What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-06 · 235 added, 130 removed, 491 unchanged (43% of the section changed)

4 unchanged sentences

($ in millions, except per common share amounts)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Net sales $ 1,169.1 $ 665.2 $ 2,212.9 $ 1,487.6

3 unchanged sentences

General, administrative and other expenses 85.1 82.4 164.6 163.0

Equity (income) loss in earnings of unconsolidated affiliates ( 6.7 ) 0.2

Equity income in earnings of unconsolidated affiliates ( 7.0 ) ( 5.0 ) ( 13.7 ) ( 4.8 )

Operating income 223.3 53.4 411.7 158.7

7 unchanged sentences

Income from continuing operations 140.7 23.1 271.6 84.1

Loss from discontinued operations, net of tax ( 0.2 ) ( 1.2 )

(Loss) income from discontinued operations, net of tax ( 0.3 ) 0.1 ( 0.5 ) ( 1.1 )

Net income before non-controlling interests 140.4 23.2 271.1 83.0

Net income attributable to non-controlling interests 0.2 0.1

Net (loss) income attributable to non-controlling interests ( 0.4 ) 0.2 ( 0.2 ) 0.3

Net income attributable to Tempur Sealy International, Inc.

15 unchanged sentences

($ in millions)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Net income before non-controlling interests $ 140.4 $ 23.2 $ 271.1 $ 83.0

1 unchanged sentence

Foreign currency translation adjustments 6.7 10.7 ( 4.1 ) ( 12.3 )

Other comprehensive loss, net of tax ( 10.8 ) ( 23.0 )

Other comprehensive income (loss), net of tax 6.7 10.7 ( 4.1 ) ( 12.3 )

Comprehensive income 147.1 33.9 267.0 70.7

Comprehensive income attributable to non-controlling interests 0.2 0.1

Comprehensive (loss) income attributable to non-controlling interests ( 0.4 ) 0.2 ( 0.2 ) 0.3

Comprehensive income attributable to Tempur Sealy International, Inc.

5 unchanged sentences

($ in millions)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

ASSETS (Unaudited)

32 unchanged sentences

($ in millions)

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Tempur Sealy International, Inc.

2 unchanged sentences

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

Balance as of December 31, 2020

Balance as of March 31, 2021

$ 8.9 283.8 $ 2.8 85.9 $ ( 2,360.7 ) $ 590.0 $ 2,161.3 $ ( 76.3 ) $ 1.2 $ 318.3

Net income 140.8 140.8

Net income attributable to non-controlling interests — 0.2 0.2

Net loss attributable to non-controlling interest ( 0.4 ) — —

Purchase of remaining interest in subsidiary ( 3.4 ) ( 1.2 ) ( 4.6 )

Foreign currency adjustments, net of tax 6.7 6.7

Exercise of stock options ( 0.1 ) 3.4 ( 1.5 ) 1.9

Dividends on common stock ($ 0.07 per share)

Dividends declared on common stock ($ 0.07 per share)

( 14.2 ) ( 14.2 )

5 unchanged sentences

Amortization of unearned stock-based compensation

Balance, March 31, 2021

Balance, June 30, 2021

$ 8.5 283.8 $ 2.8 87.3 $ ( 2,416.6 ) $ 597.1 $ 2,287.9 $ ( 69.6 ) $ — $ 401.6

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Tempur Sealy International, Inc.

2 unchanged sentences

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

Balance as of March 31, 2020

$ 8.4 283.8 $ 2.8 77.4 $ ( 2,026.5 ) $ 576.9 $ 1,756.5 $ ( 110.7 ) $ 1.0 $ 200.0

Net income 23.0 23.0

Net income attributable to non-controlling interests 0.2 0.2

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

Foreign currency adjustments, net of tax 10.7 10.7

Exercise of stock options — — 0.2 0.2

Issuances of PRSUs, RSUs, and DSUs

— 0.4 ( 0.4 ) —

Treasury stock repurchased - PRSU/RSU releases — ( 0.2 ) ( 0.2 )

Amortization of unearned stock-based compensation

Balance, June 30, 2020

$ 8.4 283.8 $ 2.8 77.4 $ ( 2,026.3 ) $ 584.2 $ 1,779.5 $ ( 100.0 ) $ 1.1 $ 241.3

See accompanying Notes to Condensed Consolidated Financial Statements .

