SOMNIGROUP INTERNATIONAL INC. (SGI)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the 2025 Annual Report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in ITEM 7 of Part II of the 2025 Annual Report, and the accompanying Condensed Consolidated Financial Statements and notes thereto included in this Report. Unless otherwise noted, all of the financial information in this Report is consolidated financial information for the Company. The forward-looking statements in this discussion regarding the mattress and pillow industries, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are subject to numerous risks and uncertainties. See "Special Note Regarding Forward-Looking Statements" elsewhere in this Report and in the 2025 Annual Report, the section titled "Risk Factors" contained in ITEM 1A of Part I of the 2025 Annual Report. Our actual results may differ materially from those contained in any forward-looking statements.

In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the three months ended March 31, 2026, including the following topics:

•an overview of our business and strategy;

•results of operations, including our net sales and costs in the periods presented as well as changes between periods;

•expected sources of liquidity for future operations; and

•our use of certain non-GAAP financial measures.

Business Overview

General

We are the world's leading bedding company, dedicated to transforming how the world sleeps. With superior capabilities in design, manufacturing, distribution and retail, we deliver breakthrough sleep solutions and serve the evolving needs of consumers in more than 100 countries worldwide through our fully-owned businesses, Tempur Sealy, Mattress Firm and Dreams.

We operate in three segments: Mattress Firm, Tempur Sealy North America and Tempur Sealy International. These segments are strategic business units that are managed separately. Our Mattress Firm segment consists of retail stores and distribution centers located in the U.S. Our Tempur Sealy North America segment consists of manufacturing, distribution and retail subsidiaries and licensees located in the U.S., Canada and Mexico (other than Mattress Firm retail and distribution locations). Our Tempur Sealy International segment consists of manufacturing, distribution and retail subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico). Corporate operating expenses are not included in any of the segments and are presented separately as a reconciling item to consolidated results. We evaluate segment performance based on net sales, gross profit and operating income. For additional information refer to Note 12, "Business Segment Information," included in Part I, ITEM 1 of this Report.

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 sleep solutions.

As of March 31, 2026, we operated 2,839 company-owned stores, including 2,161 Mattress Firm stores, Tempur Sealy owned stores, Dreams stores and joint venture stores. Our distribution model operates through an omni-channel strategy. The Mattress Firm segment sells products through one channel: Direct. The Tempur Sealy North America and Tempur Sealy International operating business segments sell products through two channels: Direct and Wholesale. Our Direct channel includes product sales through company-owned stores, online and call centers. Our Wholesale channel includes all product sales to third-party retailers, including third-party distribution, hospitality and healthcare.

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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 our opinion, the industry is no longer engaged in uneconomical retail store expansion, startups have shifted from uneconomical strategies to becoming profitable and legacy retailers and manufacturers have become skilled in producing profitable online sales.

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

The global bedding industry was challenged in 2025 due to certain macroeconomic pressures on the consumer, which continued during the first quarter of 2026. Ongoing geopolitical conflicts, including trade disputes and the imposition of tariffs, along with the U.S. government shutdowns, may also introduce further uncertainty for the consumer. We have taken actions to mitigate the impact of proposed tariffs, and we implemented pricing actions to mitigate the remaining impact. The majority of our products sold in the U.S. are also manufactured in the U.S. Accordingly, we believe proposed tariffs will not have a material impact on our results of operations in 2026. However, the duration and extent of tariffs remain uncertain, and we are continuing to evaluate the potential future impacts of the imposition of tariffs. We expect to outperform the bedding industry as a result of our investments in new product launches and continued investments in innovation, quality, advertising and customer service.

Definitive Agreement with Leggett & Platt, Incorporated

On April 13, 2026, Somnigroup International and Leggett & Platt, Incorporated ("Leggett & Platt") entered into a definitive agreement (the "Merger Agreement") for a proposed business acquisition in which Somnigroup International, through a wholly-owned subsidiary, will acquire Leggett & Platt in an all-stock transaction valued at approximately $2.5 billion based on the closing price of Somnigroup International's common stock as of April 10, 2026 and inclusive of Leggett & Platt's existing indebtedness.

The transaction is currently anticipated to close by year-end 2026, subject to the satisfaction of customary closing conditions, including approval by Leggett & Platt’s shareholders and receipt of applicable regulatory approvals. The transaction does not require Somnigroup International shareholder approval. Following the close of the transaction, Leggett & Platt is expected to operate as a separate business unit within Somnigroup and to maintain its offices in Carthage, Missouri.

Acquisition of Mattress Firm

On February 5, 2025, we completed the Mattress Firm Acquisition for an aggregate purchase price of approximately $5.1 billion, net of cash acquired of $0.3 billion. The aggregate purchase price consisted of $3.1 billion in cash and approximately 34.2 million shares of common stock valued at $65.65 per share, which represents the simple average of the opening and closing price per share of our common stock on the NYSE on the trading day immediately prior to the date of acquisition, with the value of any fractional shares paid in cash.

