TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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(in millions)
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Year Ended December 31,
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2018
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2017
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|
2016
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CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
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Net income before non-controlling interests
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$
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97.6
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$
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140.7
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$
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185.0
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Loss from discontinued operations, net of tax
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17.8
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30.9
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12.3
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Adjustments to reconcile net income to net cash provided by operating activities:
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Depreciation and amortization
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87.1
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80.7
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72.4
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Amortization of stock-based compensation
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24.8
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13.3
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16.2
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Amortization of deferred financing costs
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2.3
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2.2
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3.5
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Bad debt expense
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31.3
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9.8
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4.0
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Deferred income taxes
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6.0
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(61.1
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)
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(31.1
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)
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Dividends received from unconsolidated affiliates
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14.8
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|
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11.3
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10.8
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Equity income in earnings of unconsolidated affiliates
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(17.6
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)
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(15.6
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)
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(13.3
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)
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Non-cash interest expense on 8.0% Sealy Notes
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—
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—
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4.0
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Loss on extinguishment of debt
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—
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—
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47.2
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Loss on sale of assets
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3.3
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2.2
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1.3
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Foreign currency adjustments and other
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(2.1
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)
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(2.9
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)
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(0.4
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)
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Changes in operating assets and liabilities, net of effect of business acquisitions:
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Accounts receivable
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(46.3
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)
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21.0
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21.5
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Inventories
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(44.6
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)
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16.3
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|
|
0.7
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Prepaid expenses and other assets
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(14.4
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)
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(15.2
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)
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(124.1
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)
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Accounts payable
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28.7
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|
|
3.8
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|
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(48.3
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)
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Accrued expenses and other liabilities
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43.2
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|
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(4.9
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)
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3.1
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Income taxes payable
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(24.4
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)
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24.0
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|
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3.3
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Net cash provided by operating activities from continuing operations
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207.5
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256.5
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168.1
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CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
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Purchases of property, plant and equipment
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(73.6
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)
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(66.6
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)
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(61.9
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)
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Other
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2.4
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|
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0.9
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|
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—
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Net cash used in investing activities from continuing operations
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(71.2
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)
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(65.7
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)
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(61.9
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)
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|
|
|
|
|
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CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
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Proceeds from borrowings under long-term debt obligations
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1,094.9
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1,332.9
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2,233.3
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Repayments of borrowings under long-term debt obligations
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(1,195.8
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)
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(1,471.5
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)
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(1,867.7
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)
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Proceeds from exercise of stock options
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4.6
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12.8
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15.7
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Excess tax benefit from stock-based compensation
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—
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|
|
—
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|
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7.0
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Treasury stock repurchased
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(4.6
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)
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(44.9
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)
|
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(535.0
|
)
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Payment of deferred financing costs
|
—
|
|
|
(0.5
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)
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(6.9
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)
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Fees paid to lenders
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—
|
|
|
—
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|
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(7.8
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)
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Call premium on 2020 Senior Notes
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—
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|
|
—
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(23.6
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)
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Other
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(6.1
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)
|
|
(4.0
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)
|
|
(0.1
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)
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Net cash used in financing activities from continuing operations
|
(107.0
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)
|
|
(175.2
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)
|
|
(185.1
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)
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|
|
|
|
|
|
|
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Net cash provided by (used in) continuing operations
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29.3
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15.6
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(78.9
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)
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CASH USED IN DISCONTINUED OPERATIONS
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Operating cash flows
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(24.4
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)
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|
(33.6
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)
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(2.6
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)
|
Investing cash flows
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2.1
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|
|
3.6
|
|
|
(0.5
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)
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Financing cash flows
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—
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|
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—
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|
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—
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Net cash used in discontinued operations
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(22.3
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)
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(30.0
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)
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(3.1
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)
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NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
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(3.1
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)
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|
(9.4
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)
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(6.2
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)
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Increase (decrease) in cash and cash equivalents
|
3.9
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|
|
(23.8
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)
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(88.2
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)
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CASH AND CASH EQUIVALENTS, beginning of period
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41.9
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|
|
65.7
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|
|
153.9
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CASH AND CASH EQUIVALENTS, end of period
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45.8
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41.9
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65.7
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LESS: CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS
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—
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|
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0.8
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$
|
1.1
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CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS
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$
|
45.8
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$
|
41.1
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|
|
64.6
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|
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Supplemental cash flow information:
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Cash paid during the period for:
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Interest
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$
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91.8
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|
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$
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86.6
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|
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$
|
75.4
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Income taxes, net of refunds
|
$
|
32.5
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|
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$
|
79.8
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|
|
$
|
81.3
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|
The accompanying Notes to the Consolidated Financial Statements are an integral part of these statements.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(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 classified the results of operations and cash flows for certain subsidiaries in the Latin American region as discontinued operations in its Consolidated Statements of Income and Consolidated Statements of Cash Flows for all periods presented. The net assets of these Latin American subsidiaries have been retrospectively reflected as held for sale as of December 31, 2017. See Note
3
, “Discontinued Operations” for additional information.
(b)
Basis of Consolidation.
The accompanying financial statements include the accounts of Tempur Sealy International and its controlled subsidiaries. Intercompany balances and transactions have been eliminated.
The Company's Consolidated Financial Statements include the results of Comfort Revolution, LLC ("Comfort Revolution"). Prior to July 11, 2018, Comfort Revolution constituted a variable interest entity for which the Company was considered to be the primary beneficiary due to the Company's disproportionate share of the economic risk associated with its equity contribution, debt financing and other factors. On July 11, 2018, the Company acquired the remaining
55%
equity interest in Comfort Revolution, which did not result in a material impact to the Company's Consolidated Financial Statements.
The Company has ownership interests in a group of Asia-Pacific joint ventures to develop markets for Sealy® branded products in those regions. The equity method of accounting is used for these joint ventures, over which the Company has significant influence but does not have effective 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 Consolidated Statements of Income. The Company’s Asia-Pacific joint ventures are more fully described in
Note
7
, "Unconsolidated Affiliate Companies."
(c)
Use of Estimates.
The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company’s results are affected by economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies and changes in the prices of raw materials, can have a significant effect on operations.
(d)
Adoption of New Accounting Standards.
Employee Share-Based Payments
. In March 2016, the FASB issued Accounting Standard Update ("ASU") No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The Company adopted this ASU as of January 1, 2017, which did not have a material impact on the Company's Consolidated Financial Statements. As a result of the adoption of this ASU:
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•
|
The Company recognized all excess tax benefits and tax deficiencies as income tax provision or benefit in the Consolidated Statement of Income. The Company recognized excess tax deficiencies of
$1.1 million
and
$0.7 million
for the years ended December 31, 2018 and 2017, respectively.
|
|
|
•
|
The Company is prospectively presenting these excess tax benefits and tax deficiencies as an operating activity on the Consolidated Statement of Cash Flows.
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TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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•
|
The Company adopted a change in accounting policy to recognize forfeitures of awards as they occur instead of estimating potential forfeitures. Historically, the Company estimated the number of awards expected to be forfeited and adjusted the estimate when it was no longer probable that employees would fulfill their service conditions. The effect of this change in accounting policy is not material.
|
Revenue Recognition.
On January 1, 2018, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" using the modified retrospective method. Under the modified retrospective method, the Company recognized the cumulative effect of initially applying the new revenue standard as a decrease to the opening balance of retained earnings. Topic 606 required additional qualitative and quantitative disclosures. Other presentation and disclosure changes include the classification of royalty income to net sales and changes in the balance sheet classification and measurement for accrued sales returns. For additional information, see Note
4
, "
Revenue Recognition
" of the Consolidated Financial Statements.
Pensions.
In March 2017, the FASB issued ASU No. 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost", which is accounting guidance that changed how employers who sponsor defined benefit pension and/or postretirement benefit plans present the net periodic benefit cost in the Consolidated Statements of Income. This guidance requires employers to present the service cost component of net periodic benefit cost in the same caption within the Consolidated Statements of Income as other employee compensation costs from services rendered during the period. All other components of the net periodic benefit cost are presented separately outside of the operating income caption. The Company adopted ASU No. 2017-07 as of January 1, 2018 and applied the accounting guidance retrospectively. Adoption of this guidance resulted in a reclassification of pension and other postretirement plan non-service income and remeasurement adjustments, net, from within operating income to non-operating income. The adoption of this guidance was not material to the Consolidated Statement of Income for any periods presented.
Accumulated Other Comprehensive Income.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income"
,
which allows entities to reclassify tax effects stranded in accumulated other comprehensive loss ("AOCL") as a result of the Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform Act") to retained earnings. The Company early adopted ASU No. 2018-02 on March 31, 2018. The impact of adoption was not material to the Company's Consolidated Financial Statements.
Derivatives and Hedging.
In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which simplifies hedge accounting by better aligning a company's financial reporting for hedging relationships with its risk management activities. This guidance expands an entity’s ability to hedge non-financial and financial risk components and reduces complexity in fair value hedges of interest rate risk; eliminates the requirement to separately measure and report hedge ineffectiveness and present the entire change in the fair value of a hedging instrument in the same income statement line as the hedged item; eases certain documentation and assessment requirements; and modifies the accounting for components excluded from the assessment of hedge effectiveness. The Company early adopted this ASU in the third quarter of 2018. There were no adjustments to the Company's Consolidated Financial Statements as a result of the adoption.
(e)
Fair Value Measurements.
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the Consolidated Financial Statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
The Company estimates fair value of its financial instruments utilizing an established three-level hierarchy. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:
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•
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Level 1 – Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
|
•
|
Level 3 – Valuation is based upon other unobservable inputs that are significant to the fair value measurements.
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The classification of fair value measurements within the established three-level hierarchy is based upon the lowest level of input that is significant to the measurements. There were no transfers between levels for the years ended
December 31, 2018
or
2017
. 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. The fair value of the Company's financial instruments that are recorded on a recurring basis at fair value are not material.
(f)
Foreign Currency.
Assets and liabilities of non-U.S. subsidiaries, whose functional currency is the local currency, are translated into U.S. dollars at period-end exchange rates. Income and expense items are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translating the financial statements of foreign subsidiaries are included in accumulated other comprehensive loss (“AOCL”), a component of stockholders’ equity/(deficit), and included in net earnings only upon sale or liquidation of the underlying foreign subsidiary or affiliated company. Foreign currency transaction gains and losses are recognized in net earnings based on differences between foreign exchange rates on the transaction date and on the settlement date. These amounts are not considered material to the Consolidated Financial Statements.
Effective June 30, 2018, the Company determined that the economy in Argentina is highly inflationary. Beginning July 1, 2018, the U.S. Dollar is the functional currency for the Company's subsidiaries in Argentina. Remeasurement adjustments in a highly inflationary economy and other transactional gains and losses are reflected in net earnings and were not material for the year ended December 31, 2018. These subsidiaries are included in loss from discontinued operations, net of tax, within the Company's Consolidated Statements of Income.
(g)
Derivative Financial Instruments.
Derivative financial instruments are used in the normal course of business to manage interest rate and foreign currency exchange risks. The financial instruments used by the Company are straight-forward, non-leveraged instruments. The counterparties to these financial instruments are financial institutions with strong credit ratings. The Company maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit ratings of these institutions. For all transactions designated as hedges, the hedging relationships are formally documented at the inception and on an ongoing basis in offsetting changes in cash flows of the hedged transaction.
The Company records derivative financial instruments on the Consolidated Balance Sheets as either an asset or liability measured at its fair value. Changes in a derivative's fair value (i.e. unrealized gains or losses) are recorded each period in earnings unless the derivative qualifies as a hedge on future cash flows or a hedge of a net investment in a foreign operation. Gains and losses related to a hedge are either recognized in income immediately to offset the gain or loss on the hedged item, or deferred and recorded in the stockholders’ equity section of the Consolidated Balance Sheets as a component of AOCL and subsequently recognized in the Statements of Consolidated Comprehensive Income when the hedged item affects net income. The ineffective portion of the change in fair value of a hedge is recognized in income immediately.
For derivative financial instruments that are designated as a hedge, unrealized gains and losses related to the effective portion are either recognized in income immediately to offset the realized gain or loss on the hedged item, or are deferred and reported as a component of AOCL in stockholders' equity/(deficit) and subsequently recognized in net income when the hedged item affects net income. The change in fair value of the ineffective portion of a derivative financial instrument is recognized in net income immediately. For derivative instruments that are not designated as hedges, the gain or loss related to the change in fair value is also recorded to net income immediately. The effectiveness of the cash flow hedge contracts, including time value, is assessed prospectively and retrospectively on a monthly basis using regression analysis, as well as other timing and probability criteria. For derivative instruments that are not designated as hedges, the gain or loss related to the change in fair value is also recorded in net income immediately.
The forward exchange contract assets and liabilities as of December 31, 2018 and 2017 were based on Level 2 inputs and were not material in any period presented.
(h)
Cash and Cash Equivalents.
Cash and cash equivalents consist of all highly liquid investments with initial maturities of three months or less. The carrying value of cash and cash equivalents approximates fair value because of the short-term maturity of those instruments.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(i)
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:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
2018
|
|
2017
|
Finished goods
|
$
|
148.9
|
|
|
$
|
119.6
|
|
Work-in-process
|
11.8
|
|
|
11.3
|
|
Raw materials and supplies
|
61.6
|
|
|
48.2
|
|
|
$
|
222.3
|
|
|
$
|
179.1
|
|
(j)
Property, Plant and Equipment.
Property, plant and equipment are carried at cost at acquisition date and are depreciated using the straight-line method over their estimated useful lives as follows:
|
|
|
|
Estimated
Useful Lives
(in years)
|
Buildings
|
25-30
|
Computer equipment and software
|
3-7
|
Leasehold improvements
|
4-7
|
Machinery and equipment
|
3-7
|
Office furniture and fixtures
|
5-7
|
The Company records depreciation and amortization in cost of sales for long-lived assets used in the manufacturing process, and within each line item of operating expenses for all other long-lived assets. Leasehold improvements are amortized over the shorter of the life of the lease or
seven
years. Assets under capital lease are included within property, plant and equipment and represent non-cash investing activities.
Property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
2018
|
|
2017
|
Machinery and equipment
|
$
|
319.3
|
|
|
$
|
313.0
|
|
Land and buildings
|
328.5
|
|
|
315.5
|
|
Computer equipment and software
|
142.2
|
|
|
113.4
|
|
Furniture and fixtures
|
50.4
|
|
|
56.7
|
|
Construction in progress
|
52.4
|
|
|
63.2
|
|
Total property, plant, and equipment
|
892.8
|
|
|
861.8
|
|
Accumulated depreciation
|
(472.0
|
)
|
|
(428.3
|
)
|
Total property, plant and equipment, net
|
$
|
420.8
|
|
|
$
|
433.5
|
|
Depreciation expense, which includes depreciation expense for capital lease assets, for the Company was
$71.8 million
,
$64.8 million
and
$55.4 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
(k)
Long-Lived Assets.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is assessed by a comparison of the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset or group of assets. If estimated future undiscounted net cash flows are less than the carrying amount of the asset or group of assets, the asset is considered impaired and an expense is recorded in an amount required to reduce the carrying amount of the asset to its then fair value. Fair value generally is determined from estimated discounted future net cash flows (for assets held for use) or net realizable value (for assets held for sale). The Company did not identify any impairments for the years ended December 31,
2018
,
2017
and
2016
.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(l)
Goodwill and Other Intangible Assets.
Intangible assets with finite useful lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate impairment may have occurred. The Company performs an annual impairment test on goodwill and indefinite-lived intangible assets on October 1 of each year and whenever events or circumstances make it more likely than not that impairment may have occurred. In conducting the impairment test for the North America and International reporting units, the fair value of each of the Company's reporting units is compared to its respective carrying amount including goodwill. If the fair value exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the fair value, further analysis is performed to assess impairment. The Company’s determination of fair value of the reporting units is based on a discounted cash flow approach, with an appropriate risk-adjusted discount rate, and a market approach. Any identified impairment would result in an adjustment to the Company’s results of operations.
The Company also tests its indefinite-lived intangible assets, principally the Tempur and Sealy trade names. The Company tested both trade names for impairment using a “relief-from-royalty” method. Significant assumptions inherent in the methodologies are employed and include such estimates as royalty and discount rates.
The Company performed its annual impairment test of goodwill and indefinite-lived intangible assets in
2018
,
2017
and
2016
, none of which resulted in the recognition of impairment charges. The most recent annual impairment tests performed as of October 1, 2018, indicated that the fair values of each of the Company's reporting units and indefinite-lived intangible assets were substantially in excess of their carrying values. For further information on goodwill and other intangible assets, refer to Note
6
, “
Goodwill and Other Intangible Assets
.”
(m)
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. The Company considers the impact of recoverable salvage value on sales returns by segment in determining its estimate of future sales returns. Effective January 1, 2018 with the Company's adoption of Topic 606, the Company recognizes a return asset for the right to recover the goods returned by the customer. The right of return asset is recognized on a gross basis outside of the accrued sales returns and is not material to the Company's Consolidated Balance Sheets.
The Company had the following activity for accrued sales returns from
December 31, 2016
to
December 31, 2018
:
|
|
|
|
|
(in millions)
|
|
Balance as of December 31, 2016
|
$
|
30.3
|
|
Amounts accrued
|
81.6
|
|
Returns charged to accrual
|
(81.9
|
)
|
Balance as of December 31, 2017
|
30.0
|
|
Reclassification and remeasurement of sales return asset under Topic 606
|
1.7
|
|
Balance as of January 1, 2018
|
31.7
|
|
Amounts accrued
|
83.8
|
|
Returns charged to accrual
|
(81.2
|
)
|
Balance as of December 31, 2018
|
$
|
34.3
|
|
As of
December 31, 2018
and
2017
,
$22.0 million
and
$19.6 million
of accrued sales returns is included as a component of accrued expenses and other current liabilities and
$12.3 million
and
$10.4 million
of accrued sales returns is included in other non-current liabilities on the Company’s accompanying Consolidated Balance Sheets, respectively.
(n)
Warranties.
The Company provides warranties on certain products, which vary based 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. In estimating its warranty obligations, the Company considers the impact of recoverable salvage value on warranty costs by segment in determining its estimate of future warranty obligations.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company provides warranties on mattresses with varying warranty terms. Tempur 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 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 pillows have a warranty term of
3
years, non-prorated.
The Company had the following activity for warranties from
December 31, 2016
to
December 31, 2018
:
|
|
|
|
|
(in millions)
|
|
Balance as of December 31, 2016
|
$
|
29.9
|
|
Amounts accrued
|
34.5
|
|
Warranties charged to accrual
|
(27.7
|
)
|
Balance as of December 31, 2017
|
36.7
|
|
Remeasurement of obligations under Topic 606
|
2.8
|
|
Balance as of January 1, 2018
|
39.5
|
|
Amounts accrued
|
21.9
|
|
Warranties charged to accrual
|
(25.0
|
)
|
Balance as of December 31, 2018
|
$
|
36.4
|
|
As of
December 31, 2018
and
2017
,
$14.9 million
and
$16.7 million
of accrued warranty expense is included as a component of accrued expenses and other current liabilities and
$21.5 million
and
$20.0 million
of accrued warranty expense is included in other non-current liabilities on the Company’s accompanying Consolidated Balance Sheets, respectively.
(o)
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 existing accounts receivable. The Company regularly reviews the adequacy of its allowance for doubtful accounts. The Company determines the allowance for doubtful accounts 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 Consolidated Balance Sheets was
$47.6 million
and
$24.7 million
as of
December 31, 2018
and
2017
,
respectively.
