[Special Note Regarding Forward-Looking Statements](index=2&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section provides a cautionary note on forward-looking statements, highlighting potential material differences from actual results due to various risks [Forward-Looking Statements Disclosure](index=2&type=section&id=Forward-Looking%20Statements%20Disclosure) This section outlines the nature of forward-looking statements within the report, emphasizing that actual results may differ materially due to various risk factors, including macroeconomic conditions, global events, supply chain disruptions, and the impact of COVID-19. The company disclaims any obligation to publicly update these statements - The report contains forward-looking statements based on expectations and beliefs, subject to numerous factors beyond the Company's control that could cause actual results to differ materially[8](index=8&type=chunk)[9](index=9&type=chunk) - Key risk factors include macroeconomic environment, global events, natural disasters or pandemics (especially COVID-19's impact on supply chain, production, and retail traffic), strategic investments, product launches, competition, and financial distress among partners[9](index=9&type=chunk) - The Company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law[11](index=11&type=chunk) [PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the Company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, disaggregated revenue, acquisitions, debt, leases, and segment information [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The condensed consolidated statements of income show significant growth in net sales, gross profit, operating income, and net income for both the three and nine months ended September 30, 2021, compared to the prior year, with corresponding increases in basic and diluted earnings per share | Metric | Three Months Ended Sep 30, 2021 ($M) | Three Months Ended Sep 30, 2020 ($M) | Nine Months Ended Sep 30, 2021 ($M) | Nine Months Ended Sep 30, 2020 ($M) | | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Net sales | 1,358.3 | 1,132.3 | 3,571.2 | 2,619.9 | | Gross profit | 577.1 | 530.2 | 1,554.2 | 1,153.2 | | Operating income | 249.8 | 180.2 | 661.5 | 338.9 | | Net income attributable to Tempur Sealy International, Inc. | 177.4 | 121.4 | 448.7 | 204.1 | | Basic EPS | 0.91 | 0.59 | 2.26 | 0.98 | | Diluted EPS | 0.87 | 0.57 | 2.18 | 0.97 | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) The comprehensive income for Tempur Sealy International, Inc. increased significantly for both the three and nine months ended September 30, 2021, primarily driven by higher net income, despite negative foreign currency translation adjustments in 2021 | Metric | Three Months Ended Sep 30, 2021 ($M) | Three Months Ended Sep 30, 2020 ($M) | Nine Months Ended Sep 30, 2021 ($M) | Nine Months Ended Sep 30, 2020 ($M) | | :------------------------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Net income before non-controlling interests | 177.4 | 121.8 | 448.5 | 204.8 | | Foreign currency translation adjustments | (29.9) | 12.1 | (34.0) | (0.2) | | Comprehensive income attributable to Tempur Sealy International, Inc. | 147.5 | 133.5 | 414.7 | 203.9 | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a substantial increase in total assets, driven by higher cash and cash equivalents, accounts receivable, inventories, and goodwill, primarily due to the Dreams acquisition. Total liabilities also increased significantly, mainly from long-term debt | Metric | Sep 30, 2021 ($M) | Dec 31, 2020 ($M) | | :----------------------------------------- | :---------------- | :---------------- | | **ASSETS** | | | | Cash and cash equivalents | 503.3 | 65.0 | | Accounts receivable, net | 510.2 | 383.7 | | Inventories | 384.9 | 312.1 | | Total Current Assets | 1,482.8 | 968.4 | | Goodwill | 1,082.1 | 766.3 | | Total Assets | 4,467.3 | 3,308.6 | | **LIABILITIES AND STOCKHOLDERS' EQUITY** | | | | Total Current Liabilities | 1,159.4 | 974.8 | | Long-term debt, net | 2,285.8 | 1,323.0 | | Total Liabilities | 4,096.3 | 2,795.1 | | Total Stockholders' Equity | 362.5 | 504.6 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased from December 31, 2020, to September 30, 2021, primarily due to significant treasury stock repurchases and negative foreign currency adjustments, partially offset by net income | Metric | Nine Months Ended Sep 30, 2021 ($M) | Nine Months Ended Sep 30, 2020 ($M) | | :----------------------------------- | :---------------------------------- | :---------------------------------- | | Balance as of Dec 31, 2020 | 504.6 | 360.4 (Dec 31, 2019) | | Net income | 448.7 | 204.1 | | Foreign currency adjustments, net of tax | (34.0) | (0.2) | | Dividends declared on common stock | (47.3) | — | | Treasury stock repurchased | (551.4) | (187.5) | | Balance as of Sep 30, 2021 | 362.5 | 447.3 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows from operating activities increased significantly, while cash used in investing activities rose sharply due to acquisitions. Financing activities shifted from a net use to a net provision of cash, driven by new debt issuances and share repurchases | Metric | Nine Months Ended Sep 30, 2021 ($M) | Nine Months Ended Sep 30, 2020 ($M) | | :---------------------------------------------------- | :---------------------------------- | :---------------------------------- | | Net cash provided by operating activities from continuing operations | 597.5 | 497.9 | | Net cash used in investing activities from continuing operations | (508.0) | (111.4) | | Net cash provided by (used in) financing activities from continuing operations | 356.4 | (228.5) | | Increase in cash and cash equivalents | 438.3 | 164.3 | | Cash and cash equivalents, end of period | 503.3 | 229.2 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on the company's accounting policies, financial instruments, acquisitions, debt structure, lease obligations, equity changes, and segment performance, offering crucial context to the condensed financial statements [(1) Summary of Significant Accounting Policies](index=10&type=section&id=(1)%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the Company's business, segments, and key accounting policies for inventories, sales returns, warranties, and credit losses, including their valuation methods and activity for the period - Tempur Sealy International designs, manufactures, and distributes bedding products (mattresses, foundations, adjustable bases, pillows, accessories) and licenses Sealy® and Stearns & Foster® brands. Products are sold through Wholesale and Direct channels[35](index=35&type=chunk) Inventory by Type | Inventory Type | Sep 30, 2021 ($M) | Dec 31, 2020 ($M) | | :--------------- | :---------------- | :---------------- | | Finished goods | 211.2 | 170.2 | | Work-in-process | 11.0 | 12.6 | | Raw materials and supplies | 162.7 | 129.3 | | Total Inventories | 384.9 | 312.1 | Sales Returns Activity | Sales Returns Activity | Amount ($M) | | :--------------------- | :---------- | | Balance as of Dec 31, 2020 | 44.9 | | Amounts accrued | 105.2 | | Returns charged to accrual | (101.8) | | Balance as of Sep 30, 2021 | 48.3 | Accrued Warranty Expense Activity | Accrued Warranty Expense Activity | Amount ($M) | | :-------------------------------- | :---------- | | Balance as of Dec 31, 2020 | 44.2 | | Amounts accrued | 19.4 | | Warranties charged to accrual | (16.5) | | Balance as of Sep 30, 2021 | 47.1 | Allowance for Credit Losses Activity | Allowance for Credit Losses Activity | Amount ($M) | | :----------------------------------- | :---------- | | Balance as of Dec 31, 2020 | 71.6 | | Amounts accrued | 2.4 | | Write-offs charged against the allowance | (4.5) | | Balance as of Sep 30, 2021 | 69.5 | [(2) Net Sales](index=12&type=section&id=(2)%20Net%20Sales) Net sales are disaggregated by channel (Wholesale, Direct), product (Bedding, Other), and geographical region (United States, All Other) for both the three and nine months ended September 30, 2021 and 2020, showing growth across most categories and regions Net Sales Disaggregation **Three Months Ended September 30:** | Category | 2021 ($M) | 2020 ($M) | | :------------------ | :-------- | :-------- | | **Channel** | | | | Wholesale | 1,099.2 | 987.2 | | Direct | 259.1 | 145.1 | | **Product** | | | | Bedding | 1,244.5 | 1,035.2 | | Other | 113.8 | 97.1 | | **Geographical region** | | | | United States | 1,018.8 | 904.3 | | All Other | 339.5 | 228.0 | | **Total Net Sales** | **1,358.3** | **1,132.3** | **Nine Months Ended September 30:** | Category | 2021 ($M) | 2020 ($M) | | :------------------ | :-------- | :-------- | | **Channel** | | | | Wholesale | 2,986.0 | 2,273.3 | | Direct | 585.2 | 346.6 | | **Product** | | | | Bedding | 3,277.9 | 2,397.5 | | Other | 293.3 | 222.4 | | **Geographical region** | | | | United States | 2,783.6 | 2,078.8 | | All Other | 787.6 | 541.1 | | **Total Net Sales** | **3,571.2** | **2,619.9** | [(3) Acquisitions](index=13&type=section&id=(3)%20Acquisitions) The Company completed the acquisition of Dreams Topco Limited on August 2, 2021, for $476.7 million, expanding its multi-channel sales strategy in the United Kingdom. The preliminary purchase price allocation includes significant goodwill and an indefinite-lived intangible asset for trade names - Acquired Dreams Topco Limited on August 2, 2021, for a cash purchase price of **$476.7 million**, funded by cash on hand and bank financing[48](index=48&type=chunk) - Dreams brings over 200 brick-and-mortar retail locations in the UK, an industry-leading online channel, and manufacturing/delivery assets[48](index=48&type=chunk) Preliminary Purchase Price Allocation (as of Aug 2, 2021) | Preliminary Purchase Price Allocation (as of Aug 2, 2021) | Amount ($M) | | :------------------------------------------------------- | :---------- | | Accounts receivable, net | 3.5 | | Inventory | 51.1 | | Property, plant and equipment | 30.4 | | Goodwill | 331.3 | | Indefinite-lived intangible asset (trade names) | 143.1 | | Operating lease right-of-use assets | 158.2 | | Other current and non-current assets | 7.1 | | Accounts