company's full year 2017 GAAP financial results.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference
call to discuss financial results today, July 27, 2017, 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, free cash flow, 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.
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 2017 and performance
generally for 2017 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 termination of the Company's relationship
with Mattress Firm; 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 and
pending litigation; 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, 2016. 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.
(1) This is a non-GAAP financial measure. Please refer to
"Non-GAAP Financial Measures and Constant Currency Information"
below.
About Tempur Sealy International, Inc.
Tempur Sealy International, Inc. (NYSE: TPX) develops,
manufactures and markets mattresses, foundations, pillows and other
products. The Company's brand portfolio includes many highly
recognized brands in the industry, including Tempur®,
Tempur-Pedic®, Sealy® featuring Posturepedic® Technology, and
Stearns & Foster®. World headquarters for Tempur Sealy
International is in Lexington, KY.
For more information, visit http://www.tempursealy.com or call
800-805-3635.
Investor Relations Contact:
Aubrey Moore
Investor Relations
Tempur Sealy International, Inc.
800-805-3635
Investor.relations@tempursealy.com
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
|
Condensed
Consolidated Statements of Income
|
(in millions,
except percentages and per common share amounts)
|
(unaudited)
|
|
|
Three Months
Ended
|
|
|
|
Six Months
Ended
|
|
|
|
June
30,
|
|
Chg
%
|
|
June
30,
|
|
Chg
%
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
|
Net sales
|
$
|
659.3
|
|
|
$
|
804.4
|
|
|
(18.0)%
|
|
$
|
1,381.4
|
|
|
$
|
1,525.4
|
|
|
(9.4)%
|
Cost of sales
(1)
|
390.7
|
|
|
467.5
|
|
|
|
|
826.2
|
|
|
897.5
|
|
|
|
Gross
profit
|
268.6
|
|
|
336.9
|
|
|
(20.3)%
|
|
555.2
|
|
|
627.9
|
|
|
(11.6)%
|
Selling and marketing
expenses
|
152.3
|
|
|
172.8
|
|
|
|
|
306.0
|
|
|
322.9
|
|
|
|
General,
administrative and other expenses
|
69.0
|
|
|
71.9
|
|
|
|
|
135.5
|
|
|
143.6
|
|
|
|
Customer termination
charges, net (1)
|
—
|
|
|
—
|
|
|
|
|
14.4
|
|
|
—
|
|
|
|
Equity income in
earnings of unconsolidated affiliates
|
(4.4)
|
|
|
(3.4)
|
|
|
|
|
(7.1)
|
|
|
(6.2)
|
|
|
|
Royalty income, net
of royalty expense
|
(4.9)
|
|
|
(4.6)
|
|
|
|
|
(9.7)
|
|
|
(9.3)
|
|
|
|
Operating
income
|
56.6
|
|
|
100.2
|
|
|
(43.5)%
|
|
116.1
|
|
|
176.9
|
|
|
(34.4)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense,
net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
22.1
|
|
|
23.1
|
|
|
|
|
44.2
|
|
|
44.5
|
|
|
|
Loss on
extinguishment of debt
|
—
|
|
|
47.2
|
|
|
|
|
—
|
|
|
47.2
|
|
|
|
Other (income)
expense, net
|
(0.3)
|
|
|
0.7
|
|
|
|
|
(9.5)
|
|
|
(0.3)
|
|
|
|
Total other
expense, net
|
21.8
|
|
|
71.0
|
|
|
|
|
34.7
|
|
|
91.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
34.8
|
|
|
29.2
|
|
|
19.2%
|
|
81.4
|
|
|
85.5
|
|
|
(4.8)%
|
Income tax
provision
|
(13.1)
|
|
|
(9.2)
|
|
|
|
|
(27.7)
|
|
|
(26.5)
|
|
|
|
Net income before
non-controlling interests
|
21.7
|
|
|
20.0
|
|
|
8.5%
|
|
53.7
|
|
|
59.0
|
|
|
(9.0)%
|
Less: Net loss
attributable to non-controlling interests
|
(2.8)
|
|
|
(1.3)
|
|
|
|
|
(4.7)
|
|
|
(1.9)
|
|
|
|
Net income
attributable to Tempur Sealy International, Inc.