(p)
Income Taxes.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are also recognized for the estimated future effects of tax loss carry forwards. The effect of changes in tax rates on deferred taxes is recognized in the period in which the enactment dates change. Valuation allowances are established when necessary on a jurisdictional basis to reduce deferred tax assets to the amounts expected to be realized. The Company accounts for uncertain foreign and domestic tax positions utilizing a proscribed recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
(q)
Cost of Sales
. Costs associated with net sales are recorded in cost of sales. Cost of sales includes the costs of receiving, producing, inspecting, warehousing, insuring, and shipping goods during the period, as well as depreciation and amortization of long-lived assets used in these processes. Cost of sales also includes shipping and handling costs associated with the delivery of goods to customers and costs associated with internal transfers between plant locations. Amounts included in cost of sales for shipping and handling were
$169.1 million
,
$155.9 million
and
$156.5 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Additionally, cost of sales for 2018 also includes royalties that the Company pays to other entities for the use of their names on products produced by the Company. Prior to the adoption of Topic 606 as of January 1, 2018, royalty income net of royalty expense was an operating expense line item presented separately on the Company's Consolidated Statements of Income. For additional information, please refer to Note
4
,
Revenue Recognition
. Royalty expense is not material to the Company's Consolidated Statements of Income.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(r)
Cooperative Advertising, Rebate and Other Promotional Programs.
The Company enters into programs with customers to provide funds for advertising and promotions. The Company also enters into volume and other rebate programs with customers. When sales are made to these customers, the Company records liabilities pursuant to these programs. The Company periodically assesses these liabilities based on actual sales and claims to determine whether all of the cooperative advertising earned will be used by the customer or whether the customer will meet the requirements to receive rebate funds. The Company generally negotiates these programs on a customer-by-customer basis. Some of these agreements extend over several years. Significant estimates are required at any point in time with regard to the ultimate reimbursement to be claimed by the customers. Subsequent revisions to the estimates are recorded and charged to earnings in the period in which they are identified. Rebates and cooperative advertising are classified as a reduction of revenue and presented within net sales in the accompanying Consolidated Statements of Income. Certain cooperative advertising expenses are reported as components of selling and marketing expenses in the accompanying Consolidated Statements of Income because the Company receives an identifiable benefit and the fair value of the advertising benefit can be reasonably estimated.
(s)
Advertising Costs.
The Company expenses advertising costs as incurred except for production costs and advance payments, which are deferred and expensed when advertisements run for the first time. Direct response advance payments are deferred and amortized over the life of the program. Advertising costs are included in selling and marketing expenses in the accompanying Consolidated Statements of Income. Advertising costs charged to expense were
$259.3 million
,
$283.5 million
and
$352.3 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Advertising costs include expenditures for shared advertising costs that the Company reimburses to customers under its integrated and cooperative advertising programs. Cooperative advertising costs paid to customers are recorded as a component of selling and marketing expenses within the Consolidated Statements of Income to the extent the fair value of the distinct good or service can reasonably be estimated. The Company periodically assesses the liabilities recorded for cooperative advertising based on actual sales and claims to determine whether all of the cooperative advertising earned will be used by the customer. Advertising costs deferred and included in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets were
$8.5 million
and
$3.8 million
as of
December 31, 2018
and
2017
, respectively.
(t)
Research and Development Expenses.
Research and development expenses for new products are expensed as they are incurred and are included in general, administrative and other expenses in the accompanying Consolidated Statements of Income. Research and development costs charged to expense were
$21.9 million
,
$21.7 million
and
$26.7 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
(u)
Stock-based Compensation.
The Company accounts for stock-based payment transactions in which the Company receives employee services in exchange for equity instruments of the Company. Stock-based compensation cost for restricted stock units (“RSUs”), performance restricted stock units (“PRSUs”) and deferred stock units (“DSUs”) is measured based on the closing fair market value of the Company’s common stock on the date of grant. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair value as calculated by the Black-Scholes option-pricing model. The Company recognizes stock-based compensation cost as expense for awards other than its PRSUs ratably on a straight-line basis over the requisite service period. The Company recognizes stock-based compensation cost associated with its PRSUs over the requisite service period if it is probable that the performance conditions will be satisfied. Further information regarding stock-based compensation can be found in Note
12
, “
Stock-based Compensation
.”
(v)
Treasury Stock.
Subject to Delaware law, and the limitations in the 2016 Credit Agreement (as defined in Note
8
, "Debt") and the Company's other debt agreements, the Board of Directors may authorize share repurchases of the Company’s common stock. Purchases made pursuant to this authorizations may be carried out through open market transactions, negotiated purchases or otherwise, at times and in such amounts as the Company deems appropriate. Shares repurchased under such authorization are held in treasury for general corporate purposes, including issuances under various employee stock-based award plans. On February 1, 2016, the Board of Directors authorized a share repurchase program pursuant to which the Company was permitted to repurchase shares of Tempur Sealy International's common stock. The Board of Directors authorized an increase in the amount of shares available for repurchase under this program in February 2017. Treasury stock is accounted for under the cost method and reported as a reduction of stockholders’ equity. The authority provided under the share repurchase program may be suspended, limited or terminated at any time without notice. Please refer to Note
10
, "Stockholder's Equity", for additional information.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(w)
Self-Insurance.
The Company is self-insured up to
$0.8 million
per claim per year for certain losses related to medical claims with excess loss coverage. The Company also utilizes large deductible policies to insure claims related to general liability, product liability, automobile, and workers’ compensation. The Company’s recorded liability for workers’ compensation represents an estimate of the ultimate cost of claims incurred as of the Consolidated Balance Sheet date. The estimated workers' compensation liability is undiscounted and is established based upon analysis of historical and actuarial estimates, and is reviewed by the Company and third party actuaries on a quarterly basis to ensure that the liability is appropriate. As of
December 31, 2018
and
2017
,
$5.2 million
and
$4.8 million
, respectively, of the recorded undiscounted liability is included in accrued expenses and other current liabilities and
$16.3 million
and
$15.9 million
, respectively, is included in other non-current liabilities within the accompanying Consolidated Balance Sheets. During 2016, the Company entered into a retroactive insurance policy to limit exposure on historical worker's compensation claims. As of
December 31, 2018
and
2017
,
$1.9 million
and
$2.4 million
, respectively, are included in prepaid expenses and other current assets and $
6.0 million
and
$7.6 million
, respectively, are included in other non-current assets within the accompanying Consolidated Balance Sheets, which together represent the value of expected recoveries related to the underlying insured events.
(x)
Pension Obligations.
The Company has a noncontributory, defined benefit pension plan covering current and former hourly employees at
two
of its active Sealy plants and
ten
previously-closed Sealy U.S. facilities. Sealy Canada, Ltd. (a
100.0%
owned subsidiary of the Company) also sponsors a noncontributory, defined benefit pension plan covering hourly employees at one of its facilities. Both plans provide retirement and survivorship benefits based on the employees' credited years of service. The Company's funding policy provides for contributions of an amount between the minimum required and maximum amount that can be deducted for federal income tax purposes. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at December 31, the measurement date. The benefit obligation is the projected benefit obligation (“PBO”). The PBO represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. The measurement of the PBO is based on the Company’s estimates and actuarial valuations. The fair value of plan assets represents the current market value of assets held by an irrevocable trust fund for the sole benefit of participants. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain assumptions that require significant judgment, including estimates of discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates and mortality rates.
(y)
Customer Contract Termination.
During the week of January 23, 2017, the Company was unexpectedly notified by the senior management of Mattress Firm, Inc. ("Mattress Firm") and representatives of Steinhoff International Holdings Ltd., its parent company, of Mattress Firm's intent to terminate its business relationship with the Company if the Company did not agree to considerable changes to its agreements with Mattress Firm, including significant economic concessions. The Company engaged in discussions to facilitate a mutually agreeable supply arrangement with Mattress Firm. However, the parties were unable to reach an agreement, and on January 27, 2017, Tempur-Pedic North America, LLC and Sealy Mattress Company issued formal termination notices for all of their products to Mattress Firm. On January 30, 2017, Tempur-Pedic and Sealy Mattress entered into transition agreements with Mattress Firm in which they agreed, among other things, to continue supplying Mattress Firm until April 3, 2017, at which time the parties’ business relationship ended.
In the first quarter of 2017, the Company took steps to manage its cost structure as a result of the termination of the contracts with Mattress Firm. During this period, the Company recognized
$25.9 million
of net charges associated with the termination of the relationship with Mattress Firm. This amount includes
$11.5 million
of charges within cost of sales and
$14.4 million
of charges within customer termination charges, net in the Consolidated Statements of Income. The following amounts are recognized in cost of sales:
$5.4 million
of charges related to the write-off of customer-unique inventory and
$6.1 million
of increased warranty costs associated with claims historically retained by Mattress Firm. The following amounts are recognized in customer termination charges, net:
$22.8 million
of charges related to the write-off of Mattress Firm incentives and marketing assets, employee-related expenses and professional fees; and
$0.9 million
of accelerated stock-based compensation expense. These charges are offset by
$9.3 million
of benefit related to the change in estimate associated with performance-based stock compensation that is no longer probable of payout as a result of the termination of the contracts with Mattress Firm. The Company also recognized
$9.3 million
related to the payments received pursuant to the transition agreements with Mattress Firm. This amount is included within other income, net in the Consolidated Statements of Income.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2)
Recently Issued Accounting Pronouncements
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), as amended. Topic 842 requires entities to recognize a right-of-use asset and a lease liability for substantially all leases, with the exception of short term leases, and disclose key information about leasing arrangements for certain leases. The new guidance will continue to classify leases as either financing or operating, with classification affecting the pattern of expense recognition. The Company adopted the new standard on January 1, 2019, using a modified retrospective approach. Under the modified retrospective approach, the Company will not adjust the comparative period financial information or make the new required lease disclosures for periods before the effective date.
The new guidance provides a number of optional practical expedients in transition. The Company plans to elect the ‘package of practical expedients’, which allows the Company not to reassess under the new guidance its prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of-hindsight practical expedient. The Company plans to elect the short-term lease recognition exemption for all leases that qualify which means it will not recognize right-of-use assets or lease liabilities for these leases.
The Company has designed new processes and controls, cataloged and entered its leases into a recently implemented software solution and evaluated its population of leased assets to assess the effect of the new guidance on the Company's consolidated financial statements. The Company expects that the adoption of the new standard will result in a material increase to the assets and liabilities on its consolidated balance sheets, but will not have a material effect on its consolidated results of operations or cash flows. The Company expects adoption of the new standard will result in the recognition of additional right-of-use assets and lease liabilities between
$195 million
and
$235 million
as of January 1, 2019.
(3)
Discontinued Operations
During 2018, the Company completed an evaluation of its International segment operations and identified certain Latin American subsidiaries with low profitability and difficult operating environments with higher operational risk and volatility. As a result of this evaluation, the Company decided to divest of the net assets of certain of these subsidiaries in the Latin American region and enter into licensee relationships in these markets. These actions were completed by December 31, 2018 with the sale of certain subsidiaries, including the largest subsidiary in the region. The Company expects to receive royalty payments from these licensee relationships in future years.
The decision to convert these markets in the Latin American region to a licensee model represents a strategic shift in the Company’s business. Accordingly, the Company has classified the results of operations and cash flows for these subsidiaries in the Latin American region as discontinued operations in its Consolidated Statements of Income and Consolidated Statements of Cash Flows for all periods presented. The net assets of the Latin American subsidiaries have been retrospectively reflected as held for sale as of December 31, 2017.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Components of amounts reflected in the Consolidated Statements of Income related to discontinued operations are presented in the following table for the years ended December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
December 31,
|
|
2018
|
|
2017
|
|
2016
|
Net sales
|
$
|
31.1
|
|
|
$
|
53.8
|
|
|
$
|
49.2
|
|
Cost of sales
|
23.0
|
|
|
34.1
|
|
|
31.2
|
|
Gross profit
|
8.1
|
|
|
19.7
|
|
|
18.0
|
|
Selling and marketing expenses
|
12.4
|
|
|
15.2
|
|
|
13.0
|
|
General, administrative and other expenses
|
6.8
|
|
|
11.6
|
|
|
8.0
|
|
Operating loss
|
(11.1
|
)
|
|
(7.1
|
)
|
|
21.0
|
|
|
|
|
|
|
|
Interest expense, net and other
|
7.7
|
|
|
19.9
|
|
|
8.8
|
|
|
|
|
|
|
|
Loss from discontinued operations before income taxes
|
(18.8
|
)
|
|
(27.0
|
)
|
|
(11.8
|
)
|
Income tax provision
|
—
|
|
|
(3.9
|
)
|
|
(0.5
|
)
|
Loss generated from discontinued operations, net of tax
|
(18.8
|
)
|
|
(30.9
|
)
|
|
(12.3
|
)
|
Gain on disposal of business
|
1.0
|
|
|
—
|
|
|
—
|
|
Loss from discontinued operations, net of tax
|
$
|
(17.8
|
)
|
|
$
|
(30.9
|
)
|
|
$
|
(12.3
|
)
|
The following table presents the captions of assets and liabilities of the subsidiaries that are held for sale and presented as discontinued operations within the Company’s Consolidated Balance Sheets as of
December 31, 2017
.
|
|
|
|
|
|
December 31, 2017
|
Cash and cash equivalents
|
$
|
0.8
|
|
Accounts receivable, net
|
6.9
|
|
Inventories
|
3.9
|
|
Prepaid expenses and other current assets
|
1.4
|
|
Current assets of discontinued operations
|
$
|
13.0
|
|
|
|
Property, plant and equipment, net
|
$
|
1.6
|
|
Other non-current assets
|
1.0
|
|
Non-current assets of discontinued operations
|
$
|
2.6
|
|
|
|
Accounts payable
|
$
|
12.9
|
|
Accrued expenses and other current liabilities
|
11.9
|
|
Income taxes payable
|
0.9
|
|
Current liabilities of discontinued operations
|
$
|
25.7
|
|
|
|
Other non-current liabilities
|
$
|
1.3
|
|
Non-current liabilities of discontinued operations
|
$
|
1.3
|
|
(4)
Revenue Recognition
Revenue from Contracts with Customers
The Company recognized the cumulative effect of the adoption of Topic 606 as an adjustment to the opening balance of retained earnings for approximately
$3.0 million
, net of tax. Additionally, as a result of the new standard and effective January 1, 2018, the Company classifies royalty income within net sales. The comparative information has not been restated and continues to be reported under the accounting standards in effect for each period presented.
The Company evaluated the impact of the adoption on the classification of cooperative advertising programs and other promotional programs with the Company's customers. The impact of adoption to these promotional programs did not result in material changes in the Company's recognition or presentation of costs within the Company's Consolidated Statements of Income.
The following tables summarize the impact of adopting Topic 606 on the Company’s Consolidated Financial Statements as of and for the periods ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2018
|
(in millions)
|
As Reported
|
|
Balances Without Adoption of Topic 606
|
|
Effect of Change
Higher/(Lower)
|
Statement of Income
|
|
|
|
|
|
Net sales
|
$
|
2,702.9
|
|
|
$
|
2,682.0
|
|
|
$
|
20.9
|
|
Royalty income, net of royalty expense
|
—
|
|
|
20.9
|
|
|
(20.9
|
)
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
(in millions)
|
As Reported
|
|
Balances Without Adoption of Topic 606
|
|
Effect of Change
Higher/(Lower)
|
Balance Sheet
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Prepaid expenses and other current assets
|
$
|
215.8
|
|
|
$
|
214.5
|
|
|
1.3
|
|
Deferred income taxes
|
22.6
|
|
|
21.7
|
|
|
0.9
|
|
Other non-current assets
|
94.3
|
|
|
93.4
|
|
|
0.9
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
$
|
359.2
|
|
|
$
|
356.7
|
|
|
$
|
2.5
|
|
Other non-current liabilities
|
112.3
|
|
|
109.4
|
|
|
2.9
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
Total stockholders' equity
|
$
|
217.5
|
|
|
$
|
219.8
|
|
|
$
|
(2.3
|
)
|
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
twelve months ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2018
|
(in millions)
|
North America
|
|
International
|
|
Consolidated
|
Channel
|
|
|
|
|
|
Wholesale
|
$
|
1,989.1
|
|
|
$
|
463.0
|
|
|
$
|
2,452.1
|
|
Direct
|
147.1
|
|
|
103.7
|
|
|
250.8
|
|
Net sales
|
$
|
2,136.2
|
|
|
$
|
566.7
|
|
|
$
|
2,702.9
|
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
Consolidated
|
Product
|
|
|
|
|
|
Bedding products
|
$
|
2,002.1
|
|
|
$
|
453.2
|
|
|
$
|
2,455.3
|
|
Other products
|
134.1
|
|
|
113.5
|
|
|
247.6
|
|
Net sales
|
$
|
2,136.2
|
|
|
$
|
566.7
|
|
|
$
|
2,702.9
|
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
Consolidated
|
Geographical region
|
|
|
|
|
|
United States
|
$
|
1,928.9
|
|
|
$
|
—
|
|
|
$
|
1,928.9
|
|
Canada
|
207.3
|
|
|
—
|
|
|
207.3
|
|
International
|
—
|
|
|
566.7
|
|
|
566.7
|
|
Net sales
|
$
|
2,136.2
|
|
|
$
|
566.7
|
|
|
$
|
2,702.9
|
|
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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (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. Royalty income was
$20.9 million
,
$20.8 million
and
$19.5 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
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 it ships the product to a customer or when the customer receives the product based upon agreed shipping terms. 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. A warranty is considered an assurance type warranty if it provides the consumer with assurance that the product will function as intended. Assurance type warranties are 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 retail 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. Amounts included in net sales for shipping and handling were
$13.6 million
,
$11.3 million
and
$11.7 million
for the years ended December 31,
2018
,
2017
and
2016
, respectively.
(5)
Acquisitions and Divestitures
During 2018, the Company decided to divest of the net assets of certain subsidiaries in the Latin American region. On December 28, 2018, a subsidiary of the Company in Latin America completed a transaction pursuant to which it sold substantially all of its assets to an unrelated third party, for approximately
$2.6 million
in cash, subject to certain working capital adjustments. The Company retained and has agreed to indemnify the buyers for certain liabilities of the disposed subsidiary arising prior to the closing of the sale, including certain tax and environmental remediation liabilities. These liabilities, which are not material individually or in the aggregate, are included within accrued expenses and other current liabilities at December 31, 2018. Costs directly related to these retained liabilities have been included within discontinued operations. The gain on sale was
$1.0 million
and is also recognized within discontinued operations.
On July 11, 2018, the Company acquired the remaining
55%
equity interest in Comfort Revolution, which was accounted for as an equity transaction and did not result in a material impact to the Company's Consolidated Financial Statements for the year ended December 31, 2018.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6)
Goodwill and Other Intangible Assets
The following summarizes the Company's goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Consolidated
|
Balance as of December 31, 2016
|
$
|
572.0
|
|
|
$
|
127.2
|
|
|
$
|
699.2
|
|
Foreign currency translation adjustments and other
|
4.6
|
|
|
28.9
|
|
|
33.5
|
|
Balance as of December 31, 2017
|
$
|
576.6
|
|
|
$
|
156.1
|
|
|
$
|
732.7
|
|
Foreign currency translation adjustments and other
|
(5.5
|
)
|
|
(4.2
|
)
|
|
(9.7
|
)
|
Balance as of December 31, 2018
|
$
|
571.1
|
|
|
$
|
151.9
|
|
|
$
|
723.0
|
|
The following table summarizes information relating to the Company’s other intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
December 31, 2018
|
|
December 31, 2017
|
Useful
Lives
(Years)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Unamortized indefinite life intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
$
|
556.5
|
|
|
$
|
—
|
|
|
$
|
556.5
|
|
|
$
|
561.7
|
|
|
$
|
—
|
|
|
$
|
561.7
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual distributor relationships
|
15
|
|
84.7
|
|
|
32.7
|
|
|
52.0
|
|
|
86.0
|
|
|
27.5
|
|
|
58.5
|
|
Technology and other
|
4-10
|
|
90.2
|
|
|
61.1
|
|
|
29.1
|
|
|
91.4
|
|
|
54.3
|
|
|
37.1
|
|
Patents, other trademarks and other trade names
|
5-20
|
|
32.0
|
|
|
21.0
|
|
|
11.0
|
|
|
27.3
|
|
|
19.0
|
|
|
8.3
|
|
Customer databases, relationships and reacquired rights
|
2-5
|
|
21.3
|
|
|
20.6
|
|
|
0.7
|
|
|
23.5
|
|
|
22.0
|
|
|
1.5
|
|
Total
|
|
|
$
|
784.7
|
|
|
$
|
135.4
|
|
|
$
|
649.3
|
|
|
$
|
789.9
|
|
|
$
|
122.8
|
|
|
$
|
667.1
|
|
Amortization expense relating to intangible assets for the Company was
$15.3 million
,
$16.0 million
and
$17.1 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively, and is recorded in general, administrative and other expenses in the Company's Consolidated Statements of Income. No impairments of goodwill or other intangible assets have adjusted the gross carrying amount of these assets in any period.