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

(in millions) (unaudited)

Six Months Ended June 30, 2021

Tempur Sealy International, Inc.

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 December 31, 2020

$ 8.9 283.8 $ 2.8 78.9 $ ( 2,096.8 ) $ 617.5 $ 2,045.6 $ ( 65.5 ) $ 1.0 $ 504.6

Adoption of accounting standard effective January 1, 2020, net of tax ( 6.5 ) ( 6.5 )

Net income 271.3 271.3

Net (loss) income attributable to non-controlling interests ( 0.4 ) 0.2 0.2

Purchase of remaining interest in subsidiary ( 3.4 ) ( 1.2 ) ( 4.6 )

Foreign currency adjustments, net of tax ( 4.1 ) ( 4.1 )

Exercise of stock options ( 0.5 ) 14.3 ( 5.8 ) 8.5

Dividends declared on common stock ($ 0.07 per share)

( 29.0 ) ( 29.0 )

Issuances of PRSUs, RSUs, and DSUs

( 1.6 ) 41.4 ( 41.4 ) —

Treasury stock repurchased

10.0 ( 361.4 ) ( 361.4 )

Treasury stock repurchased - PRSU/RSU/DSU releases 0.5 ( 14.1 ) ( 14.1 )

Amortization of unearned stock-based compensation

Balance, June 30, 2021

$ 8.5 283.8 $ 2.8 87.3 $ ( 2,416.6 ) $ 597.1 $ 2,287.9 $ ( 69.6 ) $ — $ 401.6

Six Months Ended June 30, 2020

Tempur Sealy International, Inc.

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 December 31, 2019

$ — 283.8 $ 2.8 75.1 $ ( 1,832.8 ) $ 573.9 $ 1,703.3 $ ( 87.7 ) $ 0.9 $ 360.4

Adoption of accounting standard effective January 1, 2020

( 6.5 ) ( 6.5 )

Net income 82.7 82.7

Net income attributable to non-controlling interests 0.3 0.3

Acquisition of non-controlling interest in subsidiary 8.4 —

Dividend paid to noncontrolling interest in subsidiary ( 0.1 ) ( 0.1 )

Foreign currency adjustments, net of tax ( 12.3 ) ( 12.3 )

4 unchanged sentences

2.6 ( 187.5 ) ( 187.5 )

Treasury stock repurchased - PRSU/RSU releases 0.1 ( 11.8 ) ( 11.8 )

Treasury stock repurchased - PRSU/RSU/DSU releases 0.1 ( 12.0 ) ( 12.0 )

Amortization of unearned stock-based compensation

Balance, March 31, 2020

Balance, June 30, 2020

$ 8.4 283.8 $ 2.8 77.4 $ ( 2,026.3 ) $ 584.2 $ 1,779.5 $ ( 100.0 ) $ 1.1 $ 241.3

4 unchanged sentences

($ in millions) (unaudited)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:

8 unchanged sentences

Dividends received from unconsolidated affiliates 5.3 1.5

Equity (income) loss in earnings of unconsolidated affiliates ( 6.7 ) 0.2

Equity income in earnings of unconsolidated affiliates ( 13.7 ) ( 4.8 )

Loss on extinguishment of debt 3.0 —

15 unchanged sentences

Repayments of finance lease obligations and other ( 6.1 ) ( 6.0 )

Net cash provided by financing activities from continuing operations 168.9 188.1

Net cash provided by continuing operations 230.8 139.1

Net cash (used in) provided by financing activities from continuing operations ( 260.5 ) 1.4

Net cash (used in) provided by continuing operations ( 5.4 ) 84.6

Net operating cash flows used in discontinued operations ( 0.7 ) ( 1.0 )

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ( 0.8 ) ( 1.7 )

Increase in cash and cash equivalents 225.5 132.1

(Decrease) increase in cash and cash equivalents ( 6.9 ) 81.9

CASH AND CASH EQUIVALENTS, beginning of period 65.0 64.9

19 unchanged sentences

Wholesale and Direct.

