What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 128 added, 266 removed, 356 unchanged (53% of the section changed)

4 unchanged sentences

($ in millions, except per common share amounts)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Three Months Ended

Net sales $ 1,208.1 $ 1,239.5

7 unchanged sentences

Interest expense, net 32.8 20.9

Loss on extinguishment of debt — — — 23.0

Other (income) expense, net ( 0.9 ) 0.1 ( 1.5 ) ( 0.3 )

Other expense (income), net 0.1 ( 1.3 )

Total other expense, net 32.9 19.6

Income from continuing operations before income taxes 175.1 236.2 463.6 593.0

Income before income taxes 110.4 169.0

Income tax provision ( 24.5 ) ( 38.1 )

Income from continuing operations 134.0 177.5 356.1 449.1

Loss from discontinued operations, net of tax ( 0.8 ) ( 0.1 ) ( 0.8 ) ( 0.6 )

Net income before non-controlling interests 133.2 177.4 355.3 448.5

Net income (loss) attributable to non-controlling interests 0.5 — 1.3 ( 0.2 )

Net income before non-controlling interest 85.9 130.9

Net income attributable to non-controlling interest 0.6 0.2

Net income attributable to Tempur Sealy International, Inc.

1 unchanged sentence

Earnings per common share:

Earnings per share for continuing operations $ 0.78 $ 0.91 $ 2.01 $ 2.26

Loss per share for discontinued operations ( 0.01 ) — — —

Earnings per share $ 0.77 $ 0.91 $ 2.01 $ 2.26

Earnings per share for continuing operations $ 0.75 $ 0.87 $ 1.95 $ 2.18

Loss per share for discontinued operations — — — —

Earnings per share $ 0.75 $ 0.87 $ 1.95 $ 2.18

Basic $ 0.50 $ 0.72

Diluted $ 0.48 $ 0.69

Weighted average common shares outstanding:

6 unchanged sentences

($ in millions)

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 2022 2021

Net income before non-controlling interests $ 133.2 $ 177.4 $ 355.3 $ 448.5

Other comprehensive income, net of tax:

Three Months Ended

Net income before non-controlling interest $ 85.9 $ 130.9

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 14.9 ( 17.5 )

Other comprehensive loss, net of tax ( 64.8 ) ( 29.9 ) ( 140.1 ) ( 34.0 )

Other comprehensive income (loss), net of tax 14.9 ( 17.5 )

Comprehensive income 100.8 113.4

Comprehensive income (loss) attributable to non-controlling interests 0.5 — 1.3 ( 0.2 )

Comprehensive income attributable to non-controlling interest 0.6 0.2

Comprehensive income attributable to Tempur Sealy International, Inc.

5 unchanged sentences

($ in millions)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

ASSETS (unaudited)

12 unchanged sentences

Total Assets $ 4,537.1 $ 4,359.8

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities:

1 unchanged sentence

Accrued expenses and other current liabilities 441.8 432.7

Short-term operating lease obligations 113.5 105.5

Current portion of long-term debt 74.0 70.4

7 unchanged sentences

Redeemable non-controlling interest 8.9 9.8

Total Stockholders' (Deficit) Equity ( 152.6 ) 285.8

Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' (Deficit) Equity $ 4,351.7 $ 4,323.4

Total Stockholders' Equity (Deficit) 34.7 ( 22.1 )

Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity (Deficit) $ 4,537.1 $ 4,359.8

See accompanying Notes to Condensed Consolidated Financial Statements.

1 unchanged sentence

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

($ in millions)

Three Months Ended September 30, 2022

Three Months Ended March 31, 2023

Tempur Sealy International, Inc.

