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Jul 17, 2008

Tempur-Pedic Reports Second Quarter Earnings

LEXINGTON, Ky., July 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 second quarter ended June 30, 2008. The Company also announced revised financial guidance for 2008.


-- Earnings per share (EPS) were $0.27 per diluted share in the second quarter of 2008 as compared to $0.39 per diluted share in the second quarter of 2007. The Company reported net income of $20.2 million for the second quarter of 2008 as compared to $32.9 million in the second quarter of 2007.

-- Net sales declined 7% to $238.7 million in the second quarter of 2008 from $257.6 million in the second quarter of 2007. Net sales in the domestic segment declined 13%, while international segment net sales increased 4%. On a constant currency basis, international segment net sales decreased 9%.

-- Reflecting the Company's focus on improving working capital, operating cash flow increased 57% to $71.7 million in the second quarter of 2008 from $45.6 million in the second quarter of 2007.

-- During the quarter, the Company reduced total debt by $40.6 million to $556.5 million. In addition, the Company increased its cash balance by $21.8 million to $68.4 million.

President and Chief Executive Officer H. Thomas Bryant commented, "In the second quarter, domestic mattress industry trends continued to decline and many international markets continued to weaken, particularly towards the end of the quarter. Given this backdrop and our commitment to the company's long term strategy, we continue to implement our plan to align variable costs with sales expectations, reduce fixed costs and improve productivity in our factories. These actions resulted in substantially improved operating and net income results as compared to the first quarter."

Mr. Bryant continued, "Last quarter, we outlined our plan to improve cash flow and substantially reduce inventories to increase financial flexibility. In the second quarter, we made solid progress and see more opportunity for improvement. As a result, we reduced debt by over $40 million while increasing our cash balance by nearly $22 million.

"We are firmly committed to our business model, focus on premium products and driving innovation. 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. At the Las Vegas furniture show this month, we will unveil two new mattress models and an upgraded DeluxeBed. Internationally, we are in the early stage of rolling out several new mattress and pillow models.

Mr. 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."

As previously disclosed, the Company has named Mark Sarvary as Chief Executive Officer and President, succeeding Mr. Bryant effective August 4, 2008. In February 2008, the Company announced Mr. Bryant's intention to retire following an orderly transition to a new CEO.

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 $0.98 billion to $1.02 billion, a decrease of 11% to 8% as compared to 2007. It currently expects EPS for 2008 to range from $1.05 to $1.20 per diluted share. This guidance reflects a decrease of 39% to 31% 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.

Executive Vice President and Chief Financial Officer Dale Williams commented, "In reviewing our plans for the rest of the year, we are mindful of macroeconomic conditions, including low consumer confidence generally, and that our retail partners report traffic continues to be down sharply. We believe it is prudent to reduce our short-term expectations, while maintaining our focus on ultimately becoming the worldwide bedding leader. During the balance of 2008, we will continue to drive working capital improvements and anticipate reducing debt. Even at the low end of our EPS guidance, we remain in full compliance with the financial covenants in our senior credit facility for the entire year."

Conference Call Information

Tempur-Pedic International will host a live conference call to discuss financial results today, July 17, 2008 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 888-283-6901. 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 July 17, 2008 at 8:00 p.m. Eastern Time through July 24, 2008. To listen to the replay, dial 888-203-1112, participant code 7247817.

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 align variable costs, reduce fixed costs and improve productivity, reduce inventories, increase cash flow, and rollout new products, and the Company's expectations regarding net sales and earnings per share for 2008, reducing debt and the Company's compliance with the financial 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             Six Months Ended
                          June 30,                       June 30,
                      2008       2007     Chg %     2008     2007   Chg %

    Net sales       $238,661   $257,642    (7)%   $485,883 $523,674  (7)%
    Cost of sales    132,645    133,073            271,786  271,446

    Gross profit     106,016    124,569   (15)%    214,097  252,228 (15)%

    Selling and
     expenses         44,787     47,320             97,950   95,800
    General and
     and other        24,910     22,119             50,495   47,544

    Operating income  36,319     55,130   (34)%     65,652  108,884 (40)%

     expense, net:
       expense, net   (5,645)    (6,272)           (13,336) (13,133)
       expense, net      (72)      (214)            (1,091)    (503)
        Total other
         expense      (5,717)    (6,486)           (14,427) (13,636)

    Income before
     income taxes     30,602     48,644   (37)%     51,225   95,248 (46)%
    Income tax
     provision        10,374     15,713             17,483   32,537
        Net income   $20,228    $32,931   (39)%    $33,742  $62,711 (46)%

    Earnings per
     common share:
      Basic            $0.27      $0.40              $0.45    $0.75
      Diluted          $0.27      $0.39              $0.45    $0.74
    Weighted average
     per common share
      Basic           74,740     82,963             74,665   83,452
      Diluted         74,931     84,222             74,872   85,041

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

                                          June 30,   December 31,
                                            2008         2007      Chg %

    Current Assets:
      Cash and cash equivalents            $68,353      $33,315
      Accounts receivable, net             132,555      163,730
      Inventories                           93,520      106,533
      Prepaid expenses and other
       current assets                       14,320       11,133
      Deferred income taxes                 13,978       11,924
    Total Current Assets                   322,726      326,635     (1)%

      Property, plant and equipment, net   203,709      208,370
      Goodwill                             198,877      198,286
      Other intangible assets, net          67,774       68,755
      Deferred financing costs and
       other non-current assets              5,104        4,386
    Total Assets                          $798,190     $806,432     (1)%


    Current Liabilities:
      Accounts payable                     $53,019      $56,206
      Accrued expenses and other            65,148       66,080
      Income taxes payable                   6,318        4,060
      Current portion of long-term debt          -          288
    Total Current Liabilities              124,485      126,634     (2)%

      Long-term debt                       556,500      601,756
      Deferred income taxes                 30,059       29,645
      Other non-current liabilities          1,436          259
    Total Liabilities                      712,480      758,294     (6)%

    Stockholders' Equity:
      Common stock, $.01 par value;
       300,000 shares authorized; 99,215
       shares issued as of June 30, 2008
       and December 31, 2007                   992          992
      Additional paid in capital           287,146      283,564
      Retained earnings                    262,283      241,812
      Accumulated other comprehensive
       income                               24,294       13,550
      Treasury stock, at cost; 24,436
       and 24,681 shares as of June 30,
       2008 and December 31, 2007,
       respectively                       (489,005)    (491,780)
    Total Stockholders' Equity              85,710       48,138      78%

    Total Liabilities and Stockholders'
     Equity                               $798,190     $806,432     (1)%

                     Consolidated Statement of Cash Flows
                                (In thousands)

                                                   Six Months Ended
                                                       June 30,
                                                    2008      2007   Chg %

      Net income                                   $33,742   $62,711
      Adjustments to reconcile net income
       to net cash provided by operating
        Depreciation and amortization               16,685    16,870
        Amortization of deferred financing
         costs                                         714       667
        Amortization of stock-based
         compensation                                4,041     3,380
        Allowance for doubtful accounts              3,439     3,508
        Deferred income taxes                         (958)   (1,426)
        Foreign currency adjustments                   524       535
        Loss (gain) on sale of equipment
         and other                                     345       (37)
        Changes in operating assets and
          Accounts receivable                       32,642    (1,298)
          Inventories                               15,866   (14,509)
          Prepaid expenses and other
           current assets                           (4,724)   (4,582)
          Accounts payable                          (5,389)   (3,445)
          Accrued expenses and other                (2,560)    6,243
          Income taxes                               1,941     5,567
    Net cash provided by operating activities       96,308    74,184   30%

      Payments for trademarks and other
       intellectual property                          (463)     (461)
      Purchases of property, plant and
       equipment                                    (6,328)   (4,833)
      Acquisition of business                       (1,522)     (969)
      Proceeds from sale of equipment                   52        52
    Net cash used by investing activities           (8,261)   (6,211) (33%)

      Proceeds from long-term revolving
       credit facility                              70,732   148,102
      Repayments of long-term revolving
       credit facility                             (57,244)  (75,806)
      Repayments of long-term debt                  (1,359)  (45,637)
      Proceeds from issuance of Series A
       Industrial Revenue Bonds                          -    15,380
      Repayment of Series A Industrial
       Revenue Bonds                               (57,785)   (3,840)
      Common stock issued, including
       reissuances of treasury stock                   695     5,573
      Excess tax benefit from stock based
       compensation                                    366     9,333
      Treasury stock repurchased                         - (100,000)
      Dividend paid to stockholders                (11,946)  (11,753)
      Payments for deferred financing costs            (14)   (1,269)
    Net cash used by financing activities          (56,555)  (59,917)   6%


    Increase in cash and cash equivalents           35,038     9,044

    CASH AND CASH EQUIVALENTS, beginning of period  33,315    15,788

    CASH AND CASH EQUIVALENTS, end of period       $68,353   $24,832  175%

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 second quarter of 2008 compared to 2007:

    ($ in thousands)
                      CONSOLIDATED          DOMESTIC         INTERNATIONAL
                   Three Months Ended  Three Months Ended  Three Months Ended
                        June 30,             June 30,           June 30,
                     2008      2007       2008      2007     2008      2007
    By Sales
    Retail         $199,323  $210,941  $130,069  $145,039   $69,254  $65,902
    Direct           13,527    20,987    11,328    18,345     2,199    2,642
    Healthcare       12,556    11,306     4,501     3,434     8,055    7,872
    Third Party      13,255    14,408     2,603     3,828    10,652   10,580
    Total          $238,661  $257,642  $148,501  $170,646   $90,160  $86,996

    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
                        June 30,             June 30,           June 30,
                     2008      2007       2008      2007     2008     2007
    Net Sales
    Mattresses     $163,634  $179,568  $108,369  $126,968   $55,265  $52,600
    Pillows          28,877    31,799    12,583    14,601    16,294   17,198
    Other            46,150    46,275    27,549    29,077    18,601   17,198
    Total          $238,661  $257,642  $148,501  $170,646   $90,160  $86,996

SOURCE Tempur-Pedic International Inc.


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