Estimated annual amortization of intangible assets is expected to be as follows for the years ending December 31:
|
|
|
|
|
(in millions)
|
|
2019
|
$
|
14.8
|
|
2020
|
14.8
|
|
2021
|
14.4
|
|
2022
|
14.4
|
|
2023
|
7.5
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7)
Unconsolidated Affiliate Companies
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%
and is accounted for under the equity method. The Company’s investment of
$22.5 million
and
$21.5 million
at
December 31, 2018
and
2017
, respectively, is recorded in other non-current assets in the accompanying Consolidated Balance Sheets. The Company’s share of earnings for the years ended
December 31, 2018
and
2017
, respectively, are recorded in equity income in earnings of unconsolidated affiliates in the accompanying Consolidated Statements of Income.
The tables below present summarized financial information for joint ventures as of and for the years ended December 31:
|
|
|
|
|
|
|
|
|
(in millions)
|
2018
|
|
2017
|
Current assets
|
$
|
81.8
|
|
|
$
|
73.7
|
|
Non-current assets
|
18.6
|
|
|
17.8
|
|
Total liabilities
|
59.0
|
|
|
52.3
|
|
Equity
|
41.4
|
|
|
39.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2018
|
|
2017
|
|
2016
|
Net sales
|
$
|
220.5
|
|
|
$
|
195.1
|
|
|
$
|
155.2
|
|
Gross profit
|
147.8
|
|
|
129.9
|
|
|
101.7
|
|
Income from operations
|
46.6
|
|
|
43.3
|
|
|
32.2
|
|
Net income
|
33.5
|
|
|
31.7
|
|
|
24.8
|
|
(8)
Debt
Debt for the Company consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31, 2018
|
|
December 31, 2017
|
|
|
Debt:
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Maturity Date
|
2016 Credit Agreement:
|
|
|
|
|
|
|
|
|
|
Term A Facility
|
$
|
525.0
|
|
|
(1)
|
|
$
|
555.0
|
|
|
(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
|
9.1
|
|
|
(3)
|
|
49.0
|
|
|
(3)
|
|
April 12, 2019
|
Capital lease obligations
(4)
|
66.7
|
|
|
|
|
71.8
|
|
|
|
|
Various
|
Other
|
3.0
|
|
|
|
|
36.7
|
|
|
|
|
Various
|
Total debt
|
1,653.8
|
|
|
|
|
1,762.5
|
|
|
|
|
|
Less: Deferred financing costs
|
7.6
|
|
|
|
|
9.4
|
|
|
|
|
|
Total debt, net
|
1,646.2
|
|
|
|
|
1,753.1
|
|
|
|
|
|
Less: Current portion
|
47.1
|
|
|
|
|
72.4
|
|
|
|
|
|
Total long-term debt, net
|
$
|
1,599.1
|
|
|
|
|
$
|
1,680.7
|
|
|
|
|
|
|
|
|
(1)
|
Interest at LIBOR plus applicable margin of 2.00% as of December 31, 2018.
|
(2)
|
Interest at LIBOR plus applicable margin of 1.75% as of December 31, 2017.
|
(3)
|
Interest at one month LIBOR index plus 80 basis points.
|
(4)
|
Capital lease obligations are a non-cash financing activity.
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2016 Credit Agreement
On April 6, 2016, the Company entered into a senior secured credit agreement ("2016 Credit Agreement") with a syndicate of banks. The 2016 Credit Agreement replaced the Company’s 2012 Senior Secured Credit Agreement ("2012 Credit Agreement"). The 2016 Credit Agreement provides for a
$500.0 million
revolving credit facility, a
$500.0 million
initial term loan facility and a
$100.0 million
delayed draw term loan facility. At any time, the Company may also elect to request the establishment of one or more incremental term loan facilities and/or increase commitments under the revolving credit facility in an aggregate amount of up to
$500.0 million
. A portion of the revolving credit facility of up to
$250.0 million
is available in Canadian Dollars, Pounds Sterling, the Euro and any additional currencies determined by mutual agreement of the Company, the administrative agent and the lenders under the revolving credit facility. A portion of the revolving credit facility of up to
$100.0 million
is available for the issuance of letters of credit for the account of the Company and a portion of the revolving credit facility of up to
$50.0 million
is available for swing line loans to the Company.
Borrowings under the 2016 Credit Agreement will generally bear interest, at the election of Tempur Sealy International and the other subsidiary borrowers, at either (i) LIBOR plus the applicable margin or (ii) Base Rate plus the applicable margin. The applicable margins are determined by a pricing grid based on the consolidated total net leverage ratio of the Company following the delivery of the Consolidated Financial Statements of the Company for the most recent quarter. The delayed draw term loan facility has identical pricing to the revolving credit facility and initial term loan facility. As of
December 31, 2018
, the margin was either (i) LIBOR plus
2.00%
per annum, or (ii) Base Rate plus
1.00%
.
Obligations under the 2016 Credit Agreement are guaranteed by the Company’s existing and future direct and indirect wholly-owned domestic subsidiaries, subject to certain exceptions. The 2016 Credit Agreement is secured by a security interest in substantially all of Tempur Sealy International’s and the other subsidiary borrowers’ domestic assets and the domestic assets of each subsidiary guarantor, whether owned as of the closing or thereafter acquired, including a pledge of
100.0%
of the equity interests of each subsidiary guarantor that is a domestic entity (subject to certain limited exceptions) and
65.0%
of the voting equity interests of any direct first tier foreign entity owned by a subsidiary guarantor. 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 on the 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
December 31, 2018
, domestic qualified cash was
$13.6 million
and foreign qualified cash was
$19.3 million
. As of
December 31, 2018
, the Company's consolidated total net leverage ratio was
3.87
times, within the covenant in the Company's debt agreements which limits this ratio to
5.00
times for the year ended
December 31, 2018
.
The 2016 Credit Agreement contains certain customary negative covenants, which include limitations on liens, investments, indebtedness, dispositions, mergers and acquisitions, the making of restricted payments, changes in the nature of business, changes in fiscal year, transactions with affiliates, use of proceeds, prepayments of certain indebtedness, entry into burdensome agreements and changes to governing documents and other junior financing documents. The 2016 Credit Agreement also contains certain customary affirmative covenants and events of default, including upon a change of control.
The Company was in compliance with all applicable covenants in the 2016 Credit Agreement at
December 31, 2018
.
The Company is required to pay a commitment fee on the unused portion of the revolving credit facility. The commitment fee rate is determined by a pricing grid based on the consolidated total net leverage ratio of the Company. The commitment fee is payable quarterly in arrears following the delivery of Consolidated Financial Statements for the most recent quarter and on the date of termination or expiration of the commitments under the revolving credit facility. The Company and the other borrowers also pay customary letter of credit issuance and other fees under the 2016 Credit Agreement. As of
December 31, 2018
, the Company's commitment fee rate was
0.35%
.
As a result of the Company’s 2016 Credit Agreement,
$3.6 million
of deferred financing costs were capitalized in 2016 and will be amortized as interest expense over the respective debt instrument period,
5 years
, using the effective interest method. In addition, the Company expensed
$1.9 million
of lender fees associated with this transaction in 2016, which is included in loss on extinguishment of debt in the Consolidated Statements of Income.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company used the proceeds from the 2016 Credit Agreement to repay in full and terminate the 2012 Credit Agreement. The 2012 Credit Agreement initially provided for (i) a revolving credit facility of
$350.0 million
, (ii) a Term A facility of
$550.0
million and (iii) a Term B facility of
$870.0
million. In conjunction with the repayment of all outstanding borrowings on the 2012 Credit Agreement, the Company expensed approximately
$11.0 million
of deferred financing costs in 2016, which is included in loss on extinguishment of debt in the Consolidated Statements of Income.
Senior Notes
2026 Senior Notes
On May 24, 2016, Tempur Sealy International issued
$600.0 million
aggregate principal amount of
5.500%
2026 Senior Notes in a private offering to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"), and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2026 Senior Notes were issued pursuant to an indenture, dated as of May 24, 2016 (the "2026 Indenture"), among Tempur Sealy International, certain subsidiaries of Tempur Sealy International as guarantors (the "Combined Guarantor Subsidiaries"), and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2026 Senior Notes are general unsecured senior obligations of Tempur Sealy International and are guaranteed on a senior unsecured basis by the Combined Guarantor Subsidiaries. The 2026 Senior Notes mature on June 15, 2026, and interest is payable semi-annually in arrears on each June 15 and December 15, which began on December 15, 2016. The gross proceeds from the 2026 Senior Notes were used to refinance the
$375.0 million
aggregate principal amount of
6.875%
2020 Senior Notes and to pay related fees and expenses, and the remaining funds were used for share repurchases and general corporate purposes.
Tempur Sealy International has the option to redeem all or a portion of the 2026 Senior Notes at any time on or after June 15, 2021. The initial redemption price is
102.750%
of the principal amount, plus accrued and unpaid interest, if any. The redemption price will decline each year after 2021 until it becomes
100.0%
of the principal amount beginning on June 15, 2024. In addition, Tempur Sealy International has the option at any time prior to June 15, 2021 to redeem some or all of the 2026 Senior Notes at
100.0%
of the original principal amount plus a “make-whole” premium and accrued and unpaid interest, if any. Tempur Sealy International may also redeem up to
35.0%
of the 2026 Senior Notes prior to June 15, 2019, under certain circumstances with the net cash proceeds from certain equity offerings, at
105.500%
of the principal amount plus accrued and unpaid interest, if any. Tempur Sealy International may make such redemptions as described in the preceding sentence only if, after any such redemption, at least
65.0%
of the original aggregate principal amount of the 2026 Senior Notes issued remains outstanding.
The 2026 Indenture restricts the ability of Tempur Sealy International and the ability of certain of its subsidiaries to, among other things: (i) incur, directly or indirectly, debt; (ii) make, directly or indirectly, certain investments and restricted payments; (iii) incur or suffer to exist, directly or indirectly, liens on its properties or assets; (iv) sell or otherwise dispose of assets, directly or indirectly; (v) create or otherwise cause or suffer to exist any consensual restriction on the right of certain of the subsidiaries of Tempur Sealy International to pay dividends or make any other distributions on or in respect of their capital stock; (vi) enter into transactions with affiliates; (vii) engage in sale-leaseback transactions; (viii) purchase or redeem capital stock or subordinated indebtedness; (ix) issue or sell stock of restricted subsidiaries; and (x) effect a consolidation or merger. These covenants are subject to a number of exceptions and qualifications.
In conjunction with the issuance and sale of the 2026 Senior Notes, Tempur Sealy International and the Combined Guarantor Subsidiaries agreed through a Registration Rights Agreement to exchange the 2026 Senior Notes for a new issue of substantially identical senior notes registered under the Securities Act (the "Exchange Offer"). On October 18, 2016, Tempur Sealy International completed the Exchange Offer, with
100%
of the outstanding notes tendered and received for new 2026 Senior Notes registered under the Securities Act.
As a result of the issuance of the 2026 Senior Notes,
$3.1 million
of deferred financing costs were capitalized in 2016 and will be amortized as interest expense over the respective debt instrument period,
10 years
, using the effective interest method. In addition, the Company expensed
$5.9 million
of lender fees associated with this transaction in 2016, which is included in loss on extinguishment of debt in the Consolidated Statements of Income.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company used the proceeds from the 2026 Senior Notes to refinance the 2020 Senior Notes and to pay related fees and expenses. The 2020 Senior Notes were redeemed at a price equal to the principal amount thereof and the applicable "make-whole" premium,
$23.6 million
, which is included in loss on extinguishment of debt in the Consolidated Statements of Income. In conjunction with the refinancing of the 2020 Senior Notes, the Company wrote off approximately
$4.8 million
of deferred financing costs in the second quarter of 2016, which is included in loss on extinguishment of debt in the Consolidated Statements of Income.
2023 Senior Notes
On September 24, 2015, Tempur Sealy International issued
$450.0 million
aggregate principal amount of
5.625%
2023 Senior Notes in a private offering to qualified institutional buyers pursuant to Rule 144A of the Securities Act, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act. The 2023 Senior Notes were issued pursuant to an indenture, dated as of September 24, 2015 (the “2023 Indenture”), among Tempur Sealy International, the Combined Guarantor Subsidiaries (the Combined Guarantor Subsidiaries are the same under the 2026 Indenture, the 2023 Indenture and the 2020 Indenture), and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2023 Senior Notes are general unsecured senior obligations of Tempur Sealy International and are guaranteed on a senior unsecured basis by the Combined Guarantor Subsidiaries. The 2023 Senior Notes mature on October 15, 2023, and interest is payable semi-annually in arrears on each April 15 and October 15, which began on April 15, 2016. The gross proceeds from the 2023 Senior Notes were used to refinance a portion of the term loan debt under the 2012 Credit Agreement and to pay related fees and expenses.
Since October 15, 2018, Tempur Sealy International has had the option to redeem all or a portion of the 2023 Senior Notes at any time. The initial redemption price is
104.219%
of the principal amount, plus accrued and unpaid interest, if any. The redemption price will decline each year after 2018 until it becomes
100.0%
of the principal amount beginning on October 15, 2021.
The 2023 Indenture restricts the ability of Tempur Sealy International and the ability of certain of its subsidiaries to, among other things: (i) incur, directly or indirectly, debt; (ii) make, directly or indirectly, certain investments and restricted payments; (iii) incur or suffer to exist, directly or indirectly, liens on its properties or assets; (iv) sell or otherwise dispose of, directly or indirectly, assets; (v) create or otherwise cause or suffer to exist any consensual restriction on the right of certain of the subsidiaries of Tempur Sealy International to pay dividends or make any other distributions on or in respect of their capital stock; (vi) enter into transactions with affiliates; (vii) engage in sale-leaseback transactions; (viii) purchase or redeem capital stock or subordinated indebtedness; (ix) issue or sell stock of restricted subsidiaries; and (x) effect a consolidation or merger. These covenants are subject to a number of exceptions and qualifications.
In conjunction with the issuance and sale of the 2023 Senior Notes, Tempur Sealy International and the Combined Guarantor Subsidiaries agreed through a Registration Rights Agreement to exchange the 2023 Senior Notes for a new issue of substantially identical senior notes registered under the Securities Act (the "2023 Exchange Offer"). On April 4, 2016, Tempur Sealy International completed the 2023 Exchange Offer, with
100%
of the outstanding notes tendered and received for new 2023 Senior Notes registered under the Securities Act.
Securitized Debt
On April 12, 2017, Tempur Sealy International and certain of its subsidiaries entered into a securitization transaction with respect to certain accounts receivable due to and certain of the Company's subsidiaries (the "Accounts Receivable Securitization"). In connection with this transaction, Tempur Sealy International and its wholly-owned special purpose subsidiary, Tempur Sealy Receivables, LLC, entered into a credit agreement that provides for revolving loans to be made from time to time in a maximum amount that varies over the course of the year based on the seasonality of the Company's accounts receivable and is subject to an overall limit of
$120.0 million
. The Accounts Receivable Securitization matures on April 12, 2019.
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 continue to be owned by the Company and its subsidiaries and continue to be reflected as assets on the Company’s Consolidated Balance Sheets and represent collateral up to the amount of the borrowings under this facility. Borrowings under this facility are classified as long-term debt within the Consolidated Balance Sheets based on the Company's ability and intent to refinance on a long-term basis as of December 31, 2018.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On April 2, 2018, the Company and its subsidiaries entered into an amendment to its Accounts Receivable Securitization that modified certain covenants and calculations. This amendment was designed to create more flexibility and to increase average availability on the line, while not changing the overall limit of maturity.
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 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)
|
|
December 31, 2018
|
|
December 31, 2017
|
2023 Senior Notes
|
|
$
|
435.6
|
|
|
$
|
470.9
|
|
2026 Senior Notes
|
|
549.3
|
|
|
618.1
|
|
Capital Leases
The Company is party to capital leases as of
December 31, 2018
and
2017
. The approximate remaining life of the leases ranges from
1
to
14
years as of
December 31, 2018
, with several including an option to extend the lease term.
Deferred Financing Costs
The Company capitalizes costs associated with the issuance of debt and amortizes these costs as additional interest expense over the lives of the debt instruments using the effective interest method. These costs are recorded as deferred financing costs as a direct reduction from the carrying amount of the corresponding debt liability in the accompanying Consolidated Balance Sheets and the related amortization is included in interest expense, net in the accompanying Consolidated Statements of Income. Upon the prepayment of the related debt, the Company accelerates the recognition of an appropriate amount of the costs.
Future Obligations
As of
December 31, 2018
, the scheduled maturities of long-term debt outstanding, including capital lease obligations, for each of the next five years and thereafter are as follows:
|
|
|
|
|
|
(in millions)
|
|
|
2019
|
|
$
|
56.1
|
|
2020
|
|
59.4
|
|
2021
|
|
442.2
|
|
2022
|
|
5.9
|
|
2023
|
|
455.3
|
|
Thereafter
|
|
634.9
|
|
Total
|
|
$
|
1,653.8
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9)
Retirement Plans
401(k) Plan
The Company has a defined contribution plan ("the 401(k) Plan") whereby eligible employees may contribute up to
85.0%
of their pay subject to certain limitations as defined by the 401(k) Plan. Employees are eligible to participate in the 401(k) Plan upon hire and are eligible to receive matching contributions upon
six months
of continuous employment with the Company. The 401(k) Plan provides a
100.0%
match of the first
3.0%
and
50.0%
of the next
2.0%
of eligible employee contributions. The match for union employees is based on the applicable collective bargaining arrangement. All matching contributions vest immediately. The Company incurred
$5.8 million
,
$4.0 million
and
$6.7 million
of expenses associated with the 401(k) Plan for the years ended
December 31, 2018
,
2017
and
2016
, respectively, which are included in the Consolidated Statements of Income.
Defined Benefit Pension Plans
The Company has a noncontributory, defined benefit pension plan covering current and former hourly employees at
two
of its active Sealy plants and
ten
previously closed Sealy U.S. facilities. Sealy Canada, Ltd. (a wholly-owned subsidiary of the Company) also sponsors a noncontributory, defined benefit pension plan covering hourly employees at
one
of its facilities (collectively, referred to as the "Plans"). The Plans provide retirement and survivorship benefits based on the employees’ credited years of service. The Company’s funding policy provides for contributions of an amount between the minimum required and maximum amount that can be deducted for federal income tax purposes.
