SOMNIGROUP INTERNATIONAL INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME ($ in millions, except per common share amounts) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net sales $ 1,358.3 $ 1,132.3 $ 3,571.2 $ 2,619.9 Cost of sales 781.2 602.1 2,017.0 1,466.7 Gross profit 577.1 530.2 1,554.2 1,153.2 Selling and marketing expenses 243.8 229.7 658.3 535.8 General, administrative and other expenses 90.3 125.1 254.9 288.1 Equity income in earnings of unconsolidated affiliates ( 6.8 ) ( 4.8 ) ( 20.5 ) ( 9.6 ) Operating income 249.8 180.2 661.5 338.9 Other expense, net: Interest expense, net 13.5 20.1 45.8 61.0 Loss on extinguishment of debt — 0.9 23.0 0.9 Other expense (income), net 0.1 ( 0.5 ) ( 0.3 ) 0.3 Total other expense, net 13.6 20.5 68.5 62.2 Income from continuing operations before income taxes 236.2 159.7 593.0 276.7 Income tax provision ( 58.7 ) ( 40.3 ) ( 143.9 ) ( 73.2 ) Income from continuing operations 177.5 119.4 449.1 203.5 (Loss) income from discontinued operations, net of tax ( 0.1 ) 2.4 ( 0.6 ) 1.3 Net income before non-controlling interests 177.4 121.8 448.5 204.8 Less: Net income (loss) attributable to non-controlling interests — 0.4 ( 0.2 ) 0.7 Net income attributable to Tempur Sealy International, Inc. $ 177.4 $ 121.4 $ 448.7 $ 204.1 Earnings per common share: Basic Earnings per share for continuing operations $ 0.91 $ 0.58 $ 2.26 $ 0.97 Earnings per share for discontinued operations — 0.01 — 0.01 Earnings per share $ 0.91 $ 0.59 $ 2.26 $ 0.98 Diluted Earnings per share for continuing operations $ 0.87 $ 0.56 $ 2.18 $ 0.96 Earnings per share for discontinued operations — 0.01 — 0.01 Earnings per share $ 0.87 $ 0.57 $ 2.18 $ 0.97 Weighted average common shares outstanding: Basic 195.8 206.4 198.9 208.8 Diluted 203.4 211.6 205.9 211.6 See accompanying Notes to Condensed Consolidated Financial Statements. 4 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ($ in millions) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Net income before non-controlling interests $ 177.4 $ 121.8 $ 448.5 $ 204.8 Other comprehensive income, net of tax: Foreign currency translation adjustments ( 29.9 ) 12.1 ( 34.0 ) ( 0.2 ) Other comprehensive (loss) income, net of tax ( 29.9 ) 12.1 ( 34.0 ) ( 0.2 ) Comprehensive income 147.5 133.9 414.5 204.6 Less: Comprehensive income (loss) attributable to non-controlling interests — 0.4 ( 0.2 ) 0.7 Comprehensive income attributable to Tempur Sealy International, Inc. $ 147.5 $ 133.5 $ 414.7 $ 203.9 See accompanying Notes to Condensed Consolidated Financial Statements . 5 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ in millions) September 30, 2021 December 31, 2020 ASSETS (Unaudited) Current Assets: Cash and cash equivalents $ 503.3 $ 65.0 Accounts receivable, net 510.2 383.7 Inventories 384.9 312.1 Prepaid expenses and other current assets 84.4 207.6 Total Current Assets 1,482.8 968.4 Property, plant and equipment, net 556.6 507.9 Goodwill 1,082.1 766.3 Other intangible assets, net 755.7 630.1 Operating lease right-of-use assets 464.5 304.3 Deferred income taxes 17.3 13.5 Other non-current assets 108.3 118.1 Total Assets $ 4,467.3 $ 3,308.6 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 463.4 $ 324.1 Accrued expenses and other current liabilities 602.7 585.1 Current portion of long-term debt 53.0 43.9 Income taxes payable 40.3 21.7 Total Current Liabilities 1,159.4 974.8 Long-term debt, net 2,285.8 1,323.0 Long-term operating lease obligations 413.5 275.1 Deferred income taxes 96.6 90.4 Other non-current liabilities 141.0 131.8 Total Liabilities 4,096.3 2,795.1 Redeemable non-controlling interest 8.5 8.9 Total Stockholders' Equity 362.5 504.6 Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity $ 4,467.3 $ 3,308.6 See accompanying Notes to Condensed Consolidated Financial Statements. 6 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ($ in millions) (unaudited) Three Months Ended September 30, 2021 Tempur Sealy International, Inc. Stockholders' Equity Redeemable Non-controlling Interest Common Stock Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity Shares Issued At Par Shares Issued At Cost Additional Paid in Capital Retained Earnings Balance as of June 30, 2021 $ 8.5 283.8 $ 2.8 87.3 $ ( 2,416.6 ) $ 597.1 $ 2,287.9 $ ( 69.6 ) $ 401.6 Net income 177.4 177.4 Net loss attributable to non-controlling interest — — Foreign currency adjustments, net of tax ( 29.9 ) ( 29.9 ) Exercise of stock options ( 0.4 ) 10.7 ( 4.8 ) 5.9 Dividends declared on common stock ($ 0.09 per share) ( 18.3 ) ( 18.3 ) Issuances of PRSUs, RSUs, and DSUs — 0.4 ( 0.4 ) — Treasury stock repurchased 4.1 ( 190.0 ) ( 190.0 ) Treasury stock repurchased - PRSU/RSU releases — ( 0.3 ) ( 0.3 ) Amortization of unearned stock-based compensation 16.1 16.1 Balance, September 30, 2021 $ 8.5 283.8 $ 2.8 91.0 $ ( 2,595.8 ) $ 608.0 $ 2,447.0 $ ( 99.5 ) $ 362.5 Three Months Ended September 30, 2020 Tempur Sealy International, Inc. Stockholders' Equity Redeemable 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 June 30, 2020 $ 8.7 283.8 $ 2.8 77.4 $ ( 2,026.3 ) $ 584.2 $ 1,779.5 $ ( 100.0 ) $ 0.8 $ 241.0 Net income 121.4 121.4 Net income attributable to non-controlling interests 0.2 0.2 0.2 Foreign currency adjustments, net of tax 12.1 12.1 Exercise of stock options — 0.2 0.7 0.9 Issuances of PRSUs, RSUs, and DSUs — 0.1 ( 0.1 ) — Treasury stock repurchased - PRSU/RSU releases — ( 0.1 ) ( 0.1 ) Amortization of unearned stock-based compensation 71.8 71.8 Balance, September 30, 2020 $ 8.9 283.8 $ 2.8 77.4 $ ( 2,026.1 ) $ 656.6 $ 1,900.9 $ ( 87.9 ) $ 1.0 $ 447.3 See accompanying Notes to Condensed Consolidated Financial Statements . 