Stockholders' (Deficit) Equity

Stockholders' Equity (Deficit)

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

(Deficit) Equity

Equity (Deficit)

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

Balance as of June 30, 2022

Balance, December 31, 2022

$ 9.8 283.8 $ 2.8 113.4 $ ( 3,434.7 ) $ 598.2 $ 2,988.5 $ ( 176.9 ) $ ( 22.1 )

12 unchanged sentences

Amortization of unearned stock-based compensation

Balance, September 30, 2022

Balance, March 31, 2023

$ 8.9 283.8 $ 2.8 111.7 $ ( 3,386.3 ) $ 525.7 $ 3,054.5 $ ( 162.0 ) $ 34.7

Three Months Ended September 30, 2021

Three Months Ended March 31, 2022

Tempur Sealy International, Inc.

Stockholders' Equity

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

Stockholders' (Deficit) Equity

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

(Deficit) Equity

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

Balance as of June 30, 2021

Balance, December 31, 2021

$ 9.2 283.8 $ 2.8 96.4 $ ( 2,844.7 ) $ 622.0 $ 2,604.9 $ ( 99.2 ) $ 285.8

Net income 130.7 130.7

Net loss attributable to non-controlling interests — —

Net income attributable to non-controlling interest 0.2 —

Foreign currency adjustments, net of tax ( 17.5 ) ( 17.5 )

8 unchanged sentences

Amortization of unearned stock-based compensation

Balance, September 30, 2021

$ 8.5 283.8 $ 2.8 91.0 $ ( 2,595.8 ) $ 608.0 $ 2,447.0 $ ( 99.5 ) $ 362.5

See accompanying Notes to Condensed Consolidated Financial Statements .

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY (CONTINUED)

($ in millions)

Nine Months Ended September 30, 2022

Tempur Sealy International, Inc.

Stockholders' Equity (Deficit)

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

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

Balance as of December 31, 2021

$ 9.2 283.8 $ 2.8 96.4 $ ( 2,844.7 ) $ 622.0 $ 2,604.9 $ ( 99.2 ) $ 285.8

Net income 354.0 354.0

Net income attributable to non-controlling interests 1.3 —

Dividend paid to non-controlling interest in subsidiary ( 1.2 ) —

Foreign currency adjustments, net of tax ( 140.1 ) ( 140.1 )

Exercise of stock options — 0.7 ( 0.4 ) 0.3

Dividends declared on common stock ($ 0.30 per share)

( 54.5 ) ( 54.5 )

Issuances of RSUs

( 2.6 ) 75.4 ( 75.4 ) —

Treasury stock repurchased

17.6 ( 591.2 ) ( 591.2 )

Treasury stock repurchased - PRSU/RSU/DSU releases 1.0 ( 46.0 ) ( 46.0 )

Amortization of unearned stock-based compensation

Balance, September 30, 2022

$ 9.3 283.8 $ 2.8 112.4 $ ( 3,405.8 ) $ 585.3 $ 2,904.4 $ ( 239.3 ) $ ( 152.6 )

Nine Months Ended September 30, 2021

Tempur Sealy International, Inc.

Stockholders' Equity

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

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

Balance as of December 31, 2020

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

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 ($ 0.23 per share)

( 47.3 ) ( 47.3 )

Issuances of PRSUs, RSUs, and DSUs

( 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

Balance, September 30, 2021

Balance, March 31, 2022

$ 9.4 283.8 $ 2.8 107.1 $ ( 3,267.2 ) $ 563.6 $ 2,716.8 $ ( 116.7 ) $ ( 100.7 )

3 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions) (unaudited)

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:

Net income before non-controlling interests $ 355.3 $ 448.5

Loss from discontinued operations, net of tax 0.8 0.6

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

($ in millions)

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income before non-controlling interest $ 85.9 $ 130.9

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 33.8 30.4

5 unchanged sentences

Equity income in earnings of unconsolidated affiliates ( 4.6 ) ( 6.9 )

Loss on extinguishment of debt — 3.0

Foreign currency adjustments and other ( 0.8 ) ( 0.1 )

Changes in operating assets and liabilities, net of effect of business acquisitions ( 208.0 ) 11.6

Net cash provided by operating activities from continuing operations 283.5 597.5

CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:

