SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



ý	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended ~~September 30, 2017~~March 31, 2022



o	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ýYes ýo No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ý Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filerx

Accelerated filero

Non-accelerated filero

Smaller reporting companyo

Emerging Growth Companyo

~~(Do not check if a smaller reporting company)~~

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ¨☐ No ý

The number of shares outstanding of the registrant’s common stock as of ~~November 6, 2017~~April 28, 2022 was ~~54,180,629~~175,544,225 shares.

This Quarterly Report on Form 10-Q, (this "Report"), including the information incorporated by reference herein, contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which includes information concerning one or more of our plans; objectives; goals; ~~strategies; future events; future revenues~~strategies and other information that is not historical information. Many of these statements appear, in particular, under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in Part I, ITEM 2 of this Report. When used in this Report, the words "assumes," "estimates," "expects," "guidance," "anticipates," "might," "projects," "predicts," "plans," "proposed," "targets," "intends," "believes," "will," "may," "could," "is likely to" and variations of such words or ~~performance;~~similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon our ~~implementation~~expectations and beliefs and various assumptions. There can be no assurance that we will realize our expectations or that our beliefs will prove correct.

Numerous factors, many of ~~our key strategic priorities and anticipated resulting growth~~which are beyond the Company's control, could cause actual results to differ materially from any that may be expressed herein as forward-looking statements in ~~our sales, earnings and cash flow~~this Report. These risk factors include the impact of the macroeconomic environment in both the ~~United States~~U.S. and ~~internationally;~~internationally on our business segments and expectations regarding growth of the mattress industry; changes in economic conditions, including inflationary trends in the price of raw materials; uncertainties arising from global ~~events; general economic, financial~~events (including the Russia-Ukraine conflict), natural disasters or pandemics including COVID-19 and ~~industry conditions, particularly~~their impact on raw material prices, labor costs and other employment-related costs; loss of suppliers and disruptions in the ~~retail sector, as well as consumer confidence and the availability~~supply of ~~consumer financing;~~raw materials; competition in our industry; consumer acceptance of our products; the ability to continuously improve and expand our product line, maintain efficient, timely and cost-effective production and delivery of products, and manage growth; the ability to expand brand awareness, distribution and new products; the efficiency and effectiveness of our advertising campaigns and other marketing programs; the ability to increase sales productivity within existing retail accounts and to further penetrate the wholesale channel, including the timing of opening or expanding within large retail accounts and the timing and success of product launches; the effects of consolidation of retailers on revenues and costs; changes in demand for the Company's products by significant retailer customers; the effects of strategic investments on our operations, including our efforts to expand our global market ~~share; changing commodity costs;~~share and actions taken to increase sales growth; the ability to develop and successfully launch new products; the ability to realize all synergies and benefits of acquisitions; our reliance on information technology and the associated risks involving potential security lapses and/or cyber-based attacks; deterioration in labor relations; the possibility of exposure of product liability and premises liability claims; our ability to protect our intellectual property; disruptions to the implementation of our strategic priorities and business plan caused by changes in ~~product~~our executive management team; changes in interest rates; effects of changes in foreign exchange rates on our reported earnings; expectations regarding our target leverage and ~~channel mix~~our share repurchase program; compliance with regulatory requirements and the ~~impact on~~possible exposure to liability for failures to comply with these requirements; the ~~Company's gross margin; initiatives~~outcome of pending tax audits or other tax, regulatory or investigation proceedings and pending litigation; changes in foreign tax rates and changes in tax laws generally, including the ability to ~~improve gross margin~~utilize tax loss carryforwards; and ~~operating margin;~~ our capital structure and ~~increased~~ debt level, including our ability to meet financial obligations and continue to comply with the terms and financial ratio covenants of our credit facilities; changes in interest rates; changes in foreign tax rates and changes in tax laws generally, including the ability to utilize tax loss carry forwards; effects of changes in foreign exchange rates on our reported earnings; the outcome of pending tax audits or other tax, regulatory or litigation proceedings and similar issues; the effect of future legislative or regulatory changes; financial flexibility; our expected sources of cash flow; our expected level of capital expenditures for 2017 and changes in capital expenditures; expectations regarding the impact of costs from headcount reductions and international store closures; and our ability to effectively manage cash. Many of these statements appear, in particular, under the heading "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in ITEM 2 of Part I of this Report. When used in this report, the words "estimates," "expects," "guidance," "anticipates," "proposed," "projects," "plans," "intends," "believes" and variations of such words or similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon our current expectations and various assumptions. There can be no assurance that we will realize our expectations or that our beliefs will prove correct.

There are a number of risks, uncertainties and other important factors, many of which are beyond the Company’s control, that could cause our actual results to differ materially from those expressed as forward-looking statements in this report, including theOther potential risk factors include the factors discussed ~~under the heading "Risk Factors" under ITEM 1A of Part I of~~in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 (the "2021 Annual Report") and in this Quarterly Report on Form 10-Q for the ~~risks identified in ITEM 1A of this Report. There~~quarter ended March 31, 2022. In addition, there may be other factors that may cause our actual results to differ materially from the forward-looking statements.

All forward-looking statements attributable to us apply only as of the date of this Report and are expressly qualified in their entirety by the cautionary statements included in this Report. Except as may be required by law, we undertake no obligation to publicly update or revise any of the forward-looking statements, whether as a result of new information, future events, or otherwise.

When used in this Report, except as specifically noted otherwise, the term "Tempur Sealy International" refers to Tempur Sealy International, Inc. only, and the terms "Company," "we," "our," "ours" and "us" refer to Tempur Sealy International, Inc. and its consolidated subsidiaries. When used in this Report, the term "Tempur" may refer to Tempur-branded products and the term "Sealy" ~~refers~~may refer to Sealy-branded products or to Sealy Corporation and its historical ~~subsidiaries.~~subsidiaries, in all cases as the context requires. In addition, when used in this Report, ~~"2016~~"2019 Credit Agreement" refers to the Company's senior credit facility entered into in ~~the first quarter of 2016; "2012 Credit Agreement" refers to the Company's prior senior credit facility entered into in 2012; "2026~~2019; "2029 Senior Notes" refers to the ~~5.50%~~4.00% senior notes due ~~2026~~2029 issued in ~~2016;~~2021; and ~~"2023~~"2031 Senior Notes" refers to the ~~5.625%~~3.875% senior notes due ~~2023~~2031 issued in ~~2015.~~2021.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

($ in millions, except per common share amounts)


	Three Months Ended
	March 31,
	2022		2021
Net sales	$	1,239.5	$	1,043.8
Cost of sales	716.7		584.9
Gross profit	522.8		458.9
Selling and marketing expenses	243.5		197.7
General, administrative and other expenses	97.6		79.5

Equity income in earnings of unconsolidated affiliates	(6.9)		(6.7)
Operating income	188.6		188.4

Other expense, net:
Interest expense, net	20.9		12.3
Loss on extinguishment of debt	—		5.0
Other income, net	(1.3)		(0.3)
Total other expense, net	19.6		17.0

Income from continuing operations before income taxes	169.0		171.4
Income tax provision	(38.1)		(40.5)
Income from continuing operations	130.9		130.9
Loss from discontinued operations, net of tax	—		(0.2)
Net income before non-controlling interests	130.9		130.7
Less: Net income attributable to non-controlling interests	0.2		0.2
Net income attributable to Tempur Sealy International, Inc.	$	130.7	$	130.5

Earnings per common share:

Basic
Earnings per share for continuing operations	$	0.72	$	0.64
Loss per share for discontinued operations	—		—
Earnings per share	$	0.72	$	0.64

Diluted
Earnings per share for continuing operations	$	0.69	$	0.62
Loss per share for discontinued operations	—		—
Earnings per share	$	0.69	$	0.62

Weighted average common shares outstanding:
Basic	182.6		203.7
Diluted	188.5		210.1

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Net sales $ 724.8
$ 832.4
$ 2,106.2
$ 2,357.8
Cost of sales 412.6
470.3
1,238.8
1,367.8
Gross profit 312.2
362.1
867.4
990.0
Selling and marketing expenses 155.4
175.2
461.4
498.1
General, administrative and other expenses 71.0
64.0
206.5
207.6
Customer termination charges, net —
—
14.4
—
Equity income in earnings of unconsolidated affiliates (3.5 ) (2.4 ) (10.6 ) (8.6 )
Royalty income, net of royalty expense (5.3 ) (5.8 ) (15.0 ) (15.1 )
Operating income 94.6
131.1
210.7
308.0

Other expense, net:
Interest expense, net 32.0
20.5
76.2
65.0
Loss on extinguishment of debt —
—
—
47.2
Other expense (income), net 1.1
0.3
(8.4 ) —
Total other expense, net 33.1
20.8
67.8
112.2

Income before income taxes 61.5
110.3
142.9
195.8
Income tax provision (20.3 ) (33.7 ) (48.0 ) (60.2 )
Net income before non-controlling interests 41.2
76.6
94.9
135.6
Less: Net loss attributable to non-controlling interests (3.4 ) (1.2 ) (8.1 ) (3.1 )
Net income attributable to Tempur Sealy International, Inc. $ 44.6
$ 77.8
$ 103.0
$ 138.7

Earnings per common share:
Basic $ 0.83
$ 1.34
$ 1.91
$ 2.31
Diluted $ 0.81
$ 1.32
$ 1.89
$ 2.28

Weighted average common shares outstanding:
Basic 54.0
58.2
54.0
60.1
Diluted 54.9
58.8
54.6
60.8

See accompanying Notes to Condensed Consolidated Financial Statements.

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income before non-controlling interests $ 41.2
$ 76.6
$ 94.9
$ 135.6
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments 9.6
(5.0 ) 27.7
11.8
Unrealized loss on cash flow hedging derivatives, net of tax —
(0.2 ) (0.6 ) (6.1 )
Other comprehensive income (loss), net of tax 9.6
(5.2 ) 27.1
5.7
Comprehensive income 50.8
71.4
122.0
141.3
Less: Comprehensive loss attributable to non-controlling interests (3.4 ) (1.2 ) (8.1 ) (3.1 )
Comprehensive income attributable to Tempur Sealy International, Inc. $ 54.2
$ 72.6
$ 130.1
$ 144.4


	Three Months Ended
	March 31,
	2022		2021
Net income before non-controlling interests	$	130.9	$	130.7
Other comprehensive income, net of tax:
Foreign currency translation adjustments	(17.5)		(10.8)

Other comprehensive loss, net of tax	(17.5)		(10.8)
Comprehensive income	113.4		119.9
Less: Comprehensive income attributable to non-controlling interests	0.2		0.2
Comprehensive income attributable to Tempur Sealy International, Inc.	$	113.2	$	119.7

See accompanying Notes to Condensed Consolidated Financial Statements.

Three Months Ended March 31, 2022


			Tempur Sealy International, Inc. Stockholders' Equity
	Redeemable Non-controlling Interest		Common Stock			Treasury Stock							Accumulated Other Comprehensive Loss		Total Stockholders' Equity
			Shares Issued	At Par		Shares Issued	At Cost		Additional Paid in Capital		Retained Earnings
Balance as of December 31, 2021	$	9.2	283.8	$	2.8	96.4	$	(2,844.7)	$	622.0	$	2,604.9	$	(99.2)	$	285.8
Net income											130.7				130.7
Net income attributable to non-controlling interest	0.2														—


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

Exercise of stock options						—	0.2		(0.1)						0.1
Dividends declared on common stock ($0.10 per share)											(18.8)				(18.8)
Issuances of PRSUs, RSUs, and DSUs						(2.5)	72.1		(72.1)						—
Treasury stock repurchased						12.2	(449.2)								(449.2)
Treasury stock repurchased - PRSU/RSU releases						1.0	(45.6)								(45.6)
Amortization of unearned stock-based compensation									13.8						13.8

Balance, March 31, 2022	$	9.4	283.8	$	2.8	107.1	$	(3,267.2)	$	563.6	$	2,716.8	$	(116.7)	$	(100.7)

Three Months Ended March 31, 2021


			Tempur Sealy International, Inc. Stockholders' Equity
	Redeemable Non-controlling Interest		Common Stock			Treasury Stock							Accumulated Other Comprehensive Loss		Non-controlling Interest in Subsidiaries		Total Stockholders' Equity
			Shares Issued	At Par		Shares Issued	At Cost		Additional Paid in Capital		Retained Earnings
Balance as of December 31, 2020	$	8.9	283.8	$	2.8	78.9	$	(2,096.8)	$	617.5	$	2,045.6	$	(65.5)	$	1.0	$	504.6

Net income											130.5						130.5
Net income attributable to non-controlling interests															0.2		0.2


Foreign currency adjustments, net of tax													(10.8)				(10.8)
Exercise of stock options						(0.4)	10.9		(4.3)								6.6
Dividends declared on common stock ($0.07 per share)											(14.8)						(14.8)
Issuances of PRSUs, RSUs, and DSUs						(1.5)	38.3		(38.3)								—
Treasury stock repurchased						8.4	(299.8)										(299.8)
Treasury stock repurchased - PRSU/RSU releases						0.5	(13.3)										(13.3)
Amortization of unearned stock-based compensation									15.1								15.1

Balance, March 31, 2021	$	8.9	283.8	$	2.8	85.9	$	(2,360.7)	$	590.0	$	2,161.3	$	(76.3)	$	1.2	$	318.3

See accompanying Notes to Condensed Consolidated Financial Statements.


	Three Months Ended
	March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
Net income before non-controlling interests	$	130.9	$	130.7
Loss from discontinued operations, net of tax	—		0.2
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization	30.4		26.5
Amortization of stock-based compensation	13.8		15.1
Amortization of deferred financing costs	1.0		0.6
Bad debt expense	1.6		2.5
Deferred income taxes	(1.0)		7.1
Dividends received from unconsolidated affiliates	1.1		2.5
Equity income in earnings of unconsolidated affiliates	(6.9)		(6.7)
Loss on extinguishment of debt	—		1.5
Foreign currency adjustments and other	(0.1)		0.1
Changes in operating assets and liabilities, net of effect of business acquisitions	(85.2)		(93.8)
Net cash provided by operating activities from continuing operations	85.6		86.3

CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
Purchases of property, plant and equipment	(60.3)		(23.5)
Acquisitions, net of cash acquired	—		(1.0)

Other	1.0		0.1
Net cash used in investing activities from continuing operations	(59.3)		(24.4)

CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
Proceeds from borrowings under long-term debt obligations	528.1		1,653.4
Repayments of borrowings under long-term debt obligations	(216.0)		(1,148.6)
Proceeds from exercise of stock options	0.1		6.6
Treasury stock repurchased	(494.8)		(313.1)
Dividends paid	(18.7)		(14.3)
Payments of deferred financing costs	—		(12.7)
Repayments of finance lease obligations and other	(3.5)		(2.4)
Net cash (used in) provided by financing activities from continuing operations	(204.8)		168.9

Net cash (used in) provided by continuing operations	(178.5)		230.8





Net operating cash flows used in discontinued operations	—		(0.4)

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	(5.9)		(4.9)
(Decrease) increase in cash and cash equivalents	(184.4)		225.5
CASH AND CASH EQUIVALENTS, beginning of period	300.7		65.0
CASH AND CASH EQUIVALENTS, end of period	$	116.3	$	290.5



Supplemental cash flow information:
Cash paid during the period for:
Interest	$	4.5	$	8.3
Income taxes, net of refunds	$	14.6	$	20.2

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited)

(1) Summary of Significant Accounting Policies

(a) Basis of Presentation and Description of Business. Tempur Sealy International, Inc., a Delaware corporation, together with its subsidiaries, is a U.S. based, multinational company. The term "Tempur Sealy International" refers to Tempur Sealy International, Inc. only, and the term "Company" refers to Tempur Sealy International, Inc. and its consolidated subsidiaries.

The Company ~~develops,~~designs, manufactures ~~markets~~ and ~~sells~~distributes bedding products, which include mattresses, foundations and adjustable bases, and other products, which include pillows and other accessories. The Company also derives income from royalties by licensing Sealy® and Stearns & Foster® brands, technology and trademarks to other manufacturers. The Company sells its products through ~~two~~2 sales channels: Wholesale and Direct.

~~The Company’s Condensed Consolidated Financial Statements include the results of Comfort Revolution, LLC ("Comfort Revolution"), a~~ ~~45.0%~~ owned joint venture. Comfort Revolution constitutes a variable interest entity for which the Company is considered to be the primary beneficiary due to the Company's disproportionate share of the economic risk associated with its equity contribution, debt financing and other factors. The operations of Comfort Revolution are not material to the Company's Condensed Consolidated Financial Statements.

The Company ~~also~~ has ownership interests in ~~a group of~~ Asia-Pacific joint ventures to develop markets for Sealy® branded products and ownership in ~~those regions.~~a United Kingdom joint venture to manufacture, market, and distribute Sealy® and Stearns & Foster® branded products. The ~~Company’s~~Company's ownership ~~interest~~interests in each of these joint ventures is 50.0%. The equity method of accounting is used for these joint ventures, over which the Company has significant influence but does not have control, and consolidation is not otherwise required. The Company's carrying value in its equity method investments of $18.8 million and $15.5 million at September 30, 2017 and December 31, 2016, respectively, is recorded in other non-current assets within the accompanying Condensed Consolidated Balance Sheets. The Company’s equity in the net income and losses of these investments is ~~recorded as~~reported in equity income in earnings of unconsolidated affiliates in the accompanying Condensed Consolidated Statements of Income.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and include all of the information and disclosures required by generally accepted accounting principles in the United States ("GAAP") for interim financial reporting. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements of the Company and related footnotes for the year ended December 31, ~~2016~~,2021, included in the ~~Company’s~~2021 Annual Report ~~on Form 10-K~~ filed with the Securities and Exchange Commission on February ~~24, 2017.~~22, 2022.

The results of operations for the interim periods are not necessarily indicative of results of operations for a full year. It is the opinion of management that all necessary adjustments for a fair presentation of the results of operations for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein.

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


	March 31,		December 31,
(in millions)	2022		2021
Finished goods	$	393.3	$	297.8
Work-in-process	12.3		11.4
Raw materials and supplies	175.7		154.7
	$	581.3	$	463.9

September 30, December 31,
(in millions) 2017 2016
Finished goods $ 127.6
$ 130.1
Work-in-process 11.3
10.7
Raw materials and supplies 49.9
56.0
$ 188.8
$ 196.8

(c) ~~Accrued Sales Returns~~. The Company allows product returns through certain sales channels and on certain products. Estimated sales returns are provided at the time of sale based on historical sales channel return rates. Estimated future obligations related to these products are provided by a reduction of sales in the period in which the revenue is recognized. Accrued sales returns are included in accrued expenses and other current liabilities in the accompanying Condensed Consolidated Balance Sheets.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~The Company had the following activity for sales returns from~~ ~~December 31, 2016~~ ~~to September 30, 2017:~~

(in millions)
Balance as of December 31, 2016 $ 30.3
Amounts accrued 88.1
Returns charged to accrual (85.5 )
Balance as of September 30, 2017 $ 32.9

~~(d)~~ Warranties. The Company provides warranties on certain products, which vary by segment, product and brand. Estimates of warranty expenses are based primarily on historical claims experience and product testing. Estimated future obligations related to these products are charged to cost of sales in the period in which the related revenue is recognized. The Company considers the impact of recoverable salvage value on warranty costs in determining its estimate of future warranty obligations.

