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Item 7. Management’s Discussion and Analysis

2026-02-27 compared with 2025-02-28 · 239 added, 198 removed, 372 unchanged (54% of the section changed)

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The following discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Report.

Unless otherwise noted, all of the financial information in this Report is consolidated financial information for the Company, excluding Mattress Firm unless otherwise noted.

Unless otherwise noted, all of the financial information in this Report is consolidated financial information for the Company, including Mattress Firm's financial results for the period February 5, 2025 through December 31, 2025 (the "stub period").

The forward-looking statements in this discussion regarding the mattress and pillow industries, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are subject to numerous risks and uncertainties.

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Business Overview

We are the world's largest bedding company, dedicated to enriching people's lives through the power of a good night's sleep.

With superior capabilities in design, manufacturing, distribution and retail, we deliver breakthrough sleep solutions and serve the evolving needs of consumers in more than 100 countries worldwide through our fully-owned businesses, Tempur Sealy, Mattress Firm and Dreams.

In 2024, we operated in two segments:

North America and International.

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

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

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

We are the world's largest bedding company, dedicated to transforming how the world sleeps.

With superior capabilities in design, manufacturing, distribution and retail, we deliver breakthrough sleep solutions and serve the evolving needs of consumers in over 100 countries worldwide through our fully-owned businesses, Tempur Sealy, Mattress Firm and Dreams.

We operate in three segments:

Mattress Firm, Tempur Sealy North America and Tempur Sealy International.

These segments are strategic business units that are managed separately.

Our Mattress Firm segment consists of retail stores and distribution centers located in the U.S.

Our Tempur Sealy North America segment consists of manufacturing, distribution and retail subsidiaries and licensees located in the U.S., Canada and Mexico (other than Mattress Firm retail and distribution locations).

Our Tempur Sealy International segment consists of 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 any of the segments and are presented separately as a reconciling item to consolidated results.

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For additional information refer to Note 15, "Business Segment Information," included in Part II, ITEM 8 "Financial Statements and Supplementary Data," of this Report.

Following the acquisition of Mattress Firm and beginning in the first quarter of 2025, we will operate in three segments:

Tempur Sealy North America, Tempur Sealy International and Mattress Firm.

Our portfolio includes the most highly recognized brands in the industry, including Tempur-Pedic®, Sealy® and Stearns & Foster®, and our global omni-channel platform enables us to meet consumers wherever they shop, offering a personal connection and innovation to provide a unique retail experience and tailored solutions.

Our products allow for complementary merchandising strategies and are sold through third-party retailers, our company-owned and joint venture operated retail stores worldwide and our e-commerce channel.

As of December 31, 2025, Somnigroup operated 2,852 company-owned stores, including 2,174 Mattress Firm stores, Tempur Sealy owned stores, Dreams stores and joint venture stores.

Our distribution model operates through an omni-channel strategy.

We distribute through two channels in each operating business segment:

Wholesale and Direct.

Our Wholesale channel consists of third-party retailers, including third-party distribution, hospitality and healthcare.

Our Direct channel includes company-owned stores, online and call centers.

The Mattress Firm segment sells products through one channel:

The Tempur Sealy North America and Tempur Sealy International segments sell products through two channels:

Direct and Wholesale.

The Direct channel includes product sales through company-owned stores, e-commerce and call centers.

The Wholesale channel includes all product sales to third-party retailers, including third-party distribution, hospitality and healthcare.

General Business and Economic Conditions

We believe the bedding industry is structured for sustained growth, driven by product innovation, sleep technology advancements, consumer confidence, housing formations and population growth.

The industry is no longer engaged in

uneconomical retail store expansion, startups have shifted from uneconomical strategies to becoming profitable and legacy retailers and manufacturers have become skilled in producing profitable online sales.

In our opinion, the industry is no longer engaged in uneconomical retail store expansion, startups have shifted from uneconomical strategies to becoming profitable and legacy retailers and manufacturers have become skilled in producing profitable online sales.

Over the last decade, consumers have made the connection between a good night's sleep and overall health and wellness.

As consumers make this connection, they are willing to invest more in their bedding purchases, which positions us well for long-term growth.

In 2025, we expect the current macroeconomic environment to stabilize throughout the year.

The global bedding industry was challenged in 2025 due to certain macroeconomic pressures on the consumer.

Ongoing geopolitical conflicts may introduce further uncertainty for the consumer.

Ongoing geopolitical conflicts, including trade disputes and the imposition of tariffs, along with the potential for U.S.

government shutdowns, may also introduce further uncertainty for the consumer.

We have taken actions to mitigate the impact of proposed tariffs, and we implemented pricing actions to mitigate the remaining impact.

The majority of our products sold in the U.S.

are also manufactured in the U.S.

Accordingly, we believe proposed tariffs will not have a material impact on our results of operations in 2026.

However, the duration and extent of tariffs remain uncertain, and we are continuing to evaluate the potential future impacts of the imposition of tariffs.

We expect to outperform the bedding industry as a result of our investments in new product launches and continued investments in innovation, quality, advertising and customer service.

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The proceeds of this financing were collectively used to fund a portion of the cash consideration, the repayment of Mattress Firm's debt and the payment of certain fees and expenses related to the merger.

We incurred $47.8 million and $49.0 million of transaction expenses related to the acquisition in 2024 and 2023, respectively, and $9.8 million of transaction related interest expense, net of interest income, related to the Term B Loan drawn and held in escrow.

We expect to complete the previously announced divestiture of 73 Mattress Firm retail locations and our Sleep Outfitters subsidiary, which includes 103 specialty mattress retail locations and seven distribution centers, to Mattress Warehouse in the second quarter of 2025.

Mattress Firm operates as a separate business segment.

Mattress Firm's financial results for the stub period are included in our Condensed Consolidated Financial Statements for the year ended December 31 2025.

On May 1, 2025, we completed the previously announced divestiture of 73 Mattress Firm retail locations and our Sleep Outfitters subsidiary, which included 103 specialty mattress retail locations and seven distribution centers to MW SO Holdings Company, LLC ("Mattress Warehouse").

In the year ended December 31, 2025, we recorded a $13.9 million loss on disposal of business associated with the divestiture, net of proceeds of $9.0 million, which did not have a material impact on our results of operations.

Product Launches

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

In 2025, we launched 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 which were expertly designed to provide superior support.

Omni-Channel Distribution Expansion

We have a diversified group of strong retail partners and a rapidly growing direct business.

The largest pillar of our omni-channel distribution strategy is our wholesale distribution across tens of thousands of third-party retail doors.

This broad footprint ensures that consumers can easily find and experience our products in person.

In 2026, we plan to launch an all new collection of Stearns & Foster products in North America.