Changes in operating assets and liabilities ( 30.2 ) ( 85.2 )

Net cash provided by operating activities 99.8 85.6

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property, plant and equipment ( 52.1 ) ( 60.3 )

Acquisitions, net of cash acquired — ( 426.0 )

Other 0.1 1.0

Net cash used in investing activities from continuing operations ( 224.8 ) ( 508.0 )

CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:

Net cash used in investing activities ( 52.0 ) ( 59.3 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from borrowings under long-term debt obligations 509.8 528.1

3 unchanged sentences

Dividends paid ( 20.8 ) ( 18.7 )

Payments of deferred financing costs — ( 25.3 )

Repayments of finance lease obligations and other ( 5.1 ) ( 3.5 )

Net cash (used in) provided by financing activities from continuing operations ( 234.1 ) 356.4

Net cash (used in) provided by continuing operations ( 175.4 ) 445.9

Net operating cash flows used in discontinued operations ( 0.8 ) ( 0.8 )

Net cash used in financing activities ( 28.4 ) ( 204.8 )

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2.2 ( 5.9 )

(Decrease) increase in cash and cash equivalents ( 206.6 ) 438.3

Increase (decrease) in cash and cash equivalents 21.6 ( 184.4 )

CASH AND CASH EQUIVALENTS, beginning of period 69.4 300.7

28 unchanged sentences

(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,

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

March 31, December 31,

(in millions) 2023 2022

15 unchanged sentences

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

The Company had the following activity for its accrued warranty expense from December 31, 2021 to September 30, 2022:

The Company had the following activity for its accrued warranty expense from December 31, 2022 to March 31, 2023:

(in millions)

2 unchanged sentences

Warranties charged to accrual ( 4.6 )

Balance as of September 30, 2022 $ 42.6

As of September 30, 2022 and December 31, 2021, $ 18.6 million and $ 20.2 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $ 24.0 million and $ 23.7 million of accrued warranty expense is included in other non-current liabilities on the Company's accompanying Condensed Consolidated Balance Sheets, respectively.

Balance as of March 31, 2023 $ 42.9

As of March 31, 2023 and December 31, 2022, $ 18.8 million and $ 17.8 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $ 24.1 million and $ 23.8 million of accrued warranty expense is included in other non-current liabilities on the Company's accompanying Condensed Consolidated Balance Sheets, respectively.

(d) Allowance for Credit Losses .

2 unchanged sentences

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.

As of September 30, 2022, the Company's accounts receivable were substantially current.

As of March 31, 2023, 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.

1 unchanged sentence

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, 2021 to September 30, 2022:

The Company had the following activity for its allowance for credit losses from December 31, 2022 to March 31, 2023:

(in millions)

2 unchanged sentences

Write-offs charged against the allowance ( 0.5 )

Balance as of September 30, 2022

Balance as of March 31, 2023

(e) Fair Value.

4 unchanged sentences

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

(in millions) September 30, 2022 December 31, 2021

(in millions) March 31, 2023 December 31, 2022

2029 Senior Notes $ 707.3 $ 672.7

2031 Senior Notes $ 671.3 $ 627.1

(f) Definitive Agreement with Mattress Firm.

On May 9, 2023, Tempur Sealy International and Mattress Firm entered into a definitive agreement and plan of merger (the "Merger Agreement") for a proposed business acquisition in which Tempur Sealy International, through a wholly-owned subsidiary, will acquire Mattress Firm in a transaction valued at approximately $ 4.0 billion.

The transaction is expected to be funded by approximately $ 2.7 billion of cash consideration and the issuance of

TEMPUR SEALY INTERNATIONAL, INC.

