What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-16 compared with 2023-02-17 · 221 added, 233 removed, 1187 unchanged (28% of the section changed)

5 unchanged sentences

Consolidated Balance Sheets as of December 31, 202 3 and 20 2 2

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

Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 202 3 , 202 2 and 20 21

Consolidated Statements of Cash Flows for the years ended December 31, 202 3 , 202 2 and 202 1

5 unchanged sentences

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

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").

and Subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

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The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Danish Tax Matter Uncertain Tax Position

Description of the Matter

As described in Note 13 to the consolidated financial statements, the Company’s liability for the Danish Tax Matter uncertain tax position, including interest and penalties, was approximately $37.8 million as of December 31, 2022.

The Company's liability for the Danish Tax Matter uncertain tax position is derived using a cumulative probability analysis with possible outcomes based on an evaluation of the facts and circumstances and applying the technical requirements applicable to U.S., Danish and international transfer pricing standards, taking into account both the U.S.

and Danish income tax implications of such outcomes.

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 and the indirect tax impacts.

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.

In addition, we used our knowledge of U.S., Danish and international income tax laws, as well as settlement activity from the relevant income tax authorities, to evaluate the Company’s measurement of the liability for the Danish Tax Matter uncertain tax position.

Impairment analysis of goodwill for the Dreams reporting unit

Description of the Matter At December 31, 2023, the Company had $324.6 million of goodwill related to its Dreams reporting unit, which was included in the International reportable segment.

As discussed in Note 1 to the consolidated financial statements, the Company performs its annual impairment test on goodwill as of the first day of the fourth quarter, and more frequently if the Company believes indicators of impairment exist.

Management performed its impairment test by comparing the fair value of the Dreams reporting unit to its carrying amount to determine if there is a potential indicator of impairment.

Management used an income approach (a discounted cash flow analysis) and a market approach (guideline public company analysis) in its quantitative impairment tests.

Auditing the annual goodwill impairment test for the Dreams reporting unit was especially challenging due to the judgments required in determining the fair value.

In particular, the discounted cash flow model involved judgmental assumptions, including projected business results, long-term growth factors and the weighted-average cost of capital, which all include inherent uncertainties as they are affected by expectations about future market or economic conditions and reporting unit specific risk factors.

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 goodwill impairment process, including controls over management’s review of significant inputs and assumptions used in determining the fair value of the Dreams reporting unit.

To test the estimated fair value of the Dreams reporting unit, we performed audit procedures that included, among others, assessing the fair value methodologies and testing the significant assumptions used in the discounted cash flow models, including projected business results, long-term growth factors and the weighted-average cost of capital.

As it pertains to the projected business results, we assessed the reasonableness of the Company’s assumptions by comparing those assumptions to recent historical performance, current economic and industry trends, and financial forecasts.

We also assessed the reasonableness of estimates of the projected business results and the long-term growth factors by evaluating how such assumptions compared to economic, industry, and peer expectations.

We performed various sensitivity analyses around these significant assumptions to understand the impact on the fair value calculation.

In addition, we involved our valuation specialists to assist with our evaluation of the fair value methodologies used by the Company and significant assumptions, including, the weighted average cost of capital based on the projected business results.

Specifically, we evaluated the components of the weighted average cost of capital assumptions by performing an independent corroborative calculation with the involvement of our valuation specialists.

/s/ Ernst & Young LLP

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Net income before non-controlling interest $ 370.7 $ 457.8 $ 625.0

Other comprehensive (loss) income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 39.8 ( 80.1 ) ( 36.6 )

Net change in pension benefits, net of tax 0.4 2.4 2.9

Other comprehensive (loss) income, net of tax ( 77.7 ) ( 33.7 ) 22.2

Other comprehensive income (loss), net of tax 40.2 ( 77.7 ) ( 33.7 )

Comprehensive income 410.9 380.1 591.3

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Total Assets $ 4,553.9 $ 4,359.8

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities:

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Redeemable non-controlling interest 10.0 9.8

Stockholders' (Deficit) Equity:

Stockholders' Equity (Deficit):

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

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( 3,380.6 ) ( 3,434.7 )

Total Stockholders' (Deficit) Equity ( 22.1 ) 285.8

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

Total Stockholders' Equity (Deficit) 323.4 ( 22.1 )

Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity (Deficit) $ 4,553.9 $ 4,359.8

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

1 unchanged sentence

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in millions)

Tempur Sealy International, Inc.

