What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 148 added, 159 removed, 594 unchanged (34% of the section changed)

4 unchanged sentences

($ in millions, except per common share amounts)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

8 unchanged sentences

Interest expense, net 20.1 20.8 61.0 65.7

Other expense (income), net 0.3 — 0.8 ( 7.8 )

Loss on extinguishment of debt 0.9 — 0.9 —

Other (income) expense, net ( 0.5 ) 1.3 0.3 ( 6.5 )

Total other expense, net 20.5 22.1 62.2 59.2

9 unchanged sentences

Earnings per share for continuing operations $ 2.31 $ 1.33 $ 3.89 $ 2.63

Loss per share for discontinued operations — ( 0.02 ) ( 0.02 ) ( 0.03 )

Earnings (loss) per share for discontinued operations 0.04 0.01 0.02 ( 0.01 )

Earnings per share $ 2.35 $ 1.34 $ 3.91 $ 2.62

Earnings per share for continuing operations $ 2.25 $ 1.30 $ 3.83 $ 2.57

Loss per share for discontinued operations — ( 0.02 ) ( 0.02 ) ( 0.03 )

Earnings (loss) per share for discontinued operations 0.04 0.01 0.03 ( 0.01 )

Earnings per share $ 2.29 $ 1.31 $ 3.86 $ 2.56

7 unchanged sentences

($ in millions)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Net income before non-controlling interests $ 121.8 $ 73.2 $ 204.8 $ 143.3

Other comprehensive income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 12.1 ( 6.7 ) ( 0.2 ) 0.3

9 unchanged sentences

($ in millions)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

ASSETS (Unaudited)

24 unchanged sentences

Total Liabilities 2,999.2 2,701.4

Redeemable non-controlling interest 8.9 —

Total Stockholders' Equity 447.3 360.4

Total Liabilities and Stockholders' Equity $ 3,201.9 $ 3,061.8

Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity $ 3,455.4 $ 3,061.8

See accompanying Notes to Condensed Consolidated Financial Statements.

3 unchanged sentences

($ in millions)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Tempur Sealy International, Inc.

Stockholders' Equity

Common Stock Treasury Stock Accumulated Other Comprehensive Loss Non-controlling Interests in Subsidiaries Total Stockholders' Equity

Non-controlling Interest Common Stock Treasury Stock Accumulated Other Comprehensive Loss Non-controlling Interest in Subsidiaries Total Stockholders' Equity

Shares Issued At Par Shares Issued At Cost Additional Paid in Capital Retained Earnings

Balance as of March 31, 2020

Balance as of June 30, 2020

$ 8.7 99.2 $ 1.0 47.7 $ ( 2,026.3 ) $ 586.0 $ 1,779.5 $ ( 100.0 ) $ 0.8 $ 241.0

1 unchanged sentence

Net income attributable to non-controlling interests 0.2 0.2 0.2

Dividend paid to non-controlling interest in subsidiary ( 0.1 ) ( 0.1 )

Foreign currency adjustments 10.7 10.7

Foreign currency adjustments, net of tax 12.1 12.1

Exercise of stock options — 0.2 0.7 0.9

3 unchanged sentences

Amortization of unearned stock-based compensation

Balance, June 30, 2020

Balance, September 30, 2020

$ 8.9 99.2 $ 1.0 47.7 $ ( 2,026.1 ) $ 658.4 $ 1,900.9 $ ( 87.9 ) $ 1.0 $ 447.3

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Tempur Sealy International, Inc.

Stockholders' Equity

Common Stock Treasury Stock Accumulated Other Comprehensive Loss Non-controlling Interest in Subsidiaries Total Stockholders' Equity

Non-controlling Interest Common Stock Treasury Stock Accumulated Other Comprehensive Loss Non-controlling Interest in Subsidiaries Total Stockholders' Equity

Shares Issued At Par Shares Issued At Cost Additional Paid in Capital Retained Earnings

Balance as of March 31, 2019

Balance as of June 30, 2019

$ — 99.2 $ 1.0 44.4 $ ( 1,737.3 ) $ 545.6 $ 1,583.8 $ ( 88.3 ) $ 1.1 $ 305.9

1 unchanged sentence

Net loss attributable to non-controlling interest ( 0.1 ) ( 0.1 )

Foreign currency adjustments 3.0 3.0

Foreign currency adjustments, net of tax ( 6.7 ) ( 6.7 )

Exercise of stock options ( 0.1 ) 1.9 5.4 7.3

5 unchanged sentences

Amortization of unearned stock-based compensation

Balance, June 30, 2019

Balance, September 30, 2019

$ — 99.2 $ 1.0 45.0 $ ( 1,785.3 ) $ 557.7 $ 1,657.1 $ ( 95.0 ) $ 1.0 $ 336.5

4 unchanged sentences

(in millions) (unaudited)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Tempur Sealy International, Inc.

