Tempur-Pedic 3rd Quarter Domestic Sales Decrease 17%

Furniture World News

Tempur-Pedic International Inc., a leading manufacturer, marketer and distributor of premium mattresses and pillows worldwide, announced financial results for the third quarter ended September 30, 2008. The Company also announced a series of initiatives to further strengthen its industry-leading financial flexibility, including a repatriation of foreign earnings and a suspension of its cash dividend, with such funds redirected to reduce debt. The Company also announced revised financial guidance for 2008. THIRD QUARTER FINANCIAL SUMMARY -- Earnings per share (EPS) were $0.32 per diluted share in the third quarter of 2008 as compared to $0.49 per diluted share in the third quarter of 2007. The Company reported net income of $24.1 million for the third quarter of 2008 as compared to $38.8 million in the third quarter of 2007. -- Net sales declined 14% to $252.8 million in the third quarter of 2008 from $294.1 million in the third quarter of 2007. Net sales in the domestic segment declined 17%, while international segment net sales declined 7%. On a constant currency basis, international segment net sales decreased 13%. -- Mattress units declined 15% globally. Mattress units declined 18% domestically and 10% internationally. Pillow units declined 10% globally. Pillow units declined 18% domestically and were relatively unchanged internationally. -- Gross profit margin was 41.7% as compared to 48.2% in the third quarter of 2007. The gross profit margin declined as a result of significant weakness in the high margin Direct channel, increased commodity costs and fixed cost de-leverage related to lower volumes, partially offset by improved manufacturing productivity. -- Operating profit margin was 17.0% as compared to 23.0% in the third quarter of 2007. Operating profit margin decline resulted from gross profit margin declines partially offset by reductions in operating expenses. The Company recorded an incremental $1.0 million of bad debt expense related to a specific customer bankruptcy. -- Reflecting the Company's focus on improving working capital, operating cash flow increased 30% to $72.6 million in the third quarter of 2008 from $55.7 million in the third quarter of 2007. During the quarter, the Company reduced inventories by $23.8 million to $69.7 million. -- During the quarter, the Company reduced Total Debt by $37.8 million to $518.8 million. In addition, the Company increased its cash balance by $19.3 million to $87.7 million. As of September 30, 2008, the Company's ratio of total Funded Debt to EBITDA was 2.45 times, well within the covenant in its credit facility that this ratio will not exceed 3.00 times. For additional information about EBITDA and Funded Debt (which are non-GAAP measures), please refer to the reconciliation and other information included in the attached schedule. Chief Executive Officer Mark Sarvary commented, "During the third quarter we executed well. The economic climate worsened and we responded quickly to improve earnings. We reduced our operating expenses and improved our balance sheet by substantially reducing debt. "Having said that, we are facing the most challenging economic environment in memory, and we see no reason to assume the economic climate will recover in the short term. Therefore, we are taking actions now to further improve our financial flexibility and strengthen the business. I am confident that when the economic climate improves, this great company will be exceptionally well positioned." Initiatives to Further Strengthen Financial Flexibility The Company announced it plans to repatriate approximately $140 million of foreign earnings. This will enable the Company to immediately utilize its $75 million cash held abroad to reduce its outstanding debt. It will also shift some of its domestic segment leverage to the international segment, thereby allowing for more rapid overall debt reduction going forward from cash flow in both its domestic and international segments. The Company anticipates recording a tax charge of approximately $13 million in the fourth quarter related to the repatriation, with the final tax effect to be based on the timing and amount of the actual distribution. The Company also announced it will suspend its cash dividend and redirect those funds to reduce debt. The Company further announced it will continue to reduce capital expenditures, drive working capital efficiencies and minimize discretionary spending. Chief Financial Officer Dale Williams commented, "We are pleased with our cash flows and I would like to credit our operating teams around the world for their efforts in this area. Through a repatriation of foreign earnings, suspending the dividend, and modest debt rebalancing between our domestic and international segments, we will reduce debt faster. Williams continued, "These actions coupled with working capital and expense management should give us the flexibility to operate without risk of breaching our credit facility covenants even if the market continues to deteriorate, while ensuring our ability to invest in marketing and R&D. Although we believe de-leveraging is the prudent course in this environment, we will continue to have access to substantial incremental borrowing capacity under our existing revolving credit facility and will be able to access this liquidity in the future as appropriate to invest in such activities as growth initiatives and stock buybacks." 2008 Financial Guidance Given the extraordinary macro economic events of recent weeks, the Company now believes fourth quarter sales will fall below prior expectations and has revised full year 2008 guidance for net sales and earnings per share. It currently expects net sales for 2008 to range from $930 million to $950 million. It currently expects EPS for 2008 to range from $0.90 to $1.00 per diluted share. This guidance does not take into account a potential tax charge related to the proposed repatriation of foreign earnings discussed above. 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. About the Company: Tempur-Pedic International Inc. (NYSE: TPX - News) manufactures and distributes mattresses and pillows made from its proprietary TEMPUR® 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® and Tempur-Pedic® 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.