payable | (55.6) | | Accrued expenses and other current liabilities | (68.5) | | Operating lease liabilities | (165.1) | | Debt | (6.1) | | Other liabilities | (2.4) | | **Purchase price, net of cash acquired** | **427.0** | - Goodwill primarily represents the expansion of retail competency, online capabilities, and expected synergistic manufacturing and distribution benefits, and is included within the International business segment[50](index=50&type=chunk) [(4) Goodwill](index=13&type=section&id=(4)%20Goodwill) Goodwill increased significantly from December 31, 2020, to September 30, 2021, primarily due to the Dreams acquisition, which added $331.3 million to the International segment Goodwill Changes | Goodwill Changes | North America ($M) | International ($M) | Consolidated ($M) | | :----------------------------- | :----------------- | :----------------- | :---------------- | | Balance as of Dec 31, 2020 | 610.3 | 156.0 | 766.3 | | Goodwill resulting from acquisitions | — | 331.3 | 331.3 | | Foreign currency translation and other | 1.0 | (16.5) | (15.5) | | Balance as of Sep 30, 2021 | 611.3 | 470.8 | 1,082.1 | [(5) Debt](index=14&type=section&id=(5)%20Debt) The Company's total debt increased significantly, driven by the issuance of new 2029 and 2031 Senior Notes and amendments to the 2019 Credit Agreement, while older senior notes were redeemed. The Company remains in compliance with all debt covenants Debt by Type | Debt Type | Sep 30, 2021 ($M) | Dec 31, 2020 ($M) | | :-------------------- | :---------------- | :---------------- | | 2019 Credit Agreement: Term A Facility | 684.1 | 409.1 | | 2031 Senior Notes | 800.0 | — | | 2029 Senior Notes | 800.0 | — | | 2026 Senior Notes | — | 600.0 | | 2023 Senior Notes | — | 250.0 | | Total debt | 2,361.7 | 1,370.3 | | Total long-term debt, net | 2,285.8 | 1,323.0 | - The 2019 Credit Agreement was amended to increase the revolving credit facility from **$425.0 million to $725.0 million** and to provide a **$300.0 million** delayed draw term loan, which was fully drawn to fund the Dreams acquisition[56](index=56&type=chunk)[57](index=57&type=chunk) - Issued **$800.0 million** of 3.875% senior notes due 2031 (2031 Senior Notes) and **$800.0 million** of 4.00% senior notes due 2029 (2029 Senior Notes)[60](index=60&type=chunk)[64](index=64&type=chunk) - Redeemed the **$600.0 million** 2026 Senior Notes and the remaining **$250.0 million** of 2023 Senior Notes, incurring **$18.0 million** and **$5.0 million** in losses on extinguishment of debt, respectively[68](index=68&type=chunk)[69](index=69&type=chunk) - As of September 30, 2021, the Company was in compliance with all applicable debt covenants[54](index=54&type=chunk) [(6) Leases](index=17&type=section&id=(6)%20Leases) The Company's lease assets and obligations, including both operating and finance leases, increased from December 31, 2020, to September 30, 2021. Total lease expense also increased for both the three and nine months ended September 30, 2021 Lease Metrics | Lease Metric | Sep 30, 2021 ($M) | Dec 31, 2020 ($M) | | :-------------------------------- | :---------------- | :---------------- | | Operating lease right-of-use assets | 464.5 | 304.3 | | Finance lease assets | 64.2 | 61.2 | | Total leased assets | 528.7 | 365.5 | | Operating lease obligations (short-term) | 98.2 | 61.0 | | Finance lease obligations (short-term) | 13.6 | 11.4 | | Operating lease obligations (long-term) | 413.5 | 275.1 | | Finance lease obligations (long-term) | 60.9 | 60.0 | | Total lease obligations | 586.2 | 407.5 | Lease Expense | Lease Expense | Three Months Ended Sep 30, 2021 ($M) | Three Months Ended Sep 30, 2020 ($M) | Nine Months Ended Sep 30, 2021 ($M) | Nine Months Ended Sep 30, 2020 ($M) | | :-------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Operating lease expense | 27.6 | 19.1 | 68.4 | 55.8 | | Short-term lease expense | 3.2 | 2.6 | 9.9 | 8.3 | | Variable lease expense | 7.3 | 6.0 | 20.0 | 15.7 | | Amortization of right-of-use assets | 3.3 | 2.5 | 9.2 | 6.9 | | Interest on lease obligations | 1.1 | 1.2 | 3.3 | 3.5 | | Total lease expense | 42.5 | 31.4 | 110.8 | 90.2 | Scheduled Maturities of Lease Obligations (as of Sep 30, 2021) | Scheduled Maturities of Lease Obligations (as of Sep 30, 2021) | Operating Leases ($M) | Finance Leases ($M) | Total ($M) | | :----------------------------------------------------- | :-------------------- | :------------------ | :--------- | | 2021 (excluding 9 months ended Sep 30, 2021) | 29.1 | 4.6 | 33.7 | | 2022 | 112.9 | 16.6 | 129.5 | | 2023 | 99.2 | 13.4 | 112.6 | | 2024 | 82.2 | 10.7 | 92.9 | | 2025 | 66.9 | 8.9 | 75.8 | | Thereafter | 193.9 | 36.6 | 230.5 | | Total lease payments | 584.2 | 90.8 | 675.0 | | Less: Interest | 72.5 | 16.3 | 88.8 | | Present value of lease obligations | 511.7 | 74.5 | 586.2 | [(7) Stockholders' Equity](index=18&type=section&id=(7)%20Stockholders'%20Equity) The Company's Board of Directors authorized significant increases to the share repurchase program in 2021, leading to substantial repurchases during the period. Accumulated Other Comprehensive Loss (AOCL) primarily consists of foreign currency translation adjustments - Board of Directors authorized increases of **$211.4 million** and **$325.3 million** to the share repurchase authorization in February and April 2021, respectively[73](index=73&type=chunk) - Repurchased **4.1 million shares** for approximately **$190.0 million** during the three months ended September 30, 2021, and **14.1 million shares** for approximately **$551.4 million** during the nine months ended September 30, 2021[73](index=73&type=chunk) - As of September 30, 2021, **$186.9 million** remained under the share repurchase authorization, which was further increased to **$600.0 million** on October 28, 2021[73](index=73&type=chunk)[182](index=182&type=chunk) AOCL Component | AOCL Component | Sep 30, 2021 ($M) | Dec 31, 2020 ($M) | | :----------------------- | :---------------- | :---------------- | | Foreign Currency Translation | (92.6) | (58.6) | | Pensions | (6.9) | (6.9) | | Total AOCL | (99.5) | (65.5) | [(8) Other Items](index=19&type=section&id=(8)%20Other%20Items) Accrued expenses and other current liabilities saw a slight increase from December 31, 2020, to September 30, 2021, with a notable decrease in taxes due to the release of certain uncertain income tax liabilities Accrued Expenses and Other Current Liabilities | Accrued Expenses and Other Current Liabilities | Sep 30, 2021 ($M) | Dec 31, 2020 ($M) | | :--------------------------------------------- | :---------------- | :---------------- | | Wages and benefits | 101.1 | 102.5 | | Operating lease obligations | 98.2 | 61.0 | | Advertising | 79.5 | 74.4 | | Taxes | 26.7 | 150.4 | | Other | 297.2 | 196.8 | | **Total** | **602.7** | **585.1** | - The decrease in taxes was due to the release of certain uncertain income tax liabilities[77](index=77&type=chunk) [(9) Stock-Based Compensation](index=20&type=section&id=(9)%20Stock-Based%20Compensation) Total stock-based compensation expense decreased for both the three and nine months ended September 30, 2021, primarily due to a significant reduction in PRSU expense compared to the prior year Stock-Based Compensation Expense | Stock-Based Compensation Expense | Three Months Ended Sep 30, 2021 ($M) | Three Months Ended Sep 30, 2020 ($M) | Nine Months Ended Sep 30, 2021 ($M) | Nine Months Ended Sep 30, 2020 ($M) | | :------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | PRSU expense | 10.3 | 65.0 | 29.6 | 66.2 | | Option expense | 0.4 | 1.3 | 1.2 | 3.7 | | RSU/DSU expense | 5.4 | 5.5 | 15.5 | 16.7 | | **Total stock-based compensation expense** | **16.1** | **71.8** | **46.3** | **86.6** | [(10) Commitments and Contingencies](index=20&type=section&id=(10)%20Commitments%20and%20Contingencies) The Company is involved in various legal and administrative proceedings but believes their aggregate outcome will not materially adversely affect its business, financial condition, liquidity, or operating results - The Company believes the outcome of all pending legal and administrative proceedings will not have a material adverse effect on its business, financial condition, liquidity, or operating results[79](index=79&type=chunk) [(11) Income Taxes](index=20&type=section&id=(11)%20Income%20Taxes) The Company's effective tax rate for both the three and nine months ended September 30, 2021, decreased compared to the prior year. The Danish Tax Matter for 2001-2011 has been materially resolved, but disputes for 2012-2021 are ongoing, with associated uncertain income tax liabilities and cash deposits Effective Tax Rate | Effective Tax Rate | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Effective Tax Rate | 24.9% | 25.2% | 24.3% | 26.5% | - The Danish Tax Matter for tax years 2001-2011 (Settlement Years) is considered materially closed, with SKAT refunding excess tax deposits[83](index=83&type=chunk) Uncertain Income Tax Liabilities (Danish Tax Matter) | Uncertain Income Tax Liabilities (Danish Tax Matter) | Sep 30, 2021 ($M) | Dec 31, 2020 ($M) | | :--------------------------------------------------- | :---------------- | :---------------- | | Settlement Years (Accrued expenses and other current liabilities) | — | 139.1 | | 2012 to Current Period (Other non-current liabilities) | 48.6 | 48.4 | | **Total** | **48.6** | **187.5** | Cash on Deposit with SKAT | Cash on Deposit with SKAT | Sep 30, 2021 ($M) | Dec 31, 2020 ($M) | | :------------------------ | :---------------- | :---------------- | | Prepaid expenses and other current assets | — | 139.1 | | Other non-current assets | 49.5 | 54.8 | | **Total** | **49.5** | **193.9** | [(12) Earnings Per Common Share](index=22&type=section&id=(12)%20Earnings%20Per%20Common%20Share) Basic and diluted earnings per common share for continuing operations increased significantly for both the three and nine months ended September 30, 2021, reflecting improved profitability and a lower weighted average common shares outstanding EPS Metrics | EPS Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic earnings per common share for continuing operations | $0.91 | $0.58 | $2.26 | $0.97 | | Diluted earnings