The Company has ownership interests in a group of Asia-Pacific joint ventures to develop markets for Sealy® branded products in those regions.

The Company’s ownership interest in these joint ventures is 50.0 %.

The Company has ownership interests in United Kingdom and Asia-Pacific joint ventures to develop markets for Sealy® branded products in those regions.

The Company’s ownership interest in each of these joint ventures is 50.0 %.

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 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.

4 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:

March 31, December 31,

June 30, December 31,

(in millions) 2021 2020

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, 2020 to March 31, 2021:

The Company had the following activity for sales returns from December 31, 2020 to June 30, 2021:

(in millions)

2 unchanged sentences

Returns charged to accrual ( 66.8 )

Balance as of March 31, 2021 $ 48.2

Balance as of June 30, 2021 $ 51.5

TEMPUR SEALY INTERNATIONAL, INC.

1 unchanged sentence

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

As of March 31, 2021 and December 31, 2020, $ 33.8 million and $ 31.6 million of accrued sales returns are included as a component of accrued expenses and other current liabilities and $ 14.4 million and $ 13.3 million of accrued sales returns are included in other non-current liabilities on the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.

As of June 30, 2021 and December 31, 2020, $ 36.2 million and $ 31.6 million of accrued sales returns are included as a component of accrued expenses and other current liabilities and $ 15.3 million and $ 13.3 million of accrued sales returns are included in other non-current liabilities on the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.

(d) 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, 2020 to March 31, 2021:

The Company had the following activity for its accrued warranty expense from December 31, 2020 to June 30, 2021:

(in millions)

2 unchanged sentences

Warranties charged to accrual ( 11.8 )

Balance as of March 31, 2021 $ 44.3

As of March 31, 2021 and December 31, 2020, $ 20.8 million and $ 20.3 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $ 23.5 million and $ 23.9 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 June 30, 2021 $ 45.8

As of June 30, 2021 and December 31, 2020, $ 21.8 million and $ 20.3 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $ 24.0 million and $ 23.9 million of accrued warranty expense is included in other non-current liabilities on the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.

(e) Allowance for Credit Losses .

3 unchanged sentences

Account balances are charged off against the allowance for credit losses after all reasonable means of collection have been exhausted and the potential for recovery is considered remote.

As of March 31, 2021, the Company's accounts receivable were substantially current.

As of June 30, 2021, the Company's accounts receivable were substantially current.

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 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, 2020 to March 31, 2021:

The Company had the following activity for its allowance for credit losses from December 31, 2020 to June 30, 2021:

(in millions)

2 unchanged sentences

Write-offs charged against the allowance ( 3.3 )

Balance as of March 31, 2021

Balance as of June 30, 2021

TEMPUR SEALY INTERNATIONAL, INC.

2 unchanged sentences

(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 months ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020

Three Months Ended June 30, 2021 Six Months Ended June 30, 2021

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

11 unchanged sentences

Net sales $ 1,013.8 $ 155.3 $ 1,169.1 $ 1,897.1 $ 315.8 $ 2,212.9

(3) Acquisitions

Acquisition of Sherwood Bedding

On January 31, 2020, the Company acquired an 80 % ownership interest in a newly formed limited liability company containing substantially all of the assets of the Sherwood Bedding business for a cash purchase price of approximately $ 39.1 million, which included $ 1.2 million of cash acquired.

The Company accounted for this transaction as a business combination.

