Tempur Sealy International (TPX) 8-K Tempur-pedic Reports Third Quarter Earnings

TEMPUR-PEDIC REPORTS THIRD QUARTER EARNINGS

- EPS Up 44% in Third Quarter

- Net Sales Up 22% in Third Quarter

- Completed Prior $200 Million Share Repurchase Authorization

- Announces New $300 Million Share Repurchase Authorization

- Company Raises Financial Guidance for 2007

LEXINGTON, KY, October 18, 2007– Tempur-Pedic International Inc. (NYSE: TPX), the leading manufacturer, marketer and distributor of premium mattresses and pillows worldwide, today announced financial results for the third quarter ended September 30, 2007. In addition, the Company increased full year 2007 financial guidance and announced a new share repurchase authorization.

THIRD QUARTER 2007 FINANCIAL SUMMARY

·   Earnings per share increased 44% to $0.49 per diluted share in the third quarter of 2007 as compared to $0.34 per diluted share in the third quarter of 2006.

·   Net sales rose 22% to $294.1 million in the third quarter of 2007 from $240.9 million in the third quarter of 2006. Retail sales increased 27% worldwide.

·   Operating income increased 26% to $67.5 million in the third quarter of 2007 from $53.7 million in the third quarter of 2006. The increase was principally driven by incremental sales as well as modest operating expense leverage.

·   Operating cash flow increased to $55.7 million in the third quarter of 2007 from $46.6 million in the third quarter of 2006. The increase was principally driven by net income growth. In addition, capital expenditures were $3.3 million in the third quarter of 2007, $2.3 million less than in the third quarter of 2006.

·   The Company achieved net sales and unit growth across all products and both geographic segments. Worldwide mattress revenue increased 22%. Worldwide mattress unit growth was 17% led by domestic mattress unit growth of 22%. Pillow sales rose 15% worldwide driven by unit growth of 12%. Domestic pillow units were especially strong, up 23%.

For the third quarter of 2007, the Company reported net income of $38.8 million as compared to $28.9 million in the third quarter of 2006. This net income growth of 34% largely resulted from an increase in operating income. Net income results include stock-based compensation expense, which increased 46% to $1.7 million in the third quarter of 2007.

President and Chief Executive Officer H. Thomas Bryant commented, “Tempur-Pedic delivered outstanding results in the third quarter, with growth across all products and geographic segments. While Tempur-Pedic is already the industry leader for profitability, we believe our year to date financial results are consistent with our goal of ultimately becoming the worldwide bedding leader in terms of both sales and profitability. We are pleased with our year to date results and continue to see abundant opportunities to gain bedding market share around the globe.

“In the third quarter, consumers continued to express their preference for our proprietary TEMPUR® material as we lead the technology shift away from innersprings. Mattress growth was balanced across our product line with excellent results from our existing product line as well as strong contribution from our recently introduced models. While the last several quarters have been challenging for the mattress industry, our sales team has exceeded our goals for slot growth, account productivity and market share gains.

 “We are pleased with our new advertising campaign as it appears to be resonating exceptionally well with our target consumers, especially affluent baby boomers. In fact, the campaign is doing so well that we are in the process of evaluating its use throughout many of our international markets. We anticipate rolling the campaign into Europe in the first quarter.

“Our operations team delivered excellent performance, producing more mattresses than in any other quarter in our history. As previously disclosed, U.S. retail demand exceeded our expectations during the third quarter, which resulted in some product shortages as certain key suppliers were not able to ramp their production as quickly as needed. We addressed this issue through a variety of actions, some of which modestly impacted our gross margins. We are pleased to now be running in a more optimal fashion, having largely eliminated shortages by the end of the quarter.”

Current Share Repurchase Authorization Completed and New Authorization Announced

During the third quarter of 2007, the Company purchased 6.6 million shares of its common stock at an average price of $30.48 for a total cost of $200.0 million. During 2007, the Company has purchased 10.4 million shares of its common stock for a total cost of $300.0 million.

The Company announced that the Board of Directors has authorized a new share repurchase program of up to an incremental $300.0 million. Stock repurchases under this program may be made through open market transactions, negotiated purchases, or otherwise, at times and in such amounts as management and a committee of the Board deem appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, financing and regulatory requirements and other market conditions. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. This share repurchase program may be limited, suspended or terminated at any time without prior notice.

Chief Financial Officer Dale Williams stated, “We continue to view share repurchases as an excellent means to return value to shareholders over the long term. During the third quarter we completed the $200 million share repurchase program we announced on July 19, 2007. We currently anticipate substantial cash flow growth over the next several years and so we are pleased with the Board’s decision to authorize a new buyback program.”

2007 Financial Guidance

Given the Company’s strong performance through the first three quarters of 2007 and its continued positive outlook for the year, the Company is increasing 2007 full year financial guidance. The Company currently expects net sales for 2007 to range from $1.105 billion to $1.115 billion, rather than $1.065 billion to $1.085 billion as contemplated by the Company’s prior guidance. This updated guidance reflects an increase of 17% to 18% compared to 2006 net sales of $945.0 million. The Company currently expects diluted earnings per share for 2007 to range from $1.74 to $1.76, rather than $1.63 to $1.66 as contemplated by the Company’s prior guidance. This updated guidance reflects an increase of 36% to 38% compared to 2006 diluted earnings per share of $1.28. Based on the Company’s year to date performance of $1.22 per diluted share, this guidance would imply diluted earnings per share of $0.52 to $0.54 for the fourth quarter of 2007. This guidance reflects year to date performance, incremental earnings resulting from increased sales expectations, shares repurchased through September 30, 2007, and interest on associated borrowings. This guidance does not take into account the anticipated effect of any additional share repurchases.

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.

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, October 18, 2007 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 888-297-0353. 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 October 18, 2007 at 8:00 p.m. Eastern Time through October 25, 2007. To listen to the replay, dial 888-203-1112, participant code 9844895.

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 goal of becoming the worldwide bedding leader, opportunities to gain bedding market share, the rollout of the Company’s new advertising campaign, steps taken to address product shortages and expectations regarding the Company’s new share repurchase authorization, cash flow growth over the next several years, and net sales and earnings per share for 2007, 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 and consumer confidence; 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 its product line, maintain efficient, timely and cost-effective production and delivery of its products, and manage its growth; changes in foreign tax rates: 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® 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.

Investor Relations Contact:

Barry Hytinen

Vice President, Investor Relations and Financial Planning & Analysis

800-805-3635

TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statements of Income

(In thousands, except per share amounts)

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2007			2006			Chg %			2007			2006			Chg %
Net sales	$	294,094		$	240,917			22	%	$	817,768		$	688,465			19	%
Cost of sales		152,484			124,894						423,930			354,672
Gross profit		141,610			116,023			22	%		393,838			333,793			18	%
Selling and marketing expenses		48,830			41,827						144,630			127,230
General and administrative expenses		23,628			19,235						68,497			55,521
Research and development expenses		1,603			1,240						4,278			3,031
Operating income		67,549			53,721			26	%		176,433			148,011			19	%
Other expense, net:
Interest expense, net		(8,261	)		(6,728	)					(21,394	)		(17,402	)
Loss on extinguishment of debt		—			—						(126	)		—
Other expense, net		(33	)		(183	)					(410	)		(142	)
Total other expense		(8,294	)		(6,911	)					(21,930	)		(17,544	)
Income before income taxes		59,255			46,810			27	%		154,503			130,467			18	%
Income tax provision		20,437			17,947						52,974			48,599
Net income	$	38,818		$	28,863			34	%	$	101,529		$	81,868			24	%
Earnings per share:
Basic	$	0.50		$	0.35					$	1.25		$	0.96
Diluted	$	0.49		$	0.34					$	1.22		$	0.92
Weighted average shares outstanding:
Basic		77,725			82,946						81,522			85,533
Diluted		79,173			85,681						83,069			88,666

TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share amounts)