per common share for continuing operations | $0.87 | $0.56 | $2.18 | $0.96 | | Weighted average common shares outstanding (Basic) | 195.8 | 206.4 | 198.9 | 208.8 | | Weighted average common shares outstanding (Diluted) | 203.4 | 211.6 | 205.9 | 211.6 | [(13) Business Segment Information](index=22&type=section&id=(13)%20Business%20Segment%20Information) The Company operates in two segments, North America and International, with segment performance evaluated based on net sales, gross profit, and operating income. Both segments showed growth in net sales and operating income for the periods presented, with the International segment significantly impacted by the Dreams acquisition - The Company operates in two segments: North America (U.S., Canada, Mexico) and International (Europe, Asia-Pacific, Latin America excluding Mexico). Dreams acquisition is included in the International segment[92](index=92&type=chunk)[105](index=105&type=chunk) Segment Assets | Segment Assets | Sep 30, 2021 ($M) | Dec 31, 2020 ($M) | | :--------------- | :---------------- | :---------------- | | North America | 4,258.2 | 3,740.3 | | International | 1,257.8 | 639.8 | | Corporate | 860.4 | 490.3 | | Total assets | 4,467.3 | 3,308.6 | Segment Performance **Three Months Ended September 30, 2021:** | Metric | North America ($M) | International ($M) | Corporate ($M) | Consolidated ($M) | | :-------------------------- | :----------------- | :----------------- | :------------- | :---------------- | | Net sales | 1,120.0 | 238.3 | — | 1,358.3 | | Gross profit | 447.1 | 130.0 | — | 577.1 | | Operating income (loss) | 237.0 | 50.3 | (37.5) | 249.8 | **Nine Months Ended September 30, 2021:** | Metric | North America ($M) | International ($M) | Corporate ($M) | Consolidated ($M) | | :-------------------------- | :----------------- | :----------------- | :------------- | :---------------- | | Net sales | 3,017.1 | 554.1 | — | 3,571.2 | | Gross profit | 1,236.4 | 317.8 | — | 1,554.2 | | Operating income (loss) | 627.8 | 139.9 | (106.2) | 661.5 | Net Sales by Geographic Region | Net Sales by Geographic Region | Three Months Ended Sep 30, 2021 ($M) | Three Months Ended Sep 30, 2020 ($M) | Nine Months Ended Sep 30, 2021 ($M) | Nine Months Ended Sep 30, 2020 ($M) | | :----------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | United States | 1,018.8 | 904.3 | 2,783.6 | 2,078.8 | | All Other | 339.5 | 228.0 | 787.6 | 541.1 | | **Total Net Sales** | **1,358.3** | **1,132.3** | **3,571.2** | **2,619.9** | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a comprehensive overview of the Company's business, financial performance for the three and nine months ended September 30, 2021, compared to the prior year, and an analysis of its liquidity and capital resources, including the impact of acquisitions, market conditions, and non-GAAP financial measures [Business Overview](index=26&type=section&id=Business%20Overview) The Company, a global leader in bedding products, operates through North America and International segments with an omni-channel strategy. The bedding industry is poised for growth, though recent performance has been affected by COVID-19, supply chain constraints, and commodity inflation, while strategic acquisitions and product launches continue - The Company is a global leader in designing, manufacturing, and distributing bedding products, operating in North America and International segments with an omni-channel strategy (Wholesale and Direct)[104](index=104&type=chunk)[105](index=105&type=chunk)[107](index=107&type=chunk) - The bedding industry is structured for sustained growth, driven by product innovation, consumer confidence, housing formations, and population growth[108](index=108&type=chunk) - Consolidated year-to-date net sales increased **36.3%** compared to 2020, with full-year 2021 net sales growth expected to exceed **35%**[109](index=109&type=chunk) - Supply chain constraints unfavorably impacted Q3 2021 sales by an estimated **$200 million**, with expectations for resolution by the end of 2021[110](index=110&type=chunk) - The acquisition of Dreams Topco Limited on August 2, 2021, for **$476.7 million**, expanded the Company's multi-channel sales strategy in the United Kingdom[113](index=113&type=chunk) - New product launches include the Tempur-Ergo Smart Base Collection in North America (Q1 2021) and the largest Sealy North America rollout (Posturepedic Plus™, Posturepedic®, Essentials) in 2021-2022, with a new Tempur product line planned for International in 2022[114](index=114&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) The Company reported strong financial performance for both the three and nine months ended September 30, 2021, with significant increases in net sales, operating income, and EPS. Gross margins declined due to commodity costs and the Dreams acquisition, while operating expenses were managed, and interest expense decreased [Summary of Three Months Ended September 30, 2021](index=28&type=section&id=Summary%20of%20Three%20Months%20Ended%20September%2030%2C%202021) For Q3 2021, total net sales increased 20.0% (19.2% constant currency), with significant growth in the International segment. Gross margin declined to 42.5%, while operating income rose 38.6%. Diluted EPS increased 52.6% to $0.87 Q3 2021 Financial Summary | Metric | Q3 2021 (Reported) | Q3 2020 (Reported) | Q3 2021 (Adjusted/Constant Currency) | Q3 2020 (Adjusted) | | :----------------------------------- | :----------------- | :----------------- | :----------------------------------- | :----------------- | | Total net sales | $1,358.3M | $1,132.3M | +19.2% (constant currency) | | | Gross margin | 42.5% | 46.8% | | 46.9% | | Operating income | $249.8M | $180.2M | | $227.2M (+11.0%) | | Net income | $177.4M | $121.4M | | $155.4M (+15.6%) | | EBITDA | $295.2M | $279.9M | | $279.3M (+6.6%) | | Diluted EPS | $0.87 | $0.57 | | $0.74 (+18.9%) | [Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020](index=29&type=section&id=Three%20Months%20Ended%20September%2030%2C%202021%20Compared%20to%20the%20Three%20Months%20Ended%20September%2030%2C%202020) For the three months ended September 30, 2021, net sales increased across both segments, with International showing significant growth due to the Dreams acquisition. Gross margins declined due to pricing actions and acquisition impact, while operating expenses decreased overall, leading to improved operating income and a lower effective tax rate Income Statement Percentages | Metric | 2021 (% of Net Sales) | 2020 (% of Net Sales) | | :------------------------------------------ | :-------------------- | :-------------------- | | Net sales | 100.0% | 100.0% | | Cost of sales | 57.5% | 53.2% | | Gross profit | 42.5% | 46.8% | | Selling and marketing expenses | 17.9% | 20.3% | | General, administrative and other expenses | 6.6% | 11.0% | | Operating income | 18.4% | 15.9% | | Income from continuing operations before income taxes | 17.4% | 14.1% | | Net income attributable to Tempur Sealy International, Inc. | 13.1% | 10.7% | - Consolidated net sales increased **20.0%** (**19.2%** on a constant currency basis). North America net sales increased **12.6%**, driven by broad-based demand in Wholesale and strong company-owned store sales in Direct. International net sales increased **73.2%** (**71.6%** on a constant currency basis), primarily driven by the Dreams acquisition[122](index=122&type=chunk)[127](index=127&type=chunk) - Consolidated gross margin declined **430 basis points** to **42.5%**. North America gross margin declined **480 bps** due to pricing actions, operational inefficiencies, and unfavorable brand mix. International gross margin declined **730 bps**, primarily due to the Dreams acquisition's lower margin profile and pricing actions[123](index=123&type=chunk)[126](index=126&type=chunk)[128](index=128&type=chunk) - Consolidated operating expenses decreased **$20.7 million** (**5.8%**). Corporate operating expenses decreased **$58.6 million** due to lower stock-based compensation amortization, positively impacting consolidated operating margin by **430 bps**[131](index=131&type=chunk)[133](index=133&type=chunk)[140](index=140&type=chunk) - Consolidated operating income increased **$69.6 million**, and operating margin improved **250 basis points**[136](index=136&type=chunk) - Net interest expense decreased **$6.6 million** (**32.8%**) due to lower interest rates on debt. Income tax provision increased **$18.4 million** due to higher income, with the effective tax rate decreasing **30 bps** to **24.9%**[137](index=137&type=chunk)[139](index=139&type=chunk) [Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020](index=33&type=section&id=Nine%20Months%20Ended%20September%2030%2C%202021%20Compared%20to%20the%20Nine%20Months%20Ended%20September%2030%2C%202020) For the nine months ended September 30, 2021, the Company achieved substantial growth in net sales and operating income, with an improved operating margin. Gross margin saw a slight decline, while interest expense decreased, and significant losses on debt extinguishment were recognized due to refinancing activities Income Statement Percentages | Metric | 2021 (% of Net Sales) | 2020 (% of Net Sales) | | :------------------------------------------ | :-------------------- | :-------------------- | | Net sales | 100.0% | 100.0% | | Cost of sales | 56.5% | 56.0% | | Gross profit | 43.5% | 44.0% | | Selling and marketing expenses | 18.4% | 20.5% | | General, administrative and other expenses | 7.1% | 11.0% | | Operating income | 18.5% | 12.9% | | Income from continuing operations before income taxes | 16.6% | 10.6% | | Net income attributable to Tempur Sealy International, Inc. | 12.6% | 7.8% | - Consolidated net sales increased **36.3%** (**34.6%** on a constant currency basis). North America net sales increased **33.2%**, driven by broad-based demand in Wholesale and strong Direct channel growth. International net sales increased **56.4%** (**48.6%** on a constant currency basis), primarily due to the Dreams acquisition and higher sales volume[145](index=145&type=chunk)[147](index=147&type=chunk) - Consolidated gross margin declined **50 basis points** to **43.5%**. North America gross margin declined **70 bps** due to pricing actions, partially offset by fixed cost leverage. International gross margin declined **150 bps**, primarily due to the Dreams acquisition's lower margin profile[146](index=146&type=chunk)[148](index=148&type=chunk) - Consolidated operating expenses increased **$89.3 million** (**10.8%**). Corporate operating expenses decreased **$38.2 million** due to lower stock-based compensation amortization, positively impacting consolidated operating margin by **110 bps**[152](index=152&type=chunk)[154](index=154&type=chunk)[160](index=160&type=chunk) - Consolidated operating income increased **$322.6 million**, and operating margin improved **560 basis points**[156](index=156&type=chunk) - Net interest expense decreased **$15.2 million** (**24.9%**) due to reduced average debt levels and lower interest rates, partially offset by **$5.2 million** of overlapping interest expense. The Company recognized **$23.0 million** in losses on extinguishment of debt from redeeming the 2026 and 2023 Senior Notes[158](index=158&type=chunk)[160](index=160&type=chunk) - Income tax provision increased **$70.7 million** (**96.6%**) due to higher income, with the effective tax rate decreasing **220 bps** to **24.3%**[162](index=162&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The Company's liquidity significantly improved, driven by strong operating cash flows and strategic financing activities, including new debt issuances and an expanded share repurchase program. Total debt increased due to acquisitions and refinancing, but the Company remains within its leverage targets and maintains a balanced capital allocation strategy - As of September 30, 2021, net working capital was **$323.4 million**, a significant improvement from a **$6.4 million** deficit at December 31, 2020. Cash and cash equivalents totaled **$503.3 million**[164](index=164&type=chunk)[165](index=165&type=chunk) - Cash provided by operating activities from continuing operations increased **$99.6 million** for the nine months ended September 30, 2021. Cash used in investing activities increased **$396.6 million**, primarily due to the Dreams acquisition[166](index=166&type=chunk)[167](index=167&type=chunk) - Cash provided by financing activities from continuing operations increased **$584.9 million**, driven by **$1.6 billion** from new senior notes, offset by **$850.0 million** in debt repayments and **$565.8 million** in share repurchases[168](index=168&type=chunk) - Total debt increased to **$2,361.7 million** as of September 30, 2021, from **$1,370.3 million** at December 31, 2020. The Company's revolving credit facility was increased to **$725.0 million**[172](index=172&type=chunk)[173](index=173&type=chunk) - The ratio of consolidated indebtedness less netted cash to adjusted EBITDA was **1.68 times** as of September 30, 2021, well within the 2019 Credit Agreement's covenant limit of **5.00 times**. The target range for this ratio is **2.0 to 3.0 times**[178](index=178&type=chunk)[188](index=188&type=chunk) - The Board authorized additional share repurchases of **$211.4 million** and **$325.3 million** in 2021, with **$551.4 million** repurchased year-to-date. Total authorization was increased to **$600.0 million** on October 28, 2021[181](index=181&type=chunk)[182](index=182&type=chunk) - Total liquidity as of September 30, 2021, was **$1,397.3 million**, including cash on hand and available credit facilities. The Company declared a quarterly dividend of **$0.09 per share**[185](index=185&type=chunk)[187](index=187&type=chunk) [Non-GAAP Financial Information](index=39&type=section&id=Non-GAAP%20Financial%20Information) This section provides reconciliations of various non-GAAP financial measures, including adjusted net income, adjusted EPS, adjusted gross profit, adjusted operating income, EBITDA, and adjusted EBITDA, to their most directly comparable GAAP measures. These non-GAAP measures are used to provide a clearer understanding of the Company's underlying operational performance and leverage - Non-GAAP financial measures (adjusted net income, EPS, gross profit, operating income, EBITDA, consolidated indebtedness less netted cash) are used to provide investors with performance measures that better reflect underlying operations and trends, excluding short-term fluctuations[190](index=190&type=chunk)[191](index=191&type=chunk) Adjusted Net Income Reconciliation | Adjusted Net Income Reconciliation | Three Months Ended Sep 30, 2021 ($M) | Three Months Ended Sep 30, 2020 ($M) | | :--------------------------------- | :----------------------------------- | :----------------------------------- | | Net income | 177.4 | 121.4 | | Loss (income) from discontinued operations, net of tax | 0.1 | (2.4) | | Acquisition-related costs | 2.3 | — | | Aspirational plan amortization | — | 45.2 | | Loss on extinguishment of debt | — | 0.9 | | Accounting standard adoption | — | 0.8 | | Facility expansion costs | — | 0.6 | | Restructuring costs | — | 0.4 | | Tax adjustments | (0.2) | (11.5) | | **Adjusted net income** | **179.6** | **155.4** | | **Adjusted earnings per share, diluted** | **0.88** | **0.74** | Adjusted Operating Income Reconciliation (Q3 2021) | Adjusted Operating Income Reconciliation (Q3 2021) | Consolidated ($M) | North America ($M) | International ($M) | Corporate ($M) | | :------------------------------------------------- | :---------------- | :----------------- | :----------------- | :------------- | | Operating income (expense) | 249.8 | 237.0 | 50.3 | (37.5) | | Acquisition-related costs | 2.3 | — | 2.3 | — | | **Adjusted operating income (expense)** | **252.1** | **237.0** | **52.6** | **(37.5)** | Adjusted Operating Income Reconciliation (Q3 2020) | Adjusted Operating Income Reconciliation (Q3 2020) | Consolidated ($M) | North America ($M) | International ($M) | Corporate ($M) | | :------------------------------------------------- | :---------------- | :----------------- | :----------------- | :------------- | | Operating income (expense) | 180.2 | 235.1 | 41.2 | (96.1) | | Aspirational plan amortization | 45.2 | — | — | 45.2 | | Accounting standard adoption | 0.8 | 0.8 | — | — | | Facility expansion costs | 0.6 | 0.6 | — | — | | Restructuring costs | 0.4 | — | 0.4 | — | | **Adjusted operating income (expense)** | **227.2** | **236.5** | **41.6** | **(50.9)** | EBITDA and Adjusted EBITDA Reconciliation | EBITDA and Adjusted EBITDA Reconciliation | Three Months Ended Sep 30, 2021 ($M) | Three Months Ended Sep 30, 2020 ($M) | | :---------------------------------------- | :----------------------------------- | :----------------------------------- | | Net income | 177.4 | 121.4 | | Interest expense, net | 13.5 | 20.1 | | Loss on extinguishment of debt | — | 0.9 | | Income taxes | 58.7 | 40.3 | | Depreciation and amortization | 45.6 | 52.0 | | Aspirational plan amortization | — | 45.2 | | **EBITDA** | **295.2** | **279.9** | | Loss (income) from discontinued operations, net of tax | 0.1 | (2.4) | | Acquisition-related costs | 2.3 | — | | Accounting standard adoption | — | 0.8 | | Facility expansion costs | — | 0.6 | | Restructuring costs | — | 0.4 | | **Adjusted EBITDA** | **297.6** | **279.3** | Consolidated Indebtedness less Netted Cash Reconciliation | Consolidated Indebtedness less Netted Cash Reconciliation | Sep 30, 2021 ($M) | | :------------------------------------------------------ | :---------------- | | Total debt, net | 2,338.8 | | Plus: Deferred financing costs | 22.9 | | **Consolidated indebtedness** | **2,361.7** | | Less: Netted cash | 502.0 | | **Consolidated indebtedness less netted cash** | **1,859.7** | - The ratio of consolidated indebtedness less netted cash to adjusted EBITDA was **1.68 times** for the trailing twelve months ended September 30, 2021, which is within the 2019 Credit Agreement's covenant limit of **5.00:1.00 times**[208](index=208&type=chunk)[210](index=210&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the Company's exposure to foreign currency exchange rate risk and interest rate risk, detailing the impact of fluctuations and the strategies employed to mitigate these risks [Foreign Currency Exposures](index=45&type=section&id=Foreign%20Currency%20Exposures) The Company's earnings are exposed to foreign currency exchange rate changes, which positively impacted net income and adjusted EBITDA in 2021. A portion of this exposure is hedged using foreign exchange forward contracts - Foreign currency exchange rate changes positively impacted net income by **1.4%** in Q3 2021 and **2.5%** in the nine months ended September 30, 2021[214](index=214&type=chunk) - Foreign currency exchange rate changes positively impacted adjusted EBITDA by **1.1%** in Q3 2021 and **2.0%** in the nine months ended September 30, 2021[214](index=214&type=chunk) - The Company hedges a portion of its foreign currency transaction exposure with foreign exchange forward contracts. A hypothetical **10.0%** adverse change in exchange rates would result in an estimated **$1.8 million** potential loss in fair value on these contracts, largely offset by gains on underlying assets/liabilities[215](index=215&type=chunk) [Interest Rate Risk](index=45&type=section&id=Interest%20Rate%20Risk) The Company has significant variable-rate debt, making it sensitive to interest rate fluctuations. A 100 basis point increase in interest rates would lead to an estimated $6.8 million reduction in income before income taxes - As of September 30, 2021, the Company had approximately **$687.2 million** in variable-rate debt[216](index=216&type=chunk) - A hypothetical **100 basis point** increase in interest rates on variable-rate debt would cause an estimated **$6.8 million** reduction in income before income taxes[216](index=216&type=chunk) [ITEM 4. Controls and Procedures](index=46&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021, and there were no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2021[217](index=217&type=chunk) - No changes in internal control over financial reporting were identified that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[218](index=218&type=chunk) [PART II. OTHER INFORMATION](index=46&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity security sales, debt defaults, and other required disclosures [ITEM 1. Legal Proceedings](index=46&type=section&id=ITEM%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 10 of the Condensed Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 10, 'Commitments and Contingencies,' of the 'Notes to Condensed Consolidated Financial Statements'[219](index=219&type=chunk) [ITEM 1A. Risk Factors](index=47&type=section&id=ITEM%201A.%20Risk%20Factors) There are no new material risk factors to report for the period - No new material risk factors are reported[220](index=220&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's common stock repurchase activity for the three months ended September 30, 2021, including the number of shares purchased, average price, and remaining authorization Common Stock Repurchase Activity | Period | Total number of shares purchased | Average Price Paid per Share | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares (or approximate dollar value of shares) that may yet be purchased under the plans or programs ($M) | | :------------------------------ | :------------------------------- | :--------------------------- | :---------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------- | | July 1, 2021 - July 31, 2021 | 291,608 | $40.01 | 291,608 | $365.2 | | August 1, 2021 - August 31, 2021 | 540,747 | $43.67 | 540,747 | $341.5 | | September 1, 2021 - September 30, 2021 | 3,251,061 | $47.67 | 3,243,547 | $186.9 | | **Total** | **4,083,416** | | **4,075,902** | | - On October 28, 2021, the Board of Directors authorized an increase to the share repurchase program, bringing the total authorization to **$600.0 million**[222](index=222&type=chunk) [ITEM 3. Defaults upon Senior Securities](index=47&type=section&id=ITEM%203.%20Defaults%20upon%20Senior%20Securities) The Company reported no defaults upon senior securities - No defaults upon senior securities were reported[223](index=223&type=chunk) [ITEM 4. Mine Safety Disclosures](index=47&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - This item is not applicable[224](index=224&type=chunk) [ITEM 5. Other Information](index=47&type=section&id=ITEM%205.%20Other%20Information) This section indicates that there is no other information to report under this item, referring to Issuer Purchases of Equity Securities - No other information is applicable under this item[225](index=225&type=chunk)[226](index=226&type=chunk) [ITEM 6. Exhibits](index=48&type=section&id=ITEM%206.%20Exhibits) This section provides an index of exhibits filed with the report, including indentures, amendments to credit agreements, CEO/CFO certifications, and XBRL financial statements - Key exhibits include Indenture for 2031 Senior Notes, Amendment No. 5 to the 2019 Credit Agreement, CEO and CFO certifications (pursuant to Sarbanes-Oxley Act), and Inline XBRL formatted financial statements[227](index=227&type=chunk) [SIGNATURES](index=49&type=section&id=SIGNATURES) This section contains the official signatures certifying the accuracy and completeness of the report [Report Signatures](index=49&type=section&id=Report%20Signatures) The report was duly signed on November 3, 2021, by Bhaskar Rao, Executive Vice President and Chief Financial Officer of Tempur Sealy International, Inc - The report was signed on November 3, 2021, by Bhaskar Rao, Executive Vice President and Chief Financial Officer[230](index=230&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 001-31922 TEMPUR SEALY INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporatio ...

TEMPUR + SEALY Tempur Sealy TPX Pictured above: Tempur-Pedic flagship store in Manhattan International, Inc. "Our growth reflects strong industry demand, our worldwide leadership position, and the success of our omnichannel distribution strategy" © 2021 Tempur Sealy International, Inc. 1 Purpose: To Improve the Sleep of More People, Every Night, All Around the World As a global leader in the design, manufacture and distribution of bedding products, we know how crucial a good night of sleep is to overall hea ...

PART I. FINANCIAL INFORMATION [ITEM 1. Financial Statements](index=4&type=section&id=ITEM%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Tempur Sealy International, Inc. and its subsidiaries for the three months ended March 31, 2021 and 2020, including statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with detailed notes on significant accounting policies, net sales, acquisitions, debt, leases, and segment information [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Three Months Ended March 31, 2021 vs. 2020 (in millions) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :----------------------------------- | :----- | :----- | :--------- | :--------- | | Net sales | $1,043.8 | $822.4 | $221.4 | 26.9% | | Gross profit | $458.9 | $357.1 | $101.8 | 28.5% | | Operating income | $188.4 | $105.3 | $83.1 | 78.9% | | Income from continuing operations before income taxes | $171.4 | $84.5 | $86.9 | 102.8% | | Net income attributable to Tempur Sealy International, Inc. | $130.5 | $59.7 | $70.8 | 118.6% | | Diluted Earnings per share | $0.62 | $0.28 | $0.34 | 121.4% | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Three Months Ended March 31, 2021 vs. 2020 (in millions) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :------------------------------------------------ | :----- | :----- | :--------- | :--------- | | Net income before non-controlling interests | $130.7 | $59.8 | $70.9 | 118.6% | | Other comprehensive loss, net of tax | $(10.8) | $(23.0) | $12.2 | -53.0% | | Comprehensive income attributable to Tempur Sealy International, Inc. | $119.7 | $36.7 | $83.0 | 226.2% | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2021 vs. December 31, 2020 (in millions) | Metric | March 31, 2021 | December 31, 2020 | Change ($) | Change (%) | | :--------------------------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $290.5 | $65.0 | $225.5 | 346.9% | | Total Current Assets | $1,214.3 | $968.4 | $245.9 | 25.4% | | Total Assets | $3,542.1 | $3,308.6 | $233.5 | 7.1% | | Total Current Liabilities | $895.7 | $974.8 | $(79.1) | -8.1% | | Long-term debt, net | $1,822.4 | $1,323.0 | $499.4 | 37.7% | | Total Liabilities | $3,214.9 | $2,795.1 | $419.8 | 15.0% | | Total Stockholders' Equity | $318.3 | $504.6 | $(186.3) | -36.9% | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total Stockholders' Equity decreased from **$504.6 million** as of December 31, 2020, to **$318.3 million** as of March 31, 2021, primarily due to treasury stock repurchases of **$299.8 million** and dividends paid of **$14.8 million**, partially offset by net income of **$130.5 million**[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Three Months Ended March 31, 2021 vs. 2020 (in millions) | Cash Flow Activity | 2021 | 2020 | Change ($) | Change (%) | | :------------------------------------------------ | :----- | :----- | :--------- | :--------- | | Net cash provided by operating activities from continuing operations | $86.3 | $15.0 | $71.3 | 475.3% | | Net cash used in investing activities from continuing operations | $(24.4) | $(64.0) | $39.6 | -61.9% | | Net cash provided by financing activities from continuing operations | $168.9 | $188.1 | $(19.2) | -10.2% | | Increase in cash and cash equivalents | $225.5 | $132.1 | $93.4 | 70.7% | | Cash and cash equivalents, end of period | $290.5 | $197.0 | $93.5 | 47.5% | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Summary of Significant Accounting Policies](index=9&type=section&id=(1)%20Summary%20of%20Significant%20Accounting%20Policies) - The Company designs, manufactures, and distributes bedding products (mattresses, foundations, adjustable bases, pillows, accessories) through Wholesale and Direct channels[30](index=30&type=chunk) - It also earns royalties from licensing Sealy® and Stearns & Foster® brands[31](index=31&type=chunk) - The Company holds **50% ownership** in Asia-Pacific joint ventures and a UK joint venture for Sealy® and Stearns & Foster® products, accounted for using the equity method[32](index=32&type=chunk) Inventories (in millions) | Category | March 31, 2021 | December 31, 2020 | | :--------------- | :------------- | :---------------- | | Finished goods | $171.3 | $170.2 | | Work-in-process | $10.6 | $12.6 | | Raw materials and supplies | $136.9 | $129.3 | | **Total** | **$318.8** | **$312.1** | - Accrued sales returns increased from **$44.9 million** at December 31, 2020, to **$48.2 million** at March 31, 2021, with **$36.7 million** accrued and **$33.4 million** charged during the period[35](index=35&type=chunk) - Accrued warranty expense remained stable at **$44.3 million** at March 31, 2021, compared to **$44.2 million** at December 31, 2020, with **$5.8 million** accrued and **$5.7 million** charged during the period[39](index=39&type=chunk) - The allowance for credit losses increased from **$71.6 million** at December 31, 2020, to **$72.5 million** at March 31, 2021, reflecting **$2.5 million** accrued and **$1.6 million** in write-offs[41](index=41&type=chunk) [Net Sales](index=11&type=section&id=(2)%20Net%20Sales) Disaggregated Net Sales for Three Months Ended March 31, 2021 (in millions) | Category | North America | International | Consolidated | | :------------------ | :------------ | :------------ | :----------- | | **Channel:** | | | | | Wholesale | $765.5 | $115.9 | $881.4 | | Direct | $117.8 | $44.6 | $162.4 | | **Product:** | | | | | Bedding | $830.3 | $121.7 | $952.0 | | Other | $53.0 | $38.8 | $91.8 | | **Geographical region:** | | | | | United States | $818.5 | — | $818.5 | | All Other | $64.8 | $160.5 | $225.3 | | **Total Net Sales** | **$883.3** | **$160.5** | **$1,043.8** | Disaggregated Net Sales for Three Months Ended March 31, 2020 (in millions) | Category | North America | International | Consolidated | | :------------------ | :------------ | :------------ | :----------- | | **Channel:** | | | | | Wholesale | $624.7 | $97.7 | $722.4 | | Direct | $67.6 | $32.4 | $100.0 | | **Product:** | | | | | Bedding | $654.9 | $101.5 | $756.4 | | Other | $37.4 | $28.6 | $66.0 | | **Geographical region:** | | | | | United States | $632.5 | — | $632.5 | | All Other | $59.8 | $130.1 | $189.9 | | **Total Net Sales** | **$692.3** | **$130.1** | **$822.4** | [Acquisitions](index=11&type=section&id=(3)%20Acquisitions) - On January 31, 2020, the Company acquired an **80% ownership interest** in Sherwood Bedding for approximately **$39.1 million** cash, including **$1.2 million** cash acquired[44](index=44&type=chunk) - The acquisition resulted in **$26.7 million** in goodwill, primarily for private label product growth and synergistic manufacturing benefits[45](index=45&type=chunk) [Goodwill](index=12&type=section&id=(4)%20Goodwill) Goodwill by Segment (in millions) | Segment | December 31, 2020 | March 31, 2021 | Change ($) | | :-------------- | :---------------- | :------------- | :--------- | | North America | $610.3 | $611.9 | $1.6 | | International | $156.0 | $153.3 | $(2.7) | | **Consolidated** | **$766.3** | **$765.2** | **$(1.1)** | [Debt](index=12&type=section&id=(5)%20Debt) Debt Composition (in millions) | Debt Instrument | March 31, 2021 Amount | December 31, 2020 Amount | Maturity Date | | :---------------------- | :-------------------- | :----------------------- | :------------ | | 2019 Credit Agreement: Term A Facility | $398.4 | $409.1 | Oct 16, 2024 | | 2029 Senior Notes | $800.0 | — | Apr 15, 2029 | | 2026 Senior Notes | $600.0 | $600.0 | Jun 15, 2026 | | 2023 Senior Notes | — | $250.0 | Oct 15, 2023 | | Securitized debt | — | $33.9 | Apr 6, 2023 | | Finance lease obligations | $69.7 | $71.4 | Various | | Other | $5.0 | $5.9 | Various | | **Total debt, net** | **$1,860.1** | **$1,366.9** | | - The Company issued **$800.0 million** of **4.00% senior notes** due 2029 on March 25, 2021[53](index=53&type=chunk) - These notes are unsecured senior obligations and are redeemable starting April 15, 2024[54](index=54&type=chunk) - The Company announced its election to conditionally redeem the **$600.0 million** 2026 Senior Notes in full on June 15, 2021, at **102.750% of principal**, primarily funded by proceeds from the 2029 Senior Notes[57](index=57&type=chunk) - The remaining **$250.0 million** of 2023 Senior Notes were redeemed in Q1 2021, resulting in a **$5.0 million loss** on extinguishment of debt[58](index=58&type=chunk) - The revolving credit facility under the 2019 Credit Agreement was increased from **$425.0 million** to **$725.0 million** on February 2, 2021, with **$724.9 million** available as of March 31, 2021[51](index=51&type=chunk) - The Accounts Receivable Securitization limit was increased from **$120.0 million** to **$200.0 million** and its maturity extended to April 6, 2023, on April 6, 2021[52](index=52&type=chunk) [Leases](index=14&type=section&id=(6)%20Leases) Lease Assets and Liabilities (in millions) | Category | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets | $294.1 | $304.3 | | Finance lease assets | $59.4 | $61.2 | | Total leased assets | $353.5 | $365.5 | | Total lease obligations | $397.1 | $407.5 | Lease Expense for Three Months Ended March 31 (in millions) | Type of Expense | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Operating lease expense | $19.4 | $18.0 | | Short-term lease expense | $3.9 | $3.2 | | Variable lease expense | $6.4 | $5.3 | | Amortization of right-of-use assets (Finance) | $2.8 | $2.2 | | Interest on lease obligations (Finance) | $1.1 | $1.2 | | **Total lease expense** | **$33.6** | **$29.9** | [Stockholders' Equity](index=16&type=section&id=(7)%20Stockholders'%20Equity) - The Board of Directors authorized an increase of **$211.4 million** to the share repurchase program on February 11, 2021, and an additional **$400.0 million** on April 29, 2021[63](index=63&type=chunk) - The Company repurchased **8.4 million shares** for **$299.8 million** during Q1 2021[63](index=63&type=chunk) - Treasury stock acquired from RSU/PRSU vesting to satisfy tax obligations amounted to **$13.3 million** in Q1 2021[64](index=64&type=chunk) Accumulated Other Comprehensive Loss (AOCL) - Foreign Currency Translation (in millions) | Period | Balance at beginning of period | Other comprehensive loss | Balance at end of period | | :-------------------------------- | :--------------------------- | :----------------------- | :----------------------- | | Three Months Ended March 31, 2021 | $(58.6) | $(10.8) | $(69.4) | | Three Months Ended March 31, 2020 | $(82.2) | $(23.0) | $(105.2) | [Other Items](index=17&type=section&id=(8)%20Other%20Items) Accrued Expenses and Other Current Liabilities (in millions) | Category | March 31, 2021 | December 31, 2020 | | :------------------------ | :------------- | :---------------- | | Taxes | $145.0 | $150.4 | | Wages and benefits | $68.1 | $102.5 | | Advertising | $61.3 | $74.4 | | Operating lease obligations | $61.2 | $61.0 | | Other | $210.6 | $196.8 | | **Total** | **$546.2** | **$585.1** | [Stock-Based Compensation](index=17&type=section&id=(9)%20Stock-Based%20Compensation) Stock-Based Compensation Expense (in millions) | Type of Expense | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------ | :-------------------------------- | :-------------------------------- | | PRSU expense | $9.6 | $0.3 | | Option expense | $0.4 | $1.2 | | RSU/DSU expense | $5.1 | $5.8 | | **Total** | **$15.1** | **$7.3** | - PRSU expense significantly increased from **$0.3 million** in Q1 2020 to **$9.6 million** in Q1 2021, reflecting new grants and the probability of achieving performance targets[69](index=69&type=chunk)[70](index=70&type=chunk) [Commitments and Contingencies](index=18&type=section&id=(10)%20Commitments%20and%20Contingencies) - The Company is involved in various legal and administrative proceedings but believes the aggregate outcome will not have a material adverse effect on its business, financial condition, liquidity, or operating results[71](index=71&type=chunk) [Income Taxes](index=18&type=section&id=(11)%20Income%20Taxes) Income Tax Provision (in millions) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------ | :-------------------------------- | :-------------------------------- | | Income tax provision | $40.5 | $23.5 | | Effective tax rate | 23.6% | 27.8% | - The effective tax rate decreased by **420 basis points** from **27.8%** in Q1 2020 to **23.6%** in Q1 2021, primarily due to the elimination of GILTI from U.S. taxable income and the deductibility of stock compensation[72](index=72&type=chunk) - The Company is involved in a dispute with the Danish Tax Authority (SKAT) regarding royalty payments for tax years 2001 through current, with uncertain income tax liabilities totaling **$180.4 million** as of March 31, 2021[73](index=73&type=chunk)[74](index=74&type=chunk) [Earnings Per Common Share](index=19&type=section&id=(12)%20Earnings%20Per%20Common%20Share) Earnings Per Common Share (in millions, except per share amounts) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Income from continuing operations, net of non-controlling interests | $130.7 | $60.9 | | Denominator for basic EPS - weighted average shares | 203.7 | 213.6 | | Denominator for diluted EPS - adjusted weighted average shares | 210.1 | 216.0 | | Basic earnings per common share for continuing operations | $0.64 | $0.28 | | Diluted earnings per common share for continuing operations | $0.62 | $0.28 | [Business Segment Information](index=19&type=section&id=(13)%20Business%20Segment%20Information) - The Company operates in two segments: North America (U.S., Canada, Mexico) and International (Europe, Asia-Pacific, Latin America excluding Mexico)[80](index=80&type=chunk) - Segment performance is evaluated based on net sales, gross profit, and operating income[80](index=80&type=chunk) Segment Performance for Three Months Ended March 31, 2021 (in millions) | Metric | North America | International | Corporate | Consolidated | | :-------------------- | :------------ | :------------ | :-------- | :----------- | | Net sales | $883.3 | $160.5 | — | $1,043.8 | | Gross profit | $363.9 | $95.0 | — | $458.9 | | Operating income (loss) | $173.4 | $46.2 | $(31.2) | $188.4 | | Capital expenditures | $18.8 | $2.0 | $2.7 | $23.5 | Segment Performance for Three Months Ended March 31, 2020 (in millions) | Metric | North America | International | Corporate | Consolidated | | :-------------------- | :------------ | :------------ | :-------- | :----------- | | Net sales | $692.3 | $130.1 | — | $822.4 | | Gross profit | $281.2 | $75.9 | — | $357.1 | | Operating income (loss) | $101.6 | $26.4 | $(22.7) | $105.3 | | Capital expenditures | $21.6 | $2.1 | $2.5 | $26.2 | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=ITEM%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed discussion and analysis of the Company's financial condition and results of operations for the three months ended March 31, 2021, compared to the same period in 2020, highlighting significant growth in sales and income, ongoing supply chain challenges, and strategic financial actions [Business Overview](index=22&type=section&id=Business%20Overview) - Tempur Sealy International is a global leader in bedding products, operating in North America and International segments, distributing through Wholesale and Direct channels[86](index=86&type=chunk) - Its brand portfolio includes Tempur®, Tempur-Pedic®, Sealy®, and Stearns & Foster®[87](index=87&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) - The bedding industry is structured for sustained growth driven by product innovation, consumer confidence, housing formations, and population growth[90](index=90&type=chunk) - The Company expects consolidated net sales growth to exceed **20%** for the full year 2021[92](index=92&type=chunk) - The rapid increase in demand for bedding products, coupled with supply chain constraints (encased innerspring components and chemicals), unfavorably impacted Sealy and Sherwood sales growth in Q1 2021[93](index=93&type=chunk) - These constraints are expected to mitigate significantly by the end of Q2 2021[93](index=93&type=chunk) - Commodity costs unfavorably impacted gross margin in Q1 2021[94](index=94&type=chunk) - Pricing actions were implemented in Q4 2020 and April 2021 to mitigate these headwinds, with an