The final allocation of the purchase price is based on the fair values of the assets acquired and liabilities assumed as of January 31, 2020, which included the following:

(in millions)

Working capital (accounts receivable and inventory, net of accounts payable and accrued liabilities) $ 5.8

Property and equipment 10.1

Goodwill 26.7

Customer relationships intangible assets 3.7

Operating lease right-of-use assets 19.9

Operating lease liabilities ( 19.9 )

Redeemable non-controlling interest ( 8.4 )

Purchase price, net of cash acquired $ 37.9

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

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

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

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

Wholesale $ 502.8 $ 60.9 $ 563.7 $ 1,127.5 $ 158.6 $ 1,286.1

Direct 75.8 25.7 101.5 143.4 58.1 201.5

Net sales $ 578.6 $ 86.6 $ 665.2 $ 1,270.9 $ 216.7 $ 1,487.6

North America International Consolidated North America International Consolidated

Bedding $ 540.3 $ 65.6 $ 605.9 $ 1,195.2 $ 167.1 $ 1,362.3

Other 38.3 21.0 59.3 75.7 49.6 125.3

Net sales $ 578.6 $ 86.6 $ 665.2 $ 1,270.9 $ 216.7 $ 1,487.6

North America International Consolidated North America International Consolidated

Geographical region

United States $ 542.0 $ — $ 542.0 $ 1,174.5 $ — $ 1,174.5

All Other 36.6 86.6 123.2 96.4 216.7 313.1

Net sales $ 578.6 $ 86.6 $ 665.2 $ 1,270.9 $ 216.7 $ 1,487.6

TEMPUR SEALY INTERNATIONAL, INC.

1 unchanged sentence

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

(3) Acquisitions

Acquisition of Dreams Topco Limited

On May 26, 2021, the Company entered into a share purchase agreement with Project Dream S.à.r.l.

and certain members of the management team and Dreams Topco Limited to purchase the entire issued share capital of Dreams Topco Limited and its direct and indirect subsidiaries ("Dreams").

Dreams has developed a successful multi-channel sales strategy, with over 200 brick and mortar retail locations in the United Kingdom, an industry-leading online channel, as well as manufacturing and delivery assets.

On August 2, 2021, the Company completed the acquisition of Dreams.

The purchase price was approximately $ 475 million, less net debt and is subject to a customary working capital adjustment period.

The transaction was funded using cash on hand and bank financing.

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

2 unchanged sentences

Foreign currency translation and other 2.7 ( 2.0 ) 0.7

Balance as of March 31, 2021 $ 611.9 $ 153.3 $ 765.2

Balance as of June 30, 2021 $ 613.0 $ 154.0 $ 767.0

Debt for the Company consists of the following:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

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

3 unchanged sentences

2029 Senior Notes 800.0 4.00 % — N/A April 15, 2029

2026 Senior Notes 600.0 5.500 % 600.0 5.500 % June 15, 2026

2026 Senior Notes — N/A 600.0 5.500 % June 15, 2026

2023 Senior Notes — N/A 250.0 5.625 % October 15, 2023

8 unchanged sentences

Total long-term debt, net $ 1,473.2 $ 1,323.0

(1) Interest at LIBOR plus applicable margin of 1.250 % as of March 31, 2021.

(1) Interest at LIBOR plus applicable margin of 1.250 % as of June 30, 2021.

(2) Interest at LIBOR plus applicable margin of 1.250 % as of December 31, 2020.

3 unchanged sentences

Refer to Note 6, "Leases".

As of March 31, 2021, the Company was in compliance with all applicable debt covenants.

As of June 30, 2021, the Company was in compliance with all applicable debt covenants.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

2019 Credit Agreement

4 unchanged sentences

The amendment increased the revolving credit facility from $ 425.0 million to $ 725.0 million.

As of March 31, 2021, total availability under the revolving credit facility was $ 724.9 million after a $ 0.1 million reduction for outstanding letters of credit.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

As of June 30, 2021, total availability under the revolving credit facility was $ 629.3 million after borrowings of $ 95.6 million and a $ 0.1 million reduction for outstanding letters of credit.

On May 26, 2021, the Company entered into an additional amendment to the 2019 Credit Agreement.

The amendment provides for a $ 300.0 million delayed draw term loan.

Once drawn, the delayed draw term loan will have the same terms and conditions as the Company's existing term loans under the 2019 Credit Agreement.

On July 30, 2021 the Company drew down the full $ 300.0 million available under the delayed draw term loan to fund, in part, the Dreams acquisition.

