NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited)
(1)
Summary of Significant Accounting Policies
(a)
Basis of Presentation and Description of Business.
Tempur Sealy International, Inc., a Delaware corporation, together with its subsidiaries is a U.S. based, multinational company. The term "Tempur Sealy International" refers to Tempur Sealy International, Inc. only, and the term "Company" refers to Tempur Sealy International, Inc. and its consolidated subsidiaries.
The Company develops, manufactures, markets and sells bedding products, which include mattresses, foundations and adjustable bases, and other products, which include pillows and other accessories. The Company also derives income from royalties by licensing Sealy® and Stearns & Foster® brands, technology and trademarks to other manufacturers. The Company sells its products through
two
sales channels: Wholesale and Direct.
The Company’s Condensed Consolidated Financial Statements include the results of Comfort Revolution, LLC ("Comfort Revolution"), a
45.0%
owned joint venture. Comfort Revolution constitutes a variable interest entity for which the Company is considered to be the primary beneficiary due to the Company's disproportionate share of the economic risk associated with its equity contribution, debt financing and other factors. The operations of Comfort Revolution are not material to the Company's Condensed Consolidated Financial Statements.
The Company also has ownership interests in a group of Asia-Pacific joint ventures to develop markets for Sealy® branded products in those regions. The Company’s ownership interest in these joint ventures is
50.0%
. The equity method of accounting is used for these joint ventures, over which the Company has significant influence but does not have control, and consolidation is not otherwise required. The Company's carrying value in its equity method investments of
$18.8 million
and
$15.5 million
at
September 30, 2017
and
December 31, 2016
, respectively, is recorded in other non-current assets within the accompanying Condensed Consolidated Balance Sheets. The Company’s equity in the net income and losses of these investments is recorded as equity income in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Income.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and include all of the information and disclosures required by generally accepted accounting principles in the United States ("GAAP") for interim financial reporting. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of the Company and related footnotes for the year ended
December 31, 2016
, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on
February 24, 2017
.
The results of operations for the interim periods are not necessarily indicative of results of operations for a full year. It is the opinion of management that all necessary adjustments for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein.
(b)
Inventories
. Inventories are stated at the lower of cost or market, determined by the first-in, first-out method, and consist of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
(in millions)
|
2017
|
|
2016
|
Finished goods
|
$
|
127.6
|
|
|
$
|
130.1
|
|
Work-in-process
|
11.3
|
|
|
10.7
|
|
Raw materials and supplies
|
49.9
|
|
|
56.0
|
|
|
$
|
188.8
|
|
|
$
|
196.8
|
|
(c)
Accrued Sales Returns
. The Company allows product returns through certain sales channels and on certain products. Estimated sales returns are provided at the time of sale based on historical sales channel return rates. Estimated future obligations related to these products are provided by a reduction of sales in the period in which the revenue is recognized. Accrued sales returns are included in accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
The Company had the following activity for sales returns from
December 31, 2016
to
September 30, 2017
:
|
|
|
|
|
(in millions)
|
|
Balance as of December 31, 2016
|
$
|
30.3
|
|
Amounts accrued
|
88.1
|
|
Returns charged to accrual
|
(85.5
|
)
|
Balance as of September 30, 2017
|
$
|
32.9
|
|
(d)
Warranties
. The Company provides warranties on certain products, which vary by segment, product and brand. Estimates of warranty expenses are based primarily on historical claims experience and product testing. Estimated future obligations related to these products are charged to cost of sales in the period in which the related revenue is recognized. The Company considers the impact of recoverable salvage value on warranty costs in determining its estimate of future warranty obligations.
The Company provides warranties on mattresses with varying warranty terms. Tempur-Pedic mattresses sold in the North America segment and all Sealy mattresses have warranty terms ranging from
10
to
25
years, generally non-prorated for the first
10
to
15
years and then prorated for the balance of the warranty term. Tempur-Pedic mattresses sold in the International segment have warranty terms ranging from
5
to
15
years, non-prorated for the first
5
years and then prorated on a straight-line basis for the last
10
years of the warranty term. Tempur-Pedic pillows have a warranty term of
3
years, non-prorated.
The Company had the following activity for its accrued warranty expense from
December 31, 2016
to
September 30, 2017
:
|
|
|
|
|
(in millions)
|
|
Balance as of December 31, 2016
|
$
|
29.9
|
|
Amounts accrued
|
29.0
|
|
Warranties charged to accrual
|
(20.0
|
)
|
Balance as of September 30, 2017
|
$
|
38.9
|
|
As of
September 30, 2017
and
December 31, 2016
,
$19.9 million
and
$14.3 million
of accrued warranty expense is included as a component of accrued expenses and other current liabilities and
$19.0 million
and
$15.6 million
of accrued warranty expense is included in other non-current liabilities in the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.
(e)
Revenue Recognition
. Sales of products are recognized when persuasive evidence of an arrangement exists, title passes to customers and the risks and rewards of ownership are transferred, the sales price is fixed or determinable and collectability is reasonably assured. The Company extends volume discounts to certain customers, as well as promotional allowances, floor sample discounts, commissions paid to retail associates and slotting fees, and reflects these amounts as a reduction of sales at the time revenue is recognized based on historical experience. The Company also reports sales net of tax assessed by qualifying governmental authorities. The Company extends credit based on the creditworthiness of its customers. No collateral is required on sales made in the normal course of business.
The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s accounts receivable. The Company regularly reviews the adequacy of its allowance for doubtful accounts. The Company determines the allowance based on historical write-off experience and current economic conditions and also considers factors such as customer credit, past transaction history with the customer and changes in customer payment terms when determining whether the collection of a customer receivable is reasonably assured. Account balances are charged off against the allowance after all reasonable means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts included in accounts receivable, net in the accompanying Condensed Consolidated Balance Sheets was
$26.7 million
and
$22.1 million
as of
September 30, 2017
and
December 31, 2016
, respectively.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(f)
Derivative Financial Instruments
. Derivative financial instruments are used in the normal course of business to manage interest rate and foreign currency exchange risks. The financial instruments used by the Company are straight-forward, non-leveraged instruments. The counterparties to these financial instruments are financial institutions with strong credit ratings. The Company maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit ratings of these institutions. For all transactions designated as hedges, the hedging relationships are formally documented at the inception and on an ongoing basis in offsetting changes in cash flows of the hedged transaction.
The Company records derivative financial instruments in the Condensed Consolidated Balance Sheets as either an asset or liability measured at its fair value. Changes in a derivative's fair value (i.e. unrealized gains or losses) are recorded each period in earnings or other comprehensive income, depending on whether the derivative is designated and is effective as a hedged transaction, and on the type of hedging relationship.
For derivative financial instruments that are designated as a hedge, unrealized gains and losses related to the effective portion are either recognized in income immediately to offset the realized gain or loss on the hedged item, or are deferred and reported as a component of accumulated other comprehensive loss (“AOCL”) in stockholders' equity and subsequently recognized in net income when the hedged item affects net income. The change in fair value of the ineffective portion of a derivative financial instrument is recognized in net income immediately. The effectiveness of the cash flow hedge contracts, including time value, is assessed prospectively and retrospectively on a monthly basis using regression analysis, as well as other timing and probability criteria. For derivative instruments that are not designated as hedges, the gain or loss related to the change in fair value is also recorded in net income immediately.
The Company manages a portion of the risk associated with fluctuations in foreign currencies related to intercompany and third party inventory purchases denominated in foreign currencies through foreign exchange forward contracts designated as cash flow hedges. During 2017, the Company had foreign exchange forward contracts designated as cash flow hedges to buy U.S. dollars and to sell Canadian dollars. These foreign exchange forward contracts matured in September 2017.
The Company is also exposed to foreign currency risk related to intercompany debt and associated interest payments and certain intercompany accounts receivable and accounts payable. To manage the risk associated with fluctuations in foreign currencies related to these assets and liabilities, the Company enters into foreign exchange forward contracts. The Company considers these contracts to be economic hedges. Accordingly, changes in the fair value of these instruments affect earnings during the current period. These foreign exchange forward contracts protect against the reduction in value of forecasted foreign currency cash flows resulting from payments in foreign currencies.
The fair value of the Company's derivative financial instruments that are recorded on a recurring basis at fair value is not material.
(g)
Income Taxes.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are also recognized for the estimated future effects of tax loss carry forwards. The effect of changes in tax rates on deferred taxes is recognized in the period in which any such change is enacted. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized. The Company accounts for uncertain foreign and domestic tax positions utilizing an established recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
(h)
Customer Contract Termination.
During the week of January 23, 2017, the Company was unexpectedly notified by the senior management of Mattress Firm, Inc. ("Mattress Firm") and representatives of Steinhoff International Holdings Ltd. ("Steinhoff"), its parent company, of Mattress Firm's intent to terminate its business relationship with the Company if the Company did not agree to considerable changes to its agreements with Mattress Firm, including significant economic concessions. The Company engaged in discussions to facilitate a mutually agreeable supply arrangement with Mattress Firm. However, the parties were unable to reach an agreement, and on January 27, 2017, Tempur-Pedic North America, LLC ("Tempur-Pedic") and Sealy Mattress Company ("Sealy Mattress") issued formal termination notices for all of their products to Mattress Firm. On January 30, 2017, Tempur-Pedic and Sealy Mattress entered into transition agreements with Mattress Firm in which they agreed, among other things, to continue supplying Mattress Firm until April 3, 2017, at which time the parties’ business relationship ended.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
In the first quarter of 2017, the Company took steps to manage its cost structure as a result of the termination of the contracts with Mattress Firm. For the three months ended March 31, 2017, the Company recognized
$25.9 million
of net charges associated with the termination of the relationship with Mattress Firm. This amount includes
$11.5 million
of charges within cost of sales and
$14.4 million
of charges within customer termination charges, net in the Condensed Consolidated Statements of Income. The following amounts are recognized in cost of sales:
$5.4 million
of charges related to the write-off of customer-unique inventory and
$6.1 million
of increased warranty costs associated with claims historically retained by Mattress Firm. The following amounts are recognized in customer termination charges, net:
$22.8 million
of charges related to the write-off of Mattress Firm incentives and marketing assets, employee-related expenses and professional fees; and
$0.9 million
of accelerated stock-based compensation expense. These charges are 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 as a result of the termination of the contracts with Mattress Firm.