expected negative impact of approximately **$25 million** on gross margin in Q2 2021[94](index=94&type=chunk) - The Company launched the Tempur-Ergo Smart Base Collection with Sleeptracker® technology in North America in Q1 2021 and is refreshing its Sealy portfolio, with the largest rollout in Sealy's history expected to complete in H2 2021[96](index=96&type=chunk) [Results of Operations](index=24&type=section&id=Results%20of%20Operations) Key Financial Highlights for Three Months Ended March 31, 2021 vs. 2020 (in millions, except EPS) | Metric | 2021 | 2020 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Total net sales | $1,043.8 | $822.4 | $221.4 | 26.9% | | Gross margin | 44.0% | 43.4% | 0.6 pts | | | Operating income | $188.4 | $105.3 | $83.1 | 78.9% | | Net income | $130.5 | $59.7 | $70.8 | 118.6% | | Diluted EPS | $0.62 | $0.28 | $0.34 | 121.4% | | EBITDA | $230.1 | $134.5 | $95.6 | 71.1% | [Net Sales](index=26&type=section&id=Net%20Sales) - Consolidated net sales increased **26.9%** to **$1,043.8 million** (**25.1%** on a constant currency basis)[99](index=99&type=chunk) - North America net sales increased **27.6%** (**$191.0 million**), driven by a **22.5% increase** in Wholesale and a **74.3% increase** in Direct channel sales (primarily e-commerce)[104](index=104&type=chunk) - International net sales increased **23.4%** (**$30.4 million**), or **13.8%** on a constant currency basis, with Direct channel sales up **28.1%** on a constant currency basis[109](index=109&type=chunk) [Gross Profit](index=26&type=section&id=Gross%20Profit) Gross Profit and Margin for Three Months Ended March 31 (in millions, except percentages) | Segment | 2021 Gross Profit | 2021 Gross Margin | 2020 Gross Profit | 2020 Gross Margin | Margin Change | | :-------------- | :---------------- | :---------------- | :---------------- | :---------------- | :------------ | | North America | $363.9 | 41.2% | $281.2 | 40.6% | 0.6% | | International | $95.0 | 59.2% | $75.9 | 58.3% | 0.9% | | **Consolidated** | **$458.9** | **44.0%** | **$357.1** | **43.4%** | **0.6%** | - Consolidated gross margin improved by **60 basis points** to **44.0%**[108](index=108&type=chunk) - North America's gross margin improved by **60 basis points** due to brand and channel mix (**140 bps**), partially offset by supply chain operational inefficiencies (**100 bps**)[108](index=108&type=chunk) - International's gross margin improved by **90 basis points**, driven by favorable mix (**160 bps**) and operational efficiencies (**150 bps**), partially offset by increased commodity costs (**220 bps**)[110](index=110&type=chunk) [Operating Expenses](index=26&type=section&id=Operating%20Expenses) Total Operating Expenses for Three Months Ended March 31 (in millions) | Segment | 2021 | 2020 | Change ($) | Change (%) | | :-------------------------------- | :----- | :----- | :--------- | :--------- | | Consolidated | $277.2 | $251.6 | $25.6 | 10.2% | | North America | $190.5 | $179.6 | $10.9 | 6.1% | | International | $55.5 | $49.3 | $6.2 | 12.6% | | Corporate | $31.2 | $22.7 | $8.5 | 37.4% | - Consolidated operating expenses increased by **$25.6 million** (**10.2%**) but decreased by **400 basis points** as a percentage of net sales[113](index=113&type=chunk) - North America's increase was driven by advertising investments, partially offset by decreased customer-related charges (Q1 2020 included **$11.7 million** for Art Van Furniture bankruptcy)[117](index=117&type=chunk) - International's increase was due to advertising and marketing investments[117](index=117&type=chunk) - Corporate expenses rose due to variable compensation[117](index=117&type=chunk) - Research and development expenses increased by **$0.7 million**, or **12.1%**, to **$6.5 million** in Q1 2021[114](index=114&type=chunk) [Operating Income](index=27&type=section&id=Operating%20Income) Operating Income and Margin for Three Months Ended March 31 (in millions, except percentages) | Segment | 2021 Operating Income | 2021 Operating Margin | 2020 Operating Income | 2020 Operating Margin | Margin Change | | :-------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | :------------ | | North America | $173.4 | 19.6% | $101.6 | 14.7% | 4.9% | | International | $46.2 | 28.8% | $26.4 | 20.3% | 8.5% | | **Consolidated** | **$188.4** | **18.0%** | **$105.3** | **12.8%** | **5.2%** | - Consolidated operating income increased by **$83.1 million**, with operating margin improving by **520 basis points** to **18.0%**[118](index=118&type=chunk) - North America's operating margin improved by **490 basis points** due to operating expense leverage, gross margin improvement, and reduced customer-related charges[118](index=118&type=chunk) - International's operating margin improved by **850 basis points**, driven by improved Asia-Pacific joint venture performance, operating expense leverage, and gross margin improvement[123](index=123&type=chunk) [Interest Expense, Net](index=28&type=section&id=Interest%20Expense,%20Net) - Interest expense, net, decreased by **$8.0 million**, or **39.4%**, to **$12.3 million** in Q1 2021, primarily due to reduced average outstanding debt levels and lower interest rates on variable-rate debt[119](index=119&type=chunk) [Income Tax Provision](index=28&type=section&id=Income%20Tax%20Provision) - The income tax provision increased by **$17.0 million** to **$40.5 million** in Q1 2021, reflecting higher income before income taxes[121](index=121&type=chunk) - The effective tax rate decreased by **420 basis points** to **23.6%**, primarily due to the elimination of GILTI from U.S. taxable income and the deductibility of stock compensation[122](index=122&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) - As of March 31, 2021, the Company had **$1,102.6 million** in liquidity, including **$290.5 million** cash on hand and **$724.9 million** available under its revolving credit facility, plus **$87.2 million** under its securitization facility[145](index=145&type=chunk) - Net working capital improved significantly to **$318.6 million** as of March 31, 2021, from a deficit of **$6.4 million** at December 31, 2020[124](index=124&type=chunk) - Cash provided by operating activities from continuing operations increased by **$71.3 million** to **$86.3 million** in Q1 2021, driven by strong operational performance[126](index=126&type=chunk) - Cash used in investing activities from continuing operations decreased by **$39.6 million** to **$24.4 million** in Q1 2021, primarily due to the Sherwood Bedding acquisition in Q1 2020[127](index=127&type=chunk) - Cash provided by financing activities from continuing operations decreased by **$19.2 million** to **$168.9 million** in Q1 2021[128](index=128&type=chunk) - This included **$800.0 million** from 2029 Senior Notes issuance, partially offset by debt repayments (**$1,148.6 million**), treasury stock repurchases (**$313.1 million**), and dividends paid (**$14.3 million**)[128](index=128&type=chunk) - Total debt increased to **$1,873.1 million** as of March 31, 2021, from **$1,370.3 million** at December 31, 2020[131](index=131&type=chunk) - The ratio of consolidated indebtedness less netted cash to adjusted EBITDA per credit facility was **1.95 times**, well within the **5.00 times** covenant limit[134](index=134&type=chunk)[146](index=146&type=chunk) - The Company's capital allocation strategy focuses on supporting the business, returning shareholder value through share repurchases and quarterly dividends (**$0.07 per share** declared for Q2 2021), and opportunistic acquisitions[146](index=146&type=chunk) - It plans to repurchase at least **6% of shares outstanding** in 2021[148](index=148&type=chunk) [Non-GAAP Financial Information](index=34&type=section&id=Non-GAAP%20Financial%20Information) - The Company uses non-GAAP financial measures like adjusted net income, adjusted EPS, adjusted operating income, EBITDA, and adjusted EBITDA per credit facility to provide a clearer view of underlying operations and trends, excluding items that cause short-term fluctuations[149](index=149&type=chunk)[150](index=150&type=chunk) Reconciliation of Net Income to Adjusted Net Income (in millions, except per share amounts) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $130.5 | $59.7 | | Loss from discontinued operations, net of tax | $0.2 | $1.2 | | Loss on extinguishment of debt | $5.0 | — | | Customer-related charges | — | $11.7 | | Incremental operating costs | — | $2.3 | | Accounting standard adoption | — | $1.5 | | Tax adjustments | $(1.1) | $(3.9) | | **Adjusted net income** | **$134.6** | **$72.5** | | **Adjusted earnings per share, diluted** | **$0.64** | **$0.34** | Reconciliation of Operating Income to Adjusted Operating Income (in millions, except percentages) for Three Months Ended March 31, 2020 | Metric | Consolidated | North America | International | Corporate | | :------------------------ | :----------- | :------------ | :------------ | :-------- | | Operating income (expense) | $105.3 | $101.6 | $26.4 | $(22.7) | | Customer-related charges | $11.7 | $11.7 | — | — | | Incremental operating costs | $2.3 | — | $2.3 | — | | Accounting standard adoption | $1.5 | $1.5 | — | — | | **Adjusted operating income (expense)** | **$120.8** | **$114.8** | **$28.7** | **$(22.7)** | Reconciliation of Net Income to EBITDA and Adjusted EBITDA per Credit Facility (in millions) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $130.5 | $59.7 | | Interest expense, net | $12.3 | $20.3 | | Loss on extinguishment of debt | $5.0 | — | | Income taxes | $40.5 | $23.5 | | Depreciation and amortization | $41.8 | $31.0 | | **EBITDA** | **$230.1** | **$134.5** | | Loss from discontinued operations, net of tax | $0.2 | $1.2 | | Customer-related charges | — | $11.7 | | Incremental operating costs | — | $2.3 | | Accounting standard adoption | — | $1.5 | | **Adjusted EBITDA per credit facility** | **$230.3** | **$151.2** | - For the trailing twelve months ended March 31, 2021, Adjusted EBITDA per credit facility was **$858.7 million**[163](index=163&type=chunk) - The ratio of consolidated indebtedness less netted cash to adjusted EBITDA per credit facility was **1.95 times**[166](index=166&type=chunk) [Critical