TEMPUR SEALY INTERNATIONAL, INC. - FORM 8-K - EX-99.1

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8-K - FORM 8-K - TEMPUR SEALY INTERNATIONAL, INC.	d883865d8k.htm

Tempur Sealy International, Inc.

March 3-4, 2015

“Improving the Sleep of More People Every Night,

All Around the World

”

Exhibit 99.1

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, revenue performance, adjusted EBITDA, adjusted EPS, operating cash flow, free cash flow, synergies and pricing increases and

related assumptions for 2015 and subsequent years, expectations regarding net sales growth rates, sales growth opportunities for Sealy in international markets and for the TEMPUR-

Flex line of products, margin improvements, expansion of distribution, AUSP growth, 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 and improve 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.

Additional information concerning these and other risks and uncertainties are discussed in the Company's filings with the Securities and Exchange Commission, 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.

Forward-Looking Statements

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.

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.

Note Regarding Historical Financial Information:

Note Regarding Trademarks, Trade Names and Service Marks:

Mark Sarvary

President & Chief Executive Officer

Largest And Only Truly Global Bedding Company

Comprehensive Portfolio of Iconic Brands

Complete and Complementary Product Offering

Strong Management Team, Executing A Compelling Strategy

Significant Sales, Margin and Earnings Growth Opportunity

Strong Cash Flow

The Industry’s Only Truly Global Company

Tempur Sealy Presence

Note: Presence includes subsidiaries, joint ventures, third party, and licensee markets.

Complete and Complementary Portfolio of Brands

Luxury

Premium

Mid-Price

Value

•

#1 US Brand People Are Most Interested In Purchasing

•

#1 US Brand In Total Awareness

•

#1 US Brand People Are Most Likely To Buy

•

#1 US Brand In Luxury Innerspring Sales

Note

2014

Mattress

Industry

Consumer

Research

–

U.S.

Market

Note

Stearns

Foster

Brand

Luxury

Innerspring

Sales

based

management

estimates.

Tempur-Pedic

Stearns & Foster

Sealy

Complete Range Of Products

Innerspring

Hybrid

Stearns & Foster

TEMPUR-Flex

Adjustable Comfort

TEMPUR-Cloud

Memory Foam, Gel Visco, Latex

Tempur Material

Other Specialty

Adjustable Bases

TEMPUR-Ergo Plus

Pillows

TEMPUR Pillows

Strong, Established Management Team

Experienced Management Team With Proven Track

Record Of Execution

Years with

Consumer

Tempur

Name

Position

Prior Experience

Products

Inter'l

Sealy

Mark Sarvary

President and CEO

President, Campbell Soup North America

CEO, J. Crew Group

President, Stouffer's Frozen Food Division at Nestle

Tim Yaggi

COO

Group President, Masco Corporation

EVP, Whirlpool Corporation

Norelco (Philips)

Dale Williams

EVP and CFO

CFO, Honeywell Control Products

CFO, Saga Systems

CFO, GE Information Systems

Rick Anderson

EVP and President,

VP, Gillette

North America

Gillette / Procter & Gamble

David Montgomery

EVP and President,

President, Rubbermaid Europe

International

VP, Black & Decker Europe, Middle East, Africa

Jay Spenchian

EVP and Chief Marketing

EVP and CMO, Olive Garden and Red Lobster

Officer

Executive Director, Marketing, General Motors

Prior Experience

Joined in

2014

Key Priorities 2012 –

2014

Return Tempur North America to growth and improve operating margins

Revamped entire product offering (2012-2014) and improved retailer economics (August 2012)

Sales growth resumed and margins expanded significantly in 2H-2014 and expected to further expand in 2015

Maintain Sealy sales growth momentum and margins

Sales growth had just begun prior to the acquisition in 2013, and growth continued in 2013 and accelerated in

2014

Margins, however, declined in 2014 and are a primary area of focus in 2015 and beyond

Integrate Sealy

Organizational integration with Sealy essentially complete in North America

Cost synergies realized from the acquisition are ahead of our projections

Capitalizing on strategic growth initiatives of complementary brand and product portfolio

Position International business for future growth

Acquired Sealy brand rights in Europe (ex. UK) and Japan, and commenced roll-out in 3Q 2014

(Weakness in Central Europe affected overall International performance)

Reinvested A Significant Portion Of Cost Synergies Realized

From Sealy Acquisition To Support These Key Priorities

Tempur Sealy Strategic Priorities

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

Leverage Global Scale For Competitive

Advantage

•

Base Annual Targets:

Sales Growth Of 6% And Adjusted

EPS 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”.

