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Item 1A. Risk Factors

2025-02-28 compared with 2024-02-16 · 43 added, 41 removed, 216 unchanged (28% of the section changed)

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Geopolitical developments, such as trade wars, the Russia-Ukraine conflict, the Israel-Hamas conflict and wider Middle East developments (including disruptions to the Red Sea passage or such conflicts spreading further in the relevant regions), have adversely impacted and could continue to adversely impact, among other things, our raw material, energy and transportation costs, certain of our suppliers, distributors, customers and local markets, global and local macroeconomic conditions, and cause further supply chain disruptions (including by delaying the delivery times of raw materials needed for our business or our products to customers).

In order to consummate the previously disclosed, pending merger with Mattress Firm, we and Mattress Firm must obtain certain governmental approvals, and if such approvals are not granted or are granted with conditions, consummation of the merger may be jeopardized, may not occur or may be delayed, or the anticipated benefits of the merger may not be achieved.

On May 9, 2023, we entered into an Agreement and Plan of Merger (the "Merger Agreement") to acquire Mattress Firm Group Inc.

("Mattress Firm").

Although we and Mattress Firm have agreed to use reasonable best efforts to make certain governmental filings and obtain the required governmental approvals, including from the Federal Trade Commission ("FTC"), and to observe the expiration and termination of relevant waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the "HSR Act"), there can be no assurance that the relevant approvals will be obtained.

In the fourth quarter of 2023, we announced that we certified substantial compliance with the FTC’s second request for documents pursuant to the HSR Act, in connection with the merger.

The governmental entities from which these approvals are required have broad discretion in administering the governing laws and regulations, and may take into account various facts and circumstances in their consideration of the merger.

These governmental entities may initiate proceedings seeking to prevent, or otherwise seek to prevent, the merger.

As a condition to approving the merger, these governmental entities may impose conditions, terms, obligations or restrictions or require divestitures or place restrictions on the conduct of our business after consummation of the merger.

As further described in the Merger Agreement, we have agreed to take certain divestiture actions and agree to certain other obligations or commitments in connection with the consummation of the merger if reasonably likely to permit consummation of the merger, provided that we are not required to take any divestiture actions in excess of an agreed amount specified in the Merger Agreement or if such actions, commitments and divestitures individually or in the aggregate would or would reasonably be expected to have a material and adverse impact on our business or the business of Mattress Firm or the anticipated benefits to the Company of the merger.

While we are pursuing the divestiture of certain of our and Mattress Firm’s stores, the progress of such process may change and there can be no assurance that we will successfully complete this process on the expected timing or at all.

There can be no assurance that governmental entities will not impose the aforementioned divestiture obligations, conditions, terms, obligations or restrictions and that such divestiture obligations, conditions, terms, obligations or restrictions will not have the effect of delaying or preventing consummation of the merger or imposing additional material costs on or limiting the benefits of the merger to the Company, or otherwise adversely affecting, including to a material extent, our business, results of operations and financial condition after consummation of the merger.

If we are required to divest assets or businesses, there can be no assurance that we will be able to negotiate such divestitures expeditiously or on favorable terms or that the governmental entities will approve the terms of such divestitures.

We can provide no assurance that these divestiture obligations, conditions, terms, obligations or restrictions will not result in the abandonment of the merger and termination of the Merger Agreement.

The acquisition of Mattress Firm may not be as successful as anticipated, and we may not achieve the intended benefits or

do so within the intended timeframe.

The success of our acquisition of Mattress Firm will depend, in large part, on our ability to realize the anticipated benefits from combining our business with Mattress Firm.

Our ability to realize these anticipated benefits depends on the successful merger of our business with Mattress Firm, which will be complex and time-consuming.

This merger will involve numerous operational, strategic, financial, accounting, legal, tax and other risks, including potential liabilities associated with Mattress Firm's business.

Difficulties in combining the business of Mattress Firm and our ability to manage the combined company may result in the combined company performing differently than expected, in operational challenges or in the delay or failure to realize anticipated expense-related operating synergies and could have an adverse effect on our business and financial results.

Potential difficulties that may be encountered in the merger process include, among other factors:

• the inability to successfully merge the business of Mattress Firm, operationally and culturally, in a manner that permits us to achieve the financial results anticipated;

• the inability to deliver on our strategy as a combined company, including the expansion of consumer touchpoints and acceleration of our U.S.

omni-channel strategy;

• complexities associated with managing a larger, more complex business, including the potential diversion of management's attention;

• not realizing anticipated operating synergies;

• the inability to retain key employees and otherwise combine personnel from the two companies;

• potential unknown liabilities and unforeseen expenses;

• merging relationships with customers, suppliers, distributors and business partners;

• performance shortfalls at one or both of the companies as a result of the diversion of management's attention caused by merging Mattress Firm's operations;

• the disruption of, or the loss of momentum in, each company's ongoing business or inconsistencies in standards, controls, procedures and policies.

