What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-17 compared with 2022-02-22 · 219 added, 232 removed, 1201 unchanged (27% of the section changed)

5 unchanged sentences

Consolidated Balance Sheets as of December 31, 202 2 and 202 1

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders' (Deficit) Equity for the years ended December 31, 202 2 , 202 1 and 20 20

Consolidated Statements of Cash Flows for the years ended December 31, 202 2 , 202 1 and 20 20

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Tempur Sealy International, Inc.

and Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the "consolidated financial statements").

and Subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders' (deficit) equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

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and Danish income tax implications of such outcomes.

Auditing the measurement of the liability for the Danish Tax Matter uncertain tax position was complex and highly judgmental due to the significant judgment to measure the largest amount of benefit that is more likely than not to be realized upon ultimate settlement.

Auditing the measurement of the liability for the Danish Tax Matter uncertain tax position and the indirect tax impacts was complex and highly judgmental due to the significant judgment to measure the largest amount of benefit that is more likely than not to be realized upon ultimate settlement.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to measure the liability for the Danish Tax Matter uncertain tax position.

For example, we tested management's review of inputs and calculations of the liability for the Danish Tax Matter uncertain tax position.

To test the Company’s measurement of the liability for the Danish Tax Matter uncertain tax position, we involved our tax professionals to evaluate the transfer pricing conclusions reached by the Company.

For example, we compared the transfer pricing methodology utilized by management to alternative methodologies.

For example, we tested management's review of inputs and calculations of the liability for the Danish Tax Matter uncertain tax position and the indirect tax impacts.

To test the Company’s measurement of the liability for the Danish Tax Matter uncertain tax position and the indirect tax impacts, we involved our international tax professionals to evaluate the conclusions reached by the Company.

For example, we compared the methodology utilized by management to alternative methodologies.

We also reviewed the Company’s correspondence with the relevant tax authorities and any third-party professional and legal advice obtained by the Company.

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Loss on extinguishment of debt — 23.0 5.1

Other income, net ( 1.0 ) ( 2.4 ) ( 4.5 )

Other expense (income), net 0.4 ( 1.0 ) ( 2.4 )

Total other expense, net 103.4 88.3 79.7

3 unchanged sentences

Loss from discontinued operations, net of tax ( 0.4 ) ( 0.7 ) —

Net income before non-controlling interests 625.0 349.8 189.4

Net income (loss) attributable to non-controlling interests 0.5 1.0 ( 0.1 )

Net income before non-controlling interest 457.8 625.0 349.8

Net income attributable to non-controlling interest 2.1 0.5 1.0

Net income attributable to Tempur Sealy International, Inc.

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2022 2021 2020

Net income before non-controlling interests $ 625.0 $ 349.8 $ 189.4

Net income before non-controlling interest $ 457.8 $ 625.0 $ 349.8

Other comprehensive (loss) income, net of tax:

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Comprehensive income 380.1 591.3 372.0

Comprehensive income (loss) attributable to non-controlling interests 0.5 1.0 ( 0.1 )

Comprehensive income attributable to non-controlling interest 2.1 0.5 1.0

Comprehensive income attributable to Tempur Sealy International, Inc.

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Total Assets $ 4,359.8 $ 4,323.4

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

Current Liabilities:

1 unchanged sentence

Accrued expenses and other current liabilities 432.7 456.8

Short-term operating lease obligations 105.5 101.7

Income taxes payable 12.8 9.9

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Redeemable non-controlling interest 9.8 9.2

Stockholders' Equity:

Stockholders' (Deficit) Equity:

Common stock, $ 0.01 par value, 500.0 million shares authorized;

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( 3,434.7 ) ( 2,844.7 )

Total stockholders' equity, net of non-controlling interests in subsidiaries 285.8 503.6

Non-controlling interests in subsidiaries — 1.0

Total Stockholders' Equity 285.8 504.6

Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity $ 4,323.4 $ 3,308.6

Total Stockholders' (Deficit) Equity ( 22.1 ) 285.8

Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' (Deficit) Equity $ 4,359.8 $ 4,323.4

The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(in millions)

Tempur Sealy International, Inc.

Stockholders' Equity

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

Stockholders' (Deficit) Equity

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

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

Balance, 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, net of tax ( 6.5 ) ( 6.5 )

Net income 348.8 348.8

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

Repurchase of interest in subsidiary ( 1.9 ) ( 1.9 )

Net income attributable to non-controlling interest 0.9 0.1 0.1

Acquisition of non-controlling interest in subsidiary 8.4 —

Dividend paid to non-controlling interest in subsidiary ( 0.4 ) —

Adjustment to pension liability, net of tax of $( 0.4 )

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Issuances of PRSUs, RSUs and DSUs ( 3.6 ) 58.2 ( 58.2 ) —

( 0.3 ) 3.7 ( 3.7 ) —

Treasury stock repurchased 6.5 ( 285.9 ) ( 285.9 )

Treasury stock repurchased - PRSU/RSU/DSU releases 1.4 ( 45.9 ) ( 45.9 )

0.1 ( 3.4 ) ( 3.4 )

Amortization of unearned stock-based compensation 104.5 104.5

Charitable stock donation ( 0.1 ) $ 1.4 7.5 8.9

Balance, 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 624.5 624.5

Net income attributable to non-controlling interests 0.3 0.2 0.2

Acquisition of non-controlling interest in subsidiary 8.4 —

Dividend paid to non-controlling interest in subsidiary ( 0.4 ) —

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

Adjustment to pension liability, net of tax of $ 0.9

( 1.4 ) ( 1.4 )

Foreign currency translation adjustments ( 36.6 ) ( 36.6 )

Exercise of stock options ( 0.5 ) 9.6 ( 2.7 ) 6.9

Issuances of PRSUs, RSUs, and DSUs

Dividends declared on common stock ($ 0.32 per share)

