Tempur Pedic Intl

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Tempur Pedic Intl

• (TPX)

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Company Overview

• Tempur-Pedic International, Inc. engages in
  the manufacture, marketing, and distribution of
  advanced visco-elastic products under the TEMPUR
  and Tempur-Pedic brands worldwide. Its products
  include pillows, mattresses, and adjustable beds,
  as well as cushions and other comfort products.
  The company has sales and distribution operations
  in the United States, Europe, and Asia Pacific.
  Tempur-Pedic markets its products through retail,
  including furniture and specialty stores, as well
  as department stores internationally direct
  response and Internet chiropractors, medical
  retailers, and hospitals and third party
  distributors. Tempur-Pedic International was
  founded in 1989 and is headquartered in
  Lexington, Kentucky.

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Industry Overview

• Textile Industrial (Mattress Manufacturers)
• 10 yr estimate that premium bedding will be 20
  of industry sales
• Premium bedding segment which may prove to be
  more sensitive to the economic factors that
  effect the overall bedding industry.
• Cyclical Industry- mattresses are expensive and
  subject to infrequent consumer purchases.

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Industry Overview
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The Competition/Competitive Advantages

• Retail, Wholesale, and Catalog Merchants, as well
  as Department Stores, chains, and local shops.
• Tough Market with companies like Sealy, Serta,
  and Simmons.
• Competition trying to create imitation products.
  However Tempur just reduced prices on original
  bed to get rid of competition.
• Select Comfort also has similar niche market.
• Tempur uses a aggressive direct sales/advertising
  approach.
• Tempur Pedic uses their revolutionary
  viscoelastic material.
• Visco resistant to change of shape.Elastic
  able to return to its original shape after being
  forced to change.
• Company motto - Changing the way the world
  sleeps

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Growth Prospects

• Revenue and earnings have shown strong growth
• 27.7 and 34.9 last year
• Compared to the industry 10.8 and 19.2
• Notable Q3 highlights include strong
  international sales growth of 19, which was
  driven primarily by a 25 increase in mattress
  sales and improved pillow sales.
• U.S sales increased 11 on mattress growth of
  13. TPX added 270 net new U.S. furniture retail
  doors in Q3, and now has presence in over 5,100
  locations.
• New 340M global credit facility with more
  favorable terms will enable TPX to repatriate
  115M of foreign earnings, resulting in a more
  balanced and flexible capital structure. TPX also
  announced the adoption of an 80M share
  repurchase program, which is clearly positive
  given the current valuation.

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Prospects (contd.)

• Tempur-Pedic Brand Name
• Highest quality in memory foam industry
• High density and temperature sensitive
• Overall increase in mattress sales and retail
• Medical retailers, chiropractors, hospitals

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Negatives

• Law suit Tempur-Pedic and some of its
  executives "failed to disclose or misrepresented"
  that demand had dropped for Tempur-Pedic's
  visco-elastic mattresses between April and
  September 2005
• High level of Debt
• Company's niche sector faced competition in the
  form of cheaper offerings from Sealy, Simmons
  Bedding, and Serta International
• Non-conventional product technology, small market
  cap, single product line, lack of dividend
• 2 private equity firms control roughly 27 of
  fully diluted shares. Management holds 5 of
  diluted shares

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Our outlook

• Recommendation Hold (Speculative)
• DCF Price Value 20.56
• Potential for large gains based on competitive
  positioning and strong growth. However, there
  are many uncertainties looming.

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Questions?