Quarterly Report (10-q)

Date : 05/09/2019 @ 9:52PM
Source : Edgar (US Regulatory)
Stock : Tempur Sealy International Inc (TPX)
Quote : 78.31  0.8 (1.03%) @ 9:04PM

Quarterly Report (10-q)

false--12-31Q120190001206264falseLarge Accelerated Filerfalse0.3333000.02000.02000.00800.01750.01750.008000000.50.502900000 0001206264 2019-01-01 2019-03-31 0001206264 2019-05-06 0001206264 2018-01-01 2018-03-31 0001206264 2018-12-31 0001206264 2019-03-31 0001206264 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001206264 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-03-31 0001206264 us-gaap:TreasuryStockMember 2019-01-01 2019-03-31 0001206264 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001206264 us-gaap:TreasuryStockMember 2019-03-31 0001206264 us-gaap:RetainedEarningsMember 2018-12-31 0001206264 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001206264 us-gaap:RetainedEarningsMember 2019-03-31 0001206264 us-gaap:NoncontrollingInterestMember 2018-12-31 0001206264 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001206264 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001206264 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001206264 us-gaap:NoncontrollingInterestMember 2019-03-31 0001206264 us-gaap:TreasuryStockMember 2018-12-31 0001206264 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001206264 us-gaap:CommonStockMember 2019-03-31 0001206264 us-gaap:CommonStockMember 2018-12-31 0001206264 2018-03-31 0001206264 us-gaap:TreasuryStockMember 2017-12-31 0001206264 us-gaap:TreasuryStockMember 2018-01-01 2018-03-31 0001206264 us-gaap:NoncontrollingInterestMember 2018-03-31 0001206264 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 0001206264 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-03-31 0001206264 us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0001206264 us-gaap:RetainedEarningsMember 2017-12-31 0001206264 us-gaap:CommonStockMember 2018-03-31 0001206264 2017-12-31 0001206264 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001206264 us-gaap:RetainedEarningsMember 2018-01-01 0001206264 us-gaap:CommonStockMember 2017-12-31 0001206264 us-gaap:RetainedEarningsMember 2018-03-31 0001206264 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001206264 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0001206264 us-gaap:NoncontrollingInterestMember 2017-12-31 0001206264 us-gaap:TreasuryStockMember 2018-03-31 0001206264 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-03-31 0001206264 2018-01-01 0001206264 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31 0001206264 us-gaap:SalesReturnsAndAllowancesMember 2019-03-31 0001206264 us-gaap:SalesReturnsAndAllowancesMember 2018-12-31 0001206264 us-gaap:SalesReturnsAndAllowancesMember 2019-01-01 2019-03-31 0001206264 us-gaap:WarrantyReservesMember 2019-03-31 0001206264 us-gaap:WarrantyReservesMember 2019-01-01 2019-03-31 0001206264 us-gaap:WarrantyReservesMember 2018-12-31 0001206264 tpx:MattressesMember srt:MinimumMember tpx:NorthAmericaSegmentMember 2019-01-01 2019-03-31 0001206264 tpx:MattressesMember srt:MaximumMember tpx:NonproratedMember tpx:NorthAmericaSegmentMember 2019-01-01 2019-03-31 0001206264 tpx:MattressesMember srt:MinimumMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 tpx:AccruedExpensesAndOtherCurrentLiabilitiesMember 2019-03-31 0001206264 tpx:MattressesMember srt:MaximumMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 tpx:AccruedExpensesAndOtherCurrentLiabilitiesMember 2018-12-31 0001206264 us-gaap:OtherNoncurrentLiabilitiesMember 2018-12-31 0001206264 tpx:MattressesMember srt:MaximumMember tpx:NorthAmericaSegmentMember 2019-01-01 2019-03-31 0001206264 tpx:PillowsTwoMember tpx:NorthAmericaSegmentMember 2019-01-01 2019-03-31 0001206264 us-gaap:OtherNoncurrentLiabilitiesMember 2019-03-31 0001206264 tpx:MattressesMember srt:MinimumMember tpx:NonproratedMember tpx:NorthAmericaSegmentMember 2019-01-01 2019-03-31 0001206264 tpx:MattressesMember tpx:ProratedMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001206264 tpx:MattressesMember tpx:NonproratedMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:WholesaleMember srt:NorthAmericaMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:BeddingProductsMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember us-gaap:SalesChannelDirectlyToConsumerMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember us-gaap:SalesChannelDirectlyToConsumerMember srt:NorthAmericaMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:ProductsOtherMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember country:US 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:BeddingProductsMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:ProductsOtherMember tpx:InternationalMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:ProductsOtherMember srt:NorthAmericaMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember country:US 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:OtherInternationalMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember us-gaap:SalesChannelDirectlyToConsumerMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:ProductsOtherMember srt:NorthAmericaMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:WholesaleMember srt:NorthAmericaMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember country:CA 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember us-gaap:SalesChannelDirectlyToConsumerMember srt:NorthAmericaMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:BeddingProductsMember srt:NorthAmericaMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember srt:NorthAmericaMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:WholesaleMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:InternationalMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:ProductsOtherMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember country:CA 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember srt:NorthAmericaMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:WholesaleMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:InternationalMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember us-gaap:SalesChannelDirectlyToConsumerMember tpx:InternationalMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:BeddingProductsMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:WholesaleMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:OtherInternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:WholesaleMember tpx:InternationalMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:ProductsOtherMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:BeddingProductsMember tpx:InternationalMember 2018-01-01 2018-03-31 0001206264 us-gaap:OperatingSegmentsMember us-gaap:SalesChannelDirectlyToConsumerMember 2019-01-01 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:BeddingProductsMember srt:NorthAmericaMember 2019-01-01 2019-03-31 0001206264 tpx:InnovativeMattressSolutionsLLCIMSMember us-gaap:SubsequentEventMember 2019-04-01 2019-04-01 0001206264 tpx:NorthAmericaSegmentMember 2019-01-01 2019-03-31 0001206264 tpx:InternationalMember 2019-03-31 0001206264 tpx:NorthAmericaSegmentMember 2019-03-31 0001206264 tpx:InternationalMember 2018-12-31 0001206264 tpx:NorthAmericaSegmentMember 2018-12-31 0001206264 tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 tpx:SeniorNotesDue2026Member 2019-03-31 0001206264 tpx:RevolverMember tpx:CreditFacility2016Member 2019-03-31 0001206264 tpx:RevolverMember tpx:CreditFacility2016Member 2018-12-31 0001206264 us-gaap:SecuredDebtMember 2018-12-31 0001206264 tpx:TermFacilityMember tpx:CreditFacility2016Member 2018-12-31 0001206264 tpx:SeniorNotesDue2026Member 2018-12-31 0001206264 tpx:SeniorNotesDue2023Member 2019-03-31 0001206264 us-gaap:SecuredDebtMember 2019-03-31 0001206264 tpx:FinancingandCapitalLeaseObligationsMember 2019-03-31 0001206264 tpx:TermFacilityMember tpx:CreditFacility2016Member 2019-03-31 0001206264 tpx:FinancingandCapitalLeaseObligationsMember 2018-12-31 0001206264 tpx:SeniorNotesDue2023Member 2018-12-31 0001206264 us-gaap:FairValueInputsLevel2Member tpx:SeniorNotesDue2023Member 2019-03-31 0001206264 us-gaap:FairValueInputsLevel2Member tpx:SeniorNotesDue2026Member 2019-03-31 0001206264 us-gaap:FairValueInputsLevel2Member tpx:SeniorNotesDue2026Member 2018-12-31 0001206264 us-gaap:FairValueInputsLevel2Member tpx:SeniorNotesDue2023Member 2018-12-31 0001206264 tpx:TermFacilityMember tpx:CreditFacility2016Member 2019-01-01 2019-03-31 0001206264 us-gaap:LineOfCreditMember tpx:CreditFacility2016Member 2019-03-31 0001206264 us-gaap:RevolvingCreditFacilityMember 2017-04-12 0001206264 tpx:TermFacilityMember tpx:CreditFacility2016Member us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0001206264 us-gaap:SecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-03-31 0001206264 tpx:RevolverMember