Stockholders' (Deficit) Equity

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

Stockholders' Equity (Deficit)

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

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

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 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 ) —

Net income attributable to non-controlling interests 0.3 0.2 0.2

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 )

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

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

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

Treasury stock repurchased 19.5 ( 801.4 ) ( 801.4 )

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

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

Amortization of unearned stock-based compensation 61.4 61.4

1 unchanged sentence

Net income 455.7 455.7

Net income attributable to non-controlling interests 0.3 0.2 0.2

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

Net income attributable to non-controlling interest 2.1 —

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

Adjustment to pension liability, net of tax of $ 0.8

3 unchanged sentences

Exercise of stock options — 1.5 ( 1.0 ) 0.5

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

Issuance of PRSUs and RSUs ( 2.6 ) 75.9 ( 75.9 ) —

Treasury stock repurchased 18.6 ( 621.2 ) ( 621.2 )

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

Treasury stock repurchased - PRSU/RSU releases 1.0 ( 46.2 ) ( 46.2 )

Amortization of unearned stock-based compensation 53.1 53.1

1 unchanged sentence

Net income 368.1 368.1

Net income attributable to non-controlling interests 2.1 —

Net income attributable to non-controlling interest 2.6 —

Dividend paid to non-controlling interest in subsidiary ( 2.4 ) —

4 unchanged sentences

Exercise of stock options ( 0.2 ) 4.9 ( 2.0 ) 2.9

Issuances of PRSUs, RSUs and DSUs

Issuances of PRSUs and RSUs

( 2.7 ) 85.2 ( 85.2 ) —

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0.1 ( 5.0 ) ( 5.0 )

Treasury stock repurchased - PRSU/RSU/DSU releases

Treasury stock repurchased - PRSU/RSU releases

0.9 ( 31.0 ) ( 31.0 )

2 unchanged sentences

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

T EMPUR SEALY INTERNATIONAL, INC.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

39 unchanged sentences

Net cash (used in) provided by continuing operations ( 1.8 ) ( 215.6 ) 244.8

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

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

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 7.3 ( 15.4 ) ( 8.2 )

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

Increase (decrease) in cash and cash equivalents 5.5 ( 231.3 ) 235.7

CASH AND CASH EQUIVALENTS, beginning of period 69.4 300.7 65.0

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Intercompany balances and transactions have been eliminated.

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

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

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

The Company has ownership interests in Asia-Pacific joint ventures to develop markets for Sealy® and Stearns & Foster® branded products and ownership in a United Kingdom joint venture to manufacture, market and distribute Sealy® and Stearns & Foster® branded products.

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

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

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

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Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of raw materials, can have a significant effect on operations.

(d) Foreign Currency.

(d) Adoption of New Accounting Standards.

Reference Rate Reform.

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides guidance on the accounting impacts due to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR").

The FASB continued to refine its guidance with the January 2021 ASU 2021-01 issued update, "Reference Rate Reform (Topic 848):

Scope" and the December 2022 ASU 2022-06 issued update, "Reference Rate Reform ("Topic 848"):

Deferral of the Sunset Date of Topic 848", of which all were effective upon issuance.

These updates provide entities with certain optional relief expedients and exceptions for applying GAAP to contract modifications, hedge accounting and other transactions affected by reference rate reform if certain criteria are met.

An entity that makes this election would present and account for a modified contract as a continuation of the existing contract.

Entities are afforded these relief options until December 31, 2024, after which time they will no longer be permitted.

In May 2023, the Company amended its 2019 Credit Agreement to transition the applicable reference rate from LIBOR to SOFR.

In October 2023, the Company entered into the 2023 Credit Agreement, which uses SOFR as the applicable reference rate.

See "Note 6 - Debt" for additional details.

The results of this guidance did not have a material impact on the consolidated financial statements.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(e) Accounting Pronouncements Not Yet Adopted

Segments Reporting Disclosures.

In November 2023, the FASB issued Accounting Standards Update ("ASU") 2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosure", which improves reportable segment disclosure requirements for public business entities primarily through enhanced disclosures about significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit (referred to as the “significant expense principle”).

ASU 2023-07 is effective for annual periods beginning after December 15, 2023 (year ending December 31, 2024 for the Company), and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis.

Early adoption is permitted.

The Company expects the adoption of the standard to result in additional segment footnote disclosures.

Income Tax Disclosures.

In December 2023, the FASB issued ASU 2023-09, "Improvements to Income Tax Disclosures", which enhances income tax disclosure requirements for all entities by requiring specified categories and greater disaggregation within the rate reconciliation table, disclosure of income taxes paid by jurisdiction, and providing clarification on uncertain tax positions and related financial statement impacts.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024 (year ending December 31, 2025 for the Company).