1 unchanged sentence

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, 2022 and 2021:

Three Months Ended September 30, 2022 Three Months Ended September 30, 2021

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

Wholesale $ 918.1 $ 85.1 $ 1,003.2 $ 991.2 $ 108.0 $ 1,099.2

Direct 139.6 140.5 280.1 128.8 130.3 259.1

Net sales $ 1,057.7 $ 225.6 $ 1,283.3 $ 1,120.0 $ 238.3 $ 1,358.3

North America International Consolidated North America International Consolidated

Bedding $ 986.7 $ 185.9 $ 1,172.6 $ 1,047.1 $ 197.4 $ 1,244.5

Other 71.0 39.7 110.7 72.9 40.9 113.8

Net sales $ 1,057.7 $ 225.6 $ 1,283.3 $ 1,120.0 $ 238.3 $ 1,358.3

North America International Consolidated North America International Consolidated

Geographical region

United States $ 982.6 $ — $ 982.6 $ 1,018.8 $ — $ 1,018.8

All Other 75.1 225.6 300.7 101.2 238.3 339.5

34.2 million shares of common stock resulting in a total stock consideration value of $ 1.3 billion based on a closing share price of $ 37.62 as of May 8, 2023.

The Company expects the transaction to close in the second half of 2024, subject to the satisfaction of customary closing conditions, including applicable regulatory approvals.

Following the close of the transaction, Mattress Firm is expected to operate as a separate business unit within the Company.

(2) Net Sales

Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021

Three Months Ended March 31, 2023 Three Months Ended March 31, 2022

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

11 unchanged sentences

Net sales $ 919.6 $ 288.5 $ 1,208.1 $ 931.4 $ 308.1 $ 1,239.5

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 $ 49.5 million of cash acquired.

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 consolidated financial statements of the Company.

The Company accounted for this transaction as a business combination.

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

(in millions)

Accounts receivable, net $ 3.5

Inventory 51.2

Property, plant and equipment 33.9

Goodwill 357.1

Indefinite-lived intangible asset 141.9

Operating lease right-of-use assets 158.2

Other current and non-current assets 4.4

Accounts payable ( 55.2 )

Accrued expenses and other current liabilities ( 69.7 )

Operating lease liabilities ( 165.1 )

Other liabilities ( 26.9 )

Purchase price, net of cash acquired $ 427.2

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.

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

2 unchanged sentences

Foreign currency translation and other 0.7 6.8 7.5

Balance as of September 30, 2022 $ 605.9 $ 426.4 $ 1,032.3

Balance as of March 31, 2023 $ 608.0 $ 461.8 $ 1,069.8

TEMPUR SEALY INTERNATIONAL, INC.

2 unchanged sentences

Debt for the Company consists of the following:

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

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

13 unchanged sentences

Total long-term debt, net $ 2,769.0 $ 2,739.9

(1) Interest at LIBOR plus applicable margin of 1.250 % as of September 30, 2022.

(1) Interest at LIBOR plus applicable margin of 1.375 % as of March 31, 2023.

(2) Interest at LIBOR plus applicable margin of 1.250 % as of December 31, 2022.

(3) Interest at one month SOFR index plus 10 basis points of credit spread adjustment, plus 85 basis points.

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

(5) New finance lease obligations are a non-cash financing activity.

As of September 30, 2022, the Company was in compliance with all applicable debt covenants.

As of March 31, 2023, 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 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.

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.

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

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 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 $ 299.0 million in outstanding borrowings under its revolving credit facility as of September 30, 2022.

Total remaining availability under the revolving credit facility was $ 425.4 million after a $ 0.6 million reduction for outstanding letters of credit as of September 30, 2022.

The 2019 Credit Agreement, as amended, provides for a $ 725.0 million revolving credit facility and a $ 725.0 million term loan facility.

Borrowings under the 2019 Credit Agreement will generally bear interest at either Base Rate or LIBOR plus the applicable margin.

For the revolving credit facility and the term loan facility such applicable margins are determined by a pricing grid based on the consolidated total net leverage ratio of the Company.

The Company had $ 350.0 million in outstanding borrowings under its revolving credit facility as of March 31, 2023.

Total remaining availability under the revolving credit facility was $ 374.4 million after a $ 0.6 million reduction for outstanding letters of credit as of March 31, 2023.

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.