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 March 31, 2021, the Company had availability of $ 87.2 million under the Accounts Receivable Securitization.

On April 6, 2021, the Company and certain of its subsidiaries entered into a new amendment to the Accounts Receivable Securitization.

The amendment, among other things, extended the maturity date of the Accounts Receivable Securitization to April 6, 2023 and increased the overall limit from $ 120.0 million to $ 200.0 million.

While subject to a $ 200.0 million overall limit, the availability of revolving loans varies over the course of the year based on the seasonality of the Company's accounts receivable.

As of June 30, 2021, the Company had fully drawn down the Accounts Receivable Securitization with borrowings of $ 160.7 million.

2029 Senior Notes

10 unchanged sentences

Tempur Sealy International may make such redemptions as described in the preceding sentence only if, after any such redemption, at least 60.0 % of the original aggregate principal amount of the 2029 Senior Notes issued remains outstanding.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

The 2029 Indenture restricts the ability of Tempur Sealy International and the ability of certain of its subsidiaries to, among other things:

8 unchanged sentences

2026 Senior Notes

On April 28, 2021, the Company announced its election to conditionally redeem the $ 600.0 million issued and outstanding 2026 Senior Notes, in full, on June 15, 2021 (the "Redemption Date").

The 2026 Senior Notes will be redeemed at 102.750 % of their principal amount, plus the accrued and unpaid interest.

The redemption is conditional 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 use net proceeds from the 2029 Senior Notes primarily to fund the redemption.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

On June 15, 2021, the Company redeemed its $ 600.0 million issued and outstanding 2026 Senior Notes, in full, at 102.75 % of their principal amount, plus the accrued and unpaid interest.

The Company used net proceeds from the 2029 Senior Notes primarily to fund the redemption.

As a result of the Company's redemption of the 2026 Senior Notes, the Company incurred $ 18.0 million of loss on extinguishment of debt which includes a prepayment premium of $ 16.5 million and the write-off of $ 1.5 million of unamortized deferred financing costs.

Additionally, the Company incurred $ 5.2 million of overlapping interest expense for the final 83 day period between the issuance of the 2029 Senior Notes and redemption of the 2026 Senior Notes.

2023 Senior Notes

1 unchanged sentence

During the first quarter of 2021, the Company redeemed the remaining $ 250.0 million of the issued and outstanding 2023 Senior Notes at 101.406 % of the principal amount, plus the accrued and unpaid interest.

In the first quarter of 2021, the Company recognized $ 5.0 million of loss on extinguishment of debt, which includes a prepayment premium of $ 3.5 million and the write-off of $ 1.5 million of deferred financing costs, associated with the redemption of the remaining amount outstanding of the 2023 Senior Notes.

In the first quarter of 2021, the Company recognized $ 5.0 million of loss on extinguishment of debt, which includes a prepayment premium of $ 3.5 million and the write-off of $ 1.5 million of unamortized deferred financing costs, associated with the redemption of the remaining amount outstanding of the 2023 Senior Notes.

Fair Value of Financial Instruments

4 unchanged sentences

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

(in millions) March 31, 2021 December 31, 2020

(in millions) June 30, 2021 December 31, 2020

2023 Senior Notes $ — $ 255.1

1 unchanged sentence

2029 Senior Notes 812.8 —

The following table summarizes the classification of operating and finance lease assets and obligations in the Company's Condensed Consolidated Balance Sheet as of March 31, 2021 and December 31, 2020:

(in millions) March 31, 2021 December 31, 2020

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 June 30, 2021 and December 31, 2020:

(in millions) June 30, 2021 December 31, 2020

Operating lease assets Operating lease right-of-use assets $ 325.4 $ 304.3

6 unchanged sentences

Total lease obligations $ 432.5 $ 407.5

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 months ended March 31, 2021 and 2020:

Three Months Ended

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, 2021 and 2020:

