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Apr 17, 2008

Tempur-Pedic Reports First Quarter Earnings

LEXINGTON, Ky., April 17, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Tempur-Pedic International Inc. (NYSE: TPX), the leading manufacturer, marketer and distributor of premium mattresses and pillows worldwide, today announced financial results for the first quarter ended March 31, 2008. The Company also announced revised financial guidance for 2008.

    -- Earnings per share (EPS) decreased to $0.18 per diluted share in the
       first quarter of 2008 as compared to $0.35 per diluted share in the
       first quarter of 2007.

    -- Net sales declined 7% to $247.2 million in the first quarter of 2008
       from $266.0 million in the first quarter of 2007. Net sales in the
       domestic segment declined 16%, while international segment net sales
       increased 10%. On a constant currency basis, international segment net
       sales decreased 3%.

    -- The Company generated $24.6 million of cash from operating activities,
       compared to $28.6 million for the first quarter of 2007.

    -- During the quarter, the Company reduced total debt, net of cash by
       $18.2 million to $550.5 million as compared to year end net debt of
       $568.7 million.

The Company reported net income of $13.5 million for the first quarter of 2008 as compared to $29.8 million in the first quarter of 2007. Net income results for 2008 include a $0.6 million severance-related benefits charge for restructuring activities in the Company's U.S. operations.

President and Chief Executive Officer H. Thomas Bryant commented, "The U.S. macroeconomic environment deteriorated during the quarter and contributed to what we believe is a slowdown in the mattress industry. Based on industry data and retailer feedback, we believe average selling prices in the industry are trending lower as many consumers defer high-end mattress purchases. We believe the foregoing factors are the primary reason our domestic segment net sales were below prior expectations. In addition, our international segment experienced weakening consumer trends in several European markets.

"With lower than planned sales and an inflationary cost environment, profitability was considerably impacted. First quarter operating expenses were planned and incurred to support a much higher sales level, which negatively impacted operating income.

"While we are disappointed in the first quarter results, we generated significant cash flow and reduced our net debt position. Going forward, we have taken decisive actions to align operating expenses with revised sales expectations, and we are executing on a comprehensive plan to improve cash flow and substantially reduce inventories.

"We are firmly committed to our business model, focus on premium products and driving innovation. In the past, we have seen retailers and consumers respond exceptionally well to our new product development and technological superiority. Over the next few quarters, we will begin the most extensive new product launch in our company's history. This launch will include new mattress models, advanced technological innovations and new pillow concepts as well as an upgrade to the most widely distributed mattress model in our lineup. We anticipate this launch will be well received by retailers and consumers.

Bryant concluded, "We are executing on our business plan and focused on maximizing shareholder value. In summary, we believe we have acted decisively to position the company to gain market share and improve profitability as the macroeconomic environment improves."

2008 Financial Guidance

The Company revised full year 2008 guidance for net sales and earnings per share. It currently expects net sales for 2008 to range from $1.01 billion to $1.07 billion, a decrease of 9% to 3% as compared to 2007. It currently expects EPS for 2008 to range from $1.20 to $1.45 per diluted share. This guidance reflects a decrease of 31% to 17% compared to 2007 EPS of $1.74 per diluted share. The Company noted its expectations are based on information available at the time of this release, and are subject to changing conditions, many of which are outside the Company's control.

This guidance does not take into account the effect of any additional share repurchases.

Executive Vice President and Chief Financial Officer Dale Williams commented, "As sales trends continue to be weak, we are planning for a scenario where conditions do not improve. Therefore, the low end of our revised guidance is based on assumptions that our U.S. sales trends do not meaningfully change from the declines we experienced in the first quarter, coupled with an assumption that our international business weakens modestly from first quarter trends. We are carefully monitoring business conditions and will be prepared to take additional actions to protect profitability if necessary. We also note that, even at the low end of our sales and EPS guidance, we currently expect to remain in full compliance with the covenants in our senior credit facility for the entire year."

Conference Call Information

Tempur-Pedic International will host a live conference call with President and Chief Executive Officer H. Thomas Bryant and Chief Financial Officer Dale Williams to discuss financial results today, April 17, 2008 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 877-440-5784. The call is also being webcast and can be accessed on the investor relations section of the Company's website, www.tempurpedic.com .

For those who cannot listen to the live broadcast, a telephone replay of the call will be available from April 17, 2008 at 8:00 p.m. Eastern Time through April 24, 2008. To listen to the replay, dial 888-203-1112, participant code 5419528.

Forward-looking Statements

This release contains "forward-looking statements," within the meaning of federal securities laws, which include information concerning one or more of the Company's plans, objectives, goals, strategies, and other information that is not historical information. When used in this release, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including without limitation, statements relating to the Company's plans to improve profitability and cash flow, reduce inventories and rollout new products, and net sales and earnings per share for 2008, and the Company's expectations regarding compliance with the covenants in its senior credit facility, 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.

There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements contained in this release. Numerous factors, many of which are beyond the Company's control, could cause actual results to differ materially from those expressed as forward-looking statements. These risk factors include general economic and industry conditions, particularly in the retail sector, as well as consumer confidence; the Company's ability to reduce expenses to align with reduced sales levels; uncertainties arising from global events; the effects of changes in foreign exchange rates on the Company's reported earnings; consumer acceptance of the Company's products; industry competition; the efficiency and effectiveness of the Company's advertising campaigns and other marketing programs; the Company's ability to increase sales productivity within existing retail accounts and to further penetrate the US retail channel, including the timing of opening or expanding within large retail accounts; the Company's ability to address issues in certain underperforming international markets; 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; changes in foreign tax rates, including the ability to utilize tax loss carry forwards; and rising commodity costs. 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 annual report on Form 10-K 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.

About the Company

Tempur-Pedic International Inc. (NYSE: TPX) manufactures and distributes mattresses and pillows made from its proprietary TEMPUR(R) pressure-relieving material. It is the worldwide leader in premium sleep, the fastest growing segment of the estimated $13 billion global mattress market. The Company is focused on developing, manufacturing and marketing advanced sleep surfaces that help improve the quality of life for people around the world. The Company's products are currently sold in over 70 countries under the TEMPUR(R) and Tempur-Pedic(R) brand names. World headquarters for Tempur-Pedic International is in Lexington, KY. For more information, visit http://www.tempurpedic.com or call 800-805-3635 .

                      Consolidated Statements of Income
                   (In thousands, except per share amounts)

                                            Three Months Ended
                                                 March 31
                                          2008             2007         Chg%
    Net sales                        $     247,222     $    266,032      (7%)
    Cost of sales                          139,141          138,373

    Gross profit                           108,081          127,659     (15%)
    Selling and marketing expenses          53,163           48,480
    General and administrative
     expenses and other                     25,585           25,425

    Operating income                        29,333           53,754     (45%)

    Other expense, net:
        Interest expense, net               (7,691)          (6,861)
        Other expense, net                  (1,019)            (289)
          Total other expense               (8,710)          (7,150)

    Income before income taxes              20,623           46,604
    Income tax provision                     7,109           16,824
          Net income                 $      13,514     $     29,780     (55%)

    Earnings per common share:
        Basic                        $        0.18     $       0.35
        Diluted                      $        0.18     $       0.35
    Weighted average common shares
        Basic                               74,591           83,947
        Diluted                             75,188           85,775

                         Consolidated Balance Sheets
                   (In thousands, except per share amounts)

                                           March 31,   December 31,
                                             2008          2007         Chg %

    Current Assets:
      Cash and cash equivalents            $46,567       $33,315
      Accounts receivable, net             152,581       163,730
      Inventories                          112,001       106,533
      Prepaid expenses and other
       current assets                       15,116        11,133
      Deferred income taxes                 13,922        11,924
    Total Current Assets                   340,187       326,635         4%

      Property, plant and equipment,
       net                                 208,703       208,370
      Goodwill                             198,372       198,286
      Other intangible assets, net          68,028        68,755
      Deferred financing costs and
       other non-current assets, net         5,345         4,386
    Total Assets                          $820,635      $806,432         2%


    Current Liabilities:
      Accounts payable                     $56,332       $56,206
      Accrued expenses and other            65,102        66,080
      Income taxes payable                   1,350         4,060
      Current portion of long-term debt        277           288
    Total Current Liabilities              123,061       126,634        (3%)

      Long-term debt                       596,792       601,756
      Deferred income taxes                 30,248        29,645
      Other non-current liabilities            294           259
    Total Liabilities                      750,395       758,294        (1%)

    Stockholders' Equity:
      Common stock, $.01 par value,
       300,000 shares authorized;
       99,215 shares issued as of
       March 31, 2008 and
       December 31, 2007                       992           992
      Additional paid in capital           284,779       283,564
      Retained earnings                    249,313       241,812
      Accumulated other comprehensive
       income                               25,341        13,550
      Treasury stock, at cost; 24,541
       and 24,681 shares as of
       March 31, 2008 and December 31,
       2007, respectively                 (490,185)     (491,780)
    Total Stockholders' Equity              70,240        48,138         46%

    Total Liabilities and
     Stockholders' Equity                 $820,635      $806,432          2%

                    Consolidated Statements of Cash Flows
                                (In thousands)

                                              Three Months Ended
                                                   March 31,
                                              2008           2007       Chg %
      Net income                           $ 13,514       $ 29,780
      Adjustments to reconcile net
       income to net cash provided
       by operating activities:
         Depreciation and amortization        8,334          8,645
         Amortization of deferred
          financing costs                       185            287
         Amortization of stock-based
          compensation                        1,979          1,791
         Allowance for doubtful accounts        985          2,129
         Deferred income taxes               (1,158)        (2,082)
         Foreign currency adjustments         1,156            301
         Loss (gain) on sale of
          equipment and other                    41            (26)
         Changes in operating assets and
            Accounts receivable              14,304         (4,902)
            Inventories                      (2,252)       (11,286)

            Prepaid expenses and other
             current assets                  (4,583)       (11,339)
            Accounts payable                 (2,547)         8,655
            Accrued expenses and other       (2,354)         3,212
            Income taxes                     (2,696)        12,576
              Excess tax benefit from
               stock based compensation        (323)        (9,166)
    Net cash provided by operating
     activities                              24,585         28,575      (14%)

      Payments for trademarks and other
       intellectual property                   (182)          (258)
      Purchases of property, plant and
       equipment                             (2,793)        (2,430)
      Acquisition of business                (1,498)        (1,005)
      Proceeds from sale of equipment            37             24
      Net cash used by investing
       activities                            (4,436)        (3,669)     (21%)

      Proceeds from long-term revolving
       credit facility                        7,221         77,571
      Repayments of long-term revolving
      credit facility                       (12,233)       (61,047)
      Repayments of Series A Industrial
       Revenue Bonds                              -         (1,920)
      Repayments of long-term debt              (77)        (9,375)
      Common stock issued, including
       reissuances of Treasury stock            498          5,294
      Excess tax benefit from stock based
       compensation                             323          9,166
      Treasury stock purchased                    -        (39,181)

      Dividend paid to stockholders          (5,965)        (5,106)
      Payments for deferred
       financing costs                          (14)           (51)
    Net cash used by financing
     activities                             (10,247)       (24,649)      58 %

     ON CASH                                  3,350            729

    Increase in cash and cash equivalents    13,252            986

     of period                               33,315         15,788

     of period                             $ 46,567       $ 16,774     178 %

Summary of Channel Sales

The Company generates sales through four distribution channels: retail, direct, healthcare and third party. The retail channel sells to furniture, specialty and department stores globally. The direct channel sells directly to consumers. The healthcare channel sells to hospitals, nursing homes, healthcare professionals and medical retailers. The third party channel sells to distributors in countries where Tempur-Pedic International does not operate its own distribution company.

The following table highlights net sales information, by channel and by segment, for the first quarter of 2008 compared to 2007:

    ($ in thousands)
                     CONSOLIDATED            DOMESTIC         INTERNATIONAL
                  Three Months Ended    Three Months Ended  Three Months Ended
                       March 31,             March 31,           March 31,
                    2008       2007      2008        2007     2008      2007
    By Sales
    Retail       $ 207,903  $ 218,964  $ 129,120  $ 149,995 $ 78,783  $ 68,969
    Direct          12,744     21,756     10,675     19,296    2,069     2,460
    Healthcare      12,257     11,722      3,822      3,172    8,435     8,550
    Third Party     14,318     13,590      4,301      3,015   10,017    10,575
    Total        $ 247,222  $ 266,032  $ 147,918  $ 175,478 $ 99,304  $ 90,554

    Summary of Product Sales
    A summary of net sales by product is reported below:

    ($ in thousands)
                     CONSOLIDATED            DOMESTIC         INTERNATIONAL
                  Three Months Ended    Three Months Ended  Three Months Ended
                       March 31,             March 31,           March 31,
                    2008       2007       2008       2007     2008      2007
      Net Sales
    Mattresses   $ 168,050  $ 185,007  $ 106,872  $ 130,463 $ 61,178  $ 54,544
    Pillows         31,616     34,877     13,121     15,794   18,495    19,083
    Other           47,556     46,148     27,925     29,221   19,631    16,927
    Total        $ 247,222  $ 266,032  $ 147,918  $ 175,478 $ 99,304  $ 90,554

SOURCE Tempur-Pedic International Inc.


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