LEXINGTON, Ky., Feb. 22,
2018 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE:
TPX) today announced financial results for the fourth quarter
and year ended December 31, 2017. The Company also issued
financial guidance for the full year 2018.
FOURTH QUARTER 2017 FINANCIAL
SUMMARY(1)
- Total net sales decreased 15.9% to $648.2 million from $771.1
million in the fourth quarter of 2016. On a constant
currency basis(2), total net sales decreased 17.0%, with
a decrease of 22.6% in the North
America business segment and an increase of 6.5% in the
International business segment.
- Gross margin under U.S. generally accepted accounting
principles ("GAAP") increased to 42.2% as compared to 41.2% in the
fourth quarter of 2016.
- GAAP operating income was $79.0
million as compared to $103.4
million in the fourth quarter of 2016. Adjusted operating
income(2) was $84.5
million as compared to $112.0
million in the fourth quarter of 2016.
- GAAP net income was $49.7 million
as compared to $52.9 million in the
fourth quarter of 2016. Adjusted net income(2) was
$43.4 million as compared to
$66.5 million in the fourth quarter
of 2016.
- Earnings before interest, tax, depreciation and amortization
("EBITDA")(2) was $106.6
million as compared to $126.0
million for the fourth quarter of 2016. Adjusted
EBITDA(2) was $112.3
million as compared to $137.9
million in the fourth quarter of 2016.
- GAAP earnings per diluted share ("EPS") was $0.91 as compared to $0.94 in the fourth quarter of 2016. Adjusted
EPS(2) was $0.79 as
compared to $1.18 in the fourth
quarter of 2016.
- The Company recorded a net income tax benefit of $23.8 million related to the enactment of the Tax
Cuts and Jobs Act of 2017 ("U.S. Tax Reform"). This is comprised of
a $69.7 million deferred tax benefit
related to the reduction in the U.S. income tax rate, net of a
one-time tax charge for transition tax on foreign subsidiary
earnings of $45.9 million.
- The Company ended the fourth quarter of 2017 with total debt
and consolidated funded debt less qualified cash(2) of
$1.8 billion. Leverage based on the
ratio of consolidated funded debt less qualified cash to adjusted
EBITDA(2) was 3.91 times for the trailing twelve months
ended December 31, 2017.
FULL YEAR 2017 FINANCIAL
SUMMARY(1)
- Total net sales decreased 12.0% to $2,754.4 million from $3,128.9 million in 2016.
- GAAP gross margin was 41.4% as compared to 41.8% in 2016.
Adjusted gross margin(2) was 42.0% as compared to 41.9%
in 2016.
- GAAP operating income was $289.7
million as compared to $411.4
million in 2016. Adjusted operating income(2) was
$326.5 million, or 11.9% of net
sales, as compared to $425.0 million,
or 13.6% of net sales, in 2016.
- GAAP net income was $152.7
million as compared to $191.6
million in 2016. Adjusted net income(2) was
$175.2 million as compared to
$242.4 million in 2016.
- EBITDA(2) was $403.0
million as compared to $506.7
million in 2016. Adjusted EBITDA(2) was
$448.5 million as compared to
$521.6 million in 2016.
- GAAP EPS was $2.79 as compared to
$3.20 in 2016. Adjusted
EPS(2) was $3.20 as
compared to $4.05 in 2016.
- Operating cash flow for the full year 2017 was $222.9 million as compared to $165.5 million in 2016.
KEY
HIGHLIGHTS(1)
|
|
|
|
(in millions,
except
percentages and per
common share
amounts)
|
Three Months Ended
December 31,
|
|
Year Ended
December 31,
|
2017
|
|
2016
|
|
%
Change
|
|
% Change
Constant
Currency(2)
|
|
2017
|
|
2016
|
|
%
Change
|
|
% Change
Constant
Currency(2)
|
Net sales
|
$
|
648.2
|
|
|
$
|
771.1
|
|
|
(15.9)%
|
|
|
(17.0)%
|
|
|
$
|
2,754.4
|
|
|
$
|
3,128.9
|
|
|
(12.0)%
|
|
|
(12.0)%
|
|
Net income
|
49.7
|
|
|
52.9
|
|
|
(6.0)%
|
|
|
(7.2)%
|
|
|
152.7
|
|
|
191.6
|
|
|
(20.3)%
|
|
|
(19.3)%
|
|
Adjusted net income
(2)
|
43.4
|
|
|
66.5
|
|
|
(34.7)%
|
|
|
(35.6)%
|
|
|
175.2
|
|
|
242.4
|
|
|
(27.7)%
|
|
|
(26.9)%
|
|
EPS
|
0.91
|
|
|
0.94
|
|
|
(3.2)%
|
|
|
(4.3)%
|
|
|
2.79
|
|
|
3.20
|
|
|
(12.8)%
|
|
|
(11.6)%
|
|
Adjusted EPS
(2)
|
0.79
|
|
|
1.18
|
|
|
(33.1)%
|
|
|
(33.9)%
|
|
|
3.20
|
|
|
4.05
|
|
|
(21.0)%
|
|
|
(20.0)%
|
|
EBITDA
(2)
|
106.6
|
|
|
126.0
|
|
|
(15.4)%
|
|
|
(16.3)%
|
|
|
403.0
|
|
|
506.7
|
|
|
(20.5)%
|
|
|
(20.7)%
|
|
Adjusted EBITDA
(2)
|
112.3
|
|
|
137.9
|
|
|
(18.6)%
|
|
|
(19.4)%
|
|
|
448.5
|
|
|
521.6
|
|
|
(14.0)%
|
|
|
(14.2)%
|
|
Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, "The team is pleased
to report our 2017 adjusted EBITDA was at the high end of our
guidance despite rising commodity costs. Tempur-Pedic sales
in North America grew 19 percent
in the quarter excluding Mattress Firm, demonstrating brand
strength even as the current Tempur-Pedic products reach the fourth
year of their lifecycle. In addition, our North American
direct to customer channel grew 56 percent, demonstrating our
ability to change with consumers' purchasing habits."