Early adoption is permitted.

The Company expects the adoption of the standard to result in additional disaggregation in the income tax footnote disclosures.

(f) Foreign Currency.

Assets and liabilities of non-U.S.

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

(e) Cash and Cash Equivalents.

(g) 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.

(f) Inventories.

(h) 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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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(g) Property, Plant and Equipment.

(i) 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 $ 125.1 million, $ 111.4 million and $ 94.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

(h) Long-Lived Assets.

(j) 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, 2023, 2022 and 2021.

(i) Goodwill and Other Intangible Assets.

(k) 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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Discounted cash flow models are reliant on various assumptions, including projected business results, long-term growth factors and weighted-average cost of capital.

Management judgement is involved in estimating these variables, and they include inherent uncertainties as they are forecasting future events.

Management judgment is involved in estimating these variables, and they include inherent uncertainties as they are forecasting future events.

The Company performs sensitivity analyses by using a range of inputs to confirm the reasonableness of the long-term growth rate and weighted average cost of capital.

4 unchanged sentences

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 2022 and 2021 and quantitatively in 2020, none of which resulted in the recognition of impairment charges.

The Company performed its annual impairment test of goodwill and indefinite-lived intangible assets quantitatively in 2023, and qualitatively in 2022 and 2021, 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."

(j) Accrued Sales Returns.

(l) Accrued Sales Returns.

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

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As of December 31, 2023 and 2022, $ 30.4 million and $ 27.5 million of accrued sales returns is included as a component of accrued expenses and other current liabilities and $ 13.3 million and $ 13.0 million of accrued sales returns is included in other non-current liabilities on the Company’s accompanying Consolidated Balance Sheets, respectively.

(k) Warranties.

(m) Warranties.

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

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As of December 31, 2023 and 2022, $ 18.9 million and $ 17.8 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $ 21.9 million and $ 23.8 million of accrued warranty expense is included in other non-current liabilities on the Company's accompanying Consolidated Balance Sheets, respectively.

(l) Allowance for Credit Losses.

(n) 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.

14 unchanged sentences

Balance as of December 31, 2023

(m) Fair Value .

(o) 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(n) Income Taxes.

(p) 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.

(o) Cost of Sales .

(q) Cost of Sales .

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

3 unchanged sentences

Additionally, cost of sales include royalties that the Company pays to other entities for the use of their names on products produced by the Company.

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

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

Royalty expense is not material to the Company's Consolidated Statements of Income.

(r) 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.

(q) Advertising Costs.

(s) 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 $ 10.2 million and $ 12.4 million as of December 31, 2023 and 2022, respectively.

(r) Research and Development Expenses.

(t) 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.

3 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(s) Stock-based Compensation.

(u) 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.

Stock-based compensation cost for restricted stock units ("RSUs"), performance restricted stock units ("PRSUs") and deferred stock units ("DSUs") is measured based on the closing fair market value of the Company's common stock on the date of grant.

Stock-based compensation cost for restricted stock units ("RSUs") and performance restricted stock units ("PRSUs") is measured based on the closing fair market value of the Company's common stock on the date of grant.

Stock-based compensation cost for stock options is estimated at the grant date based on each option's fair value as calculated by the Black-Scholes option-pricing model.

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

(t) Treasury Stock.

(v) Treasury Stock.

Subject to Delaware law, and the limitations in the 2023 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.

5 unchanged sentences

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

(u) Pension Obligations.

(w) 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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Amounts included in net sales for shipping and handling were $ 8.6 million, $ 8.1 million and $ 7.4 million for the years ended December 31, 2023, 2022 and 2021, respectively.

(3) Acquisitions and Divestitures

(3) Acquisitions

Acquisition of Mattress Firm Group Inc.

On May 9, 2023, Tempur Sealy International and Mattress Firm entered into the Merger Agreement for a pending 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 34.2 million shares of the Company's 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.

Acquisition of Dreams Topco Limited

23 unchanged sentences

The goodwill is not deductible for income tax purposes and is included within the International business segment.

Acquisition of Sherwood Bedding

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

(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 acquisitions — 357.1 357.1

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

2 unchanged sentences

Balance as of December 31, 2023 $ 609.7 $ 473.6 $ 1,083.3

The International segment includes the Dreams and International reporting units, which had goodwill of $ 324.6 million and $ 149.0 million, respectively, as of December 31, 2023.