	September 30,			December 31,
	2007			2006			Chg %
ASSETS
Current Assets:
Cash and cash equivalents	$	23,580		$	15,788
Accounts receivable, net		165,735			142,059
Inventories		82,065			61,736
Prepaid expenses and other current assets		13,053			8,002
Income taxes receivable		—			588
Deferred income taxes		9,566			9,383
Total Current Assets		293,999			237,556			24	%
Property, plant and equipment, net		208,140			215,428
Goodwill		198,623			198,207
Other intangible assets, net		69,014			70,826
Deferred financing and other non-current assets, net		4,044			3,649
Total Assets	$	773,820		$	725,666			7	%
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	64,880		$	51,220
Accrued expenses and other		74,364			61,050
Income taxes payable		15,751			—
Current portion of long-term debt		282			19,497
Total Current Liabilities		155,277			131,767			18	%
Long-term debt		555,805			341,635
Deferred income taxes		34,294			38,536
Other non-current liabilities		330			380
Total Liabilities		745,706			512,318			46	%
Stockholders’ Equity:
Common stock, $.01 par value; 300,000 shares authorized; 99,215 shares issued as of September 30, 2007 and December 31, 2006		992			992
Additional paid in capital		280,638			264,709
Retained earnings		207,797			140,608
Accumulated other comprehensive income		11,586			3,992
Treasury stock, at cost; 24,110 and 15,993 shares as of September 30, 2007 and December 31, 2006, respectively		(472,899	)		(196,953	)
Total Stockholders’ Equity		28,114			213,348			(87	)%
Total Liabilities and Stockholders’ Equity	$	773,820		$	725,666			7	%

TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Statement of Cash Flows

(In thousands)

	Nine Months Ended
	September 30,
	2007			2006			Chg %
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	101,529		$	81,868
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		25,326			18,640
Amortization of deferred financing costs		719			1,479
Loss on extinguishment of debt		126			—
Amortization of stock-based compensation		5,081			2,672
Provision for doubtful accounts		4,541			2,813
Deferred income taxes		(3,101	)		(2,479	)
Foreign currency adjustments		661			243
Loss on sale of equipment and other		101			207
Changes in operating assets and liabilities:
Accounts receivable		(22,585	)		(23,696	)
Inventories		(14,228	)		18,545
Prepaid expenses and other current assets		(5,035	)		725
Accounts payable		10,250			5,351
Accrued expenses and other		10,636			3,986
Income taxes		25,864			28,926
Excess tax benefit from stock based compensation		(10,025	)		(6,189	)
Net cash provided by operating activities		129,860			133,091			(2	%)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for trademarks and other intellectual property		(636	)		(699	)
Purchases of property, plant and equipment		(8,181	)		(24,159	)
Acquisition of businesses		(5,756	)		—
Proceeds from sale of equipment		135			83
Net cash used by investing activities		(14,438	)		(24,775	)		42	%
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term revolving credit facility		347,547			152,000
Repayments of long-term revolving credit facility		(119,293	)		(55,000	)
Repayments of long-term debt		(45,416	)		(70,622	)
Proceeds from issuance of Series A Industrial Revenue Bonds		15,385			—
Repayment of Series A Industrial Revenue Bonds		(5,765	)		(3,840	)
Proceeds from exercise of stock options		8,078			3,401
Excess tax benefit from stock based compensation		10,025			6,189
Treasury stock repurchased		(299,998	)		(144,000	)
Dividend paid to stockholders		(17,895	)		—
Payments for deferred financing costs		(1,530	)		(698	)
Net cash used by financing activities		(108,862	)		(112,570	)		2	%
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH		1,232			1,652
Increase/(Decrease) in cash and cash equivalents		7,792			(2,602	)
CASH AND CASH EQUIVALENTS, beginning of period		15,788			17,855
CASH AND CASH EQUIVALENTS, end of period	$	23,580		$	15,253			55	%

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 third quarter of 2007 compared to 2006:

($ in thousands)
	CONSOLIDATED				DOMESTIC				INTERNATIONAL
	Three Months Ended				Three Months Ended				Three Months Ended
	September 30,				September 30,				September 30,
	2007		2006		2007		2006		2007		2006
By Sales Channel
Retail	$	251,452	$	198,659	$	177,372	$	139,883	$	74,080	$	58,776
Direct		18,009		20,608		15,140		18,214		2,869		2,394
Healthcare		12,384		10,522		4,222		3,099		8,162		7,423
Third Party		12,249		11,128		3,717		3,250		8,532		7,878
Total	$	294,094	$	240,917	$	200,451	$	164,446	$	93,643	$	76,471

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
	September 30,				September 30,				September 30,
	2007		2006		2007		2006		2007		2006
Net Sales
Mattresses	$	207,341	$	169,334	$	149,221	$	122,117	$	58,120	$	47,217
Pillows		34,418		29,934		17,960		14,863		16,458		15,071
Other		52,335		41,649		33,270		27,466		19,065		14,183
Total	$	294,094	$	240,917	$	200,451	$	164,446	$	93,643	$	76,471