7 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED) (in millions) (unaudited) Nine Months Ended September 30, 2021 Tempur Sealy International, Inc. Stockholders' Equity Redeemable 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 Net income 448.7 448.7 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 ( 34.0 ) ( 34.0 ) Exercise of stock options ( 0.9 ) 25.0 ( 10.6 ) 14.4 Dividends declared on common stock ( 47.3 ) ( 47.3 ) Issuances of RSUs ( 1.6 ) 41.8 ( 41.8 ) — Treasury stock repurchased 14.1 ( 551.4 ) ( 551.4 ) Treasury stock repurchased - PRSU/RSU/DSU releases 0.5 ( 14.4 ) ( 14.4 ) Amortization of unearned stock-based compensation 46.3 46.3 Balance, September 30, 2021 $ 8.5 283.8 $ 2.8 91.0 $ ( 2,595.8 ) $ 608.0 $ 2,447.0 $ ( 99.5 ) $ — $ 362.5 Nine Months Ended September 30, 2020 Tempur Sealy International, Inc. Stockholders' Equity Redeemable 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 204.1 204.1 Net income attributable to non-controlling interests 0.6 0.1 0.1 Acquisition of non-controlling interest in subsidiary 8.4 — Dividend paid to noncontrolling interest in subsidiary ( 0.1 ) — Foreign currency adjustments, net of tax ( 0.2 ) ( 0.2 ) Exercise of stock options — 0.5 1.9 2.4 Issuances of PRSUs, RSUs, and DSUs ( 0.4 ) 5.8 ( 5.8 ) — Treasury stock repurchased 2.6 ( 187.5 ) ( 187.5 ) Treasury stock repurchased - PRSU/RSU/DSU releases 0.1 ( 12.1 ) ( 12.1 ) Amortization of unearned stock-based compensation 86.6 86.6 Balance, September 30, 2020 $ 8.9 283.8 $ 2.8 77.4 $ ( 2,026.1 ) $ 656.6 $ 1,900.9 $ ( 87.9 ) $ 1.0 $ 447.3 See accompanying Notes to Condensed Consolidated Financial Statements . 8 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in millions) (unaudited) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS: Net income before non-controlling interests $ 448.5 $ 204.8 Loss (income) from discontinued operations, net of tax 0.6 ( 1.3 ) Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation and amortization 82.5 72.5 Amortization of stock-based compensation 46.3 86.6 Amortization of deferred financing costs 1.9 2.6 Bad debt expense 2.4 32.8 Deferred income taxes 2.0 ( 23.4 ) Dividends received from unconsolidated affiliates 18.2 15.8 Equity income in earnings of unconsolidated affiliates ( 20.5 ) ( 9.6 ) Loss on extinguishment of debt 3.0 0.9 Foreign currency adjustments and other 1.0 0.4 Changes in operating assets and liabilities, net of effect of business acquisitions 11.6 115.8 Net cash provided by operating activities from continuing operations 597.5 497.9 CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS: Purchases of property, plant and equipment ( 82.1 ) ( 73.6 ) Acquisitions, net of cash acquired ( 426.0 ) ( 37.9 ) Other 0.1 0.1 Net cash used in investing activities from continuing operations ( 508.0 ) ( 111.4 ) CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS: Proceeds from borrowings under long-term debt obligations 3,664.2 1,073.9 Repayments of borrowings under long-term debt obligations ( 2,675.8 ) ( 1,094.9 ) Proceeds from exercise of stock options 14.4 2.4 Treasury stock repurchased ( 565.8 ) ( 199.6 ) Dividends paid ( 45.8 ) — Payments of deferred financing costs ( 25.3 ) ( 1.4 ) Repayments of finance lease obligations and other ( 9.5 ) ( 8.9 ) Net cash provided by (used in) financing activities from continuing operations 356.4 ( 228.5 ) Net cash provided by continuing operations 445.9 158.0 Net operating cash flows (used in) provided by discontinued operations ( 0.8 ) 1.5 NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ( 6.8 ) 4.8 Increase in cash and cash equivalents 438.3 164.3 CASH AND CASH EQUIVALENTS, beginning of period 65.0 64.9 CASH AND CASH EQUIVALENTS, end of period $ 503.3 $ 229.2 Supplemental cash flow information: Cash paid during the period for: Interest $ 32.8 $ 46.1 Income taxes, net of refunds $ 115.0 $ 47.0 See accompanying Notes to Condensed Consolidated Financial Statements. 9 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (1) Summary of Significant Accounting Policies (a) Basis of Presentation and Description of Business. Tempur Sealy International, Inc., a Delaware corporation, together with its subsidiaries, is a U.S. based, multinational company. The term "Tempur Sealy International" refers to Tempur Sealy International, Inc. only, and the term "Company" refers to Tempur Sealy International, Inc. and its consolidated subsidiaries. The Company designs, manufactures and distributes bedding products, which include mattresses, foundations and adjustable bases, and other products, which include pillows and other accessories. The Company also derives income from royalties by licensing Sealy® and Stearns & Foster® brands, technology and trademarks to other manufacturers. The Company sells its products through two sales channels: Wholesale and Direct. 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. 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. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of the Company and related footnotes for the year ended December 31, 2020, included in the 2020 Annual Report filed with the Securities and Exchange Commission on February 19, 2021. The results of operations for the interim periods are not necessarily indicative of results of operations for a full year. It is the opinion of management that all necessary adjustments for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein. (b) Inventories . 