The following table summarizes information relating to the Company’s other intangible assets, net:

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(5) Unconsolidated Affiliate Companies

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

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

The Company’s investment of $ 28.0 million and $ 22.8 million at December 31, 2023 and 2022, respectively, is recorded in other non-current assets in the accompanying Consolidated Balance Sheets.

9 unchanged sentences

2023 Credit Agreement:

Term A Facility $ 638.8 (1) $ 675.0 (2) October 16, 2024

Revolver 337.0 (1) — (2) October 16, 2024

Term A Facility $ 500.0 (1) $ — N/A October 10, 2028

Revolver 183.0 (1) — N/A October 10, 2028

2019 Credit Agreement:

Term A Facility — N/A 638.8 (2) October 16, 2024

Revolver — N/A 337.0 (2) October 16, 2024

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

9 unchanged sentences

Total long-term debt, net $ 2,527.0 $ 2,739.9

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

(1) Interest at SOFR index plus 10 basis points of credit spread adjustment, plus applicable margin of 1.625 % as of December 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.

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The 2023 Credit Agreement replaced the Company's 2019 Credit Agreement.

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 2023 Credit Agreement provides for a $ 1.15 billion revolving credit facility, a $ 500.0 million term loan facility, and an incremental facility in an aggregate amount of up to the greater of $ 850.0 million and additional amounts subject to the conditions set forth in the 2023 Credit Agreement, plus the amount of certain prepayments, plus an additional unlimited amount subject to compliance with a maximum consolidated secured leverage ratio test.

The 2023 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 $ 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.

For the revolving credit facility and the term loan facility (a) the initial applicable margin for Base Rate advances was 0.625 % per annum and the initial applicable margin for LIBOR advances was 1.625 % per annum, and (b) following the delivery of financial statements for the fiscal quarter ending December 31, 2019, such applicable margins that are determined by a pricing grid based on the consolidated total net leverage ratio of the Company.

Borrowings under the 2023 Credit Agreement will generally bear interest, at the election of Tempur Sealy International and the other subsidiary borrowers, at either (i) base rate plus the applicable margin, (ii) "Eurocurrency" rate plus the applicable margin, (iii) "RFR" Daily SOFR rate plus the applicable margin or (iv) a "Term Benchmark" Term SOFR rate plus the applicable margin.

For the revolving credit facility and the term loan facility (a) the initial applicable margin for base rate advances was 0.625 % per annum and the initial applicable margin for Eurocurrency rate, RFR rate and Term Benchmark rate advances was 1.625 % per annum, and (b) following the delivery of financial statements for the fiscal quarter ending March 31, 2024 and for subsequent fiscal quarters, such applicable margins will be determined by a pricing grid based on the consolidated total net leverage ratio of the Company.

Obligations under the 2023 Credit Agreement are guaranteed by the Company's existing and future direct and indirect wholly-owned domestic subsidiaries, subject to certain exceptions and are secured by a security interest in substantially all of Tempur Sealy International’s and the other subsidiary borrowers' domestic assets and the domestic assets of each subsidiary guarantor, whether owned as of the closing or thereafter acquired, including a pledge of 100.0 % of the equity interests of each subsidiary owned by the Company or a subsidiary guarantor that is a domestic entity (subject to certain limited exceptions) and 65.0 % of the voting equity interests of any direct first tier foreign entity owned by the Company or a subsidiary guarantor.

3 unchanged sentences

The Company is allowed to subtract from consolidated indebtedness an amount equal to 100.0 % of the domestic and foreign unrestricted cash ("netted cash").

As of December 31, 2022, the Company's consolidated total net leverage ratio was 3.10 times, which complies with the covenant in the 2019 Credit Agreement that limits this ratio to 5.00 times.

As of December 31, 2023, netted cash was $ 74.9 million.

The 2023 Credit Agreement contains certain customary negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of business, changes in fiscal year, transactions with affiliates, use of proceeds, prepayments of certain indebtedness, entry into burdensome agreements and changes to governing documents.

The 2023 Credit Agreement also contains certain customary affirmative covenants and events of default, including upon a change of control.

The Company was in compliance with all applicable covenants in the 2019 Credit Agreement at December 31, 2022.

The Company is required to pay a commitment fee on the unused portion of the revolving credit facility, which initially is 0.25 % per annum and following the delivery of financial statements for the fiscal quarter ending March 31, 2024 and for subsequent fiscal quarters, such fees will be determined by a pricing grid based on the consolidated total net leverage ratio of the Company.

