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Tempur-Pedic generates record quarterly operating cash flow

17
Oct '08
Tempur-Pedic International Inc 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.


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