In the three months ended March 31, 2017, the Company also recognized
$9.3 million
related to the payments received pursuant to the transition agreements with Mattress Firm. This amount is included within other income, net in the Condensed Consolidated Statements of Income.
The termination of the Mattress Firm relationship was identified by the Company as an indicator of potential impairment. The Company conducted an interim impairment analysis as of March 31, 2017 of its North America reporting unit and indefinite-lived intangible assets, which indicated that the fair values were substantially in excess of their carrying values. The Company also conducted a recoverability analysis of its long-lived assets and did not identify an impairment.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(2)
Recently Issued Accounting Pronouncements
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue From Contracts With Customers
, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This ASU is based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The new standard is effective for the Company on January 1, 2018 and the Company will be using the modified retrospective method of adoption.
The Company has conducted a risk assessment and has developed a transition plan that will enable the Company to meet the implementation requirement. Revenue streams and performance obligations include product sales, sales-based royalties and warranties. The Company's contracts also include forms of variable consideration, including rebates (volume, cash and cooperative advertising), trade or other support, free products, slotting fees, and sales returns. Based on the evaluation of the Company's current contracts and the related revenue streams and performance obligations, most will be recorded consistently under both the current and new standard. The majority of the Company's revenue transactions are not accounted for under industry-specific guidance that will be superseded by ASC 606 and generally consist of a single performance obligation to transfer promised goods.
Upon adoption of ASC 606, the Company expects the largest impacts to result from the new qualitative and quantitative disclosures that will be required upon adoption of the new standard. Other anticipated presentation and disclosure changes include the reclassification of royalty income to revenue and changes in the balance sheet classification for sales returns. Under the new standard, the Company will continue to recognize the amount of consideration received or receivable that is expected to be returned as a refund liability, representing the Company's obligation to return the customer’s consideration. The Company will also recognize a return asset (and adjust cost of sales) for the right to recover the goods returned by the customer, which will be subject to impairment assessments. The Company evaluated the impact of the adoption on the classification of cooperative advertising programs and other promotional programs with the Company's customers. The impact of adoption to these promotional programs is not expected to result in material changes in the Company's recognition or presentation of costs within the Company's consolidated statements of comprehensive income.
Leases
In February 2016, the FASB issued ASU No. 2016-02,
Leases
, that requires lessees to recognize most leases on the balance sheet and provides for expanded disclosures on key information about leasing arrangements. This ASU is effective for interim and annual periods beginning after December 15, 2018, however early adoption is permitted. In transition, entities are required to use a modified retrospective approach for the adoption of this ASU. The Company is currently evaluating this ASU to determine the impact it will have on the Company's Condensed Consolidated Financial Statements.
Employee Share-Based Payments
In March 2016, the FASB issued ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting
, that simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The Company adopted this ASU as of January 1, 2017. As a result of the adoption of this ASU:
|
|
•
|
The Company recognized all excess tax benefits and tax deficiencies as income tax expense or benefit in the Condensed Consolidated Statement of Income. The Company recognized excess tax benefits of
$0.3 million
and excess tax deficiencies of
$0.8 million
in the three and nine months ended September 30, 2017, respectively.
|
|
|
•
|
The Company is prospectively presenting these excess tax benefits and tax deficiencies as an operating activity on the Condensed Consolidated Statement of Cash Flows.
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
|
|
•
|
The Company adopted a change in accounting policy to recognize forfeitures of awards as they occur instead of estimating potential forfeitures. Historically, the Company estimated the number of awards expected to be forfeited and adjusted the estimate when it was no longer probable that employees would fulfill their service conditions. The effect of this change in accounting policy is not material.
|
Pensions
In March 2017, the FASB issued ASU No. 2017-07,
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
, which is accounting guidance that will change how employers who sponsor defined benefit pension and/or postretirement benefit plans present the net periodic benefit cost in the Condensed Consolidated Statements of Income. This guidance requires employers to present the service cost component of net periodic benefit cost in the same caption within the Condensed Consolidated Statements of Income as other employee compensation costs from services rendered during the period. All other components of the net periodic benefit cost will be presented separately outside of the operating income caption. This guidance must be applied retrospectively and will become effective for the Company on January 1, 2018. Adoption of this guidance will result in a reclassification of pension and other postretirement plan non-service income and remeasurement adjustments, net from within operating income to non-operating income.
(3)
Goodwill
The following summarizes changes to the Company’s goodwill, by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Consolidated
|
Balance as of December 31, 2016
|
$
|
572.0
|
|
|
$
|
150.5
|
|
|
$
|
722.5
|
|
Foreign currency translation
|
4.9
|
|
|
5.5
|
|
|
10.4
|
|
Balance as of September 30, 2017
|
$
|
576.9
|
|
|
$
|
156.0
|
|
|
$
|
732.9
|
|
(4)
Debt
Debt for the Company consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
|
(in millions, except percentages)
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Maturity Date
|
2016 Credit Agreement
|
|
|
|
|
|
|
|
|
|
Term A Facility
|
$
|
562.5
|
|
|
(1)
|
|
$
|
585.0
|
|
|
(2)
|
|
April 6, 2021
|
Revolver
|
—
|
|
|
(1)
|
|
156.9
|
|
|
(2)
|
|
April 6, 2021
|
2026 Senior Notes
|
600.0
|
|
|
5.500%
|
|
600.0
|
|
|
5.500%
|
|
June 15, 2026
|
2023 Senior Notes
|
450.0
|
|
|
5.625%
|
|
450.0
|
|
|
5.625%
|
|
October 15, 2023
|
Securitized debt
|
46.5
|
|
|
(3)
|
|
—
|
|
|
N/A
|
|
April 12, 2019
|
Capital lease obligations
(4)
|
73.2
|
|
|
|
|
73.3
|
|
|
|
|
Various
|
Other
|
30.7
|
|
|
|
|
35.8
|
|
|
|
|
Various
|
Total debt
|
1,762.9
|
|
|
|
|
1,901.0
|
|
|
|
|
|
Less: deferred financing costs
|
(9.9
|
)
|
|
|
|
(12.9
|
)
|
|
|
|
|
Total debt, net
|
1,753.0
|
|
|
|
|
1,888.1
|
|
|
|
|
|
Less: current portion
|
(66.3
|
)
|
|
|
|
(70.3
|
)
|
|
|
|
|
Total long-term debt, net
|
$
|
1,686.7
|
|
|
|
|
$
|
1,817.8
|
|
|
|
|
|
|
|
|
(1)
|
Interest at LIBOR plus applicable margin of 1.75% as of September 30, 2017.
|
(2)
|
Interest at LIBOR plus applicable margin of 1.50% as of December 31, 2016.
|
(3)
|
Interest at one month LIBOR index plus 80 basis points.
|
(4)
|
Capital lease obligations are a non-cash financing activity.
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
2016 Credit Agreement
On April 6, 2016, the Company entered into a senior secured credit agreement ("2016 Credit Agreement") with a syndicate of banks. The 2016 Credit Agreement replaced the Company’s 2012 Credit Agreement.
The 2016 Credit Agreement requires compliance with certain financial covenants providing for maintenance of a minimum consolidated interest coverage ratio, maintenance of a maximum consolidated total net leverage ratio, and maintenance of a maximum consolidated secured net leverage ratio. The consolidated total net leverage ratio is calculated using consolidated funded debt less qualified cash. Consolidated funded debt includes debt recorded in the Condensed Consolidated Balance Sheets as of the reporting date, plus letters of credit outstanding and other short-term debt. The Company is allowed to subtract from consolidated funded debt an amount equal to
100.0%
of domestic qualified cash and
60.0%
of foreign qualified cash, the aggregate of which cannot exceed
$150.0 million
at the end of the reporting period. As of
September 30, 2017
, domestic qualified cash was
$17.2 million
and foreign qualified cash was
$14.7 million
.
The Company is in compliance with all applicable covenants as of
September 30, 2017
.
Securitized Debt
On April 12, 2017, the Company and certain of its subsidiaries entered into a securitization transaction with respect to certain accounts receivable due to the Company and certain of its subsidiaries (the "Accounts Receivable Securitization"). In connection with this transaction, the Company and its wholly-owned special purpose subsidiary, Tempur Sealy Receivables, LLC, entered into a credit agreement that provides for revolving loans to be made from time to time in a maximum amount that varies over the course of the year based on the seasonality of our accounts receivable and is subject to an overall limit of
$120.0 million
.
The obligations of the Company under the Accounts Receivable Securitization are secured by the accounts receivable and certain related rights and the facility agreements contain customary events of default. The accounts receivable will continue to be owned by the Company and its subsidiaries and will continue to be reflected as assets on the Company’s Condensed Consolidated Balance Sheets and represent collateral up to the amount of the borrowings under this facility. Borrowings under this facility will be classified as long-term debt within the Condensed Consolidated Balance Sheets.
Fair Value of Financial Instruments
Financial instruments, although not recorded at fair value on a recurring basis, include cash and cash equivalents, accounts receivable, accounts payable, and the Company's debt obligations. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value using Level 1 inputs because of the short-term maturity of those instruments. Borrowings under the 2016 Credit Agreement and the securitized debt are at variable interest rates and accordingly their carrying amounts approximate fair value. The fair value of the following material financial instruments were based on Level 2 inputs estimated using discounted cash flows and market-based expectations for interest rates, credit risk, and the contractual terms of debt instruments. The fair values of these material financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
(in millions)
|
|
September 30, 2017
|
|
December 31, 2016
|
2023 Senior Notes
|
|
$
|
473.9
|
|
|
$
|
468.5
|
|
2026 Senior Notes
|
|
615.9
|
|
|
606.8
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(5)
Stockholders' Equity
(a)
Common Stock.