Mattress Firm operates as a separate business segment. Mattress Firm's financial results for the period February 5, 2025 through March 31, 2025 (the "stub period") are included in our Condensed Consolidated Financial Statements for the three months ended March 31, 2025.

On May 1, 2025, we completed the previously announced divestiture of 73 Mattress Firm retail locations and our Sleep Outfitters subsidiary, which includes 103 specialty mattress retail locations and seven distribution centers, to MW SO Holdings Company, LLC ("Mattress Warehouse").

Product Launches

In 2026, we plan to launch an all new collection of Stearns & Foster products in North America. This new line is designed to further elevate our high‑end traditional innerspring brand by introducing incremental technologies, expanding our range of hybrid offerings and providing a refreshed aesthetic.

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Results of Operations

A summary of our results for the three months ended March 31, 2026 include:

•Total net sales increased 12.3% to $1,801.5 million as compared to $1,604.7 million in the first quarter of 2025, primarily driven by the inclusion of Mattress Firm sales for a full quarter as compared to the first quarter of 2025, which included Mattress Firm for the stub period.

•Gross margin was 43.1% as compared to 36.2% in the first quarter of 2025. Adjusted gross margin(1) was 43.6% as compared to 42.2% in the first quarter of 2025.

•Operating income increased 1,317.4% to $187.1 million as compared to $13.2 million in the first quarter of 2025. Adjusted operating income(1) increased 17.4% to $214.6 million as compared to $182.8 million in the first quarter of 2025. Both were primarily driven by the inclusion of Mattress Firm and realized sales and cost synergies.

•Net income increased 414.8% to $104.2 million as compared to net loss of $(33.1) million in the first quarter of 2025. Adjusted net income(1) increased 28.4% to $124.5 million as compared to $97.0 million in the first quarter of 2025.

•Earnings per diluted share ("EPS") increased 388.2% to $0.49 as compared to loss per diluted share of $(0.17) in the first quarter of 2025. Adjusted EPS(1) increased 20.4% to $0.59 as compared to $0.49 in the first quarter of 2025.

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, earnings or other historical financial information on a "constant currency basis," which is a non-GAAP financial measure. These references to constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates. To provide information on a constant currency basis, the applicable financial results are adjusted based on a simple mathematical model that translates current period results in local currency using the comparable prior corresponding period's currency conversion rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance. Constant currency information is not recognized under GAAP, and it is not intended as an alternative to GAAP measures. Refer to Part I, ITEM 3 of this Report for a discussion of our foreign currency exchange rate risk.

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THREE MONTHS ENDED MARCH 31, 2026 COMPARED TO THE

THREE MONTHS ENDED MARCH 31, 2025

The following table sets forth the various components of our Condensed Consolidated Statements of Income (Loss) and expresses each component as a percentage of net sales:

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[["","Three Months Ended March 31,"],["(in millions, except percentages and per share amounts)","2026","","2025"],["Net sales","$","1,801.5","","","100.0","%","","$","1,604.7","","","100.0","%"],["Cost of sales","1,024.6","","","56.9","","","1,024.2","","","63.8"],["Gross profit","776.9","","","43.1","","","580.5","","","36.2"],["Selling and marketing expenses","428.5","","","23.8","","","362.6","","","22.6"],["General, administrative and other expenses","166.9","","","9.3","","","209.5","","","13.1"],["Equity income in earnings of unconsolidated affiliates","(5.6)","","","(0.3)","","","(4.8)","

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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, including Mattress Firm's financial results for the period February 5, 2025 through December 31, 2025 (the "stub period"). 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. Our actual results may differ materially from those contained in any forward-looking statements. For results of operations comparisons relating to years ending December 31, 2024 and 2023, 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 28, 2025.

In this discussion and analysis, we discuss and explain the consolidated financial condition and results of operations for the years ended December 31, 2025 and 2024, including the following topics:

•an overview of our business and strategy;

•results of operations, including our net sales and costs in the periods presented as well as changes between periods;

•expected sources of liquidity for future operations; and

•our use of certain non-GAAP financial measures.

Business Overview

General

We are the world's largest bedding company, dedicated to transforming how the world sleeps. 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.

We operate in three segments: Mattress Firm, Tempur Sealy North America and Tempur Sealy International. These segments are strategic business units that are managed separately. Our Mattress Firm segment consists of retail stores and distribution centers located in the U.S. Our Tempur Sealy North America segment consists of manufacturing, distribution and retail subsidiaries and licensees located in the U.S., Canada and Mexico (other than Mattress Firm retail and distribution locations). Our Tempur Sealy International segment consists of manufacturing, distribution and retail subsidiaries, joint ventures and licensees located in Europe, Asia-Pacific and Latin America (other than Mexico). Corporate operating expenses are not included in any of the segments and are presented separately as a reconciling item to consolidated results. We evaluate segment performance based on net sales, gross profit and operating income. For additional information refer to Note 15, "Business Segment Information," included in Part II, ITEM 8 "Financial Statements and Supplementary Data," of this Report.