( 65.2 ) ( 65.2 )

Exercise of stock options ( 0.9 ) 25.9 ( 11.0 ) 14.9

Issuance of PRSUs, RSUs and DSUs ( 1.6 ) 42.5 ( 42.5 ) —

Treasury stock repurchased 19.5 ( 801.4 ) ( 801.4 )

Treasury stock repurchased - PRSU/RSU/DSU releases 0.5 ( 14.9 ) ( 14.9 )

1.4 ( 45.9 ) ( 45.9 )

Amortization of unearned stock-based compensation 61.4 61.4

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Net income attributable to non-controlling interests 2.1 —

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

Dividend paid to non-controlling interest in subsidiary ( 1.5 ) —

Adjustment to pension liability, net of tax of $ 0.8

Foreign currency translation adjustments ( 80.1 ) ( 80.1 )

Dividends declared on common stock ( 65.2 ) ( 65.2 )

Dividends declared on common stock ($ 0.40 per share)

( 72.1 ) ( 72.1 )

Exercise of stock options — 1.5 ( 1.0 ) 0.5

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The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.

TEMPUR SEALY INTERNATIONAL, INC.

T EMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:

Net income before non-controlling interests $ 625.0 $ 349.8 $ 189.4

Net income before non-controlling interest $ 457.8 $ 625.0 $ 349.8

Loss from discontinued operations, net of tax 0.4 0.7 —

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Bad debt expense 6.7 2.7 35.8

Charitable stock donation — — 8.9

Deferred income taxes ( 10.5 ) 11.1 ( 8.6 )

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Loss on extinguishment of debt — 3.0 2.3

Loss (gain) on sale of assets 0.5 ( 1.7 ) 1.0

Foreign currency adjustments and other 0.3 1.5 ( 2.2 )

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Accrued expenses and other liabilities ( 67.3 ) ( 113.8 ) 90.5

Income taxes, net ( 14.8 ) 11.2 2.5

Income taxes receivable and payable 1.5 ( 14.8 ) 11.2

Net cash provided by operating activities from continuing operations 378.8 723.1 654.7

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Repayments of finance lease obligations and other ( 16.2 ) ( 13.4 ) ( 11.9 )

Net cash provided by (used in) financing activities from continuing operations 76.5 ( 522.6 ) ( 203.2 )

Net cash provided by (used in) continuing operations 244.8 ( 14.5 ) 21.4

Net cash (used in) provided by financing activities from continuing operations ( 279.1 ) 76.5 ( 522.6 )

Net cash (used in) provided by continuing operations ( 215.6 ) 244.8 ( 14.5 )

Net operating cash flows (used in) provided by discontinued operations ( 0.3 ) ( 0.9 ) 0.3

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ( 15.4 ) ( 8.2 ) 14.3

Increase in cash and cash equivalents 235.7 0.1 19.1

(Decrease) increase in cash and cash equivalents ( 231.3 ) 235.7 0.1

CASH AND CASH EQUIVALENTS, beginning of period 300.7 65.0 64.9

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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.

Certain prior period amounts have been reclassified in the accompanying consolidated financial statements and notes thereto to conform to the current period presentation.

The Company designs, manufactures and distributes bedding products, which includes 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.

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

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 U.K.

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

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These amounts are not considered material to the Consolidated Financial Statements.

(e) Derivative Financial Instruments.

Derivative financial instruments are used in the normal course of business to manage interest rate and foreign currency exchange risks.

The financial instruments used by the Company are straight-forward, non-leveraged instruments.

The counterparties to these financial instruments are financial institutions with strong credit ratings.

The Company maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit ratings of these institutions.

For all transactions designated as hedges, the hedging relationships are formally documented at the inception and on an ongoing basis in offsetting changes in cash flows of the hedged transaction.

The Company records derivative financial instruments on the Consolidated Balance Sheets as either an asset or liability measured at its fair value.

The effectiveness of the cash flow hedge contracts, including time value, is assessed prospectively and retrospectively on a monthly basis using regression analysis, as well as other timing and probability criteria to test whether the hedge continues to be effective.

Changes in a derivative's fair value (i.e.

unrealized gains or losses) related to an effective hedge are deferred and recorded in the stockholders' equity section of the Consolidated Balance Sheets as a component of AOCL and subsequently recognized in the Consolidated Statements of Comprehensive Income when the hedged item affects net income.

The ineffective portion, if any, of the change in fair value of a hedge is recognized in income immediately in the same line item as the hedged risk.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For derivative instruments that are not designated as hedges, the gain or loss related to the change in fair value (i.e.

unrealized gains or losses) is also recorded in net income immediately in the same line item as the hedged risk.

The Company's derivative instruments are limited to forward exchange contract assets and liabilities which were not designated as hedges as of December 31, 2021 and 2020 and were not material in any period presented.

(f) Cash and Cash Equivalents.

(e) Cash and Cash Equivalents.

Cash and cash equivalents consist of all highly liquid investments with initial maturities of three months or less.

The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of those instruments.

(g) Inventories.

(f) 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:

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$ 555.0 $ 463.9

(h) Property, Plant and Equipment.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(g) Property, Plant and Equipment.

Property, plant and equipment are carried at cost at acquisition date and are depreciated using the straight-line method over their estimated useful lives as follows:

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Depreciation expense, which includes depreciation expense for finance lease assets, for the Company was $ 111.4 million, $ 94.7 million and $ 80.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(i) Long-Lived Assets.

(h) Long-Lived Assets.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

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The Company did not identify any impairments for the years ended December 31, 2022, 2021 and 2020.

(j) Goodwill and Other Intangible Assets.

(i) Goodwill and Other Intangible Assets.

Intangible assets with finite useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate impairment may have occurred.

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This assessment may be performed quantitatively or qualitatively.

