UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
| ¨ | Preliminary Proxy Statement | |
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| ¨ | Definitive Proxy Statement | |
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| ¨ | Soliciting Material Pursuant to § 240.14a-12 | |
TEMPUR SEALY INTERNATIONAL, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Explanatory Note:
An investor presentation titled “Executing on a Clear Strategy to Drive Superior Stockholder Value” will be made available/released on or after April 3, 2015.
2
 Tempur
Sealy International, Inc. Stockholder Discussion Materials
New York, NY
April 6, 2015
Executing on a Clear Strategy to Drive
Superior Stockholder Value |
 Forward-Looking Statements
TEMPUR, Tempur-Pedic, TEMPUR-Cloud, TEMPUR-Choice,
TEMPUR-Weightless, TEMPUR-Contour, TEMPUR-Rhapsody, TEMPUR-Flex, GrandBed, TEMPUR-Simplicity, TEMPUR-Ergo,
TEMPUR-UP, TEMPUR-Neck, TEMPUR-Symphony, TEMPUR-Comfort,
TEMPUR-Traditional, TEMPUR-Home, Sealy, Sealy Posturepedic, Stearns & Foster and Optimum are trademarks, trade
names or service marks of Tempur Sealy International, Inc. and/or its subsidiaries.
All other trademarks, trade names and service marks in this presentation are the property of the respective owners.
Additional information concerning these and other risks and uncertainties are
discussed in the Company's filings with the Securities and Exchange Commission (SEC), including without limitation,
the Company's 2014 Annual Report on Form 10-K filed on February 13, 2015 with
the SEC, under the headings "Special Note Regarding Forward-Looking Statements" and "Risk Factors." Any
forward-looking statement speaks only as of the date on which it is made, and
the Company undertakes no obligation to update any forward-looking statements for any reason, including to reflect
events or circumstances after the date on which such statements are made or to
reflect the occurrence of anticipated or unanticipated events or circumstances.
In this investor presentation we provide or refer to certain historical information
for the Company. For a more detailed discussion of the Company’s financial performance please refer to the
Company’s SEC filings.
2
This investor presentation 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 presentation, the words "assumes," "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 its key strategic growth initiatives and strategic priorities,
expectations regarding the Company’s net sales, adjusted EBITDA, adjusted EPS, operating income,
synergies, pricing increases for 2015 and related assumptions, market share gains, planned
improvements in manufacturing and distribution, expectations regarding net sales growth rates, sales growth opportunities for Sealy in international markets, margin
improvements, the impact of foreign exchange, the Company’s leverage ratio and expectations
regarding growth opportunities relating to acquisitions and returning value to stockholders.
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 in this investor
presentation. These risk factors include risks associated with the Company’s capital structure
and increased debt level; the ability to successfully integrate Sealy into the Company’s
operations and realize cost and revenue synergies and other benefits from the transaction; whether the
Company will realize the anticipated benefits from its asset dispositions in 2014 and the
acquisition of brand rights in certain international markets in 2014; 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 net sales and earnings; consumer acceptance of the Company’s products; industry competition; the efficiency and effectiveness of the
Company’s advertising campaigns and other marketing programs; the Company’s ability to
increase sales productivity within existing retail accounts and to further penetrate the
Company’s retail channel, including the timing of opening or expanding within large retail
accounts and the timing and success of product launches; the effects of consolidation of
retailers on revenues and costs; the Company’s ability to expand brand awareness, distribution
and new products; the Company’s ability to continuously improve and expand its product
line, maintain efficient, timely and cost-effective production and delivery of its products, and manage its growth; the effects of strategic investments on the Company’s
operations; changes in foreign tax rates and changes in tax laws generally, including the ability to
utilize tax loss carry forwards; the outcome of various pending tax audits or other tax,
regulatory or litigation proceedings; changing commodity costs; and the effect of future legislative
or regulatory changes.
Except where the context otherwise requires, the terms “we,” “us” “our”
or the “Company” refer to Tempur Sealy International, Inc. and its subsidiaries. |
 Agenda
3
Tempur Sealy Today: Creating a Global Bedding Leader
Key Strategic Actions to Drive Value
Experienced Team With Proven Track Record
Setting the Record Straight on H Partners
Conclusion: Right Team in Place to Enhance Stockholder Value
|
 Executive
Summary 4
VOTE THE WHITE PROXY CARD FOR TEMPUR SEALY’S
EXPERIENCED AND HIGHLY QUALIFIED DIRECTORS:
Note 1: Total shareholder return includes stock price appreciation and dividends
reinvested. Represents performance from August 4, 2008 to March 27, 2015.
Our
Board
and
Management
Team
have
been
a
critical
part
of
our
ability
to
deliver
solid
results
and
drive
stockholder
value
including
a
total
shareholder
return
of
493%
since
Mr.
Sarvary
joined
as CEO
(1)
We
have
successfully
completed
the
acquisition
of
Sealy
Corporation
creating
a
global
bedding
leader
with
a
complete
and
complementary
portfolio
of
brands
We
are
focused
on
driving
strong
margins
and
long
term
growth
through
reinvestment
in
the
business
as
evidenced
by
Tempur
North
America’s
return
to
a
position
of
strength
and
profitability
We
are
leveraging
our
global
scale
to
execute
our
international
growth
plan
by
increasing
distribution,
brand
awareness
and
product
offerings
We
believe
H
Partners
has
outlined
no
constructive
steps
to
enhance
the
Company’s
strategy,
capital
structure
or
operating
plans,
but
rather
advocates
high-risk,
value-destroying
leadership
changes
Evelyn
S.
Dilsaver,
Frank
Doyle,
John
A.
Heil,
Peter
K.
Hoffman,
Sir
Paul
Judge,
Nancy
F.
Koehn,
Christopher A. Masto, P. Andrews McLane, Lawrence J. Rogers, Mark Sarvary and
Robert B. Trussell, Jr. |
 Tempur
Sealy Today: Creating a Global Bedding Leader 5
|
 Leading
manufacturer and distributor of bedding products with a truly global
footprint
Leading
bedding
provider
in
the
U.S.
with
approximately
32%
market
share
in
2014
(1)
(Sealy
~19%,
Tempur-Pedic
~13%);
#1
market
share
in
Canada
(1)
Broad distribution in all traditional and alternative channels, including
e-commerce Strong positions in many international markets throughout
Europe, Asia Pacific and Latin America
Complete and complementary product offering of mattresses, adjustable bases,
foundations and other accessories such as pillows
Completed the transformative acquisition of Sealy in 2013, creating a
complete and complementary portfolio of brands and products
Attractive
opportunity
given
the
difficult
economic
and
industry
trends
facing
Sealy
at
the time of the acquisition
Funded with low-cost debt, preserving the ability to pursue strategic growth
opportunities and reinvest in the combined Company
Organizational integration in North America has been successful and is now
essentially complete
Increased
cost
synergy
target
from
$40
million
to
$70
million
(2)
Long-term
revenue
synergy
target
of
$500
million
(2)
Re-launched entire Sealy product lineup within approximately 18 months of
acquisition close
Strong financial profile
FY2014
net
sales
of
approximately
$3.0
billion
and
adjusted
EBITDA
of
$405
million
(3)
$3.4
billion
market
capitalization
(4)
Net leverage of 3.9x
(5)
Global Leader in the Bedding Manufacturing Industry
6
Tempur
International
Tempur
North America
Sealy
2014 Sales by Segment
2014 Sales by Region
United States
Europe
Canada
Asia Pacific
Latin America
33%
16%
51%
73%
7%
11%
Note 1: Market share estimates for 2014 and market share leadership in Canada are based on
management estimates. Note 2: Cost and revenue synergy targets presented on a constant currency basis. For information
on the methodology used to present information on a constant currency basis, please refer to “Constant Currency Information”
at the end of this presentation.
Note 3: Adjusted EBITDA is a non-GAAP financial measure. GAAP net income for 2014 was $108.9
million. For more information about adjusted EBITDA, including a reconciliation to net income, please refer to “Use of Non-
GAAP Financial Measures” at the end of this presentation.
Note 4: Based on basic shares outstanding. Calculated as of March 27, 2015.
Note 5: Net leverage refers to the ratio of Consolidated Funded Debt less Qualified Cash to
Adjusted EBITDA, which are all non-GAAP financial measures calculated in accordance with the Company’s senior secured credit
facility. For more information about this leverage calculation and the related non-GAAP financial
measures, please refer to “Use of Non-GAAP Financial Measures” at the end of this presentation.
|
 Note 1:
2014 Mattress
Industry
Consumer
Research
–
U.S.
Market.
Note 2: Based on management estimates.
Note 3: Presence includes subsidiaries, joint ventures, third party and licensee
markets. Complete and Complementary Portfolio of Brands
7
Tempur-Pedic:
–
#1
U.S.
brand
people
are
most
interested
in
purchasing
(1)
Stearns & Foster:
–
#1
U.S.
brand
in
luxury
innerspring
sales
(2)
Sealy:
–
#1
U.S.
brand
in
total
awareness
(1)
–
#1
U.S.
brand
people
are
most
likely
to
buy
(1)
The Industry’s Only Truly Global Company
Luxury
Premium
Mid-Price
Value
Tempur
Sealy
Presence
(3)
Global scale creates critical competitive advantages
|
 Creating
Significant Value for Stockholders 8
Peer Median
S&P 500
Tempur Sealy
Total
Shareholder
Return
Under
Mr.
Sarvary’s
Leadership
(1)
1541%
920%
670%
519%
493%
449%
432%
420%
314%
272%
235%
211%
209%
205%
199%
174%
167%
121%
124%
102%
96%
91%
40%
15%
13%
SCSS
UA
PII
HBI
TPX
CRI
WSM
JAH
BC
COLM
HAR
LEG
GIL
MHK
FOSL
NWL
WWW
SCS
TUP
DECK
HAS
S&P
500
LXK
DIIB
MLHR
+493%
+209%
+91%
Note 1:
Peer group as outlined in Tempur Sealy Form 10-K for the year ended December 31,
2014. Mattress Firm Holding Corp. is excluded because it was private at the time Mr. Sarvary joined as CEO on August 4, 2008;
its
IPO
was
completed
on
November
17,
2011.