As of March 31, 2023, total availability under the Accounts Receivable Securitization was $ 1.0 million.

On April 6, 2023, the Company and certain of its subsidiaries entered into a second amendment to the Accounts Receivable Securitization.

The amendment, among other things, extended the maturity date of the Accounts Receivable Securitization to April 7, 2025.

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, 2022, the Company had fully drawn down the Accounts Receivable Securitization with borrowings of $ 169.2 million.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

(5) Stockholders' Equity

(a) Treasury Stock.

As of September 30, 2022, the Company had approximately $ 809.5 million remaining under its share repurchase authorization.

The Company repurchased 1.0 million and 4.1 million shares, under the program, for approximately $ 25.0 million and $ 190.0 million during the three months ended September 30, 2022 and 2021, respectively.

The Company repurchased 17.6 million and 14.1 million shares, under the program, for approximately $ 591.2 million and $ 551.4 million during the nine months ended September 30, 2022 and 2021, respectively.

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, 2022 and 2021.

The shares withheld were valued at the closing price of the stock on the New York Stock Exchange on the vesting date or first business day prior to vesting, resulting in approximately $ 0.2 million and $ 0.3 million in treasury stock acquired during the three months ended September 30, 2022 and 2021, respectively.

The Company acquired approximately $ 46.0 million and $ 14.4 million in treasury stock during the nine months ended September 30, 2022 and 2021, respectively.

As of March 31, 2023, the Company had approximately $ 774.5 million remaining under its share repurchase authorization.

The Company repurchased 0.1 million and 12.2 million shares, under the program, for approximately $ 5.0 million and $ 449.2 million during the three months ended March 31, 2023 and 2022, respectively.

In addition, the Company acquired 0.9 million and 1.0 million shares upon the vesting of certain restricted stock units ("RSUs") and performance restricted stock units ("PRSUs"), which were withheld to satisfy tax withholding obligations during each of the three months ended March 31, 2023 and 2022, respectively.

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 $ 30.7 million and $ 45.6 million in treasury stock acquired during the three months ended March 31, 2023 and 2022, respectively.

AOCL consisted of the following:

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

(in millions) 2023 2022

10 unchanged sentences

(1) In 2023 and 2022, there were no tax impacts related to foreign currency translation adjustments and no amounts were reclassified to earnings.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

(6) Other Items

1 unchanged sentence

Accrued expenses and other current liabilities consisted of the following:

(in millions) September 30, 2022 December 31, 2021

Operating lease obligations $ 100.6 $ 101.7

(in millions) March 31, 2023 December 31, 2022

Wages and benefits $ 73.1 $ 78.0

Advertising 71.7 72.3

Unearned revenue 68.6 48.5

Taxes 61.9 52.1

Advertising 44.8 64.9

Other 193.4 189.2

$ 441.8 $ 432.7

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

(7) Stock-Based Compensation

The Company's stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 included PRSUs, non-qualified stock options, RSUs and deferred stock units ("DSUs").

The Company's stock-based compensation expense for the three months ended March 31, 2023 and 2022 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,

Three Months Ended March 31,

(in millions) 2023 2022

6 unchanged sentences

During the first quarter of 2023, the Company granted PRSUs as a component of the long-term incentive plan ("2023 PRSUs").

The Company has recorded stock-based compensation expense related to the 2022 PRSUs during the three and nine months ended September 30, 2022, as it was probable that the Company would achieve the specified performance target for the performance period.

The Company has recorded stock-based compensation expense related to the 2023 PRSUs during the three months ended March 31, 2023, as it was probable that the Company would achieve the specified performance target for the performance period.

(8) Commitments and Contingencies

2 unchanged sentences

(9) Income Taxes

The Company's effective tax rate for the three months ended September 30, 2022 and 2021 was 23.5 % and 24.9 %, respectively.

The Company's effective tax rate for the nine months ended September 30, 2022 and 2021 was 23.2 % and 24.3 %, respectively.