In conducting the impairment test for the North America, International and Dreams reporting units, the fair value of each of the Company's reporting units is compared to its respective carrying amount including goodwill.

In conducting the impairment test for the North America, International and Dreams reporting units, the fair value of each is compared to its respective carrying amount including goodwill.

If the fair value exceeds the carrying amount, then no impairment exists.

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However, the loss recognized cannot exceed the carrying amount of goodwill.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Using the quantitative approach, the Company makes various estimates and assumptions in determining the estimated fair value of each reporting unit using a combination of discounted cash flow models and valuations based on earnings multiples for guideline public companies in each reporting unit’s industry peer group, when externally quoted market prices are not readily available.

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Significant assumptions inherent in the methodologies are employed and include such estimates as royalty and discount rates.

The Company performed its annual impairment test of goodwill and indefinite-lived intangible assets qualitatively in 2021 and quantitatively in 2020 and 2019, none of which resulted in the recognition of impairment charges.

The Company performed its annual impairment test of goodwill and indefinite-lived intangible assets qualitatively in 2022 and 2021 and quantitatively in 2020, none of which resulted in the recognition of impairment charges.

For further information on goodwill and other intangible assets, refer to Note 4, "Goodwill and Other Intangible Assets."

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(k) Accrued Sales Returns.

(j) Accrued Sales Returns.

The Company allows product returns through certain sales channels and on certain products.

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As of December 31, 2022 and 2021, $ 27.5 million and $ 33.7 million of accrued sales returns is included as a component of accrued expenses and other current liabilities and $ 13.0 million and $ 16.1 million of accrued sales returns is included in other non-current liabilities on the Company’s accompanying Consolidated Balance Sheets, respectively.

(l) Warranties.

(k) Warranties.

The Company provides warranties on certain products, which vary by segment, product and brand.

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

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company had the following activity for its accrued warranty expense from December 31, 2020 to December 31, 2022:

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As of December 31, 2022 and 2021, $ 17.8 million and $ 20.2 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $ 23.8 million and $ 23.7 million of accrued warranty expense is included in other non-current liabilities on the Company’s accompanying Consolidated Balance Sheets, respectively.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(m) Allowance for Credit Losses.

(l) Allowance for Credit Losses.

The allowance for credit losses is the Company's best estimate of the amount of estimated lifetime credit losses in the Company's accounts receivable.

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Balance as of December 31, 2020

ASU 2016-13 adoption impact (before tax) 8.9

Balance as of January 1, 2020 80.8

Amounts accrued 2.7

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Balance as of December 31, 2022

(n) Fair Value .

(m) Fair Value .

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.

Borrowings under the 2019 Credit Agreement (as defined in Note 6, "Debt") 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 Level 2 inputs, which include 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:

(in millions) December 31, 2022 December 31, 2021

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2031 Senior Notes 627.1 803.7

2029 Senior Notes 816.9 —

2031 Senior Notes 803.7 —

(o) Income Taxes.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(n) Income Taxes.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

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Interest and penalties related to uncertain tax positions are recognized as part of the income tax provision and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law and until such time that the related tax benefits are recognized.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(p) Cost of Sales .

(o) Cost of Sales .

Costs associated with net sales are recorded in cost of sales.

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For additional information, please refer to Note 2, "Net Sales." Royalty expense is not material to the Company's Consolidated Statements of Income.

(q) Cooperative Advertising, Rebate and Other Promotional Programs.

(p) Cooperative Advertising, Rebate and Other Promotional Programs.

The Company enters into programs with customers to provide funds for advertising and promotions.

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Certain cooperative advertising expenses are reported as components of selling and marketing expenses in the accompanying Consolidated Statements of Income because the Company receives an identifiable benefit and the fair value of the advertising benefit can be reasonably estimated.

(r) Advertising Costs.

(q) Advertising Costs.

The Company expenses advertising costs as incurred except for production costs and advance payments, which are deferred and expensed when advertisements run for the first time.

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Advertising costs deferred and included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets were $ 12.4 million and $ 9.0 million as of December 31, 2022 and 2021, respectively.

(s) Research and Development Expenses.

(r) Research and Development Expenses.

Research and development expenses for new products are expensed as they are incurred and are included in general, administrative and other expenses in the accompanying Consolidated Statements of Income.

Research and development costs charged to expense were $ 29.2 million, $ 27.3 million and $ 23.1 million for the years ended December 31, 2022, 2021 and 2020, respectively.

(t) Stock-based Compensation.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(s) Stock-based Compensation.

The Company accounts for stock-based payment transactions in which the Company receives employee services in exchange for equity instruments of the Company.

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The Company recognizes stock-based compensation cost associated with its PRSUs over the requisite service period if it is probable that the performance conditions will be satisfied.

The Company evaluates its awards, including modifications, and will adjust the fair value if any are determined to be spring-loaded.

The Company recognizes forfeitures of awards as they occur.

Further information regarding stock-based compensation can be found in Note 11, "Stock-based Compensation."

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(u) Treasury Stock.

(t) Treasury Stock.

Subject to Delaware law, and the limitations in the 2019 Credit Agreement (as defined in Note 6, "Debt") and the Company's other debt agreements, the Board of Directors may authorize share repurchases of the Company’s common stock.

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Please refer to Note 9, "Stockholders' Equity", for additional information.

(v) Pension Obligations.

(u) Pension Obligations.

The Company has a noncontributory, defined benefit pension plan covering current and former hourly employees at two of its active Sealy plants and ten previously-closed Sealy U.S.

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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 years ended December 31.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Twelve Months Ended December 31, 2022

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Net sales $ 3,886.1 $ 1,035.1 $ 4,921.2

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Twelve Months Ended December 31, 2021

12 unchanged sentences

Net sales $ 4,079.2 $ 851.6 $ 4,930.8

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Twelve Months Ended December 31, 2020

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Other products include pillows, mattress covers, sheets, cushions and various other comfort products.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Wholesale channel also includes income from royalties derived by licensing Sealy®, Stearns & Foster® and Tempur® brands, technology and trademarks to other manufacturers.

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Royalty income was $ 31.8 million, $ 29.1 million and $ 21.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

For product sales in each of the Company's channels, the Company recognizes a sale when the obligations under the terms of the contract with the customer are satisfied, which is generally when control of the product has transferred to the customer.

For product sales in each of the Company's channels, the Company recognizes a sale when the performance obligations under the terms of the contract with the customer are satisfied, which is generally when control of the product has transferred to the customer.

Transferring control of each product sold is considered a separate performance obligation.

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As such, the Company does not adjust its consideration for financing arrangements.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In certain jurisdictions, the Company is subject to certain non-income taxes including, but not limited to, sales tax, value added tax, excise tax and other taxes.

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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.

Dreams has developed a successful multi-channel sales strategy, with over 200 brick and mortar retail locations in the U.K., 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 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 determine the fair value of acquired assets and liabilities.

The components of the preliminary purchase price allocation are as follows:

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The final allocation of the purchase price is based on the fair values of the assets acquired and liabilities assumed as of August 2, 2021, which included the following:

(in millions)

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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 $ 39.1 million, which included $ 1.2 million of cash acquired.

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.

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

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

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

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

The Company accounted for this transaction as a business combination.

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

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

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.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(4) Goodwill and Other Intangible Assets

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Balance as of December 31, 2021 $ 611.5 $ 495.9 $ 1,107.4

Goodwill resulting from acquisition — 357.1 357.1

Foreign currency translation adjustments and other ( 4.2 ) ( 40.9 ) ( 45.1 )

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The Company’s ownership interest in each of these joint ventures is 50.0 % and is accounted for under the equity method.

The Company’s investment of $ 22.8 million and $ 27.0 million at December 31, 2022 and 2021, respectively, is recorded in other non-current assets in the accompanying Consolidated Balance Sheets.

11 unchanged sentences

Revolver 337.0 (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

2031 Senior Notes 800.0 3.875 % 800.0 3.875 % October 15, 2031

2029 Senior Notes 800.0 4.000 % 800.0 4.000 % April 15, 2029

Securitized debt 139.3 (3) — (3) April 6, 2023

10 unchanged sentences

(3) Interest at one month LIBOR index plus 70 basis points.

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

(4) Finance lease obligations are a non-cash financing activity.

3 unchanged sentences

The 2019 Credit Agreement replaced the Company's 2016 Credit Agreement.

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 provided 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.

2 unchanged sentences

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.

The amendment provided 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.

Total availability under the revolving facility was $ 724.3 million, after a $ 0.7 million reduction for outstanding letters of credit, as of December 31, 2021.

The delayed draw term loan had 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.

The Company had $ 337.0 million in outstanding borrowings under the revolving credit facility as of December 31, 2022.

Total availability under the revolving facility was $ 387.4 million, after a $ 0.6 million reduction for outstanding letters of credit, as of December 31, 2022.

Borrowings under the 2019 Credit Agreement will generally bear interest, at the election of Tempur Sealy International and the other subsidiary borrowers, at either Base Rate or LIBOR plus the applicable margin.

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Securitized Debt

On April 12, 2017, the Company and certain of its subsidiaries entered into a securitization transaction with respect to certain accounts receivable due to the Company and certain of its subsidiaries (as amended the "Accounts Receivable Securitization").

In connection with this transaction, Tempur Sealy International and its wholly-owned special purpose subsidiary, Tempur Sealy Receivables, LLC, entered into a credit agreement that provides for revolving loans to be made from time to time in a maximum amount that varies over the course of the year based on the seasonality of the Company's accounts receivable and is subject to an overall limit of $ 120.0 million.

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.

1 unchanged sentence

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 December 31, 2021, total availability under the Accounts Receivable Securitization was $ 160.0 million.

The Company is in the process of refinancing this facility.

Borrowings under this facility are classified as long-term debt within the Consolidated Balance Sheets at December 31, 2022, based on the Company's ability and intent to refinance on a long-term basis.

The Company had $ 139.3 million in outstanding borrowings under the Accounts Receivable Securitization as of December 31, 2022.

Total availability under the Accounts Receivable Securitization was $ 8.0 million as of December 31, 2022.

The obligations of the Company and its relevant subsidiaries under the Accounts Receivable Securitization are secured by the accounts receivable and certain related rights and the facility agreements contain customary events of default.

40 unchanged sentences

These covenants are subject to a number of exceptions and qualifications.

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 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.

Deferred Financing Costs

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Upon the prepayment of the related debt, the Company accelerates the recognition of an appropriate amount of the costs.

As a result of the issuance of the 2031 Senior Notes, $ 11.4 million of deferred financing costs were capitalized in 2021 and will be amortized as interest expense over the respective debt instrument period, 10 years, using the effective interest method.

As a result of the issuance of the 2029 Senior Notes, $ 11.4 million of deferred financing costs were capitalized in 2021 and will be amortized as interest expense over the respective debt instrument period, 8 years, using the effective interest method.

Future Obligations

2 unchanged sentences

Thereafter 1,634.1

Total $ 2,278.0

(1) Total future obligations excludes $ 27.4 million of outstanding letters of credit issued by various financial institutions, including $ 0.6 million associated with the 2019 Credit Facility.

TEMPUR SEALY INTERNATIONAL, INC.

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Total leased assets $ 574.9 $ 545.4

Operating lease obligations Accrued expenses and other current liabilities $ 101.7 $ 61.0

Operating lease obligations Short-term operating lease obligations $ 105.5 $ 101.7

Finance lease obligations Current portion of long-term debt 13.1 13.7

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(4) The Company represented more than 5.0 % of the total contributions for the most recent plan year available.