The Plans' assets consist of investments in various common/collective trusts with equity investment strategies diversified across multiple industry sectors and company market capitalization within specific geographical investment strategies, fixed income common/collective trusts, which invest primarily in investment-grade and high-yield corporate bonds and U.S. treasury securities, as well as money market mutual funds. The fixed income investments are diversified as to ratings, maturities, industries and other factors. The Plans' assets contain no significant concentrations of risk related to individual securities or industry sectors. The Plans have no direct investment in the Company's common stock.
The long-term rate of return for the Plans is based on the weighted average of the Plans’ investment allocation and the historical returns for those asset categories. Because future compensation levels are not a factor in these Plans’ benefit formulas, the accumulated benefit obligation is equal to the projected benefit obligation as reported below. The discount rate is based on the returns on long-term bonds in the private sector and incorporates a long-term inflation rate. Summarized information for the Plans follows:
Expenses and Status
The Company recognizes the service cost component of net periodic pension cost within general, administrative and other expenses and all other components of net periodic pension cost are recognized within other income, net, in the accompanying Consolidated Statements of Income. Components of total net periodic pension cost for the years ended December 31 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2018
|
|
2017
|
|
2016
|
Service cost
|
$
|
1.0
|
|
|
$
|
0.9
|
|
|
$
|
0.8
|
|
Interest cost
|
1.1
|
|
|
1.2
|
|
|
1.2
|
|
Expected return on assets
|
(1.5
|
)
|
|
(1.5
|
)
|
|
(1.3
|
)
|
Amortization of prior service cost
|
0.1
|
|
|
0.1
|
|
|
—
|
|
Settlement loss
|
—
|
|
|
—
|
|
|
0.2
|
|
Net periodic pension cost
|
$
|
0.7
|
|
|
$
|
0.7
|
|
|
$
|
0.9
|
|
The other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income for the years ended December 31 were:
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2018
|
|
2017
|
|
2016
|
Net loss
|
$
|
0.6
|
|
|
$
|
0.4
|
|
|
$
|
1.5
|
|
Amortization of prior service cost
|
(0.1
|
)
|
|
(0.1
|
)
|
|
—
|
|
Amortization or settlement recognition of net loss
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
New prior service cost
|
0.1
|
|
|
0.5
|
|
|
—
|
|
Total recognized in other comprehensive (loss) income
|
$
|
0.6
|
|
|
$
|
0.8
|
|
|
$
|
1.3
|
|
The following assumptions, calculated on a weighted-average basis, were used to determine net periodic pension cost for the Company’s Plans for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Discount rate
(a)
|
3.58
|
%
|
|
4.07
|
%
|
|
4.27
|
%
|
Expected long-term return on plan assets
|
6.25
|
%
|
|
6.64
|
%
|
|
6.71
|
%
|
|
|
(a)
|
The discount rates used in
2018
to determine the expenses for the U.S. retirement plan and Canadian retirement plan were
3.54%
and
3.70%
, respectively. The discount rates used in
2017
to determine the expenses for the U.S. retirement plan and Canadian retirement plan were
4.06%
and
4.10%
, respectively.
|
Obligations and Funded Status
The measurement date for the Company's Plans is December 31. The funded status of the Plans as of December 31 was as follows:
|
|
|
|
|
|
|
|
|
(in millions)
|
2018
|
|
2017
|
Change in Benefit Obligation:
|
|
|
|
Projected benefit obligation at beginning of year
|
$
|
32.1
|
|
|
$
|
28.0
|
|
Service cost
|
1.0
|
|
|
0.9
|
|
Interest cost
|
1.1
|
|
|
1.2
|
|
Plan amendments
|
0.1
|
|
|
0.5
|
|
Actuarial (gain) loss
|
(3.0
|
)
|
|
2.3
|
|
Benefits paid
|
(0.9
|
)
|
|
(0.9
|
)
|
Expenses paid
|
(0.1
|
)
|
|
(0.1
|
)
|
Foreign currency exchange rate changes
|
(0.3
|
)
|
|
0.2
|
|
Projected benefit obligation at end of year
|
$
|
30.0
|
|
|
$
|
32.1
|
|
Change in Plan Assets:
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
25.3
|
|
|
$
|
21.7
|
|
Actual return on plan assets
|
(2.1
|
)
|
|
3.5
|
|
Employer contribution
|
0.3
|
|
|
0.9
|
|
Benefits paid
|
(0.9
|
)
|
|
(0.9
|
)
|
Expenses paid
|
(0.1
|
)
|
|
(0.1
|
)
|
Foreign currency exchange rate changes
|
(0.3
|
)
|
|
0.2
|
|
Fair value of plan assets at end of year
|
$
|
22.2
|
|
|
$
|
25.3
|
|
Funded status
|
$
|
(7.8
|
)
|
|
$
|
(6.8
|
)
|
The Company’s defined benefit pension plan for U.S. Sealy employees is underfunded. As of
December 31, 2018
, the projected benefit obligation and fair value of plan assets were
$26.5 million
and
$18.4 million
, respectively. As of
December 31, 2017
, the projected benefit obligation and fair value of plan assets were
$28.3 million
and
$21.0 million
, respectively. As of
December 31, 2018
, the projected benefit obligation and fair value of plan assets for the Sealy Canada Ltd. pension plan were
$3.5 million
and
$3.8 million
, respectively. As of
December 31, 2017
, the projected benefit obligation and fair value of plan assets for the Sealy Canada Ltd. pension plan were
$3.8 million
and
$4.3 million
, respectively.
The accumulated benefit obligation for all pension plans was
$30.0 million
at
December 31, 2018
and
$32.1 million
at
December 31, 2017
.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table represents amounts recorded in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
2018
|
|
2017
|
Amounts recognized in the Consolidated Balance Sheets:
|
|
|
|
Non-current benefit liability
|
$
|
8.1
|
|
|
$
|
7.3
|
|
Non-current benefit asset
|
0.3
|
|
|
0.5
|
|
The following assumption, calculated on a weighted-average basis, was used to determine benefit obligations for the Company’s defined benefit pension plans as of December 31:
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Discount rate
(a)
|
4.13
|
%
|
|
3.56
|
%
|
|
|
(a)
|
The discount rates used in
2018
to determine the expenses for the U.S. retirement plan and Canadian retirement plan were
4.16%
and
3.90%
, respectively. The discount rates used in
2017
to determine the benefit obligations for the U.S. and Canadian defined benefit pension plans were
3.54%
and
3.70%
, respectively.
|
No material amounts are expected to be reclassified from AOCL to be recognized as components of net income during
2019
.
Plan Contributions and Expected Benefit Payments
During
2019
, the Company expects to contribute
$1.4 million
to the Company's Plans from available cash and cash equivalents.
The following table presents estimated future benefit payments:
|
|
|
|
|
(in millions)
|
|
Fiscal 2019
|
$
|
1.0
|
|
Fiscal 2020
|
1.0
|
|
Fiscal 2021
|
1.1
|
|
Fiscal 2022
|
1.2
|
|
Fiscal 2023
|
1.2
|
|
Fiscal 2024 ‑ Fiscal 2028
|
7.4
|
|
Pension Plan Asset Information
Investment Objective and Strategies
The Company's investment objectives are to minimize the volatility of the value of the Company's pension assets relative to pension liabilities and to ensure assets are sufficient to pay plan benefits. Target and actual asset allocations are as follows:
|
|
|
|
|
|
|
|
2018 Target
|
|
2018
Actual
|
Common/collective trust consisting primarily of:
|
|
|
|
Equity securities
|
60.0
|
%
|
|
79.5
|
%
|
Debt securities
|
40.0
|
%
|
|
20.0
|
%
|
Other
|
—
|
%
|
|
0.5
|
%
|
Total plan assets
|
100.0
|
%
|
|
100.0
|
%
|
Investment strategies and policies reflect a balance of risk-reducing and return-seeking considerations. The objective of minimizing the volatility of assets relative to liabilities is addressed primarily through asset diversification. Assets are broadly diversified across many asset classes to achieve risk-adjusted returns that, in total, lower asset volatility relative to liabilities. The Company's policy to rebalance the Company's investment regularly ensures that actual allocations are in line with target allocations as appropriate.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Strategies to address the goal of ensuring sufficient assets to pay benefits include target allocations to a broad array of asset classes that provide return, diversification and liquidity.
The plan investment fiduciaries are responsible for setting asset allocation targets, and monitoring asset allocation and investment performance. The Company’s pension investment manager has discretion to manage assets to ensure compliance with the asset allocations approved by the plan fiduciaries.
Significant Concentrations of Risk
Significant concentrations of risk in the Company's plan assets relate to equity, interest rate, and operating risk. In order to ensure assets are sufficient to pay benefits, a portion of plan assets is allocated to equity investments that are expected, over time, to earn higher returns with more volatility than fixed income investments which more closely match pension liabilities. Within the common/collective trusts, the plan assets contain no significant concentrations of risk related to individual securities or industry sectors.
In order to minimize asset volatility relative to the liabilities, a portion of the plan assets are allocated to fixed income investments that are exposed to interest rate risk. Rate increases will generally result in a decline in fixed income assets while reducing the present value of the liabilities. Conversely, rate decreases will increase fixed income assets, partially offsetting the related increase in the liabilities.
Operating risks primarily include the risks of inadequate diversification and insufficient oversight. To mitigate this risk, investments are diversified across and within asset classes in support of investment objectives. Policies and practices to address operating risks include ongoing oversight, plan and asset class investment guidelines, and periodic reviews against these guidelines to ensure adherence.
Expected Long-Term Return on Plan Assets
The expected long-term return assumption at
December 31, 2018
was
6.50%
for the defined benefit pension plan for U.S. Sealy employees and
5.50%
for the defined benefit pension plan for Sealy Canada, Ltd. The expected long-term return assumption is based on historical and projected rates of return for current and planned asset classes in the plan’s investment portfolio. The assumption considers various sources, primarily inputs from advisors for long-term capital market returns, inflation, bond yields, and other variables, adjusted for specific aspects of the Company's investment strategy by plan.
The investments in plan assets primarily consist of common collective trusts and money market funds. Investments in common collective trusts and money market funds are valued at the net asset value ("NAV") per share or unit multiplied by the number of shares or units held as of the measurement date. The determination of NAV for the common/collective trusts includes market pricing of the underlying assets as well as broker quotes and other valuation techniques that represent fair value as determined by the respective administrator of the common/collective trust. Management has determined that the NAV is an appropriate estimate of the fair value of the common collective trusts at
December 31, 2018
and
2017
, based on the fact that the common/collective trusts are audited and accounted for at fair value by the administrators of the respective common/collective trusts. The methods described above may produce a fair value that may not be indicative of net realizable value or reflective of future fair value. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the Consolidated Balance Sheet dates.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of the Company’s plan assets, all valued at NAV, at December 31 by asset category was as follows:
|
|
|
|
|
|
|
|
|
(in millions)
|
2018
|
|
2017
|
Asset Category
|
|
|
|
Common/collective trust
|
|
|
|
U.S. equity
|
$
|
14.1
|
|
|
$
|
15.1
|
|
International equity
|
3.6
|
|
|
4.2
|
|
Total equity based funds
|
17.7
|
|
|
19.3
|
|
Common/collective trust - fixed income
|
4.4
|
|
|
5.9
|
|
Money market funds
|
0.1
|
|
|
0.1
|
|
Total
|
$
|
22.2
|
|
|
$
|
25.3
|
|
Multi‑Employer Benefit Plans
Approximately
25.5%
of the Company’s domestic employees are represented by various labor unions with separate collective bargaining agreements. Hourly employees working at
nine
of the Company’s domestic manufacturing facilities are covered by union sponsored retirement plans. Further, employees working at
three
of the Company’s domestic manufacturing facilities are covered by union sponsored health and welfare plans. These plans cover both active employees and retirees. Through the health and welfare plans, employees receive medical, dental, vision, prescription and disability coverage. The Company’s cost associated with these plans consists of periodic contributions to these plans based upon employee participation. The expense recognized by the Company for such contributions for the years ended December 31 was follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2018
|
|
2017
|
|
2016
|
Multi‑employer retirement plan expense
|
$
|
3.9
|
|
|
$
|
4.3
|
|
|
$
|
4.9
|
|
Multi‑employer health and welfare plan expense
|
3.6
|
|
|
3.5
|
|
|
2.8
|
|
The risks of participating in multi‑employer pension plans are different from the risks of sponsoring single‑employer pension plans in the following respects: 1) contributions to the multi‑employer plan by
one
employer may be used to provide benefits to employees of other participating employers; 2) if a participating employer ceases its contributions to the plan, the unfunded obligations of the plan allocable to the withdrawing employer may be borne by the remaining participating employers; and 3) if the Company withdraws from the multi‑employer pension plans in which it participates, the Company may be required to pay those plans an amount based on its allocable share of the underfunded status of the plan.
The following table presents information regarding the multi‑employer pension plans that are significant to the Company for the years ended
December 31, 2018
and
2017
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Fund
|
|
EIN/Pension Plan Number
|
|
Date of Plan Year-End
|
|
Pension Protection Act
Zone Status
(1)
2018
|
|
FIP/RP Status
Pending/Implemented
(2)
|
|
Contributions of the Company in 2018
|
|
Surcharge Imposed
(3)
|
|
Expiration Date
of Collective
Bargaining Agreement
|
|
Year Contributions to Plan Exceeded More than 5 Percent of Total Contributions
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Furniture Workers Pension Fund A
(4)
|
|
13-5511877-001
|
|
2/28/18
|
|
Red
|
|
Implemented
|
|
$
|
0.7
|
|
|
No
|
|
2020
|
|
2016, 2017, 2018
|
Pension Plan of the National Retirement Fund
|
|
13-6130178-001
|
|
12/31/17
|
|
Red
|
|
Implemented
|
|
$
|
0.7
|
|
|
Yes, 10.0%
|
|
2019
|
|
N/A
|
Central States, Southeast & Southwest Areas Pension Plan
|
|
36-6044243-001
|
|
12/31/17
|
|
Red
|
|
Implemented
|
|
$
|
0.8
|
|
|
Yes, 10.0%
|
|
2021
|
|
N/A
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Fund
|
|
EIN/Pension Plan Number
|
|
Date of Plan Year-End
|
|
Pension Protection Act
Zone Status
(1)
2017
|
|
FIP/RP Status
Pending/Implemented
(2)
|
|
Contributions of the Company in 2017
|
|
Surcharge Imposed
(3)
|
|
Expiration Date
of Collective
Bargaining Agreement
|
|
Year Contributions to Plan Exceeded More than 5 Percent of Total Contributions
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Furniture Workers Pension Fund A
(4)
|
|
13-5511877-001
|
|
2/28/17
|
|
Red
|
|
Implemented
|
|
$
|
1.1
|
|
|
No
|
|
2020
|
|
2015, 2016, 2017
|
Pension Plan of the National Retirement Fund
|
|
13-6130178-001
|
|
12/31/16
|
|
Red
|
|
Implemented
|
|
$
|
0.8
|
|
|
Yes, 10.0%
|
|
2019
|
|
N/A
|
Central States, Southeast & Southwest Areas Pension Plan
|
|
36-6044243-001
|
|
12/31/16
|
|
Red
|
|
Implemented
|
|
$
|
0.7
|
|
|
Yes, 10.0%
|
|
2018
|
|
N/A
|
|
|
(1)
|
The Pension Protection Act of 2006 ranks the funded status of multi-employer pension plans depending upon a plan’s current and projected funding. A plan is in the Red Zone (Critical) if it has a current funded percentage of less than
65.0%
. A plan is in the Yellow Zone (Endangered) if it has a current funded percentage of less than
80.0%
, or projects a credit balance deficit within
seven
years. A plan is in the Green Zone (Healthy) if it has a current funded percentage greater than
80.0%
and does not have a projected credit balance deficit within
seven
years. The zone status is based on the plan’s year end rather than the Company’s. The zone status listed for each plan is based on information that the Company received from that plan and is certified by that plan’s actuary for the most recent year available.
|
|
|
(2)
|
Funding Improvement Plan or Rehabilitation Plan as defined in the Employee Retirement Income Security Act of 1974 has been implemented or is pending.
|
|
|
(3)
|
Indicates whether the Company paid a surcharge to the plan in the most current year due to funding shortfalls and the amount of the surcharge.
|
|
|
(4)
|
The Company represented more than
5.0%
of the total contributions for the most recent plan year available. For year ended December 31,
2016
, the Company contributed
$1.2 million
to the plan.
|
(10)
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 the 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 Board of Directors out of funds legally available for that purpose. In the event of liquidation, dissolution or winding up, the 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 of Directors 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 of Directors, which may include, among others, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights.
(b)
Treasury Stock.
As of December 31, 2018, the Company had approximately
$226.9 million
remaining under an existing share repurchase program initially authorized by the Board of Directors in 2016. The Company did not repurchase any shares under the program during the year ended December 31, 2018. For the years ended December 31, 2017 and 2016, the Company repurchased
0.6 million
and
8.7 million
shares for approximately
$40.1 million
and
$533.0 million
, respectively, under the program.
In addition, the Company acquired
0.1 million
,
0.1 million
, and
0.0 million
shares upon the vesting of certain performance restricted stock units ("PRSUs"), which were withheld to satisfy tax withholding obligations during the years ended December 31, 2018, 2017, and 2016, 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 thereafter, resulting in approximately
$4.6 million
,
$4.8 million
, and
2.0 million
in treasury stock acquired during the years ended December 31, 2018, 2017, and 2016, respectively.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c)
AOCL.
AOCL consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2018
|
|
2017
|
|
2016
|
Foreign Currency Translation
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(72.8
|
)
|
|
$
|
(101.9
|
)
|
|
$
|
(101.6
|
)
|
Other comprehensive (loss) income:
|
|
|
|
|
|
Foreign currency translation adjustments
(1)
|
(18.9
|
)
|
|
29.1
|
|
|
(0.3
|
)
|
Balance at end of period
|
$
|
(91.7
|
)
|
|
$
|
(72.8
|
)
|
|
$
|
(101.9
|
)
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(2.7
|
)
|
|
$
|
(2.2
|
)
|
|
$
|
(1.4
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
Net change from period revaluation:
|
(0.4
|
)
|
|
(0.8
|
)
|
|
(1.5
|
)
|
Tax benefit
(2)
|
0.1
|
|
|
0.3
|
|
|
0.6
|
|
Total other comprehensive loss before reclassifications, net of tax
|
(0.3
|
)
|
|
(0.5
|
)
|
|
(0.9
|
)
|
Net amount reclassified to earnings
|
—
|
|
|
—
|
|
|
0.2
|
|
U.S tax reform - reclassification to retained earnings upon adoption of ASU No. 2018-02
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
Tax expense
(2)
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
Total amount reclassified from accumulated other comprehensive loss, net of tax
|
(0.6
|
)
|
|
—
|
|
|
0.1
|
|
Total other comprehensive loss
|
(0.9
|
)
|
|
(0.5
|
)
|
|
(0.8
|
)
|
Balance at end of period
|
$
|
(3.6
|
)
|
|
$
|
(2.7
|
)
|
|
$
|
(2.2
|
)
|
|
|
|
|
|
|
Foreign Exchange Forward Contracts
|
|
|
|
|
|
Balance at beginning of period
|
$
|
—
|
|
|
$
|
0.6
|
|
|
$
|
6.6
|
|
Other comprehensive loss:
|
|
|
|
|
|
Net change from period revaluation:
|
—
|
|
|
(0.6
|
)
|
|
(3.6
|
)
|
Tax benefit
(2)
|
—
|
|
|
0.1
|
|
|
1.0
|
|
Total other comprehensive loss before reclassifications, net of tax
|
—
|
|
|
(0.5
|
)
|
|
(2.6
|
)
|
Net amount reclassified to earnings
(3)
|
—
|
|
|
(0.1
|
)
|
|
(4.6
|
)
|
Tax benefit
(2)
|
—
|
|
|
—
|
|
|
1.2
|
|
Total amount reclassified from accumulated other comprehensive loss, net of tax
|
—
|
|
|
(0.1
|
)
|
|
(3.4
|
)
|
Total other comprehensive loss
|
—
|
|
|
(0.6
|
)
|
|
(6.0
|
)
|
Balance at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
|
(1)
|
In
2018
,
2017
and
2016
, 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 Consolidated Statements of Income.
|
|
|
(3)
|
This amount was included in cost of sales, net in the accompanying Consolidated Statements of Income
.
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11)
Other Items
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in millions)
|
2018
|
|
2017
|
Taxes
|
$
|
136.8
|
|
|
$
|
6.3
|
|
Advertising
|
46.1
|
|
|
44.4
|
|
Wages and benefits
|
43.7
|
|
|
51.4
|
|
Sales returns
|
22.0
|
|
|
19.6
|
|
Warranty
|
14.9
|
|
|
16.7
|
|
Rebates
|
11.6
|
|
|
11.4
|
|
Other
|
84.1
|
|
|
72.5
|
|
|
$
|
359.2
|
|
|
$
|
222.3
|
|
(12)
Stock-based Compensation
Tempur Sealy International has
two
stock-based compensation plans which provide for grants of non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock unit awards, performance shares, stock grants and performance based awards to employees, non-employee directors, consultants and Company advisors. The plan under which equity awards may be granted in the future is the Amended and Restated 2013 Equity Incentive Plan (the "2013 Plan"). It is the policy of the Company to issue stock out of treasury shares upon issuance or exercise of share-based awards. The Company believes that awards and purchases made under these plans better align the interests of the plan participants with those of its stockholders.
On May 11, 2017, the Company's stockholders approved the amendment and restatement of the original 2013 Plan. The 2013 Plan provides for grants of stock options to purchase shares of common stock to employees and directors of the Company. The 2013 Plan may be administered by the Compensation Committee of the Board of Directors, by the Board of Directors directly, or, in certain cases, by an executive officer or officers of the Company designated by the Compensation Committee. The shares issued or to be issued under the 2013 Plan may be either authorized but unissued shares of the Company’s common stock or shares held by the Company in its treasury. Tempur Sealy International may issue a maximum of
8.7 million
shares of common stock under the 2013 Plan, subject to certain adjustment provisions.
The Amended and Restated 2003 Equity Incentive Plan, as amended (the “2003 Plan”), was administered by the Compensation Committee of the Board of Directors, which, together with the Board of Directors, had the exclusive authority to administer the 2003 Plan, including the power to determine eligibility to receive awards, the types and number of shares of stock subject to the awards, the price and timing of awards and the acceleration or waiver of any vesting and performance of forfeiture restrictions, in each case subject to the terms of the 2003 Plan. Any of the Company’s employees, non-employee directors, consultants and Company advisors, as determined by the Compensation Committee, were eligible to be selected to participate in the 2003 Plan. Tempur Sealy International allowed a maximum of
11.5 million
shares of its common stock under the 2003 Plan to be issued. In May 2013, the Company's Board of Directors adopted a resolution that prohibited further grants under the 2003 Plan.
In 2010, the Board of Directors approved the terms of a Long-Term Incentive Plan established under the 2003 Plan. In 2013, the Board of Directors approved the terms of another Long-Term Incentive Plan established under the 2013 Plan. Awards under both Long-Term Incentive Plans have typically consisted primarily of a mix of stock options, RSUs and PRSUs. Shares with respect to the PRSUs will be granted and vest following the end of the applicable performance period and achievement of applicable performance metrics as determined by the Compensation Committee of the Board of Directors.
The Company’s stock-based compensation expense for the year ended
December 31, 2018
included PRSUs, stock options, RSUs and DSUs. A summary of the Company’s stock-based compensation expense is presented below:
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2018
|
|
2017
|
|
2016
|
PRSU expense (benefit)
|
$
|
2.5
|
|
|
$
|
(6.5
|
)
|
|
$
|
3.9
|
|
Stock option expense
|
6.7
|
|
|
7.1
|
|
|
5.3
|
|
RSU/DSU expense
|
15.6
|
|
|
12.7
|
|
|
7.0
|
|
Total stock-based compensation expense
|
$
|
24.8
|
|
|
$
|
13.3
|
|
|
$
|
16.2
|
|
The Company granted PRSUs during the years ended
December 31, 2018
,
2017
and
2016
. Actual payout under the PRSUs is dependent upon the achievement of certain financial goals. The Company recorded a benefit in the accompanying Consolidated Statements of Income of
$9.3 million
and
$3.8 million
for the years ended December 31,
2017
and 2016, respectively, after the change in estimate to reduce accumulated performance based stock compensation amortization to actual cost based on updated projected or final financial results.
Performance Restricted Stock Units
A summary of the Company’s PRSU activity and related information for the years ended
December 31, 2018
and
2017
is presented below:
|
|
|
|
|
|
|
|
(shares in millions)
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
Awards unvested at December 31, 2016
|
1.7
|
|
|
$
|
68.02
|
|
Granted
|
1.6
|
|
|
59.64
|
|
Vested
|
(0.2
|
)
|
|
59.39
|
|
Forfeited
|
(0.4
|
)
|
|
65.48
|
|
Awards unvested at December 31, 2017
|
2.7
|
|
|
64.13
|
|
Granted
|
0.2
|
|
|
51.72
|
|
Vested
|
(0.1
|
)
|
|
68.57
|
|
Forfeited
|
(0.8
|
)
|
|
68.07
|
|
Awards unvested at December 31, 2018
|
2.0
|
|
|
$
|
61.07
|
|
During 2017, the Company granted executive officers and certain members of management PRSUs if the Company achieves a certain level of adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA") during four consecutive fiscal quarters as described below (the "2019 Aspirational Plan PRSUs").
Adjusted EBITDA is defined as the Company’s "Consolidated EBITDA" as such term is defined in the Company’s 2016 Credit Agreement. The 2019 Aspirational Plan PRSUs will vest based on the highest Adjusted EBITDA in any four consecutive fiscal quarter period ending between (and including) March 31, 2018 and December 31, 2019 (the “First Designated Period”). If the highest Adjusted EBITDA in the First Designated Period is
$600.0 million
,
66%
will vest; if the highest Adjusted EBITDA equals or exceeds
$650.0 million
, then
100%
will vest; if the highest Adjusted EBITDA is between
$600.0 million
and
$650.0 million
then a pro rata portion will vest; and if the highest Adjusted EBITDA is less than
$600.0 million
then one-half of the 2019 Aspirational Plan PRSUs will no longer be available for vesting based on performance and the remaining one-half will remain available for vesting based on the highest Adjusted EBITDA in any four consecutive fiscal quarter period ending between (and including) March 31, 2020 and December 31, 2020 (the “Second Designated Period”). If the highest Adjusted EBITDA in the Second Designated Period is
$600.0 million
then
66%
of the remaining 2019 Aspirational Plan PRSUs will vest; if the Adjusted EBITDA is
$650.0 million
or more
100%
will vest; if Adjusted EBITDA is between
$600.0 million
and
$650.0 million
then a pro rata portion will vest; and if Adjusted EBITDA is below
$600.0 million
then all of the remaining 2019 Aspirational Plan PRSUs will be forfeited.
The Company did not record any stock-based compensation expense related to the 2019 Aspirational Plan PRSUs during the year ended
December 31, 2018
, 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. At
December 31, 2018
, the Company has
1.6 million
of these 2019 Aspirational PRSUs outstanding that will fully vest if the Company achieves more than
$650.0 million
of Adjusted EBITDA for 2019. 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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In March 2018, the Compensation Committee of the Board of Directors formally determined that the Company did not have more than
$650.0 million
of Adjusted EBITDA for 2017 ("the 2017 Aspirational Plan PRSUs"). As a result, approximately two-thirds of the PRSUs previously granted with a performance period for 2017 ("2017 Aspirational PRSUs") were forfeited as of this date. At December 31, 2018, the Company has
0.3 million
of these 2017 Aspirational PRSUs still outstanding that will vest if the Company achieves more than
$650.0 million
of Adjusted EBITDA for 2018. The Company expects that in early March 2019 the Compensation Committee of the Board of Directors will formally determine that the Company did not have more than
$650.0 million
in Adjusted EBITDA for 2018. As a result, the remaining one-third of the total 2017 Aspirational Plan PRSUs will be forfeit as of this date.
The Company did not record any stock-based compensation expense related to the 2017 Aspirational Plan PRSUs during the years ended
December 31, 2018
and
2017
, as it was not considered probable that the Company will achieve the specified performance target as of
December 31, 2018
. 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 was met for
2018
is
$24.6 million
, which would have been expensed over the remaining service period if achievement of the performance condition became probable.
Stock Options
The Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options granted. During the year ended December 31, 2016,
no
stock options were granted. The assumptions used in the Black-Scholes option-pricing model for the years ended
December 31, 2018
,
2017
and
2016
are set forth in the following table. Expected volatility is based on the unbiased standard deviation of Tempur Sealy International’s common stock over the option term. The expected life of the options represents the period of time that the Company expects the options granted to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option for the expected term of the instrument. The dividend yield reflects an estimate of dividend payouts over the term of the award. During 2017, the Company adopted a change in accounting policy to recognize forfeitures of awards as they occur instead of estimating potential forfeitures. Historically, the Company estimated the number of awards expected to be forfeited and adjusted the estimate when it was no longer probable that employees would fulfill their service conditions. The Company uses historical data to determine these assumptions.
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Expected volatility range of stock
|
39.8% - 40.1%
|
|
37.4% - 40.8%
|
|
N/A
|
Expected life of option, range in years
|
5
|
|
5
|
|
N/A
|
Risk-free interest range rate
|
2.2% - 2.8%
|
|
1.8% - 1.9%
|
|
N/A
|
Expected dividend yield on stock
|
—%
|
|
—%
|
|
N/A
|
A summary of the Company’s stock option activity under the 2003 Plan and 2013 Plan for the years ended
December 31, 2018
and
2017
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts and years)
|
Shares
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value
|
Options outstanding at December 31, 2016
|
1.5
|
|
|
$
|
50.46
|
|
|
|
|
|
Granted
|
0.6
|
|
|
69.04
|
|
|
|
|
|
Exercised
|
(0.3
|
)
|
|
38.44
|
|
|
|
|
|
Forfeited
|
(0.1
|
)
|
|
67.45
|
|
|
|
|
|
Options outstanding at December 31, 2017
|
1.7
|
|
|
$
|
58.93
|
|
|
|
|
|
Granted
|
0.3
|
|
|
61.84
|
|
|
|
|
|
Exercised
|
(0.2
|
)
|
|
28.20
|
|
|
|
|
|
Forfeited
|
(0.2
|
)
|
|
60.45
|
|
|
|
|
|
Options outstanding at December 31, 2018
|
1.6
|
|
|
$
|
62.51
|
|
|
6.91
|
|
—
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2018
|
1.0
|
|
|
$
|
59.93
|
|
|
5.87
|
|
—
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aggregate intrinsic value of options exercised during the years ended
December 31, 2018
,
2017
and
2016
was
$3.9 million
,
$5.4 million
and
$23.9 million
, respectively.
Cash received from options exercised under all stock-based compensation plans, including cash received from options issued from treasury shares, for the years ended
December 31, 2018
,
2017
and
2016
, was
$4.6 million
,
$12.8 million
, and
$15.7 million
, respectively.
A summary of the Company’s unvested shares relating to stock options as of
December 31, 2018
and
2017
, and changes during the years ended
December 31, 2018
and
2017
, are presented below:
|
|
|
|
|
|
|
|
(shares in millions)
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
Options unvested at December 31, 2016
|
0.5
|
|
|
$
|
63.09
|
|
Granted
|
0.6
|
|
|
69.04
|
|
Vested
|
(0.3
|
)
|
|
61.69
|
|
Forfeited
|
(0.1
|
)
|
|
67.45
|
|
Options unvested at December 31, 2017
|
0.7
|
|
|
$
|
67.95
|
|
Granted
|
0.3
|
|
|
61.84
|
|
Vested
|
(0.2
|
)
|
|
66.72
|
|
Forfeited
|
(0.2
|
)
|
|
60.45
|
|
Options unvested at December 31, 2018
|
0.6
|
|
|
$
|
66.20
|
|
Restricted/Deferred Stock Units
A summary of the Company's RSU and DSU activity and related information for the years ended
December 31, 2018
and
2017
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
Shares
|
|
Weighted Average Release Price
|
|
Aggregate Intrinsic Value
|
Awards outstanding at December 31, 2016
|
0.4
|
|
|
$
|
59.37
|
|
|
|
Granted
|
0.4
|
|
|
68.08
|
|
|
|
Vested
|
(0.1
|
)
|
|
54.20
|
|
|
|
Terminated
|
(0.1
|
)
|
|
64.66
|
|
|
|
Awards outstanding at December 31, 2017
|
0.6
|
|
|
$
|
64.94
|
|
|
|
Granted
|
0.3
|
|
|
61.29
|
|
|
|
Vested
|
(0.1
|
)
|
|
62.85
|
|
|
|
Terminated
|
—
|
|
|
64.00
|
|
|
|
Awards outstanding at December 31, 2018
|
0.8
|
|
|
$
|
63.82
|
|
|
$
|
34.6
|
|
The aggregate intrinsic value of RSUs and DSUs vested during the year ended
December 31, 2018
was
$9.3 million
.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Excluding any potential compensation expense related to the 2017 Aspirational Plan PRSUs and 2019 Aspirational Plan PRSUs discussed above, a summary of total unrecognized stock-based compensation expense based on current performance estimates related to stock options, DSUs, RSUs and PRSUs for the year ended
December 31, 2018
is presented below:
|
|
|
|
|
|
|
(in millions, except years)
|
December 31, 2018
|
|
Weighted Average Remaining Vesting Period (Years)
|
Unrecognized stock option expense
|
$
|
11.5
|
|
|
2.42
|
Unrecognized DSU/RSU expense
|
29.6
|
|
|
2.46
|
Unrecognized PRSU expense
|
3.4
|
|
|
2.65
|
Total unrecognized stock-based compensation expense
|
$
|
44.5
|
|
|
2.46
|
(13)
Commitments and Contingencies
(a)
Lease Commitments
. The Company has various operating leases that call for annual rental payments due in equal monthly installments and a lease with a rent free occupancy period. The Company’s policy is to recognize expense for lease payment, including those with escalating provisions and rent free periods, on a straight-line basis over the lease term. Operating lease expenses were
$56.9 million
,
$41.6 million
, and
$33.5 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Future minimum lease payments at
December 31, 2018
under these non-cancelable leases are as follows:
|
|
|
|
|
(in millions)
|
|
Year Ended December 31,
|
|
2019
|
$
|
49.4
|
|
2020
|
40.1
|
|
2021
|
34.8
|
|
2022
|
28.7
|
|
2023
|
22.1
|
|
Thereafter
|
60.9
|
|
|
$
|
236.0
|
|
The Company has the option to renew certain plant operating leases, with the longest renewal period extending through 2043. Certain of the operating leases provide for increased rent through increases in general price levels. The Company recognizes rent expense in these situations on a straight-line basis over the lease term.
(b) 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. The Company does not believe the claims have merit and intends to vigorously defend against these claims. A Motion to Dismiss the case was filed by the Company on October 5, 2017. The plaintiffs filed their opposition to the Motion to Dismiss on November 20, 2017, and the Company filed its reply on December 21, 2017. The case is in the early stages of litigation. As a result, the outcome of the case is unclear and the Company is unable to reasonably estimate the possible loss or range of loss, if any. Accordingly, the Company can give no assurance that this matter will not have a material adverse effect on the Company’s financial position or results of operations.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c) 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.
Three putative shareholder derivative suits were filed against the Company, each member of its Board of Directors and two of its officers in July 2017. Two suits were filed in the Fayette County Circuit Court on July 10, 2017 and July 14, 2017, respectively, and the third was filed in the U.S. District Court for the Eastern District of Kentucky on July 21, 2017. Each complaint alleges that the Board of Directors and officers caused the Company to make materially false and misleading statements regarding its business and financial prospects, including those with one of its retailers, Mattress Firm, which was a violation of the fiduciary duties they owed to the Company. The Company does not believe any of the suits have merit and intends to vigorously defend against the claims in each case. The Plaintiffs in each of the cases have agreed to stay their respective actions until after a decision is rendered on the Motion to Dismiss in the Buehring action noted above. These cases are in the early stages of litigation, and as a result the outcome of each case is unclear, so the Company is unable to reasonably estimate the possible loss, or range of loss, if any.
(d) Mattress Firm, Inc. v. Tempur-Pedic North America, LLC and Sealy Mattress Company, filed March 30, 2017 and a related matter.
On March 30, 2017, a suit was filed against Tempur-Pedic North America, LLC and Sealy Mattress Company (two wholly-owned subsidiaries of the Company) in the District Court of Harris County, Texas (the "Texas State Court Case") by Mattress Firm. The complaint alleged breach of contract and tortious interference and sought a declaratory judgment with respect to the interpretation of its agreements with the Company.
On April 7, 2017, the Company’s subsidiaries named above, among others, filed suit against Mattress Firm in the U.S. District Court for the Southern District of Texas, Houston Division (the "Federal Court Case"), seeking injunctive relief and damages for trademark infringement, unfair competition and trademark dilution in violation of the Lanham Act, and breach of contract and other state law violations. The complaint alleged that Mattress Firm violated the parties' transition agreements dated January 30, 2017, and consequently, federal and state law, by its use of the Company’s trademarks after April 3, 2017. On April 28, 2017, the complaint was amended to add a claim by Sealy Mattress Company for nonpayment by Mattress Firm for products sold and delivered. On May 23, 2017, the complaint was further amended to add allegations that Mattress Firm continued to use the Company’s trade names and trademarks on its website and in advertising in an inappropriate manner. On July 11, 2017, the Court in the Federal Court Case issued a preliminary injunction prohibiting Mattress Firm from using the Company’s names and marks in such manner. The complaint was further amended by the Company on July 31, 2017 and December 7, 2017 to add additional claims against Mattress Firm.
The discovery period in the Texas State Court case was extended, and the trial date initially set for September 2018 was reset for early 2019. Discovery was proceeding in the case until Mattress Firm's bankruptcy filing under Chapter 11 of the Bankruptcy Code on October 5, 2018, which stayed all Mattress Firm litigation.
In the Federal Court Case, discovery was completed and motions for summary judgment on certain claims filed by both parties in early 2018 were ruled on by the Court during June and July 2018. A trial date was set for October 10, 2018, but all Mattress Firm litigation was stayed on October 5, 2018 when Mattress Firm filed for bankruptcy. The Federal Court Case recommenced in November 2018 following Mattress Firm's exit from bankruptcy proceedings.
On January 11, 2019, the parties agreed to a joint motion for a
30
-day stay of the Federal Court Case to allow the parties the opportunity to discuss a global settlement of all litigation between them. Effective February 11, 2019, the parties agreed to settle all such litigation, including, but not limited to, the Texas State Court Case and the Federal Court Case, in consideration of full mutual releases of all claims. The parties remain subject to certain remaining obligations that were negotiated under their prior commercial agreements.
(e) Other.
The Company is involved in various other legal proceedings incidental to the operations of its business. The Company believes that the outcome of all such other pending legal proceedings in the aggregate will not have a material adverse effect on its business, financial condition, liquidity, or operating results.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14)
Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act”) was signed into law, making significant changes to U.S. tax law. Changes include, but are not limited to, a corporate income tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. In accordance with the Act, the Company recorded an income tax benefit of
$23.8 million
in the fourth quarter of 2017, the period in which the legislation was enacted. The total benefit included a tax benefit of
$69.7 million
related to the remeasurement of certain deferred tax assets and liabilities net of
$45.9 million
in additional income tax expense related to the transition tax on foreign earnings. Additionally, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company has completed its analysis based on subsequent guidance issued with respect to the Act currently available which resulted in an additional SAB 118 tax benefit of
$6.8 million
in 2018 related to the finalization of the Company’s transition tax obligation.
The following sets forth the amount of income before income taxes attributable to each of the Company’s geographies for the years ended December 31,
2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2018
|
|
2017
|
|
2016
|
Income before income taxes:
|
|
|
|
|
|
United States
|
$
|
59.2
|
|
|
$
|
97.2
|
|
|
$
|
179.0
|
|
Rest of the world
|
105.8
|
|
|
118.2
|
|
|
104.6
|
|
|
$
|
165.0
|
|
|
$
|
215.4
|
|
|
$
|
283.6
|
|
The Company’s effective income tax provision differs from the amount calculated using the statutory U.S. federal income tax rate, principally due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
(dollars in millions)
|
Amount
|
|
Percentage of Income
Before Income Taxes
|
|
Amount
|
|
Percentage of Income
Before Income Taxes
|
|
Amount
|
|
Percentage of Income
Before Income Taxes
|
Statutory U.S. federal income tax
|
$
|
34.6
|
|
|
21.0
|
%
|
|
$
|
75.4
|
|
|
35.0
|
%
|
|
$
|
99.3
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
1.8
|
|
|
1.1
|
%
|
|
(0.6
|
)
|
|
(0.3
|
)%
|
|
8.0
|
|
|
2.8
|
%
|
Foreign repatriation, net of foreign tax credits
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.3
|
)
|
|
(1.5
|
)%
|
Foreign tax differential
|
2.5
|
|
|
1.5
|
%
|
|
(11.9
|
)
|
|
(5.5
|
)%
|
|
(12.0
|
)
|
|
(4.2
|
)%
|
Change in valuation allowances
|
(17.7
|
)
|
|
(10.7
|
)%
|
|
5.6
|
|
|
2.6
|
%
|
|
19.4
|
|
|
6.8
|
%
|
Uncertain tax positions
|
33.1
|
|
|
20.1
|
%
|
|
(1.0
|
)
|
|
(0.5
|
)%
|
|
(27.1
|
)
|
|
(9.6
|
)%
|
Subpart F income
|
6.6
|
|
|
4.0
|
%
|
|
2.7
|
|
|
1.2
|
%
|
|
2.0
|
|
|
0.7
|
%
|
Manufacturing deduction
|
—
|
|
|
—
|
|
|
(1.9
|
)
|
|
(0.9
|
)%
|
|
(4.2
|
)
|
|
(1.5
|
)%
|
Remeasurement of deferred taxes
|
—
|
|
|
—
|
|
|
(69.7
|
)
|
|
(32.3
|
)%
|
|
—
|
|
|
—
|
|
Transition Tax
|
(6.8
|
)
|
|
(4.1
|
)%
|
|
45.9
|
|
|
21.3
|
%
|
|
—
|
|
|
—
|
|
Permanent and other
|
(4.5
|
)
|
|
(2.8
|
)%
|
|
(0.7
|
)
|
|
(0.3
|
)%
|
|
5.2
|
|
|
1.9
|
%
|
Effective income tax provision
|
$
|
49.6
|
|
|
30.1
|
%
|
|
$
|
43.8
|
|
|
20.3
|
%
|
|
$
|
86.3
|
|
|
30.4
|
%
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For 2018, Subpart F income includes Global Intangible Low-Taxed Income, or "GILTI" as well as certain sales made by foreign subsidiaries outside their respective countries of incorporation and taxable to Tempur Sealy International as if earned directly by Tempur Sealy International. The Company recognizes GILTI in the period in which such tax arises. For years prior to 2018, subpart F income represents interest and royalties earned by a foreign subsidiary as well as sales made by certain foreign subsidiaries outside of their country of incorporation and is taxable to Tempur Sealy International as if earned directly by Tempur Sealy International. The Transition Tax represents taxes on certain foreign sourced earnings and profits that were previously tax deferred.
The income tax provision consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2018
|
|
2017
|
|
2016
|
Current provision
|
|
|
|
|
|
Federal
|
$
|
(14.6
|
)
|
|
$
|
73.5
|
|
|
$
|
73.5
|
|
State
|
1.1
|
|
|
3.1
|
|
|
4.6
|
|
Foreign
|
57.1
|
|
|
28.3
|
|
|
39.3
|
|
Total current
|
$
|
43.6
|
|
|
$
|
104.9
|
|
|
$
|
117.4
|
|
Deferred provision
|
|
|
|
|
|
Federal
|
$
|
11.4
|
|
|
$
|
(67.7
|
)
|
|
$
|
(21.4
|
)
|
State
|
(4.5
|
)
|
|
7.6
|
|
|
1.6
|
|
Foreign
|
(0.9
|
)
|
|
(1.0
|
)
|
|
(11.3
|
)
|
Total deferred
|
6.0
|
|
|
(61.1
|
)
|
|
(31.1
|
)
|
Total income tax provision
|
$
|
49.6
|
|
|
$
|
43.8
|
|
|
$
|
86.3
|
|
The income tax provision includes federal, state, and foreign income taxes currently payable and those deferred or prepaid because of temporary differences between financial statement and tax bases of assets and liabilities. The Company records income taxes under the liability method. Under this method, deferred income taxes are recognized for the estimated future tax effects of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws. The amount provided for deferred income taxes reflects that impact of the revaluation of the Company's deferred income tax assets and liabilities required as the result of the change in the U.S. federal and state income tax rates, as discussed above.
The net deferred tax assets and liabilities recognized in the accompanying Consolidated Balance Sheets, determined using the income tax rate applicable to each period, consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
Stock-based compensation
|
$
|
12.8
|
|
|
$
|
10.6
|
|
Accrued expenses and other
|
49.1
|
|
|
36.3
|
|
Net operating losses, foreign tax credits and other tax attribute carryforwards
|
56.1
|
|
|
92.9
|
|
Inventories
|
6.0
|
|
|
6.2
|
|
Transaction costs
|
13.5
|
|
|
13.4
|
|
Property, plant and equipment
|
3.6
|
|
|
2.8
|
|
Total deferred tax assets
|
141.1
|
|
|
162.2
|
|
Valuation allowances
|
(43.1
|
)
|
|
(55.1
|
)
|
Total net deferred tax assets
|
$
|
98.0
|
|
|
$
|
107.1
|
|
Deferred tax liabilities:
|
|
|
|
Intangible assets
|
$
|
(156.8
|
)
|
|
$
|
(162.1
|
)
|
Property, plant and equipment
|
(30.3
|
)
|
|
(29.5
|
)
|
Accrued expenses and other
|
(5.8
|
)
|
|
(6.4
|
)
|
Total deferred tax liabilities
|
(192.9
|
)
|
|
(198.0
|
)
|
Net deferred tax liabilities
|
$
|
(94.9
|
)
|
|
$
|
(90.9
|
)
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the Transition Tax, or any additional outside basis differences inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. At December 31, 2018, the Company’s tax basis in its top tier foreign subsidiary exceeded the Company’s book basis in this subsidiary in the hands of the top tier foreign subsidiary's U.S. shareholder. The Company has not recorded a deferred tax asset on such excess tax basis as it is not apparent that the excess tax basis will reverse in the foreseeable future. As it relates to the book to tax basis difference with respect to the stock of each of the Company’s lower tier foreign subsidiaries, as a general matter, the book basis exceeds the tax basis in the hands of such foreign subsidiaries' shareholders. By operation of the tax laws of the various countries in which these subsidiaries are domiciled, earnings of lower tier foreign subsidiaries are not subject to tax, in all material respects, when distributed to a foreign shareholder. It is the Company’s intent that the earnings of each lower tier foreign subsidiary, with the exception of its Danish subsidiary and one of its Canadian subsidiaries, will be permanently reinvested in each such foreign subsidiaries' own operations. As it relates to the Danish subsidiary, its earnings may be distributed without any income tax impact. Thus, no tax is provided for with respect to the book to tax basis difference of its stock. With respect to the Canadian subsidiary, Canadian income tax withholding applies to any distribution it makes to its foreign parent company. At December 31, 2018, the Company has concluded that the Canadian subsidiary does not have material accumulated earnings in excess of its operating needs and as such no material Canadian withholding tax has been accrued.
The Company has the following gross income tax attributes available at
December 31, 2018
and
2017
, respectively:
|
|
|
|
|
|
|
|
|
(in millions)
|
2018
|
|
2017
|
State net operating losses (“SNOLs”)
|
$
|
355.7
|
|
|
$
|
133.9
|
|
U.S. federal foreign tax credits (“FTCs”)
|
12.2
|
|
|
12.2
|
|
U.S. state income tax credits ("SITCs")
|
8.0
|
|
|
8.1
|
|
Foreign net operating losses (“FNOLs”)
|
57.0
|
|
|
33.1
|
|
Charitable contribution carryover ("CCCs")
|
39.6
|
|
|
18.0
|
|
Interest limitation carryover ("ILC")
|
10.6
|
|
|
—
|
|
The SNOLs, FTCs, SITCs, FNOLs and CCCs generally expire in 2021, 2023, 2023, 2023 and 2020, respectively. The ILC has an indefinite life.
Management believes that, based on a number of factors, the available objective evidence creates sufficient uncertainty regarding the realizability of certain of the SNOLs, FTCs, SITCs, FNOLs, CCCs, the ILC and certain other deferred tax assets related to certain foreign operations (together, the “Tax Attributes”). In assessing the realizability of deferred tax assets (including the Tax Attributes), management considers whether it is more likely than not that some portion of all of such deferred tax assets will not be realized. Accordingly, the Company has established a valuation allowance for certain Tax Attributes. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible or creditable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. The Company has recorded valuation allowances against approximately
$124.2 million
of the SNOLs,
$12.2 million
of the FTCs, and
$8.1 million
of SITCs. With respect to all other Tax Attributes above, based upon the level of historical taxable income and projections for future taxable income, management believes it is more likely than not the Company will realize the benefits of the underlying deferred tax assets. However, there can be no assurance that such assets will be realized if circumstances change.
GAAP prescribes a recognition threshold and measurement attribute for the accounting and financial statement disclosure of tax positions taken or expected to be taken in a tax return. The evaluation of a tax position is a two-step process. The first step requires the Company to determine whether it is more likely than not that a tax position will be sustained upon examination based on the technical merits of the position. The second step requires the Company to recognize in the financial statements each tax position that meets the more likely than not criteria, measured at the largest amount of benefit that has a greater than 50.0% likelihood of being realized. Interest and penalties related to unrecognized tax benefits are recorded in income tax expense.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
(in millions)
|
|
Balance as of December 31, 2016
|
$
|
71.7
|
|
Additions based on tax positions related to 2017
|
3.9
|
|
Additions for tax positions of prior years
|
11.4
|
|
Expiration of statutes of limitations
|
—
|
|
Settlements of uncertain tax positions with tax authorities
|
(2.5
|
)
|
Balance as of December 31, 2017
|
$
|
84.5
|
|
Additions based on tax positions related to 2018
|
2.5
|
|
Additions for tax positions of prior years
|
21.2
|
|
Expiration of statutes of limitations
|
—
|
|
Settlements of uncertain tax positions with tax authorities
|
(4.4
|
)
|
Balance as of December 31, 2018
|
$
|
103.8
|
|
The amount of unrecognized tax benefits that would impact the effective tax rate if recognized at December 31,
2018
,
2017
and
2016
would be
$91.4 million
,
$31.7 million
and
$21.4 million
, respectively. During the years ended December 31,
2018
,
2017
and
2016
, the Company recognized approximately
$6.4 million
,
$0.4 million
, and
$1.6 million
in interest and penalties, respectively, in income tax expense. The Company had approximately
$66.3 million
,
$59.9 million
, and
$52.3 million
of accrued interest and penalties at December 31,
2018
,
2017
, and
2016
, respectively.
Since 2001, 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"). 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. SKAT has issued assessments to the Company asserting the royalties paid by the U.S. to the Danish subsidiary were too low, which the Company disputed. The tax assessments received from SKAT were based, in part, on a
20%
royalty rate, which is substantially higher than that historically used or deemed appropriate by the Company.
During 2018, the Company reached agreements with both SKAT and the U.S. Internal Revenue Service ("IRS") with respect to the adjusted amount of royalties for tax years 2001 through 2011 (the "Settlement Years"). The Company has also entered into the Advance Pricing Agreement program (the “APA Program”) for the tax years 2012 through 2022 in which the IRS, on the Company’s behalf, will negotiate directly with SKAT the royalty to be paid by the U.S. subsidiary to the Danish Subsidiary. The Company maintains an uncertain income tax liability for both the Settlement Years and for the tax years 2012 through 2018 that are included in the APA Program. The APA Program request was filed with the IRS on October 26, 2018. The APA Program negotiation process is not expected to conclude in the near term.
The income tax assessed by SKAT for the Settlement Years is DKK
470.5 million
(
$72.2 million
using the December 31, 2018 exchange rate) and has been accrued for by the Company at December 31, 2018 as an uncertain income tax position. The assessed value reflects materially the amount of the Danish tax liability that was historically accrued by the Company as an uncertain income tax position. The Company has determined the interest on such tax to be approximately DKK
376.8 million
(approximately
$57.8 million
using the December 31, 2018 exchange rate), which has also been accrued for by the Company at December 31, 2018. The total tax and interest accrued at December 31, 2018 related to the Settlement Years is DKK
847.3 million
(approximately
$130.0 million
using the December 31, 2018 exchange rate). The liability for the uncertain tax position and related interest is included in accrued expenses and other current liabilities within the Company’s Consolidated Balance Sheet. During 2018 the Company recorded approximately DKK
210.6 million
(approximately
$32.1 million
) for Danish tax and interest related to the Danish Tax Matter for the years 2012 through 2018, applying the concepts of the settlement negotiated with SKAT to the APA Program years. At December 31, 2018, the Company maintained an uncertain Danish tax position and related interest for such years of approximately DKK
230.2 million
(
$35.3 million
using the December 31, 2018 exchange rates). The amount accrued is included in other non-current liabilities on the Company's Consolidated Balance Sheet at December 31, 2018. The deferred tax asset for the U.S. correlative benefit associated with this accrual is approximately
$4.2 million
.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 2017, the Company had accrued Danish tax and interest for the Danish Tax Matter of approximately DKK
854.7 million
(approximately
$137.8 million
using the December 31, 2017 exchange rate) as an uncertain income tax position. Approximately DKK
835.0 million
(approximately
$134.8 million
using December 31, 2017 exchange rate) represents the amount accrued with respect to the Settlement Years. The balance of approximately DKK
19.7 million
(approximately
$3.2 million
using the December 31, 2017 exchange rates) was accrued for the tax years 2012 through 2017. The amount accrued at December 31, 2017 is included in other non-current liabilities on the Company's Consolidated Balance Sheet. In addition, the Company had recorded a deferred tax asset for the U.S. correlative benefit related to the Danish Tax Matter of approximately
$48.3 million
at December 31, 2017. The Company maintained a valuation allowance with respect to this benefit (specifically related to the Settlement Years) of approximately
$19.3 million
at December 31, 2017, as it was more likely than not that this portion of the deferred tax asset would not be realized as certain periods were closed tax years in the U.S. The gross deferred tax asset was netted with the Company's U.S. deferred tax liabilities in non-current liabilities in the Company's Consolidated Balance Sheet at December 31, 2017. As a result of the settlement with SKAT and the IRS, the Company was able to realize the entire U.S. correlative benefit in its 2017 U.S. federal and state income tax returns (which the Company filed in September 2018). Accordingly, the associated valuation allowance was released and reflected as a benefit within the Company’s 2018 income tax provision.
The Company’s uncertain tax liability 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 tax liability and the deferred tax asset discussed herein reflects the Company’s best judgment of the facts, circumstances and information available through December 31, 2018.
It is reasonably possible that there could be material changes to the amount of uncertain 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. The Company continues to discuss certain matters with SKAT relating to the Danish Tax Matter. For instance, the Company’s calculation of interest for the Settlement Years differs from the amount asserted by SKAT by approximately DKK
125.0 million
(approximately
$19.2 million
using the December 31, 2018 exchange rate). The Company believes its calculations properly reflect the mechanics of the calculation of interest as provided in Danish tax law and as such has not recorded a liability for the incremental interest proposed by SKAT. Further, if the IRS and SKAT are unable to reach a mutually acceptable agreement with respect to the years included in the APA Program, the Company could be required to make a significant payment to SKAT for Danish tax related to such years, which could have a material adverse effect on the Company’s results of operations and liquidity.
From June 2012 through December 31, 2018, SKAT withheld Value Added Tax refunds otherwise owed to the Company, pending resolution of the Danish Tax Matter. Total withheld refunds at December 31, 2018 and 2017 are approximately DKK
347.1 million
(approximately
$53.3 million
at the December 31, 2018 exchange rate) and DKK
336.5 million
(approximately
$54.1 million
at the December 31, 2017 exchange rate), respectively. In July 2016, the Company paid a deposit to SKAT in the amount of approximately DKK
615.2 million
(approximately
$94.4 million
and
$98.9 million
using the applicable exchange rates at December 31, 2018 and 2017, respectively) (the “Tax Deposit”) and applied approximately DKK
232.1 million
(approximately
$35.6 million
and
$37.4 million
using the exchange rates at December 31, 2018 and 2017, respectively) of its Value Added Tax refund (the “VAT Refund Applied”) to the aforementioned potential Danish income tax liability, consistent with the Company’s reserve position for this royalty matter. The deposit was made to mitigate additional interest and foreign exchange exposure. The Tax Deposit and the VAT Refund Applied are included within prepaid and other current assets and other non-current assets on the Consolidated Balance Sheets as of December 31, 2018 and 2017, respectively.
With few exceptions, the Company is no longer subject to tax examinations by the U.S. state and local municipalities for periods prior to 2011, and in non-U.S. jurisdictions for periods prior to 2001. The Company is currently under examination by various tax authorities around the world. The Company anticipates it is reasonably possible an increase or decrease in the amount of unrecognized tax benefits could be made in the next twelve months as a result of the statute of limitations expiring and/or the examinations being concluded on these returns. However, the Company does not presently anticipate that any increase or decrease in unrecognized tax benefits will be material to the Consolidated Financial Statements. Other than the changes relating to the Danish Tax Matter discussed in the preceding paragraphs, there were no significant changes to the liability for unrecognized tax benefits during the year ended December 31, 2018.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15)
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions, except per common share amounts)
|
2018
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
Net income from continuing operations, net of loss attributable to non-controlling interests
|
$
|
118.3
|
|
|
$
|
182.3
|
|
|
$
|
202.9
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic earnings per common share—weighted average shares
|
54.4
|
|
|
54.0
|
|
|
59.0
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Employee stock-based compensation
|
0.7
|
|
|
0.7
|
|
|
0.8
|
|
Denominator for diluted earnings per common share—adjusted weighted average shares
|
55.1
|
|
|
54.7
|
|
|
59.8
|
|
|
|
|
|
|
|
Basic earnings per common share for continuing operations
|
$
|
2.17
|
|
|
$
|
3.37
|
|
|
$
|
3.44
|
|
|
|
|
|
|
|
Diluted earnings per common share for continuing operations
|
$
|
2.15
|
|
|
$
|
3.33
|
|
|
$
|
3.39
|
|
The Company excluded
1.5 million
,
1.3 million
and
0.4 million
shares issuable upon exercise of outstanding stock options for the years ended
December 31, 2018
,
2017
, and
2016
, respectively, from the diluted earnings per common share computation because their exercise price was greater than the average market price of Tempur Sealy International’s common stock or they were otherwise anti-dilutive. Holders of non-vested stock-based compensation awards do not have voting rights or rights to receive any dividends thereon.
(16)
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, joint ventures and licensees located in the U.S. and Canada. The International segment consists of Tempur and Sealy manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America. The Company evaluates segment performance based on net sales, gross profit and operating income. There were
no
customers that contributed more than 10% of the Company's sales in
2018
or
2017
. Mattress Firm, previously a customer in the North America segment, represented
21.7%
of the Company's sales for the year ended December 31, 2016.
The Company’s North America and International segment assets include investments in subsidiaries that are appropriately eliminated in the Company’s accompanying Consolidated Financial Statements. The remaining inter-segment eliminations are comprised of intercompany accounts receivable and payable.
The following table summarizes total assets by segment:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in millions)
|
2018
|
|
2017
|
North America
|
$
|
2,788.1
|
|
|
$
|
2,771.9
|
|
International
|
604.8
|
|
|
593.8
|
|
Corporate
|
569.0
|
|
|
614.9
|
|
Inter-segment eliminations
|
(1,246.5
|
)
|
|
(1,302.2
|
)
|
Discontinued operations
|
—
|
|
|
15.6
|
|
Total assets
|
$
|
2,715.4
|
|
|
$
|
2,694.0
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes property, plant and equipment, net, by segment:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in millions)
|
2018
|
|
2017
|
North America
|
$
|
317.5
|
|
|
$
|
320.0
|
|
International
|
51.1
|
|
|
53.1
|
|
Corporate
|
52.2
|
|
|
60.4
|
|
Total property, plant and equipment, net
|
$
|
420.8
|
|
|
$
|
433.5
|
|
The following table summarizes segment information for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Bedding sales
|
$
|
2,002.1
|
|
|
$
|
453.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,455.3
|
|
Other sales
|
134.1
|
|
|
113.5
|
|
|
—
|
|
|
—
|
|
|
247.6
|
|
Net sales
|
$
|
2,136.2
|
|
|
$
|
566.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,702.9
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales
|
$
|
3.4
|
|
|
$
|
0.5
|
|
|
$
|
—
|
|
|
$
|
(3.9
|
)
|
|
$
|
—
|
|
Inter-segment royalty expense (income)
|
3.1
|
|
|
(3.1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Gross profit
|
823.4
|
|
|
297.3
|
|
|
—
|
|
|
—
|
|
|
1,120.7
|
|
Operating income (loss)
|
250.0
|
|
|
107.5
|
|
|
(101.2
|
)
|
|
—
|
|
|
256.3
|
|
Income (loss) from continuing operations before income taxes
|
241.1
|
|
|
101.0
|
|
|
(177.1
|
)
|
|
—
|
|
|
165.0
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
$
|
59.0
|
|
|
$
|
13.5
|
|
|
$
|
39.4
|
|
|
$
|
—
|
|
|
$
|
111.9
|
|
Capital expenditures
|
52.7
|
|
|
14.0
|
|
|
6.9
|
|
|
—
|
|
|
73.6
|
|
|
|
(1)
|
Depreciation and amortization includes stock-based compensation amortization expense.
|
The following table summarizes segment information for the year ended December 31,
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Bedding sales
|
$
|
2,051.8
|
|
|
$
|
421.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,473.4
|
|
Other sales
|
122.0
|
|
|
105.2
|
|
|
—
|
|
|
—
|
|
|
227.2
|
|
Net sales
|
$
|
2,173.8
|
|
|
$
|
526.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,700.6
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales
|
$
|
3.8
|
|
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
(4.8
|
)
|
|
$
|
—
|
|
Gross profit
|
844.7
|
|
|
276.3
|
|
|
—
|
|
|
—
|
|
|
1,121.0
|
|
Inter-segment royalty expense (income)
|
5.5
|
|
|
(5.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating income (loss)
|
273.2
|
|
|
112.0
|
|
|
(89.7
|
)
|
|
—
|
|
|
295.5
|
|
Income (loss) from continuing operations before income taxes
|
276.0
|
|
|
104.5
|
|
|
(165.1
|
)
|
|
—
|
|
|
215.4
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
$
|
51.4
|
|
|
$
|
14.1
|
|
|
$
|
28.5
|
|
|
$
|
—
|
|
|
$
|
94.0
|
|
Capital expenditures
|
39.9
|
|
|
9.0
|
|
|
17.7
|
|
|
—
|
|
|
66.6
|
|
|
|
(1)
|
Depreciation and amortization includes stock-based compensation amortization expense.
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes segment information for the year ended December 31,
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Bedding sales
|
$
|
2,447.8
|
|
|
$
|
399.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,847.7
|
|
Other sales
|
122.3
|
|
|
109.7
|
|
|
—
|
|
|
—
|
|
|
232.0
|
|
Net sales
|
$
|
2,570.1
|
|
|
$
|
509.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,079.7
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales
|
$
|
4.5
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
(4.9
|
)
|
|
$
|
—
|
|
Gross profit
|
1,017.4
|
|
|
272.1
|
|
|
—
|
|
|
—
|
|
|
1,289.5
|
|
Inter-segment royalty expense (income)
|
(7.2
|
)
|
|
7.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Operating income (loss)
|
411.8
|
|
|
100.6
|
|
|
(99.0
|
)
|
|
—
|
|
|
413.4
|
|
Income (loss) from continuing operations before income taxes
|
406.8
|
|
|
94.3
|
|
|
(217.5
|
)
|
|
—
|
|
|
283.6
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
$
|
43.7
|
|
|
$
|
14.7
|
|
|
$
|
30.2
|
|
|
$
|
—
|
|
|
$
|
88.6
|
|
Capital expenditures
|
32.8
|
|
|
14.8
|
|
|
14.3
|
|
|
—
|
|
|
61.9
|
|
|
|
(1)
|
Depreciation and amortization includes stock-based compensation amortization expense.
|
The following table summarizes property, plant and equipment, net by geographic region:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in millions)
|
2018
|
|
2017
|
United States
|
$
|
350.7
|
|
|
$
|
373.2
|
|
Canada
|
19.1
|
|
|
7.2
|
|
Other International
|
51.0
|
|
|
53.1
|
|
Total property, plant and equipment, net
|
$
|
420.8
|
|
|
$
|
433.5
|
|
Total International
|
$
|
70.1
|
|
|
$
|
60.3
|
|
The following table summarizes net sales by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2018
|
|
2017
|
|
2016
|
United States
|
$
|
1,928.9
|
|
|
$
|
1,954.2
|
|
|
$
|
2,361.9
|
|
Canada
|
207.3
|
|
|
219.6
|
|
|
208.2
|
|
Other International
|
566.7
|
|
|
526.8
|
|
|
509.6
|
|
Total net sales
|
$
|
2,702.9
|
|
|
$
|
2,700.6
|
|
|
$
|
3,079.7
|
|
Total International
|
$
|
774.0
|
|
|
$
|
746.4
|
|
|
$
|
717.8
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17)
Quarterly Financial Data (unaudited)
Quarterly results of operations for the years ended
December 31, 2018
and
2017
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2018
|
|
|
|
|
|
|
|
Net sales
|
$
|
637.4
|
|
|
$
|
659.9
|
|
|
$
|
729.5
|
|
|
$
|
676.1
|
|
Gross profit
|
264.7
|
|
|
272.8
|
|
|
300.0
|
|
|
283.2
|
|
Operating income
|
55.7
|
|
|
58.0
|
|
|
84.7
|
|
|
57.9
|
|
Income from continuing operations
|
25.6
|
|
|
26.6
|
|
|
44.1
|
|
|
19.1
|
|
Net income attributable to Tempur Sealy International, Inc.
|
23.1
|
|
|
22.8
|
|
|
42.3
|
|
|
12.3
|
|
Basic earnings per common share for continuing operations
|
$
|
0.48
|
|
|
$
|
0.52
|
|
|
$
|
0.83
|
|
|
$
|
0.35
|
|
Diluted earnings per common share for continuing operations
|
$
|
0.47
|
|
|
$
|
0.52
|
|
|
$
|
0.82
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
Net sales
|
$
|
710.4
|
|
|
$
|
647.3
|
|
|
$
|
711.5
|
|
|
$
|
631.4
|
|
Gross profit
|
282.0
|
|
|
264.1
|
|
|
307.0
|
|
|
267.9
|
|
Operating income
|
59.3
|
|
|
56.5
|
|
|
97.3
|
|
|
82.4
|
|
Income from continuing operations
|
32.6
|
|
|
22.1
|
|
|
53.2
|
|
|
63.7
|
|
Net income attributable to Tempur Sealy International, Inc.
|
33.9
|
|
|
24.5
|
|
|
44.6
|
|
|
48.4
|
|
Basic earnings per common share for continuing operations
|
$
|
0.64
|
|
|
$
|
0.46
|
|
|
$
|
1.05
|
|
|
$
|
1.22
|
|
Diluted earnings per common share for continuing operations
|
$
|
0.63
|
|
|
$
|
0.46
|
|
|
$
|
1.03
|
|
|
$
|
1.21
|
|
The sum of the quarterly earnings per common share amounts may not equal the annual amount reported because per share amounts are computed independently for each quarter and for the full year based on respective weighted-average common shares outstanding and other dilutive potential common shares. The Company’s quarterly operating results fluctuate as a result of seasonal variations in the Company’s business.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18)
Guarantor/Non-Guarantor Financial Information
The
$450.0 million
and
$600.0 million
aggregate principal amount of 2023 Senior Notes and 2026 Senior Notes (collectively the "Senior Notes"), respectively, are general unsecured senior obligations of Tempur Sealy International and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by the Combined Guarantor Subsidiaries. The
$375.0 million
aggregate principal amount of 2020 Senior Notes were general unsecured senior obligations at December 31, 2015 but were redeemed in full in 2016. The foreign subsidiaries (the "Combined Non-Guarantor Subsidiaries") represent the foreign operations of the Company and do not guarantee the Senior Notes. A subsidiary guarantor will be released from its obligations under the applicable indenture governing the Senior Notes when: (a) the subsidiary guarantor is sold or sells all or substantially all of its assets; (b) the subsidiary is declared "unrestricted" under the applicable indenture governing the Senior Notes; (c) the subsidiary’s guarantee of indebtedness under the 2016 Credit Agreement (as it may be amended, refinanced or replaced) is released (other than a discharge through repayment); or (d) the requirements for legal or covenant defeasance or discharge of the applicable indenture have been satisfied. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Company’s wholly-owned subsidiary guarantors and non-guarantor subsidiaries. The Company has accounted for its investments in its subsidiaries under the equity method.
The following financial information presents Consolidated Balance Sheets as of
December 31, 2018
and
December 31, 2017
, and the related Consolidated Statements of Income and Comprehensive Income and Cash Flows for the years ended
December 31, 2018
,
2017
and
2016
for Tempur Sealy International, Combined Guarantor Subsidiaries and Combined Non-Guarantor Subsidiaries.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEMPUR SEALY INTERNATIONAL, INC.
Supplemental Consolidated Statements of Income and Comprehensive Income
Year Ended
December 31, 2018
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Reclassifications and Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
2,000.9
|
|
|
$
|
800.5
|
|
|
$
|
(98.5
|
)
|
|
$
|
2,702.9
|
|
Cost of sales
|
—
|
|
|
1,208.3
|
|
|
464.3
|
|
|
(90.4
|
)
|
|
1,582.2
|
|
Gross profit
|
—
|
|
|
792.6
|
|
|
336.2
|
|
|
(8.1
|
)
|
|
1,120.7
|
|
Selling and marketing expenses
|
8.4
|
|
|
392.0
|
|
|
199.8
|
|
|
(12.4
|
)
|
|
587.8
|
|
General, administrative and other expenses
|
17.8
|
|
|
225.8
|
|
|
57.4
|
|
|
(6.8
|
)
|
|
294.2
|
|
Equity income in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(17.6
|
)
|
|
—
|
|
|
(17.6
|
)
|
Operating (loss) income
|
(26.2
|
)
|
|
174.8
|
|
|
96.6
|
|
|
11.1
|
|
|
256.3
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
Third party interest expense, net
|
59.2
|
|
|
30.2
|
|
|
4.6
|
|
|
(1.7
|
)
|
|
92.3
|
|
Intercompany interest (income) expense, net
|
(6.9
|
)
|
|
10.8
|
|
|
(3.9
|
)
|
|
—
|
|
|
—
|
|
Interest expense, net
|
52.3
|
|
|
41.0
|
|
|
0.7
|
|
|
(1.7
|
)
|
|
92.3
|
|
Other (income) expense, net
|
—
|
|
|
(9.9
|
)
|
|
13.9
|
|
|
(5.0
|
)
|
|
(1.0
|
)
|
Total other expense, net
|
52.3
|
|
|
31.1
|
|
|
14.6
|
|
|
(6.7
|
)
|
|
91.3
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investees
|
162.0
|
|
|
26.6
|
|
|
—
|
|
|
(188.6
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
83.5
|
|
|
170.3
|
|
|
82.0
|
|
|
(170.8
|
)
|
|
165.0
|
|
Income tax benefit (provision)
|
14.1
|
|
|
(8.3
|
)
|
|
(55.4
|
)
|
|
—
|
|
|
(49.6
|
)
|
Income from continuing operations
|
97.6
|
|
|
162.0
|
|
|
26.6
|
|
|
(170.8
|
)
|
|
115.4
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(17.8
|
)
|
|
(17.8
|
)
|
Net income before non-controlling interests
|
97.6
|
|
|
162.0
|
|
|
26.6
|
|
|
(188.6
|
)
|
|
97.6
|
|
Less: Net loss attributable to non-controlling interest
|
(2.9
|
)
|
|
(2.6
|
)
|
|
(0.3
|
)
|
|
2.9
|
|
|
(2.9
|
)
|
Net income attributable to Tempur Sealy International, Inc.
|
$
|
100.5
|
|
|
$
|
164.6
|
|
|
$
|
26.9
|
|
|
$
|
(191.5
|
)
|
|
$
|
100.5
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Tempur Sealy International, Inc.
|
$
|
80.7
|
|
|
$
|
164.2
|
|
|
$
|
7.5
|
|
|
$
|
(171.7
|
)
|
|
$
|
80.7
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEMPUR SEALY INTERNATIONAL, INC.
Supplemental Consolidated Statements of Income and Comprehensive Income
Year Ended
December 31, 2017
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Reclassifications and Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
1,961.2
|
|
|
$
|
862.5
|
|
|
$
|
(123.1
|
)
|
|
$
|
2,700.6
|
|
Cost of sales
|
—
|
|
|
1,185.4
|
|
|
497.6
|
|
|
(103.4
|
)
|
|
1,579.6
|
|
Gross profit
|
—
|
|
|
775.8
|
|
|
364.9
|
|
|
(19.7
|
)
|
|
1,121.0
|
|
Selling and marketing expenses
|
5.6
|
|
|
406.8
|
|
|
188.9
|
|
|
(15.2
|
)
|
|
586.1
|
|
General, administrative and other expenses
|
17.5
|
|
|
176.6
|
|
|
78.9
|
|
|
(11.6
|
)
|
|
261.4
|
|
Customer termination charges, net
|
(8.4
|
)
|
|
21.7
|
|
|
1.1
|
|
|
—
|
|
|
14.4
|
|
Equity income in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(15.6
|
)
|
|
—
|
|
|
(15.6
|
)
|
Royalty income, net of royalty expense
|
—
|
|
|
(20.8
|
)
|
|
—
|
|
|
—
|
|
|
(20.8
|
)
|
Operating (loss) income
|
(14.7
|
)
|
|
191.5
|
|
|
111.6
|
|
|
7.1
|
|
|
295.5
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
Third party interest expense, net
|
59.6
|
|
|
26.0
|
|
|
22.4
|
|
|
(20.7
|
)
|
|
87.3
|
|
Intercompany interest (income) expense, net
|
(4.7
|
)
|
|
8.3
|
|
|
(3.6
|
)
|
|
—
|
|
|
—
|
|
Interest expense, net
|
54.9
|
|
|
34.3
|
|
|
18.8
|
|
|
(20.7
|
)
|
|
87.3
|
|
Other (income) expense, net
|
—
|
|
|
(17.2
|
)
|
|
9.2
|
|
|
0.8
|
|
|
(7.2
|
)
|
Total other expense, net
|
54.9
|
|
|
17.1
|
|
|
28.0
|
|
|
(19.9
|
)
|
|
80.1
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investees
|
193.1
|
|
|
51.3
|
|
|
—
|
|
|
(244.4
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
123.5
|
|
|
225.7
|
|
|
83.6
|
|
|
(217.4
|
)
|
|
215.4
|
|
Income tax benefit (provision)
|
17.2
|
|
|
(32.6
|
)
|
|
(32.3
|
)
|
|
3.9
|
|
|
(43.8
|
)
|
Income from continuing operations
|
140.7
|
|
|
193.1
|
|
|
51.3
|
|
|
(213.5
|
)
|
|
171.6
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(30.9
|
)
|
|
(30.9
|
)
|
Net income before non-controlling interests
|
140.7
|
|
|
193.1
|
|
|
51.3
|
|
|
(244.4
|
)
|
|
140.7
|
|
Less: Net loss attributable to non-controlling interests
|
(10.7
|
)
|
|
(5.2
|
)
|
|
(5.5
|
)
|
|
10.7
|
|
|
(10.7
|
)
|
Net income attributable to Tempur Sealy International, Inc.
|
$
|
151.4
|
|
|
$
|
198.3
|
|
|
$
|
56.8
|
|
|
$
|
(255.1
|
)
|
|
$
|
151.4
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Tempur Sealy International, Inc.
|
$
|
179.4
|
|
|
$
|
193.0
|
|
|
$
|
89.9
|
|
|
$
|
(282.9
|
)
|
|
$
|
179.4
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEMPUR SEALY INTERNATIONAL, INC.
Supplemental Consolidated Statements of Income and Comprehensive Income
Year Ended
December 31, 2016
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Reclassifications and Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
2,355.9
|
|
|
$
|
837.6
|
|
|
$
|
(113.8
|
)
|
|
$
|
3,079.7
|
|
Cost of sales
|
—
|
|
|
1,409.4
|
|
|
476.6
|
|
|
(95.8
|
)
|
|
1,790.2
|
|
Gross profit
|
—
|
|
|
946.5
|
|
|
361.0
|
|
|
(18.0
|
)
|
|
1,289.5
|
|
Selling and marketing expenses
|
2.9
|
|
|
458.6
|
|
|
187.0
|
|
|
(13.0
|
)
|
|
635.5
|
|
General, administrative and other expenses
|
14.8
|
|
|
186.8
|
|
|
79.8
|
|
|
(8.0
|
)
|
|
273.4
|
|
Equity income in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(13.3
|
)
|
|
—
|
|
|
(13.3
|
)
|
Royalty income, net of royalty expense
|
—
|
|
|
(19.5
|
)
|
|
—
|
|
|
—
|
|
|
(19.5
|
)
|
Operating (loss) income
|
(17.7
|
)
|
|
320.6
|
|
|
107.5
|
|
|
3.0
|
|
|
413.4
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
Third party interest expense, net
|
66.0
|
|
|
15.4
|
|
|
10.2
|
|
|
(8.7
|
)
|
|
82.9
|
|
Intercompany interest (income) expense, net
|
(4.1
|
)
|
|
(0.1
|
)
|
|
4.2
|
|
|
—
|
|
|
—
|
|
Interest expense, net
|
61.9
|
|
|
15.3
|
|
|
14.4
|
|
|
(8.7
|
)
|
|
82.9
|
|
Loss on extinguishment of debt
|
34.3
|
|
|
12.9
|
|
|
—
|
|
|
—
|
|
|
47.2
|
|
Other (income) expense, net
|
—
|
|
|
(1.4
|
)
|
|
1.2
|
|
|
(0.1
|
)
|
|
(0.3
|
)
|
Total other expense, net
|
96.2
|
|
|
26.8
|
|
|
15.6
|
|
|
(8.8
|
)
|
|
129.8
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investees
|
260.1
|
|
|
65.3
|
|
|
—
|
|
|
(325.4
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
146.2
|
|
|
359.1
|
|
|
91.9
|
|
|
(313.6
|
)
|
|
283.6
|
|
Income tax benefit (provision)
|
38.8
|
|
|
(99.0
|
)
|
|
(26.6
|
)
|
|
0.5
|
|
|
(86.3
|
)
|
Income from continuing operations
|
185.0
|
|
|
260.1
|
|
|
65.3
|
|
|
(313.1
|
)
|
|
197.3
|
|
Loss from discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(12.3
|
)
|
|
(12.3
|
)
|
Net income before non-controlling interests
|
185.0
|
|
|
260.1
|
|
|
65.3
|
|
|
(325.4
|
)
|
|
185.0
|
|
Less: Net income attributable to non-controlling interests
|
(5.6
|
)
|
|
—
|
|
|
(5.6
|
)
|
|
5.6
|
|
|
(5.6
|
)
|
Net income attributable to Tempur Sealy International, Inc.
|
$
|
190.6
|
|
|
$
|
260.1
|
|
|
$
|
70.9
|
|
|
$
|
(331.0
|
)
|
|
$
|
190.6
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Tempur Sealy International, Inc.
|
$
|
183.5
|
|
|
$
|
260.4
|
|
|
$
|
63.5
|
|
|
$
|
(323.9
|
)
|
|
$
|
183.5
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEMPUR SEALY INTERNATIONAL, INC.
Supplemental Consolidated Balance Sheets
December 31, 2018
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Reclassifications and Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
0.1
|
|
|
$
|
6.2
|
|
|
$
|
39.5
|
|
|
$
|
—
|
|
|
$
|
45.8
|
|
Accounts receivable, net
|
—
|
|
|
15.2
|
|
|
303.3
|
|
|
3.0
|
|
|
321.5
|
|
Inventories
|
—
|
|
|
159.4
|
|
|
62.9
|
|
|
—
|
|
|
222.3
|
|
Prepaid expenses and other current assets
|
276.9
|
|
|
65.4
|
|
|
148.1
|
|
|
(274.6
|
)
|
|
215.8
|
|
Total Current Assets
|
277.0
|
|
|
246.2
|
|
|
553.8
|
|
|
(271.6
|
)
|
|
805.4
|
|
Property, plant and equipment, net
|
—
|
|
|
350.7
|
|
|
70.1
|
|
|
—
|
|
|
420.8
|
|
Goodwill
|
—
|
|
|
508.8
|
|
|
214.2
|
|
|
—
|
|
|
723.0
|
|
Other intangible assets, net
|
—
|
|
|
572.7
|
|
|
76.6
|
|
|
—
|
|
|
649.3
|
|
Deferred income taxes
|
15.0
|
|
|
—
|
|
|
22.6
|
|
|
(15.0
|
)
|
|
22.6
|
|
Other non-current assets
|
—
|
|
|
49.2
|
|
|
45.1
|
|
|
—
|
|
|
94.3
|
|
Net investment in subsidiaries
|
661.7
|
|
|
210.0
|
|
|
—
|
|
|
(871.7
|
)
|
|
—
|
|
Due from affiliates
|
422.1
|
|
|
153.8
|
|
|
15.4
|
|
|
(591.3
|
)
|
|
—
|
|
Total Assets
|
$
|
1,375.8
|
|
|
$
|
2,091.4
|
|
|
$
|
997.8
|
|
|
$
|
(1,749.6
|
)
|
|
$
|
2,715.4
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
186.7
|
|
|
$
|
63.3
|
|
|
$
|
3.0
|
|
|
$
|
253.0
|
|
Accrued expenses and other current liabilities
|
6.7
|
|
|
143.9
|
|
|
208.6
|
|
|
—
|
|
|
359.2
|
|
Income taxes payable
|
—
|
|
|
274.7
|
|
|
9.6
|
|
|
(274.6
|
)
|
|
9.7
|
|
Current portion of long-term debt
|
—
|
|
|
44.0
|
|
|
3.1
|
|
|
—
|
|
|
47.1
|
|
Total Current Liabilities
|
6.7
|
|
|
649.3
|
|
|
284.6
|
|
|
(271.6
|
)
|
|
669.0
|
|
Long-term debt, net
|
1,043.0
|
|
|
547.1
|
|
|
9.0
|
|
|
—
|
|
|
1,599.1
|
|
Deferred income taxes
|
—
|
|
|
118.0
|
|
|
14.5
|
|
|
(15.0
|
)
|
|
117.5
|
|
Other non-current liabilities
|
1.9
|
|
|
58.2
|
|
|
52.2
|
|
|
—
|
|
|
112.3
|
|
Due to affiliates
|
106.7
|
|
|
57.1
|
|
|
427.5
|
|
|
(591.3
|
)
|
|
—
|
|
Total Liabilities
|
1,158.3
|
|
|
1,429.7
|
|
|
787.8
|
|
|
(877.9
|
)
|
|
2,497.9
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholder's Equity
|
217.5
|
|
|
661.7
|
|
|
210.0
|
|
|
(871.7
|
)
|
|
217.5
|
|
Total Liabilities and Stockholders’ Equity
|
$
|
1,375.8
|
|
|
$
|
2,091.4
|
|
|
$
|
997.8
|
|
|
$
|
(1,749.6
|
)
|
|
$
|
2,715.4
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEMPUR SEALY INTERNATIONAL, INC.
Supplemental Consolidated Balance Sheets
December 31, 2017
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Reclassifications and Eliminations
|
|
Consolidated
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
0.1
|
|
|
$
|
12.3
|
|
|
$
|
29.5
|
|
|
$
|
(0.8
|
)
|
|
$
|
41.1
|
|
Accounts receivable, net
|
—
|
|
|
5.1
|
|
|
322.2
|
|
|
(16.5
|
)
|
|
310.8
|
|
Inventories
|
—
|
|
|
103.4
|
|
|
79.6
|
|
|
(3.9
|
)
|
|
179.1
|
|
Prepaid expenses and other current assets
|
261.0
|
|
|
50.6
|
|
|
13.4
|
|
|
(261.6
|
)
|
|
63.4
|
|
Current assets of discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
13.0
|
|
|
13.0
|
|
Total Current Assets
|
261.1
|
|
|
171.4
|
|
|
444.7
|
|
|
(269.8
|
)
|
|
607.4
|
|
Property, plant and equipment, net
|
—
|
|
|
360.4
|
|
|
74.7
|
|
|
(1.6
|
)
|
|
433.5
|
|
Goodwill
|
—
|
|
|
507.6
|
|
|
225.5
|
|
|
(0.4
|
)
|
|
732.7
|
|
Other intangible assets, net
|
—
|
|
|
577.5
|
|
|
89.9
|
|
|
(0.3
|
)
|
|
667.1
|
|
Deferred income taxes
|
11.8
|
|
|
—
|
|
|
23.6
|
|
|
(12.0
|
)
|
|
23.4
|
|
Other non-current assets
|
—
|
|
|
47.2
|
|
|
180.2
|
|
|
(0.1
|
)
|
|
227.3
|
|
Net investment in subsidiaries
|
2,381.0
|
|
|
127.7
|
|
|
—
|
|
|
(2,508.7
|
)
|
|
—
|
|
Due from affiliates
|
87.2
|
|
|
1,975.9
|
|
|
15.6
|
|
|
(2,078.7
|
)
|
|
—
|
|
Non-current assets of discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
2.6
|
|
|
2.6
|
|
Total Assets
|
$
|
2,741.1
|
|
|
$
|
3,767.7
|
|
|
$
|
1,054.2
|
|
|
$
|
(4,869.0
|
)
|
|
$
|
2,694.0
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
174.6
|
|
|
$
|
76.2
|
|
|
$
|
(22.5
|
)
|
|
$
|
228.3
|
|
Accrued expenses and other current liabilities
|
7.6
|
|
|
144.2
|
|
|
82.4
|
|
|
(11.9
|
)
|
|
222.3
|
|
Income taxes payable
|
—
|
|
|
279.3
|
|
|
10.0
|
|
|
(261.1
|
)
|
|
28.2
|
|
Current portion of long-term debt
|
—
|
|
|
35.7
|
|
|
36.7
|
|
|
—
|
|
|
72.4
|
|
Current liabilities of discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
25.7
|
|
|
25.7
|
|
Total Current Liabilities
|
7.6
|
|
|
633.8
|
|
|
205.3
|
|
|
(269.8
|
)
|
|
576.9
|
|
Long-term debt, net
|
1,041.6
|
|
|
589.4
|
|
|
49.7
|
|
|
—
|
|
|
1,680.7
|
|
Deferred income taxes
|
—
|
|
|
107.8
|
|
|
18.3
|
|
|
(11.8
|
)
|
|
114.3
|
|
Other non-current liabilities
|
—
|
|
|
55.2
|
|
|
152.2
|
|
|
(1.3
|
)
|
|
206.1
|
|
Due to affiliates
|
1,577.2
|
|
|
0.5
|
|
|
501.0
|
|
|
(2,078.7
|
)
|
|
—
|
|
Non-current liabilities of discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
|
1.3
|
|
Total Liabilities
|
2,626.4
|
|
|
1,386.7
|
|
|
926.5
|
|
|
(2,360.3
|
)
|
|
2,579.3
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable non-controlling interest
|
2.2
|
|
|
—
|
|
|
2.2
|
|
|
(2.2
|
)
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
112.5
|
|
|
2,381.0
|
|
|
125.5
|
|
|
(2,506.5
|
)
|
|
112.5
|
|
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders’ Equity
|
$
|
2,741.1
|
|
|
$
|
3,767.7
|
|
|
$
|
1,054.2
|
|
|
$
|
(4,869.0
|
)
|
|
$
|
2,694.0
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEMPUR SEALY INTERNATIONAL, INC.
Supplemental Consolidated Statements of Cash Flows
Year Ended
December 31, 2018
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Reclassifications and Eliminations
|
|
Consolidated
|
Net cash (used in) provided by operating activities from continuing operations
|
$
|
(55.8
|
)
|
|
$
|
166.6
|
|
|
$
|
72.3
|
|
|
$
|
24.4
|
|
|
$
|
207.5
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Contributions (paid to) received from subsidiaries and affiliates
|
—
|
|
|
(75.8
|
)
|
|
75.8
|
|
|
—
|
|
|
—
|
|
Purchases of property, plant and equipment
|
—
|
|
|
(58.8
|
)
|
|
(15.3
|
)
|
|
0.5
|
|
|
(73.6
|
)
|
Other
|
—
|
|
|
0.1
|
|
|
4.9
|
|
|
(2.6
|
)
|
|
2.4
|
|
Net cash (used in) provided by investing activities from continuing operations
|
—
|
|
|
(134.5
|
)
|
|
65.4
|
|
|
(2.1
|
)
|
|
(71.2
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under long-term debt obligations
|
—
|
|
|
414.0
|
|
|
680.9
|
|
|
—
|
|
|
1,094.9
|
|
Repayments of borrowings under long-term debt obligations
|
—
|
|
|
(444.0
|
)
|
|
(751.8
|
)
|
|
—
|
|
|
(1,195.8
|
)
|
Net activity in investment in and advances from (to) subsidiaries and affiliates
|
55.8
|
|
|
(3.0
|
)
|
|
(52.8
|
)
|
|
—
|
|
|
—
|
|
Proceeds from exercise of stock options
|
4.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4.6
|
|
Treasury stock repurchased
|
(4.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4.6
|
)
|
Other
|
—
|
|
|
(5.2
|
)
|
|
(0.9
|
)
|
|
—
|
|
|
(6.1
|
)
|
Net cash provided by (used in) financing activities from continuing operations
|
55.8
|
|
|
(38.2
|
)
|
|
(124.6
|
)
|
|
—
|
|
|
(107.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operations
|
—
|
|
|
(6.1
|
)
|
|
13.1
|
|
|
22.3
|
|
|
29.3
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Operating cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(24.4
|
)
|
|
(24.4
|
)
|
Investing cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|
2.1
|
|
Financing cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(22.3
|
)
|
|
(22.3
|
)
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
(3.1
|
)
|
|
—
|
|
|
(3.1
|
)
|
(Decrease) increase in cash and cash equivalents
|
—
|
|
|
(6.1
|
)
|
|
10.0
|
|
|
—
|
|
|
3.9
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
0.1
|
|
|
12.3
|
|
|
29.5
|
|
|
—
|
|
|
41.9
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
0.1
|
|
|
$
|
6.2
|
|
|
$
|
39.5
|
|
|
$
|
—
|
|
|
$
|
45.8
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEMPUR SEALY INTERNATIONAL, INC.
Supplemental Consolidated Statements of Cash Flows
Year Ended
December 31, 2017
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Reclassifications and Eliminations
|
|
Consolidated
|
Net cash (used in) provided by operating activities from continuing operations
|
$
|
(55.3
|
)
|
|
$
|
376.9
|
|
|
$
|
(98.7
|
)
|
|
$
|
33.6
|
|
|
$
|
256.5
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Contributions (paid to) received from subsidiaries and affiliates
|
—
|
|
|
(129.7
|
)
|
|
129.7
|
|
|
—
|
|
|
—
|
|
Purchases of property, plant and equipment
|
—
|
|
|
(55.8
|
)
|
|
(11.2
|
)
|
|
0.4
|
|
|
(66.6
|
)
|
Other
|
—
|
|
|
0.8
|
|
|
4.1
|
|
|
(4.0
|
)
|
|
0.9
|
|
Net cash (used in) provided by investing activities from continuing operations
|
—
|
|
|
(184.7
|
)
|
|
122.6
|
|
|
(3.6
|
)
|
|
(65.7
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under long-term debt obligations
|
|
|
603.9
|
|
|
729.0
|
|
|
—
|
|
|
1,332.9
|
|
Repayments of borrowings under long-term debt obligations
|
|
|
(790.8
|
)
|
|
(680.7
|
)
|
|
—
|
|
|
(1,471.5
|
)
|
Net activity in investment in and advances from (to) subsidiaries and affiliates
|
87.5
|
|
|
0.5
|
|
|
(88.0
|
)
|
|
—
|
|
|
—
|
|
Proceeds from exercise of stock options
|
12.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12.8
|
|
Treasury stock repurchased
|
(44.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44.9
|
)
|
Payment of deferred financing costs
|
|
|
|
|
(0.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
Other
|
—
|
|
|
(1.4
|
)
|
|
(2.6
|
)
|
|
—
|
|
|
(4.0
|
)
|
Net cash provided by (used in) financing activities from continuing operations
|
55.4
|
|
|
(187.8
|
)
|
|
(42.8
|
)
|
|
—
|
|
|
(175.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing operations
|
0.1
|
|
|
4.4
|
|
|
(18.9
|
)
|
|
30.0
|
|
|
15.6
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Operating cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(33.6
|
)
|
|
(33.6
|
)
|
Investing cash flow, net
|
—
|
|
|
—
|
|
|
—
|
|
|
3.6
|
|
|
3.6
|
|
Financing cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(30.0
|
)
|
|
(30.0
|
)
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
(9.4
|
)
|
|
—
|
|
|
(9.4
|
)
|
Increase (decrease) in cash and cash equivalents
|
0.1
|
|
|
4.4
|
|
|
(28.3
|
)
|
|
—
|
|
|
(23.8
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
—
|
|
|
7.9
|
|
|
57.8
|
|
|
—
|
|
|
65.7
|
|
CASH AND CASH EQUIVALENTS, end of period
|
0.1
|
|
|
12.3
|
|
|
29.5
|
|
|
—
|
|
|
41.9
|
|
LESS: CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS
|
—
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS
|
$
|
0.1
|
|
|
$
|
12.3
|
|
|
$
|
28.7
|
|
|
$
|
—
|
|
|
$
|
41.1
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TEMPUR SEALY INTERNATIONAL, INC.
Supplemental Consolidated Statements of Cash Flows
Year Ended
December 31, 2016
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Reclassifications and Eliminations
|
|
Consolidated
|
Net cash (used in) provided by operating activities from continuing operations
|
$
|
(63.1
|
)
|
|
$
|
110.7
|
|
|
$
|
117.9
|
|
|
$
|
2.6
|
|
|
$
|
168.1
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Contributions (paid to) received from subsidiaries and affiliates
|
—
|
|
|
(76.7
|
)
|
|
76.7
|
|
|
—
|
|
|
—
|
|
Purchases of property, plant and equipment
|
—
|
|
|
(43.0
|
)
|
|
(19.4
|
)
|
|
0.5
|
|
|
(61.9
|
)
|
Net cash (used in) provided by investing activities from continuing operations
|
—
|
|
|
(119.7
|
)
|
|
57.3
|
|
|
0.5
|
|
|
(61.9
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under long-term debt obligations
|
600.0
|
|
|
1,523.6
|
|
|
109.7
|
|
|
—
|
|
|
2,233.3
|
|
Repayments of borrowings under long-term debt obligations
|
(375.0
|
)
|
|
(1,406.2
|
)
|
|
(86.5
|
)
|
|
—
|
|
|
(1,867.7
|
)
|
Net activity in investment in and advances from (to) subsidiaries and affiliates
|
383.1
|
|
|
(212.5
|
)
|
|
(170.6
|
)
|
|
—
|
|
|
—
|
|
Proceeds from exercise of stock options
|
15.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15.7
|
|
Excess tax benefit from stock-based compensation
|
7.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.0
|
|
Treasury stock repurchased
|
(535.0
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(535.0
|
)
|
Payment of deferred financing costs
|
(3.1
|
)
|
|
(3.8
|
)
|
|
—
|
|
|
—
|
|
|
(6.9
|
)
|
Fees paid to lenders
|
(6.0
|
)
|
|
(1.8
|
)
|
|
—
|
|
|
—
|
|
|
(7.8
|
)
|
Call premium on 2020 Senior Notes
|
(23.6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23.6
|
)
|
Other
|
—
|
|
|
(2.1
|
)
|
|
2.0
|
|
|
—
|
|
|
(0.1
|
)
|
Net cash provided by (used in) financing activities from continuing operations
|
63.1
|
|
|
(102.8
|
)
|
|
(145.4
|
)
|
|
—
|
|
|
(185.1
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by continuing operations
|
—
|
|
|
(111.8
|
)
|
|
29.8
|
|
|
3.1
|
|
|
(78.9
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Operating cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.6
|
)
|
|
(2.6
|
)
|
Investing cash flow, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
(0.5
|
)
|
Financing cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.1
|
)
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
(6.2
|
)
|
|
—
|
|
|
(6.2
|
)
|
(Decrease) increase in cash and cash equivalents
|
—
|
|
|
(111.8
|
)
|
|
23.6
|
|
|
—
|
|
|
(88.2
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
—
|
|
|
119.7
|
|
|
34.2
|
|
|
—
|
|
|
153.9
|
|
CASH AND CASH EQUIVALENTS, end of period
|
—
|
|
|
7.9
|
|
|
57.8
|
|
|
—
|
|
|
65.7
|
|
LESS: CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS
|
—
|
|
|
—
|
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS
|
$
|
—
|
|
|
$
|
7.9
|
|
|
$
|
56.7
|
|
|
$
|
—
|
|
|
$
|
64.6
|
|