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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As of December 31, 2025, Somnigroup operated 2,852 company-owned stores, including 2,174 Mattress Firm stores, Tempur Sealy owned stores, Dreams stores and joint venture stores. Our distribution model operates through an omni-channel strategy. The Mattress Firm segment sells products through one channel: Direct. The Tempur Sealy North America and Tempur Sealy International segments sell products through two channels: Direct and Wholesale. The Direct channel includes product sales through company-owned stores, e-commerce and call centers. The Wholesale channel includes all product sales to third-party retailers, including third-party distribution, hospitality and healthcare.

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 our opinion, the industry is no longer engaged in uneconomical retail store expansion, startups have shifted from uneconomical strategies to becoming profitable and legacy retailers and manufacturers have become skilled in producing profitable online sales.

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

The global bedding industry was challenged in 2025 due to certain macroeconomic pressures on the consumer. Ongoing geopolitical conflicts, including trade disputes and the imposition of tariffs, along with the potential for U.S. government shutdowns, may also introduce further uncertainty for the consumer. We have taken actions to mitigate the impact of proposed tariffs, and we implemented pricing actions to mitigate the remaining impact. The majority of our products sold in the U.S. are also manufactured in the U.S. Accordingly, we believe proposed tariffs will not have a material impact on our results of operations in 2026. However, the duration and extent of tariffs remain uncertain, and we are continuing to evaluate the potential future impacts of the imposition of tariffs. We expect to outperform the bedding industry as a result of our investments in new product launches and continued investments in innovation, quality, advertising and customer service.

Acquisition of Mattress Firm

On February 5, 2025, we completed the acquisition of Mattress Firm for an aggregate purchase price of approximately $5.1 billion, net of cash acquired of $0.3 billion. The aggregate purchase price consisted of $3.1 billion in cash and approximately 34.2 million shares of our common stock valued at $65.65 per share, which represents the simple average of the opening and closing price per share of our common stock on the NYSE on the trading day immediately prior to the date of acquisition, with the value of any fractional shares paid in cash.

In connection with the consummation of the merger, we borrowed $625.0 million on the Delayed Draw Term A Loan and $679.5 million of revolving commitments under our senior credit facility. In addition, approximately $1,592.0 million of proceeds in respect of the Term B Loan were released from escrow. The proceeds of this financing were collectively used to fund a portion of the cash consideration, the repayment of Mattress Firm's debt and the payment of certain fees and expenses related to the merger.

Mattress Firm operates as a separate business segment. Mattress Firm's financial results for the stub period are included in our Condensed Consolidated Financial Statements for the year ended December 31 2025.

On May 1, 2025, we completed the previously announced divestiture of 73 Mattress Firm retail locations and our Sleep Outfitters subsidiary, which included 103 specialty mattress retail locations and seven distribution centers to MW SO Holdings Company, LLC ("Mattress Warehouse"). In the year ended December 31, 2025, we recorded a $13.9 million loss on disposal of business associated with the divestiture, net of proceeds of $9.0 million, which did not have a material impact on our results of operations.

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Product Launches

In 2025, we launched 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. The new collection incorporates innovative technologies, including our proprietary PrecisionFit™ coils which were expertly designed to provide superior support.

In 2026, we plan to launch an all new collection of Stearns & Foster products in North America. This new line is designed to further elevate our high‑end traditional innerspring brand by introducing incremental technologies, expanding our range of hybrid offerings, and providing a refreshed aesthetic.

Omni-Channel Distribution

We employ a balanced omni-channel strategy, which we believe enhances the overall global sales potential and profitability of Somnigroup.

Our direct channel is led by over 2,100 Mattress Firm retail stores and e-commerce in the U.S. and over 200 Dreams locations and e-commerce in the U.K, with additional brick and mortar stores and e-commerce channels in many other key markets around the world. We see opportunity to continue to drive sales growth on a per store basis across our existing footprint. There may be opportunities to open a new store or relocate a store to further optimize economics in the U.S. and U.K., and we foresee meaningful opportunity to continue to expand our brick-and-mortar presence in other key markets worldwide. We also have opportunity to continue to drive sales through our e-commerce channels globally.

Our wholesale distribution is comprised of a diverse group of strong retail partners with more than 20,000 doors, primarily concentrated in the U.S. 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 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.

In addition to offering a portfolio of some of the most highly recognized brands in the industry, we also offer non-branded products through our OEM business. These offerings include mattresses, pillows and other bedding products and components, at a wide range of price points. Our non-branded offerings complement our suite of branded products, expanding our capability to service third-party retailers and creating opportunity to capture manufacturing profits from bedding brands outside our own. We target obtaining a meaningful share of the OEM market in the long-term.

We have been focused on building our direct channel, both online and company-owned retail stores. The development of our online business has been particularly important as consumers have grown more comfortable shopping for bedding products online. Following the acquisition of Mattress Firm, over 60% of our global sales are direct-to-consumer and no customer represents more than 5% of global sales. 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.

2025 Results of Operations

A summary of our results for the year ended December 31, 2025 include:

•Total net sales increased 51.6% to $7,476.5 million as compared to $4,930.9 million in 2024, primarily driven by the inclusion of $3,505.4 million of Mattress Firm sales for the stub period, offset by the elimination of $976.2 million of sales from the Tempur Sealy North America segment to the Mattress Firm segment for the stub period.

•Gross margin was 42.6% as compared to 41.1% in 2024. Adjusted gross margin, which is a non-GAAP financial measure, was 44.4% as compared to 41.9% in 2024.

•Operating income increased 19.0% to $754.9 million as compared to $634.2 million in 2024. Adjusted operating income, which is a non-GAAP financial measure, increased 41.2% to $1,018.7 million as compared to $721.3 million in 2024. Both were primarily driven by the inclusion of Mattress Firm and realized sales and cost synergies.

•Net income decreased 0.1% to $384.1 million as compared to $384.3 million in 2024. Adjusted net income, which is a non-GAAP financial measure, increased 24.2% to $565.3 million as compared to $455.1 million in 2024.

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•Earnings per diluted share ("EPS") decreased 14.8% to $1.84 as compared to $2.16 in 2024. Adjusted EPS, which is a non-GAAP financial measure, increased 5.9% to $2.70 as compared to $2.55 in 2024.

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. These references to constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates. To provide information on a constant currency basis, the applicable financial results are adjusted based on a simple mathematical model that translates current period results in local currency using the comparable prior corresponding period's currency conversion rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance. Constant currency information is not recognized under GAAP, and it is not intended as an alternative to GAAP measures. Refer to Part II, ITEM 7A of this Report for a discussion of our foreign currency exchange rate risk.

The following table sets forth the various components of our Consolidated Statements of Income and expresses each component as a percentage of net sales:

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NET SALES

Net sales increased 51.6%, and on a constant currency basis increased 51.1%. The change in net sales was driven by the following:

•Mattress Firm net sales were $3,505.4 million for the stub period.

•Tempur Sealy North America net sales decreased $1,087.7 million, or 28.7%. Net sales in the Wholesale channel decreased $1,011.6 million, or 30.9%, primarily driven by a 29.8% decline from the elimination of inter-segment sales to Mattress Firm of $976.2 million and the impacts of foreclosed distribution. Net sales in the Direct channel decreased $76.1 million, or 14.8%, primarily driven by a decrease in sales from the divestiture of Sleep Outfitters.

•Tempur Sealy International net sales increased $127.9 million, or 11.2%, primarily driven by expanded distribution. On a constant currency basis, International net sales increased 8.3%. Net sales in the Direct channel increased 8.8% on a constant currency basis. Net sales in the Wholesale channel increased 7.6% on a constant currency basis.

GROSS PROFIT

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. Cost of sales also includes retail store occupancy costs such as rent, common area maintenance charges, real estate and other asset-based taxes, general maintenance, utilities, depreciation and certain insurance expenses.

Our gross margin is primarily impacted by the relative amount of net sales contributed by our premium or value products. Our value products have a significantly lower gross margin than our premium products. If sales of our value priced products increase relative to sales of our premium products, our gross margins will be negatively impacted across all segments.

Our gross margin is also impacted by fixed cost leverage based on manufacturing unit volumes; the cost of raw materials; operational efficiencies due to the utilization in our manufacturing facilities; product, brand, channel and country mix; foreign exchange fluctuations; volume incentives offered to certain retail accounts; participation in our retail cooperative advertising programs; vendor incentives earned on supply agreements; retail store fixed cost leverage based on unit volumes and costs associated with new product introductions. Future changes in raw material prices could have a significant impact on our gross margin. Our margins are also impacted by the growth in our Wholesale channel as sales in our Wholesale channel are at wholesale prices whereas sales in our Direct channel are at retail prices.

Gross margin improved 150 basis points. The principal factors impacting gross margin for each segment are discussed below:

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•Mattress Firm gross margin was 33.4% for the stub period.

•Tempur Sealy North America gross margin improved 1,250 basis points. The improvement in gross margin was primarily driven by the elimination of sales to Mattress Firm of 1,360 basis points and operational efficiencies of 100 basis points. These improvements were partially offset by expense deleverage of 70 basis points. Additionally, we incurred $78.0 million of one-time business combination accounting adjustments related to the Mattress Firm Acquisition.

•Tempur Sealy International gross margin improved 30 basis points. The improvement in gross margin was primarily driven by operational efficiencies.