Stockholders' Equity

Common Stock Treasury Stock Accumulated Other Comprehensive Loss Non-controlling Interests in Subsidiaries Total Stockholders' Equity

Non-controlling Interest Common Stock Treasury Stock Accumulated Other Comprehensive Loss Non-controlling Interest in Subsidiaries Total Stockholders' Equity

Shares Issued At Par Shares Issued At Cost Additional Paid in Capital Retained Earnings

6 unchanged sentences

Dividend paid to non-controlling interest in subsidiary ( 0.1 ) —

Foreign currency adjustments ( 12.3 ) ( 12.3 )

Foreign currency adjustments, net of tax ( 0.2 ) ( 0.2 )

Exercise of stock options — 0.5 1.9 2.4

5 unchanged sentences

Amortization of unearned stock-based compensation

Balance, June 30, 2020

Balance, September 30, 2020

$ 8.9 99.2 $ 1.0 47.7 $ ( 2,026.1 ) $ 658.4 $ 1,900.9 $ ( 87.9 ) $ 1.0 $ 447.3

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Tempur Sealy International, Inc.

Stockholders' Equity

Common Stock Treasury Stock Accumulated Other Comprehensive Loss Non-controlling Interest in Subsidiaries Total Stockholders' Equity

Non-controlling Interest Common Stock Treasury Stock Accumulated Other Comprehensive Loss Non-controlling Interest in Subsidiaries Total Stockholders' Equity

Shares Issued At Par Shares Issued At Cost Additional Paid in Capital Retained Earnings

4 unchanged sentences

Repurchase of interest in subsidiary ( 1.9 ) ( 1.9 )

Foreign currency adjustments 7.0 7.0

Foreign currency adjustments, net of tax 0.3 0.3

Exercise of stock options ( 0.3 ) 3.6 9.2 12.8

5 unchanged sentences

Amortization of unearned stock-based compensation

Balance, June 30, 2019

Balance, September 30, 2019

$ — 99.2 $ 1.0 45.0 $ ( 1,785.3 ) $ 557.7 $ 1,657.1 $ ( 95.0 ) $ 1.0 $ 336.5

4 unchanged sentences

($ in millions) (unaudited)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:

Net income before non-controlling interests $ 204.8 $ 143.3

Loss from discontinued operations, net of tax 1.1 1.6

(Income) loss from discontinued operations, net of tax ( 1.3 ) 0.8

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:

6 unchanged sentences

Equity income in earnings of unconsolidated affiliates ( 9.6 ) ( 10.4 )

Loss on extinguishment of debt 0.9 —

Foreign currency adjustments and other 0.4 ( 5.5 )

13 unchanged sentences

Repayments of finance lease obligations and other ( 8.9 ) ( 6.0 )

Net cash provided by (used in) financing activities from continuing operations 1.4 ( 4.0 )

Net cash provided by (used in) continuing operations 84.6 ( 4.8 )

CASH USED IN DISCONTINUED OPERATIONS

Net cash used in financing activities from continuing operations ( 228.5 ) ( 124.8 )

Net cash provided by continuing operations 158.0 12.9

CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS

Operating cash flows 1.5 ( 1.7 )

1 unchanged sentence

Financing cash flows — —

Net cash used in discontinued operations ( 1.0 ) ( 2.0 )

Net cash provided by (used in) discontinued operations 1.5 ( 1.7 )

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 4.8 ( 4.1 )

Increase (decrease) in cash and cash equivalents 81.9 ( 7.5 )

Increase in cash and cash equivalents 164.3 7.1

CASH AND CASH EQUIVALENTS, beginning of period 64.9 45.8

CASH AND CASH EQUIVALENTS, end of period $ 229.2 $ 52.9

CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS — —

CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS $ 146.8 $ 38.3

Supplemental cash flow information:

20 unchanged sentences

The equity method of accounting is used for these joint ventures, over which the Company has significant influence but does not have control, and consolidation is not otherwise required.

The Company's carrying value in its equity method investments of $ 24.8 million and $ 22.5 million at June 30, 2020 and December 31, 2019, respectively, is recorded in other non-current assets within the accompanying Condensed Consolidated Balance Sheets.

The Company's carrying value in its equity method investments of $ 16.0 million and $ 22.5 million at September 30, 2020 and December 31, 2019, respectively, is recorded in other non-current assets within the accompanying Condensed Consolidated Balance Sheets.

The Company’s equity in the net income and losses of these investments is reported in equity income in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Income.