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: September 30, December 31, (in millions) 2021 2020 Finished goods $ 211.2 $ 170.2 Work-in-process 11.0 12.6 Raw materials and supplies 162.7 129.3 $ 384.9 $ 312.1 (c) Accrued Sales Returns . The Company allows product returns through certain sales channels and on certain products. Estimated sales returns are provided at the time of sale based on historical sales channel return rates. Estimated future obligations related to these products are provided by a reduction of sales in the period in which the revenue is recognized. The Company considers the impact of recoverable salvage value on sales returns by segment in determining its estimate of future sales returns. 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 September 30, 2021: (in millions) Balance as of December 31, 2020 $ 44.9 Amounts accrued 105.2 Returns charged to accrual ( 101.8 ) Balance as of September 30, 2021 $ 48.3 10 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) As of September 30, 2021 and December 31, 2020, $ 32.8 million and $ 31.6 million of accrued sales returns are included as a component of accrued expenses and other current liabilities and $ 15.5 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 . The Company provides warranties on certain products, which vary by segment, product and brand. Estimates of warranty expenses are based primarily on historical claims experience and product testing. Estimated future obligations related to these products are charged to cost of sales in the period in which the related revenue is recognized. The Company considers the impact of recoverable salvage value on warranty costs in determining its estimate of future warranty obligations. The Company provides warranties on mattresses with varying warranty terms. Tempur-Pedic mattresses sold in the North America segment and all Sealy mattresses have warranty terms ranging from 10 to 25 years, generally non-prorated for the first 10 to 15 years and then prorated for the balance of the warranty term. Tempur-Pedic mattresses sold in the International segment have warranty terms ranging from 5 to 15 years, non-prorated for the first 5 years and then prorated on a straight-line basis for the last 10 years of the warranty term. 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 September 30, 2021: (in millions) Balance as of December 31, 2020 $ 44.2 Amounts accrued 19.4 Warranties charged to accrual ( 16.5 ) Balance as of September 30, 2021 $ 47.1 As of September 30, 2021 and December 31, 2020, $ 22.6 million and $ 20.3 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $ 24.5 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. (e) Allowance for Credit Losses . The allowance for credit losses is the Company's best estimate of the amount of expected lifetime credit losses in the Company's accounts receivable. The Company regularly reviews the adequacy of its allowance for credit losses. The Company estimates losses over the contractual life using assumptions to capture the risk of loss, even if remote, based principally on how long a receivable has been outstanding. 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 September 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 September 30, 2021: (in millions) Balance as of December 31, 2020 $ 71.6 Amounts accrued 2.4 Write-offs charged against the allowance ( 4.5 ) Balance as of September 30, 2021 $ 69.5 11 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) (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 September 30, 2021 and 2020: Three Months Ended September 30, 2021 Three Months Ended September 30, 2020 (in millions) North America International Consolidated North America International Consolidated Channel Wholesale $ 991.2 $ 108.0 $ 1,099.2 $ 887.1 $ 100.1 $ 987.2 Direct 128.8 130.3 259.1 107.6 37.5 145.1 Net sales $ 1,120.0 $ 238.3 $ 1,358.3 $ 994.7 $ 137.6 $ 1,132.3 North America International Consolidated North America International Consolidated Product Bedding $ 1,047.1 $ 197.4 $ 1,244.5 $ 929.2 $ 106.0 $ 1,035.2 Other 72.9 40.9 113.8 65.5 31.6 97.1 Net sales $ 1,120.0 $ 238.3 $ 1,358.3 $ 994.7 $ 137.6 $ 1,132.3 North America International Consolidated North America International Consolidated Geographical region United States $ 1,018.8 $ — $ 1,018.8 $ 904.3 $ — $ 904.3 All Other 101.2 238.3 339.5 90.4 137.6 228.0 Net sales $ 1,120.0 $ 238.3 $ 1,358.3 $ 994.7 $ 137.6 $ 1,132.3 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 nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020 (in millions) North America International Consolidated North America International Consolidated Channel Wholesale $ 2,647.5 $ 338.5 $ 2,986.0 $ 2,014.6 $ 258.7 $ 2,273.3 Direct 369.6 215.6 585.2 251.0 95.6 346.6 Net sales $ 3,017.1 $ 554.1 $ 3,571.2 $ 2,265.6 $ 354.3 $ 2,619.9 North America International Consolidated North America International Consolidated Product Bedding $ 2,839.9 $ 438.0 $ 3,277.9 $ 2,124.4 $ 273.1 $ 2,397.5 Other 177.2 116.1 293.3 141.2 81.2 222.4 Net sales $ 3,017.1 $ 554.1 $ 3,571.2 $ 2,265.6 $ 354.3 $ 2,619.9 North America International Consolidated North America International Consolidated Geographical region United States $ 2,783.6 $ — $ 2,783.6 $ 2,078.8 $ — $ 2,078.8 All Other 233.5 554.1 787.6 186.8 354.3 541.1 Net sales $ 3,017.1 $ 554.1 $ 3,571.2 $ 2,265.6 $ 354.3 $ 2,619.9 12 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) (3) Acquisitions Acquisition of Dreams Topco Limited On August 2, 2021, the Company completed the acquisition of Dreams Topco Limited and its direct and indirect subsidiaries ("Dreams"), for a cash purchase price of $ 476.7 million, which includes $ 49.7 million of cash acquired and a working capital adjustment payable of $ 6.6 million. The transaction was funded using cash on hand and bank financing. 