Tempur Sealy International has
300.0 million
authorized shares of common stock with
$0.01
per share par value and
0.01 million
authorized shares of preferred stock with
$0.01
per share par value. The holders of the common stock are entitled to
one
vote for each share held of record on all matters submitted to a vote of stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, holders of the common stock are entitled to receive ratably such dividends as may be declared from time to time by the Board of Directors ("Board") out of funds legally available for that purpose. In the event of liquidation, dissolution or winding up, the holders of the common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.
The Board is authorized, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series. Each such series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as determined by the Board, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights.
(b)
Treasury Stock.
In February 2017, the Board authorized an increase of
$200.0 million
to its existing share repurchase authorization for repurchases of Tempur Sealy International's common stock. For the nine months ended
September 30, 2017
, the Company repurchased
0.6 million
shares for approximately
$40.1 million
. As of
September 30, 2017
, the Company had approximately
$226.9 million
remaining under the existing share repurchase authorization.
In addition, the Company acquired
0.1 million
shares upon the vesting of certain performance restricted stock units ("PRSUs"), which were withheld to satisfy tax withholding obligations during each of the nine months ended
September 30, 2017
and
2016
. The shares withheld were valued at the closing price of the common stock on the New York Stock Exchange on the vesting date or first business day thereafter, resulting in approximately
$4.8 million
and
$2.0 million
in treasury stock acquired during the nine months ended
September 30, 2017
and
2016
, respectively.
(c)
Shareholder Rights Agreement
. On February 8, 2017, the Board authorized and declared a dividend distribution of
one
right (a “Right”) for each outstanding share of common stock, par value
$0.01
per share (the “Common Shares”), of the Company to stockholders of record at the close of business on February 20, 2017 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value
$0.01
per share (the “Preferred Shares”), of the Company at an exercise price of
$90
per one one-thousandth of a Preferred Share, subject to adjustment (the “Exercise Price”). Generally, the Rights become exercisable in the event any person or group (including a group of persons that are acting in concert with each other) acquires
20%
or more of the Common Shares without the approval of the Board, and until such time are inseparable from and trade with the Company's common stock. The Rights have a de minimis fair value. The Rights were issued pursuant to the Rights Agreement dated as of February 8, 2017 (the "Original Rights Agreement"), between the Company and American Stock Transfer & Trust Company, LLC ("AST"), the Company's rights agent. These Rights expire February 7, 2018 or upon an earlier redemption or exchange as provided in the Rights Agreement.
On March 14, 2017, the Company entered into an Amended and Restated Rights Agreement (the "Amended Rights Agreement") with AST, as rights agent, to amend certain provisions of the Original Rights Agreement. The primary purpose of the amendment and restatement of the Original Rights Agreement is to provide the holders of the Common Shares and the attached Rights issued under the Original Rights Agreement with the ability to exempt an offer to acquire, or engage in another business combination transaction involving, the Company that is deemed a "Qualifying Offer" (as defined in the Amended and Restated Rights Agreement) from the terms of the Amended and Restated Rights Agreement. The Rights have a de minimis fair value as of
September 30, 2017
.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(d)
AOCL.
AOCL consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Foreign Currency Translation
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(101.8
|
)
|
|
$
|
(98.6
|
)
|
|
$
|
(119.9
|
)
|
|
$
|
(115.4
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
(1)
|
9.6
|
|
|
(5.0
|
)
|
|
27.7
|
|
|
11.8
|
|
Balance at end of period
|
$
|
(92.2
|
)
|
|
$
|
(103.6
|
)
|
|
$
|
(92.2
|
)
|
|
$
|
(103.6
|
)
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(2.2
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
(1.4
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
Net change from period revaluations, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at end of period
|
$
|
(2.2
|
)
|
|
$
|
(1.4
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
Foreign Exchange Forward Contracts
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
—
|
|
|
$
|
0.7
|
|
|
$
|
0.6
|
|
|
$
|
6.6
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
Net change from period revaluations
|
(0.2
|
)
|
|
0.8
|
|
|
(0.6
|
)
|
|
(4.5
|
)
|
Tax (provision) benefit
(2)
|
—
|
|
|
(0.2
|
)
|
|
0.1
|
|
|
1.2
|
|
Total other comprehensive (loss) income before reclassifications, net of tax
|
$
|
(0.2
|
)
|
|
$
|
0.6
|
|
|
$
|
(0.5
|
)
|
|
$
|
(3.3
|
)
|
Net amount reclassified to earnings
(3)
|
0.3
|
|
|
(1.1
|
)
|
|
(0.1
|
)
|
|
(3.8
|
)
|
Tax (provision) benefit
(2)
|
(0.1
|
)
|
|
0.3
|
|
|
—
|
|
|
1.0
|
|
Total amount reclassified from AOCL, net of tax
|
$
|
0.2
|
|
|
$
|
(0.8
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(2.8
|
)
|
Total other comprehensive loss
|
—
|
|
|
(0.2
|
)
|
|
(0.6
|
)
|
|
(6.1
|
)
|
Balance at end of period
|
$
|
—
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
0.5
|
|
|
|
|
(1)
|
In 2017 and 2016, there were no tax impacts related to foreign currency translation adjustments and no amounts were reclassified to earnings.
|
(2)
|
These amounts were included in the income tax provision in the accompanying Condensed Consolidated Statements of Income.
|
(3)
|
This amount was included in cost of sales in the accompanying Condensed Consolidated Statements of Income.
|
(6)
Other Items
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
September 30, 2017
|
|
December 31, 2016
|
Wages and benefits
|
$
|
55.5
|
|
|
$
|
65.5
|
|
Advertising
|
44.6
|
|
|
48.6
|
|
Sales returns
|
32.9
|
|
|
30.3
|
|
Warranty
|
19.9
|
|
|
14.3
|
|
Rebates
|
10.8
|
|
|
8.4
|
|
Other
|
109.5
|
|
|
83.0
|
|
|
$
|
273.2
|
|
|
$
|
250.1
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(7)
Stock-Based Compensation
The Company’s stock-based compensation expense for the
three and nine
months ended
September 30, 2017
and
2016
included PRSUs, non-qualified stock options, restricted stock units ("RSUs") and deferred stock units ("DSUs"). A summary of the Company’s stock-based compensation expense is presented in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
PRSU expense (benefit)
|
$
|
1.0
|
|
|
$
|
1.8
|
|
|
$
|
(7.1
|
)
|
|
$
|
6.0
|
|
Option expense
|
1.8
|
|
|
1.2
|
|
|
5.6
|
|
|
4.0
|
|
RSU/DSU expense
|
3.1
|
|
|
1.7
|
|
|
10.0
|
|
|
5.3
|
|
Total stock-based compensation expense
|
$
|
5.9
|
|
|
$
|
4.7
|
|
|
$
|
8.5
|
|
|
$
|
15.3
|
|
During the
nine months ended
September 30, 2017
, the Company recorded a
$9.3 million
benefit in the Condensed Consolidated Statements of Income related to a change in estimate associated with performance-based stock compensation that is no longer probable of payout as a result of the termination of the Mattress Firm relationship.
The Company did not record any accelerated stock-based compensation expense during each of the three months ended
September 30, 2017
and
2016
. During the nine months ended
September 30, 2017
and
2016
, the Company recorded
$0.9 million
and
$2.0 million
of accelerated stock-based compensation expense associated with executive management transition, respectively.
The Company has
1.2 million
PRSUs outstanding that will vest if the Company achieves more than
$650.0 million
of adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA") for
2017
(the "
2017
Aspirational Plan PRSUs"). All of the
2017
Aspirational Plan PRSUs will vest in full if the Company achieves Adjusted EBITDA in
2017
greater than
$650.0 million
. In addition, if this target is not met in
2017
but the Company achieves more than
$650.0 million
in Adjusted EBITDA for
2018
, then one-third of the total
2017
Aspirational Plan PRSUs will vest, and the remaining
2017
Aspirational Plan PRSUs will be forfeited. If the Company does not achieve more than
$650.0 million
of Adjusted EBITDA in either
2017
or
2018
, then all of the
2017
Aspirational Plan PRSUs will be forfeited. Adjusted EBITDA is defined as the Company’s "Consolidated EBITDA" as such term is defined in the Company’s 2012 Credit Agreement.
The Company did not record any stock-based compensation expense related to the
2017
Aspirational Plan PRSUs during the three and nine months ended
September 30, 2017
and
2016
, as it is not considered probable that the Company will achieve the specified performance target as of
December 31, 2017
or
December 31, 2018
. The Company will continue to evaluate the probability of achieving the performance condition in future periods and record the appropriate expense if necessary. Based on the price of the Company’s common stock on the grant date, the total unrecognized compensation expense related to this award if the performance target is met for
2017
is
$83.9 million
, which would be expensed over the remaining service period if achievement of the performance condition becomes probable.
During the three months ended September 30, 2017, the Company granted executive officers and certain members of management
1.5 million
PRSUs if the Company achieves a certain level of Adjusted EBITDA during four consecutive fiscal quarters as described below (the "2019 Aspirational Plan PRSUs").
The 2019 Aspirational Plan PRSUs will vest based on the highest Adjusted EBITDA in any four consecutive fiscal quarter period ending between (and including) March 31, 2018 and December 31, 2019 (the “First Designated Period”). If the highest Adjusted EBITDA in the First Designated Period is
$600.0 million
,
66%
will vest; if the highest Adjusted EBITDA equals or exceeds
$650.0 million
, then
100%
will vest; if the highest Adjusted EBITDA is between
$600.0 million
and
$650.0 million
then a pro rata portion will vest; and if the highest Adjusted EBITDA is less than
$600.0 million
then one-half of the 2019 Aspirational Plan PRSUs will no longer be available for vesting based on performance and the remaining one-half will remain available for vesting based on the highest Adjusted EBITDA in any four consecutive fiscal quarter period ending between (and including) March 31, 2020 and December 31, 2020 (the “Second Designated Period”). If the highest Adjusted EBITDA in the Second Designated Period is
$600.0 million
then
66%
of the remaining 2019 Aspirational Plan PRSUs will vest; if the Adjusted EBITDA is
$650.0 million
or more
100%
will vest; if Adjusted EBITDA is between
$600.0 million
and
$650.0 million
then a pro rata portion will vest; and if Adjusted EBITDA is below
$600.0 million
then all of the remaining 2019 Aspirational Plan PRSUs will be forfeited. Adjusted EBITDA units is defined as the Company’s "Consolidated EBITDA" as such term is defined in the Company’s 2016 Credit Agreement.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
The Company did not record any stock-based compensation expense related to the 2019 Aspirational Plan PRSUs during the three months ended
September 30, 2017
, as it is not considered probable that the Company will achieve the specified performance target for either the First Designated Period or Second Designated Period. The Company will continue to evaluate the probability of achieving the performance condition in future periods and record the appropriate expense if necessary. Based on the price of the Company’s common stock on the grant date, the total unrecognized compensation expense related to this award if the performance target is met for the First Designated Period is
$90.0 million
, which would be expensed over the remaining service period if achievement of the performance condition becomes probable.
