Tempur-Pedic 2003 Annual Report

Changing the way the world sleeps!™ 2003 Annual Report 1713 Jaggie Fox Way Lexington, KY 40511 1.800.878.8889 • fax 859.514.4422 • www.tempurpedic.com Dear Shareholders: Company Overview: Tempur-Pedic International Inc. Last year was an outstanding and rewarding year for Tempur-Pedic We are a rapidly growing, vertically-integrated manufacturer, marketer and distributor of premium visco-elastic International as we continued to demonstrate to our customers and foam mattresses and pillows that we sell globally in 54 countries primarily under the Tempur® and Tempur-Pedic® investors that our pressure relieving Swedish mattresses and pillows brands.We believe our premium mattresses and pillows are more comfortable than standard bedding products are “Changing the way the world sleeps”TM. We delivered remarkable because our proprietary visco-elastic foam is temperature sensitive, has a high density and conforms to the financial results, achieving 61% sales growth, while executing on key body to therapeutically align the neck and spine, thus reducing neck and lower back pain. In April 2003, aspects of our business strategy: Consumers Digest named one of our products among the eight "best buys" of the mattress industry in the • Focus on Core Products of Mattresses and Pillows applicable price range. Consumer surveys commissioned on our behalf over the last several years have indicated • Further Penetrate Existing Distribution Channels that our products achieve satisfaction ratings generally ranging from 80% to 92%. In the three years ended • Continue to Build Global Brand Awareness December 31, 2003, our total net sales grew at a compound annual rate of approximately 47%, and for the year • Invest to Support Growth ended December 31, 2003, we had total net sales of $479.1 million. Additionally, we completed two major transactions during the year. We sell our products through four distribution channels: retail (furniture and specialty stores, as well as We recapitalized the business in August and then fulfilled one of our department stores internationally); direct (direct response and internet); healthcare (chiropractors, medical most significant milestones to date, with our successful Initial Public retailers, hospitals and other healthcare channels); and third party distributors. In the United States, we sell a Offering and listing on the New York Stock Exchange on December 18, 2003. majority of our mattresses and pillows through furniture and specialty retailers. International sales account for approximately 41.1% of our total net sales. The Company delivered $479.1 million in net sales in 2003, a 61% increase over 2002 sales of $298.0 million. We had outstanding growth across all business channels in both our domestic and We believe we are the leading global manufacturer, marketer and distributor of visco-elastic foam mattresses and international operations. Operating Income increased 146% to $97.1 million and Net Income for the pillows.We believe consumer demand for our premium products in the United States is being driven primarily by year increased 125% to $37.6 million. increased housing and home furnishing purchases by the baby boom generation, significant growth in our core demographic market as the baby boom generation ages, increased awareness of the health benefits of a better The sales growth resulted from effective marketing and continued penetration of our existing distribution channels. As of December 31, 2003, our products were offered in 2,700 furniture and bedding stores and quality mattress and the shifting consumer preference from firmness to comfort. As consumers continue to approximately 1,500 specialty retail stores in the U.S., and about 2,800 retail stores internationally. Our prefer alternatives to standard innerspring mattresses, our products become more widely available and our brand combined Retail channels delivered 76% growth globally in 2003 and we expect the Retail channel to continue gains broader consumer recognition, we expect that our premium products to lead our growth in the coming years. In addition to the growth in the Retail channel, our Direct Response will continue to attract sales away from the standard mattress market. business in the U.S. and United Kingdom grew 48% in 2003. A key initiative for the business is to extend our Direct Response business model into our other international markets.We will continue to focus on growing We believe we are well-positioned for continued these existing channels as well as our Healthcare and Third Party channels in the coming year. growth in our target markets, and that the following In addition to our efforts to further penetrate our existing distribution channels, we invested significant competitive strengths differentiate us from time and money on continuing to build our global brand. Selling and Marketing investment increased 42% our competitors: in 2003, as we supported higher advertising and promotional programs globally.These efforts are resulting • Superior product offering; in higher consumer awareness of our brand and products, and we intend to continue to aggressively invest in this area of the business as we strive to make our Tempur and Tempur-Pedic brands household names • Increasing global brand awareness; around the world. • Diversified product offerings sold globally through multiple In support of our growth, the company made other significant investments. We recruited new leaders in distribution channels; critical roles within the company bringing significant expertise in the areas of global consumer products • Strong free cash flow company management as well as public company experience. We expanded our distribution system to better characteristics; serve our growing customer base and shorten delivery cycle times. To meet the growing market demand, we doubled mattress capacity at our Virginia manufacturing facility in 2003 and are expanding our Denmark • Significant growth facility in 2004. Additionally, we are moving forward with plans for a third manufacturing facility in opportunities; Albuquerque, New Mexico. • Management team with proven track record. 2003 was a dynamic and exciting year in our company’s history and we are committed to continuing to execute on our business strategy to drive sustainable long-term growth. We thank our shareholders for their continuing support. Our principal executive office is located at: 1713 Jaggie Fox Way Sincerely, Lexington, Kentucky 40511 (800) 878-8889 www.tempurpedic.com Robert Trussell, Jr. CEO Tempur-Pedic International, Inc. 1 Dear Shareholders: Company Overview: Tempur-Pedic International Inc. Last year was an outstanding and rewarding year for Tempur-Pedic We are a rapidly growing, vertically-integrated manufacturer, marketer and distributor of premium visco-elastic International as we continued to demonstrate to our customers and foam mattresses and pillows that we sell globally in 54 countries primarily under the Tempur® and Tempur-Pedic® investors that our pressure relieving Swedish mattresses and pillows brands.We believe our premium mattresses and pillows are more comfortable than standard bedding products are “Changing the way the world sleeps”TM. We delivered remarkable because our proprietary visco-elastic foam is temperature sensitive, has a high density and conforms to the financial results, achieving 61% sales growth, while executing on key body to therapeutically align the neck and spine, thus reducing neck and lower back pain. In April 2003, aspects of our business strategy: Consumers Digest named one of our products among the eight "best buys" of the mattress industry in the • Focus on Core Products of Mattresses and Pillows applicable price range. Consumer surveys commissioned on our behalf over the last several years have indicated • Further Penetrate Existing Distribution Channels that our products achieve satisfaction ratings generally ranging from 80% to 92%. In the three years ended • Continue to Build Global Brand Awareness December 31, 2003, our total net sales grew at a compound annual rate of approximately 47%, and for the year • Invest to Support Growth ended December 31, 2003, we had total net sales of $479.1 million. Additionally, we completed two major transactions during the year. We sell our products through four distribution channels: retail (furniture and specialty stores, as well as We recapitalized the business in August and then fulfilled one of our department stores internationally); direct (direct response and internet); healthcare (chiropractors, medical most significant milestones to date, with our successful Initial Public retailers, hospitals and other healthcare channels); and third party distributors. In the United States, we sell a Offering and listing on the New York Stock Exchange on December 18, 2003. majority of our mattresses and pillows through furniture and specialty retailers. International sales account for approximately 41.1% of our total net sales. The Company delivered $479.1 million in net sales in 2003, a 61% increase over 2002 sales of $298.0 million. We had outstanding growth across all business channels in both our domestic and We believe we are the leading global manufacturer, marketer and distributor of visco-elastic foam mattresses and international operations. Operating Income increased 146% to $97.1 million and Net Income for the pillows.We believe consumer demand for our premium products in the United States is being driven primarily by year increased 125% to $37.6 million. increased housing and home furnishing

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