The Company's effective tax rate for the three and nine months ended September 30, 2022 and 2021 differed from the U.S.

The Company's effective tax rate for the three months ended March 31, 2023 and 2022 was 22.2 % and 22.5 %, respectively.

The Company's effective tax rate for the three months ended March 31, 2023 and 2022 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 benefit related to stock-based compensation and certain other permanent items.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

On August 16, 2022, President Biden signed into law 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 the Company beginning January 1, 2023.

When effective, 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.

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

3 unchanged sentences

production process.

The uncertain income tax liability for the Danish Tax Matter for the years 2012 through 2022 (the "2012 to Current Period") at September 30, 2022 and December 31, 2021 is approximately $ 46.1 million and $ 50.1 million, respectively, and is reflected in the Company's Condensed Consolidated Balance Sheet in other non-current liabilities.

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, 2022 and December 31, 2021 is approximately $ 19.1 million and $ 15.5 million, respectively.

As of September 30, 2022, the Company had made the following tax deposits related to assessments received by SKAT for the Danish Tax Matter for the years 2012 through 2015, which are reflected in the Company's Condensed Consolidated Balance Sheet in other non-current assets:

(in millions) USD

VAT deposits remaining with SKAT $ 1.3

Deposit payments made through December 31, 2021 40.6

No deposit payments were made in the three or nine months ended September 30, 2022.

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 nine months ended September 30, 2022.

In November 2018, the Company entered into the Advanced Pricing Agreement program (the "APA Program") requesting SKAT and the U.S.

Internal Revenue Service ("IRS") to directly negotiate a mutually acceptable agreement on the Danish Tax Matter.

During the quarter ended December 31, 2022, pursuant to the negotiations described above with respect to the APA Program, SKAT and the IRS preliminarily concluded on a mutually acceptable framework ("Preliminary Framework") to resolve the Danish Tax Matter for the 2012 to 2022 tax years.

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 2022 tax years as well as the associated deferred tax asset for the U.S.

correlative benefit for such periods.

During the quarter ended March 31, 2023, the Company began discussions individually with both SKAT and the IRS regarding the implementation of the Preliminary Framework.

In this regard, it is expected that the Preliminary Framework will be finalized into a definitive agreement in 2023.

Starting January 1, 2023 the Company adopted the terms of the Preliminary Framework in the calculation of the royalty described above.

As such, there is no uncertain income tax liability or deferred tax asset associated with 2023.

TEMPUR SEALY INTERNATIONAL, INC.

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

The uncertain income tax liability for the Danish Tax Matter for the years 2012 through 2022 (the "2012 to Current Period") at March 31, 2023 and December 31, 2022 is approximately $ 38.3 million and $ 37.8 million, respectively, and is reflected in the Company's Condensed Consolidated Balance Sheet in accrued expenses and other current liabilities.

The deferred tax asset for the U.S.

correlative benefit associated with the accrual of Danish tax for the 2012 to Current Period at March 31, 2023 and December 31, 2022 is approximately $ 21.6 million for both periods.

As of March 31, 2023, the Company had made the following tax deposits related to assessments received by SKAT for the Danish Tax Matter for the years 2012 through 2016, which are reflected in the Company's Condensed Consolidated Balance Sheet in other current assets:

(in millions) USD

VAT deposits remaining with SKAT $ 1.4

Deposit payments 58.0

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

There were no other significant changes in the Danish Tax Matter or other uncertain tax positions during the three months ended March 31, 2023.

(10) 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,

Three Months Ended

(in millions, except per common share amounts) 2023 2022

Net income from continuing operations, net of income attributable to non-controlling interests $ 133.5 $ 177.5 $ 354.8 $ 449.3

Net income attributable to Tempur Sealy International, Inc.

$ 85.3 $ 130.7

Denominator for basic earnings per common share-weighted average shares 172.0 182.6

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Diluted earnings per common share $ 0.48 $ 0.69

The Company excluded 1.5 million and 0.8 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 three and nine months ended September 30, 2022.