Accounting Policies and Estimates](index=38&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - There have been no material changes to the Company's critical accounting policies and estimates in 2021[170](index=170&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=ITEM%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the Company's exposure to market risks, primarily foreign currency exchange rates and interest rates, and its strategies for managing these risks [Foreign Currency Exposures](index=38&type=section&id=Foreign%20Currency%20Exposures) - The Company's earnings are exposed to foreign currency exchange rate changes due to global operations[171](index=171&type=chunk) - A strengthening U.S. dollar negatively impacts operating results upon translation[171](index=171&type=chunk) - Foreign currency exchange rate changes positively impacted adjusted EBITDA per credit facility by **1.7%** in Q1 2021[171](index=171&type=chunk) - The Company hedges a portion of its foreign currency transaction exposure using foreign exchange forward contracts[172](index=172&type=chunk) - A hypothetical **10.0% adverse change** in exchange rates would result in an estimated **$6.8 million potential loss** in fair value of these contracts, largely offset by gains from underlying assets and liabilities[172](index=172&type=chunk) [Interest Rate Risk](index=39&type=section&id=Interest%20Rate%20Risk) - As of March 31, 2021, the Company had approximately **$403.4 million** in variable-rate debt[173](index=173&type=chunk) - A hypothetical **100 basis point increase** in interest rates would cause an estimated **$4.0 million reduction** in income before income taxes[173](index=173&type=chunk) [ITEM 4. Controls and Procedures](index=39&type=section&id=ITEM%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of March 31, 2021, with ongoing evaluation of new ERP system controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2021[174](index=174&type=chunk) - A new ERP system was implemented in Q1 2021 for the Tempur U.S. distribution subsidiary, resulting in modified and new internal controls over financial reporting[175](index=175&type=chunk) - The Company is continuously evaluating the operating effectiveness of these controls[175](index=175&type=chunk) PART II. OTHER INFORMATION [ITEM 1. Legal Proceedings](index=39&type=section&id=ITEM%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 10, 'Commitments and Contingencies,' in the financial statements [ITEM 1A. Risk Factors](index=40&type=section&id=ITEM%201A.%20Risk%20Factors) There are no new material risk factors to report for the current period [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=ITEM%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's common stock repurchases during the three months ended March 31, 2021, under its authorized share repurchase program Common Stock Purchases for Three Months Ended March 31, 2021 | Period | Total number of shares purchased | Average Price Paid per Share | Total number of shares purchased as part of publicly announced plans or programs | | :--------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------ | | January 1, 2021 - January 31, 2021 | 736,605 | $27.13 | 261,705 | | February 1, 2021 - February 28, 2021 | 1,982,779 | $32.95 | 1,980,528 | | March 1, 2021 - March 31, 2021 | 6,122,789 | $37.19 | 6,108,392 | | **Total** | **8,842,173** | | **8,350,625** | - The Board of Directors increased the share repurchase authorization by an additional **$211.4 million** in February 2021, and further to **$400.0 million** in April 2021[180](index=180&type=chunk) [ITEM 3. Defaults upon Senior Securities](index=40&type=section&id=ITEM%203.%20Defaults%20upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period [ITEM 4. Mine Safety Disclosures](index=40&type=section&id=ITEM%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company [ITEM 5. Other Information](index=40&type=section&id=ITEM%205.%20Other%20Information) No other information is required to be disclosed under this item [ITEM 6. Exhibits](index=41&type=section&id=ITEM%206.%20Exhibits) This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including indentures, purchase agreements, amendments to credit and security agreements, compensation plans, certifications, and XBRL-formatted financial statements [Signatures](index=42&type=section&id=Signatures) The report is duly signed on behalf of Tempur Sealy International, Inc. by its Executive Vice President and Chief Financial Officer, Bhaskar Rao, on May 6, 2021

Tempur Sealy International, Inc. (TPX) "Our growth reflects strong industry demand, our worldwide leadership position, and the success of our omnichannel distribution strategy" Pictured above: Tempur-Pedic flagship store in Manhattan © 2021 Tempur Sealy International, Inc. 1 TEMPUR+SEALY PURPOSE To Improve the Sleep of More People, Every Night, All Around the World | --- | --- | --- | --- | |--------------------------------------------------------------------------------------------------------------------- ...

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Securities registered pursuant to Section 12(g) of the Act: None For the transition period from to . For the fiscal year ended December 31, 2020 or Delaware 33-1022198 (I.R.S. Employer Identification No.) 1000 Tempur Way Lexington, Ke ...

Financial Performance Highlights - In Q4 2020, global sales grew 21% year-over-year, driven by broad-based demand across geographies and channels [12] - Adjusted EBITDA reached a record $240 million, an increase of 57%, and adjusted EPS was $0.67, up 97% [12][41] - For the full year 2020, global sales grew 18% to $3.7 billion, with adjusted EBITDA increasing 54% to $780 million [14] Business Line Performance - North American sales increased 21% in Q4, with the wholesale channel up 19% and the direct channel up 30% [43] - International sales grew 26% on a reported basis, marking the largest quarterly growth rate for the International segment in the company's history [45] - North American gross profit margin improved 150 basis points to 43.4%, while international gross margin improved 150 basis points to 59.9% [44][46] Market Performance - North America sales growth was driven by strong performance in both retail and online channels, with online sales doubling compared to the prior year [12] - The Asia Pacific market showed strong sales performance, while European markets faced significant restrictions due to COVID-19 [63] - The company expects international sales to grow in 2021 despite challenges in Europe [77] Company Strategy and Industry Position - The company is focused on expanding its share of the North American OEM bedding market, estimating potential sales could exceed $600 million annually in five years [53] - Investments in advertising and product innovation are expected to support growth and maintain competitive positioning [28][61] - The company aims to achieve carbon neutrality for its global operations by 2040 and has made significant progress in ESG initiatives [38] Management Commentary on Operating Environment and Future Outlook - Management expressed optimism about future growth, citing strong consumer demand and a healthy industry [11][60] - Supply chain issues are expected to mitigate significantly by early Q2 2021, allowing for improved financial performance [13] - The company anticipates sales growth between 15% and 20% for 2021, with EPS expected to be between $2.30 and $2.50 [56] Other Important Information - The company repurchased $130 million of shares in Q4 2020 and over $330 million for the full year [52] - The leverage ratio improved from 2.9x to 1.7x, indicating a strong balance sheet [35] - The company plans to invest significantly in marketing to support its brands and new product launches [28][87] Q&A Session Summary Question: Revenue guidance breakdown - Management expects share gains and capacity additions to contribute to revenue growth, with an estimated $100 million in lost sales due to supply constraints in Q4 [66][67] Question: Drivers of consumer mattress demand - The pandemic has accelerated health and wellness trends, leading to increased consumer focus on mattress quality [71] Question: Guidance variables for EBITDA - Management indicated that supply chain improvements and commodity pricing will be monitored closely, with confidence in passing through price increases to consumers [74][75] Question: International market outlook - Growth is expected in Asia, while Europe faces challenges due to lockdowns, but overall international sales are anticipated to increase [77] Question: Confidence in sales outlook - New distribution channels and strong advertising investments are driving sales growth, with direct-to-consumer business performing well [81][84] Question: Marketing investment trends - The company plans to make the largest advertising investment in its history, focusing on digital and social media [87] Question: Product launches and pricing - New product launches in 2022 will target international markets, with a focus on increasing addressable market [106] Question: Raw material inflation impact - Management acknowledged inflationary pressures but expressed confidence in the ability to pass through price increases more rapidly than in previous years [108]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 001-31922 TEMPUR SEALY INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorpo ...

Tempur Sealy International Inc. (NYSE:TPX) Q3 2020 Results Earnings Conference Call October 29, 2020 8:00 AM ET Company Participants Aubrey Moore - IR Scott Thompson - Chairman, President and CEO Bhaskar Rao - EVP and CFO Conference Call Participants Peter Keith - Piper Sandler Keith Hughes - Truist Securities Curtis Nagle - Bank of America Bobby Griffin - Raymond James Atul Maheswari - UBS Brad Thomas - KeyBanc Laura Champine - Loop Capital William Reuter - Bank of America Seth Basham - Operator Good day ...

For the quarterly period ended June 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number 001-31922 TEMPUR SEALY INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 33-1022198 Registrant's telephone n ...