|
$
|
24.5
|
|
|
$
|
21.3
|
|
|
15.0%
|
|
$
|
58.4
|
|
|
$
|
60.9
|
|
|
(4.1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.45
|
|
|
$
|
0.35
|
|
|
|
|
$
|
1.08
|
|
|
$
|
1.00
|
|
|
|
Diluted
|
$
|
0.45
|
|
|
$
|
0.35
|
|
|
28.6%
|
|
$
|
1.07
|
|
|
$
|
0.99
|
|
|
8.1%
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
53.9
|
|
|
60.2
|
|
|
|
|
53.9
|
|
|
61.1
|
|
|
|
Diluted
|
54.5
|
|
|
60.8
|
|
|
|
|
54.6
|
|
|
61.7
|
|
|
|
Please refer to Footnotes at the end of this release.
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
|
Condensed
Consolidated Balance Sheets
|
(in
millions)
|
|
|
June 30,
2017
|
|
December 31,
2016
|
ASSETS
|
(unaudited)
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and
cash equivalents
|
$
|
38.5
|
|
|
$
|
65.7
|
|
Accounts
receivable, net
|
356.2
|
|
|
345.1
|
|
Inventories
|
194.5
|
|
|
196.8
|
|
Prepaid
expenses and other current assets
|
58.4
|
|
|
63.9
|
|
Total Current
Assets
|
647.6
|
|
|
671.5
|
|
Property, plant and equipment, net
|
424.8
|
|
|
422.2
|
|
Goodwill
|
727.6
|
|
|
722.5
|
|
Other
intangible assets, net
|
672.9
|
|
|
678.7
|
|
Deferred
income taxes
|
25.5
|
|
|
22.5
|
|
Other
non-current assets
|
212.8
|
|
|
185.2
|
|
Total
Assets
|
$
|
2,711.2
|
|
|
$
|
2,702.6
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
|
231.8
|
|
|
$
|
219.3
|
|
Accrued
expenses and other current liabilities
|
227.5
|
|
|
250.1
|
|
Income
taxes payable
|
9.9
|
|
|
5.8
|
|
Current
portion of long-term debt
|
68.4
|
|
|
70.3
|
|
Total Current
Liabilities
|
537.6
|
|
|
545.5
|
|
Long-term debt, net
|
1,793.2
|
|
|
1,817.8
|
|
Deferred
income taxes
|
163.3
|
|
|
174.6
|
|
Other
non-current liabilities
|
190.0
|
|
|
169.3
|
|
Total
Liabilities
|
2,684.1
|
|
|
2,707.2
|
|
|
|
|
|
Redeemable
non-controlling interest
|
5.3
|
|
|
7.6
|
|
|
|
|
|
Total Stockholders'
Equity (Deficit)
|
21.8
|
|
|
(12.2)
|
|
Total Liabilities,
Redeemable Non-Controlling Interest and Stockholders' Equity
(Deficit)
|
$
|
2,711.2
|
|
|
$
|
2,702.6
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
|
Condensed
Consolidated Statements of Cash Flows
|
(in
millions)
|
(unaudited)
|
|
|
Six Months
Ended
|
|
June
30,
|
|
2017
|
|
2016
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net income before
non-controlling interests
|
$
|
53.7
|
|
|
$
|
59.0
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
39.7
|
|
|
36.0
|
|
Amortization
of stock-based compensation
|
2.6
|
|
|
10.6
|
|
Amortization
of deferred financing costs
|
1.1
|
|
|
2.5
|
|
Bad debt
expense
|
6.0
|
|
|
1.8
|
|
Deferred
income taxes
|
(13.4)
|
|
|
(0.9)
|
|
Dividends
received from unconsolidated affiliates
|
3.5
|
|
|
3.6
|
|
Equity income
in earnings of unconsolidated affiliates
|
(7.1)
|
|
|
(6.2)
|
|
Non-cash
interest expense on 8.0% Sealy Notes
|
—
|
|
|
3.6
|
|
Loss on
extinguishment of debt
|
—
|
|
|
47.2
|
|
(Gain) loss on
sale of assets
|
(1.3)
|
|
|
0.5
|
|
Foreign
currency adjustments and other
|
0.7
|
|
|
(1.2)
|
|
Changes in
operating assets and liabilities
|
(10.3)
|
|
|
(104.6)
|
|
Net cash provided by
operating activities
|
75.2
|
|
|
51.9
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
Purchases of
property, plant and equipment
|
(25.9)
|
|
|
(24.3)
|
|
Other
|
0.9
|
|
|
—
|
|
Net cash used in
investing activities
|
(25.0)
|
|
|
(24.3)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Proceeds from
borrowings under long-term debt obligations
|
718.9
|
|
|
1,435.3
|
|
Repayments of
borrowings under long-term debt obligations
|
(745.9)
|
|
|
(1,230.4)
|
|
Proceeds from
exercise of stock options
|
1.9
|
|
|
6.0
|
|
Excess tax benefit
from stock-based compensation
|
—
|
|
|
3.0
|
|
Treasury stock
repurchased
|
(44.1)
|
|
|
(217.3)
|
|
Payment of deferred
financing costs
|
(0.4)
|
|
|
(6.2)
|
|
Fees paid to
lenders
|
—
|
|
|
(7.8)
|
|
Call premium on 2020
Senior Notes
|
—
|
|
|
(23.6)
|
|
Other
|
(2.7)
|
|
|
0.4
|
|
Net cash used in
financing activities
|
(72.3)
|
|
|
(40.6)
|
|
NET EFFECT OF
EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
(5.1)
|
|
|
(3.0)
|
|
Decrease in cash and
cash equivalents
|
(27.2)
|
|
|
(16.0)
|
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
65.7
|
|
|
153.9
|
|
CASH AND CASH
EQUIVALENTS, end of period
|
$
|
38.5
|
|
|
$
|
137.9
|
|
Summary of Channel Sales
The following table highlights net sales information, by channel
and by segment, for the three months ended June 30,
2017 and 2016:
|
Three Months Ended
June 30,
|
(in
millions)
|
Consolidated
|
|
North
America
|
|
International
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Wholesale
(1)
|
$
|
604.4
|
|
|
$
|
766.0
|
|
|
$
|
496.0
|
|
|
$
|
655.8
|
|
|
$
|
108.4
|
|
|
$
|
110.2
|
|
Direct
(2)
|
54.9
|
|
|
38.4
|
|
|
29.4
|
|
|
12.4
|
|
|
25.5
|
|
|
26.0
|
|
|
$
|
659.3
|
|
|
$
|
804.4
|
|
|
$
|
525.4
|
|
|
$
|
668.2
|
|
|
$
|
133.9
|
|
|
$
|
136.2
|
|
|
|
(1)
|
The Wholesale channel
includes all third party retailers, including third party
distribution, hospitality, and healthcare.
|
(2)
|
The Direct channel
includes company-owned stores, e-commerce and call
centers.
|
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, and free cash flow 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 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, including costs
associated with its 2013 acquisition of Sealy Corporation and its
subsidiaries (the "Sealy Acquisition"), costs associated with the
completion of the new credit facility ("2016 Credit Agreement") and
senior notes offering in the second quarter of 2016, the exclusion
of charges associated with the Mattress Firm termination in the
first quarter of 2017 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 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 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 June 30,
2017 and 2016:
Please refer to Footnotes at the end of this release.