For year ended December 31, 2019, the Company contributed $ 1.1 million to the plan.

(9) Stockholders' Equity

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The Company repurchased 18.6 million shares, 19.5 million shares and 6.5 million shares under the program, for approximately $ 621.2 million, $ 801.4 million and $ 285.9 million during the years ended December 31, 2022, 2021 and 2020, respectively.

Subsequent to year-end, the Company repurchased an additional 7.7 million shares for approximately $ 305.0 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 the years ended December 31, 2022, 2021 and 2020, respectively.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In the fourth quarter of 2019, the Company recorded an $ 8.9 million charge, recorded in General, administrative and other expenses, related to the donation of 100,000 shares of its common stock at fair market value to certain public charities.

AOCL consisted of the following:

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(2) These amounts were included in the income tax provision in the accompanying Consolidated Statements of Income.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(10) Other Items

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

1 unchanged sentence

Wages and benefits

Operating leases obligations 101.7 61.0

$ 78.0 $ 112.2

Taxes 52.1 15.0

Unearned revenue 48.5 51.5

$ 432.7 $ 456.8

4 unchanged sentences

The Company believes that awards and purchases made under these plans better align the interests of the plan participants with those of its stockholders.

On May 11, 2017, the Company's stockholders approved the amendment and restatement of the original 2013 Plan.

On May 5, 2022, the Company's stockholders approved the amendment and restatement of the 2013 Plan, which had been previously amended and restated on May 11, 2017.

The 2013 Plan provides for grants of stock options to purchase shares of common stock to employees and directors of the Company.

2 unchanged sentences

Tempur Sealy International may issue a maximum of 44.7 million shares of common stock under the 2013 Plan, subject to certain adjustment provisions.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Amended and Restated 2003 Equity Incentive Plan, as amended (the "2003 Plan"), was administered by the Compensation Committee of the Board of Directors, which, together with the Board of Directors, had the exclusive authority to administer the 2003 Plan, including the power to determine eligibility to receive awards, the types and number of shares of stock subject to the awards, the price and timing of awards and the acceleration or waiver of any vesting and performance of forfeiture restrictions, in each case subject to the terms of the 2003 Plan.

6 unchanged sentences

Shares with respect to the PRSUs will be granted and vest following the end of the applicable performance period and achievement of applicable performance metrics, market and environmental, social and corporate governance ("ESG") conditions as determined by the Compensation Committee of the Board of Directors.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company's stock-based compensation expense for the year ended December 31, 2022, 2021 and 2020 included PRSUs, stock options, RSUs and DSUs.

7 unchanged sentences

Performance Restricted Stock Units

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

The Company granted PRSUs during the years ended December 31, 2022, 2021 and 2020.

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

A summary of the Company's PRSU activity and related information for the years ended December 31, 2022 and 2021 is presented below:

2 unchanged sentences

Granted 0.5 28.92

Performance adjustments (1)

Vested ( 0.1 ) 15.07

2 unchanged sentences

Granted 0.3 51.38

Performance adjustments (1)

Vested ( 1.3 ) 21.38

1 unchanged sentence

Awards unvested at December 31, 2022

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

The Company granted PRSUs during the years ended December 31, 2021, 2020 and 2019.

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

During the first quarter of 2021, the Company granted 0.5 million PRSUs at target at a weighted average grant date fair value of $ 28.92 per share with a performance period of January 1, 2021 through December 31, 2021 as a component of the long-term incentive plan ("2021 PRSUs").

For the year ended December 31, 2021, the Company recognized stock-based compensation expense related to the 2021 PRSUs, as the Company achieved the maximum specified performance target for the performance period.

(1) Adjustments based on current attainment expectations of performance targets.

During the first quarter of 2022, the Company granted 0.3 million PRSUs at target at a weighted average grant date fair value of $ 51.38 per share with a performance period of January 1, 2022 through December 31, 2022 as a component of the long-term incentive plan ("2022 PRSUs").

For the year ended December 31, 2020, the Company recognized stock-based compensation expense related to the 2020 PRSUs, as the Company achieved the maximum specified performance target for the performance period.

During 2017, the Company granted executive officers and certain members of management PRSUs if the Company achieved a certain level of adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA") during four consecutive fiscal quarter period ending between (and including) March 31, 2020 and December 31, 2020 (the "Aspirational Plan PRSUs").

On November 16, 2020, the Compensation Committee of the Board of Directors determined that the maximum performance condition was achieved.

The Aspirational Plan PRSUs vested on December 15, 2020.

The Company recorded $ 49.4 million of stock-based compensation expense related to the Aspirational Plan PRSUs for the year ended December 31, 2020.

For the year ended December 31, 2022, the Company recognized stock-based compensation expense related to the 2022 PRSUs based on the Company's achievement of its performance targets for the performance period.

TEMPUR SEALY INTERNATIONAL, INC.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Stock Options

The Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options granted.

During the year ended December 31, 2021 and 2020, no stock options were granted.

The assumptions used in the Black-Scholes option-pricing model for the year ended December 31, 2022 are set forth in the following table.

Expected volatility is based on the unbiased standard deviation of the Company's common stock over the option term.

The expected life of the options represents the period of time that the Company expects the options granted to be outstanding.

The risk-free rate is based on the U.S.

Treasury yield curve in effect at the time of the grant of the option for the expected term of the instrument.

The dividend yield reflects an estimate of dividend payouts over the term of the award.

The Company uses historical data to determine these assumptions.