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. The financial results of Dreams subsequent to the date of acquisition are included in the condensed consolidated financial statements of the Company. The Company accounted for this transaction as a business combination. The preliminary allocation of the purchase price is based on the fair values of the assets acquired and liabilities assumed as of August 2, 2021. The Company continues to obtain information to complete its valuation of intangible assets, as well as to determine the acquired assets and liabilities, including tax assets, liabilities and other attributes. The components of the preliminary purchase price allocation are as follows: (in millions) Accounts receivable, net $ 3.5 Inventory 51.1 Property, plant and equipment 30.4 Goodwill 331.3 Indefinite-lived intangible asset 143.1 Operating lease right-of-use assets 158.2 Other current and non-current assets 7.1 Accounts payable ( 55.6 ) Accrued expenses and other current liabilities ( 68.5 ) Operating lease liabilities ( 165.1 ) Debt ( 6.1 ) Other liabilities ( 2.4 ) Purchase price, net of cash acquired $ 427.0 The indefinite-lived intangible asset represents the Dreams' portfolio of trade names as marketed through Dreams. The Company applied the income approach through a relief from royalty method to fair value the trade name asset using level 2 inputs. The indefinite-lived intangible asset is not deductible for income tax purposes. Goodwill is calculated as the excess of the purchase price over the net assets acquired and primarily represents the expansion of retail competency and online capabilities, and expected synergistic manufacturing and distribution benefits to be realized from the acquisition. The goodwill is not deductible for income tax purposes and is included within the International business segment. (4) Goodwill The following summarizes changes to the Company's goodwill, by segment: (in millions) North America International Consolidated Balance as of December 31, 2020 $ 610.3 $ 156.0 $ 766.3 Goodwill resulting from acquisitions — 331.3 331.3 Foreign currency translation and other 1.0 ( 16.5 ) ( 15.5 ) Balance as of September 30, 2021 $ 611.3 $ 470.8 $ 1,082.1 13 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) (5) Debt Debt for the Company consists of the following: September 30, 2021 December 31, 2020 (in millions, except percentages) Amount Rate Amount Rate Maturity Date 2019 Credit Agreement: Term A Facility $ 684.1 (1) $ 409.1 (2) October 16, 2024 Revolver — (1) — (2) October 16, 2024 2031 Senior Notes 800.0 3.875 % — N/A October 15, 2031 2029 Senior Notes 800.0 4.000 % — N/A April 15, 2029 2026 Senior Notes — N/A 600.0 5.500 % June 15, 2026 2023 Senior Notes — N/A 250.0 5.625 % October 15, 2023 Securitized debt — (3) 33.9 (4) April 6, 2023 Finance lease obligations (5) 74.5 71.4 Various Other 3.1 5.9 Various Total debt 2,361.7 1,370.3 Less: Deferred financing costs 22.9 3.4 Total debt, net 2,338.8 1,366.9 Less: Current portion 53.0 43.9 Total long-term debt, net $ 2,285.8 $ 1,323.0 (1) Interest at LIBOR plus applicable margin of 1.250 % as of September 30, 2021. (2) Interest at LIBOR plus applicable margin of 1.250 % as of December 31, 2020. (3) Interest at one month LIBOR index plus 70 basis points. (4) Interest at one month LIBOR index plus 80 basis points. (5) New finance lease obligations are a non-cash financing activity. Refer to Note 6, "Leases". As of September 30, 2021, the Company was in compliance with all applicable debt covenants. 2019 Credit Agreement On October 16, 2019, the Company entered into the 2019 Credit Agreement with a syndicate of banks. The 2019 Credit Agreement provides for a $ 425.0 million revolving credit facility, a $ 425.0 million term loan facility, and an incremental facility in an aggregate amount of up to $ 550.0 million plus the amount of certain prepayments plus an additional unlimited amount subject to compliance with a maximum consolidated secured leverage ratio test. The 2019 Credit Agreement has a $ 60.0 million sub-facility for the issuance of letters of credit. On February 2, 2021, the Company entered into an amendment to the 2019 Credit Agreement. The amendment increased the revolving credit facility from $ 425.0 million to $ 725.0 million. As of September 30, 2021, total availability under the revolving credit facility was $ 724.9 million after 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. 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. The delayed draw term loan has the same terms and conditions as the Company's existing term loans under the 2019 Credit Agreement. On September 21, 2021, the Company entered into an additional amendment to the 2019 Credit Agreement to remove the limit to the amount of netted cash that may be deducted from indebtedness for purposes of calculating certain leverage ratios. 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"). 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 September 30, 2021, total availability under the Accounts Receivable Securitization was $ 169.1 million. 