Risks related to operating our business

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• our ability to successfully mitigate the impact of headwinds facing our business, including increased commodity prices and the influx of low-end, imported beds that compete with certain of our products;

• our ability to pursue, successfully integrate and capture the synergies from potential acquisition opportunities, including the pending Mattress Firm acquisition;

• our ability to pursue, successfully integrate and capture the synergies from potential acquisition opportunities, such as the Mattress Firm acquisition;

• general economic factors that impact consumer confidence, disposable income or the availability of consumer financing;

• our ability to successfully open new stores and profitably operate existing stores.

Our new product launches may not be successful due to development delays, failure of new products to achieve anticipated levels of market acceptance and significant costs associated with failed product introductions, which could adversely affect our revenues and profitability.

Each year we invest significant time and resources in research and development to improve our product offerings and launch new products.

In 2023, we launched our refreshed Stearns & Foster® product line and a new line of Tempur® mattresses internationally.

We also launched a new portfolio of Tempur-Pedic® Breeze mattresses and Tempur-Ergo® Smart Bases in 2023.

We expect to complete the multi-year refresh of Tempur-Pedic® products in 2024 with a new portfolio of Tempur-Pedic® Adapt mattresses and accessories in North America in 2024.

In 2024, we completed the launch of a new portfolio of Tempur-Pedic® Adapt mattresses in our North America segment.

This collection was designed to complement the Tempur-Pedic® Breeze collection and Tempur-Ergo® Smart Bases launched in 2023 and finishes the complete reset of our core Tempur® lineup.

In our International segment in 2024, we completed the rollout of the new line of Tempur® products in over 90 markets through our wholly-owned subsidiaries and third-party distributors.

This new line of products will broaden Tempur®'s price range with the super-premium price point ceiling maintained and the floor expanded into the premium category to broaden our global addressable market.

In 2025, we are launching an all-new collection of Sealy Posturepedic® products in North America.

This reinvention of the Sealy Posturepedic® brand is strategically aimed at reigniting growth in the mid-to-entry level market, which has experienced outsized pressures relative to other price points in recent years.

The new collection incorporates innovative technologies, including our proprietary PrecisionFit™ coils that deliver superior support and exceptional comfort.

There are a number of risks that are inherent in our new product line introductions, including that the anticipated level of market acceptance may not be realized, which could negatively impact our sales.

Further, introduction costs and manufacturing inefficiencies may be greater than anticipated, while the rollout of the product could be delayed, each of which could impact profitability.

Because we depend on certain significant customers, a decrease or interruption in their business with us would reduce our sales and results of operations.

Our top five customers, collectively, accounted for approximately 32% of our net sales in 2023, and Mattress Firm contributed over 15%.

If we are successful in closing the pending Mattress Firm acquisition, our significant customer concentration will be significantly reduced.

There have been signs of deterioration in the U.S.

retail sector, both nationally and regionally, including among our competitors.

Some additional retailers that carry our products, as well as some of our competitors, may consolidate, undergo restructurings or reorganizations, may be acquired, experience financial difficulty or bankruptcy, or realign their affiliations, any of which could decrease the number of stores that carry our products, increase the ownership concentration in the retail industry or otherwise negatively impact the credit and retail environments in which we operate.

An increase in the concentration of our sales to large customers may negatively affect our profitability due to the impact of volume and other incentive programs related to these customers.

Furthermore, if sales to our large customers grow, our credit exposure to these customers may also increase.

Some of these retailers may decide to carry only a limited number of brands of mattress products, which could affect our ability to sell products to them on favorable terms, if at all.

A substantial decrease or interruption in business from these significant customers could result in the loss of future business and could reduce revenue, liquidity and profitability.

We rely significantly on information technology ("IT") and we have experienced and in the future could experience cyber-based attacks which have and in the future could harm our ability to effectively operate our business.

We rely significantly on IT and we have experienced, and in the future could experience, cyber-based attacks which have and in the future could harm our ability to effectively operate our business.

We rely on IT systems to operate and manage our business and to process, maintain and safeguard information essential to our business as well as information relating to third-parties, including our customers, suppliers and employees.

These systems are vulnerable to events beyond our reasonable control, including cyberattacks and security breaches.

Such events have resulted in and in the future could result in operational slowdowns, shutdowns or other difficulties;

Such events have resulted, and in the future could result, in operational slowdowns, shutdowns or other difficulties;

loss of sales, revenues or market share;

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Furthermore, our patents may not provide meaningful protection and patents may never issue from pending applications.

It is also possible that others could bring claims of infringement against us, as our principal product formula and manufacturing processes are not patented, and that any licenses protecting our intellectual property could be terminated.

If we were unable to maintain the proprietary nature of our intellectual property and our significant current or proposed products, this loss of a competitive advantage could result in decreased sales or increased operating costs, either of which would decrease our liquidity and profitability.