Additionally, in October 2020, the Company entered into a 50.0 % ownership joint venture to reacquire the rights and acquire the assets to manufacture, market and distribute Sealy® and Stearns & Foster® branded products in the United Kingdom.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and include all of the information and disclosures required by generally accepted accounting principles in the United States ("GAAP") for interim financial reporting.

14 unchanged sentences

The cumulative effect of adoption at January 1, 2020 was $ 6.5 million, net of tax.

The Company's primary financial assets are its trade accounts receivable, which are short-term financings under industry standard credit and trade terms.

The Company's primary financial assets are its trade accounts receivable, which are short-term financings with industry standard credit and trade terms.

TEMPUR SEALY INTERNATIONAL, INC.

3 unchanged sentences

Inventories are stated at the lower of cost and net realizable value, determined by the first-in, first-out method , and consist of the following:

June 30, December 31,

September 30, December 31,

(in millions) 2020 2019

9 unchanged sentences

Accrued sales returns are included in accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets.

The Company had the following activity for sales returns from December 31, 2019 to June 30, 2020:

The Company had the following activity for sales returns from December 31, 2019 to September 30, 2020:

(in millions)

2 unchanged sentences

Returns charged to accrual ( 78.8 )

Balance as of June 30, 2020 $ 41.3

As of June 30, 2020 and December 31, 2019, $ 27.9 million and $ 26.2 million of accrued sales returns are included as a component of accrued expenses and other current liabilities and $ 13.4 million and $ 13.1 million of accrued sales returns are included in other non-current liabilities on the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.

Balance as of September 30, 2020 $ 42.1

As of September 30, 2020 and December 31, 2019, $ 29.0 million and $ 26.2 million of accrued sales returns are included as a component of accrued expenses and other current liabilities and $ 13.1 million and $ 13.1 million of accrued sales returns are included in other non-current liabilities on the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.

(e) Warranties .

7 unchanged sentences

Tempur-Pedic pillows have a warranty term of 3 years, non-prorated.

The Company had the following activity for its accrued warranty expense from December 31, 2019 to June 30, 2020:

The Company had the following activity for its accrued warranty expense from December 31, 2019 to September 30, 2020:

(in millions)

2 unchanged sentences

Warranties charged to accrual ( 15.7 )

Balance as of June 30, 2020 $ 40.4

As of June 30, 2020 and December 31, 2019, $ 17.5 million and $ 19.4 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $ 22.9 million and $ 22.2 million of accrued warranty expense is included in other non-current liabilities on the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.

Balance as of September 30, 2020 $ 41.8

As of September 30, 2020 and December 31, 2019, $ 18.8 million and $ 19.4 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $ 23.0 million and $ 22.2 million of accrued warranty expense is included in other non-current liabilities on the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.

TEMPUR SEALY INTERNATIONAL, INC.

5 unchanged sentences

Other factors considered include historical write-off experience, current economic conditions and also factors such as customer credit, past transaction history with the customer and changes in customer payment terms.

The Company had the following activity for its allowance for credit losses from December 31, 2019 to June 30, 2020:

The allowance for credit losses is included in accounts receivable, net in the accompanying Condensed Consolidated Balance Sheets.

The Company had the following activity for its allowance for credit losses from December 31, 2019 to September 30, 2020:

(in millions)

3 unchanged sentences

Write-offs charged against the allowance ( 17.0 )

Balance as of June 30, 2020

Balance as of September 30, 2020

(2) Net Sales

The following table presents the Company's disaggregated revenue by channel, product and geographical region, including a reconciliation of disaggregated revenue by segment, for the three and six months ended June 30, 2020:

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020

Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020

(in millions) North America International Consolidated North America International Consolidated

15 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

Three Months Ended June 30, 2019 Six Months Ended June 30, 2019

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019

(in millions) North America International Consolidated North America International Consolidated

23 unchanged sentences

Operating lease right-of-use assets 19.9

Long-term operating lease liabilities ( 19.9 )

Operating lease liabilities ( 19.9 )

Non-controlling interest ( 8.4 )

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

Acquisition of Innovative Mattress Solutions, LLC ("iMS")

On January 11, 2019, iMS filed for bankruptcy and the Company provided debtor-in-possession financing in connection with the iMS Chapter 11 proceedings.

On April 1, 2019, the Company acquired substantially all of the net assets of iMS in a transaction valued at approximately $ 24.0 million, including assumed liabilities of approximately $ 11.0 million as of March 31, 2019 (referred to as the "Sleep Outfitters Acquisition").

The acquisition of this regional bedding retailer furthers the Company’s North American retail strategy, which is focused on meeting customer demand through geographic representation and sales expertise.

The Company accounted for this transaction as a business combination.