The Company provides warranties on mattresses with varying warranty terms. Tempur-Pedic mattresses sold in the North America segment and all Sealy mattresses have warranty terms ranging from 10 to 25 years, generally non-prorated for the first 10 to 15 years and then prorated for the balance of the warranty term. Tempur-Pedic mattresses sold in the International segment have warranty terms ranging from 5 to 15 years, non-prorated for the first 5 years and then prorated on a straight-line basis for the last 10 years of the warranty term. Tempur-Pedic pillows have a warranty term of 3 years, non-prorated.

Table of Contents

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

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

The Company had the following activity for its accrued warranty expense from December 31, ~~2016~~2021 to ~~September 30, 2017:~~March 31, 2022:


(in millions)
Balance as of December 31, 2021	$	43.9
Amounts accrued	5.6
Warranties charged to accrual	(5.2)
Balance as of March 31, 2022	$	44.3

(in millions)
Balance as of December 31, 2016 $ 29.9
Amounts accrued 29.0
Warranties charged to accrual (20.0 )
Balance as of September 30, 2017 $ 38.9

As of ~~September 30, 2017~~March 31, 2022 and December 31, ~~2016~~, ~~$19.9~~2021, $19.9 million and ~~$14.3~~$20.2 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and ~~$19.0~~$24.4 million and ~~$15.6~~$23.7 million of accrued warranty expense is included in other non-current liabilities inon the ~~Company’s~~Company's accompanying Condensed Consolidated Balance Sheets, respectively.

~~(e)~~ ~~Revenue Recognition~~(d) Allowance for Credit Losses. Sales of products are recognized when persuasive evidence of an arrangement exists, title passes to customers and the risks and rewards of ownership are transferred, the sales price is fixed or determinable and collectability is reasonably assured. The Company extends volume discounts to certain customers, as well as promotional allowances, floor sample discounts, commissions paid to retail associates and slotting fees, and reflects these amounts as a reduction of sales at the time revenue is recognized based on historical experience. The Company also reports sales net of tax assessed by qualifying governmental authorities. The Company extends credit based on the creditworthiness of its customers. No collateral is required on sales made in the normal course of business.

The allowance for ~~doubtful accounts~~credit losses is the ~~Company’s~~Company's best estimate of the amount of ~~probable~~expected lifetime credit losses in the ~~Company’s~~Company's accounts receivable. The Company regularly reviews the adequacy of its allowance for ~~doubtful accounts.~~credit losses. The Company ~~determines~~estimates losses over the ~~allowance~~contractual life using assumptions to capture the risk of loss, even if remote, based principally on how long a receivable has been outstanding. As of March 31, 2022, the Company's accounts receivable were substantially current. Other factors considered include historical write-off experience, ~~and~~ current economic conditions and also ~~considers~~ factors such as customer credit, past transaction history with the customer and changes in customer payment ~~terms when determining whether the collection of a customer receivable is reasonably assured.~~terms. Account balances are charged off against the allowance for credit losses after all reasonable means of collection have been exhausted and the potential for recovery is considered remote. The allowance for ~~doubtful accounts~~credit losses is included in accounts receivable, net in the accompanying Condensed Consolidated Balance ~~Sheets was~~ ~~$26.7 million~~ ~~and~~ ~~$22.1 million~~ ~~as of September 30, 2017 and~~ ~~December 31, 2016, respectively.~~Sheets.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~(f)~~ ~~Derivative Financial Instruments~~. Derivative financial instruments are used in the normal course of business to manage interest rate and foreign currency exchange risks. The financial instruments used by the Company are straight-forward, non-leveraged instruments. The counterparties to these financial instruments are financial institutions with strong credit ratings. The Company maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit ratings of these institutions. For all transactions designated as hedges, the hedging relationships are formally documented at the inception and on an ongoing basis in offsetting changes in cash flows of the hedged transaction.

The Company ~~records derivative financial instruments in~~had the ~~Condensed Consolidated Balance Sheets as either an asset or liability measured at~~following activity for its fair value. Changes in a derivative's fair value (i.e. unrealized gains or losses) are recorded each period in earnings or other comprehensive income, depending on whether the derivative is designated and is effective as a hedged transaction, and on the type of hedging relationship.

~~For derivative financial instruments that are designated as a hedge, unrealized gains and~~allowance for credit losses ~~related~~from December 31, 2021 to the effective portion are either recognized in income immediately to offset the realized gain or loss on the hedged item, or are deferred and reported as a component of accumulated other comprehensive loss (“AOCL”) in stockholders' equity and subsequently recognized in net income when the hedged item affects net income. The change in fair value of the ineffective portion of a derivative financial instrument is recognized in net income immediately. The effectiveness of the cash flow hedge contracts, including time value, is assessed prospectively and retrospectively on a monthly basis using regression analysis, as well as other timing and probability criteria. For derivative instruments that are not designated as hedges, the gain or loss related to the change in fair value is also recorded in net income immediately.

The Company manages a portion of the risk associated with fluctuations in foreign currencies related to intercompany and third party inventory purchases denominated in foreign currencies through foreign exchange forward contracts designated as cash flow hedges. During 2017, the Company had foreign exchange forward contracts designated as cash flow hedges to buy U.S. dollars and to sell Canadian dollars. These foreign exchange forward contracts matured in September 2017.

The Company is also exposed to foreign currency risk related to intercompany debt and associated interest payments and certain intercompany accounts receivable and accounts payable. To manage the risk associated with fluctuations in foreign currencies related to these assets and liabilities, the Company enters into foreign exchange forward contracts. The Company considers these contracts to be economic hedges. Accordingly, changes in the fair value of these instruments affect earnings during the current period. These foreign exchange forward contracts protect against the reduction in value of forecasted foreign currency cash flows resulting from payments in foreign currencies.

~~The fair value of the Company's derivative financial instruments that are recorded on a recurring basis at fair value is not material.~~

~~(g)~~ ~~Income Taxes.~~ Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are also recognized for the estimated future effects of tax loss carry forwards. The effect of changes in tax rates on deferred taxes is recognized in the period in which any such change is enacted. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized. The Company accounts for uncertain foreign and domestic tax positions utilizing an established recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

~~(h)~~ ~~Customer Contract Termination.~~ During the week of January 23, 2017, the Company was unexpectedly notified by the senior management of Mattress Firm, Inc. ("Mattress Firm") and representatives of Steinhoff International Holdings Ltd. ("Steinhoff"), its parent company, of Mattress Firm's intent to terminate its business relationship with the Company if the Company did not agree to considerable changes to its agreements with Mattress Firm, including significant economic concessions. The Company engaged in discussions to facilitate a mutually agreeable supply arrangement with Mattress Firm. However, the parties were unable to reach an agreement, and on January 27, 2017, Tempur-Pedic North America, LLC ("Tempur-Pedic") and Sealy Mattress Company ("Sealy Mattress") issued formal termination notices for all of their products to Mattress Firm. On January 30, 2017, Tempur-Pedic and Sealy Mattress entered into transition agreements with Mattress Firm in which they agreed, among other things, to continue supplying Mattress Firm until April 3, 2017, at which time the parties’ business relationship ended.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~In the first quarter of 2017, the Company took steps to manage its cost structure as a result of the termination of the contracts with Mattress Firm. For the three months ended~~ March 31, 2017, the Company recognized $25.9 million of net charges associated with the termination of the relationship with Mattress Firm. This amount includes $11.5 million of charges within cost of sales and $14.4 million of charges within customer termination charges, net in the Condensed Consolidated Statements of Income. The following amounts are recognized in cost of sales: $5.4 million of charges related to the write-off of customer-unique inventory and $6.1 million of increased warranty costs associated with claims historically retained by Mattress Firm. The following amounts are recognized in customer termination charges, net: $22.8 million of charges related to the write-off of Mattress Firm incentives and marketing assets, employee-related expenses and professional fees; and $0.9 million of accelerated stock-based compensation expense. These charges are offset by $9.3 million of benefit related to the change in estimate associated with performance-based stock compensation that is no longer probable of payout as a result of the termination of the contracts with Mattress Firm.

In the three months ended March 31, 2017, the Company also recognized $9.3 million related to the payments received pursuant to the transition agreements with Mattress Firm. This amount is included within other income, net in the Condensed Consolidated Statements of Income.

The termination of the Mattress Firm relationship was identified by the Company as an indicator of potential impairment. The Company conducted an interim impairment analysis as of March 31, 2017 of its North America reporting unit and indefinite-lived intangible assets, which indicated that the fair values were substantially in excess of their carrying values. The Company also conducted a recoverability analysis of its long-lived assets and did not identify an impairment.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~(2) Recently Issued Accounting Pronouncements~~

~~Revenue from Contracts with Customers~~

~~In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue From Contracts With Customers~~, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. This ASU is based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The new standard is effective for the Company on January 1, 2018 and the Company will be using the modified retrospective method of adoption.

The Company has conducted a risk assessment and has developed a transition plan that will enable the Company to meet the implementation requirement. Revenue streams and performance obligations include product sales, sales-based royalties and warranties. The Company's contracts also include forms of variable consideration, including rebates (volume, cash and cooperative advertising), trade or other support, free products, slotting fees, and sales returns. Based on the evaluation of the Company's current contracts and the related revenue streams and performance obligations, most will be recorded consistently under both the current and new standard. The majority of the Company's revenue transactions are not accounted for under industry-specific guidance that will be superseded by ASC 606 and generally consist of a single performance obligation to transfer promised goods.

Upon adoption of ASC 606, the Company expects the largest impacts to result from the new qualitative and quantitative disclosures that will be required upon adoption of the new standard. Other anticipated presentation and disclosure changes include the reclassification of royalty income to revenue and changes in the balance sheet classification for sales returns. Under the new standard, the Company will continue to recognize the amount of consideration received or receivable that is expected to be returned as a refund liability, representing the Company's obligation to return the customer’s consideration. The Company will also recognize a return asset (and adjust cost of sales) for the right to recover the goods returned by the customer, which will be subject to impairment assessments. The Company evaluated the impact of the adoption on the classification of cooperative advertising programs and other promotional programs with the Company's customers. The impact of adoption to these promotional programs is not expected to result in material changes in the Company's recognition or presentation of costs within the Company's consolidated statements of comprehensive income.

~~Leases~~

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~, that requires lessees to recognize most leases on the balance sheet and provides for expanded disclosures on key information about leasing arrangements. This ASU is effective for interim and annual periods beginning after December 15, 2018, however early adoption is permitted. In transition, entities are required to use a modified retrospective approach for the adoption of this ASU. The Company is currently evaluating this ASU to determine the impact it will have on the Company's Condensed Consolidated Financial Statements.

~~Employee Share-Based Payments~~

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~, that simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The Company adopted this ASU as of January 1, 2017. As a result of the adoption of this ASU:

The Company recognized all excess tax benefits and tax deficiencies as income tax expense or benefit in the Condensed Consolidated Statement of Income. The Company recognized excess tax benefits of $0.3 million and excess tax deficiencies of $0.8 million in the three and nine months ended September 30, 2017, respectively.

~~The Company is prospectively presenting these excess tax benefits and tax deficiencies as an operating activity on the Condensed Consolidated Statement of Cash Flows.~~

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

The Company adopted a change in accounting policy to recognize forfeitures of awards as they occur instead of estimating potential forfeitures. Historically, the Company estimated the number of awards expected to be forfeited and adjusted the estimate when it was no longer probable that employees would fulfill their service conditions. The effect of this change in accounting policy is not material.

~~Pensions~~

~~In March 2017, the FASB issued ASU No. 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~, which is accounting guidance that will change how employers who sponsor defined benefit pension and/or postretirement benefit plans present the net periodic benefit cost in the Condensed Consolidated Statements of Income. This guidance requires employers to present the service cost component of net periodic benefit cost in the same caption within the Condensed Consolidated Statements of Income as other employee compensation costs from services rendered during the period. All other components of the net periodic benefit cost will be presented separately outside of the operating income caption. This guidance must be applied retrospectively and will become effective for the Company on January 1, 2018. Adoption of this guidance will result in a reclassification of pension and other postretirement plan non-service income and remeasurement adjustments, net from within operating income to non-operating income.

~~(3) Goodwill~~

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

(in millions) North America International Consolidated
Balance as of December 31, 2016 $ 572.0
$ 150.5
$ 722.5
Foreign currency translation 4.9
5.5
10.4
Balance as of September 30, 2017 $ 576.9
$ 156.0
$ 732.9

~~(4) Debt~~

~~Debt for the Company consists of the following:~~

September 30, 2017 December 31, 2016
(in millions, except percentages) Amount Rate Amount Rate Maturity Date
2016 Credit Agreement
Term A Facility $ 562.5
(1) $ 585.0
(2) April 6, 2021
Revolver —
(1) 156.9
(2) April 6, 2021
2026 Senior Notes 600.0
5.500% 600.0
5.500% June 15, 2026
2023 Senior Notes 450.0
5.625% 450.0
5.625% October 15, 2023
Securitized debt 46.5
(3) —
N/A April 12, 2019
Capital lease obligations ⁽⁴⁾
73.2
73.3
Various
Other 30.7
35.8
Various
Total debt 1,762.9
1,901.0

Less: deferred financing costs (9.9 ) (12.9 )
Total debt, net 1,753.0
1,888.1

Less: current portion (66.3 ) (70.3 )
Total long-term debt, net $ 1,686.7
$ 1,817.8

2022:



~~(1)~~(in millions)	~~Interest at LIBOR plus applicable margin of 1.75% as of September 30, 2017.~~
~~(2)~~	~~Interest at LIBOR plus applicable margin of 1.50%~~Balance as of December 31, ~~2016.~~2021		$	62.1
~~(3)~~Amounts accrued	~~Interest at one month LIBOR index plus 80 basis points.~~	1.6
~~(4)~~Write-offs charged against the allowance	~~Capital lease obligations are a non-cash financing activity.~~	(1.7)
Balance as of March 31, 2022		$	62.0

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~2016 Credit Agreement~~

On April 6, 2016, the Company entered into a senior secured credit agreement ("2016 Credit Agreement") with a syndicate of banks. The 2016 Credit Agreement replaced the Company’s 2012 Credit Agreement.

The 2016 Credit Agreement requires compliance with certain financial covenants providing for maintenance of a minimum consolidated interest coverage ratio, maintenance of a maximum consolidated total net leverage ratio, and maintenance of a maximum consolidated secured net leverage ratio. The consolidated total net leverage ratio is calculated using consolidated funded debt less qualified cash. Consolidated funded debt includes debt recorded in the Condensed Consolidated Balance Sheets as of the reporting date, plus letters of credit outstanding and other short-term debt. The Company is allowed to subtract from consolidated funded debt an amount equal to 100.0% of domestic qualified cash and 60.0% of foreign qualified cash, the aggregate of which cannot exceed $150.0 million at the end of the reporting period. As of September 30, 2017, domestic qualified cash was $17.2 million and foreign qualified cash was $14.7 million.

~~The Company is in compliance with all applicable covenants as of September 30, 2017.~~

~~Securitized Debt~~

On April 12, 2017, the Company and certain of its subsidiaries entered into a securitization transaction with respect to certain accounts receivable due to the Company and certain of its subsidiaries (the "Accounts Receivable Securitization"). In connection with this transaction, the Company and its wholly-owned special purpose subsidiary, Tempur Sealy Receivables, LLC, entered into a credit agreement that provides for revolving loans to be made from time to time in a maximum amount that varies over the course of the year based on the seasonality of our accounts receivable and is subject to an overall limit of $120.0 million.

The obligations of the Company under the Accounts Receivable Securitization are secured by the accounts receivable and certain related rights and the facility agreements contain customary events of default. The accounts receivable will continue to be owned by the Company and its subsidiaries and will continue to be reflected as assets on the Company’s Condensed Consolidated Balance Sheets and represent collateral up to the amount of the borrowings under this facility. Borrowings under this facility will be classified as long-term debt within the Condensed Consolidated Balance Sheets.

(e) Fair ~~Value of Financial Instruments~~

Value. Financial instruments, although not recorded at fair value on a recurring basis, include cash and cash equivalents, accounts receivable, accounts payable and the Company's debt obligations. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value ~~using Level 1 inputs~~ because of the short-term maturity of those instruments. Borrowings under the ~~2016~~2019 Credit Agreement and the securitized debt are at variable interest rates and accordingly their carrying amounts approximate fair value. The fair value of the following material financial instruments were based on ~~Level 2~~observable inputs estimated using discounted cash flows and market-based expectations for interest rates, credit risk and the contractual terms of debt instruments. The fair values of these material financial instruments are as follows:


	Fair Value
(in millions)	March 31, 2022		December 31, 2021
2029 Senior Notes	$	730.3	$	816.9
2031 Senior Notes	$	686.7	$	803.7

Fair Value
(in millions) September 30, 2017 December 31, 2016
2023 Senior Notes $ 473.9
$ 468.5
2026 Senior Notes 615.9
606.8

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TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

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

~~(5)Stockholders' Equity~~

(2) Net Sales

~~(a)~~ ~~Common Stock.~~ ~~Tempur Sealy International~~

The following table presents the Company's disaggregated revenue by channel, product and geographical region, including a reconciliation of disaggregated revenue by segment, for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
(in millions)	North America		International		Consolidated		North America		International		Consolidated
Channel
Wholesale	$	811.3	$	112.8	$	924.1	$	765.5	$	115.9	$	881.4
Direct	120.1		195.3		315.4		117.8		44.6		162.4
Net sales	$	931.4	$	308.1	$	1,239.5	$	883.3	$	160.5	$	1,043.8

	North America		International		Consolidated		North America		International		Consolidated
Product
Bedding	$	864.9	$	256.5	$	1,121.4	$	830.3	$	121.7	$	952.0
Other	66.5		51.6		118.1		53.0		38.8		91.8
Net sales	$	931.4	$	308.1	$	1,239.5	$	883.3��	$	160.5	$	1,043.8









	North America		International		Consolidated		North America		International		Consolidated
Geographical region
United States	$	864.3	$	—	$	864.3	$	818.5	$	—	$	818.5

All Other	67.1		308.1		375.2		64.8		160.5		225.3
Net sales	$	931.4	$	308.1	$	1,239.5	$	883.3	$	160.5	$	1,043.8

(3) Acquisitions

Acquisition of Dreams Topco Limited

On August 2, 2021, the Company completed the acquisition of Dreams Topco Limited and its direct and indirect subsidiaries ("Dreams"), for a cash purchase price of $476.7 million, which includes $49.5 million of cash acquired. The transaction was funded using cash on hand and bank financing. Dreams has ~~300.0 million authorized shares~~developed a successful multi-channel sales strategy, with over 200 brick and mortar retail locations in the United Kingdom, an industry-leading online channel, as well as manufacturing and delivery assets.

The financial results of ~~common stock with $0.01 per share par value and 0.01 million authorized shares~~Dreams subsequent to the date of ~~preferred stock with $0.01 per share par value. The holders~~acquisition are included in the consolidated financial statements of the ~~common stock~~Company. The Company accounted for this transaction as a business combination. The preliminary allocation of the purchase price is based on the fair values of the assets acquired and liabilities assumed as of August 2, 2021. The Company continues to obtain information to determine the fair value of acquired assets and liabilities. The components of the preliminary purchase price allocation are ~~entitled~~as follows:

Table of Contents

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

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


(in millions)
Accounts receivable, net	$	3.5
Inventory	51.2
Property, plant and equipment	33.9
Goodwill	357.1
Indefinite-lived intangible asset	141.9
Operating lease right-of-use assets	158.2
Other current and non-current assets	4.4
Accounts payable	(55.2)
Accrued expenses and other current liabilities	(69.7)
Operating lease liabilities	(165.1)
Debt	(6.1)
Other liabilities	(26.9)
Purchase price, net of cash acquired	$	427.2

The indefinite-lived intangible asset represents the Dreams' portfolio of trade names as marketed through Dreams. The Company applied the income approach through a relief from royalty method to ~~one vote~~fair value the trade name asset using level 2 inputs. The indefinite-lived intangible asset is not deductible for ~~each share held~~income tax purposes.