(8)
Commitments and Contingencies
(a)
Alvin Todd, and Henry and Mary Thompson, individually and on behalf of all others similarly situated, Plaintiffs v. Tempur Sealy International, Inc., formerly known as Tempur-Pedic International, Inc. and Tempur-Pedic North America, LLC, Defendants; filed October 25, 2013.
On October 25, 2013, a suit was filed against Tempur Sealy International and one of its domestic subsidiaries in the United States District Court for the Northern District of California, purportedly on behalf of a proposed class of “consumers” as defined by Cal. Civ. Code § 1761(d) who purchased, not for resale, a Tempur-Pedic mattress or pillow in the State of California. On November 19, 2013, the Company was served for the first time in the case but with an amended petition adding additional class representatives for additional states. The purported classes seek certification of claims under applicable state laws.
The complaint alleged that the Company engaged in unfair business practices, false advertising, and misrepresentations or omissions related to the sale of certain products. The Plaintiffs sought restitution, injunctive relief and all other relief allowed under applicable state laws, interest, attorneys’ fees and costs. The purported classes did not seek damages for physical injuries. The Court was scheduled to consider class certification motions in the fourth quarter of 2015; however, the Plaintiffs filed a Motion to Amend the Complaint, at which time the Company filed a Motion to Dismiss the Amended Complaint. A hearing on the Motion to Dismiss was held January 28, 2016 and the Court denied in part and granted in part the Company’s Motion to Dismiss, allowing certain claims to proceed. The Court considered class certification motions on August 18, 2016, and on September 30, 2016, denied the Plaintiffs’ Motion for Class Certification. In December 2016, the Ninth Circuit Court of Appeals affirmed the lower court’s decision. The Company filed a Motion to Sever the Claims made by each of the Plaintiffs on March 22, 2017 following the denial of class certification by the District Court which was affirmed by the Ninth Circuit Court of Appeals. The Plaintiffs then filed a Motion for Reconsideration at the District Court with respect to the denial of class certification on April 12, 2017 based on a change in the law. That Motion was denied on June 30, 2017. The Court also granted the Company's Motion to Sever the claims on June 30, 2017, dissolving the potential class and requiring the Plaintiffs to file individual cases in their home states if they wished to proceed. In September 2017, the Company entered into settlement agreements with each of the Plaintiffs and their cases were then dismissed by the District Court. The settlement amounts were not material in nature.
(b)
David Buehring, Individually and on Behalf of All Others Similarly Situated v. Tempur Sealy International, Inc., Scott L. Thompson, and Barry A. Hytinen, filed March 24, 2017.
On March 24, 2017, a suit was filed against Tempur Sealy International, Inc., and
two
of its officers in the U.S. District Court for the Southern District of New York, purportedly on behalf of a proposed class of stockholders who purchased Tempur Sealy common stock between July 28, 2016 and January 27, 2017. The complaint alleges that the Company made materially false and misleading statements regarding its then existing and future financial prospects, including those with one of its retailers, Mattress Firm, allegedly in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The Company does not believe the claims have merit and intends to vigorously defend against these claims. A Motion to Dismiss the case was filed by the Company on October 5, 2017. The case is in the early stages of litigation. As a result, the outcome of the case is unclear and the Company is unable to reasonably estimate the possible loss or range of loss, if any. Accordingly, the Company can give no assurance that this matter will not have a material adverse effect on the Company’s financial position or results of operations.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(c) Myla Gardner v. Scott L. Thompson, Barry A. Hytinen, Evelyn S. Dilsaver, John A. Heil, Jon L. Luther, Usman Nabi, Richard W. Neu, Robert B. Trussell, Jr. and Tempur Sealy International, Inc., filed July 10, 2017; Joseph L. Doherty v. Scott L. Thompson, Barry A. Hytinen, Evelyn S. Dilsaver, John A. Heil, Jon L. Luther, Usman Nabi, Richard W. Neu, Robert B. Trussell, Jr. and Tempur Sealy International, Inc., filed July 20, 2017; and Paul Onesti v. Scott L. Thompson, Barry A. Hytinen, Evelyn S. Dilsaver, John A. Heil, Jon L. Luther, Usman Nabi, Richard W. Neu, Robert B. Trussell, Jr. and Tempur Sealy International, Inc., filed July 21, 2017.
During July 2017,
three
putative shareholder derivative suits were filed against the Company, each member of its Board of Directors and
two
of its officers. Each complaint alleges that the Board of Directors and officers caused the Company to make materially false and misleading statements regarding its business and financial prospects, including those with one of its retailers, Mattress Firm, which was a violation of the fiduciary duties they owed to the Company. The Company does not believe any of the suits have merit and intends to vigorously defend against the claims in each case. The Plaintiffs in each of the cases have agreed to stay their respective actions until after a decision is rendered on the Motion to Dismiss in the Buehring action noted above. These cases are in the early stages of litigation. As a result, the outcome of each case is unclear and the Company is unable to reasonably estimate the possible loss or range of loss, if any.
(d)
Mattress Firm, Inc. v. Tempur-Pedic North America, LLC and Sealy Mattress Company, filed March 30, 2017.
On March 30, 2017, a suit was filed against Tempur-Pedic and Sealy Mattress (
two
wholly-owned subsidiaries of the Company) in the District Court of Harris County, Texas by Mattress Firm. The complaint alleges breach of contract, tortious interference and seeks a declaratory judgment with respect to the interpretation of its agreements with the Company. On April 7, 2017, the Company's subsidiaries named above filed suit against Mattress Firm, Inc. in the U.S. District Court for the Southern District of Texas, Houston Division seeking injunctive relief and damages for trademark infringement, unfair competition and trademark dilution in violation of the Lanham Act, and breach of contract and other state law violations. The complaint alleges that Mattress Firm violated the parties' transition agreements dated January 30, 2017, and consequently, federal and state law, by its use of the Company’s trademarks after April 3, 2017. On April 28, 2017, the complaint was amended to add a claim by Sealy Mattress for nonpayment by Mattress Firm for products sold and delivered. On May 23, 2017, the complaint was further amended to add allegations that Mattress Firm continued to use the Company’s trade names and trademarks on its website and in advertising in an inappropriate manner. On July 11, 2017, the Court issued a preliminary injunction prohibiting Mattress Firm from using the Company’s names and marks in such manner. The Company does not believe the claims asserted by Mattress Firm have merit and intends to vigorously defend against them. Discovery is proceeding in the case. The cases are in the early stages of litigation. As a result, the outcome remains unclear and the Company is unable to reasonably estimate the possible loss or range of loss, if any. Accordingly, the Company can give no assurance that these matters will not have a material adverse effect on the Company’s financial position or results of operations.
(e)
Other.
The Company is involved in various other legal and administrative proceedings incidental to the operations of its business. The Company believes that the outcome of all such other pending proceedings in the aggregate will not have a material adverse effect on its business, financial condition, liquidity, or operating results.
(9)
Income Taxes
The Company’s effective tax rate for the three months ended
September 30, 2017 and 2016
was
33.0%
and
30.6%
, respectively. The Company’s effective tax rate for the
nine months
ended
September 30, 2017 and 2016
was
33.6%
and
30.7%
, respectively. The Company’s income tax rate for the three and nine months ended
September 30, 2017 and 2016
differed from the U.S. federal statutory rate of
35.0%
principally due to certain foreign income tax rate differentials, state and local income taxes, the production activities deduction, certain other permanent differences, changes in the Company’s uncertain tax positions, and for the three and nine months ended
September 30, 2017
, the excess tax deficiency (or benefit) related to stock-based compensation.
The Company has received income tax assessments from the Danish Tax Authority ("SKAT") with respect to the tax years 2001 through 2008 relating to the royalty paid by a U.S. subsidiary of Tempur Sealy International to a Danish subsidiary (the "Danish Assessments"). The royalty is paid by the U.S. subsidiary for the right to utilize certain intangible assets owned by the Danish subsidiary in the U.S. production process. In its assessment, SKAT asserts that the amount of royalty rate paid by the U.S. subsidiary to the Danish subsidiary is not reflective of an arms-length transaction. Accordingly, the tax assessment received from SKAT is based, in part, on a
20%
royalty rate, which is substantially higher than that historically used or deemed appropriate by the Company.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
The cumulative total tax assessment at
September 30, 2017
for all years for which an assessment has been received (2001 - 2008) is approximately Danish Krone ("DKK")
1,615.6 million
, including interest and penalties (
$256.4 million
, based on the DKK to USD exchange rate on
September 30, 2017
). The cumulative total tax assessment at December 31, 2016 for all years for which an assessment had been received up through that date (2001 - 2008) including interest and penalties was approximately DKK
1,547.3 million
(
$219.3 million
, based on the DKK to USD exchange rate on December 31, 2016). If SKAT continues to issue assessments for each year not currently assessed, the Company expects the aggregate assessments for such years (2009 - 2016) to be in excess of the amounts described above as assessed for the years 2001 - 2008 (collectively the years 2001 through 2016 are referred to as the "Danish Tax Matter").