Total cash consideration was $ 13.2 million, which included $ 5.1 million of cash acquired.

The final allocation of the purchase price is based on the fair values of the assets acquired and liabilities assumed as of April 1, 2019, which included the following:

(in millions)

Working capital (accounts receivable and inventory, net of accounts payable and accrued liabilities) $ ( 1.4 )

Property and equipment 5.0

Other intangible assets 2.1

Operating lease right-of-use assets 28.5

Long-term operating lease liabilities ( 28.5 )

Purchase price, net of cash acquired $ 8.1

Goodwill is calculated as the excess of the purchase price over the net assets acquired and primarily represents the growth opportunities and expected retail synergistic benefits to be realized from the acquisition.

The goodwill is deductible for income tax purposes and will be included within the North American reporting unit for goodwill impairment assessments.

The following summarizes changes to the Company’s goodwill, by segment:

3 unchanged sentences

Foreign currency translation and other ( 1.6 ) 3.7 2.1

Balance as of June 30, 2020 $ 600.5 $ 157.0 $ 757.5

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

Balance as of September 30, 2020 $ 601.7 $ 159.4 $ 761.1

Debt for the Company consists of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

(in millions, except percentages) Amount Rate Amount Rate Maturity Date

1 unchanged sentence

Term A Facility $ 409.1 (1) $ 425.0 (2) October 16, 2024

364-Day Term Loan 200.0 (3) — (3) May 12, 2021

Revolver — (1) — (2) October 16, 2024

10 unchanged sentences

Total long-term debt, net $ 1,494.6 $ 1,502.6

(1) Interest at LIBOR plus applicable margin of 1.375 % as of June 30, 2020.

(1) Interest at LIBOR plus applicable margin of 1.250 % as of September 30, 2020.

(2) Interest at LIBOR plus applicable margin of 1.625 % as of December 31, 2019.

(3) Interest at base rate plus applicable margin of 1.375 % per annum or a eurocurrency rate (subject to a 1.0 % floor) plus applicable margin of 2.375 % per annum.

(3) Interest at one month LIBOR index plus 80 basis points.

1 unchanged sentence

Refer to Note 6, "Leases".

As of June 30, 2020, the Company was in compliance with all applicable debt covenants.

As of September 30, 2020, the Company was in compliance with all applicable debt covenants.

2019 Credit Agreement

2 unchanged sentences

The 2019 Credit Agreement has a $ 60.0 million sub-facility for the issuance of letters of credit.

As of June 30, 2020, total availability under the revolving credit facility was $ 423.9 million after a $ 1.1 million reduction for outstanding letters of credit.

On May 13, 2020, the Company and certain of its subsidiaries entered into an amendment to the existing 2019 Credit Agreement.

The amendment provided for a new 364-day $ 200.0 million term loan (the "364-Day Loan").

The Company used the proceeds of the 364-Day Loan to repay borrowings under the existing $ 425.0 million revolving credit facility and to pay fees and expenses in connection with the amendment.

The 364- Day Loan bears interest, at the borrower’s option, at a base rate plus a margin of 1.375 % per annum or a eurocurrency rate (subject to a 1.0 % floor) plus a margin of 2.375 % per annum.

In addition, for so long as the 364-Day Loan remains outstanding, the Company is subject to certain additional restrictions under the covenants provided for in the Credit Agreement, including, but not limited to, the Company's ability to repurchase shares and make certain investments.

As of September 30, 2020, total availability under the revolving credit facility was $ 424.9 million after a $ 0.1 million reduction for outstanding letters of credit.

TEMPUR SEALY INTERNATIONAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

On May 13, 2020, the Company and certain of its subsidiaries entered into an amendment to the existing 2019 Credit Agreement.

The amendment provided for a new 364-day $ 200.0 million term loan (the "364-Day Loan").

The Company used the proceeds of the 364-Day Loan to repay borrowings under the existing $ 425.0 million revolving credit facility and to pay fees and expenses in connection with the amendment.

On September 14, 2020, the Company repaid the 364-Day Loan.

Repayment of the 364-Day Loan lifted certain restrictions on dividends, share repurchases and the Company's ability to make certain investments.

Securitized Debt

The Company and certain of its subsidiaries are party to a securitization transaction with respect to certain accounts receivable due to the Company and certain of its subsidiaries (as amended, the "Accounts Receivable Securitization").

As of June 30, 2020, the Company had availability of $ 40.8 million under the Accounts Receivable Securitization.

As of September 30, 2020, the Company had availability of $ 83.6 million under the Accounts Receivable Securitization.

2023 Senior Notes

On October 8, 2020, the Company announced its election to conditionally redeem $ 200.0 million of the $ 450.0 million of its issued and outstanding 2023 Senior Notes on November 9, 2020 (the "Redemption Date").