Total
shareholder
return
includes
stock
price
appreciation
and
dividends
reinvested.
Represents
performance
from
August
4,
2008,
the
date
Mr.
Sarvary
joined
as
CEO,
to March 27, 2015.
Note 2:
Represents performance from September 26, 2012, the date prior to the announcement
of the Sealy acquisition, to March 27, 2015. Equity value calculated using basic shares outstanding.
of
the
Sealy
acquisition
(2)
Furthermore,
Tempur
Sealy
has
created
approximately
$1.8
billion
of
equity
value
since
the
announcement |
 Strategic
Accomplishments
2009
–
2014
Grew
Tempur
North
America
net
sales
from
$525
million
in
2009
to
$1.0
billion
in
2014,
a
14%
CAGR
(1)
Increased
U.S.
market
share
from
8%
in
2009
to
an
estimated
13%
in
2014
(2)
Introduced the highly successful TEMPUR-Cloud line, which nearly doubled the
Company’s U.S. mattress business Acquired Third Party Distributor in
Canada Grew
Tempur
International
net
sales
from
$306
million
in
2009
to
$472
million
in
2014,
a
9%
CAGR
(1)
Increased distribution and brand awareness and expanded product offering
significantly since 2009 Positioned
the
Company
for
future
growth
through
acquisitions
of
Third
Party
Distributors
in
several
key
markets,
including China, Korea, Brazil and Mexico
Responded
aggressively
when
the
competitive
environment
in
North
America
changed
in
2012
Completely
revamped
Tempur
North
America
mattress
and
adjustable
base
product
offering
Strengthened U.S. retailer economics
Strategic acquisition of Sealy Corporation created significant stockholder
value TPX
shares
have
appreciated
over
110%
from
the
day
prior
to
the
acquisition
announcement
(3)
Today, Tempur Sealy has a complete and complementary brand and product portfolio,
with unique global capabilities and unmatched growth opportunities around
the world Enhanced
stockholder
value
through
the
repurchase
of
~20
million
shares
between
2009
and
2012
EPS
of
$1.12
in
2009
(4)
grew
to
adjusted
EPS
of
$2.65
in
2014,
a
19%
CAGR
(5)
Note
1:
References
to
“Tempur
North
America”
in
this
presentation
refer
to
the
segment
used
in
2014
for
the
Tempur-Pedic
business
in
North
America
and
references
to
“Tempur
International”
in
this
presentation
refer
to
the
segment used in 2014 for the Tempur-Pedic business outside of North
America. Note
2:
U.S. market share is based on management estimates.
Note 3:
Represents performance from September 26, 2012, the date prior to the announcement
of the Sealy acquisition, to March 27, 2015. Includes stock price appreciation only.
Note
4:
2009 EPS of $1.12 had no adjustments of the type included in adjusted EPS.
Note
5:
GAAP
EPS
for
2014
was
$1.75.
adjusted
EPS,
which
is
a
non-GAAP
financial
measure,
is
EPS
adjusted
for
Sealy
transaction
and
integration
costs,
loss
on
disposal
of
business
related
to
the
disposition
of
the
three
U.S.
innerspring
component
facilities
and
related
equipment,
interest
and
fees
incurred
in
connection
with
debt
refinancings
and
amendments,
normalized
tax
rate
adjustments
and
to
exclude
certain
non-recurring
items.
Please
refer
to
the
reconciliations
under
“Use
of
Non-GAAP
Financial
Measures”
at
the
end
of
this
presentation
and
the
Company’s
SEC
filings
for
more
information
regarding
the
definition
of
adjusted
EPS.
9 |
 Built
Capabilities in 2014 Product Development:
Launch execution
Global innovation pipeline
Brand Marketing:
New talent and enhanced capabilities, strong media campaign
Strong creative development and media buying
Channel:
Combined field selling organization
Category management
Operations:
Began the combination of our Tempur-Pedic and Sealy logistics networks
Started the transformation of Sealy manufacturing organization
10 |
 2014 Product
Launches Record number of launches
All delivered on time with high quality
Supporting materials on time
Transitions from old to new were well managed
Contained compelling consumer benefits
Supported with rigorous market research
Offered strong value propositions
Delivered benefits aligned with the brand
promises
Demonstrated capability to develop and execute major product
launches that drive market share
11
Strategic Actions
Results
TEMPUR-Cloud/Contour launch
was largest ever and very effective
Stearns & Foster launch delivered
all-time sales record
Sealy Innerspring launch returned
brand to double-digit growth
Sealy Optimum 2.0 line revitalized |
 Key
Strategic Actions to Drive Value 12 |
 Tempur Sealy
Strategic Priorities 13
Leverage global scale for competitive
advantage
•
Base
Annual
Targets
(1)
:
Net sales growth of 6% and
adjusted EPS
(2)
growth of 15%
•
Strong cash flow to reduce debt
and return value to stockholders
Delivering value
for stockholders
Note
1:
Management
estimates.
Please
refer
to
“Forward
Looking
Statements”.
Targets
are
based
on
constant
currency.
For
information
on
the
methodology
used
to
present
information
on
a
constant
currency
basis,
please
refer
to
“Constant
Currency
Information”
at
the
end
of
this
presentation.
Note
2:
Adjusted
EPS
(which
is
a
non-GAAP
financial
measure)
is
EPS
adjusted
for
Sealy
transaction
and
integration
costs,
loss
on
disposal
of
business
related
to
the
disposition
of
the
three
U.S.
innerspring
component
facilities
and
related
equipment,
interest
and
fees
incurred
in
connection
with
debt
refinancings
and
amendments,
normalized
tax
rate
adjustments
and
to
exclude
certain
non-recurring
items.
Please
refer
to
the
reconciliations
under
“Use
of
Non-GAAP
Financial
Measures”
at
the
end
of
this
presentation
and
the
Company’s
SEC
filings
for
more
information
regarding
the
definition
of
adjusted
EPS.
Leverage and strengthen our comprehensive
portfolio of iconic brands & products
Expand distribution and seek highest dealer
advocacy
Expand margins with focus on driving
significant cost improvement
Accretive acquisitions of licensees and joint
ventures |
 Achievements
to Date 14
Strategic Priorities
Achievements to Date
Leverage and strengthen our comprehensive
portfolio of iconic brands & products
Revamped entire mattress and adjustable base product offering
Diversified revenue streams: outside of mattresses, have a line of adjustable
bases and bedding accessories
Taken actions to drive not only our topline growth, but also growth for retail
customers through higher average selling prices
Continued to invest and innovate to maintain industry leadership
Expand distribution and seek highest dealer advocacy
Approximately 15,000 points of distribution globally for Tempur and 17,000 for
Sealy
Company currently manages approximately 150 stores
To improve advocacy, Company is investing in in-store training and
marketing Expand margins with focus on driving significant
cost improvement
Focused on driving significant margin improvement in 2015-2018
Completed turnaround of Tempur North America, with growth and significant
operating margin improvement resuming in 2H 2014
Focused on Sealy assembly operations to drive cost reductions
Certain strategic decisions were taken that lowered margin rate but improved
margin dollars (for example, acquisition of Sealy Japan/Europe)
Leverage global scale for competitive advantage
Acquired
Sealy
brand
rights
(Japan,
Continental
Europe
and
Southern Territory
of Brazil) and Tempur distribution rights (Mexico)
Double-digit Tempur International sales growth in Asia Pacific and positive
growth in Latin America and Europe in 2014
Sealy
Europe
net
sales
opportunity
exceeds
$200
million
(1)
;
currently marketing
Stearns & Foster and Sealy Hybrid products in Europe
Accretive acquisitions of licensees and joint ventures
1
2
3
4
5
Note
1:
Target
presented
on
a
constant
currency
basis.
For
information
on
the
methodology
used
to
present
information
on
a
constant
currency
basis,
please
refer
to
“Constant
Currency
Information”
at
the
end
of
this
presentation.
Strong focus on global distribution while maintaining high
standards with partners
Significant reinvestment has been made in positioning for
long term growth
Capitalize on opportunities in each key geography and
optimize licensee and JV relationships
Leverage scale for product development, distribution and brand
development
Integrated businesses where we had overlap
Amended credit facility to improve financial flexibility around this
strategy Strong
track
record
of
acquiring
Tempur
3 party
distributors;
opportunity
to
acquire
outstanding
joint
ventures,
licensees
and
3
party
distributors
rd
rd
Guided 50bps of annual operating margin improvement (internal goal of
100bps)
(1) |
 Returning
Tempur North America to a Position of Strength and Profitability
15
Well positioned to continue to gain market share
and drive margin improvement
Tempur Sealy has a complete and complementary portfolio of brands and
products We expect strong market share gains in 2014 to continue
Growth from new products, effective marketing and channel synergies
Robust product pipeline
Commitment to strengthening brands
Effective trade customer support
Focused on improving profitability
Driving price and mix
Capturing synergies
Operating cost productivity |
 Returning
Tempur North America to a Position of Strength and Profitability
(Cont’d) Our first half of 2014 investments are
paying off as sales grew double-digits and margins expanded considerably
in the second half of 2014 as compared to the second half of 2013 2015
guidance
assumes
significant
further
margin
improvement
(1)
Volume leverage, cost productivity, pricing and fewer floor model launch
costs 16
Tempur North America
2013 vs. 2014
Tempur North America
2H 2013 vs. 2H 2014
GAAP Operating Margin
Adjusted Operating Margin
(2)
Note 1:
2015
operating
margin
improvement
based
on
management
estimates.
Please
refer
to
“Forward
Looking
Statements”.
Note 2:
Adjusted operating margin (operating margin less corporate expense) is a
non-GAAP financial measure. GAAP operating margin for Tempur North America improved 320 basis points in the second half of 2014
compared
to
the
second
half
of
2013.