It is also possible that others could bring claims of infringement against us, as our principal product formula and

manufacturing processes are not patented, and that any licenses protecting our intellectual property could be terminated.

If we are unable to maintain the proprietary nature of our intellectual property and our significant current or proposed products, this loss of a competitive advantage could result in decreased sales or increased operating costs, either of which would decrease our liquidity and profitability.

In addition, the laws of certain foreign countries may not protect our intellectual property rights and confidential information to the same extent as the laws of the U.S.

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Our leverage affects how we manage our business and may limit our flexibility.

We operate in the ordinary course of our business with a certain amount of leverage.

We operate in the ordinary course of our business with a certain amount of leverage, including debt incurred to close the acquisition of Mattress Firm on February 5, 2025.

Our degree of leverage could have important consequences, such as:

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• restricting us from making strategic acquisitions or investments or causing us to make non-strategic divestitures;

• limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, including the pending Mattress Firm acquisition, and general corporate or other purposes;

• limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, such as the Mattress Firm acquisition, and general corporate or other purposes;

• limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate;

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If such default or event of default is not cured or waived, as applicable, we may suffer adverse effects on our operations, business or financial condition, including acceleration of the maturity date of all amounts outstanding under our debt facilities.

For further discussion regarding our debt covenants and compliance, refer to "Management's Discussion and Analysis" included in Part II, ITEM 7 of this Report and Note 6, "Debt," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report.

For further discussion regarding our debt covenants and compliance and the acquisition of Mattress Firm, refer to "Management's Discussion and Analysis" included in Part II, ITEM 7 of this Report, Note 6, "Debt," and Note 3, "Acquisitions and Divestitures," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report.

We are subject to risks from our international operations, such as complying with U.S.

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Our international operations are subject to the customary risks of operating in an international environment, including complying with U.S.

laws affecting operations outside of the U.S.

such as the Foreign Corrupt Practices Act;

laws affecting operations outside of the U.S., such as the Foreign Corrupt Practices Act;

complying with foreign laws and regulations, including disparate anti-corruption laws and regulations;

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Fluctuations in the rate of exchange between currencies in which we do business may affect our financial condition or results of operations.

Additionally, changes in international trade duties and other aspects of international trade policy, both in the U.S.

Changes in international trade duties and other aspects of international trade policy, both in the U.S.

and abroad, could materially impact our business.

In particular, the imposition of new tariffs or increases in existing tariffs on products imported from countries where our suppliers operate increase the costs for raw materials and finished goods.

These cost increases reduce our margins and may require us to raise prices, or make our products less competitive in the marketplace.

In addition, other countries may change their business and trade policies in anticipation of or in response to increased import tariffs and other changes in trade policy and regulations already enacted or that may be enacted in the future.

If we are unable to mitigate these risks through supply chain adjustments, pricing strategies or other measures, our financial performance and growth prospects could be negatively affected.

We are subject to various regulatory requirements, including, but not limited to, trade, environmental, health and safety requirements, any violation of which may require costly expenditures and expose us to liability.

We, and our products, are subject to extensive regulation in the U.S.

by various federal, state and local regulatory authorities, including the FTC, the Consumer Product Safety Commission ("CPSC") and the U.S.

by various federal, state and local regulatory authorities, including the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission ("CPSC") and the U.S.

Food and Drug Administration, and by similar international regulatory regimes.

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and other countries, including the Kyoto Protocol.

We may not be in complete compliance with any such requirements, or at all times, and though we have made and will continue to make expenditures to comply these regulatory requirements, violation of any of them or failure to comply could expose us to liability, subject us to monetary liabilities and could harm our business, reputation and financial condition.

We may not be in complete compliance with any such requirements, or at all times, and though we have made and will continue to make expenditures to comply with these regulatory requirements, violation of any of them or failure to comply could expose us to liability, subject us to monetary liabilities and could harm our business, reputation and financial condition.

Our pension plans are currently underfunded and we may be required to make cash payments to the plans, reducing our available cash.

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From 2016 through December 31, 2024, we had repurchased an aggregate of 55.3 million shares for approximately $2,388.9 million under our share repurchase program.

For the year ended and as of December 31, 2023, we repurchased an aggregate of $5.0 million of shares under our share repurchase program and had approximately $774.5 million remaining under the share repurchase authorization.

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

For the year ended and as of December 31, 2024, we did not repurchase shares under our share repurchase program and had approximately $774.5 million remaining under the share repurchase authorization.

While the Mattress Firm acquisition was pending, we temporarily suspended our share repurchase program, and currently expect to allocate unused cash flows toward repayment of debt.

Shares may be repurchased from time to time, in the open market or through private transactions, subject to market conditions, in compliance with applicable state and federal securities laws.

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

What changed 10-K

Item 1A. Risk Factors