|
Three Months
Ended
|
(in millions,
except per share amounts)
|
June 30,
2017
|
|
June 30,
2016
|
GAAP net
income
|
$
|
24.5
|
|
|
$
|
21.3
|
|
Loss on
extinguishment of debt (2)
|
—
|
|
|
47.2
|
|
Interest expense
(3)
|
—
|
|
|
2.1
|
|
Integration costs
(4)
|
—
|
|
|
1.0
|
|
Tax adjustments
(5)
|
—
|
|
|
(15.9)
|
|
Adjusted net
income
|
$
|
24.5
|
|
|
$
|
55.7
|
|
|
|
|
|
Adjusted earnings per
common share, diluted
|
$
|
0.45
|
|
|
$
|
0.92
|
|
|
|
|
|
Diluted shares
outstanding
|
54.5
|
|
|
60.8
|
|
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
June 30, 2017. The Company had no adjustments to GAAP gross
profit and operating income (expense) for the three months ended
June 30, 2017:
|
2Q
2017
|
(in millions,
except percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
|
659.3
|
|
|
|
|
$
|
525.4
|
|
|
|
|
$
|
133.9
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
268.6
|
|
|
40.7
|
%
|
|
$
|
198.9
|
|
|
37.9
|
%
|
|
$
|
69.7
|
|
|
52.1
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
56.6
|
|
|
8.6
|
%
|
|
$
|
55.8
|
|
|
10.6
|
%
|
|
$
|
26.3
|
|
|
19.6
|
%
|
|
$
|
(25.5)
|
|
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 June 30, 2016:
|
2Q
2016
|
(in millions,
except percentages)
|
Consolidated
|
|
Margin
|
|
North America
(6)
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
(7)
|
Net sales
|
$
|
804.4
|
|
|
|
|
$
|
668.2
|
|
|
|
|
$
|
136.2
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
336.9
|
|
|
41.9
|
%
|
|
$
|
267.3
|
|
|
40.0
|
%
|
|
$
|
69.6
|
|
|
51.1
|
%
|
|
$
|
—
|
|
Adjustments
|
0.1
|
|
|
|
|
0.1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Adjusted gross
profit
|
$
|
337.0
|
|
|
41.9
|
%
|
|
$
|
267.4
|
|
|
40.0
|
%
|
|
$
|
69.6
|
|
|
51.1
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
100.2
|
|
|
12.5
|
%
|
|
$
|
103.3
|
|
|
15.5
|
%
|
|
$
|
23.2
|
|
|
17.0
|
%
|
|
$
|
(26.3)
|
|
Adjustments
|
1.0
|
|
|
|
|
0.4
|
|
|
|
|
—
|
|
|
|
|
0.6
|
|
Adjusted operating
income (expense)
|
$
|
101.2
|
|
|
12.6
|
%
|
|
$
|
103.7
|
|
|
15.5
|
%
|
|
$
|
23.2
|
|
|
17.0
|
%
|
|
$
|
(25.7)
|
|
Please refer to Footnotes at the end of this release.
EBITDA, Adjusted EBITDA, Consolidated Funded Debt Less
Qualified Cash and Free Cash Flow
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
- Net cash from operating activities to free cash flow
Management believes that presenting these non-GAAP measures
provides investors with useful information with respect to the
Company's operating performance, cash flow generation, 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 June 30,
2017 and 2016:
|
Three Months
Ended
|
(in
millions)
|
June 30,
2017
|
|
June 30,
2016
|
GAAP net
income
|
$
|
24.5
|
|
|
$
|
21.3
|
|
Loss on
extinguishment of debt (2)
|
—
|
|
|
47.2
|
|
Interest
expense
|
22.1
|
|
|
23.1
|
|
Income
taxes
|
13.1
|
|
|
9.2
|
|
Depreciation and
amortization
|
26.1
|
|
|
22.9
|
|
EBITDA
|
$
|
85.8
|
|
|
$
|
123.7
|
|
Adjustments:
|
|
|
|
Integration costs
(4)
|
—
|
|
|
1.0
|
|
Adjusted
EBITDA
|
$
|
85.8
|
|
|
$
|
124.7
|
|
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 June 30, 2017:
|
|
Trailing Twelve
Months Ended
|
(in
millions)
|
|
June 30,
2017
|
Net income
|
|
$
|
199.6
|
|
Interest expense,
net
|
|
84.9
|
|
Income
taxes
|
|
88.0
|
|
Depreciation and
amortization
|
|
85.2
|
|
EBITDA
|
|
$
|
457.7
|
|
Adjustments
|
|
|
Customer
termination charges (8)
|
|
34.3
|
|
Restructuring
costs (9)
|
|
7.8
|
|
Adjusted
EBITDA
|
|
$
|
499.8
|
|
|
|
|
Consolidated funded
debt less qualified cash
|
|
$
|
1,867.7
|
|
|
|
|
Ratio of consolidated
funded debt less qualified cash to adjusted EBITDA
|
|
3.74 times
|
|
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 June 30, 2017, the Company's
adjustments to GAAP net income when calculating adjusted EBITDA did
not exceed the allowable amount under the 2016 Credit
Agreement.
Please refer to Footnotes at the end of this release.
The ratio of adjusted EBITDA under the Company's 2016 Credit
Agreement to consolidated funded debt less qualified cash is 3.74
times for the trailing twelve months ended June 30, 2017. 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 June 30, 2017.
"Consolidated funded debt" and "qualified cash" are terms used in
the Company's 2016 Credit Agreement for purposes of certain
financial covenants.
(in
millions)
|
June 30,
2017
|
Total debt,
net
|
$
|
1,861.6
|
|
Plus: Deferred
financing costs (10)
|
12.2
|
|
Total debt
|
1,873.8
|
|
Plus: Letters of
credit outstanding
|
22.9
|
|
Consolidated funded
debt
|
$
|
1,896.7
|
|
Less:
|
|
Domestic qualified
cash (11)
|
14.9
|
|
Foreign qualified
cash (11)
|
14.1
|
|
Consolidated funded
debt less qualified cash
|
$
|
1,867.7
|
|
The following table sets forth the reconciliation of the
Company's net cash from operating activities to free cash flow for
the six months ended and trailing twelve months ended June 30,
2017 and 2016:
|
Six Months
Ended June 30,
|
|
Trailing
Twelve
Months Ended
June 30,
|
(in
millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net cash provided by
operating activities
|
$
|
75.2
|
|
|
$
|
51.9
|
|
|
$
|
188.8
|
|
|
$
|
285.0
|
|
Subtract: Purchases
of property, plant and equipment
|
25.9
|
|
|
24.3
|
|
|
64.0
|
|
|
56.2
|
|
Free cash
flow
|
$
|
49.3
|
|
|
$
|
27.6
|
|
|
$
|
124.8
|
|
|
$
|
228.8
|
|
Please refer to Footnotes at the end of this release.
Footnotes:
(1)
|
In the first quarter
of 2017, the Company recorded $25.9 million of net charges related
to the termination of the relationship with Mattress Firm. Cost of
sales included $11.5 million of charges related to the write-off of
customer-unique inventory and product obligations. Operating
expenses included $14.4 million of net charges, which included a
write-off of $17.2 million for customer incentives and marketing
assets, $5.8 million of employee-related costs and $0.7 million of
professional fees. These charges were offset by $9.3 million of
benefit related to the change in estimate associated with
performance-based stock compensation that is no longer probable of
payout following the Mattress Firm termination.
|
(2)
|
Loss on
extinguishment of debt represents costs associated with the
completion of a credit facility and senior notes offering in the
second quarter of 2016.
|
(3)
|
Interest expense
represents incremental interest incurred in connection with the
completion of a senior notes offering in the second quarter of
2016.
|
(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)
|
Adjusted income tax
provision represents adjustments associated with the aforementioned
items and other discrete income tax events.
|
(6)
|
Adjustments for the
North America business segment represent 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 in the second
quarter of 2016.
|
(7)
|
Adjustments for
Corporate represent integration costs, which include professional
fees and other charges to align the business related to the Sealy
Acquisition in the second quarter of 2016.
|
(8)
|
Adjusted EBITDA
excludes $34.3 million of charges related to the termination of the
relationship with Mattress Firm. This amount represents the $25.9
million of net charges discussed in Footnote 1 above, and adds the
net amortization impact of $8.4 million of stock-based compensation
benefit incurred in the first quarter of 2017.
|
(9)
|
Restructuring costs
represents costs associated with headcount reduction and store
closures.
|
(10)
|
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
covenant purposes, the Company has added these costs back to total
debt, net as calculated per the Condensed Consolidated Balance
Sheets.
|
(11)
|
Qualified cash as
defined in the 2016 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.