Year Ended December 31,

2022 2021 2020

Expected volatility of stock 53.2 % N/A N/A

Expected life of option, in years 5 N/A N/A

Risk-free interest rate 2.9 % N/A N/A

Expected dividend yield on stock 2.0 % N/A N/A

A summary of the Company's stock option activity under the 2003 Plan and 2013 Plan for the years ended December 31, 2022 and 2021 is presented below:

4 unchanged sentences

Options outstanding at December 31, 2021

Granted 1.2 30.00

Exercised — 10.44

1 unchanged sentence

Options outstanding at December 31, 2022

4.9 $ 20.34 6.34 $ 67.2

Options exercisable at December 31, 2022

The aggregate intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was $ 22.3 million, $ 6.0 million and $ 5.9 million, respectively.

3.7 $ 17.11 5.97 $ 61.8

The aggregate intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was $ 0.9 million and $ 22.3 million, respectively.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A summary of the Company's unvested shares relating to stock options as of December 31, 2022 and 2021, and changes during the years ended December 31, 2022 and 2021, are presented below:

4 unchanged sentences

Options unvested at December 31, 2021

Granted 1.2 30.00

Vested ( 0.3 ) 10.44

1 unchanged sentence

Options unvested at December 31, 2022

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Restricted/Deferred Stock Units

6 unchanged sentences

Awards outstanding at December 31, 2021

3.3 $ 17.37 $ 154.0

Granted 0.4 46.49

2 unchanged sentences

Awards outstanding at December 31, 2022

The aggregate intrinsic value of RSUs and DSUs vested during the year ended December 31, 2021 was $ 42.5 million.

2.3 $ 22.99 $ 78.3

The aggregate intrinsic value of RSUs and DSUs vested during the years ended December 31, 2022 and 2021 was $ 61.7 million and $ 42.5 million, respectively.

A summary of total unrecognized stock-based compensation expense based on current performance estimates related to stock options, DSUs, RSUs and PRSUs for the year ended December 31, 2022 is presented below:

(in millions, except years) December 31, 2022 Weighted Average Remaining Vesting Period (Years)

Unrecognized stock option expense $ 7.8 3.51

Unrecognized DSU/RSU expense 23.5 2.17

1 unchanged sentence

Total unrecognized stock-based compensation expense $ 52.4 2.11

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(12) Commitments and Contingencies

10 unchanged sentences

$ 577.2 $ 824.0 $ 452.4

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reconciliation of Statutory Tax Rate to Effective Tax Rate

19 unchanged sentences

Stock compensation ( 13.8 ) ( 2.4 ) % ( 8.1 ) ( 1.0 ) % ( 10.9 ) ( 2.4 ) %

Nondeductible compensation 14.6 2.5 % 5.1 0.6 % 3.7 0.8 %

Permanent and other ( 3.7 ) ( 0.6 ) % ( 10.1 ) ( 1.3 ) % 1.4 0.4 %

Effective income tax provision $ 119.0 20.6 % $ 198.3 24.1 % $ 102.6 22.7 %

On August 16, 2022, the U.S.

government enacted the Inflation Reduction Act of 2022, which includes a minimum tax equal to 15% of the adjusted financial statement income of certain corporations as well as a 1% excise tax on share buybacks, effective for tax years beginning in 2023.

It is possible that the minimum tax could result in an additional tax liability over the regular federal corporate tax liability in a given year based on differences between book and taxable income (including as a result of temporary differences).

Given its recent pronouncement, it is unclear at this time what, if any, impact the Inflation Reduction Act of 2022 will have on the Company's tax rate and financial results.

We will continue to evaluate its impact as further information becomes available.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Income Tax Provision

16 unchanged sentences

The net deferred tax assets and liabilities recognized in the accompanying Consolidated Balance Sheets, determined using the income tax rate applicable to each period in which those items will reverse, consist of the following:

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in millions) 2022 2021

17 unchanged sentences

Net deferred tax liabilities $ ( 102.7 ) $ ( 115.6 )

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Tax Attributes Included in Deferred Tax Assets

6 unchanged sentences

Charitable contribution carryover ("CCCs") 0.9 1.2

The SNOLs, FTCs, SITCs, FNOLs and CCCs generally expire in 2022, 2023, 2031, 2023 and 2022, respectively.

The SNOLs, FTCs, SITCs, FNOLs and CCCs generally begin to expire in 2023, 2023, 2031, 2023 and 2023, respectively.

Management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of certain of the SNOLs, FTCs, SITCs, FNOLs, the CCCs and certain other deferred tax assets related to certain foreign operations (together, the "Tax Attributes").

5 unchanged sentences

However, there can be no assurance that such assets will be realized if circumstances change.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Deferred Tax Liability for Undistributed Foreign Earnings

3 unchanged sentences

income tax ("PTEP").

During the three month period ended December 31, 2021, the Company recorded a deferred income tax liability associated with the PTEP.

Such amount is not material.

During the three month period ended December 31, 2022, the Company recorded a deferred income tax liability associated with the PTEP of approximately $ 2.4 million.

The $ 2.4 million is primarily attributable to the developments in the Danish Tax Matter, which is discussed below.

As it relates to the book to tax basis difference with respect to the stock of each of the Company's second and lower tier foreign subsidiaries, as a general matter, the book basis exceeds the tax basis in the hands of such foreign subsidiaries' shareholders.

By operation of the tax laws of the various countries in which these subsidiaries are domiciled, earnings of lower tier foreign subsidiaries are not subject to tax, in all material respects, when distributed to a foreign shareholder.

It is the Company's intent that the earnings of each lower tier foreign subsidiary, with the exception of its Danish subsidiary and its two Canadian subsidiaries, will be permanently reinvested in each such foreign subsidiaries' own operations.

It is the Company's intent that the earnings of each lower tier foreign subsidiary, with the exception of its Danish subsidiary, its two Canadian subsidiaries and its Mexican subsidiary, will be permanently reinvested in each such foreign subsidiaries' own operations.

As it relates to the Danish subsidiary, its earnings may be distributed without any income tax impact.

