Business Combination (Tables)

3 Months Ended

Mar. 31, 2013

On March 18, 2013, the Company completed the acquisition of Sealy ("Sealy Acquisition"). Pursuant to the merger agreement, each share of common stock of Sealy issued and outstanding immediately prior to the effective time of the acquisition was cancelled and (other than shares held by Sealy or Tempur-Pedic or their subsidiaries or Sealy stockholders who properly exercised their appraisal rights) converted into the right to receive $2.20 in cash. The total purchase price was $1,265.5 million, which was funded using available cash and financing consisting of our 2012 Credit Agreement and Senior Notes (see Note 4, "Long-Term Debt" for the definition of these terms and further discussion). The purchase price of Sealy consisted of the following items:

(in millions)
Cash consideration for stock	$	231.2		(1)
Cash consideration for share-based awards		14.2		(2)
Cash consideration for 8.0% Sealy Notes		442.1		(3)
Cash consideration for repayment of Sealy Senior Notes		260.6		(4)
Cash consideration for repayment of Sealy 2014 Notes		276.9		(5)
Total consideration		1,225.0
Paid to escrow – 8.0% Sealy Notes		92.7		(6)
Cash acquired		(52.2	)	(7)
Net consideration transferred	$	1,265.5

(1)

The cash consideration for outstanding shares of Sealy common stock is the product of the agreed-upon cash per share price of $2.20 and total Sealy shares of 105.1 million.

(2)

The cash consideration for share-based awards is the product of the agreed-upon cash per share price of $2.20 and the total number of restricted stock units and deferred stock units outstanding and the "in the money" stock options net of the weighted average exercise price.

(3)

The cash consideration for Sealy's 8.0% Senior Secured Third Lien Convertible Notes due 2016 ("8.0% Sealy Notes") is the result of applying the adjusted equity conversion rate to the 8.0% Sealy Notes tendered for conversion and multiplying the result by the agreed-upon cash per share price of $2.20. The 8.0% Sealy Notes that were converted into the right to receive the same merger consideration that would have been payable to a holder of 201.0 million shares of Sealy common stock, subject to adjustment in accordance with the terms of the supplemental indenture governing the 8.0% Sealy Notes.

(4)

The cash consideration for Sealy's 10.875% Senior Notes due 2016 ("Sealy Senior Notes") reflects the repayment of the outstanding obligation.

(5)

The cash consideration for Sealy's 8.25% Senior Subordinated Notes due 2014 ("Senior Subordinated Notes") reflects the repayment of the outstanding obligation.

(6)

Pursuant to the merger agreement, the Company deposited with a paying agent an amount in cash sufficient to make payment to all holders of the 8.0% Sealy Notes who converted their notes during a make-whole period. Of this amount deposited, approximately $92.7 million will be transferred back to the Company after the expiration of a deposit period specified in the related paying agency agreement. The 8.0% Sealy Notes will continue to be secured obligations of Sealy and certain of its subsidiaries until maturity.

(7)

Represents the Sealy cash balance acquired at acquisition.

Components of the preliminary purchase price allocation

The Company accounted for the Sealy Acquisition using the acquisition method. The preliminary allocation of the purchase price is based on estimates of the fair value of assets acquired and liabilities assumed as of March 18, 2013. The Company is continuing to obtain information to complete its valuation of intangible assets, as well as to determine the acquired assets and liabilities, including tax assets, liabilities and other attributes. The components of the preliminary purchase price allocation are as follows:

(in millions)
Accounts receivable	$	186.4
Inventory		75.1
Prepaid expenses and other current assets		42.3
Accounts payable		(77.7	)
Accrued expenses		(126.4	)
Property, plant and equipment		252.3
Other assets		36.7
Identifiable intangible assets:
Indefinite-lived trade names		522.8
Contractual retailer/distributer relationships		91.1
Developed technology, including patents		88.8
Customer databases		3.9
Definite-lived trade names		2.3
Deferred income taxes, net		(281.6	)
Other liabilities		(99.8	)
Goodwill		549.3
Net consideration transferred	$	1,265.5

Business acquisition, pro forma information

Sealy's net sales and pre-tax loss for the period from the acquisition date to March 31, 2013 were $46.7 million and $3.6 million, respectively. The following unaudited pro forma information presents the combined financial results for the Company and Sealy as if the Sealy Acquisition had been completed at the beginning of the Company's prior fiscal year, January 1, 2012. Sealy's pro forma information is provided for the quarterly periods December 3, 2012 through March 3, 2013 and November 28, 2011 through February 26, 2012, respectively.

(in millions, except earnings per common share)	Three Months Ended		Three Months Ended
	March 31, 2013		March 31, 2012
Net sales	$	683.0	$	696.7
Net income	$	15.6	$	29.0
Earnings from continuing operations per common share - Diluted	$	0.25	$	0.44

- Definition

Tabular disclosure of pro forma results of operations for a material business acquisition or series of individually immaterial business acquisitions that are material in the aggregate.

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