Goodwill is calculated as the excess of ~~record on~~the purchase price over the net assets acquired and primarily represents the expansion of retail competency and online capabilities, and expected synergistic manufacturing and distribution benefits to be realized from the acquisition. The goodwill is not deductible for income tax purposes and is included within the International business segment.

(4) Goodwill

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


(in millions)	North America		International		Consolidated
Balance as of December 31, 2021	$	611.5	$	495.9	$	1,107.4

Foreign currency translation and other	0.9		(11.5)		(10.6)
Balance as of March 31, 2022	$	612.4	$	484.4	$	1,096.8

Table of Contents

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

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

(5) Debt

Debt for the Company consists of the following:


	March 31, 2022			December 31, 2021
(in millions, except percentages)	Amount		Rate	Amount		Rate	Maturity Date
2019 Credit Agreement:
Term A Facility	$	665.9	(1)	$	675.0	(2)	October 16, 2024
Revolver	163.3		(1)	—		(2)	October 16, 2024
2031 Senior Notes	800.0		3.875%	800.0		3.875%	October 15, 2031
2029 Senior Notes	800.0		4.000%	800.0		4.000%	April 15, 2029


Securitized debt	153.4		(3)	—		N/A	April 6, 2023
Finance lease obligations (4)	84.6			75.2			Various
Other	7.5			3.0			Various
Total debt	2,674.7			2,353.2
Less: Deferred financing costs	23.4			21.7
Total debt, net	2,651.3			2,331.5
Less: Current portion	62.4			53.0
Total long-term debt, net	$	2,588.9		$	2,278.5


(1)			Interest at LIBOR plus applicable margin of 1.250% as of March 31, 2022.
(2)			Interest at LIBOR plus applicable margin of 1.250% as of December 31, 2021.
(3)			Interest at one month LIBOR index plus 70 basis points.

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

As of March 31, 2022, the Company was in compliance with all ~~matters submitted~~applicable debt covenants.

2019 Credit Agreement

On October 16, 2019, the Company entered into the 2019 Credit Agreement with a syndicate of banks. The 2019 Credit Agreement provides for a $425.0 million revolving credit facility, a $425.0 million term loan facility, and an incremental facility in an aggregate amount of up to $550.0 million plus the amount of certain prepayments plus an additional unlimited amount subject to compliance with a ~~vote~~maximum consolidated secured leverage ratio test. The 2019 Credit Agreement has a $60.0 million sub-facility for the issuance of ~~stockholders. Subject~~letters of credit.

On February 2, 2021, the Company entered into an amendment to ~~preferences~~the 2019 Credit Agreement. The amendment increased the revolving credit facility from $425.0 million to $725.0 million. On May 26, 2021, the Company entered into an additional amendment to the 2019 Credit Agreement. The amendment provided for a $300.0 million delayed draw term loan. On July 30, 2021 the Company drew down the full $300.0 million available under the delayed draw term loan to fund, in part, the Dreams acquisition. The delayed draw term loan has the same terms and conditions as the Company's existing term loans under the 2019 Credit Agreement. On September 21, 2021, the Company entered into an additional amendment to the 2019 Credit Agreement to remove the limit to the amount of netted cash that may be ~~applicable~~deducted from indebtedness for purposes of calculating certain leverage ratios.

The Company had $163.3 million in outstanding borrowings under its revolving credit facility as of March 31, 2022. Total availability under the revolving credit facility was $561.0 million after a $0.7 million reduction for outstanding letters of credit as of March 31, 2022.

Securitized Debt

The Company and certain of its subsidiaries are party to ~~any outstanding preferred stock, holders~~a securitization transaction with respect to certain accounts receivable due to the Company and certain of its subsidiaries (as amended, the "Accounts Receivable Securitization"). On April 6, 2021, the Company and certain of its subsidiaries entered into a new amendment to the Accounts Receivable Securitization. The amendment, among other things, extended the maturity date of the ~~common stock are entitled~~Accounts Receivable Securitization to ~~receive ratably such dividends as may be declared~~April 6, 2023 and increased the overall limit from ~~time~~$120.0 million to ~~time by~~$200.0 million. While subject to a $200.0 million overall limit, the ~~Board~~availability of ~~Directors ("Board") out of funds legally available for that purpose. In~~revolving loans varies over the ~~event of liquidation, dissolution or winding up, the holders~~course of the ~~common stock are entitled to share ratably in all assets remaining after payment~~year based on the seasonality of ~~liabilities, subject to prior distribution rights~~the Company's accounts receivable. As of ~~preferred stock, if any, then outstanding.~~March 31, 2022, the Company had fully drawn down the Accounts Receivable Securitization with borrowings of $153.4 million.

The Board is authorized, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series. Each such series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as determined by the Board, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights.

(6)Stockholders' Equity

~~(b)~~

(a) Treasury Stock. In February 2017, the Board authorized an increase of $200.0 million to its existing share repurchase authorization for repurchases of Tempur Sealy International's common stock. For the nine months ended September 30, 2017, the Company repurchased 0.6 million shares for approximately $40.1 million. As of ~~September 30, 2017,~~March 31, 2022, the Company had approximately ~~$226.9~~$951.5 million remaining under ~~the existing~~its share repurchase authorization. The Company repurchased 12.2 million and 8.4 million shares, under the program, for approximately $449.2 million and $299.8 million during the three months ended March 31, 2022 and 2021, respectively.

In addition, the Company acquired ~~0.1 million~~ shares upon the vesting of certain restricted stock units ("RSUs") and performance restricted stock units ("PRSUs"), which were withheld to satisfy tax withholding obligations during ~~each of~~ the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016.~~2021. The shares withheld were valued at the closing price of the ~~common~~ stock on the New York Stock Exchange on the vesting date or first business day ~~thereafter,~~prior to vesting, resulting in approximately ~~$4.8~~$45.6 million and ~~$2.0~~$13.3 million in treasury stock acquired during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively.

~~(c)~~ ~~Shareholder Rights Agreement~~(b) AOCL. On February 8, 2017, the Board authorized and declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $0.01 per share (the “Common Shares”), of the Company to stockholders of record at the close of business on February 20, 2017 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of the Company at an exercise price of $90 per one one-thousandth of a Preferred Share, subject to adjustment (the “Exercise Price”). Generally, the Rights become exercisable in the event any person or group (including a group of persons that are acting in concert with each other) acquires 20% or more of the Common Shares without the approval of the Board, and until such time are inseparable from and trade with the Company's common stock. The Rights have a de minimis fair value. The Rights were issued pursuant to the Rights Agreement dated as of February 8, 2017 (the "Original Rights Agreement"), between the Company and American Stock Transfer & Trust Company, LLC ("AST"), the Company's rights agent. These Rights expire February 7, 2018 or upon an earlier redemption or exchange as provided in the Rights Agreement.

On March 14, 2017, the Company entered into an Amended and Restated Rights Agreement (the "Amended Rights Agreement") with AST, as rights agent, to amend certain provisions of the Original Rights Agreement. The primary purpose of the amendment and restatement of the Original Rights Agreement is to provide the holders of the Common Shares and the attached Rights issued under the Original Rights Agreement with the ability to exempt an offer to acquire, or engage in another business combination transaction involving, the Company that is deemed a "Qualifying Offer" (as defined in the Amended and Restated Rights Agreement) from the terms of the Amended and Restated Rights Agreement. The Rights have a de minimis fair value as of September 30, 2017.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~(d)~~ ~~AOCL.~~ AOCL consisted of the following:

Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2017 2016 2017 2016
Foreign Currency Translation
Balance at beginning of period $ (101.8 ) $ (98.6 ) $ (119.9 ) $ (115.4 )
Other comprehensive income (loss):

Foreign currency translation adjustments ⁽¹⁾
9.6
(5.0 ) 27.7
11.8
Balance at end of period $ (92.2 ) $ (103.6 ) $ (92.2 ) $ (103.6 )

Pensions
Balance at beginning of period $ (2.2 ) $ (1.4 ) $ (2.2 ) $ (1.4 )
Other comprehensive loss:
Net change from period revaluations, net of tax —
—
—
—
Balance at end of period $ (2.2 ) $ (1.4 ) $ (2.2 ) $ (1.4 )

Foreign Exchange Forward Contracts
Balance at beginning of period $ —
$ 0.7
$ 0.6
$ 6.6
Other comprehensive (loss) income:
Net change from period revaluations (0.2 ) 0.8
(0.6 ) (4.5 )
Tax (provision) benefit ⁽²⁾
—
(0.2 ) 0.1
1.2
Total other comprehensive (loss) income before reclassifications, net of tax $ (0.2 ) $ 0.6
$ (0.5 ) $ (3.3 )
Net amount reclassified to earnings ⁽³⁾
0.3
(1.1 ) (0.1 ) (3.8 )
Tax (provision) benefit ⁽²⁾
(0.1 ) 0.3
—
1.0
Total amount reclassified from AOCL, net of tax $ 0.2
$ (0.8 ) $ (0.1 ) $ (2.8 )
Total other comprehensive loss —
(0.2 ) (0.6 ) (6.1 )
Balance at end of period $ —
$ 0.5
$ —
$ 0.5


	Three Months Ended
	March 31,
(in millions)	2022		2021
Foreign Currency Translation
Balance at beginning of period	$	(95.2)	$	(58.6)
Other comprehensive loss:
Foreign currency translation adjustments (1)	(17.5)		(10.8)

Balance at end of period	$	(112.7)	$	(69.4)













Pensions
Balance at beginning of period	$	(4.0)	$	(6.9)
Other comprehensive loss:
Net change from period revaluations	—		—






Balance at end of period	$	(4.0)	$	(6.9)



(1)		In ~~2017~~2022 and ~~2016,~~2021, there were no tax impacts related to foreign currency translation adjustments and no amounts were reclassified to earnings.
~~(2)~~		~~These amounts were included in the income tax provision in the accompanying Condensed Consolidated Statements of Income.~~
~~(3)~~	~~This amount was included in cost of sales in the accompanying Condensed Consolidated Statements of Income.~~

~~(6)~~

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TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

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

(7)Other Items

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:


(in millions)	March 31, 2022		December 31, 2021
Operating lease obligations	$	105.1	$	101.7
Wages and benefits	74.5		112.2

Unearned revenue	59.8		51.5
Advertising	55.7		72.3



Taxes	24.4		15.0
Other	224.9		205.8
	$	544.4	$	558.5

(in millions) September 30, 2017 December 31, 2016
Wages and benefits $ 55.5
$ 65.5
Advertising 44.6
48.6
Sales returns 32.9
30.3
Warranty 19.9
14.3
Rebates 10.8
8.4
Other 109.5
83.0
$ 273.2
$ 250.1

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~(7)~~(8)Stock-Based Compensation

The ~~Company’s~~Company's stock-based compensation expense for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 included PRSUs, non-qualified stock options, ~~restricted stock units ("RSUs")~~RSUs and deferred stock units ("DSUs"). A summary of the ~~Company’s~~Company's stock-based compensation expense is presented in the following ~~table.~~table:


	Three Months Ended September 30,				Nine Months Ended September 30,						Three Months Ended March 31,
(in millions)	2017		2016		2017			2016		(in millions)	2022		2021
PRSU expense (benefit)	$	1.0	$	1.8	$	(7.1	)	$	6.0
PRSU expense										PRSU expense	$	8.3	$	9.6
Option expense	1.8		1.2		5.6			4.0		Option expense	—		0.4
RSU/DSU expense	3.1		1.7		10.0			5.3		RSU/DSU expense	5.5		5.1
Total stock-based compensation expense	$	5.9	$	4.7	$	8.5		$	15.3	Total stock-based compensation expense	$	13.8	$	15.1

The Company ~~did not record any accelerated stock-based compensation expense during each~~grants PRSUs to executive officers and certain members of management. Actual payout under the PRSUs is dependent upon the achievement of certain financial goals. During the first quarter of 2022, the Company granted PRSUs as a component of the three months ended September 30, 2017 and 2016. During the nine months ended September 30, 2017 and 2016, the Company recorded $0.9 million and $2.0 million of accelerated stock-based compensation expense associated with executive management transition, respectively.

During the three months ended September 30, 2017, the Company granted executive officers and certain members of management 1.5 million PRSUs if the Company achieves a certain level of Adjusted EBITDA during four consecutive fiscal quarters as described below (the "2019 Aspirational Plan PRSUs").The 2019 Aspirational Plan PRSUs will vest based on the highest Adjusted EBITDA in any four consecutive fiscal quarter period ending between (and including) March 31, 2018 and December 31, 2019 (the “First Designated Period”). If the highest Adjusted EBITDA in the First Designated Period is $600.0 million, 66% will vest; if the highest Adjusted EBITDA equals or exceeds $650.0 million, then 100% will vest; if the highest Adjusted EBITDA is between $600.0 million and $650.0 million then a pro rata portion will vest; and if the highest Adjusted EBITDA is less than $600.0 million then one-half of the 2019 Aspirational Plan PRSUs will no longer be available for vesting based on performance and the remaining one-half will remain available for vesting based on the highest Adjusted EBITDA in any four consecutive fiscal quarter period ending between (and including) March 31, 2020 and December 31, 2020 (the “Second Designated Period”). If the highest Adjusted EBITDA in the Second Designated Period is $600.0 million then 66% of the remaining 2019 Aspirational Plan PRSUs will vest; if the Adjusted EBITDA is $650.0 million or more 100% will vest; if Adjusted EBITDA is between $600.0 million and $650.0 million then a pro rata portion will vest; and if Adjusted EBITDA is below $600.0 million then all of the remaining 2019 Aspirational Plan PRSUs will be forfeited. Adjusted EBITDA units is defined as the Company’s "Consolidated EBITDA" as such term is defined in the Company’s 2016 Credit Agreement.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~The Company did not record any stock-based compensation expense related to the 2019 Aspirational Plan~~2022 PRSUs during the three months ended ~~September 30, 2017,~~March 31, 2022, as it ~~is not considered~~was probable that the Company ~~will~~would achieve the specified performance target for ~~either the First Designated Period or Second Designated Period. The Company will continue to evaluate the probability of achieving~~ the performance condition in future periods and record the appropriate expense if necessary. Based on the price of the Company’s common stock on the grant date, the total unrecognized compensation expense related to this award if the performance target is met for the First Designated Period is $90.0 million, which would be expensed over the remaining service period if achievement of the performance condition becomes probable.period.

~~(8)~~(9)Commitments and Contingencies

~~(a)~~ Alvin Todd, and Henry and Mary Thompson, individually and on behalf of all others similarly situated, Plaintiffs v. Tempur Sealy International, Inc., formerly known as Tempur-Pedic International, Inc. and Tempur-Pedic North America, LLC, Defendants; filed October 25, 2013.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

During July 2017, three putative shareholder derivative suits were filed against the Company, each member of its Board of Directors and two of its officers. Each complaint alleges that the Board of Directors and officers caused the Company to make materially false and misleading statements regarding its business and financial prospects, including those with one of its retailers, Mattress Firm, which was a violation of the fiduciary duties they owed to the Company. The Company does not believe any of the suits have merit and intends to vigorously defend against the claims in each case. The Plaintiffs in each of the cases have agreed to stay their respective actions until after a decision is rendered on the Motion to Dismiss in the Buehring action noted above. These cases are in the early stages of litigation. As a result, the outcome of each case is unclear and the Company is unable to reasonably estimate the possible loss or range of loss, if any.

The ~~Company’s~~Company's effective tax rate for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016~~2021 was ~~33.0%~~22.5% and ~~30.6%~~23.6%, respectively. The ~~Company’s~~Company's effective tax rate for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016 was 33.6% and 30.7%, respectively. The Company’s income tax rate for the three and nine months ended September 30, 2017 and 2016~~2021 differed from the U.S. federal statutory rate of ~~35.0%~~21.0% principally due to ~~certain~~subpart F income (i.e., global intangible low-taxed income, or "GILTI," earned by the Company's foreign subsidiaries), foreign income tax rate differentials, state and local ~~income~~ taxes, changes in the ~~production activities deduction,~~Company's uncertain tax positions, the excess tax benefit related to stock-based compensation and certain other permanent differences, changes in the Company’s uncertain tax positions, and for the three and nine months ended September 30, 2017, the excess tax deficiency (or benefit) related to stock-based compensation.items.

Table of Contents

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

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

The Company has ~~received income tax assessments from~~been involved in a dispute with the Danish Tax Authority ("SKAT") ~~with respect to the tax years 2001 through 2008 relating to~~regarding the royalty paid by a U.S. subsidiary of Tempur Sealy International to a Danish subsidiary (the "Danish ~~Assessments"~~Tax Matter"). for tax years 2012 through current. The royalty is paid by the U.S. subsidiary for the right to utilize certain intangible assets owned by the Danish subsidiary in the U.S. production process. In its assessment, SKAT asserts that the amount of royalty rate paid by the U.S. subsidiary to the Danish subsidiary is not reflective of an arms-length transaction. Accordingly, the tax assessment received from SKAT is based, in part, on a 20% royalty rate, which is substantially higher than that historically used or deemed appropriate by the Company.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

The ~~cumulative total~~uncertain income tax assessment at September 30, 2017 for all years for which an assessment has been received (2001 - 2008) is approximately Danish Krone ("DKK") 1,615.6 million, including interest and penalties ($256.4 million, based on the DKK to USD exchange rate on September 30, 2017). The cumulative total tax assessment at December 31, 2016 for all years for which an assessment had been received up through that date (2001 - 2008) including interest and penalties was approximately DKK 1,547.3 million ($219.3 million, based on the DKK to USD exchange rate on December 31, 2016). If SKAT continues to issue assessments for each year not currently assessed, the Company expects the aggregate assessments for such years (2009 - 2016) to be in excess of the amounts described above as assessed for the years 2001 - 2008 (collectively the years 2001 through 2016 are referred to as the "Danish Tax Matter").

The deferred tax asset ~~of approximately $44.3 million and $43.5 million, respectively,~~ for the U.S. correlative benefit associated with the accrual of Danish tax for the 2012 to Current Period at March 31, 2022 and December 31, 2021 is approximately $16.0 million and $15.5 million, respectively.

As of March 31, 2022, the Company made the following tax deposits with SKAT related to the Danish Tax ~~Matter. The Company has recorded a valuation allowance with respect to this benefit of approximately $17.6 million~~Matter for ~~both periods related to~~the years ~~for~~2012 through 2015, which ~~relief may not be realized.~~


(in millions)	USD
VAT deposits remaining with SKAT	$	1.5
Deposit payments made through December 31, 2021	45.8
Total	$	47.3

No deposit payments were made in the facts and circumstances regarding this matter and applying the technical requirements applicable to U.S., Danish, and international transfer pricing standards as required by GAAP, taking into account both the U.S. and Danish income tax implications of such outcomes. Both the uncertain tax liability and the deferred tax asset discussed herein reflects the Company’s best judgment of the facts, circumstances and information available through September 30, 2017.three month-period ended March 31, 2022.

If the Company is not successful in ~~defending its position before~~resolving the Danish ~~National~~ Tax ~~Tribunal (the "Tribunal"),~~Matter for the ~~appeals division within SKAT,~~2012 to Current Period or ~~in the Danish courts or in negotiating a mutually acceptable settlement,~~ there is significant risk that the Company could be required to pay significant amounts to SKAT in excess of any related reserve. Such an outcome could have a material adverse impact on the Company’s profitability and liquidity. In addition, prior to any ultimate resolution of this issue before the Tribunal or the Danish courts, based on a change in facts and circumstances, the Company may be required to further increase its uncertain income tax ~~liability~~position associated with this matter, or decrease its deferred tax asset, also related to this matter, which could have a material impact on the Company's reported earnings.

From June 2012 through September 30, 2017, SKAT withheld Value Added Tax refunds otherwise owed to the Company, pending resolution of the Danish Tax Matter. Total withheld refunds at September 30, 2017 and December 31, 2016 are approximately DKK 314.6 million (approximately $49.9 at the September 30, 2017 exchange rate) and DKK 258.0 million (approximately $36.6 million at the December 31, 2016 exchange rate), respectively. In July 2016, the Company paid a deposit to SKATThere were no other significant changes in the amount of approximately DKK 615.2 (approximately $97.6 million using the exchange rate at September 30, 2017) (the “Tax Deposit”) and applied approximately DKK 224.6 million (approximately $35.6 million using the exchange rate at September 30, 2017) of its Value Added Tax refund (the “VAT Refund Applied”) to the aforementioned potential Danish income tax liability, consistent with the Company’s reserve position for the Danish Tax Matter. The deposit was made to mitigate additional interest and foreign exchange exposure. The Tax Deposit and the VAT Refund Applied are included within other non-current assets on the Condensed Consolidated Balance Sheets.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~(10)~~(11)Earnings Per Common Share

The following table sets forth the components of the numerator and denominator for the computation of basic and diluted earnings per share for net income attributable to Tempur Sealy International.


	Three Months Ended
	March 31,
(in millions, except per common share amounts)	2022		2021
Numerator:
Income from continuing operations, net of income attributable to non-controlling interests	$	130.7	$	130.7

Denominator:
Denominator for basic earnings per common share-weighted average shares	182.6		203.7
Effect of dilutive securities	5.9		6.4
Denominator for diluted earnings per common share-adjusted weighted average shares	188.5		210.1

Basic earnings per common share for continuing operations	$	0.72	$	0.64

Diluted earnings per common share for continuing operations	$	0.69	$	0.62

Three Months Ended Nine Months Ended
September 30, September 30,
(in millions, except per common share amounts) 2017 2016 2017 2016
Numerator:
Net income attributable to Tempur Sealy International, Inc. $ 44.6
$ 77.8
$ 103.0
$ 138.7

Denominator:

Denominator for basic earnings per common share-weighted average shares 54.0
58.2
54.0
60.1
Effect of dilutive securities:

Employee stock-based compensation 0.9
0.6
0.6
0.7
Denominator for diluted earnings per common share-adjusted weighted average shares 54.9
58.8
54.6
60.8

Basic earnings per common share $ 0.83
$ 1.34
$ 1.91
$ 2.31

Diluted earnings per common share $ 0.81
$ 1.32
$ 1.89
$ 2.28

Table of Contents

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

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

The Company excluded ~~1.1 million and~~ 0.4 million shares ~~issuable upon exercise of outstanding stock options for the three months ended September 30, 2017 and 2016, respectively,~~ from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy ~~International’s~~International's common stock or they were otherwise ~~anti-dilutive.~~anti-dilutive for the three months ended March 31, 2022. The Company excluded ~~1.3 million and 0.4 million~~an immaterial number of shares ~~issuable upon exercise of outstanding stock options~~ for the ~~nine~~three months ended September 30, 2017 and 2016, respectively, from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy International’s common stock or they were otherwise anti-dilutive.March 31, 2021. Holders of non-vested stock-based compensation awards do not ~~maintain~~have voting ~~rights or maintain rights to receive any dividends thereon.~~rights.

(12)Business Segment Information

The Company operates in ~~two~~2 segments: North America and International. These segments are strategic business units that are managed separately based on geography. The North America segment consists of manufacturing and distribution subsidiaries, joint ventures and licensees located in the U.S., Canada and Mexico. The International segment consists of manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico). On August 2, 2021, the Company acquired Dreams, which is included in the International segment. Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results. These segments are strategic business units that are managed separately based on geography. The North America segment consists of Tempur and Sealy manufacturing and distribution subsidiaries, joint ventures and licensees located in the U.S. and Canada. The International segment consists of Tempur and Sealy manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America. The Company evaluates segment performance based on net sales, gross profit and operating income.

The ~~Company’s~~Company's North America and International segment assets include investments in subsidiaries that are appropriately eliminated in the ~~Company’s~~Company's accompanying Condensed Consolidated Financial Statements. The remaining inter-segment eliminations are comprised of intercompany accounts receivable and payable.

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

The following table summarizes total assets by segment:


(in millions)	March 31, 2022		December 31, 2021
North America	$	4,572.7	$	4,360.6
International	1,274.9		1,305.9
Corporate	505.5		730.9
Inter-segment eliminations	(2,031.2)		(2,074.0)
Total assets	$	4,321.9	$	4,323.4

(in millions) September 30, 2017 December 31, 2016
North America $ 2,731.7
$ 2,581.4
International 613.6
572.6
Corporate 604.2
658.7
Inter-segment eliminations (1,214.2 ) (1,110.1 )
Total assets $ 2,735.3
$ 2,702.6

The following table summarizes property, plant and equipment, net, by segment:


(in millions)	March 31, 2022		December 31, 2021
North America	$	491.7	$	449.9
International	81.9		82.3
Corporate	51.3		51.3
Total property, plant and equipment, net	$	624.9	$	583.5

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


(in millions)	March 31, 2022		December 31, 2021
North America	$	327.0	$	280.6
International	184.2		199.0
Corporate	0.7		1.0
Total operating lease right-of-use assets	$	511.9	$	480.6

(in millions) September 30, 2017 December 31, 2016
North America $ 295.8
$ 297.4
International 54.4
54.9
Corporate 73.9
69.9
Total property, plant and equipment, net $ 424.1
$ 422.2

Table of Contents

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

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

The following table summarizes segment information for the three months ended ~~September 30, 2017:~~March 31, 2022:


(in millions)	North America		International		Corporate		Eliminations		Consolidated
Net sales	$	931.4	$	308.1	$	—	$	—	$	1,239.5

Inter-segment sales	$	0.5	$	0.2	$	—	$	(0.7)	$	—
Inter-segment royalty expense (income)	7.0		(7.0)		—		—		—
Gross profit	352.4		170.4		—		—		522.8
Operating income (loss)	155.4		66.8		(33.6)		—		188.6
Income (loss) from continuing operations before income taxes	155.8		66.4		(53.2)		—		169.0

Depreciation and amortization (1)	$	22.7	$	6.0	$	15.5	$	—	$	44.2
Capital expenditures	51.0		7.8		1.5		—		60.3

(in millions) North America International Corporate Eliminations Consolidated
Net sales $ 580.6
$ 144.2
$ —
$ —
$ 724.8

Inter-segment sales $ 0.9
$ 0.4
$ —
$ (1.3 ) $ —
Inter-segment royalty expense (income) 1.5
(1.5 ) —
—
—
Gross profit 238.4
73.8
—
—
312.2
Operating income (loss) 99.7
20.8
(25.9 ) —
94.6
Income (loss) before income taxes 97.0
9.3
(44.8 ) —
61.5

Depreciation and amortization ⁽¹⁾
$ 13.1
$ 3.8
$ 10.0
$ —
$ 26.9
Capital expenditures 9.3
1.8
6.4
—
17.5
(1)Depreciation and amortization includes stock-based compensation amortization expense.

The following table summarizes segment information for the three months ended ~~September 30, 2016:~~March 31, 2021:


(in millions)	North America		International		Corporate		Eliminations		Consolidated


Net sales	$	883.3	$	160.5	$	—	$	—	$	1,043.8

Inter-segment sales	$	0.7	$	0.2	$	—	$	(0.9)	$	—
Inter-segment royalty expense (income)	2.1		(2.1)		—		—		—
Gross profit	363.9		95.0		—		—		458.9
Operating income (loss)	173.4		46.2		(31.2)		—		188.4
Income (loss) from continuing operations before income taxes	172.5		46.1		(47.2)		—		171.4

Depreciation and amortization (1)	$	21.0	$	3.6	$	17.0	$	—	$	41.6
Capital expenditures	18.8		2.0		2.7		—		23.5

(in millions) North America International Corporate Eliminations Consolidated
Net sales $ 698.5
$ 133.9
$ —
$ —
$ 832.4

Inter-segment sales $ 1.0
$ 0.2
$ —
$ (1.2 ) $ —
Inter-segment royalty expense (income) 1.8
(1.8 ) —
—
—
Gross profit 290.1
72.0
—
—
362.1
Operating income (loss) 128.3
25.6
(22.8 ) —
131.1
Income (loss) before income taxes 127.1
23.6
(40.4 ) —
110.3

Depreciation and amortization ⁽¹⁾
$ 10.8
$ 4.0
$ 8.2
$ —
$ 23.0
Capital expenditures 10.7
3.6
3.3
—
17.6

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

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~The following table summarizes segment information for the nine months ended September 30, 2017:~~

(in millions) North America International Corporate Eliminations Consolidated
Net sales $ 1,688.3
$ 417.9
$ —
$ —
$ 2,106.2

Inter-segment sales $ 3.1
$ 0.7
$ —
$ (3.8 ) $ —
Inter-segment royalty expense (income) 4.4
(4.4 ) —
—
—
Gross profit 651.8
215.6
—
—
867.4
Operating income (loss) 206.9
73.0
(69.2 ) —
210.7
Income (loss) before income taxes 210.7
58.0
(125.8 ) —
142.9

Depreciation and amortization ⁽¹⁾
$ 38.3
$ 11.1
$ 19.8
$ —
$ 69.2
Capital expenditures 23.0
5.4
15.0
—
43.4

~~The following table summarizes segment information for the nine months ended September 30, 2016:~~

(in millions) North America International Corporate Eliminations Consolidated
Net sales $ 1,946.7
$ 411.1
$ —
$ —
$ 2,357.8

Inter-segment sales $ 3.5
$ 0.4
$ —
$ (3.9 ) $ —
Inter-segment royalty expense (income) 5.6
(5.6 ) —
—
—
Gross profit 771.9
218.1
—
—
990.0
Operating income (loss) 308.9
76.1
(77.0 ) —
308.0
Income (loss) before income taxes 304.3
69.0
(177.5 ) —
195.8

Depreciation and amortization ⁽¹⁾
$ 32.1
$ 11.7
$ 25.8
$ —
$ 69.6
Capital expenditures 22.0
8.3
11.6
—
41.9

The following table summarizes property, plant and equipment, net by geographic region:


(in millions)	March 31, 2022		December 31, 2021
United States	$	522.2	$	481.1
All Other	102.7		102.4


Total property, plant and equipment, net	$	624.9	$	583.5

(in millions) September 30, 2017 December 31, 2016
United States $ 362.3
$ 360.7
Canada 7.4
6.6
Other International 54.4
54.9
Total property, plant and equipment, net $ 424.1
$ 422.2
Total International $ 61.8
$ 61.5

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


(in millions)	March 31, 2022		December 31, 2021
United States	$	318.1	$	278.3
United Kingdom	149.5		162.8
All Other	44.3		39.5

Total operating lease right-of-use assets	$	511.9	$	480.6

Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2017 2016 2017 2016
United States $ 517.8
$ 641.4
$ 1,522.5
$ 1,792.7
Canada 62.8
57.1
165.8
154.0
Other International 144.2
133.9
417.9
411.1
Total net sales $ 724.8
$ 832.4
$ 2,106.2
$ 2,357.8
Total International $ 207.0
$ 191.0
$ 583.7
$ 565.1

Table of Contents

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

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

~~(12)Guarantor/Non-Guarantor Financial Information~~


	Three Months Ended
	March 31,
(in millions)	2022		2021
United States	$	864.3	$	818.5
All Other	375.2		225.3


Total net sales	$	1,239.5	$	1,043.8

Table of Contents

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~Three Months Ended September 30, 2017~~

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~Three Months Ended~~ ~~September 30, 2016~~

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~Nine Months Ended September 30, 2016~~

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

Tempur Sealy International, Inc. (Ultimate Parent) Combined Guarantor Subsidiaries Combined Non-Guarantor Subsidiaries Eliminations Consolidated
ASSETS

Current Assets:
Cash and cash equivalents $ 0.7
$ 8.0
$ 33.1
$ —
$ 41.8
Accounts receivable, net —
12.6
351.0
—
363.6
Inventories —
101.8
87.0
—
188.8
Income taxes receivable 254.1
—
—
(254.1 ) —
Prepaid expenses and other current assets 0.2
48.0
14.9
—
63.1
Total Current Assets 255.0
170.4
486.0
(254.1 ) 657.3
Property, plant and equipment, net —
348.5
75.6
—
424.1
Goodwill —
500.2
232.7
—
732.9
Other intangible assets, net —
580.4
91.5
—
671.9
Deferred income taxes 17.2
—
27.3
(17.2 ) 27.3
Other non-current assets —
50.1
171.7
—
221.8
Net investment in subsidiaries 2,380.8
174.2
—
(2,555.0 ) —
Due from affiliates 107.0
1,994.1
15.7
(2,116.8 ) —
Total Assets $ 2,760.0
$ 3,817.9
$ 1,100.5
$ (4,943.1 ) $ 2,735.3

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:

Accounts payable $ —
$ 169.1
$ 75.6
$ —
$ 244.7
Accrued expenses and other current liabilities 21.4
166.6
85.2
—
273.2
Income taxes payable —
267.0
13.5
(254.1 ) 26.4
Current portion of long-term debt —
35.5
30.8
—
66.3
Total Current Liabilities 21.4
638.2
205.1
(254.1 ) 610.6
Long-term debt, net 1,041.4
598.2
47.1
—
1,686.7
Deferred income taxes —
159.7
17.9
(17.2 ) 160.4
Other non-current liabilities —
41.0
149.0
—
190.0
Due to affiliates 1,609.6
—
507.2
(2,116.8 ) —
Total Liabilities 2,672.4
1,437.1
926.3
(2,388.1 ) 2,647.7

Redeemable non-controlling interest 3.4
—
3.4
(3.4 ) 3.4

Total Stockholders' Equity 84.2
2,380.8
170.8
(2,551.6 ) 84.2
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity $ 2,760.0
$ 3,817.9
$ 1,100.5
$ (4,943.1 ) $ 2,735.3

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~December 31, 2016~~

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~Nine Months Ended~~ ~~September 30, 2017~~

~~Table of Contents~~

~~TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES~~

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

~~Nine Months EndedSeptember 30, 2016~~

ITEM 2. ~~MANAGEMENT’S~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with ~~our~~the 2021 Annual Report, ~~on Form 10-K for the year ended December 31, 2016,~~ including "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in ITEM 7 of Part II of the 2021 Annual Report, and the accompanying Condensed Consolidated Financial Statements and ~~accompanying~~ notes thereto included in this ~~Form 10-Q.~~Report. Unless otherwise noted, all of the financial information in this Report is consolidated financial information for the Company. The forward-looking statements in this discussion regarding the mattress and pillow industries, our expectations regarding our ~~strategy, our~~ future performance, liquidity and capital resources and other non-historical statements in this discussion are subject to numerous risks and uncertainties. See "Special Note Regarding Forward-Looking Statements" elsewhere in this ~~quarterly report on Form 10-Q and~~Report, in ~~our~~the 2021 Annual Report ~~on Form 10-K for~~and the ~~year ended December 31, 2016 and~~section titled "Risk Factors" contained in ~~our~~ITEM 1A of Part I of the 2021 Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report. Our actual results may differ materially from those contained in any forward-looking statements.

In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2022, including the following topics:

•an overview of our ~~business;~~business and strategy,

~~factors impacting results of operations;~~

•expected sources of liquidity for future operations; and

•our use of certain non-GAAP financial measures.

We ~~develop, manufacture~~are committed to improving the sleep of more people, every night, all around the world. As a leading designer, manufacturer, distributor and market bedding products, which we sell globally. Our brand portfolio includes many highly recognized brands in the industry, including Tempur®, Tempur-Pedic®, Sealy® featuring Posturepedic® Technology, and Stearns & Foster®. Our comprehensive suiteretailer of bedding products ~~offers~~worldwide, we know how crucial a ~~variety~~good night of sleep is to overall health and wellness. Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers ~~across a broad range of channels.~~in over 100 countries.

We operate 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 and distribution subsidiaries, joint ventures and licensees located in the U.S., Canada and Mexico. Our International segment consists of manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico). On August 2, 2021, we acquired Dreams Topco Limited and its direct and indirect subsidiaries ("Dreams"). Dreams is also included in the International segment. Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results. These segments are strategic business units that are managed separately based on geography. Our North America segment consists of Tempur and Sealy manufacturing and distribution subsidiaries, joint ventures and licensees located in the U.S. and Canada. Our International segment consists of Tempur and Sealy manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America. We evaluate segment performance based on net sales, gross profit and operating income.

~~Factors That Could Impact Results of Operations~~

Our highly recognized brands include Tempur-Pedic®, Sealy® and Stearns & Foster® and our ~~Annual Report on Form 10-K~~non-branded offerings consist of value-focused private label and OEM products. Our products allow for ~~the year ended December 31, 2016.~~complementary merchandising strategies and are sold through third-party retailers, our more than 650 company-owned and joint venture operated retail stores worldwide and our e-commerce channel.

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.

General Business and Economic Conditions

~~Our business~~We believe the bedding industry is ~~affected~~structured for sustained growth, driven by ~~general business~~product innovation, sleep technology advancements, consumer confidence, housing formations and ~~economic conditions, and these conditions could have an impact on future demand for our products.~~population growth. The global economic environment continues to be challenging, and we expect the uncertainty to continue. We continue to make strategic investments, including: introducing new products; investing in increasing our global brand awareness; expanding our North American margins while maintaining market share; investing in our operating infrastructure to meet the requirements of our business; and taking other actions to further strengthen our business.

~~Termination of Mattress Firm Relationship~~

Over the last decade, consumers have made the connection between a ~~mutually agreeable supply arrangement with Mattress Firm. However,~~good night's sleep and overall health and wellness. In recent years, this trend accelerated during the ~~parties were unable~~COVID-19 global pandemic. As consumers make this connection they are willing to ~~reach an agreement, and, on January 27, 2017, Tempur-Pedic North America, LLC ("Tempur-Pedic") and Sealy Mattress Company ("Sealy Mattress") issued formal termination notices~~invest more in their bedding purchases, which positions us well for ~~all~~long-term growth.

In the ~~second quarter~~near term, there are various macro-economic factors impacting the business. While we do not have any operations in Ukraine or Russia, the war in Ukraine has affected both international and domestic markets. Internationally, the war has introduced elements of ~~2017,~~risk into the ~~wind down of~~supply chain and is affecting consumer confidence in Europe. Also, U.S. consumer confidence has declined due to inflation and geopolitical uncertainty. While we have taken actions that have largely mitigated our relationship with Mattress Firm disrupted the retail mattress market as Mattress Firm closed out its inventory of Tempur and Sealy products. We expect that the loss of Mattress Firm as a customer will cause a decrease inbroader supply chain risk, declining consumer confidence is negatively impacting our ~~market share in the United States in 2017 and will cause our net sales in 2017 to decline from our net sales in 2016, and as a result~~order trends, which we expect to ~~be less profitable~~continue.

The COVID-19 global pandemic continues to impact our global operations as variants appear in ~~2017 as compared to 2016. In order to address this issue~~the markets in which we operate. The recent variant in China and ~~recapture market share~~the resulting government mandated lockdowns are negatively impacting our wholly-owned and ~~lost sales, we are working with our existing retailers~~joint-venture operations in the region.

Our recent actions to expand capacity, diversify our supplier base, increase our safety stock and improve vendor and customer communications have strengthened our supply chain, putting us in a more favorable position to meet consumer demand. Though geopolitical and pandemic-related disruptions continue to create challenges, the many actions we have taken to further insulate our supply chain have largely mitigated their offerings of our products and expand our distribution with new retailers and other distribution channels. Our ability to improve our net sales performance in 2017 as compared to current expectations will be driven primarily by how quickly we can recapture market share and net sales.impact.

InDuring the first quarter of 2017, we took steps to manage our cost structure as a result of the termination of the business relationship with Mattress Firm. Accordingly, we incurred certain customer termination charges, including non-cash write-offs. We incurred $25.9 million in net charges associated with the termination of Mattress Firm. Cost of sales included $11.5 million of charges related to the write-off of customer-unique inventory and increased product obligations.Operating expenses included $14.4 million of net charges associated with the termination of Mattress Firm, including $22.8 million of charges related to the write-off of the March 31, 2017 value of Mattress Firm incentives and marketing assets, employee-related expenses and professional fees, which were offset by $8.4 million of benefit primarily related to the change in estimate associated with performance-based stock compensation that is no longer probable of payout as a result of the termination of the Mattress Firm relationship.

~~Financial Leverage~~

~~Future changes in raw material prices could have a significant impact on~~unfavorably impacted our gross margin and we implemented pricing actions to mitigate the dollar impact of these known commodity headwinds. We now anticipate additional commodity cost inflation for the remainder of 2022 and expect ~~commodity~~to implement another round of pricing actions that will neutralize the effect of the incremental inflation on a full year basis.

In 2022, we plan to complete the rollout of ~~approximately $10 million~~a complete refresh of our North American Sealy portfolio that began in ~~the fourth quarter of 2017.~~2021. The updated Sealy portfolio features new models in our Posturepedic PlusTM, Posturepedic® and Essentials product lines. We also expect ~~commodity inflation~~ to ~~continue~~launch a complete refresh of our North American Stearns & Foster portfolio in ~~2018.~~2022. In the U.S., we plan to launch a Sealy-branded, eco-friendly mattress collection, as well as a Sealy mattress with a best-in-class pressure-relieving gel grid layer at a consumer-appealing, mid-market price point, in 2022.

In our International segment, we expect to launch an all-new line of Tempur® products in Europe and Asia-Pacific with the objective of reaching a new segment of international consumers. This new line of products will broaden Tempur®'s price range with the super-premium average selling price ceiling maintained and the floor expanded into the premium category. In response to the current geopolitical uncertainty permeating the European market, we have elected to postpone the launch of the new international line of Tempur® products that was planned for 2022 to the first quarter of 2023.

Our global 2022 marketing plan is to aggressively support our innovative bedding products through investing significant marketing dollars to promote our worldwide brands and product launches.

Acquisition of Dreams

On August 2, 2021, we completed the acquisition of Dreams, for a cash purchase price of $476.7 million, which included $49.5 million of cash acquired. The transaction was funded using cash on hand and bank financing. As a multi-branded retailer, Dreams sells a variety of products across a range of price points with a margin profile lower than our historical International segment margins.

Results of Operations

A summary of our results for the three months ended ~~September 30, 2017~~March 31, 2022 include:

•Total net sales ~~decreased 12.9%~~increased 18.7% to ~~$724.8~~$1,239.5 million ~~from $832.4~~as compared to $1,043.8 million in the ~~third~~first quarter of ~~2016.~~2021. On a constant currency basis, which is a non-GAAP financial measure, total net sales ~~decreased 13.3%~~increased 19.8%, with ~~a decrease~~an increase of ~~17.2%~~5.5% in the North America business segment and an increase of ~~7.0%~~98.6% in the International business ~~segment.~~segment, primarily driven by the acquisition of Dreams in August 2021.

•Gross margin was ~~43.1%~~42.2% as compared to ~~43.5%~~44.0% in the ~~third~~first quarter of ~~2016.~~2021.

•Operating income ~~decreased 27.8%~~increased to ~~$94.6~~$188.6 million as compared to ~~$131.1~~$188.4 million in the ~~third~~first quarter of ~~2016. Adjusted operating~~2021.

•Net income ~~which is a non-GAAP financial measure, decreased 23.6%~~increased to ~~$100.1~~$130.7 million as compared to ~~$131.1~~$130.5 million in the ~~third~~first quarter of ~~2016.~~

•EBITDA, which is a non-GAAP financial measure,increased 1.9% to $234.5 million as compared to ~~$77.8~~$230.1 million in the ~~third~~first quarter of ~~2016.~~2021.

~~Earnings before interest, tax, depreciation and amortization ("EBITDA")~~decreased 20.1% to $123.8 million as compared to $155.0 million for the third quarter of 2016. Adjusted EBITDA decreased 16.6% to $129.3 million as compared to $155.0 million in the third quarter of 2016.

•Earnings per diluted share ("EPS") ~~decreased 38.6%~~increased 11.3% to ~~$0.81~~$0.69 as compared to ~~$1.32~~$0.62 in the ~~third~~first quarter of ~~2016.~~2021. Adjusted EPS, which is a non-GAAP financial measure, ~~decreased 24.2% to $1.00 as compared to $1.32~~was $0.64 in the ~~third~~first quarter of ~~2016.~~2021. There were no adjustments to EPS in the first quarter of 2022.

For a discussion and reconciliation of non-GAAP financial measures as discussed above to the corresponding GAAP financial results, refer to the non-GAAP financial information set forth below under the heading "Non-GAAP Financial Information."

We may refer to net sales or earnings or other historical financial information on a ~~“constant~~"constant currency basis,”" which is a non-GAAP financial measure. These references to constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates. To provide information on a constant currency basis, the applicable financial results are adjusted based on a simple mathematical model that translates current period results in local currency using the comparable prior ~~year period’s~~corresponding period's currency conversion rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance. Constant currency information is not recognized under GAAP, and it is not intended as an alternative to GAAP measures. Refer to Part I, ITEM 3 ~~under Part I~~ of this Report for a discussion of our foreign currency ~~disclosure.~~exchange rate risk.

The following table sets forth the various components of our Condensed Consolidated Statements of Income and expresses each component as a percentage of net sales:


	Three Months Ended March 31,
(in millions, except percentages and per share amounts)	2022				2021
Net sales	$	1,239.5	100.0	%	$	1,043.8	100.0	%
Cost of sales	716.7		57.8		584.9		56.0
Gross profit	522.8		42.2		458.9		44.0
Selling and marketing expenses	243.5		19.6		197.7		18.9
General, administrative and other expenses	97.6		7.9		79.5		7.6

Equity income in earnings of unconsolidated affiliates	(6.9)		(0.6)		(6.7)		(0.6)
Operating income	188.6		15.2		188.4		18.0

Other expense, net:
Interest expense, net	20.9		1.7		12.3		1.2

Loss on extinguishment of debt	—		—		5.0		0.5
Other income, net	(1.3)		(0.1)		(0.3)		—
Total other expense, net	19.6		1.6		17.0		1.6

Income from continuing operations before income taxes	169.0		13.6		171.4		16.4
Income tax provision	(38.1)		(3.1)		(40.5)		(3.9)
Income from continuing operations	130.9		10.5		130.9		12.5
Loss from discontinued operations, net of tax	—		—		(0.2)		—
Net income before non-controlling interests	130.9		10.5		130.7		12.5
Less: Net income attributable to non-controlling interests	0.2		—		0.2		—
Net income attributable to Tempur Sealy International, Inc.	$	130.7	10.5	%	$	130.5	12.5	%

Earnings per common share:

Basic
Earnings per share for continuing operations	$	0.72			$	0.64
Loss per share for discontinued operations	—				—
Earnings per share	$	0.72			$	0.64

Diluted
Earnings per share for continuing operations	$	0.69			$	0.62
Loss per share for discontinued operations	—				—
Earnings per share	$	0.69			$	0.62

Weighted average common shares outstanding:
Basic	182.6				203.7
Diluted	188.5				210.1

Three Months Ended September 30,
(in millions, except percentages and per share amounts) 2017 2016
Net sales $ 724.8
100.0 % $ 832.4
100.0 %
Cost of sales 412.6
56.9
470.3
56.5
Gross profit 312.2
43.1
362.1
43.5
Selling and marketing expenses 155.4
21.4
175.2
21.0
General, administrative and other expenses 71.0
9.8
64.0
7.7
Equity income in earnings of unconsolidated affiliates (3.5 ) (0.5 ) (2.4 ) (0.2 )
Royalty income, net of royalty expense (5.3 ) (0.7 ) (5.8 ) (0.7 )
Operating income 94.6
13.1
131.1
15.7

Other expense, net:

Interest expense, net 32.0
4.4
20.5
2.5
Other expense, net 1.1
0.2
0.3
—
Total other expense, net 33.1
4.6
20.8
2.5

Income before income taxes 61.5
8.5
110.3
13.3
Income tax provision (20.3 ) (2.8 ) (33.7 ) (4.1 )
Net income before non-controlling interests 41.2
5.7
76.6
9.2
Less: Net loss attributable to non-controlling interests (3.4 ) (0.5 ) (1.2 ) (0.1 )
Net income attributable to Tempur Sealy International, Inc. $ 44.6
6.2 % $ 77.8
9.3 %

Earnings per common share:
Basic $ 0.83
$ 1.34

Diluted $ 0.81
$ 1.32

Weighted average common shares outstanding:
Basic 54.0
58.2

Diluted 54.9
58.8

Three Months Ended September 30,
2017 2016 2017 2016 2017 2016
(in millions) Consolidated North America International
Net sales by channel
Wholesale channel $ 664.0
$ 791.3
$ 547.3
$ 685.1
$ 116.7
$ 106.2
Direct channel 60.8
41.1
33.3
13.4
27.5
27.7
Total net sales $ 724.8
$ 832.4
$ 580.6
$ 698.5
$ 144.2
$ 133.9

Net sales ~~decreased 12.9%~~increased 18.7%, and on a constant currency basis ~~decreased 13.3%~~increased 19.8%. The ~~decrease~~change in net sales was driven ~~by:~~by the following:

•North America net sales ~~decreased $117.9~~increased $48.1 million, or ~~16.9%~~5.4%. ~~Excluding Mattress Firm,~~On a constant currency basis, North America net sales increased ~~$53.6 million, or 10.2%, driven by growth across all of our brands. In the third quarter of 2016, net sales to Mattress Firm were $171.5 million.~~5.5%. Net sales in the Wholesale channel ~~decreased $137.8~~increased $45.8 million, or ~~20.1%~~6.0%, ~~driven primarily by~~to $811.3 million, as compared to first quarter of 2021. Net sales in the ~~termination~~Direct channel increased $2.3 million, or 2.0% to $120.1 million, as compared to the first quarter of ~~our contract with Mattress Firm. Excluding sales to Mattress Firm, Wholesale~~2021.

•International net sales increased 6.6%. During the third quarter of 2017, hurricanes impacted operations in two of our largest markets, Texas and Florida. We estimate that the hurricanes impacted our net sales in the third quarter by approximately $10 to $15 million. Additionally, sales to a national department store retailer in the wholesale channel significantly declined in 2017 as compared to 2016. Net sales in our Direct channel increased $19.9$147.6 million, or ~~148.5%, driven primarily by growth in e-commerce. Canada net sales increased 5.8% on a constant currency basis.~~

~~International~~ ~~net sales increased $10.3 million, or 7.7%~~92.0%. On a constant currency basis, International net sales increased ~~7.0%, driven primarily by growth in Asia-Pacific and Latin America.~~98.6%. Net sales in the Wholesale channel increased ~~7.7%~~3.7% on a constant currency basis. Net sales in the Direct channel increased ~~4.3%~~345.3% on a constant currency ~~basis.~~

GROSS PROFIT


	Three Months Ended March 31,
	2022				2021
(in millions, except percentages)	Gross Profit		Gross Margin		Gross Profit		Gross Margin		Margin Change
North America	$	352.4	37.8	%	$	363.9	41.2	%	(3.4)	%
International	170.4		55.3	%	95.0		59.2	%	(3.9)	%
Consolidated gross margin	$	522.8	42.2	%	$	458.9	44.0	%	(1.8)	%

Three Months Ended September 30,
2017 2016
(in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin Margin Change
North America $ 238.4
41.1 % $ 290.1
41.5 % (0.4 )%
International 73.8
51.2 % 72.0
53.8 % (2.6 )%
Consolidated gross margin $ 312.2
43.1 % $ 362.1
43.5 % (0.4 )%

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.

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 priced products, our gross margins will be negatively impacted in both our North America and International segments.

Our gross margin is also impacted by fixed cost leverage based on manufacturing unit volumes; the cost of raw materials; operational efficiencies due to the utilization in our manufacturing facilities; product, brand, channel and country mix; foreign exchange fluctuations; volume incentives offered to certain retail accounts; participation in our retail cooperative advertising programs; and costs associated with new product introductions. Future changes in raw material prices could have a significant impact on our gross margin. Our margins are also impacted by the growth in our Wholesale channel as sales in our Wholesale channel are at wholesale prices whereas sales in our Direct channel are at retail prices.

Gross margin declined 40180 basis points. The ~~principal factors impacting~~primary drivers of changes in gross margin ~~for each~~by segment are discussed ~~below.~~below:

•North America gross margin declined 40340 basis points. The decline in gross margin was driven by price increases to customers without a margin benefit of 280 basis points and operational inefficiencies related to supply chain constraints of 120 basis points. Our gross margin was impacted as sales increased with no change in gross profit dollars, as our pricing actions have been neutralizing the dollar impact of commodities. These declines were partially offset by favorable mix.

•International gross margin declined 390 basis points. The decline in gross margin was primarily driven by the ~~termination~~acquisition of ~~the Mattress Firm relationship, which resulted in fixed cost deleverage~~Dreams of 200 basis points and price increases to customers without a margin benefit of 160 basis ~~points on~~points. Dreams' margin profile is lower ~~net sales and 80 basis points~~than our historical international margins as they sell a variety of ~~unfavorable brand mix. The loss~~products across a range of net sales had a disproportionate impact on higher gross margin Tempur products. We also recorded $1.0 million of hurricane-related manufacturing and logistics costs in the third quarter of 2017 due to the impact on certain manufacturing facilities and distribution centers. Additionally, the decline in gross margin was due to unfavorable commodity costs of 150 basis points, offset by operational improvements of 160 basis points, favorable channel mix of 100 basis points and favorable product mix of 60 basisprice points.

~~International~~ ~~gross margin declined 260 basis points. The decline was primarily driven by product launch costs of 130 basis points, as well as unfavorable channel mix and brand mix.~~

Three Months Ended September 30,
2017 2016 2017 2016 2017 2016 2017 2016
(in millions) Consolidated North America International Corporate
Operating expenses:
Advertising expenses $ 76.9
$ 104.3
$ 66.4
$ 95.8
$ 10.5
$ 8.5
$ —
$ —
Other selling and marketing expenses 78.5
70.9
45.5
39.3
31.6
30.7
1.4
0.9
General, administrative and other expenses 71.0
64.0
29.1
29.4
17.4
12.7
24.5
21.9
Total operating expenses $ 226.4
$ 239.2
$ 141.0
$ 164.5
$ 59.5
$ 51.9
$ 25.9
$ 22.8

Selling and marketing expenses include advertising and media production associated with the promotion of our brands, other marketing materials such as catalogs, brochures, videos, product samples, direct customer mailings and point of purchase materials and sales force compensation. We also include in selling and marketing expense certain new product development costs, including market research and new product ~~testing in selling and marketing expenses.~~testing.

General, administrative and other expenses include salaries and related expenses, information technology, professional fees, depreciation and amortization of ~~buildings, furniture and fixtures, machinery, leasehold improvements and computer equipment,~~long-lived assets not used in the manufacturing process, expenses for administrative functions and research and development costs.


	Three Months Ended March 31,
	2022		2021		2022		2021		2022		2021		2022		2021
(in millions)	Consolidated				North America				International				Corporate
Operating expenses:
Advertising expenses	$	103.2	$	90.9	$	80.9	$	79.4	$	22.3	$	11.5	$	—	$	—
Other selling and marketing expenses	140.3		106.8		72.4		68.8		63.0		31.6		4.9		6.4
General, administrative and other expenses	97.6		79.5		43.7		42.3		25.2		12.4		28.7		24.8

Total operating expenses	$	341.1	$	277.2	$	197.0	$	190.5	$	110.5	$	55.5	$	33.6	$	31.2

Operating expenses ~~decreased $12.8~~increased $63.9 million, or ~~5.4%~~23.1%, and ~~improved 250~~increased 90 basis points as a percentage of net sales. The primary drivers of changes in operating expenses by segment are explained ~~below.~~below:

•North America operating expenses ~~decreased $23.5~~increased $6.5 million, or ~~14.3%~~3.4%, and ~~improved 70~~decreased 40 basis points as a percentage of net sales. The ~~decrease~~increase in operating expenses was primarily driven by ~~decreased participation in our wholesale cooperative~~ advertising ~~programs, offset by unfavorable operating expense leverage, which includes investments in marketing.~~

and other selling and marketing investments.

•International operating expenses increased ~~$7.6~~$55.0 million, or ~~14.6%~~99.1%, and ~~improved 250~~increased 130 basis points as a percentage of net sales. In the third quarter of 2017, we recognized $2.5 million of additional non-income tax obligations in one of our Latin American subsidiaries. We also recognized $1.9 million of additional bad debt expense associated with a European customer who initiated bankruptcy proceedings. The ~~remaining changes~~increase in operating expenses ~~were~~was primarily driven by ~~increased~~advertising and other selling and marketing investments, ~~in our advertising.~~

as well as the acquisition of Dreams.

•Corporate operating expenses increased ~~$3.1~~$2.4 million, or ~~13.6%. The increase is~~7.7%, primarily ~~due to professional fees incurred in 2017 as~~driven by ERP implementation costs.

Research and development expenses for the three months ended March 31, 2022 were $7.8 million compared to $6.5 million for the ~~same period in 2016.~~three months ended March 31, 2021, an increase of $1.3 million, or 20.0%.

Table of Contents

OPERATING INCOME


	Three Months Ended March 31,
	2022				2021
(in millions, except percentages)	Operating Income		Operating Margin		Operating Income		Operating Margin		Margin Change
North America	$	155.4	16.7	%	$	173.4	19.6	%	(2.9)	%
International	66.8		21.7	%	46.2		28.8	%	(7.1)	%
	222.2				219.6
Corporate expenses	(33.6)				(31.2)
Total operating income	$	188.6	15.2	%	$	188.4	18.0	%	(2.8)	%

Three Months Ended September 30,
2017 2016
(in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin Margin Change
North America $ 99.7
17.2 % $ 128.3
18.4 % (1.2 )%
International 20.8
14.4 % 25.6
19.1 % (4.7 )%
120.5
153.9

Corporate expenses (25.9 ) (22.8 )
Total operating income $ 94.6
13.1 % $ 131.1
15.7 % (2.6 )%

Operating income ~~decreased $36.5~~increased $0.2 million and operating margin declined ~~260~~280 basis points. The ~~decreases~~primary drivers of changes in operating income and operating margin by segment are discussed ~~below.~~below:

•North America operating income decreased ~~$28.6~~$18.0 million and operating margin declined 120 basis points. The decline in operating margin was primarily driven by the termination of our contract with Mattress Firm at the beginning of the second quarter, which resulted in gross margin decline and unfavorable operating expense leverage.

~~International~~ ~~operating income decreased $4.8 million and operating margin declined 470~~290 basis points. The decline in operating margin was primarily driven by the decline in gross margin of 340 basis points, partially offset by favorable operating expense leverage.