Three Months Ended Six Months Ended

June 30, June 30,

(in millions) 2021 2020 2021 2020

7 unchanged sentences

Total lease expense $ 34.7 $ 28.9 $ 68.3 $ 58.8

The following table sets forth the scheduled maturities of lease obligations as of March 31, 2021:

The following table sets forth the scheduled maturities of lease obligations as of June 30, 2021:

(in millions) Operating Leases Finance Leases Total

Year Ended December 31,

2021 (excluding the three months ended March 31, 2021)

2021 (excluding the six months ended June 30, 2021)

$ 40.2 $ 8.2 $ 48.4

7 unchanged sentences

Present value of lease obligations $ 361.5 $ 71.0 $ 432.5

The following table provides lease term and discount rate information related to operating and finance leases as of March 31, 2021:

March 31, 2021

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 June 30, 2021:

June 30, 2021

Weighted average remaining lease term (years):

4 unchanged sentences

Finance leases 5.61 %

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 three months ended March 31, 2021 and 2020:

Three Months Ended

(in millions) March 31, 2021 March 31, 2020

The following table provides supplemental information related to the Company's Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020:

Six Months Ended

(in millions) June 30, 2021 June 30, 2020

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

8 unchanged sentences

(a) Treasury Stock.

On February 11, 2021, the Board of Directors authorized an increase, of $ 211.4 million, to the existing share repurchase authorization of Tempur Sealy International's common stock.

The Company repurchased 8.4 million and 2.6 million shares, under the program, for approximately $ 299.8 million and $ 187.5 million during the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the Company had approximately $ 113.2 million remaining under its share repurchase authorization.

On April 29, 2021, the Company announced that its Board of Directors authorized an increase to the share repurchase authorization bringing the total authorization to $ 400.0 million.

In addition, the Company acquired shares upon the vesting of certain restricted stock units ("RSUs") and performance restricted stock units ("PRSUs"), which were withheld to satisfy tax withholding obligations during each of the three months ended March 31, 2021 and 2020.

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 $ 13.3 million and $ 11.8 million in treasury stock acquired during the three months ended March 31, 2021 and 2020, respectively.

The Board of Directors authorized increases to the Company's share repurchase authorization of $ 211.4 million and $ 325.3 million during February and April 2021, respectively.

The Company repurchased 1.6 million, under the program, for approximately $ 61.6 million during the three months ended June 30, 2021.

The Company did no t repurchase shares under the program during the three months ended June 30, 2020.

The Company repurchased 10.0 million and 2.6 million shares, under the program, for approximately $ 361.4 million and $ 187.5 million during the six months ended June 30, 2021 and 2020, respectively.

These amounts may differ from the repurchases of common stock amounts in the Condensed Consolidated Statements of Cash Flows due to unsettled share repurchases at the end of a period.

As of June 30, 2021, the Company had approximately $ 376.8 million remaining under its share repurchase authorization.

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 $ 0.8 million and $ 0.2 million in treasury stock acquired during the three months ended June 30, 2021 and 2020, respectively.

The Company acquired approximately $ 14.1 million and $ 12.0 million in treasury stock during the six months ended June 30, 2021 and 2020, respectively.

TEMPUR SEALY INTERNATIONAL, INC.

2 unchanged sentences

AOCL consisted of the following:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in millions) 2021 2020 2021 2020

9 unchanged sentences

Tax expense (2)

— — — ( 0.1 )

Total other comprehensive income before reclassifications, net of tax $ — $ — $ — $ —

9 unchanged sentences

Accrued expenses and other current liabilities consisted of the following:

(in millions) March 31, 2021 December 31, 2020

Taxes $ 145.0 $ 150.4

(in millions) June 30, 2021 December 31, 2020

Wages and benefits $ 82.7 $ 102.5

1 unchanged sentence

Operating lease obligations 66.4 61.0

Taxes 11.5 150.4

Other 218.9 196.8

$ 451.9 $ 585.1

The decrease in taxes was due to the release of certain uncertain income tax liabilities.

Refer to Note 11, "Income Taxes," for additional information.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

(9) Stock-Based Compensation

The Company’s stock-based compensation expense for the three months ended March 31, 2021 and 2020 included PRSUs, non-qualified stock options, RSUs and deferred stock units ("DSUs").