"We enter 2018 as a much stronger company, supported by a
diversified base of retail partners and a growing direct to
consumer business. Our manufacturing operations have never
been stronger, and we are incredibly excited about our innovative
new product lineup, which will enable our retail partners to
succeed by driving higher average selling prices."
Fourth Quarter Business Segment
Highlights(1)
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 22.1% to $485.5
million from $623.4 million in
the fourth quarter of 2016. On a constant currency
basis(2), North America
net sales decreased 22.6% compared to the fourth quarter of 2016.
Gross margin increased to 39.8% as compared to 39.4% in the fourth
quarter of 2016. Operating margin was 13.7% as compared to 16.5% in
the fourth quarter of 2016.
At the beginning of the second quarter of 2017, the Company
terminated its contracts with Mattress Firm, Inc. ("Mattress
Firm"), a wholly owned subsidiary of Steinhoff International
Holdings N.V. ("Steinhoff"). In the fourth quarter of 2016, net
sales to Mattress Firm were $155.7
million. Excluding Mattress Firm sales in the prior year,
North America net sales increased
4% in the fourth quarter of 2017 driven by growth of Tempur-Pedic
product sales, which increased approximately 19% in the period.
North America net sales through
the wholesale channel decreased $150.2
million or 25.0% to $451.1
million. Excluding Mattress Firm sales in the prior year,
the wholesale channel increased 1% as compared to the fourth
quarter of 2016. North America net
sales through the direct channel increased $12.3 million or 55.7% to $34.4 million, primarily driven by an increase of
more than 90% in web sales as compared to the fourth quarter of
2016.
North America adjusted gross
margin(2) improved 30 basis points as compared to the
fourth quarter of 2016. The increase was driven primarily by
operational improvements, lower floor model discounts and favorable
product and channel mix. This was partially offset by significant
commodity cost inflation and fixed cost deleverage on lower unit
volume. North America adjusted
operating margin(2) declined 290 basis points as
compared to the fourth quarter of 2016. The decline in adjusted
operating margin was driven by unfavorable operating expense
leverage.
International net
sales increased 10.2% to $162.7 million from $147.7
million in the fourth quarter of 2016. On a constant
currency basis(2), International net sales increased
6.5% compared to the fourth quarter of 2016. Gross margin was 49.2%
as compared to 48.7% in the fourth quarter of 2016. Operating
margin increased to 20.3% as compared to 15.2% in the fourth
quarter of 2016.
International net sales through the wholesale channel increased
$12.2 million or 10.1% to
$132.7 million and sales through the
direct channel increased $2.8 million
or 10.3% to $30.0 million as compared
to the fourth quarter of 2016.
International adjusted gross margin(2) improved 40
basis points as compared to the fourth quarter of 2016. The
increase was primarily driven by operational improvements and
favorable channel mix, partially offset by commodity cost
inflation. International adjusted operating margin(2)
improved 130 basis points as compared to the fourth quarter of
2016, driven primarily by improved operating expense leverage.
In 2017, International operating income includes $4.6 million of restructuring costs, primarily
related to the wind down of certain Latin American operations and
leadership termination charges. As discussed below under "Revisions
of Previously Issued Financial Statements", the Company has revised
its prior year financial statements to correct certain immaterial
errors relating to its Latin American operations. In 2016,
International operating income includes $4.1
million of charges associated with this issue.
Corporate operating expense decreased 6.8% to
$20.5 million from $22.0 million in the fourth quarter of 2016.
Balance Sheet
As of December 31, 2017, the Company reported $41.9 million in cash and cash equivalents and
$1.8 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
For the full year 2018, the Company currently expects adjusted
EBITDA(2) to range from $450
million to $500 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.
The Company also noted that its 2018 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 2018 but would not impact adjusted EBITDA. These items that
impact comparability may include restructuring activities, foreign
currency exchange rates, income taxes (including the impact of U.S.
Tax Reform), and other items. The unavailable information could
have a significant impact on the Company's full year 2018 GAAP
financial results.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference
call to discuss financial results today, February 22, 2018, 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 EBITDA, adjusted EBITDA,
adjusted EPS, adjusted net income, adjusted operating income,
adjusted gross margin, adjusted operating margin, 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 2018 and performance
generally for 2018 and subsequent periods and the Company's
expectations for product launches in 2018 and the ability of its
retail partners to drive higher average selling prices. All
forward-looking statements are based upon current expectations and
beliefs and various assumptions. There can be no assurance that the
Company will realize these expectations or that these beliefs will
prove correct.
Numerous factors, many of which are beyond the Company's
control, could cause actual results to differ materially from those
expressed as forward-looking statements. These risk factors include
risks associated with the Company's capital structure and debt
level; general economic, financial and industry conditions,
particularly in the retail sector, as well as consumer confidence
and the availability of consumer financing; changes in product and
channel mix and the impact on the Company's gross margin; changes
in interest rates; the impact of the macroeconomic environment in
both the U.S. and internationally on the Company's business
segments; uncertainties arising from global events; the effects of
changes in foreign exchange rates on the Company's reported
earnings; consumer acceptance of the Company's products; industry
competition; the efficiency and effectiveness of the Company's
advertising campaigns and other marketing programs; the Company's
ability to increase sales productivity within existing retail
accounts and to further penetrate the Company's wholesale 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; the Company's ability to expand distribution either
through third parties or through direct sales; the Company's
ability to continuously improve and expand its product line and
successfully roll out new products, 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.