2031 Senior Notes On September 24, 2021, Tempur Sealy International issued $ 800.0 million in aggregate principal amount of 3.875 % senior notes due 2031 (the "2031 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2031 Senior Notes were issued pursuant to an indenture, dated as of September 24, 2021 (the "2031 Indenture"), among Tempur Sealy International, certain subsidiaries of Tempur Sealy International as guarantors (the "Guarantors"), and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2031 Senior Notes are general unsecured senior obligations of Tempur Sealy International and are guaranteed on a senior unsecured basis by the Guarantors. The 2031 Senior Notes mature on October 15, 2031, and interest is payable semi-annually in arrears on each April 15 and October 15, beginning on April 15, 2022. Tempur Sealy International has the option to redeem all or a portion of the 2031 Senior Notes at any time on or after October 15, 2026. The initial redemption price is 101.938 % of the principal amount, plus accrued and unpaid interest, if any. The redemption price will decline each year after 2026 until it becomes 100.0 % of the principal amount beginning on October 15, 2029. In addition, Tempur Sealy International has the option at any time prior to October 15, 2026 to redeem some or all of the 2031 Senior Notes at 100.0 % of the original principal amount plus a “make-whole” premium and accrued and unpaid interest, if any. Tempur Sealy International may also redeem up to 40.0 % of the 2031 Senior Notes prior to October 15, 2024, under certain circumstances with the net cash proceeds from certain equity offerings, at 103.875 % of the principal amount plus accrued and unpaid interest, if any. 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 2031 Senior Notes issued remains outstanding. The 2031 Indenture restricts the ability of Tempur Sealy International and the ability of certain of its subsidiaries to, among other things: (i) incur, directly or indirectly, debt; (ii) make, directly or indirectly, certain investments and restricted payments; (iii) incur or suffer to exist, directly or indirectly, liens on its properties or assets; (iv) sell or otherwise dispose of, directly or indirectly, assets; (v) create or otherwise cause or suffer to exist any consensual restriction on the right of certain of the subsidiaries of Tempur Sealy International to pay dividends or make any other distributions on or in respect of their capital stock; and (vi) enter into transactions with affiliates. These covenants are subject to a number of exceptions and qualifications. As a result of the issuance of the 2031 Senior Notes, $ 11.4 million of deferred financing costs were capitalized in the third quarter of 2021 and will be amortized as interest expense over the respective debt instrument period, 10 years, using the effective interest method. 2029 Senior Notes On March 25, 2021, Tempur Sealy International issued $ 800.0 million in aggregate principal amount of 4.00 % senior notes due 2029 (the "2029 Senior Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A of the Securities Act, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2029 Senior Notes were issued pursuant to an indenture, dated as of March 25, 2021 (the "2029 Indenture"), among Tempur Sealy International, the Guarantors, and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2029 Senior Notes are general unsecured senior obligations of Tempur Sealy International and are guaranteed on a senior unsecured basis by the Guarantors. The 2029 Senior Notes mature on April 15, 2029, and interest is payable semi-annually in arrears on each April 15 and October 15, beginning on October 15, 2021. Tempur Sealy International has the option to redeem all or a portion of the 2029 Senior Notes at any time on or after April 15, 2024. The initial redemption price is 102.00 % of the principal amount, plus accrued and unpaid interest, if any. The redemption price will decline each year after 2024 until it becomes 100.0 % of the principal amount beginning on April 15, 2026. In addition, Tempur Sealy International has the option at any time prior to April 15, 2024 to redeem some or all of the 2029 Senior Notes at 100.0 % of the original principal amount plus a “make-whole” premium and accrued and unpaid interest, if any. Tempur Sealy International may also redeem up to 40.0 % of the 2029 Senior Notes prior to April 15, 2024, under certain circumstances with the net cash proceeds from certain equity offerings, at 104.00 % of the principal amount plus accrued and unpaid interest, if any. 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. The 2029 Indenture restricts the ability of Tempur Sealy International and the ability of certain of its subsidiaries to, among other things: (i) incur, directly or indirectly, debt; (ii) make, directly or indirectly, certain investments and restricted payments; (iii) incur or suffer to exist, directly or indirectly, liens on its properties or assets; (iv) sell or otherwise dispose of, directly or indirectly, assets; (v) create or otherwise cause or suffer to exist any consensual restriction on the right of certain of the subsidiaries of Tempur Sealy International to pay dividends or make any other distributions on or in respect of their capital stock; and (vi) enter into transactions with affiliates. These covenants are subject to a number of exceptions and qualifications. As a result of the issuance of the 2029 Senior Notes, $ 11.4 million of deferred financing costs were capitalized in the first quarter of 2021 and will be amortized as interest expense over the respective debt instrument period, 8 years, using the effective interest method. 2026 Senior Notes 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 On November 9, 2020, the Company redeemed the first $ 200.0 million of the issued and outstanding 2023 Senior Notes at 101.406 % of the principal amount, plus the accrued and unpaid interest. 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 unamortized deferred financing costs, associated with the redemption of the remaining amount outstanding of the 2023 Senior Notes. Fair Value of Financial Instruments Financial instruments, although not recorded at fair value on a recurring basis, include cash and cash equivalents, accounts receivable, accounts payable and the Company's debt obligations. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term maturity of those instruments. Borrowings under the 2019 Credit Agreement and the securitized debt are at variable interest rates and accordingly their carrying amounts approximate fair value. The fair value of the following material financial instruments were based on observable inputs estimated using discounted cash flows and market-based expectations for interest rates, credit risk and the contractual terms of debt instruments. The fair values of these material financial instruments are as follows: Fair Value (in millions) September 30, 2021 December 31, 2020 2023 Senior Notes $ — $ 255.1 2026 Senior Notes — 625.4 2029 Senior Notes 825.4 — 2031 Senior Notes 803.0 — 14 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) (6) Leases 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, 2021 and December 31, 2020: (in millions) September 30, 2021 December 31, 2020 Assets Operating lease assets Operating lease right-of-use assets $ 464.5 $ 304.3 Finance lease assets Property, plant and equipment, net 64.2 61.2 Total leased assets $ 528.7 $ 365.5 Liabilities Short-term: Operating lease obligations Accrued expenses and other current liabilities $ 98.2 $ 61.0 Finance lease obligations Current portion of long-term debt 13.6 11.4 Long-term: Operating lease obligations Long-term operating lease obligations 413.5 275.1 Finance lease obligations Long-term debt, net 60.9 60.0 Total lease obligations $ 586.2 $ 407.5 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, 2021 and 2020: Three Months Ended Nine Months Ended September 30, September 30, (in millions) 2021 2020 2021 2020 Operating lease expense: Operating lease expense $ 27.6 $ 19.1 $ 68.4 $ 55.8 Short-term lease expense 3.2 2.6 9.9 8.3 Variable lease expense 7.3 6.0 20.0 15.7 Finance lease expense: Amortization of right-of-use assets 3.3 2.5 9.2 6.9 Interest on lease obligations 1.1 1.2 3.3 3.5 Total lease expense $ 42.5 $ 31.4 $ 110.8 $ 90.2 The following table sets forth the scheduled maturities of lease obligations as of September 30, 2021: (in millions) Operating Leases Finance Leases Total Year Ended December 31, 2021 (excluding the nine months ended September 30, 2021) $ 29.1 $ 4.6 $ 33.7 2022 112.9 16.6 129.5 2023 99.2 13.4 112.6 2024 82.2 10.7 92.9 2025 66.9 8.9 75.8 Thereafter 193.9 36.6 230.5 Total lease payments 584.2 90.8 675.0 Less: Interest 72.5 16.3 88.8 Present value of lease obligations $ 511.7 $ 74.5 $ 586.2 15 Table of Contents 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, 2021: September 30, 2021 Weighted average remaining lease term (years): Operating leases 6.44 Finance leases 7.15 Weighted average discount rate: Operating leases 4.09 % Finance leases 5.35 % The following table provides supplemental information related to the Company's Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020: Nine Months Ended (in millions) September 30, 2021 September 30, 2020 Cash paid for amounts included in the measurement of lease obligations: Operating cash flows paid for operating leases (a) $ 59.4 $ 51.0 Operating cash flows paid for finance leases $ 3.4 $ 3.6 Financing cash flows paid for finance leases $ 9.5 $ 7.5 Right-of-use assets obtained in exchange for new operating lease obligations $ 65.5 $ 95.1 Right-of-use assets obtained in exchange for new finance lease obligations $ 6.6 $ 16.5 (a) Operating cash flows paid for operating leases are included within the change in other assets and liabilities within the Condensed Consolidated Statement of Cash Flows offset by non-cash right-of-use asset amortization and lease liability accretion. (7) Stockholders' Equity (a) Treasury Stock. 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 4.1 million, under the program, for approximately $ 190.0 million during the three months ended September 30, 2021. The Company did no t repurchase shares under the program during the three months ended September 30, 2020. The Company repurchased 14.1 million and 2.6 million shares, under the program, for approximately $ 551.4 million and $ 187.5 million during the nine months ended September 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 September 30, 2021, the Company had approximately $ 186.9 million remaining under its share repurchase authorization. On October 28, 2021, the Company announced that its Board of Directors authorized an increase to the share repurchase authorization bringing the total authorization to $ 600.0 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 and nine months ended September 30, 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 $ 0.3 million and $ 0.1 million in treasury stock acquired during the three months ended September 30, 2021 and 2020, respectively. The Company acquired approximately $ 14.4 million and $ 12.1 million in treasury stock to satisfy tax withholding obligations during the nine months ended September 30, 2021 and 2020, respectively. 16 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) (b) AOCL . AOCL consisted of the following: Three Months Ended Nine Months Ended September 30, September 30, (in millions) 2021 2020 2021 2020 Foreign Currency Translation Balance at beginning of period $ ( 62.7 ) $ ( 94.5 ) $ ( 58.6 ) $ ( 82.2 ) Other comprehensive loss: Foreign currency translation adjustments (1) ( 29.9 ) 12.1 ( 34.0 ) ( 0.2 ) Balance at end of period $ ( 92.6 ) $ ( 82.4 ) $ ( 92.6 ) $ ( 82.4 ) Pensions Balance at beginning of period $ ( 6.9 ) $ ( 5.5 ) $ ( 6.9 ) $ ( 5.5 ) Other comprehensive loss: Net change from period revaluations — — — 0.1 Tax expense (2) — — — ( 0.1 ) Total other comprehensive income before reclassifications, net of tax $ — $ — $ — $ — Net amount reclassified to earnings (1) — — — — Tax benefit (2) — — — — Total amount reclassified from accumulated other comprehensive loss, net of tax $ — $ — $ — $ — Total other comprehensive loss — — — — Balance at end of period $ ( 6.9 ) $ ( 5.5 ) $ ( 6.9 ) $ ( 5.5 ) (1) In 2021 and 2020, there were no tax impacts related to foreign currency translation adjustments and no amounts were reclassified to earnings. (2) These amounts were included in the income tax provision in the accompanying Condensed Consolidated Statements of Income. (8) Other Items Accrued expenses and other current liabilities Accrued expenses and other current liabilities consisted of the following: (in millions) September 30, 2021 December 31, 2020 Wages and benefits $ 101.1 $ 102.5 Operating lease obligations 98.2 61.0 Advertising 79.5 74.4 Taxes 26.7 150.4 Other 297.2 196.8 $ 602.7 $ 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. 