For
information
on
Tempur
North
America
adjusted
operating
margin
and
a
reconciliation
to
GAAP
operating
margin
please
refer
to
“Use
of
Non-GAAP
Financial
Measures”
at
the
end of this presentation.
7.4%
8.5%
16.5%
16.1%
2013
2014
8.9%
12.1%
15.8%
19.5%
2H13
2H14
370bps
Improvement |
 Intensely
Focused on Enhancing Margins Sealy U.S.
Gross Margin
Improvement
(2)
Adj. Operating
Expense Leverage
(3)
Cost
Synergies
(4)
2015 Pricing
Total
Incremental
Operating
Income
Targets
by
2018
(1)
17
Note 1: Represents initiatives to be achieved by 2018. Our expectation is that
they will ramp through the period. Approximately 30% of the total $125 million is incorporated into our full year 2015 adjusted EPS guidance issued
on February 5, 2015. See “Forward Looking Statements”.
Note 2: Refers
to
Sealy
gross
margin
improvement
in
the
U.S.
Sealy
gross
margin
improvement
excludes
the
benefit
from
cost
synergies.
Note 3:
Adjusted
operating
expense
is
a
non-GAAP
financial
measure.
For
information
on
adjusted
operating
expense
please
refer
to
“Use
of
Non-GAAP
Financial
Measures”
at
the
end
of
this
presentation.
Note 4:
Cost synergies reflect annualized cost synergies from the Sealy transaction.
$45 million
$30 million
$25 million
$25 million
$125 million
These initiatives alone are expected to provide more than 300bps of
operating margin improvement
|
 Continuing to
Successfully Integrate Sealy 18
Note 1:
Sealy’s net sales for its fiscal year ended December 2, 2012 were $1.35 billion
and Tempur-Pedic International’s net sales for its fiscal year ended December 31, 2012 were $1.40 billion.
Note 2:
Target
presented
on
a
constant
currency
basis.
For
information
on
the
methodology
used
to
present
information
on
a
constant
currency
basis,
please
refer
to
“Constant
Currency
Information”
at
the
end
of
this
presentation.
Note 3:
TRP’s are target rating points and are a measure of reach for a specifically
targeted audience. Transformational acquisition of Sealy significantly
increased the scale and complexity of the Company Doubled
net
sales
(1)
More than tripled the number of employees (to 7,100)
Increased the number of manufacturing facilities to 25 from 3
Sealy also manufactures using different technologies than Tempur
The Company has achieved more synergies than initially projected
At the time of the acquisition, projected cost synergies of $40 million by the end
of the third year Achieved $45 million by the end of 2014, less than two
years after completing the acquisition Currently
projecting
$70
million
in
cost
synergies
by
2018
(2)
A significant portion of the $45 million of achieved cost synergies has been
reinvested into the business Product Innovation: Increased investment in
R&D to increase cadence of new product introductions to drive growth and market
share gains
Marketing:
Reinvested
media
synergies
and
increased
advertising
(e.g.
TRPs
up
20%)
(3)
;
also
invested
in
in-store
marketing
International: Invested in acquiring international Sealy brand and Tempur
distribution rights to capitalize on future growth Re-investment return
highlighted by strong sales growth and market share; profitability expected to improve over
time as tiered brand structure allows for cascading of technologies and consumer
loyalty (repeat purchases) |
 Sealy
Assembly Transformation Key initiatives within the plants
Standardize best practices
Embed lean principles and eliminate waste
Improve hiring and staffing
Smooth production, reduce overtime
Elevate focus on quality and customer
satisfaction, lower returns
Key initiatives across the network
Improve forecasting and demand planning
Reduce SKU complexity
Optimize combined TSI network
19
Drive total cost reduction |
 20
Distribution network to service national retailers with considerable efficiency
opportunities Optimizing Warehouse/Distribution Network (2015)
Warehouse/Distribution Network Initiatives
Timing
Consolidated Sealy Ft. Worth, TX facility into Brenham, TX facility
2014
Announced closure of Sealy Batavia, IL facility
2015
Opening Tempur Sealy multi-purpose facility in Plainfield, IN
(Indianapolis) 2Q 2015
Opening Tempur Sealy multi-purpose facility in Williamsport, MD
2015
Repositioning Tempur warehouses
2014/2015
Sealy Distribution Points
Tempur Warehouses
Tempur Sealy Multi-Purpose Facility |
 Expect To
Reverse Gross Margin Trend In 2015 2015
margin
improvement
to
be
driven
by
pricing,
volume
leverage
and
cost
efficiencies,
offset
partially by unfavorable currency, product and channel mix and slight commodity
inflation Excluding FX
(1)
, gross margin is expected to be up approximately 150bps to 200bps
Note 1:
Target
presented
on
a
constant
currency
basis.
For
information
on
the
methodology
used
to
present
information
on
a
constant
currency
basis,
please
refer
to
“Constant
Currency
Information”
at
the
end
of
this
presentation.
Note 2:
Management estimates. Please refer to “Forward Looking Statements”.
21
(2)
41.2%
38.5%
39.5%
-
40.0%
2013
2014
2015P
GAAP Gross Margin |
 Pricing
Actions to Drive Margin Improvement Price increase on Tempur-Pedic
adjustable bases (select) in late 2014 Price increase on Tempur-Pedic
mattresses (select) in March 2015 22
Note: Prices were increased on select models.
Capitalize on Tempur-Pedic’s brand strength: low single-digit
pricing actions drive $25 million of margin improvement
|
 Sealy
Europe $200 million net sales opportunity for Continental Europe with Sealy
brand based on achieving
a
similar
market
share
as
Tempur
(2)
Already
secured
over
1,000
retail
doors
for
initial
placement
of
Stearns
&
Foster
and
Sealy brands in Europe
Direct Distribution
Distribution in general tends to be very country-specific with few cross
national retailers Tempur International direct sales (wholly owned or
partnership) are a significant vehicle for growth (41% CAGR since
2011) Note 1:
Based
on
net
sales
for
Tempur-Pedic
International
for
the
year
ended
December
31,
2012
and
net
sales
for
Sealy
Corporation
for
the
year
ended
December
2,
2012.
Note 2:
Target
presented
on
a
constant
currency
basis.
For
information
on
the
methodology
used
to
present
information
on
a
constant
currency
basis,
please
refer
to
“Constant
Currency
Information”
at
the
end
of
this
presentation.
Note 3:
Based
on
net
sales
for
Tempur-Pedic
International
for
the
year
ended
December
31,
2009
and
net
sales
for
Sealy
Corporation
for
the
year
ended
November
29,
2009.
Executing Global Growth Plan
23
Relatively Modest Global Footprint at the
Time of Sealy Acquisition
Key Growth Priorities
We Have Positioned the Company for
Growth Going Forward
The Company has a range of growth initiatives which vary
by country / region and roll up to the overall plan
Today, international represents ~$600 million in reported net sales;
however, total brand sales through partnerships is $1 billion+ globally
1
2
3
4
Increased distribution and brand
awareness
Expanded product offering
overseas
Acquired 3rd party distributors
including China, Korea, Brazil
and Mexico to set the stage for
growth going forward
International Sales (millions)
International
North America
Legacy Tempur-Pedic
(1)
Sealy
(1)
North America
International
Tempur-Pedic
Sealy
Tempur
International
Direct
Sales
(millions)
(3)
$306
$472
$76
$113
$382
$585
2009
2014
69%
31%
Tempur Sealy Japan
Acquired the brand rights for Sealy in mid-2014 and subsequently integrated
that business into our Japanese Tempur subsidiary
Japan subsidiary anticipated to develop into our largest subsidiary outside of
North America
Build Brand Awareness
Brand awareness internationally is significantly lower than in the U.S.
Started making significant investment in the Tempur brand in selected markets
Focus is on effective campaigns (TV ads, promotions, in-store
marketing) and increasing visibility on digital channels
$24
$37
$50
$67
2011
2012
2013
2014
3
8%
92% |
 Sealy Europe
Is A Key Growth Investment Sealy
Europe
is
a
$200+
million
net
sales
opportunity
(1)
Tempur
has
mid-single
digit
share
of
the
$4+
billion
Continental
European
market
(2)
Sealy Europe opportunity based on achieving a similar market share level to
Tempur Build scale through mixed manufacturing model
Stearns & Foster products are being manufactured in North America and exported
to Europe Sealy Hybrid products transitioned to a higher quality new
supplier in Eastern Europe in Q1 Leveraging Tempur Europe infrastructure and
premium retail distribution strength Secured
over
1,000
retail
doors
for
initial
placement
of
Stearns
&
Foster
and
Sealy
in
Europe
Roll-out occurring in all key markets except the UK
Investing to build brand awareness and profitable product portfolio across
technologies Note 1:
Target
presented
on
a
constant
currency
basis.
For
information
on
the
methodology
used
to
present
information
on
a
constant
currency
basis,
please
refer
to
“Constant
Currency
Information”
at
the
end
of
this
Note 2:
Market share and market size information is based on CSIL World Mattress Report,
2014 (Top 35 Markets Mattress Consumption) and management estimates.
24
presentation. |
 Tempur
International Margins Pressured By Sealy Mix Tempur International operating
margins deteriorated in 2014 vs. 2013 due primarily to launch of Sealy
Europe, unfavorable FX and market weakness in Central Europe
International
margins
will
continue
to
be
pressured
by
increased
Sealy
mix,
however
in
the
future margin dollars will increase as Sealy sales grow in international
markets 25
Tempur International
2013 vs. 2014
GAAP Operating Margin
Note: Please refer to “Forward Looking Statements”.