•International operating income increased $20.6 million and ~~increases~~operating margin declined 710 basis points. The decline in operating ~~expenses. Operating~~margin was primarily driven by the decline in gross margin of 390 basis points and unfavorable operating expense ~~increases include additional non-income tax obligations in one~~leverage of ~~our Latin American subsidiaries, additional bad debt expense associated with the bankruptcy of a European customer and increased investments in our advertising.~~

120 basis points.

•Corporate operating expenses increased ~~$3.1~~$2.4 million, ~~or 13.6%. The increase is~~which negatively impacted our consolidated operating margin by 20 basis points, primarily ~~due to professional fees incurred in 2017 as compared to the same period in 2016.~~

driven by ERP implementation costs.

INTEREST EXPENSE, NET


	Three Months Ended March 31,
(in millions, except percentages)	2022		2021		% Change
Interest expense, net	$	20.9	$	12.3	69.9	%

Three Months Ended September 30,
(in millions, except percentages) 2017 2016 % Change
Interest expense, net $ 32.0
$ 20.5
56.1 %

Interest expense, net, increased ~~$11.5~~$8.6 million, or ~~56.1%~~69.9%. ~~In the third quarter of 2017, we incurred approximately $9.2 million of~~The increase in interest expense, ~~related to deferred payment programs on non-income tax obligations and local market financing arrangements in one~~net, was primarily driven by increased average levels of ~~our Latin American subsidiaries. We are in the process of unwinding the deferred payment programs and financing arrangements, and we do not expect this type of interest expense to recur in the future.~~outstanding debt.

INCOME TAX PROVISION


	Three Months Ended March 31,
(in millions, except percentages)	2022			2021			% Change
Income tax provision	$	38.1		$	40.5		(5.9)	%
Effective tax rate	22.5		%	23.6		%

Three Months Ended September 30,
(in millions, except percentages) 2017 2016 % Change
Income tax provision $ 20.3
$ 33.7
(39.8 )%
Effective tax rate 33.0 % 30.6 %

~~Income~~Our 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 decreased ~~$13.4~~$2.4 million ~~or 39.8%.~~due to a decrease in income before income taxes. Our effective tax rate ~~increased 240 basis points as the result of the net impact of discrete items~~ for the three months ended September 30, 2017, which primarily related to the recognition of valuation allowances in one of our Latin American subsidiaries. There was no material net impact as the result of discrete items that impacted the effective tax rate in the period ending September 30, 2016.

~~NINE MONTHS ENDED SEPTEMBER 30, 2017 COMPARED TO THE~~

~~NINE MONTHS ENDED SEPTEMBER 30, 2016~~

~~The following table sets forth the various components of our Condensed Consolidated Statements of Income, and expresses each component as a percentage of net sales:~~

Nine Months Ended September 30,
(in millions, except per share amounts) 2017 2016
Net sales $ 2,106.2
100.0 % $ 2,357.8
100.0 %
Cost of sales 1,238.8
58.8
1,367.8
58.0
Gross profit 867.4
41.2
990.0
42.0
Selling and marketing expenses 461.4
21.9
498.1
21.1
General, administrative and other expenses 206.5
9.8
207.6
8.8
Customer termination charges, net 14.4
0.7
—
—
Equity income in earnings of unconsolidated affiliates (10.6 ) (0.5 ) (8.6 ) (0.4 )
Royalty income, net of royalty expense (15.0 ) (0.7 ) (15.1 ) (0.6 )
Operating income 210.7
10.0
308.0
13.1

Other expense, net:
Interest expense, net 76.2
3.6
65.0
2.8
Loss on extinguishment of debt —
—
47.2
2.0
Other income, net (8.4 ) (0.4 ) —
—
Total other expense, net 67.8
3.2
112.2
4.8

Income before income taxes 142.9
6.8
195.8
8.3
Income tax provision (48.0 ) (2.3 ) (60.2 ) (2.5 )
Net income before non-controlling interests 94.9
4.5
135.6
5.8
Less: Net loss attributable to non-controlling interests (8.1 ) (0.4 ) (3.1 ) (0.1 )
Net income attributable to Tempur Sealy International, Inc. $ 103.0
4.9 % $ 138.7
5.9 %

Earnings per common share:
Basic $ 1.91
$ 2.31

Diluted $ 1.89
$ 2.28

Weighted average common shares outstanding:
Basic 54.0
60.1

Diluted 54.6
60.8

~~NET SALES~~

Nine Months Ended September 30,
2017 2016 2017 2016 2017 2016
(in millions) Consolidated North America International
Net sales by channel
Wholesale channel $ 1,940.7
$ 2,242.4
$ 1,601.5
$ 1,910.4
$ 339.2
$ 332.0
Direct channel 165.5
115.4
86.8
36.3
78.7
79.1
Total net sales $ 2,106.2
$ 2,357.8
$ 1,688.3
$ 1,946.7
$ 417.9
$ 411.1

~~Net sales decreased $251.6 million, or 10.7%, and on a constant currency basis decreased 10.4%. The decrease in net sales was driven by:~~

~~North America~~ ~~net sales decreased $258.4 million, or 13.3%. Net sales to Mattress Firm were $95.7 million prior to the termination of our contract at the beginning of the second quarter of 2017~~March 31, 2022 as compared to ~~$512.9 million for~~ the ~~nine months ended September 30, 2016, which resulted in a net sales decrease of $417.2 million. Excluding Mattress Firm, North America net sales increased $158.8 million, or 11.1%, driven~~same prior year period decreased by growth across all of our brands. Net sales in the Wholesale channel decreased $308.9 million, or 16.2%, driven primarily by the termination of our contract with Mattress Firm. Excluding sales to Mattress Firm, wholesale net sales increased 7.7%. During the third quarter of 2017, hurricanes impacted operations in two of our largest markets, Texas and Florida. We estimate that the hurricanes impacted our net sales in the third quarter by approximately $10 to $15 million. Additionally, sales to a national department store retailer in the Wholesale channel significantly declined in 2017 as compared to 2016. Net sales in our Direct channel increased $50.5 million, or 139.1%, driven primarily by growth in e-commerce. Canada net sales increased 6.6% on a constant currency basis.

~~International~~ net sales increased $6.8 million, or 1.7%. On a constant currency basis, International net sales increased 3.8%, driven primarily by growth in Asia-Pacific and Latin America, which was offset by weakness in certain European markets. Net sales in the Wholesale channel increased 4.0% on a constant currency basis. Net sales in the Direct channel increased 3.2% on a constant currency basis.

~~GROSS PROFIT~~

Nine Months Ended September 30,
2017 2016
(in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin Margin Change
North America $ 651.8
38.6 % $ 771.9
39.7 % (1.1 )%
International 215.6
51.6 % 218.1
53.1 % (1.5 )%
Consolidated gross margin $ 867.4
41.2 % $ 990.0
42.0 % (0.8 )%

~~Gross margin declined 80 basis points. The principal factors impacting gross margin for each segment are discussed below.~~

~~North America~~ ~~gross margin declined~~ 110 basis points. The ~~decline was driven primarily by~~effective tax rate as compared to the ~~termination~~U.S. federal statutory rate for the three months ended March 31, 2022 included the favorable impact of the ~~Mattress Firm relationship, which resulted~~deductibility of stock compensation in ~~unfavorable brand mix of 110 basis points~~the U.S. and ~~fixed cost deleverage of 110 basis points. In the first quarter of 2017, we also recorded charges associated with the Mattress Firm termination for an~~included a net unfavorable impact of ~~70 basis points. These charges included a $5.4 million write-off of customer-unique inventory and $6.1 million of increased product obligations.~~other discrete items. The decline in gross margin was also due to unfavorable commodity costs of 90 basis points, offset by favorable channel mix of 140 basis points and operational productivity of 90 basis points. We recorded $1.0 million of hurricane-related manufacturing and logistics costs in the third quarter of 2017 due to the impact on certain manufacturing facilities and distribution centers.

~~International~~ ~~gross margin declined 150 basis points. The decline was driven primarily by product launch costs and mix.~~

~~OPERATING EXPENSES~~

Nine Months Ended September 30,
2017 2016 2017 2016 2017 2016 2017 2016
(in millions) Consolidated North America International Corporate
Operating expenses:
Advertising expenses $ 220.9
$ 275.1
$ 193.4
$ 247.9
$ 27.5
$ 27.2
$ —
$ —
Other selling and marketing expenses 240.5
223.0
144.6
127.8
91.7
91.6
4.2
3.6
General, administrative and other expenses 206.5
207.6
92.5
93.7
41.7
40.3
72.3
73.6
Customer termination charges, net 14.4
—
20.9
—
0.8
—
(7.3 ) —
Total operating expenses $ 682.3
$ 705.7
$ 451.4
$ 469.4
�� $ 161.7
$ 159.1
$ 69.2
$ 77.2

Selling and marketing expenses include advertising and media production associated with the promotion of our brands, other marketing materials such as catalogs, brochures, videos, product samples, direct customer mailings and point of purchase materials, and sales force compensation. We also include certain new product development costs, including market research and new product testing in selling and marketing expenses.

General, administrative and other expenses include salaries and related expenses, information technology, professional fees, depreciation of buildings, furniture and fixtures, machinery, leasehold improvements and computer equipment, expenses for administrative functions and research and development costs.

~~Operating expenses decreased $23.4 million, or 3.3%, and improved 250 basis points as a percentage of net sales. The primary drivers of changes in operating expenses by segment are explained below.~~

~~North America~~ operating expenses decreased $18.0 million and improved 260 basis points as a percentage of net sales. In the first quarter of 2017, we recorded $20.9 million of charges related to the Mattress Firm termination, which included the $17.2 million write-off of the March 31, 2017 value of customer incentives and marketing assets and $3.7 million of employee-related and professional fees. Additionally, we had unfavorable operating expense leverage, including investments in marketing. These were offset by decreased participation in our wholesale cooperative advertising programs.

~~International~~ operating expenses increased $2.6 million and were flat as a percentage of net sales. In the third quarter of 2017, we recognized $2.5 million of non-income tax obligations in one of our Latin American subsidiaries. We also recognized $1.9 million of additional bad debt expense associated with a customer in Europe who went bankrupt. In the first quarter of 2017, we recorded $0.8 million of charges for certain employee-related expenses. These increases were offset by improved operating expense leverage.

~~Corporate~~ operating expenses decreased $8.0 million, or 10.4%. The decrease in operating expenses was primarily driven by a $9.3 million benefit recorded in the first quarter of 2017 for the change in estimate associated with performance-based stock compensation that is no longer probable of payout following the Mattress Firm termination, offset by $0.9 million of accelerated stock-based compensation and $1.1 million of other employee-related expenses and professional fees. Additionally, we incurred $3.0 million of executive management transition expenses in the first quarter of 2016.

Research and development expenses for the nine months ended September 30, 2017 were $16.9 million compared to $19.7 million for the nine months ended September 30, 2016, a decrease of $2.8 million, or 14.2%.

~~OPERATING INCOME~~

Nine Months Ended September 30,
2017 2016
(in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin Margin Change
North America $ 206.9
12.3 % $ 308.9
15.9 % (3.6 )%
International 73.0
17.5 % 76.1
18.5 % (1.0 )%
279.9
385.0

Corporate expenses (69.2 ) (77.0 )
Total operating income $ 210.7
10.0 % $ 308.0
13.1 % (3.1 )%

~~Operating income decreased $97.3 million and operating margin declined 310 basis points. The decreases in operating income and operating margin by segment are discussed below.~~

~~North America~~ operating income decreased $102.0 million and operating margin declined 360 basis points. The decline in operating margin was primarily driven by the termination of our contract with Mattress Firm at the beginning of the second quarter, which resulted in gross margin decline and unfavorable operating expense leverage. The decline in operating margin was also driven by charges of $32.4 million recorded in the first quarter of 2017 associated with the Mattress Firm termination. Cost of sales included $11.5 million of charges related to the write-off of customer-unique inventory and increased product obligations. Operating expenses included $20.9 million of charges related to the write-off of customer incentives and marketing assets, as well as employee-related expenses.

~~International~~ ~~operating income decreased $3.1 million and operating margin declined 100 basis points, which is primarily due to the decline in gross margin.~~

~~Corporate~~ operating expenses decreased $7.8 million, which improved our consolidated operating margin by 40 basis points. In the first quarter of 2017, we recorded $8.4 million of net stock-based compensation benefit.

~~INTEREST EXPENSE, NET~~

Nine Months Ended September 30,
(in millions, except percentages) 2017 2016 % Change
Interest expense, net $ 76.2
$ 65.0
17.2 %

Interest expense, net, increased $11.2 million, or 17.2%. During the third quarter of 2017, we incurred approximately $9.2 million of interest expense related to deferred payment programs on non-income tax obligations and local market financing arrangements in one of our Latin American subsidiaries. We are in the process of unwinding the deferred payment programs and financing arrangements, and we do not expect this type of interest expense to recur in the future.Additionally, during the second quarter of 2016, we incurred an additional $2.1 million of interest related to overlapping periods between the issuance of the 2026 Senior Notes on May 24, 2016 and redemption of the 2020 Senior Notes on June 23, 2016.

~~LOSS ON EXTINGUISHMENT OF DEBT~~

In the second quarter of 2016, we issued our 2026 Senior Notes and completed our 2016 Credit Agreement. The net proceeds of the 2026 Senior Notes offering were used in part to redeem the Company's 2020 Senior Notes. The net proceeds from the 2016 Credit Agreement were used to repay the 2012 Credit Agreement in full and to pay certain transaction fees and expenses incurred in connection with the negotiation and execution of 2016 Credit Agreement. In association with these transactions, we recorded a $47.2 million loss on extinguishment of debt. The $47.2 million loss includes a $23.6 million premium on the prepayment of our 2020 Senior Notes, $11.0 million and $4.8 million of deferred financing cost write-offs for the 2012 Credit Agreement and 2020 Senior Notes, respectively, and $1.9 million and $5.9 million of lender expenses for the 2016 Credit Agreement and 2026 Senior Notes, respectively.

~~OTHER INCOME, NET~~

Other income primarily includes $9.3 million of payments received pursuant to the transition agreements with Mattress Firm, which were entered into during the first quarter of 2017. During the fourth quarter of 2016, we spent approximately $13 million to support Mattress Firm with store transitions and product launches. The $9.3 million of payments received from Mattress Firm during the first quarter of 2017 were intended to partially reimburse that prior investment.

~~INCOME TAX PROVISION~~

Nine Months Ended September 30,
(in millions, except percentages) 2017 2016 % Change
Income tax provision $ 48.0
$ 60.2
(20.3 )%
Effective tax rate 33.6 % 30.7 %

~~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 decreased $12.2 million, or 20.3%. Our~~ effective tax rate ~~increased 290 basis points~~ as compared to the ~~result~~U.S. federal statutory tax rate for the three months ended March 31, 2021 included the favorable impact of the deductibility of stock compensation in the U.S. and included a net unfavorable impact of discrete ~~items for the nine months ended September 30, 2017, which primarily related to the recognition~~items.

Table of valuation allowances in one of our Latin American subsidiaries, increases in uncertain tax positions, and the repatriation of cash from our Canadian subsidiary. There was no material net impact as the result of discrete items that impacted the effective tax rate in the period ending September 30, 2016.Contents

Liquidity and Capital Resources

Liquidity

Our principal sources of funds are cash flows from operations, supplemented with borrowings in the capital markets and made pursuant to our credit facilities and cash and cash equivalents on hand. Principal uses of funds consist of payments of principal and interest on our debt facilities, share repurchases, acquisitions, payments of dividends to our shareholders, capital expenditures and working capital needs.

As of ~~September 30, 2017,~~March 31, 2022, we had net working capital of ~~$46.7~~$117.7 million, including cash and cash equivalents of ~~$41.8~~$116.3 million, as compared to a working capital of ~~$126.0~~$222.2 million, including ~~$65.7 million in~~ cash and cash equivalents of $300.7 million, as of December 31, ~~2016.~~2021.

~~The decrease in working capital was primarily driven by decreases in~~At March 31, 2022, total cash and cash equivalents ~~as well as increases~~were $116.3 million, of which $29.9 million was held in ~~accounts payable, income taxes payable~~the U.S. and ~~accrued expenses and other current liabilities. These changes were offset~~$86.4 million was held by ~~an increase in accounts receivable.~~subsidiaries outside of the U.S. The ~~decrease in~~amount of cash and cash equivalents ~~was primarily due~~held by subsidiaries outside of the U.S. and not readily convertible into the U.S. Dollar or other major foreign currencies is not material to ~~timing of principal and interest payments on~~ our ~~debt facilities, our share repurchase program and operating capital needs. Accounts payable changes are primarily driven~~overall liquidity or financial position.

Cash Provided by the timing of payments to vendors. Income taxes payable changes are primarily driven by the timing of estimated income tax payments. Accrued expenses and other current liabilities increases are primarily driven by the timing of interest payments on our senior notes, offset by the funding of employee compensation programs. Accounts receivable changes are primarily driven by net sales, in addition to timing of customer collections.(Used in) Continuing Operations

The table below presents net cash provided by (used in) operating, investing and financing activities from continuing operations for the periods indicated below:


	Three Months Ended March 31,
(in millions)	2022		2021
Net cash provided by (used in) continuing operations:
Operating activities	$	85.6	$	86.3
Investing activities	(59.3)		(24.4)
Financing activities	(204.8)		168.9

Nine Months Ended September 30,
(in millions) 2017 2016
Net cash provided by (used in):
Operating activities $ 202.5
$ 109.8
Investing activities (38.5 ) (41.9 )
Financing activities (180.6 ) (124.2 )

Cash provided by operating activities ~~increased $92.7~~from continuing operations decreased $0.7 million in the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 as compared to the same period in ~~2016.~~2021. The ~~increase~~decrease in cash provided by operating activities was ~~primarily~~driven by operational performance in the result of an increase in cash provided by operating assets and liabilities. In the third quarter of 2016, we paid a $92.0 million deposit with the Danish Tax Authority ("SKAT"). The remaining increase in cash provided by operating assets and liabilities was primarily due to changes in accounts payable and inventories. Additionally, we recorded a loss on extinguishment of debt of $47.2 million associated with financing activities in 2016. Cash provided by operating activities includes $9.3 million for payments received pursuant to the transition agreements with Mattress Firm.period.

Cash used in investing activities ~~decreased $3.4~~from continuing operations increased $34.9 million in the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 as compared to the same period in ~~2016. In 2017, we received $4.9 million~~2021. The increase in ~~proceeds~~cash used in investing activities was due to increased capital expenditures related to ~~the sale of assets.~~our manufacturing capacity expansion projects.

Cash used in financing activities from continuing operations increased ~~$56.4~~$373.7 million in the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 as compared to the same period in ~~2016. In 2017,~~2021. For the three months ended March 31, 2022, we ~~made~~had net ~~repayments~~borrowings of ~~$138.8~~$312.1 million on our credit facilities as compared to net borrowings of ~~$212.2~~$504.8 million, ~~in 2016. This decrease was primarily~~which included proceeds of $800.0 million from the issuance of our 2029 Senior Notes partially offset by ~~a decrease~~net repayments under our credit facilities and 2023 Senior Notes in ~~share repurchases~~2021. During the three months ended March 31, 2022 and 2021, we repurchased $494.8 million and $313.1 million, respectively, of ~~$274.8 million~~our common stock.

Cash Used in ~~2017 as compared to 2016. Additionally, we incurred other costs associated with the~~Discontinued Operations

Net cash used in operating, investing and financing activities ~~in 2016.~~from discontinued operations for the periods ended March 31, 2022 and 2021 was not material.

Capital Expenditures

Capital expenditures totaled ~~$43.4~~$60.3 million and ~~$41.9~~$23.5 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016,~~2021, respectively. We currently expect our ~~2017~~2022 capital expenditures to be approximately ~~$60~~$250 million to ~~$70~~$280 million, which ~~relate to continued strategic~~includes manufacturing capacity expansion and investments ~~that we believe will support~~in our ~~future plans.~~other growth initiatives.

~~Debt Service~~Indebtedness

On April 12, 2017, we entered into a securitization transaction with respect to certain accounts receivable. In connection with this transaction, we entered into a credit agreement that provides for revolving loans to be made from time to time in a maximum amount that varies over the course of the year based on the seasonality of our accounts receivable and that is subject to an overall limit of $120.0 million. Revolving loans extended under this facility bear interest at a floating rate equal to a one month LIBOR index plus 80 basis points.

Our obligations under the securitization facility are secured by the accounts receivable and certain related rights and the facility agreements contain customary events of default. We continue to own the accounts receivable, which continue to be reflected as assets on our Condensed Consolidated Balance Sheets. Borrowings under this facility are classified as long-term debt within the Condensed Consolidated Balance Sheets. This credit agreement matures on April 12, 2019. As of September 30, 2017, the amount outstanding under this facility was $46.5 million.

Our total debt ~~decreased~~increased to ~~$1,762.9~~$2,674.7 million as of ~~September 30, 2017~~March 31, 2022 from ~~$1,901.0~~$2,353.2 million as of December 31, ~~2016. After giving effect to letters of credit outstanding of $21.9 million under the 2016 Credit Agreement, total~~2021. Total availability under ~~the~~our revolving senior secured credit facility was ~~$478.1~~$561.0 million as of ~~September 30, 2017.~~March 31, 2022, which matures in 2024. Refer to Note ~~4, "Debt~~,"5, "Debt" in ~~our~~the "Notes to Condensed Consolidated Financial Statements, ~~included in ITEM 1~~" under Part I, ITEM 1 for further discussion of our ~~debt and applicable interest rates.~~debt.

As of ~~September 30, 2017,~~March 31, 2022, our ratio of consolidated ~~funded debt~~indebtedness less ~~qualified~~netted cash to ~~Adjusted~~adjusted EBITDA, ~~as calculated~~which is a non-GAAP financial measure, in accordance with our ~~2016~~2019 Credit Agreement was ~~3.70 times, which was~~2.25 times. This ratio is within the terms of the financial covenants for the maximum consolidated total net leverage ratio ~~covenant~~as set forth in the ~~2016~~2019 Credit Agreement, which limits this ratio to 5.00 times. As of ~~September 30, 2017,~~March 31, 2022, we were in compliance with all of the financial covenants in our debt ~~agreements.~~agreements, and we do not anticipate material issues under any debt agreements based on current facts and circumstances.

Our ~~business continues~~debt agreements contain certain covenants that limit restricted payments, including share repurchases and dividends. The 2019 Credit Agreement, 2029 Senior Notes and 2031 Senior Notes contain similar limitations which, subject to ~~generate significant cash flows from operations. Our target~~other conditions, allow unlimited restricted payments at times when the ratio of consolidated ~~funded debt~~indebtedness less ~~qualified~~netted cash to ~~Adjusted~~adjusted EBITDA, which is a non-GAAP financial measure, remains below 3.50 times. In addition, these agreements permit limited restricted payments under certain conditions when the ratio of consolidated indebtedness less netted cash to adjusted EBITDA is ~~3.5 times,~~above 3.50 times. The limit on restricted payments under the 2019 Credit Agreement, 2029 Senior Notes and ~~we expect~~2031 Senior Notes is in part determined by a basket that this ratio could typically range from 3.0 times to 4.0 times. We expect to continue to use excess cash flows from operations for debt repayment. Subject to market conditions, we may also resume our share repurchase program sometime in 2018.grows at 50% of adjusted net income each quarter, reduced by restricted payments that are not otherwise permitted.

For additional information, refer to "Non-GAAP Financial Information" below for the calculation of the ratio of consolidated ~~funded debt~~indebtedness less ~~qualified~~netted cash to ~~Adjusted~~adjusted EBITDA calculated in accordance with ~~our 2016~~the 2019 Credit Agreement. Both consolidated ~~funded debt~~indebtedness and ~~Adjusted~~adjusted EBITDA as used in discussion of ~~our 2016~~the 2019 Credit Agreement are ~~terms that are not recognized under GAAP~~non-GAAP financial measures and do not purport to be alternatives to net income as a measure of operating performance or total debt.

Share Repurchase Program

Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we were authorized to repurchase shares of our common stock. During the three months ended March 31, 2022, we repurchased 12.2 million shares under our share repurchase program for $449.2 million. As of March 31, 2022, we had $951.5 million remaining under our share repurchase authorization.

Share repurchases under this program may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as management deems appropriate. These repurchases may be funded by operating cash flows and/or borrowings under our debt arrangements. The timing and actual number of shares repurchased will depend on a variety of factors including price, financing and regulatory requirements and other market conditions. The program is subject to certain limitations under our debt agreements. The program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice. Repurchases may be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when we might otherwise be precluded from doing so under federal securities laws.

We will manage our share repurchase program based on current and expected cash flows, share price and alternative investment opportunities. 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," in the 2021 Annual Report. Please also refer to "Issuer Purchases of Equity Securities" in ITEM 2(c) of Part II of this Report.

Future Liquidity Sources and Uses

As of March 31, 2022, we had $677.3 million of liquidity, including $116.3 million of cash on hand and $561.0 million available under our revolving senior secured credit facility. In addition, we expect to generate cash flow from operations in the full year 2022. 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 and debt service obligations.

Our capital allocation strategy follows a balanced approach focused on supporting the business, returning shareholder value through share repurchases and quarterly dividends as well as opportunistic and strategic acquisition opportunities that enhance our global competitiveness. Additionally, we have taken capital structure actions to optimize our balance sheet, through extending the maturities of our long-term debt and lowering our annualized interest expense.

The Board of Directors declared a dividend of $0.10 per share for the second quarter of 2022. The dividend is payable on May 26, 2022 to shareholders of record as of May 12, 2022.

As of March 31, 2022, we had $2,674.7 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,559.7 million. Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 2.25 times for the trailing twelve months ended March 31, 2022. Our target range for our ratio of consolidated indebtedness less netted cash, which is a non-GAAP financial measure, is 2.0 to 3.0 times.

Our debt service obligations could, under certain circumstances, have material consequences to our stockholders. Similarly, our cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that we may complete may also impact our cash requirements and debt service obligations. For information regarding the impact of COVID-19 on our business, including our liquidity and capital resources, please refer to "Risk Factors" contained in ITEM 1A of Part I of the 2021 Annual Report.

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~~adjusted EBITDA, consolidated ~~funded debt~~indebtedness and consolidated ~~funded debt~~indebtedness less ~~qualified~~netted cash, ~~and free cash flow,~~ which are not recognized terms under GAAP and do not purport to be alternatives to net income, ~~and~~ earnings per share, ~~as a measure of operating performance~~ or an alternative to total ~~debt.~~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 ~~income.~~margin. The adjustments ~~management makes~~we make to derive the non-GAAP financial measures include adjustments to exclude items that may cause short-term fluctuations in the nearest GAAP financial measure, but which ~~management does~~we do not consider to be the fundamental attributes or primary drivers of our ~~business, including the exclusion of charges associated with the Mattress Firm termination in the first quarter of 2017 and other costs.~~ business.

We believe that exclusion of these items assists in providing a more complete understanding of our underlying results from continuing operations and trends, and ~~management uses~~we use these measures along with the corresponding GAAP financial measures to manage our business, to evaluate our consolidated and business segment performance compared to prior periods and the marketplace, to establish operational goals and to provide continuity to investors for comparability purposes. Limitations associated with the use of these non-GAAP measures include that these measures do not present all of the amounts associated with our results as determined in accordance with ~~GAAP and these~~GAAP. These non-GAAP financial measures should be considered supplemental in nature and should not be construed as more significant than comparable financial measures defined by GAAP. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies. For more information about these non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure, please refer to the reconciliations on the following pages.

~~Third Quarter 2017 Key Highlights~~

(in millions, except percentages and per common share amounts) Three Months Ended % Change
% Change Constant Currency ⁽¹⁾
September 30, 2017 September 30, 2016
Net sales $ 724.8
$ 832.4
(12.9 )% (13.3 )%
Net income 44.6
77.8
(42.7 )% (43.3 )%
Adjusted net income ⁽¹⁾
54.9
77.8
(29.4 )% (30.1 )%
EPS 0.81
1.32
(38.6 )% (39.4 )%
Adjusted EPS ⁽¹⁾
1.00
1.32
(24.2 )% (25.0 )%
EBITDA ⁽¹⁾
123.8
155.0
(20.1 )% (20.6 )%
Adjusted EBITDA ⁽¹⁾
129.3
155.0
(16.6 )% (17.1 )%



~~(1)~~	~~This is a non-GAAP financial measure. Please refer to the reconciliations in the following tables.~~

Adjusted Net Income and Adjusted EPS

A reconciliation of ~~GAAP~~reported net income to adjusted net income and athe calculation of adjusted EPS is provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes at the end of the following table.

~~The following table sets forth the reconciliation of our GAAP net income to adjusted net income and a calculation of adjusted EPS for the three months ended September 30, 2017 and 2016:~~

Three Months Ended
(in millions, except per share amounts) September 30, 2017 September 30, 2016
GAAP net income $ 44.6
$ 77.8
Latin American subsidiary charges ⁽¹⁾
11.7
—
Other costs ⁽²⁾
3.0
—
Tax adjustments ⁽³⁾
(4.4 ) —
Adjusted net income $ 54.9
$ 77.8

Adjusted earnings per common share, diluted $ 1.00
$ 1.32

Diluted shares outstanding 54.9
58.8



~~(1)~~	In the third quarter of 2017, we recorded $11.7 million of charges related to non-income taxes and financing arrangements in one of our Latin American subsidiaries. Interest expense includes $9.2 million of charges, comprised of $4.9 million of interest expense on the non-income tax obligations and $4.3 million of interest expense on the financing arrangements. Operating expenses include $2.5 million of non-income tax charges.
~~(2)~~	In the third quarter of 2017, we incurred $3.0 million in other costs. Cost of sales include $1.0 million of hurricane-related manufacturing and logistics costs due to the impact on certain manufacturing facilities and distribution centers. Operating expenses include $2.0 million of bad debt expense associated with a customer's bankruptcy and donations for hurricane relief efforts.
~~(3)~~	~~Adjusted income tax provision represents adjustments associated with the aforementioned items and other discrete income tax events.~~

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

A reconciliation of GAAP gross profit and gross margin to adjusted gross profit and gross margin, respectively, and GAAP operating income (expense) and operating margin to adjusted operating income (expense) and operating margin, respectively, is provided below. We believe that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes ~~at the end~~below.

Table of ~~the following table.~~ Contents

The following table sets forth the reconciliation of our reported ~~GAAP gross profit~~net income to adjusted net income and ~~operating income (expense) to~~ the calculation of adjusted EPS for the three months ended March 31, 2022 and 2021:


	Three Months Ended
(in millions, except per share amounts)	March 31, 2022		March 31, 2021
Net income	$	130.7	$	130.5
Loss from discontinued operations, net of tax (1)	—		0.2
Loss on extinguishment of debt (2)	—		5.0
Tax adjustments (3)	—		(1.1)
Adjusted net income	$	130.7	$	134.6

Adjusted earnings per share, diluted	$	0.69	$	0.64

Diluted shares outstanding	188.5		210.1


(1)			Certain subsidiaries in the International business segment are accounted for as discontinued operations and have been designated as unrestricted subsidiaries in the 2019 Credit Agreement. Therefore, these subsidiaries are excluded from our adjusted financial measures for covenant compliance purposes.
(2)			In the first quarter of 2021, we recognized $5.0 million of loss on extinguishment of debt associated with the redemption of the remaining amount outstanding of the 2023 senior notes.
(3)			Adjusted income tax provision represents the tax effects associated with the aforementioned items.

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

The following table sets forth our reported gross profit and reported operating income (expense) for the three months ended ~~September 30, 2017:~~March 31, 2022. We had no adjustments to gross profit or operating income (expense) for the three months ended March 31, 2022.


	Three Months Ended September 30, 2017																Three Months Ended March 31, 2022
(in millions, except percentages)	Consolidated		Margin		North America ⁽¹⁾		Margin		International (2)		Margin		Corporate			(in millions, except percentages)	Consolidated		Margin		North America		Margin		International		Margin		Corporate
Net sales	$	724.8			$	580.6			$	144.2			$	—		Net sales	$	1,239.5			$	931.4			$	308.1			$	—

Gross profit	$	312.2	43.1	%	$	238.4	41.1	%	$	73.8	51.2	%	$	—		Gross profit	$	522.8	42.2	%	$	352.4	37.8	%	$	170.4	55.3	%	$	—
Adjustments	1.0				1.0				—				—
Adjusted gross profit	$	313.2	43.2	%	$	239.4	41.2	%	$	73.8	51.2	%	$	—


Operating income (expense)	$	94.6	13.1	%	$	99.7	17.2	%	$	20.8	14.4	%	$	(25.9	)	Operating income (expense)	$	188.6	15.2	%	$	155.4	16.7	%	$	66.8	21.7	%	$	(33.6)
Adjustments	5.5				1.1				4.4				—
Adjusted operating income (expense)	$	100.1	13.8	%	$	100.8	17.4	%	$	25.2	17.5	%	$	(25.9	)



~~(1)~~	~~Adjustments for the North America business segment represent $1.1 million of hurricane-related costs, which were recorded primarily in cost of sales.~~
~~(2)~~	Adjustments for the International business segment represent $2.5 million of non-income tax charges in one of our Latin American subsidiaries and $1.9 million of bad debt expense associated with a customer's bankruptcy.

The following table sets forth our reported ~~GAAP~~ gross profit and reported operating income (expense) for the three months ended ~~September 30, 2016.~~March 31, 2021. We had no adjustments to ~~GAAP~~ gross profit ~~and~~or operating income (expense) for the three months ended ~~September 30, 2016:~~March 31, 2021.


	Three Months Ended September 30, 2016																Three Months Ended March 31, 2021
(in millions, except percentages)	Consolidated		Margin		North America		Margin		International		Margin		Corporate			(in millions, except percentages)	Consolidated		Margin		North America		Margin		International		Margin		Corporate
Net sales	$	832.4			$	698.5			$	133.9			$	—		Net sales	$	1,043.8			$	883.3			$	160.5			$	—

Gross profit	$	362.1	43.5	%	$	290.1	41.5	%	$	72.0	53.8	%	$	—		Gross profit	$	458.9	44.0	%	$	363.9	41.2	%	$	95.0	59.2	%	$	—


Operating income (expense)	$	131.1	15.7	%	$	128.3	18.4	%	$	25.6	19.1	%	$	(22.8	)	Operating income (expense)	$	188.4	18.0	%	$	173.4	19.6	%	$	46.2	28.8	%	$	(31.2)

EBITDA, Adjusted EBITDA and Consolidated ~~Funded Debt Less Qualified~~Indebtedness less Netted Cash ~~and Free Cash Flow~~

Table of Contents

The following reconciliations are provided below:

~~GAAP net~~•Net income to EBITDA and ~~Adjusted~~adjusted EBITDA

~~Total debt to consolidated funded debt less qualified cash~~

•Ratio of consolidated ~~funded debt~~indebtedness less ~~qualified~~netted cash to ~~Adjusted~~adjusted EBITDA

~~Net~~•Total debt, net to consolidated indebtedness less netted cash ~~provided by operating activities to free cash flow~~

We believe that presenting these non-GAAP measures provides investors with useful information with respect to our operating performance, cash flow generation and comparisons from period to period, as well as general information about our ~~progress in reducing~~leverage.

The 2019 Credit Agreement provides the definition of adjusted EBITDA. Accordingly, we present adjusted EBITDA to provide information regarding our ~~leverage.~~compliance with requirements under the 2019 Credit Agreement.

The following table sets forth the reconciliation of our reported ~~GAAP~~ net income to the calculations of EBITDA and ~~Adjusted~~adjusted EBITDA for the three months ended ~~September 30, 2017~~March 31, 2022 and ~~2016:~~2021:


						Three Months Ended
(in millions)					(in millions)	March 31, 2022		March 31, 2021
Net income					Net income	$	130.7	$	130.5
Interest expense, net					Interest expense, net	20.9		12.3
Loss on extinguishment of debt (1)					Loss on extinguishment of debt (1)	—		5.0
Income taxes					Income taxes	38.1		40.5
Depreciation and amortization					Depreciation and amortization	44.8		41.8

EBITDA					EBITDA	$	234.5	$	230.1
Adjustments:					Adjustments:
Loss from discontinued operations, net of tax (2)					Loss from discontinued operations, net of tax (2)	—		0.2
Adjusted EBITDA					Adjusted EBITDA	$	234.5	$	230.3

	Three Months Ended
(in millions)	September 30, 2017		September 30, 2016
GAAP net income	$	44.6	$	77.8
Interest expense, net	32.0		20.5
Income taxes	20.3		33.7
Depreciation and amortization	26.9		23.0
EBITDA	$	123.8	$	155.0
Adjustments:
Latin American subsidiary charges ⁽¹⁾	2.5		—
Other costs ⁽²⁾	3.0		—
Adjusted EBITDA	$	129.3	$	155.0



(1)			In the ~~third~~first quarter of ~~2017,~~2021, we ~~recorded $11.7~~recognized $5.0 million of ~~charges related to non-income taxes and financing arrangements in one~~loss on extinguishment of ~~our Latin American subsidiaries. Interest expense includes $9.2 million~~debt associated with the redemption of ~~charges, comprised of $4.9 million of interest expense~~the remaining amount outstanding on the ~~non-income tax obligations and $4.3 million of interest expense on the financing arrangements. Operating expenses include $2.5 million of non-income tax charges.~~2023 senior notes.
(2)			InCertain subsidiaries in the ~~third quarter of 2017,~~International business segment are accounted for as discontinued operations and have been designated as unrestricted subsidiaries in the we incurred $3.0 million in other costs. Cost of sales include $1.0 million of hurricane-related manufacturing and logistics costs due to the impact on certain manufacturing facilities and distribution centers. Operating expenses include $2.0 million of bad debt expense associated with a customer's bankruptcy and donations2019 Credit Agreement. Therefore, these subsidiaries are excluded from our adjusted financial measures for ~~hurricane relief efforts.~~covenant compliance purposes.