The 2023 Senior Notes selected for redemption will be redeemed at 101.406 % of their principal amount, plus the accrued and unpaid interest.

The redemption is conditioned on the determination by the Company's Chief Financial Officer, in his sole discretion, as of the second business day before the Redemption Date, that the redemption continues to be reasonably prudent and consistent with the Company's objectives concerning liquidity, financing needs and funding costs.

The Company intends to primarily use current cash and cash equivalents to fund the redemption.

Fair Value of Financial Instruments

4 unchanged sentences

The fair values of these material financial instruments are as follows:

(in millions) June 30, 2020 December 31, 2019

(in millions) September 30, 2020 December 31, 2019

2023 Senior Notes $ 457.6 $ 464.2

2026 Senior Notes 623.9 634.9

The following table summarizes the classification of operating and finance lease assets and obligations in the Company's Condensed Consolidated Balance Sheet as of June 30, 2020 and December 31, 2019:

(in millions) June 30, 2020 December 31, 2019

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

The following table summarizes the classification of operating and finance lease assets and obligations in the Company's Condensed Consolidated Balance Sheet as of September 30, 2020 and December 31, 2019:

(in millions) September 30, 2020 December 31, 2019

Operating lease assets Operating lease right-of-use assets $ 305.6 $ 245.4

6 unchanged sentences

Total lease obligations $ 408.0 $ 320.3

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

The following table summarizes the classification of lease expense in the Company's Condensed Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019:

Three Months Ended Six Months Ended

June 30, June 30,

The following table summarizes the classification of lease expense in the Company's Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended Nine Months Ended

September 30, September 30,

(in millions) 2020 2019 2020 2019

7 unchanged sentences

Total lease expense $ 31.4 $ 27.3 $ 90.2 $ 75.1

The following table sets forth the scheduled maturities of lease obligations as of June 30, 2020:

The following table sets forth the scheduled maturities of lease obligations as of September 30, 2020:

(in millions) Operating Leases Finance Leases Total

Year Ended December 31,

2020 (excluding the six months ended June 30, 2020)

2020 (excluding the nine months ended September 30, 2020)

$ 18.9 $ 3.8 $ 22.7

7 unchanged sentences

Present value of lease obligations $ 334.9 $ 73.1 $ 408.0

The following table provides lease term and discount rate information related to operating and finance leases as of June 30, 2020:

June 30, 2020

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

The following table provides lease term and discount rate information related to operating and finance leases as of September 30, 2020:

September 30, 2020

Weighted average remaining lease term (years):

4 unchanged sentences

Finance leases 5.84 %

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

The following table provides supplemental information related to the Company's Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019:

Six Months Ended

(in millions) June 30, 2020 June 30, 2019

The following table provides supplemental information related to the Company's Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019:

Nine Months Ended

(in millions) September 30, 2020 September 30, 2019

Cash paid for amounts included in the measurement of lease obligations:

6 unchanged sentences

(a) Treasury Stock.

As of June 30, 2020, the Company had approximately $ 131.3 million remaining under the existing share repurchase program initially authorized by the Board of Directors in 2016.

In February 2020, the Board of Directors authorized an increase, of $ 194.2 million, to its existing share repurchase authorization of Tempur Sealy International's common stock to $ 300.0 million.

The Company did not repurchase shares under the program during the three months ended June 30, 2020.

The Company repurchased 24,170 shares under the program for approximately $ 1.5 million during the three months ended June 30, 2019.

The Company repurchased 2.6 million shares and 39,901 shares under the program for approximately $ 187.5 million and $ 2.3 million during the six months ended June 30, 2020 and 2019, respectively.

In addition, the Company acquired an insignificant amount of shares upon the vesting of certain restricted stock units ("RSUs"), which were withheld to satisfy tax withholding obligations during each of the three and six months ended June 30, 2020 and 2019.

The shares withheld were valued at the closing price of the stock on the New York Stock Exchange on the vesting date or first business day prior to vesting, resulting in approximately $ 0.2 million and $ 0.3 million in treasury stock acquired during the three months ended June 30, 2020 and 2019, respectively.

The Company acquired approximately $ 12.0 million and $ 3.2 million in treasury stock during the six months ended June 30, 2020 and 2019, respectively.

As of September 30, 2020, the Company had approximately $ 131.3 million remaining under the existing share repurchase program initially authorized by the Board of Directors in 2016.

The Company did not repurchase shares under the program during the three months ended September 30, 2020.

The Company repurchased 0.7 million shares under the program for approximately $ 50.0 million during the three months ended September 30, 2019.

The Company repurchased 2.6 million shares and 0.7 million shares for approximately $ 187.5 million and $ 52.3 million during the nine months ended September 30, 2020 and 2019, respectively.