This new line is designed to further elevate our high‑end traditional innerspring brand by introducing incremental technologies, expanding our range of hybrid offerings, and providing a refreshed aesthetic.

Omni-Channel Distribution

We employ a balanced omni-channel strategy, which we believe enhances the overall global sales potential and profitability of Somnigroup.

Our direct channel is led by over 2,100 Mattress Firm retail stores and e-commerce in the U.S.

and over 200 Dreams locations and e-commerce in the U.K, with additional brick and mortar stores and e-commerce channels in many other key markets around the world.

We see opportunity to continue to drive sales growth on a per store basis across our existing footprint.

There may be opportunities to open a new store or relocate a store to further optimize economics in the U.S.

and U.K., and we foresee meaningful opportunity to continue to expand our brick-and-mortar presence in other key markets worldwide.

We also have opportunity to continue to drive sales through our e-commerce channels globally.

Our wholesale distribution is comprised of a diverse group of strong retail partners with more than 20,000 doors, primarily concentrated in the U.S.

While we are well represented at third-party retailers in the U.S.

today, there are opportunities to both increase the presence of our brands with existing retail partners and to sell into certain key retailers that do not have our products on their floors today.

today, there are opportunities to both increase the presence of our brands with retail partners and to sell into certain key retailers that do not have our products on their floors today.

We also have significant opportunity to expand our third-party retail distribution in our international business.

In addition to the sale of our branded products through third-party retailers, we also offer non-branded products through our OEM business, including mattresses, pillows and other bedding products and components, at a wide range of price points.

In addition to offering a portfolio of some of the most highly recognized brands in the industry, we also offer non-branded products through our OEM business.

These offerings include mattresses, pillows and other bedding products and components, at a wide range of price points.

Our non-branded offerings complement our suite of branded products, expanding our capability to service third-party retailers and creating opportunity to capture manufacturing profits from bedding brands outside our own.

In the fourth quarter of 2024, we lost a significant portion of our OEM business as a result of a customer's acquisition which foreclosed on our OEM product sales to this customer.

In 2025, we expect this distribution loss to have an unfavorable impact on our results.

We continue to target obtaining a meaningful share of the OEM market in the long-term.

We target obtaining a meaningful share of the OEM market in the long-term.

We have been focused on building our direct channel, both online and company-owned retail stores.

The development of our online business has been particularly important as consumers have grown more comfortable shopping for bedding products online.

Following the acquisition of Mattress Firm, we expect over 60% of our global sales will be direct-to-consumer and no customer will represent more than 5% of global sales.

Following the acquisition of Mattress Firm, over 60% of our global sales are direct-to-consumer and no customer represents more than 5% of global sales.

Our expanded direct channel distribution complements our wholesale business, and we believe this balanced approach enhances the overall global sales potential and profitability of Somnigroup.

We currently operate over 2,800 retail stores globally through our wholly-owned and joint venture operations, led by over 2,200 Mattress Firm and retail stores in the U.S.

and over 200 Dreams locations in the U.K.

We believe these retail stores complement our existing third-party retail partners by increasing our products' brand awareness in the local markets.

2025 Results of Operations

A summary of our results for the year ended December 31, 2025 include:

• Total net sales increased 0.1% to $4,930.9 million as compared to $4,925.4 million in 2023, with a decrease of 1.7% in the North America business segment and an increase of 6.7% in the International business segment.

On a constant currency basis, which is a non-GAAP financial measure, total net sales increased 0.1%, with a decrease of 1.5% in the North America business segment and an increase of 5.8% in the International business segment.

• Total net sales increased 51.6% to $7,476.5 million as compared to $4,930.9 million in 2024, primarily driven by the inclusion of $3,505.4 million of Mattress Firm sales for the stub period, offset by the elimination of $976.2 million of sales from the Tempur Sealy North America segment to the Mattress Firm segment for the stub period.

• Gross margin was 42.6% as compared to 41.1% in 2024.

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Adjusted operating income, which is a non-GAAP financial measure, increased 41.2% to $1,018.7 million as compared to $721.3 million in 2024.

• Net income increased 4.4% to $384.3 million as compared to $368.1 million in 2023.

Both were primarily driven by the inclusion of Mattress Firm and realized sales and cost synergies.

• Net income decreased 0.1% to $384.1 million as compared to $384.3 million in 2024.

Adjusted net income, which is a non-GAAP financial measure, increased 24.2% to $565.3 million as compared to $455.1 million in 2024.

• Earnings per diluted share ("EPS") increased 3.8% to $2.16 as compared to $2.08 in 2023.

• Earnings per diluted share ("EPS") decreased 14.8% to $1.84 as compared to $2.16 in 2024.

Adjusted EPS, which is a non-GAAP financial measure, increased 5.9% to $2.70 as compared to $2.55 in 2024.

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General, administrative and other expenses 695.0 9.3 473.2 9.6

Loss on disposal of business 13.9 0.2 — —

Equity income in earnings of unconsolidated affiliates (19.6) (0.3) (18.9) (0.4)

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Interest expense, net 267.9 3.6 134.8 2.7

Loss on extinguishment of debt — — 3.2 0.1

Other income, net (4.9) (0.1) — —

Other expense (income), net 6.0 0.1 (4.9) (0.1)

Total other expense, net 273.9 3.7 129.9 2.6

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Year Ended December 31,

Consolidated North America International

Consolidated Mattress Firm Tempur Sealy

North America Tempur Sealy International

(in millions) 2025 2024 2025 2024 2025 2024 2025 2024

Net sales by channel

Wholesale $ 3,701.6 $ 3,746.1 $ 3,275.2 $ 3,348.2 $ 426.4 $ 397.9

Direct $ 4,745.9 $ 1,229.3 $ 3,505.4 $ — $ 437.6 $ 513.7 $ 802.9 $ 715.6

Wholesale 2,730.6 3,701.6 — — 2,263.6 3,275.2 467.0 426.4

Total net sales $ 7,476.5 $ 4,930.9 $ 3,505.4 $ — $ 2,701.2 $ 3,788.9 $ 1,269.9 $ 1,142.0

Net sales increased 0.1% (including on a constant currency basis).

Net sales increased 51.6%, and on a constant currency basis increased 51.1%.

The change in net sales was driven by the following:

• North America net sales decreased $66.6 million, or 1.7%.

Net sales in the Wholesale channel decreased $73.0 million, or 2.2%, primarily driven by continued macroeconomic pressures impacting U.S.

consumer behavior.

Net sales in our Direct channel increased $6.4 million, or 1.3%.

• International net sales increased $72.1 million, or 6.7%, primarily driven by the success of new product launches.

On a constant currency basis, our International net sales increased 5.8%.

Net sales in the Wholesale channel increased 7.8% on a constant currency basis.

• Mattress Firm net sales were $3,505.4 million for the stub period.

• Tempur Sealy North America net sales decreased $1,087.7 million, or 28.7%.

Net sales in the Wholesale channel decreased $1,011.6 million, or 30.9%, primarily driven by a 29.8% decline from the elimination of inter-segment sales to Mattress Firm of $976.2 million and the impacts of foreclosed distribution.

Net sales in the Direct channel decreased $76.1 million, or 14.8%, primarily driven by a decrease in sales from the divestiture of Sleep Outfitters.

• Tempur Sealy International net sales increased $127.9 million, or 11.2%, primarily driven by expanded distribution.

On a constant currency basis, International net sales increased 8.3%.

Net sales in the Direct channel increased 8.8% on a constant currency basis.

Net sales in the Wholesale channel increased 7.6% on a constant currency basis.

Year Ended December 31,

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(in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin 2025 vs 2024

North America $ 1,530.8 40.4 % $ 1,537.5 39.9 % 0.5 %

International 649.3 56.9 % 591.2 55.3 % 1.6 %

Mattress Firm $ 1,171.7 33.4 % $ — — % 33.4 %

Tempur Sealy North America 1,383.8 51.2 % 1,466.7 38.7 % 12.5 %

Tempur Sealy International 627.7 49.4 % 561.2 49.1 % 0.3 %

Consolidated gross margin $ 3,183.2 42.6 % $ 2,027.9 41.1 % 1.5 %

Costs associated with net sales are recorded in cost of sales and include the costs of producing, shipping, warehousing, receiving and inspecting goods during the period, as well as depreciation and amortization of long-lived assets used in the manufacturing process.

Cost of sales also includes retail store occupancy costs such as rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.

Our gross margin is primarily impacted by the relative amount of net sales contributed by our premium or value products.

Our value products have a significantly lower gross margin than our premium products.

If sales of our value priced products increase relative to sales of our premium products, our gross margins will be negatively impacted in both our North America and International segments.

If sales of our value priced products increase relative to sales of our premium products, our gross margins will be negatively impacted across all segments.

Our gross margin is also impacted by fixed cost leverage based on manufacturing unit volumes;

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operational efficiencies due to the utilization in our manufacturing facilities;

product, brand, channel and geographic mix;

product, brand, channel and country mix;

foreign exchange fluctuations;

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participation in our retail cooperative advertising programs;

and costs associated with new product introductions.

vendor incentives earned on supply agreements;

retail store fixed cost leverage based on unit volumes and costs associated with new product introductions.

Future changes in raw material prices could have a significant impact on our gross margin.

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The principal factors impacting gross margin for each segment are discussed below:

• North America gross margin improved 50 basis points.

The improvement in gross margin was primarily driven by favorable commodity costs of 100 basis points and operational efficiencies.

These improvements were offset by the unfavorable mix of new OEM distribution of 50 basis points.

• International gross margin improved 160 basis points.

The improvement in gross margin was primarily driven by operational efficiencies of 80 basis points and favorable commodity costs of 30 basis points.

• Mattress Firm gross margin was 33.4% for the stub period.

• Tempur Sealy North America gross margin improved 1,250 basis points.

The improvement in gross margin was primarily driven by the elimination of sales to Mattress Firm of 1,360 basis points and operational efficiencies of 100 basis points.

These improvements were partially offset by expense deleverage of 70 basis points.

Additionally, we incurred $78.0 million of one-time business combination accounting adjustments related to the Mattress Firm Acquisition.

• Tempur Sealy International gross margin improved 30 basis points.

The improvement in gross margin was primarily driven by operational efficiencies.

OPERATING EXPENSES

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2025 2024 2025 2024 2025 2024 2025 2024 2025 2024

(in millions) Consolidated North America International Corporate

(in millions) Consolidated Mattress Firm Tempur Sealy North America Tempur Sealy International Corporate

Operating expenses:

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The primary drivers of changes in operating expenses by segment are discussed below:

• North America operating expenses increased $24.3 million, or 2.7%, and increased 100 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by incremental bad debt expense related to retailer bankruptcies and investments in growth initiatives, partially offset by decreases in advertising.

• International operating expenses increased $30.0 million, or 6.8%, and was flat as a percentage of net sales.

• Mattress Firm operating expenses were $976.8 million for the stub period.

• Tempur Sealy North America operating expenses decreased $33.9 million, or 4.0%, and increased 780 basis points as a percentage of net sales.

The decrease in operating expenses was primarily driven by decreases in bad debt expense related to retailer bankruptcies and other selling and marketing, partially offset by investments in advertising.

• Tempur Sealy International operating expenses increased $40.9 million, or 10.6%, and decreased 10 basis points as a percentage of net sales.

The increase in operating expenses was primarily driven by investments in growth initiatives.

• Corporate operating expenses decreased $34.0 million, or 16.4%.

The decrease in operating expenses was primarily driven by decreased variable compensation expense and a one-time fair value remeasurement of $11.0 million related to a strategic investment in a product innovation initiative which was recorded in the prior year.

Additionally, we recorded a $6.2 million impairment charge related to certain cloud-based computing arrangements.

• Corporate operating expenses increased $37.6 million, or 21.8%.

The increase in operating expenses was primarily driven by increased costs related to the Mattress Firm Acquisition.

Research and development expenses for the year ended December 31, 2025 were $32.9 million as compared to $30.8 million for the year ended December 31, 2024, an increase of $2.1 million, or 6.8%.

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(in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin 2025 vs 2024

North America $ 612.1 16.2 % $ 643.1 16.7 % (0.5) %

International 194.9 17.1 % 170.9 16.0 % 1.1 %

Mattress Firm $ 190.8 5.4 % $ — — % 5.4 %

Tempur Sealy North America 553.3 20.5 % 612.1 16.2 % 4.3 %

Tempur Sealy International 221.2 17.4 % 194.9 17.1 % 0.3 %

Corporate expenses (210.4) (172.8)

Total operating income $ 754.9 10.1 % $ 634.2 12.9 % (2.8) %

Operating income increased $27.0 million and operating margin improved 60 basis points.

Operating income increased $120.7 million and operating margin declined 280 basis points.

The increase was driven by the following:

• North America operating income decreased $31.0 million and operating margin declined 50 basis points.

The decline in operating margin was primarily driven by operating expense deleverage of 100 basis points, partially offset by the improvement in gross margin of 50 basis points.

• International operating income increased $24.0 million and operating margin improved 110 basis points.

The improvement in operating margin was primarily driven by the improvement in gross margin of 160 basis points, partially offset by Asia joint venture performance of 50 basis points and operating expense deleverage.

• Corporate operating expenses decreased $34.0 million, which positively impacted our consolidated operating margin.

• Mattress Firm operating income was $190.8 million and operating margin was 5.4% for the stub period.

Additionally, we incurred a $4.1 million loss on disposal of business associated with the divestiture of 73 retail stores.

• Tempur Sealy North America operating income decreased $58.8 million and operating margin improved 430 basis points.

The improvement in operating margin was primarily driven by the improvement in gross margin of 1,250 basis points, partially offset by operating expense deleverage of 780 basis points.

Additionally, we incurred a $9.8 million loss on disposal of business associated with the divestiture of Sleep Outfitters.

• Tempur Sealy International operating income increased $26.3 million and operating margin improved 30 basis points.

The improvement in operating margin was primarily driven by the improvement in gross margin of 30 basis points and operating expense leverage of 10 basis points, partially offset by Asia joint venture performance.

• Corporate operating expenses increased $37.6 million, which negatively impacted our consolidated operating margin.

The increase in operating expenses was primarily driven by increased costs related to the Mattress Firm Acquisition.

INTEREST EXPENSE, NET

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Interest expense, net, increased $133.1 million, or 98.7%.

The increase in interest expense, net, was primarily driven by the incremental Term B Loan interest expense, net of $8.4 million, partially offset by reduced average levels of outstanding variable rate debt.

The increase in interest expense, net, was primarily driven by increased average levels of outstanding variable rate debt as a result of the Mattress Firm Acquisition.

INCOME TAX PROVISION

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Effective tax rate 19.9 % 23.5 % (15.3) %

Income tax provision includes income taxes associated with taxes currently payable and deferred taxes, and includes the impact of net operating losses for certain of our foreign operations.

Our income tax provision increased $15.2 million due to an increase in income before income taxes.

Our 2024 effective tax rate increased 170 basis points as compared to 2023.

Income tax provision includes income taxes associated with taxes currently payable and deferred taxes, and includes the impact of net operating losses for certain of our domestic and foreign operations.

Our income tax provision decreased $22.9 million due to a decrease in income before income taxes.

Our 2025 effective tax rate decreased 360 basis points as compared to 2024.

The 2025 effective tax rate as compared to the U.S.

federal statutory tax rate included a net favorable impact of discrete items, primarily related to excess tax benefits from the vesting of certain stock awards under our incentive stock compensation plan and other discrete items.

The 2024 effective tax rate as compared to the U.S.

federal statutory tax rate, also included a net favorable impact of discrete items, primarily related to excess tax benefits from the vesting of certain stock awards under our incentive stock compensation plan and a benefit related to the settlement of the Danish Tax Matter.

federal statutory tax rate also included a net favorable impact of discrete items, primarily related to excess tax benefits from the vesting of certain stock awards under our incentive stock compensation plan and other discrete items.

Refer to Note 13, "Income Taxes," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report for further information.

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Principal uses of funds consist of payments of principal and interest on our debt facilities, share repurchases, capital expenditures and working capital needs.

As of December 31, 2024, we had net working capital of $105.1 million, including cash and cash equivalents of $117.4 million, as compared to working capital of $195.0 million, including cash and cash equivalents of $74.9 million, as of December 31, 2023.

Cash and Working Capital

Cash and cash equivalents were $134.9 million and $117.4 million, as of December 31, 2025 and 2024, respectively.

We had a working capital deficit of $271.1 million as of December 31, 2025, as compared to working capital of $105.1 million as of December 31, 2024.

The reduction in our working capital to a deficit position in 2025 was primarily driven by a $272.8 million increase in our short-term operating lease obligations as a result of the Mattress Firm Acquisition, and we will generally operate with a working capital deficit in the future.

The amount of cash and cash equivalents held by subsidiaries outside of the U.S.

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Financing activities 616.9 1,077.4

Cash provided by operating activities increased $96.2 million in 2024 as compared to 2023.

The increase in cash provided by operating activities was driven by a $66.3 million increase in cash provided by changes in operating assets and liabilities, primarily due to increases in cash provided by accounts payable and income taxes receivable and payable, which were offset by decreases in cash provided by inventory and prepaid expenses and other assets.

Cash provided by operating activities also increased as a result of additional non-cash depreciation and amortization of $29.8 million, primarily associated with our new Tempur manufacturing facility.

Cash used in investing activities decreased $91.1 million in 2024 as compared to 2023.

The decrease in cash used in investing activities was driven by decreased capital expenditures related to our manufacturing capacity expansion projects in 2023.

Cash provided by financing activities increased $1,461.7 million in 2024 as compared to 2023.

In 2024, we had net borrowings of $1,246.4 million as compared to net repayments of $250.8 million in 2023 from our credit facilities, including $1,592.0 million of proceeds from the Term B Loan.

The proceeds from the Term B Loan were funded into escrow and were released upon the closing of the Mattress Firm acquisition.

Additionally, we repurchased shares of our common stock to satisfy tax withholding obligations upon the vesting of our long-term incentive plans for $43.8 million in 2024 as compared to $36.0 million in 2023.

Cash provided by operating activities increased $133.6 million in 2025 as compared to 2024, primarily driven by the Mattress Firm Acquisition and strong operational performance.

Net income was unfavorably impacted by certain non-cash items, including an $84.4 million increase in depreciation and amortization expense and a $45.0 million increase in deferred income taxes, both of which were primarily driven by the Mattress Firm Acquisition.

Cash used in investing activities increased $2,927.6 million in 2025 as compared to 2024.

The increase in cash used in investing activities was driven by cash used to partially fund the Mattress Firm Acquisition.

Cash provided by financing activities decreased $460.5 million in 2025 as compared to 2024.

In 2025, we had net borrowings of $849.8 million as compared to net borrowings of $1,246.4 in 2024 in order to fund the Mattress Firm Acquisition.

We repurchased shares of our common stock to satisfy tax withholding obligations upon the vesting of our long-term incentive plans for $132.4 million in 2025 as compared to $43.8 million in 2024.

Additionally, we paid dividends to shareholders of $127.4 million in 2025 as compared to $92.7 million in 2024.

Proceeds from exercise of stock options increased $49.0 million in 2025 as compared to 2024.

Capital Expenditures

Capital expenditures were $97.3 million and $185.4 million for the year ended December 31, 2024 and 2023, respectively.

We currently expect our 2025 capital expenditures to be approximately $250 million, including $50 million of investments to refresh Mattress Firm stores.

Capital expenditures were $166.9 million and $97.3 million for the years ended December 31, 2025 and 2024, respectively.

We currently expect our 2026 capital expenditures to be approximately $250 million, including $75 million of one-time investments to refresh Mattress Firm stores.

Our total debt increased to $4,717.3 million as of December 31, 2025 from $3,844.5 million as of December 31, 2024.

Total availability under our revolving senior secured credit facility was $638.7 million as of December 31, 2025.

On February 6, 2024, we entered into an Amendment No.

1 ("Amendment No.

1") to the 2023 Credit Agreement which provided for a $625.0 million Delayed Draw Term A Loan commitment and a $40.0 million increase in availability on the existing revolving loan.

This amendment was executed in connection with the Company's financing strategy for the Mattress Firm acquisition.

On October 24, 2024, we entered into an Amendment No.

2 ("Amendment No.

2") and an Amendment No.

3 ("Amendment No.

3") to the 2023 Credit Agreement.

Amendment No.

2 extended the termination date for $605 million of the Delayed Draw Term A Loan commitments until October 24, 2025, among other changes.

Amendment No.

3 provided for an incremental Term B Loan in the aggregate principal amount of $1.6 billion which will mature on October 24, 2031.

The proceeds of the Term B Loan were funded into escrow on the closing of Amendment No.

3 and will mature on October 24, 2031.

The proceeds of the Term B Loan were used to pay fees and expenses in connection with Amendment No.

3 and were released for the closing of the Mattress Firm acquisition.

Refer to Note 6, "Debt" in our Condensed Consolidated Financial Statements included in Part II, ITEM 8 for further discussion of our debt.

On February 5, 2025, upon the consummation of the Mattress Firm Acquisition, we borrowed $625.0 million of our Delayed Draw Term A Loan commitments and $679.5 million of revolving commitments under the 2023 Credit Agreement.

In addition, approximately $1,592.0 million of proceeds in respect of the Term B Loan were released from escrow.

of this financing were collectively used to fund a portion of the cash consideration for the acquisition, the repayment of Mattress Firm's debt and the payment of certain fees and expenses related to the acquisition.

The proceeds of this financing were collectively used to fund a portion of the cash consideration for the acquisition, the repayment of Mattress Firm's debt and the payment of certain fees and expenses related to the acquisition.

As of December 31, 2025, our ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure defined in the 2023 Credit Agreement, was 3.21 times.

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We manage our share repurchase program based on current and expected cash flows, share price and alternative investment opportunities.

While the Mattress Firm acquisition was pending, we temporarily suspended our repurchase of shares.

In 2025, we expect minimal share repurchases as we focus on debt repayment to reduce leverage to our target ratio of 2.0 to 3.0 times.

In 2026, we expect to return to our target leverage range of 2.0 to 3.0 times and allocate at least 50% of free cash flow, which is a non-GAAP financial measure, to dividends and share repurchases.

For a complete description of our share repurchase program, please refer to ITEM 5 under Part II, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," of this Report.

Future Liquidity Sources and Uses

As of December 31, 2024, we had $1,306.6 million of liquidity, including $117.4 million of cash on hand and $1,189.2 million available under our revolving senior secured credit facility.

To fund the Mattress Firm acquisition on February 5, 2025, we subsequently borrowed $679.5 million on our revolving senior secured credit facility.

We believe that cash flow from operations, availability under our existing credit facilities and arrangements, current cash balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for our foreseeable working capital needs, necessary capital expenditures, debt service obligations and dividend payments.

As of December 31, 2025, we had $773.6 million of liquidity, including $134.9 million of cash on hand and $638.7 million available under our 2023 Credit Agreement.

Our capital allocation strategy follows a balanced approach focused on supporting the business and returning shareholder value through strategic acquisition opportunities that enhance our global competitiveness, as well as quarterly dividends and opportunistic share repurchases.

In 2026, we expect to return to our target leverage range of 2.0 to 3.0 times and allocate at least 50% of free cash flow, which is a non-GAAP financial measure, to dividends and share repurchases.

During the first quarter of 2026, we will repurchase shares to satisfy tax withholding obligations upon the vesting of certain long-term incentive awards in the ordinary course of business.

The Board of Directors declared a dividend of $0.17 per share for the first quarter of 2026.

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Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 3.21 times for the year ended December 31, 2025.

Following the close of the Mattress Firm acquisition in 2025, our leverage ratio was approximately 3.5 times.

We currently expect our target leverage ratio to return to 2.0 to 3.0 times in the first twelve months following the close of the transaction.

Total cash interest payments related to our borrowings are expected to be between approximately $265 million to $275 million in 2025.

We currently expect our target leverage ratio to return to 2.0 to 3.0 times in the first half of 2026.

Total cash interest payments related to our borrowings are expected to be approximately $225 million in 2026.

Our debt service obligations could, under certain circumstances, have material consequences to our stockholders.

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(2) Interest payments represent obligations under our debt outstanding as of December 31, 2025, applying December 31, 2025 interest rates and assuming scheduled payments are paid as contractually required through maturity.

Interest payments may differ in future periods as a result of financing activities required to fund our operations and capital allocation strategies.

(3) The payments due for finance lease obligations excludes $16.8 million in future payments for interest.

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Non-GAAP Financial Information

We provide information regarding adjusted net income, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, EBITDA, adjusted EBITDA, consolidated indebtedness and consolidated indebtedness less netted cash, which are not recognized terms under GAAP and do not purport to be alternatives to net income, earnings per share, gross profit, gross margin, operating income (expense) and operating margin as a measure of operating performance or an alternative to total debt as a measure of liquidity.

We provide information regarding adjusted net income, EBITDA, adjusted EBITDA, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, consolidated indebtedness and consolidated indebtedness less netted cash, which are not recognized terms under GAAP and do not purport to be alternatives to net income, earnings per share, gross profit, gross margin, operating income (expense) and operating margin as a measure of operating performance or an alternative to total debt as a measure of liquidity.

We believe these non-GAAP financial measures provide investors with performance measures that better reflect our underlying operations and trends, providing a perspective not immediately apparent from net income, gross profit, gross margin, operating income (expense) and operating margin.

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Year Ended December 31,

(in millions, except percentages and per common share amounts) 2024 2023 % Change

(in millions, except percentages and per common share amounts) 2025 2024 % Change % Change Constant Currency (1)

Net sales $ 7,476.5 $ 4,930.9 51.6 % 51.1 %

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Net income $ 384.1 $ 384.3

Acquisition-related costs (1)

Transaction costs (2)

Customer-related transition charges (2)

Transaction related interest expense, net (3)

Business combination charges (3)

Loss on disposal of business (4)

Supply chain transition costs (5)

Disposition-related costs (6)

Transaction-related interest expense, net (7)

Cloud-based computing arrangements impairment (8)

Customer-related transition charges (9)

Operational start-up costs (10)

Cybersecurity event (11)

Fair value remeasurement (7)

Loss on extinguishment of debt (8)

ERP system transition (9)

Danish tax matter (10)

Adjusted income tax provision (12)

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Diluted shares outstanding 209.2 178.2

(1) We recorded $47.8 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm in the year ended 2024.

We recorded $49.0 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm in the year ended 2023.

(2) In the fourth quarter of 2024, we recorded $26.7 million of transition charges as a result of a customer's acquisition which foreclosed on our OEM distribution to this customer.

(3) In the fourth quarter of 2024, we incurred $9.8 million of transaction related interest expense, net of interest income, related to the Term B Loan drawn and held in escrow.

(1) In the year ended 2025, we recognized $114.2 million of acquisition-related costs following the Mattress Firm Acquisition, primarily related to one-time business combination accounting and purchase price allocation adjustments, professional fees and restructuring costs.

(2) In the year ended 2025, we recorded $56.0 million of transaction costs primarily related to the Mattress Firm Acquisition and related divestitures.

In the year ended 2024, we recorded $47.8 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm.

(3) In the year ended 2025, we recognized $53.8 million of business combination charges related to the floor model transition associated with the refinement of Mattress Firm's multi-branded merchandising plan, the CEO transaction bonus, professional fees and restructuring costs.

(4) In the year ended 2025, we recorded a $13.9 million loss on disposal of business, net of proceeds of $9.0 million, associated with the divestiture of 73 Mattress Firm stores and our Sleep Outfitters subsidiary.

(5) In the years ended 2025 and 2024, we recorded $12.1 million and $9.5 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, respectively.

(6) In the year ended 2025, we recorded $10.5 million of disposition-related costs, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse.

(7) In the year ended 2025, we incurred $6.8 million of transaction-related interest expense, net of interest income, related to the Term B Loan drawn and held in escrow.

The proceeds of the Term B Loan were released upon the closing of the acquisition of Mattress Firm on February 5, 2025.

(4) We recorded $9.5 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities in the year ended 2024.

(5) We recorded $3.1 million of operational start-up costs in cost of sales for the capacity expansion of our manufacturing and distribution facilities in the U.S., which include personnel and facility related costs in the year ended 2024.

We recorded $10.4 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

in the year ended 2023.

(6) In the fourth quarter of 2024, we received proceeds of $4.9 million for an insurance claim related to the previously disclosed cybersecurity event identified on July 23, 2023.

We recorded $14.3 million of costs associated with the cybersecurity event identified on July 23, 2023 in the year ended 2023.

(7) In the fourth quarter of 2023, we recorded a fair value remeasurement of $11.0 million related to a strategic investment in a product innovation initiative.

(8) In the fourth quarter of 2023, we recognized $3.2 million of loss on extinguishment of debt associated with the refinancing of our senior secured credit facilities.

(9) We recorded $3.2 million of charges related to the transition of our ERP system in the year ended 2023.

(10) We recorded an income tax benefit, on a net basis, of $10.2 million related to our Danish tax matter in the fourth quarter of 2023, when the Danish Tax Agency and the Internal Revenue Service formally concluded the matter.

(11) Adjusted income tax provision represents the tax effects associated with the aforementioned items, excluding the income tax benefit for the Danish tax matter.

Adjusted Gross Profit and Gross Margin and Adjusted Operating Income (Expense) and Operating Margin

In the year ended 2024, we incurred $9.8 million of transaction-related interest expense.

(8) In the year ended 2025, we recorded $6.2 million of impairment charges related to certain cloud-based computing arrangements.

(9) In the year ended 2024, we recorded $26.7 million of transition charges as a result of a customer's acquisition which foreclosed on our OEM distribution to this customer.

(10) In the year ended 2024, we recorded $3.1 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

(11) In the year ended 2024, we received proceeds of $4.9 million for an insurance claim related to the previously disclosed cybersecurity event identified on July 23, 2023.

(12) Adjusted income tax provision represents the tax effects associated with the aforementioned items and other non-recurring discrete items.

Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Operating Income (Expense) and Adjusted Operating Margin

A reconciliation of gross profit and gross margin to adjusted gross profit and adjusted gross margin, respectively, and operating income (expense) and operating margin to adjusted operating income (expense) and adjusted operating margin, respectively, are provided below.

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FULL YEAR 2025

(in millions, except percentages) Consolidated Margin North America Margin International Margin Corporate

(in millions, except percentages) Consolidated Margin Mattress Firm Margin Tempur Sealy North America Margin Tempur Sealy International Margin Corporate

Net sales $ 7,476.5 $ 3,505.4 $ 2,701.2 $ 1,269.9 $ —

Gross profit $ 3,183.2 42.6 % $ 1,171.7 33.4 % $ 1,383.8 51.2 % $ 627.7 49.4 % $ —

Customer-related transition charges (1)

Acquisition-related charges (1)

95.4 17.4 78.0 — —

Business combination charges (2)

30.1 26.5 3.6 — —

Disposition-related costs (3)

3.7 1.4 2.3 — —

Supply chain transition costs (4)

Operational start-up costs (3)

Transaction costs (4)

3.5 — 3.5 — —

Total adjustments 132.7 45.3 87.4 — —

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Operating income (expense) $ 754.9 10.1 % $ 190.8 5.4 % $ 553.3 20.5 % $ 221.2 17.4 % $ (210.4)

Acquisition-related charges (1)

114.2 34.2 78.0 — 2.0

Transaction costs (5)

58.9 3.5 — — 55.4

Customer-related transition charges (1)

Business combination charges (2)

57.2 30.6 3.6 — 23.0

Loss on disposal of business (6)

13.9 4.1 9.8 — —

Disposition-related costs (3)

8.3 2.9 5.4 — —

Cloud-based computing arrangements impairment (7)

6.2 — — 6.2 —

Supply chain transition costs (4)

Operational start-up costs (3)

5.1 — 5.1 — —

Total adjustments 263.8 75.3 101.9 6.2 80.4

Adjusted operating income (expense) $ 1,018.7 13.6 % $ 266.1 7.6 % $ 655.2 24.3 % $ 227.4 17.9 % $ (130.0)

(1) In the year ended 2024, we recorded $26.7 million of transition charges as a result of a customer's acquisition which foreclosed on our OEM distribution to this customer.

Cost of sales consists of $21.9 million of charges and operating expenses consists of $4.8 million of charges related to this OEM customer's acquisition.

(2) We recorded $9.5 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities in the year ended 2024.

These charges are primarily recorded in cost of sales.

(3) We recorded $3.1 million of operational start-up costs in cost of sales for the capacity expansion of our manufacturing and distribution facilities in the U.S., which include personnel and facility related costs, in the year ended 2024.

(4) We recorded $47.8 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm in the year ended 2024.