This unused commitment fee is payable quarterly in arrears and on the date of termination or expiration of the commitments under the revolving credit facility.

The Company and the other borrowers also pay customary letter of credit issuance and other fees under the 2023 Credit Agreement.

The maturity date of the 2023 Credit Agreement is October 10, 2028.

2 unchanged sentences

In addition, the term loan facility is subject to mandatory prepayment in connection with certain debt issuances, asset sales and casualty events, subject to certain reinvestment rights.

prepayments and commitment reductions under the 2019 Credit Agreement are permitted at any time without payment of any prepayment premiums.

Voluntary prepayments and commitment reductions under the 2023 Credit Agreement are permitted at any time without payment of any prepayment premiums.

On February 6, 2024, the Company and certain other parties thereto entered into an amendment to the 2023 Credit Agreement which provides for a $ 625.0 million delayed draw term loan and a $ 40.0 million increase in availability on the existing incremental revolving loan.

Once drawn, the instruments will have the same terms and conditions as the Company's existing term loans and revolving loans, respectively, under the 2023 Credit Agreement.

This amendment was executed in connection with the Company's financing strategy for the pending acquisition of Mattress Firm expected to close in the second half of 2024.

The Company had $ 183.0 million in outstanding borrowings under the revolving credit facility as of December 31, 2023.

Total availability under the revolving facility was $ 966.4 million, after a $ 0.6 million reduction for outstanding letters of credit, as of December 31, 2023.

The Company was in compliance with all applicable covenants in the 2023 Credit Agreement at December 31, 2023.

2019 Credit Agreement

The Company used the proceeds from the 2023 Credit Agreement to refinance outstanding borrowings under the 2019 Credit Agreement and terminated the existing revolving credit commitments.

The 2019 Credit Agreement provided for a $ 725.0 million revolving credit facility and a $ 725.0 million term loan facility.

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.

On April 6, 2021, the Company and certain of its subsidiaries entered into the first 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.

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.

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.

Borrowings under this facility are classified as long-term debt within the Consolidated Balance Sheets at December 31, 2023.

The Company had $ 157.6 million in outstanding borrowings under the Accounts Receivable Securitization as of December 31, 2023.

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

The Company did not have availability under the Accounts Receivable Securitization as of December 31, 2023.

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.

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In addition, Tempur Sealy International has the option at any time prior to October 15, 2026 to redeem some or all of the 2031 Senior Notes at 100.0 % of the original principal amount plus a "make-whole" premium and accrued and unpaid interest, if any.

Tempur Sealy International may also redeem up to 40.0 % of the 2031 Senior Notes prior to October 15, 2024, under certain circumstances with the net cash proceeds from certain equity offerings, at 103.875 % of the principal amount plus accrued and unpaid interest, if any.

accrued and unpaid interest, if any.

Tempur Sealy International may make such redemptions as described in the preceding sentence only if, after any such redemption, at least 60.0 % of the original aggregate principal amount of the 2031 Senior Notes issued remains outstanding.

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The initial redemption price is 102.00 % of the principal amount, plus accrued and unpaid interest, if any.

redemption price will decline each year after 2024 until it becomes 100.0 % of the principal amount beginning on April 15, 2026.

The redemption price will decline each year after 2024 until it becomes 100.0 % of the principal amount beginning on April 15, 2026.

In addition, Tempur Sealy International has the option at any time prior to April 15, 2024 to redeem some or all of the 2029 Senior Notes at 100.0 % of the original principal amount plus a "make-whole" premium and accrued and unpaid interest, if any.

18 unchanged sentences

(1) Total future obligations excludes $ 28.1 million of outstanding letters of credit issued by various financial institutions, including $ 0.6 million associated with the 2023 Credit Facility.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company leases retail stores, manufacturing and distribution facilities, office space and equipment under operating and finance lease agreements.

105 unchanged sentences

36-6044243-001 12/31/22 Red Implemented $ 0.8 Yes, 10.0 %

2024, 2025 N/A

TEMPUR SEALY INTERNATIONAL, INC.

41 unchanged sentences

The Company repurchased 0.1 million shares, 18.6 million shares and 19.5 million shares under the program, for approximately $ 5.0 million, $ 621.2 million and $ 801.4 million during the years ended December 31, 2023, 2022 and 2021, respectively.

Upon the announcement of our pending acquisition of Mattress Firm, the Company suspended its share repurchase program.

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, 2023, 2022 and 2021, respectively.

18 unchanged sentences

$ ( 1.6 ) $ ( 4.0 ) $ ( 6.9 )

Other comprehensive income (loss):

Other comprehensive income:

Net change from period revaluation

3.2 3.8 ( 1.8 )

Tax (expense) benefit (2)

( 0.8 ) ( 0.9 ) 0.4

Total other comprehensive income (loss)

Tax expense (2)

( 0.1 ) ( 0.8 ) ( 0.9 )

Total other comprehensive income

Balance at end of period

7 unchanged sentences

$ 102.1 $ 78.0

Taxes 52.1 15.0

Unearned revenue 53.3 48.5

Taxes 15.4 52.1

$ 427.1 $ 432.7

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(11) Stock-based Compensation

8 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.

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

The Company's stock-based compensation expense for the year ended December 31, 2023, 2022 and 2021 included PRSUs, RSUs and stock options.

A summary of the Company’s stock-based compensation expense is presented below:

2 unchanged sentences

PRSU expense $ 24.9 $ 31.0 $ 39.4

RSU expense 20.6 21.0 20.5

Stock option expense 2.2 1.1 1.5

RSU/DSU expense 21.0 20.5 22.2

Total stock-based compensation expense $ 47.7 $ 53.1 $ 61.4

4 unchanged sentences

A summary of the Company's PRSU activity and related information for the years ended December 31, 2023 and 2022 is presented below:

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(shares in millions) Shares Weighted Average Grant Date Fair Value

13 unchanged sentences

For the year ended December 31, 2023, the Company recognized stock-based compensation expense related to the 2023 PRSUs based on the Company's achievement of its performance targets for the performance period.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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, 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.

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.

Stock Options

15 unchanged sentences

A summary of the Company's stock option activity under the 2003 Plan and 2013 Plan for the years ended December 31, 2023 and 2022 is presented below:

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in millions, except per share amounts and years) Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value

Options outstanding at December 31, 2021

Granted 1.2 30.00

Exercised — 10.44

1 unchanged sentence

Options outstanding at December 31, 2022

Granted 1.2 30.00

Exercised ( 0.2 ) 15.89

5 unchanged sentences

The aggregate intrinsic value of options exercised during the years ended December 31, 2023 and 2022 was $ 5.1 million and $ 0.9 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, 2023 and 2022, and changes during the years ended December 31, 2023 and 2022, are presented below:

1 unchanged sentence

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

Granted 1.2 30.00

Vested ( 0.3 ) 30.00

1 unchanged sentence

Options unvested at December 31, 2023

Restricted/Deferred Stock Units

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

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Restricted Stock Units

A summary of the Company's RSU activity and related information for the years ended December 31, 2023 and 2022 is presented below:

(in millions, except per share amounts) Shares Weighted Average Grant Date Fair Value Aggregate Intrinsic Value

10 unchanged sentences

1.7 $ 29.51 $ 84.7

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:

The aggregate intrinsic value of RSUs vested during the years ended December 31, 2023 and 2022 was $ 39.0 million and $ 61.7 million, respectively.

A summary of total unrecognized stock-based compensation expense based on current performance estimates related to stock options, RSUs and PRSUs for the year ended December 31, 2023 is presented below:

(in millions, except years) December 31, 2023 Weighted Average Remaining Vesting Period (Years)

Unrecognized stock option expense $ 5.6 2.51

Unrecognized DSU/RSU expense 23.5 2.17

Unrecognized RSU expense 20.4 2.30

Unrecognized PRSU expense 19.2 1.68

Total unrecognized stock-based compensation expense $ 45.2 2.06

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(12) Commitments and Contingencies

25 unchanged sentences

Uncertain tax positions and interest ( 0.8 ) ( 0.2 ) % ( 19.2 ) ( 3.3 ) % 6.5 0.8 %

Subpart F income — — % — — % 3.3 0.7 %

Global Intangible Low-Taxed Income ("GILTI")

2.7 0.6 % 3.2 0.5 % 1.5 0.2 %

GILTI High-Taxed Exception

Expiration of foreign tax credits

10.6 2.2 % 1.6 0.3 % — — %

1 unchanged sentence

Nondeductible compensation 12.7 2.7 % 14.6 2.5 % 5.1 0.6 %

Danish Tax Matter ( 13.7 ) ( 2.9 ) % — — % — — %

Notional interest deduction ( 14.0 ) ( 3.0 ) % — — % — — %

Permanent and other ( 7.2 ) ( 1.5 ) % ( 5.3 ) ( 0.9 ) % ( 10.1 ) ( 1.3 ) %

Effective income tax provision $ 103.4 21.8 % $ 119.0 20.6 % $ 198.3 24.1 %

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

35 unchanged sentences

Net deferred tax liabilities $ ( 112.3 ) $ ( 102.7 )

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Tax Attributes Included in Deferred Tax Assets

5 unchanged sentences

Foreign net operating losses ("FNOLs") 49.8 63.6

Charitable contribution carryover ("CCCs") 0.9 1.2

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").

Notional interest deduction ("NID") 40.0 —

State charitable contribution carryover ("SCCCs") 0.7 0.9

The SNOLs, SITCs, FNOLs and SCCCs generally begin to expire in 2024, 2031, 2024 and 2024, 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, SITCs, FNOLs, NID, the SCCCs and certain other deferred tax assets related to certain foreign operations (together, the "Tax Attributes").

The Company has established a valuation allowance for certain deferred tax assets (including the Tax Attributes) where it is more likely than not such deferred tax assets will not be realized.

1 unchanged sentence

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making its assessment regarding the recoverability of its deferred tax assets.

The Company has recorded valuation allowances against $ 54.9 million of the SNOLs and $ 10.6 million of the FTCs.

The Company has recorded valuation allowances against $ 56.3 million of the SNOLs, $ 29.5 million of FNOLs, $ 40.0 million of the NID and $ 0.7 million of the SCCCs as of December 31, 2023.

With respect to all other Tax Attributes above, based upon the level of historical taxable income and projections for future taxable income, management believes it is more likely than not the Company will realize the benefits of the underlying deferred tax assets.

5 unchanged sentences

income tax ("PTEP").

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.

During the three month period ended December 31, 2023, the Company revalued the deferred income tax liability associated with the PTEP resulting in a tax benefit of approximately $ 2.0 million.

The revaluation is primarily attributable to a reduction in PTEP during 2023.

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.

6 unchanged sentences

Consequently at December 31, 2023 the Company has accrued approximately $ 1.6 million for such withholding tax.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Uncertain Income Tax Positions

13 unchanged sentences

Expiration of statutes of limitations ( 1.9 )

Reduction for tax positions of prior years ( 4.9 )

Settlements of uncertain tax positions with tax authorities —

7 unchanged sentences

The amount of unrecognized tax benefits that would impact the effective tax rate if recognized at December 31, 2023 and 2022 would be $ 4.5 million and $ 17.6 million, respectively.

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.

During the years ended December 31, 2023 and 2022, the Company recognized $ 4.0 million and $ 6.9 million in interest and penalties as a benefit in the income tax provision, respectively.

The Company had $ 1.0 million and $ 5.0 million of accrued interest and penalties at December 31, 2023 and 2022, 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.

As discussed below, in the three months ended December 31, 2023, the Company settled the Danish Tax Matter related to 2012 to 2022.

Such settlement resulted in a reduction of the Company’s liability for uncertain tax positions of approximately $ 34.0 million, which is reflected in “Settlements of uncertain tax positions with tax authorities” 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.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the Consolidated Financial Statements.

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

3 unchanged sentences

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.

subsidiary to a Danish subsidiary for tax years 2012 through 2022.

The royalty is paid by the U.S.

1 unchanged sentence

production process.

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).

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

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

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

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

2012 to Current Period Other non-current liabilities — 50.1

Total $ 37.8 $ 50.1

The deferred tax asset for the U.S.

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.

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

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 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 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.

After application of the VAT refunds to the liability associated with the Settlement Years, the remaining VAT on deposit with SKAT is approximately $ 1.5 million.

As of December 31, 2022, the Company made the following tax deposits with SKAT related to the Danish Tax Matter for the years 2012 through 2016:

VAT deposits remaining with SKAT $ 1.4

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

Prepaid expenses and other current assets $ 58.8 $ —

Other non-current assets — 48.6

Total $ 58.8 $ 48.6

In October 2018, the Company initiated an Advanced Pricing Agreement (“APA”) process for SKAT and the U.S.

Internal Revenue Service (“IRS”) to negotiate a resolution of this dispute.

The Company had previously estimated an uncertain tax position with respect to additional Danish income tax (and interest) related to an increase in Danish taxable income resulting from the dispute.

Conversely, the Company also previously recorded a deferred tax asset for the correlative benefit for the U.S.

reduction in taxable income that would result from the dispute.

In December 2022, SKAT and the IRS reached a preliminary framework agreement (the “Framework”) to resolve the dispute.

In the year ended December 31, 2022, the Company remeasured the uncertain tax position and associated deferred tax asset to reflect the terms of the Framework, which resulted in a net income tax benefit for the year ended December 31, 2022 of $ 14.7 million.

The Framework was not a binding agreement, but its terms provided definitive data for the Company to determine both the Danish and U.S.

tax impacts at December 31, 2022.

As it relates to the year ended December 31, 2023, in January 2023 the Company implemented the terms of the Framework.

Consequently, there is neither Danish income tax exposure nor a correlative U.S.

benefit for the year December 31, 2023.

On October 12, 2023, the IRS Advanced Pricing and Mutual Agreement (“APMA”) Team and SKAT formally agreed on final terms of a bilateral advance pricing agreement (“BAPA”) with respect to the ongoing royalty matter for the periods 2012 through 2024 (the “Settlement”).

The terms of the BAPA are substantially identical with those preliminarily agreed upon in the Preliminary Framework in December 2022.

With respect to impact of the Settlement on the Company’s Danish tax position, pursuant to the BAPA, in December 2023 SKAT issued revised or initial assessments for each of the years 2012 through 2022.

The final tax and interest assessed was materially consistent with the income tax reserves the Company previously recorded, which was $ 37.8 million as of December 31, 2022.

The Company offset the income tax reserves in the fourth quarter of 2023 against the previous amounts on deposit with SKAT and recorded a net income tax benefit in the Company’s consolidated financial statements of approximately $ 4.8 million (largely interest to be paid by SKAT on the overpayment of tax).

The assessments reflect a net refund of deposits previously paid to SKAT of approximately $ 24.8 million, which the Company has recorded as an income tax receivable included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets.

In addition, the Company has approximately $ 7.6 million remaining on deposit with SKAT for an unrelated matter recorded in other non-current assets.

With respect to the impact of the Settlement on the Company’s U.S.

tax position, on November 9, 2023, the Company formally agreed on a Mutual Agreement Procedure (“MAP”) and Advance Pricing Agreement (“APA”) with APMA related to the implementation of the terms of the BAPA for U.S.

income tax purposes, which included reporting the U.S.

result of the Settlement for all years 2012 through 2022 in an amended 2022 income tax return.

As a result, the Company released the deferred tax asset associated with its U.S.

position of $ 21.6 million in the year ended December 31, 2023 and recorded a net income tax benefit and incremental receivable in the Company’s consolidated financial statements at December 31, 2023.

The net income tax benefit is approximately $ 8.9 million (consisting of a gross benefit of $ 10.5 million, offset by U.S.

tax of approximately $ 1.6 million related to subpart F income resulting from the interest paid by SKAT on the Danish overpayment of tax).

The incremental U.S.

income tax receivable at December 31, 2023 is approximately $ 30.1 million and is included in other non-current assets in the accompanying Consolidated Balance Sheets.

TEMPUR SEALY INTERNATIONAL, INC.

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Diluted earnings per common share for continuing operations $ 2.08 $ 2.53 $ 3.06

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 years ended December 31, 2023 and 2021, 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.

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.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(15) Business Segment Information

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These segments are strategic business units that are managed separately based on geography.

The North America segment consists manufacturing and distribution subsidiaries, joint ventures and licensees located in the U.S., Canada and Mexico.

The International segment consists 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 also included in the International segment.

The North America segment consists of manufacturing, distribution and retail subsidiaries and licensees located in the U.S., Canada and Mexico.

The International segment consists manufacturing, distribution and retail subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico).

Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results.

1 unchanged sentence

The Company sells its products in over 100 countries to over 10,000 wholesale customers.

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

The Company’s Direct channel represents 23.9 % of the Company’s consolidated net sales in 2023, as compared to 23.3 % of the Company's consolidated net sales in 2022.

One wholesale customer contributed over 15 % of the Company’s consolidated net sales in the years ended 2023 and 2022, respectively.

1 unchanged sentence

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

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes total assets by segment:

20 unchanged sentences

Total operating lease right-of-use assets $ 636.5 $ 506.8

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes segment information for the year ended December 31, 2023:

12 unchanged sentences

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

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes segment information for the year ended December 31, 2022:

12 unchanged sentences

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

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table summarizes segment information for the year ended December 31, 2021:

19 unchanged sentences

$ 878.3 $ 791.1

TEMPUR SEALY INTERNATIONAL, INC.

AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

14 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-K

Item 8. Financial Statements and Supplementary Data