In October 2020, the Board of Directors authorized an increase, of $ 168.7 million, to the existing share repurchase authorization of Tempur Sealy International's common stock to $ 300.0 million.

In addition, the Company acquired shares upon the vesting of certain restricted stock units ("RSUs"), which were withheld to satisfy tax withholding obligations during each of the three and nine months ended September 30, 2020 and 2019.

The shares withheld were valued at the closing price of the stock on the New York Stock Exchange on the vesting date or first business day prior to vesting, resulting in approximately $ 0.1 million and $ 0.0 million in treasury stock acquired during the three months ended September 30, 2020 and 2019, respectively.

The Company acquired approximately $ 12.1 million and $ 3.2 million in treasury stock during the nine months ended September 30, 2020 and 2019, respectively.

(b) Shareholder Rights Agreement.

On March 27, 2020, the Board of Directors authorized and declared a dividend distribution of one right (a "Right") for each outstanding share of common stock of the Company to stockholders of record at the close of business on April 7, 2020 (the “Record Date”).

Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $ 0.01 par value per share (the “Preferred Shares”), of the Company at an exercise price of $273.00 per one one-thousandth of a Preferred Share, subject to adjustment (the “Exercise Price”).

Generally, the Rights become exercisable in the event any person or group of affiliated or associated persons acquires beneficial ownership of 10 % ( 20 % in the case of a passive institutional investor) or more of the Company's common stock without the approval of the Board of Directors, and until such time are inseparable from and trade with the Company's common stock.

The Rights have a de minimis fair value.

The Rights were issued pursuant to the Rights Agreement dated as of March 27, 2020 (the "Rights Agreement"), between the Company and American Stock Transfer & Trust Company, LLC, as rights agent.

The Rights expire at the close of business on March 26, 2021 or upon an earlier redemption or exchange as provided in the Rights Agreement.

Each Right entitled the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $ 0.01 par value per share (the “Preferred Shares”), of the Company at an exercise price of $273.00 per one one-thousandth of a Preferred Share, subject to adjustment (the “Exercise Price”).

In accordance with their terms, the Rights were set to expire at the close of business on March 26, 2021 or such other date as may be established by the Board of Directors as permitted under the Rights Agreement.

On September 11, 2020, the Board of Directors accelerated the expiration of the Rights to the close of business on September 14, 2020, at which time the Rights expired and the Rights Agreement was terminated.

TEMPUR SEALY INTERNATIONAL, INC.

1 unchanged sentence

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

On October 28, 2020, the Board of Directors approved a four -for-one split of the Company's common stock.

The stock split will be effected through a stock dividend entitling each shareholder of record on November 10, 2020 to receive an additional three shares of common stock for each share owned.

The shares will be distributed after the close of trading on November 23, 2020, and trading of the Company’s common stock will begin on a split-adjusted basis on November 24, 2020.

The Company’s consolidated financial statements as of and for the three and nine-month periods ended September 30, 2020 and 2019 do not reflect the four -for-one stock split, which will be effective on November 24, 2020.

AOCL consisted of the following:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(in millions) 2020 2019 2020 2019

24 unchanged sentences

Accrued expenses and other current liabilities consisted of the following:

(in millions) June 30, 2020 December 31, 2019

(in millions) September 30, 2020 December 31, 2019

Taxes $ 146.5 $ 136.0

Wages and benefits 97.0 79.5

Operating lease obligations 58.3 50.8

Advertising 94.6 56.9

Sales returns 27.9 26.2

Warranty 17.5 19.4

Rebates 6.6 13.6

Operating lease obligations 59.6 50.8

Other 203.7 150.0

1 unchanged sentence

(9) Stock-Based Compensation

The Company’s stock-based compensation expense for the three and six months ended June 30, 2020 and 2019 included performance restricted stock units ("PRSUs"), non-qualified stock options, restricted stock units ("RSUs") and deferred stock units ("DSUs").

The Company’s stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019 included performance restricted stock units ("PRSUs"), non-qualified stock options, restricted stock units ("RSUs") and deferred stock units ("DSUs").

A summary of the Company’s stock-based compensation expense is presented in the following table:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2020 2019 2020 2019

4 unchanged sentences

The Company grants PRSUs to executive officers and certain members of management.

During the first quarter of 2020, the Company granted PRSUs as a component of the long-term incentive plan.

Actual payout under the PRSUs is dependent upon the achievement of certain financial goals.

During the first quarter of 2020, the Company granted PRSUs as a component of the long-term incentive plan ("2020 PRSUs").

The Company has recorded stock-based compensation expense related to the 2020 PRSUs during the three and nine months ended September 30, 2020, as it was probable that the Company would achieve the specified performance target for the performance period.