24.5%
19.4%
2013
2014 |
 Note 1:
Management estimates. Please refer to “Forward Looking
Statements”. Note 2:
Adjusted EPS (which is a non-GAAP financial measure) is EPS adjusted for the
Sealy acquisition and related integration costs, loss on disposal of business related to the disposition of the three U.S. innerspring
component facilities and related equipment, interest and fees incurred in connection
with debt refinancings and amendments, normalized tax rate adjustments and to exclude certain non-recurring items. Please refer to
the
reconciliations
under
“Use
of
Non-GAAP
Financial
Measures”
at
the
end
of
this
presentation
and
the
Company’s
SEC
filings
for
more
information
regarding
the
definition
of
adjusted
EPS.
Note 3:
Targets are based on constant currency, excluding the impact from foreign exchange.
For information on the methodology used to present constant currency information please refer to “Constant Currency Information”
at the end of this presentation.
DELEVERAGING TO 3X AND
RETURNING
VALUE TO STOCKHOLDERS
NET SALES GROWTH
OPERATING MARGIN IMPROVEMENT
ADJUSTED EPS GROWTH
(2)
6%
50bps
15%
Annual Base Growth Targets 2015-2018
(1)
Targets are Based on Constant Currency
(3)
Foundation is Set to Meet Growth Targets
26 |
 2015 Guidance
Consistent With Higher Margin Targets FX Adjusted
(1)(2)
Guidance Range
(1)
Net Sales Growth
2% to 5%
5.5% to 8.5%
Adjusted
Operating
Margin
(3)
Growth
~10 to 80bps
~80 to 150bps
Adjusted
EPS
Growth
(4)
2% to 17%
12% to 27%
Guidance
Mid-Point
FX Adjusted
(1)(2)
7.0%
~115bps
20%
27
Note 1:
The Company issued guidance on February 5, 2015 for full year 2015 Net Sales of
$3.050 billion to $3.150 billion and adjusted EPS of $2.70 to $3.10. Targets are based on constant currency. Management estimates.
Please refer to “Forward Looking Statements”.
Note 2:
Targets are based on constant currency, excluding the impact from foreign exchange.
For information on the methodology used to present constant currency information please refer to “Constant Currency Information”
at the end of this presentation.
Note 3:
Adjusted
operating
margin
is
a
non-GAAP
financial
measure.
For
information
on
the
methodology
used
to
present
adjusted
operating
margin
please
refer
to
“Use
of
Non-GAAP
Financial
Measures”
at
the
end
of
this
presentation.
Note 4:
Adjusted EPS (which is a non-GAAP financial measure) is EPS adjusted for the
Sealy acquisition and related integration costs, loss on disposal of business related to the disposition of the three U.S. innerspring
component facilities and related equipment, interest and fees incurred in connection
with debt refinancings and amendments, normalized tax rate adjustments and to exclude certain non-recurring items.
Please
refer
to
the
reconciliations
under
“Use
of
Non-GAAP
Financial
Measures”
at
the
end
of
this
presentation
and
the
Company’s
SEC
filings
for
more
information
regarding
the
definition
of
adjusted
EPS. |
 We Are On
Track For Our 2016 Targets Based on high end of 2015 guidance and our annual
growth targets, we would be on
pace
to
achieve
our
2016
$4.00
Adj.
EPS
target,
on
a
constant
currency
basis
Note:
Management estimates. Please refer to “Forward Looking Statements”.
Note:
Growth presented is based on the Company’s guidance issued on February 5, 2015,
which consisted of full year 2015 Net Sales of $3.050 billion to $3.150 billion and adjusted EPS of $2.70 to $3.10.
Note:
2015
Constant
Currency
Adjusted
EPS
adjusts
for
the
negative
foreign
exchange
impact
to
adjusted
EPS
during
2014
and
anticipated
in
2015.
2016
adjusted
EPS
target
is
based
on
the
Company’s
adjusted
EPS
growth
targets
for
2015-2018
and
is
based
on
constant
currency.
For
information
on
the
methodology
used
to
present
constant
currency
information
please
refer
to
“Constant
Currency
Information”
at
the
end
of
this
presentation.
Note:
Adjusted
EPS
(which
is
a
non-GAAP
financial
measure)
is
EPS
adjusted
for
Sealy
transaction
and
integration
costs,
loss
on
disposal
of
business
related
to
the
disposition
of
the
three
U.S.
innerspring
component
facilities
and
related
equipment,
interest
and
fees
incurred
in
connection
with
debt
refinancings
and
amendments,
normalized
tax
rate
adjustments
and
to
exclude
certain
non-recurring
items.
Please
refer
to
the
reconciliations
under
“Use
of
Non-GAAP
Financial
Measures”
at
the
end
of
this
presentation
and
the
Company’s
SEC
filings
for
more
information
regarding
the
definition
of
adjusted
EPS.
28
$2.70
$3.12
$3.59
$2.65
$3.10
$3.52
$4.05
2014
2015 Guidance Range
2015 Constant Currency
Adjusted EPS
2016 Constant Currency
Adjusted EPS Target
Adjusted EPS |
 Experienced Team With Proven Track Record
29 |
 History of
Strong Results Under Mark Sarvary 30
Committed to delivering and driving stockholder
value
Since Mr. Sarvary’s appointment as CEO in August
2008, Tempur Sealy has realized a total
shareholder return more than 5.4x that of the S&P
500
and 2.3x that
of
the
peer
median
(2)
Furthermore,
Tempur
Sealy
has
created
approximately
$1.8
billion
of
equity
value
since
the
announcement
of
the
Sealy
acquisition
(3)
Leader in Total Shareholder Return
(1)
(Since Mark Sarvary Joined On Aug 4, 2008 to Mar 27, 2015)
Critical to successful execution of Tempur Sealy’s strategy
Directly responsible for development of value enhancing strategy
Achievements
as
CEO
include
transformative
acquisition
of
Sealy,
highly
successful
introduction
of
TEMPUR-Cloud
mattress line and record number of new product launches in 2014
Maintains important relationships with strategic partners and major customers that
are critical to the Company Broad management capabilities
Veteran of consumer products industry; prior leadership positions include President
of Campbell Soup’s North America Division, CEO of J. Crew and President
of Stouffer Frozen Food division under Nestlé As President of Campbell
Soup’s NA division, Mr. Sarvary was responsible for businesses with annual revenues
exceeding $6 billion, including the Campbell Soup, Pepperidge Farm, Pace, Prego and
V8 brands, as well as Godiva’s global business
Served as an industrial partner to CVC Capital Partners, a global private equity
firm, prior to joining the Company Note 1:
Total
shareholder
return
includes
stock
price
appreciation
and
dividends
reinvested.
Represents
performance
from
August
4,
2008,
the
date
Mr.
Sarvary
joined
as
CEO,
to
March
27,
2015.
Note 2:
Peer group as outlined in Tempur Sealy Form 10-K for the year ended December 31,
2014. Mattress Firm Holding Corp. excluded because it was private at the time Mark Sarvary joined as CEO on August 4, 2008; its
IPO was completed on November 17, 2011.
Note 3:
Represents performance from September 26, 2012, the date prior to the announcement
of our Sealy acquisition, to March 27, 2015. Equity value calculated using basic shares outstanding.
Peer
Median
(2)
S&P 500
Tempur Sealy
+493%
+91%
+209% |
 Best-in-Class Management Team
31
Prior Experience
Executive
Position
Previous Executive Roles
Consumer
Products
International
Year Joined
Tempur Sealy
Tim Yaggi
Chief Operating
Officer
Group President, Masco Corporation
EVP, Whirlpool Corporation
2013
Dale Williams
EVP and Chief
Financial
Officer
CFO, Honeywell Control Products
CFO, Saga Systems
CFO, GE Information Systems
2003
David Montgomery
EVP and
President,
International
President, Rubbermaid Europe
VP, Black & Decker Europe, Middle
East, Africa
2003
Richard Anderson
EVP and
President, North
America
VP, Procter & Gamble
VP, The Gillette Company
2006
Jay Spenchian
EVP and Chief
Marketing
Officer
EVP and CMO, Olive Garden and Red
Lobster
Executive Director, Marketing, General
Motors
2014
Management team possesses substantial consumer products industry
and international expertise
as well as an integral understanding of Tempur Sealy’s business
|
 Well-Balanced Board, With Diverse Experience and
Senior Leadership
32
Director
Independent
(1)
CEO / President / CFO /
Finance / Legal Experience
Senior Leadership at Company
with Global Operations
Consumer / Retail Experience
Evelyn S. Dilsaver
Frank Doyle
John A. Heil
Peter K. Hoffman
Sir Paul Judge
Nancy F. Koehn
Christopher A. Masto
P. Andrews McLane
Lawrence J. Rogers
Mark A. Sarvary
Robert B. Trussell Jr.
The
Board
has
a
wide
range
of
expertise,
diverse
backgrounds
and
complementary
experience
Note 1: Per NYSE independence rules. |
 Experienced
and Engaged Board Represents All Stockholders
33
Nine of eleven Board directors are independent
(1)
Strong record of working to align management compensation with performance
Fully committed to Tempur Sealy; eight of the directors hold no outside public
company directorships, three directors hold only one or two outside public
company directorships Board members possess relevant skill sets
Mattress industry experience
Branded consumer products marketing and sales
Manufacturing and marketing expertise
International expansion expertise
Finance, accounting and regulatory expertise
Mergers and acquisitions / corporate finance expertise
Risk management expertise
Information technology expertise
Note 1: Per NYSE independence rules. |
 Commitment to
Best-in-Class Corporate Governance 34
Strong
record
of
stockholder
friendly
actions
and
responsiveness
to
stockholder
concerns
Separate Chairman and CEO roles since 2002
Nine
of
eleven
Board
directors
are
independent
(2)
Declassified Board
One year terms
Stock ownership guidelines
Highest
ISS
score
of
1
for
corporate
governance
in
2015
(1)
No poison pill in place
Majority voting standard
Clawback policy
Prohibition on hedging or pledging Company securities
Prohibition on re-pricing stock options without stockholder
approval
Note 1:
In contrast, Six Flags Entertainment Corporation has an ISS corporate governance
rating of 6 (out of 10), including significantly lower scores than Tempur Sealy in the areas of Board Structure and Compensation.
Mr. Usman Nabi of H Partners is the Chair of the Six Flags Nominating and Corporate
Governance Committee. Note
2: Per NYSE independence rules. |
 Setting the Record Straight on H Partners
35 |
 Situation
Overview 36
H Partners has demanded the following:
Mark Sarvary be terminated immediately as CEO
P. Andrews McLane, Christopher Masto and Mark Sarvary resign from the Board of
Directors Usman Nabi be appointed to the Company Board
Company assign an interim CEO and undertake a CEO search
Mr. Nabi to become the head of a CEO Search Committee and a member of the
Compensation Committee H Partners has not outlined any constructive steps to
enhance the Company’s strategy, capital structure, or operating
plans Instead, advocates high-risk and value-destroying leadership
changes, while making inaccurate statements about its history of
communicating with Tempur Sealy H Partners has also repeatedly refused to
engage in a constructive dialogue with the Board -
Summarily dismissed the proposal to identify a mutually acceptable, independent
director to add to the Tempur Sealy Board -
Repeatedly refused to discuss anything with management and the Board other than in
the context of the Company’s acceptance of H Partners’
demands
Leadership transition at this time would be risky and value-destructive to the
Company Mr. Sarvary is directly responsible for developing and implementing
Tempur Sealy’s strategy, putting in place a deep bench of
leadership
and
creating
a
strong
performance
oriented
culture
to
ensure
its
successful
execution
Mr. McLane and Mr. Masto bring significant experience, the perspective of
successful growth equity investors and, together with the other Board
members, provide effective oversight of the Company We question how enabling
a lone stockholder to unilaterally select a CEO candidate would constitute proper
corporate governance or sound objective reasoning |
 H Partners
Overview 37
H Partners Management is an independent
investment firm based in New York City
Investment / hedge fund founded by Rehan Jaffer in
2005
Currently has public equity holdings in 5 companies
according to its latest 13F filing
Largest public equity holding is Six Flags
Entertainment Corporation, which emerged from
bankruptcy in 2010 and accounts for approximately
58% of public equity holdings
Currently owns 6,075,000 shares, or approximately
10%, of Tempur Sealy International
Second largest holding accounting for
approximately
26%
of
H
Partners’
public
equity
holdings
As of March 31, 2015, Tempur Sealy’s stock price
has
appreciated
83%
since
H
Partners’
initial
investment
vs.
45%
appreciation
in
the
S&P
500
(4)
In addition, Tempur Sealy’s stock has appreciated
5% YTD (through March 31, 2015) compared to a
0.4% increase in S&P 500 over the same period
Historical
Public
Equity
Holdings
(1)
12/31/11
12/31/12
12/31/13
12/31/14
Six Flags
Entertainment Corp.
$548,904
$781,689
$940,581
$708,499
# of Shares Held
26,620
25,545
25,545
16,419
% Total Value
84.1%
73.0%
62.6%
56.5%
Tempur Sealy
International Inc.
--
$95,213
$318,040
$333,578
# of Shares Held
--
3,024
5,894
6,075
% Total Value
--
8.9%
21.2%
26.6%
Grace W R & Co.
$50,971
$84,038
$126,059
$100,267
# of Shares Held
1,110
1,250
1,275
1,051
% Total Value
7.8%
7.8%
8.4%
8.0%
Remy International, Inc.
--
$46,593
$68,929
$58,602
# of Shares Held
--
2,912
2,956
2,801
% Total Value
--
4.4%
4.6%
4.7%
Boyd Gaming Corp
$25,364
$25,564
$47,855
$53,856
# of Shares Held
3,400
3,850
4,250
4,214
% Total Value
3.9%
2.4%
3.2%
4.3%
Sealy Corp.
(2)
$25,140
$37,500
--
--
# of Shares Held
14,616
17,281
--
--
% Total Value
3.9%
3.5%
--
--
Cumulus Media Inc.
Class A
$2,260
--
--
--
# of Shares Held
677
--
--
--
% Total Value
0.3%
--
--
--
Total Value
$652,640
$1,070,597
$1,501,464
$1,254,802
(3)
Note 1: Dollars and number of shares in thousands. Represents market value at period
end. Based on holdings disclosed in SEC filings made by H Partners.
Note 2: Sealy Corporation was acquired by Tempur-Pedic International on March 18,
2013. Note 3: Excludes 100,000 shares related to Senior Secured Third Lien Convertible
Notes per H Partners’ Form 13F for Quarter Ended December 31, 2012.
Note 4: Initial investment represents the last day of quarter (12/31/2012) of first
investment by H Partners in Tempur Sealy as per SEC filings. |
 H
Partners’ Inconsistent Communication Highlights
Questionable Motives
38
“In 2008…
Tempur-Pedic recruited a
CEO [Mark Sarvary] who previously
worked at the Campbell Soup
Company, J. Crew and Nestle…These
managers’
strong consumer and
general management backgrounds
have enabled Tempur-Pedic and
Select Comfort to succeed.”
H Partners Letter to Sealy Corporation
(11 March 2012)
“Congratulations on moving the Sealy
acquisition forward. We appreciate the
thoughtfulness, focus, and hard work of
Tempur-Pedic’s Board and management
team. We now own 3.4 million shares of
Tempur-Pedic because we believe in
Tempur’s management and brand, and
because a combined Tempur and Sealy will
be a formidable company.”
H Partners email to Andy McLane,
Chairman of the Board
(12 March 2013)
“Congratulations on your progress in the second
quarter. In particular, we were impressed by
Tempur North America’s growth. We know how
much work went into stabilizing this segment,
and we are very appreciative. Between Tempur
North America’s resumed growth trajectory,
Sealy’s continued market share gains, and an
expanding international presence for both
brands, the company’s future is bright. Thanks
for your leadership…”
H Partners email to Mark Sarvary and other
members of Tempur Sealy management
(25 July 2014)
Note:
Permission to use quotations neither sought nor obtained.
Tempur Sealy is dedicated to communicating with all of its stockholders and values
constructive input toward the goal of enhancing stockholder value
H
Partners
has
made
inconsistent
inaccurate
statements
about
its
interactions
with
the
Company
Sudden critical public stance is inconsistent with its previous positive
communications regarding the Company’s performance To
that
end
we
have
communicated
and
been
open
to
communications
with
H
Partners
The first time that H Partners raised specific concerns regarding management and
Board changes was on a phone call with the Company’s Chairman on
February 7, 2015 During
H
Partners’
2012
campaign
at
Sealy,
H
Partners
pointed
to
Mark
Sarvary’s
“strong
consumer
and
general
management
background”
as
an example of the qualities that “enabled Tempur-Pedic to
succeed” H Partners has commended Board and management for strategic
oversight, leadership and progress against its plan |
 Response To H
Partners’ Allegations
39
Allegations
Responses
Note 1:
Total
shareholder
return
includes
stock
price
appreciation
and
dividends
reinvested.
Represents
performance
from
August
4,
2008,
the
date
Mr.
Sarvary
joined
as
CEO,
to
March
27,
2015.
Note 2:
Total shareholder return includes stock price appreciation and dividends reinvested.
Represents performance from September 26, 2012, the date prior to the announcement of our Sealy acquisition, to March 27, 2015. During this time, Mattress Firm has
realized a total shareholder return of 131%, Tempur Sealy of 111%, the S&P 500
of 52% and Select Comfort of 9%. Note 3:
As per Company disclosed FY 2012-2014 adjusted EBITDA.
Note 4:
Net
sales
of
$1.40
billion
for
Tempur-Pedic
International
for
its
fiscal
year
ended
December
31,
2012,
and
net
sales
of
$1.35
billion
for
Sealy
Corporation
for
its
fiscal
year
ended
December
2,
2012.
Note 5:
Represents
initiatives
to
be
achieved
by
2018.
Our
expectation
is
that
they
will
ramp
through
the
period.
Approximately
30%
of
the
total
$125
million
is
incorporated
into
our
full
year
2015
adjusted
EPS
guidance
issued
in
February
2015.
See
“Forward
Looking Statements”.
Low Shareholder
Returns
Tempur
Sealy
has
realized
a
total
shareholder
return
of
493%
since
Mr.
Sarvary
joined
as
CEO
(1)
Since Mr. Sarvary joined as CEO, Tempur Sealy stock has significantly outperformed
peers and the broader market, generating a return more than
5.4x
that
of
the
S&P
500
(1)
Since announcing the acquisition of Sealy in September 2012, a clear strategic
pivot, Tempur Sealy has significantly outperformed Select Comfort
and
the
S&P
500
and
performed
in-line
with
Mattress
Firm
(2)
Poor Performance
Under CEO
Until 2012, Tempur-Pedic had limited competition in the visco-elastic
category it created and has led for 20 years; Mr. Sarvary
successfully
navigated
the
Company
through
a
competitive
onslaught,
executing
an
aggressive
change
in
strategy
to
the
benefit
of stockholders
Transformational acquisition of Sealy Corporation created a complete, diversified
brand portfolio that has positioned the Company as the only truly global
player in the bedding manufacturing industry Mr. Sarvary has led the
successful implementation of an international growth strategy, redesigned the product portfolio and assembled a strong
management team with relevant executive level experience and background
Declining Profitability
Under CEO
Time period chosen by H Partners to compare profitability demonstrates a lack of
understanding of the sector The shift in mattress industry dynamics has led
to lower profitability for all participants; since 2012, Select Comfort has realized a drop in
profitability
comparable
to
Tempur
Sealy
(3)
The acquisition of Sealy Corporation, a lower margin manufacturer with sales
comparable to Tempur-Pedic International, led to significantly
lower
margins
for
the
combined
company
(4)
Management remains intensely focused on enhancing margins and driving
profitability, with operational objectives in place that are expected to
generate
approximately
$125
million
in
operating
income
improvement
(5)
by
2018 |
 Response To H
Partners’ Allegations (Cont’d)
40
Allegations
Responses
Loss of Premier
Position in Foam
Tempur
never
lost
its
premier
position
in
foam;
its
position
was
challenged
in
2012,
and
Tempur
took
decisive
actions
to
retain
its leadership
including revamping its entire product line
Tempur’s premier position today is evidenced by its ability to gain market
share in 2014, record double digit topline growth in 2H
2014 and increase prices on select models in 2015 We
believe
Tempur
Sealy
has
the
strongest
brands
in
the
mattress
sector
due
to
a
commitment
to
advertising
and
brand
building, product
development and customer advocacy
Ineffective Sealy
Integration
Transformational acquisition of Sealy Corporation significantly increased the
scale of the Company: added $1.35 billion in net sales, 5,000+ employees
and 22 manufacturing facilities, with different technologies than Tempur
Tempur Sealy has achieved more cost synergies than originally anticipated, $45
million through 2014 compared to the original target of $40 million, and is
expecting an additional $25 million of annual cost synergies prior to 2018 A
significant portion of the $45 million of cost synergies achieved to date has been reinvested into the business; the Company anticipates
significant long-term revenue synergies from a broader product offering and
access to more channels, including international expansion The Company
continues to attract new partners and maintains strong relationships with existing partners, including Mattress Firm, its largest
customer and the largest mattress retailer in the U.S.; indeed, on February 23,
2015, Mattress Firm announced that it had presented Tempur Sealy with the
Strategic Partnership of the Year award Lack of Board /
Stockholder Alignment
The
Board
is
comprised
of
11
highly-qualified
directors,
all
of
whom
are
independent
(1)
other
than
Mr.
Sarvary
and
Lawrence
Rogers,
Sealy
Corporation's former CEO
To enhance the interests between Tempur’s stockholders and its leadership,
the Company requires its executives and directors to beneficially own
a
meaningful,
minimum
level
of
stock.
Its
Board
and
management
team
collectively
beneficially
own
approximately
5.63%
of
the
shares
outstanding.
Notably,
Mr.
Mc
Lane
and
his
spouse
beneficially
own
or
control
approximately
1.30%
of
the
Company’s
outstanding
shares
(2)
The Board has constructed a compensation structure that appropriately rewards top
management for performance; In 2012, when Tempur- Pedic International
struggled due to competitive pressures, Mr. Sarvary realized ~27% of his target compensation
All stock transactions effected by Board members, including Mr. Masto and Mr.
McLane, are in compliance with SEC regulations as well as the
Company’s
policies
including
“trading
window”
and
pre-clearance
requirements
Note 1:
Per NYSE independence rules.
Note 2: Beneficial ownership calculated as described in the Company’s
proxy statement. Information for Mr. McLane includes a total of 501,058 shares reported as beneficially owned by Mr. McLane in the Company’s 2015 Proxy
Statement plus 288,729 shares owned by a private charitable foundation formed and controlled by Mr.
McLane and his spouse, in which he has no pecuniary interest and as to which he disclaims beneficial ownership. |
 Response To H
Partners’ Allegations (Cont’d)
41
As a leading global developer and manufacturer of bedding products, Tempur Sealy
cannot be compared to an amusement park operator emerging from bankruptcy;
the drivers of historical value creation at Six Flags Entertainment Corporation are not relevant or applicable to Tempur
Sealy’s future success
With
a
depressed
effective
entry
valuation
multiple
typical
in
a
bankruptcy
situation,
and
with
Six
Flags’
operating
performance
at recession lows,
the value of H Partners’
equity upon Six Flags’
emergence from bankruptcy was only poised to increase, regardless of its
leadership team, competitive landscape or industry dynamics
Interestingly,
in
the
time
since
its
emergence
from
bankruptcy,
Six
Flags’
stock
has
largely
tracked
that
of
its
key
public
comparable,
Cedar
Fair
(3)
,
and
margins
merely
returned
from
bankruptcy-level
margins
to
industry
levels
(4)
Tempur Sealy has an ISS corporate governance rating of 1, the highest possible
score. In contrast, Six Flags has an ISS corporate governance
rating
of
6
(out
of
10),
including
significantly
lower
scores
than
Tempur
Sealy
in
the
area
of
Board
Structure
and
Compensation.
Mr.
Usman
Nabi
of
H
Partners
is
the
Chair
of
the
Six
Flags
Nominating
and
Corporate
Governance
Committee
Six Flags Solution for
Tempur Sealy
Improper Relationship
with USSA
Consistent
with
its
tactics
of
offering
no
constructive
ideas
to
create
value
while
promoting
its
own
value-destructive
self-serving
agenda, H Partners has asserted that the Company’s marketing relationship
with the U.S. Ski and Snowboard Association (the “USSA”) is
somehow improper because of Mr. McLane’s position as a director of the USSA. We note the following:
Tempur Sealy is a proud sponsor of a number of athletic organizations, including
the PGA Tour and the USSA, a non-profit organization The USSA
sponsorship reaches a key demographic for Tempur Sealy and targets customers on nationally televised programming
The cost for the USSA sponsorship totaled only approximately $325,000 for 2014, a
small fraction of Tempur Sealy’s $327 million global advertising spend
for the year Tempur Sealy is among dozens of companies that are corporate
sponsors of the USSA, including Audi, Bose, Charles Schwab, Delta
Airlines,
Goodyear,
Kellogg’s,
Liberty
Mutual,
P&G,
Putnam
Investments,
Sprint,
The
North
Face
and
Visa
(2)
Missed Short Term
Targets
Despite fundamental changes in the bedding industry, Tempur Sealy has a strong
track record of positive performance During
Mr.
Sarvary’s
tenure,
the
Company
has
beat
quarterly
analyst
net
sales
and
adjusted
EPS
estimates
nearly
80%
of
the
time
(1)
In 2014, Tempur Sealy met its adjusted EPS guidance with net sales coming in above
plan, exceeding the top end of the Company’s initial full year net
sales guidance by 3% Note 1:
Company performance vs. median consensus estimates from Q1 2009 to Q4 2014 as per FactSet.
Adjusted EPS is a non-GAAP financial measure. For more information on this non-GAAP financial measure, including reconciliations to the applicable GAAP information,
please refer to “Use of Non-GAAP Financial Measures” at the end of this presentation.
Note 2:
As per the USSA website.
Note 3:
Six Flags and Cedar Fair total shareholder return of +491% and +437%, respectively. Represents
performance from May 11, 2010, the date Six Flags stock began trading publicly following its emergency from bankruptcy, to March 27, 2015.
Total shareholder return includes stock price appreciation and dividends reinvested.
Note 4:
In 2014, Six Flags had an Adj. EBITDA margins of 37.4% compared to 21.2% in 2009. Cedar Fair had an
Adj. EBITDA margin of 37.2% in 2014 compared to 32.7% in 2009. Information based on SEC filings for Six Flags and Cedar Fair.
Allegations
Responses |
 H Partners
Timeline Mar. 2012:
H Partners’
letter
to
Sealy
Board:
Praise
for
Tempur-Pedic
Board
for
conducting
broad
and
effective
CEO
search
Mar. 2013:
Usman
Nabi’s
email
to
Andy
McLane:
Support
for
Board
and
Management
strategy;
request
for
in
person
meeting
in
Boston
later
in
the
month.
Mr.
McLane
responds
and
meets
with
Mr. Nabi at TA offices
Sept. 2013:
Mr.
Nabi
emails
Mr.McLane
requesting
an
in
person
meeting.
Mr.
McLane
welcomes
Mr.
Nabi
to
his
offices
in
Boston.
In
the
meeting,
Mr.
Nabi
inquires
if
the
Company
would
consider adding
him
to
the
Board.
Mr.
McLane
tells
Mr.
Nabi
that
he
would
pass
along
the
request
to
the
Nominating
and
Corporate
Governance
Committee
for
consideration,
and
if
the Committee
wanted
to
discuss
the
idea
further
with
Mr.
Nabi,
the
Committee
Chairman
would
get
back
to
him.
Mr.
Nabi
does
not
raise
this
issue
again
until
February
2015
Feb. 2014:
H Partners
sends
a
letter
to
the
Board
regarding
compensation
structure
proposal
Mar. 2014:
Board
responds
via
letter
from
Mark
Sarvary
to
H
Partners
indicating
that
the
Company
would
include
H
Partners’
proposal
as
a
consideration
for
the
Company’s
2015
compensation
program
Jul. 2014:
Mr. Nabi
emails
Mark
Sarvary
and
other
management
congratulating
them
on
Q2
performance
and
on
successful
strategy
to
restore
Tempur
NA
segment
Dec. 23, 2014:
Arik
Ruchim
emails
Mr.
Sarvary
inviting
him
to
speak
at
their
Annual
Partner
Dinner
in
January.
Mr.
Sarvary
declines
due
to
travel
plans
and
Mr.
Ruchim
offers
to
catch
up
at
the
Las Vegas Market in January
Jan. 18, 2015
Mr. Ruchim
speaks
to
Mr.
Sarvary
in-person
in
Las
Vegas,
and
reiterates
the
invitation
to
speak
at
the
H
Partners
annual
partner
dinner
Jan. 27-29, 2015:
Mr. Nabi
emails
Mr.
McLane
asking
for
an
in
person
meeting
with
his
partner
Mr.
Ruchim;
Mr.
McLane
responds
and
proposes
a
late
February
or
early
March
meeting
due
to
the
existing
Company
blackout
period
and
his
travel
schedule.
Mr.
Nabi
responds
indicating
the
matter
is
time
sensitive
and
requests
a
call.
Mr.
McLane
reminds
H
Partners
of
the
blackout
period
due
to
earnings
and
both
agree
to
a
call
on
Feb
7
Feb. 7, 2015:
On
the
phone
with
Mr.
McLane,
Mr.
Nabi
of
H
Partners
delivered
their
views
on
the
CEO
and
made
demands
–
immediate
termination
of
the
CEO,
placement
of
an
interim
CEO
and
putting
Mr.