tpx:CreditFacility2016Member us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-03-31 0001206264 tpx:TermFacilityMember tpx:CreditFacility2016Member us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-01 2019-03-31 0001206264 us-gaap:SecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0001206264 tpx:RevolverMember tpx:CreditFacility2016Member us-gaap:LondonInterbankOfferedRateLIBORMember 2018-01-01 2018-12-31 0001206264 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-01-01 2019-03-31 0001206264 us-gaap:AccumulatedTranslationAdjustmentMember 2018-03-31 0001206264 us-gaap:AccumulatedTranslationAdjustmentMember 2018-01-01 2018-03-31 0001206264 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-03-31 0001206264 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-12-31 0001206264 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-01-01 2018-03-31 0001206264 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0001206264 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2017-12-31 0001206264 us-gaap:AccumulatedTranslationAdjustmentMember 2019-03-31 0001206264 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-03-31 0001206264 us-gaap:AccumulatedTranslationAdjustmentMember 2017-12-31 0001206264 us-gaap:AccumulatedTranslationAdjustmentMember 2019-01-01 2019-03-31 0001206264 tpx:PerformanceBasedRestrictedStockUnitsMember 2019-01-01 2019-03-31 0001206264 tpx:February2017ProgramMember 2019-03-31 0001206264 tpx:PerformanceBasedRestrictedStockUnitsMember 2018-01-01 2018-03-31 0001206264 tpx:VestingScenarioFourMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-03-31 0001206264 tpx:VestingScenarioTwoMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2019-03-31 0001206264 srt:MinimumMember tpx:VestingScenarioThreeMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-03-31 0001206264 tpx:VestingScenarioFourMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2019-03-31 0001206264 tpx:VestingScenarioTwoMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-03-31 0001206264 tpx:VestingScenarioOneMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-01-01 2019-03-31 0001206264 tpx:VestingScenarioTwoMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2019-01-01 2019-03-31 0001206264 srt:MaximumMember tpx:VestingScenarioThreeMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2019-03-31 0001206264 tpx:VestingScenarioTwoMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-01-01 2019-03-31 0001206264 tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member 2019-03-31 0001206264 tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2019-03-31 0001206264 srt:MaximumMember tpx:VestingScenarioThreeMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-03-31 0001206264 tpx:VestingScenarioOneMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2019-03-31 0001206264 tpx:VestingScenarioOneMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-03-31 0001206264 tpx:VestingScenarioOneMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2019-01-01 2019-03-31 0001206264 srt:MinimumMember tpx:VestingScenarioThreeMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2019-03-31 0001206264 tpx:PerformanceBasedRestrictedStockUnitsMember tpx:A2017AspirationalPlanMember 2019-03-31 0001206264 tpx:RestrictedStockUnitsAndDeferredStockUnitsMember 2018-01-01 2018-03-31 0001206264 tpx:RestrictedStockUnitsAndDeferredStockUnitsMember 2019-01-01 2019-03-31 0001206264 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-03-31 0001206264 us-gaap:EmployeeStockOptionMember 2018-01-01 2018-03-31 0001206264 tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member 2019-01-01 2019-03-31 0001206264 tpx:A2017AspirationalPlanMember 2018-01-01 2018-03-31 0001206264 tpx:PerformanceBasedRestrictedStockUnitsMember tpx:A2017AspirationalPlanMember 2019-01-01 2019-03-31 0001206264 tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-01-01 2019-03-31 0001206264 tpx:VestingScenarioThreeMember tpx:PerformanceBasedRestrictedStockUnitsMember tpx:AspirationalPlan2019Member us-gaap:ShareBasedCompensationAwardTrancheOneMember 2019-01-01 2019-03-31 0001206264 tpx:DavidBuehringCaseMember 2017-03-24 2017-03-24 0001206264 tpx:GardnerCaseMember 2017-07-01 2017-07-31 0001206264 us-gaap:ForeignCountryMember tpx:DanishTaxAuthoritySKATMember tpx:TaxYearsAfter2011Member 2019-03-31 0001206264 us-gaap:ForeignCountryMember tpx:DanishTaxAuthoritySKATMember 2018-12-31 0001206264 us-gaap:ForeignCountryMember tpx:DanishTaxAuthoritySKATMember tpx:TaxYears20012011Member 2018-12-31 0001206264 us-gaap:ForeignCountryMember tpx:DanishTaxAuthoritySKATMember tpx:TaxYears20012011Member 2019-03-31 0001206264 us-gaap:ForeignCountryMember tpx:DanishTaxAuthoritySKATMember tpx:TaxYearsAfter2011Member 2018-12-31 0001206264 us-gaap:ForeignCountryMember tpx:DanishTaxAuthoritySKATMember 2019-03-31 0001206264 us-gaap:NonUsMember 2019-01-01 2019-03-31 0001206264 us-gaap:NonUsMember 2018-01-01 2018-03-31 0001206264 us-gaap:CorporateNonSegmentMember 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:InternationalMember 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember srt:NorthAmericaMember 2019-03-31 0001206264 us-gaap:CorporateNonSegmentMember 2018-12-31 0001206264 us-gaap:OperatingSegmentsMember 2018-12-31 0001206264 us-gaap:OperatingSegmentsMember 2019-03-31 0001206264 us-gaap:OperatingSegmentsMember tpx:InternationalMember 2018-12-31 0001206264 us-gaap:OperatingSegmentsMember srt:NorthAmericaMember 2018-12-31 0001206264 us-gaap:IntersegmentEliminationMember 2018-12-31 0001206264 us-gaap:IntersegmentEliminationMember 2019-03-31 0001206264 country:US 2018-12-31 0001206264 country:CA 2018-12-31 0001206264 us-gaap:NonUsMember 2018-12-31 0001206264 country:US 2019-03-31 0001206264 tpx:OtherInternationalMember 2019-03-31 0001206264 us-gaap:NonUsMember 2019-03-31 0001206264 country:CA 2019-03-31 0001206264 tpx:OtherInternationalMember 2018-12-31 0001206264 us-gaap:IntersegmentEliminationMember tpx:InternationalMember 2019-01-01 2019-03-31 0001206264 us-gaap:CorporateNonSegmentMember 2019-01-01 2019-03-31 0001206264 us-gaap:IntersegmentEliminationMember srt:NorthAmericaMember 2019-01-01 2019-03-31 0001206264 us-gaap:IntersegmentEliminationMember 2019-01-01 2019-03-31 0001206264 us-gaap:IntersegmentEliminationMember 2018-01-01 2018-03-31 0001206264 us-gaap:IntersegmentEliminationMember tpx:InternationalMember 2018-01-01 2018-03-31 0001206264 us-gaap:CorporateNonSegmentMember 2018-01-01 2018-03-31 0001206264 us-gaap:IntersegmentEliminationMember srt:NorthAmericaMember 2018-01-01 2018-03-31 0001206264 srt:ConsolidationEliminationsMember 2019-03-31 0001206264 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-03-31 0001206264 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2019-03-31 0001206264 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-03-31 0001206264 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-01-01 2018-03-31 0001206264 srt:ConsolidationEliminationsMember 2018-01-01 2018-03-31 0001206264 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-01-01 2018-03-31 0001206264 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2018-01-01 2018-03-31 0001206264 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-03-31 0001206264 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-12-31 0001206264 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2018-03-31 0001206264 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-03-31 0001206264 srt:ConsolidationEliminationsMember 2018-03-31 0001206264 srt:ConsolidationEliminationsMember 2017-12-31 0001206264 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2017-12-31 0001206264 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2017-12-31 0001206264 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-01-01 2019-03-31 0001206264 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2019-01-01 2019-03-31 0001206264 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2019-01-01 2019-03-31 0001206264 srt:ConsolidationEliminationsMember 2019-01-01 2019-03-31 0001206264 srt:ParentCompanyMember srt:ReportableLegalEntitiesMember 2018-12-31 0001206264 srt:NonGuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-12-31 0001206264 srt:GuarantorSubsidiariesMember srt:ReportableLegalEntitiesMember 2018-12-31 0001206264 srt:ConsolidationEliminationsMember 2018-12-31 0001206264 srt:ParentCompanyMember srt:ParentCompanyMember 2019-03-31 xbrli:pure tpx:vote iso4217:USD xbrli:shares tpx:segment tpx:product_category xbrli:shares iso4217:USD tpx:officer iso4217:DKK tpx:suit tpx:channel
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  
FORM 10-Q
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
o
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, including zip code, of principal executive offices)
Registrant’s telephone number, including area code: (800) 878-8889
  
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.  Yes   ý  No   o

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, 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 filer  x
Accelerated filer  o
Non-accelerated filer  o  
Smaller reporting company  o
Emerging Growth Company  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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Common Stock, $0.01 par value
TPX
New York Stock Exchange

The number of shares outstanding of the registrant’s common stock as of May 6, 2019 was  54,731,458 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,” “projects,” “plans,” “proposed,” “targets,” “intends,” “believes,” “will” 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.

Numerous factors, many of which are beyond the Company's control, could cause actual results to differ materially from those expressed as forward-looking statements in this Report, including risks associated with the impact of the macroeconomic environment in both the U.S. and internationally (including the impact of our highly inflationary economies) on our business segments and expectations regarding growth of the mattress industry; uncertainties arising from global events; the effects of strategic investments on our operations, including our efforts to expand our global market share; the ability to develop and successfully launch 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 retail channel, including the timing of opening or expanding within large retail accounts and the timing and success of product launches; 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 effects of consolidation of retailers on revenues and costs; competition in our industry; consumer acceptance of our products; the effects of discontinued operations on our operating results and future performance; general economic, financial and industry conditions, particularly conditions relating to the financial performance and related credit issues present in the retail sector; financial distress among our business partners, customers and competitors; financial solvency and related problems experienced by other market participants; our ability to execute on our strategy to optimize and integrate the assets of Innovative Mattress Solutions, LLC ("iMS") acquired by our affiliate Sleep Outfitters USA, LLC ("Sleep Outfitters"); our reliance on information technology and the associated risks involving potential security lapses and/or cyber-based attacks; 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; 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; changes in interest rates; effects of changes in foreign exchange rates on our reported earnings; changing commodity costs; disruptions in the supply of raw materials, or loss of suppliers; expectations regarding our target leverage and our share repurchase program; sales fluctuations due to seasonality; the effect of future legislative or regulatory changes, including changes in international trade duties, tariffs and other aspects of international trade policy; our ability to protect our intellectual property; and disruptions to the implementation of our strategic priorities and business plan caused by abrupt changes in our executive management team.

Other potential risk factors include the risk factors discussed under the heading "Risk Factors" under ITEM 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Annual Report"). 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 "2016 Credit Agreement" refers to the Company's senior credit facility entered into in 2016; "2023 Senior Notes" refers to the 5.625% senior notes due 2023 issued in 2015; "2026 Senior Notes" refers to the 5.50% senior notes due 2026 issued in 2016; and "2020 Senior Notes" refers to the 6.875% senior notes due 2020 retired in 2016.

2


TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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,
 
2019
 
2018
Net sales
$
690.9

 
$
637.4

Cost of sales
409.1

 
372.7

Gross profit
281.8

 
264.7

Selling and marketing expenses
153.5

 
145.4

General, administrative and other expenses
70.7

 
67.5

Equity income in earnings of unconsolidated affiliates
(2.9
)
 
(3.9
)
Operating income
60.5

 
55.7

 
 
 
 
Other expense, net:
 
 
 
Interest expense, net
22.4

 
22.7

Other income, net
(7.8
)
 
(2.6
)
Total other expense, net
14.6

 
20.1

 
 
 
 
Income from continuing operations before income taxes
45.9

 
35.6

Income tax provision
(16.9
)
 
(10.0
)
Income from continuing operations
29.0

 
25.6

Loss from discontinued operations, net of tax
(0.4
)
 
(2.8
)
Net income before non-controlling interest
28.6

 
22.8

Less: Net income (loss) attributable to non-controlling interest
0.2

 
(0.3
)
Net income attributable to Tempur Sealy International, Inc.
$
28.4

 
$
23.1

 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
 
 
 
Earnings per share for continuing operations
$
0.53

 
$
0.48

Loss per share for discontinued operations
(0.01
)
 
(0.05
)
Earnings per share
$
0.52

 
$
0.43

 
 
 
 
Diluted
 
 
 
Earnings per share for continuing operations
$
0.52

 
$
0.47

Loss per share for discontinued operations
(0.01
)
 
(0.05
)
Earnings per share
$
0.51

 
$
0.42

 
 
 
 
Weighted average common shares outstanding:
 
 
 
Basic
54.7

 
54.3

Diluted
55.7

 
54.9

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,
 
2019
 
2018
Net income before non-controlling interest
$
28.6

 
$
22.8

Other comprehensive income, net of tax
 
 
 
Foreign currency translation adjustments
4.0

 
5.0

Pension benefits loss, net of tax

 
(0.6
)
Other comprehensive income, net of tax
4.0

 
4.4

Comprehensive income
32.6

 
27.2

Less: Comprehensive income (loss) attributable to non-controlling interest
0.2

 
(0.3
)
Comprehensive income attributable to Tempur Sealy International, Inc.
$
32.4

 
$
27.5

 
See accompanying Notes to Condensed Consolidated Financial Statements .



5


TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
 
March 31, 2019
 
December 31, 2018
ASSETS
(Unaudited)
 
 
 
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
39.6

 
$
45.8

Accounts receivable, net
356.4

 
321.5

Inventories
239.7

 
222.3

Prepaid expenses and other current assets
217.3

 
215.8

Total Current Assets
853.0

 
805.4

Property, plant and equipment, net
418.5

 
420.8

Goodwill
725.5

 
723.0

Other intangible assets, net
646.9

 
649.3

Operating lease right-of-use assets
191.9

 

Deferred income taxes
21.9

 
22.6

Other non-current assets
108.0

 
94.3

Total Assets
$
2,965.7

 
$
2,715.4

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

 
 
 
 
Current Liabilities:
 

 
 

Accounts payable
$
245.7

 
$
253.0

Accrued expenses and other current liabilities
401.8

 
359.2

Current portion of long-term debt
55.5

 
47.1

Income taxes payable
22.5

 
9.7

Total Current Liabilities
725.5

 
669.0

Long-term debt, net
1,604.1

 
1,599.1

Long-term operating lease obligations
157.2

 

Deferred income taxes
115.5

 
117.5

Other non-current liabilities
109.9

 
112.3

Total Liabilities
2,712.2

 
2,497.9

 
 
 
 
Commitments and contingencies—see Note 10


 


 
 
 
 
Total Stockholders' Equity
253.5

 
217.5

Total Liabilities and Stockholders' Equity
$
2,965.7

 
$
2,715.4

 
See accompanying Notes to Condensed Consolidated Financial Statements. 



6


TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions)
 
 
 
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, 2018
$

 
99.2

 
$
1.0

 
44.7

 
$
(1,737.0
)
 
$
532.1

 
$
1,513.8

 
$
(95.3
)
 
$
2.9

 
$
217.5

Net income
 
 
 
 
 
 
 
 
 
 
 
 
28.4

 
 
 
 
 
28.4

Net income attributable to non-controlling interest
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0.2

 
0.2

Repurchase of interest in subsidiary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1.9
)
 
(1.9
)
Foreign currency adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4.0

 
 
 
4.0

Exercise of stock options
 
 
 
 
 
 
(0.1
)
 
0.8

 
1.6

 
 
 
 
 
 
 
2.4

Issuances of PRSUs, RSUs, and DSUs
 
 
 
 
 
 
(0.2
)
 
3.2

 
(3.2
)
 
 
 
 
 
 
 

Treasury stock repurchased
 
 
 
 
 
 
 
 
(0.8
)
 
 
 
 
 
 
 
 
 
(0.8
)
Treasury stock repurchased - PRSU/RSU/DSU releases
 
 
 
 
 
 
0.1

 
(2.9
)
 
 
 
 
 
 
 
 
 
(2.9
)
Amortization of unearned stock-based compensation
 
 
 
 
 
 
 
 
 
 
6.6

 
 
 
 
 
 
 
6.6

Balance, March 31, 2019
$

 
99.2

 
$
1.0

 
44.5

 
$
(1,736.7
)
 
$
537.1

 
$
1,542.2

 
$
(91.3
)
 
$
1.2

 
$
253.5


 
 
 
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, 2017
$
2.2

 
99.2

 
$
1.0

 
45.0

 
$
(1,737.2
)
 
$
508.0

 
$
1,416.2

 
$
(75.5
)
 
$

 
$
112.5

Adoption of accounting standards effective January 1, 2018
 
 
 
 
 
 
 
 
 
 
 
 
(2.9
)
 
(0.5
)
 
 
 
(3.4
)
Net income
 
 
 
 
 
 
 
 
 
 
 
 
23.1

 
 
 
 
 
23.1

Net loss attributable to non-controlling interest
(0.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Adjustment to pension liability, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(0.1
)
 
 
 
(0.1
)
Foreign currency adjustments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.0

 
 
 
5.0

Exercise of stock options
 
 
 
 
 
 

 
0.6

 
1.3

 
 
 
 
 
 
 
1.9

Issuances of PRSUs, RSUs, and DSUs
 
 
 
 
 
 
(0.1
)
 
2.0

 
(2.0
)
 
 
 
 
 
 
 

Treasury stock repurchased - PRSU/RSU/DSU releases
 
 
 
 
 
 
0.1

 
(2.9
)
 
 
 
 
 
 
 
 
 
(2.9
)
Amortization of unearned stock-based compensation
 
 
 
 
 
 
 
 
 
 
6.3

 
 
 
 
 
 
 
6.3

Balance, March 31, 2018
$
1.9

 
99.2

 
$
1.0

 
45.0

 
$
(1,737.5
)
 
$
513.6

 
$
1,436.4

 
$
(71.1
)
 
$

 
$
142.4



The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.


7


TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions) (unaudited)
 
Three Months Ended
 
March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
 
 
 
Net income before non-controlling interest
$
28.6

 
$
22.8

Loss from discontinued operations, net of tax
0.4

 
2.8

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
21.5

 
20.8

Amortization of stock-based compensation
6.6

 
6.3

Non-cash lease expense
0.8

 

Amortization of deferred financing costs
0.6

 
0.6

Bad debt expense
1.6

 
1.3

Deferred income taxes
(1.8
)
 
0.1

Dividends received from unconsolidated affiliates
1.3

 
1.6

Equity income in earnings of unconsolidated affiliates
(2.9
)
 
(3.9
)
Loss on disposal of assets
0.2

 
0.2

Foreign currency adjustments and other
(6.7
)
 
(3.9
)
Changes in operating assets and liabilities
(45.6
)
 
(47.8
)
Net cash provided by operating activities from continuing operations
4.6

 
0.9

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
 

 
 

Purchases of property, plant and equipment
(19.1
)
 
(21.8
)
Debtor-in-possession financing arrangement
(9.5
)
 

Other
8.3

 
4.2

Net cash used in investing activities from continuing operations
(20.3
)
 
(17.6
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
 

 
 

Proceeds from borrowings under long-term debt obligations
212.6

 
417.1

Repayments of borrowings under long-term debt obligations
(198.7
)
 
(394.8
)
Proceeds from exercise of stock options
2.4

 
1.9

Treasury stock repurchased
(3.7
)
 
(2.9
)
Other
(1.6
)
 
(1.8
)
Net cash provided by financing activities from continuing operations
11.0

 
19.5

 
 
 
 
Net cash (used in) provided by continuing operations
(4.7
)
 
2.8

 
 
 
 
CASH USED IN DISCONTINUED OPERATIONS
 
 
 
Operating cash flows
(0.7
)
 
(10.6
)
Investing cash flows

 

Financing cash flows

 

Net cash used in discontinued operations
(0.7
)
 
(10.6
)
 
 
 
 
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
(0.8
)
 
0.4

Decrease in cash and cash equivalents
(6.2
)
 
(7.4
)
CASH AND CASH EQUIVALENTS, beginning of period
45.8

 
41.9

CASH AND CASH EQUIVALENTS, end of period
39.6

 
34.5

LESS: CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS

 
1.1

CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS
$
39.6

 
$
33.4

 
 
 
 
Supplemental cash flow information:
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
8.1

 
$
7.7

Income taxes, net of refunds
7.6

 
9.4

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 develops, manufactures, markets and sells 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 a group of Asia-Pacific joint ventures to develop markets for Sealy® branded products in those regions. The Company’s ownership interest in 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 $22.3 million and $22.5 million at March 31, 2019 and December 31, 2018 , 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 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, 2018 , included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2019.
 
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) Adoption of New Accounting Standards.

Leases. Effective January 1, 2019, the Company adopted Accounting Standards Codification 842, Leases ("ASC 842"). ASC 842 consists of a comprehensive lease accounting standard requiring most leases to be recognized on the Condensed Consolidated Balance Sheet and significant new disclosures. The Company determines if an arrangement contains a lease at inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded within the Condensed Consolidated Balance Sheet and are expensed on a straight-line basis over the lease term within the Condensed Consolidated Statement of Income. The lease term is determined by assuming the exercise of renewal options that are reasonably certain. As most leases do not provide an implicit interest rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. When contracts contain lease and non-lease components, the Company generally accounted for both components as a single lease component.

The adoption of ASC 842 resulted in the recognition of right-of-use assets of $ 197.2 million and operating lease liabilities of  $203.3 million as of January 1, 2019. The adoption of ASC 842 did not have a material impact on the Company's results of operations, cash flows or debt covenants. For additional information, see Note 8 , " Leases " of the Condensed Consolidated Financial Statements.


9

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

(c) Inventories . Inventories are stated at the lower of cost and net realizable value, determined by the first-in, first-out method, and consist of the following:
 
March 31,
 
December 31,
(in millions)
2019
 
2018
Finished goods
$
154.6

 
$
148.9

Work-in-process
12.0

 
11.8

Raw materials and supplies
73.1

 
61.6

 
$
239.7

 
$
222.3



(d)  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.

The Company had the following activity for sales returns from December 31, 2018 to March 31, 2019 :
(in millions)
 
Balance as of December 31, 2018
$
34.3

Amounts accrued
24.6

Returns charged to accrual
(24.0
)
Balance as of March 31, 2019
$
34.9



As of March 31, 2019 and December 31, 2018 , $22.7 million and $22.0 million of accrued sales returns are included as a component of accrued expenses and other current liabilities and $12.2 million and $12.3 million , of accrued sales returns are included in other non-current liabilities on the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.

(e) 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.

The Company had the following activity for its accrued warranty expense from December 31, 2018 to March 31, 2019 :
(in millions)
 
Balance as of December 31, 2018
$
36.4

Amounts accrued
7.9

Warranties charged to accrual
(7.2
)
Balance as of March 31, 2019
$
37.1



As of March 31, 2019 and December 31, 2018 , $15.1 million and $14.9 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $22.0 million and $21.5 million of accrued warranty expense is included in other non-current liabilities in the Company’s accompanying Condensed Consolidated Balance Sheets, respectively.


10

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

(f) Allowance for Doubtful Accounts . The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s accounts receivable. The Company regularly reviews the adequacy of its allowance for doubtful accounts. The Company determines the allowance based on 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. Account balances are charged off against the allowance after all reasonable means of collection have been exhausted and the potential for recovery is considered remote. The allowance for doubtful accounts included in accounts receivable, net in the accompanying Condensed Consolidated Balance Sheets was $49.5 million and $47.6 million as of March 31, 2019 and December 31, 2018 , respectively.

(2) Recently Issued Accounting Pronouncements

Credit Losses

In June 2016, the FASB issued ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires entities to estimate expected lifetime credit losses on financial assets and provide expanded disclosures. This ASU is effective on January 1, 2020. In transition, entities are required to use a modified retrospective approach for the adoption of the new standard. The ASU replaces the incurred loss impairment methodology with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company is currently evaluating this ASU to determine the impact it will have on the Company's Condensed Consolidated Financial Statements.    

(3) Revenue Recognition

Disaggregation of Revenue

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, 2019 and 2018:
 
Three Months Ended March 31, 2019
 
Three Months Ended March 31, 2018
(in millions)
North America
 
International
 
Consolidated
 
North America
 
International
 
Consolidated
Channel
 
 
 
 
 
 
 
 
 
 
 
Wholesale
$
501.8

 
$
114.1

 
$
615.9

 
$
454.0

 
$
129.1

 
$
583.1

Direct
42.2

 
32.8

 
75.0

 
31.0

 
23.3

 
54.3

Net sales
$
544.0

 
$
146.9

 
$
690.9

 
$
485.0

 
$
152.4

 
$
637.4

 
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
International
 
Consolidated
 
North America
 
International
 
Consolidated
Product
 
 
 
 
 
 
 
 
 
 
 
Bedding products
$
514.4

 
$
115.4

 
$
629.8

 
$
452.3

 
$
123.7

 
$
576.0

Other products
29.6

 
31.5

 
61.1

 
32.7

 
28.7

 
61.4

Net sales
$
544.0

 
$
146.9

 
$
690.9

 
$
485.0

 
$
152.4

 
$
637.4

 
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
International
 
Consolidated
 
North America
 
International
 
Consolidated
Geographical region
 
 
 
 
 
 
 
 
 
 
 
United States
$
497.2

 
$

 
$
497.2

 
$
440.2

 
$

 
$
440.2

Canada
46.8

 

 
46.8

 
44.8

 

 
44.8

International

 
146.9

 
146.9

 

 
152.4

 
152.4

Net sales
$
544.0

 
$
146.9

 
$
690.9

 
$
485.0

 
$
152.4

 
$
637.4



The North America and International segments sell product through two channels: Wholesale and Direct. The Wholesale channel includes all product sales to third party retailers, including third party distribution, hospitality and healthcare. The Direct channel includes product sales to company-owned stores, e-commerce and call centers. The North America and International segments classify products into two major categories: Bedding and Other. Bedding products include mattresses, foundations and adjustable foundations. Other products include pillows, mattress covers, sheets, cushions and various other comfort products.


11

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

The Wholesale channel also includes income from royalties derived by licensing Sealy® and Stearns & Foster® brands, technology and trademarks to other manufacturers. The licenses include rights for the licensees to use trademarks as well as current proprietary or patented technology that the Company utilizes. The Company also provides its licensees with product specifications, research and development, statistical services and marketing programs. The Company recognizes royalty income based on the occurrence of sales of Sealy® and Stearns & Foster® branded products by various licensees.

For product sales in each of the Company's channels, the Company recognizes a sale when the obligations under the terms of the contract with the customer is satisfied, which is generally when control of the product has transferred to the customer. Transferring control of each product sold is considered a separate performance obligation. The Company transfers control and recognizes a sale when the customer receives the product. Each unit sold is considered an independent, unbundled performance obligation. The Company does not have any additional performance obligations other than product sales that are material in the context of the contract. The Company also offers assurance type warranties on certain of its products, which is not accounted for as separate performance obligations under the revenue model.

The transaction price is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The amount of consideration the Company receives, and correspondingly, the revenue that is recognized, varies due to sales incentives and returns the Company offers to its Wholesale and Direct channel customers. Specifically, the Company extends volume discounts, as well as promotional allowances, floor sample discounts, commissions paid to retail associates and slotting fees to its Wholesale channel customers and reflects these amounts as a reduction of sales at the time revenue is recognized based on historical experience. The Company allows returns following a sale, depending on the channel and promotion. The Company reduces revenue and cost of sales for its estimate of the expected returns, which is primarily based on the level of historical sales returns. The Company does not offer extended payment terms beyond one year to customers. As such, the Company does not adjust its consideration for financing arrangements.

In certain jurisdictions, the Company is subject to certain non-income taxes including, but not limited to, sales tax, value added tax, excise tax and other taxes. These taxes are excluded from the transaction price, and therefore, excluded from revenue.    The Company has elected to account for shipping and handling activities as a fulfillment cost as permitted by Topic 606. Accordingly, the Company reflects all amounts billed to customers for shipping and handling in revenue and the costs of fulfillment in cost of sales.
    
(4) Discontinued Operations

The Company presents the financial position and results of operations of certain businesses in the Latin American region as discontinued operations in the accompanying Condensed Consolidated Financial Statements. In 2018, the Company divested of the net assets of certain subsidiaries in the Latin American region.

Components of amounts reflected in the Condensed Consolidated Statements of Income related to discontinued operations are presented in the following table for each of the periods ended March 31 .

 
Three Months Ended
 
March 31,
 
2019
 
2018
Net sales
$
0.2

 
$
10.6

Cost of sales
0.2

 
7.4

Gross profit

 
3.2

Selling and marketing expenses
0.1

 
3.5

General, administrative and other expenses
0.6

 
1.5

Operating loss
(0.7
)
 
(1.8
)
 
 
 
 
Interest (income) expense, net and other
(0.3
)
 
1.0

 
 
 
 
Loss from discontinued operations before income taxes
(0.4
)
 
(2.8
)
Income tax provision

 

Net loss from discontinued operations, net of tax
$
(0.4
)
 
$
(2.8
)

(5) Acquisitions

Acquisition of Innovative Mattress Solutions, LLC

Effective April 1, 2019, (the "Closing Date"), the Company acquired substantially all of the net assets of iMS through its affiliate Sleep Outfitters. iMS, a customer of the Company prior to the acquisition, filed a voluntary petition in the U.S. Bankruptcy Court for the Eastern District of Kentucky (the “Bankruptcy Court”) on January 11, 2019, seeking relief under Chapter 11 of the U.S. Bankruptcy Code (the “iMS Chapter 11 Proceedings”). With approval from the Bankruptcy Court, the Company through its affiliates provided debtor-in-possession financing (the “DIP Financing”) to iMS in connection with the iMS Chapter 11 Proceedings, and then submitted a stalking horse bid to purchase substantially all of the assets of iMS. The purchase price was approximately $24 million and consisted of (i) a credit bid of amounts outstanding as of the Closing Date under the DIP Financing including rolled up pre-petition obligations; (ii) assumption of certain liabilities of iMS; and (iii) a cash payment consisting of, among other things, contract assumption cure costs. The purchase price was subject to adjustment based on certain events occurring up to, including and after the Closing Date.

The Company will account for this transaction as a business combination. The Company is in the process of determining the allocation of the purchase price to the assets acquired and liabilities assumed, which include inventory, receivables, leases, intellectual property, contractual rights, personal property, accounts payable, accrued liabilities and the amounts owed under the DIP Financing to the Company. Any excess of the purchase price over the fair value of the net assets acquired will be recorded as goodwill, which is deductible for income tax purposes.


12

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

(6) Goodwill
The following summarizes changes to the Company’s goodwill, by segment:
(in millions) 
North America
 
International
 
Consolidated
Balance as of December 31, 2018
$
571.1

 
$
151.9

 
$
723.0

Foreign currency translation and other
1.3

 
1.2

 
2.5

Balance as of March 31, 2019
$
572.4

 
$
153.1

 
$
725.5



(7) Debt

Debt for the Company consists of the following:
 
March 31, 2019
 
December 31, 2018
 
 
(in millions, except percentages)
Amount
 
Rate
 
Amount
 
Rate
 
Maturity Date
2016 Credit Agreement
 
 
 
 
 
 
 
 
 
Term A Facility
$
467.5

 
(1)
 
$
525.0

 
(2)
 
April 6, 2021
Revolver

 
(1)
 

 
(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
76.0

 
(3)
 
9.1

 
(3)
 
April 6, 2021
Financing/capital lease obligations (4)
65.8

 
 
 
66.7

 
 
 
Various
Other
7.5

 
 
 
3.0

 
 
 
Various
Total debt
1,666.8

 
 
 
1,653.8

 
 
 
 
Less: deferred financing costs
7.2

 
 
 
7.6

 
 
 
 
Total debt, net
1,659.6

 
 
 
1,646.2

 
 
 
 
Less: current portion
55.5

 
 
 
47.1

 
 
 
 
Total long-term debt, net
$
1,604.1

 
 
 
$
1,599.1

 
 
 
 

(1)
Interest at LIBOR plus applicable margin of 1.75% as of March 31, 2019.
(2)
Interest at LIBOR plus applicable margin of 2.00% as of December 31, 2018.
(3)
Interest at one month LIBOR index plus 80 basis points.
(4)
Financing/capital lease obligations are a non-cash financing activity.


2016 Credit Agreement

On April 6, 2016, the Company entered into the 2016 Credit Agreement with a syndicate of banks. 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 March 31, 2019 , domestic qualified cash was $19.4 million and foreign qualified cash was $10.4 million . During the three months ended March 31, 2019, the Company prepaid $50.0 million on the Term A Facility.

The Company was in compliance with all applicable covenants as of March 31, 2019 .


13

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

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 a wholly-owned special purpose subsidiary 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 the Company's accounts receivable and is subject to an overall limit of $120.0 million .

The obligations of the Company and its relevant subsidiaries 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.

On April 5, 2019, the Company and its subsidiaries entered into a new amendment to the Accounts Receivable Securitization. The amendment, among other things, extended the maturity date of the Accounts Receivable Securitization to April 6, 2021.

Fair Value of Financial Instruments

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 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 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, 2019
 
December 31, 2018
2023 Senior Notes
 
$
457.9

 
$
435.6

2026 Senior Notes
 
600.3

 
549.3




14

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

(8) Leases
ASC 842 Summary

The Company leases retail stores, manufacturing and distribution facilities, office space and equipment under operating lease agreements. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to several years, with the longest renewal period extending through 2043. The exercise of lease renewal options are at the Company's sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

The following table summarizes the classification of operating and finance lease assets and obligations in the Company's Condensed Consolidated Balance Sheet as of March 31, 2019:
(in millions)
 
 
 
March 31, 2019
Assets
 
 
 
 
Operating lease assets
 
Operating lease right-of-use assets
 
$
191.9

Finance lease assets
 
Property, plant and equipment, net
 
57.2

Total leased assets
 
 
 
$
249.1

 
 
 
 
 
Liabilities
 
 
 
 
Short-term:
 
 
 
 
Operating lease obligations
 
Accrued expenses and other current liabilities
 
$
40.7

Finance lease obligations
 
Current portion of long-term debt
 
6.8

Long-term:
 
 
 
 
Operating lease obligations
 
Long-term operating lease obligations
 
157.2

Finance lease obligations
 
Long-term debt, net
 
59.0

Total lease obligations
 
 
 
$
263.7



The following table summarizes the classification of lease expense in the Company's Condensed Consolidated Statement of Income for the three months ended March 31, 2019:
 
 
Three Months Ended
(in millions)
 
March 31, 2019
Operating lease expense (1)
 
$
19.1

Finance lease expense:
 
 
Amortization of right-of-use assets
 
1.9

Interest on lease obligations
 
1.2

Total lease expense
 
$
22.2

(1)
Includes short-term leases and variable lease expenses, which are immaterial.



15

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

The following table sets forth the scheduled maturities of lease obligations as of  March 31, 2019 :
(in millions)
 
Operating Leases
 
Finance Leases
 
Total
Year Ended December 31,
 
 
 
 
 
 
2019 (excluding the three months ended March 31, 2019)
 
$
47.7

 
$
8.6

 
$
56.3

2020
 
55.1

 
11.2

 
66.3

2021
 
48.0

 
10.9

 
58.9

2022
 
39.4

 
9.0

 
48.4

2023
 
31.0

 
7.5

 
38.5

Thereafter
 
105.3

 
43.2

 
148.5

Total lease payments
 
326.5

 
90.4

 
416.9

Less: Interest
 
128.6

 
24.6

 
153.2

Present value of lease obligations
 
$
197.9

 
$
65.8

 
$
263.7



The following table provides lease term and discount rate information related to operating and finance leases as of March 31, 2019:
 
 
March 31, 2019
Weighted average remaining lease term (years):
 
 
Operating leases
 
6.1

Finance leases
 
9.9

 
 
 
Weighted average discount rate:
 
 
Operating leases
 
5.67
%
Finance leases
 
6.37
%


The following table provides supplemental information related to the Company's Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2019:
 
 
Three Months Ended
(in millions)
 
March 31, 2019
Cash paid for amounts included in the measurement of lease obligations:
 
 
Operating cash flows paid for operating leases
 
$
13.4

Financing cash flows paid for finance leases
 
1.6

 
 
 
Right-of-use assets obtained in exchange for new operating lease obligations
 
$
5.4



(9) Stockholders' Equity
 
(a) Common Stock. Tempur Sealy International has 300.0 million authorized shares of common stock with $0.01 per share par value and 0.01 million authorized shares of preferred stock with $0.01 per share par value. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared from time to time by the Company's Board of Directors (the "Board") out of funds legally available for that purpose. In the event of liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.

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.


16

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

(b) Treasury Stock. As of March 31, 2019 , the Company had approximately $226.1 million remaining under the existing share repurchase authorization for repurchases of Tempur Sealy International's common stock. The Company repurchased 15,731 shares for approximately $0.8 million during the three months ended March 31, 2019 . The Company did not repurchase any shares during the three months ended March 31, 2018 .

In addition, the Company acquired 0.1 million shares upon the vesting of certain restricted stock units ("RSUs"), which were withheld to satisfy tax withholding obligations during each of the three months ended March 31, 2019 and 2018 . 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 thereafter, resulting in approximately $2.9 million in treasury stock acquired during each of the three months ended March 31, 2019 and 2018 .

(c) AOCL. AOCL consisted of the following:
 
Three Months Ended
 
March 31,
(in millions)
2019
 
2018
Foreign Currency Translation
 
 
 
Balance at beginning of period
$
(91.7
)
 
$
(72.8
)
Other comprehensive loss:
 
 
 
Foreign currency translation adjustments (1)
4.0

 
5.0

Balance at end of period
$
(87.7
)
 
$
(67.8
)
 
 
 
 
Pensions
 
 
 
Balance at beginning of period
$
(3.6
)
 
$
(2.7
)
Other comprehensive loss:
 
 
 
Net change from period revaluations, net of tax

 

Tax expense (2)

 

Total other comprehensive income before reclassifications, net of tax
$

 
$

Net amount reclassified to earnings (1)

 

U.S. tax reform - reclassification to retained earnings upon adoption of ASU No. 2018-02

 
(0.5
)
Tax benefit (2)

 
(0.1
)
Total amount reclassified from accumulated other comprehensive loss, net of tax
$

 
$
(0.6
)
Total other comprehensive loss

 
(0.6
)
Balance at end of period
$
(3.6
)
 
$
(3.3
)
(1)
In 2019 and 2018, 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.


17

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

(10) Other Items

Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following:

(in millions)
March 31, 2019
 
December 31, 2018
Taxes
$
132.4

 
$
136.8

Wages and benefits
47.9

 
43.7

Operating lease obligations
40.7

 

Advertising
31.0

 
46.1

Sales returns
22.7

 
22.0

Warranty
15.1

 
14.9

Rebates
8.7

 
11.6

Other
103.3

 
84.1

 
$
401.8

 
$
359.2



(11) Stock-Based Compensation

The Company’s stock-based compensation expense for the three months ended March 31, 2019 and 2018 included performance restricted stock units ("PRSUs"), non-qualified stock options, RSUs and deferred stock units ("DSUs"). A summary of the Company’s stock-based compensation expense is presented in the following table:
 
Three Months Ended 
 March 31,
(in millions)
2019
 
2018
PRSU expense
$
0.3

 
$
0.8

Option expense
1.2

 
1.9

RSU/DSU expense
5.1

 
3.6

Total stock-based compensation expense
$
6.6

 
$
6.3



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.    

In March 2019, the Compensation Committee of the Board formally determined that the Company did not meet the performance metric of $650.0 million of adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA") for payout under the PRSUs granted in 2017 (the "2017 Aspirational Plan PRSUs"). As a result, the remaining one-third of the 2017 Aspirational Plan PRSUs previously granted with a performance period for 2018 were forfeited as of this date.

18

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

At March 31, 2019, the Company had 1.6 million PRSUs outstanding (the "2019 Aspirational Plan PRSUs") that will vest if the Company achieves a certain level of Adjusted EBITDA during four consecutive fiscal quarters as described below. The 2019 Aspirational Plan PRSUs will vest based on the highest Adjusted EBITDA for 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 is defined for purposes of the 2019 Aspirational PRSUs as the Company’s "Consolidated EBITDA" as such term is defined in the 2016 Credit Agreement.
The Company did not record any stock-based compensation expense related to the 2019 Aspirational Plan PRSUs during the three months ended March 31, 2019 , as it is not considered probable that the Company will 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  $93.6 million , which would be expensed over the remaining service period if achievement of the performance condition becomes probable.
(12) Commitments and Contingencies
 
(a) David Buehring, Individually and on Behalf of All Others Similarly Situated v. Tempur Sealy International, Inc., Scott L. Thompson, and Barry A. Hytinen, filed March 24, 2017.

On March 24, 2017, a suit was filed against Tempur Sealy International, Inc., and two of its officers in the U.S. District Court for the Southern District of New York, purportedly on behalf of a proposed class of stockholders who purchased Tempur Sealy common stock between July 28, 2016 and January 27, 2017. The complaint alleges that the Company made materially false and misleading statements regarding its then existing and future financial prospects, including those with one of its retailers, Mattress Firm, allegedly in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. A Motion to Dismiss the case was filed by the Company on October 5, 2017. On March 26, 2019, the Company's Motion to Dismiss was granted in its entirety and is no longer subject to appeal. As such, this case is now closed.

(b) Myla Gardner v. Scott L. Thompson, Barry A. Hytinen, Evelyn S. Dilsaver, John A. Heil, Jon L. Luther, Usman Nabi, Richard W. Neu, Robert B. Trussell, Jr. and Tempur Sealy International, Inc., filed July 10, 2017; Joseph L. Doherty v. Scott L. Thompson, Barry A. Hytinen, Evelyn S. Dilsaver, John A. Heil, Jon L. Luther, Usman Nabi, Richard W. Neu, Robert B. Trussell, Jr. and Tempur Sealy International, Inc., filed July 20, 2017; and Paul Onesti v. Scott L. Thompson, Barry A. Hytinen, Evelyn S. Dilsaver, John A. Heil, Jon L. Luther, Usman Nabi, Richard W. Neu, Robert B. Trussell, Jr. and Tempur Sealy International, Inc., filed July 21, 2017.

During July 2017, three putative shareholder derivative suits were filed against the Company, each member of its Board and two of its officers. Each complaint alleges that the Board 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 has vigorously defended against the claims in each case. The Plaintiffs in each of the cases agreed to stay their respective actions until after a decision was rendered on the Motion to Dismiss in the Buehring action noted above. Now that the Motion to Dismiss in the Buehring case has been granted in its entirety and is no longer subject to appeal, we expect to resolve these matters during the coming months. We do not believe the outcome of this matter will have a material adverse impact on the Company.

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

19

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

(13) Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2019 and 2018 was 36.8% and 28.1% , respectively. The Company’s income tax rate for the three months ended March 31, 2019 and 2018 differed from the U.S. federal statutory rate of 21.0% principally due to subpart F income (i.e., GILTI earned by the Company’s foreign subsidiaries), certain foreign income tax rate differentials, state and local taxes, changes in the Company’s uncertain tax positions, the excess tax deficiency (or benefit) related to stock-based compensation and certain other permanent items.

The Company has been involved in a dispute with the Danish Tax Authority ("SKAT") regarding the royalty paid by a U.S. subsidiary of Tempur Sealy International to a Danish subsidiary (the "Danish Tax Matter") for tax years 2001 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.

During 2018, the Company reached agreements with both SKAT and the U.S. Internal Revenue Service ("IRS") (the "Settlement") with respect to the adjusted amount of royalties for tax years 2001 through 2011. The Company and SKAT are currently discussing the appropriate administrative process required to implement the Settlement as it relates to both tax and interest. During this process, the Company continues to maintain a liability on its balance sheet for tax and interest under the terms of the Settlement. At March 31, 2019 and December 31, 2018, the Danish liability related to the Settlement is DKK 847.3 million (approximately $127.3 million and $130.0 million using the applicable exchange rates at March 31, 2019 and December 31, 2018, respectively) and is included in accrued expenses and other current liabilities within the Company’s Condensed Consolidated Balance Sheet. The Company also continues to maintain an asset of DKK 962.3 million (approximately $144.5 million and $145.7 million using the applicable exchange rates at March 31, 2019 and December 31, 2018, respectively) held on deposit by SKAT for the satisfaction of the anticipated liability for both tax and interest once the administrative process is concluded. The deposit held by SKAT is included in "Prepaid expenses and other current assets" within the Company's Condensed Consolidated Balance Sheet.

SKAT has issued preliminary income tax assessments for the years 2012 through 2017, asserting an increase in the royalty earned by the Danish subsidiary. The Company expects to continue to receive preliminary income tax assessments from SKAT for the tax years 2018 and forward, asserting the royalties paid by the U.S. to the Danish subsidiary were too low, which the Company has disputed and will continue to dispute.

The Company entered into the Advance Pricing Agreement program (the "APA Program") for the tax years 2012 through 2022 (the "Post-2011 Years") in which the IRS, on the Company’s behalf, will negotiate directly with SKAT for a mutually agreeable royalty due from the U.S. subsidiary to the Danish Subsidiary (the "APA"). That APA is in the early stages of negotiations. Such negotiations are not expected to be concluded in the near term. The Company anticipates such negotiations will result in an increase in the amount of royalties due from the U.S subsidiary to the Danish subsidiary (the "Post-2011 Years Adjustment") for the years 2012 - 2018 as well as the three month period ended March 31, 2019 (the "2012 to Current Period"). It is expected that the Post-2011 Years Adjustment will result in additional income tax in Denmark and a reduction of tax in the United States for the 2012 to Current Period. Consequently, the Company maintains an uncertain income tax liability for its estimate of the potential Danish income tax liability and a deferred tax asset for the associated United States tax benefit for the Post-2011 Years Adjustment. As of March 31, 2019 and December 31, 2018, the Company had accrued Danish tax and interest for Post-2011 Years of approximately DKK 238.2 million and DKK 230.3 million ( $35.8 million and $35.3 million using the applicable exchange rates at March 31, 2019 and December 31, 2018, respectively) as an uncertain income tax liability, which is included in other non-current liabilities on the Company's Condensed Consolidated Balance Sheet as of March 31, 2019 and December 31, 2018. The deferred tax asset for the U.S. correlative benefit associated with the accrual of Danish tax for the Post-2011 Years as of March 31, 2019 and December 31, 2018 is approximately $4.9 million and $4.2 million , respectively.

The Company’s uncertain income tax position associated with the Danish Tax Matter is derived using the cumulative probability analysis with possible outcomes based on the Company's updated evaluation of 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 income tax position and the deferred tax asset discussed herein reflects the Company’s best judgment of the facts, circumstances and information available through March 31, 2019 . If the Company is not successful in resolving the Danish Tax Matter for the Post-2011 Years or there is a change in facts and circumstances, the Company may be required to further increase its uncertain income tax 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.

20

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

    
The amount of unrecognized tax benefits that would impact the effective tax rate if recognized at March 31, 2019 and December 31, 2018 would be $90.7 million and $91.4 million (exclusive of interest and penalties and translated at the applicable exchange rates, respectively. There were no other significant changes to the liability for unrecognized income tax benefits during the three months ended March 31, 2019 , other than those items discussed herein. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense. It is reasonably possible that there could be material changes to the amount of uncertain income tax positions due to activities of the taxing authorities, settlement of audit issues, reassessment of existing uncertain tax positions, including the Danish tax matter, or the expiration of applicable statute of limitations; however, the Company is not able to estimate the impact of these items at this time.
 
(14) 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)
2019
 
2018
Numerator:
 
 
 
Income from continuing operations, net of loss attributable to non-controlling interest
$
28.8

 
$
25.9

 
 
 
 
Denominator:
 

 
 
Denominator for basic earnings per common share-weighted average shares
54.7

 
54.3

Effect of dilutive securities:
 
 
 
Employee stock-based compensation
1.0

 
0.6

Denominator for diluted earnings per common share-adjusted weighted average shares
55.7

 
54.9

 
 
 
 
Basic earnings per common share for continuing operations
$
0.53

 
$
0.48

 
 
 
 
Diluted earnings per common share for continuing operations
$
0.52

 
$
0.47


 
The Company excluded 1.2 million and 1.5 million shares issuable upon exercise of outstanding stock options for the three months ended March 31, 2019 and 2018 , 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. Holders of non-vested stock-based compensation awards do not maintain voting rights or maintain rights to receive any dividends thereon.
(15) Business Segment Information
 
The Company operates in two segments: North America and International. 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 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 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.

21

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, 2019
 
December 31, 2018
North America
$
3,015.1

 
$
2,788.1

International
632.9

 
604.8

Corporate
562.9

 
569.0

Inter-segment eliminations
(1,245.2
)
 
(1,246.5
)
Total assets
$
2,965.7

 
$
2,715.4



     The following table summarizes property, plant and equipment, net by segment:
(in millions)
March 31, 2019
 
December 31, 2018
North America
$
316.3

 
$
317.5

International
50.1

 
51.1

Corporate
52.1

 
52.2

Total property, plant and equipment, net
$
418.5

 
$
420.8


 
The following table summarizes segment information for the three months ended March 31, 2019 :
(in millions)
North America
 
International
 
Corporate
 
Eliminations
 
Consolidated
Net sales
$
544.0

 
$
146.9

 
$

 
$

 
$
690.9

 
 
 
 
 
 
 
 
 
 
Inter-segment sales
$
1.0

 
$
0.3

 
$

 
$
(1.3
)
 
$

Inter-segment royalty expense (income)
1.0

 
(1.0
)
 

 

 

Gross profit
204.4

 
77.4

 

 

 
281.8

Operating income (loss)
64.3

 
25.2

 
(29.0
)
 

 
60.5

Income (loss) from continuing operations before income taxes
62.4

 
29.8

 
(46.3
)
 

 
45.9

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization (1)
$
15.0

 
$
3.3

 
$
9.8

 
$

 
$
28.1

Capital expenditures
12.9

 
2.9

 
3.3

 

 
19.1

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

The following table summarizes segment information for the three months ended March 31, 2018 :
(in millions)
North America
 
International
 
Corporate
 
Eliminations
 
Consolidated
Net sales
$
485.0

 
$
152.4

 
$

 
$

 
$
637.4

 
 
 
 
 
 
 
 
 
 
Inter-segment sales
$
0.6

 
$
0.2

 
$

 
$
(0.8
)
 
$

Inter-segment royalty expense (income)
0.5

 
(0.5
)
 

 

 

Gross profit
184.0

 
80.7

 

 

 
264.7

Operating income (loss)
54.0

 
28.7

 
(27.0
)
 

 
55.7

Income (loss) from continuing operations before income taxes
51.8

 
29.3

 
(45.5
)
 

 
35.6

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization (1)
$
13.4

 
$
3.6

 
$
10.1

 
$

 
$
27.1

Capital expenditures
16.8

 
2.9

 
2.1

 

 
21.8

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


22

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, 2019
 
December 31, 2018
United States
$
349.4

 
$
350.7

Canada
19.0

 
19.1

Other International
50.1

 
51.0

Total property, plant and equipment, net
$
418.5

 
$
420.8

Total International
$
69.1

 
$
70.1



The following table summarizes net sales by geographic region:
 
Three Months Ended
 
March 31,
(in millions)
2019
 
2018
United States
$
497.2

 
$
440.2

Canada