With respect to the Canadian subsidiaries, Canadian income tax withholding applies to any distribution each subsidiary makes to its foreign parent company.

The Company concluded that at December 31, 2021 each Canadian subsidiary has accumulated earnings in excess of its operating needs and as such Canadian withholding tax has been accrued on such excess.

The amount accrued is not material.

With respect to the Canadian and Mexican subsidiaries, Canadian and Mexican income tax withholding applies, respectively, to any distribution each such subsidiary makes to its foreign parent company.

The Company concluded that at December 31, 2022 it is likely that the Canadian subsidiaries and the Mexican subsidiary will each make dividend distributions in the next twelve months.

In each case, local country income tax withholding, i.e., Canada and Mexico, applies.

Consequently at December 31, 2022 the Company has accrued approximately $ 0.9 million for such withholding tax.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Uncertain Income Tax Positions

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Expiration of statutes of limitations ( 1.9 )

Reduction for tax positions of prior years ( 4.9 )

Settlements of uncertain tax positions with tax authorities —

1 unchanged sentence

The amount of unrecognized tax benefits that would impact the effective tax rate if recognized at December 31, 2022 and 2021 would be $ 17.6 million and $ 29.1 million, respectively.

During the years ended December 31, 2021 and 2020, the Company recognized $ 3.2 million and $ 1.0 million in interest and penalties, respectively, in income tax expense.

The Company had $ 15.7 million and $ 74.9 million of accrued interest and penalties at December 31, 2021 and 2020.

As discussed below, during the quarter ended June 30, 2021 the Company 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").

During the years ended December 31, 2022 and 2021, the Company recognized $( 6.9 ) million and $ 3.2 million in interest and penalties in income tax (benefit) expense, respectively.

The Company had $ 5.0 million and $ 15.7 million of accrued interest and penalties at December 31, 2022 and 2021, respectively.

As discussed below, in the three months ended December 31, 2022, the Company reevaluated its position with respect to the Danish Tax Matter (defined below) related to 2012 to 2022.

Such reevaluation resulted in a reduction of the Company’s liability for uncertain income tax position of approximately $( 4.9 ) million, which is reflected in “Reduction for tax positions of prior years” in the table above.

As also discussed below, during the three months ended June 30, 2021 the Company resolved the calculation of interest payable to the Danish Tax Authority ("SKAT") related to the settlement of the Danish Tax Matter (defined below) for the years 2001 through 2011 (the "Settlement Years").

As such, the Danish Tax Matter for the Settlement Years is considered closed.

Consequently, the tax deposits previously with SKAT were offset against the uncertain income tax liability for the Settlement Years as reflected in the table above.

The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months as a result of the statute of limitations expiring and/or the examinations being concluded on these returns.

However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the Consolidated Financial Statements, other than the Danish Tax Matter discussed below which the Company believes will conclude within the parameters of the Preliminary Framework (defined below) reached between the U.S.

Internal Revenue Service ("IRS)" and SKAT.

TEMPUR SEALY INTERNATIONAL, INC.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 as reflected in the table above.

However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the Consolidated Financial Statements, other than the Danish Tax Matter discussed below which the Company believes will be settled commensurate with the amount previously accrued.

With few exceptions, the Company is no longer subject to tax examinations by the U.S., state and local municipalities or non-U.S.

2 unchanged sentences

The Danish Tax Matter

The Company has been involved in a dispute with the Danish Tax Authority ("SKAT") regarding the royalty paid by a U.S.

The Company has been involved in a dispute with the 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 2012 through current.

2 unchanged sentences

production process.

During 2018, the Company reached agreements with both SKAT and the U.S.

Internal Revenue Service ("IRS") with respect to the adjusted amount of royalties (the "Settlement") for the Settlement Years.

During the quarter ended June 30, 2021 the Company and SKAT resolved in all material respects the calculation of interest payable to SKAT (which had previously been under discussion with SKAT) related to the settlement of the Danish Tax Matters for Settlement Years.

In this regard, the tax years 2012 through 2022 (the "2012 to Current Period") are currently the subject of the Advance Pricing Agreement procedure ("APA") request filed by the Company with SKAT and the IRS in the third quarter of 2018.

As part of the APA, the IRS is negotiating on the Company’s behalf directly with SKAT with respect to the royalty due from the U.S.

subsidiary to the Danish subsidiary, and may include certain other charges required to be made between the U.S.

subsidiary and the Danish subsidiary.

With respect to the APA, during the quarter ended December 31, 2022, SKAT and the IRS preliminarily concluded on a mutually acceptable framework (“Preliminary Framework”) to resolve the Danish Tax Matter for the 2012 to Current Period.

If ultimately agreed upon by the two tax authorities, the terms of the Preliminary Framework would extend to the years 2023 and 2024, as well.

The Preliminary Framework is not a definitive agreement, but its terms provide updated definitive data for the Company to determine the potential Danish income tax exposure for the 2012 to Current Period as well as the associated deferred tax asset for the U.S.

correlative benefit for such period.

Consequently, the Company maintains both an uncertain income tax liability for its estimate of the potential Danish income tax and a deferred tax asset for the associated U.S.

tax benefit for the 2012 to Current Period.

In this respect, during the three months ended December 31, 2022, the Company decreased the liability for uncertain income tax positions approximately $( 12.3 ) million (including interest and penalty but excluding the impact of foreign exchange).

The associated deferred tax asset for the U.S.

correlative benefit position increased by approximately $ 2.4 million.

The year-over-year change in the liability for the uncertain tax position is a decrease of approximately $( 9.3 ) million (including interest and penalty, but excluding the impact of foreign exchange).

The APA negotiation is ongoing.

Pursuant to the Preliminary Framework, it is expected the APA will conclude in the next twelve months.