During 2017, the Company granted executive officers and certain members of management PRSUs if the Company achieves a certain level of adjusted earnings before interest, tax, depreciation and amortization as defined in the Company’s Credit Agreement ("adjusted EBITDA per credit facility") during four consecutive fiscal quarters as described below (the "2019 Aspirational Plan PRSUs").

9 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

The Company did not record any stock-based compensation expense related to the 2019 Aspirational Plan PRSUs during the three and six months ended June 30, 2020, as it was not probable that the Company would achieve the specified performance target for the Second Designated Period.

The Company will continue to evaluate the probability of achieving the performance condition in future periods and record the appropriate expense if necessary.

Based on the price of the Company’s common stock on the grant date, the total unrecognized compensation expense related to this award if the performance target is met for the Second Designated Period would range from $ 33.0 million to $ 49.5 million, which would be a non-cash expense over the remaining service period if achievement of the performance condition becomes probable.

The Company recorded $ 45.2 million of stock-based compensation expense related to the 2019 Aspirational Plan PRSUs during the three months ended September 30, 2020, as it became probable the Company would achieve the highest specified performance target.

Based on the price of the Company’s common stock on the grant date, the remaining unrecognized compensation expense related to this award is approximately $ 4.2 million, which will be recognized in the fourth quarter of 2020, commensurate with the remaining requisite service period.

(10) Commitments and Contingencies

2 unchanged sentences

(11) Income Taxes

The Company’s effective tax rate for the three months ended June 30, 2020 and 2019 was 28.9 % and 27.0 %, respectively.

The Company's effective tax rate for the six months ended June 30, 2020 and 2019 was 28.1 % and 31.3 %, respectively.

The Company's effective tax rate for the three and six months ended June 30, 2020 and 2019 differed from the U.S.

The Company’s effective tax rate for the three months ended September 30, 2020 and 2019 was 25.2 % and 26.5 %, respectively.

The Company's effective tax rate for the nine months ended September 30, 2020 and 2019 was 26.5 % and 29.0 %, respectively.

The Company's effective tax rate for the three and nine months ended September 30, 2020 and 2019 differed from the U.S.

federal statutory rate of 21.0% principally due to subpart F income (i.e., GILTI earned by the Company’s foreign subsidiaries), certain foreign income tax rate differentials, state and local taxes, changes in the Company’s uncertain tax positions, the excess tax deficiency (or benefit) related to stock-based compensation and certain other permanent items.

7 unchanged sentences

production process.

At June 30, 2020 and December 31, 2019, the Danish income tax liability recorded in the Company’s balance sheet for the periods 2001 through June 30, 2020 and December 31, 2019, respectively, is DKK 1,121.1 million and DKK 1,110.6 million, respectively (approximately $ 169.1 million and $ 166.7 million using the applicable exchange rates at June 30, 2020 and December 31, 2019, respectively).

The liability at June 30, 2020 and December 31, 2019 is included within the Company’s Condensed Consolidated Balance Sheet (translated at the exchange rate on June 30, 2020 and December 31, 2019) as per below:

June 30, 2020 December 31, 2019

At September 30, 2020 and December 31, 2019, the Danish income tax liability recorded in the Company’s balance sheet for the periods 2001 through September 30, 2020 and December 31, 2019, respectively, is DKK 1,126.3 million and DKK 1,110.6 million, respectively (approximately $ 177.4 million and $ 166.7 million using the applicable exchange rates at September 30, 2020 and December 31, 2019, respectively).

The liability at September 30, 2020 and December 31, 2019 is included within the Company’s Condensed Consolidated Balance Sheet (translated at the exchange rate on September 30, 2020 and December 31, 2019) as per below:

September 30, 2020 December 31, 2019

DKK USD DKK USD

2 unchanged sentences

Total 1,126.3 $ 177.4 1,110.6 $ 166.7

During the three months ended March 31, 2020 the Company made a tax deposit with SKAT of DKK 134.0 million applicable to a tax assessment by SKAT for the years 2012 and 2013.

The Company is contesting such assessment.

At June 30, 2020 and December 31, 2019, respectively, the Company held on deposit with SKAT DKK 1,104.1 million and DKK 970.1 million (approximately $ 166.5 million and $ 145.6 million using the applicable exchange rates at June 30, 2020 and December 31, 2019, respectively).

During the three months ended September 30, 2020, the Company made a tax deposit with SKAT of DKK 76.8 million applicable to a tax assessment by SKAT for the year 2014.

Also, during the three months ended March 31, 2020 the Company made a tax deposit with SKAT of DKK 134.0 million applicable to a tax assessment by SKAT for the years 2012 and 2013.