At
September 30, 2017
and December 31, 2016 the Company had accrued Danish tax and interest for the Danish Tax Matter of approximately DKK
852 million
(approximately
$135.2 million
using the
September 30, 2017
exchange rate) and DKK
850 million
(approximately
$120.6 million
using the December 31, 2016 exchange rate), respectively, as an uncertain income tax liability. On both
September 30, 2017
and December 31, 2016 approximately DKK
835 million
(approximately
$132.6 million
using the
September 30, 2017
exchange rate and
$118.5 million
using the December 31, 2016 exchange rate) represents the amount that the Company and SKAT preliminarily agreed to in a non-binding proposed resolution for the years 2001 through 2011. The balance at
September 30, 2017
and December 31, 2016, respectively, of approximately DKK
17 million
(approximately
$2.6 million
using the September 30, 2017 exchange rate) and DKK
15 million
(approximately
$2.1 million
using the December 31, 2016 exchange rate) may be subject to further negotiation in the future as part of an Advanced Pricing Agreement the Company may choose to pursue for years after 2011. The uncertain income tax liability accrued is included in other non-current liabilities in the Company's Condensed Consolidated Balance Sheets. In addition, at
September 30, 2017
and December 31, 2016 the Company had recorded a deferred tax asset of approximately
$44.3 million
and
$43.5 million
, respectively, for the U.S. correlative benefit related to the Danish Tax Matter. The Company has recorded a valuation allowance with respect to this benefit of approximately
$17.6 million
for both periods related to years for which relief may not be realized.
The Company’s uncertain tax liability associated with the Danish Tax Matter is derived using the cumulative probability analysis with possible outcomes based on the Company's updated evaluation of the facts and circumstances regarding this matter and applying the technical requirements applicable to U.S., Danish, and international transfer pricing standards as required by GAAP, taking into account both the U.S. and Danish income tax implications of such outcomes. Both the uncertain tax liability and the deferred tax asset discussed herein reflects the Company’s best judgment of the facts, circumstances and information available through
September 30, 2017
.
If the Company is not successful in defending its position before the Danish National Tax Tribunal (the "Tribunal"), the appeals division within SKAT, or in the Danish courts or in negotiating a mutually acceptable settlement, there is significant risk that the Company could be required to pay significant amounts to SKAT in excess of any related reserve. Such an outcome could have a material adverse impact on the Company’s profitability and liquidity. In addition, prior to any ultimate resolution of this issue before the Tribunal or the Danish courts, based on a change in facts and circumstances, the Company may be required to further increase its uncertain tax liability associated with this matter, which could have a material impact on the Company's reported earnings.
From June 2012 through
September 30, 2017
, SKAT withheld Value Added Tax refunds otherwise owed to the Company, pending resolution of the Danish Tax Matter. Total withheld refunds at
September 30, 2017
and December 31, 2016 are approximately DKK
314.6 million
(approximately
$49.9
at the
September 30, 2017
exchange rate) and DKK
258.0 million
(approximately
$36.6 million
at the December 31, 2016 exchange rate), respectively. In July 2016, the Company paid a deposit to SKAT in the amount of approximately DKK
615.2
(approximately
$97.6 million
using the exchange rate at September 30, 2017) (the “Tax Deposit”) and applied approximately DKK
224.6 million
(approximately
$35.6 million
using the exchange rate at
September 30, 2017
) of its Value Added Tax refund (the “VAT Refund Applied”) to the aforementioned potential Danish income tax liability, consistent with the Company’s reserve position for the Danish Tax Matter. The deposit was made to mitigate additional interest and foreign exchange exposure. The Tax Deposit and the VAT Refund Applied are included within other non-current assets on the Condensed Consolidated Balance Sheets.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
The amount of unrecognized tax benefits that would impact the effective tax rate if recognized at
September 30, 2017
and December 31, 2016 would be
$30.1
and
$21.4 million
(exclusive of interest and penalties), respectively. Interest and penalties related to unrecognized tax benefits are recorded in income tax provision. It is reasonably possible that there could be material changes to the amount of uncertain tax positions due to activities of the taxing authorities, settlement of audit issues, reassessment of existing uncertain tax positions, including the Danish Tax Matter, or the expiration of applicable statute of limitations; however, the Company is not able to estimate the impact of these items at this time. There were no significant changes to the liability for unrecognized tax benefits during the three months ended
September 30, 2017
.
(10)
Earnings Per Common Share
The following table sets forth the components of the numerator and denominator for the computation of basic and diluted earnings per share for net income attributable to Tempur Sealy International.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
(in millions, except per common share amounts)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to Tempur Sealy International, Inc.
|
$
|
44.6
|
|
|
$
|
77.8
|
|
|
$
|
103.0
|
|
|
$
|
138.7
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share-weighted average shares
|
54.0
|
|
|
58.2
|
|
|
54.0
|
|
|
60.1
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation
|
0.9
|
|
|
0.6
|
|
|
0.6
|
|
|
0.7
|
|
Denominator for diluted earnings per common share-adjusted weighted average shares
|
54.9
|
|
|
58.8
|
|
|
54.6
|
|
|
60.8
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
$
|
0.83
|
|
|
$
|
1.34
|
|
|
$
|
1.91
|
|
|
$
|
2.31
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
$
|
0.81
|
|
|
$
|
1.32
|
|
|
$
|
1.89
|
|
|
$
|
2.28
|
|
The Company excluded
1.1 million
and
0.4 million
shares issuable upon exercise of outstanding stock options for the
three months ended
September 30, 2017
and
2016
, respectively, from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy International’s common stock or they were otherwise anti-dilutive. The Company excluded
1.3 million
and
0.4 million
shares issuable upon exercise of outstanding stock options for the
nine months ended September 30, 2017
and
2016
, respectively, from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy International’s common stock or they were otherwise anti-dilutive. Holders of non-vested stock-based compensation awards do not maintain voting rights or maintain rights to receive any dividends thereon.
(11)
Business Segment Information
The Company operates in
two
segments: North America and International. Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results. These segments are strategic business units that are managed separately based on geography. The North America segment consists of Tempur and Sealy manufacturing and distribution subsidiaries, joint ventures and licensees located in the U.S. and Canada. The International segment consists of Tempur and Sealy manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America. The Company evaluates segment performance based on net sales, gross profit and operating income.
The Company’s North America and International segment assets include investments in subsidiaries that are appropriately eliminated in the Company’s accompanying Condensed Consolidated Financial Statements. The remaining inter-segment eliminations are comprised of intercompany accounts receivable and payable.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
The following table summarizes total assets by segment:
|
|
|
|
|
|
|
|
|
(in millions)
|
September 30, 2017
|
|
December 31, 2016
|
North America
|
$
|
2,731.7
|
|
|
$
|
2,581.4
|
|
International
|
613.6
|
|
|
572.6
|
|
Corporate
|
604.2
|
|
|
658.7
|
|
Inter-segment eliminations
|
(1,214.2
|
)
|
|
(1,110.1
|
)
|
Total assets
|
$
|
2,735.3
|
|
|
$
|
2,702.6
|
|
The following table summarizes property, plant and equipment, net by segment:
|
|
|
|
|
|
|
|
|
(in millions)
|
September 30, 2017
|
|
December 31, 2016
|
North America
|
$
|
295.8
|
|
|
$
|
297.4
|
|
International
|
54.4
|
|
|
54.9
|
|
Corporate
|
73.9
|
|
|
69.9
|
|
Total property, plant and equipment, net
|
$
|
424.1
|
|
|
$
|
422.2
|
|
The following table summarizes segment information for the three months ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
580.6
|
|
|
$
|
144.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
724.8
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales
|
$
|
0.9
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
(1.3
|
)
|
|
$
|
—
|
|
Inter-segment royalty expense (income)
|
1.5
|
|
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Gross profit
|
238.4
|
|
|
73.8
|
|
|
—
|
|
|
—
|
|
|
312.2
|
|
Operating income (loss)
|
99.7
|
|
|
20.8
|
|
|
(25.9
|
)
|
|
—
|
|
|
94.6
|
|
Income (loss) before income taxes
|
97.0
|
|
|
9.3
|
|
|
(44.8
|
)
|
|
—
|
|
|
61.5
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
$
|
13.1
|
|
|
$
|
3.8
|
|
|
$
|
10.0
|
|
|
$
|
—
|
|
|
$
|
26.9
|
|
Capital expenditures
|
9.3
|
|
|
1.8
|
|
|
6.4
|
|
|
—
|
|
|
17.5
|
|
|
|
(1)
|
Depreciation and amortization includes stock-based compensation amortization expense.
|
The following table summarizes segment information for the three months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
698.5
|
|
|
$
|
133.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
832.4
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales
|
$
|
1.0
|
|
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
(1.2
|
)
|
|
$
|
—
|
|
Inter-segment royalty expense (income)
|
1.8
|
|
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Gross profit
|
290.1
|
|
|
72.0
|
|
|
—
|
|
|
—
|
|
|
362.1
|
|
Operating income (loss)
|
128.3
|
|
|
25.6
|
|
|
(22.8
|
)
|
|
—
|
|
|
131.1
|
|
Income (loss) before income taxes
|
127.1
|
|
|
23.6
|
|
|
(40.4
|
)
|
|
—
|
|
|
110.3
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
$
|
10.8
|
|
|
$
|
4.0
|
|
|
$
|
8.2
|
|
|
$
|
—
|
|
|
$
|
23.0
|
|
Capital expenditures
|
10.7
|
|
|
3.6
|
|
|
3.3
|
|
|
—
|
|
|
17.6
|
|
|
|
(1)
|
Depreciation and amortization includes stock-based compensation amortization expense.