Nabi
on
the
Board,
joining
the
Compensation
Committee
and
in
charge
of
leading
the
CEO
search.
Mr.
Nabi
also
demanded
that
four
Board
members
resign
and
said
that
H
Partners
would
be
filing
a
13D
the
following
week.
Demanded
an
affirmative
response
on
each
of
the
demands
by
3
pm
ET
on
February
13
or
else
H
Partners
would
immediately launch a “public fight”
Feb. 10, 2015:
Mr.
McLane
emails
Mr.
Nabi
requesting
a
dialogue
to
understand
the
reason
and
basis
for
Mr.
Nabi’s
views
Mr.
Nabi
responds
to
Mr.
McLane’s
email
–
reiterates
that
he
has
lost
confidence
in
both
Mark
Sarvary
and
Andy
McLane
and
indicates
he
has
no
interest
in
speaking
other
than
to
discuss
the
implementation
of
the
February
7
demands.
Also
indicates
that
he
is
expecting
a
response
by
5pm
ET
on
February
13
to
the
three
demands
made
on
February
7
Feb. 17 & 19, 2015:
On
February
17,
H
Partners
files
a
13D
and
makes
public
a
letter
to
certain
of
the
Company’s
directors.
After
the
Tempur
Investor
Day
presentation
on
February
19,
Mr.
Ruchim
meets
the
CEO
and
his
team,
and
makes
a
verbal
statement
largely
reflecting
the
contents
of
the
letter
previously
sent
Mar. 16, 2015:
Tempur
files
proxy
materials
and
mails
letter
to
stockholders
urging
them
to
support
value-enhancing
initiatives
underway
by
voting
for
the
Company’s
director
nominees
Mr.
McLane
emails
Mr.
Nabi
conveying
the
Company’s
full
support
of
Mr.
Sarvary
and
further
stating
that
the
Board
is
willing
to
work
with
H
Partners
to
identify
a
mutually
acceptable,
independent director to add to the Board
H Partners
sends
letter
to
Tempur
Sealy
demanding
production
of
certain
of
the
Company’s
books
and
records
Mar. 18, 2015:
H Partners
responds
to
Mr.
McLane’s
email
from
March
16,
2015
and
rejects
the
proposal
to
identify
a
mutually
acceptable,
independent
director;
reiterates
prior
demands
Mar. 20, 2015:
H Partners
files
proxy
materials
urging
stockholders
to
vote
against
the
re-election
of
Masto,
McLane
and
Sarvary.
From
March
30,
2015
to
April
2,
2015
H
Partners
files
revised
proxy materials
Mar. 30, 2015:
H Partners
makes
public
a
second
letter
demanding
additional
Tempur
Sealy
books
and
records
Tempur
Sealy
issues
a
statement
highlighting
H
Partners'
lack
of
strategy
and
correcting
H
Partners’
most
recent
erroneous
claims
made
in
the
demand
Mar. 31, 2015:
Tempur
Sealy
files
a
letter
with
supplemental
proxy
materials
highlighting
Tempur
Sealy's
focus
on
its
strategic
priorities
and
reiterating
its
support
for
the
current
Board
42
Supportive and Constructive Dialogue
Public Campaign
th
th
th
th
th |
 Conclusion: Right Team in Place to Enhance Stockholder Value
43 |
 Right
Strategy Right Management Team
Right Board Leadership
Global market leader with comprehensive portfolio of
iconic brands and products
Clear
plan
to
achieve
annual
base
growth
targets
(1)
of:
International initiatives on track to capitalize on $200
million net sales
(1)
opportunity for Sealy in Europe
Proven track record of delivering on the Company’s
strategy and driving stockholder value
Possesses substantial consumer industry and
international expertise
Integral understanding of Tempur Sealy’s business
Experienced, engaged directors with relevant skill sets,
representing interests of ALL stockholders
Strong, responsive record of stockholder friendly actions
Well-positioned as a global bedding leader
to drive long-term stockholder value
Creating Superior Stockholder Value
44
6% net sales growth
50bps operating margin improvement
15% adjusted EPS
(2)
growth
Note 1:
All targets and the Sealy net sales opportunity are presented on a constant currency basis. For
information on the methodology used to present constant currency information please refer to “Constant Currency Information” at the end of this presentation.
Note 2:
Adjusted EPS (which is a non-GAAP financial measure) is EPS adjusted for the Sealy acquisition and
related integration costs, loss on disposal of business related to the disposition of the three U.S. innerspring component facilities and related equipment, interest
and fees incurred in connection with debt refinancings and amendments, normalized tax rate adjustments
and to exclude certain non-recurring items. Please refer to the reconciliations under “Use of Non-GAAP Financial Measures” at the end of this presentation
and the Company’s SEC filings for more information regarding the definition of adjusted EPS.
|
 Tempur Sealy
Urges Stockholders to Support Value- Enhancing Initiatives Underway
45
VOTE THE WHITE PROXY CARD FOR TEMPUR SEALY’S
EXPERIENCED AND HIGHLY QUALIFIED DIRECTORS:
Evelyn
S.
Dilsaver,
Frank
Doyle,
John
A.
Heil,
Peter
K.
Hoffman,
Sir
Paul
Judge,
Nancy
F.
Koehn,
Christopher A. Masto, P. Andrews McLane, Lawrence J. Rogers, Mark Sarvary and
Robert B. Trussell, Jr. Our
Board
and
Management
Team
have
been
a
critical
part
of
our
ability
to
deliver
solid
results
and
drive
stockholder
value
including
a
total
shareholder
return
of
493%
since
Mr.
Sarvary
joined
as
CEO
(1)
We
have
successfully
completed
the
acquisition
of
Sealy
Corporation
creating
a
global
bedding
leader
with
a
complete
and
complementary
portfolio
of
brands
We
are
focused
on
driving
strong
margins
and
long
term
growth
through
reinvestment
in
the
business
as
evidenced
by
Tempur
North
America’s
return
to
a
position
of
strength
and
profitability
We
are
leveraging
our
global
scale
to
execute
our
international
growth
plan
by
increasing
distribution, brand awareness and product offerings
We
believe
H
Partners
has
outlined
no
constructive
steps
to
enhance
the
Company’s
strategy, capital
structure
or
operating
plans,
but
rather
advocates
high-risk,
value-destroying
leadership changes
Note 1: Total shareholder return includes stock price appreciation and dividends reinvested. Represents
performance from August 4, 2008 to March 27, 2015. |
 The Choice is
Clear – Voting Instructions
Vote
Now
“FOR”
the
Board
of
Directors
of
Tempur
Sealy
Please
Sign,
Date
and
Return
the
WHITE
Proxy
Card
Today
If you need assistance in executing your WHITE proxy card or placing your vote,
please contact our proxy solicitor:
D.F. King & Co., Inc.
Mail: 48 Wall Street, 22nd Floor, New York, NY 10005
Stockholders Call Toll Free: (877) 283-0319
Banks and Brokers Call Collect: (212) 269-5550
Email: tpx@dfking.com
46 |
 Appendix
47 |
 Well
Positioned For the Future 48
U.S. Bedding Market Share
(1)
September 2009:
highly successful TEMPUR-Cloud
mattress line and “Ask Me”
advertising campaign
August 2008:
Sarvary joined as CEO
September 2012:
Announced the
acquisition of Sealy
March 2013:
Completed the
acquisition of Sealy
Largely completed the
reinvention of entire
Tempur-Pedic range of
products
Launched TEMPUR-Cloud in
major international geographies;
significant improvements in
Tempur-Pedic distribution
Significant shift in
competition; operating
environment changes
Note 1: Represents percentage of bedding shipments. Information for 2008-2013
market share is based on estimates from Furniture Today. Information for 2014 market share is based on management estimates.
Introduced the
Mark
19.5%
19.6%
18.9%
18.0%
17.8%
17.7%
18.9%
8.2%
8.0%
11.5%
14.0%
12.9%
12.4%
13.0%
27.7%
27.6%
30.4%
32.0%
30.7%
30.1%
31.9%
2008
2009
2010
2011
2012
2013
2014E
Sealy
Tempur
-Pedic
2008
2009
2010
2011
2012
2013
2014 |
 Experienced
Tempur Sealy Board of Directors 49
Note 1: Tempur Sealy entity was formed in 2002, so this year is when Mr. Trussell became a director /
CEO of that entity. |
 Use of
Non-GAAP Financial Measures 50
In this investor presentation and certain of its press releases and SEC filings, the Company provides
information regarding adjusted net income, adjusted earnings per share, earnings before
interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA and consolidated funded debt and consolidated funded
debt less qualified cash, Tempur North America adjusted operating income and operating margin, adjusted
operating expenses, adjusted operating income and operating margin and free cash flow, which
are not recognized terms under U.S. Generally Accepted Accounting Principles (“GAAP”) and do not purport to be
alternatives to net income as a measure of operating performance or total debt. Because not all
companies use identical calculations, these presentations may not be comparable to other
similarly titled measures of other companies. A reconciliation of adjusted net income and adjusted earnings per share is provided on
slide 51. Management believes that the use of these non-GAAP financial measures provides
investors with additional useful information with respect to the impact of various costs associated with the Sealy acquisition and the disposal of
the three U.S. innerspring component facilities and financing costs incurred in connection with the
amendment and refinancing of our senior secured credit facility in 2014 and 2013, other income
related to certain other non-recurring items, including income from a partial settlement of a legal dispute, and adjustment of taxes
to a normalized rate related to the aforementioned items and other discrete income tax events.
A reconciliation of EBITDA and adjusted EBITDA from the Company’s net income and a
reconciliation of total debt to consolidated funded debt and consolidated funded debt less
qualified cash are provided on slides 52 and 53. Management believes that the use of EBITDA and adjusted EBITDA provides investors with
useful information with respect to the terms of the Company’s senior secured credit facility and
the Company’s compliance with key financial covenants.
