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Business Combination
 3 Months Ended
Mar. 31, 2014
Business Combinations [Abstract]  
Business Combination
Business Combination

On March 18, 2013, the Company completed the 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 Sealy Acquisition was canceled 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 $1,172.9 million, which was funded using available cash and financing consisting of the Company’s 2012 Credit Agreement and Senior Notes (see Note 4, “Debt” for the definition of these terms and further discussion).

Sealy owns one of the largest portfolios of bedding brands in the world, and manufactures and markets a complete line of bedding products under the Sealy®, Sealy Posturepedic®, OptimumTM and Stearns & Foster® brands. The results of operations of Sealy and Sealy’s historical subsidiaries are reported within the Company’s Sealy reportable segment.
 
The Company incurred $11.8 million of direct transaction expenses for the three months ended March 31, 2013. These expenses are included in general, administrative and other expenses in the accompanying Condensed Consolidated Statements of Income. In addition, the Company incurred $19.9 million of incremental interest expense for the three months ended March 31, 2013, which includes interest and other fees on the Senior Notes and the 2012 Credit Agreement for the period prior to March 18, 2013, commitment fees associated with financing for the closing of the Sealy Acquisition, and the write off of deferred financing costs associated with the 2011 Credit Facility.

The Company accounted for the Sealy Acquisition using the acquisition method. The 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 components of the final purchase price allocation are as follows:
(in millions)
 
 
Accounts receivable
$
185.0

 
Inventory
75.1

 
Prepaid expenses and other current assets
23.4

 
Accounts payable
(77.9
)
 
Accrued expenses
(140.0
)
 
Property, plant and equipment
242.1

 
Other assets
32.6

 
Identifiable intangible assets:
 

 
Indefinite-lived trade names
521.2

 
Contractual retailer/distributer relationships
91.1

 
Developed technology, including patents
87.1

 
Customer databases
3.9

 
Optimum™ trade name
2.3

 
Deferred income taxes, net
(231.2
)
 
Sealy 8.0% Notes
(96.2
)
 
Redeemable non-controlling interest
(11.3
)
 
Other liabilities
(77.5
)
 
Goodwill
543.2

 
Net consideration transferred
$
1,172.9

(1) 

(1)
During the three months ended March 31, 2013, 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, pursuant to the merger agreement.  Of this amount deposited, approximately $92.6 million was transferred back to the Company on May 10, 2013 after the expiration of a deposit period specified in the related paying agency agreement. Due to the timing difference, the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2013 reflects acquisition of businesses, net of cash acquired, of $1,265.5 million.

The excess of the purchase price over the estimated fair value of the tangible net assets and identifiable intangible assets acquired was recorded as goodwill. The factors contributing to the recognition of the amount of goodwill are based on several strategic and synergistic benefits that are expected to be realized from the Sealy Acquisition. These benefits include a comprehensive portfolio of iconic brands, complementary product offerings, enhanced global footprint, and attractive synergy opportunities and value creation. None of the goodwill is expected to be deductible for income tax purposes and is entirely allocated to the Sealy reportable segment.

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 year, January 1, 2013. Prior to the Sealy Acquisition, Sealy used a 52-53 week fiscal year ending on the closest Sunday to November 30, but no later than December 2. The pro forma financial information set forth below for the three months ended March 31, 2013 includes Sealy’s pro forma information for the combined three month period from December 3, 2012 through March 3, 2013.
(in millions, except earnings per common share)
Three Months Ended
 
Three Months Ended
 
March 31,
 
March 31,
 
2014
 
2013
Net sales
$
701.9

 
$
683.0

Net income
$
27.4

 
$
15.6

Earnings from continuing operations per common share – Diluted
$
0.44

 
$
0.25



The information above does not include the pro forma adjustments that would be required under Regulation S-X for pro forma financial information. Therefore, the information is not necessarily indicative of results that would have been achieved had the businesses been combined during the periods presented or the results that the Company will experience going forward.