(1) In the year ended 2025, we recognized $114.2 million of acquisition-related costs following the Mattress Firm Acquisition.

Cost of sales included $95.4 million, primarily related to one-time business combination accounting and purchase price allocation adjustments.

Operating expenses included $18.8 million of professional fees and restructuring costs.

(2) In the year ended 2025, we recorded $53.8 million of business combination charges.

Cost of sales included $30.1 million of charges primarily related to the floor model transition associated with the refinement of Mattress Firm's multi-branded merchandising plan.

Operating expenses included $27.1 million related to the CEO transaction bonus, professional fees and restructuring costs.

Other expenses consisted of a benefit of $3.4 million.

(3) In the year ended 2025, we recorded $10.5 million of disposition-related costs, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse.

Cost of sales included $3.7 million of expenses and operating expenses included $4.6 million.

Other expenses included $2.2 million.

(4) In the year ended 2025, we recorded $12.1 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, with $3.5 million recorded in cost of sales and $1.6 million recorded in operating expenses.

Other expenses included $7.0 million of costs, primarily related to a manufacturing facility lease termination.

(5) In the year ended 2025, we recorded $58.9 million of transaction costs primarily related to the Mattress Firm Acquisition and related divestitures, including a $2.9 million benefit in other income.

(6) In the year ended 2025, we recorded a $13.9 million loss on disposal of business, net of proceeds of $9.0 million, associated with the divestiture of 73 Mattress Firm stores and our Sleep Outfitters subsidiary.

(7) In the year ended 2025, we recorded $6.2 million of impairment charges related to certain cloud-based computing arrangements.

The following table sets forth the reconciliation of our reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the year ended December 31, 2024.

FULL YEAR 2024

(in millions, except percentages) Consolidated Margin North America Margin International Margin Corporate

(in millions, except percentages) Consolidated Margin Tempur Sealy North America Margin Tempur Sealy International Margin Corporate

Net sales $ 4,930.9 $ 3,788.9 $ 1,142.0 $ —

Gross profit $ 2,027.9 41.1 % $ 1,466.7 38.7 % $ 561.2 49.1 % $ —

Operational start-up costs (1)

10.2 10.2 — —

Cybersecurity event (2)

Customer-related transition charges (1)

21.9 21.9 — —

ERP system transition (3)

Supply chain transition costs (2)

Operational start-up costs (3)

Transaction costs (4)

Total adjustments 36.7 36.7 — —

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47.8 2.5 — 45.3

Cybersecurity event (2)

14.3 10.5 1.1 2.7

Fair value remeasurement (5)

Customer-related transition charges (1)

26.7 26.7 — —

Supply chain transition costs (2)

Operational start-up costs (3)

10.4 10.4 — —

ERP system transition (3)

Total adjustments 87.1 41.8 — 45.3

Adjusted operating income (expense) $ 721.3 14.6 % $ 653.9 17.3 % $ 194.9 17.1 % $ (127.5)

(1) We recorded $10.4 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

in the year ended 2023.

Cost of sales and operating expenses included personnel and facility related costs of $10.2 million and $0.2 million, respectively.

(2) We recorded $14.3 million of costs associated with the previously disclosed cybersecurity event identified on July 23, 2023 in the year ended 2023.

Cost of sales included $10.1 million of manufacturing and network disruption costs incurred to ensure business continuity in the year ended 2023.

Operating expenses included $4.2 million, primarily related to professional fees incurred for incident response, containment measures and stabilization of our information systems in the year ended 2023.

(3) We recorded $3.2 million of charges related to the transition of our ERP system in the year ended 2023.

Cost of sales included $3.2 million of manufacturing facility ERP system transition costs, including labor, logistics, training and travel.

(4) We recorded $49.0 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm in the year ended 2023.

(5) In the year ended 2023, we recorded a fair value remeasurement of $11.0 million primarily related to a strategic investment in a product innovation initiative.

(1) In the year ended 2024, we recorded $26.7 million of transition charges as a result of a customer's acquisition which foreclosed on our OEM distribution to this customer, with $21.9 million recorded in cost of sales and $4.8 million in operating expenses.

(2) In the year ended 2024, we recorded $9.5 million of supply chain transition costs primarily in cost of sales associated with the consolidation of certain manufacturing facilities.

(3) In the year ended 2024, we recorded $3.1 million of operational start-up costs in cost of sales for the capacity expansion of our manufacturing and distribution facilities in the U.S.

(4) In the year ended 2024, we recorded $47.8 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm, with $2.4 million recorded in cost of sales and $45.4 million in operating expenses.

EBITDA, Adjusted EBITDA and Consolidated Indebtedness Less Netted Cash

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Transaction-related interest expense, net (1)

Loss on extinguishment of debt (2)

Income tax provision 95.7 118.6

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EBITDA $ 1,039.3 $ 841.6

Acquisition-related costs (2)

Transaction costs (3)

Customer-related transition charges (4)

Business combination charges (4)

Loss on disposal of business (5)

Supply chain transition costs (6)

Disposition-related costs (7)

Cloud-based computing arrangements impairment (8)

Customer-related transition charges (9)

Operational start-up costs (10)

Cybersecurity event (11)

Fair value remeasurement (8)

ERP system transition (9)

Adjusted EBITDA $ 1,306.0 $ 923.8

Adjustments for financial covenant purposes:

Loss from unrestricted subsidiary (12)

Earnings from Mattress Firm prior to acquisition (13)

Future cost synergies to be realized from Mattress Firm Acquisition (14)

Adjusted EBITDA per credit facility $ 1,427.8 $ 923.8

Consolidated indebtedness less netted cash $ 4,582.4 $ 2,134.8

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The proceeds of the Term B Loan were released upon the closing of the acquisition of Mattress Firm on February 5, 2025.

(2) In the year ended 2023, we recognized $3.2 million of loss on extinguishment of debt associated with the refinancing of our senior secured credit facilities.

(3) We recorded $47.8 million and $49.0 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm in the year ended 2024 and 2023, respectively.

In the year ended 2024, we incurred $9.8 million of transaction related interest expense.

(2) In the year ended 2025, we recorded $114.2 million of acquisition-related costs following the Mattress Firm Acquisition, primarily related to one-time business combination accounting and purchase price allocation adjustments, professional fees and restructuring costs.

(3) In the year ended 2025, we recorded $56.0 million of transaction costs primarily related to the Mattress Firm Acquisition and related divestitures.

In the year ended 2024, we recorded $47.8 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm.

(4) In the year ended 2025, we recorded $53.8 million of business combination charges primarily related to the floor model transition associated with the refinement of Mattress Firm's multi-branded merchandising plan, the CEO transaction bonus, professional fees and restructuring costs.

(5) In the year ended 2025, we recorded a $13.9 million loss on disposal of business, net of proceeds of $9.0 million, associated with the divestiture of 73 Mattress Firm stores and our Sleep Outfitters subsidiary.

(6) In the years ended 2025 and 2024, we recorded $12.1 million and $9.5 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities, respectively.

(7) In the year ended 2025, we recorded $10.5 million of disposition-related costs, primarily related to retail store transition costs incurred for the divestiture to Mattress Warehouse.

(8) In the year ended 2025, we recorded $6.2 million of impairment charges related to certain cloud-based computing arrangements.

(9) In the year ended 2024, we recorded $26.7 million of transition charges as a result of a customer's acquisition which foreclosed on our OEM distribution to this customer.

(5) We recorded $9.5 million of supply chain transition costs associated with the consolidation of certain manufacturing facilities in the fourth quarter and year ended 2024.

(6) We recorded $3.1 million of operational start-up costs for the capacity expansion of our manufacturing and distribution facilities in the U.S., which include personnel and facility related costs in the year ended 2024.

We recorded $10.4 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S.

in the year ended 2023.

(10) In the year ended 2024, we recorded $3.1 million of operational start-up costs for the capacity expansion of our manufacturing and distribution facilities in the U.S.

(11) In the year ended 2024, we received proceeds of $4.9 million for an insurance claim related to the previously disclosed cybersecurity event identified on July 23, 2023.

We recorded $14.3 million of costs associated with the cybersecurity event identified on July 23, 2023 in the year ended 2023.

(8) In the year ended 2023, we recorded a fair value remeasurement of $11.0 million primarily related to a strategic investment in a product innovation initiative.

(9) We recorded $3.2 million of charges related to the transition of our ERP system in the year ended 2023.

(12) A subsidiary in the Tempur Sealy North America business segment was accounted for as held for sale and designated as an unrestricted subsidiary under the 2023 Credit Agreement.

Therefore, this subsidiary's financial results were excluded from our adjusted financial measures for covenant compliance purposes.

(13) We completed the Mattress Firm Acquisition on February 5, 2025 and designated this subsidiary as restricted under the 2023 Credit Agreement.

For covenant compliance purposes, we included $18.7 million of Mattress Firm adjusted EBITDA for the period prior to acquisition in our calculation of adjusted EBITDA per credit facility for the year ended December 31, 2025.

(14) For the year ended 2025, we are permitted to include $100.0 million of future cost synergies expected to be realized in connection with acquisitions for the purpose of calculating adjusted EBITDA in accordance with the 2023 Credit Agreement.

Under the 2023 Credit Agreement, the definition of adjusted EBITDA contains certain restrictions that limit adjustments to net income when calculating adjusted EBITDA.

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Netted cash (2)

134.9 1,709.7

Consolidated indebtedness less netted cash $ 4,582.4 $ 2,134.8

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Our actual results could differ from those estimates.

Business Combinations.

We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition.

The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques when fair value is not readily available and requires a significant amount of management judgment.

For the valuation of intangible assets acquired in the Mattress Firm Acquisition, we applied the income approach through a relief from royalty method.

Although we believe these estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates.

Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair values of the intangible assets acquired.

The excess of the purchase price over fair values of identifiable assets acquired and liabilities assumed is recorded as goodwill.

During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill due to the use of preliminary information in our initial estimates.

Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Revenue Recognition .

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We allow product returns through certain sales channels and on certain products.

The accrued sales returns in the accompanying Consolidated Balance Sheet, which include a current balance in accrued expenses and other current liabilities and a non-current balance in other non-current liabilities, was $44.2 million and $43.7 million as of December 31, 2024 and 2023, respectively.

The accrued sales returns in the accompanying Consolidated Balance Sheets, which include a current balance in accrued expenses and other current liabilities and a non-current balance in other non-current liabilities, was $106.9 million and $44.2 million as of December 31, 2025 and 2024, respectively.

Estimated sales returns are provided at the time of sale based on historical sales channel return rates.

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At December 31, 2025, the valuation allowance of $48.7 million was primarily related to certain tax attributes both domestically and in various foreign jurisdictions.

The valuation allowance is based, in part, on our estimate of future taxable income, the expected utilization of foreign and state tax loss carryforwards and credits and the expiration dates of such tax loss carryforwards.

The valuation allowance is based, in part, on our estimate of future taxable income, the expected utilization of foreign and domestic tax loss carryforwards and credits and the expiration dates of such tax loss carryforwards.

We did not recognize tax benefits from uncertain tax positions within the provision for income taxes.

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Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates.

We had previously been involved in a dispute with SKAT regarding the Danish Tax Matter for tax years 2012 through 2022.

The matter was formally resolved in the three months ended December 31, 2023 with terms of the final resolution substantially identical as those preliminarily agreed to in the three months ended December 31, 2022.

As a result of the resolution of the matter, there is no uncertain tax position reflected in our Consolidated Balance Sheet at either December 31, 2024 or 2023 related to the Danish Tax Matter.

The resolution of this matter is discussed in Note 13, "Income Taxes," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report.

Goodwill and Indefinite-Lived Intangible Assets.

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We test goodwill for impairment at the reporting unit level.

Our reporting units are our North America segment, our International segment (excluding Dreams) and Dreams.

Our reporting units are Mattress Firm, Tempur Sealy North America, Tempur Sealy International (excluding Dreams) and Dreams.

Mattress Firm was added as a separate reporting unit upon acquisition of the business on February 5, 2025.

We test individual indefinite-lived intangible assets at the brand level.

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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.

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

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Under the qualitative approach, we review macroeconomic conditions, industry and market conditions and entity specific factors, including strategies and financial performance for potential indicators of impairment.

In 2024, we did not make any changes to our reporting units or the accounting methodology we use to assess impairment loss on goodwill and indefinite-lived intangible assets, which included an assessment of the impairment of goodwill for our reporting units and indefinite-lived intangible assets using a quantitative approach.

The results indicated that the fair values of each of our reporting units and indefinite-lived intangible assets were substantially in excess of their carrying values.

In 2025, other than the addition of the Mattress Firm reporting unit, we did not make any changes to our reporting units or the accounting methodology we use to assess impairment loss on goodwill and indefinite-lived intangible assets.

Prior to 2025, Management performed an assessment of the impairment of goodwill for our reporting units and indefinite-lived intangible assets using a quantitative approach, which indicated that the fair values of each of our reporting units and indefinite-lived intangible assets were substantially in excess of their carrying values.

In 2025, we elected to qualitatively perform our annual impairment analysis for all reporting units and indefinite-lived intangible assets.

Subsequent to our October 1, 2025 annual impairment test, no indications of impairment were identified.

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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 7. Management’s Discussion and Analysis