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
The following table summarizes segment information for the nine months ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
1,688.3
|
|
|
$
|
417.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,106.2
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales
|
$
|
3.1
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
(3.8
|
)
|
|
$
|
—
|
|
Inter-segment royalty expense (income)
|
4.4
|
|
|
(4.4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Gross profit
|
651.8
|
|
|
215.6
|
|
|
—
|
|
|
—
|
|
|
867.4
|
|
Operating income (loss)
|
206.9
|
|
|
73.0
|
|
|
(69.2
|
)
|
|
—
|
|
|
210.7
|
|
Income (loss) before income taxes
|
210.7
|
|
|
58.0
|
|
|
(125.8
|
)
|
|
—
|
|
|
142.9
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
$
|
38.3
|
|
|
$
|
11.1
|
|
|
$
|
19.8
|
|
|
$
|
—
|
|
|
$
|
69.2
|
|
Capital expenditures
|
23.0
|
|
|
5.4
|
|
|
15.0
|
|
|
—
|
|
|
43.4
|
|
|
|
(1)
|
Depreciation and amortization includes stock-based compensation amortization expense.
|
The following table summarizes segment information for the nine months ended
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
1,946.7
|
|
|
$
|
411.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,357.8
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales
|
$
|
3.5
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
(3.9
|
)
|
|
$
|
—
|
|
Inter-segment royalty expense (income)
|
5.6
|
|
|
(5.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Gross profit
|
771.9
|
|
|
218.1
|
|
|
—
|
|
|
—
|
|
|
990.0
|
|
Operating income (loss)
|
308.9
|
|
|
76.1
|
|
|
(77.0
|
)
|
|
—
|
|
|
308.0
|
|
Income (loss) before income taxes
|
304.3
|
|
|
69.0
|
|
|
(177.5
|
)
|
|
—
|
|
|
195.8
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
$
|
32.1
|
|
|
$
|
11.7
|
|
|
$
|
25.8
|
|
|
$
|
—
|
|
|
$
|
69.6
|
|
Capital expenditures
|
22.0
|
|
|
8.3
|
|
|
11.6
|
|
|
—
|
|
|
41.9
|
|
|
|
(1)
|
Depreciation and amortization includes stock-based compensation amortization expense.
|
The following table summarizes property, plant and equipment, net by geographic region:
|
|
|
|
|
|
|
|
|
(in millions)
|
September 30, 2017
|
|
December 31, 2016
|
United States
|
$
|
362.3
|
|
|
$
|
360.7
|
|
Canada
|
7.4
|
|
|
6.6
|
|
Other International
|
54.4
|
|
|
54.9
|
|
Total property, plant and equipment, net
|
$
|
424.1
|
|
|
$
|
422.2
|
|
Total International
|
$
|
61.8
|
|
|
$
|
61.5
|
|
The following table summarizes net sales by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
September 30,
|
|
September 30,
|
(in millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
United States
|
$
|
517.8
|
|
|
$
|
641.4
|
|
|
$
|
1,522.5
|
|
|
$
|
1,792.7
|
|
Canada
|
62.8
|
|
|
57.1
|
|
|
165.8
|
|
|
154.0
|
|
Other International
|
144.2
|
|
|
133.9
|
|
|
417.9
|
|
|
411.1
|
|
Total net sales
|
$
|
724.8
|
|
|
$
|
832.4
|
|
|
$
|
2,106.2
|
|
|
$
|
2,357.8
|
|
Total International
|
$
|
207.0
|
|
|
$
|
191.0
|
|
|
$
|
583.7
|
|
|
$
|
565.1
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(12)
Guarantor/Non-Guarantor Financial Information
The
$450.0 million
and
$600.0 million
aggregate principal amount of 2023 Senior Notes and 2026 Senior Notes (collectively the "Senior Notes"), respectively, are general unsecured senior obligations of Tempur Sealy International and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by all of Tempur Sealy International’s
100%
directly or indirectly owned current and future domestic subsidiaries (the "Combined Guarantor Subsidiaries"). The foreign subsidiaries (the "Combined Non-Guarantor Subsidiaries") represent the foreign operations of the Company and do not guarantee the Senior Notes. A subsidiary guarantor will be released from its obligations under the applicable indenture governing the Senior Notes when: (a) the subsidiary guarantor is sold or sells all or substantially all of its assets; (b) the subsidiary is declared "unrestricted" under the applicable indenture governing the Senior Notes; (c) the subsidiary’s guarantee of indebtedness under the 2016 Credit Agreement (as it may be amended, refinanced or replaced) is released (other than a discharge through repayment); or (d) the requirements for legal or covenant defeasance or discharge of the applicable indenture have been satisfied. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Company’s wholly-owned subsidiary guarantors and non-guarantor subsidiaries. The Company has accounted for its investments in its subsidiaries under the equity method.
The following supplemental financial information presents the Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended
September 30, 2017
and
2016
, the Condensed Consolidated Balance Sheets as of
September 30, 2017
and December 31,
2016
, and the Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2017
and
2016
for Tempur Sealy International, Combined Guarantor Subsidiaries and Combined Non-Guarantor Subsidiaries.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
Supplemental Condensed Consolidated Statements of Income and Comprehensive Income
Three Months Ended
September 30, 2017
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
520.2
|
|
|
$
|
222.8
|
|
|
$
|
(18.2
|
)
|
|
$
|
724.8
|
|
Cost of sales
|
—
|
|
|
300.4
|
|
|
130.4
|
|
|
(18.2
|
)
|
|
412.6
|
|
Gross profit
|
—
|
|
|
219.8
|
|
|
92.4
|
|
|
—
|
|
|
312.2
|
|
Selling and marketing expenses
|
1.4
|
|
|
101.7
|
|
|
52.3
|
|
|
—
|
|
|
155.4
|
|
General, administrative and other expenses
|
4.9
|
|
|
42.4
|
|
|
23.7
|
|
|
—
|
|
|
71.0
|
|
Equity income in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(3.5
|
)
|
|
—
|
|
|
(3.5
|
)
|
Royalty income, net of royalty expense
|
—
|
|
|
(5.3
|
)
|
|
—
|
|
|
—
|
|
|
(5.3
|
)
|
Operating (loss) income
|
(6.3
|
)
|
|
81.0
|
|
|
19.9
|
|
|
—
|
|
|
94.6
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party interest expense, net
|
14.8
|
|
|
6.7
|
|
|
10.5
|
|
|
—
|
|
|
32.0
|
|
Intercompany interest (income) expense, net
|
(1.1
|
)
|
|
2.8
|
|
|
(1.7
|
)
|
|
—
|
|
|
—
|
|
Interest expense, net
|
13.7
|
|
|
9.5
|
|
|
8.8
|
|
|
—
|
|
|
32.0
|
|
Other (income) expense, net
|
—
|
|
|
(4.5
|
)
|
|
5.6
|
|
|
—
|
|
|
1.1
|
|
Total other expense, net
|
13.7
|
|
|
5.0
|
|
|
14.4
|
|
|
—
|
|
|
33.1
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investees
|
53.8
|
|
|
1.7
|
|
|
—
|
|
|
(55.5
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
33.8
|
|
|
77.7
|
|
|
5.5
|
|
|
(55.5
|
)
|
|
61.5
|
|
Income tax benefit (provision)
|
7.4
|
|
|
(23.9
|
)
|
|
(3.8
|
)
|
|
—
|
|
|
(20.3
|
)
|
Net income before non-controlling interests
|
41.2
|
|
|
53.8
|
|
|
1.7
|
|
|
(55.5
|
)
|
|
41.2
|
|
Less: Net loss attributable to non-controlling interests
|
(3.4
|
)
|
|
—
|
|
|
(3.4
|
)
|
|
3.4
|
|
|
(3.4
|
)
|
Net income attributable to Tempur Sealy International, Inc.
|
$
|
44.6
|
|
|
$
|
53.8
|
|
|
$
|
5.1
|
|
|
$
|
(58.9
|
)
|
|
$
|
44.6
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Tempur Sealy International, Inc.
|
$
|
54.2
|
|
|
$
|
54.0
|
|
|
$
|
14.6
|
|
|
$
|
(68.6
|
)
|
|
$
|
54.2
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
Supplemental Condensed Consolidated Statements of Income and Comprehensive Income
Three Months Ended
September 30, 2016
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
656.0
|
|
|
$
|
191.5
|
|
|
$
|
(15.1
|
)
|
|
$
|
832.4
|
|
Cost of sales
|
—
|
|
|
381.1
|
|
|
104.3
|
|
|
(15.1
|
)
|
|
470.3
|
|
Gross profit
|
—
|
|
|
274.9
|
|
|
87.2
|
|
|
—
|
|
|
362.1
|
|
Selling and marketing expenses
|
1.0
|
|
|
129.6
|
|
|
44.6
|
|
|
—
|
|
|
175.2
|
|
General, administrative and other expenses
|
4.0
|
|
|
44.5
|
|
|
15.5
|
|
|
—
|
|
|
64.0
|
|
Equity income in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(2.4
|
)
|
|
—
|
|
|
(2.4
|
)
|
Royalty income, net of royalty expense
|
—
|
|
|
(5.6
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
(5.8
|
)
|
Operating (loss) income
|
(5.0
|
)
|
|
106.4
|
|
|
29.7
|
|
|
—
|
|
|
131.1
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party interest expense, net
|
15.0
|
|
|
4.7
|
|
|
0.8
|
|
|
—
|
|
|
20.5
|
|
Intercompany interest (income) expense, net
|
(1.0
|
)
|
|
—
|
|
|
1.0
|
|
|
—
|
|
|
—
|
|
Interest expense, net
|
14.0
|
|
|
4.7
|
|
|
1.8
|
|
|
—
|
|
|
20.5
|
|
Other expense, net
|
—
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
Total other expense, net
|
14.0
|
|
|
4.7
|
|
|
2.1
|
|
|
—
|
|
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investees
|
89.0
|
|
|
21.1
|
|
|
—
|
|
|
(110.1
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
70.0
|
|
|
122.8
|
|
|
27.6
|
|
|
(110.1
|
)
|
|
110.3
|
|
Income tax benefit (provision)
|
6.6
|
|
|
(33.8
|
)
|
|
(6.5
|
)
|
|
—
|
|
|
(33.7
|
)
|
Net income before non-controlling interests
|
76.6
|
|
|
89.0
|
|
|
21.1
|
|
|
(110.1
|
)
|
|
76.6
|
|
Less: Net loss attributable to non-controlling interests
|
(1.2
|
)
|
|
(1.2
|
)
|
|
—
|
|
|
1.2
|
|
|
(1.2
|
)
|
Net income attributable to Tempur Sealy International, Inc.
|
$
|
77.8
|
|
|
$
|
90.2
|
|
|
$
|
21.1
|
|
|
$
|
(111.3
|
)
|
|
$
|
77.8
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Tempur Sealy International, Inc.
|
$
|
72.6
|
|
|
$
|
90.5
|
|
|
$
|
15.8
|
|
|
$
|
(106.3
|
)
|
|
$
|
72.6
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
Supplemental Condensed Consolidated Statements of Income and Comprehensive Income
Nine Months Ended
September 30, 2017
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
1,522.4
|
|
|
$
|
641.2
|
|
|
$
|
(57.4
|
)
|
|
$
|
2,106.2
|
|
Cost of sales
|
—
|
|
|
920.9
|
|
|
375.3
|
|
|
(57.4
|
)
|
|
1,238.8
|
|
Gross profit
|
—
|
|
|
601.5
|
|
|
265.9
|
|
|
—
|
|
|
867.4
|
|
Selling and marketing expenses
|
4.2
|
|
|
308.9
|
|
|
148.3
|
|
|
—
|
|
|
461.4
|
|
General, administrative and other expenses
|
13.8
|
|
|
132.2
|
|
|
60.5
|
|
|
—
|
|
|
206.5
|
|
Customer termination charges, net
|
(8.4
|
)
|
|
21.8
|
|
|
1.0
|
|
|
—
|
|
|
14.4
|
|
Equity income in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(10.6
|
)
|
|
—
|
|
|
(10.6
|
)
|
Royalty income, net of royalty expense
|
—
|
|
|
(15.0
|
)
|
|
—
|
|
|
—
|
|
|
(15.0
|
)
|
Operating (loss) income
|
(9.6
|
)
|
|
153.6
|
|
|
66.7
|
|
|
—
|
|
|
210.7
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party interest expense, net
|
44.7
|
|
|
19.4
|
|
|
12.1
|
|
|
—
|
|
|
76.2
|
|
Intercompany interest (income) expense, net
|
(3.6
|
)
|
|
5.6
|
|
|
(2.0
|
)
|
|
—
|
|
|
—
|
|
Interest expense, net
|
41.1
|
|
|
25.0
|
|
|
10.1
|
|
|
—
|
|
|
76.2
|
|
Other (income) expense, net
|
—
|
|
|
(13.6
|
)
|
|
5.2
|
|
|
—
|
|
—
|
|
(8.4
|
)
|
Total other expense, net
|
41.1
|
|
|
11.4
|
|
|
15.3
|
|
|
—
|
|
|
67.8
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investees
|
129.1
|
|
|
33.6
|
|
|
—
|
|
|
(162.7
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
78.4
|
|
|
175.8
|
|
|
51.4
|
|
|
(162.7
|
)
|
|
142.9
|
|
Income tax benefit (provision)
|
16.5
|
|
|
(46.7
|
)
|
|
(17.8
|
)
|
|
—
|
|
|
(48.0
|
)
|
Net income before non-controlling interests
|
94.9
|
|
|
129.1
|
|
|
33.6
|
|
|
(162.7
|
)
|
|
94.9
|
|
Less: Net loss attributable to non-controlling interests
|
(8.1
|
)
|
|
—
|
|
|
(8.1
|
)
|
|
8.1
|
|
|
(8.1
|
)
|
Net income attributable to Tempur Sealy International, Inc.
|
$
|
103.0
|
|
|
$
|
129.1
|
|
|
$
|
41.7
|
|
|
$
|
(170.8
|
)
|
|
$
|
103.0
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Tempur Sealy International, Inc.
|
$
|
130.1
|
|
|
$
|
124.6
|
|
|
$
|
73.4
|
|
|
$
|
(198.0
|
)
|
|
$
|
130.1
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
Supplemental Condensed Consolidated Statements of Income and Comprehensive Income
Nine Months Ended
September 30, 2016
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
1,835.0
|
|
|
$
|
566.4
|
|
|
$
|
(43.6
|
)
|
|
$
|
2,357.8
|
|
Cost of sales
|
—
|
|
|
1,106.3
|
|
|
305.1
|
|
|
(43.6
|
)
|
|
1,367.8
|
|
Gross profit
|
—
|
|
|
728.7
|
|
|
261.3
|
|
|
—
|
|
|
990.0
|
|
Selling and marketing expenses
|
3.7
|
|
|
358.0
|
|
|
136.4
|
|
|
—
|
|
|
498.1
|
|
General, administrative and other expenses
|
12.8
|
|
|
146.3
|
|
|
48.5
|
|
|
—
|
|
|
207.6
|
|
Equity income in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(8.6
|
)
|
|
—
|
|
|
(8.6
|
)
|
Royalty income, net of royalty expense
|
—
|
|
|
(15.1
|
)
|
|
—
|
|
|
—
|
|
|
(15.1
|
)
|
Operating (loss) income
|
(16.5
|
)
|
|
239.5
|
|
|
85.0
|
|
|
—
|
|
|
308.0
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party interest expense, net
|
51.1
|
|
|
11.7
|
|
|
2.2
|
|
|
—
|
|
|
65.0
|
|
Intercompany interest (income) expense, net
|
(3.1
|
)
|
|
(0.1
|
)
|
|
3.2
|
|
|
—
|
|
|
—
|
|
Interest expense, net
|
48.0
|
|
|
11.6
|
|
|
5.4
|
|
|
—
|
|
|
65.0
|
|
Loss on extinguishment of debt
|
34.3
|
|
|
12.9
|
|
|
—
|
|
|
—
|
|
|
47.2
|
|
Other (income) expense, net
|
—
|
|
|
(1.4
|
)
|
|
1.4
|
|
|
—
|
|
|
—
|
|
Total other expense, net
|
82.3
|
|
|
23.1
|
|
|
6.8
|
|
|
—
|
|
|
112.2
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investees
|
200.8
|
|
|
62.3
|
|
|
—
|
|
|
(263.1
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
102.0
|
|
|
278.7
|
|
|
78.2
|
|
|
(263.1
|
)
|
|
195.8
|
|
Income tax benefit (provision)
|
33.6
|
|
|
(77.9
|
)
|
|
(15.9
|
)
|
|
—
|
|
|
(60.2
|
)
|
Net income before non-controlling interests
|
135.6
|
|
|
200.8
|
|
|
62.3
|
|
|
(263.1
|
)
|
|
135.6
|
|
Less: Net loss attributable to non-controlling interests
|
(3.1
|
)
|
|
(3.1
|
)
|
|
—
|
|
|
3.1
|
|
|
(3.1
|
)
|
Net income attributable to Tempur Sealy International, Inc.
|
$
|
138.7
|
|
|
$
|
203.9
|
|
|
$
|
62.3
|
|
|
$
|
(266.2
|
)
|
|
$
|
138.7
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Tempur Sealy International, Inc.
|
$
|
144.4
|
|
|
$
|
204.9
|
|
|
$
|
67.2
|
|
|
$
|
(272.1
|
)
|
|
$
|
144.4
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
Supplemental Condensed Consolidated Balance Sheets
September 30, 2017
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
0.7
|
|
|
$
|
8.0
|
|
|
$
|
33.1
|
|
|
$
|
—
|
|
|
$
|
41.8
|
|
Accounts receivable, net
|
—
|
|
|
12.6
|
|
|
351.0
|
|
|
—
|
|
|
363.6
|
|
Inventories
|
—
|
|
|
101.8
|
|
|
87.0
|
|
|
—
|
|
|
188.8
|
|
Income taxes receivable
|
254.1
|
|
|
—
|
|
|
—
|
|
|
(254.1
|
)
|
|
—
|
|
Prepaid expenses and other current assets
|
0.2
|
|
|
48.0
|
|
|
14.9
|
|
|
—
|
|
|
63.1
|
|
Total Current Assets
|
255.0
|
|
|
170.4
|
|
|
486.0
|
|
|
(254.1
|
)
|
|
657.3
|
|
Property, plant and equipment, net
|
—
|
|
|
348.5
|
|
|
75.6
|
|
|
—
|
|
|
424.1
|
|
Goodwill
|
—
|
|
|
500.2
|
|
|
232.7
|
|
|
—
|
|
|
732.9
|
|
Other intangible assets, net
|
—
|
|
|
580.4
|
|
|
91.5
|
|
|
—
|
|
|
671.9
|
|
Deferred income taxes
|
17.2
|
|
|
—
|
|
|
27.3
|
|
|
(17.2
|
)
|
|
27.3
|
|
Other non-current assets
|
—
|
|
|
50.1
|
|
|
171.7
|
|
|
—
|
|
|
221.8
|
|
Net investment in subsidiaries
|
2,380.8
|
|
|
174.2
|
|
|
—
|
|
|
(2,555.0
|
)
|
|
—
|
|
Due from affiliates
|
107.0
|
|
|
1,994.1
|
|
|
15.7
|
|
|
(2,116.8
|
)
|
|
—
|
|
Total Assets
|
$
|
2,760.0
|
|
|
$
|
3,817.9
|
|
|
$
|
1,100.5
|
|
|
$
|
(4,943.1
|
)
|
|
$
|
2,735.3
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
169.1
|
|
|
$
|
75.6
|
|
|
$
|
—
|
|
|
$
|
244.7
|
|
Accrued expenses and other current liabilities
|
21.4
|
|
|
166.6
|
|
|
85.2
|
|
|
—
|
|
|
273.2
|
|
Income taxes payable
|
—
|
|
|
267.0
|
|
|
13.5
|
|
|
(254.1
|
)
|
|
26.4
|
|
Current portion of long-term debt
|
—
|
|
|
35.5
|
|
|
30.8
|
|
|
—
|
|
|
66.3
|
|
Total Current Liabilities
|
21.4
|
|
|
638.2
|
|
|
205.1
|
|
|
(254.1
|
)
|
|
610.6
|
|
Long-term debt, net
|
1,041.4
|
|
|
598.2
|
|
|
47.1
|
|
|
—
|
|
|
1,686.7
|
|
Deferred income taxes
|
—
|
|
|
159.7
|
|
|
17.9
|
|
|
(17.2
|
)
|
|
160.4
|
|
Other non-current liabilities
|
—
|
|
|
41.0
|
|
|
149.0
|
|
|
—
|
|
|
190.0
|
|
Due to affiliates
|
1,609.6
|
|
|
—
|
|
|
507.2
|
|
|
(2,116.8
|
)
|
|
—
|
|
Total Liabilities
|
2,672.4
|
|
|
1,437.1
|
|
|
926.3
|
|
|
(2,388.1
|
)
|
|
2,647.7
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable non-controlling interest
|
3.4
|
|
|
—
|
|
|
3.4
|
|
|
(3.4
|
)
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
84.2
|
|
|
2,380.8
|
|
|
170.8
|
|
|
(2,551.6
|
)
|
|
84.2
|
|
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity
|
$
|
2,760.0
|
|
|
$
|
3,817.9
|
|
|
$
|
1,100.5
|
|
|
$
|
(4,943.1
|
)
|
|
$
|
2,735.3
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
Supplemental Condensed Consolidated Balance Sheets
December 31, 2016
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
7.9
|
|
|
$
|
57.8
|
|
|
$
|
—
|
|
|
$
|
65.7
|
|
Accounts receivable, net
|
—
|
|
|
197.7
|
|
|
147.4
|
|
|
—
|
|
|
345.1
|
|
Inventories
|
—
|
|
|
117.1
|
|
|
79.7
|
|
|
—
|
|
|
196.8
|
|
Income taxes receivable
|
234.2
|
|
|
—
|
|
|
—
|
|
|
(234.2
|
)
|
|
—
|
|
Prepaid expenses and other current assets
|
—
|
|
|
48.9
|
|
|
15.0
|
|
|
—
|
|
|
63.9
|
|
Total Current Assets
|
234.2
|
|
|
371.6
|
|
|
299.9
|
|
|
(234.2
|
)
|
|
671.5
|
|
Property, plant and equipment, net
|
—
|
|
|
346.9
|
|
|
75.3
|
|
|
—
|
|
|
422.2
|
|
Goodwill
|
—
|
|
|
500.2
|
|
|
222.3
|
|
|
—
|
|
|
722.5
|
|
Other intangible assets, net
|
—
|
|
|
589.8
|
|
|
88.9
|
|
|
—
|
|
|
678.7
|
|
Deferred income taxes
|
20.6
|
|
|
—
|
|
|
22.5
|
|
|
(20.6
|
)
|
|
22.5
|
|
Other non-current assets
|
—
|
|
|
41.7
|
|
|
143.5
|
|
|
—
|
|
|
185.2
|
|
Net investment in subsidiaries
|
2,207.4
|
|
|
77.7
|
|
|
—
|
|
|
(2,285.1
|
)
|
|
—
|
|
Due from affiliates
|
168.4
|
|
|
1,874.7
|
|
|
14.3
|
|
|
(2,057.4
|
)
|
|
—
|
|
Total Assets
|
$
|
2,630.6
|
|
|
$
|
3,802.6
|
|
|
$
|
866.7
|
|
|
$
|
(4,597.3
|
)
|
|
$
|
2,702.6
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
0.1
|
|
|
$
|
157.0
|
|
|
$
|
62.2
|
|
|
$
|
—
|
|
|
$
|
219.3
|
|
Accrued expenses and other current liabilities
|
6.8
|
|
|
172.6
|
|
|
70.7
|
|
|
—
|
|
|
250.1
|
|
Income taxes payable
|
—
|
|
|
235.9
|
|
|
4.1
|
|
|
(234.2
|
)
|
|
5.8
|
|
Current portion of long-term debt
|
—
|
|
|
34.4
|
|
|
35.9
|
|
|
—
|
|
|
70.3
|
|
Total Current Liabilities
|
6.9
|
|
|
599.9
|
|
|
172.9
|
|
|
(234.2
|
)
|
|
545.5
|
|
Long-term debt, net
|
1,040.4
|
|
|
776.5
|
|
|
0.9
|
|
|
—
|
|
|
1,817.8
|
|
Deferred income taxes
|
—
|
|
|
174.9
|
|
|
20.3
|
|
|
(20.6
|
)
|
|
174.6
|
|
Other non-current liabilities
|
—
|
|
|
43.3
|
|
|
126.0
|
|
|
—
|
|
|
169.3
|
|
Due to affiliates
|
1,587.9
|
|
|
0.6
|
|
|
468.9
|
|
|
(2,057.4
|
)
|
|
—
|
|
Total Liabilities
|
2,635.2
|
|
|
1,595.2
|
|
|
789.0
|
|
|
(2,312.2
|
)
|
|
2,707.2
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable non-controlling interest
|
7.6
|
|
|
—
|
|
|
7.6
|
|
|
(7.6
|
)
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' (Deficit) Equity
|
(12.2
|
)
|
|
2,207.4
|
|
|
70.1
|
|
|
(2,277.5
|
)
|
|
(12.2
|
)
|
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity
|
$
|
2,630.6
|
|
|
$
|
3,802.6
|
|
|
$
|
866.7
|
|
|
$
|
(4,597.3
|
)
|
|
$
|
2,702.6
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
Supplemental Condensed Consolidated Statements of Cash Flows
Nine Months Ended
September 30, 2017
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
$
|
(27.0
|
)
|
|
$
|
352.8
|
|
|
$
|
(123.3
|
)
|
|
$
|
—
|
|
|
$
|
202.5
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
—
|
|
|
(35.9
|
)
|
|
(7.5
|
)
|
|
—
|
|
|
(43.4
|
)
|
Contributions (paid to) received from subsidiaries and affiliates
|
—
|
|
|
(159.5
|
)
|
|
159.5
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
0.9
|
|
|
4.0
|
|
|
—
|
|
|
4.9
|
|
Net cash (used in) provided by investing activities
|
—
|
|
|
(194.5
|
)
|
|
156.0
|
|
|
—
|
|
|
(38.5
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under long-term debt obligations
|
—
|
|
|
523.8
|
|
|
462.1
|
|
|
—
|
|
|
985.9
|
|
Repayments of borrowings under long-term debt obligations
|
—
|
|
|
(703.2
|
)
|
|
(421.5
|
)
|
|
—
|
|
|
(1,124.7
|
)
|
Net activity in investment in and advances from (to) subsidiaries and affiliates
|
66.1
|
|
|
21.4
|
|
|
(87.5
|
)
|
|
—
|
|
|
—
|
|
Proceeds from exercise of stock options
|
6.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.5
|
|
Treasury stock repurchased
|
(44.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44.9
|
)
|
Payments of deferred financing costs
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
Other
|
—
|
|
|
(0.2
|
)
|
|
(2.7
|
)
|
|
—
|
|
|
(2.9
|
)
|
Net cash provided by (used in) financing activities
|
27.7
|
|
|
(158.2
|
)
|
|
(50.1
|
)
|
|
—
|
|
|
(180.6
|
)
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
(7.3
|
)
|
|
—
|
|
|
(7.3
|
)
|
Increase (decrease) in cash and cash equivalents
|
0.7
|
|
|
0.1
|
|
|
(24.7
|
)
|
|
—
|
|
|
(23.9
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
—
|
|
|
7.9
|
|
|
57.8
|
|
|
—
|
|
|
65.7
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
0.7
|
|
|
$
|
8.0
|
|
|
$
|
33.1
|
|
|
$
|
—
|
|
|
$
|
41.8
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
Supplemental Condensed Consolidated Statements of Cash Flows
Nine Months Ended
September 30, 2016
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
Net cash (used in) provided by operating activities
|
$
|
(30.4
|
)
|
|
$
|
38.2
|
|
|
$
|
102.0
|
|
|
$
|
—
|
|
|
$
|
109.8
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
—
|
|
|
(33.2
|
)
|
|
(8.7
|
)
|
|
—
|
|
|
(41.9
|
)
|
Contributions (paid to) received from subsidiaries and affiliates
|
—
|
|
|
(76.8
|
)
|
|
76.8
|
|
|
—
|
|
|
—
|
|
Net cash (used in) provided by investing activities
|
—
|
|
|
(110.0
|
)
|
|
68.1
|
|
|
—
|
|
|
(41.9
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under long-term debt obligations
|
600.0
|
|
|
1,214.6
|
|
|
56.9
|
|
|
—
|
|
|
1,871.5
|
|
Repayments of borrowings under long-term debt obligations
|
(375.0
|
)
|
|
(1,246.6
|
)
|
|
(37.7
|
)
|
|
—
|
|
|
(1,659.3
|
)
|
Net activity in investment in and advances from (to) subsidiaries and affiliates
|
136.5
|
|
|
22.6
|
|
|
(159.1
|
)
|
|
—
|
|
|
—
|
|
Proceeds from exercise of stock options
|
15.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15.2
|
|
Excess tax benefit from stock-based compensation
|
6.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6.0
|
|
Treasury stock repurchased
|
(319.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(319.7
|
)
|
Payments of deferred financing costs
|
(3.0
|
)
|
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
|
(6.6
|
)
|
Fees paid to lenders
|
(6.0
|
)
|
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
|
(7.8
|
)
|
Call premium on 2020 Senior Notes
|
(23.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23.6
|
)
|
Other
|
—
|
|
|
(1.6
|
)
|
|
1.7
|
|
|
—
|
|
|
0.1
|
|
Net cash provided by (used in) financing activities
|
30.4
|
|
|
(16.4
|
)
|
|
(138.2
|
)
|
|
—
|
|
|
(124.2
|
)
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
(8.6
|
)
|
|
—
|
|
|
(8.6
|
)
|
(Decrease) increase in cash and cash equivalents
|
—
|
|
|
(88.2
|
)
|
|
23.3
|
|
|
—
|
|
|
(64.9
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
—
|
|
|
119.7
|
|
|
34.2
|
|
|
—
|
|
|
153.9
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
—
|
|
|
$
|
31.5
|
|
|
$
|
57.5
|
|
|
$
|
—
|
|
|
$
|
89.0
|
|