OPERATING EXPENSES

Selling and marketing expenses include advertising and media production associated with the promotion of our brands, other marketing materials, such as catalogs, brochures, videos, product samples, direct customer mailings and point of purchase materials, and sales force compensation. We also include in selling and marketing expense certain new product development costs, including market research and new product testing.

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

Operating expenses increased $1,021.4 million, or 72.3%, and increased 400 basis points as a percentage of net sales. The primary drivers of changes in operating expenses by segment are discussed below:

•Mattress Firm operating expenses were $976.8 million for the stub period.

•Tempur Sealy North America operating expenses decreased $33.9 million, or 4.0%, and increased 780 basis points as a percentage of net sales. The decrease in operating expenses was primarily driven by decreases in bad debt expense related to retailer bankruptcies and other selling and marketing, partially offset by investments in advertising.

•Tempur Sealy International operating expenses increased $40.9 million, or 10.6%, and decreased 10 basis points as a percentage of net sales. The increase in operating expenses was primarily driven by investments in growth initiatives. Additionally, we recorded a $6.2 million impairment charge related to certain cloud-based computing arrangements.

•Corporate operating expenses increased $37.6 million, or 21.8%. The increase in operating expenses was primarily driven by increased costs related to the Mattress Firm Acquisition.

Research and development expenses for the year ended December 31, 2025 were $32.9 million as compared to $30.8 million for the year ended December 31, 2024, an increase of $2.1 million, or 6.8%.

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OPERATING INCOME

Operating income increased $120.7 million and operating margin declined 280 basis points. The increase was driven by the following:

•Mattress Firm operating income was $190.8 million and operating margin was 5.4% for the stub period. Additionally, we incurred a $4.1 million loss on disposal of business associated with the divestiture of 73 retail stores.

•Tempur Sealy North America operating income decreased $58.8 million and operating margin improved 430 basis points. The improvement in operating margin was primarily driven by the improvement in gross margin of 1,250 basis points, partially offset by operating expense deleverage of 780 basis points. Additionally, we incurred a $9.8 million loss on disposal of business associated with the divestiture of Sleep Outfitters.

•Tempur Sealy International operating income increased $26.3 million and operating margin improved 30 basis points. The improvement in operating margin was primarily driven by the improvement in gross margin of 30 basis points and operating expense leverage of 10 basis points, partially offset by Asia joint venture performance.

•Corporate operating expenses increased $37.6 million, which negatively impacted our consolidated operating margin. The increase in operating expenses was primarily driven by increased costs related to the Mattress Firm Acquisition.

INTEREST EXPENSE, NET

Interest expense, net, increased $133.1 million, or 98.7%. The increase in interest expense, net, was primarily driven by increased average levels of outstanding variable rate debt as a result of the Mattress Firm Acquisition.

INCOME TAX PROVISION

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 domestic and foreign operations.

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Our income tax provision decreased $22.9 million due to a decrease in income before income taxes. Our 2025 effective tax rate decreased 360 basis points as compared to 2024. The 2025 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, including the impact of the Mattress Firm Acquisition. The 2024 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 other discrete items.

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. Principal uses of funds consist of payments of principal and interest on our debt facilities, share repurchases, capital expenditures and working capital needs.

Cash and Working Capital

Cash and cash equivalents were $134.9 million and $117.4 million, as of December 31, 2025 and 2024, respectively. We had a working capital deficit of $271.1 million as of December 31, 2025, as compared to working capital of $105.1 million as of December 31, 2024. The reduction in our working capital to a deficit position in 2025 was primarily driven by a $272.8 million increase in our short-term operating lease obligations as a result of the Mattress Firm Acquisition, and we will generally operate with a working capital deficit in the future.

The amount of cash and cash equivalents held by subsidiaries outside of the U.S. and not readily convertible into the U.S. dollar or other major foreign currencies is not material to our overall liquidity or financial position.

Cash Provided by (Used in) 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, 2025 and 2024.

Cash provided by operating activities increased $133.6 million in 2025 as compared to 2024, primarily driven by the Mattress Firm Acquisition and strong operational performance. Net income was unfavorably impacted by certain non-cash items, including an $84.4 million increase in depreciation and amortization expense and a $45.0 million increase in deferred income taxes, both of which were primarily driven by the Mattress Firm Acquisition.

Cash used in investing activities increased $2,927.6 million in 2025 as compared to 2024. The increase in cash used in investing activities was driven by cash used to partially fund the Mattress Firm Acquisition.

Cash provided by financing activities decreased $460.5 million in 2025 as compared to 2024. In 2025, we had net borrowings of $849.8 million as compared to net borrowings of $1,246.4 in 2024 in order to fund the Mattress Firm Acquisition. We repurchased shares of our common stock to satisfy tax withholding obligations upon the vesting of our long-term incentive plans for $132.4 million in 2025 as compared to $43.8 million in 2024. Additionally, we paid dividends to shareholders of $127.4 million in 2025 as compared to $92.7 million in 2024. Proceeds from exercise of stock options increased $49.0 million in 2025 as compared to 2024.