The Company excluded an immaterial number of shares for the three and nine months ended September 30, 2021.

Holders of non-vested stock-based compensation awards do not have voting rights but do participate in dividends declared upon the award vesting.

The Company excluded 0.6 million and 0.4 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 three months ended March 31, 2023 and 2022, respectively.

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

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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

(11) Business Segment Information

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The International segment consists of manufacturing and 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.

2 unchanged sentences

The following table summarizes total assets by segment:

(in millions) September 30, 2022 December 31, 2021

(in millions) March 31, 2023 December 31, 2022

North America $ 5,402.3 $ 5,161.7

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Total assets $ 4,537.1 $ 4,359.8

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, 2022 December 31, 2021

(in millions) March 31, 2023 December 31, 2022

North America $ 700.5 $ 672.1

3 unchanged sentences

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

(in millions) September 30, 2022 December 31, 2021

(in millions) March 31, 2023 December 31, 2022

North America $ 393.3 $ 349.0

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Total operating lease right-of-use assets $ 563.1 $ 506.8

The following table summarizes segment information for the three months ended September 30, 2022:

(in millions) North America International Corporate Eliminations Consolidated

Net sales $ 1,057.7 $ 225.6 $ — $ — $ 1,283.3

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

Inter-segment royalty expense (income) 3.4 ( 3.4 ) — — —

Gross profit 420.7 120.4 — — 541.1

Operating income (loss) 205.0 32.6 ( 36.6 ) — 201.0

Income (loss) from continuing operations before income taxes 203.0 33.9 ( 61.8 ) — 175.1

Depreciation and amortization (1)

$ 24.5 $ 5.8 $ 14.0 $ — $ 44.3

Capital expenditures 75.3 8.5 2.0 — 85.8

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

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

The following table summarizes segment information for the three months ended March 31, 2023:

(in millions) North America International Corporate Eliminations Consolidated

4 unchanged sentences

Operating income (loss) 136.0 44.2 ( 36.9 ) — 143.3

Income (loss) from continuing operations before income taxes 235.7 50.0 ( 49.5 ) — 236.2

Income (loss) before income taxes 134.2 43.0 ( 66.8 ) — 110.4

Depreciation and amortization (1)

5 unchanged sentences

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

The following table summarizes segment information for the nine months ended September 30, 2022:

(in millions) North America International Corporate Eliminations Consolidated

Net sales $ 2,953.8 $ 780.0 $ — $ — $ 3,733.8

Inter-segment sales $ 1.4 $ 0.9 $ — $ ( 2.3 ) $ —

Inter-segment royalty expense (income) 12.8 ( 12.8 ) — — —

Gross profit 1,138.9 421.5 — — 1,560.4

Operating income (loss) 506.5 135.2 ( 108.2 ) — 533.5

Income (loss) from continuing operations before income taxes 503.6 135.0 ( 175.0 ) — 463.6

Depreciation and amortization (1)

$ 70.7 $ 17.7 $ 44.1 $ — $ 132.5

Capital expenditures 188.2 23.1 4.7 — 216.0

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

The following table summarizes segment information for the nine months ended September 30, 2021:

The following table summarizes segment information for the three months ended March 31, 2022:

(in millions) North America International Corporate Eliminations Consolidated

4 unchanged sentences

Operating income (loss) 155.4 66.8 ( 33.6 ) — 188.6

Income (loss) from continuing operations before income taxes 625.0 138.9 ( 170.9 ) — 593.0

Income (loss) before income taxes 155.8 66.4 ( 53.2 ) — 169.0

Depreciation and amortization (1)

4 unchanged sentences

(in millions)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

United States

4 unchanged sentences

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

(in millions) September 30, 2022 December 31, 2021

(in millions) March 31, 2023 December 31, 2022

United States $ 384.1 $ 339.6

2 unchanged sentences

Total operating lease right-of-use assets $ 563.1 $ 506.8

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,

Three Months Ended

(in millions) 2023 2022

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements