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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

 For the quarterly period ended March 31, 2024
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .

Commission file number 001-31922

TEMPUR SEALY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-1022198
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1000 Tempur Way
Lexington, Kentucky 40511
(Address of principal executive offices)
Registrant’s telephone number, including area code: (800) 878-8889
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of exchange on which registered
Common Stock, $0.01 par valueTPXNew York Stock Exchange

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. ý  Yes  o No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging Growth Company
x
 o
 o
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 May 3, 2024 was 173,625,241 shares.


Special Note Regarding Forward-Looking Statements

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 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 similar expressions are intended to identify forward-looking statements. These forward-looking statements are based upon our current 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 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 this Report. These risk factors include the impact of the macroeconomic environment including its impact on consumer behavior in both the U.S. and 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 (including the Russia-Ukraine conflict and the conflict in the Middle East), labor costs and other employment-related costs; loss of suppliers and disruptions in the supply of raw materials; competition in our industry; the effects of strategic investments on our operations, including our efforts to expand our global market share and actions taken to increase sales growth and including the pending merger with Mattress Firm Group Inc. ("Mattress Firm"); expectations regarding the pending merger with Mattress Firm, including the related regulatory approval process; the ability to develop and successfully launch new products; capital project timelines; the ability to realize all synergies and benefits of acquisitions (including the pending merger with Mattress Firm); our reliance on information technology ("IT") and the associated risks involving realized or potential security lapses and/or cyber based attacks; the impact of cybersecurity incidents (including the July 2023 incident) on our business, results of operations or financial condition, including our assessments of such impact; the Company's ability to restore its critical operational data and IT systems in a reasonable time frame following a cybersecurity incident; changes in interest rates; effects of changes in foreign exchange rates on our reported earnings; expectations regarding our target leverage and our share repurchase program; compliance with regulatory requirements and the possible exposure to liability for failures to comply with these requirements; the 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 utilize tax loss carryforwards; and our capital structure and debt level, including our ability to meet financial obligations and continue to comply with the terms and financial ratio covenants of our credit facilities.

Other potential risk factors include the factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report") and in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024. 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" may refer to Sealy-branded products or to Sealy Corporation and its historical subsidiaries, in all cases as the context requires. In addition, when used in this Report, "2023 Credit Agreement" refers to the Company's senior credit facility entered into in 2023, and amended in February 2024; "2029 Senior Notes" refers to the 4.00% senior notes due 2029 issued in 2021; and "2031 Senior Notes" refers to the 3.875% senior notes due 2031 issued in 2021.
2


TABLE OF CONTENTS
 
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PART I.     FINANCIAL INFORMATION
ITEM 1.     FINANCIAL STATEMENTS

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
($ in millions, except per common share amounts)
(unaudited)
 Three Months Ended
 March 31,
 20242023
Net sales$1,189.4 $1,208.1 
Cost of sales676.8 708.2 
Gross profit512.6 499.9 
Selling and marketing expenses265.0 256.7 
General, administrative and other expenses121.0 104.5 
Equity income in earnings of unconsolidated affiliates(4.9)(4.6)
Operating income131.5 143.3 
Other expense, net:
Interest expense, net34.3 32.8 
Other (income) expense, net(0.3)0.1 
Total other expense, net34.0 32.9 
Income before income taxes 97.5 110.4 
Income tax provision(20.7)(24.5)
Net income before non-controlling interest76.8 85.9 
Less: Net income attributable to non-controlling interest0.5 0.6 
Net income attributable to Tempur Sealy International, Inc.$76.3 $85.3 
Earnings per common share:
Basic$0.44 $0.50 
Diluted$0.43 $0.48 
Weighted average common shares outstanding:
Basic173.6 172.0 
Diluted178.0 176.8 

See accompanying Notes to Condensed Consolidated Financial Statements. 
4

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in millions)
(unaudited)
Three Months Ended
March 31,
 20242023
Net income before non-controlling interest$76.8 $85.9 
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments(15.5)14.9 
Pension benefits loss, net of tax(0.3) 
Other comprehensive (loss) income, net of tax(15.8)14.9 
Comprehensive income61.0 100.8 
Less: Comprehensive income attributable to non-controlling interest0.5 0.6 
Comprehensive income attributable to Tempur Sealy International, Inc.$60.5 $100.2 
 
See accompanying Notes to Condensed Consolidated Financial Statements.


5

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
 March 31, 2024December 31, 2023
ASSETS(unaudited)
Current Assets:
Cash and cash equivalents$92.5 $74.9 
Accounts receivable, net483.6 431.4 
Inventories489.6 483.1 
Prepaid expenses and other current assets96.2 113.8 
Total Current Assets1,161.9 1,103.2 
Property, plant and equipment, net875.8 878.3 
Goodwill1,077.2 1,083.3 
Other intangible assets, net710.3 714.8 
Operating lease right-of-use assets619.7 636.5 
Deferred income taxes15.4 15.6 
Other non-current assets125.5 122.2 
Total Assets$4,585.8 $4,553.9 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable$345.2 $311.3 
Accrued expenses and other current liabilities434.2 427.1 
Short-term operating lease obligations121.5 119.6 
Current portion of long-term debt47.3 44.9 
Income taxes payable10.0 5.3 
Total Current Liabilities958.2 908.2 
Long-term debt, net2,526.4 2,527.0 
Long-term operating lease obligations558.0 574.8 
Deferred income taxes127.2 127.9 
Other non-current liabilities80.6 82.6 
Total Liabilities4,250.4 4,220.5 
Redeemable non-controlling interest8.8 10.0 
Total Stockholders' Equity326.6 323.4 
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity$4,585.8 $4,553.9 
 
See accompanying Notes to Condensed Consolidated Financial Statements. 


6

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
($ in millions)
(unaudited)

Three Months Ended March 31, 2024
Tempur Sealy International, Inc. Stockholders' Equity
Redeemable
Non-controlling Interest
Common StockTreasury StockAccumulated Other Comprehensive LossTotal Stockholders'
Equity
Shares IssuedAt ParShares IssuedAt CostAdditional Paid in CapitalRetained Earnings
Balance, December 31, 2023
$10.0 283.8 $2.8 111.5 $(3,380.6)$558.7 $3,279.2 $(136.7)$323.4 
Net income76.3 76.3 
Net income attributable to non-controlling interest0.5 — 
Dividend paid to non-controlling interest in subsidiary(1.7)— 
Adjustment to Pension Liability, net of tax(0.3)(0.3)
Foreign currency adjustments, net of tax(15.5)(15.5)
Exercise of stock options1.3 (1.0)0.3 
Dividends declared on common stock ($0.13 per share)
(23.0)(23.0)
Issuances of PRSUs and RSUs
(2.2)90.5 (90.5) 
Treasury stock repurchased - PRSU/RSU releases0.9 (43.8)(43.8)
Amortization of unearned stock-based compensation
9.2 9.2 
Balance, March 31, 2024
$8.8 283.8 $2.8 110.2 $(3,332.6)$476.4 $3,332.5 $(152.5)$326.6 

Three Months Ended March 31, 2023
Tempur Sealy International, Inc. Stockholders' (Deficit) Equity
Redeemable
Non-controlling Interest
Common StockTreasury StockAccumulated Other Comprehensive LossTotal Stockholders'
(Deficit) Equity
Shares IssuedAt ParShares IssuedAt CostAdditional Paid in CapitalRetained Earnings
Balance, December 31, 2022
$9.8 283.8 $2.8 113.4 $(3,434.7)$598.2 $2,988.5 $(176.9)$(22.1)
Net income85.3 85.3 
Net income attributable to non-controlling interest0.6 — 
Dividend paid to non-controlling interest in subsidiary(1.5)— 
Foreign currency adjustments, net of tax14.9 14.9 
Exercise of stock options(0.1)1.5 (0.7)0.8 
Dividends declared on common stock ($0.11 per share)
(19.3)(19.3)
Issuances of PRSUs and RSUs
(2.6)82.6 (82.6) 
Treasury stock repurchased
0.1 (5.0)(5.0)
Treasury stock repurchased - PRSU/RSU releases0.9 (30.7)(30.7)
Amortization of unearned stock-based compensation
10.8 10.8 
Balance, March 31, 2023
$8.9 283.8 $2.8 111.7 $(3,386.3)$525.7 $3,054.5 $(162.0)$34.7 

See accompanying Notes to Condensed Consolidated Financial Statements.
7

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(unaudited)
 Three Months Ended
 March 31,
 20242023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before non-controlling interest$76.8 $85.9 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization39.2 33.8 
Amortization of stock-based compensation9.2 10.8 
Amortization of deferred financing costs0.9 1.0 
Bad debt expense3.8 1.7 
Deferred income taxes0.1 0.7 
Dividends received from unconsolidated affiliates4.9 1.5 
Equity income in earnings of unconsolidated affiliates(4.9)(4.6)
Foreign currency adjustments and other0.1 (0.8)
Changes in operating assets and liabilities0.1 (30.2)
Net cash provided by operating activities130.2 99.8 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Purchases of property, plant and equipment(31.5)(52.1)
Other0.3 0.1 
Net cash used in investing activities(31.2)(52.0)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Proceeds from borrowings under long-term debt obligations478.1 509.8 
Repayments of borrowings under long-term debt obligations(481.8)(477.4)
Proceeds from exercise of stock options0.3 0.8 
Treasury stock repurchased(43.8)(35.7)
Dividends paid(24.9)(20.8)
Repayments of finance lease obligations and other(5.8)(5.1)
Net cash used in financing activities(77.9)(28.4)
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(3.5)2.2 
Increase in cash and cash equivalents17.6 21.6 
CASH AND CASH EQUIVALENTS, beginning of period74.9 69.4 
CASH AND CASH EQUIVALENTS, end of period$92.5 $91.0 
Supplemental cash flow information:  
Cash paid during the period for:  
Interest$20.3 $19.5 
Income taxes, net of refunds$13.2 $11.3 

See accompanying Notes to Condensed Consolidated Financial Statements.
8

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 designs, manufactures and 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 sales channels: Wholesale and Direct.

The Company has ownership interests in Asia-Pacific joint ventures to develop markets for Sealy® and Stearns & Foster® branded products and ownership in a United Kingdom joint venture to manufacture, market, and distribute Sealy® and Stearns & Foster® branded products. The Company's ownership 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 equity in the net income and losses of these investments is 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, 2023, included in the 2023 Annual Report filed with the Securities and Exchange Commission on February 16, 2024.
 
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 net realizable value, determined by the first-in, first-out method, and consist of the following:
March 31,December 31,
(in millions)20242023
Finished goods$350.7 $335.4 
Work-in-process14.8 16.5 
Raw materials and supplies124.1 131.2 
 $489.6 $483.1 

(c) 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.

9

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, 2023 to March 31, 2024:
(in millions)
Balance as of December 31, 2023$40.8 
Amounts accrued3.9 
Warranties charged to accrual(3.1)
Balance as of March 31, 2024$41.6 

As of March 31, 2024 and December 31, 2023, $19.4 million and $18.9 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $22.2 million and $21.9 million of accrued warranty expense is included in other non-current liabilities on the Company's accompanying Condensed Consolidated Balance Sheets, respectively.

(d) Allowance for Credit Losses. The allowance for credit losses is the Company's best estimate of the amount of expected lifetime credit losses in the Company's accounts receivable. The Company regularly reviews the adequacy of its allowance for credit losses. The Company estimates losses over the 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, 2024, the Company's accounts receivable were substantially current. 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. Other factors considered include historical write-off experience, current economic conditions and also factors such as customer credit, past transaction history with the customer and changes in customer payment terms. The allowance for credit losses is included in accounts receivable, net in the accompanying Condensed Consolidated Balance Sheets.

The Company had the following activity for its allowance for credit losses from December 31, 2023 to March 31, 2024:
(in millions)
Balance as of December 31, 2023
$66.9 
Amounts accrued3.8 
Write-offs charged against the allowance(1.8)
Balance as of March 31, 2024
$68.9 

(e) Fair Value. Financial instruments, although not recorded at fair value on a recurring basis, include cash and cash equivalents, accounts receivable, accounts payable and the Company's debt obligations. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term maturity of those instruments. Borrowings under the 2023 Credit Agreement (as defined in Note 4, "Debt") 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 inputs, which include 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, 2024December 31, 2023
2029 Senior Notes$726.3 $724.2 
2031 Senior Notes$679.9 $677.6 

10

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(f) Definitive Agreement with Mattress Firm. On May 9, 2023, Tempur Sealy International and Mattress Firm entered into a definitive agreement and plan of merger (the "Merger Agreement") for a proposed business acquisition in which Tempur Sealy International, through a wholly-owned subsidiary, will acquire Mattress Firm in a transaction valued at approximately $4.0 billion. The transaction is expected to be funded by approximately $2.7 billion of cash consideration and the issuance of 34.2 million shares of common stock resulting in a total stock consideration value of $1.3 billion based on a closing share price of $37.62 as of May 8, 2023.

The Company expects the transaction to close in the second half of 2024, subject to the satisfaction of customary closing conditions, including applicable regulatory approvals. Following the close of the transaction, Mattress Firm is expected to operate as a separate business unit within the Company.

(2) Net Sales     

The following table presents the Company's disaggregated revenue by channel and geographical region, including a reconciliation of disaggregated revenue by segment, for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31, 2024Three Months Ended March 31, 2023
(in millions)North AmericaInternationalConsolidatedNorth AmericaInternationalConsolidated
Channel
Wholesale$776.9 $108.9 $885.8 $804.3 $108.3 $912.6 
Direct124.2 179.4 303.6 115.3 180.2 295.5 
Net sales$901.1 $288.3 $1,189.4 $919.6 $288.5 $1,208.1 
North AmericaInternationalConsolidatedNorth AmericaInternationalConsolidated
Geographical region
United States$833.2 $ $833.2 $854.9 $ $854.9 
All Other67.9 288.3 356.2 64.7 288.5 353.2 
Net sales$901.1 $288.3 $1,189.4 $919.6 $288.5 $1,208.1 

Substantially all revenue is associated with bedding product sales.

(3) Goodwill
The following summarizes changes to the Company's goodwill, by segment:
(in millions) North AmericaInternationalConsolidated
Balance as of December 31, 2023$609.7 $473.6 $1,083.3 
Foreign currency translation and other(1.2)(4.9)(6.1)
Balance as of March 31, 2024$608.5 $468.7 $1,077.2 

11

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(4) Debt

Debt for the Company consists of the following:
March 31, 2024December 31, 2023
(in millions, except percentages)AmountRateAmountRateMaturity Date
2023 Credit Agreement:
Term A Facility$493.8 (1)$500.0 (1)October 10, 2028
Revolver177.0 (1)183.0 (1)October 10, 2028
2031 Senior Notes800.0 3.875%800.0 3.875%October 15, 2031
2029 Senior Notes800.0 4.000%800.0 4.000%April 15, 2029
Securitized debt165.0 (2)157.6 (2)April 7, 2025
Finance lease obligations (3)
96.8 92.1 Various
Other61.8 60.9 Various
Total debt2,594.4 2,593.6 
Less: Deferred financing costs20.7 21.7 
Total debt, net2,573.7 2,571.9 
Less: Current portion47.3 44.9 
Total long-term debt, net$2,526.4 $2,527.0 
(1)
Interest at SOFR index plus 10 basis points of credit spread adjustment, plus applicable margin of 1.625%.
(2)
Interest at one month SOFR index plus 10 basis points of credit spread adjustment, plus 85 basis points.
(3)
New finance lease obligations are a non-cash financing activity.

As of March 31, 2024, the Company was in compliance with all applicable debt covenants.

2023 Credit Agreement

On October 10, 2023, the Company entered into the 2023 Credit Agreement with a syndicate of banks. The 2023 Credit Agreement provides for a $1.15 billion revolving credit facility, a $500.0 million term loan facility, and an incremental facility in an aggregate amount of up to the greater of $850.0 million and additional amounts subject to the conditions set forth in the 2023 Credit Agreement, plus the amount of certain prepayments, plus an additional unlimited amount subject to compliance with a maximum consolidated secured leverage ratio test. The 2023 Credit Agreement has a $60.0 million sub-facility for the issuance of letters of credit.

On February 6, 2024, the Company and certain other parties thereto entered into an amendment to the 2023 Credit Agreement which provides for a $625.0 million delayed draw term loan and a $40.0 million increase in availability on the existing revolving loan. Once drawn, the instruments will have the same terms and conditions as the Company's existing term loans and revolving loans, respectively, under the 2023 Credit Agreement. This amendment was executed in connection with the Company's financing strategy for the pending acquisition of Mattress Firm expected to close in the second half of 2024.

The Company had $177.0 million in outstanding borrowings under the revolving credit facility as of March 31, 2024. Total availability under the revolving facility was $1,012.4 million, after a $0.6 million reduction for outstanding letters of credit, as of March 31, 2024.

Securitized Debt

The Company and certain of its subsidiaries are party to a securitization transaction with respect to certain accounts receivable due to the Company and certain of its subsidiaries (as amended, the "Accounts Receivable Securitization"). As of March 31, 2024, the Company did not have availability under the Accounts Receivable Securitization. While subject to a $200.0 million overall limit, the availability of revolving loans varies over the course of the year based on the seasonality of the Company's accounts receivable.

12

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(5) Stockholders' Equity
 
(a) Treasury Stock. As of March 31, 2024, the Company had approximately $774.5 million remaining under its share repurchase authorization. The Company did not repurchase shares under the program during the three months ended March 31, 2024. The Company repurchased 0.1 million shares under the program for approximately $5.0 million during the three months ended March 31, 2023.

In addition, the Company acquired shares upon the vesting of certain restricted stock units ("RSUs") and performance restricted stock units ("PRSUs"), which were withheld to satisfy tax withholding obligations during each of the three months ended March 31, 2024 and 2023, respectively. The shares withheld were valued at the closing price of the stock on the New York Stock Exchange on the vesting date or first business day prior to vesting, resulting in $43.8 million and $30.7 million in treasury stock acquired during the three months ended March 31, 2024 and 2023, respectively.

(b) Accumulated Other Comprehensive Loss ("AOCL"). AOCL consisted of the following:
Three Months Ended
 March 31,
(in millions)20242023
Foreign Currency Translation
Balance at beginning of period$(135.5)$(175.3)
Other comprehensive loss:
Foreign currency translation adjustments (1)
(15.5)14.9 
Balance at end of period$(151.0)$(160.4)
Pensions
Balance at beginning of period$(1.2)$(1.6)
Other comprehensive loss:
Net change from period revaluations (2)
(0.3) 
Balance at end of period$(1.5)$(1.6)
(1)
In 2024 and 2023, there were no tax impacts related to foreign currency translation adjustments and no amounts were reclassified to earnings.
(2)
In 2024, there were no tax impacts related to pension adjustments.

(6) Other Items

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:
(in millions)March 31, 2024December 31, 2023
Wages and benefits$81.1 $102.1 
Unearned revenue74.9 53.3 
Advertising45.0 62.6 
Taxes24.4 15.4 
Other208.8 193.7 
$434.2 $427.1 

13

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(7) Stock-Based Compensation

The Company's stock-based compensation expense for the three months ended March 31, 2024 and 2023 included PRSUs, non-qualified stock options and RSUs. A summary of the Company's stock-based compensation expense is presented in the following table:
Three Months Ended March 31,
(in millions)20242023
PRSU expense$4.1 $5.1 
Option expense0.6 0.6 
RSU expense4.5 5.1 
Total stock-based compensation expense$9.2 $10.8 

The Company 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 2024, the Company granted PRSUs as a component of the long-term incentive plan ("2024 PRSUs"). The Company has recorded stock-based compensation expense related to the 2024 PRSUs during the three months ended March 31, 2024, as it was probable that the Company would achieve the specified performance targets for the performance period.

(8) Commitments and Contingencies
 
The Company is involved in various legal and administrative proceedings incidental to the operations of its business. The Company believes that the outcome of all such pending proceedings in the aggregate will not have a material adverse effect on its business, financial condition, liquidity or operating results.

(9) Income Taxes

The Company's effective tax rates for the three months ended March 31, 2024 and 2023 were 21.2% and 22.2%, respectively. The Company's effective tax rates for the three months ended March 31, 2024 and 2023 differed from the U.S. federal statutory rate of 21.0% principally due to 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 taxes, changes in the Company's uncertain tax positions, the excess tax benefit related to stock-based compensation and certain other permanent items.

The OECD (Organization for Economic Co-operation and Development) has proposed a global minimum effective tax of 15% on income arising in each jurisdiction ("Pillar 2") that has been agreed upon in principle by over 140 countries. During 2023, many countries took steps to incorporate Pillar 2 model rule concepts into their domestic laws. Although the model rules provide a framework for applying the minimum tax, countries may enact Pillar 2 slightly differently than the model rules and on different timelines and may adjust domestic tax incentives in response to Pillar 2. Accordingly, we still are evaluating the potential consequences of Pillar 2 on our longer-term financial position. In 2024, we do not expect Pillar 2 to have a material impact on our financial results.

14

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
(10) 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)20242023
Numerator:
Net income attributable to Tempur Sealy International, Inc.$76.3 $85.3 
Denominator: 
Denominator for basic earnings per common share-weighted average shares173.6 172.0 
Effect of dilutive securities4.4 4.8 
Denominator for diluted earnings per common share-adjusted weighted average shares178.0 176.8 
Basic earnings per common share$0.44 $0.50 
Diluted earnings per common share$0.43 $0.48 

The Company excludes shares issuable upon exercise of outstanding stock options 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.

As a result, the Company excluded an immaterial amount of shares for the three months ended March 31, 2024 and excluded 0.6 million shares for the three months ended March 31, 2023 . Holders of non-vested stock-based compensation awards do not have voting rights but do participate in dividend equivalents distributed upon the award vesting.
(11) Business Segment Information
 
The Company operates in two 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 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). The Company evaluates segment performance based on net sales, gross profit and operating income.

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

The following table summarizes total assets by segment:
(in millions)March 31, 2024December 31, 2023
North America$5,491.1 $5,291.0 
International1,437.9 1,405.2 
Corporate1,379.8 1,269.5 
Inter-segment eliminations(3,723.0)(3,411.8)
Total assets$4,585.8 $4,553.9 

15

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
 The following table summarizes property, plant and equipment, net, by segment:
(in millions)March 31, 2024December 31, 2023
North America$750.2 $753.8 
International89.7 91.3 
Corporate35.9 33.2 
Total property, plant and equipment, net$875.8 $878.3 
     
The following table summarizes operating lease right-of-use assets by segment:
(in millions)March 31, 2024December 31, 2023
North America$446.5 $453.5 
International170.7 180.2 
Corporate2.5 2.8 
Total operating lease right-of-use assets$619.7 $636.5 

The following table summarizes segment information for the three months ended March 31, 2024:
(in millions)North AmericaInternationalCorporateEliminationsConsolidated
Net sales$901.1 $288.3 $— $— $1,189.4 
Inter-segment sales$0.3 $0.1 $— $(0.4)$— 
Inter-segment royalty expense (income)7.4 (7.4)— — — 
Gross profit352.8 159.8 — — 512.6 
Operating income (loss)134.4 44.8 (47.7)— 131.5 
Income (loss) before income taxes131.4 47.7 (81.6)— 97.5 
Depreciation and amortization (1)
$30.7 $6.5 $11.2 $— $48.4 
Capital expenditures20.7 6.2 4.6 — 31.5 
(1)Depreciation and amortization includes stock-based compensation amortization expense.

The following table summarizes segment information for the three months ended March 31, 2023:
(in millions)North AmericaInternationalCorporateEliminationsConsolidated
Net sales$919.6 $288.5 $— $— $1,208.1 
Inter-segment sales$0.3 $ $— $(0.3)$— 
Inter-segment royalty expense (income)7.4 (7.4)— — — 
Gross profit344.0 155.9 — — 499.9 
Operating income (loss)136.0 44.2 (36.9)— 143.3 
Income (loss) before income taxes134.2 43.0 (66.8)— 110.4 
Depreciation and amortization (1)
$25.5 $6.5 $12.6 $— $44.6 
Capital expenditures45.8 4.7 1.6 — 52.1 
(1)Depreciation and amortization includes stock-based compensation amortization expense.

16

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (unaudited) (continued)
The following table summarizes property, plant and equipment, net by geographic region:
(in millions)
March 31, 2024December 31, 2023
United States
$763.7 $764.1 
All other112.1 114.2 
Total property, plant and equipment, net
$875.8 $878.3 

The following table summarizes operating lease right-of-use assets by geographic region:
(in millions)March 31, 2024December 31, 2023
United States$437.5 $444.2 
United Kingdom137.5 146.5 
All other44.7 45.8 
Total operating lease right-of-use assets$619.7 $636.5 



17

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the 2023 Annual Report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in ITEM 7 of Part II of the 2023 Annual Report, and the accompanying Condensed Consolidated Financial Statements and notes thereto included in this 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 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 Report and in the 2023 Annual Report, the section titled "Risk Factors" contained in ITEM 1A of Part I of the 2023 Annual 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 months ended March 31, 2024, including the following topics:

an overview of our business and strategy;
results of operations, including our net sales and costs in the periods presented as well as changes between periods;
expected sources of liquidity for future operations; and
our use of certain non-GAAP financial measures.

Business Overview

General

We are committed to improving the sleep of more people, every night, all around the world. As a leading designer, manufacturer, distributor and retailer of bedding products, we know how crucial a 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 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 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). Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results. We evaluate segment performance based on net sales, gross profit and operating income. For additional information refer to Note 11, "Business Segment Information," included in Part I, ITEM 1 of this Report.

Our highly recognized brands include Tempur-Pedic®, Sealy® and Stearns & Foster® and our non-branded offerings consist of value-focused private label and OEM products. Our products allow for complementary merchandising strategies and are sold through third-party retailers, our more than 750 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

We believe the bedding industry is structured for sustained growth over the long term, driven by product innovation, sleep technology advancements, consumer confidence, housing formations and population growth. The industry is no longer engaged in uneconomical retail store expansion, startups have shifted from uneconomical strategies to becoming profitable and legacy retailers and manufacturers have become skilled in producing profitable online sales.

Over the last decade, consumers have made the connection between a good night's sleep and overall health and wellness. As consumers make this connection, they are willing to invest more in their bedding purchases, which positions us well for long-term growth.

18

In 2024, we expect a continuation of the current macroeconomic environment, which includes the impact of inflation and interest rate pressures on the consumer. These macroeconomic pressures on the consumer continue to challenge the global bedding industry. Ongoing geopolitical conflicts may also introduce further uncertainty for the consumer. We expect to outperform the bedding industry, amid these macroeconomic headwinds, as a result of our successful new product launches and recent distribution gains in the U.S.

Definitive Agreement with Mattress Firm.

On May 9, 2023, Tempur Sealy International and Mattress Firm entered into a definitive agreement and plan of merger (the "Merger Agreement") for a pending business acquisition in which Tempur Sealy International, through a wholly-owned subsidiary, will acquire Mattress Firm in a transaction valued at approximately $4.0 billion. The transaction is expected to be funded by approximately $2.7 billion of cash consideration and the issuance of 34.2 million shares of common stock, resulting in a total stock consideration value of $1.3 billion based on a closing share price of $37.62 as of May 8, 2023.

We expect the transaction to close in the second half of 2024, subject to the satisfaction of customary closing conditions, including applicable regulatory approvals. Following the close of the transaction, Mattress Firm is expected to operate as a separate business unit.

Product Launches

In 2024, we are launching a new portfolio of Tempur-Pedic® Adapt mattresses in our North America segment. This next-generation technology sets the standard for support, pressure relief, and motion cancellation with Tempur material precisely responding to your body's weight, shape, and temperature in a way no other mattress does. This collection was designed to complement the Tempur-Pedic® Breeze collection and Tempur-Ergo® Smart Bases launched in 2023 and finishes the complete reset of our core Tempur lineup.

In our International segment in 2024, we plan to complete the rollout of the new line of Tempur® products in over 90 markets through our wholly-owned subsidiaries and third-party distributors. This new line of products will broaden Tempur®'s price range, with the super-premium price point ceiling maintained and the floor expanded into the premium category to broaden our global addressable market.

Results of Operations
 
A summary of our results for the three months ended March 31, 2024 include:

Total net sales decreased 1.5% to $1,189.4 million as compared to $1,208.1 million in the first quarter of 2023, with a decrease of 2.0% in the North America business segment and a decrease of 0.1% in the International business segment. On a constant currency basis, which is a non-GAAP financial measure, total net sales decreased 2.1%, with a decrease of 2.3% in the North America business segment and an decrease of 1.6% in the International business segment.
Gross margin was 43.1% as compared to 41.4% in the first quarter of 2023. Adjusted gross margin, which is a non-GAAP financial measure, was 43.4% as compared to 41.8% in the first quarter of 2023.
Operating income decreased 8.2% to $131.5 million as compared to $143.3 million in the first quarter of 2023. Adjusted operating income, which is a non-GAAP financial measure, decreased 2.6% to $149.4 million as compared to $153.4 million in the first quarter of 2023.
Net income decreased 10.6% to $76.3 million as compared to $85.3 million in the first quarter of 2023. Adjusted net income, which is a non-GAAP financial measure, decreased 3.4% to $89.7 million as compared to $92.9 million in the first quarter of 2023.
Earnings per diluted share ("EPS") decreased 10.4% to $0.43 as compared to $0.48 in the first quarter of 2023. Adjusted EPS, which is a non-GAAP financial measure, decreased 5.7% to $0.50 as compared to $0.53 in the first quarter of 2023.

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."

19

We may refer to net sales, earnings or other historical financial information on a "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 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 of this Report for a discussion of our foreign currency exchange rate risk.
20

THREE MONTHS ENDED MARCH 31, 2024 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2023

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)20242023
Net sales$1,189.4 100.0 %$1,208.1 100.0 %
Cost of sales676.8 56.9 708.2 58.6 
Gross profit512.6 43.1 499.9 41.4 
Selling and marketing expenses265.0 22.2 256.7 21.2 
General, administrative and other expenses121.0 10.2 104.5 8.6 
Equity income in earnings of unconsolidated affiliates(4.9)(0.4)(4.6)(0.4)
Operating income131.5 11.1 143.3 11.9 
Other expense, net:
Interest expense, net34.3 2.9 32.8 2.7 
Other (income) expense, net(0.3)— 0.1 — 
Total other expense, net34.0 2.9 32.9 2.7 
Income before income taxes97.5 8.2 110.4 9.1 
Income tax provision(20.7)(1.7)(24.5)(2.0)
Net income before non-controlling interest76.8 6.5 85.9 7.0 
Less: Net income attributable to non-controlling interest0.5 — 0.6 — 
Net income attributable to Tempur Sealy International, Inc.$76.3 6.5 %$85.3 7.1 %
Earnings per common share:
Basic$0.44 $0.50 
Diluted$0.43 $0.48 
Weighted average common shares outstanding:
Basic173.6 172.0 
Diluted178.0 176.8 


21

NET SALES
Three Months Ended March 31,
202420232024202320242023
(in millions)ConsolidatedNorth AmericaInternational
Net sales by channel
Wholesale$885.8 $912.6 $776.9 $804.3 $108.9 $108.3 
Direct303.6 295.5 124.2 115.3 179.4 180.2 
Total net sales$1,189.4 $1,208.1 $901.1 $919.6 $288.3 $288.5 

Net sales decreased 1.5%, and on a constant currency basis decreased 2.1%. The change in net sales was driven by the following:

North America net sales decreased $18.5 million, or 2.0%, primarily driven by continued macroeconomic pressures impacting U.S. consumer behavior. On a constant currency basis, North America net sales decreased 2.3%. Net sales in the Wholesale channel decreased $27.4 million, or 3.4%. Net sales in the Direct channel increased $8.9 million, or 7.7%, driven by strength in our e-commerce business.

International net sales decreased $0.2 million, or 0.1%. On a constant currency basis, International net sales decreased 1.6%. Net sales in the Wholesale channel increased 0.9% on a constant currency basis. Net sales in the Direct channel decreased 3.2% on a constant currency basis.

GROSS PROFIT

Three Months Ended March 31,
20242023
(in millions, except percentages)Gross ProfitGross MarginGross ProfitGross MarginMargin Change
North America$352.8 39.2 %$344.0 37.4 %1.8 %
International159.8 55.4 %155.9 54.0 %1.4 %
Consolidated gross margin$512.6 43.1 %$499.9 41.4 %1.7 %

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 improved 170 basis points. The primary drivers of changes in gross margin by segment are discussed below:

North America gross margin improved 180 basis points. The improvement in gross margin was primarily driven by favorable commodity costs of 200 basis points and operational efficiencies of 70 basis points. These improvements were partially offset by production line changeover to support new OEM distribution and product launch costs.

International gross margin improved 140 basis points. The improvement in gross margin was primarily driven by favorable commodity costs of 70 basis points and operational efficiencies of 60 basis points.

OPERATING EXPENSES

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.

General, administrative and other expenses include salaries and related expenses, IT, professional fees, depreciation and amortization of long-lived assets not used in the manufacturing process, expenses for administrative functions and research and development costs.

Three Months Ended March 31,
20242023202420232024202320242023
(in millions)ConsolidatedNorth AmericaInternationalCorporate
Operating expenses:
Advertising expenses$108.0 $112.1 $84.4 $86.9 $23.6 $25.2 $— $— 
Other selling and marketing expenses157.0 144.6 85.3 76.0 67.6 64.0 4.1 4.6 
General, administrative and other expenses121.0 104.5 48.7 45.1 28.7 27.1 43.6 32.3 
Total operating expenses$386.0 $361.2 $218.4 $208.0 $119.9 $116.3 $47.7 $36.9 

Operating expenses increased $24.8 million, or 6.9%, and increased 260 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 increased $10.4 million, or 5.0%, and increased 160 basis points as a percentage of net sales. The increase in operating expenses was primarily driven by investments in growth initiatives.

International operating expenses increased $3.6 million, or 3.1%, and increased 130 basis points as a percentage of net sales. The increase in operating expenses was primarily driven by investments in growth initiatives.

Corporate operating expenses increased $10.8 million, or 29.3%, primarily driven by $14.8 million of transaction costs related to the pending acquisition of Mattress Firm.

Research and development expenses for the three months ended March 31, 2024 were $8.1 million compared to $7.5 million for the three months ended March 31, 2023, an increase of $0.6 million or 8.0%.

OPERATING INCOME
Three Months Ended March 31,
20242023
(in millions, except percentages)Operating IncomeOperating MarginOperating IncomeOperating MarginMargin Change
North America$134.4 14.9 %$136.0 14.8 %0.1 %
International44.8 15.5 %44.2 15.3 %0.2 %
179.2 180.2 
Corporate expenses(47.7)(36.9)
Total operating income$131.5 11.1 %$143.3 11.9 %(0.8)%

Operating income decreased $11.8 million and operating margin declined 80 basis points. The primary drivers of changes in operating income and operating margin by segment are discussed below:

North America operating income decreased $1.6 million and operating margin improved 10 basis points. The improvement in operating margin was primarily driven by the improvement in gross margin of 180 basis points, offset by operating expense deleverage of 160 basis points.

International operating income increased $0.6 million and operating margin improved 20 basis points. The improvement in operating margin was driven by the improvement in gross margin of 140 basis points, offset by operating expense deleverage of 130 basis points.

Corporate operating expenses increased $10.8 million, which negatively impacted our consolidated operating margin.

INTEREST EXPENSE, NET
Three Months Ended March 31,
(in millions, except percentages)20242023% Change
Interest expense, net$34.3 $32.8 4.6 %

Interest expense, net, increased $1.5 million, or 4.6%. The increase in interest expense, net, was primarily driven by higher interest rates on our variable rate debt.

INCOME TAX PROVISION
Three Months Ended March 31,
(in millions, except percentages)20242023% Change
Income tax provision$20.7 $24.5 (15.5)%
Effective tax rate 21.2 %22.2 %

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 $3.8 million due to a decrease in income before income taxes. Our effective tax rate for the three months ended March 31, 2024 as compared to the prior year declined by 100 basis points. The effective tax rates as compared to the U.S. federal statutory rates for the three months ended March 31, 2024 and 2023 included the favorable impact of the deductibility of stock compensation in the U.S. and a net unfavorable impact of other discrete items.

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, acquisitions, payments of dividends to our shareholders, capital expenditures and working capital needs.

As of March 31, 2024, we had net working capital of $203.7 million, including cash and cash equivalents of $92.5 million, as compared to a working capital of $195.0 million, including cash and cash equivalents of $74.9 million, as of December 31, 2023. The amount of cash and cash equivalents 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 our overall liquidity or financial position.

Cash Provided by (Used in) Operations

The table below presents net cash provided by (used in) operating, investing and financing activities from operations for the periods indicated below:
Three Months Ended March 31,
(in millions)20242023
Net cash provided by (used in) operations:
Operating activities$130.2 $99.8 
Investing activities(31.2)(52.0)
Financing activities(77.9)(28.4)

Cash provided by operating activities increased $30.4 million in the three months ended March 31, 2024 as compared to the same period in 2023. The increase in cash provided by operating activities was driven by a $30.3 million increase in cash provided by changes in operating assets and liabilities.

Cash used in investing activities decreased $20.8 million in the three months ended March 31, 2024 as compared to the same period in 2023. The decrease in cash used in investing activities was driven by decreased capital expenditures related to our manufacturing capacity expansion projects in 2023.

Cash used in financing activities increased $49.5 million in the three months ended March 31, 2024 as compared to the same period in 2023. For the three months ended March 31, 2024, we had net repayments of $3.7 million on our credit facilities as compared to net borrowings of $32.4 million in the same period in 2023. During the three months ended March 31, 2024 and 2023, we repurchased $43.8 million and $35.7 million, respectively, of our common stock. Additionally, we paid dividends to shareholders of $24.9 million and $20.8 million, during the three months ended March 31, 2024 and 2023, respectively.

Capital Expenditures

Capital expenditures totaled $31.5 million and $52.1 million for the three months ended March 31, 2024 and 2023, respectively. We currently expect our 2024 capital expenditures to be approximately $150 million, which includes maintenance capital expenditures of $110 million.

Indebtedness

Our total debt increased slightly to $2,594.4 million as of March 31, 2024 from $2,593.6 million as of December 31, 2023. Total availability under our revolving senior secured credit facility was $1,012.4 million as of March 31, 2024. Refer to Note 4, "Debt" in the "Notes to Condensed Consolidated Financial Statements," under Part I, ITEM 1 for further discussion of our debt.

On February 6, 2024, we entered into an amendment to the 2023 Credit Agreement which provides for a $625.0 million delayed draw term loan and a $40.0 million increase in availability on the existing revolving loan. Once drawn, the instruments will have the same terms and conditions as the Company's existing term loans and revolving loans, respectively, under the 2023 Credit Agreement. This amendment was executed in connection with the Company's financing strategy for the pending acquisition of Mattress Firm expected to close in the second half of 2024.

As of March 31, 2024, our ratio of consolidated indebtedness less netted cash to adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"), which is a non-GAAP financial measure, in accordance with our 2023 Credit Agreement was 2.85 times. This ratio is within the terms of the financial covenants for the maximum consolidated total net leverage ratio as set forth in the 2023 Credit Agreement, which limits this ratio to 5.00 times. As of March 31, 2024, we were in compliance with all of the financial covenants in our debt agreements, and we do not anticipate material issues under any debt agreements based on current facts and circumstances.

Our debt agreements contain certain covenants that limit restricted payments, including share repurchases and dividends. The 2023 Credit Agreement, 2029 Senior Notes and 2031 Senior Notes contain similar limitations which, subject to certain conditions, allow unlimited restricted payments at times when the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, remains below 3.75 times in the case of the 2023 Credit Agreement and remains below 3.50 times in the cases of the 2029 Senior Notes and 2031 Senior Notes. In addition, these agreements permit limited restricted payments under certain conditions when the ratio of consolidated indebtedness less netted cash to adjusted EBITDA is above 3.75 times in the case of the 2023 Credit Agreement and above 3.50 times in the cases of the 2029 Senior Notes and 2031 Senior Notes. The limit on restricted payments under the 2023 Credit Agreement, 2029 Senior Notes and 2031 Senior Notes is in part determined by a basket that 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 indebtedness less netted cash to adjusted EBITDA calculated in accordance with the 2023 Credit Agreement. Both consolidated indebtedness and adjusted EBITDA as used in discussion of the 2023 Credit Agreement are 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, and the Board of Directors has authorized increases to this authorization from time to time. During the three months ended March 31, 2024, we did not repurchase shares under our share repurchase program. As of March 31, 2024, we had $774.5 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. As a result of the pending Mattress Firm acquisition, we have temporarily suspended our repurchase of shares in advance of closing the transaction. 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 2023 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, 2024, we had $1,104.9 million of liquidity, including $92.5 million of cash on hand and $1,012.4 million available under our 2023 Credit Agreement. In addition, we expect to generate cash flow from operations in the full year 2024. We believe that cash flow from operations, availability under our existing credit facilities and arrangements, current cash balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for our foreseeable working capital needs, necessary capital expenditures, debt service obligations and dividend payments.

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

The Board of Directors declared a dividend of $0.13 per share for the second quarter of 2024. The dividend is payable on May 30, 2024 to shareholders of record as of May 16, 2024.

As of March 31, 2024, we had $2,594.4 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,501.9 million. Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 2.85 times for the trailing twelve months ended March 31, 2024.

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.

Non-GAAP Financial Information

We provide information regarding adjusted net income, EBITDA, adjusted EBITDA, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, consolidated indebtedness and consolidated indebtedness less netted cash, which are not recognized terms under GAAP and do not purport to be alternatives to net income, earnings per share, gross profit, gross margin, operating income (expense) and operating margin as a measure of operating performance, or an alternative to total debt as a measure of liquidity. We believe these non-GAAP financial measures provide investors with performance measures that better reflect our underlying operations and trends, providing a perspective not immediately apparent from net income, gross profit, gross margin, operating income (expense) and operating margin. The adjustments 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 we do not consider to be the fundamental attributes or primary drivers of our business.

We believe that exclusion of these items assists in providing a more complete understanding of our underlying results from operations and trends, and 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. 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.
22

Adjusted Net Income and Adjusted EPS

A reconciliation of reported net income to adjusted net income and the calculation of adjusted EPS 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 below.

The following table sets forth the reconciliation of our reported net income to adjusted net income and the calculation of adjusted EPS for the three months ended March 31, 2024 and 2023:
Three Months Ended
(in millions, except per share amounts)March 31, 2024March 31, 2023
Net income$76.3 $85.3 
Transaction costs (1)
14.8 5.2 
Operational start-up costs (2)
3.1 1.7 
ERP system transition (3)
— 3.2 
Adjusted income tax provision (4)
(4.5)(2.5)
Adjusted net income$89.7 $92.9 
Adjusted earnings per common share, diluted$0.50 $0.53 
Diluted shares outstanding178.0 176.8 

(1)In the first quarter of 2024, we recorded $14.8 million of transaction costs, primarily related to legal and professional fees associated with the pending acquisition of Mattress Firm. In the first quarter of 2023, we recorded $5.2 million of transaction costs primarily associated with the pending acquisition of Mattress Firm.
(2)In the first quarter of 2024, we recorded $3.1 million of operational start-up costs in cost of sales for the capacity expansion of its manufacturing and distribution facilities in the U.S., which include personnel and facility related costs. In the first quarter of 2023, we recorded $1.7 million of operational start-up costs in cost of sales.
(3)
In the first quarter of 2023, we recorded $3.2 million of charges related to the transition of its ERP system in cost of sales.
(4)
Adjusted income tax provision represents the tax effects associated with the aforementioned items.


23

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

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

Three Months Ended March 31, 2024
(in millions, except percentages)
 Consolidated
 Margin North America Margin International Margin Corporate
Net sales$1,189.4 $901.1 $288.3 $— 
Gross profit$512.6 43.1 %$352.8 39.2 %$159.8 55.4 %$— 
Adjustments:
Operational start-up costs (1)
3.1 3.1 — — 
Total adjustments3.1 3.1 — — 
Adjusted gross profit$515.7 43.4 %$355.9 39.5 %$159.8 55.4 %$— 
Operating income (expense)$131.5 11.1 %$134.4 14.9 %$44.8 15.5 %$(47.7)
Adjustments:
Transaction costs (2)
14.8 — — 14.8 
Operational start-up costs (1)
3.1 3.1 — — 
Total adjustments17.9 3.1 — 14.8 
Adjusted operating income (expense)$149.4 12.6 %$137.5 15.3 %$44.8 15.5 %$(32.9)

(1)In the first quarter of 2024, we recorded $3.1 million of operational start-up costs in cost of sales for the capacity expansion of its manufacturing and distribution facilities in the U.S., which include personnel and facility related costs.
(2)In the first quarter of 2024, we recorded $14.8 million of transaction costs, primarily related to legal and professional fees associated with the pending acquisition of Mattress Firm.
24

The following table sets forth our reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the three months ended March 31, 2023.

Three Months Ended March 31, 2023
(in millions, except percentages) Consolidated Margin North America MarginInternational Margin Corporate
Net sales$1,208.1 $919.6 $288.5 $— 
Gross profit$499.9 41.4 %$344.0 37.4 %$155.9 54.0 %$— 
Adjustments:
ERP system transition (1)
3.2 3.2 — — 
Operational start-up costs (2)
1.7 1.7 — — 
Total adjustments4.9 4.9 — — 
Adjusted gross profit$504.8