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Capital Expenditures

Capital expenditures were $166.9 million and $97.3 million for the years ended December 31, 2025 and 2024, respectively. We currently expect our 2026 capital expenditures to be approximately $250 million, including $75 million of one-time investments to refresh Mattress Firm stores.

Indebtedness

Our total debt increased to $4,717.3 million as of December 31, 2025 from $3,844.5 million as of December 31, 2024. Total availability under our revolving senior secured credit facility was $638.7 million as of December 31, 2025. Refer to Note 6, "Debt" in our Condensed Consolidated Financial Statements included in Part II, ITEM 8 for further discussion of our debt.

On February 5, 2025, upon the consummation of the Mattress Firm Acquisition, we borrowed $625.0 million of our Delayed Draw Term A Loan commitments and $679.5 million of revolving commitments under the 2023 Credit Agreement. In addition, approximately $1,592.0 million of proceeds in respect of the Term B Loan were released from escrow. The proceeds of this financing were collectively used to fund a portion of the cash consideration for the acquisition, the repayment of Mattress Firm's debt and the payment of certain fees and expenses related to the acquisition.

As of December 31, 2025, 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 3.21 times. This ratio is within the terms of the financial covenants for the maximum consolidated total net leverage ratio as set forth in the 2023 Credit Agreement, which limits this ratio to 5.00 times. As of December 31, 2025, we were in compliance with all of the financial covenants in our debt agreements, and we do not anticipate material issues under any debt agreements based on current facts and circumstances.

Our debt agreements contain certain covenants that limit restricted payments, including share repurchases and dividends. The 2023 Credit Agreement, 2029 Senior Notes and 2031 Senior Notes contain similar limitations which, subject to other conditions, allow unlimited restricted payments at times when the ratio of consolidated indebtedness less netted cash to adjusted EBITDA remains below 3.75 times in the case of the 2023 Credit Agreement and remains below 3.50 times in the cases of the 2029 Senior Notes and 2031 Senior Notes. In addition, these agreements permit limited restricted payments under certain conditions when the ratio of consolidated indebtedness less netted cash to adjusted EBITDA is above 3.75 times in the case of the 2023 Credit Agreement and above 3.50 times in the cases of the 2029 Senior Notes and 2031 Senior Notes. The limit on restricted payments under the 2023 Credit Agreement, 2029 Senior Notes and 2031 Senior Notes is in part determined by a basket that grows at 50% of adjusted net income each quarter, reduced by restricted payments that are not otherwise permitted.

For additional information, refer to "Non-GAAP Financial Information" below for the calculation of the ratio of consolidated indebtedness less netted cash to adjusted EBITDA calculated in accordance with our 2023 Credit Agreement. Both consolidated indebtedness and adjusted EBITDA as used in discussion of the 2023 Credit Agreement are terms that are not recognized under GAAP and do not purport to be alternatives to net income as a measure of operating performance or total debt.

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Share Repurchase Program

Our Board of Directors authorized a share repurchase program in 2016 pursuant to which we were authorized to repurchase shares of our common stock, and the Board of Directors has authorized increases to this authorization from time to time. For the year ended December 31, 2025, 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. These repurchases may be funded by operating cash flows and/or borrowings under our debt arrangements. The timing and actual number of shares repurchased will depend on a variety of factors including price, financing and regulatory requirements and other market conditions. The program is subject to certain limitations under our debt agreements. The program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice. Repurchases may be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when we might otherwise be precluded from doing so under federal securities laws.

We manage our share repurchase program based on current and expected cash flows, share price and alternative investment opportunities. In 2026, we expect to return to our target leverage range of 2.0 to 3.0 times and allocate at least 50% of free cash flow, which is a non-GAAP financial measure, to dividends and share repurchases. For a complete description of our share repurchase program, please refer to ITEM 5 under Part II, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," of this Report.

Future Liquidity Sources and Uses

As of December 31, 2025, we had $773.6 million of liquidity, including $134.9 million of cash on hand and $638.7 million available under our 2023 Credit Agreement. 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, share repurchases and dividend payments.

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. In 2026, we expect to return to our target leverage range of 2.0 to 3.0 times and allocate at least 50% of free cash flow, which is a non-GAAP financial measure, to dividends and share repurchases. During the first quarter of 2026, we will repurchase shares to satisfy tax withholding obligations upon the vesting of certain long-term incentive awards in the ordinary course of business.

The Board of Directors declared a dividend of $0.17 per share for the first quarter of 2026. The dividend is payable on March 19, 2026 to shareholders of record as of March 5, 2026.