17 Table of Contents 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 and nine months ended September 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 September 30, Nine Months Ended September 30, (in millions) 2021 2020 2021 2020 PRSU expense $ 10.3 $ 65.0 $ 29.6 $ 66.2 Option expense 0.4 1.3 1.2 3.7 RSU/DSU expense 5.4 5.5 15.5 16.7 Total stock-based compensation expense $ 16.1 $ 71.8 $ 46.3 $ 86.6 The Company grants PRSUs to executive officers and certain members of management. Actual payout under the PRSUs is dependent upon the achievement of certain financial goals. 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 and nine months ended September 30, 2021, as it was probable that the Company would achieve the specified performance target for the performance period. (10) Commitments and Contingencies The Company is involved in various legal and administrative proceedings incidental to the operations of its business. The Company believes that the outcome of all such pending proceedings in the aggregate will not have a material adverse effect on its business, financial condition, liquidity or operating results. (11) Income Taxes The Company's effective tax rate for the three months ended September 30, 2021 and 2020 was 24.9 % and 25.2 %, respectively. The Company's effective tax rate for the nine months ended September 30, 2021 and 2020 was 24.3 % and 26.5 %. The Company's effective tax rate for the three and nine months ended September 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. As discussed in Note 3, "Acquisitions," the goodwill and indefinite-lived intangible asset recognized as part of the Dreams acquisition is not deductible for income tax purposes. The Company has been involved in a dispute with the Danish Tax Authority ("SKAT") regarding the royalty paid by a U.S. subsidiary of Tempur Sealy International to a Danish subsidiary (the "Danish Tax Matter") for tax years 2001 through current. The royalty is paid by the U.S. subsidiary for the right to utilize certain intangible assets owned by the Danish subsidiary in the U.S. production process. 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: 18 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) September 30, 2021 December 31, 2020 Period Balance Sheet Presentation DKK USD DKK USD Settlement Years Accrued expenses and other current liabilities — $ — 847.3 $ 139.1 2012 to Current Period Other non-current liabilities 312.4 48.6 295.0 48.4 Total 312.4 $ 48.6 1,142.3 $ 187.5 The deferred tax asset for the U.S. correlative benefit associated with the accrual of Danish tax for the 2012 to Current Period at September 30, 2021 and December 31, 2020 is approximately $ 12.7 million and $ 12.0 million, respectively. During the three months ended September 30, 2021, the Company made a tax deposit with SKAT of DKK 97.2 million (approximately $ 15.1 million) applicable to a tax assessment by SKAT for the year 2015. The Company is contesting this assessment (as well as assessments made by SKAT in 2020 for the years 2012 through 2014 for which the Company made deposits totaling approximately DKK 210.8 million (approximately $ 32.9 million) to SKAT). The Company has other taxes on deposit with SKAT of approximately DKK 9.8 million (approximately $ 1.5 million). At September 30, 2021 and December 31, 2020, respectively, the Company held cash on deposit with SKAT. The deposit at September 30, 2021 and December 31, 2020 is included within the Company's Condensed Consolidated Balance Sheet as per below: September 30, 2021 December 31, 2020 DKK USD DKK USD Prepaid expenses and other current assets — $ — 847.3 $ 139.1 Other non-current assets 317.8 49.5 333.6 54.8 Total 317.8 $ 49.5 1,180.9 $ 193.9 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 or nine months ended September 30, 2021. 19 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) (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 Nine Months Ended September 30, September 30, (in millions, except per common share amounts) 2021 2020 2021 2020 Numerator: Income from continuing operations, net of income (loss) attributable to non-controlling interests $ 177.5 $ 119.0 $ 449.3 $ 202.8 Denominator: Denominator for basic earnings per common share-weighted average shares 195.8 206.4 198.9 208.8 Effect of dilutive securities 7.6 5.2 7.0 2.8 Denominator for diluted earnings per common share-adjusted weighted average shares 203.4 211.6 205.9 211.6 Basic earnings per common share for continuing operations $ 0.91 $ 0.58 $ 2.26 $ 0.97 Diluted earnings per common share for continuing operations $ 0.87 $ 0.56 $ 2.18 $ 0.96 The Company excluded an immaterial number of shares 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 for the three and nine months ended September 30, 2021. The Company excluded an immaterial number of shares and 0.5 million shares for the three and nine months ended September 30, 2020, 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. (13) Business Segment Information The Company operates in two segments: North America and International. These segments are strategic business units that are managed separately based on geography. The North America segment consists of Tempur and Sealy manufacturing and distribution subsidiaries, joint ventures and licensees located in the U.S., Canada and Mexico. The International segment consists of Tempur manufacturing and distribution subsidiaries, Sealy distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico). On August 2, 2021, the Company acquired Dreams, which is included in the International segment. Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results. The Company evaluates segment performance based on net sales, gross profit and operating income. The Company's North America and International segment assets include investments in subsidiaries that are appropriately eliminated in the Company's accompanying Condensed Consolidated Financial Statements. The remaining inter-segment eliminations are comprised of intercompany accounts receivable and payable. The following table summarizes total assets by segment: (in millions) September 30, 2021 December 31, 2020 North America $ 4,258.2 $ 3,740.3 International 1,257.8 639.8 Corporate 860.4 490.3 Inter-segment eliminations ( 1,909.1 ) ( 1,561.8 ) Total assets $ 4,467.3 $ 3,308.6 20 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) The following table summarizes property, plant and equipment, net, by segment: (in millions) September 30, 2021 December 31, 2020 North America $ 432.5 $ 415.3 International 75.0 49.8 Corporate 49.1 42.8 Total property, plant and equipment, net $ 556.6 $ 507.9 The following table summarizes operating lease right-of-use assets by segment: (in millions) September 30, 2021 December 31, 2020 North America $ 277.9 $ 256.6 International 185.2 45.7 Corporate 1.4 2.0 Total operating lease right-of-use assets $ 464.5 $ 304.3 The following table summarizes segment information for the three months ended September 30, 2021: (in millions) North America International Corporate Eliminations Consolidated Net sales $ 1,120.0 $ 238.3 $ — $ — $ 1,358.3 Inter-segment sales $ 0.3 $ 0.6 $ — $ ( 0.9 ) $ — Inter-segment royalty expense (income) 2.1 ( 2.1 ) — — — Gross profit 447.1 130.0 — — 577.1 Operating income (loss) 237.0 50.3 ( 37.5 ) — 249.8 Income (loss) from continuing operations before income taxes 235.7 50.0 ( 49.5 ) — 236.2 Depreciation and amortization (1) $ 22.2 $ 4.9 $ 18.0 $ — $ 45.1 Capital expenditures 21.3 4.1 4.1 — 29.5 (1) Depreciation and amortization includes stock-based compensation amortization expense. The following table summarizes segment information for the three months ended September 30, 2020: (in millions) North America International Corporate Eliminations Consolidated Net sales $ 994.7 $ 137.6 $ — $ — $ 1,132.3 Inter-segment sales $ 0.2 $ 0.3 $ — $ ( 0.5 ) $ — Inter-segment royalty expense (income) 3.3 ( 3.3 ) — — — Gross profit 445.0 85.2 — — 530.2 Operating income (loss) 235.1 41.2 ( 96.1 ) — 180.2 Income (loss) from continuing operations before income taxes 233.7 40.3 ( 114.3 ) — 159.7 Depreciation and amortization (1) $ 19.7 $ 3.5 $ 73.6 $ — $ 96.8 Capital expenditures 20.4 1.8 2.0 — 24.2 (1) Depreciation and amortization includes stock-based compensation amortization expense. 21 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) The following table summarizes segment information for the nine months ended September 30, 2021: (in millions) North America International Corporate Eliminations Consolidated Net sales $ 3,017.1 $ 554.1 $ — $ — $ 3,571.2 Inter-segment sales $ 1.5 $ 0.9 $ — $ ( 2.4 ) $ — Inter-segment royalty expense (income) 6.5 ( 6.5 ) — — — Gross profit 1,236.4 317.8 — — 1,554.2 Operating income (loss) 627.8 139.9 ( 106.2 ) — 661.5 Income (loss) from continuing operations before income taxes 625.0 138.9 ( 170.9 ) — 593.0 Depreciation and amortization (1) $ 64.9 $ 12.0 $ 51.9 $ — $ 128.8 Capital expenditures 62.4 8.7 11.0 — 82.1 (1) Depreciation and amortization includes stock-based compensation amortization expense. The following table summarizes segment information for the nine months ended September 30, 2020: (in millions) North America International Corporate Eliminations Consolidated Net sales $ 2,265.6 $ 354.3 $ — $ — $ 2,619.9 Inter-segment sales $ 0.7 $ 0.5 $ — $ ( 1.2 ) $ — Inter-segment royalty expense (income) 6.5 ( 6.5 ) — — — Gross profit 944.6 208.6 — — 1,153.2 Operating income (loss) 404.4 78.9 ( 144.4 ) — 338.9 Income (loss) from continuing operations before income taxes 400.1 73.6 ( 197.0 ) — 276.7 Depreciation and amortization (1) $ 56.2 $ 9.9 $ 93.0 $ — $ 159.1 Capital expenditures 60.3 6.8 6.5 — 73.6 (1) Depreciation and amortization includes stock-based compensation amortization expense. The following table summarizes property, plant and equipment, net by geographic region: (in millions) September 30, 2021 December 31, 2020 United States $ 461.2 $ 436.2 All Other 95.4 71.7 Total property, plant and equipment, net $ 556.6 $ 507.9 The following table summarizes operating lease right-of-use assets by geographic region: (in millions) September 30, 2021 December 31, 2020 United States $ 276.4 $ 255.0 All Other 188.1 49.3 Total operating lease right-of-use assets $ 464.5 $ 304.3 22 Table of Contents TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued) The following table summarizes net sales by geographic region: Three Months Ended Nine Months Ended September 30, September 30, (in millions) 2021 2020 2021 2020 United States $ 1,018.8 $ 904.3 $ 2,783.6 $ 2,078.8 All Other 339.5 228.0 787.6 541.1 Total net sales $ 1,358.3 $ 1,132.3 $ 3,571.2 $ 2,619.9 23 Table of Contents