The Company is contesting both assessments.

At September 30, 2020 and December 31, 2019, respectively, the Company held on deposit with SKAT DKK 1,180.9 million and DKK 970.1 million (approximately $ 186.0 million and $ 145.6 million using the applicable exchange rates at September 30, 2020 and December 31, 2019, respectively).

The deposit is for the satisfaction of the anticipated liability for both tax and interest once these matters are concluded.

2 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

The deposit at June 30, 2020 and December 31, 2019 is included within the Company’s Condensed Consolidated Balance Sheet (translated at the exchange rates on June 30, 2020 and December 31, 2019) as per below:

June 30, 2020 December 31, 2019

The deposit at September 30, 2020 and December 31, 2019 is included within the Company’s Condensed Consolidated Balance Sheet (translated at the exchange rates on September 30, 2020 and December 31, 2019) as per below:

September 30, 2020 December 31, 2019

DKK USD DKK USD

2 unchanged sentences

Total 1,180.9 $ 186.0 970.1 $ 145.6

There were no significant changes in the Danish Tax Matter or other uncertain tax positions during the three or six months ended June 30, 2020.

There were no significant changes in the Danish Tax Matter or other uncertain tax positions during the three or nine months ended September 30, 2020.

(12) Earnings Per Common Share

The following table sets forth the components of the numerator and denominator for the computation of basic and diluted earnings per share for net income attributable to Tempur Sealy International.

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(in millions, except per common share amounts) 2020 2019 2020 2019

6 unchanged sentences

Diluted earnings per common share for continuing operations $ 2.25 $ 1.30 $ 3.83 $ 2.57

The Company excluded 1.3 million and 1.1 million shares for the three months ended June 30, 2020 and 2019, respectively, from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy International's common stock or they were otherwise anti-dilutive.

The Company excluded 0.8 million and 1.1 million shares issuable upon exercise of outstanding stock options for the six months ended June 30, 2020 and 2019, respectively, from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy International's common stock or they were otherwise anti-dilutive.

Holders of non-vested stock-based compensation awards do not have voting rights or rights to receive any dividends thereon.

The Company excluded an insignificant number of shares for the three months ended September 30, 2020, from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy International's common stock or they were otherwise anti-dilutive.

The Company did no t exclude any shares for the three months ended September 30, 2019.

The Company excluded 0.5 million and 1.1 million shares issuable upon exercise of outstanding stock options for the nine months ended September 30, 2020 and 2019, respectively, from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy International's common stock or they were otherwise anti-dilutive.

Holders of non-vested stock-based compensation awards do not have voting rights.

TEMPUR SEALY INTERNATIONAL, INC.

12 unchanged sentences

The following table summarizes total assets by segment:

(in millions) June 30, 2020 December 31, 2019

(in millions) September 30, 2020 December 31, 2019

North America $ 3,595.8 $ 3,142.9

4 unchanged sentences

The following table summarizes property, plant and equipment, net, by segment:

(in millions) June 30, 2020 December 31, 2019

(in millions) September 30, 2020 December 31, 2019

North America $ 390.2 $ 328.9

3 unchanged sentences

The following table summarizes operating lease right-of-use assets by segment:

(in millions) June 30, 2020 December 31, 2019

(in millions) September 30, 2020 December 31, 2019

North America $ 261.5 $ 202.0

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

The following table summarizes segment information for the three months ended June 30, 2020:

The following table summarizes segment information for the three months ended September 30, 2020:

(in millions) North America International Corporate Eliminations Consolidated

9 unchanged sentences

(1) Depreciation and amortization includes stock-based compensation amortization expense.

The following table summarizes segment information for the three months ended June 30, 2019:

The following table summarizes segment information for the three months ended September 30, 2019:

(in millions) North America International Corporate Eliminations Consolidated

9 unchanged sentences

(1) Depreciation and amortization includes stock-based compensation amortization expense.

The following table summarizes segment information for the six months ended June 30, 2020:

The following table summarizes segment information for the nine months ended September 30, 2020:

(in millions) North America International Corporate Eliminations Consolidated

12 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)

The following table summarizes segment information for the six months ended June 30, 2019:

The following table summarizes segment information for the nine months ended September 30, 2019:

(in millions) North America International Corporate Eliminations Consolidated

11 unchanged sentences

(in millions)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

United States

6 unchanged sentences

The following table summarizes operating lease right-of-use assets by geographic region:

(in millions) June 30, 2020 December 31, 2019

(in millions) September 30, 2020 December 31, 2019

United States $ 260.0 $ 198.3

4 unchanged sentences

The following table summarizes net sales by geographic region:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(in millions) 2020 2019 2020 2019

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements