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What changed in SOMNIGROUP INTERNATIONAL INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of SOMNIGROUP INTERNATIONAL INC.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+287 added−276 removedSource: 10-K (2025-02-28) vs 10-K (2024-02-16)

Top changes in SOMNIGROUP INTERNATIONAL INC.'s 2024 10-K

287 paragraphs added · 276 removed · 204 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

55 edited+37 added−21 removed21 unchanged
Biggest changeIn recent years, several U.S. states have adopted legislation offering similar protections for resident citizens, such as the California Privacy Rights Act (which amends the California Consumer Privacy Act ("CCPA")), the Virginia Consumer Data Protection Act, the Colorado Privacy Act, the Connecticut Data Privacy Act and the Utah Consumer Privacy Act (together the "U.S. state privacy laws").
Biggest changeIn addition, there are country-specific data privacy laws in Europe that impose additional requirements on data controllers and several of these laws are more stringent than the GDPR. 9 Table of Contents In recent years, U.S. states have adopted legislation offering similar protections for resident citizens, such as the California Privacy Rights Act (which amends the California Consumer Privacy Act ("CCPA")).
Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results. These segments are strategic business units that are managed separately based on geography. Our North America segment consists of manufacturing, distribution and retail subsidiaries and licensees located in the U.S., Canada and Mexico.
Corporate operating expenses are not included in either of the segments and are presented separately as a reconciling item to consolidated results. The North America and International segments are strategic business units that are managed separately based on geography. Our North America segment consists of manufacturing, distribution and retail subsidiaries and licensees located in the U.S., Canada and Mexico.
For further information regarding the loss of suppliers and disruptions in the supply of our raw materials and components on the Company, please refer to "Risk Factors" in ITEM 1A of Part I of this Report. 7 Table of Contents Research and Development We have four research and development centers, three in the U.S. and one in Denmark, that conduct technology and product development.
For further information regarding the loss of suppliers and disruptions in the supply of our raw materials and components on the Company, please refer to "Risk Factors" in ITEM 1A of Part I of this Report. Research and Development We have four research and development centers, three in the U.S. and one in Denmark, that conduct technology and product development.
We use the 70/20/10 learning and development model. This approach gives employees the opportunity to develop their skills through a combination of job experience (70%), mentoring (20%) and formal training (10%). Training at Tempur Sealy includes, but is not limited to, formal training programs, leadership development mentorships, professional and industry conferences, and education assistance.
We use the 70/20/10 learning and development model. This approach gives employees the opportunity to develop their skills through a combination of job experience (70%), mentoring (20%) and formal training (10%). Training at Somnigroup includes, but is not limited to, formal training programs, leadership development mentorships, professional and industry conferences and education assistance.
For customers that prefer the convenience of making purchases online and having their bedding products delivered right to their front door, we have evolved our distribution model to include multiple online options to reach those that want to 6 Table of Contents purchase our products without the need to go into a brick-and-mortar store.
For customers that prefer the convenience of making purchases online and having their bedding products delivered right to their front door, we have evolved our distribution model to include multiple online options to reach those that want to purchase our products without the need to go into a brick-and-mortar store.
Our third-party retailers, Tempur-Pedic® retail stores, Dreams® and Sleep Outfitters®, and our other company-owned store concepts reach the vast majority of consumers who still prefer to touch and feel a mattress and speak to a retail sales associate prior to making a purchase decision.
Our third-party retailers, Mattress Firm®, Tempur-Pedic® retail stores, Dreams® and our other company-owned store concepts reach the vast majority of consumers who still prefer to touch and feel a mattress and speak to a retail sales associate prior to making a purchase decision.
Several other states have recently introduced similar state privacy laws. These U.S. state privacy laws grant consumers new rights over their personal information, such as access to and deletion of their personal information, placing strict data collection requirements on businesses, including ours.
Eighteen other states have introduced similar privacy laws. These U.S. state privacy laws grant consumers new rights over their personal information, such as access to and deletion of their personal information, placing strict data collection requirements on businesses, including ours.
Tempur Sealy has a strong competitive presence in the bedding marketplace with a leadership position that comes from product and service quality, culture, strategy and people, backed with financial strength and a disciplined approach to returning value to shareholders.
Somnigroup has a strong competitive presence in the bedding marketplace with a leadership position that comes from product and service quality, culture, strategy and people, backed with financial strength and a disciplined approach to returning value to shareholders.
This is the third consecutive year winning the online mattress category and the fifth consecutive year winning at least one J.D. Power award. • Stearns & Foster ® - The Stearns & Foster brand offers our consumers high quality mattresses built by certified craftsmen who have been specially trained.
This is the fourth consecutive year winning the online mattress category and the sixth consecutive year winning at least one J.D. Power award. • Stearns & Foster ® - The Stearns & Foster brand offers our consumers high quality mattresses built by certified craftsmen who have been specially trained.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed with or furnished to the Securities and Exchange Commission ("SEC") pursuant to Sections 13(a) or 15(d) of the Exchange Act, are available free of charge on our website at www.tempursealy.com as soon as reasonably practicable after such reports are electronically filed with the SEC.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to such reports filed with or furnished to the Securities and Exchange Commission ("SEC") pursuant to Section 13(a) of the Exchange Act, are available free of charge on our website at www.somnigroup.com as soon as reasonably practicable after such reports are electronically filed with the SEC.
Our expanded direct channel distribution complements our wholesale business, and we believe this balanced approach enhances the overall global sales potential and profitability of Tempur Sealy.
Our expanded direct channel distribution complements our wholesale business, and we believe this balanced approach enhances the overall global sales potential and profitability of Somnigroup.
Our proprietary Tempur material precisely adapts to the shape, weight and temperature of the consumer and creates fewer pressure points, reduces motion transfer and provides personalized comfort and support. Tempur-Pedic was awarded #1 in Customer Satisfaction for the online mattress segment in the J.D. Power 2023 Mattress Satisfaction Report.
Our proprietary Tempur material precisely adapts to the shape, weight and temperature of the consumer and creates fewer pressure points, reduces motion transfer and provides personalized comfort and support. Tempur-Pedic was awarded #1 in Customer Satisfaction for both the in-store and online mattress segments in the J.D. Power 2024 Mattress Satisfaction Report.
Additionally, the pillow market is comprised of traditional foam and feather pillows, as well as pillows made of visco-elastic, latex, foam, gel, rubber and down. The primary distribution channels for bedding products are retail furniture and bedding stores, big-box retailers and online.
Additionally, the pillow market is comprised of traditional foam and feather pillows, as well as pillows made of visco-elastic, latex, foam, gel, rubber and down. The primary distribution channels for bedding products are retail furniture and bedding stores, big-box retailers and online. We encounter competition from a number of bedding manufacturers.
In response, we have implemented a global compliance system, appointed dedicated resources and have put measures in place to facilitate adherence to the continuing compliance requirements of applicable worldwide data privacy laws. Environmental, Social and Corporate Governance ("ESG") We recognize that as a corporate citizen we have a responsibility to protect our communities and environment.
In response to the changing regulatory global landscape, we have implemented a global compliance system, appointed dedicated resources and have put measures in place to facilitate adherence to the continuing compliance requirements of applicable worldwide data privacy laws. Sustainability and Corporate Social Values We recognize that as a corporate citizen we have a responsibility to protect our communities and environment.
The addition of non-branded offerings expands our capabilities to service third-party retailers to capture manufacturing profits from bedding brands outside our own. Our portfolio of retail brands includes Tempur-Pedic® retail stores, Sleep Outfitters®, Sleep Solutions Outlet®, Dreams®, SOVA and a variety of other retail brands internationally, which operate in various countries.
The addition of non-branded offerings expands our capabilities to service third-party retailers to capture manufacturing profits from bedding brands outside our own. 5 Table of Contents Our portfolio of retail brands includes Mattress Firm®, Dreams®, Tempur-Pedic® retail stores, SOVA and a variety of other retail brands internationally, which operate in various countries.
For a list of our principal manufacturing and distribution facilities, please refer to ITEM 2, "Properties". Suppliers We obtain the raw materials used to produce our pressure-relieving Tempur® material and components used in the manufacture of Tempur-Pedic® products from third-party sources.
Our products are currently manufactured and distributed through our global network of facilities. For a list of our principal manufacturing and distribution facilities, please refer to ITEM 2, "Properties". 7 Table of Contents Suppliers We obtain the raw materials used to produce our pressure-relieving Tempur® material and components used in the manufacture of Tempur-Pedic® products from third-party sources.
These regulations vary among the states, countries and localities in which we do business. The regulations generally impose requirements as to the proper labeling of bedding merchandise, restrictions regarding the identification of merchandise as "new" or otherwise, controls as to chemical and other substances, hygiene and other aspects of product safety, handling, marketing and sale and penalties for violations.
The regulations generally impose requirements as to the proper labeling of bedding merchandise, restrictions regarding the identification of merchandise as "new" or otherwise, controls as to chemical and other substances, hygiene and other aspects of product safety, handling, marketing and sale and penalties for violations.
The PIPL is widely considered one of the strictest personal data protection laws in the world, with significant restrictions placed on the transfer of personal information outside of China or use without separate citizen consent.
The PIPL is widely considered one of the strictest personal data protection laws in the world, with significant restrictions placed on the transfer of personal information outside of China or use without separate citizen consent. Recently the EU harmonized its existing laws governing AI with the introduction of the consolidated EU AI Act ("AI Act").
As of December 31, 2023, we had over 100 Tempur-Pedic® retail stores throughout the U.S. that provide a low-pressure environment to explore the comprehensive line up of our Tempur-Pedic® products. Each showroom features knowledgeable Brand Ambassadors who educate potential customers on Tempur-Pedic® products in a relaxed, comfortable environment.
We operate Tempur-Pedic® retail stores worldwide that provide a low-pressure environment to explore the comprehensive line up of our Tempur-Pedic® products. Each showroom features knowledgeable Brand Ambassadors who educate potential customers on Tempur-Pedic® products in a relaxed, comfortable environment.
In 2023, we continued to drive this initiative, as we increased the number of wholesale doors retailing our products and expanded our company-owned store footprint around the world. We are continuing to expand our Direct channel to strengthen our distribution footprint and provide alternatives to allow the customer to shop on their preferred terms - whether online or in-store.
In 2024, we continued to drive this initiative, as we expanded with new third-party retail partners and expanded our company-owned store footprint around the world. We are continuing to expand our Direct channel to strengthen our distribution footprint and provide alternatives to allow the customer to shop on their preferred terms — whether online or in-store.
Our Products and Brands We have a comprehensive offering of products that appeal to a broad range of consumers, some of which are covered by one or more patents and/or patent applications.
Our Products and Brands We have a comprehensive offering of products that appeal to a broad range of consumers, some of which are covered by one or more patents and/or patent applications. We also routinely introduce new mattress models, launch new products and update our existing mattress products in each of our segments.
Mattress and pillow manufacturers and retailers are seeking to increase their channels of distribution and are looking for new ways to reach the consumer, including the expansion in the number of U.S. and international companies pursuing online direct-to-consumer models for mattresses. In addition, retailers both in the U.S. and internationally are increasingly seeking to offer their own private label products.
Manufacturers and retailers in the global bedding industry are seeking to increase their channels of distribution and are looking for new ways to reach the consumer, including the expansion in the number of U.S. and international companies pursuing online direct-to-consumer models for mattresses.
In connection with sales of our products and operation of our business, we collect and process personal data from our customers and employees. As such, we are subject to certain laws and regulations relating to IT security and personal data protection and privacy. For example, the European Union ("EU") adopted the General Data Protection Regulation ("GDPR").
In connection with sales of our products and operation of our business, we collect and process personal data from our customers, business partners and employees. As such, we are subject to certain laws and regulations relating to IT security, artificial intelligence ("AI") and personal data protection and privacy.
The assortment primarily focuses on premium to ultra-premium brands and well trained sales staff targeting to sell quality beds with a very high average selling price. In 2024, we are launching a new portfolio of Tempur-Pedic® Adapt mattresses in our North America segment.
The assortment primarily focuses on premium to ultra-premium brands and well trained sales staff targeting to sell quality beds with a very high average selling price. In 2025, we are launching an all-new collection of Sealy Posturepedic® products in North America.
For consumers that prefer to purchase directly from the manufacturer and are seeking a more personalized and educational sales experience, we have over 750 retail stores worldwide, including our retail stores owned through our international joint venture operations.
For consumers that prefer to purchase directly from the manufacturer and are seeking a more personalized and educational sales experience, we have over 2,800 retail stores worldwide, including our retail stores owned through our international joint venture operations, after giving effect to the anticipated divestitures in the second quarter of 2025 described below.
In the U.S., we are subject to federal, state and local laws and regulations relating to environmental health and safety, including the Federal Water Pollution Control Act, the Clean Air Act and the Resource, Conservation and Recovery Act.
We also periodically dispose of small amounts of used machine lubricating oil and air compressor waste oil, primarily by recycling. In the U.S., we are subject to federal, state and local laws and regulations relating to environmental health and safety, including the Federal Water Pollution Control Act, the Clean Air Act and the Resource, Conservation and Recovery Act.
From time to time, we also look at acquisition opportunities that could complement and strengthen our core business. When doing so, we seek to balance our assessment of the industry environment, our business outlook and the potential for further strategic expansion, while also prudently managing our business. We operate in two segments: North America and International.
When doing so, we seek to balance our assessment of the industry environment, our business outlook and the potential for further strategic expansion, while also prudently managing our business. 4 Table of Contents In 2024, we operated in two segments: North America and International.
As an Equal Employment Opportunity Employer, we are committed to providing opportunities to all employees and applicants and prohibiting discrimination and harassment.
We are committed to fostering a culture that is inclusive and representative of the communities where we operate. As an Equal Employment Opportunity Employer, we are committed to providing opportunities to all employees and applicants and prohibiting discrimination and harassment.
The following are some of the actions that we take to realize our commitment to equal opportunity employment: • Promote the consideration of a diverse slate of qualified candidates during the hiring process • Employ a uniform, global process for determining compensation based on experience and skill sets to remove potential biases • Conduct outreach with organizations in each of our local communities to increase the flow of minority, female, veteran and disabled applicants for employment • Analyze gender and minority pay equity regularly and adjust as warranted • Participate in external, community-based activities sponsored by local organizations, including those that assist women, minorities and veterans As part of ongoing efforts to provide transparency regarding initiatives to promote, track and measure our diversity, equity and inclusion efforts within our employee population, we disclosed additional metrics in our 2024 Corporate Social Values Report located on the Tempur Sealy Investor website at http://investor.tempursealy.com.
The following are some of the actions that we take to realize our commitment to equal opportunity employment: • Promote the consideration of a diverse slate of qualified candidates during the hiring process • Employ a uniform, global process for determining compensation based on experience and skill sets to remove potential biases • Conduct outreach with organizations in each of our local communities to increase the flow of minority, female, veteran and disabled applicants for employment • Analyze gender and minority pay equity regularly and adjust as warranted • Participate in external, community-based activities sponsored by local organizations, including those that assist women, minorities and veterans People Development and Training Our goal is to design and offer development opportunities that improve Company performance and meet employees' individual learning and development needs and strengthen our culture by reinforcing Company values.
Sleep Outfitters is a specialty mattress retailer that serves consumers across all price points with its extensive selection of Tempur-Pedic®, Sealy® and Stearns & Foster® products. We also operate Dreams®, which has developed a successful multi-channel sales strategy, with over 200 brick and mortar retail locations in the U.K., an industry-leading online channel, as well as manufacturing and delivery assets.
We also operate Dreams®, which has developed a successful multi-channel sales strategy, with over 200 brick and mortar retail locations in the U.K., an industry-leading online channel, as well as manufacturing and delivery assets.
The majority of our advertising programs are created on a centralized basis through our in-house marketing team. We plan to drive net sales through continued investments in new products, marketing and other initiatives. We advertise nationally on television, digitally and through consumer and trade print.
We plan to drive net sales through continued investments in new products, marketing and other initiatives. We advertise nationally on television, in digital media and through consumer and trade print. In addition, we participate in cooperative advertising on a shared basis with some of our retail customers.
We derive income from royalties by licensing Sealy®, Stearns & Foster® and Tempur® brands, technology and trademarks to other manufacturers. Under the license arrangements, licensees have the right to use certain trademarks and current proprietary and/or patented technology in designated jurisdictions. We also provide our licensees with product specifications, research and development, statistical services and marketing programs.
Under the license arrangements, licensees have the right to use certain trademarks and current proprietary and/or patented technology in designated jurisdictions. We also provide our licensees with product specifications, research and development, statistical services and marketing programs. For the year ended December 31, 2024, our licensing activities as a whole generated royalties of approximately $31.5 million.
Additionally, the U.S. bedding industry generally experiences increases in sales around holidays and promotional periods. Operations Manufacturing and Distribution In 2023, we opened our newest and largest state-of-the-art manufacturing facility in Crawfordsville, Indiana. The new facility has the capabilities to manufacture a wide variety of bedding products and components for branded and non-branded operations.
Sales in a particular quarter can also be impacted by competitive industry dynamics and global macroeconomic conditions. Additionally, the U.S. bedding industry generally experiences increases in sales around holidays and promotional periods. Operations Manufacturing and Distribution In 2023, we opened our newest and largest state-of-the-art manufacturing facility in Crawfordsville, Indiana.
Our executive leadership and board members believe that our success as an organization must be inclusive of our impact on our communities, employees, customers and environment. The Nominating and Corporate Governance Committee of our Board of Directors oversees our practices and positions relating to ESG issues.
Our executive leadership and board members believe that our success as an organization must be inclusive of our impact on our communities, employees, customers and environment. We believe that sound environmental, sustainability and corporate governance ("ESG") practices can help identify, manage and mitigate risks while contributing to the financial success of our business.
Going forward, we expect our strategy for opening additional locations of Tempur-Pedic® retail stores to continue targeting high traffic, premium locations that complement our existing distribution. In addition to our high-end Tempur-Pedic® retail stores, we operate Sleep Outfitters®, a regional bedding retailer that had over 100 stores in 2023.
Going forward, we expect our strategy for opening additional locations of Tempur-Pedic® retail stores to continue targeting high traffic, premium locations that complement our existing distribution. 6 Table of Contents In addition to our high-end Tempur-Pedic® retail stores, we operate Sleep Outfitters®, a specialty mattress retailer that serves consumers across all price points with its extensive selection of Tempur-Pedic®, Sealy® and Stearns & Foster® products.
The facility's Midwest location enables us to balance manufacturing and distribution in the region, allowing us to more efficiently service our customers and capture the projected long-term demand to support our rapidly growing OEM business. Our products are currently manufactured and distributed through our global network of facilities.
The facility has the capabilities to manufacture a wide variety of bedding products and components for branded and non-branded operations. The facility's Midwest location enables us to balance manufacturing and distribution in the region, allowing us to more efficiently service our customers and capture the projected long-term demand to support our OEM business.
Seasonality We believe that sales of products to furniture and bedding stores are typically subject to modest seasonality inherent in the bedding industry, with sales expected to be generally lower in the second and fourth quarters. Sales in a particular quarter can also be impacted by competitive industry dynamics and global macroeconomic conditions.
Throughout the year, we invested in a series of strategic marketing initiatives, which included new product introductions, advertising and in-store marketing investments. Seasonality We believe that sales of products to furniture and bedding stores are typically subject to modest seasonality inherent in the bedding industry, with sales expected to be generally lower in the second and fourth quarters.
We further expanded this initiative in 2022 with the opening of direct-to-consumer e-commerce platforms for Sealy® and Stearns & Foster® in the U.S. Marketing Our overall marketing strategy is to drive consumer demand through the use of effective marketing. We invest across multiple media platforms to build brand awareness and drive consumer interest in our products.
Marketing Our overall marketing strategy is to drive consumer demand through the use of effective marketing. We invest across multiple media platforms to build brand awareness and drive consumer interest in our products. The majority of our advertising programs are created on a centralized basis through our in-house marketing team.
The U.S. Consumer Product Safety Commission ("CPSC") has adopted rules relating to fire retardancy standards for the mattress industry. Many foreign jurisdictions also regulate fire retardancy standards. Future changes to these standards may require modifications to our products to comply with such changes.
The U.K. government has recently introduced a new draft framework law on product regulation which may have a similar impact. The U.S. Consumer Product Safety Commission ("CPSC") has adopted rules relating to fire retardancy standards for the mattress industry. Many foreign jurisdictions also regulate fire retardancy standards.
Patent and Trademark Office, as are many other of our registered trademarks and pending applications. Each U.S. trademark registration is renewable indefinitely as long as the trademark remains in use. We also own numerous trademarks, trade names, service marks, logos and design marks in the U.S. and a number of other countries, including Dreams and SOVA.
Tempur®, Tempur-Pedic®, Sealy®, Sealy Posturpedic® and Stearns & Foster® are our primary trademarks registered with the U.S. Patent and Trademark Office and various foreign trademark offices, as are many other of our registered trademarks and pending applications. Each U.S. trademark registration is renewable indefinitely as long as the trademark remains in use.
Intellectual Property Patents, Trademarks and Licensing We hold U.S. and foreign patents and patent applications regarding certain elements of the design and function of many of our mattress and pillow products.
Intellectual Property Patents, Trademarks and Licensing We hold over one thousand U.S. and foreign patents and patent applications regarding certain elements of the design and function of many of our mattress and pillow products. 8 Table of Contents As of December 31, 2024, we held thousands of trademark registrations worldwide, which we believe have significant value and are important to the marketing of our products to retailers and consumers.
These retail boutiques are strategically located in high traffic, premium retail centers with customer demographics that closely align to the Tempur-Pedic® customer profile. • Sleep Outfitters ® - Sleep Outfitters is a regional bedding retailer with locations across five states in the U.S.
These retail boutiques are strategically located in high traffic, premium retail centers with customer demographics that closely align to the Tempur-Pedic® customer profile. • SOVA - SOVA is a highly respected and well-established premium bedding chain in Sweden. Our stores are connected to the urban areas of Stockholm, Gothenburg and Malmö.
We have made and will continue to make expenditures necessary to comply with these requirements. Currently these expenditures are immaterial to our financial results. For a discussion of the risks associated with our compliance programs in connection with these regulations, please refer to "Risk Factors" under Part I, ITEM 1A of this Report.
For a discussion of the risks associated with our compliance programs in connection with these regulations, please refer to "Risk Factors" under Part I, ITEM 1A of this Report. Our principal waste products are foam and fabric scraps, wood, cardboard and other non-hazardous materials derived from product component supplies and packaging.
We encounter competition from a number of bedding manufacturers in both the highly concentrated domestic and highly fragmented international markets. Participants in each of these markets compete primarily on price, quality, brand name recognition, product availability and product performance.
The domestic market is highly concentrated, while the international market is highly fragmented and served by a large number of manufacturers, primarily operating on a regional and local basis. Participants in the global bedding industry offer a broad range of mattress, bed base and pillow products and compete primarily on price, quality, brand name recognition, product availability and product performance.
The retail brands named above are described below: • Tempur-Pedic ® retail stores - Tempur-Pedic® retail stores are designed for the consumers that prefer to purchase directly from the manufacturer, and for those seeking a more personalized and educational sales experience.
In addition to operating over 200 brick-and-mortar stores and an e-commerce channel throughout the U.K., Dreams also manufacturers the majority of the bedding products it sells in-house. • Tempur-Pedic ® retail stores - Tempur-Pedic® retail stores are designed for the consumers that prefer to purchase directly from the manufacturer, and for those seeking a more personalized and educational sales experience.
Bedding Producers methodology, which includes Stearns & Foster®. • Cocoon by Sealy TM - The Cocoon by Sealy brand, introduced in 2016, is our offering in the below $1,000 e-commerce space, made with the high quality materials that consumers expect from Sealy, sold online at www.cocoonbysealy.com and delivered in a box directly to consumers' doorsteps. • Non-Branded - Our non-branded product offerings include private label and OEM products, including mattresses, pillows and other bedding products and components at a wide range of price points.
Sleepy's competes in a space where customers look for quality and value and is positioned to provide high-quality mattresses, made from a wide range of materials, for the right price. • Non-Branded - Our non-branded product offerings include private label and OEM products, including mattresses, pillows and other bedding products and components at a wide range of price points.
Our International segment consists of manufacturing, distribution and retail subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico). Our principal executive office is located at 1000 Tempur Way, Lexington, Kentucky 40511 and our telephone number is (800) 878-8889.
Our principal executive office is located at 1000 Tempur Way, Lexington, Kentucky 40511 and our telephone number is (800) 878-8889. Somnigroup International Inc. was incorporated under the laws of the State of Delaware in September 2002.
The GDPR imposed ongoing compliance requirements on companies, including us, that process personal data from citizens resident in the EU. In addition, there are country-specific data privacy laws in Europe that impose additional requirements on data controllers and several of these laws are more stringent than the GDPR.
For example, the European Union ("EU") adopted the General Data Protection Regulation ("GDPR"). The GDPR imposed ongoing compliance requirements on companies, including us, that process personal data from citizens resident in the EU.
We also routinely introduce new mattress models, launch new products and update our existing mattress products in each of our segments. 4 Table of Contents In order to achieve our goal to improve the sleep of more people, every night, all around the world, one of our strategic initiatives is to leverage and strengthen our comprehensive portfolio of iconic brands and products.
In order to achieve our goal of enriching the lives and improving the health of people worldwide through the power of a good night's sleep, one of our strategic initiatives is to leverage and strengthen our comprehensive portfolio of iconic brands and products.
For the year ended December 31, 2023, our licensing activities as a whole generated royalties of approximately $32.3 million. 8 Table of Contents Governmental Regulation Our operations are subject to international, federal, state and local consumer protection and other regulations, primarily relating to the mattress and pillow industry.
Governmental Regulation Our operations are subject to international, federal, state and local consumer protection and other regulations, primarily relating to the mattress and pillow industry. These regulations vary among the states, countries and localities in which we do business.
For example, the UK is seeking to implement new regulations in October 2024, which will include measures to reduce the use of chemical fire retardants. We are also subject to environmental and health and safety requirements with regard to the manufacture of our products and the conduct of our operations and facilities.
We are also subject to environmental and health and safety requirements with regard to the manufacture of our products and the conduct of our operations and facilities. We have made and will continue to make expenditures necessary to comply with these requirements. Currently these expenditures are immaterial to our financial results.
Our Direct channel includes company-owned stores, online and call centers and represented 23.9% of net sales in 2023. The Direct channel growth rate has surpassed the Wholesale growth rate over the last few years, and we anticipate the Direct channel will continue to grow as a percentage of net sales in future years.
Our Direct channel includes company-owned stores, online and call centers and represented 24.9% of net sales in 2024. Following the acquisition of Mattress Firm, we expect over 60% of our global sales will be direct-to-consumer and no customer will represent more than 5% of global sales.
One of Tempur Sealy's long-term initiatives is to be wherever the consumer wants to shop, and our wholesale business strategy brings this key business initiative to life by growing our share with existing customers, gaining new business and expanding into new channels of distribution.
These channels align to the operating margin characteristics of our business and our marketplace. We drive growth in our Wholesale business by growing our share with existing customers, gaining new business, expanding into new channels of distribution and driving slot velocity.
Our distinct brands allow for complementary merchandising strategies at a range of price points. Our powerful distribution model operates through an omni-channel strategy. Our products are sold through third-party retailers, our more than 750 company-owned stores and our e-commerce platforms. We have a global manufacturing footprint with approximately 12,000 employees around the world.
Our powerful distribution and retail model operates through an omni-channel strategy. Somnigroup's combined global footprint includes approximately 2,800 retail stores, 30 e-commerce platforms, 71 manufacturing facilities and four state-of-the-art research and development facilities worldwide. Our combined operations are supported by more than 20,000 employees with a collective focus on providing breakthrough sleep solutions to consumers.
As a multi-branded retailer, Dreams sells a variety of products across a range of price points.
Mattress Firm is a leading retailer of brands including Tempur-Pedic®, Sealy®, Stearns & Foster®, Sleepy's®, Beautyrest®, Serta®, Simmons®, Purple® and other leading mattress brands. • Dreams ® - Dreams is the leading specialty bedding retailer in the United Kingdom ("U.K."). As a multi-branded retailer, Dreams sells a variety of products across a range of price points.
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ITEM 1. BUSINESS General We are committed to improving the sleep of more people, every night, all around the world. As a leading designer, manufacturer, distributor and retailer of bedding products, we know how crucial a good night of sleep is to overall health and wellness.
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ITEM 1. BUSINESS General Somnigroup is the world's largest bedding company, dedicated to enriching people's lives through the power of a good night's sleep. With superior capabilities in design, manufacturing, distribution and retail, we deliver breakthrough sleep solutions and serve the evolving needs of consumers in over 100 countries worldwide through our fully-owned businesses, Tempur Sealy, Mattress Firm and Dreams.
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Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers in over 100 countries. Our highly recognized brands include Tempur-Pedic®, Sealy® and Stearns & Foster® and our non-branded offerings include private label and original equipment manufacturer ("OEM") products.
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Our portfolio includes the most highly recognized brands in the industry, including Tempur-Pedic®, Sealy® and Stearns & Foster®, and our global omni-channel platform enables us to meet consumers wherever they shop, offering a personal connection and innovation to provide a unique retail experience and tailored solutions.
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Tempur Sealy International, Inc. was incorporated under the laws of the State of Delaware in September 2002.
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We seek to deliver long-term value for our shareholders through prudent capital allocation, including managing investments in our businesses. We are guided by our core value of Doing the Right Thing and committed to our global responsibility to protect the environment and the communities in which we operate.
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Sleep Outfitters is a specialty mattress retailer that serves consumers across a wide range of price points with its extensive selection of Tempur-Pedic®, Sealy® and Stearns & Foster® products. • Sleep Solutions Outlet ® - Sleep Solutions Outlet stores serve as a channel of high-quality comfort returns, as well as discontinued or factory close-out mattresses and bases.
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On February 5, 2025, we completed the previously announced acquisition of Mattress Firm, the nation's largest mattress specialty retailer. The total purchase price was approximately $5.1 billion. The transaction was funded by approximately $2.8 billion of cash consideration (subject to adjustments, including the repayment of Mattress Firm's debt and other customary items) and 34.2 million shares of common stock.
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There are a limited number of stores across the U.S. that sell these products, which reduces our disposal costs, and helps reduce the volume of products disposed of via landfill, thereby favorably impacting the environment. • Dreams ® - Dreams is the leading specialty bedding retailer in the United Kingdom ("U.K.").
Added
The cash payment was funded using a combination of cash on hand and proceeds from existing borrowings. Mattress Firm was founded in 1986 and operates over 2,200 brick and mortar retail locations and a growing e-commerce platform.
Removed
In addition to operating over 200 brick-and-mortar stores and an e-commerce channel throughout the U.K., Dreams also manufacturers the majority of the bedding products it sells in-house. 5 Table of Contents • SOVA - SOVA is a highly respected and well-established premium bedding chain in Sweden. Our stores are connected to the urban areas of Stockholm, Gothenburg and Malmö.
Added
Mattress Firm's highly trained retail sales associates provide personalized service to help consumers choose the ideal bedding products across their robust assortment of market-leading brands. Due to the close proximity of the Mattress Firm acquisition to the filing of this Report, our assessment of the newly acquired business remains ongoing as of the date of this Report.
Removed
This next-generation technology sets the standard for support, pressure relief and motion cancellation with Tempur material precisely responding to your body's weight, shape, and temperature in a way no other mattress does. This collection was designed to complement the Tempur-Pedic® Breeze collection and Tempur-Ergo® Smart Bases launched in 2023 and finishes the complete reset of our core Tempur lineup.
Added
We will incorporate information on the Mattress Firm business as required beginning in the first quarter of 2025. In connection with the closing of the Mattress Firm acquisition, we amended our Certificate of Incorporation to change our name to "Somnigroup International Inc." effective February 18, 2025.
Removed
In our International segment in 2024, we plan to complete the rollout of the new line of Tempur® products in over 90 markets through our wholly-owned subsidiaries and third-party distributors.
Added
The name Somnigroup reflects our position as a global holding company and provider of sleep solutions with a portfolio of bedding businesses. Somnigroup's purpose is to drive long-term shareholder returns through sustainable competitive advantages and disciplined capital allocation as we oversee our investments in the $120 billion global sleep industry.
Removed
This new line of products will broaden Tempur®'s price range, with the super-premium price point ceiling maintained and the floor expanded into the premium category to expand our global addressable market. Omni-Channel Distribution Our primary selling channels are Wholesale and Direct. These channels align to the operating margin characteristics of our business and our marketplace.
Added
From time to time, we also look at acquisition opportunities that could complement and strengthen our core business.
Removed
In addition, we participate in cooperative advertising on a shared basis with some of our retail customers. Throughout the year, we invested in a series of strategic marketing initiatives, which included new product introductions, advertising and in-store marketing investments.
Added
Our International segment consists of manufacturing, distribution and retail subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico). Following the acquisition of Mattress Firm and beginning in the first quarter of 2025, we will operate in three segments: Tempur Sealy North America, Tempur Sealy International and Mattress Firm.
Removed
The international market is served by a large number of manufacturers, primarily operating on a regional and local basis. These manufacturers offer a broad range of mattress and pillow products. Entry-level bedding imports from Asia began to significantly increase during 2018 and are competing against certain of our products in the U.S. market.
Added
Bedding Producers methodology, which includes Stearns & Foster®. • Sleepy's ™ - The Sleepy's brand is our private label brand offering at our Mattress Firm stores and online at www.mattressfirm.com.
Removed
In September 2018 and again in December 2019, petitions were filed with the U.S. International Trade Commission and the U.S. Department of Commerce, alleging that many of these imports were being dumped into the U.S. market at prices less than fair value. As a result of the petitions, the U.S.
Added
The retail brands named above are described below: • Mattress Firm ® - Mattress Firm is the leading multi-branded mattress specialty retailer in the U.S., helping to make better sleep a reality by matching consumers to their perfect mattress through its highly trained team of Sleep Experts® across its 2,200 stores and robust online operations.
Removed
Department of Commerce issued anti-dumping duty orders on December 16, 2019 for the 2018 petition and on May 14, 2021 for the 2019 petition and the U.S. International Trade Commission affirmed a range of tariffs on these imports.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThere are a number of risks that are inherent in our new product line introductions, including that the anticipated level of market acceptance may not be realized, which could negatively impact our sales. Further, introduction costs and manufacturing inefficiencies may be greater than anticipated, while the rollout of the product could be delayed, each of which could impact profitability.
Biggest changeThe new collection incorporates innovative technologies, including our proprietary PrecisionFit™ coils that deliver superior support and exceptional comfort. There are a number of risks that are inherent in our new product line introductions, including that the anticipated level of market acceptance may not be realized, which could negatively impact our sales.
Such events have resulted in and in the future could result in operational slowdowns, shutdowns or other difficulties; loss of sales, revenues or market share; compromise or loss of sensitive or proprietary information, including the misappropriation of our customers' or employees' personal information; destruction or corruption of data, including valuable business data; costs of remediation, upgrades, repair or recovery; breaches of obligations to third parties under privacy laws or contracts; exhaustion of insurance coverage and increased insurance premiums; fines or lawsuits; or other damage to our reputation or customer relationships; each of which, depending on the extent or duration of the event, could materially and adversely impact our business, operating results or financial condition.
Such events have resulted, and in the future could result, in operational slowdowns, shutdowns or other difficulties; loss of sales, revenues or market share; compromise or loss of sensitive or proprietary information, including the misappropriation of our customers' or employees' personal information; destruction or corruption of data, including valuable business data; costs of remediation, upgrades, repair or recovery; breaches of obligations to third parties under privacy laws or contracts; exhaustion of insurance coverage and increased insurance premiums; fines or lawsuits; or other damage to our reputation or customer relationships; each of which, depending on the extent or duration of the event, could materially and adversely impact our business, operating results or financial condition.
We may not be in complete compliance with any such requirements, or at all times, and though we have made and will continue to make expenditures to comply these regulatory requirements, violation of any of them or failure to comply could expose us to liability, subject us to monetary liabilities and could harm our business, reputation and financial condition.
We may not be in complete compliance with any such requirements, or at all times, and though we have made and will continue to make expenditures to comply with these regulatory requirements, violation of any of them or failure to comply could expose us to liability, subject us to monetary liabilities and could harm our business, reputation and financial condition.
Our degree of leverage could have important consequences, such as: • increasing our vulnerability to adverse economic, industry or competitive developments; • requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and other business opportunities; • making it more difficult for us to satisfy the obligations related to our indebtedness; • restricting us from making strategic acquisitions or investments or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, including the pending Mattress Firm acquisition, and general corporate or other purposes; • limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate; • exposing us to variability in interest rates, as a substantial portion of our indebtedness is and will be at variable rates; and • limiting our ability to return capital to our stockholders, including through share repurchases and dividends.
Our degree of leverage could have important consequences, such as: • increasing our vulnerability to adverse economic, industry or competitive developments; • requiring a substantial portion of our cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and other business opportunities; • making it more difficult for us to satisfy the obligations related to our indebtedness; • restricting us from making strategic acquisitions or investments or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions, such as the Mattress Firm acquisition, and general corporate or other purposes; • limiting our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate; • exposing us to variability in interest rates, as a substantial portion of our indebtedness is and will be at variable rates; and • limiting our ability to return capital to our stockholders, including through share repurchases and dividends.
We, and our products, are subject to extensive regulation in the U.S. by various federal, state and local regulatory authorities, including the FTC, the Consumer Product Safety Commission ("CPSC") and the U.S. Food and Drug Administration, and by similar international regulatory regimes.
We, and our products, are subject to extensive regulation in the U.S. by various federal, state and local regulatory authorities, including the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission ("CPSC") and the U.S. Food and Drug Administration, and by similar international regulatory regimes.
We depend on the continued services of our executive management team, whose average tenure with the Company is 15 years. Our executive team's leadership experience provides us with a competitive advantage, as the team sets clear initiatives for the organization and enhances high-performing teams by empowering them to act quickly, especially during challenging periods.
We depend on the continued services of our executive management team, whose average tenure with the Company is 17 years. Our executive team's leadership experience provides us with a competitive advantage, as the team sets clear initiatives for the organization and enhances high-performing teams by empowering them to act quickly, especially during challenging periods.
Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we are authorized to repurchase shares of our common stock. The share repurchase program may be suspended or terminated at any time. From 2016 through December 31, 2023, we had repurchased an aggregate of 55.3 million shares for approximately $2,388.9 million under our share repurchase program.
Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we are authorized to repurchase shares of our common stock. The share repurchase program may be suspended or terminated at any time. From 2016 through December 31, 2024, we had repurchased an aggregate of 55.3 million shares for approximately $2,388.9 million under our share repurchase program.
Approximately 15% of our employees are represented by various labor unions with separate collective bargaining agreements or government labor union contracts for certain international locations. Our North American collective bargaining agreements, which are typically three years in length, expire at various times during any given three year period.
Approximately 16% of our employees are represented by various labor unions with separate collective bargaining agreements or government labor union contracts for certain international locations. Our North American collective bargaining agreements, which are typically three years in length, expire at various times during any given three-year period.
If we were unable to maintain the proprietary nature of our intellectual property and our significant current or proposed products, this loss of a competitive advantage could result in decreased sales or increased operating costs, either of which would decrease our liquidity and profitability.
If we are unable to maintain the proprietary nature of our intellectual property and our significant current or proposed products, this loss of a competitive advantage could result in decreased sales or increased operating costs, either of which would decrease our liquidity and profitability.
Given the significance of the cost of these materials to our products, volatility in the prices of the underlying commodities has and will significantly affect profitability. The global economy continues to experience high rates of inflation, and inflationary pressure and price uncertainty may continue in 2024.
Given the significance of the cost of these materials to our products, volatility in the prices of the underlying commodities has and will significantly affect profitability. The global economy continues to experience high rates of inflation, and inflationary pressure and price uncertainty may continue in 2025.
The performance of our business depends upon a number of factors, including the following: • our ability to continuously improve our products to offer new and enhanced consumer benefits and better quality; • the ability of our current and future product launches to increase net sales; • the effectiveness of our advertising campaigns and other marketing programs to build product and brand awareness, driving traffic to our distribution channels and increasing sales; • our ability to successfully launch new products; • our ability to compete in the mattress and pillow industry; • our ability to continue to expand into new distribution channels and optimize our existing channels; • our ability to continue to successfully execute our strategic initiatives; • our ability to manage growth and limit cannibalization associated with new or expanded supply agreements; • our ability to reduce costs, including the level of consumer acceptance of our products at optimal price points; • our ability to successfully mitigate the impact of headwinds facing our business, including increased commodity prices and the influx of low-end, imported beds that compete with certain of our products; • our ability to pursue, successfully integrate and capture the synergies from potential acquisition opportunities, including the pending Mattress Firm acquisition; and • general economic factors that impact consumer confidence, disposable income or the availability of consumer financing.
The performance of our business depends upon a number of factors, including the following: • our ability to continuously improve our products to offer new and enhanced consumer benefits and better quality; • the ability of our current and future product launches to increase net sales; • the effectiveness of our advertising campaigns and other marketing programs to build product and brand awareness, driving traffic to our distribution channels and increasing sales; • our ability to successfully launch new products; • our ability to compete in the mattress and pillow industry; • our ability to continue to expand into new distribution channels and optimize our existing channels; • our ability to continue to successfully execute our strategic initiatives; • our ability to manage growth and limit cannibalization associated with new or expanded supply agreements; • our ability to reduce costs, including the level of consumer acceptance of our products at optimal price points; • our ability to successfully mitigate the impact of headwinds facing our business, including increased commodity prices and the influx of low-end, imported beds that compete with certain of our products; • our ability to pursue, successfully integrate and capture the synergies from potential acquisition opportunities, such as the Mattress Firm acquisition; • general economic factors that impact consumer confidence, disposable income or the availability of consumer financing; and • our ability to successfully open new stores and profitably operate existing stores.
We participate in several plans which are in the Red Zone for 2023. A plan is in the Red Zone (Critical) if it has a current funded percentage of less than 65.0%.
We participate in several plans which are in the Red Zone for 2024. A plan is in the Red Zone (Critical) if it has a current funded percentage of less than 65.0%.
In 2023, foreign currency exchange rate changes positively impacted our net income by approximately 1.5% and positively impacted adjusted EBITDA, which is a non-GAAP financial measure, by approximately 0.8%. Changes in foreign currency exchange rates could have an adverse impact on our financial condition, results of operations and cash flows.
In 2024, foreign currency exchange rate changes positively impacted our net income by approximately 0.1% and positively impacted adjusted EBITDA, which is a non-GAAP financial measure, by approximately 0.1%. Changes in foreign currency exchange rates could have an adverse impact on our financial condition, results of operations and cash flows.
Deterioration in labor relations could disrupt our business operations and increase our costs, which could decrease our liquidity and profitability. As of December 31, 2023, we had approximately 12,000 full-time employees. Our joint ventures also employ approximately 1,500 full-time employees.
Deterioration in labor relations could disrupt our business operations and increase our costs, which could decrease our liquidity and profitability. As of December 31, 2024, we had approximately 12,000 full-time employees. Our joint ventures also employ approximately 1,550 full-time employees.
Regulatory, Legal and Financial Risks We may be adversely affected by fluctuations in exchange rates, which could affect our results of operations, the costs of our products and our ability to sell our products in foreign markets. Approximately 27.7% of our net sales were generated outside of the U.S. in 2023.
Regulatory, Legal and Financial Risks We may be adversely affected by fluctuations in exchange rates, which could affect our results of operations, the costs of our products and our ability to sell our products in foreign markets. Approximately 29.2% of our net sales were generated outside of the U.S. in 2024.
We generated approximately 27.7% of our net sales outside of the U.S. in the year ended December 31, 2023. We operate through multiple wholly owned subsidiaries and we also participate in international license and joint venture arrangements with independent third parties.
We generated approximately 29.2% of our net sales outside of the U.S. in the year ended December 31, 2024. We operate through multiple wholly owned subsidiaries and we also participate in international license and joint venture arrangements with independent third parties.
We recently announced an increase in our quarterly dividend to $0.13 per share, effective for the first quarter of 2024.
We recently announced an increase in our quarterly dividend to $0.15 per share, effective for the first quarter of 2025.
For further discussion regarding our debt covenants and compliance, refer to "Management's Discussion and Analysis" included in Part II, ITEM 7 of this Report and Note 6, "Debt," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report.
For further discussion regarding our debt covenants and compliance and the acquisition of Mattress Firm, refer to "Management's Discussion and Analysis" included in Part II, ITEM 7 of this Report, Note 6, "Debt," and Note 3, "Acquisitions and Divestitures," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report.
We expect to complete the multi-year refresh of Tempur-Pedic® products in 2024 with a new portfolio of Tempur-Pedic® Adapt mattresses and accessories in North America in 2024. This collection was designed to complement the Tempur-Pedic® Breeze collection and Tempur-Ergo® Smart Bases launched in 2023 and finishes the complete reset of our core Tempur lineup.
In 2024, we completed the launch of a new portfolio of Tempur-Pedic® Adapt mattresses in our North America segment. This collection was designed to complement the Tempur-Pedic® Breeze collection and Tempur-Ergo® Smart Bases launched in 2023 and finishes the complete reset of our core Tempur® lineup.
We can provide no assurance that these divestiture obligations, conditions, terms, obligations or restrictions will not result in the abandonment of the merger and termination of the Merger Agreement. Risks related to operating our business The performance of our business depends on our ability to implement strategic initiatives and actions taken to increase sales growth may not be effective.
Risks related to operating our business The performance of our business depends on our ability to implement strategic initiatives and actions taken to increase sales growth may not be effective.
For the year ended and as of December 31, 2023, we repurchased an aggregate of $5.0 million of shares under our share repurchase program and had approximately $774.5 million remaining under the share repurchase authorization. Upon the announcement of our pending acquisition of Mattress Firm, we suspended our share repurchase program.
For the year ended and as of December 31, 2024, we did not repurchase shares under our share repurchase program and had approximately $774.5 million remaining under the share repurchase authorization. While the Mattress Firm acquisition was pending, we temporarily suspended our share repurchase program, and currently expect to allocate unused cash flows toward repayment of debt.
We rely significantly on information technology ("IT") and we have experienced and in the future could experience cyber-based attacks which have and in the future could harm our ability to effectively operate our business.
Further, introduction costs and manufacturing inefficiencies may be greater than anticipated, while the rollout of the product could be delayed, each of which could impact profitability. We rely significantly on IT and we have experienced, and in the future could experience, cyber-based attacks which have and in the future could harm our ability to effectively operate our business.
We operate in the ordinary course of our business with a certain amount of leverage.
We operate in the ordinary course of our business with a certain amount of leverage, including debt incurred to close the acquisition of Mattress Firm on February 5, 2025.
Additionally, changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad, could materially impact our business. We are subject to various regulatory requirements, including, but not limited to, trade, environmental, health and safety requirements, any violation of which may require costly expenditures and expose us to liability.
If we are unable to mitigate these risks through supply chain adjustments, pricing strategies or other measures, our financial performance and growth prospects could be negatively affected. We are subject to various regulatory requirements, including, but not limited to, trade, environmental, health and safety requirements, any violation of which may require costly expenditures and expose us to liability.
Removed
In order to consummate the previously disclosed, pending merger with Mattress Firm, we and Mattress Firm must obtain certain governmental approvals, and if such approvals are not granted or are granted with conditions, consummation of the merger may be jeopardized, may not occur or may be delayed, or the anticipated benefits of the merger may not be achieved.
Added
The acquisition of Mattress Firm may not be as successful as anticipated, and we may not achieve the intended benefits or do so within the intended timeframe. The success of our acquisition of Mattress Firm will depend, in large part, on our ability to realize the anticipated benefits from combining our business with Mattress Firm.
Removed
On May 9, 2023, we entered into an Agreement and Plan of Merger (the "Merger Agreement") to acquire Mattress Firm Group Inc. ("Mattress Firm").
Added
Our ability to realize these anticipated benefits depends on the successful merger of our business with Mattress Firm, which will be complex and time-consuming. This merger will involve numerous operational, strategic, financial, accounting, legal, tax and other risks, including potential liabilities associated with Mattress Firm's business.
Removed
Although we and Mattress Firm have agreed to use reasonable best efforts to make certain governmental filings and obtain the required governmental approvals, including from the Federal Trade Commission ("FTC"), and to observe the expiration and termination of relevant waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (the "HSR Act"), there can be no assurance that the relevant approvals will be obtained.
Added
Difficulties in combining the business of Mattress Firm and our ability to manage the combined company may result in the combined company performing differently than expected, in operational challenges or in the delay or failure to realize anticipated expense-related operating synergies and could have an adverse effect on our business and financial results.
Removed
In the fourth quarter of 2023, we announced that we certified substantial compliance with the FTC’s second request for documents pursuant to the HSR Act, in connection with the merger.
Added
Potential difficulties that may be encountered in the merger process include, among other factors: • the inability to successfully merge the business of Mattress Firm, operationally and culturally, in a manner that permits us to achieve the financial results anticipated; • the inability to deliver on our strategy as a combined company, including the expansion of consumer touchpoints and acceleration of our U.S. omni-channel strategy; • complexities associated with managing a larger, more complex business, including the potential diversion of management's attention; • not realizing anticipated operating synergies; • the inability to retain key employees and otherwise combine personnel from the two companies; • potential unknown liabilities and unforeseen expenses; • merging relationships with customers, suppliers, distributors and business partners; • performance shortfalls at one or both of the companies as a result of the diversion of management's attention caused by merging Mattress Firm's operations; and • the disruption of, or the loss of momentum in, each company's ongoing business or inconsistencies in standards, controls, procedures and policies.
Removed
The governmental entities from which these approvals are required have broad discretion in administering the governing laws and regulations, and may take into account various facts and circumstances in their consideration of the merger. These governmental entities may initiate proceedings seeking to prevent, or otherwise seek to prevent, the merger.
Added
In our International segment in 2024, we completed the rollout of the new line of Tempur® products in over 90 markets through our wholly-owned subsidiaries and third-party distributors. This new line of products will broaden Tempur®'s price range with the super-premium price point ceiling maintained and the floor expanded into the premium category to broaden our global addressable market.
Removed
As a condition to approving the merger, these governmental entities may impose conditions, terms, obligations or restrictions or require divestitures or place restrictions on the conduct of our business after consummation of the merger.
Added
In 2025, we are launching an all-new collection of Sealy Posturepedic® products in North America. This reinvention of the Sealy Posturepedic® brand is strategically aimed at reigniting growth in the mid-to-entry level market, which has experienced outsized pressures relative to other price points in recent years.
Removed
As further described in the Merger Agreement, we have agreed to take certain divestiture actions and agree to certain other obligations or commitments in connection with the consummation of the merger if reasonably likely to permit consummation of the merger, provided that we are not required to take any divestiture actions in excess of an agreed amount specified in the Merger Agreement or if such actions, commitments and divestitures individually or in the aggregate would or would reasonably be expected to have a material and adverse impact on our business or the business of Mattress Firm or the anticipated benefits to the Company of the merger.
Added
Changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad, could materially impact our business. In particular, the imposition of new tariffs or increases in existing tariffs on products imported from countries where our suppliers operate increase the costs for raw materials and finished goods.
Removed
While we are pursuing the divestiture of certain of our and Mattress Firm’s stores, the progress of such process may change and there can be no assurance that we will successfully complete this process on the expected timing or at all.
Added
These cost increases reduce our margins and may require us to raise prices, or make our products less competitive in the marketplace.
Removed
There can be no assurance that governmental entities will not impose the aforementioned divestiture obligations, conditions, terms, obligations or restrictions and that such divestiture obligations, conditions, terms, obligations or restrictions will not have the effect of delaying or preventing consummation of the merger or imposing additional material costs on or limiting the benefits of the merger to the Company, or otherwise adversely affecting, including to a material extent, our business, results of operations and financial condition after consummation of the merger.
Added
In addition, other countries may change their business and trade policies in anticipation of or in response to increased import tariffs and other changes in trade policy and regulations already enacted or that may be enacted in the future.
Removed
If we are required to divest assets or businesses, there can be no assurance that we will be able to negotiate such divestitures expeditiously or on favorable terms or that the governmental entities will approve the terms of such divestitures.
Removed
In 2023, we launched our refreshed Stearns & Foster® product line and a new line of Tempur® mattresses internationally. We also launched a new portfolio of Tempur-Pedic® Breeze mattresses and Tempur-Ergo® Smart Bases in 2023.
Removed
Because we depend on certain significant customers, a decrease or interruption in their business with us would reduce our sales and results of operations. Our top five customers, collectively, accounted for approximately 32% of our net sales in 2023, and Mattress Firm contributed over 15%.
Removed
If we are successful in closing the pending Mattress Firm acquisition, our significant customer concentration will be significantly reduced. There have been signs of deterioration in the U.S. retail sector, both nationally and regionally, including among our competitors.
Removed
Some additional retailers that carry our products, as well as some of our competitors, may consolidate, undergo restructurings or reorganizations, may be acquired, experience financial difficulty or bankruptcy, or realign their affiliations, any of which could decrease the number of stores that carry our products, increase the ownership concentration in the retail industry or otherwise negatively impact the credit and retail environments in which we operate.
Removed
An increase in the concentration of our sales to large customers may negatively affect our profitability due to the impact of volume and other incentive programs related to these customers. Furthermore, if sales to our large customers grow, our credit exposure to these customers may also increase.
Removed
Some of these retailers may decide to carry only a limited number of brands of mattress products, which could affect our ability to sell products to them on favorable terms, if at all. A substantial decrease or interruption in business from these significant customers could result in the loss of future business and could reduce revenue, liquidity and profitability.
Removed
UNRESOLVED STAFF COMMENTS None. 11 Table of Contents

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

7 edited+1 added−2 removed10 unchanged
Biggest changeFollowing a forensic investigation in connection with the incident, we concluded there was no material impact to our financial results for the year ended 2023. We also implemented additional security measures following the incident, such as stronger privileged access policies and enhanced and expanded multi-factor authentication to help prevent unauthorized access to our systems.
Biggest changeWe also implemented additional security measures following the previously disclosed cybersecurity incident of July 2023, such as stronger privileged access policies and enhanced and expanded multi-factor authentication to help prevent unauthorized access to our systems.
Risk Management and Strategy Enterprise Risk Management. We utilize an enterprise risk management process undertaken on an ongoing basis pursuant to which we seek to identify various enterprise risks related to product safety and regulatory, global environmental exposure, site environmental matters, IT system interruption and cybersecurity, supply chain matters, business continuity, health and safety incidents, and other matters.
We utilize an enterprise risk management process undertaken on an ongoing basis pursuant to which we seek to identify various enterprise risks related to product safety and regulatory, global environmental exposure, site environmental matters, IT system interruption and cybersecurity, supply chain matters, business continuity, health and safety incidents and other matters.
We have established an information security policy and incident response and crisis management plans. We continue to regularly test and evaluate the effectiveness of those plans. Our incident response and crisis management plans address and guide our employees, management and the Board on our response to a cybersecurity incident. Education and Awareness.
Incident Response and Recovery Planning. We have established an information security policy and incident response and crisis management plans. We continue to regularly test and evaluate the effectiveness of those plans. Our incident response and crisis management plans address and guide our employees, management and the Board on our response to a cybersecurity incident. Education and Awareness.
We address cybersecurity risks and threats through a strategic program based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework. Our dedicated cybersecurity team oversees and implements our cybersecurity management program, compliance with applicable legal and third-party data protection and data privacy requirements, and our incident response and crisis management plans. Incident Response and Recovery Planning.
We address cybersecurity risks and threats through a strategic program based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework. Our dedicated cybersecurity team oversees and implements our cybersecurity 12 Table of Contents management program, compliance with applicable legal and third-party data privacy requirements and our incident response and crisis management plans.
We maintain a comprehensive process for assessing, identifying and managing material risks from cybersecurity threats, including risks relating to disruption of business operations or financial reporting systems, intellectual property theft; fraud; violation of privacy laws and other litigation and legal risk; and reputational risk, as part of our overall risk management system and processes.
We maintain a comprehensive process for assessing, identifying and managing material risks from cybersecurity threats, including risks relating to disruption of business operations or financial reporting systems; intellectual property theft; fraud; violation of data privacy laws and other litigation and legal risk; reputational risk; and risks associated with our use of third-party service providers, as part of our overall risk management system and processes.
Our CIO and IT management team also receive regular training and education on cybersecurity-related topics.
Our CIO and IT management team also receive regular training and education on cybersecurity-related topics. 13 Table of Contents
These updates address a range of topics, including updates on technology trends, policies and practices, and specific and ongoing efforts to prevent, detect and respond to internal and external critical threats. 12 Table of Contents Management's Role.
The Audit Committee receives a cybersecurity update at each of its quarterly meetings from our Senior Vice President, Chief Information Officer ("CIO") or management. These updates address a range of topics, including updates on technology trends, policies and practices, and specific and ongoing efforts to prevent, detect and respond to internal and external critical threats. Management's Role.
Removed
ITEM 1C. CYBERSECURITY Cybersecurity Incident Impact We have experienced, and expect to continue to experience, cyber threats and incidents. As previously disclosed, on July 23, 2023, we experienced a cybersecurity incident affecting certain of our data and IT systems. As a result of the cybersecurity incident, we incurred $14.3 million of costs in connection with this event.
Added
ITEM 1C. CYBERSECURITY Risk Management and Strategy Enterprise Risk Management.
Removed
The Audit Committee receives a cybersecurity update at each of its quarterly meetings from our Senior Vice President, Chief Information Officer ("CIO") or management.

Item 2. Properties

Properties — owned and leased real estate

1 edited+0 added−0 removed4 unchanged
Biggest changeITEM 2. PROPERTIES The following table sets forth certain information regarding our principal facilities by segment, which have been aggregated by principal manufacturing entity, at December 31, 2023.
Biggest changeITEM 2. PROPERTIES The following table sets forth certain information regarding our principal facilities by segment, which have been aggregated by principal manufacturing entity, at December 31, 2024.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed0 unchanged
Biggest changeITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings can be found in Note 12, "Commitments and Contingencies," of the Notes to the Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, "Financial Statements and Supplementary Data," and is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES None. PART II 13 Table of Contents
Biggest changeITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings can be found in Note 12, "Commitments and Contingencies," of the Notes to the Consolidated Financial Statements, included in Part II, ITEM 8 of this Report, "Financial Statements and Supplementary Data," and is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES None. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+2 added−2 removed5 unchanged
Biggest changeThe following table sets forth purchases of our common stock for the three months ended December 31, 2023: Period (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares purchased as part of publicly announced plans or programs (d) Maximum number of shares (or approximate dollar value of shares) that may yet be purchased under the plans or programs (in millions) October 1, 2023 - October 31, 2023 — $— — $774.5 November 1, 2023 - November 30, 2023 — $— — $774.5 December 1, 2023 - December 31, 2023 — $— — $774.5 Total — — Equity Compensation Plan Information Equity compensation plan information required by this Item is incorporated by reference from Part III, ITEM 12 of this Report. 14 Table of Contents Performance Graph The following Performance Graph and related information shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
Biggest changeThe following table sets forth purchases of our common stock for the three months ended December 31, 2024: Period (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares purchased as part of publicly announced plans or programs (d) Maximum number of shares (or approximate dollar value of shares) that may yet be purchased under the plans or programs (in millions) October 1, 2024 - October 31, 2024 — $— — $774.5 November 1, 2024 - November 30, 2024 — $— — $774.5 December 1, 2024 - December 31, 2024 — $— — $774.5 Total — — Equity Compensation Plan Information Equity compensation plan information required by this Item is incorporated by reference from Part III, ITEM 12 of this Report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Registrant’s Common Equity Our sole class of common equity is our $0.01 par value common stock, which trades on the New York Stock Exchange ("NYSE") under the symbol "TPX." Trading of our common stock commenced on the NYSE on December 18, 2003.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Registrant’s Common Equity Our sole class of common equity is our $0.01 par value common stock, which commenced trading on the New York Stock Exchange ("NYSE") under the symbol "TPX" on December 18, 2003.
However, payment of future dividends, and the timing and amount thereof, will be at the discretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements, legal requirements and other factors that our Board of Directors deems relevant.
However, payment of future dividends, and the timing and amount thereof, will be at the discretion of our Board of Directors and will depend on our 14 Table of Contents earnings, operating and financial condition, capital requirements, legal requirements and other factors that our Board of Directors deems relevant.
Repurchases may be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when we might otherwise be precluded from doing so under federal securities laws.
The program does not require the repurchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice. Repurchases may be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when we might otherwise be precluded from doing so under federal securities laws.
In 2023, Capri Holdings Limited, Levi Strauss & Corporation, PVH Corporation, and Skechers U.S.A., Incorporated were added to the peer group, while Herman Miller, Incorporated, La-Z-Boy Incorporated, and Steelcase Incorporated were removed since they no longer meet our market capitalization criteria. 2023 Peer Group Brunswick Corporation (BC) Hasbro, Inc. (HAS) Skechers U.S.A., Inc.
In 2024, Mohawk Industries Inc. was added to the peer group, while Sleep Number Corporation was removed since they no longer meet our revenue and business comparability criteria. 15 Table of Contents 2024 Peer Group Brunswick Corporation (BC) Hasbro, Inc. (HAS) RH (RH) Capri Holdings Limited (CPRI) Leggett & Platt, Incorporated (LEG) Skechers U.S.A., Inc. (SKX) Carter's, Inc.
During the year ended December 31, 2023, we had repurchased 0.1 million shares, under the share repurchase program, for approximately $5.0 million and had approximately $774.5 million remaining under the program. Share repurchases under this program may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as management deems appropriate.
Share repurchases under this program may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, financing, regulatory requirements and other market conditions.
Prior to that time, there was no public trading market for our common stock. As of February 12, 2024, we had approximately 60 stockholders of record of our common stock. Dividends In February 2024, our Board of Directors declared a cash dividend of $0.13 per share on our common stock.
Prior to that time, there was no public trading market for our common stock. On February 18, 2025, our common stock began trading on the NYSE under the symbol "SGI" in connection with our name change to Somnigroup International Inc. As of February 25, 2025, we had approximately 152 stockholders of record of our common stock.
(HBI) RH (RH) 2022 Peer Group Brunswick Corporation (BC) Hasbro, Inc. (HAS) RH (RH) Carter's, Inc. (CRI) Herman Miller, Inc. (MLHR) Sleep Number Corporation (SNBR) Columbia Sportswear Company (COLM) La-Z-Boy Incorporated (LZB) Steelcase Inc. (SCS) Deckers Outdoor Corporation (DECK) Leggett & Platt, Incorporated (LEG) Tapestry, Inc. (TPR) Gildan Activewear Inc. (GIL) Polaris Industries Inc. (PII) Under Armour, Inc.
(CRI) Levi Strauss & Co. (LEVI) Tapestry, Inc. (TPR) Columbia Sportswear Company (COLM) Mohawk Industries Inc. (MHK) Under Armour, Inc. (UA) Deckers Outdoor Corporation (DECK) Polaris Industries Inc. (PII) Williams-Sonoma, Inc. (WSM) Gildan Activewear Inc. (GIL) PVH Corp. (PVH) Hanesbrands Inc. (HBI) Ralph Lauren Corporation (RL) 2023 Peer Group Brunswick Corporation (BC) Hasbro, Inc. (HAS) Skechers U.S.A., Inc.
The dividend is payable on March 7, 2024 to shareholders of record on the close of business February 22, 2024.
Dividends In February 2025, our Board of Directors declared a cash dividend of $0.15 per share on our common stock. The dividend is payable on March 20, 2025 to shareholders of record on the close of business March 6, 2025.
(WSM) 15 Table of Contents 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Tempur Sealy International, Inc. $ 100.00 $ 210.29 $ 260.87 $ 458.08 $ 339.18 $ 509.01 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 S&P 400 Consumer Discretionary 100.00 126.57 165.80 211.70 167.18 207.78 2022 Peer Group 100.00 124.19 132.04 161.94 118.89 143.77 2023 Peer Group 100.00 124.18 130.37 162.79 121.36 145.99 ITEM 6. [RESERVED]
(HBI) RH (RH) 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Somnigroup International Inc. $ 100.00 $ 124.05 $ 217.83 $ 161.29 $ 242.05 $ 271.90 S&P 500 100.00 118.40 152.39 124.79 157.59 197.02 S&P 400 Consumer Discretionary 100.00 130.99 167.26 132.09 164.16 179.62 2023 Peer Group 100.00 102.87 128.29 93.16 108.24 131.69 2024 Peer Group 100.00 101.24 124.37 90.58 100.69 113.79 16 Table of Contents ITEM 6. [RESERVED]
Removed
The timing and actual number of shares repurchased will depend on a variety of factors including price, financing, regulatory requirements and other market conditions. The program does not require the repurchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice.
Added
During the year ended December 31, 2024, we did not repurchase shares under the program while the Mattress Firm acquisition was pending. We had approximately $774.5 million remaining under the share repurchase program as of December 31, 2024.
Removed
(UA) Hanesbrands Inc. (HBI) Ralph Lauren Corporation (RL) Williams-Sonoma, Inc.
Added
Performance Graph The following Performance Graph and related information shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

103 edited+34 added−30 removed56 unchanged
Biggest changeRefer to Part II, ITEM 7A of this Report for a discussion of our foreign currency exchange rate risk. 19 Table of Contents The following table sets forth the various components of our Consolidated Statements of Income and expresses each component as a percentage of net sales: (in millions, except percentages and Year Ended December 31, per common share amounts) 2023 2022 Net sales $ 4,925.4 100.0 % $ 4,921.2 100.0 % Cost of sales 2,796.7 56.8 2,871.6 58.4 Gross profit 2,128.7 43.2 2,049.6 41.6 Selling and marketing expenses 1,063.4 21.6 992.5 20.2 General, administrative and other expenses 481.1 9.8 397.6 8.1 Equity income in earnings of unconsolidated affiliates (23.0) (0.5) (21.1) (0.4) Operating income 607.2 12.3 680.6 13.8 Other expense, net: Interest expense, net 129.9 2.6 103.0 2.1 Loss on extinguishment of debt 3.2 0.1 — — Other expense, net — — 0.4 — Total other expense, net 133.1 2.7 103.4 2.1 Income from continuing operations before income taxes 474.1 9.6 577.2 11.7 Income tax provision (103.4) (2.1) (119.0) (2.4) Income from continuing operations 370.7 7.5 458.2 9.3 Loss from discontinued operations, net of tax — — (0.4) — Net income before non-controlling interest 370.7 7.5 457.8 9.3 Less: Net income attributable to non-controlling interest 2.6 0.1 2.1 — Net income attributable to Tempur Sealy International, Inc. $ 368.1 7.5 % $ 455.7 9.3 % Earnings per common share: Basic Earnings per share for continuing operations $ 2.14 $ 2.61 Loss per share for discontinued operations — — Earnings per share $ 2.14 $ 2.61 Diluted Earnings per share for continuing operations $ 2.08 $ 2.53 Loss per share for discontinued operations — — Earnings per share $ 2.08 $ 2.53 Weighted average common shares outstanding: Basic 172.2 174.9 Diluted 177.3 180.3 20 Table of Contents NET SALES Year Ended December 31, Consolidated North America International (in millions) 2023 2022 2023 2022 2023 2022 Net sales by channel Wholesale $ 3,746.1 $ 3,772.5 $ 3,348.2 $ 3,390.1 $ 397.9 $ 382.4 Direct 1,179.3 1,148.7 507.3 496.0 672.0 652.7 Total net sales $ 4,925.4 $ 4,921.2 $ 3,855.5 $ 3,886.1 $ 1,069.9 $ 1,035.1 Net sales increased 0.1% (including on a constant currency basis).
Biggest changeThe following table sets forth the various components of our Consolidated Statements of Income and expresses each component as a percentage of net sales: (in millions, except percentages and Year Ended December 31, per common share amounts) 2024 2023 Net sales $ 4,930.9 100.0 % $ 4,925.4 100.0 % Cost of sales 2,750.8 55.8 2,796.7 56.8 Gross profit 2,180.1 44.2 2,128.7 43.2 Selling and marketing expenses 1,091.6 22.1 1,063.4 21.6 General, administrative and other expenses 473.2 9.6 481.1 9.8 Equity income in earnings of unconsolidated affiliates (18.9) (0.4) (23.0) (0.5) Operating income 634.2 12.9 607.2 12.3 Other expense, net: Interest expense, net 134.8 2.7 129.9 2.6 Loss on extinguishment of debt — — 3.2 0.1 Other income, net (4.9) (0.1) — — Total other expense, net 129.9 2.6 133.1 2.7 Income before income taxes 504.3 10.2 474.1 9.6 Income tax provision (118.6) (2.4) (103.4) (2.1) Net income before non-controlling interest 385.7 7.8 370.7 7.5 Less: Net income attributable to non-controlling interest 1.4 — 2.6 0.1 Net income attributable to Somnigroup International Inc. $ 384.3 7.8 % $ 368.1 7.5 % Earnings per common share: Basic $ 2.21 $ 2.14 Diluted $ 2.16 $ 2.08 Weighted average common shares outstanding: Basic 173.6 172.2 Diluted 178.2 177.3 20 Table of Contents NET SALES Year Ended December 31, Consolidated North America International (in millions) 2024 2023 2024 2023 2024 2023 Net sales by channel Wholesale $ 3,701.6 $ 3,746.1 $ 3,275.2 $ 3,348.2 $ 426.4 $ 397.9 Direct 1,229.3 1,179.3 513.7 507.3 715.6 672.0 Total net sales $ 4,930.9 $ 4,925.4 $ 3,788.9 $ 3,855.5 $ 1,142.0 $ 1,069.9 Net sales increased 0.1% (including on a constant currency basis).
We believe that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes below.
We believe that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes below.
For purposes of determining total debt for financial covenant purposes, we added these costs back to total debt, net as calculated per the Consolidated Balance Sheets. (2) Netted cash includes cash and cash equivalents for domestic and foreign subsidiaries designated as "Restricted Subsidiaries" in the 2023 Credit Agreement.
For purposes of determining total debt for financial covenant purposes, we have added these costs back to total debt, net as calculated per the Consolidated Balance Sheets. (2) Netted cash includes cash and cash equivalents and restricted cash for domestic and foreign subsidiaries designated as "Restricted Subsidiaries" in the 2023 Credit Agreement.
The largest pillar of our omni-channel distribution strategy is our distribution across tens of thousands of third-party retail doors. This broad footprint ensures that consumers can easily find and experience our products in person.
The largest pillar of our omni-channel distribution strategy is our wholesale distribution across tens of thousands of third-party retail doors. This broad footprint ensures that consumers can easily find and experience our products in person.
As of December 31, 2023, our accounts receivable were substantially current. Other factors considered include historical write-off experience, current economic conditions and also factors such as customer credit, past transaction history with the customer and changes in customer payment terms. The credit environment in which our customers operate has been relatively stable over the past few years.
As of December 31, 2024, our accounts receivable were substantially current. Other factors considered include historical write-off experience, current economic conditions and also factors such as customer credit, past transaction history with the customer and changes in customer payment terms. The credit environment in which our customers operate has been relatively stable over the past few years.
The 2023 effective tax rate as compared to the U.S. federal statutory tax rate included a net favorable impact of discrete items, primarily related to excess tax benefits from the vesting of certain stock awards under our incentive stock compensation plan and a benefit related to the final settlement of the Danish Tax Matter.
The 2023 effective tax rate, as compared to the U.S. federal statutory tax rate, also included a net favorable impact of discrete items, primarily related to excess tax benefits from the vesting of certain stock awards under our incentive stock compensation plan and a benefit related to the settlement of the Danish Tax Matter.
As of December 31, 2023, we were in compliance with all of the financial covenants in our debt agreements, and we do not anticipate material issues under any debt agreements based on current facts and circumstances. Our debt agreements contain certain covenants that limit restricted payments, including share repurchases and dividends.
As of December 31, 2024, we were in compliance with all of the financial covenants in our debt agreements, and we do not anticipate material issues under any debt agreements based on current facts and circumstances. Our debt agreements contain certain covenants that limit restricted payments, including share repurchases and dividends.
In 2023, we did not make any changes to our reporting units or the accounting methodology we use to assess impairment loss on goodwill and indefinite-lived intangible assets, which included an assessment of the impairment of goodwill for our reporting units and indefinite-lived intangible assets using a quantitative approach.
In 2024, we did not make any changes to our reporting units or the accounting methodology we use to assess impairment loss on goodwill and indefinite-lived intangible assets, which included an assessment of the impairment of goodwill for our reporting units and indefinite-lived intangible assets using a quantitative approach.
Future changes in raw material prices could have a significant impact on our gross margin. Our margins are also impacted by the growth in our Wholesale channel as sales in our Wholesale channel are at wholesale prices whereas sales in our Direct channel are at retail prices. Gross margin improved 160 basis points.
Future changes in raw material prices could have a significant impact on our gross margin. Our margins are also impacted by the growth in our Wholesale channel as sales in our Wholesale channel are at wholesale prices whereas sales in our Direct channel are at retail prices. Gross margin improved 100 basis points.
Cost of sales and operating expenses included personnel and facility related costs of $10.2 million and $0.2 million, respectively. (2) We recorded $14.3 million of costs associated with the cybersecurity event identified on July 23, 2023 in the year ended 2023.
Cost of sales and operating expenses included personnel and facility related costs of $10.2 million and $0.2 million, respectively. (2) We recorded $14.3 million of costs associated with the previously disclosed cybersecurity event identified on July 23, 2023 in the year ended 2023.
The results indicated that the fair values of each of our reporting units and indefinite-lived intangible assets were substantially in excess of their carrying values. Subsequent to our October 1, 2023 annual impairment test, no indications of impairment were identified.
The results indicated that the fair values of each of our reporting units and indefinite-lived intangible assets were substantially in excess of their carrying values. Subsequent to our October 1, 2024 annual impairment test, no indications of impairment were identified.
As of December 31, 2023, our ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure defined in the 2023 Credit Agreement, was 2.87 times.
As of December 31, 2024, our ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure defined in the 2023 Credit Agreement, was 2.31 times.
Refer to Note 13, "Income Taxes," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report for further information. 23 Table of Contents Liquidity and Capital Resources Liquidity Our principal sources of funds are cash flows from operations, supplemented with borrowings made pursuant to our credit facilities and cash and cash equivalents on hand.
Refer to Note 13, "Income Taxes," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report for further information. Liquidity and Capital Resources Liquidity Our principal sources of funds are cash flows from operations, supplemented with borrowings made pursuant to our credit facilities and cash and cash equivalents on hand.
As a result of the resolution of the matter, there is no uncertain tax position reflected in our Consolidated Balance Sheet at December 31, 2023 related to the Danish Tax Matter. The resolution of this matter is discussed in Note 13, "Income Taxes" in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report.
As a result of the resolution of the matter, there is no uncertain tax position reflected in our Consolidated Balance Sheet at either December 31, 2024 or 2023 related to the Danish Tax Matter. The resolution of this matter is discussed in Note 13, "Income Taxes," in our Consolidated Financial Statements included in Part II, ITEM 8 of this Report.
For a discussion and reconciliation of non-GAAP financial measures as discussed above to the corresponding GAAP financial results, refer to the non-GAAP financial information set forth below under the heading "Non-GAAP Financial Information." We may refer to net sales or earnings or other historical financial information on a "constant currency basis," which is a non-GAAP financial measure.
For a discussion and reconciliation of non-GAAP financial measures as discussed above to the corresponding GAAP financial results, refer to the non-GAAP financial information set forth below under the heading "Non-GAAP Financial Information." 19 Table of Contents We may refer to net sales or earnings or other historical financial information on a "constant currency basis," which is a non-GAAP financial measure.
The following table sets forth the reconciliation of our reported net income to adjusted net income and the calculation of adjusted EPS for the years ended December 31, 2023 and 2022.
The following table sets forth the reconciliation of our reported net income to adjusted net income and the calculation of adjusted EPS for the years ended December 31, 2024 and 2023.
The industry is no longer engaged in uneconomical retail store expansion, startups have shifted from uneconomical strategies to becoming profitable and legacy retailers and manufacturers have become skilled in producing profitable online sales. Over the last decade, consumers have made the connection between a good night's sleep and overall health and wellness.
The industry is no longer engaged in 17 Table of Contents uneconomical retail store expansion, startups have shifted from uneconomical strategies to becoming profitable and legacy retailers and manufacturers have become skilled in producing profitable online sales. Over the last decade, consumers have made the connection between a good night's sleep and overall health and wellness.
For results of operations comparisons relating to years ending December 31, 2022 and 2021, refer to our annual report on Form 10-K, Part II, ITEM 7: Management's Discussion and Analysis of Financial Condition and Results of Operations filed with the Securities and Exchange Commission on February 17, 2023.
For results of operations comparisons relating to years ending December 31, 2023 and 2022, refer to our annual report on Form 10-K, Part II, ITEM 7: Management's Discussion and Analysis of Financial Condition and Results of Operations filed with the Securities and Exchange Commission on February 16, 2024.
The following table sets forth the reconciliation of our reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the year ended December 31, 2023. 28 Table of Contents FULL YEAR 2023 (in millions, except percentages) Consolidated Margin North America Margin International Margin Corporate Net sales $ 4,925.4 $ 3,855.5 $ 1,069.9 $ — Gross profit $ 2,128.7 43.2 % $ 1,537.5 39.9 % $ 591.2 55.3 % $ — Adjustments: Operational start-up costs (1) 10.2 10.2 — — Cybersecurity event (2) 10.1 10.1 — — ERP system transition (3) 3.2 3.2 — — Total adjustments 23.5 23.5 — — Adjusted gross profit $ 2,152.2 43.7 % $ 1,561.0 40.5 % $ 591.2 55.3 % $ — Operating income (expense) $ 607.2 12.3 % $ 643.1 16.7 % $ 170.9 16.0 % $ (206.8) Adjustments: Transaction costs (4) 49.0 — — 49.0 Cybersecurity event (2) 14.3 10.5 1.1 2.7 Fair value remeasurement (5) 11.0 — — 11.0 Operational start-up costs (1) 10.4 10.4 — — ERP system transition (3) 3.2 3.2 — — Total adjustments 87.9 24.1 1.1 62.7 Adjusted operating income (expense) $ 695.1 14.1 % $ 667.2 17.3 % $ 172.0 16.1 % $ (144.1) (1) We recorded $10.4 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S. in the year ended 2023.
FULL YEAR 2023 (in millions, except percentages) Consolidated Margin North America Margin International Margin Corporate Net sales $ 4,925.4 $ 3,855.5 $ 1,069.9 $ — Gross profit $ 2,128.7 43.2 % $ 1,537.5 39.9 % $ 591.2 55.3 % $ — Adjustments: Operational start-up costs (1) 10.2 10.2 — — Cybersecurity event (2) 10.1 10.1 — — ERP system transition (3) 3.2 3.2 — — Total adjustments 23.5 23.5 — — Adjusted gross profit $ 2,152.2 43.7 % $ 1,561.0 40.5 % $ 591.2 55.3 % $ — Operating income (expense) $ 607.2 12.3 % $ 643.1 16.7 % $ 170.9 16.0 % $ (206.8) Adjustments: Transaction costs (4) 49.0 — — 49.0 Cybersecurity event (2) 14.3 10.5 1.1 2.7 Fair value remeasurement (5) 11.0 — — 11.0 Operational start-up costs (1) 10.4 10.4 — — ERP system transition (3) 3.2 3.2 — — Total adjustments 87.9 24.1 1.1 62.7 Adjusted operating income (expense) $ 695.1 14.1 % $ 667.2 17.3 % $ 172.0 16.1 % $ (144.1) (1) We recorded $10.4 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S. in the year ended 2023.
The allowance for credit losses included in accounts receivable, net in the accompanying Consolidated Balance Sheets was $66.9 million and $62.4 million as of December 31, 2023 and 2022, respectively. We regularly review the adequacy of our allowance for credit losses.
The allowance for credit losses included in accounts receivable, net in the accompanying Consolidated Balance Sheets, was $80.4 million and $66.9 million as of December 31, 2024 and 2023, respectively. We regularly review the adequacy of our allowance for credit losses.
The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At December 31, 2023, our estimated gross unrecognized tax benefits were $4.5 million which, if recognized, would favorably impact our future earnings.
The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. At December 31, 2024, our estimated gross unrecognized tax benefits were $2.1 million which, if recognized, would favorably impact our future earnings.
EBITDA, Adjusted EBITDA and Consolidated Indebtedness Less Netted Cash The following reconciliations are provided below: • Net income to EBITDA and adjusted EBITDA • Ratio of consolidated indebtedness less netted cash to adjusted EBITDA • Total debt, net to consolidated indebtedness less netted cash We believe that presenting these non-GAAP measures provides investors with useful information with respect to our operating performance, cash flow generation and comparisons from period to period, as well as general information about our progress in reducing our leverage.
EBITDA, Adjusted EBITDA and Consolidated Indebtedness Less Netted Cash The following reconciliations are provided below: • Net income to EBITDA and adjusted EBITDA • Ratio of consolidated indebtedness less netted cash to adjusted EBITDA • Total debt, net to consolidated indebtedness less netted cash We believe that presenting these non-GAAP measures provides investors with useful information with respect to our operating performance, cash flow generation and comparisons from period to period, as well as general information about our progress in reducing our leverage. 30 Table of Contents The 2023 Credit Agreement provides the definition of adjusted EBITDA.
A valuation allowance is recorded against certain deferred tax assets to reduce the consolidated deferred tax asset to an amount that will, more likely than not, be realized in future periods. At December 31, 2023 the valuation allowance of $49.5 million was primarily related to certain tax attributes both domestically and in various foreign jurisdictions.
A valuation allowance is recorded against certain deferred tax assets to reduce the consolidated deferred tax asset to an amount that will, more likely than not, be realized in future periods. At December 31, 2024, the valuation allowance of $48.1 million was primarily related to certain tax attributes both domestically and in various foreign jurisdictions.
Historically, less than 1.0% of net sales ultimately prove to be uncollectible. Total bad debt expense was $8.2 million in 2023, $6.7 million in 2022 and $2.7 million in 2021.
Historically, less than 1.0% of net sales ultimately prove to be uncollectible. Total bad debt expense was $22.5 million in 2024, $8.2 million in 2023 and $6.7 million in 2022.
Net sales in the Direct channel increased 3.4% on a constant currency basis.
Net sales in the Direct channel increased 4.6% on a constant currency basis.
For the year ended December 31, 2023, we repurchased 0.1 million shares under our share repurchase program for approximately $5.0 million and had approximately $774.5 million remaining under our share repurchase program. Share repurchases under this program may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as management deems appropriate.
For the year ended December 31, 2024, we did not repurchase shares under our share repurchase program and had approximately $774.5 million remaining under our share repurchase program. Share repurchases under this program may be made through open market transactions, negotiated purchases or otherwise, at times and in such amounts as management deems appropriate.
The 2023 Credit Agreement provides the definition of adjusted EBITDA. Accordingly, we present adjusted EBITDA to provide information regarding our compliance with requirements under the 2023 Credit Agreement.
Accordingly, we present adjusted EBITDA to provide information regarding our compliance with requirements under the 2023 Credit Agreement.
(2) Interest payments represent obligations under our debt outstanding as of December 31, 2023, applying December 31, 2023 interest rates and assuming scheduled payments are paid as contractually required through maturity. (3) The payments due for finance lease obligations excludes $17.5 million in future payments for interest.
(2) Interest payments represent obligations under our debt outstanding as of December 31, 2024, applying December 31, 2024 interest rates and assuming scheduled payments are paid as contractually required through maturity. (3) The payments due for finance lease obligations excludes $14.0 million in future payments for interest.
The accrued sales returns in the accompanying Consolidated Balance Sheet, which include a current balance in accrued expenses and other current liabilities and a non-current balance in other non-current liabilities, was $43.7 million and $40.5 million as of December 31, 2023 and 2022, respectively.
The accrued sales returns in the accompanying Consolidated Balance Sheet, which include a current balance in accrued expenses and other current liabilities and a non-current balance in other non-current liabilities, was $44.2 million and $43.7 million as of December 31, 2024 and 2023, respectively.
The increase in cash provided by operating activities was driven by a $260.1 million increase in cash provided by changes in operating assets and liabilities, primarily due to decreases in inventory, prepaid expenses and other assets, and income taxes receivable, which were offset by increases in accrued expenses and other liabilities.
The increase in cash provided by operating activities was driven by a $66.3 million increase in cash provided by changes in operating assets and liabilities, primarily due to increases in cash provided by accounts payable and income taxes receivable and payable, which were offset by decreases in cash provided by inventory and prepaid expenses and other assets.
GROSS PROFIT Year Ended December 31, 2023 2022 Margin Change (in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin 2023 vs 2022 North America $ 1,537.5 39.9 % $ 1,487.3 38.3 % 1.6 % International 591.2 55.3 % 562.3 54.3 % 1.0 % Consolidated gross margin $ 2,128.7 43.2 % $ 2,049.6 41.6 % 1.6 % Costs associated with net sales are recorded in cost of sales and include the costs of producing, shipping, warehousing, receiving and inspecting goods during the period, as well as depreciation and amortization of long-lived assets used in the manufacturing process.
GROSS PROFIT Year Ended December 31, 2024 2023 Margin Change (in millions, except percentages) Gross Profit Gross Margin Gross Profit Gross Margin 2024 vs 2023 North America $ 1,530.8 40.4 % $ 1,537.5 39.9 % 0.5 % International 649.3 56.9 % 591.2 55.3 % 1.6 % Consolidated gross margin $ 2,180.1 44.2 % $ 2,128.7 43.2 % 1.0 % Costs associated with net sales are recorded in cost of sales and include the costs of producing, shipping, warehousing, receiving and inspecting goods during the period, as well as depreciation and amortization of long-lived assets used in the manufacturing process.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Report. Unless otherwise noted, all of the financial information in this Report is consolidated financial information for the Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes thereto included elsewhere in this Report.
(4) We recorded $49.0 million of transaction costs, primarily related to legal and professional fees associated with the pending acquisition of Mattress Firm in the year ended 2023.
(3) We recorded $47.8 million and $49.0 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm in the year ended 2024 and 2023, respectively.
The change in net sales was driven by the following: • North America net sales decreased $30.6 million, or 0.8%. Net sales in the Wholesale channel decreased $41.9 million, or 1.2%, primarily driven by macroeconomic pressures impacting U.S. consumer behavior.
The change in net sales was driven by the following: • North America net sales decreased $66.6 million, or 1.7%. Net sales in the Wholesale channel decreased $73.0 million, or 2.2%, primarily driven by continued macroeconomic pressures impacting U.S. consumer behavior.
INCOME TAX PROVISION Year Ended December 31, Percent change (in millions, except percentages) 2023 2022 2023 vs 2022 Income tax provision $ 103.4 $ 119.0 (13.1) % Effective tax rate 21.8 % 20.6 % 1.2 % Income tax provision includes income taxes associated with taxes currently payable and deferred taxes, and includes the impact of net operating losses for certain of our foreign operations.
INCOME TAX PROVISION Year Ended December 31, Percent change (in millions, except percentages) 2024 2023 2024 vs 2023 Income tax provision $ 118.6 $ 103.4 14.7 % Effective tax rate 23.5 % 21.8 % 1.7 % Income tax provision includes income taxes associated with taxes currently payable and deferred taxes, and includes the impact of net operating losses for certain of our foreign operations.
Year Ended December 31, (in millions, except per common share amounts) 2023 2022 Net income $ 368.1 $ 455.7 Transaction costs (1) 49.0 — Cybersecurity event (2) 14.3 — Fair value remeasurement (3) 11.0 — Operational start-up costs (4) 10.4 6.5 ERP system transition (5) 3.2 15.5 Loss on extinguishment of debt (6) 3.2 — Restructuring costs (7) — 10.0 Loss from discontinued operations, net of tax (8) — 0.4 Danish tax matter (9) (10.2) (12.3) Adjusted income tax provision (10) (23.4) (7.9) Adjusted net income $ 425.6 $ 467.9 Adjusted earnings per share, diluted $ 2.40 $ 2.60 Diluted shares outstanding 177.3 180.3 27 Table of Contents (1) We recorded $49.0 million of transaction costs, primarily related to legal and professional fees associated with the pending acquisition of Mattress Firm in the year ended 2023.
Year Ended December 31, (in millions, except per common share amounts) 2024 2023 Net income $ 384.3 $ 368.1 Transaction costs (1) 47.8 49.0 Customer-related transition charges (2) 26.7 — Transaction related interest expense, net (3) 9.8 — Supply chain transition costs (4) 9.5 — Operational start-up costs (5) 3.1 10.4 Cybersecurity event (6) (4.9) 14.3 Fair value remeasurement (7) — 11.0 Loss on extinguishment of debt (8) — 3.2 ERP system transition (9) — 3.2 Danish tax matter (10) — (10.2) Adjusted income tax provision (11) (21.2) (23.4) Adjusted net income $ 455.1 $ 425.6 Adjusted earnings per share, diluted $ 2.55 $ 2.40 Diluted shares outstanding 178.2 177.3 27 Table of Contents (1) We recorded $47.8 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm in the year ended 2024.
As of December 31, 2023, we had net working capital of $195.0 million, including cash and cash equivalents of $74.9 million, as compared to working capital of $214.0 million, including cash and cash equivalents of $69.4 million, as of December 31, 2022.
As of December 31, 2024, we had net working capital of $105.1 million, including cash and cash equivalents of $117.4 million, as compared to working capital of $195.0 million, including cash and cash equivalents of $74.9 million, as of December 31, 2023.
The primary drivers of changes in operating expenses by segment are discussed below. • North America operating expenses increased $49.5 million, or 5.9%, and increased 150 basis points as a percentage of net sales.
The primary drivers of changes in operating expenses by segment are discussed below: • North America operating expenses increased $24.3 million, or 2.7%, and increased 100 basis points as a percentage of net sales.
Net sales in our Direct channel increased $11.3 million, or 2.3%. • International net sales increased $34.8 million, or 3.4%, primarily driven by the success of new Tempur® product introductions. On a constant currency basis, our International net sales increased 3.7%. Net sales in the Wholesale channel increased 4.4% on a constant currency basis.
Net sales in our Direct channel increased $6.4 million, or 1.3%. • International net sales increased $72.1 million, or 6.7%, primarily driven by the success of new product launches. On a constant currency basis, our International net sales increased 5.8%. Net sales in the Wholesale channel increased 7.8% on a constant currency basis.
Key Highlights Year Ended December 31, (in millions, except percentages and per common share amounts) 2023 2022 % Change Net sales $ 4,925.4 $ 4,921.2 0.1 % Net income $ 368.1 $ 455.7 (19.2) % Adjusted net income (1) $ 425.6 $ 467.9 (9.0) % EPS $ 2.08 $ 2.53 (17.8) % Adjusted EPS (1) $ 2.40 $ 2.60 (7.7) % (1) Non-GAAP financial measure.
Key Highlights Year Ended December 31, (in millions, except percentages and per common share amounts) 2024 2023 % Change Net sales $ 4,930.9 $ 4,925.4 0.1 % Net income $ 384.3 $ 368.1 4.4 % Adjusted net income (1) $ 455.1 $ 425.6 6.9 % EPS $ 2.16 $ 2.08 3.8 % Adjusted EPS (1) $ 2.55 $ 2.40 6.3 % (1) Non-GAAP financial measure.
The principal factors impacting gross margin for each segment are discussed below. 21 Table of Contents • North America gross margin improved 160 basis points. The improvement in gross margin was primarily driven by normalizing commodity costs of 220 basis points and pricing actions of 120 basis points.
The principal factors impacting gross margin for each segment are discussed below: 21 Table of Contents • North America gross margin improved 50 basis points. The improvement in gross margin was primarily driven by favorable commodity costs of 100 basis points and operational efficiencies.
General Business and Economic Conditions We believe the bedding industry is structured for sustained growth, driven by product innovation, sleep technology advancements, consumer confidence, housing formations and population growth.
Our Direct channel includes company-owned stores, online and call centers. General Business and Economic Conditions We believe the bedding industry is structured for sustained growth, driven by product innovation, sleep technology advancements, consumer confidence, housing formations and population growth.
In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the years ended December 31, 2023 and 2022, including the following topics: • an overview of our business and strategy; • results of operations, including our net sales and costs in the periods presented as well as changes between periods; • expected sources of liquidity for future operations; and • our use of certain non-GAAP financial measures. 16 Table of Contents Business Overview General We are committed to improving the sleep of more people, every night, all around the world.
In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the years ended December 31, 2024 and 2023, including the following topics: • an overview of our business and strategy; • results of operations, including our net sales and costs in the periods presented as well as changes between periods; • expected sources of liquidity for future operations; and • our use of certain non-GAAP financial measures.
While we are well represented at third-party retailers in the U.S. today, there are opportunities to both increase the presence of our brands with existing retail partners and to sell into certain key retailers that do not have our products on their floors today. We have been focused on building our direct channel, both online and company-owned retail stores.
While we are well represented at third-party retailers in the U.S. today, there are opportunities to both increase the presence of our brands with existing retail partners and to sell into certain key retailers that do not have our products on their floors today. We also have significant opportunity to expand our third-party retail distribution in our international business.
These segments are strategic business units that are managed separately based on geography. Our North America segment consists of manufacturing and distribution subsidiaries and licensees located in the U.S., Canada and Mexico. Our International segment consists of manufacturing and distribution subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico).
In 2024, we operated in two segments: North America and International. These segments are strategic business units that are managed separately based on geography. Our North America segment consists of manufacturing, distribution and retail subsidiaries and licensees located in the U.S., Canada and Mexico.
Year Ended December 31, (in millions) 2023 2022 Net cash provided by (used in) continuing operations: Operating activities $ 570.3 $ 378.8 Investing activities (187.8) (315.3) Financing activities (384.3) (279.1) Cash provided by operating activities from continuing operations increased $191.5 million in 2023 as compared to 2022.
Year Ended December 31, (in millions) 2024 2023 Net cash provided by (used in) continuing operations: Operating activities $ 666.5 $ 570.3 Investing activities (96.7) (187.8) Financing activities 1,077.4 (384.3) Cash provided by operating activities increased $96.2 million in 2024 as compared to 2023.
Similarly, our cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that we may complete may also impact our cash requirements and debt service obligations.
The timing and size of any new business ventures or acquisitions that we may complete may also impact our cash requirements and debt service obligations.
The decrease in cash used in investing activities was driven by decreased capital expenditures related to our manufacturing capacity expansion projects nearing completion in 2023. Cash used in financing activities from continuing operations increased $105.2 million in 2023 as compared to 2022.
The decrease in cash used in investing activities was driven by decreased capital expenditures related to our manufacturing capacity expansion projects in 2023. Cash provided by financing activities increased $1,461.7 million in 2024 as compared to 2023.
Adjusted gross margin, which is a non-GAAP financial measure, was 43.7% as compared to 42.0% in 2022. • Operating income decreased 10.8% to $607.2 million as compared to $680.6 million in 2022.
Adjusted gross margin, which is a non-GAAP financial measure, was 45.0% as compared to 43.7% in 2023. • Operating income increased 4.4% to $634.2 million as compared to $607.2 million in 2023.
The following table sets forth the reconciliation of our reported net income to the calculations of EBITDA and adjusted EBITDA for the years ended December 31, 2023 and 2022: 30 Table of Contents Year Ended (in millions) December 31, 2023 December 31, 2022 Net income $ 368.1 $ 455.7 Interest expense, net 129.9 103.0 Loss on extinguishment of debt (1) 3.2 — Income tax provision 103.4 119.0 Depreciation and amortization 184.8 182.0 EBITDA $ 789.4 $ 859.7 Adjustments: Transaction costs (2) 49.0 — Cybersecurity event (3) 14.3 — Fair value remeasurement (4) 11.0 — Operational start-up costs (5) 10.4 6.5 ERP system transition (6) 3.2 15.5 Restructuring costs (7) — 10.0 Loss from discontinued operations, net of tax (8) — 0.4 Adjusted EBITDA $ 877.3 $ 892.1 Consolidated indebtedness less netted cash $ 2,518.7 $ 2,762.6 Ratio of consolidated indebtedness less netted cash to adjusted EBITDA 2.87 times 3.10 times (1) In the year ended 2023, we recognized $3.2 million of loss on extinguishment of debt associated with the refinancing of our senior secured credit facilities.
The following table sets forth the reconciliation of our reported net income to the calculations of EBITDA and adjusted EBITDA for the years ended December 31, 2024 and 2023: Year Ended (in millions) December 31, 2024 December 31, 2023 Net income $ 384.3 $ 368.1 Interest expense, net 125.0 129.9 Transaction related interest expense, net (1) 9.8 — Loss on extinguishment of debt (2) — 3.2 Income tax provision 118.6 103.4 Depreciation and amortization 203.9 184.8 EBITDA $ 841.6 $ 789.4 Adjustments: Transaction costs (3) 47.8 49.0 Customer-related transition charges (4) 26.7 — Supply chain transition costs (5) 9.5 — Operational start-up costs (6) 3.1 10.4 Cybersecurity event (7) (4.9) 14.3 Fair value remeasurement (8) — 11.0 ERP system transition (9) — 3.2 Adjusted EBITDA $ 923.8 $ 877.3 Consolidated indebtedness less netted cash $ 2,134.8 $ 2,518.7 Ratio of consolidated indebtedness less netted cash to adjusted EBITDA 2.31 times 2.87 times (1) In the year ended 2024, we incurred $9.8 million of transaction related interest expense, net of interest income, related to the Term B Loan drawn and held in escrow.
Year Ended December 31, 2023 2022 2023 2022 2023 2022 2023 2022 (in millions) Consolidated North America International Corporate Operating expenses: Advertising $ 469.0 $ 448.0 $ 389.9 $ 375.1 $ 79.1 $ 72.9 $ — $ — Other selling and marketing 594.4 544.5 319.9 288.6 254.0 234.8 20.5 21.1 General, administrative and other 481.1 397.6 184.6 181.2 110.2 88.5 186.3 127.9 Total operating expense $ 1,544.5 $ 1,390.1 $ 894.4 $ 844.9 $ 443.3 $ 396.2 $ 206.8 $ 149.0 Operating expenses increased $154.4 million, or 11.1%, and increased 320 basis points as a percentage of net sales.
Year Ended December 31, 2024 2023 2024 2023 2024 2023 2024 2023 (in millions) Consolidated North America International Corporate Operating expenses: Advertising $ 470.9 $ 469.0 $ 382.0 $ 389.9 $ 88.9 $ 79.1 $ — $ — Other selling and marketing 620.7 594.4 334.7 319.9 269.8 254.0 16.2 20.5 General, administrative and other 473.2 481.1 202.0 184.6 114.6 110.2 156.6 186.3 Total operating expense $ 1,564.8 $ 1,544.5 $ 918.7 $ 894.4 $ 473.3 $ 443.3 $ 172.8 $ 206.8 Operating expenses increased $20.3 million, or 1.3%, and increased 30 basis points as a percentage of net sales.
(4) We recorded $10.4 million of operational start-up costs related to the capacity expansion of its manufacturing and distribution facilities in the U.S. in the year ended 2023. Cost of sales included personnel and facility related costs of $10.2 million in the year ended 2023.
(3) We recorded $3.1 million of operational start-up costs in cost of sales for the capacity expansion of our manufacturing and distribution facilities in the U.S., which include personnel and facility related costs, in the year ended 2024.
"Consolidated Indebtedness" and "Netted Cash" are terms used in the 2023 Credit Agreement for purposes of certain financial covenants. 31 Table of Contents (in millions) December 31, 2023 December 31, 2022 Total debt, net $ 2,571.9 $ 2,810.3 Plus: Deferred financing costs (1) 21.7 20.5 Consolidated indebtedness 2,593.6 2,830.8 Less: Netted cash (2) 74.9 68.2 Consolidated indebtedness less netted cash $ 2,518.7 $ 2,762.6 (1) We present deferred financing costs as a direct reduction from the carrying amount of the related debt in the Consolidated Balance Sheets.
(in millions) December 31, 2024 December 31, 2023 Total debt, net $ 3,809.9 $ 2,571.9 Plus: Deferred financing costs (1) 34.6 21.7 Consolidated indebtedness 3,844.5 2,593.6 Less: Netted cash (2) 1,709.7 74.9 Consolidated indebtedness less netted cash $ 2,134.8 $ 2,518.7 (1) We present deferred financing costs as a direct reduction from the carrying amount of the related debt in the Consolidated Balance Sheets.
As consumers make this connection, they are willing to invest more in their bedding purchases, which positions us well for long-term growth. In 2024, we expect a continuation of the current macroeconomic environment, which includes the impact of inflation and interest rate pressures on the consumer.
As consumers make this connection, they are willing to invest more in their bedding purchases, which positions us well for long-term growth. In 2025, we expect the current macroeconomic environment to stabilize throughout the year. The global bedding industry was challenged in 2024 due to certain macroeconomic pressures on the consumer.
The 2022 effective tax rate, as compared to the U.S. federal statutory tax rate, also included the impact of net favorable discrete items related to our incentive stock compensation plan and the Danish Tax Matter.
The 2024 effective tax rate as compared to the U.S. federal statutory tax rate included a net favorable impact of discrete items, primarily related to excess tax benefits from the vesting of certain stock awards under our incentive stock compensation plan and other discrete items.
We believe that cash flow from operations, availability under our existing credit facilities and arrangements, current cash balances and the ability to obtain other financing, if 25 Table of Contents necessary, will provide adequate cash funds for our foreseeable working capital needs, necessary capital expenditures, debt service obligations and dividend payments.
We believe that cash flow from operations, availability under our existing credit facilities and arrangements, current cash balances and the ability to obtain other financing, if necessary, will provide adequate cash funds for our foreseeable working capital needs, necessary capital expenditures, debt service obligations and dividend payments. 25 Table of Contents Our capital allocation strategy follows a balanced approach focused on supporting the business and returning shareholder value through strategic acquisition opportunities that enhance our global competitiveness, as well as quarterly dividends and opportunistic share repurchases.
Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 2.87 times for the year ended December 31, 2023. As a result of the pending Mattress Firm acquisition, we expect our leverage ratio in 2024 to be between 3.0 and 3.25 times.
As of December 31, 2024, we had $3,844.5 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $2,134.8 million. Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 2.31 times for the year ended December 31, 2024.
The forward-looking statements in this discussion regarding the mattress and pillow industries, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are subject to numerous risks and uncertainties. See "Special Note Regarding Forward-Looking Statements" and Part I, ITEM 1A of this Report.
Unless otherwise noted, all of the financial information in this Report is consolidated financial information for the Company, excluding Mattress Firm unless otherwise noted. The forward-looking statements in this discussion regarding the mattress and pillow industries, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are subject to numerous risks and uncertainties.
The following table sets forth the reconciliation of our reported total debt to the calculation of consolidated indebtedness less netted cash as of December 31, 2023 and 2022.
The 2023 Credit Agreement requires us to maintain a ratio of consolidated indebtedness less netted cash to adjusted EBITDA of less than 5.00 times. The following table sets forth the reconciliation of our reported total debt to the calculation of consolidated indebtedness less netted cash as of December 31, 2024 and 2023.
The decrease was driven by the following: • North America operating income increased $0.7 million and operating margin improved 20 basis points.
The increase was driven by the following: • North America operating income decreased $31.0 million and operating margin declined 50 basis points.
We recorded $6.5 million of operational start-up costs related to the capacity expansion of its manufacturing and distribution facilities in the U.S. in the year ended 2022, including $0.4 million of other expense for the year ended 2022. Cost of sales and operating expenses included personnel and facility related costs of $5.8 million and $0.3 million, respectively.
(5) We recorded $3.1 million of operational start-up costs in cost of sales for the capacity expansion of our manufacturing and distribution facilities in the U.S., which include personnel and facility related costs in the year ended 2024.
Adjusted operating income, which is a non-GAAP financial measure, decreased 2.4% to $695.1 million as compared to $712.0 million in 2022. • Net income decreased 19.2% to $368.1 million as compared to $455.7 million in 2022.
Adjusted operating income, which is a non-GAAP financial measure, increased 3.8% to $721.3 million as compared to $695.1 million in 2023. • Net income increased 4.4% to $384.3 million as compared to $368.1 million in 2023.
The improvement in operating margin was primarily driven by the improvement in gross margin of 160 basis points, offset by operating expense deleverage of 160 basis points. • International operating income decreased $16.3 million and operating margin declined 210 basis points.
The decline in operating margin was primarily driven by operating expense deleverage of 100 basis points, partially offset by the improvement in gross margin of 50 basis points. • International operating income increased $24.0 million and operating margin improved 110 basis points.
The increase in operating expenses was primarily driven by $49.0 million of transaction costs related to the pending acquisition of Mattress Firm and a fair value remeasurement of $11.0 million related to a strategic investment in a product innovation initiative.
(4) We recorded $49.0 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm in the year ended 2023. (5) In the year ended 2023, we recorded a fair value remeasurement of $11.0 million primarily related to a strategic investment in a product innovation initiative.
Under the 2023 Credit Agreement, the definition of adjusted EBITDA contains certain restrictions that limit adjustments to net income when calculating adjusted EBITDA. For the year ended December 31, 2023, our adjustments to net income when calculating adjusted EBITDA did not exceed the allowable amount under the 2023 Credit Agreement.
For the year ended December 31, 2024, our adjustments to net income when calculating adjusted EBITDA did not exceed the allowable amount under the 2023 Credit Agreement. The ratio of consolidated indebtedness less netted cash to adjusted EBITDA was 2.31 times for the trailing twelve months ended December 31, 2024.
(2) We recorded $6.5 million of operational start-up costs related to the capacity expansion of our manufacturing and distribution facilities in the U.S. in the year ended 2022, including $0.4 million of other expense. Cost of sales and operating expenses included personnel and facility related costs of $5.8 million and $0.3 million, respectively.
(6) We recorded $3.1 million of operational start-up costs for the capacity expansion of our manufacturing and distribution facilities in the U.S., which include personnel and facility related costs in the year ended 2024.
The improvement in gross margin was primarily driven by favorable mix of 80 basis points and pricing actions of 60 basis points. These improvements were offset by product launch costs of 60 basis points.
These improvements were offset by the unfavorable mix of new OEM distribution of 50 basis points. • International gross margin improved 160 basis points. The improvement in gross margin was primarily driven by operational efficiencies of 80 basis points and favorable commodity costs of 30 basis points.
Research and development expenses for the year ended December 31, 2023 were $30.6 million compared to $29.2 million for the year ended December 31, 2022, an increase of $1.4 million, or 4.8%. 22 Table of Contents OPERATING INCOME Year Ended December 31, 2023 2022 Margin Change (in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin 2023 vs 2022 North America $ 643.1 16.7 % $ 642.4 16.5 % 0.2 % International 170.9 16.0 % 187.2 18.1 % (2.1) % 814.0 829.6 Corporate expenses (206.8) (149.0) Total operating income $ 607.2 12.3 % $ 680.6 13.8 % (1.5) % Operating income decreased $73.4 million and operating margin declined 150 basis points.
OPERATING INCOME Year Ended December 31, 2024 2023 Margin Change (in millions, except percentages) Operating Income Operating Margin Operating Income Operating Margin 2024 vs 2023 North America $ 612.1 16.2 % $ 643.1 16.7 % (0.5) % International 194.9 17.1 % 170.9 16.0 % 1.1 % 807.0 814.0 Corporate expenses (172.8) (206.8) Total operating income $ 634.2 12.9 % $ 607.2 12.3 % 0.6 % 22 Table of Contents Operating income increased $27.0 million and operating margin improved 60 basis points.
Adjusted net income, which is a non-GAAP financial measure, decreased 9.0% to $425.6 million as compared to $467.9 million in 2022. • EPS decreased 17.8% to $2.08 as compared to $2.53 in 2022. Adjusted EPS, which is a non-GAAP financial measure, decreased 7.7% to $2.40 as compared to $2.60 in 2022.
Adjusted net income, which is a non-GAAP financial measure, increased 6.9% to $455.1 million as compared to $425.6 million in 2023. • Earnings per diluted share ("EPS") increased 3.8% to $2.16 as compared to $2.08 in 2023. Adjusted EPS, which is a non-GAAP financial measure, increased 6.3% to $2.55 as compared to $2.40 in 2023.
The decline in operating margin was primarily driven by operating expense deleverage of 330 basis points, offset by the improvement in gross margin of 100 basis points. • Corporate operating expenses increased $57.8 million, which negatively impacted our consolidated operating margin.
The improvement in operating margin was primarily driven by the improvement in gross margin of 160 basis points, partially offset by Asia joint venture performance of 50 basis points and operating expense deleverage. • Corporate operating expenses decreased $34.0 million, which positively impacted our consolidated operating margin.
Cash Provided by (Used in) Continuing Operations The table below presents net cash provided by (used in) operating, investing and financing activities from continuing operations for the years ended December 31, 2023 and 2022.
Dollar or other major foreign currencies is not material to our overall liquidity or financial position. 23 Table of Contents Cash Provided by (Used in) Continuing Operations The table below presents net cash provided by (used in) operating, investing and financing activities from continuing operations for the years ended December 31, 2024 and 2023.
(5) In the year ended 2023, we recorded a fair value remeasurement of $11.0 million primarily related to a strategic investment in a product innovation initiative. 29 Table of Contents The following table sets forth the reconciliation of our reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the year ended December 31, 2022.
(4) We recorded $47.8 million of transaction costs, primarily related to legal and professional fees associated with the acquisition of Mattress Firm in the year ended 2024. 29 Table of Contents The following table sets forth the reconciliation of our reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the year ended December 31, 2023.
Our actual results may differ materially from those contained in any forward-looking statements.
See "Special Note Regarding Forward-Looking Statements" and Part I, ITEM 1A of this Report. Our actual results may differ materially from those contained in any forward-looking statements.
The increase in operating expenses was primarily driven by investments in growth initiatives and product launch costs. • Corporate operating expenses increased $57.8 million, or 38.8%.
The increase in operating expenses was primarily driven by investments in growth initiatives. • Corporate operating expenses decreased $34.0 million, or 16.4%.
The amount of cash and cash equivalents held by subsidiaries outside of the U.S. and not readily convertible into the U.S. Dollar or other major foreign currencies is not material to our overall liquidity or financial position.
The amount of cash and cash equivalents held by subsidiaries outside of the U.S. and not readily convertible into the U.S.
We currently operate over 750 retail stores globally through our wholly-owned and joint venture operations, led by over 200 Tempur-Pedic and Sleep Outfitters retail stores in the U.S. and over 200 Dreams locations in the U.K. We believe these retail stores complement our existing third-party retail partners by increasing our products' brand awareness in the local markets.
We currently operate over 2,800 retail stores globally through our wholly-owned and joint venture operations, led by over 2,200 Mattress Firm and retail stores in the U.S. and over 200 Dreams locations in the U.K.
We distribute through two channels in each operating business segment: Wholesale and Direct. Our Wholesale channel consists of third-party retailers, including third-party distribution, hospitality and healthcare. Our Direct channel includes company-owned stores, online and call centers.
Our products allow for complementary merchandising strategies and are sold through third-party retailers, our company-owned and joint venture operated retail stores worldwide and our e-commerce channel. Our distribution model operates through an omni-channel strategy. We distribute through two channels in each operating business segment: Wholesale and Direct. Our Wholesale channel consists of third-party retailers, including third-party distribution, hospitality and healthcare.
(2) We recorded $49.0 million of transaction costs, primarily related to legal and professional fees associated with the pending acquisition of Mattress Firm in the year ended 2023. (3) We recorded $14.3 million of costs associated with the cybersecurity event identified on July 23, 2023 in the year ended 2023.
We recorded $14.3 million of costs associated with the cybersecurity event identified on July 23, 2023 in the year ended 2023. (8) In the year ended 2023, we recorded a fair value remeasurement of $11.0 million primarily related to a strategic investment in a product innovation initiative.
Future Liquidity Sources and Uses As of December 31, 2023, we had $1,041.3 million of liquidity, including $74.9 million of cash on hand and $966.4 million available under our revolving senior secured credit facility.
Future Liquidity Sources and Uses As of December 31, 2024, we had $1,306.6 million of liquidity, including $117.4 million of cash on hand and $1,189.2 million available under our revolving senior secured credit facility. To fund the Mattress Firm acquisition on February 5, 2025, we subsequently borrowed $679.5 million on our revolving senior secured credit facility.
We expanded our presence into the OEM market in 2020 by offering non-branded products, including mattresses, pillows and other bedding products and components at a wide range of price points. The addition of non-branded offerings expands our capabilities to service third-party retailers and creates opportunity to capture manufacturing profits from bedding brands outside our own.
In addition to the sale of our branded products through third-party retailers, we also offer non-branded products through our OEM business, including mattresses, pillows and other bedding products and components, at a wide range of price points.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeSuch losses would be largely offset by gains from the revaluation or settlement of the underlying assets and liabilities that are being protected by the foreign exchange forward contracts.
Biggest changeSuch losses would be largely offset by gains from the revaluation or settlement of the underlying assets and liabilities that are being protected by the foreign exchange forward contracts. 32 Table of Contents
A sensitivity analysis indicates the potential loss in fair value on foreign exchange forward contracts outstanding at December 31, 2023, resulting from a hypothetical 10.0% adverse change in all foreign currency exchange rates against the U.S. dollar, is approximately $1.7 million.
A sensitivity analysis indicates the potential loss in fair value on foreign exchange forward contracts outstanding at December 31, 2024, resulting from a hypothetical 10.0% adverse change in all foreign currency exchange rates against the U.S. dollar, is approximately $2.9 million.
As of December 31, 2023, the value of our variable-rate debt was $901.5 million. Based on our balance sheet position as of December 31, 2023, the annualized effect of a 10% percentage point increase in floating interest rates on our variable-rate debt obligations would cause an estimated reduction on income before income taxes of $9.0 million.
As of December 31, 2024, the value of our variable-rate debt was $2,155.8 million. Based on our balance sheet position as of December 31, 2024, the annualized effect of a 10% percentage point increase in floating interest rates on our variable-rate debt obligations would cause an estimated reduction on income before income taxes of $21.6 million.

Other SGI 10-K year-over-year comparisons