As of December 31, 2025, we had $4,717.3 million in total debt outstanding and consolidated indebtedness less netted cash, which is a non-GAAP financial measure, of $4,582.4 million. Leverage based on the ratio of consolidated indebtedness less netted cash to adjusted EBITDA, which is a non-GAAP financial measure, was 3.21 times for the year ended December 31, 2025. We currently expect our target leverage ratio to return to 2.0 to 3.0 times in the first half of 2026. Total cash interest payments related to our borrowings are expected to be approximately $225 million in 2026.

Our debt service obligations could, under certain circumstances, have material consequences to our stockholders. Similarly, our cash requirements are subject to change as business conditions warrant and opportunities arise. The timing and size of any new business ventures or acquisitions that we may complete may also impact our cash requirements and debt service obligations.

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Material Cash Requirements

Our material cash requirements as of December 31, 2025 are summarized below:

(1)Debt excludes finance lease obligations and deferred financing costs.

(2)Interest payments represent obligations under our debt outstanding as of December 31, 2025, applying December 31, 2025 interest rates and assuming scheduled payments are paid as contractually required through maturity. Interest payments may differ in future periods as a result of financing activities required to fund our operations and capital allocation strategies.

(3)The payments due for finance lease obligations excludes $16.8 million in future payments for interest.

(4)Uncertain tax positions are excluded from this table given the timing of payments cannot be reasonably estimated.

Non-GAAP Financial Information

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

We believe that exclusion of these items assists in providing a more complete understanding of our underlying results from continuing operations and trends, and we use these measures along with the corresponding GAAP financial measures to manage our business, to evaluate our consolidated and business segment performance compared to prior periods and the marketplace, to establish operational goals and to provide continuity to investors for comparability purposes. Limitations associated with the use of these non-GAAP financial measures include that these measures do not present all of the amounts associated with our results as determined in accordance with GAAP. These non-GAAP financial measures should be considered supplemental in nature and should not be construed as more significant than comparable financial measures defined by GAAP. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies. For more information about these non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure, please refer to the reconciliations on the following pages.

Key Highlights

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Adjusted Net Income and Adjusted EPS

A reconciliation of reported net income to adjusted net income and the calculation of adjusted EPS is provided below. We believe that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes below.

The following table sets forth the reconciliation of our reported net income to adjusted net income and the calculation of adjusted EPS for the years ended December 31, 2025 and 2024.

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

A reconciliation of gross profit and gross margin to adjusted gross profit and adjusted gross margin, respectively, and operating income (expense) and operating margin to adjusted operating income (expense) and adjusted operating margin, respectively, are provided below. We believe that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes below.

The following table sets forth the reconciliation of our reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the year ended December 31, 2025.

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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, 2024.

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.

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.

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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, 2025 and 2024:

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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, 2025, 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 3.21 times for the trailing twelve months ended December 31, 2025. 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, 2025 and 2024. "Consolidated Indebtedness" and "Netted Cash" are terms used in the 2023 Credit Agreement for purposes of certain financial covenants.

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Critical Accounting Estimates

Our management is responsible for our financial statements and has evaluated the accounting policies to be used in their preparation. Our management believes these policies are reasonable and appropriate. The following discussion identifies those accounting policies that we believe are critical in the preparation of our financial statements, the judgments and uncertainties affecting the application of those policies and the possibility that materially different amounts will be reported under different conditions or using different assumptions.

The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our actual results could differ from those estimates.

Business Combinations. We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, all the assets acquired and liabilities assumed are recorded at their respective fair values at the date of acquisition. The determination of fair values of identifiable assets and liabilities requires estimates and the use of valuation techniques when fair value is not readily available and requires a significant amount of management judgment. For the valuation of intangible assets acquired in the Mattress Firm Acquisition, we applied the income approach through a relief from royalty method. Although we believe these estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on the determination of the fair values of the intangible assets acquired.

The excess of the purchase price over fair values of identifiable assets acquired and liabilities assumed is recorded as goodwill. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill due to the use of preliminary information in our initial estimates. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Revenue Recognition. Sales of product are recognized when the performance obligations under the terms of the contract with the customer are satisfied, which is generally when control of the product has transferred to the customer. Transferring control of each product sold is considered a separate performance obligation. We transfer control and recognize a sale when the product ships to the customer or when the customer receives the product based upon agreed shipping terms. Each unit sold is considered an independent, unbundled performance obligation. We do not have any additional performance obligations other than product sales that are material in the context of the contract. We extend volume discounts to certain customers and reflect these amounts as a reduction of net sales as variable consideration.

We allow product returns through certain sales channels and on certain products. The accrued sales returns in the accompanying Consolidated Balance Sheets, which include a current balance in accrued expenses and other current liabilities and a non-current balance in other non-current liabilities, was $106.9 million and $44.2 million as of December 31, 2025 and 2024, respectively. Estimated sales returns are provided at the time of sale based on historical sales channel return rates. Estimated future obligations related to these products are provided by a reduction of sales in the period in which the revenue is recognized. We considered the impact of recoverable salvage value on sales returns by product in determining its estimate of future sales returns. We recognized a return asset for the right to recover the goods returned by the customer. The right of return asset is recognized on a gross basis outside of the accrued sales returns and is not material to our Consolidated Balance Sheets. Our level of sales returns differs by channel, with our Direct channel typically experiencing a higher rate of returns. In the event future sales returns claims are higher than our historical experiences, such as a 50 basis point increase, the impact would not be material to the Consolidated Financial Statements.

The allowance for credit losses is our best estimate of the amount of estimated lifetime credit losses in our accounts receivable. The allowance for credit losses included in accounts receivable, net in the accompanying Consolidated Balance Sheets, was $39.2 million and $80.4 million as of December 31, 2025 and 2024, respectively. We regularly review the adequacy of our allowance for credit losses. We estimate losses over the contractual life using assumptions to capture the risk of loss, even if remote, based principally on how long a receivable has been outstanding. Account balances are charged off against the allowance for credit losses after all reasonable means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2025, 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. Historically, less than 1.0% of net sales ultimately prove to be uncollectible. Total bad debt expense was $5.6 million in 2025, $22.5 million in 2024 and $8.2 million in 2023. If circumstances change, for example, due to the occurrence of higher-than-expected defaults or a significant adverse change in a major customer's ability to meet our financial obligations such as bankruptcies, estimates of the recoverability of receivable amounts due could be reduced.

We have not made any material changes in the accounting methodology we use to measure the estimated liability for sales returns or allowance for credit losses during the past three fiscal years.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to establish the liability for sales returns and credit losses. However, if actual results are not consistent with our estimates or assumptions which are based on our historical experiences, we may be exposed to losses or gains that could be material.

Income Taxes. Accounting for income taxes requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities.

We recognize deferred tax assets in our Consolidated Balance Sheets, and these deferred tax assets typically represent items deducted currently from operating income in the financial statements that will be deducted in future periods in tax returns. 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, 2025, the valuation allowance of $48.7 million was primarily related to certain tax attributes both domestically and in various foreign jurisdictions. The valuation allowance is based, in part, on our estimate of future taxable income, the expected utilization of foreign and domestic tax loss carryforwards and credits and the expiration dates of such tax loss carryforwards.

We did not recognize tax benefits from uncertain tax positions within the provision for income taxes. We may recognize a tax benefit only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. 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, 2025, our estimated gross unrecognized tax benefits were $30.7 million which, if recognized, would favorably impact our future earnings. Due to uncertainties in any tax audit outcome, our estimates of the ultimate settlement of our unrecognized tax positions may change and the actual tax benefits may differ significantly from the estimates.

Goodwill and Indefinite-Lived Intangible Assets. Goodwill and indefinite-lived intangible assets are evaluated for impairment annually as of October 1 and whenever events or circumstances make it more likely than not that impairment may have occurred or when required by accounting standards.

We test goodwill for impairment at the reporting unit level. Our reporting units are Mattress Firm, Tempur Sealy North America, Tempur Sealy International (excluding Dreams) and Dreams. Mattress Firm was added as a separate reporting unit upon acquisition of the business on February 5, 2025. We test individual indefinite-lived intangible assets at the brand level. These assessments may be performed quantitatively or qualitatively.

Using the quantitative approach, we make various estimates and assumptions in determining the estimated fair value of each reporting unit using a combination of discounted cash flow models and valuations based on earnings multiples for guideline public companies in each reporting unit's industry peer group, when externally quoted market prices are not readily available. Discounted cash flow models are reliant on various assumptions, including projected business results, long-term growth factors and weighted-average cost of capital. Management judgment is involved in estimating these variables, and they include inherent uncertainties as they are forecasting future events. We perform sensitivity analyses by using a range of inputs to confirm the reasonableness of the long-term growth rate and weighted average cost of capital. Additionally, we compare the indicated equity value to our market capitalization and evaluate the resulting implied control premium/discount to determine if the estimated enterprise value is reasonable compared to external market indicators.

Under the qualitative approach, we review macroeconomic conditions, industry and market conditions and entity specific factors, including strategies and financial performance for potential indicators of impairment.

In 2025, other than the addition of the Mattress Firm reporting unit, 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. Prior to 2025, Management performed an assessment of the impairment of goodwill for our reporting units and indefinite-lived intangible assets using a quantitative approach, which indicated that the fair values of each of our reporting units and indefinite-lived intangible assets were substantially in excess of their carrying values. In 2025, we elected to qualitatively perform our annual impairment analysis for all reporting units and indefinite-lived intangible assets. Subsequent to our October 1, 2025 annual impairment test, no indications of impairment were identified.

We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to test for impairment losses on goodwill and indefinite-lived intangible assets. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to an impairment charge that could be material.