The following table sets forth the reconciliation of our net income to the calculations of EBITDA and ~~Adjusted~~adjusted EBITDA for the trailing twelve months ended ~~September 30, 2017:~~

Trailing Twelve Months Ended
(in millions) September 30, 2017
GAAP net income $ 166.4
Interest expense, net 96.4
Income taxes 74.6
Depreciation and amortization 89.1
EBITDA $ 426.5
Adjustments:
Customer termination charges ⁽¹⁾
34.3
Restructuring costs ⁽²⁾
7.8
Latin American subsidiary charges ⁽³⁾
2.5
Other costs ⁽⁴⁾
3.0
Adjusted EBITDA $ 474.1

Consolidated funded debt less qualified cash $ 1,753.4

Ratio of consolidated funded debt less qualified cash to Adjusted EBITDA 3.70 times



~~(1)~~	Adjusted EBITDA excludes $34.3 million of charges related to the termination of the relationship with Mattress Firm. This amount represents the $25.9 million of net charges and adds the net amortization impact of $8.4 million of stock-based compensation benefit incurred in the first quarter of 2017.	Trailing Twelve Months Ended
~~(2)~~(in millions)	~~Restructuring costs represents costs associated with headcount reduction and store closures.~~		March 31, 2022
Net income			$	624.7
Interest expense, net			69.7
Overlapping interest expense (1)			5.2
Loss on extinguishment of debt (2)			18.0
Income tax provision			195.9
Depreciation and amortization			179.6

EBITDA			$	1,093.1
Adjustments:
Loss from discontinued operations, net of tax (3)			0.5




Earnings from Dreams prior to acquisition (4)			38.7
Acquisition-related costs (5)			6.2






Adjusted EBITDA			$	1,138.5

Consolidated indebtedness less netted cash			$	2,559.7

Ratio of consolidated indebtedness less netted cash to adjusted EBITDA			2.25 times


(1)			In the ~~third quarter of 2017,~~trailing twelve months ended March 31, 2022, we ~~recorded $11.7~~incurred $5.2 million of ~~charges related to non-income taxes and financing arrangements in one of our Latin American subsidiaries. Interest expense includes $9.2 million of charges, comprised of $4.9 million of~~overlapping interest expense onduring the ~~non-income tax obligations~~period between the issuance of the 2029 Senior Notes and ~~$4.3 million~~the redemption of ~~interest expense on~~ the ~~financing arrangements. Operating expenses include $2.5 million of non-income tax charges.~~2026 Senior Notes.
~~(4)~~(2)			In the ~~third quarter of 2017,~~trailing twelve months ended March 31, 2022, we ~~incurred $3.0 million in other costs. Cost of sales include $1.0~~recognized $18.0 million of ~~hurricane-related manufacturing~~loss on extinguishment of debt associated with the redemption of the 2026 and ~~logistics costs due to~~2023 Senior Notes.
(3)			Certain subsidiaries in the ~~impact~~International business segment are accounted for as discontinued operations and have been designated as unrestricted subsidiaries in the 2019 Credit Agreement. Therefore, these subsidiaries are excluded from our adjusted financial measures for covenant compliance purposes.
(4)			We completed the acquisition of Dreams on ~~certain manufacturing facilities~~August 2, 2021 and ~~distribution centers. Operating expenses include $2.0~~designated this subsidiary as restricted under the 2019 Credit Agreement. For covenant compliance purposes, we included $38.7 million of ~~bad debt expense~~EBITDA from this subsidiary for the four months prior to acquisition in our calculation of adjusted EBITDA for the trailing twelve months ended March 31, 2022.
(5)			In the trailing twelve months ended March 31, 2022, we recognized $6.2 million of acquisition-related costs, primarily related to legal and professional fees and stamp taxes associated with ~~a customer's bankruptcy and donations for hurricane relief efforts.~~the acquisition of Dreams.

Under ~~our 2016~~the 2019 Credit Agreement, ~~Adjusted~~the definition of adjusted EBITDA contains certain restrictions that limit adjustments to ~~GAAP~~ net income when calculating ~~Adjusted~~adjusted EBITDA. For the trailing twelve months ended ~~September 30, 2017 and 2016,~~March 31, 2022, our adjustments to ~~GAAP~~ net income when calculating ~~Adjusted~~adjusted EBITDA did not exceed the allowable amount under the ~~2016~~2019 Credit Agreement.

The ratio of ~~Adjusted~~consolidated indebtedness less netted cash to adjusted EBITDA ~~under our 2016 Credit Agreement to consolidated funded debt less qualified cash~~ is ~~3.70~~2.25 times for the trailing twelve months ended ~~September 30, 2017. Our 2016~~March 31, 2022. The 2019 Credit Agreement requires us to maintain a ratio of consolidated ~~funded debt~~indebtedness less ~~qualified~~netted cash to ~~Adjusted~~adjusted EBITDA of less than 5.00:1.00 times.

The following table sets forth the reconciliation of our reported total debt to the calculation of consolidated ~~funded debt~~indebtedness less ~~qualified~~netted cash as of ~~September 30, 2017.~~March 31, 2022. "Consolidated ~~funded debt"~~Indebtedness" and ~~"qualified cash"~~"Netted Cash" are terms used in ~~our 2016~~the 2019 Credit Agreement for purposes of certain financial covenants.

(in millions) September 30, 2017
Total debt, net $ 1,753.0
Plus: Deferred financing costs ⁽¹⁾
9.9
Total debt 1,762.9
Plus: Letters of credit outstanding 22.4
Consolidated funded debt $ 1,785.3
Less:
Domestic qualified cash⁽²⁾
17.2
Foreign qualified cash ⁽²⁾
14.7
Consolidated funded debt less qualified cash $ 1,753.4



(in millions)	March 31, 2022
Total debt, net	$	2,651.3
Plus: Deferred financing costs (1)	23.4
Consolidated indebtedness	2,674.7
Less: Netted cash (2)	115.0
Consolidated indebtedness less netted cash	$	2,559.7


(1)			We present deferred financing costs as a direct reduction from the carrying amount of the related debt in the Condensed Consolidated Balance Sheets. For purposes of determining total debt for financial covenant purposes, we have added these costs back to total debt, net as calculated inper the Condensed Consolidated Balance Sheets.
(2)			~~Qualified~~Netted cash includes cash and cash equivalents for domestic and foreign subsidiaries designated as ~~defined~~restricted subsidiaries in the ~~2016~~2019 Credit ~~Agreement equals 100.0% of unrestricted domestic cash plus 60.0% of unrestricted foreign cash. For purposes of calculating leverage ratios, qualified cash is capped at $150.0 million.~~Agreement.

~~The following table sets forth the reconciliation of our net cash from operating activities to free cash flow for the three and nine months ended September��30, 2017 and 2016:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2,017 2,016 2,017 2,016
Net cash provided by operating activities $ 127.3
$ 57.9
$ 202.5
$ 109.8
Subtract: Purchases of property, plant and equipment 17.5
17.6
43.4
41.9
Free cash flow $ 109.8
$ 40.3
$ 159.1
$ 67.9

~~Stockholders’ Equity~~

~~Share Repurchase Program~~



Delaware						33-1022198
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, $0.01 par value	TPX	New York Stock Exchange



		Page

Special Note Regarding Forward-Looking Statements		2

PART I. FINANCIAL INFORMATION

ITEM 1.	Financial Statements
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Stockholders' Equity	7
	Condensed Consolidated Statements of Cash Flows	78
	Notes to Condensed Consolidated Financial Statements	89

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3319

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	5129

ITEM 4.	Controls and Procedures	5230

PART II. OTHER INFORMATION

ITEM 1.	Legal Proceedings	5230

ITEM 1A.	Risk Factors	5230

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5330

ITEM 3.	Defaults upon Senior Securities	5330

ITEM 4.	Mine Safety Disclosures	5331

ITEM 5.	Other Information	5331

ITEM 6.	Exhibits	5432

Signatures		5533



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Net sales	$	724.8		$	832.4		$	2,106.2		$	2,357.8
Cost of sales	412.6			470.3			1,238.8			1,367.8
Gross profit	312.2			362.1			867.4			990.0
Selling and marketing expenses	155.4			175.2			461.4			498.1
General, administrative and other expenses	71.0			64.0			206.5			207.6
Customer termination charges, net	—			—			14.4			—
Equity income in earnings of unconsolidated affiliates	(3.5		)	(2.4		)	(10.6		)	(8.6		)
Royalty income, net of royalty expense	(5.3		)	(5.8		)	(15.0		)	(15.1		)
Operating income	94.6			131.1			210.7			308.0

Other expense, net:
Interest expense, net	32.0			20.5			76.2			65.0
Loss on extinguishment of debt	—			—			—			47.2
Other expense (income), net	1.1			0.3			(8.4		)	—
Total other expense, net	33.1			20.8			67.8			112.2

Income before income taxes	61.5			110.3			142.9			195.8
Income tax provision	(20.3		)	(33.7		)	(48.0		)	(60.2		)
Net income before non-controlling interests	41.2			76.6			94.9			135.6
Less: Net loss attributable to non-controlling interests	(3.4		)	(1.2		)	(8.1		)	(3.1		)
Net income attributable to Tempur Sealy International, Inc.	$	44.6		$	77.8		$	103.0		$	138.7

Earnings per common share:
Basic	$	0.83		$	1.34		$	1.91		$	2.31
Diluted	$	0.81		$	1.32		$	1.89		$	2.28

Weighted average common shares outstanding:
Basic	54.0			58.2			54.0			60.1
Diluted	54.9			58.8			54.6			60.8



	September 30, 2017		December 31, 2016
ASSETS	(Unaudited)

Current Assets:
Cash and cash equivalents	$	41.8	$	65.7
Accounts receivable, net	363.6		345.1
Inventories	188.8		196.8
Prepaid expenses and other current assets	63.1		63.9
Total Current Assets	657.3		671.5
Property, plant and equipment, net	424.1		422.2
Goodwill	732.9		722.5
Other intangible assets, net	671.9		678.7
Deferred income taxes	27.3		22.5
Other non-current assets	221.8		185.2
Total Assets	$	2,735.3	$	2,702.6

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities:
Accounts payable	$	244.7	$	219.3
Accrued expenses and other current liabilities	273.2		250.1
Income taxes payable	26.4		5.8
Current portion of long-term debt	66.3		70.3
Total Current Liabilities	610.6		545.5
Long-term debt, net	1,686.7		1,817.8
Deferred income taxes	160.4		174.6
Other non-current liabilities	190.0		169.3
Total Liabilities	2,647.7		2,707.2

Commitments and contingencies—see Note 8

Redeemable non-controlling interest	3.4		7.6

Total Stockholders' Equity (Deficit)	84.2		(12.2		)
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity (Deficit)	$	2,735.3	$	2,702.6



(in millions)
Balance as of December 31, 2016	$	30.3
Amounts accrued	88.1
Returns charged to accrual	(85.5		)
Balance as of September 30, 2017	$	32.9



(in millions)
Balance as of December 31, 2016	$	29.9
Amounts accrued	29.0
Warranties charged to accrual	(20.0		)
Balance as of September 30, 2017	$	38.9


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



	Tempur Sealy International, Inc. (Ultimate Parent)			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	520.2		$	222.8		$	(18.2	)	$	724.8
Cost of sales	—			300.4			130.4			(18.2		)	412.6
Gross profit	—			219.8			92.4			—			312.2
Selling and marketing expenses	1.4			101.7			52.3			—			155.4
General, administrative and other expenses	4.9			42.4			23.7			—			71.0
Equity income in earnings of unconsolidated affiliates	—			—			(3.5		)	—			(3.5		)
Royalty income, net of royalty expense	—			(5.3		)	—			—			(5.3		)
Operating (loss) income	(6.3		)	81.0			19.9			—			94.6

Other expense, net:
Third party interest expense, net	14.8			6.7			10.5			—			32.0
Intercompany interest (income) expense, net	(1.1		)	2.8			(1.7		)	—			—
Interest expense, net	13.7			9.5			8.8			—			32.0
Other (income) expense, net	—			(4.5		)	5.6			—			1.1
Total other expense, net	13.7			5.0			14.4			—			33.1

Income from equity investees	53.8			1.7			—			(55.5		)	—

Income before income taxes	33.8			77.7			5.5			(55.5		)	61.5
Income tax benefit (provision)	7.4			(23.9		)	(3.8		)	—			(20.3		)
Net income before non-controlling interests	41.2			53.8			1.7			(55.5		)	41.2
Less: Net loss attributable to non-controlling interests	(3.4		)	—			(3.4		)	3.4			(3.4		)
Net income attributable to Tempur Sealy International, Inc.	$	44.6		$	53.8		$	5.1		$	(58.9	)	$	44.6

Comprehensive income attributable to Tempur Sealy International, Inc.	$	54.2		$	54.0		$	14.6		$	(68.6	)	$	54.2



	Three Months Ended September 30,
(in millions, except percentages and per share amounts)	2017					2016
Net sales	$	724.8		100.0	%	$	832.4		100.0	%
Cost of sales	412.6			56.9		470.3			56.5
Gross profit	312.2			43.1		362.1			43.5
Selling and marketing expenses	155.4			21.4		175.2			21.0
General, administrative and other expenses	71.0			9.8		64.0			7.7
Equity income in earnings of unconsolidated affiliates	(3.5		)	(0.5	)	(2.4		)	(0.2	)
Royalty income, net of royalty expense	(5.3		)	(0.7	)	(5.8		)	(0.7	)
Operating income	94.6			13.1		131.1			15.7

Other expense, net:
Interest expense, net	32.0			4.4		20.5			2.5
Other expense, net	1.1			0.2		0.3			—
Total other expense, net	33.1			4.6		20.8			2.5

Income before income taxes	61.5			8.5		110.3			13.3
Income tax provision	(20.3		)	(2.8	)	(33.7		)	(4.1	)
Net income before non-controlling interests	41.2			5.7		76.6			9.2
Less: Net loss attributable to non-controlling interests	(3.4		)	(0.5	)	(1.2		)	(0.1	)
Net income attributable to Tempur Sealy International, Inc.	$	44.6		6.2	%	$	77.8		9.3	%

Earnings per common share:
Basic	$	0.83				$	1.34
Diluted	$	0.81				$	1.32

Weighted average common shares outstanding:
Basic	54.0					58.2
Diluted	54.9					58.8



	Nine Months Ended September 30,
(in millions, except per share amounts)	2017					2016
Net sales	$	2,106.2		100.0	%	$	2,357.8		100.0	%
Cost of sales	1,238.8			58.8		1,367.8			58.0
Gross profit	867.4			41.2		990.0			42.0
Selling and marketing expenses	461.4			21.9		498.1			21.1
General, administrative and other expenses	206.5			9.8		207.6			8.8
Customer termination charges, net	14.4			0.7		—			—
Equity income in earnings of unconsolidated affiliates	(10.6		)	(0.5	)	(8.6		)	(0.4	)
Royalty income, net of royalty expense	(15.0		)	(0.7	)	(15.1		)	(0.6	)
Operating income	210.7			10.0		308.0			13.1

Other expense, net:
Interest expense, net	76.2			3.6		65.0			2.8
Loss on extinguishment of debt	—			—		47.2			2.0
Other income, net	(8.4		)	(0.4	)	—			—
Total other expense, net	67.8			3.2		112.2			4.8

Income before income taxes	142.9			6.8		195.8			8.3
Income tax provision	(48.0		)	(2.3	)	(60.2		)	(2.5	)
Net income before non-controlling interests	94.9			4.5		135.6			5.8
Less: Net loss attributable to non-controlling interests	(8.1		)	(0.4	)	(3.1		)	(0.1	)
Net income attributable to Tempur Sealy International, Inc.	$	103.0		4.9	%	$	138.7		5.9	%

Earnings per common share:
Basic	$	1.91				$	2.31
Diluted	$	1.89				$	2.28

Weighted average common shares outstanding:
Basic	54.0					60.1
Diluted	54.6					60.8



Period	(a) Total number of shares purchased		(b) Average Price Paid per Share	(c) Total number of shares purchased as part of publicly announced plans or programs	(d) Maximum number of shares (or approximate dollar value of shares) that may yet be purchased under the plans or programs (in millions)
July 1, 2017 - July 31, 2017	—		$—	—	$226.9
August 1, 2017 - August 31, 2017	—		$—	—	$226.9
September 1, 2017 - September 30, 2017	13,255	⁽¹⁾	$62.10	—	$226.9
Total	13,255			—



(1)			Includes shares withheld upon the vesting of certain equity awards to satisfy tax withholding obligations. The shares withheld were valued at the closing price of the common stock on the New York Stock Exchange on the vesting date or prior business day.



~~10.1~~
3.1		~~Tempur Sealy~~Amended and Restated Certificate of Incorporation of Tempur-Pedic International Inc. ~~Long-Term Incentive Plan (incorporated by reference~~(filed as Exhibit 3.1 to ~~Exhibit 10.1~~Amendment No. 3 to the ~~Company’s~~Registrant’s registration statement on Form S-1/A (File No. 333-109798) as filed on December 12, 2003).(1)
3.2		Amendment to Certificate of Incorporation of Tempur-Pedic International Inc. (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K ~~(File No. 001-31922)~~as filed on ~~July 26, 2017)~~May 24, 2013).(1)
~~10.2~~		3.3	~~Form~~Second Certificate of ~~2017 Performance Restricted Stock Unit Award Agreement (Project 650 Award) (incorporated by reference to Exhibit 10.1~~Amendment to the ~~Company’s~~Amended and Restated Certificate of Incorporation of Tempur Sealy International, Inc. (filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K ~~(File No. 001-31922)~~as filed on ~~August 7, 2017)~~May 10, 2021). (1)
~~10.3~~		3.4	~~Employment~~Seventh Amended and ~~Non-Competition Agreement dated September 5, 2017, by and between~~Restated By-laws of Tempur Sealy International, Inc. ~~and H. Clifford Buster, III~~(filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K as filed on February 11, 2019).(1)
~~10.4~~		4.1	~~2017 Performance Restricted Stock Unit Award Agreement~~Indenture, dated as of March 25, 2021, among Tempur Sealy International, Inc., the Guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as Trustee (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K as filed on March 25, 2021).(1).
4.2		Form of 4.00% Senior Notes due 2029 (included in Exhibit 4.1 to the Registrant’s Current Report on Form 8-K as filed on March 25, 2021). (1)
4.3		Indenture, dated as of September ~~5, 2017, between~~24, 2021 among Tempur Sealy International, Inc., the Guarantors party thereto and ~~H. Clifford Buster, III~~The Bank of New York Mellon Trust Company, N.A., as Trustee (filed as Exhibit 10.1 (but numbered 4.1) to the Registrant’s Current Report on Form 8-K as filed on September 24, 2021).(1)
~~10.5~~		4.4	~~Restricted Stock Unit Award Agreement dated~~Form of 3.875% Senior Notes due 2031 (included in Exhibit 10.1 (but numbered 4.1) to the Registrant’s Current Report on Form 8-K as offiled on September ~~5, 2017, between Tempur Sealy International, Inc. and H. Clifford Buster, III~~24, 2021).(1)
~~10.6~~		31.1	~~Employment and Non-Competition Agreement dated October 13, 2017 by and between Tempur Sealy International, Inc. and Bhaskar Rao~~⁽¹⁾
~~10.7~~	~~2017 Performance Restricted Stock Unit Award Agreement dated as of October 13, 2017, between Tempur Sealy International, Inc. and Bhaskar Rao~~⁽¹⁾
~~10.8~~	~~Restricted Stock Unit Award Agreement dated October 13, 2017, between Tempur Sealy International, Inc. and Bhaskar Rao~~⁽¹⁾
~~31.1~~	Certification of Chief Executive Officer, pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Chief Financial Officer, pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*			Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
~~101.0~~101				The following materials from Tempur Sealy International, Inc.'s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2017,~~March 31, 2022, formatted in Inline XBRL ~~(Extensible~~(eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders' Equity, (v) the Condensed Consolidated Statements of Cash Flows, and ~~(v)~~(vi) the Notes to Condensed Consolidated Financial ~~Statements~~ Statements.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline XBRL.


			TEMPUR SEALY INTERNATIONAL, INC.

Date: May 5, 2022			~~TEMPUR SEALY INTERNATIONAL, INC.~~
By:
~~Date: November 9, 2017~~	~~By:~~	/s/ BHASKAR RAO
				Bhaskar Rao
				Executive Vice President and Chief Financial Officer

~~Indicates management contract or compensatory plan or arrangement.~~

Incorporated by reference.

This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78r), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.