The Company’s stock-based compensation expense for the three and six months ended June 30, 2021 and 2020 included PRSUs, non-qualified stock options, 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 March 31,

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

(in millions) 2021 2020 2021 2020

3 unchanged sentences

Total stock-based compensation expense $ 15.1 $ 7.5 $ 30.2 $ 14.8

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

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

1 unchanged sentence

During the first quarter of 2021, the Company granted PRSUs as a component of the long-term incentive plan ("2021 PRSUs").

The Company has recorded stock-based compensation expense related to the 2021 PRSUs during the three months ended March 31, 2021, as it was probable that the Company would achieve the specified performance target for the performance period.

The Company has recorded stock-based compensation expense related to the 2021 PRSUs during the three and six months ended June 30, 2021, as it was probable that the Company would achieve the specified performance target for the performance period.

(10) Commitments and Contingencies

2 unchanged sentences

(11) Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2021 and 2020 was 23.6 % and 27.8 %, respectively.

The Company's effective tax rate for the three months ended March 31, 2021 and 2020 differed from the U.S.

The Company’s effective tax rate for the three months ended June 30, 2021 and 2020 was 24.1 % and 28.9 %, respectively.

The Company's effective tax rate for the six months ended June 30, 2021 and 2020 was 23.9 % and 28.1 %.

The Company's effective tax rate for the three and six months ended June 30, 2021 and 2020 differed from the U.S.

federal statutory rate of 21.0% principally due to subpart F income (i.e., global intangible low-taxed income, or "GILTI," earned by the Company’s foreign subsidiaries), 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.

4 unchanged sentences

production process.

The uncertain income tax liabilities for the Danish Tax Matter for the years 2001 through 2011 (the "Settlement Years") and for the years 2012 through 2021 (the "2012 to Current Period") are reflected in the Company’s Condensed Consolidated Balance Sheet as per below:

March 31, 2021 December 31, 2020

During the quarter ended June 30, 2021 the Company and SKAT resolved in all material respects the calculation of interest payable to SKAT related to the settlement of the Danish Tax Matters for the years 2001 through 2011 (the “Settlement Years”).

This resolution resulted in SKAT refunding substantially all of the excess tax deposits it was holding for the Settlement Years (all other aspects of the settlement of the Settlement Years had previously been agreed upon).

As such, the Danish Tax Matter for the Settlement Years is considered in all material respects, closed.

Consequently, the tax deposits previously with SKAT were offset against the uncertain income tax liability for the Settlement Years.

The uncertain income tax liabilities for the Danish Tax Matter for the Settlement Years and for the years 2012 through 2021 (the "2012 to Current Period") are reflected in the Company’s Condensed Consolidated Balance Sheet as per below:

June 30, 2021 December 31, 2020

Period Balance Sheet Presentation DKK USD DKK USD

2 unchanged sentences

Total 304.8 $ 48.6 1,142.3 $ 187.5

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

The deferred tax asset for the U.S.

correlative benefit associated with the accrual of Danish tax for the 2012 to Current Period at March 31, 2021 and December 31, 2020 is approximately $ 10.4 million and $ 12.0 million, respectively.

At March 31, 2021 and December 31, 2020, respectively, the Company held cash on deposit with SKAT.

The deposit at March 31, 2021 and December 31, 2020 is included within the Company’s Condensed Consolidated Balance Sheet (translated at the exchange rates on March 31, 2021 and December 31, 2020, respectively) as per below:

March 31, 2021 December 31, 2020

correlative benefit associated with the accrual of Danish tax for the 2012 to Current Period at June 30, 2021 and December 31, 2020 is approximately $ 11.6 million and $ 12.0 million, respectively.

At June 30, 2021 and December 31, 2020, respectively, the Company held cash on deposit with SKAT.