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
(1) All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
(2) This is a non-GAAP financial measure. Please refer to "Non-GAAP
Financial Measures and Constant Currency Information" below.
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
|
Consolidated
Statements of Income
|
(in millions,
except percentages and per common share amounts)
|
(unaudited)
|
|
|
Three Months
Ended
|
|
|
|
Year
Ended
|
|
|
|
December
31,
|
|
Chg
%
|
|
December
31,
|
|
Chg
%
|
|
2017
|
|
2016
|
|
|
|
2017
|
|
2016
|
|
|
Net sales
|
$
|
648.2
|
|
|
$
|
771.1
|
|
|
(15.9)%
|
|
$
|
2,754.4
|
|
|
$
|
3,128.9
|
|
|
(12.0)%
|
Cost of sales
(1)
|
374.9
|
|
|
453.6
|
|
|
|
|
1,613.7
|
|
|
1,821.4
|
|
|
|
Gross
profit
|
273.3
|
|
|
317.5
|
|
|
(13.9)%
|
|
1,140.7
|
|
|
1,307.5
|
|
|
(12.8)%
|
Selling and marketing
expenses
|
139.9
|
|
|
150.4
|
|
|
|
|
601.3
|
|
|
648.5
|
|
|
|
General,
administrative and other expenses
|
65.2
|
|
|
72.8
|
|
|
|
|
271.7
|
|
|
280.4
|
|
|
|
Customer termination
charges, net (1)
|
—
|
|
|
—
|
|
|
|
|
14.4
|
|
|
—
|
|
|
|
Equity income in
earnings of unconsolidated
affiliates
|
(5.0)
|
|
|
(4.7)
|
|
|
|
|
(15.6)
|
|
|
(13.3)
|
|
|
|
Royalty income, net
of royalty expense
|
(5.8)
|
|
|
(4.4)
|
|
|
|
|
(20.8)
|
|
|
(19.5)
|
|
|
|
Operating
income
|
79.0
|
|
|
103.4
|
|
|
(23.6)%
|
|
289.7
|
|
|
411.4
|
|
|
(29.6)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense,
net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
31.8
|
|
|
26.6
|
|
|
|
|
108.0
|
|
|
91.6
|
|
|
|
Loss on
extinguishment of debt
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
47.2
|
|
|
|
Other expense
(income), net
|
0.4
|
|
|
(0.2)
|
|
|
|
|
(8.0)
|
|
|
(0.2)
|
|
|
|
Total other
expense, net
|
32.2
|
|
|
26.4
|
|
|
|
|
100.0
|
|
|
138.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
46.8
|
|
|
77.0
|
|
|
(39.2)%
|
|
189.7
|
|
|
272.8
|
|
|
(30.5)%
|
Income tax benefit
(provision)
|
0.3
|
|
|
(26.6)
|
|
|
|
|
(47.7)
|
|
|
(86.8)
|
|
|
|
Net income before
non-controlling interests
|
47.1
|
|
|
50.4
|
|
|
(6.5)%
|
|
142.0
|
|
|
186.0
|
|
|
(23.7)%
|
Less: Net loss
attributable to non-controlling
interests
|
(2.6)
|
|
|
(2.5)
|
|
|
|
|
(10.7)
|
|
|
(5.6)
|
|
|
|
Net income
attributable to Tempur Sealy
International, Inc.
|
$
|
49.7
|
|
|
$
|
52.9
|
|
|
(6.0)%
|
|
$
|
152.7
|
|
|
$
|
191.6
|
|
|
(20.3)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.92
|
|
|
$
|
0.95
|
|
|
|
|
$
|
2.83
|
|
|
$
|
3.25
|
|
|
|
Diluted
|
$
|
0.91
|
|
|
$
|
0.94
|
|
|
(3.2)%
|
|
$
|
2.79
|
|
|
$
|
3.20
|
|
|
(12.8)%
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
54.2
|
|
|
55.8
|
|
|
|
|
54.0
|
|
|
59.0
|
|
|
|
Diluted
|
54.8
|
|
|
56.5
|
|
|
|
|
54.7
|
|
|
59.8
|
|
|
|
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
Please refer to Footnotes at the end of this release.