Note 2: Targets are based on constant currency. For information on the methodology used to present constant currency information please refer to slide 31.

Note 3: Adjusted EPS (which is a non-GAAP 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, normalized tax rate adjustments and to exclude certain non-recurring items. Please refer

to the reconciliations on slide 23 and the Company’s SEC filings for more information regarding the definition of adjusted EPS.

Canada

Europe

Asia Pacific

Latin America

Growth Drivers By Geography

Marketing

Product

Innovation

Opening Own

Stores

Leveraging

Distribution

Synergies

Leverage

(CR)

Expand Margins With Focus On Driving Significant

Cost Improvement

2015 -2018

Objective

2014

Annual

Incremental

Operating

Income

Initiative

Sealy

Gross

Margin

Improvement

30%

33%

$45 million

Cost

Synergies

$45 million

$70 million

$25 million

Adjusted

Operating

Expense

Leverage

29%

28%

$30 million

$125 million

2015 Pricing

–

$25 million

These Initiatives Alone Provide More Than 300bps Of

Operating Margin Improvement

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. See

“Forward Looking Statements”.

Note 2: Refers to Sealy gross margin in the U.S. of 30% in 2014. Sealy US gross margin improvement excludes the benefit from cost synergies.

Note 3: Adjusted operating expense leverage is a non-GAAP measure. For information on the methodology used to present adjusted operating expense leverage and a reconciliation to GAAP operating expense leverage

please refer to slide 26.

Note 4: Cost synergies reflect annualized cost synergies realized from the Sealy transaction.

Leverage Global Scale For Competitive Advantage

Tempur Sealy Is Uniquely Positioned To Capitalize On Its

Integrated Product And Brand Portfolio On A Global Basis

•

Procurement

•

R&D

•

Engineering and design

Product Development

•

Cloud and Breeze Beds

•

Stearns & Foster

•

Posturepedic Hybrid

Distribution

Brand

Dale Williams

Executive Vice President & Chief Financial Officer

Globally Diverse Bedding Provider Largely Sold In

The Retail Channel

2014 Net Sales

By Segment

International

North America

By Geographic Region

Europe

Canada

Asia Pacific

Latin America

Other

Retail

By Channel

Other

By Product

Bedding

73%

11%

80%

20%

92%

91%

2014 Net Sales increased 21%

Estimated net sales growth would have been +8% had we owned Sealy for all of 2013

2015 Net Sales growth guidance of 2% to 5%, and includes unfavorable FX of 3.5%

Net Sales

($ in millions)

$2,464

$2,990

2013

2014

2015P

Net Sales

$3,050-$3,150

Note 1: Please refer to “Forward Looking Statements”.

Note 2: Estimated net sales growth of 8% for 2014 is based on Tempur Sealy International consolidated net sales for 2013 plus management’s estimates for Sealy sales for the period of January 1, 2013 to

March 17, 2013. The Sealy acquisition was completed on March 18, 2013.

Note 3: 2015P is the Company’s Net Sales guidance issued on February 5, 2015, which consisted of full year 2015 Net Sales of $3.050 billion to $3.150 billion.

Note 4: For information on the methodology used to present constant currency information please refer to slide 31.

(GAAP Reported Operating Margin)

2014

GAAP

operating

margin

includes

$43.8

million

integration

costs

(1.5%

net

sales)

Adjusted

operating

margin

expected

10bps

80bps

2015

On a constant currency basis, adjusted operating margin is expected

to be up 75bps to 150bps in 2015

Operating Margin

Note 1: 2015 operating margin improvement based on management estimates. Please refer to “Forward Looking Statements”.

Note 2: Adjusted operating margin is a non-GAAP measure. For information on the methodology used to present Adjusted operating margin and a reconciliation to GAAP operating margin please refer to slide 27.

Note 3: For information on the methodology used to present constant currency information please refer to slide 31.

Adjusted Operating

Margin

Adjusted Operating

Margin

9.9%

9.2%

10.7%

10.8%-11.5%

2013

2014

2015P

Operating Margin

Adjusted EPS

2014 Adjusted EPS increased 11%; on a constant currency basis would have increased 18%

2015 Adjusted EPS is expected to grow 12% to 27% on a constant currency basis

Note 1: Adjusted EPS amounts for 2015 based on management estimates. On February 5, 2015, the Company issued guidance for Adjusted EPS for full year 2015 of $2.70 to $3.10. Please refer to “Forward Looking

Statements”.

Note 2: GAAP EPS for 2013 was $1.28 and GAAP EPS for 2014 was $1.75.

Note 3: Base Annual Adjusted EPS Growth Target is based on constant currency. For information on the methodology used to present constant currency information please refer to slide 31.

Note 4: Adjusted EPS (which is a non-GAAP 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, normalized tax rate adjustments and to exclude certain non-recurring items. Please refer to the reconciliations on slide 23

and the Company’s SEC filings for more information regarding the definition of adjusted EPS.

$2.38

$2.65

$2.70-$3.10

2013

2014

2015P

Adjusted EPS

Strong Cash Flow Characteristics

($ in millions)

Operating and Free Cash Flow

Multi-year add back to net income as D&A should continue to exceed annual Capex by $30M+

Expect continued growth in operating and free cash flow in 2015

Note 1: Operating and free cash flow for 2013 only include Sealy from March 18, 2013 to December 31, 2013.

Note 2: Free cash flow is a non-GAAP measure. For information on the methodology used to present free cash flow information and a reconciliation to operating cash flow please refer to slide 30.

Note 3: For information on the methodology used to present constant currency information please refer to slide 31.

$98.5

$225.2

$58.5

$177.7

2013

2014

Operating Cash Flow

Free Cash Flow

Improving Capital Structure

($ in millions)

Consolidated Funded Debt Less

Qualified Cash to Adjusted EBITDA

As a larger more stable company, our optimal capital structure is 3x

2014 credit agreement amendment allows cash utilization flexibility below 3.5x

Value creation generated through deleverage and/or returning value to shareholders

$1,869

$1,798

$1,573

$1,450

4.4x

3.9x

3.4x

31-Mar-13

2013

2014

2015P

Debt

Leverage

Note 1: Information for 2015 based on management estimates. Please refer to “Forward Looking Statements”.

Note 2: Adjusted EBITDA (which is a non-GAAP measure) represents EBITDA adjusted for the loss on disposal of business, Sealy transaction and integration costs, and purchase price allocation (“PPA”)

inventory adjustments related to the Sealy acquisition, financing and refinancing costs, non-cash compensation, restructuring and other. Please refer to the reconciliation included on slides 24-25

of this presentation and the Company’s SEC filings for more information regarding the definition of adjusted EBITDA and the calculation of consolidated funded debt less qualified cash (which are

non-GAAP measures) and the calculation of the leverage ratio for purposes of the Company’s senior secured facility.

Appendix

Use of Non-GAAP Financial Measures

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,

Sealy Corporation and Sealy segment 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.

Adjusted Net Income/Adjusted EPS

EBITDA/Adjusted EBITDA

A reconciliation of EBITDA and adjusted EBITDA to 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 24 and 25. Management believes that the use of EBITDA and adjusted EBITDA also 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.

Adjusted Operating Expenses

Adjusted Operating Income and Margin

Sealy Corporation 2012 Adjusted Operating Income and Margin and Sealy Segment 2014 Adjusted Operating Income and Margin

Free Cash Flow

A reconciliation of GAAP operating expenses to adjusted operating expenses, which is GAAP operating expenses less integration and financing costs, is provided on slide

26. 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 27. 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.

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, acquisition and merger costs, restructuring and impairment related charges, and conforming the

accounting of equity in earnings of unconsolidated affiliates is provided on slides 28 and 29. Management believes that the use of these non-GAAP financial

measures provides investors with additional useful information with respect to the Sealy business operating income and margin performance excluding the

impact of integration and financing costs related to the Sealy acquisition.

A reconciliation of cash provided by operating activities to free cash flow, which is cash provided by operating activities less purchases of property, plant and

equipment, is presented on slide 30. Management believes that the use of this non-GAAP financial measure provides investors with additional useful

information with respect to the Company’s cash generation and financial strength.

A reconciliation of adjusted net income and adjusted earnings per share is provided on slide 23. 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 the accelerated amortization of deferred financing charges for voluntary prepayment of Term A and Term B loans, 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.

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.

2014

Adjusted EPS Reconciliation

2013 and 2014 Adjusted EPS

(1) Loss on disposal of business represents costs associated with the disposition of the three U.S. innerspring component facilities and related equipment.

(2) Transaction and integration represents costs, including legal fees, professional fees and other charges to align the businesses related to the Sealy acquisition.

(3) Financing costs represent costs incurred in connection with the amendment and refinancing of our senior secured credit facility in 2014 and 2013, respectively.

(4) Other

income

includes

certain

other

non-recurring

items,

including

income

from

partial

settlement

legal

dispute.

(5) Adjustment of taxes to normalized rate represents adjustments associated with the aforementioned items and other discrete income tax events.

Note: 2013 includes Sealy from March 18 to December 31, 2013.

Year Ended

(in millions, except per share amounts)

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

Year Ended

(in millions)

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

(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.

(2) Transaction and integration represent costs related to the Sealy acquisition, including legal fees, professional fees and other charges to align the businesses.

(3) Financing costs 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.

(4) Non-cash compensation represent costs associated with various share-based awards.

(5) Restructuring and impairment represent costs related to restructuring the Tempur Sealy business and asset impairment costs recognized by Sealy prior to the Sealy acquisition.

(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

represent losses from Sealy's divested operation prior to the Sealy acquisition.

(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

(1)

Qualified

cash

defined

the

Company's

senior

secured

credit

facility

equals

100.0%

unrestricted

domestic

cash

plus

60.0%

unrestricted

foreign

cash.

For

purposes

calculating

leverage

ratios,

qualified

cash

capped at $150.0 million.

(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.

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.

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

Adjusted Operating Expenses

2014 Adjusted Operating Expenses

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

43.8

Operating Expenses less Integration and financing costs

$856.7

Adjusted Operating Expenses as a % of Consolidated Net Sales

29%

Note 1: Integration costs represents costs, including legal fees, professional fees and other charges to align the businesses related to the Sealy acquisition.

Note 2: Financing costs represent costs incurred in connection with the amendment of our senior secured credit facility.

Adjusted Operating Margin

2014 Adjusted Operating Income and Margin

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

43.8

Adjusted Operating Income

$320.1

Consolidated net sales

2,989.8

Adjusted Operating Margin (Non-GAAP)

10.7%

Note 1: Integration costs represents costs, including legal fees, professional fees and other charges to align the businesses related to the Sealy acquisition.

Note 2: Financing costs represent costs incurred in connection with the amendment of our senior secured credit facility.

Sealy Corporation 2012 Adjusted Operating Margin

2012 Adjusted Operating Income and Margin

Sealy Corporation

Year Ended

(in millions, except percentage amounts)

December 2,

2012

Operating Income, Sealy Corporation

$100.6

Consolidated net sales

1,347.9

Operating Margin (GAAP)

7.5%

Operating Income, Sealy Corporation

$100.6

Plus:

Comfort Revolution acquisition costs

1.2

Merger costs

2.5

Restructuring and impairment related charges

2.4

Equity in earnings of unconsolidated affiliates

5.2

Other (various)

1.9

Total adjustments

13.2

Adjusted Operating Income

$113.8

Consolidated net sales

1,347.9

Adjusted Operating Margin (Non-GAAP)

8.4%

Note 1: Information based on data provided in Sealy 10-K for fiscal year ended December 2, 2012.

Note 2: Adjustments to GAAP operating margin include costs associated with the acquisition of 45% interest in the Comfort Revolution joint venture, merger costs associated with the Tempur-Pedic International Inc.

transaction, restructuring and impairment related charges related to certain of Sealy manufacturing facilities, other (various) charges and conforming the accounting of equity in earnings of unconsolidated affiliates.

Sealy Adjusted Operating Margin –

2014

2014 Adjusted Operating Income and Margin

Note: Integration costs represents charges to align the businesses related to the Sealy acquisition.

Sealy Segment

Year Ended

(in millions, except percentage amounts)

December 31,

2014

Operating Income, Sealy Segment

$99.8

Consolidated net sales

1,524.6

Operating Margin (GAAP)

6.5%

Operating Income, Sealy Segment

$99.8

Plus:

Integration costs

19.8

Adjusted Operating Income

$119.6

Consolidated net sales

1,524.6

Adjusted Operating Margin (Non-GAAP)

7.8%

Free Cash Flow

2014 Free Cash Flow

Tempur Sealy International, Inc.

Year Ended

(in millions)

December 31,

2013

2014

Net cash provided by operating activities

$98.5

$225.2

Less: Purchases of property, plant and equipment

40.0

47.5

Free Cash Flow

$58.5

$177.7

Constant Currency Information

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 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 U.S. GAAP, and this information is not intended as a substitute for reviewing information

presented on a GAAP basis.

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TEMPUR SEALY INTERNATIONAL, INC. Reports