The deposit at June 30, 2021 and December 31, 2020 is included within the Company’s Condensed Consolidated Balance Sheet as per below:

June 30, 2021 December 31, 2020

DKK USD DKK USD

2 unchanged sentences

Total 220.6 $ 35.2 1,180.9 $ 193.9

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

If the Company is not successful in resolving the Danish Tax Matter for the 2012 to Current Period or there is a change in facts and circumstances, the Company may be required to further increase its uncertain income tax position associated with this matter, or decrease its deferred tax asset, also related to this matter, which could have a material impact on the Company's reported earnings.

There were no other significant changes in the Danish Tax Matter or other uncertain tax positions during the three months ended March 31, 2021.

There were no other significant changes in the Danish Tax Matter or other uncertain tax positions during the three or six months ended June 30, 2021.

(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

Three Months Ended Six Months Ended

June 30, June 30,

(in millions, except per common share amounts) 2021 2020 2021 2020

5 unchanged sentences

Diluted earnings per common share for continuing operations $ 0.69 $ 0.11 $ 1.32 $ 0.40

The Company excluded an insignificant number of shares for the three months ended March 31, 2021, 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 shares for the three months ended March 31, 2020.

The Company excluded 5.2 million shares and 3.2 million shares for the three and six months ended June 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 excluded an immaterial number of shares for the three and six months ended June 30, 2021.

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

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

(13) Business Segment Information

8 unchanged sentences

The remaining inter-segment eliminations are comprised of intercompany accounts receivable and payable.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

The following table summarizes total assets by segment:

(in millions) March 31, 2021 December 31, 2020

(in millions) June 30, 2021 December 31, 2020

North America $ 4,145.9 $ 3,740.3

4 unchanged sentences

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

(in millions) March 31, 2021 December 31, 2020

(in millions) June 30, 2021 December 31, 2020

North America $ 425.0 $ 415.3

3 unchanged sentences

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

(in millions) March 31, 2021 December 31, 2020

(in millions) June 30, 2021 December 31, 2020

North America $ 283.3 $ 256.6

2 unchanged sentences

Total operating lease right-of-use assets $ 325.4 $ 304.3

The following table summarizes segment information for the three months ended March 31, 2021:

The following table summarizes segment information for the three months ended June 30, 2021:

(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 three months ended March 31, 2020:

The following table summarizes segment information for the three months ended June 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 six months ended June 30, 2021:

(in millions) North America International Corporate Eliminations Consolidated

Net sales $ 1,897.1 $ 315.8 $ — $ — $ 2,212.9

Inter-segment sales $ 1.2 $ 0.3 $ — $ ( 1.5 ) $ —

Inter-segment royalty expense (income) 4.4 ( 4.4 ) — — —

Gross profit 789.3 187.8 — — 977.1

Operating income (loss) 390.8 89.6 ( 68.7 ) — 411.7

Income (loss) from continuing operations before income taxes 389.3 88.9 ( 121.4 ) — 356.8

Depreciation and amortization (1)

$ 42.7 $ 7.1 $ 33.9 $ — $ 83.7

Capital expenditures 41.1 4.6 6.9 — 52.6

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

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

(in millions) North America International Corporate Eliminations Consolidated

Net sales $ 1,270.9 $ 216.7 $ — $ — $ 1,487.6

Inter-segment sales $ 0.5 $ 0.2 $ — $ ( 0.7 ) $ —

Inter-segment royalty expense (income) 3.2 ( 3.2 ) — — —

Gross profit 499.6 123.4 — — 623.0

Operating income (loss) 169.3 37.7 ( 48.3 ) — 158.7

Income (loss) from continuing operations before income taxes 166.4 33.3 ( 82.7 ) — 117.0

Depreciation and amortization (1)

$ 36.5 $ 6.4 $ 19.4 $ — $ 62.3

Capital expenditures 39.9 5.0 4.5 — 49.4

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

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

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

(in millions)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

United States

4 unchanged sentences

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

(in millions) March 31, 2021 December 31, 2020

(in millions) June 30, 2021 December 31, 2020

United States $ 281.4 $ 255.0

2 unchanged sentences

The following table summarizes net sales by geographic region:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in millions) 2021 2020 2021 2020

3 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