For more information regarding adjusted EPS, adjusted EBITDA and other terms used in the
Company’s senior secured facility, please refer to the Company’s SEC filings.
A reconciliation of Tempur North America GAAP operating income and operating margin to
adjusted operating income and operating margin, which are GAAP operating income and GAAP
operating margin less certain corporate expenses, is provided on slide 54. Management believes that the use of these non-GAAP
financial measures provides investors with additional useful information with respect to Tempur North
America’s operating performance excluding the impact of certain corporate expenses.
A reconciliation of GAAP operating expenses to adjusted operating expenses, which is
GAAP operating expenses less integration and financing costs, is provided on slide 55.
Management believes that the use of this non-GAAP financial measure provides investors with additional useful information with respect to the
Company’s operating performance and initiative to deleverage operating expenses during
2015-2018. The reconciliation provides information on the methodology used to present
operating expenses, including the exclusion of integration and financing costs related to the Sealy acquisition.
A reconciliation of GAAP operating income and operating margin to adjusted operating
income and operating margin, which are GAAP operating income and GAAP operating margin less
integration and financing costs, is provided on slide 56. Management believes that the use of these non-GAAP financial measures
provides investors with additional useful information with respect to the Company’s operating
income and margin performance excluding the impact of integration and financing costs related
to the Sealy acquisition.
Adjusted Net Income/Adjusted EPS
EBITDA/Adjusted EBITDA
Tempur North America Adjusted Operating Income and Margin Reconciliation
Adjusted Operating Expenses
Adjusted Operating Income and Margin |
 2014
Adjusted EPS Reconciliation
2013 and 2014 Adjusted EPS
Note:
2013 includes Sealy from March 18, 2013 to December 31, 2013, while 2014 includes
Sealy for the whole year and accordingly this information may not be comparable.
Note
1:
Loss
on
disposal
of
business
represents
costs
associated
with
the
disposition
of
the
three
U.S.
innerspring
component
facilities
and
related
equipment.
Note 2:
Transaction and integration represents costs, including legal fees, professional
fees and other charges to align the businesses related to the Sealy acquisition.
Note 3:
Financing costs represent costs incurred in connection with the amendment and
refinancing of our senior secured credit facility in 2014 and 2013, respectively.
Note
4:
Other
income
includes
certain
other
non-recurring
items,
including
income
from
a
partial
settlement
of
a
legal
dispute.
Note
5:
Adjustment
of
taxes
to
normalized
rate
represents
adjustments
associated
with
the
aforementioned
items
and
other
discrete
income
tax
events.
51
Year Ended
Year Ended
(in millions, except per share amounts)
December 31,
December 31,
2013
2014
Net income
78.6
$
108.9
$
Plus:
Loss on disposal of business, net of tax
(1)
--
16.7
Transaction costs, net of tax
(2)
13.2
--
Integration costs, net of tax
(2)
37.2
30.6
Financing costs, net of tax
(3)
6.5
3.4
Other income, net of tax
(4)
--
(11.3)
Adjustment of taxes to normalized rate
(5)
10.9
16.3
Adjusted net income
146.4
$
164.6
$
Earnings per share, diluted
1.28
$
1.75
$
Loss on disposal of business, net of
tax (1)
--
0.27
Transaction costs, net of tax
(2)
0.21
--
Integration costs, net of tax
(2)
0.60
0.49
Financing costs, net of tax
(3)
0.11
0.05
Other income, net of tax
(4)
--
(0.18)
Adjustment of taxes to normalized rate
(5)
0.18
0.27
Adjusted earnings per share, diluted
2.38
$
2.65
$
Diluted shares outstanding
61.6
62.1 |
 Adjusted
EBITDA Reconciliation 2013 and 2014 Adjusted EBITDA
52
Year Ended
Year Ended
(in millions)
December 31,
December 31,
2013
(1)
2014
Net income attributable to Tempur Sealy International, Inc.
75.6
$
108.9
$
Interest expense
133.2
91.9
Income taxes
39.0
64.9
Depreciation & amortization
98.6
89.7
EBITDA
346.4
$
355.4
$
Adjustments for financial covenant purposes:
Transaction
costs
(2)
25.2
__
Integration
costs
(2)
15.3
40.3
Financing
and
Refinancing
charges
(3)
2.4
1.3
Non-cash
compensation
(4)
5.8
__
Restructuring
and
impairment
related
charges
(5)
7.8
__
Loss
on
disposal
of
business
and
discontinued
operations
(6)
0.6
23.2
Other
(7)
7.6
(15.6)
Adjusted EBITDA
411.1
$
404.6
$
Note 1:
2013 is presented according to the methodology used for the Company’s senior secured facilities
and is based on the mathematical combination of the Company’s historical financial results for
the twelve months ended December 31, 2013 and Sealy’s historical financial results for the
pre-acquisition period from December 3, 2012 through March 3, 2013. Note 2:
Transaction and integration represent costs related to the Sealy acquisition, including legal fees,
professional fees and other charges to align the businesses. Note 3:
Financing charges represent costs incurred in connection with the amendment of our senior secured
credit facility and refinancing charges represent costs associated with debt refinanced by
Sealy prior to the Sealy acquisition.
Note 4:
Non-cash compensation represents costs associated with various share-based awards.
Note 5:
Restructuring and impairment represents costs related to restructuring the Tempur Sealy business and
asset impairment costs recognized by Sealy prior to the Sealy acquisition. Note 6:
Loss on disposal of business represents costs associated with the disposition of the three U.S.
innerspring component production facilities and related equipment and discontinued operations
represents losses from Sealy's divested operation prior to the Sealy acquisition.
Note 7: Other income in 2014 includes certain other non-recurring
items, including income from a partial settlement of a legal dispute. |
 Debt
Reconciliation and Leverage Ratio Calculation Reconciliation of Total Debt to
Consolidated Funded Debt Less Qualified Cash Note:
For more details regarding consolidated funded debt, consolidated funded debt less
qualified cash and adjusted EBITDA, please refer to the Company’s SEC filings.
Note
1:
Qualified
cash
as
defined
in
the
Company's
senior
secured
credit
facility
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.
Note 2: The ratio of consolidated debt less qualified cash to adjusted EBITDA
was 3.89 times, within the Company's covenant, which requires this ratio to be less than 4.75 times at December 31, 2014.
53
As of
(in millions, except ratio)
December 31,
2014
Total debt
1,602.3
$
Plus:
Letters of credit outstanding
18.2
Consolidated funded debt
1,620.5
Less:
Domestic qualified cash
(1)
25.9
Foreign qualified cash
(1)
21.9
Consolidated funded debt less qualified cash
1,572.7
$
Adjusted EBITDA
404.6
$
Consolidated
funded
debt
less
qualified
cash
to
Adjusted
EBITDA
(2)
3.89 times |
 Tempur North
America Adjusted Operating Margin Reconciliation
Tempur North America
Adjusted Operating Income And Operating Margin
Tempur North America 2013 - 2014
Year Ended
Year Ended
(in millions, except percentage amounts)
December 31,
December 31,
2013
2014
Operating Income, Tempur North America segment
$67.6
$84.9
Tempur North America Net Sales
910.0
993.2
Operating Margin (GAAP)
7.4%
8.5%
Corporate expenses included in Tempur North America segment
83.0
75.5
Adjusted Operating Income less corporate expenses
$150.6
$160.4
Tempur North America Net Sales
910.0
993.2
Adjusted Operating Margin
16.5%
16.1%
54
Tempur North America 2H 2013 vs. 2H 2014
Six Months Ended
Six Months Ended
(in millions, except percentage amounts)
December 31,
December 31,
2013
2014
Operating Income, Tempur North America segment
$41.5
$65.5
Tempur North America Net Sales
468.6
542.9
Operating Margin (GAAP)
8.9%
12.1%
Corporate expenses included in Tempur North America segment
32.7
40.2
Adjusted Operating Income less corporate expenses
$74.2
$105.7
Tempur North America Net Sales
468.6
542.9
Adjusted Operating Margin
15.8%
19.5% |
 Adjusted
Operating Expenses 2014 Adjusted Operating Expenses
Note
1:
Integration
costs
represents
costs,
including
legal
fees,
professional
fees
and
other
charges
to
align
the
businesses
related
to
the
Sealy
acquisition.
Financing
costs
represent
costs
incurred in
connection with the amendment of our senior secured credit facility.
55
Operating Expenses
Adjusted
Tempur Sealy International, Inc.
Year Ended
(in millions, except percentage amounts)
December 31,
2014
Consolidated net sales
$2,989.8
Selling and marketing expenses
619.9
General, administrative and other expenses
280.6
Operating Expenses
900.5
Operating Expenses as a % of Consolidated Net Sales
30%
Operating Expenses
$900.5
Less:
Integration
and
financing
costs
(1)
43.8
$856.7
Adjusted Operating Expenses as a % of Consolidated Net Sales
29% |
 Adjusted
Operating Margin 2014 Adjusted Operating Income and Margin
56
Note 1: Integration
costs
represents
costs,
including
legal
fees,
professional
fees
and
other
charges
to
align
the
businesses
related
to
the
Sealy
acquisition.
Financing
costs
represent
costs
incurred
in
connection with the amendment of our senior secured credit facility.
Tempur Sealy International, Inc.
Year Ended
(in millions, except percentage amounts)
December 31,
2014
Operating Income, Tempur Sealy International, Inc.
$276.3
Consolidated net sales
2,989.8
Operating Margin (GAAP)
9.2%
Operating Income, Tempur Sealy International, Inc.
$276.3
Plus:
Integration
and
financing
costs
(1)
43.8
Adjusted Operating Income
$320.1
Consolidated net sales
2,989.8
Adjusted Operating Margin (Non-GAAP)
10.7% |
 Constant
Currency Information 57
In this investor presentation 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” or “excluding FX”, 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 year 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. The information presented on a constant currency basis is not
recognized under GAAP, and this information is not intended as a substitute for reviewing information
presented on a GAAP basis.
|