TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
|
|
Net income before non-controlling interests
|
$
|
189.4
|
|
|
$
|
97.6
|
|
|
$
|
140.7
|
|
Loss from discontinued operations, net of tax
|
1.4
|
|
|
17.8
|
|
|
30.9
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
89.7
|
|
|
87.1
|
|
|
80.7
|
|
Amortization of stock-based compensation
|
26.8
|
|
|
24.8
|
|
|
13.3
|
|
Amortization of deferred financing costs
|
2.4
|
|
|
2.3
|
|
|
2.2
|
|
Bad debt expense
|
29.3
|
|
|
31.3
|
|
|
9.8
|
|
Charitable stock donation
|
8.9
|
|
|
—
|
|
|
—
|
|
Deferred income taxes
|
(7.1
|
)
|
|
6.0
|
|
|
(61.1
|
)
|
Dividends received from unconsolidated affiliates
|
13.4
|
|
|
14.8
|
|
|
11.3
|
|
Equity income in earnings of unconsolidated affiliates
|
(15.9
|
)
|
|
(17.6
|
)
|
|
(15.6
|
)
|
Loss on sale of assets
|
1.0
|
|
|
3.3
|
|
|
2.2
|
|
Foreign currency adjustments and other
|
(5.2
|
)
|
|
(2.1
|
)
|
|
(2.9
|
)
|
Changes in operating assets and liabilities, net of effect of business acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
(76.0
|
)
|
|
(46.3
|
)
|
|
21.0
|
|
Inventories
|
(28.2
|
)
|
|
(44.6
|
)
|
|
16.3
|
|
Prepaid expenses and other assets
|
11.3
|
|
|
(14.4
|
)
|
|
(15.2
|
)
|
Operating leases, net
|
8.6
|
|
|
—
|
|
|
—
|
|
Accounts payable
|
(4.8
|
)
|
|
28.7
|
|
|
3.8
|
|
Accrued expenses and other liabilities
|
67.3
|
|
|
43.2
|
|
|
(4.9
|
)
|
Income taxes, net
|
2.5
|
|
|
(24.4
|
)
|
|
24.0
|
|
Net cash provided by operating activities from continuing operations
|
314.8
|
|
|
207.5
|
|
|
256.5
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
(88.2
|
)
|
|
(73.6
|
)
|
|
(66.6
|
)
|
Acquisitions, net of cash acquired
|
(17.1
|
)
|
|
—
|
|
|
—
|
|
Other
|
15.1
|
|
|
2.4
|
|
|
0.9
|
|
Net cash used in investing activities from continuing operations
|
(90.2
|
)
|
|
(71.2
|
)
|
|
(65.7
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under long-term debt obligations
|
1,242.8
|
|
|
1,094.9
|
|
|
1,332.9
|
|
Repayments of borrowings under long-term debt obligations
|
(1,347.1
|
)
|
|
(1,195.8
|
)
|
|
(1,471.5
|
)
|
Proceeds from exercise of stock options
|
17.8
|
|
|
4.6
|
|
|
12.8
|
|
Treasury stock repurchased
|
(105.7
|
)
|
|
(4.6
|
)
|
|
(44.9
|
)
|
Payment of deferred financing costs
|
(3.2
|
)
|
|
—
|
|
|
(0.5
|
)
|
Repayments of finance lease obligations and other
|
(7.8
|
)
|
|
(6.1
|
)
|
|
(4.0
|
)
|
Net cash used in financing activities from continuing operations
|
(203.2
|
)
|
|
(107.0
|
)
|
|
(175.2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
21.4
|
|
|
29.3
|
|
|
15.6
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
Operating cash flows
|
(2.0
|
)
|
|
(24.4
|
)
|
|
(33.6
|
)
|
Investing cash flows
|
—
|
|
|
2.1
|
|
|
3.6
|
|
Financing cash flows
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in discontinued operations
|
(2.0
|
)
|
|
(22.3
|
)
|
|
(30.0
|
)
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
(0.3
|
)
|
|
(3.1
|
)
|
|
(9.4
|
)
|
Increase (decrease) in cash and cash equivalents
|
19.1
|
|
|
3.9
|
|
|
(23.8
|
)
|
CASH AND CASH EQUIVALENTS, beginning of period
|
45.8
|
|
|
41.9
|
|
|
65.7
|
|
CASH AND CASH EQUIVALENTS, end of period
|
64.9
|
|
|
45.8
|
|
|
41.9
|
|
LESS: CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS
|
—
|
|
|
—
|
|
|
0.8
|
|
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS
|
$
|
64.9
|
|
|
$
|
45.8
|
|
|
$
|
41.1
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
$
|
89.0
|
|
|
$
|
91.8
|
|
|
$
|
86.6
|
|
Income taxes, net of refunds
|
$
|
73.8
|
|
|
$
|
32.5
|
|
|
$
|
79.8
|
|
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.
(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.
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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Leases. Effective January 1, 2019, the Company adopted Accounting Standards Codification 842, Leases ("ASC 842"). ASC 842 consists of a comprehensive lease accounting standard requiring most leases to be recognized on the Consolidated Balance Sheet and significant new disclosures. The Company determines if an arrangement contains a lease at inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification.
Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded within the Consolidated Balance Sheet and are expensed on a straight-line basis over the lease term within the Consolidated Statement of Income. The lease term is determined by assuming the exercise of renewal options that are reasonably certain. As most leases do not provide an implicit interest rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. When contracts contain lease and non-lease components, the Company generally accounts for both components as a single lease component.
The adoption of ASC 842 resulted in the recognition of right-of-use assets, net of prepaid lease payments and lease incentives, of $197.2 million and operating lease liabilities of $203.3 million as of January 1, 2019. Results for reporting periods beginning prior to January 1, 2019 continue to be reported in accordance with our historical accounting treatment. The adoption of ASC 842 did not have a material impact on the Company's results of operations, cash flows or debt covenants. For additional information, see Note 9, "Leases" of the Consolidated Financial Statements.
(e) 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, 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.
(f) Derivative Financial Instruments. Derivative financial instruments are used in the normal course of business to manage interest rate and foreign currency exchange risks. The financial instruments used by the Company are straight-forward, non-leveraged instruments. The counterparties to these financial instruments are financial institutions with strong credit ratings. The Company maintains control over the size of positions entered into with any one counterparty and regularly monitors the credit ratings of these institutions. For all transactions designated as hedges, the hedging relationships are formally documented at the inception and on an ongoing basis in offsetting changes in cash flows of the hedged transaction.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Consolidated Statements of 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 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, 2019 and 2018 were not material in any period presented.
(g) 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.
(h) 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)
|
2019
|
|
2018
|
Finished goods
|
$
|
157.4
|
|
|
$
|
148.9
|
|
Work-in-process
|
10.8
|
|
|
11.8
|
|
Raw materials and supplies
|
92.3
|
|
|
61.6
|
|
|
$
|
260.5
|
|
|
$
|
222.3
|
|
(i) 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 finance leases are included within property, plant and equipment and represent non-cash investing activities.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property, plant and equipment, net consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
2019
|
|
2018
|
Machinery and equipment
|
$
|
350.7
|
|
|
$
|
319.3
|
|
Land and buildings
|
317.8
|
|
|
328.5
|
|
Computer equipment and software
|
155.2
|
|
|
142.2
|
|
Furniture and fixtures
|
52.5
|
|
|
50.4
|
|
Construction in progress
|
65.0
|
|
|
52.4
|
|
Total property, plant, and equipment
|
941.2
|
|
|
892.8
|
|
Accumulated depreciation
|
(505.4
|
)
|
|
(472.0
|
)
|
Total property, plant and equipment, net
|
$
|
435.8
|
|
|
$
|
420.8
|
|
Depreciation expense, which includes depreciation expense for finance and capital lease assets, for the Company was $73.8 million, $71.8 million and $64.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.
(j) 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, 2019, 2018 and 2017.
(k) 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 2019, 2018 and 2017, none of which resulted in the recognition of impairment charges. The most recent annual impairment tests performed as of October 1, 2019, 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.”
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(l) 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, 2017 to December 31, 2019:
|
|
|
|
|
(in millions)
|
|
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
|
|
Amounts accrued
|
112.4
|
|
Returns charged to accrual
|
(107.4
|
)
|
Balance as of December 31, 2019
|
$
|
39.3
|
|
As of December 31, 2019 and 2018, $26.2 million and $22.0 million of accrued sales returns is included as a component of accrued expenses and other current liabilities and $13.1 million and $12.3 million of accrued sales returns is included in other non-current liabilities on the Company’s accompanying Consolidated Balance Sheets, respectively.
(m) Warranties. The Company provides warranties on certain products, which vary by segment, product and brand. Estimates of warranty expenses are based primarily on historical claims experience and product testing. Estimated future obligations related to these products are charged to cost of sales in the period in which the related revenue is recognized. The Company considers the impact of recoverable salvage value on warranty costs in determining its estimate of future warranty obligations.
The Company provides warranties on mattresses with varying warranty terms. Tempur-Pedic mattresses sold in the North America segment and all Sealy mattresses have warranty terms ranging from 10 to 25 years, generally non-prorated for the first 10 to 15 years and then prorated for the balance of the warranty term. Tempur-Pedic mattresses sold in the International segment have warranty terms ranging from 5 to 15 years, non-prorated for the first 5 years and then prorated on a straight-line basis for the last 10 years of the warranty term. Tempur-Pedic pillows have a warranty term of 3 years, non-prorated.
The Company had the following activity for its accrued warranty expense from December 31, 2017 to December 31, 2019:
|
|
|
|
|
(in millions)
|
|
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
|
|
Amounts accrued
|
29.4
|
|
Warranties charged to accrual
|
(24.2
|
)
|
Balance as of December 31, 2019
|
$
|
41.6
|
|
As of December 31, 2019 and 2018, $19.4 million and $14.9 million of accrued warranty expense is included as a component of accrued expenses and other current liabilities and $22.2 million and $21.5 million of accrued warranty expense is included in other non-current liabilities on the Company’s accompanying Consolidated Balance Sheets, respectively.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(n) 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 $71.9 million and $47.6 million as of December 31, 2019 and 2018, respectively.
(o) 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.
(p) 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 $192.5 million, $169.1 million and $155.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. Additionally, cost of sales for 2019 and 2018 include 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.
(q) 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.
(r) 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 $280.5 million, $259.3 million and $283.5 million for the years ended December 31, 2019, 2018 and 2017, 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 $3.6 million and $8.5 million as of December 31, 2019 and 2018, respectively.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(s) 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 $23.0 million, $21.9 million and $21.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.
(t) 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. The Company recognizes forfeitures of awards as they occur. Further information regarding stock-based compensation can be found in Note 13, “Stock-based Compensation.”
(u) Treasury Stock. Subject to Delaware law, and the limitations in the 2019 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 these 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 authorizations 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 2020. 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 11, "Stockholders' Equity", for additional information.
(v) 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, including discount rates, expected return on plan assets, rate of compensation increases, interest crediting rates and mortality rates.
(2) Recently Issued Accounting Pronouncements
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326),” which requires entities to estimate expected lifetime credit losses on financial assets and provide expanded disclosures. The ASU replaces the incurred loss impairment methodology with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
The Company adopted the new credit losses standard effective January 1, 2020 using the modified retrospective approach. The Company recognized a cumulative effect of initially applying the new standard as a decrease to the opening balance of retained earnings, which was not material to the Company's Consolidated Financial Statements.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) Discontinued Operations
The Company sold its operations in the Latin American region in 2018. The operating results from these divested businesses and subsequent adjustments related to ongoing assessments and activities of certain retained liabilities and tax items are reflected within discontinued operations for all periods presented.
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,
|
|
2019
|
|
2018
|
|
2017
|
Net sales
|
$
|
—
|
|
|
$
|
31.1
|
|
|
$
|
53.8
|
|
Cost of sales
|
—
|
|
|
23.0
|
|
|
34.1
|
|
Gross profit
|
—
|
|
|
8.1
|
|
|
19.7
|
|
Selling and marketing expenses
|
0.1
|
|
|
12.4
|
|
|
15.2
|
|
General, administrative and other expenses
|
2.6
|
|
|
6.8
|
|
|
11.6
|
|
Operating loss
|
(2.7
|
)
|
|
(11.1
|
)
|
|
(7.1
|
)
|
|
|
|
|
|
|
Interest (income) expense, net and other
|
(1.5
|
)
|
|
7.7
|
|
|
19.9
|
|
Loss from discontinued operations before income taxes
|
(1.2
|
)
|
|
(18.8
|
)
|
|
(27.0
|
)
|
|
|
|
|
|
|
Income tax provision
|
(0.2
|
)
|
|
—
|
|
|
(3.9
|
)
|
Loss generated from discontinued operations, net of tax
|
(1.4
|
)
|
|
(18.8
|
)
|
|
(30.9
|
)
|
Gain on disposal of business
|
—
|
|
|
1.0
|
|
|
—
|
|
Loss from discontinued operations, net of tax
|
$
|
(1.4
|
)
|
|
$
|
(17.8
|
)
|
|
$
|
(30.9
|
)
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) Revenue Recognition
Disaggregation of Revenue
The following table presents the Company's disaggregated revenue by channel, product and geographical region, including a reconciliation of disaggregated revenue by segment, for the years ended December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2019
|
|
Twelve Months Ended December 31, 2018
|
(in millions)
|
North America
|
|
International
|
|
Consolidated
|
|
North America
|
|
International
|
|
Consolidated
|
Channel
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
$
|
2,273.5
|
|
|
$
|
443.6
|
|
|
$
|
2,717.1
|
|
|
$
|
1,989.1
|
|
|
$
|
463.0
|
|
|
$
|
2,452.1
|
|
Direct
|
259.8
|
|
|
129.1
|
|
|
388.9
|
|
|
147.1
|
|
|
103.7
|
|
|
250.8
|
|
Net sales
|
$
|
2,533.3
|
|
|
$
|
572.7
|
|
|
$
|
3,106.0
|
|
|
$
|
2,136.2
|
|
|
$
|
566.7
|
|
|
$
|
2,702.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
Consolidated
|
|
North America
|
|
International
|
|
Consolidated
|
Product
|
|
|
|
|
|
|
|
|
|
|
|
Bedding
|
$
|
2,379.6
|
|
|
$
|
455.7
|
|
|
$
|
2,835.3
|
|
|
$
|
2,002.1
|
|
|
$
|
453.2
|
|
|
$
|
2,455.3
|
|
Other
|
153.7
|
|
|
117.0
|
|
|
270.7
|
|
|
134.1
|
|
|
113.5
|
|
|
247.6
|
|
Net sales
|
$
|
2,533.3
|
|
|
$
|
572.7
|
|
|
$
|
3,106.0
|
|
|
$
|
2,136.2
|
|
|
$
|
566.7
|
|
|
$
|
2,702.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
International
|
|
Consolidated
|
|
North America
|
|
International
|
|
Consolidated
|
Geographical region
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
$
|
2,312.3
|
|
|
$
|
—
|
|
|
$
|
2,312.3
|
|
|
$
|
1,928.9
|
|
|
$
|
—
|
|
|
$
|
1,928.9
|
|
Canada
|
221.0
|
|
|
—
|
|
|
221.0
|
|
|
207.3
|
|
|
—
|
|
|
207.3
|
|
International
|
—
|
|
|
572.7
|
|
|
572.7
|
|
|
—
|
|
|
566.7
|
|
|
566.7
|
|
Net sales
|
$
|
2,533.3
|
|
|
$
|
572.7
|
|
|
$
|
3,106.0
|
|
|
$
|
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.
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 $22.6 million, $20.9 million and $20.8 million for the years ended December 31, 2019, 2018 and 2017, 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 are satisfied, which is generally when control of the product has transferred to the customer. Transferring control of each product sold is considered a separate performance obligation. The Company transfers control and recognizes a sale when the customer receives the product. Each unit sold is considered an independent, unbundled performance obligation. The Company does not have any additional performance obligations other than product sales that are material in the context of the contract. The Company also offers assurance type warranties on certain of its products, which is not accounted for as separate performance obligations under the revenue model.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The transaction price is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. The amount of consideration the Company receives, and correspondingly, the revenue that is recognized, varies due to sales incentives and returns the Company offers to its Wholesale and Direct channel customers. Specifically, the Company extends volume discounts, as well as promotional allowances, floor sample discounts, commissions paid to retail associates and slotting fees to its Wholesale channel customers and reflects these amounts as a reduction of sales at the time revenue is recognized based on historical experience. The Company allows returns following a sale, depending on the channel and promotion. The Company reduces revenue and cost of sales for its estimate of the expected returns, which is primarily based on the level of historical sales returns. The Company does not offer extended payment terms beyond one year to customers. As such, the Company does not adjust its consideration for financing arrangements.
In certain jurisdictions, the Company is subject to certain non-income taxes including, but not limited to, sales tax, value added tax, excise tax and other taxes. These taxes are excluded from the transaction price, and therefore, excluded from revenue. The Company has elected to account for shipping and handling activities as a fulfillment cost as permitted by Topic 606. Accordingly, the Company reflects all amounts billed to customers for shipping and handling in revenue and the costs of fulfillment in cost of sales. Amounts included in net sales for shipping and handling were $19.3 million, $13.6 million and $11.3 million for the years ended December 31, 2019, 2018 and 2017, respectively.
(5) Acquisitions and Divestitures
Acquisition of Innovative Mattress Solutions, LLC ("iMS")
On January 11, 2019, iMS filed for bankruptcy and the Company provided debtor-in-possession financing in connection with the iMS Chapter 11 proceedings. On April 1, 2019, the Company acquired substantially all of the net assets of iMS in a transaction valued at approximately $24 million, including assumed liabilities of approximately $11 million as of March 31, 2019 (referred to as the "Sleep Outfitters Acquisition"). The acquisition of this regional bedding retailer furthers the Company’s North American retail strategy, which is focused on meeting customer demand through geographic representation and sales expertise.
The Company accounted for this transaction as a business combination. Total cash consideration was $13.2 million, less cash acquired of $5.1 million, resulting in a purchase price of $8.1 million. The final allocation of the purchase price is based on the fair values of the assets acquired and liabilities assumed as of April 1, 2019, which includes the following:
|
|
|
|
|
(in millions)
|
|
Working capital (accounts receivable and inventory, net of accounts payable and accrued liabilities)
|
$
|
(1.4
|
)
|
Property and equipment
|
5.0
|
|
Goodwill
|
2.4
|
|
Other intangible assets
|
2.1
|
|
Operating lease right-of-use assets
|
28.5
|
|
Long-term operating lease liabilities
|
(28.5
|
)
|
Net purchase price
|
$
|
8.1
|
|
Goodwill is calculated as the excess of the purchase price over the net assets acquired and primarily represents the growth opportunities and synergistic benefits to be realized from the acquisition. The goodwill is deductible for income tax purposes and will be included within the North American reporting unit for goodwill impairment assessments.
As a result of the acquisition, the Company acquired trade names and customer database of $2.1 million.
Acquisition of Sherwood Bedding
On January 31, 2020, the Company acquired an 80% ownership interest in a newly formed limited liability company containing substantially all of the assets of the Sherwood Bedding business for a cash purchase price of approximately $40 million. The Company will account for this transaction as a business combination in 2020. The purchase price allocation will principally include working capital, property plant and equipment, and goodwill. Any excess of the purchase price over the fair value of the net assets acquired will be recorded as goodwill, which will be deductible for income tax purposes.
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, 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
|
|
Goodwill resulting from acquisitions
|
2.4
|
|
|
5.4
|
|
|
7.8
|
|
Foreign currency translation adjustments and other
|
3.1
|
|
|
(1.6
|
)
|
|
1.5
|
|
Balance as of December 31, 2019
|
$
|
576.6
|
|
|
$
|
155.7
|
|
|
$
|
732.3
|
|
The following table summarizes information relating to the Company’s other intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions)
|
|
|
December 31, 2019
|
|
December 31, 2018
|
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
|
|
|
$
|
559.5
|
|
|
$
|
—
|
|
|
$
|
559.5
|
|
|
$
|
556.5
|
|
|
$
|
—
|
|
|
$
|
556.5
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual distributor relationships
|
15
|
|
85.5
|
|
|
38.7
|
|
|
46.8
|
|
|
84.7
|
|
|
32.7
|
|
|
52.0
|
|
Technology and other
|
4-10
|
|
91.1
|
|
|
68.7
|
|
|
22.4
|
|
|
90.2
|
|
|
61.1
|
|
|
29.1
|
|
Patents, other trademarks and other trade names
|
5-20
|
|
27.9
|
|
|
18.6
|
|
|
9.3
|
|
|
32.0
|
|
|
21.0
|
|
|
11.0
|
|
Customer databases, relationships and reacquired rights
|
2-5
|
|
30.9
|
|
|
27.5
|
|
|
3.4
|
|
|
21.3
|
|
|
20.6
|
|
|
0.7
|
|
Total
|
|
|
$
|
794.9
|
|
|
$
|
153.5
|
|
|
$
|
641.4
|
|
|
$
|
784.7
|
|
|
$
|
135.4
|
|
|
$
|
649.3
|
|
Amortization expense relating to intangible assets for the Company was $15.9 million, $15.3 million and $16.0 million for the years ended December 31, 2019, 2018 and 2017, 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)
|
|
2020
|
$
|
17.1
|
|
2021
|
15.9
|
|
2022
|
15.1
|
|
2023
|
8.3
|
|
2024
|
6.4
|
|
Thereafter
|
19.1
|
|
Total
|
$
|
81.9
|
|
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 at December 31, 2019 and 2018, 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, 2019, 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)
|
2019
|
|
2018
|
Current assets
|
$
|
81.0
|
|
|
$
|
81.8
|
|
Non-current assets
|
15.3
|
|
|
18.6
|
|
Total liabilities
|
55.4
|
|
|
59.0
|
|
Equity
|
40.9
|
|
|
41.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
Net sales
|
$
|
212.6
|
|
|
$
|
220.5
|
|
|
$
|
195.1
|
|
Gross profit
|
147.2
|
|
|
147.8
|
|
|
129.9
|
|
Income from operations
|
44.6
|
|
|
46.6
|
|
|
43.3
|
|
Net income
|
32.4
|
|
|
33.5
|
|
|
31.7
|
|
(8) Debt
Debt for the Company consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31, 2019
|
|
December 31, 2018
|
|
|
Debt:
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Maturity Date
|
2019 Credit Agreement:
|
|
|
|
|
|
|
|
|
|
Term A Facility
|
$
|
425.0
|
|
|
(1)
|
|
$
|
—
|
|
|
N/A
|
|
October 16, 2024
|
Revolver
|
—
|
|
|
(1)
|
|
—
|
|
|
N/A
|
|
October 16, 2024
|
2016 Credit Agreement:
|
|
|
|
|
|
|
|
|
|
Term A Facility
|
—
|
|
|
N/A
|
|
525.0
|
|
|
(2)
|
|
|
Revolver
|
—
|
|
|
N/A
|
|
—
|
|
|
(2)
|
|
|
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
|
—
|
|
|
(3)
|
|
9.1
|
|
|
(3)
|
|
April 6, 2021
|
Finance lease obligations (4)
|
64.1
|
|
|
|
|
66.7
|
|
|
|
|
Various
|
Other
|
7.9
|
|
|
|
|
3.0
|
|
|
|
|
Various
|
Total debt
|
1,547.0
|
|
|
|
|
1,653.8
|
|
|
|
|
|
Less: Deferred financing costs
|
7.0
|
|
|
|
|
7.6
|
|
|
|
|
|
Total debt, net
|
1,540.0
|
|
|
|
|
1,646.2
|
|
|
|
|
|
Less: Current portion
|
37.4
|
|
|
|
|
47.1
|
|
|
|
|
|
Total long-term debt, net
|
$
|
1,502.6
|
|
|
|
|
$
|
1,599.1
|
|
|
|
|
|
|
|
|
(1)
|
Interest at LIBOR plus applicable margin of 1.625% as of December 31, 2019.
|
(2)
|
Interest at LIBOR plus applicable margin of 2.00% as of December 31, 2018.
|
(3)
|
Interest at one month LIBOR index plus 80 basis points.
|
(4)
|
Finance lease obligations are a non-cash financing activity. Refer to Note 9, "Leases."
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2019 Credit Agreement
On October 16, 2019, the Company entered into the 2019 Credit Agreement with a syndicate of banks. The 2019 Credit Agreement replaced the Company's 2016 Credit Agreement. The 2019 Credit Agreement provides for a $425.0 million revolving credit facility, a $425.0 million term loan facility, and an incremental facility in an aggregate amount of up to $550.0 million plus the amount of certain prepayments plus an additional unlimited amount subject to compliance with a maximum consolidated secured leverage ratio test. The 2019 Credit Agreement has a $60.0 million sub-facility for the issuance of letters of credit. Total availability under the revolving facility was $402.8 million, after giving effect to letters of credit outstanding of $22.2 million, as of December 31, 2019.
Borrowings under the 2019 Credit Agreement will generally bear interest, at the election of Tempur Sealy International and the other subsidiary borrowers, at either (i) Base Rate plus the applicable margin or (ii) LIBOR plus the applicable margin. For the revolving credit facility and the term loan facility (a) the initial applicable margin for Base Rate advances was 0.625% per annum and the initial applicable margin for LIBOR advances was 1.625% per annum, and (b) following the delivery of financial statements for the fiscal quarter ending December 31, 2019, such applicable margins will be determined by a pricing grid based on the consolidated total net leverage ratio of the Company.
Obligations under the 2019 Credit Agreement are guaranteed by the Company’s existing and future direct and indirect wholly-owned domestic subsidiaries, subject to certain exceptions and are 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 owned by the Company or a 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 the Company or a subsidiary guarantor.
The 2019 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 indebtedness less netted cash (as defined below). Consolidated indebtedness includes debt recorded on the Consolidated Balance Sheets as of the reporting date, plus letters of credit outstanding in excess of $40.0 million and other short-term debt. The Company is allowed to subtract from consolidated indebtedness an amount equal to 100.0% of the domestic and foreign unrestricted cash ("netted cash"), the aggregate of which cannot exceed $200.0 million at the end of the reporting period. As of December 31, 2019, netted cash was $63.4 million. As of December 31, 2019, the Company's consolidated total net leverage ratio was 2.92 times, within the covenant in the Company's debt agreements which limits this ratio to 5.00 times.
The 2019 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. The 2019 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 2019 Credit Agreement at December 31, 2019.
The Company is required to pay a commitment fee on the unused portion of the revolving credit facility, which initially will be 0.25% per annum and following the delivery of financial statements for the fiscal quarter ending December 31, 2019, such fees as determined by a pricing grid based on the consolidated total net leverage ratio of the Company. This unused commitment fee is payable quarterly in arrears 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 2019 Credit Agreement.
The maturity date of the 2019 Credit Agreement is October 16, 2024. Amounts under the revolving credit facility may be borrowed, repaid and re-borrowed from time to time until the maturity date. The term loan facility is subject to quarterly amortization as set forth in the 2019 Credit Agreement. In addition, the term loan facility is subject to mandatory prepayment in connection with certain debt issuances, asset sales and casualty events, subject to certain reinvestment rights. Voluntary prepayments and commitment reductions under the 2019 Credit Agreement are permitted at any time without payment of any prepayment premiums.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2016 Credit Agreement
The Company used the proceeds from the 2019 Credit Agreement to refinance outstanding borrowings under the 2016 Credit Agreement and terminated the existing revolving credit commitments. The 2016 Credit Agreement initially provided 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.
During the twelve months ended December 31, 2019, the Company prepaid $75.0 million on the Term A facility under the 2016 Credit Agreement.
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 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 had the option to 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 could have made 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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, the Company and certain of its subsidiaries entered into a securitization transaction with respect to certain accounts receivable due to the Company and certain of its subsidiaries (as amended 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. On April 5, 2019, the Company and its subsidiaries entered into a new amendment to the Accounts Receivables Securitization. The amendment, among other things, extended the maturity date of the Accounts Receivable Securitization to April 6, 2021.
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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fair Value
Financial instruments, although not recorded at fair value on a recurring basis, include cash and cash equivalents, accounts receivable, accounts payable, and the Company's debt obligations. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term maturity of those instruments. Borrowings under the 2019 Credit Agreement and the securitized debt are at variable interest rates and accordingly their carrying amounts approximate fair value. The fair value of the following material financial instruments were based on observable inputs estimated using discounted cash flows and market-based expectations for interest rates, credit risk, and the contractual terms of debt instruments. The fair values of these material financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
(in millions)
|
|
December 31, 2019
|
|
December 31, 2018
|
2023 Senior Notes
|
|
$
|
464.2
|
|
|
$
|
435.6
|
|
2026 Senior Notes
|
|
634.9
|
|
|
549.3
|
|
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, 2019, the scheduled maturities of long-term debt outstanding, excluding finance lease obligations, for each of the next five years and thereafter are as follows:
|
|
|
|
|
|
(in millions)
|
|
|
2020
|
|
$
|
29.2
|
|
2021
|
|
21.3
|
|
2022
|
|
21.3
|
|
2023
|
|
481.8
|
|
2024
|
|
329.3
|
|
Thereafter
|
|
600.0
|
|
Total
|
|
$
|
1,482.9
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) Leases
The Company leases retail stores, manufacturing and distribution facilities, office space and equipment under operating lease agreements. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to several years, with the longest renewal period extending through 2042. The exercise of lease renewal options are at the Company's sole discretion. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.
The following table summarizes the classification of operating and finance lease assets and obligations in the Company's Consolidated Balance Sheet as of December 31, 2019:
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
December 31, 2019
|
Assets
|
|
|
|
|
Operating lease assets
|
|
Operating lease right-of-use assets
|
|
$
|
245.4
|
|
Finance lease assets
|
|
Property, plant and equipment, net
|
|
54.4
|
|
Total leased assets
|
|
|
|
$
|
299.8
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Short-term:
|
|
|
|
|
Operating lease obligations
|
|
Accrued expenses and other current liabilities
|
|
$
|
50.8
|
|
Finance lease obligations
|
|
Current portion of long-term debt
|
|
8.2
|
|
Long-term:
|
|
|
|
|
Operating lease obligations
|
|
Long-term operating lease obligations
|
|
205.4
|
|
Finance lease obligations
|
|
Long-term debt, net
|
|
55.9
|
|
Total lease obligations
|
|
|
|
$
|
320.3
|
|
The following table summarizes the classification of lease expense in the Company's Consolidated Statement of Income for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
Twelve months ended
|
(in millions)
|
|
December 31, 2019
|
Operating lease expense:
|
|
|
Operating lease expense
|
|
$
|
63.8
|
|
Short-term lease expense
|
|
9.0
|
|
Variable lease expense
|
|
18.8
|
|
Finance lease expense:
|
|
|
Amortization of right-of-use assets
|
|
8.5
|
|
Interest on lease obligations
|
|
4.7
|
|
Total lease expense
|
|
$
|
104.8
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the scheduled maturities of lease obligations as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
Year Ended December 31,
|
|
|
|
|
|
|
2020
|
|
$
|
62.1
|
|
|
$
|
12.3
|
|
|
$
|
74.4
|
|
2021
|
|
54.5
|
|
|
12.0
|
|
|
66.5
|
|
2022
|
|
46.6
|
|
|
9.8
|
|
|
56.4
|
|
2023
|
|
36.2
|
|
|
7.8
|
|
|
44.0
|
|
2024
|
|
29.0
|
|
|
6.2
|
|
|
35.2
|
|
Thereafter
|
|
74.5
|
|
|
36.3
|
|
|
110.8
|
|
Total lease payments
|
|
302.9
|
|
|
84.4
|
|
|
387.3
|
|
Less: Interest
|
|
(46.7
|
)
|
|
(20.3
|
)
|
|
(67.0
|
)
|
Present value of lease obligations
|
|
$
|
256.2
|
|
|
$
|
64.1
|
|
|
$
|
320.3
|
|
The following table provides lease term and discount rate information related to operating and finance leases as of December 31, 2019:
|
|
|
|
|
|
|
December 31, 2019
|
Weighted average remaining lease term (years):
|
|
|
Operating leases
|
|
6.43
|
|
Finance leases
|
|
9.03
|
|
|
|
|
Weighted average discount rate:
|
|
|
Operating leases
|
|
5.42
|
%
|
Finance leases
|
|
6.27
|
%
|
The following table provides supplemental information related to the Company's Consolidated Statement of Cash Flows for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
Twelve months ended
|
(in millions)
|
|
December 31, 2019
|
Cash paid for amounts included in the measurement of lease obligations:
|
|
|
Operating cash flows paid for operating leases
|
|
$
|
62.7
|
|
Operating cash flows paid for finance leases
|
|
$
|
3.7
|
|
Financing cash flows paid for finance leases
|
|
$
|
7.7
|
|
|
|
|
Right-of-use assets obtained in exchange for new operating lease obligations
|
|
$
|
60.9
|
|
Right-of-use assets obtained in exchange for new finance lease obligations
|
|
$
|
4.1
|
|
(10) 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 $6.0 million, $5.8 million and $4.0 million of expenses associated with the 401(k) Plan for the years ended December 31, 2019, 2018 and 2017, respectively, which are included in the Consolidated Statements of Income.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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)
|
2019
|
|
2018
|
|
2017
|
Service cost
|
$
|
0.9
|
|
|
$
|
1.0
|
|
|
$
|
0.9
|
|
Interest cost
|
1.2
|
|
|
1.1
|
|
|
1.2
|
|
Expected return on assets
|
(1.3
|
)
|
|
(1.5
|
)
|
|
(1.5
|
)
|
Amortization of prior service cost
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Amortization of net gain
|
0.1
|
|
|
—
|
|
|
—
|
|
Net periodic pension cost
|
$
|
1.0
|
|
|
$
|
0.7
|
|
|
$
|
0.7
|
|
The other changes in plan assets and benefit obligations recognized in other comprehensive loss, before tax effects, for the years ended December 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
Net loss
|
$
|
2.2
|
|
|
$
|
0.6
|
|
|
$
|
0.4
|
|
New prior service cost
|
0.6
|
|
|
0.1
|
|
|
0.5
|
|
Amortization of prior service cost
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Amortization or settlement recognition of net loss
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
Total recognized in other comprehensive loss
|
$
|
2.6
|
|
|
$
|
0.6
|
|
|
$
|
0.8
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Discount rate (a)
|
4.10
|
%
|
|
3.58
|
%
|
|
4.07
|
%
|
Expected long-term return on plan assets
|
6.16
|
%
|
|
6.25
|
%
|
|
6.64
|
%
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
(a)
|
The discount rates used in 2019 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 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%
|
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)
|
2019
|
|
2018
|
Change in Benefit Obligation:
|
|
|
|
Projected benefit obligation at beginning of year
|
$
|
30.0
|
|
|
$
|
32.1
|
|
Service cost
|
0.9
|
|
|
1.0
|
|
Interest cost
|
1.2
|
|
|
1.1
|
|
Plan amendments
|
0.5
|
|
|
0.1
|
|
Actuarial (gain) loss
|
5.5
|
|
|
(3.0
|
)
|
Benefits paid
|
(1.3
|
)
|
|
(0.9
|
)
|
Expenses paid
|
(0.1
|
)
|
|
(0.1
|
)
|
Foreign currency exchange rate changes
|
0.2
|
|
|
(0.3
|
)
|
Projected benefit obligation at end of year
|
$
|
36.9
|
|
|
$
|
30.0
|
|
Change in Plan Assets:
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
22.2
|
|
|
$
|
25.3
|
|
Actual return on plan assets
|
4.6
|
|
|
(2.1
|
)
|
Employer contribution
|
1.4
|
|
|
0.3
|
|
Benefits paid
|
(1.3
|
)
|
|
(0.9
|
)
|
Expenses paid
|
(0.1
|
)
|
|
(0.1
|
)
|
Foreign currency exchange rate changes
|
0.2
|
|
|
(0.3
|
)
|
Fair value of plan assets at end of year
|
$
|
27.0
|
|
|
$
|
22.2
|
|
Funded status
|
$
|
(9.9
|
)
|
|
$
|
(7.8
|
)
|
The Company’s defined benefit pension plan for U.S. Sealy employees is underfunded. As of December 31, 2019, the projected benefit obligation and fair value of plan assets were $32.6 million and $22.6 million, respectively. 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, 2019, the projected benefit obligation and fair value of plan assets for the Sealy Canada Ltd. pension plan were $4.3 million and $4.4 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.
The accumulated benefit obligation for all pension plans was $36.9 million at December 31, 2019 and $30.0 million at December 31, 2018.
The following table represents amounts recorded in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
2019
|
|
2018
|
Amounts recognized in the Consolidated Balance Sheets:
|
|
|
|
Non-current benefit liability
|
$
|
10.0
|
|
|
$
|
8.1
|
|
Non-current benefit asset
|
0.1
|
|
|
0.3
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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:
|
|
|
|
|
|
|
|
2019
|
|
2018
|
Discount rate (a)
|
3.16
|
%
|
|
4.13
|
%
|
|
|
(a)
|
The discount rates used in 2019 to determine the benefit obligations for the U.S. retirement plan and Canadian retirement plan were 3.15% and 3.20%, respectively. The discount rates used in 2018 to determine the benefit obligations for the U.S. and Canadian defined benefit pension plans were 4.16% and 3.90%, respectively.
|
No material amounts are expected to be reclassified from AOCL to be recognized as components of net income during 2020.
Plan Contributions and Expected Benefit Payments
During 2020, the Company expects to contribute $1.2 million to the Company's Plans from available cash and cash equivalents.
The following table presents estimated future benefit payments:
|
|
|
|
|
(in millions)
|
|
Fiscal 2020
|
$
|
1.1
|
|
Fiscal 2021
|
1.1
|
|
Fiscal 2022
|
1.2
|
|
Fiscal 2023
|
1.2
|
|
Fiscal 2024
|
1.3
|
|
Fiscal 2025 ‑ Fiscal 2028
|
8.0
|
|
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:
|
|
|
|
|
|
|
|
2019 Target
|
|
2019
Actual
|
Common/collective trust consisting primarily of:
|
|
|
|
Equity securities
|
60.0
|
%
|
|
55.7
|
%
|
Debt securities
|
40.0
|
%
|
|
44.0
|
%
|
Other
|
—
|
%
|
|
0.3
|
%
|
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.
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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 2019 was 6.50% for the defined benefit pension plan for U.S. Sealy employees and 5.00% 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, 2019 and 2018, 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.
The fair value of the Company’s plan assets, all valued at NAV, at December 31 by asset category was as follows:
|
|
|
|
|
|
|
|
|
(in millions)
|
2019
|
|
2018
|
Asset Category
|
|
|
|
Common/collective trust
|
|
|
|
U.S. equity
|
$
|
5.5
|
|
|
$
|
14.1
|
|
International equity
|
9.5
|
|
|
3.6
|
|
Total equity based funds
|
15.0
|
|
|
17.7
|
|
Common/collective trust - fixed income
|
11.9
|
|
|
4.4
|
|
Money market funds
|
0.1
|
|
|
0.1
|
|
Total
|
$
|
27.0
|
|
|
$
|
22.2
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Multi‑Employer Benefit Plans
Approximately 25.0% of the Company’s domestic employees are represented by various labor unions with separate collective bargaining agreements. Hourly employees working at six 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)
|
2019
|
|
2018
|
|
2017
|
Multi‑employer retirement plan expense
|
$
|
4.3
|
|
|
$
|
3.9
|
|
|
$
|
4.3
|
|
Multi‑employer health and welfare plan expense
|
3.8
|
|
|
3.6
|
|
|
3.5
|
|
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, 2019 and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Fund
|
|
EIN/Pension Plan Number
|
|
Date of Plan Year-End
|
|
Pension Protection Act
Zone Status(1) 2019
|
|
FIP/RP Status
Pending/Implemented(2)
|
|
Contributions of the Company in 2019
|
|
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
|
|
2/28/19
|
|
Red
|
|
Implemented
|
|
$
|
1.1
|
|
|
No
|
|
2020
|
|
2017, 2018, 2019
|
Pension Plan of the National Retirement Fund
|
|
13-6130178-001
|
|
12/31/18
|
|
Red
|
|
Implemented
|
|
$
|
1.0
|
|
|
Yes, 10.0%
|
|
2022
|
|
N/A
|
Central States, Southeast & Southwest Areas Pension Plan
|
|
36-6044243-001
|
|
12/31/18
|
|
Red
|
|
Implemented
|
|
$
|
0.8
|
|
|
Yes, 10.0%
|
|
2021
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
(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, 2017, the Company contributed $1.1 million to the plan.
|
(11) Stockholders' Equity
(a) Common and Preferred Stock. Tempur Sealy International has 300.0 million authorized shares of common stock with $0.01 per share par value and 10.0 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, 2019, the Company had approximately $124.6 million remaining under an existing share repurchase program initially authorized by the Board of Directors in 2016. In February 2020, the Board of Directors authorized an increase, of over $190.0 million, to its existing share repurchase authorization of Tempur Sealy International's common stock to $300.0 million. For the year ended December 31, 2019, the Company repurchased 1.3 million shares for approximately $102.3 million under the program. The Company did not repurchase any shares under the program during the year ended December 31, 2018. For the year ended December 31, 2017, the Company repurchased 0.6 million shares for approximately $40.1 million under the program.
In addition, the Company acquired 0.1 million, 0.1 million, and 0.1 million shares upon the vesting of certain restricted stock units ("RSUs"), which were withheld to satisfy tax withholding obligations during the years ended December 31, 2019, 2018 and 2017, respectively. The shares withheld were valued at the closing price of the stock on the New York Stock Exchange on the vesting date or first business day prior to vesting, resulting in approximately $3.4 million, $4.6 million, and 4.8 million in treasury stock acquired during the years ended December 31, 2019, 2018 and 2017, respectively.
(c) Charitable Stock Donation. In the fourth quarter of 2019, the Company recorded an $8.9 million charge, recorded in General, administrative and other expenses, related to the donation of 100,000 shares of its common stock at fair market value to certain public charities.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(d) AOCL. AOCL consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
Foreign Currency Translation
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(91.7
|
)
|
|
$
|
(72.8
|
)
|
|
$
|
(101.9
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
Foreign currency translation adjustments (1)
|
9.5
|
|
|
(18.9
|
)
|
|
29.1
|
|
Balance at end of period
|
$
|
(82.2
|
)
|
|
$
|
(91.7
|
)
|
|
$
|
(72.8
|
)
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(3.6
|
)
|
|
$
|
(2.7
|
)
|
|
$
|
(2.2
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
Net change from period revaluation
|
(2.6
|
)
|
|
(0.4
|
)
|
|
(0.8
|
)
|
Tax benefit (2)
|
0.7
|
|
|
0.1
|
|
|
0.3
|
|
Total other comprehensive loss before reclassifications, net of tax
|
(1.9
|
)
|
|
(0.3
|
)
|
|
(0.5
|
)
|
Net amount reclassified to earnings
|
—
|
|
|
—
|
|
|
—
|
|
U.S tax reform - reclassification to retained earnings upon adoption of ASU No. 2018-02
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
Tax expense (2)
|
—
|
|
|
(0.1
|
)
|
|
—
|
|
Total amount reclassified from accumulated other comprehensive loss, net of tax
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
Total other comprehensive loss
|
(1.9
|
)
|
|
(0.9
|
)
|
|
(0.5
|
)
|
Balance at end of period
|
$
|
(5.5
|
)
|
|
$
|
(3.6
|
)
|
|
$
|
(2.7
|
)
|
|
|
|
|
|
|
Foreign Exchange Forward Contracts
|
|
|
|
|
|
Balance at beginning of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
Other comprehensive loss:
|
|
|
|
|
|
Net change from period revaluation
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
Tax benefit (2)
|
—
|
|
|
—
|
|
|
0.1
|
|
Total other comprehensive loss before reclassifications, net of tax
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
Net amount reclassified to earnings (3)
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
Total amount reclassified from accumulated other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
Total other comprehensive loss
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
Balance at end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
(1)
|
In 2019, 2018 and 2017, 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)
(12) Other Items
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in millions)
|
2019
|
|
2018
|
Taxes
|
$
|
136.0
|
|
|
$
|
136.8
|
|
Other
|
90.8
|
|
|
84.1
|
|
Wages and benefits
|
79.5
|
|
|
43.7
|
|
Advertising
|
56.9
|
|
|
46.1
|
|
Operating leases obligations
|
50.8
|
|
|
—
|
|
Sales returns
|
26.2
|
|
|
22.0
|
|
Warranty
|
19.4
|
|
|
14.9
|
|
Rebates
|
13.6
|
|
|
11.6
|
|
|
$
|
473.2
|
|
|
$
|
359.2
|
|
(13) 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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company’s stock-based compensation expense for the year ended December 31, 2019 included PRSUs, stock options, RSUs and DSUs. A summary of the Company’s stock-based compensation expense is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
PRSU expense (benefit)
|
$
|
1.4
|
|
|
$
|
2.5
|
|
|
$
|
(6.5
|
)
|
Stock option expense
|
4.9
|
|
|
6.7
|
|
|
7.1
|
|
RSU/DSU expense
|
20.5
|
|
|
15.6
|
|
|
12.7
|
|
Total stock-based compensation expense
|
$
|
26.8
|
|
|
$
|
24.8
|
|
|
$
|
13.3
|
|
The Company granted PRSUs during the years ended December 31, 2019, 2018 and 2017. 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 for the year ended December 31, 2017, after the change in estimate to reduce accumulated performance stock-based 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, 2019 and 2018 is presented below:
|
|
|
|
|
|
|
|
(shares in millions)
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
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
|
|
Granted
|
0.1
|
|
|
85.41
|
|
Vested
|
—
|
|
|
59.21
|
|
Forfeited
|
(1.3
|
)
|
|
70.94
|
|
Awards unvested at December 31, 2019
|
0.8
|
|
|
$
|
60.09
|
|
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”). At the end of the First Designated Period, the Adjusted EBITDA targets were not met. As a result, one-half of the total 2019 Aspirational Plan PRSUs are no longer available for vesting based on performance and are included in forfeitures in the table above.
The remaining one-half of the total 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, 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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company did not record any stock-based compensation expense related to the 2019 Aspirational Plan PRSUs during the years ended December 31, 2019, 2018 and 2017, as it was not probable that the Company would achieve the specified performance target for either the First Designated Period or the Second Designated Period. The Company will continue to evaluate the probability of achieving the performance condition in future periods and record the appropriate expense if necessary. Based on the price of the Company’s common stock on the grant date, the total unrecognized compensation expense related to this award if the performance target is met for the Second Designated Period would range from $33.1 million to $49.7 million, which would be expensed over the remaining service period if achievement of the performance condition becomes probable.
As of December 31, 2019, the Company has 0.8 million of the 2019 Aspirational PRSUs outstanding that will fully vest if the Company achieves $650.0 million or more of Adjusted EBITDA for 2020. All remaining 2019 Aspirational Plan PRSUs will be forfeited if the performance metric is not met in 2020.
In March 2019, 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 payout under the PRSUs granted in 2017 ("the 2017 Aspirational Plan PRSUs"). As a result, the remaining one-third of the 2017 Aspirational Plan PRSUs previously granted with a performance period for 2018 were forfeited as of this date.
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, 2019, no stock options were granted. The assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2019, 2018 and 2017 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. The Company uses historical data to determine these assumptions.
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
Expected volatility range of stock
|
N/A
|
|
39.8% - 40.1%
|
|
37.4% - 40.8%
|
Expected life of option, range in years
|
N/A
|
|
5
|
|
5
|
Risk-free interest range rate
|
N/A
|
|
2.2% - 2.8%
|
|
1.8% - 1.9%
|
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, 2019 and 2018 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, 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
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
(0.3
|
)
|
|
52.49
|
|
|
|
|
|
Forfeited
|
—
|
|
|
46.36
|
|
|
|
|
|
Options outstanding at December 31, 2019
|
1.3
|
|
|
$
|
65.18
|
|
|
6.35
|
|
20.8
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2019
|
0.8
|
|
|
$
|
64.72
|
|
|
5.73
|
|
18.4
|
|
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, 2019, 2018 and 2017 was $5.9 million, $3.9 million and $5.4 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, 2019, 2018 and 2017, was $17.8 million, $4.6 million, and $12.8 million, respectively.
A summary of the Company’s unvested shares relating to stock options as of December 31, 2019 and 2018, and changes during the years ended December 31, 2019 and 2018, are presented below:
|
|
|
|
|
|
|
|
(shares in millions)
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
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
|
|
Granted
|
—
|
|
|
—
|
|
Vested
|
(0.1
|
)
|
|
66.66
|
|
Forfeited
|
—
|
|
|
46.36
|
|
Options unvested at December 31, 2019
|
0.5
|
|
|
$
|
65.99
|
|
Restricted/Deferred Stock Units
A summary of the Company's RSU and DSU activity and related information for the years ended December 31, 2019 and 2018 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
Shares
|
|
Weighted Average Release Price
|
|
Aggregate Intrinsic Value
|
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
|
|
Granted
|
0.7
|
|
|
43.07
|
|
|
|
Vested
|
(0.3
|
)
|
|
62.54
|
|
|
|
Terminated
|
—
|
|
|
58.07
|
|
|
|
Awards outstanding at December 31, 2019
|
1.2
|
|
|
$
|
52.96
|
|
|
$
|
110.5
|
|
The aggregate intrinsic value of RSUs and DSUs vested during the year ended December 31, 2019 was $14.7 million.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Excluding any potential compensation expense related to the 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, 2019 is presented below:
|
|
|
|
|
|
|
(in millions, except years)
|
December 31, 2019
|
|
Weighted Average Remaining Vesting Period (Years)
|
Unrecognized stock option expense
|
$
|
6.6
|
|
|
1.50
|
Unrecognized DSU/RSU expense
|
37.6
|
|
|
2.42
|
Unrecognized PRSU expense
|
2.0
|
|
|
1.73
|
Total unrecognized stock-based compensation expense
|
$
|
46.2
|
|
|
2.25
|
(14) Commitments and Contingencies
The Company is involved in various legal and administrative proceedings incidental to the operations of its business. The Company believes that the outcome of all pending proceedings in the aggregate will not have a material adverse effect on its business, financial condition, liquidity, or operating results.
(15) Income Taxes
Pre-tax Income by Jurisdiction
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, 2019, 2018 and 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
Income before income taxes:
|
|
|
|
|
|
United States
|
$
|
150.9
|
|
|
$
|
59.2
|
|
|
$
|
97.2
|
|
Rest of the world
|
114.6
|
|
|
105.8
|
|
|
118.2
|
|
|
$
|
265.5
|
|
|
$
|
165.0
|
|
|
$
|
215.4
|
|
Reconciliation of Statutory Tax Rate to Effective Tax Rate
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,
|
|
2019
|
|
2018
|
|
2017
|
(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
|
$
|
55.8
|
|
|
21.0
|
%
|
|
$
|
34.6
|
|
|
21.0
|
%
|
|
$
|
75.4
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
8.7
|
|
|
3.3
|
%
|
|
1.8
|
|
|
1.1
|
%
|
|
(0.6
|
)
|
|
(0.3
|
)%
|
Foreign tax differential
|
2.1
|
|
|
0.8
|
%
|
|
2.5
|
|
|
1.5
|
%
|
|
(11.9
|
)
|
|
(5.5
|
)%
|
Change in valuation allowances
|
(8.6
|
)
|
|
(3.2
|
)%
|
|
(17.7
|
)
|
|
(10.7
|
)%
|
|
5.6
|
|
|
2.6
|
%
|
Uncertain tax positions and interest
|
2.4
|
|
|
0.9
|
%
|
|
33.1
|
|
|
20.1
|
%
|
|
(1.0
|
)
|
|
(0.5
|
)%
|
Subpart F income
|
11.0
|
|
|
4.1
|
%
|
|
6.6
|
|
|
4.0
|
%
|
|
2.7
|
|
|
1.2
|
%
|
Manufacturing deduction
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.9
|
)
|
|
(0.9
|
)%
|
Remeasurement of deferred taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(69.7
|
)
|
|
(32.3
|
)%
|
Transition Tax
|
—
|
|
|
—
|
|
|
(6.8
|
)
|
|
(4.1
|
)%
|
|
45.9
|
|
|
21.3
|
%
|
Permanent and other
|
3.3
|
|
|
1.2
|
%
|
|
(4.5
|
)
|
|
(2.8
|
)%
|
|
(0.7
|
)
|
|
(0.3
|
)%
|
Effective income tax provision
|
$
|
74.7
|
|
|
28.1
|
%
|
|
$
|
49.6
|
|
|
30.1
|
%
|
|
$
|
43.8
|
|
|
20.3
|
%
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For 2019 and 2018, Subpart F income consists primarily of Global Intangible Low-Taxed Income ("GILTI") which is 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, described below, represents taxes on certain foreign sourced earnings and profits that were previously tax deferred.
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 ("Transition Tax"). 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. Pursuant to Staff Accounting Bulletin No. 118 ("SAB 118") the Company recorded an additional SAB 118 tax benefit of $6.8 million in 2018 related to the finalization of the Company’s Transition Tax obligation.
Income Tax Provision
The income tax provision consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
Current provision
|
|
|
|
|
|
Federal
|
$
|
50.4
|
|
|
$
|
(14.6
|
)
|
|
$
|
73.5
|
|
State
|
11.9
|
|
|
1.1
|
|
|
3.1
|
|
Foreign
|
19.5
|
|
|
57.1
|
|
|
28.3
|
|
Total current
|
$
|
81.8
|
|
|
$
|
43.6
|
|
|
$
|
104.9
|
|
Deferred provision
|
|
|
|
|
|
Federal
|
$
|
(10.8
|
)
|
|
$
|
11.4
|
|
|
$
|
(67.7
|
)
|
State
|
(8.0
|
)
|
|
(4.5
|
)
|
|
7.6
|
|
Foreign
|
11.7
|
|
|
(0.9
|
)
|
|
(1.0
|
)
|
Total deferred
|
(7.1
|
)
|
|
6.0
|
|
|
(61.1
|
)
|
Total income tax provision
|
$
|
74.7
|
|
|
$
|
49.6
|
|
|
$
|
43.8
|
|
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.
Deferred Income Tax Assets and Liabilities
The net deferred tax assets and liabilities recognized in the accompanying Consolidated Balance Sheets, determined using the income tax rate applicable to each period in which those items will reverse, consist of the following:
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in millions)
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
Stock-based compensation
|
$
|
13.9
|
|
|
$
|
12.8
|
|
Accrued expenses and other
|
129.7
|
|
|
49.1
|
|
Net operating losses, foreign tax credits and other tax attribute carryforwards
|
43.1
|
|
|
56.1
|
|
Inventories
|
8.2
|
|
|
6.0
|
|
Transaction costs
|
6.6
|
|
|
13.5
|
|
Property, plant and equipment
|
2.9
|
|
|
3.6
|
|
Total deferred tax assets
|
204.4
|
|
|
141.1
|
|
Valuation allowances
|
(30.0
|
)
|
|
(43.1
|
)
|
Total net deferred tax assets
|
$
|
174.4
|
|
|
$
|
98.0
|
|
Deferred tax liabilities:
|
|
|
|
Intangible assets
|
$
|
(156.4
|
)
|
|
$
|
(156.8
|
)
|
Property, plant and equipment
|
(36.9
|
)
|
|
(30.3
|
)
|
Accrued expenses and other
|
(69.1
|
)
|
|
(5.8
|
)
|
Total deferred tax liabilities
|
(262.4
|
)
|
|
(192.9
|
)
|
Net deferred tax liabilities
|
$
|
(88.0
|
)
|
|
$
|
(94.9
|
)
|
Tax Attributes Included in Deferred Tax Assets
Included in the calculation of the Company’s deferred tax assets are the following gross income tax attributes available at December 31, 2019 and 2018, respectively:
|
|
|
|
|
|
|
|
|
(in millions)
|
2019
|
|
2018
|
State net operating losses (“SNOLs”)
|
$
|
165.7
|
|
|
$
|
355.7
|
|
U.S. federal foreign tax credits (“FTCs”)
|
12.2
|
|
|
12.2
|
|
U.S. state income tax credits ("SITCs")
|
5.3
|
|
|
8.0
|
|
Foreign net operating losses (“FNOLs”)
|
36.9
|
|
|
57.0
|
|
Charitable contribution carryover ("CCCs")
|
32.9
|
|
|
39.6
|
|
Interest limitation carryover ("ILC")
|
—
|
|
|
10.6
|
|
The SNOLs, FTCs, SITCs, FNOLs and CCCs generally expire in 2021, 2023, 2023, 2023 and 2020, respectively.
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 $89.5 million of the SNOLs, $12.2 million of the FTCs and $1.4 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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred Tax Liability for Undistributed Foreign Earnings
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, 2019, 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. The Company concluded that at December 31, 2019 the Canadian subsidiary has accumulated earnings in excess of its operating needs and as such Canadian withholding tax has been accrued on such excess. The amount accrued is not material.
Uncertain Income Tax Positions
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:
|
|
|
|
|
(in millions)
|
|
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
|
|
Additions based on tax positions related to 2019
|
—
|
|
Additions for tax positions of prior years
|
0.7
|
|
Expiration of statutes of limitations
|
—
|
|
Settlements of uncertain tax positions with tax authorities
|
—
|
|
Balance as of December 31, 2019
|
$
|
104.5
|
|
The amount of unrecognized tax benefits that would impact the effective tax rate if recognized at December 31, 2019, 2018 and 2017 would be $96.8 million, $91.4 million and $31.7 million, respectively. During the years ended December 31, 2019, 2018 and 2017, the Company recognized $1.3 million, $6.4 million and $0.4 million in interest and penalties, respectively, in income tax expense. The Company had $67.9 million, $66.3 million and $59.9 million of accrued interest and penalties at December 31, 2019, 2018 and 2017, respectively.
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 Danish Tax Matter discussed below which the Company believes will be settled commensurate with the amount previously accrued. 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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's liability for the Danish Tax Matter uncertain tax position is derived using a cumulative probability analysis with possible outcomes based on an evaluation of facts and circumstances and applying the technical requirements applicable to U.S., Danish, and international transfer pricing standard, taking into account the U.S. and Danish income tax implications of such outcomes. The Company’s remaining uncertain tax liability is derived using the cumulative probability analysis with possible outcomes for each relevant matter based on the Company's updated evaluation of the facts and circumstances regarding each such matter and applying the technical requirements applicable to each tax position taken as it relates to each applicable taxing jurisdiction. The uncertain tax liability reflects the Company’s best judgment of the facts, circumstances and information available related to each matter through the balance sheet date.
The Danish Tax Matter
The Company has been involved in a dispute with the Danish Tax Authority ("SKAT") regarding the royalty paid by a U.S. subsidiary of Tempur Sealy International to a Danish subsidiary (the "Danish Tax Matter") for tax years 2001 through current. The royalty is paid by the U.S. subsidiary for the right to utilize certain intangible assets owned by the Danish subsidiary in the U.S. production process.
During 2018, the Company reached agreements with both SKAT and the U.S. Internal Revenue Service ("IRS") (the "Settlement") with respect to the adjusted amount of royalties for tax years 2001 through 2011. The Company and SKAT are currently discussing the appropriate administrative process required to implement the Settlement as it relates to both tax and interest. During this process, the Company continues to maintain a liability on its balance sheet for tax and interest under the terms of the Settlement. At December 31, 2019 and December 31, 2018, the Danish liability related to the Settlement is DKK 847.3 million (approximately $127.2 million and $130.0 million using the applicable exchange rates at December 31, 2019 and December 31, 2018, respectively) and is included in accrued expenses and other current liabilities within the Company’s Consolidated Balance Sheet. At December 31, 2019 and December 31, 2018, respectively the Company had on deposit with SKAT DKK 970.1 million (approximately $145.6 million using the applicable exchange rate at December 31, 2019) and DKK 962.3 million (approximately $147.7 million using the applicable exchange rate at December 31, 2018) for the satisfaction of the anticipated liability for both tax and interest once the administrative process is concluded. The deposit held by SKAT is included in "Prepaid expenses and other current assets" within the Company's Consolidated Balance Sheet.
SKAT has issued income tax assessments for the years 2012 through 2017 asserting an increase in the royalty earned by the Danish subsidiary. The Company expects to continue to receive income tax assessments from SKAT for the tax years 2018 and forward, asserting the royalties paid by the U.S. to the Danish subsidiary were too low, which the Company disputes. The Company entered into the Advance Pricing Agreement Program (the "APA Program") for the tax years 2012 through 2022 (the "Post-2011 Years") in which the IRS, on the Company’s behalf, will negotiate directly with SKAT for a mutually agreeable royalty due from the U.S. subsidiary to the Danish Subsidiary (the "APA"). That APA is in the early stages of negotiations. Such negotiations are not expected to be concluded in the near term. The Company anticipates such negotiations will result in an increase in the amount of royalties due from the U.S subsidiary to the Danish subsidiary (the "Post-2011 Years Adjustment") for the years 2012 - 2019 (the "2012 to Current Period"). It is expected that the Post-2011 Years Adjustment will result in additional income tax in Denmark and a reduction of tax in the United States for the 2012 to Current Period. Consequently, the Company maintains an uncertain income tax liability for its estimate of the potential Danish income tax liability and a deferred tax asset for the associated United States tax benefit for the Post-2011 Years Adjustment. As of December 31, 2019 and December 31, 2018, the Company had accrued Danish tax and interest for Post-2011 Years of approximately DKK 263.3 million and DKK 230.3 million ($39.5 million and $35.3 million using the applicable exchange rates at December 31, 2019 and December 31, 2018, respectively) as an uncertain income tax liability, which is included in other non-current liabilities on the Company's Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively. The deferred tax asset for the U.S. correlative benefit associated with the accrual of Danish tax for the Post-2011 Years as of December 31, 2019 and 2018, respectively, is approximately $7.2 million and $4.2 million. Both the uncertain income tax liability and the deferred tax asset reflect the Company’s best judgment of the facts, circumstances and information available through December 31, 2019.
If the Company is not successful in resolving the Danish Tax Matter for the Post-2011 Years or there is a change in facts and circumstances, the Company may be required to further increase its uncertain income tax position associated with this matter, or decrease its deferred tax asset, also related to this matter, which could have a material impact on the Company's reported earnings.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $18.8 million using the December 31, 2019 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 both December 31, 2019 and 2018 is approximately DKK 347.1 million (approximately $52.1 million and $53.3 million at the December 31, 2019 and 2018 exchange rates, respectively). In July 2016, the Company paid a deposit to SKAT in the amount of approximately DKK 615.2 million (approximately $92.3 million and $94.4 million using the applicable exchange rates at December 31, 2019 and 2018, respectively) (the “Tax Deposit”) and applied approximately DKK 232.1 million (approximately $34.8 million and $35.6 million using the applicable exchange rates at December 31, 2019 and 2018, 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, 2019 and 2018, respectively.
(16) 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)
|
2019
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
Net income from continuing operations, net of loss attributable to non-controlling interests
|
$
|
190.9
|
|
|
$
|
118.3
|
|
|
$
|
182.3
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Denominator for basic earnings per common share—weighted average shares
|
54.5
|
|
|
54.4
|
|
|
54.0
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Employee stock-based compensation
|
0.9
|
|
|
0.7
|
|
|
0.7
|
|
Denominator for diluted earnings per common share—adjusted weighted average shares
|
55.4
|
|
|
55.1
|
|
|
54.7
|
|
|
|
|
|
|
|
Basic earnings per common share for continuing operations
|
$
|
3.50
|
|
|
$
|
2.17
|
|
|
$
|
3.37
|
|
|
|
|
|
|
|
Diluted earnings per common share for continuing operations
|
$
|
3.45
|
|
|
$
|
2.15
|
|
|
$
|
3.33
|
|
The Company excluded 1.1 million, 1.5 million and 1.3 million shares issuable upon exercise of outstanding stock options for the years ended December 31, 2019, 2018 and 2017, 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.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) 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 2019 or 2018.
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)
|
2019
|
|
2018
|
North America
|
$
|
3,142.9
|
|
|
$
|
2,788.1
|
|
International
|
615.3
|
|
|
604.8
|
|
Corporate
|
477.1
|
|
|
569.0
|
|
Inter-segment eliminations
|
(1,173.5
|
)
|
|
(1,246.5
|
)
|
Total assets
|
$
|
3,061.8
|
|
|
$
|
2,715.4
|
|
The following table summarizes property, plant and equipment, net, by segment:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in millions)
|
2019
|
|
2018
|
North America
|
$
|
328.9
|
|
|
$
|
317.5
|
|
International
|
51.8
|
|
|
51.1
|
|
Corporate
|
55.1
|
|
|
52.2
|
|
Total property, plant and equipment, net
|
$
|
435.8
|
|
|
$
|
420.8
|
|
The following table summarizes operating lease right-of-use assets by segment:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in millions)
|
2019
|
|
2018
|
North America
|
$
|
202.0
|
|
|
$
|
—
|
|
International
|
42.2
|
|
|
—
|
|
Corporate
|
1.2
|
|
|
—
|
|
Total operating lease right-of-use assets
|
$
|
245.4
|
|
|
$
|
—
|
|
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, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
North America
|
|
International
|
|
Corporate
|
|
Eliminations
|
|
Consolidated
|
Bedding sales
|
$
|
2,379.6
|
|
|
$
|
455.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,835.3
|
|
Other sales
|
153.7
|
|
|
117.0
|
|
|
—
|
|
|
—
|
|
|
270.7
|
|
Net sales
|
$
|
2,533.3
|
|
|
$
|
572.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,106.0
|
|
|
|
|
|
|
|
|
|
|
|
Inter-segment sales
|
$
|
3.4
|
|
|
$
|
0.7
|
|
|
$
|
—
|
|
|
$
|
(4.1
|
)
|
|
$
|
—
|
|
Inter-segment royalty expense (income)
|
4.5
|
|
|
(4.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Gross profit
|
1,035.2
|
|
|
307.0
|
|
|
—
|
|
|
—
|
|
|
1,342.2
|
|
Operating income (loss)
|
344.8
|
|
|
115.4
|
|
|
(113.5
|
)
|
|
—
|
|
|
346.7
|
|
Income (loss) from continuing operations before income taxes
|
337.0
|
|
|
109.7
|
|
|
(181.2
|
)
|
|
—
|
|
|
265.5
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (1)
|
$
|
64.4
|
|
|
$
|
13.7
|
|
|
$
|
38.4
|
|
|
$
|
—
|
|
|
$
|
116.5
|
|
Capital expenditures
|
62.1
|
|
|
11.6
|
|
|
14.5
|
|
|
—
|
|
|
88.2
|
|
|
|
(1)
|
Depreciation and amortization includes stock-based compensation amortization expense.
|
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.
|
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, 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
|
)
|
|
$
|
—
|
|
Inter-segment royalty expense (income)
|
5.5
|
|
|
(5.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Gross profit
|
844.7
|
|
|
276.3
|
|
|
—
|
|
|
—
|
|
|
1,121.0
|
|
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.
|
The following table summarizes property, plant and equipment, net, by geographic region:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in millions)
|
2019
|
|
2018
|
United States
|
$
|
366.4
|
|
|
$
|
350.7
|
|
Canada
|
17.5
|
|
|
19.1
|
|
Other International
|
51.9
|
|
|
51.0
|
|
Total property, plant and equipment, net
|
$
|
435.8
|
|
|
$
|
420.8
|
|
Total International
|
$
|
69.4
|
|
|
$
|
70.1
|
|
The following table summarizes operating lease right-of-use assets by geographic region:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
(in millions)
|
2019
|
|
2018
|
United States
|
$
|
198.3
|
|
|
$
|
—
|
|
Canada
|
4.9
|
|
|
—
|
|
Other International
|
42.2
|
|
|
—
|
|
Total operating lease right-of-use assets
|
$
|
245.4
|
|
|
$
|
—
|
|
Total International
|
$
|
47.1
|
|
|
$
|
—
|
|
The following table summarizes net sales by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in millions)
|
2019
|
|
2018
|
|
2017
|
United States
|
$
|
2,312.3
|
|
|
$
|
1,928.9
|
|
|
$
|
1,954.2
|
|
Canada
|
221.0
|
|
|
207.3
|
|
|
219.6
|
|
Other International
|
572.7
|
|
|
566.7
|
|
|
526.8
|
|
Total net sales
|
$
|
3,106.0
|
|
|
$
|
2,702.9
|
|
|
$
|
2,700.6
|
|
Total International
|
$
|
793.7
|
|
|
$
|
774.0
|
|
|
$
|
746.4
|
|
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(18) Quarterly Financial Data (unaudited)
Quarterly results of operations for the years ended December 31, 2019 and 2018 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per share amounts)
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
2019
|
|
|
|
|
|
|
|
Net sales
|
$
|
690.9
|
|
|
$
|
722.8
|
|
|
$
|
821.0
|
|
|
$
|
871.3
|
|
Gross profit
|
281.8
|
|
|
313.4
|
|
|
360.6
|
|
|
386.4
|
|
Operating income
|
60.5
|
|
|
81.0
|
|
|
120.6
|
|
|
84.6
|
|
Income from continuing operations
|
29.0
|
|
|
42.7
|
|
|
72.4
|
|
|
46.7
|
|
Net income attributable to Tempur Sealy International, Inc.
|
28.4
|
|
|
41.6
|
|
|
73.3
|
|
|
46.2
|
|
Basic earnings per common share for continuing operations
|
$
|
0.53
|
|
|
$
|
0.78
|
|
|
$
|
1.33
|
|
|
$
|
0.87
|
|
Diluted earnings per common share for continuing operations
|
$
|
0.52
|
|
|
$
|
0.76
|
|
|
$
|
1.30
|
|
|
$
|
0.85
|
|
|
|
|
|
|
|
|
|
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
|
|
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.
In the fourth quarter of 2019, the Company recorded $29.8 million of customer-related charges in connection with the bankruptcy of Mattress PAL Holding, LLC ("Mattress PAL") and resulting significant liquidity issues of Mattress PAL's affiliates to fully reserve trade receivables and other assets associated with this account. Additionally, in the fourth quarter of 2019, the Company recorded an $8.9 million charge related to the donation of common stock at fair market value to certain public charities.
In the fourth quarter of 2018, prior to the Sleep Outfitters Acquisition, the Company recorded $21.2 million of customer-related charges in connection with the bankruptcy of iMS to fully reserve trade receivables and other assets associated with this account. Additionally, in the fourth quarter of 2018, the Company recorded $9.1 million of restructuring costs. These costs included $4.7 million of charges in the International business segment associated with International simplification efforts, including headcount reduction, professional fees, store closures and other costs, $2.9 million of Corporate professional fees related to restructuring activities and $1.5 million of charges associated with the operational alignment of a previous joint venture that became wholly acquired in the North America business segment.
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(19) 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 2019 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, 2019 and December 31, 2018, and the related Consolidated Statements of Income and Comprehensive Income and Cash Flows for the years ended December 31, 2019, 2018 and 2017 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, 2019
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tempur Sealy International, Inc. (Ultimate Parent)
|
|
Combined Guarantor Subsidiaries
|
|
Combined Non-Guarantor Subsidiaries
|
|
Reclassifications and Eliminations
|
|
Consolidated
|
Net sales
|
$
|
—
|
|
|
$
|
2,387.1
|
|
|
$
|
793.5
|
|
|
$
|
(74.6
|
)
|
|
$
|
3,106.0
|
|
Cost of sales
|
—
|
|
|
1,390.6
|
|
|
447.8
|
|
|
(74.6
|
)
|
|
1,763.8
|
|
Gross profit
|
—
|
|
|
996.5
|
|
|
345.7
|
|
|
—
|
|
|
1,342.2
|
|
Selling and marketing expenses
|
11.2
|
|
|
466.0
|
|
|
189.2
|
|
|
(0.1
|
)
|
|
666.3
|
|
General, administrative and other expenses
|
17.4
|
|
|
242.8
|
|
|
57.7
|
|
|
(2.6
|
)
|
|
315.3
|
|
Customer-related charges
|
—
|
|
|
29.8
|
|
|
—
|
|
|
—
|
|
|
29.8
|
|
Equity income in earnings of unconsolidated affiliates
|
—
|
|
|
—
|
|
|
(15.9
|
)
|
|
—
|
|
|
(15.9
|
)
|
Operating (loss) income
|
(28.6
|
)
|
|
257.9
|
|
|
114.7
|
|
|
2.7
|
|
|
346.7
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
Third party interest expense, net
|
56.3
|
|
|
26.7
|
|
|
2.7
|
|
|
—
|
|
|
85.7
|
|
Intercompany interest (income) expense, net
|
(9.8
|
)
|
|
13.2
|
|
|
(3.4
|
)
|
|
—
|
|
|
—
|
|
Interest expense (income), net
|
46.5
|
|
|
39.9
|
|
|
(0.7
|
)
|
|
—
|
|
|
85.7
|
|
Other (income) expense, net
|
—
|
|
|
(7.6
|
)
|
|
1.6
|
|
|
1.5
|
|
|
(4.5
|
)
|
Total other expense, net
|
46.5
|
|
|
32.3
|
|
|
0.9
|
|
|
1.5
|
|
|
81.2
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investees
|
250.7
|
|
|
84.3
|
|
|
—
|
|
|
(335.0
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
175.6
|
|
|
309.9
|
|
|
113.8
|
|
|
(333.8
|
)
|
|
265.5
|
|
Income tax benefit (provision)
|
13.8
|
|
|
(59.2
|
)
|
|
(29.5
|
)
|
|
0.2
|
|
|
(74.7
|
)
|
Income from continuing operations
|
189.4
|
|
|
250.7
|
|
|
84.3
|
|
|
(333.6
|
)
|
|
190.8
|
|
Loss from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.4
|
)
|
|
(1.4
|
)
|
Net income before non-controlling interests
|
189.4
|
|
|
250.7
|
|
|
84.3
|
|
|
(335.0
|
)
|
|
189.4
|
|
Less: Net loss attributable to non-controlling interest
|
(0.1
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
0.1
|
|
|
(0.1
|
)
|
Net income attributable to Tempur Sealy International, Inc.
|
$
|
189.5
|
|
|
$
|
250.7
|
|
|
$
|
84.4
|
|
|
$
|
(335.1
|
)
|
|
$
|
189.5
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to Tempur Sealy International, Inc.
|
$
|
197.1
|
|
|
$
|
251.9
|
|
|
$
|
90.8
|
|
|
$
|
(342.7
|
)
|
|
$
|
197.1
|
|
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
|
|
|
204.6
|
|
|
57.4
|
|
|
(6.8
|
)
|
|
273.0
|
|
Customer-related charges
|
—
|
|
|
21.2
|
|
|
—
|
|
|
—
|
|
|
21.2
|
|
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 interests
|
(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-related charges
|
(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
|
—
|
|
|
—
|
|
|
—
|
|
|
(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 Balance Sheets
December 31, 2019
(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
|
$
|
0.2
|
|
|
$
|
20.0
|
|
|
$
|
44.7
|
|
|
$
|
—
|
|
|
$
|
64.9
|
|
Accounts receivable, net
|
0.2
|
|
|
21.9
|
|
|
352.5
|
|
|
(2.6
|
)
|
|
372.0
|
|
Inventories
|
—
|
|
|
199.9
|
|
|
60.6
|
|
|
—
|
|
|
260.5
|
|
Prepaid expenses and other current assets
|
12.9
|
|
|
59.5
|
|
|
140.2
|
|
|
(9.8
|
)
|
|
202.8
|
|
Total Current Assets
|
13.3
|
|
|
301.3
|
|
|
598.0
|
|
|
(12.4
|
)
|
|
900.2
|
|
Property, plant and equipment, net
|
—
|
|
|
366.5
|
|
|
69.3
|
|
|
—
|
|
|
435.8
|
|
Goodwill
|
—
|
|
|
511.2
|
|
|
221.1
|
|
|
—
|
|
|
732.3
|
|
Other intangible assets, net
|
—
|
|
|
564.3
|
|
|
77.1
|
|
|
—
|
|
|
641.4
|
|
Operating lease right-of-use assets
|
—
|
|
|
198.2
|
|
|
47.2
|
|
|
—
|
|
|
245.4
|
|
Deferred income taxes
|
13.0
|
|
|
—
|
|
|
14.1
|
|
|
(13.0
|
)
|
|
14.1
|
|
Other non-current assets
|
0.4
|
|
|
46.6
|
|
|
45.6
|
|
|
—
|
|
|
92.6
|
|
Net investment in subsidiaries
|
1,143.3
|
|
|
369.0
|
|
|
—
|
|
|
(1,512.3
|
)
|
|
—
|
|
Due from affiliates
|
341.6
|
|
|
125.4
|
|
|
19.6
|
|
|
(486.6
|
)
|
|
—
|
|
Total Assets
|
$
|
1,511.6
|
|
|
$
|
2,482.5
|
|
|
$
|
1,092.0
|
|
|
$
|
(2,024.3
|
)
|
|
$
|
3,061.8
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
198.4
|
|
|
$
|
55.9
|
|
|
$
|
(2.6
|
)
|
|
$
|
251.7
|
|
Accrued expenses and other current liabilities
|
6.8
|
|
|
245.7
|
|
|
220.7
|
|
|
—
|
|
|
473.2
|
|
Income taxes payable
|
—
|
|
|
10.0
|
|
|
10.8
|
|
|
(9.8
|
)
|
|
11.0
|
|
Current portion of long-term debt
|
—
|
|
|
29.5
|
|
|
7.9
|
|
|
—
|
|
|
37.4
|
|
Total Current Liabilities
|
6.8
|
|
|
483.6
|
|
|
295.3
|
|
|
(12.4
|
)
|
|
773.3
|
|
Long-term debt, net
|
1,044.3
|
|
|
458.1
|
|
|
0.2
|
|
|
—
|
|
|
1,502.6
|
|
Long-term operating lease obligations
|
—
|
|
|
172.4
|
|
|
33.0
|
|
|
—
|
|
|
205.4
|
|
Deferred income taxes
|
—
|
|
|
98.5
|
|
|
16.6
|
|
|
(13.0
|
)
|
|
102.1
|
|
Other non-current liabilities
|
0.2
|
|
|
59.4
|
|
|
58.4
|
|
|
—
|
|
|
118.0
|
|
Due to affiliates
|
99.9
|
|
|
67.2
|
|
|
319.5
|
|
|
(486.6
|
)
|
|
—
|
|
Total Liabilities
|
1,151.2
|
|
|
1,339.2
|
|
|
723.0
|
|
|
(512.0
|
)
|
|
2,701.4
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
360.4
|
|
|
1,143.3
|
|
|
369.0
|
|
|
(1,512.3
|
)
|
|
360.4
|
|
Total Liabilities and Stockholders’ Equity
|
$
|
1,511.6
|
|
|
$
|
2,482.5
|
|
|
$
|
1,092.0
|
|
|
$
|
(2,024.3
|
)
|
|
$
|
3,061.8
|
|
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 Stockholders’ 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 Statements of Cash Flows
Year Ended December 31, 2019
(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
|
$
|
(47.6
|
)
|
|
$
|
295.2
|
|
|
$
|
65.2
|
|
|
$
|
2.0
|
|
|
$
|
314.8
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Contributions (paid to) received from subsidiaries and affiliates
|
—
|
|
|
(68.4
|
)
|
|
68.4
|
|
|
—
|
|
|
—
|
|
Purchases of property, plant and equipment
|
—
|
|
|
(76.2
|
)
|
|
(12.0
|
)
|
|
—
|
|
|
(88.2
|
)
|
Acquisitions, net of cash acquired
|
—
|
|
|
(8.1
|
)
|
|
(9.0
|
)
|
|
—
|
|
|
(17.1
|
)
|
Other
|
—
|
|
|
4.9
|
|
|
10.2
|
|
|
—
|
|
|
15.1
|
|
Net cash (used in) provided by investing activities from continuing operations
|
—
|
|
|
(147.8
|
)
|
|
57.6
|
|
|
—
|
|
|
(90.2
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under long-term debt obligations
|
—
|
|
|
607.8
|
|
|
635.0
|
|
|
—
|
|
|
1,242.8
|
|
Repayments of borrowings under long-term debt obligations
|
—
|
|
|
(707.6
|
)
|
|
(639.5
|
)
|
|
—
|
|
|
(1,347.1
|
)
|
Net activity in investment in and advances from (to) subsidiaries and affiliates
|
135.6
|
|
|
(22.8
|
)
|
|
(112.8
|
)
|
|
—
|
|
|
—
|
|
Proceeds from exercise of stock options
|
17.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17.8
|
|
Treasury stock repurchased
|
(105.7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(105.7
|
)
|
Repayments of deferred financing costs
|
—
|
|
|
(3.2
|
)
|
|
—
|
|
|
—
|
|
|
(3.2
|
)
|
Repayments of finance lease obligations and other
|
—
|
|
|
(7.8
|
)
|
|
—
|
|
|
—
|
|
|
(7.8
|
)
|
Net cash provided by (used in) financing activities from continuing operations
|
47.7
|
|
|
(133.6
|
)
|
|
(117.3
|
)
|
|
—
|
|
|
(203.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operations
|
0.1
|
|
|
13.8
|
|
|
5.5
|
|
|
2.0
|
|
|
21.4
|
|
|
|
|
|
|
|
|
|
|
|
CASH USED IN DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
Operating cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.0
|
)
|
|
(2.0
|
)
|
Investing cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Financing cash flows, net
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net cash used in discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.0
|
)
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
—
|
|
|
—
|
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
Increase in cash and cash equivalents
|
0.1
|
|
|
13.8
|
|
|
5.2
|
|
|
—
|
|
|
19.1
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
0.1
|
|
|
6.2
|
|
|
39.5
|
|
|
—
|
|
|
45.8
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
0.2
|
|
|
$
|
20.0
|
|
|
$
|
44.7
|
|
|
$
|
—
|
|
|
$
|
64.9
|
|
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
|
)
|
Repayments of finance lease obligations and 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 flow, 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
|
|