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
|
Consolidated
Balance Sheets
|
(in
millions)
|
|
|
December 31,
2017
|
|
December 31,
2016
|
ASSETS
|
(unaudited)
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and
cash equivalents
|
$
|
41.9
|
|
|
$
|
65.7
|
|
Accounts
receivable, net
|
317.7
|
|
|
341.6
|
|
Inventories
|
183.0
|
|
|
196.5
|
|
Prepaid
expenses and other current assets
|
64.8
|
|
|
63.9
|
|
Total Current
Assets
|
607.4
|
|
|
667.7
|
|
Property, plant and equipment, net
|
435.1
|
|
|
422.2
|
|
Goodwill
|
733.1
|
|
|
722.5
|
|
Other
intangible assets, net
|
667.4
|
|
|
678.7
|
|
Deferred
income taxes
|
23.6
|
|
|
22.5
|
|
Other
non-current assets
|
227.4
|
|
|
185.2
|
|
Total
Assets
|
$
|
2,694.0
|
|
|
$
|
2,698.8
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
|
241.2
|
|
|
$
|
235.0
|
|
Accrued
expenses and other current liabilities
|
229.2
|
|
|
245.7
|
|
Income
taxes payable
|
29.1
|
|
|
5.8
|
|
Current
portion of long-term debt
|
72.4
|
|
|
70.3
|
|
Total Current
Liabilities
|
571.9
|
|
|
556.8
|
|
Long-term debt, net
|
1,680.7
|
|
|
1,817.8
|
|
Deferred
income taxes
|
114.3
|
|
|
174.6
|
|
Other
non-current liabilities
|
207.4
|
|
|
179.6
|
|
Total
Liabilities
|
2,574.3
|
|
|
2,728.8
|
|
|
|
|
|
Redeemable
non-controlling interest
|
2.2
|
|
|
7.6
|
|
|
|
|
|
Stockholders' Equity
(Deficit):
|
|
|
|
Common stock,
$0.01 par value; 300.0 million shares authorized; 99.2 million
shares
issued as of December 31, 2017 and 2016
|
1.0
|
|
|
1.0
|
|
Additional paid
in capital
|
508.0
|
|
|
492.8
|
|
Retained
earnings
|
1,425.3
|
|
|
1,272.6
|
|
Accumulated
other comprehensive loss
|
(79.6)
|
|
|
(107.0)
|
|
Treasury stock
at cost; 45.0 million and 44.8 million shares as of December 31,
2017 and
2016, respectively
|
(1,737.2)
|
|
|
(1,700.0)
|
|
Total stockholders'
equity (deficit), net of non-controlling interests in
subsidiaries
|
117.5
|
|
|
(40.6)
|
|
Non-controlling
interests in subsidiaries
|
—
|
|
|
3.0
|
|
Total Stockholders'
Equity (Deficit)
|
117.5
|
|
|
(37.6)
|
|
Total Liabilities,
Redeemable Non-Controlling Interest and Stockholders' Equity
(Deficit)
|
$
|
2,694.0
|
|
|
$
|
2,698.8
|
|
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
|
Consolidated
Statements of Cash Flows
|
(in
millions)
|
(unaudited)
|
|
|
Year
Ended
|
|
December
31,
|
|
2017
|
|
2016
|
CASH FLOWS FROM
OPERATING ACTIVITIES:
|
|
|
|
Net income before
non-controlling interests
|
$
|
142.0
|
|
|
$
|
186.0
|
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
Depreciation
and amortization
|
81.3
|
|
|
73.3
|
|
Amortization
of stock-based compensation
|
13.3
|
|
|
16.2
|
|
Amortization
of deferred financing costs
|
2.2
|
|
|
3.5
|
|
Bad debt
expense
|
10.4
|
|
|
4.6
|
|
Deferred
income taxes
|
(60.2)
|
|
|
(31.1)
|
|
Dividends
received from unconsolidated affiliates
|
11.3
|
|
|
10.8
|
|
Equity income
in earnings of unconsolidated affiliates
|
(15.6)
|
|
|
(13.3)
|
|
Non-cash
interest expense on 8.0% Sealy Notes
|
—
|
|
|
4.0
|
|
Loss on
extinguishment of debt
|
—
|
|
|
47.2
|
|
Loss on sale
of assets
|
0.3
|
|
|
1.3
|
|
Foreign
currency adjustments and other
|
(3.2)
|
|
|
(0.5)
|
|
Changes in
operating assets and liabilities
|
|
|
|
Accounts
receivable
|
22.3
|
|
|
17.6
|
|
Inventories
|
17.1
|
|
|
1.8
|
|
Prepaid
expenses and other assets
|
(16.2)
|
|
|
(124.4)
|
|
Accounts
payable
|
(1.6)
|
|
|
(40.6)
|
|
Accrued
expenses and other
|
(5.4)
|
|
|
5.8
|
|
Income
taxes
|
24.9
|
|
|
3.3
|
|
Net cash provided by
operating activities
|
222.9
|
|
|
165.5
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES:
|
|
|
|
Purchases of
property, plant and equipment
|
(67.0)
|
|
|
(62.4)
|
|
Proceeds from sale of
property, plant and equipment
|
4.9
|
|
|
0.2
|
|
Other
|
—
|
|
|
(0.2)
|
|
Net cash used in
investing activities
|
(62.1)
|
|
|
(62.4)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES:
|
|
|
|
Proceeds from
borrowings under long-term debt obligations
|
1,332.9
|
|
|
2,233.3
|
|
Repayments of
borrowings under long-term debt obligations
|
(1,471.5)
|
|
|
(1,867.7)
|
|
Proceeds from
exercise of stock options
|
12.8
|
|
|
15.7
|
|
Excess tax benefit
from stock-based compensation
|
—
|
|
|
7.0
|
|
Treasury stock
repurchased
|
(44.9)
|
|
|
(535.0)
|
|
Payment of deferred
financing costs
|
(0.5)
|
|
|
(6.9)
|
|
Fees paid to
lenders
|
—
|
|
|
(7.8)
|
|
Call premium on 2020
Senior Notes
|
—
|
|
|
(23.6)
|
|
Other
|
(4.0)
|
|
|
(0.1)
|
|
Net cash used in
financing activities
|
(175.2)
|
|
|
(185.1)
|
|
NET EFFECT OF
EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
|
(9.4)
|
|
|
(6.2)
|
|
Decrease in cash and
cash equivalents
|
(23.8)
|
|
|
(88.2)
|
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
65.7
|
|
|
153.9
|
|
CASH AND CASH
EQUIVALENTS, end of period
|
$
|
41.9
|
|
|
$
|
65.7
|
|
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
Summary of Channel Sales
The following table highlights net sales information, by channel
and by segment, for the three months ended December 31,
2017 and 2016:
|
Three Months Ended
December 31,
|
(in
millions)
|
Consolidated
|
|
North
America
|
|
International
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Wholesale
(a)
|
$
|
583.8
|
|
|
$
|
721.8
|
|
|
$
|
451.1
|
|
|
$
|
601.3
|
|
|
$
|
132.7
|
|
|
$
|
120.5
|
|
Direct
(b)
|
64.4
|
|
|
49.3
|
|
|
34.4
|
|
|
22.1
|
|
|
30.0
|
|
|
27.2
|
|
|
$
|
648.2
|
|
|
$
|
771.1
|
|
|
$
|
485.5
|
|
|
$
|
623.4
|
|
|
$
|
162.7
|
|
|
$
|
147.7
|
|
(a)
|
The Wholesale channel
includes all third party retailers, including third party
distribution, hospitality, and healthcare.
|
(b)
|
The Direct channel
includes company-owned stores, e-commerce and call
centers.
|
Revision of Previously Issued Financial Statements
As previously disclosed, the Company recorded $11.7 million of charges related to non-income
tax obligations and local financing arrangements in one of its
Latin American subsidiaries during the third quarter of 2017.
As a result, the Company terminated the senior leadership team of
this subsidiary. During the fourth quarter of 2017, the
Company conducted a thorough review of certain of its Latin
American operations and internal controls over financial reporting
previously operating under the former leadership. As a result of
this review, during the fourth quarter of 2017 the Company
identified accounting and operational irregularities that violated
Company policies, and corrected certain errors impacting its
current and prior year financial statements. These errors
were associated with a Latin American subsidiary, and the errors
were immaterial to each of the prior reporting periods
affected. However, the Company concluded that the cumulative
effect of correcting the errors in fiscal year 2017 would
materially misstate the Company's consolidated statement of income
for the year ended December 31, 2017.
Accordingly, the financial results for the prior year have been
revised. Additional charges have been recorded for prior years
2016, 2015, 2014 and 2013 in the amounts of $10.5 million, $7.9
million, $5.7 million, and
$15.8 million, respectively. The
Company's revised 2016 financial statements are presented herein.
The impact of correcting these errors in years preceding 2016 will
be reflected in the Company's 2017 Annual Report on Form 10-K to be
filed with the U.S. Securities and Exchange Commission.
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
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,
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 the
exclusion of charges associated with the Mattress Firm termination
in the first quarter of 2017, charges related to the Company's
Latin American operations 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 are provided below. Management believes
that the use of these non-GAAP financial measures provides
investors with additional useful information with respect to the
impact of various adjustments as described in the footnotes at the
end of this release.
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
Please refer to 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 December 31,
2017 and 2016:
|
Three Months
Ended
|
(in millions,
except per share amounts)
|
December 31,
2017
|
|
December 31,
2016
|
GAAP net
income
|
$
|
49.7
|
|
|
$
|
52.9
|
|
Latin American
subsidiary charges (2)
|
12.7
|
|
|
10.5
|
|
Restructuring
costs (3)
|
—
|
|
|
8.3
|
|
Other costs
(4)
|
0.4
|
|
|
—
|
|
Stock
compensation benefit (5)
|
—
|
|
|
(3.8)
|
|
Tax adjustments
(6)
|
(19.4)
|
|
|
(1.4)
|
|
Adjusted net
income
|
$
|
43.4
|
|
|
$
|
66.5
|
|
|
|
|
|
Adjusted earnings per
common share, diluted
|
$
|
0.79
|
|
|
$
|
1.18
|
|
|
|
|
|
Diluted shares
outstanding
|
54.8
|
|
|
56.5
|
|
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 year ended December 31, 2017 and
2016:
|
Year
Ended
|
(in millions,
except per share amounts)
|
December 31,
2017
|
|
December 31,
2016
|
GAAP net
income
|
$
|
152.7
|
|
|
$
|
191.6
|
|
Latin American
subsidiary charges (7)
|
24.4
|
|
|
10.5
|
|
Customer
termination charges (1)
|
25.9
|
|
|
—
|
|
Other costs
(4)
|
3.4
|
|
|
—
|
|
Restructuring
costs (3)
|
—
|
|
|
8.3
|
|
Loss on
extinguishment of debt (8)
|
—
|
|
|
47.2
|
|
Executive
management transition and retention compensation
(9)
|
—
|
|
|
3.0
|
|
Interest
expense (10)
|
—
|
|
|
2.1
|
|
Integration
costs (11)
|
—
|
|
|
2.0
|
|
Stock
compensation benefit (5)
|
—
|
|
|
(3.8)
|
|
Tax adjustments
(6)
|
(31.2)
|
|
|
(18.5)
|
|
Adjusted net
income
|
$
|
175.2
|
|
|
$
|
242.4
|
|
|
|
|
|
Adjusted earnings per
common share, diluted
|
$
|
3.20
|
|
|
$
|
4.05
|
|
|
|
|
|
Diluted shares
outstanding
|
54.7
|
|
|
59.8
|
|
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
Please refer to Footnotes at the end of this release.
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 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 December 31, 2017:
|
4Q
2017
|
(in millions,
except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America(12)
|
|
Margin
|
|
International(13)
|
|
Margin
|
|
Corporate(14)
|
Net sales
|
$
|
648.2
|
|
|
|
|
$
|
485.5
|
|
|
|
|
$
|
162.7
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
273.3
|
|
|
42.2
|
%
|
|
$
|
193.3
|
|
|
39.8
|
%
|
|
$
|
80.0
|
|
|
49.2
|
%
|
|
$
|
—
|
|
Adjustments
|
3.2
|
|
|
|
|
—
|
|
|
|
|
3.2
|
|
|
|
|
—
|
|
Adjusted gross
profit
|
$
|
276.5
|
|
|
42.7
|
%
|
|
$
|
193.3
|
|
|
39.8
|
%
|
|
$
|
83.2
|
|
|
51.1
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
79.0
|
|
|
12.2
|
%
|
|
$
|
66.4
|
|
|
13.7
|
%
|
|
$
|
33.1
|
|
|
20.3
|
%
|
|
$
|
(20.5)
|
|
Adjustments
|
5.5
|
|
|
|
|
0.4
|
|
|
|
|
4.6
|
|
|
|
|
0.5
|
|
Adjusted operating
income
(expense)
|
$
|
84.5
|
|
|
13.0
|
%
|
|
$
|
66.8
|
|
|
13.8
|
%
|
|
$
|
37.7
|
|
|
23.2
|
%
|
|
$
|
(20.0)
|
|
The following table sets forth the Company's reported GAAP gross
profit and operating income (expense) for the three months ended
December 31, 2016:
|
4Q
2016
|
(in millions,
except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America(12)
|
|
Margin
|
|
International(15)
|
|
Margin
|
|
Corporate(16)
|
Net sales
|
$
|
771.1
|
|
|
|
|
$
|
623.4
|
|
|
|
|
$
|
147.7
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
317.5
|
|
|
41.2
|
%
|
|
$
|
245.5
|
|
|
39.4
|
%
|
|
$
|
72.0
|
|
|
48.7
|
%
|
|
$
|
—
|
|
Adjustments
|
3.7
|
|
|
|
|
0.8
|
|
|
|
|
2.9
|
|
|
|
|
—
|
|
Adjusted gross
profit
|
$
|
321.2
|
|
|
41.7
|
%
|
|
$
|
246.3
|
|
|
39.5
|
%
|
|
$
|
74.9
|
|
|
50.7
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
103.4
|
|
|
13.4
|
%
|
|
$
|
102.9
|
|
|
16.5
|
%
|
|
$
|
22.5
|
|
|
15.2
|
%
|
|
$
|
(22.0)
|
|
Adjustments
|
8.6
|
|
|
|
|
0.9
|
|
|
|
|
9.9
|
|
|
|
|
(2.2)
|
|
Adjusted operating
income
(expense)
|
$
|
112.0
|
|
|
14.5
|
%
|
|
$
|
103.8
|
|
|
16.7
|
%
|
|
$
|
32.4
|
|
|
21.9
|
%
|
|
$
|
(24.2)
|
|
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
Please refer to Footnotes at the end of this release.
The following table sets forth the reconciliation of the
Company's reported GAAP gross profit and operating income (expense)
to the calculation of adjusted gross profit and operating income
(expense) for the year ended December 31, 2017:
|
FULL YEAR
2017
|
(in millions,
except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America(17)
|
|
Margin
|
|
International(18)
|
|
Margin
|
|
Corporate(19)
|
Net sales
|
$
|
2,754.4
|
|
|
|
|
$
|
2,173.8
|
|
|
|
|
$
|
580.6
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
1,140.7
|
|
|
41.4
|
%
|
|
$
|
844.7
|
|
|
38.9
|
%
|
|
$
|
296.0
|
|
|
51.0
|
%
|
|
$
|
—
|
|
Adjustments
|
15.6
|
|
|
|
|
12.4
|
|
|
|
|
3.2
|
|
|
|
|
—
|
|
Adjusted gross
profit
|
$
|
1,156.3
|
|
|
42.0
|
%
|
|
$
|
857.1
|
|
|
39.4
|
%
|
|
$
|
299.2
|
|
|
51.5
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
289.7
|
|
|
10.5
|
%
|
|
$
|
273.2
|
|
|
12.6
|
%
|
|
$
|
106.2
|
|
|
18.3
|
%
|
|
$
|
(89.7)
|
|
Adjustments
|
36.8
|
|
|
|
|
33.7
|
|
|
|
|
9.9
|
|
|
|
|
(6.8)
|
|
Adjusted operating
income
(expense)
|
$
|
326.5
|
|
|
11.9
|
%
|
|
$
|
306.9
|
|
|
14.1
|
%
|
|
$
|
116.1
|
|
|
20.0
|
%
|
|
$
|
(96.5)
|
|
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 year ended December 31, 2016:
|
FULL YEAR
2016
|
(in millions,
except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America(20)
|
|
Margin
|
|
International(21)
|
|
Margin
|
|
Corporate(22)
|
Net sales
|
$
|
3,128.9
|
|
|
|
|
$
|
2,570.1
|
|
|
|
|
$
|
558.8
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
1,307.5
|
|
|
41.8
|
%
|
|
$
|
1,017.4
|
|
|
39.6
|
%
|
|
$
|
290.1
|
|
|
51.9
|
%
|
|
$
|
—
|
|
Adjustments
|
4.0
|
|
|
|
|
1.0
|
|
|
|
|
3.0
|
|
|
|
|
—
|
|
Adjusted gross
profit
|
$
|
1,311.5
|
|
|
41.9
|
%
|
|
$
|
1,018.4
|
|
|
39.6
|
%
|
|
$
|
293.1
|
|
|
52.5
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
411.4
|
|
|
13.1
|
%
|
|
$
|
411.8
|
|
|
16.0
|
%
|
|
$
|
98.6
|
|
|
17.6
|
%
|
|
$
|
(99.0)
|
|
Adjustments
|
13.6
|
|
|
|
|
1.6
|
|
|
|
|
9.9
|
|
|
|
|
2.1
|
|
Adjusted operating
income
(expense)
|
$
|
425.0
|
|
|
13.6
|
%
|
|
$
|
413.4
|
|
|
16.1
|
%
|
|
$
|
108.5
|
|
|
19.4
|
%
|
|
$
|
(96.9)
|
|
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 provided by 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.
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
Please refer to Footnotes at the end of this release.
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 December 31, 2017 and 2016:
|
Three Months
Ended
|
(in
millions)
|
December 31,
2017
|
|
December 31,
2016
|
GAAP net
income
|
$
|
49.7
|
|
|
$
|
52.9
|
|
Interest expense,
net
|
31.8
|
|
|
26.6
|
|
Income
taxes
|
(0.3)
|
|
|
26.6
|
|
Depreciation and
amortization
|
25.4
|
|
|
19.9
|
|
EBITDA
|
$
|
106.6
|
|
|
$
|
126.0
|
|
Adjustments:
|
|
|
|
Latin American
subsidiary charges (2)
|
5.3
|
|
|
4.1
|
|
Restructuring
costs (3)
|
—
|
|
|
7.8
|
|
Other costs
(4)
|
0.4
|
|
|
—
|
|
Adjusted
EBITDA
|
$
|
112.3
|
|
|
$
|
137.9
|
|
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 year ended December 31,
2017 and 2016:
|
Year
Ended
|
(in
millions)
|
December 31,
2017
|
|
December 31,
2016
|
GAAP net
income
|
$
|
152.7
|
|
|
$
|
191.6
|
|
Interest expense,
net
|
108.0
|
|
|
91.6
|
|
Loss on
extinguishment of debt (8)
|
—
|
|
|
47.2
|
|
Income
taxes
|
47.7
|
|
|
86.8
|
|
Depreciation and
amortization
|
94.6
|
|
|
89.5
|
|
EBITDA
|
$
|
403.0
|
|
|
$
|
506.7
|
|
Adjustments:
|
|
|
|
Customer
termination charges (23)
|
34.3
|
|
|
—
|
|
Latin American
subsidiary charges (7)
|
7.8
|
|
|
4.1
|
|
Other costs
(4)
|
3.4
|
|
|
—
|
|
Restructuring
costs (3)
|
—
|
|
|
7.8
|
|
Integration
costs (11)
|
—
|
|
|
2.0
|
|
Executive
management transition and retention compensation
(9)
|
—
|
|
|
1.0
|
|
Adjusted
EBITDA
|
$
|
448.5
|
|
|
$
|
521.6
|
|
|
|
|
|
Consolidated funded
debt less qualified cash
|
$
|
1,753.1
|
|
|
$
|
1,879.5
|
|
|
|
|
|
Ratio of consolidated
funded debt less qualified cash to adjusted EBITDA
|
3.91 times
|
|
3.60 times
|
Under the Company's senior secured credit agreement entered into
during 2016 ("2016 Credit Agreement"), adjusted EBITDA contains
certain restrictions that limit adjustments to GAAP net income when
calculating adjusted EBITDA. For the twelve months ended
December 31, 2017, the Company's adjustments to GAAP net
income when calculating adjusted EBITDA did not exceed the
allowable amount under the 2016 Credit Agreement.
The ratio of adjusted EBITDA under the Company's 2016 Credit
Agreement to consolidated funded debt less qualified cash is 3.91
times for the twelve months ended December
31, 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.
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
Please refer to Footnotes at the end of this release.
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 December 31, 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)
|
December 31,
2017
|
Total debt,
net
|
$
|
1,753.1
|
|
Plus: Deferred
financing costs (24)
|
9.4
|
|
Total debt
|
1,762.5
|
|
Plus: Letters of
credit outstanding
|
23.1
|
|
Consolidated funded
debt
|
$
|
1,785.6
|
|
Less:
|
|
Domestic qualified
cash (25)
|
18.4
|
|
Foreign qualified
cash (25)
|
14.1
|
|
Consolidated funded
debt less qualified cash
|
$
|
1,753.1
|
|
The following table sets forth the reconciliation of the
Company's net cash from operating activities to free cash flow for
the three and twelve months ended December 31, 2017 and
2016:
|
Three Months
Ended
December 31,
|
|
Year Ended
December 31,
|
(in
millions)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net cash provided by
operating activities
|
$
|
20.4
|
|
|
$
|
55.7
|
|
|
$
|
222.9
|
|
|
$
|
165.5
|
|
Subtract: Purchases
of property, plant and equipment
|
23.6
|
|
|
20.5
|
|
|
67.0
|
|
|
62.4
|
|
Free cash
flow
|
$
|
(3.2)
|
|
|
$
|
35.2
|
|
|
$
|
155.9
|
|
|
$
|
103.1
|
|
All amounts presented for 2016 reflect revisions to correct
certain immaterial errors related to a subsidiary in Latin America.
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)
|
In the fourth quarter
of 2017, the Company recorded $12.7 million of charges associated
with a Latin American subsidiary. Operating income includes $5.1
million of restructuring charges, which relate to the wind down of
certain operations, leadership termination charges and professional
fees. Interest expense includes $7.4 million of charges, comprised
of $3.4 million of interest expense on non-income tax obligations,
$2.0 million of interest expense for financing arrangements and
$2.0 million of interest expense on accelerated customer
collections. Other expense, net includes $0.2 million of other
charges. The Company also revised its financial statements for the
fourth quarter of 2016 to record $10.5 million of charges
associated with this subsidiary. As revised, operating income
includes $4.1 million of charges related to misstatements of
accounts receivable and accounts payable. Interest expense includes
$6.4 million of misstatements, comprised of $1.8 million of
interest expense on non-income tax obligations and $4.6 million of
interest expense on accelerated customer collections.
|
|
|
(3)
|
Restructuring costs
represents costs associated with headcount reduction, store
closures and costs related to the early termination of certain
leased facilities.
|
|
|
(4)
|
In 2017, the Company
incurred $3.4 million in other costs. In the fourth quarter of
2017, the Company incurred $0.4 million in costs associated with an
early lease termination. Additionally, the Company incurred $3.0
million in charges for hurricane-related costs and a customer's
bankruptcy.
|
|
|
(5)
|
Stock compensation
benefit represents the fourth quarter change in estimate to reduce
accumulated performance-based stock compensation amortization to
actual cost based on financial results for the year ended December
31, 2016.
|
|
|
(6)
|
Adjusted income tax
provision represents adjustments associated with the aforementioned
items and other discrete income tax events. In the fourth quarter
of 2017, the Company recorded a net income tax benefit of $23.8
million in accordance with U.S. Tax Reform. This is comprised of a
$69.7 million deferred tax benefit related to the reduction in the
U.S. income tax rate, net of a one-time tax charge for transition
tax on foreign subsidiary earnings of $45.9 million.
|
|
|
(7)
|
In 2017, the Company
recorded $24.4 million of charges associated with a Latin American
subsidiary. Operating income includes $5.1 million of restructuring
charges, which relate to the wind down of certain operations,
leadership termination charges and professional fees, as well as
$2.5 million of non-income tax charges. Interest expense includes
$16.6 million of charges, comprised of $8.3 million of interest
expense on non-income tax obligations, $6.3 million on financing
arrangements and $2.0 million of interest expense for accelerated
customer collections. Other expense, net includes $0.2 million of
other charges. The Company also revised its financial statements
for the fourth quarter of 2016 to record $10.5 million of charges
associated with this subsidiary. As revised, operating income
includes $4.1 million of charges related to misstatements of
accounts receivable and accounts payable. Interest expense includes
$6.4 million of misstatements, comprised of $1.8 million of
interest expense on non-income tax obligations and $4.6 million of
interest expense on accelerated customer collections.
|
|
|
(8)
|
Loss on
extinguishment of debt represents costs associated with the
completion of a new credit facility and senior notes offering in
the second quarter of 2016.
|
|
|
(9)
|
Executive management
transition and retention compensation represents certain costs
associated with the transition of certain of the Company's
executive officers following the 2015 Annual Meeting.
|
|
|
(10)
|
Interest expense in
2016 represents incremental interest incurred upon the senior notes
due 2026 sold in the second quarter of 2016 and the senior notes
due 2020, which were repaid with the proceeds of the new senior
notes due 2026.
|
|
|
(11)
|
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 2013
acquisition of Sealy Corporation (the "Sealy Acquisition")
.
|
|
|
(12)
|
Adjustments for the
North America business segment represent restructuring costs
primarily related to the early termination of certain leased
facilities.
|
|
|
(13)
|
Adjustments for the
International business segment represent restructuring charges,
which relate to the wind down of certain operations, leadership
termination charges and professional fees associated with a Latin
American subsidiary.
|
|
|
(14)
|
Adjustments for the
Corporate business segment represent professional fees associated
with a Latin American subsidiary.
|
|
|
(15)
|
Adjustments for the
International business segment represent charges related to
misstatements of accounts receivable and accounts payable
associated with a Latin American subsidiary and restructuring costs
related to headcount reduction and store closures.
|
|
|
(16)
|
Adjustments for
Corporate are primarily related to a stock compensation benefit,
offset by restructuring costs related to headcount
reductions.
|
|
|
(17)
|
Adjustments for the
North America business segment represent costs related to the
Mattress Firm termination, hurricane-related costs and costs
related to the early termination of a lease.
|
|
|
(18)
|
Adjustments for the
International business segment represent charges associated with a
Latin American subsidiary discussed in Footnote 7 above, certain
employee-related expenses and bad debt expense associated with a
customer's bankruptcy.
|
|
|
(19)
|
Adjustments for the
Corporate business segment are primarily related to a stock
compensation benefit, offset by legal charges associated with a
Latin American subsidiary.
|
|
|
(20)
|
Adjustments for the
North America business segment represent integration costs, which
include professional fees, compensation costs and other charges
related to the transition of manufacturing facilities, and other
costs to support the continued alignment of the North America
business related to the Sealy Acquisition. In addition,
restructuring costs were incurred for the early termination of
certain leased facilities.
|
|
|
(21)
|
Adjustments for the
International business segment represent charges related to
misstatements of accounts receivable and accounts payable
associated with a Latin American subsidiary, executive management
retention compensation and restructuring costs related to headcount
reduction and store closures.
|
|
|
(22)
|
Adjustments for
Corporate represent executive management transition and retention
costs, integration costs which include professional fees and other
charges to align the business related to the Sealy Acquisition, and
restructuring costs related to headcount reductions, offset by a
stock compensation benefit.
|
|
|
(23)
|
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.
|
|
|
(24)
|
The Company presents
deferred financing costs as a direct reduction from the carrying
amount of the related debt in the 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 in the Consolidated Balance Sheets.
|
|
|
(25)
|
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.