During 2018, the Company reached agreements with both SKAT and the IRS with respect to the adjusted amount of royalties (the "Settlement") for the Settlement Years.

During the three months ended June 30, 2021 the Company and SKAT resolved in all material respects the calculation of interest payable to SKAT (which had previously been under discussion with SKAT) related to the settlement of the Danish Tax Matters for 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).

1 unchanged sentence

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

The tax years 2012 through 2021 (the "2012 to Current Period") are currently the subject of the Advance Pricing Agreement procedure ("APA") request filed by the Company with SKAT and the IRS in the third quarter of 2018.

As part of the APA, the IRS is negotiating on the Company’s behalf directly with SKAT for a mutually agreeable royalty due from the U.S.

subsidiary to the Danish Subsidiary.

The APA negotiation is ongoing and is not expected to conclude in the near term.

The Company anticipates such negotiations will result in additional income tax in Denmark and a reduction of income tax in the U.S.

Consequently, the Company maintains both an uncertain income tax liability for its estimate of the potential Danish income tax and a deferred tax asset for the associated United States tax benefit for the 2012 to Current Period.

The uncertain income tax liabilities for the Danish Tax Matter Settlement Years and for the 2012 to Current Period are reflected in the Company Consolidated Balance Sheet as per below:

It is expected that taxes remaining on deposit with SKAT after all taxes have been applied to the 2012 to Current Period years will be sufficient to offset any Danish income tax liability, including interest and penalty, for all years in the 2012 to Current Period that would arise as the result of the implementation of the Preliminary Framework.

The uncertain income tax liabilities for the Danish Tax Matter for the 2012 to Current Period are reflected in the Company Consolidated Balance Sheet as per below:

December 31, 2022 December 31, 2021

Period Balance Sheet Presentation USD USD

Settlement Years Accrued expenses and other current liabilities $ — $ 139.1

2012 to Current Period Accrued expenses and other current liabilities $ 37.8 $ —

2012 to Current Period Other non-current liabilities — 50.1

2 unchanged sentences

correlative benefit associated with the accrual of Danish tax for the 2012 to Current Period at December 31, 2022 and 2021 is approximately $ 21.6 million and $ 15.5 million, respectively.

If the IRS and SKAT are unable to reach a mutually acceptable agreement with respect to the years included in the APA Program, the Company could be required to make a significant payment to SKAT for Danish tax related to such years, which could have a material adverse effect on the Company’s results of operations and liquidity.

TEMPUR SEALY INTERNATIONAL, INC.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

If the Preliminary Framework is not ultimately concluded by IRS and SKAT, the Company could be required to make a significant payment to SKAT for Danish tax related to such years, which could have a material adverse effect on the Company’s results of operations and liquidity.

SKAT has issued income tax assessments for the years 2012 through 2016.

The Company is contesting all four assessments.

Further, SKAT has proposed assessments for the years 2016 through 2017.

The Company is contesting all five assessments.

Further, SKAT has proposed an assessment for the year 2017.

For each of the years 2012 through 2017, SKAT is asserting an increase in the royalty earned by the Danish subsidiary.

The Company expects to continue to receive income tax assessments from SKAT for the tax years 2018 and forward, asserting the royalties paid by the U.S.

to the Danish subsidiary were too low, which the Company disputes.

The aforementioned assessments would be superseded by any final agreement between SKAT and the IRS for the 2012 to Current Period years pursuant to the previously mentioned Preliminary Framework.

From June 2012 through December 31, 2018, SKAT withheld Value Added Tax ("VAT") refunds otherwise owed to the Company, pending resolution of the Danish Tax Matter.

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VAT deposits remaining with SKAT $ 1.4

The three months ended March 31, 2020 20.5

The three months ended September 30, 2020 11.7

The three months ended September 30, 2021 14.9

The above VAT refunds withheld and the tax deposits made are reflected in the Company's Consolidated Balance Sheet, as per below:

Payments during the three months ended March 31, 2020 19.3

Payments during the three months ended September 30, 2020 11.1

Payments during the three months ended September 30, 2021 14.0

Payments during the three months ended December 31, 2022 13.0

The above VAT refunds withheld and the tax deposits made are reflected in the Company's Consolidated Balance Sheets, as per below:

December 31, 2022 December 31, 2021

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Total $ 58.8 $ 48.6

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.

TEMPUR SEALY INTERNATIONAL, INC.

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(in millions, except per common share amounts) 2022 2021 2020

Net income from continuing operations, net of income attributable to non-controlling interests $ 625.2 $ 348.8 $ 190.9

Net income from continuing operations, net of income attributable to non-controlling interest $ 456.1 $ 625.2 $ 348.8

Denominator for basic earnings per common share—weighted average shares 174.9 197.0 207.9

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Diluted earnings per common share for continuing operations $ 2.53 $ 3.06 $ 1.64

For the year ended December 31, 2022, the Company excluded 1.2 million 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 years ended December 31, 2021 and December 31, 2020, the Company excluded an insignificant 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 year ended December 31, 2019, the Company excluded 4.4 million shares issuable upon exercise of outstanding stock options from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy International's common stock or they were otherwise anti-dilutive.

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

Holders of non-vested stock-based compensation awards do not have voting rights but do participate in dividend equivalents distributed upon award vesting.

TEMPUR SEALY INTERNATIONAL, INC.

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The Company’s Direct channel represents 23.3 % of the Company’s consolidated net sales in 2022.

One wholesale customer contributed approximately 15 % of the Company’s consolidated net sales in the years ended 2021 and 2020.

One wholesale customer contributed over 15 % of the Company’s consolidated net sales in the years ended 2022 and 2021, respectively.

The Company’s North America and International segment assets include investments in subsidiaries that are appropriately eliminated in the Company’s accompanying Consolidated Financial Statements.

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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-K

Item 8. Financial Statements and Supplementary Data